Asked in an interview with The Grocer what implications the “biggest structural change to the grocery retail market in five years” will have for Somerfield’s suppliers and distribution chains, Marks said: “Somerfield’s business has a very close alignment with the Co-op. We don’t predict large divergences in the types of lines we’ll stock or our approach to products from what has gone before.
“Both Somerfield and Co-op have their respective own-label brands,” he added. “So we’ll be looking at what we can keep in terms of Somerfield’s products and methods.”
The food range offered by the enlarged Co-op Group is something Marks should be looking to develop, suggested Verdict Consulting retail analyst James Flower. “The Co-op has been making improvements steadily during the past two years,” said Flower, “and the brand and the stores themselves are all the better for it. But in terms of the food offer they are still way behind the likes of Tesco and Sainsbury’s and that is something that needs developing.”
But, said Marks, even though the Somerfield deal propels the Co-op Group into “the premier league” and makes it the UK’s fifth-biggest food retailer, competing with Tesco is not his priority. “Am I going head to head with Tesco? I don’t really know and I don’t really care,” he said. “The c-store sector is currently growing faster than the grocery sector. The rising price of fuel means that Mrs Bloggs is increasingly reluctant to get in her car and drive five miles down the road to do her shopping. She knows she can save money by walking down to the end of the road to do her shopping locally.”
Analysts predicted the Somerfield acquisition would see “the biggest structural change in the UK for five years”. Louise Spillard, IGD director of research, said: “It generates great economies of scale. Both organisations have made great strides in efficiency in recent years, and during a time of economic flux the new business is well-placed to capitalise on trends we have identified in the UK, particularly shoppers’ increasing appetite for top-up convenience shopping, local shopping, and for ethical foods.”
Marks pledged to use the Co-op’s new position to bring further competition to the market and pointed to the lack of “greedy shareholders” within the Co-op’s business structure as a direct benefit to consumers. “We predict this deal will present significant cost and revenue synergies that we can pass on directly to consumers in the form of better value, better prices, better stores and so on. We don’t have greedy shareholders to satisfy like our rivals.”
The deal means a £400m windfall for Somerfield’s previous owners, a consortium including Apax Partners, Barclays Capital, Robert Tchenguiz and Kaupthing, the Icelandic bank. The consortium took the chain private for £1.2bn including debt in 2005. After reducing its debt and selling off more than half the 2,000-store estate, Somer-field’s sales were £4.2bn with profits of £233m. Analysis p24