The Co-op Group has warned of continuing problems with food supplies and inflation after revealing that profits more than halved last year amid supply chain disruption and higher staff wages. The mutual said underlying profit for 2021, stripping out a one-off £99m gain relating to the sale of the Co-operative Bank in 2017, was down 57% to £100m, compared with the year before, and that sales slipped to £11.2bn, from £11.5bn. Sales at the group’s food business fell by 2% to £9.1bn despite investing £140m in opening 50 new stores and refitting 87 more, and spending £18m on cutting prices. While in-store sales declined, online sales soared from £70m the year before to £200m thanks in part to tie-ups with Deliveroo and Amazon. Sales also slipped at the Co-op’s funerals business, declining by £8m to £264m. Shirine Khoury-Haq, the incoming interim chief executive of the Co-op, said: “The last year has seen us facing some significant challenges, including significant supply chain issues in the second half coming at the same time as our food business transformation and increasing inflationary pressures. “The difficult operating environment disproportionately impacted our food business, given its focus on the community convenience market, with an operating model that is more reliant on flexibility in the supply chain.” She said the Co-op would be reexamining its current strategy of opening 50 to 100 stores a year as she suspected change would be required given the shift to online shopping and cost challenges. Khoury-Haq said inflation and supply chain problems were not just being prompted by the war in Ukraine, which has driven up the price of energy and affected supplies of wheat and edible oils. Even the price of coffins in the group’s funeral business have increased because of global shortages of wood and other resources partly as a result of the pandemic. Problems with heavy rainfall and flooding in Spain, which supplies large amounts of fresh vegetables to the UK at this time of the year, have also hit supplies of broccoli, courgettes and other vegetables. Khoury-Haq, who replaces Steve Murrells in May, said the Co-op had been forced to source elsewhere or offer alternatives because of shortages. She said some food price increases were “inevitable” this year, but the Co-op was trying to mitigate the problems for customers by not raising the price on 1,000 key items and adding 100 extra products to its budget range. The Co-op said it was outperforming the grocery market. However, it expected its food business to “face continued challenges during the year” amid “inflationary pressures and the economic uncertainty facing customers”. Allan Leighton, the chair of the Co-op, said: “The economic headwinds look stark and will be tricky to navigate but through our continued planned strategic investments our Co-op is well placed to ride out the storm and prosper beyond.”