Can Somerfield acquisition reverse The Co-op's fortunes?

The Co-operative Group greatly increased its food retailing scale by acquiring Somerfield, hot on the heels of merging with the United Co-op. In three years food retailing sales rose from £3bn to £7.5bn.

Retail Week Knowledge Bank’s updated profile of the group – which leads the co-operative movement’s UK retailing presence – not only tracks these developments but also assesses whether the Somerfield move, in particular, can actually reverse The Co-op’s fortunes of long-term market share erosion, or perhaps even marginalisation, in neighbourhood convenience retailing.

Certainly, the precedents of hitherto relatively weak players uniting are not encouraging – witness the merger of Somerfield with Kwik Save.

There are other key elements in the equation, notably the growing presence of Tesco and Sainsbury’s in local convenience retailing, now being followed by Asda, Morrisons and Waitrose. Also, there is the often overlooked factor that the ex-Somerfield stores represent re-entry into the difficult small supermarket segment that the Co-op earlier abandoned.

All was going well. The Co-op’s new store design and promotion proved attractive, successfully increasinging footfall, to the extent that the group claimed some 20 quarters of like-for-likes above the IGD sector average.

This was achieved despite underlying concerns that persisted such as modest sales densities for both Co-op and Somerfield stores, replenishment problems and ex-Somerfield store ranging issues.

But now comes the bombshell of the latest half-year results: food retailing sales fell 4.6% with like-for-likes down 3.6%, despite inflation, which is a terrible return to underperformance.

Is the honeymoon over and has long-term share erosion returned in the increasingly competitive environment? Retail Week Knowledge Bank concludes there must

• Robert Clark, Director, Retail Week Knowledge Bank