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Supermarket chain Co-op warns supply disruption to hit profits

·Business Reporter, Yahoo Finance UK
·3-min read
A woman cycles past a Co-op supermarket in London, Britain, September 14, 2018. REUTERS/Hannah McKay
Co-op said full-year profits would take a hit. Photo: REUTERS/Hannah McKay

Supermarket group The Co-operative has urged the UK government to do more to help combat supply chain disruptions, after swinging to a loss in the first half of the year.

The company, which operates 2,500 food stores, reported an underlying pre-tax loss of £15m ($21m) for the six months to 3 July, a fall from £56m profit a year prior.

The decline included its funeral care business and its insurance operations.

It said planned investments, product availability issues and the ongoing effects of COVID caused the poor performance, warning that full-year profits would take a hit.

“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 the year end,” Co-op said.

Read more: UK service sector growth slows amid staff shortages and supply chain disruption

The firm’s boss, Steve Murrells, said the British government needed to intervene in sorting a shortage of lorry drivers across the country.

The chief executive told Reuters on Thursday: “This won't be solved in isolation, this is a global issue where the supply chain has completely broken down. You can't solve [a shortage of] 90,000 HGV drivers in isolation, it needs a structural change.”

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

Murrells said the issues may affect some of its festive ranges, but added that, while customers “might not be able to get every size of turkey, you will be able to get a turkey for your Christmas meal”.

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

During the six month period, revenues across the group came in at £5.6bn, 3.2% lower than a year ago. This was driven by a fall of 2.8% for food stores.

It comes as John Lewis and Waitrose owner, the John Lewis Partnership (JLH.L), said on Thursday that "inflationary pressures" were likely to persist.

At John Lewis' main retail business, compared to 2019/20, margins remained subdued as sales in lower margin categories remained higher than before the pandemic and inflationary pressures in global freight pushed up costs.

On Wednesday it was announced that prime minister Boris Johnson has put Michael Gove in charge of the government’s response to the crisis. He is to lead a cross-governmental group to “fix” the number of heavy goods vehicle (HGV) drivers, as well as working with food suppliers.

Gove, previously the cabinet office minister, was moved to be housing, communities and local government minister in the PM’s latest cabinet reshuffle.

Read more: Why is the UK facing a HGV driver shortage and what could it mean for consumers?

Also on Thursday, Co-op also announced a new partnership with digital giant Amazon (AMZN) as it plans an increase in online sales.

Customers will be able complete their grocery shop online with same-day delivery.

The partnership, which launched in Glasgow and surrounding areas on Thursday, will be rolled out to other parts of the country before the end of the year.

Co-op said it was also extending its robot deliveries, in a bid to increase online sales from £70m to £200m.

However, the grocer has received backlash from the GMB trade union over the move to team up with Amazon. It has come under pressure over workers’ rights and the amount of tax it pays.

“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,” Murrells said.

Watch: What is inflation and why is it important?

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