Retail veteran Allan Leighton is to quit as Co-op chairman as the mutual presses ahead with the biggest cost-cutting push in its 160-year history.

The Manchester-based group is understood to have hired City headhunting firm Odgers Berndtson to find a replacement for Mr Leighton and his de facto deputy Sir Christopher Kelly, the Co-op’s senior independent director.

City sources said that a shortlist of five to six people has been drawn up for the chairman role but a final decision on the appointment is unlikely to be made before Co-op announces its annual results this week.

The exit of Co-op’s two most senior non-executives at the same time was described by one senior City figure as something of a “succession collision” and comes as the mutual cuts costs and grapples with its debts.

Co-op axed 400 jobs at its head office last July as part of wider plans to restructure its finances. It hopes to make £150m of savings in 2023.

A gloomy economic backdrop also forced Co-op to address its unwieldy debt pile, with £300m of bonds due to be repaid in little more than a year’s time.

Co-op sold its estate of 129 petrol stations to Asda last autumn in a deal worth £600m. Some of the money was used to repay £100m of bonds in February.

Half-year pre-tax profit fell to just £7m on £5.6bn of revenue in the first half of last year. However, the actions taken are expected to lead to a more optimistic outlook when annual results are unveiled on Wednesday.

One senior source said: "The business is upbeat and the finances are now in a really good place."

Mr Leighton, the son of a Co-op manager, was appointed as the mutual’s chairman in 2015. He was credited with turning around the fortunes of Asda in the 1990s ahead of the supermarket’s £6.7bn sale to US giant Walmart in 1999.

He went on to be Royal Mail’s longest running chairman in the noughties and served on the boards of Dyson, Sky and Selfridges. Mr Leighton remains chairman of Pizza Express and Brewdog.

Mr Leighton will leave a relatively new executive team in charge of the Co-op. Rachel Izzard was announced as chief financial officer last month. Shirine Khoury-Haq was appointed chief executive in August, after being promoted to the interim role the previous March.

Co-op employs 60,000 people across 2,500 food stores and 800 funeral homes. Its products are listed in a further 5,000 stores and it is the UK’s fifth biggest food retailer.

A spokesman for Co-op said: “Over the past 12 months our Co-op has made considerable progress against the strategic priorities Shirine and Allan set out last April.