At a time when Brexit uncertainty and sluggish consumer confidence are taking their toll on the high street, the Co-op has turned in another sterling set of financial figures.

The mutual’s core grocery business delivered a 50% spike in operating profit, to £120m, in the six months to July 6, following a 3% uplift in total sales to £3.7bn. Like-for-likes advanced 1.7% during the period, despite the comparable period last year containing sales-boosting events including the FIFA World Cup and a royal wedding.

The Co-op’s food business has now racked up 22 consecutive quarters of like-for-like growth, as it powers ahead with its strategy.

Sales slowdowns among some of its rivals, including Morrisons and John Lewis Partnership-owned Waitrose – both of which reported declining like-for-likes this morning – threw into stark relief just how impressive those efforts have been.

But group chief executive Steve Murrells is adamant that the Co-op will not be “resting on any laurels” and, rather than battening down the Brexit hatches, is firmly focused on the future.

“Despite the uncertainty of the world around us, we are clear in our plans and remain on track to deliver our goals in 2019 and beyond,” he says.

But how does the Co-op plan on weathering the Brexit storm and prolonging its five-and-a-half-year run of growth?

Stockpiling goods

When it comes to mitigating the impact of Brexit, Murrells says the Co-op is well-placed to do so for two reasons.

Firstly, much of its produce – including 100% of its meat – comes from the UK. And secondly, it has the fillip of spare warehouse capacity in which to stockpile ambient goods – a luxury many of its rivals will not be blessed with ahead of the frenetic Christmas trading period.

Murrells admits the Co-op has been “fortunate” on this front. Warehouses that had been earmarked for closure have been given a stay of execution and are now being used to stockpile longer-life items in preparation for a disruptive Brexit.

“We are in the process of building one new complete depot, but we have also got warehouses that, in the past, were going to be mothballed,” Murrells explains. “Clearly now they have given us the contingency that we need to cope with Brexit.

“Beyond that, given that many of our suppliers have been working with us for decades, they have been very helpful in creating some additional space. But the real fortunate moment is that we have capacity within our network that we weren’t using.”

To help prevent the negative impact on in-store availability of possible delays at borders, Murrells says the Co-op is “stockpiling essential items” in those warehouses, including bottled water, toilet paper and canned goods, as it gears up for Brexit.

Digital dreams

The Co-op is dipping its toe into the world of ecommerce, as part of plans to build a digital future, both through its own website and in partnership with Deliveroo.

It launched its own online food delivery service in March, initially from its Kings Road store in Chelsea. The service has been rolled out to a further 21 stores with deliveries being made via e-cargo bikes in a bid to reduce costs.

The Co-op is extending its partnership with Deliveroo

The Co-op is extending its partnership with Deliveroo

The Co-op is also expanding its pilot with online food-fulfilment specialist Deliveroo, which offers users of the app access to a curated range of products, such as pizza, snacks, alcohol and confectionery. The service has grown beyond London and Manchester to reach Edinburgh, Milton Keynes and Brighton.

Murrells is tight-lipped on the results of that partnership to date, but says “we are getting more and more confident with what we are learning”.

When asked about the Co-op’s broader online plans, Murrells adds: “We need to look at the right model in the area of ecommerce and specifically in the food-for-now market, which we think we could serve well. We are in every postal region in the country, we are local to people and, in this market of food-for-now, it’s within the last mile [that people make purchases].

“We’ve got the infrastructure in place and we’re very excited about the trials we’ve been doing. It’s a very different model from the traditional home delivery model that other large retailers are pursuing. We think we can make this a profitable model.”

Supply deals

In the same way that Morrisons has turned its hand to supplying own-label products to third-party retailers such as Amazon and McColl’s, the Co-op is looking to build a lucrative supply business of its own.

The fledgling division narrowed its operating loss from £5m to £2.2m in the first half of last year, as sales hit £700m.

Some 90% of franchise partners within Nisa, which the Co-op bought in November 2017, now stock Co-op-branded lines in their stores, generating weekly sales of £2.5m.

In May, the Co-op lifted the lid on plans to supply Superdrug with a range of more than 40 food-to-go products, including sandwiches, sushi and salads.

Murrells would not be drawn on how that partnership could progress, or who else the Co-op could strike similar deals with in the future, but insists the division provides it with a new avenue through which to build sales.

He says: “We’ve got a really good core convenience business, but we made a move into the wholesale market 18 months ago. That’s going to give us a whole new level of growth, as we partner with more people and leverage the Nisa relationship.”

Partner power

The Co-op is collaborating with third parties in other areas, too. When it comes to future growth, Murrells says the mutual is aiming to “power it with partners”.

This morning, the Co-op revealed it is extending its click-and-collect partnership with John Lewis to more than 50 stores, following a trial in six shops that was launched in May with the aim of driving footfall and capitalising on ‘halo’ spend from John Lewis customers picking up parcels.

It is looking to work with more franchise partners to open c-stores and has previously stated that it foresees scope for up to 100 franchise locations. By the half-year, it had launched six franchise shops, including three on university campuses, while a partnership with Live Nation has allowed it to build on those efforts to put itself in front of a younger shopper base.

The Co-op's store at Latitude festival

The Co-op’s store at Latitude festival

The Co-op is working with Live Nation at eight UK music festivals, including Glastonbury, which Murrells describes as an “opportunity to introduce our heritage and our values to a new, mostly younger, audience”. About 420,000 people attended those festivals this year.

Murrells says: “At this moment in time, everybody needs to open up to working with collaborative partners. It’s something that absolutely chimes with the ethos of the Co-op – we cooperate, we work on things together and there are more examples in our group today where we are partnering with people to provide better service, better products and new growth opportunities.

“Picking the right partners to help us really get after new markets is what we’ll continue to do.”

Community credentials

In addition to its expertise in convenience, the Co-op is looking to further enhance its reputation as a community-conscious business, in a bid to attract more customers.

While companies across the UK lament the impact Brexit could have on their operations, availability and prices, the Co-op is looking at things through another lens.

The mutual says it is “mindful of how Brexit has exposed deep divisions within our communities”. It wants to “create stronger, more resilient communities” and “bring back individual and communal self-confidence” through its work with local groups and charities.

The Co-op and Steel Warriors will build 20 open-air gyms using recycled metal taken from knives.

The Co-op and Steel Warriors will build 20 open-air gyms using recycled metal taken from knives.

In the first half of its current fiscal year alone, the Co-op handed out £6m to 4,000 local causes. That work included the launch of a partnership with anti-knife crime organisation Steel Warriors, which will help it build 20 outdoor gyms using steel from knives taken off the street, melted down and recycled.

But Murrells says the Co-op wants to do even more to tackle the “real issues going on in the UK”, such as crime, homelessness, loneliness and mental health.

It is working with the Home Office and local charities to help reduce knife crime, for instance, and has invested £50m of its pension fund into sustainable housing.

“We are continually focused on the social aspects in our society, as well as running a very good business, in order to enable us to face into those issues with real impact,” Murrells says.

“The Co-op is more than just a business, it’s about the way we do business.”