Analysis: How Co-op and Nisa are gearing up for growth

But having now formally joined forces, the two grocers are determined to create a business larger than the sum of its parts – and win the battle for grocery’s convenience crown.

No sooner had the ink dried on the £137.5m acquisition last week than the Co-op made its first statement of intent, installing former Tesco internet retailing director Ken Towle as Nisa chief executive.

Working alongside the Co-op’s food boss Jo Whitfield, he will be tasked with integrating the two businesses and increasing sales and profits at the enlarged group.

Yet the tone upon completion of the deal was markedly different from that of some of their grocery rivals.

Talk of synergies was largely shunned, the £500m and £200m savings targets quoted by Sainsbury’s and Tesco around their respective deals proving a stark contrast to the Co-op’s “growth story”.

Speaking from Scunthorpe – where Nisa is based – Whitfield insists the deal provides the enlarged group with “the scale, focus and ambition to compete successfully in the convenience sector”.

“The market is evolving at pace, but we are very confident that we are occupying the right part of the market – the convenience market”

Jo Whitfield, Co-op

It plans to offer an initial pool of 800 Co-op own label-lines to Nisa’s independent retailers, an assortment that Whitfield says “will grow, in time”.

The mutual will give Nisa access to various Co-op promotions and 100 new proprietary branded SKUs to provide stores with fresh “opportunities for growth”.

And the Co-op will reduce the cost of numerous staple lines by up to 20%, in turn allowing Nisa retailers to sharpen prices for their shoppers, benefit from increased margins, or a combination of both.

Marriage of convenience

Whitfield is well aware that, given the current consolidation in the wider food market, being a part of that story is crucial in order to maintain the Co-op’s recent sales momentum.

“The market is evolving at pace, but from our point of view we are very confident that we are occupying the right part of the market – the convenience market,” Whitfield says. “We are in a great position of strength in terms of our ongoing momentum and the way we are growing our businesses.

“We decided to make this acquisition because we recognised that the market was going to be subject to change over the coming years, so I feel we are well positioned to compete.

“We are very focused now on our own strategy to ensure that we are as strong as we can be from a proposition point of view and a value point of view to ensure that we weather the changes in the market well.”

Whitfield admits it is “difficult to tell” how much more change lies ahead in a rapidly changing sector, but says doing “a great job for customers” will be central to the enlarged retail and wholesale group’s success.

“Innovation is at the heart of what’s going to make us a competitive business in the future”

Jo Whitfield, Co-op

At the heart of that drive will be improving the shopping experience and driving innovation. The Co-op is already piloting ‘pay in aisle’ technology, which would allow customers to scan items and check out using their smartphones without visiting a till, and is testing home deliveries through a partnership with Deliveroo.

“We are very, very focused on opportunities to be innovative for both the customer and the colleague,” Whitfield insists. “Innovation and making sure we provide the strongest customer experience in terms of efficiency, great service and great offer is absolutely at the forefront of our strategy.

“Some of those ideas are things we will continue to bear in mind for Nisa partners. There’s the potential to look to extend some of those pieces of innovation we’ve built in our own retail business and understand the opportunities for Nisa to get involved in that in the future.

“Innovation is at the heart of what’s going to make us a competitive business in the future.”

But when it comes to that crucial word “efficiency”, the Co-op is in no rush to establish cost savings – and appears ready to learn lessons from Conviviality, which collapsed after rushing the integration of its Matthew Clark and Bibendum supply businesses.

Rather than immediately combining the Co-op and Nisa distribution networks, Whitfield says the latter will continue to serve its customers through an existing partnership with DHL “certainly for the first few years”.

In tandem, the Co-op will press ahead with investments in “network capacity and increasing the number of depots”, and will only entertain a combination of the two to drive cost efficiencies “in a couple of years”.

It may not have received the same air time as its larger rivals were afforded, but the Co-op is making the right noises. If it delivers, it could end up laughing the loudest in the hotly contested convenience clash.