“60% of the Somerfield acquisition will be divested” - Pennycook

“60% of the Somerfield acquisition will be divested” - Pennycook

The Co-operative Group will sell around 60% of the space it acquired as part of the 2009 acquisition of Somerfield as the embattled UK grocer increases its focus on its core convenience estate.

"We have put together a new strategy for food which focuses heavily on convenience stores. Those are the stores that work well for us in neighbourhoods," interim chief executive Richard Pennycook told media during a conference call this morning (15 April).

The Somerfield acquisition made the Co-op the fifth-largest food retailer. However, the company initially struggled to integrate the business, with its enlarged size uncovering issues in systems and processes.

It emerged today some of the larger sized stores taken on as part of the deal have failed to perform to expectations.

"The Somerfield acquisition brought with it a lot of larger stores that don't work so well," Pennycook observed. "60% of the Somerfield acquisition will be divested."

Pennycook's comments followed the release of the Co-op's "disastrous" full-year results, a period during which the group racked up losses of GBP2.5bn (US$4.2bn), largely attributable to the collapse of its banking arm.

At its food retail division, sales fell to GBP7.24bn, down from GBP7.44bn. Operating profit excluding one-off charges fell from GBP269m to GBP247m and including one-time charges associated with goodwill impairment linked to Somerfield totalled GBP35m.

"Although on the face of it, food profitability was down in a planned way... the food business is performing very much in line with those plans," Pennycook stressed.

While food retail came under top-line pressure, the company insisted its convenience portfolio saw market-leading growth.

Food like-for-like sales fell by 0.2% but comparable sales from the core convenience chain rose by 1.6%. The group's performance also improved in the second half, as changes from investments in price and ranging fed through. Second half like-for-like sales rose 0.6%, with a 5.3% increase in convenience, the company revealed.

As the Co-op works to increase its convenience leaning by selling off larger-sized stores on the one hand, it also intends to open more convenience stores over the next 12 months. "We expect to open 100 new convenience stores this year," Pennycook said.

The funerals-to-pharmacy co-operative has indicated it intends to sell its farms and pharmacy businesses to free-up capital for investment and reduce debt to bolster its balance sheet.

The moves will "ensure that the businesses we do retain can be properly invested in", Pennycook explained. "We are number two in the convenience sector to Tesco... one of the elements you need to compete is a competitive cost of capital."