SCOTLAND’S largest independent co-operative, Scotmid, has warned that inflationary pressures including the cost of living crisis and low consumer confidence will continue to challenge the retail, funerals and property business in the short term although the group saw trading profits rise to £1.5 million for the 26 weeks ended July 29, 2023 – up £0.4m on its interim results last year.

The Edinburgh-headquartered co-operative’s chief executive John Brodie, who has announced his intention to retire next year after more than 30 years with the business, 20 of those as CEO, said: “Retail is the beneficiary of a buoyant economy. With the current market and economic challenges, it was expected that our profit levels may not be maintained in the first half of the year.

“However, innovation and cost control by the team, as well as head office restructuring earlier in the year, has allowed us to deliver a solid performance. We have proactively identified areas for continuous improvement in the period, allowing us to best serve our customers and communities, and maximise sales opportunities.”

Turnover was up by £12m to £212m with net assets increasing to £122.8m. Scotmid said the result was achieved despite costs continuing to increase, high inflation and the cost of living crisis having an impact on household income and discretionary spend.

Scotmid declares trading 'much more challenging than expected'

Mr Brodie, who is also chairman of the Scottish Retail Consortium (SRC), noted that shoppers were buying less and switching brands in Scotmid’s 187 food stores, adding that people were looking for the best value as they manage their household budgets. “The cost of living crisis, increasing interest rates, high inflation and low consumer confidence continue to challenge our business,” he said.

“Similarly, these challenges have impacted our customers with income squeezed and less confidence to spend in the retail marketplace. We continue to face substantial external challenges, so remain cautious with a firm focus on efficiency and innovation as we move into the second half of the year.”

Scotmid’s food convenience division, however, delivered a “solid” performance in the half-year period with good weather early in the summer boosting sales and better availability of products helping to maximise key trading periods although again Mr Brodie cautioned that “continued trading headwinds” were not likely to calm in the short term.

Steps taken earlier in the year to restructure its head office function meant that Scotmid Cooperative Society could focus on “leaner, more agile and technology-enabled ways of working”, coupled with innovation and tight cost control to help the retail businesses.

No end to cost crisis in sight, Scotmid chief declares

The rollout of more than half a million electronic shelf labels across its convenience stores last year, noted Mr Brodie, had increased wider store efficiency, improved pricing and product information compliance, reduced paper wastage and enhanced store team morale. “Retail is an industry that is constantly changing and evolving,” he said.

The Semichem business, Mr Brodie added, saw footfall improve but is still below pre-pandemic levels as the marketplace “adjusts to the new norm”, noting: “Supply chain cost pressure and weaker consumer confidence had an impact, but the division moved forward in the period.

“Clearly high streets are not where they were pre-pandemic but our move to a new warehouse for Semichem in January shows a big commitment on our part and service levels are better than ever with the focus on increasing sales, margin and customer footfall.”

The society, he said, had continued to focus on long-term growth with further retail upgrades and refurbishment works in the period. A new convenience store opens at Heartlands near Whitburn in West Lothian this Friday and there are more in the pipeline.

While planned spend on Scotland’s deposit return scheme has been paused, Mr Brodie warned that “DRS is not going away – it has just been deferred”, adding that early government engagement with industry on any type of legislation and listening to the views of the sector was the way forward.

Meanwhile, Scotmid Funerals saw an increase in the number of funerals conducted as well as an increase in pre-need funeral plans sold while Scotmid’s Property business continued to grow thanks to positive rent reviews and strategic investment decisions over many years.

Scotmid continued to focus on its core purpose with a wide range of financial and other support to charities, social enterprises and local community groups, including raising £295,000 for its charity partner, Guide Dogs.

Mr Brodie, 59, who confirmed he will retire in August 2024 with the process of finding a successor already under way, added: “Guided by our core purposes, Scotmid will remain attentive to these short-term challenges, while looking for long-term opportunities for growth underpinned by a strong balance sheet.”

Scotmid, which is based throughout Scotland, the north of England and Northern Ireland, operates 187 convenience stores, 63 Semichem outlets, 16 funeral homes and an extensive property portfolio, employing over 3,500 people.