UK retailer The Co-operative needs to ensure it doesn't overstretch itself in an increasingly competitive environment, a leading analyst has warned.
Commenting on the group's full-year performance, in which the business posted a pre-tax profit for the year of £72 million, Thomas Brereton, retail analyst at GlobalData said that while the retailer should be pleased with its performance, the market conditions mean that it cannot rest on its laurels.
"The retailer’s £7.1 billion food division – which accounts for three-quarters of the Group’s activity – showed slight negative growth despite a 3.4% hike in like-for-like sales," he said. "This was largely a result of the division’s ongoing store strategy, closing larger stores to focus on consumer convenience."
The Co-operative's profit performance followed a £132 million loss the previous year. The group has said that it plans to open 100 convenience stores this year, while also developing new health and banking services.
Listening To Consumers
"The Co-op is certainly listening to its consumers," said Brereton. "The Co-op’s January announcement of a £50m investment in price reduction and an anticipated additional 100 small-format stores demonstrates a measured understanding of the convenience grocery market, addressing both the key criteria of price and convenience.
"Although this will only go some way to restore the geographical coverage offered by the 298 poorly performing stores sold to McColl’s earlier in the year, it is the correct strategy – providing new store location choices can be easily justified and will all but guarantee to be profitable.
"The Co-op’s £143 million-deal with Nisa Retail in November, and adventurous, innovative ideas, such as its recent ‘pay in the aisles’ pilot scheme, show the business is evolving in the face of a changing consumer landscape."
Consumer Confidence
Looking ahead to the coming year, The Co-operative should be cognisant of the fact that low consumer confidence and squeezed disposable incomes mean that "small strategic mistakes, particularly in product pricing against behemoths Tesco, Asda and Sainsbury’s, can be severely punished," said Brereton.
"Its £126 million operating profit translates into a precarious 1.8% operating margin, with little opportunity to absorb inflation-driven cost rises – an unenviable position as consumers continue to centrally consider retailers based on shelf prices."
© 2018 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.
