Co-op set to benefit from 'flight to trust'

The group, whose businesses span food shops, financial products, pharmacies and funeral services, said profit before payments to members jumped 85 per cent to 402m in the 51 weeks to January 2.

That was boosted by the purchase of Somerfield food stores in 2008 and a merger with the Britannia Building Society.

Underlying profits rose 20 per cent, and chief executive Peter Marks said he was confident the group could continue to deliver growth around that rate despite a gloomy outlook for consumers.

He said there was a "flight to trust" in the banking sector as consumers shunned listed banks in the wake of the financial market crisis, adding the Co-op won 150,000 new current account customers last year, doubling its market share to four per cent.

The Co-op's specialist grocery market of convenience food shopping was also a growth area, despite sales at stores open at least a year slowing to "fairly flat" in the first two months of this year.

Mr Marks joined a raft of retailers warning that trading conditions would be tough at least until the end of this year.

"There's light at the end of the tunnel, but it's very faint and flickering sometimes.

"We've got a General Election, which unsettles people, we've got unemployment continuing to rise, and we've a massive budget deficit that needs to be tackled, although hopefully not too aggressively and too soon," he said.

"All of those things will mitigate against the consumer having a lot of confidence in going out to spend."

Mr Marks said the Co-op, which pays out a dividend to members depending on how much they spend with the group, recruited 1.5 million new members last year, or around 500,000 excluding the merger with Britannia, taking its total to about five million.

The members will share a dividend of 55m, up 16 per cent on the year.

The Co-op, which traces its roots to the founding of the co-operative movement in Rochdale, northwest England, in 1844, said group sales rose 31 per cent to 13.7bn.

Like-for-like sales at grocery shops rose 5.5 per cent.

That growth had disappeared in recent weeks due mainly to a steep decline in food price inflation, but Mr Marks said the Co-op, Britain's fifth-biggest grocer, was holding on to market share.

He saw little risk of food price deflation in the coming months, due in part to recent weakness in sterling, but also saw little prospect of a return to inflation.

His comments echoed those of bigger rival Sainsbury's which said last week that household budgets in Britain are likely to come under more strain this year than last.