Co-op: Supply crisis creates surge in costs

The Co-op warned of food price increases and pressure on its annual profits from the mounting supply chain crisis as it swung to a halfyear loss.

The group’s chief executive, Steve Murrells, told the PA news agency that supermarket price rises are “coming” as retailers across the UK battle with the lorry driver shortage, increased shipping costs and global commodity price rises.

He said the company will look to offset the cost pressures “as best we can”, but said “some of that will filter down” to customers.

The member-owned group, which also provides funeral and other services, reported underlying pre-tax operating losses of £15 million for the six months to July 3, compared with profits of £56m a year ago, as it was hit by product availability issues and the continuing impact of the pandemic.

It warned that the “unplanned supply chain challenges and ongoing Covid costs will bring greater levels of uncertainty”.

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

The supply chain problems are set to worsen over the next few months, just as food retailers are preparing for the peak Christmas season.

Mr Murrells said this may affect some festive ranges, but sought to reassure shoppers that, while they “might not be able to get every size of turkey, you will be able to get a turkey for your Christmas meal”.

“We’re right in the middle of the storm and everybody is trying to find a short, mid and longterm solution to this,” he added.

Half-year results showed that food sales at the supermarket arm, excluding fuel, fell 2.8% in the first half against surging trading a year earlier during the early stages of the pandemic.

The results came as the Co-op also announced a new partnership with Amazon and moves to ramp up an acceleration of robot deliveries to more than double online sales to £200m by the year end.

But it faced some criticism from the GMB trade union over the move to team up with Amazon, which has come under pressure over workers’ rights and the amount of tax it pays.

Mr Murrells said: “Amazon wants to be a force for social good.

“But it’s a trial – customers and members will tell us whether or not we have done the right thing.”

The group’s results showed that sales at the funerals business were down 7% as the number of funerals plunged 17% following a fall in death rates since last March.

Elsewhere, legal services revenues edged 5% higher to £20m.

WARNING: Rising food prices and pressure on profits are a result of the crisis.