Thank you for standing by, and welcome to the Coles Group first quarter FY 2022 sales results call. All participants are in a listen only mode. There will be a presentation followed by a question- and- answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Steven Cain, CEO. Please go ahead.
Thank you. Good morning, everyone. Welcome to Coles Q1 FY 2022 sales announcement. Joining me on the call is Leah Weckert, our CFO, and Matt Swindells, our Chief Operations Officer. He will answer any COVID or supply chain questions that you might have today. We are thankfully presenting our results from an unlocked Melbourne, where there is a new energy, smiles and relief all around. The shudders of our earthquake now seem a distant memory. As we entered the third year of our transformation strategy, the emergence of the Delta COVID-19 strain has presented significant new challenges for Coles and the wider industry. I would like to start by acknowledging how well our team, our suppliers, our community partners, and the various governments have risen to the challenge. More than 20,000 of our team have been in isolation during Delta.
In particular, our teams in the 12 lockdown New South Wales LGAs and our Victorian teams that supported the isolated Shepparton community deserve special mentions. The good news is that conditions are now improving as vaccination rates increase. I am delighted to report that around 90,000 of our team members have now had at least their first jab, and that all of our working team members in New South Wales and Victoria will be double vaccinated or have a medical exemption before Christmas, which will ensure a safe trading environment and minimize the number of team members in isolation. Returning to the quarter, group sales LFL rose 1.5% year-on-year and 12.2% on a two-year basis, with our liquor business leading the charge. The highlights of the quarter were our supermarkets and liquor e-commerce sales increasing 48% and 72% respectively.
Being ranked number two globally in supermarkets behind Tesco in the U.K. for sustainability by the World Benchmarking Alliance, and our continued work to help the vulnerable in the community with SecondBite and Foodbank. Coles incurred COVID-19 costs of approximately AUD 75 million, inclusive of team member discounts in the first quarter, with costs accelerating in August and September, largely due to team members in isolation, additional door greeters to ensure QR code compliance, and lower productivity due to shift levels in distribution centers. Turning to outlook and with the end of significant COVID-19 restrictions in sight, consumer savings at an all-time high, and the recent launch of a new range of great value easy entertaining, we are optimistic for the Christmas and holiday period as family and friends get together again.
In the first four weeks of the second quarter, supermarket comparable sales were broadly in line with the first quarter and approximately 8% on a two-year basis. In Express, current fuel volumes are impacting profitability. However, volumes are expected to recover in the second half of FY 2022 as consumer behaviors normalize and mobility increases. COVID-19 costs are expected to peak in October and then start to moderate in November and December due to recent changes in isolation policies, particularly in New South Wales and Victoria. A lower level of COVID-19 costs are expected to continue into the second half due to measures to ensure safe stores and business continuity in the supply chain. COVID-19 construction delays have impacted Coles' capital investment program in the first half of FY 2022. As such, Coles expects some rephasing of the capital program into FY 2023.
In FY 2022, capital expenditure is now expected to be in the range of AUD 1.2 billion-AUD 1.4 billion. A more detailed update will be provided at the half-year results announcement in February. To finish, we are looking forward to supporting a very spooky Halloween, reporting our first rapid antigen test sales, and supporting the important Movember men's health program across the network in November. Christmas, I think, which we're all looking forward to spending with friends and family. With that, I will open up for Q&A. Thank you.
Your first question comes from Michael Simotas from Jefferies. Please go ahead.
Hi. Good morning, everyone. It looks like you've gained some sales momentum relative to Woolworths over the course of the first quarter, which is good to see. Just so we can sort of pull apart the underlying trend, I'd be interested in how you performed in tobacco, given that seems to have been a major step change in sales across the industry. Woolworths yesterday suggested that tobacco sales were down 20%.
Yeah. Good morning, Michael. Hope you're well. As far as tobacco is concerned, you know, we saw some declines year-over-year. There's a couple of factors in that, obviously. One is the long-term price increases of tobacco, obviously the health situation around it, but also the fact that people are working from home is a driver as well. I don't think anybody quite knows yet that as people return to work, will they have kicked the habit for good or will the smoke go around the back of the office carry on in the future? That's a bit of an unknown at the moment. Our tobacco declines were perhaps not as severe as maybe some others in the market.
We believe that it would have impacted our comp sales by about 160 basis points.
Okay. Thank you. I really appreciate that detail. The second question I've got is on the outlook for pricing. There's clearly a lot of cost pressures coming through the value chain. We're not seeing a lot of it in shelf prices yet. How comfortable are you that you will be able to pass on whatever cost impulse you need to accept from suppliers in coming months?
Yeah. Well, our policy. I think I've been rolling out our policy for three years now, and it hasn't changed, which is that if it's a valid increase, then we'll accept it, and then obviously the market will dictate whether it you know gets passed on or not because we want to remain very competitive on value. As I said last time at the full year, the main focus for us is you know we allocate a value spend each year, and our focus is on making sure that that gets spent in the most productive way possible, which means well-planned, coordinated with suppliers, plenty of stock in store, and a marketing campaign around it. That's our priority as far as how we you know move forward on value is concerned.
You know, really every price increase is on a case-by-case basis, whether that's accepting it or whether it gets reflected in the, you know, in the consumer marketplace.
Great. Thanks very much, Steve.
Thank you.
Thank you. Your next question comes from Shaun Cousins from UBS. Please go ahead.
Oh, hi. Good morning, Steven and team. Maybe just a question regarding online. Can you just talk a little bit about what level of capacity you've added to your online business and how that's assisted your sales? Maybe when you're discussing online, can you talk a little bit about the headwind that you face in the B2B business, which is important for you and then maybe what the underlying trends maybe are in the B2C space as well, please.
Yeah. Good morning, Sean. Thanks for that. I think in New South Wales, we said somewhere that, you know, we doubled our capacity. We're still, you know, rolling out more capacity across the country. As we head into the holiday season, we'll have a much better offering this year in those regional and coastal places. That's been a bit of a focus for us in the off-season. It's not that it's felt like the off-season. Yes, we've had a lot of capacity. We've done a lot more on the immediacy space. And, you know, we've also launched our shoppable app, which was very recent. There's been a massive push and leaning in online.
You know, certainly it looks right now that all the consumer metrics are improving again after taking a bit of a dip during that sort of crazy time in those 12 LGAs where, you know, a significant number of team members were down, and availability was, you know, less than anyone would've liked. I think we're optimistic about the future for online as we head into Ocado, albeit that, you know, there is you know, when you look overseas that are a bit more advanced than us in terms of coming out of lockdown, the reports are that, you know, everyone should expect, you know, a declining penetration rate in that sort of medium term rather than, you know, continuing increases every quarter.
I think on the second part of your question, Sean, just around the B2B piece. The number we've reported in the release is our all-in e-commerce number, so it's inclusive of B2C and B2B. It is a little bit higher if you just strip out to B2C customers. B2B was a little bit of a drag in the quarter, similar to what we saw this time last year, because of the restrictions in New South Wales and Victoria with regards to trading for small cafes and restaurants and the like.
Okay. I think, Leah, you made the point that B2B might have been, I think it was AUD 170 million at one stage. I mean, is it fair to say it's sort of like, you know, 10% of your online sales, say? Or I'm just curious just to sort of frame that a smidge.
Yeah, I mean, it's obviously growing from that point. It's still around about that mark.
My second question, maybe to you, Leah, if you could help, please. Just in regards to COVID costs, you've seen quite an acceleration since July. Do you have any sort of, I guess, talk a little bit about where we should expect COVID costs to decline to in November and December? I'm not sure if it's better on a per month basis, in dollars or as a percentage of sales. I'm just curious. You've called out that it'll decline. I was interested in what it declines to, please.
Yeah. I mean, it's very hard to make forecasts on this. It's you know literally a changing landscape week to week in terms of the health orders that we're working towards delivering on. As we said, we expect it to peak this month in October. Some of the changes that we have seen, and Matt might wanna talk to these in a little bit more detail, with regards to the way in which isolation requirements are now in place in Vic and New South Wales, which is quite different from what we saw in early October and August and September. That is gonna make a meaningful difference because the two biggest drivers of our COVID costs over the quarter were the team member isolations, but also the store greeters.
Matt, do you wanna just maybe talk qualitatively about where that's headed?
Yeah, sure. Thanks, Leah. On those isolations of team members both in store and in distribution center, they clearly cause significant disruption to the capacities of our ability to move stock through the distribution centers, which led to the need to then remap our network and pull in stock from multiple states. If you think about COVID last year, it was a Vic issue that we supported really from New South Wales. In Delta in this quarter, it's been significantly more complex. You have isolation payments, but also the disruption to the supply chain. In stores, it's a case of losing large cohorts of the team in one go and having to cover from other stores while obviously you've got 14 days of isolation for those team members, too.
That's not only a cost in the isolation, it's the cost of the disruption, the mitigation you have to put through. The work that we've done with the health departments in Victoria and New South Wales has materially shifted the impact of those isolations, and we won't see a 20,000 number again. It's clearly hard to predict what the future holds depending upon where Delta goes. With a higher number of team member vaccinations and with the new protocols agreed with the health department, it's significantly reduced. Therefore, the isolation costs will be materially lower, but also the disruption to the supply chain is lower. Not only is that good for cost, it's good for executing a great Christmas.
Just further to that, why is October the biggest month then, given you've made these changes? I'm just curious why you've called out October as the highest cost month.
Because those changes weren't really able to be brought into effect fully until the back end of that month. Having them agreed is one part, but then you've got a 14-day period of working through existing isolations. There's also the unwind of some of the complexities that sit within the supply chain. To come back to operating fully within those new considerations, that takes a little bit of time.
No, that makes sense. Fantastic. Thanks, team. Leah, Matt. Thank you.
Thank you.
Thank you. Your next question comes from Thomas Kierath from Barrenjoey. Please go ahead.
Oh, morning, guys. Just wanted to ask on the CapEx stuff. I think you're saying there's some construction delays. I think previously you've said Ocado is being rolled out late 2023 and 2024 in Melbourne and Sydney. Is there any kind of update on the timing of Ocado's implementation?
Thanks, Tom. Good morning. I think the main thing to say is that, you know, in Victoria and New South Wales, we've got a lot going on the construction front right across the piece. It's too early to give a big update on what's impacted by when. We're still working through each of the programs with all of our key suppliers. I think we'll be able to give a comprehensive update on a state of the nation when we get to our half year results in February.
Yep. Okay, fair enough. Secondly, I think you're calling out two-year food sales growth of 11%. Can you maybe break that across Victoria and New South Wales, like the lockdown states versus the free states or the non-lockdown states, just to understand what the kind of underlying growth might be in the business?
Yeah. Well, I think it's fair to say the one thing we know about a lockdown now is, in a state, is that it produces a double digit outcome in the first year that it happens. We saw that in, you know, the first year of the Victorian lockdowns last year. We saw the same thing happening in New South Wales this year. I'd sort of say, you know, when you're looking at things on a two-year basis, lockdown states are double digit, and the rest of the states make up, you know, are in growth, but they make up the rest of balance.
Right. Is there a way that you can quantify, like, the difference in the growth rates on a two-year basis? Are the lockdown states at 15% and the non-lockdown states at, like, 5% or 8% or something or?
Yeah. I don't think we want to probably get into a state-by-state breakdown. Yeah, it's double digit versus, you know. We saw the similar thing sort of happening this year in New South Wales to what we saw in, you know, Victoria last year. The impact year-on-year in Victoria wasn't so great. New South Wales is the big one and obviously when you're doing your analysis, you need to consider what percentage of, you know, our estate is in that Metro New South Wales region, because it's significantly less than our overall representation across the country.
Yeah. That makes sense. Thanks. Thanks, Dave.
Okay, thanks.
Thank you. Your next question comes from Bryan Raymond from JP Morgan. Please go ahead.
Good morning. Just continuing on the supply chain issues that the industry is facing at the moment. I'm just interested how much that disruption has impacted on availability and the promotional programs that you guys have in place over the quarter. Did you have to cancel a lot of promotions because you didn't have the stock because of either your workers or inbound service rates dropping off?
In the pipe, we were able to execute and run. There were a number of promotions that have been reviewed in light of some of those changes, not only around the supply challenge, but also the demand that moves around with COVID and lockdowns. It's not just about the supply. It certainly had an impact, and it's been a priority for the team to work through making sure that the network is flexed as much as possible to support states that have got capacity constraints. That we are in the process of, under those new health orders I talked about earlier, putting more capacity back into the network so that we can support and execute a great Christmas. It's been a very difficult and complicated at times quarter from a supply chain perspective with lots of moving parts.
As I said previously, the first lockdown was Victorian-centric, supported relatively straightforwardly by the supply chain out of New South Wales. In this instance, we've had to reengineer the network for all states, at times being utilized to support both New South Wales and Victoria. When you're making changes on that scale that we've had to do at the pace we've had to do with the teams working together, that's had some levels of disruption.
Right. Okay. That's helpful. Thanks. I guess in terms of the drivers of the disruption, obviously, there's many moving parts to it, as you just outlined. Just thinking about some of the things that could be solved more quickly, like vaccination rates domestically impacting availability of team members versus longer term issues like global supply chain problems that we're facing, you know, certainly in other markets where products are getting sourced, lack of pallets, et cetera. How would you classify sort of the domestic shorter term issues versus the longer term global issues?
We've got a dedicated team that is focused on managing COVID so that we're both safe for our customers to shop and safe for our team members to work in. That also encompasses the protocols that we need to maintain our roles in essential service and provide food for all Australians. The issues that come down the pipe are all managed at pace, and they're managed across the end-to-end supply chain, not just within our business, but with the suppliers. In the instance of pallets, we work not just with our own supply chain teams and our providers of pallets.
With CHEP, we're also working with industry across AFGC to make sure that we can make changes to our supply chain and optimize the existing pallets better to provide as much resilience there as we can do while we manage through the longer term effects. You've got to manage the here and now, and you've got to plan for the future. It's no different through the rest of the supply chain too. We've got an incredible team of people that for the last 18 months have faced numerous challenges day to day. As a principle, we plan for the worst, hope for the best, and we keep the ball very close to our feet because we know we have to be able to be nimble and react quickly and make decisions that keep those food supplies going.
I don't know what the road to Christmas fully looks like. We've got a plan for team member isolations with new health orders. We've got a plan for recruitment to keep capacity going. We've got a plan for pallets. We've got a plan for international stock. If we need to change the plan, then we'll do so.
Okay, great. Just to confirm then, if you could get through to Christmas without any major isolation issues with your local staff, and it was just the global issues, do you think there would be a fair bit of resolution to the supply chain problems you're facing? Or do you think that a lot of this is out of your control? It's a global problem that will need to be resolved over the next 12 months or 18 months.
I think we benefit from having a large proportion of our overall product mix sourced domestically, and we also benefit from long-term supplier agreements and partnerships where we work incredibly closely together. There is a bit of muscle memory here now on being able to react quicker through the supply chain. Lead times are considered longer and safety stocks are thought of as higher because we know we have to have that flexibility. If you'd have asked me the question a month ago without the changes to the health orders on team member isolation or without the higher levels of vaccination across the workforce, I'd have been a lot more pessimistic. Currently, we're pretty optimistic that we've got a great plan for Christmas.
Okay, great. Thanks. Thanks and good luck. Cheers.
Thank you. Your next question comes from Grant Saligari from Credit Suisse. Please go ahead.
Good morning, everyone. Steven, Leah, just first question around fuel volumes. Could you indicate whether you saw any significant change in fuel volumes in New South Wales as New South Wales emerged from lockdown through October? Yeah. Good morning, Grant. Happy to say we did. We expect the same to happen in Victoria this weekend. I think Victoria opening up on a long-
Melbourne Cup weekend from metro to regional will be a big thing this weekend. You know, people will be topping up their cars there and so on. Yeah, we're definitely seeing, you know, shopping centers recover in New South Wales. We're seeing fuel volumes begin to recover, and we expect the same thing to happen in Victoria this weekend.
Do you think you'll be getting closer to a break-even point, or is it still gonna be sort of well below the where we might think of for break-even for that business?
Well, you'll recall that when we entered the new arrangement with Viva, we said that break-even was in that sort of low 60s range, and over time, we've managed to work that down to sort of high 50s. Our expectation certainly, you know, in the next half is that, you know, we would wanna be getting back up towards the 60 million liter mark. It'll take, I think, some time to get back to where we were pre-COVID, which was, you'll recall, around that 70 million liter mark.
Just building on that. Obviously when we're talking break-even there on the 62, we are talking about a pre-AASB 16 number.
Mm-hmm.
You can find the AASB 16 adjustments that were for Express in the full year release in the appendix there. You know, as Steven has said, based on where we were for the quarter to date, we would've been well below that pre-AASB 16 break-even point.
Okay.
Thanks, Leah.
Just making sure we're all on the same numbers and on the same basis.
That's helpful. AASB 16's caused more issues than I think it solved. Just a second question.
I agree with you on that front.
Just a second question, if I could, on shopping behavior. You mentioned, I think, shoppers returning to major centers in New South Wales post-lockdown. Could you elaborate on that, whether you've seen any sort of changes in behavior, like for example, shopping more frequently, smaller baskets, you know, any of that sort of reversion to normality?
Yeah, it's certainly, you know, beginning to happen. I wouldn't make a major call. I think the major thing at the moment is that, you know, the shopping centers are getting busier, again, and that, you know, for now we think that online demand has peaked. It's, you know, it's still at an elevated level. It's so far so good in terms of the unwind of local shopping, so to speak.
Okay. Thank you.
Thank you. Your next question comes from Ben Gilbert from Jarden. Please go ahead.
Good morning, Steven and Leah. Just first question from me is I appreciate all the comments you guys have made previously around neighborhood versus regional. When you go out and do your customer surveys or studies, how are you seeing your scores or perceptions trend versus your competition through the last quarter? And the reason for this, I'm just trying to understand as we get to some level of normality, it's mentioned your numbers look like they're improving a bit relative to the last couple of months. You seeing anything there that gives you confidence that will continue? Just in terms of how you're seeing some of the studies today.
Yeah. Hi, Ben. Good question. Obviously, we keep an eye on all of the retailers and the customer perception. The good news is that our NPS scores in supermarkets and well, across the business, I think, are all heading in the right direction. Clearly we've had, like others in the industry, some fairly significant availability issues which haven't gone unnoticed by our customers. If you were to ask me what the number one focus of everybody in the business is today, second to safety, it is availability. As Matt said earlier, we're not through the woods yet.
You know, we had a meeting. We have our weekly trading meeting on a Monday, and there's still a long list of supplier facilities which are down, and that list changes every week, as Matt said, in a whack-a-mole fashion. What we try and do is, you know, work with those suppliers to try and make sure that they're as COVID-safe as possible and that they get back up and running as fast as possible. The hard part is deciding which lines to focus on when manufacturing opens up. We're in a much better space than we were six weeks ago, in general, and particularly with our own team. This is just rolling through supplier facilities one at a time still.
We expect that to continue until, you know, vaccinations are at a higher level. Pleasingly, you know, now we've got to the stage where vaccinations of our team in Victoria are over 90, and I suspect that's the case for a lot of our suppliers, as well. Everyone heading in the right direction, at pace.
The relative gap to your competition, presumably you measure the basket of competition, is that getting better, or are you getting further ahead or closing the gap behind? How are you seeing that?
Which one, Ben?
In terms of customer perceptions around things like out of stock.
We have
value perception.
We have two main scores that we look at. One is NPS and the other is tNPS. Interestingly, the NPS scores are overall on the improve, and the tNPS is under pressure, so to speak, and that's mainly because of availability more than anything else.
Okay. That's helpful. Thanks. This follows now. I know everyone's talking about inflation and all those sorts of things at the moment, but is it conceivable, 'cause I saw a bunch of decent price increases go through across all the majors last couple of weeks across big lines. Is it conceivable we could see 3% type inflation for dry grocery through next year? Because there's some big increases being talked about globally, and we're seeing high single or double-digit increases already starting to come through. It almost seems like we're gonna have to see two, three, four points of inflation in dry grocery just to support some of these cost pressures at the moment. Is that conceivable, and how do you think about that?
A lot will depend on market dynamics and competitiveness and everything else. We will be doing everything to maintain or improve our relative position. I have to say, I don't think we'd forecast what's gonna happen over the next nine months as far as pricing is concerned. I definitely won't speculate on what it could be, other than to say what it is today, which is, you know, we're still in deflation. There's a fair degree of promotional intensity. As you've heard from others, things like tobacco inflation not going through to the same degree, deflation in produce is broadly offsetting the inflation we're seeing in areas like red meat.
Okay. No, thanks for that. Thanks a lot.
Thank you.
Thank you. Your next question comes from Scott Ryall, from Rimor Equity Research. Please go ahead.
Hi there. Thank you very much. I guess one of the first things I wanted to say is I think it's extraordinary what you guys have achieved in the last quarter. I imagine it's been the hardest out of the last 18 months. I said the same to Woolworths yesterday. Given the challenges you faced operationally and with staff availability and all of that, my questions really relate to that. Woolworths yesterday announced the Christmas staff bonus. I was wondering what your thoughts on that for Coles are, given you did do one in the middle of last year after the first quarter of the impact.
Operationally, and maybe this goes towards your CapEx delays and some of the stuff that Matt's already spoken to, but are there any strategic initiatives, priorities that you just literally couldn't get to in the last quarter, that given where you're really focused on availability to Christmas, have to push into 2022 and have to get reinvigorated next year? If you could talk to anything there that you would have liked to have done, but you'll need to get back to in the next calendar year, that'd be great.
Morning, Scott, and thanks for those kind words, which we will share with the team. I'll let Matt talk about how we approach engagement at Coles with the team. I might just cover your second question first, which is, you know, initiatives. First of all, there's a lot that has happened, and that's the good news. We try and make sure that things do happen no matter what is going on around us as best we can. As Matt said, we've established a separate COVID commander of our own and a separate COVID team as best we can, so that the rest of the team can try and focus on improving the business.
The main area that we've called out is CapEx, and we've managed to sort of complete projects in the non-COVID states. It's fair to say that, you know, things have just not been moving at pace in Victoria and New South Wales on any construction related activity, whether that's big projects like, you know, Witron and Ocado or whether that's new stores, renewals, or even minor upgrades. All those programs have been impacted to different degrees, and we're still working through with all of our suppliers on how do we sort of try and recover as much time as possible. It's mainly the construction piece that I'd call out.
I'll hand over to Matt to talk about the engagement program for our team, because as you know, it's one of our strategic differentiators to have the most engaged team in Australia, because we do think that having everybody on board behind the strategy, selling and saving is a long-term competitive advantage. Matt, over to you.
Thanks.
Yeah.
Thanks, Steven. Thank you, Scott, again, for those kind words. I couldn't agree more. You're right, the quarter has been one of the most challenging. What's interesting is that we see through that period in our latest engagement survey of the team, a lift in the engagement levels, particularly in the COVID-affected states. We have an always on strategy of reward and recognition as part of our team member engagement plan that's centered essentially from a new initiative we introduced at the back end of last year called Team Member Circles, where we talk to all of our team members from store all the way up through our regions and states.
To our store support center to understand not just the pulse of engagement, but also how we can work together better and how we can work together at pace. That's then led to an ongoing reward and recognition program around some of which is store level. Stores, community in their own right, want to celebrate and recognize each other's efforts. Some of it is peer-to-peer, and we've had a program called Appreciate a Mate, which has been hugely successful, where team members can recognize each other and reward each other with gift vouchers. It's less of a one-off thank you at a point in time. It's more of an ongoing reward and recognition program, not just for this year, but for future years to help build that team member engagement. So far, the performance there is really pleasing.
Of course, there's more that we will do. We've got a great campaign that, I'll talk to the team about first separately, that it starts mid-November and runs all the way through Christmas, and actually includes not just Team Members, but their families too. We want to make this a much wider appeal. There's lots that's happening. We're really pleased with the progress that we're making, and we're going to stick to that long-term plan.
Okay, great. Thank you. That's all I had.
Thank you. Your next question comes from Ross Curran from Macquarie. Please go ahead.
Hi, team. Congratulations on a great quarter and thank you for all the detail gone into the questions today. I might just dig into the liquor business. Are you able to give us some color around how liquor is performing in the non-lockdown states?
Yeah. It's been performing pretty well actually in both the lockdown states and in other. It's less in the non-lockdown states, but still very pleasing. The various brands are performing differently. I think last year was more about big box and online. This year, Liquorland is performing very well, and online has continued at pace as well. Just on those two-year numbers, by the way, it's probably not too dissimilar to other things you've heard in the market, the lockdown states versus non-lockdown.
Thanks. Just secondly, around collectibles programs, the Woolworths Bricks program seems to have resonated well with families. Can you just talk to your thoughts around operating a collectors program in an environmentally sensitive way?
Sorry, just repeat that question, Ross.
Sure. I may have walked back from offering sort of plastic collectibles to families with the purchase that the Woolworths Bricks program seems to be doing quite well with families. Is there a way you can offer a collectibles program that you know conforms to your ESG targets?
Yeah, I mean, to be in our program going forward, it would have to be a sustainable piece. You know, we wouldn't have run that particular program you're talking about. You know, although they were very popular, we stopped things like Little Shop for that reason. Popularity isn't gonna be our measure of success going forward. It has to be popular, and it has to be sustainable as well. That's what we're putting our mind to. I have to say that I wouldn't underestimate how popular the MasterChef range of products has been, whether that's the knives, which we're running for the second time. That's the most popular continuity program in the world, by the way.
The second piece is things like the picnic ware and the glassware and so on that we've run as well. They've all been highly engaging for our bigger shoppers. We're very pleased with the performance of our program, but when we said we were going down the sustainability route with kids' collectible programs, we did mean it.
Thank you.
Thank you. Your next question comes from Craig Woolford from MST Marquee. Please go ahead.
Good morning, Stephen and team. Just a question, if I could, about the price inflation measures that you provide. The measure excluding tobacco and fresh, which was down 0.8% in the September quarter, was actually -3.7% in the June quarter. Quite a sequential change in that deflation measure. I'd be interested in understanding, you know, what might have contributed to such a change in the measure compared with the June quarter, 'cause it does look a little bit different to what Woolworths had over that same time period.
Yeah. I think we've sort of given up trying to find links between different pricing metrics that are in the market. You know, obviously, some of the CPI things we've seen recently are a bit different as well. The main things that are going on, there's some things which are relative to the year before, which is product availability and those type of things on promotional programs and promotional intensity. Promotional intensity is relatively high. Obviously, we've talked about availability already. There is that undercurrent of you know price increases that we talked about at the full year and we'll no doubt continue to talk about for the next few quarters as well. Those are the sort of key dynamics that are in those numbers.
Okay. Understood. The other thing that Coles has understandably called out is that the lockdowns in some ways have had a bigger impact on Coles with shopping center-based stores and obviously your online penetration level. What can you tell us, it doesn't have to be specific numbers, but what could you tell us about your market share performance in WA and Queensland, just as states that haven't really had any lockdowns of any significant note? They've had a bit, but hardly any. Has your market share performance been better in those states?
I'm probably never gonna get to market share by state as a metric. I can tell you that you know certainly for the few months of data we've had since the full year, it looks like our share is reasonably stable compared to Q4 numbers recognizing that we did say in Q4 that share was increasing through the quarter. It's come off a little bit in the first few months as that local shopping impact rolls through. It's also worth noting that you know we have a far fewer number of stores in Metro Sydney than others. Obviously that's the area that saw the greatest uplift this time around. You have to sort of you know bear in mind all those sort of things as well.
We expect that we'll see the same as we did last time, which is when lockdowns ease, it's the specialist, i.e., non-supermarkets that see the first recovery, the butchers and the bakers and, so on. Then we come next. We probably see the same thing happening this time as things open up. Of course, no one knows what's gonna happen in those other states. You know, when you look at the vaccination rates there and things, that's still you know, a risk for the future. Hopefully those rates will come up significantly. I think in New South Wales and Victoria now with these 90% vaccination rates, we're in a good space in terms of not having metro or state-based lockdowns going forward.
It's a two-edged sword because lockdowns drive supermarket sales, but they probably disadvantage us the most. You know, I think we've all probably had our fill of lockdowns, particularly those of us in Melbourne, and looking forward to just getting on and delivering the rest of the strategy.
Yeah, absolutely. All the best for Christmas trading, Stephen, and same.
Thanks, Craig. Cheers.
Thank you. Your next question comes from David Errington from Bank of America. Please go ahead.
Morning, Steve. Steve, two questions. one question, a little bit of a left fielder. Your big part of your COVID costs this quarter obviously is when your staff go into isolation. You had 20,000 going into isolation. Now with, you know, we're all vaccinated, et cetera. The history is, though, that when we all open up, the case numbers escalate, you know, go through the roof. It's just the hospitalization rates don't. They fall significantly. What happens in your stores then? I mean, if your staff are vaccinated, but they still get COVID, do they have to go into isolation? Where I'm going with that is that we have to expect that once we open, cases are gonna rise. Your team members, even though they're vaccinated, they will probably still get COVID more, you know, because the numbers will go.
What happens then? Do you think? Do they have to go into isolation for 14 days? Consequently, we shouldn't really be expecting a reduction. In fact, we probably should expect an increase in the number of staff members, team members, everyone in that go into isolation. Can you give a bit of an overview as to what you can expect, talking to health people, what is likely to happen in that scenario?
Morning, David. I'm gonna hand this one over to Matt, our SME on this one. The one thing we don't know yet is what the settings, the safety settings in supermarkets are gonna be on the run-up to Christmas. Of course, those settings will dictate how you know how safe everything is. We want it to be as safe as possible. With that caveat you know just bear in mind, though, David, I mean, we've had COVID running rife through those 12 LGAs in New South Wales and
Mm.
You know, supermarkets themselves turned out to be a very safe place to be because of the protocols. The issue was either customers coming into the store with it and then the ensuing avalanche of isolations or our team members coming into store with it and the same, you know, protocols applying. That was the reason for the issue in the first place. I'll hand over to Matt to talk a little bit more about what might or might not be the rules and regs going forward.
Thank you, Steven. Thank you for your question, David, because that's the exact question that we were playing out just over a month ago on the back of the modeling that we were reviewing to say, where do we end up on isolations if we don't make a change? What's the right risk versus safety protocols for industry? We did plan for a very much higher increase in community transmissions in New South Wales with the easing up of the lockdown there.
Interestingly enough, we were having this exact conversation with New South Wales Health just this week on how encouraging it is that the community cases have maintained such low levels, and whether or not that's due to the high levels of vaccination, both within the community and certainly within our own team members. The outcome is more optimistic than we thought currently, but we're staying very close to it. With the changes that we've made, we would have a much lower impact in terms of duration of isolation across-
Mm
A much smaller cohort of the team. While the community cases could rise significantly, the impact upon our operations will not. The caveat to this is we continue to work daily with the health departments, and we continue to support contact tracing, and we continue to support revisions to those protocols, and we will always do the right thing for team member and customer safety. At the moment, we're confident that even if the community transmissions increase, we're in a very strong position to maintain operations with a lower level of team member isolations on the protocols that we've got agreed.
Yeah. That's why you're confident that the costs, the COVID costs will come down for the isolations because less people, team members will be isolated because of this and for a less period of time. That's what you're saying, really? That's why we can be confident, even if the rate, the numbers increase, we can be confident that the costs will come down because the rate of isolation will be lower. Is that the right way of interpreting it?
It is, yes. You're correct.
Oh, that's very good. Thank you. Second question. Thanks, Matt, for that. I appreciate it. Steve, look, I want to talk about the liquor business, in particular where you currently sit. Now, it's improving, but you're still a fair way off the pace relative. Like, your online penetration is 4.5%, and I think, you know, Dan Murphy's has increased to about 11.5%. You know, sales per square meter, it's still sizably beneath Dan Murphy's, et cetera. You've made some good changes here, but I'm just surprised that online penetration is still quite low at 4.5 versus Dan's at 11.5. Why is that? What can you do to improve that? Because really, I mean, there's been a big jump.
It's off a low base, but really, your online offer just doesn't seem to be catching in liquor, you know, when really it's. You've really probably been a bit left behind there. What can you do to get that right? Secondly, you know, do you think you'll ever get to the metrics that, you know, that Dan Murphy's are at?
Well, thank you, David. Great question. I think there's a few different ways of looking at this. One is, if you look at percentage improvements that the liquor business has been making in online, it's made some great strides over the last 18 months, including last month, the opening of our fourth dark store, so to speak, in Sydney. So we've now got next day delivery sorted across the country through those four centers, and they're performing very well. The other areas that we're still doing a lot more work on are click and collect from store, and then the immediacy piece. On immediacy, we've been working with Uber Eats in Victoria, and that's planned to roll out into other states.
I'd sort of say that the highest potential part of our offering is in that immediacy piece. Plus, as we roll through with the things like the Black and White program in Liquorland, we improve the click and collect offering as well. I'd expect to see continued improvement in the online liquor space as we move forward. What I can tell you also about liquor is that, you know, we compare our NPS and other measures to all of our major competitors and, you know, I'm happy to report that we're making great strides in all of our brands against all of their key competitors. I think there was some KPMG survey out this morning about favorite brands and favorite retail brands. I think liquor.
It wasn't a liquor survey as far as I can tell. It's a retail survey, and I think First Choice came second amongst consumers overall.
Mm-hmm.
The work that's going on those Black and White Liquorlands, the renewal program at First Choice, and some of the reformatting we're doing at Vintage Cellars seems to be paying off. I think the biggest part of the program change that we've seen over the last 18 months in liquor is really around local products and supply. Darren's only been here 18 months. He seems to have developed a bit of a passion for all the local things that are going on in Australia, and that seems to be working well so far.
Okay. Well, thanks, Steve. I can attest to those knives on your collectibles at Ross's question. They're damn sharp, though, Steve. You gotta be careful with them. They're very good, but you gotta be careful with them.
Yeah. You don't wanna be having too much of the Liquorland before you.
No, you do not.
Prepare your meal.
Prepare your meal.
There's a cleaver in the range this time around too, David. Watch out for that one.
Oh, you wanna be careful with that, Leah.
Thank you. Your final question comes from Phillip Kimber from E&P. Please go ahead.
Hi, guys. I'm not sure if this was asked earlier, but Woolworths mentioned, you know, on their call that they had seen a, you know, pretty significant deterioration in tobacco sales in the first quarter of FY 2022. I was just wondering if you've seen a similar thing and whether, you know, there was the same sort of a drag on your sales numbers, which I think for Woolies was about 200 basis points.
Thanks. Thanks, Phillip, and good morning. It's a little bit your line is a little bit muffled, but I think you were asking for tobacco numbers in the quarter. We talked early on and sort of said that we have seen a decline in both supermarkets and in Coles Express. It's a double-digit decline. It's probably not as much as others may have reported, but it probably pulled the comp sales back by around 160 basis points. The big unknown is really what will change when people or when some people return to the workplaces and will it go. Will it recover or not? That's the bit. That's a bit of a wait and see.
Okay. Thanks. Sorry, I must have missed that before.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Cain for closing remarks.
Thank you, and thanks for your questions this morning, everybody. I hope you're feeling as relieved and as optimistic as I am that we're nearer the end than the beginning, and that this COVID will turn into hopefully something more akin to the flu going forward rather than what it's been over the last 18 months. We're certainly at Coles looking forward to getting back to executing our plan at pace, and we're looking forward to, I think taking a bit of time off after a very busy 18 months with our friends and family over Christmas, and we hope that you are too. With that, I might wish you all the best for Christmas and the new year.
Don't forget about Halloween, supporting November, taking one of these little RAT tests home and making sure you know how to operate them. We look forward to seeing you at the half year results in February. Thank you.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.