Collapse of buying group adds to pressure for Co-op merger

THE PROSPECT of a merger between the two major parts of the Co- op movement has moved a step closer following the collapse of a key buying group within the operation.

The failure of the Consortium of Independent Co-operatives, led by the Co-operative Retail Society, will leave the individual members to organise their own deals with food suppliers.

This will lead to a dramatic rise in their supermarket costs, at a time when the members are already struggling to cope with high debts and mounting losses.

The collapse of the buying consortium coincides with the retirement of Harry Moore, the CRS chief executive, who has been opposed to a merger with the larger Co-operative Wholesale Society.

Mr Moore's successor will be announced on Friday, and insiders within the movement are hoping that the new chief executive will be more sympathetic to the idea of a merger. The two sides last rejected a union in 1994.

It is understood that the CWS, which last year fought off a break-up bid from Andrew Regan, is still willing to discuss a merger, but that the CRS is more reluctant.

Clive Vaughan of Verdict, the retail consultants, said: "Everything the CRS has been doing has been driving a wedge between the two parts of the movement. Perhaps the collapse of this consortium will push them closer together."

The CIC's members included the CRS - which has now been renamed Co-operative - as well as the United, Yorkshire, Scot-Mid and Portsea co-ops. The consortium benefited from buying power of more than pounds 1bn, but it was poorly organised. It was also dwarfed by the rival buying group led by the CWS, which had buying power of pounds 2.5bn.

Analysts say that if the Co-op movement cannot agree to a full merger it will have to form a single buying entity if its supermarkets are to have any chance of competing effectively against the major grocers such as Tesco, Sainsbury's and Asda.

Figures released by the CRS in May showed that its losses nearly doubled to pounds 25.6m, while bank borrowings stood at pounds 155m.

The CRS has been further damaged by the sudden departure of David Robey, its head of food retailing. He is leaving to join Shell where he will run the Select convenience stores at Shell's petrol stations.

Yesterday the CWS reported a slight increase in operating profits from pounds 53m to pounds 56m, helped by a record performance from the Co-operative Bank.

Like-for-like sales in food retailing were higher by 5 per cent, although costs were also higher due to increased investment.