Co-op Group wounded by UK grocery price war

The UK’s cut-throat discount grocery battle has wounded another retailer, this time Co-op Group.

The company’s first half results show a reduction in food business profit by £45 million to £63 million, year-on-year.

“Co-op’s results highlight one of the key challenges of the food sector: the need to invest in reducing prices,” commented Zoe Mills, an analyst with Verdict Retail.

“This strategy by Co-op has had a dire effect on its operating profit… In spite of this, the Co-op has a lot to be happy about, as despite the tricky food market, it has increased like-for-like sales, notably at its convenience stores, a relative success given the hardship that other grocers have faced.”

The ongoing expansion of market share led by German discounters Aldi and Lidl have hit the UK’s biggest four supermarket retailers hard with sales, market share and profit all declining, or at best stagnant over recent reporting seasons.

Mills says that during the past few months, the Co-op has refreshed its branding and strengthened its ties to both its members and local communities. It expects to see the rebuilding of the Co-op brand to continue well into 2017 and possibly 2018.

“While it must rebuild its brand image if it hopes to be successful in the future, this is likely to continue to squeeze short to mid-term profits, perhaps a risky strategy given the volatility of the food sector.”

And things aren’t likely to improve any time soon, says Mills.

“Looking ahead, Co-op still faces stiff competition from the likes of Tesco and Sainsbury’s for convenience market share. However, with these grocers also occupied with turning around their bigger stores, Co-op’s smaller store format, and convenience-led strategy, means it has less worries in this regard.”

But its other focuses include improving the quality of its own-brand produce – which could become a more important unique selling point, says Mills, “especially as value becomes more of an expectation in store choice for consumers rather than a differentiator”.

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