Marks downbeat on consumer outlook

Marks downbeat on consumer outlook

Peter Marks, chief executive of UK retailer The Co-operative Group, has defended the firm's acquisition of the Somerfield chain after the company today (29 March) reported falling annual sales and profits.

The retailer today booked a 2.1% drop in full-year sales at its food business, which also saw underlying operating profit fall 20% last year.

With some commentators still maintaining that the firm bit off more than it could chew with its 2008 acquisition of Somerfield, Marks was quick to insist that the acquisition "was a wonderful deal for us". 

"We had a plan when we acquired Somerfield to create one business in two years. We have achieved that," Marks insisted during a conference call to discuss the company's results. "Integration is always a challenge and we have come through that extremely well."

However, he conceded the company's enlarged size uncovered some issues with the retailer's systems and processes, particularly in the supply chain. The Co-op responded to this by investing heavily through the year to address these problems - with the roll out of a replenishment system and the opening of two new distribution centres. Nevertheless, Marks added the changes caused "some disruption" at store level. "This was particularly prevalent in the first half," Marks said. 

As a consequence, first-half food sales came under significant pressure, dropping 3.6%. However, Marks suggested that as these issues have been smoothed out sales have rebounded. Third-quarter food sales were down 0.7% and fourth-quarter food sales fell 0.2, while trading has continued to improve going into this year, Marks revealed. 

Marks added the co-operative ownership structure of the business enabled management to take a "long-term" view of investment. "We look at long term trends. When I look at what the food bus has done over the past 5 years... One year's blip, I can live with that," Marks said. 

Looking to 2012, Marks said he expected the consumer environment to remain challenging. 

"All I see is rising unemployment, fuel prices rising, uncertainty in Europe. The Bank of England has said we could be back in recession. We've got to be realistic. Is consumer confidence going to increase in the near future? I don't think so."