The Co-op has warned that annual profits will be hit by shortages of lorry drivers and supply chain problems which the convenience store operator said were likely to lead to price rises for shoppers well into next year.
Reporting a 38% dive in pretax profits to £44m in the six months to 3 July, when sales slid by 3.4% to £5.6bn, the mutual pointed to significant cost rises and sales and profit erosion related to product availability issues and the ongoing effects of Covid.
Steve Murrells, the chief executive of the Co-operative Group, which runs funeral parlours and insurance, legal services as well as its chain of more than 2,600 convenience stores, said the effects of the driver shortages would hit the Co-op more in the second half of its financial year than the first.
Murrells said shoppers would be able to get everything they needed for Christmas and their weekly shop. However, he added: “There won’t be the same level of choice as there has been in the past,” with, for example, a limited range of pack sizes on some products.
“Shelves in places aren’t as full as we would normally expect them to be. With 90,000 to 100,000 drivers short [for all industries across the UK], there isn’t a quick solution,” he said.
Murrells said pay rises for drivers were inevitable but were only one part of solving the problem. The Co-op said it was trying to make driving jobs more attractive by improving conditions and diversifying the workforce away from older people by offering training packages to young people and those who worked in its warehouses and stores.
Jo Whitfield, the chief executive of the Co-op’s grocery business, said the delivery problems were adding to widespread cost rises on commodities including wheat, sugar and dairy. “The pressure is very genuine,” she said. “The pressure is unlike any I have seen in a very long time and you can start to see the market now turning for the first time I can really recall.”
Murrells said it was possible that price rises could continue into 2023 when labour and supply chain issues might be resolved.
While the group plans to open about 60 stores this year, and the same number next year, it is investing heavily in expanding online as Murrells admitted that people were doing less shopping locally as fears about the pandemic have subsided.
“We are seeing a normalisation,” Murrells said, but he added the group had maintained its pre-pandemic market share and would continue to invest in stores which could act as an anchor for fast track grocery deliveries, partly driven by a new tie-up with Amazon.
The Co-op’s warning on supply chain difficulties came as Marks & Spencer said it would close 11 of its 20 franchise stores in France as the “complex export processes” which have emerged since Brexit had affected its ability to deliver fresh food over the Channel.
M&S said the 11 stores, which are mainly located on Parisian high streets and are run by its partner SFH, would close by the end of this year.
The remaining nine, which are based in airports, railway and metro stations and run by another operator – Lagardère – will continue to trade. However, M&S suggested the future for the remaining stores could be at risk as it said the stores would trade as “both parties continue to work closely on a sustainable future business model”.