Co-op announces “exceptional” interim results

Nicola Knight
Senior Analyst - Food-To -Go
@IGDShopperNews

Date : 17 September 2020

Co-op have announced interim results for the first half of 2020* showing a 7.6% increase on last year.  This puts the retailer ahead of the forecasted 6.8% growth for the total UK food and grocery market in 2020 according to IGD's lastest channel forecasts.

* 26 weeks to 4 July 2020

Highlights

  • Revenue up 7.6%, driven by food and wholesale businesses
  • Significant increase in costs from COVID-19; challenging second half ahead with uncertain economic backdrop and need for further investment 
  • Major initiatives to improve colleague pay and benefits, boost diversity commitments and relaunch membership with increased community focus 
  • £15m given to community causes in COVID-19 response

Food and wholesale performance “exceptional

  • Co-op’s total revenues increased by 7.6% to £5.8bn (2019: £5.4bn), driven by exceptional performances in food and wholesale
  • Food division results: revenues rose 5.2% to £3.9bn (2019: £3.7bn) as customers shopped closer to home and ate out less frequently during lockdown. Like-for-like sales increased by 8.8% (excluding fuel) representing the 7th year of like-for-like growth.  Underlying profit rose 46% to £175m 
  • Market share increased 0.5 percentage points to 7.1% peaking in the 12 weeks prior to 14 June – the highest for almost 20 years, although this is now dropping back as shopping behaviour changes once again with the easing of lockdown conditions
  • 1.7m new households shopped at Co-op and the average basket size doubled as customers reduced visits
  • During lockdown, store openings were paused, however delivery and digital programmes accelerated resulting in a fourfold increase in online orders
  • Nisa wholesale revenues increased 13.9% to £801m (2019: £703m), benefitting from local shopping in lockdown and range improvements under Co-op ownership. 304 new stores signed up

Other businesses also performed well

  • Funeralcare revenue increased by 3.5% to £148m (2019: £143m).  A 22% increase in volume was offset by reduced average revenue per funeral due to COVID-19 restrictions 
  • Legal services revenue was flat year-on-year at £19m (2019: £19m), with increased demand for will and divorce services 
  • Co-op Health app registrations were up 400%, reflecting a shift in customer behaviour during lockdown. By the end of July, the service was delivering more than 20,000 prescription items a month with 4.8/5 customer service rating 

COVID-19 costs to reach £97m by end of 2020

In the first half, direct costs as a result of COVID-19 amounted to around £54 million, including the costs of additional recruitment, the purchasing of PPE and increased staff sickness and absence. Support from the Government’s emergency measures amounted to £33 million, including business rates ‘holiday’ for food stores and funeral homes and furlough payments to staff. Co-op estimates that the full year direct costs of COVID-19 will be £97 million.

New staff and community initiatives announced

Co-op also announced details of four new initiatives which aim to “make a real difference for colleagues, members, and communities”.

  1. Significant improvements to colleague pay and benefits 
  2. New diversity and inclusion commitments
  3. New job scheme with 150 government Kickstart work placements
  4. Planned re-launch of membership with significant increase in money going to local causes and charities as well as enhanced data capabilities to increase personalisation of rewards and benefits for customers

Outlook

Co-op states that it continues to operate in highly competitive markets and against the backdrop of a worsening consumer economy. In addition, the business is planning for and dealing with further local lockdowns as the pandemic continues. 

Although competition in grocery retail is set to intensify in the second half of the year as price becomes the dominant consumer consideration in response to a deep recession, Co-op believes its food business is well positioned. The store opening programme has resumed and the retailer has made a commitment to invest £130m in opening 50 stores, giving 15 stores significant extensions, and giving 100 further outlets major makeovers, creating 1,000 jobs before the end of the year.

Steve Murrells, Chief Executive of the Co-op, said:

“The coming months and years remain uncertain, and we know our own Co-op will not be immune to the pressures the recession brings to family budgets and to local and national economies. We will continue to invest within our core businesses to ensure that our Co-op value resonates within Co-op households and local communities.

The “Co-op Difference” and the response to COVID-19

The Co-op’s fundamental commitment to represent community interests and champion co-operation and fairness for members and customers (“the Co-op difference”) enabled it to respond quickly as the challenges of the pandemic affected local communities. In total £15m has been given to charities and community causes through a variety of iniatives in repsonse to COVID-19.

Murrells commented:

We’ve shown how our co-operative approach to doing business provides enhanced value for our customer-members and the communities in which they live. At a time of crisis, our country needs a strong and progressive Co-op and these results evidence that we are ready to deliver even more for our key stakeholders.

“Being a Co-op has never felt more meaningful and right. The role of business in society is changing and we are proud to lead the way.

Allan Leighton, Independent Non-Executive Chair of the Co-op, said:

During the first half of 2020 we have shown that commerciality and co-operability can thrive and feed off one another, when both are given the same level of focus and importance. The Co-op is a different kind of business, but one whose enduring value can best be evidenced during times of need and hardship. In the difficult times ahead, we will ensure that our Co-op continues to make the world a fairer place to live in.”

 

IGD Co-op Trade Briefing 2020

3 November

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