Costcutter takes a £25m hit

CONVENIENCE supermarket group Costcutter – part of the Liverpool-headquartered Bibby Line Group – lost £25m last year as it implemented huge changes to the way the business operates.

Its strategy to transform the retailer centred around changing its supplier from Nisa to Palmer and Harvey (P&H), generated exceptional costs of £10.5m while problems of stock availability during the year affected sales.

“Following switch over to P&H in July, our delivery standards fell well below expectations and took longer than expected to correct,” said Costcutter chief executive Darcy Willson-Rymer.

The retailer operates around 2,500 shops under the Costcutter, Mace, kwiksave and Supershop brands, which are mainly operated as franchise businesses.

Revenues were down £9.2m to £766.5m although the group increased its number of stores by 81 in 2014. Promotional pricing also had an impact, with gross margins dropping from 1.6% to 1.3%.

It resulted in a pre-tax loss of £25.1m in 2014, against a break-even performance a year earlier.

Costcutter expects to “become profitable and cash generative” during the current financial year, with future years’ performance enabling it to repay debt and fund its growth plans.

Willson-Rymer warned that it remains a difficult environment for the business.

He said: “The UK has experienced significant changes in consumer shopping habits in recent years with the growth of limited range discounters and an increased propensity to shop around for best value.

“There is a risk that the company’s proposition becomes less attractive in light of these changes and competitors’ reactions to them and thet customers switch their allegiance to competitors.”