Scotmid eyes acquisition to tap into new growth areas

CO-OPERATIVE group Scotmid is on the acquisition trail as it looks to diversify into new streams of business.

Scotmid is on the acquisition trail. Picture: Greg Macvean

Chief executive John Brodie wants to scale up the business and protect its core grocery offering from increased competition from the big chains.

Scotmid yesterday unveiled an annual fall in operating profit from £6.5 million to £6m but Brodie said all divisions had performed well under challenging conditions.

He told The Scotsman that growth in each of its existing businesses was on hold because of the stagnant economy – however conditions also provided opportunities in terms of firms coming on to the market.

He said: “One of the strengths of co-operatives has been that they have been diversified, and whilst that makes them more complicated to run, it spreads the risk if one area of the business is not performing.

“We are looking for something that can be different, but it’s got to be complimentary and use our existing skills set. It’s very much part of our future strategy. It could be an acquisition or a start up.”

Scotmid has set aside cash to fund an acquisition but could also look at taking on debt.

Brodie said one of the factors which have stopped it making a purchase so far is that sellers were being over-optimistic with asking prices.

“We have run the rule over a number of businesses in the last year and have made contact with a number of professional advisers to put a marker down that we would be interested,” he said.

Scotmid underwent a major diversification in 1995 when it bought discount health and beauty chain Semichem. It rapidly tripled the estate to 80 stores and in 1999 added 27 more outlets by acquiring Northern Irish rival Options.

Since then the group has concentrated on growing its food retail estate, swallowing a number of smaller chains in the process.

The latest addition was the 51-store Botterills chain. The Spar-branded estate, bought in 2010, took the total number of convenience stores owned by Scotmid to almost 200.

The society also began a new business venture in 2010 in the form of the Fragrance House, selling prestige fragrance brands from stores in Aberdeen, Dundee, Glasgow, Greenock and Livingston.

Brodie said last year’s drop in profits was down to a number of one-off group-level factors, including the cost of a strategic review of the business aimed at ironing out “process” problems which had accrued largely as a result of the various “bolt-on” acquisitions.But Brodie said each of the separate divisions, including Scotmid’s funeral and property businesses, had grown enjoyed profits growth.

He said the squeeze in disposable incomes was a challenge to all businesses, while convenience retail faced increased competition from Britain’s big supermarket chains, who are rushing to open smaller stores. In response Scotmid is investing in a plan to tailor individual stores to their local client base.

• Paisley-based Clark Contracts has been appointed to provide maintenance cover to Scotmid’s property division. It has also won deals for JD Sports’ 20 Blacks outlets north of the Border and 41 McDonalds’ restaurants in Scotland. They three contracts are worth about £500,000.