Co-op shifts strategy to become ‘leading convenience food retailer’

The Co-operative Group is planning to double the size of its convenience store estate and invest in price, own-label food and store refurbishment as it aims to shift perceptions of the brand from being the fifth largest supermarket chain to the ‘leading convenience food retailer’ in Britain.

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The Co-op is focusing on convenience, price and own-label products as it aims to become the leading convenience food retailer.

The firm says it will open between 100 and 150 new convenience stores per year with the aim to double the number from the 2,000 it currently owns. Research firm IGD estimates that convenience is the fastest growing retail chain, with its worth set to increase to £46bn over the next five years, from £36bn last year.

Co-op will also roll out its new convenience store format, dubbed “Generation Two” and currently on trial in 20 stores, to a third of its estate by the end of the year. The format includes a new in-store bakery and designated zones for grocery, chilled and on-the-go produce.

The Co-op is also planning to invest in price, although it has not detailed the extent of the investment. Tesco last week announced plans to invest £200m this year in offering “lower, more stable” pricing, while Asda is investing £1bn over the next five years in every day low prices as both look to counter the rise of the discounters Aldi and Lidl.

The moves have sparked expectations of a supermarket price war. Tesco brought down the price of 4 pints of milk to £1 on Monday (3 March), with Sainsbury’s since following suit and Waitrose promising to offer the same deal to all holders of its myWaitrose loyalty card.

The Co-op has said it is cutting the price of 1 pint of milk to 45p and 2 pints to 85p but will not reduce the cost of 4 pints because it believes it could encourage food waste.

Own-label products will also be a focus for the Co-op, with plans to increase the range to 4,000 by the end of 2014. It claims that its re-launched “Loved By Us” range has seen a 15 per cent sales uplift over the last 4 months and it is now planning to increase own-label penetration to 55 per cent to bring it in line with the big four.

The Co-op currently holds a 6.2 per cent share of the UK grocery market, behind Tesco, Asda, Sainsbury’s and Morrisons. The Group was rocked last year by a series of revelations at its banking business which hit perceptions of the grocery business.

However, it outperformed its main supermarket rivals over Christmas. It is now asking customers to help develop its future brand positioning in an online survey that asks people for their opinion on its structure, values and services.

George Scott, retail analyst at Conlumino, says Co-op has previously struggled due to its underinvestment in price positioning, a lack of focus in its own-label range and store environments that lag in terms of engagement and consistency. However, he believes this review offers a “reliable roadmap for recovery that will help the firm discover what customers want and place that at the heart of its DNA”.

“The long-term view is that the Co-op will continue to face challenges in reversing its fortunes, but it is on the right path. Its strategic changes will undoubtedly take time to take effect across its vast estate, but it recognises its weaknesses and its transformation programme offers more promising foundations for a business model that is no longer match fit,” he adds.

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