Scotmid facing Co-op competition

Published on Wednesday 16 July 2008 21:18

GROCERY store chain the Co-operative Group is to increase pressure on Scotmid as it strengthens its presence in its rival's market heartland with a £1.57 billion acquisition of the Somerfield chain.

The Co-op, which was formed last year out of the merger of Co-operative Group and United Co-operatives – both headquartered in the north of England – has become the market leader in local convenience stores after snapping up Somerfield's 880-strong chain yesterday.

Bringing its number of stores north of the Border up to 377, the acquisition will bolster the group's presence in the Edinburgh and Lothians area, which has traditionally been the domain of Scottish co-operative, Scotmid.

A spokeswoman for the Co-op said the firm hoped to continue to operate the 112 Somerfield stores in Scotland, but added that it might have to sell some branches to address local competition concerns.

She added: "We bought these stores to trade them, but the transaction is subject to approval by the regulatory authorities."

Sources claimed yesterday that as many as 120 stores in the total UK-wide acquisition could have to be sold off.

The spokeswoman added that, while the Co-op had previously not been in close competition with Scotmid due to the geographical spread of its stores, the acquisition would mean it will have more branches in the Edinburgh and Lothians area.

Somerfield currently operates around five outlets in the area.

Malcolm Brown, a spokesman for Scotmid, welcomed the acquisition as a "good day for co-operatives", but added the effect on its own market was yet to be seen.

He said: "Edinburgh and the Lothians is definitely the heartland of Scotmid, although we did move into other areas of Scotland when we bought the Morning, Noon and Night chain a couple of years ago. Although we are totally independent from the Co-operative Group, we do get our food from the same supplier and have an excellent relationship with them."

He added: "It is very early days in terms of the effect it will have on our business, but at the moment we are delighted and think it is very good news for the Co-operative Group."

Somerfield's owners, a consortium that includes private equity firm Apex, Barclays Capital and property magnate Robert Tchenguiz, put it up for sale in January and reports said they were seeking as much as 2.5bn.

Co-op chief executive Peter Marks – who plans to revive the retailer and move closer towards it to its 1960s heyday when its was the UK's biggest food seller – said there would be "significant cost and revenue synergies" from the deal, as well as a "limited number" of job losses, but he declined to give further details.

The acquisition, which will rank the Co-op as the UK's fifth-biggest food retailer, will give the firm annual food sales of around 8bn, or about 8 per cent of the food retail market.