Scottish co-operative sees profits fall as inflation hits shopper confidence

Turnover tumbled by £4.8m to £204.2m as Scotmid saw people shop less locally than in the first half of last year, with sales also coming under pressure from surging inflation.

The co-operative said the cost-of-living crisis has come at the same time as supply-chain issues, legacy Covid costs and severe cost inflation, which have been felt most acutely across its Scotmid convenience stores.

Scotmid, employs around 4,000 people across the wider group, said it has attempted to mitigate the challenges it faces by focusing on “controllable” costs and investing £15 million in technical and operational changes to support its two retail businesses for the long term.

Chief executive John Brodie said the downturn in first-half profits had been anticipated when Scotmid published its results for the year ended January 29 in April, noting that “in some degrees it has been a perfect storm”.

And he said profits had fallen partly because the co-operative had taken steps to absorb cost increases.

Asked how Scotmid was approaching pricing in stores, given the twin challenges of cost increases and the cost-of-living crisis facing shoppers, Mr Brodie told The Herald: “The results show we have taken the conscious decision not to pass all the increases on to customers. There is inflation in the system, but we are working hard to help our customers and mitigate as much as we can.

“We have a fantastic promotional package. We have increased the number of value lines in food and held prices on certain key lines like our bacon roll offer. If you buy a Costa (coffee) you can still buy a bacon roll for £1 as you could last year and the year before. There are a number of initiatives to help customers.”

Customers are responding to the cost-of-living crisis by “seeking out value and changing from brand to more tertiary ranges and trying to household manage inflation in a way that they can,” Mr Brodie added.

Scotmid reported that Semichem has built back trade from the pandemic. It has yet to see shopper numbers return to pre-pandemic levels, with footfall weaker than expected because of the cost-of-living crisis. But Mr Brodie said it has “done well to control its cost base”.

He added: “We have the Christmas period to come, which is a key trading period for Semichem and we will absolutely be responding to customers’ circumstances with the Christmas offer we have.”

The co-operative said its property business has continued to grow rental income. Having made two “substantial property investments”, Scotmid said its balance sheet was “robust” with net assets of £113m. On funerals, the business conducted fewer funerals, but Scotmid said it was able to provide a wider range of services.

Meanwhile, asked if rising interest rates, now forecast to increase to six per cent following the UK Government’s mini-budget, would limit acquisition activity, Mr Brodie said: “If it was a significant acquisition, we would look at it on its own merits anyway. But it probably changes the hurdle rate we would be looking at, compared with the rates we would have seen previously.”

Mr Brodie said the company was working through how helpful the recently announced energy support package for businesses will be to Scotmid, with the co-operative having hedging arrangements and other contracts in place.

But he said any help is welcome, given the magnitude of recent bill increases. He would like the support for business to be in place for longer than six months to provide greater certainty. “The danger is you have a cliff edge in six months’ time, where the fear is it returns to market prices," he said. "Businesses need time to plan and work through what any changes are.”