SCOTMID chief executive John Brodie has declared the Edinburgh-based co-operative had to battle through an “avalanche of cost challenges” as profits dipped in its most recent financial year.
The convenience store, funeral home and toiletries retailer made a trading profit of £4.8 million in the year ended January 28, down from £5.3m last time.
Mr Brodie hailed the performance of the society as “solid” in the context of “increased cost challenges”. Those included above-inflation rises in the National Living Wage, the Apprenticeship Levy, additional pension costs and hikes in business rates, following the revaluation of non-domestic properties.
The revaluation, which led to huge hikes in rates bills for many retailers, pubs and hotels, takes place every five years.
Scotmid said it faced additional costs of £2m across the board last year.
Turnover dipped by £2.5m to £374m, with the firm attributing the drop to the sale or closure of some loss-making stores. It offloaded two petrol forecourt sites it had inherited as part of a previous acquisition. Scotmid said underlying turnover remained strong on a like-for-like basis. “We have produced a strong performance despite the increased cost challenges,” Mr Brodie said.
“When we talk about increased cost challenges, we are talking about either one-off things or one-off challenges which are over and above the normal rate of inflation, of which there have been many this year. That’s against a backdrop of challenging economic statistics.”
Mr Brodie said the hike in costs came amid continuing structural change in the wider retail sector, as well as ongoing uncertainty arising from the Brexit vote.
Asked how the co-operative had responded to rising overheads, Mr Brodie said it had mitigated the vast bulk of the increased costs it has faced by growing sales and improving the efficiency of its operations in areas such as energy use.
Scotmid has also invested in “continuous improvements” in its convenience stores, including the further development of its expanding “food to go” offer.
Mr Brodie said the prevailing economic conditions, with muted growth, higher than target inflation and sluggish wage growth was affecting spend in its stores. “There is an undoubted squeeze on household income at the moment, and consumer confidence is at a lower level than what we would want it to be at. There is a significant amount of uncertainty around.”
Asked whether that uncertainty was down to Brexit, he added: “I think there is a lack of clarity around Brexit and the impact it will have. And that will become an impact on how consumers feel.”
Mr Brodie has previously said its Semichem stores in Northern Ireland had benefited after the Brexit vote because of the subsequent plunge in sterling, which led to visits from consumers on the other side of the Irish border. That has slowed as the pound has steadily recovered in recent months, although Mr Brodie said the co-operative has still to see the benefits of sterling’s partial recovery in terms of the cost of imported goods.
Mr Brodie said while Scotmid continues to look for acquisitions, it is focused more on investing in its core estate. Elsewhere, the co-operative said the strength of the residential property market in Edinburgh helped grow its assets by £8m to £99.6m.
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