The Co-operative Group has suffered a severe setback after several years of steep growth in sales and profits.

Profits are down more than 40% to £35.8m for the six months to July 24 compared with £61.6m last time, and sales are almost flat at £1,843m compared with £1,813m last time.

Group chief executive Martin Beaumont said the primary causes of the problems were internal with the ageing logistics infrastructure and overstretched management unable to cope with the group’s huge expansion over the past two years.

Since October 2002 the group has acquired more than 800 stores in takeovers of Alldays, Balfour and Conveco, and Beaumont said the overstretch had lead to availability problems and a decline in store presentation.

A twin track approach will be taken to tackle the problems. In the short term there will be a drive to improve on shelf availability. “We need to implement consistent processes and training and get the basics right,” he said.

And in the longer term the society will be investing in new logistics and infrastructure across the group. The first part of this will be a new national distribution centre for slow moving goods which will open in 2005.

Despite the setback caused by the expansion, Beaumont insisted: “What we did was exactly right. We have paid a short term cost, but these types of strategic opportunities only arise once.”

He also said the group would not be put off taking over further chains. “There will not be the same degree of acquisitions, but if value is offered and opportunities arise we will still acquire. Not 800, but smaller chains.”

Beaumont said the trial of the new generation of Welcome stores was going well and it would be rolled out from two to 20 stores by the end of the year.