Co-operative Group: 'Enormous' progress in Somerfield systems integration

New product range management and SMART supply chain tools to be rolled out this year

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The Co-operative Group has revealed that it has made “enormous” progress in integrating Somerfield with its food business, which includes overhauling systems and processes.

Integrating Somerfield into Co-op is one of two major integration projects that the company is carrying out. It is also integrating Britannia Buildling Society with its financial services business, which is also progressing well, according to Co-op’s interim results.

The Co-op acquired Somerfield for £1.565 billion in July 2008, and merged with Britannia in August 2009.

In its results for the first half of the year ended 3 July, the Co-op said it had performed well “despite significant challenges from the market”.

It reported an increase in revenue of 8.4 percent to £6.9 billion, up from £6.4 billion in the first half of 2009. Further, the Co-op’s underlying operating profit increased by 14 percent from £269 million last year to £307 million in 2010, while underlying profit before payments to members rose 17 percent to £260 million.

The Co-op said that when it started the integration processes around a year ago, it forecast that the Somerfield integration would take two years, while Britannia would take three years.

“So we still have some way to go,” the company said in its results. “Nevertheless, we have made enormous strides. We are making good progress with the two major integration projects, with synergy benefits being delivered in both.

On the Somerfield integration project, the Co-op said it had already made “significant progress” in the overhaul of systems and processes, modernising its retail logistics operation and introducing own-brand products. It said it was on track to deliver the completed integration by the first quarter of 2011.

“So far as the Britannia integration is concerned, we are already seeing significant progress with new products being aligned and introduced,” the Co-op added.

Meanwhile, the Co-op said it has made “great progress” in its supply chain, which is currently being consolidated. It is also planning the rollout of its SMART programme in its supply chain, which will enable the company to control and manage store replenishment and range functions centrally, to allow store managers to focus on customer service. A spokesperson for the company said that more details about the SMART programme will be announced in the near future.

Furthermore, the company is introducing a "range management tool", developed from Somerfield, which is IT tool that will help the company manage the range of products in its stores.

Peter Marks, chief executive of the Co-op, said: “We have made further significant progress in the integration of both businesses [Somerfield and Britannia] in the first half. This consolidation will continue through the rest of the year, with a strong focus on ensuring that we continue to drive efficiencies.

But he added: “As anticipated, 2010 has been challenging so far, with tough economic conditions across all our businesses. Looking ahead, however, we do not expect things to improve until late 2011 at the earliest.”

Prior to the merger, Somerfield outsourced its IT in December 2006 to Indian outsourcer Tata Consultancy Services (TCS) in a seven-year £50 million deal that handed over IT operational management and planning, including central infrastructure maintenance and IT service delivery to 900 stores and eight distribution depots.

The outsourcing occurred as Somerfield was part way through a £70-million IT transformation programme to consolidate a variety of legacy operational systems onto SAP systems with Business Objects business intelligence systems and new point of sale technology.

In 2008, the Co-op pursued green IT objectives by launching a night-time, energy-saving programme for the electronic point-of-sale (Epos) operations of its 2200 UK food stores. This is itself part of an £8.3m investment in a single IBM Epos control system for its expanded food store network.

More recent IT deals that the Co-op has signed include a contract extension with Unisys Payment Services for continued use of its cheque processing services for the Co-operative Bank, and the Co-operative Food has also decided to pilot contactless technology using Barclaycard technology in its stores next year.

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