Food accounts for the lion’s share of the Co-operative Group’s sales but it has been affected by the wider problems at the business.

The £1.57bn acquisition of Somerfield in 2009 was a landmark moment but today’s goodwill impairment charge of £226m on the deal helped drag the Co-op’s food business into a loss in the last financial year.

However with 2,779 stores, sales last year of £7.24bn, an underlying operating profit of £247m and market share at present of 6.1%, Co-op chiefs see plenty of potential.

It unveiled its True North strategy last year to revitalise the food division. However delivery will depend on the business getting back on track financially at group level.

True North strategy

1 Focus on convenience retail

Convenience retail is booming and the market overall is expected to be worth £46.2bn by 2018 compared to £35.6bn last year, according to IGD.

As the Co-op opens more c-stores, retail chief executive Steve Murrells told Retail Week in March that his focus will be on like-for-like sales growth rather than market share.

He wants to double the Co-op’s sales per sq ft to £25, matching the figure typically generated by convenience rivals such as Sainsbury’s and Tesco.

As a result he is unconcerned for the time being about market share. He said in March: “As we exit larger stores we know our square footage will go backwards and market share paints a wrong picture on square footage.”

2 Better value and promotions

The Co-op is seen as out of step on price by many shoppers but it is taking action to address the problem. There have already been price cuts on almost 1,000 products to bring them into line with rivals.

Promotions – traditionally a high proportion of the mix in Co-op stores- are also being overhauled to make them more targeted.

A coupon scheme for Co-op members, for instance, generated a 72% redemption rate which the retailer described as “far ahead of industry standards”.

And the Co-op has sought to attract a new generation of younger shoppers by becoming the first grocer to offer a 10% student discount to holders of the NUS Extra card.

3 Product improvement

A refresh of own-brand ranges began in September 2013. The biggest initiative has been the launch of Loved By Us, spanning ranges such as food to go and ready meals.

Speaking in March, Murrells said: “We had fallen out of love with food, especially own-brand. Innovation and quality will be very much in the DNA of the food team.”

4 Store overhauls

In support of its convenience mission the Co-op is making improvements to shops and has developed a new format, known as Generation 2.

It is the Generation 2 model on which big hopes ride. At present there are about 20 such stores and they have been delivering strong growth.

Murrells said in March that the Generation 2 stores had delivered like-for-like growth of as much as 14% over  a 12-week period versus less than 1% at the Co-op overall.

The Generation 2 stores are designed to cater for convenience shopping needs such as ‘food for tonight’. A rationalised range showcases ‘hero’ categories such as bakery.

The intention is to totally or partially remodel more than 1,000 branches to the Generation 2 model this year.

By the end of 2014, 75% of the retailer’s estate will have been refreshed to some degree since 2012.

5 Reshaping the store estate

The Co-op will exit stores too big, or otherwise unsuitable, for a convenience focus. The retailer revealed today that it intends to exit 60% of the Somerfield stores acquired in 2009.

The retailer sees potential to increase c-store numbers by 150 a year to reach a total of 4,000.

Last year the retailer opened 32 stores and exchanged contracts on the same number to open in 2014.

London, where the Co-op has been under-represented, is a particular focus for openings and shops in the capital have beaten internal expectations.