Co-op warns profits under pressure due to supply chain challenges

The Co-op has warned of pressure on profits as it faces “unplanned supply chain challenges”.

The group, which operates 2,500 food stores as well as a wholesale business supplying other retailers, became the latest business to acknowledge the impact of the strain on UK logistics as it reported half-year results.

They showed an underlying loss of £15m for the business – which also includes funeral care and insurance operations -over the six months to 3 July, compared with a profit of £56m a year ago.

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The group said the bottom line was hit by planned investments as well as “significant costs, impacts on sales and profit erosion related to product availability issues and the ongoing effects of COVID”.

It added: “The unplanned supply chain challenges and ongoing COVID costs will bring greater levels of uncertainty.

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“This will in turn apply pressure on our prior expected level of profitability for year end.”

The warning comes as John Lewis and Waitrose owner, the John Lewis Partnership, said “inflationary pressures” were likely to persist.

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Earlier this month, rival retailers Iceland and Morrisons both warned supply chain issues such as lorry driver shortages could push up prices.

Co-op said revenues for the half-year of £5.6bn were 3.2% lower than a year ago across the group, driven by a fall of 2.8% for food stores.

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But the mutual said the sales performance compares with an “unprecedented” period in 2020 when stay-at-home consumers boosted trade at its convenience stores – and was ahead of pre-pandemic levels in 2019.

The results came as the Co-op also announced a new partnership with Amazon as it plans an increase in online sales.

Chief executive Steve Murrells said: “As we continue to experience the effects of the COVID-19 crisis, it is clear that things will never be the same again.

“As a business and as a society, it is crucial that we learn from the last 18 months, particularly as we turn to the momentous task of rebuilding Britain and face into the continuing disruption to our business and our supply chains.”

Logistics pressures are being seen across the economy – with businesses from Wagamama’s owner, the Restaurant Group, to house builder Redrow acknowledging the impact on their performance this week.

In recent weeks, McDonald’s, Greggs and Nando’s have also been among those acknowledging the effects of the crisis.