The Co-op said this morning that it had finally tied up the £1.6bn acquisition of Somerfield, a move that CEO Peter Marks describes as a ‘transformational deal’ for the mutually-owned retailer. The combined group will become the fifth biggest supermarket in the country with sales of around £8bn and a market share of about 8%. Thirty years after the Co-op’s 1960s heyday, when it was Britain’s favourite retailer, is it now finally ready to challenge the mighty Big Four supermarkets for our grocery money?
Marks certainly thinks so. He argues that there’s a great strategic fit between the businesses, and says the deal will ‘provide the rocket fuel’ for the Co-op’s three-year growth plan – ‘cementing our position as the UK’s premier community retailer’. And certainly, a strong fifth player in the food retail area should be good news for customers – the group’s 3,000-plus ‘top-up and convenience’ stores should provide a genuine alternative to the out-of-town behemoths throughout the UK. Even if its famous 'Divi' (one of the very first cashback/ loyalty schemes) won't be quite the draw it was in the 1960s, given that every retailer and his dog has copied the idea ever since...
One slight snag is that it will almost certainly be forced to sell about one-eighth of the 800 Somerfield stores, to avoid local competition issues – which should spark lots of interest from the Big Four and pretenders like Waitrose, Iceland and even Aldi. But Marks isn’t anticipating any problems: ‘We are confident we will be able to work through these with the Office of Fair Trading,’ he said today. He’ll also be continuing the re-fit of his existing stores, which has so far tended to yield a big increase in sales.
As for Somerfield, it looks like a happy ending after months of touting itself around to potential customers – a potential deal with Asda fell through after the two sides failed to agree a price. And remarkably, it even looks as though its private equity backers (led by Apax, BarCap and property investor Robert Tchenguiz) will walk away with a tidy profit – albeit not the huge windfall they might have got at a different stage in the cycle…
Sceptics might raise their eyebrows at the Co-op’s reference today to ‘real cost and revenue synergies’ – which let’s face it, often means job cuts. And that’s not really what you want to hear on a day when the latest unemployment figures from the Office of National Statistics revealed that an extra 15,500 people started claiming unemployment benefit last month - the biggest jump since 1992.
Still, the current total of 840,100 remains low by historical standards (albeit this figure tends to take a while to catch up with the general economic pain). And if the Co-op is successful in its growth plans, there’ll be plenty more jobs created in the medium term. All in all, we’re looking at this as a beacon of hope in a gloomy sky...
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