Co-op to invest £37m in lower prices following profit dip

Co-op is planning to invest £37m in slashing the price of more than 100 of its own-brand grocery products from now into the new year, as part of a new strategy for its food business putting a “renewed focus” on convenience and value.

The pledge comes as the group reports a slump in profits over the first half of its 2022 fiscal year. Underlying operating profit for the period was £18m, a £33m drop compared to the first half of 2021. Group profit before tax was £7m, down £37m, and underlying EBITDA declined by £30m to £218m.

In the food and grocery division of the group, overall revenue increased 1% year-on-year to £3.9bn. However, underlying operating profits were down from £68m to £41m, reflecting the toll inflationary pressures are taking on the business’s costs.

Lowering prices in response to the cost of living crisis is the first phase of the new food strategy, Co-op says. The prices of more than 120 own-brand products, including pizzas, pasta, fruit and vegetables, have been slashed by as much as 36%, with prices “locked in” into 2023.

The grocer claims customer savings after the price cuts average at more than 13%, and shoppers could save £100 a year across their weekly top-up shops.

Co-op’s new ambition is to become the largest convenience retailer in the UK, built on a large-scale network of franchise stores. The business aims to more than treble its existing franchise stores within three years.

The grocer also plans to grow its ecommerce business by expanding on its partnerships with delivery services Uber Eats, Deliveroo and Amazon, supporting its own direct to consumer online platform.

On top of this, Co-op will be simplifying and reducing the size of its range “to target key customers”, and plans to improve its membership proposition to drive loyalty and grow shopping baskets and trips. Co-op members earned and redeemed £8.7m in personal rewards during the first half of the year, the retailer claims.Co-op’s marketing boss on why membership is more powerful than loyalty

New CEO Shirine Khoury-Haq says the refreshed strategy aims to “capitalise” on the experience Co-op has gained in the convenience market over the past decade.

UK shoppers spent £3.6bn on groceries at convenience stores, according to NielsenIQ data for the four weeks to 13 August, up 5.4% to account for 28.9% of sales. Convenience stores experienced an uplift in volume sales of 2.7%, compared with a decline in volume sales across supermarkets of 3.8% as inflation hits consumer spending behaviour.

Co-op was the fastest growing retailer during the hot weather this summer, NielsenIQ reveals, while Kantar data indicates the grocer has revived its market share to 6.5% after dipping as low as 5.7% in February. Co-op is the UK’s seventh largest grocer on market share, positioned between Lidl and Waitrose.

“As we face into a cost of living crisis we are determined to make life fairer for our members, customers and communities in these extraordinary times and lowering prices for shoppers is the first-step in our strategy,” Khoury-Haq adds.Co-op to cut marketing and customer roles by a fifth

Overall, the Co-op Group – which includes its retail, funeral care, insurance and legal businesses – reported revenues of £5.6bn for the first six months of its 2022 fiscal year, a flat performance year-on-year.

The business says it expects to face “continued challenges” in the second half of the year given the ongoing economic situation, but feels it is “better equipped” to weather the effects in the short term due to actions taken in the first half.

These actions included cutting marketing and customer roles by a fifth, as part of approximately 400 redundancies at the company’s head office in Manchester.

“At our last set of annual results, we shared that as part of our strategy, making our Co-op more efficient and cost-effective was a priority. The tough trading environment, including rising inflation, means we have taken the difficult decision to bring forward some of the changes we had planned for 2023,” a spokesperson said at the time.