Retailer the Co-operative Group has announced a fall of £34.1m to £1.8bn in its food sales in the 28 weeks ended 23 July, blaming tough competition in the food retail sector.

However, good control of wastage and leakage, supported by well managed margins, contributed to profits before significant items rising by £4.5m to £41.8m, it said

The food business has expanded rapidly, with a threefold increase in outlets in four years, which has put a severe strain on operations. This is our single largest business and we are pleased to have secured the services of Guy McCracken, who ran Marks & Spencer's food retail business in the 1990s, as chief executive of Food Retail, the group said

We are undertaking a root-and-branch review of every element of our food offer to ensure that the ranges we provide meet today's consumer needs and that we deliver higher standards of availablility and service. We continue to focus on reducing costs and overheads.

The pilot Produce 2005 initiative, which reviewed all aspects of our produce category, has begun to show encouraging results. Innovative ideas included a major promotion to coincide with Wimbledon when sales of strawberries exceeded £2m.

A national distribution centre has been opened in Coventry which will improve in-store availability as well as making the supply chain more efficient.

We are progressing the improvement in our estate, and in the second half of the year will see the launch of a new refit programme based on what we have learned from the pilot phase.

The groups total sales were £4bn compared with £4.3bn last year, giving a group operating profit of £167.1m, compared with £117.0m.

"During the first half of this financial year we have continued to review and improve our businesses although much remains to be done to deliver the full potential of the group," said group chief executive Martin Beaumont. "In the face of tough trading conditions there were a number of solid performances, particularly in Travelcare, Pharmacy and Property. The programmes put in place to turn around food retail and rebuild CIS are making progress with both achieving improved profits."

"The second half will be tough, particularly in food retailing which will be adversely affected by cost inflation, but we will build on the progress we have made to date by tackling underperformance quickly and radically," he said.