Co-operative Group's aggressive convenience store spending spree over the past two years helped forge a return to full-year profits.
Food retailing profits, most of which came from convenience-stores, soared by 63 per cent to£113.4 million in the year to January 10 on a turnover of£3 billion, up 17.4 per cent.
Of the group's 1,756 food outlets, 1,249 are convenience stores. Co-op said there was evidence that the food market was 'becoming increasingly competitive' in the supermarket and convenience sectors, because the multiples push in and push down prices.
First-quarter like-for-likes were flat, although the 1,000 stores trading under Co-op's Welcome fascia climbed 3.49 per cent in the same period.
The group aims to maintain its position in convenience through further acquisitions, and is believed to be considering an acquisition of up to 200 outlets from TM Group.
Co-op retail division chief operating officer Malcolm Hepworth said: 'It was clear six years ago that if we were going to perform in food retailing, we would have to be in a market where we can get leadership and achieve growth. That growth was in small stores. We've now got the critical mass we wanted in small stores.'
Co-op spent£35.4 million converting 218 convenience stores to the Welcome format last year, including 171 Alldays and six Balfour outlets. The remainder were existing Co-op stores. The retailer acquired 111 Balfour shops last year and 600 Alldays outlets in 2002.
Total pre-tax profits reached£385.4 million, compared with a£112.5 million loss last year, which was attributed to short-term fluctuations in Co-operative Insurance Society's investments.