The Co-operative Group said it wanted to buy the Somerfield chain after announcing strong growth in profits on both sides of the border, helped by a continuing drive to upgrade its stores.
The Co-operative Group said it wanted to buy the Somerfield chain after announcing strong growth in profits on both sides of the border, helped by a continuing drive to upgrade its stores.
The company, which doubled the total dividends it paid to members last year to £45m, also confirmed it was keen to grow through acquisition and new builds in Scotland, where it is has a number of deals in the pipeline.
Following reports that the Manchester-headquartered Co-operative was front- runner to buy Somerfield, chief executive Peter Marks said he thought the supermarkets-to-convenience stores operation would be a "great strategic fit".
After the Co-operative completed the merger with the smaller United Co-operatives business last year, making it the biggest in Europe, Marks wants to double group operating profits over the next three years. This will involve competing harder against the likes of Tesco.
Besides giving Co-operative much greater scale, buying Somerfield would increase its presence in the city centre convenience market in which Tesco and J Sainsbury have invested heavily recently.
Marks played down expectations that Co-operative would win the bidding for Somerfield, owned by private equity groups Apax and Barclays Capital and property magnate Robert Tchenguiz, saying "it's still early days and we've got a lot of work to do".
He declined to comment on reports that Co-operative Group was reluctant to pay an asking price of about £2bn.
However, claiming that the merger with United provided the foundation for the reinvigoration of the whole co-operative sector, Marks laid out an ambitious growth programme.
He said the Co-operative Group would invest £1.5bn over three years to upgrade the retail estate under a single brand to help grow market share. The group has around 4% of the food sales market on both sides of the border.
All trading outlets, including 265 food stores in Scotland, will be under one brand by the end of 2009.
Stores will have more space for fresh food and new fixtures and fittings while staff will get more training.
The group will also stock more own-brand products.
Marks said said trading conditions were tough, as debt-laden shoppers cut back spending.
However, the group is confident about its prospects after growing like-for-like sales at its 2223 food shops by 4.6% in the 52 weeks ended January 12 and by more than 4% in the first quarter of this year.
Underlying profits on food sales increased by 50.5% to £139m in the year.
The group - which is the UK's fifth-biggest food retailer, third-largest pharmacy chain and biggest provider of funeral services - grew total trading sales in the year by 18.8%, to £6.3bn. Underlying operating profit increased 35.1% to £322.7m.
In Scotland, net food sales increased by 4.7% to £554.2m. Like-for-like sales increased by 4.6%. The company completed six acquisitions, leaving it with 265 food stores.
Total travel, funeral services and pharmacy sales in Scotland increased by 4% to £74.4m.
The group has 400,000 members and more than 8000 staff in Scotland. It has 2.5 million members and 85,000 staff in the UK as a whole.
The other co-operative retailers in Scotland are Scotmid and Lothian, Borders and Angus.
