The Co-operative Group has booked a jump in first-half losses as issues plaguing its troubled banking unit took a significant chunk out of the bottom line. However, the group’s retail business saw a “solid” six months, with profits dipping only slightly on increased levels of investment. According to Steve Murrells, chief executive of food, these investments are moving the retail business in the right direction. Katy Askew caught up with Murrells to find out what the group has in the pipeline.

Over the past year and a half, The Co-operative Group has stepped up the level of investment in its retail business. The company has worked to lower prices and improve ranging, strengthen its back-end operations and drive store improvements.

With what it describes as a “solid” first-half performance under its belt, it would seem these efforts are beginning to pay dividends. True, food profit in the first six months of the year dipped slightly – declining to GBP117m from GBP119m. But The Co-op no longer seems to be haemorrhaging sales and giving ground in the convenience sector, an area of growing focus for all of the UK’s multiples.

Speaking to just-food this morning (29 August), retail chief Steve Murrells sounds like a man on the front foot as he prepares to leverage the company’s strength in convenience.

“We know that the convenience is one of only two areas of growth in UK retail. We are right in the sweet spot of that. Our position in this sector is unparalleled – we have a store in every postcode in the country,” Murrells emphasises.

The company plans to use the strength of its bricks and mortar store portfolio in its group-wide bid to “put the Co-op back at the heart of the community,” Murrells says.

The Co-op is working to broaden its appeal and drive brand loyalty on a number of fronts.

A key point of difference for the group is its status as a co-operative owned by its members – a factor that Murrells believes can be used to strengthen the retailer’s relationship with the communities in which it operates.

“We are growing our membership and that will be a real focus for us over the next 12 months. It is something Andrew Mann [formerly loyalty director at Sainsbury’s] is working on… We will be making our members feel very special.”

The company will also be stepping-up the roll out of its new fresh format stores, Murrells says. 

Stores already converted to the new format, which focuses on delivering a strengthened fresh offering, particularly in own-label, have booked double-digit sales increases. The company expects gains to intensify as it converts or opens a growing number of stores – and Murrells is upbeat on the impact this is likely to have on the top line.

Including the store conversions planned over the next five months, the group will convert a total of around 200 outlets in 2013. The Co-op plans to convert 325 stores and open 125 more under the new freash format next year as it speeds its implementation of the programme.

The Co-op is simultaneously working to evolve the fresh concept. “We will accelerate the fresh refit programme but at the same time we will move it to phase two,” Murrells reveals.

“Phase two will focus a lot more on how we deliver hero areas throughout the store… We are [trying to create] real innovation and excitement as you shop through the store.”

Another area of innovation for The Co-op is its plan to develop an online offering. Murrells concedes that the requirements of developing an online model that meets the needs of convenience shoppers is a challenge. But he appears undaunted.

“The trick is how we deliver a convenience online model. The online models that are currently out there – which are… margin and sales dilutive – would not work for us. We do realise that [convenience] is where our strength is. We will be trialling a number of models before Christmas.”

Murrells adds that the drive to innovate new formats, which he terms a “clear deliverable”, will not distract from the core issues that the company has been grappling with for a number of years.

“We just finished a nine-year programme to modernise our logistics set up… That’s given us a state of the art ability to flow goods through our stores,” Murrells comments.

This, combined with the SMART store replenishment programme, will result in more efficient and effective inventory management, Murrells suggests. “These two things will allow us to get the basics of availability better than it ever has been.”

However, Murrells emphasises that the Co-Operative is far from complacent when it comes to getting basic retailing right. “We’ve got to keep working hard to improve our delivery of those basics,” he suggests.

In order to support investments in execution and new format development, The Co-op also plans to raise its marketing spend in the coming year. This year, the company will spend GBP15-20m more on marketing and, Murrells says, The Co-op plans further increases in 2014.

“You can say the increase in our marketing investment will be significant,” Murrells says. “A greater level of marketing will enable us to communicate our points of difference.”

With plans in the pipeline to drive innovation, boost loyalty and improve execution The Co-op’s retail arm would appear to be fighting fit. At a time when competition in the convenience sector is intensifying, this will be important for the group if it is to grow sales and market share. Interesting times are ahead in the UK convenience space.