Co-op 'to take on Tesco' after merger with Somerfield

Published on Saturday 10 October 2009 15:07

THE Co-operative Group will tomorrow come under scrutiny from retail analysts wanting to know how its merger with Somerfield will enable it to compete in an increasingly fierce battle for the grocery market.

Joseph Robinson at Verdict Research said the Co-op is coming under pressure from Tesco, Sainsbury's and Waitrose, which operate in the convenience store market in which the Co-op has been a big player.

He said: "The entry of the big chains has forced convenience retailers to up their game and the Co-op is in a good position to take on Tesco."

The Co-op will deliver a snapshot of the progress it is making in integrating the Somerfield chain into its business when it reports half-year figures, and analysts are divided on whether it will show like-for-like sales growth.

Sources close to the group suggested the results will be "good", but some suggested that total sales for the combined companies may have fallen as the group sells some Co-op and Somerfield stores to satisfy the competition authorities.

Somerfield was swallowed by the Co-op in February in a 1.56 billion deal that created the UK's fifth largest grocer.

As part of the deal, the Office of Fair Trading ordered the combined group to sell stores in 133 locations as going concerns to improve competition.

The Co-op last week unveiled a 36 million programme to rebrand its 90 Somerfield stores in Scotland to Co-op livery, a process expected to be completed by the end of next year.

Interim results for the 28 weeks to 25 July are also expected to show the benefit of the group's 1.5bn rebranding exercise, the largest in UK corporate history, in which the company's 5,300 outlets are being refitted under a single "The Co-operative" name.

The group's businesses range from the Co-operative high street grocery shops through to pharmacies, travel agents, funeral directors, banks and insurers. Food outlets that have been rebranded have reported a 13 per cent rise in sales.

Figures released last month by industry analysts at TNS Worldpanel revealed the Co-operative, including Somerfield, had a market share of 8.2 per cent, down from 9.3 per cent when the takeover deal was agreed.

Fraser McKevitt, a retail analyst at TNS Worldpanel, said: "The loss of market share will be down to the disposal of stores rather than a drop in sales. It will be interesting to see how they're getting on, because they're investing a lot in swapping the fascias over from Somerfield to Co-op. Anecdotally, if you look round those new Co-op stores then they're very well done inside; they look good and they focus on fresh produce."