* Co-op wants 4,000 UK convenience stores by 2018
* To spend "millions of pounds' lowering prices
By James Davey
LONDON, March 5 (Reuters) - Britain's No. 5 grocer The Co-operative plans to double the size of its grocery convenience store estate over the next five years and will cut prices to better compete with its "Big Four" rivals.
With a market share of 6.2 percent the Co-op is Britain's fifth-largest grocer after Tesco, Wal-Mart's Asda, Sainsbury's and Morrisons.
While the overall member-owned Co-operative Group weighed down by a crisis in its banking division, its grocery operation outperformed peers at Christmas.
It trades from about 2,800 stores in the UK, 2,000 of which are convenience stores. The convenience store sector is the country's fastest growing retail channel, worth 36 billion pounds ($60 billion) and forecast to grow by 10 billion pounds over the next five years, according to industry body IGD.
"We've got aspirations to double the number of (convenience) stores," Steve Murrells, the Co-op's retail CEO told reporters at a strategy update on Wednesday.
Existing convenience stores will be refitted, while some larger stores, many of which were inherited as part of the Co-op's 1.6 billion pound purchase of Somerfield in 2009, will be sold or closed.
Murrells declined to say how much the Co-op planned to invest in lowering prices, beyond stating it would be "millions of pounds".
"When we do reveal it, it will face into the truth that price has been a barrier," he said.
"Across the range (of store sizes) we're not big enough to compete against a Tesco or a Sainsbury's but in the space of convenience we believe that we can lead the pack."
Tesco said last week it would invest a further 200 million pounds in prices, while Asda said last year it would spend 1 billion pounds in lowering prices to close the price gap with the discounters Aldi and Lidl, who have been winning share.
Murrells said the grocery business would focus on improving its stores and then develop an internet strategy.
"The conundrum with 'clicks' is that it is profit eroding and cannibalises your big shop sales, but unfortunately if you are not prepared to eat your own children then someone else will," he said.
The Co-op said last week it was selling its farming business and looking at offloading its pharmacies after a banking crisis that has sent its losses spiralling to the worst levels in its 170-year history.
The disposals are part of a restructuring at the group, rocked in the past year by the discovery of a 1.5 billion pound capital hole in its banking arm and a drugs scandal involving ex-chairman, Methodist minister Paul Flowers.
The BBC reported last week that the Co-op would post a loss of over 2 billion pounds for 2013, when it releases its full-year results on March 26, and cut up to 5,000 jobs in the next three years to slash costs.
The losses stem mainly from its banking unit together with a reduction in the value of the stores and goodwill it acquired in the Somerfield purchase.
"For 50 years the group's been suffering from coronary heart disease and in 2013 it had a heart attack and that has been a painful heart attack," said Murrells.
But he said the Co-op brand still has a great connection with the British public.
"The number one priority for the group is food. For us that is about having enough funds available to open shops and therefore the group will give us its full support," he added.