UK grocery acquisition
The tight UK grocery market just got tighter. The Co-operative Group announced it will buy rival Sommerfield for $3.2 billion. The deal will add 900 stores in the current 2,200, all in the UK. It will also increase the new company's market share in the UK to 8%.
Co-op is in sad position of being #5 in a market dominated by foot top competitors, namely Tesco, Asda (Wal-Mart), Sainsbury, and William Morrison control about 75% of the market. Of those, Morrison is the closest to Co-op, with 11% market share.
The company has its work cut out for it. Its prices are significantly higher than Tesco and Asda. Just as food and energy prices are spiking. It is assumed that a larger size will give it more flexibility in prices.
Co-op is a different kind of company. As the name implies, it's based on a profit-sharing food cooperative founded in 1844 by weavers during the Industrial Revolution. That structure, called a mutual company in Britain, is still in effect, and the members get annual dividends. And it is more than a food market, according to an article in The Independent ("Co-op gears up for big 4 battle," 8/17/08).
Beyond its operation as a traditional food seller, the Co-op has the largest funeral services business and third largest pharmacy business in the UK. It also competes in the travel and legal markets, which all come under the umbrella of the Co-operative Trading Group.
