The Co-operative Group has struck a deal to sell its pharmacy stores for £620 million to the company behind convenience store chain Best-One.
The struggling mutual will use the proceeds from Bestway Group’s purchase of Britain’s third-largest pharmacy chain to pay down debt.
Bestway, which is the UK’s seventh largest family-owned business, will have the right to operate under the Co-operative Pharmacy brand for a transitional period of 12 months, once the deal completes later this year.
The pharmacy business has more than 770 branches in the UK employing 7,000 staff, and last year generated profits of £33m on £760m revenues.
It was put up for sale in February by former Co-op chief executive Euan Sutherland as it was not considered a core part of the business.
Bestway’s wholesale business is the second largest in the UK, with annual sales of more than £2.4 billion, serving 125,000 independent retailers and caterers from 64 warehouses. Its retail club business has more than 4,000 members consisting of 1,113 Best-one stores and 2,895 Xtra Local retailers.
Founded more than 40 years ago by Sir Anwar Pervez, the business is the second-largest cement manufacturer in Pakistan, where it also has a substantial bank branch network.
Following the pharmacy acquisition, Bestway will have annual turnover of around £3.4bn and a workforce of more than 32,600, including 11,900 in the UK.
Chief executive Zameer Choudrey said there was potential to grow the pharmacy business organically and through acquisitions.
He added: “The Co-operative pharmacy is a strong, competitive business, operating in a sector where demographic trends show an increasing demand for healthcare services amongst the wider community.”
Other businesses in the Co-op group include funeralcare, legal services, travel and general insurance.
Its banking arm, which is now under the control of bondholders as part of a refinancing to fill a £1.5bn hole in its balance sheet, drove the group to an overall loss of £2.5bn for the last year.
Interim chief executive Richard Pennycook said the deal will enable the Co-op to invest in its core retail and consumer-facing businesses.
He added: “Bestway is acquiring an excellent pharmacy business characterised by the quality and professionalism of colleagues and high levels of customer service.
“Bestway in return is an ideal owner, being a strong family-run group with a proven track-record of putting the needs of customers first.”
Dr Paul Simmonds, of Warwick Business School, said the deal was a “good and very necessary one” for the Co-op.
“The Co-op has made progress in achieving its recovery plan but it hasn’t been easy. The sale of the Co-op pharmacy business is another step along the way but many challenges remain, not least in the food retailing business where competitive pressures, especially from discounters, are increasing.
“From a consumer’s point of view, competition in pharmacy services will not be reduced and, at least through a transitional period, the Co-op pharmacy brand will be retained. Bestway has also signalled its intention to grow the pharmacy business … which could increase competition.”