Co-op warns of 'stark' headwinds amid rising inflation, supply-chain woes

Co-op Group has warned of warned of "stark" economic headwinds, with rising inflation causing more challenges for the supermarkets-to-funerals provider this year after supply-chain disruptions hurt its profit in 2021.

The underlying profit for 2021 was down 57 percent to £100 million, compared with the year before, and that sales slipped to £11.2bn, from £11.5bn, Co-op said.

The member-owned group had to battle industry-wide supply-chain problems in the second half of 2021 as it was upgrading systems in its grocery business.

Sales at the group’s food business fell by 2 percent to £9.1bn despite investing £140m in opening 50 new stores and refitting 87 more, and spending £18m on cutting prices. While in-store sales declined, online sales soared from £70m the year before to £200m, owing to tie-ups with Deliveroo and Amazon.

Co-op also claimed that it absorbed supplier inflation on key lines in protein and dairy, protecting prices and customer offer and has invested in 94 GRO lines, committing £1.1m to align vegan product prices with meat-based equivalents.

“The last year has seen us facing some significant challenges, including significant supply chain issues in the second half coming at the same time as our food business transformation and increasing inflationary pressures," Shirine Khoury-Haq, the incoming interim chief executive of the Co-op, said.

“The difficult operating environment disproportionately impacted our food business, given its focus on the community convenience market, with an operating model that is more reliant on flexibility in the supply chain.”

She said the Co-op would be reexamining its current strategy of opening 50 to 100 stores a year as she suspected change would be required given the shift to online shopping and cost challenges, The Guardian reported.

Russia's invasion of Ukraine had hurt supplies of sunflower oil, she said, as well as animal feed and wheat prices, which had a knock-on effect on meat, dairy and bakery.

Khoury-Haq, who replaces Steve Murrells in May, said the Co-op had been forced to source elsewhere or offer alternatives because of shortages, the report said.

She said some food price increases were “inevitable” this year, but the Co-op was trying to mitigate the problems for customers by not raising the price on 1,000 key items and adding 100 extra products to its budget range.

The Co-op said it was outperforming the grocery market. However, it expected its food business to “face continued challenges during the year” amid “inflationary pressures and the economic uncertainty facing customers”.