Scotmid has said it is continuing to compete successfully in the convenience store market despite the decline in Scotland's food retail market and the first food price deflation since 2006.

Scotland's largest independent retail co-operative has announced a £2.1million operating profit for the half year to July 26, slightly ahead of the same period last year.

The Edinburgh-based group, which does not reveal its sales performance, said its like-for-like performance was "ahead of the market" - which was down around two to three per cent. Turnover was up by £2m at £212m, entirely due to last year's acquisition of nine stores with the Penrith Co-operative.

In April the mutual reported a 25 per cent fall in operating profits to £4.5m, and a pre tax loss of £3m, after making a £1.2m profit in 2012 and as much as £11.2m in 2010. Its net debt rose last year by £6.6m to £39m.

It is fighting back with initiatives such as a Premium Fresh format, local sourcing including bakery counters, self check out tills, and Scotmid Radio.

The group has also launched online customer feedback and had 10,000 responses and suggestions.

John Brodie, chief executive, said: "We are pleased to have an increase in operating profit against a very challenging economic backdrop and a market that continues to go backwards. We are balancing that by differentiation in our food estate and innovation across the business, and continuing to run the business tightly while looking for investment opportunities."

Scotmid, founded as St Cuthberts in 1859, employs almost 5,000 staff in 350 outlets across Scotland, including almost 120 Semichem pharmacy stores. The group had to announce 90 redundancies in January with the planned closure of six Semichem outlets and six upmarket Fragrance House stores, five of them in Scotland, converting them into Semichem outlets until leases expired.

Mr Brodie said at least one store had been saved because a landlord had been prepared to negotiate only after seeing the group's financial results. He went on: "There are a number of very successful Semichems and some where we are having negotiations with landlords. If we can't get co-operation from landlords, in current economic conditions we will not continue with stores which will in future be loss-making."

The group's interim report says the first food deflation since 2006 was driven by price wars on key staples such as vegetables, milk and bread. "Competition continues to intensify as the multiples seek growth in the convenience sector and the discounters increase their market share." It says the discontinuation of the corporate dividend from The Co-operative Group added to the pressure on margins.

Mr Brodie said Semichem had delivered an improved trading result on the back of the "hard decisions" taken at the end of 2013 and implemented this year.

He went on: "The funeral business has had a difficult start to the year, relative to a strong performance in 2013, due to a number of factors such as the declining death rate and increased competition. Scotmid Property delivered another encouraging performance benefitting from investment in 2013."

Mr Brodie said the recent development of the society's democratic structure had focused mainly on the Co-op UK's updated code of corporate governance. Scotmid had also contributed to the consultation process leading up to changes in the Co-operative Group's governance structure.

On whether the Co-operative Bank's widely publicised calamities had affected the co-operative brand, Mr Brodie said: "There is no doubt that the brand Co-operative is not held as highly as it was but...the credibility of Scotmid with its independent status is still there."