Co-Op unveils drive to double profits

By Mark Potter

LONDON (Reuters) - The Co-Operative Group, Britain's biggest mutual retailer, unveiled a 1.5 billion pound investment drive aimed at doubling profits over the next three years and said it wanted to buy rival Somerfield.

"It would be a great strategic fit," Chief Executive Peter Marks told Reuters on Thursday. "But it's still early days and we've got a lot of work to do."

A source close to the matter told Reuters last week the Co-Op was the frontrunner to buy Somerfield from its owners, private equity groups Apax and Barclays Capital, a unit of Barclays, and property magnate Robert Tchenguiz.

However, newspapers have said it is reluctant to pay an asking price of about 2 billion pounds.

Marks declined to comment.

The Co-Op, created last July from the merger of The Co-Operative Group and United Co-Operatives, is the fifth-biggest food retailer, third-largest pharmacy chain and biggest provider of funeral services.

The group, which employs 85,000 and has 2.5 million members, said it was embarking on a 1.5-billion-pound investment drive to transform its more than 4,300 outlets to a single brand by the end of 2009 and help it compete with rivals such as Tesco and J. Sainsbury -- which have expanded into the Co-Op's main convenience store market.

Marks said the new green fascia of its food stores -- the group's largest business -- emphasised its commitment to the environment. Stores would have more space for fresh food, would get new fixtures and fittings and staff would get more training.