I would now like to hand the conference over to Ms. Leah Weckert, CEO. Please go ahead.
Thank you, and good morning, everyone. Welcome to our first quarter sales results for the 2025 financial year. I do hope you're all well stocked up on your Halloween trick-or-treat supplies and getting out to experience it tonight. Before I begin, I would like to acknowledge the traditional custodians on the land on which we meet today, the Wurundjeri people of the Kulin Nation. We acknowledge their strength and resilience and pay their respects to their elders past and present. Today in the room, I'm joined by Charlie Elias, our CFO, Matt Swindells, our Chief Operations and Sustainability Officer, Anna Croft, our Chief Commercial Officer, Ben Hassing, our Chief Digital Officer, Michael Courtney, our Chief Executive of Liquor, and Amanda McVay, our Chief Customer Officer. Before I open up to Q&A, I will make some initial comments on the results.
I'm pleased to report solid growth in the first quarter, with group sales revenue growth of 2.9% to AUD 10.5 billion. In supermarkets, sales increased by 3.5%, with comp sales growth of 2.4%. We delivered positive volume growth driven by our value campaigns, our Winter of Sports giveaway campaign, as well as our exclusive brand portfolio. Liquor sales were flat in the quarter. Headline sales did benefit from higher space growth following the acquisition of the 20 stores in Tasmania, as well as the timing of events, particularly the Footy Grand Finals. However, we were also impacted by the continued transition away from less profitable bulk and affiliate sales during the quarter and the CrowdStrike outage in July. Overall, we've been working hard to deliver value for Australian families, and we remained very focused on this throughout the quarter.
This was seen through exclusive to Coles revenue growth of 4.5%, a positive customer response to our winter and spring value campaigns, as well as our other investments in value across the portfolio, including into own-brand cheese and everyday staples in the Coles Simply range, and then also through our loyalty program, we saw Flybuys active members grow by 4.1%, with more than 20% growth in members participating in personalized value offers. Pleasingly for customers, we saw a deflation in meat, dairy, health and beauty, and home care categories during the quarter, and overall supermarkets' inflation, excluding tobacco, declined to 1%, remaining well below historic levels. Supermarkets' e-commerce sales continued to grow strongly, with 22.4% growth, with continued improvements in online NPS, and as you can probably work out, this implies that we're seeing good growth from our stores at around 1.6%.
We're also really pleased with the early results following the opening of both our Victorian and New South Wales CFCs. We're slightly ahead of schedule, and we expect to complete the transition of orders by mid-November. The early positive outcomes across a range of customer experience metrics, including availability and the perfect order rates, have been very encouraging. Looking ahead, in the early part of the second quarter, supermarket sales revenue has remained broadly in line with the first quarter, and volume growth is supporting this with investments that we've continued to make across the portfolio to help support families in the lead-up to Christmas. In Liquor, sales revenue growth remains subdued, and the business is focused on making sure we've got a compelling value proposition for the festive season.
Now, before I hand back to Q&A, you will have seen the other announcement we lodged with the ASX today with regards to investing AUD 880 million to construct our third ADC, which will be located in Truganina, Victoria. We're really excited about this further investment in technology, which will enhance product availability for our customers and also improve efficiency across the supply chain. The project's expected to commence this financial year, and as a result, we are expecting our capital expenditure in FY25 to increase to approximately AUD 1.3 billion. And with that, I'll now hand back to the operator for Q&A.
Thank you. If you wish to ask a question, please press *1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press *2. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Tom Kierath with Barrenjoey. Please go ahead.
Morning, Leah and team. I suppose the obvious one is just to ask on promotional intensity and changes in consumer behavior. Obviously, we've flagged some changes in the market yesterday. Just be interested on what you're seeing on that front. Obviously, any numbers would be appreciated, but I appreciate it's a sales call, so that might be difficult.
Yep, thanks for the question, Tom. So if I take a step back and maybe start with the customer behavior side, so I would say customer behavior's been evolving pretty dynamically now for the last 12 to 18 months. And you've probably heard me talk about this on the last few results calls where we've talked about 90% of customers are changing their habits. We've got a lot more shopping around. And to just put some numbers around that, if we went back 12 months ago, the average Australian family was shopping in four food retailers every four weeks to fulfill their basket. 12 months on, that is now seven to eight food retailers across a four-week period. And actually, we've now got 95% of Australian families shopping at three or more retailers for food every week.
And so that cross-shopping has been stepping up very consistently across the last 12 months. We've also been seeing customers much more focused on promotions and loyalty offers and definitely seeking those out. And they've been trading into more affordable options, and that's why we've seen such strong growth in own-brand over the last 12 months, really, as a period. So none of this is new for us. We've been sharing this quite openly in our results calls now over the last 12 months. And I would say, as this has been unfolding, we have been adapting our approach as we go. And so, I mean, if I look at the promotional intensity that we had in this last quarter, it was slightly up on Q4, but it was slightly down on Q3 last year, and it was almost completely in line with Q2 last year.
Actually, if you looked across the average of the last 12 months, this promotional intensity that we saw in the last quarter is not sort of materially out of line with what we've seen over the last year. I would say that in the last 12 months, we, from a strategic perspective, have been very focused on what we need to be doing to provide a really compelling value offer. Part of that is we have focused in on promo effectiveness and really looking at getting behind fewer, bigger promotions that really make impact for the customer. That means looking pretty hard at a lot of the promotions that sit in the tail and don't really add a lot of value for the customer but actually drive a lot of complexity into the business for us.
We've also been replacing our mass loyalty offers with much more personalized offers, which means we're getting a lot more effectiveness in terms of the loyalty spends as well. And we've been quite strategic about where we've chosen to invest into price. And one of the ones I'd call out on this is the investment we made into one kilogram cheese blocks in the own-brand range during the quarter, where we took it from AUD 13.90 to AUD 9.50. It's a really important line for customers. It really cuts through as an offer, and we can put big volume behind it and really drive sales through a promotion like that.
So when I put all of this together, what we're really trying to do is to make it easier for the customer to find value that is relevant to them, but we're also really optimizing the investment that we are making into that value so that where we are putting it, we are actually getting impact. And so that has been our strategy now for the last 12 months, and we are continuing to do that. To your question around, it's a sales call, not an earnings call, it is a sales call, and I won't provide any guidance, but I would probably go back and reiterate what we shared at the full-year result, which is we have a number of cost headwinds coming into this year. We've got the increase in wages. We've got step-ups in D&A and implementation costs related to the transformation projects.
But we also have been very clear that we want to make sure that we're competitive, and as such, we will need to make value investments over the course of the year. But on the positive side of all of that, to deal with those cost headwinds, we have been putting in place now for the last 12 to 18 months a program of activity which really frees up capacity for us to navigate that. And so you've got the Simplify and Save to Invest program, AUD 1 billion out in four years. We took AUD 238 million out last year, and we are making good progress in the first quarter in terms of our target for this year. We've got the work we've been doing on loss.
It's no secret to any of you on the line that you went back to this time last year, and we had a significant issue with loss. We put in place a very comprehensive plan to address that, and the exit rate that we achieved coming out of FY24 was very strong. And if we just maintain that exit rate for the whole of this year, then that gives us a significant tailwind. But that's certainly not our intention. Our intention is to continue to improve it. You've then also got the benefits we're seeing come through because of the ADC. Now they're twofold. We're getting better availability, which is helping to support sales, but we're also starting to see the efficiency benefits flow through, and we expect to be reaching full run rate of those in the second half.
Then you've got Coles 360, which we're continuing to grow. Then probably the other one I'd chuck in is we're really focused on execution, which is just make sure every event is executed well, which is why you heard me start with Halloween. Now, that suite of activity, none of that should be new to you. We have been very open in sharing that that is our plan, and that is enabling us to have capacity to deal with the headwinds that we have coming into the business.
That's really comprehensive. Thanks, Leah. Appreciate it.
Your next question comes from David Errington with Bank of America. Please go ahead.
Morning, Leah. And this probably will be a question for Charlie and maybe Matt, but I'm really interested today why you announced the announcement of the new DC. I'd like to know what advantage this is going to bring to Coles. I was hopeful that we're getting toward the end of the capital intensity that we're putting into the industry, but obviously, this is hopefully going to provide you with some benefits. But I was hopeful also we're past the headwinds or the headwinds of the increased costs of implementation of these DCs. But if Matt and Charlie could basically give us a bit of insights as to what this new DC in Victoria is going to bring to Coles and when things are going to start impacting, that would be really appreciated.
Thanks, David. It's Matt here. I might start and then hand to Charlie for some of the financial components of it. But in terms of the plan itself, this is part of our overall supply chain network strategy. The timing is very considered, and the benefits that we see relate really to safety. They relate to better availability, and they clearly relate to a more productive structural advantage that we see in the market. Witron remains the number one automated solution provider globally. They continue to work with key partners around the world on repeat business, and we still believe that that is a structural advantage for us in terms of cost. And now this facility itself, it is slightly bigger. The capacity requirements are about 15% more, so it's not exactly the same as Redbank and Kemps Creek.
That does mean it's a bigger program of work with a higher cost and a slightly longer period of time. But fundamentally, the operating system is pretty much what we've got in Redbank and Kemps Creek, and we are really pleased with the progress that we've made on realizing those benefits in line with the business case, and we want to continue to take this kind of technological advantage and then optimize it further over time. So I think from a strategic perspective, it ticks all the boxes. We've now done two of them. It's the same teams that will work on the third, and we'll continue with that playbook and bring the Victorian site online, which then essentially covers our Eastern Seaboard grocery volume, which is where we can get the best and the most optimal component of our supply chain volume through that technology.
But Charlie, do you want to talk to the number?
Yeah, thanks, Matt. As Matt said, look, really excited about what this actually does bring. As I said, this actually now, as Leah said in her opening remarks, automates our ambient supply chain across the Eastern Seaboard of Australia, including supporting the network in WA and SA. And you've already seen, we've already pulled out the availability benefits, etc. But if I can just focus on the CapEx. CapEx for this year, as we've guided, CapEx will increase from AUD 1.2 billion- AUD 1.3 billion. Let me just take you through the profile, though. Similar to the previous two projects, what we do expect is about three-quarters of the CapEx profile in sort of years two, three, and four. Then you've got effectively the balance either side in year one and year five.
So look, Dave, we don't take this decision lightly. We're really confident in the benefits that these are going to bring to Coles and our supply chain costs.
Following up, Charlie and Matt, and maybe Leah might want to bring in here. One thing I've been watching and a bit concerned about is the falloff of sales in store. Now, Leah, you called out that growth in store was good, but it was only 1.6%. Yesterday, Woolies, I think, sales in store was 0.7%. There's a clear shift away from shopping in stores. Now you're getting a fairly hefty increase in kit, if you like, or capital to support the stores at a time where store sales are pretty low. I'm just a bit worried about this sales in store decline and what you can do to arrest it and whether this CapEx is going to be justified given the trend of sales in store.
This investment, it doesn't just help us support sales in store. It helps us support sales across the whole of the channels that we offer to customers. These facilities will actually supply the CFCs. We still have our stores who are fulfilling our click-and-collect orders and our same-day orders. The benefits that this brings is across the entirety of the omnichannel offer for customers.
There's no problem. You're not worried about the drop in the sales in stores? That's going okay?
I think we're comfortable on where we are overall. I mean, we definitely think about the customer as an omnichannel customer at the moment, and the vast majority of our customers shop both online and in store, and we want to make sure that we continue to offer them a suite of options that they've got, which suits the mission that they're trying to fulfill on that day.
And if you go back, Dave, of the 10.8% penetration with respect to e-commerce, I mean, we've pulled out historically, so it's not a new number, but 40% of that is obviously click-and-collect, right? So in-store fulfilled sales out of our stores, etc., as Leah said. So this does help fulfill the mission across all those shopping missions of our customers in all our channels.
Okay. That sounds like a good investment. Okay. Thanks for that.
Thanks, David.
Your next question comes from Adrian Lemme with Citi. Please go ahead.
Good morning, Leah, Charlie, and team. Look, I mean, just following up on the question just there from Errington, interested in your perspective on click-and-collect, and I've heard from these few on this, but.
Adrian, we've just lost you. Would you mind starting the question again?
Yeah. Apologies, Leah. So I was just following on from Errington's question, actually, about online and click-and-collect. I'm interested in your views because I've heard Woolies views on this, but interested in why there's no price signal on a standard click-and-collect order like there is delivery. It's clearly growing in preference for people, and I think it's really good value as a customer myself to save an hour of my time doing a click-and-collect order rather than shopping in store. What do you think about putting some sort of price signal on it to help recover the cost, please?
I'm going to pass over to Ben to address this one.
Yeah. Thanks for the question. As Leah mentioned, we've taken an omnichannel approach, and so if actually you went back a few years, a lot of customers felt the pricing we had in store was different from the pricing that we offered with click-and-collect, and so over the last few years, we've gotten really consistent in the strategy on execution for both price and promo because, as Leah said, the majority of our online customers, they shop in store as well, so really, it's kind of the convenience aspect of click-and-collect is the natural draw, and we don't need to make significant investments to move customers across. We're meeting them where they're at and where they want to be.
Okay. Yeah. My concern is that it's growing in penetration for both Woolies and Coles, and there's a lot of their personal shoppers in store shopping for these, and that's a labor cost for both of you. So yeah, I guess that's my concern with it. Can I just ask one quick follow-up also from our on the ADC? I know you mentioned it's got 15% extra capacity. I think on average, it's costing 70% more than Queensland and New South Wales if you average the spend on those two. Is the existing cost base in the Victorian distribution network a lot higher, such that the return might be similar, or should we expect a lower return on this one than the first two, please?
Yeah. So Adrian, thanks for the question. So let me just address the question of the cost of the program. As Matt earlier said, this is our larger facility. It's going to handle 4.6 million cartons a week compared to the other facilities, which were 2.8 million cartons. This is going to cover an extended catchment, as we said, in Victoria, not only Victoria, but Tassie, but also into South Australia and WA. So this is a larger facility. Also, you've got to remember that the previous projects were actually signed four or five years ago. So it's clearly been an inflationary environment over the last four or five years, as we know, and that's impacted it. So we are very confident that with the investment that we're making in this facility, we're very confident of the returns and the benefits that this facility's ADC will bring to Coles.
It's too early to talk about what those benefits are, but yeah, from our perspective, we're really confident in the reason we're making that investment and announcing that investment today.
Thanks, Charlie. No, that's good to see. Thank you. Bye-bye.
Your next question comes from Michael Simotas with Jefferies. Please go ahead.
Good morning, everyone. I've got a couple of questions, if that's okay. The first one is just a follow-up on the promotional environment and competitive landscape. So clearly, Coles is doing a good job to improve promotional effectiveness. Can you make some comments on what you're seeing in the market? Have you seen a step up in promotion, whether it's effective or not, from other players? And do you think that there is a risk you'll need to respond to that?
Hi, Anna here. I think what we are seeing is the broader market playing very competitively, and we're now tracking a broader range of competitors than we were 12 months ago to make sure that our customer offer in every single category is competitive and that we continue to offer the customer the full shop and the ability to do that. I think what we are seeing is in our own strategy around actually how do we simplify our offer and focus on execution. What we are seeing by running fewer promotions in store year on year, we're actually seeing that with better execution, more cut-through for customers. That can't happen on its own.
What we are doing is coupling that with a strategy in each of the categories, which is really focused on entry price points to make sure that customers have no reason to go anywhere else, but also incredibly good tiering in every category that we can manage through good, better, best. And we're seeing, obviously, the results come through in Finest. That's up 8.9% as a result of that. So I think it's not just promotions alone. It is the entire customer offer and the value prop we're focused on. But there is no doubt that in certain areas of the market, we are seeing very competitive activity. If you just look at non-food, that has gone into deflation, and we're very conscious around how do we respond to that through offer in the appropriate way that is sustainable long term.
I think I'd just add to that, Michael, that we obviously monitor our promotional position every week pretty closely, and we're satisfied with where we are sitting against key competitors on that front at the moment.
Okay. Those comments are really helpful. Thank you. And then the second one I've got is on the Truganina ADC. I'm not expecting definitive numbers, but how should we think about implementation costs for this? And you've called out a AUD 35 million provision that you'll take in the first half. I presume that's not the extent of the implementation costs given the significant costs that we saw with the other two facilities. So should we expect a reasonable chunk of cost to come through the P&L for the next few years above the line relating to this?
Thanks for the question, Michael. So there's a couple of things that I'll address there. So firstly, in terms of the provision, you're right. That is not in the implementation cost. That is a one-off cost around site closures and site reconfiguration costs. As you know, this involves three sites. It involves the Somerton site, the Truganina site that we currently have, and a site in Tasmania. Yeah, it's intended that Somerton and Truganina, sorry, and Tassie would close, and the Truganina site would be repurposed into a primary consolidation center. So that's a one-off cost. We're calling that out, and so that allows you to sort of model that through. In relation to implementation costs, look, there will be implementation costs that come through, but predominantly not in FY25.
So look, we'll give you further guidance with that going forward, as we did with the other Witron and the CFC programs going forward. Can I just use this opportunity? Earlier, I did actually say that what the other two facilities were 2.8 million cartons. That's not correct. It's actually 4 million cartons. They were replacing facilities that were doing 2.8 million cartons. So the 15% step up, if you like, in larger facilities is from 4 million to 4.6 million cartons per week.
Thanks, Charlie.
Your next question comes from Ben Gilbert with Jarden. Please go ahead.
Morning, team. Sorry, just following up from prior question, Charlie, because we're all probably going to have a crack at trying to put in the costs for 2026, 2027. Should we be thinking AUD 60 million-AUD 70 million a year of additional D&A for a few years? I'm just cognizant that it's obviously non-cash in theory, but it's going to be probably some wide ranges that people think about trying to guesstimate where it's going to fall for 2027, 2028 for the numbers.
Look, Ben, thanks for the question, Ben. There's a couple of things. Firstly, it's too early to pull any D&A. That's like five years away. So yeah, it's not a D&A impact. In relation to the implementation cost, Ben, as I said earlier, we'll make that call closer to in terms of what those implementation costs will be on a year-over-year basis as we did with the other facilities.
Okay. But it's essentially going to be a cost of running duplicate facilities that will be taken above the line in CODB, and then we're going to think about the D&A when it comes in, as it comes online.
Yeah, but that's five years away, Ben, so.
Yeah. I mean, that's definitely at the back end of the profile that we would see the D&A impact start to come through. So essentially what Charlie's saying is in FY25, we are not pulling out any material implementation costs. There is the step up in the CapEx, and that mostly relates to milestone payments that we make with Witron. So think ordering kit, paying for steel, all of those sorts of things. And as we get towards next year, we'll start to give you some insight into what the implementation costs on the next couple of years are.
All right. That's helpful. Just sort of a question for me. Just in terms of consumer behavior and some of those stats that you provided at the start there, which were really helpful, is this changing how you need to think fundamentally around cost and serving the consumer? Because it just feels like average basket sizes are coming down. And as we sort of look forward, how do you think you need to continue to readjust just the business? Do you need to focus more on costs? Do you put more into loyalty? I'm just wondering how you start to get those basket sizes up. You've obviously done a great job maintaining profitability as they've contracted, but obviously the goal would be to look to grow those moving forward.
Yeah. It's a really good question. I mean, from our perspective in terms of that customer behavior, the shopping across retailers right now is meaning that we just have to be very focused with every week's offer to make sure that it resonates. And certainly, our ambition every week is to get as many customers as they can to come and do the big basket shop with us. And so we're very focused on making sure, to Anna's point, when we're designing the promotional programs, that we have a good mix of products within that at really good discounts that will fall into those big baskets. So we are the first point of call for them.
There's no doubt we are going to continue to have to focus on cost going forward, and that's why things like the Simplify and Save program and the work that we're continuing to do to drive down loss are just so important for us to make sure that the team is really focused on those initiatives in parallel with what we're doing on the sales side and really optimizing the offer.
So do you think you're winning share of main shops at the moment?
I think at the moment, if we took, I mean, obviously last year, we think overall we took some share. I think for this year, year to date, I'd probably describe it as we're holding our own. I mean, I would say the winners in the market at the moment are Aldi, and probably to a lesser extent, some of the really value-focused specialists like your small fruit and veg stores and the like. And so we are very focused on how our offer stacks up there, which is exactly why you've seen us making investments into areas like Coles Simply and some of the really big value basket lines like cheese.
Thanks. That's great.
Your next question comes from Caleb Wheatley with Macquarie. Please go ahead.
Hi, Leah and team. Thanks for your time this morning. Just wanted to ask a follow-up question on the two CFCs. So now up and running, I know you've spoken to the higher perfect order rates. Just keen to understand or if you could provide any more color on customer feedback so far, particularly around things like take-up in areas of operation, reorder rates, etc., etc.
Yeah. Thanks for the question, Caleb. Yeah, we obviously got them operational in July. We're a bit ahead of schedule now in terms of the transition of stores. And I think we've probably been pleasantly surprised with how some of the metrics have played out in these early weeks of trading them. Ben, do you want to maybe just cover off some of the detail around that?
Yeah. Thanks, Leah. Yeah. And as Leah said, we are pleased with the early results of this transition, and we're ahead of our expectations internally in terms of sales, but also customer experience. We're seeing a pretty significant improvement in customer experience measured by NPS. Our hypotheses on availability more than came true. And so that's massive, especially in online for customer experience. But also things like fresh quality, it's really standing out to customers. They're responding quite well. You can go online and see a shelf life for specific SKUs. Minced meat, for example, would be six days, etc. That's resonating. And then there's a whole host of other things. Another one would be our drivers and the friendliness of the drivers.
If you think about just kind of the management structure of the CFC and the leadership that's engaging at a central point with all of the CSAs, it's really cutting through with the customers. There's many, many other things that we'll be talking about in the future. I'm going to hand it over to Matt because actually we're seeing some other benefits across the network.
Yeah. Thanks, Ben. And I guess this really talks to that omnichannel customer and omnichannel operation approach that we've taken because in the stores where we have transitioned that home delivery volume across to the CFC, we've then seen a step up in the store availability and also the store customer NPS. And in particular on the weekends where trade is busy and congestion was an issue where the online pick operation would clash with higher customer numbers. We've taken that pain point out, and that's given us a real step up on performance in store for the customers there too. And we probably didn't expect to see that improvement in the bricks alongside the improvement in the CFCs too.
Great. Thank you. That's really helpful.
Your next question comes from Shaun Cousins with UBS. Please go ahead.
Great. Good morning. Thank you for the opportunity. I'm just going to ask two questions. One on private label. You're growing at 4.5%. And I'll just note that's a step down in the 10.4% you did in the fourth quarter and the 8.6% you did in fiscal 2024. I'm just sort of curious, you've got Coles Finest is doing well, but how's private entry-level private label going? Just as we do sort of see that at times being GP dollar diluted, but it also is an effective Aldi fighter, and we're just concerned, are you, we're getting some trade feedback, there may have been some entry-level customers that have gone from Coles to Aldi. I'm just curious around your entry-level private label performance, please.
Hi, Sean. It's Anna. I think I would say overall we're really pleased with our own brand performance. It obviously grew at 4.5%, as you said, in the quarter. And we are continuing to see very good growth from our staple categories: coffee, confectionery, pasta, and many others. But in some cases, we have seen some pretty strong promotional intensity from proprietary and kind of snacks and biscuits areas. As you've mentioned, we've seen strong growth in Finest, but also Simply continues to build. We're now at 111 SKUs. You'll have continued to see us make price investment to make sure that we have got the right entry price points, and we're building really strong awareness there. What I would say is the Q1 number at 4.5%, if you take that on a two-year, we're cycling over double-digit growth in the prior year.
So the two-year stack is actually still very strong, and we're really pleased with overall how the portfolio is growing, and it's absolutely where we thought it would be for the quarter.
Okay. Gotcha. And then great. Okay. And my second question is just around liquor. This time last year, Coles called out that the AFL Grand Final timing cost 0.7% to sales. It doesn't appear that there's been a normalization in that, in that it's included in the first quarter there. And when we're thinking about the flat sales growth in liquor, I assume that that's really, if we were to adjust to AFL timing, that should be negative 0.7%. And can you confirm that that's the impact that AFL Grand Final has? And more broadly, given the small store format, how does the business handle the operating deleverage of a decline in comps and decline potentially in total sales as well on the business, please?
Thanks, Shaun. So I mean, obviously, liquor is a very subdued market at the moment. Definitely, customers right now consider it to be much more of a discretionary category than food is. And so we are seeing customer behavior where customers are either cutting back on liquor or actually choosing to just stop drinking it all to help manage the household budget. But we're happy to give you a bit of color around the impact of the Grand Final on the top line. Michael, I might get you to cover that off if that's okay.
Yeah. Happy to. Thanks for the question, Sean. So if you're looking to normalise our headline, I'd also take into account the impact of CrowdStrike that we did call out at the eight-week update as being a negative impact. So if you were to take the Grand Final timing, which was a benefit, CrowdStrike, which was a negative, overall, those two things were a slight positive to our headline. So how I would think about it is that if you adjusted for both of them, our Q1 headline would be broadly in line with what we reported in Q4, which was -0.4. I think then the second part of your question is obviously when we're in. We're not just in a low-growth environment with liquor. We're in a high-cost inflation environment when you consider the level of EBA increases, etc., that have been coming through.
To your point, that does pose a headwind from fixed costs, debt leverage on the business. A couple of things to keep in mind would be that the subdued sales that we're seeing at the moment, certainly for first quarter, continues to be impacted by the decision that we've made around the bulk and affiliate sales. So when we did our full-year release, we called out that impact in the fourth quarter as being about 1.8%. And so for the first quarter, I'd think about it in roughly the same magnitude. Now, those impacts will cycle out progressively through Q2. So by the time we get to the end of the first half, we should be pretty clean on those. Those obviously will improve both our headline and comp performance, which is good.
I think then, in terms of the rest of the business and how we can offset the impact of fixed costs, debt leverage, we're looking to take our costs where we can, and we've probably got more opportunity to control cost growth in the second half of the year than we do in the first half of FY25, and beyond that, it's really about looking to drive sales, and so you were just saying that we throughout the quarter announced what we're looking to do in terms of consolidating to a single banner. Team are really excited about that. We think it'll not only have impact with customers in terms of driving more sales through our stores, but it also does provide some cost efficiencies for us, so that's currently in the works in South Australia where we announced the pilot will be.
So we'll get those stores into pilot by the end of November, and then we'll reassess the progress of that around the end of the third quarter before determining next steps. So we're conscious that we're in a challenged sales environment at the moment. I think FY24 was probably the lowest year of growing liquor retail since the last recession. Now, some of that's cyclical, which eventually will subside. I can't say how quickly and by how much, but until that plays through, we've got a full program of works that we're working across: short term, medium term, long term to be improving both sales and cost as much as we can.
Fantastic. Thanks, Mike, Anna, and Leah.
Your next question comes from Lisa Deng with Goldman Sachs. Please go ahead.
Hi. I've got two questions. The first is around our key trading strategies into the peak period. Comparing to last year around what the upcoming period will be, the consumer is even more value-oriented, but we've obviously improved in promotional effectiveness. And actually, the CFCs will look like they're ready in November to take on more traffic across the whole network as well. So can you maybe help us think through looking forward how we might be trading through the Christmas period that might be more different compared to last year? Thanks.
Thanks, Lisa. Well, I mean, this next eight weeks for us, it really is a huge focus on execution. And actually, even this week, we've had a real focus on how do we execute the Halloween trading period. And we've had big specials. We've had lots of stock, and we've seen consumers respond to that well. We've then got spring racing coming in, and then we've got sort of the entertaining period into Christmas, Christmas itself, and then New Year's. And so what we have to do as a business right now is be very, very focused on that and not allow ourselves to get distracted by a lot of other things that might be going on. We certainly have focused on a range this year leading into Christmas.
We've got 400 lines that we've brought out across both supermarkets and liquor from the own brand portfolios, which what we've really tried to do this year is design them from entry price point up to more premium options in pretty much every category so that customers have where they're going to economise and where they're going to splurge a bit. So whether that's your Simply smoked ham at AUD 8 a kilo or you go up to a Finest triple smoked ham, we've got a good range of products there that customers can really pick and choose from. And then it will be very pleasing to have the CFCs online, which, as Ben and Matt have already covered, it's giving us more capacity from an online perspective, but actually, it's improving the experience in store.
If you think about this trading period that we're heading into, this is when our stores are at our busiest. Taking that congestion out of those bigger stores, that will be a big benefit for those big stores in Sydney and Melbourne where we need it most.
Got it. That's very helpful. Second question is on Coles 360. I didn't actually see a sales growth number for the first quarter for Coles 360. We've obviously had a strong e-commerce. Can you maybe talk us through how that fared in the first quarter? Thanks.
Yeah. So the Coles 360 number is not a sales number for us. It is an offset that appears within GP. So we will only be reporting it in the half year and the full year results going forward because it doesn't contribute to any of the sales growth numbers. However, despite that, I'm sure Amanda would be very happy to give us a bit of color on what's happened in the quarter.
Absolutely. Thanks, Lisa, for the question as well. So we continue to focus on creating value for our advertisers through our 360 retail media offering, and we do continue to receive high interest. We've been focusing on listening to the needs of our advertisers, and there's particular high interest when it comes to our continued investments into our measurement suite offering where we leverage the insight from our first-party shopping data. And in this past quarter, we did launch an additional media planning tool with a partnership with Nielsen that will allow us to better match the advertising objectives with the activity offering that we have to offer to really lead to that more effective and impactful campaigns. And that's been really well received in the market.
Got it. Thank you.
Thanks, Lisa.
Your next question comes from Craig Woolford with MST Marquee. Please go ahead.
Good morning, Leah and team. I thought the comments at the start you made about the cross-shopping were quite fascinating. I know this might be hard to answer precisely something after a precise answer, but would you say cross-shopping is up on what we might have seen pre-COVID? There just was quite a few changes of behavior during COVID where we consolidated our shopping trips. So are we fundamentally cross-shopping more often? And if so, why do you think it's higher than where it may have been?
It's a really good question, and I can't say I've actually got data to support it, Craig, so I'd probably have to go with a bit of anecdotally, personally, what do I think? I mean, my feeling is certainly during the time that I have worked in retail in Australia, that this is the highest degree of cross-shop that I have seen in the food category. I think sort of on the pre-COVID level, people were probably shopping one, two, three shops to fulfill the food order. Then during COVID, we obviously saw that really condensed down to, "I just want to make one trip a week because I don't want to have exposure." And so that really consolidated it.
And then I think what has driven the change in the post-COVID environment has just been the enormous amount of cost inflation that we've seen come through, which has increased prices in food in every geography around the world. Actually, Australia has fared a lot better on that front than pretty much any other OECD country in terms of food price inflation. But that's little comfort to customers here who have still experienced significant inflation in what they're paying. And so they're also dealing with mortgages, rents, insurance, education, fuel, all the other things that are coming in that are making it hard to balance the budget at home. And so one of the things we do hear from customers is in a lot of those other costs, you have little ability to influence them. Your mortgage repayment is what your mortgage repayment is.
Your insurance bill is your insurance bill. The kids' school fees are the kids' school fees. You cannot go in and negotiate them, but with grocery shopping, what you can do week to week and day to day is you can actually make changes in your behavior that influence how much you have to spend, and that gives customers a real sense of sort of more control around that, and the way that they do that at the moment is they're shopping around to research and work out where are the places that they want to go for each of the products they need to fulfill the basket.
Yeah. Makes a lot of sense. Okay. That's really clear, and just one second. On the Ocado or the CFCs, it feels like things are tracking really well. What proportion of CFC orders does the company expect to be same-day versus next-day delivery?
So we haven't got any same-day orders coming out of there at the moment. That being said, we do have orders that reach you within 24 hours. And I think there's a little definitional quirk here as well. So I can still place an order up to 8:00 P.M. in the evening and get it the next morning out of the CFC. So we're getting those orders to the customers within 24 hours. The ability, I think what you're sort of referring to is, "I ordered at 10:00 A.M. in the morning, and I can get it that afternoon." The intention is that once we have really stabilised the operations and we're kind of happy with where they're humming, we'll start to move to opening up some capacity to do that.
But where that sort of ends in terms of the end state on percentage, I think that remains to be seen.
Understood. Thanks, Leah.
Your next question comes from Bryan Raymond with JP Morgan. Please go ahead.
Morning, Leah and team. Just to follow up on the customer behavior, just trying to reconcile some of the comments today and yesterday and what we're hearing around the traps as well from suppliers. Your private label growth is lagging ex-tobacco growth at the moment. Appreciate it's a big base you're cycling, but nevertheless, you're seeing slower private label growth. Promotional intensity is broadly stable for you guys. I think you said it was sort of broadly in line with recent quarters. Yet your sales are broadly in line with your major competitor. I just wanted to understand how you're seeing that value shopper versus maybe some that are a little bit more premium in nature, potentially. Do you think you're winning in some of those mainstream or more premium households to offset some of the customer loss you're seeing at the more value end of the spectrum?
Because we're certainly hearing Aldi's performing very well, and I think you guys called that out as well. So just trying to reconcile that overall customer behavior if possible. Thanks.
Yeah. I mean, there's no question that I think Aldi is performing well across all customer cohorts at the moment. I would say, based on all the data we're seeing, we actually are probably doing better than we have been in the past with value customers, and actually, it might be at the affluent end where customers are starting to pull back on eating out at restaurants to help balance the budget, and actually, some of that shift from out of home to in-home, they're actually taking more to the specialist channel, for example, and so we're definitely working hard through our areas like Finest and our convenience range to really lean into being a destination for those types of products.
Right, and just to follow up on that, so your comment earlier around promotional intensity being broadly stable versus prior quarters, was that the dollars of sales on promotion? Or can you just give us a bit more detail around that? Because all we're hearing today was saying people are crowding into those promotions quite a lot more, particularly the big discounts that you've been talking about, prioritizing fewer but more meaningful promotions. Are you seeing a similar trend where sales on promotion have picked up quite a lot and overall promotional participation rate might be up in dollars versus rate? I'll just be keen to understand that number a bit better, thanks.
Yeah. No worries. No, the number I was referring to was percent of sales. So our percent of sales of product on promotion is broadly consistent over the last 12 months. But as Anna and I have both indicated, our strategy has been to really ensure that we've got great effectiveness with promotional spend, but also to just give simplicity in store. Because one of the big pieces of feedback we've heard from customers over the last 12 to 18 months is, "We just want it to be easier to find where great value is," and if you have too many thousands of promotional tickets across the store, then you're forcing me to do lots and lots of work to try and work it out.
Whereas if you make it simpler for them and you put that investment into the big stuff that really makes a difference, then they actually find, well, they feel that you've got better value because you're getting more cut-through on the ones you are investing in.
Okay. Okay. Great. And this is my second line of question just around supply chain and ADCs. So the Victorian ADC's, on a capacity-adjusted basis, kind of 50% more expensive. I'm sure that's oversimplifying things in terms of the capability of the facility, but you did say it's broadly similar in terms of technology. Can you confirm that the return on capital is above the cost of capital there, given the capital base is going to be so much larger, like almost 50% larger? Are the benefits of a similar magnitude larger? I know it's servicing a broader range of stores in other states, but just trying to scale that because it's just a phenomenal increase in cost there over a relatively short space of time.
So Bryan, thanks for the question. Again, we don't undertake these investments lightly. We do believe this will create shareholder value, and by definition, that is obviously greater than our cost of capital. We'll obviously give more specific return requirements closer as we get around implementation, as we did with the other two programs. But we're absolutely confident in the returns that this program delivers to Coles and the benefits that we spoke about earlier.
Thanks for sharing. It's an FY30 start point. Is that the current plan? Like a five-year? I think you said five-year CapEx profile. Is that fair?
Well, yeah. Well, I think when you talk about the sort of five-year timeframe, you're sort of talking about effectively four years around construction and completion and the like. And then you've got the sort of ramp-up period as we have. So it's a very, very similar profile to the other two facilities that we built.
Great. Thanks.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Richard Barwick with CLSA. Please go ahead.
Thank you. Good morning, all. I've got a question on inflation. And it's just, if you look at the quarter just posted versus PCP, it's like a dramatic increase when you exclude tobacco and fresh from the numbers, obviously just 0.1. What are the expectations if you look into this Christmas quarter and even into the second half of the financial year? And again, I know that if we—I think it's more sensible to talk about ex-fresh because obviously things can change there. Any color you can add, Leah and team, just in terms of what you're seeing coming in from suppliers and therefore how you think that might play through in terms of the inflation numbers?
Yeah. So as I mentioned in the introductory remarks, we have got a number of categories now that have moved into deflation: dairy, health and beauty, home care, for example. Meat has been in deflation for a number of quarters now and continued that way in Q1. The area that was in inflation sort of quite significantly up was fresh produce. And you would have seen in the ABS data that came out yesterday that fresh produce was the significant contributor to the food and non-alcoholic beverages inflation number that came through there as well. As we look ahead, I mean, interestingly, in the ABS data yesterday, although fresh produce was the highest of the categories contributing to the inflation, the month-on-month movement was actually a decline.
Although it's been high across the quarter, I think our expectation is that that probably will come off a bit based on what we saw in the ABS data yesterday. I think in the reverse, the things that we've got our eye on as things that could drive some more inflation in the short to medium term is really cocoa, sugar, and shipping costs. All three of those in the last sort of four to six weeks are looking like they're sort of ticking up versus year on year. Look, I think it's such a jigsaw to put together how this actually plays out at the top level, but sort of they're the key sort of triggers that we're keeping a pretty close eye on at the moment.
I guess if you're sort of simplifying things, Leah, if possible, would we get to a situation where at an overall level you'd be into a deflationary environment? Or do you think there's enough here in terms of some of the, as you're calling out, the cocoa, sugar, shipping, etc., that'll keep it in positive?
Again, I probably only want to talk short-term here because things are moving around. I mean, I think short-term, with the combination of those factors that I've just covered playing into the packaged space, plus the excise with continuing to be in tobacco, I think overall for the supermarkets, I think short-term we'd probably be surprised if our number moved into deflation. But what happens in the medium term, I think, is harder to call.
Yeah. No, that's fair. Okay. That's helpful. Thanks, Leah.
Thank you.
There are no further questions at this time. I'll now hand back to Ms. Weckert for closing remarks.
Thanks very much for your time this morning. I think overall we would say it's been a solid quarter. As we look ahead, we're really continuing to focus on value for customers, proactively managing our costs through the Simplify and Save to Invest program, driving our operational performance, particularly on availability and loss, and then ramping up the New South Wales ADC and finishing the transition of the home delivery orders to the CFCs. Obviously the next eight weeks is all about the successful execution of Christmas. That is what us and the teams will be really leaning into every day. With that, I'll look forward to speaking to you again at the half-year results. I'd like to take the opportunity to wish you all a happy and safe festive season. Thank you.
That does conclude our conference for today. Thank you for participating. You may now disconnect.