Co-op hit by sales slide as slump and Somerfield take toll

Evidence that even supermarkets are being hit by the sluggish economy arrived today in the form of sliding sales at the Co-op, as its boss warned there will not be a recovery until next year at the soonest.

The 1% drop in like-for-like sales was partly because of the disruption created by the integration of the Somerfield stores the Co-op bought in 2008.

But it also suggests that the boom in supermarket sales is over.

Chief executive Peter Marks denied claims, put forward by analysts, that Somerfield is proving disappointing.

"We said we wanted to create one business in two years. We have six months to go, having converted half the stores," he said.

"It is probably the biggest integration any food retailer has ever done. We are disrupting stores at the rate of 24 a week. That clearly has an impact."

Overall sales in the half year to July were up 8% to £6.9 billion. Profits are up 17% to £260 million after the "dividend" payment to members is stripped out.

"We think we are doing extremely well," said Marks. "We must be, to have a performance like that against a backdrop of arguably the worst recession in living memory."

Supermarkets generally thrive in times of economic hardship as families trying to save cash tend to do ever greater portions of their shopping in one big weekly spend.

Marks, a Co-op lifer who joined in 1967, said times are hard and getting harder for his customers.

"They are feeling the pinch," he said. "2010 has been challenging so far, and we do not expect to see the signs of recovery until late 2011 at the earliest."

Marks said competition in the sector should help fend off the worst effects of inflation, but thinks some price rises are inevitable. "Food in this country has been very cheap for a long time," he said.

The 60-year-old plans to see the company through the next stage of its development. "There's plenty of life in the old dog," he said. "Sir Alex Ferguson is arguably the best football manager ever, and he's nearly 70. I am good for years yet. I'm a kid."

The Co-op, Britain's biggest mutual retailer, traces its roots to the founding of the co-operative movement in Rochdale in 1844.

Asda, Britain's second-biggest grocer, last week posted a 0.4% fall in second-quarter sales and warned of a squeeze on consumer spending in the months ahead.

Co-op's financial services arm, which includes brands such as Smile bank, reported a 41% fall in bad debts. Profits rose 34%. Trading profit at the food business rose 13% to £170 million and was up 45% to £109 million in financial services.