Thank you for standing by, and welcome to the Coles Group three Q23 sales results. 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 one on your telephone keypad. I would now like to hand the conference over to Mr. Steven Cain, CEO. Please go ahead.
Okay. Thank you. Good morning, everyone, and welcome to our third quarter sales results. Before I start, I wish to acknowledge the traditional custodians of this land on which we meet today, the Wurundjeri peoples of the Kulin nation, and we pay our respects to their elders past, present, and emerging. Joining me on the call today is Charlie, CFO, and a number of our DL team, including incoming CEO, Leah Weckert, who takes over on Monday. She's here, in her capacity as commercial and express, today, for the avoidance of any doubt. Matt Swindells is here from operations and sustainability, and we've got Ben Hassing, from e-commerce. We've also notably, got Charlie, CFO, and a number of our DL team, including incoming CEO, Leah Weckert, who takes over on Monday , as well.
I'd like to start by acknowledging Darren. He's made the difficult decision to return home to the UK to be with his parents, sons and daughters at the end of June. He's made an outstanding contribution to our liquor business since joining in 2020. Under his leadership, the liquor strategy was reset to be a simpler, more accessible and locally relevant drink specialist. The results speak for themselves. We've seen significant sales growth in the liquor online business, and we've also renewed more than 400 liquor stores to the highly successful Black & White format. We thank Darren for his contribution Coles and wish him the best for the future.
As you know, these are also my last results, and as I reflect back to the demerger in 2018, we've always endeavored to deliver outcomes for all stakeholders in Coles. Become one of Australia's most trusted consumer brands in that time, and we've delivered upper quartile returns to our millions of direct and indirect shareholders. It was also pleasing and perhaps timely yesterday to see the Prime Minister of Australia and Premier of Queensland officially opening our first WITRON automated distribution center, which was five years in the making and will make Coles more efficient, more sustainable and safer, as well as driving better availability for our customers. Turning now to the Q3 results themselves. On a continuing basis, group sales were 6.6% ahead to AUD 9.4 billion.
In supermarket sales, revenue grew by 7% with comp sales 6.5%, supported by the expansion of our DROPPED & LOCKED value campaign, the commencement of the latest MasterChef Cookware continuity program, and an increasingly popular Flybuys program. Home brand sales continued to surge. They're up 11%, and e-commerce returned to growth of 2.7%, driven by our immediacy offerings. Lower produce prices helped inflation moderate to 6.2% in the quarter, and supplier availability, which we talked about at the half year, did improve marginally. However, there's still a lot more work to do to improve the resilience of Australian food and drink supply chains. In liquor sales growth, sales revenue growth returned to 2.6%, again driven by strong e-commerce performance of 29% growth and exclusive brand growth of 15%.
With regards to outlook, supermarket sales growth continued into the fourth quarter, with volumes remaining modestly positive, supported by solid Easter trading and the new DROPPED & LOCKED three campaign, which extends to July. Price inflation, we expect, will continue to moderate during the period. Further to previous updates, construction delays are ongoing in relation to the two CFCs being built by Ocado. Work is continuing to determine what impact these delays will have on previously advised timelines, and we'll provide an update in due course. We expect the Coles Express transaction to complete by the end of May. Just as a reminder, customers will still be able to take advantage of Flybuys points, the four cents digital docket, and of course, Coles own brand products.
We have, of course, the largest own brand portfolio in Australia, and it's standing us in good stead. We expect that we will continue to be able to deliver trusted value for our customers, where many households are experiencing increasing cost of living pressures across numerous elements of their expenditure, including, of course, mortgages and energy. We also expect that availability will continue to improve. It's good news yesterday on the immigration front. We are seeing higher immigration numbers. We are seeing hospitality expenditure moderating. Obviously supermarkets will be the beneficiary of that. We expect those three tailwinds to benefit the business on an ongoing basis.
It would of course be remiss of me not to talk about upcoming Mother's Day and why everyone should head into Coles as soon as this Call finishes. We've got $8 roses over the next couple of weeks, and we've got satin PJs for AUD 25 for those who have not yet thought of the appropriate gift. Finally, thank you to everyone at Coles, our shareholders, and our business partners for your support over the last five years. I know I'm leaving Coles in very good hands, and I wish everyone continued success. With that, I'll hand over to Q&A. Thank you.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Please limit your question to one per person. If you wish to ask further questions, please rejoin the queue. Your first question comes from Michael Simotas with Jefferies. Please go ahead.
Good morning. Can we talk a little bit more about availability? Maybe if we can just sort of talk qualitatively around what you think the drag is on sales right now compared to where it was at its worst and how much improvement you expect to come through over the next three quarters. Maybe just to round it out, if you could comment a little bit more on Scotts and whether that was a significant disadvantage for Coles relative to the broader market during the quarter as well, please.
Okay. Thank you. Thank you, Michael. We have a, you know, daily lost sales report. We look at it on a regular basis, and it's fair to say that, you know, lost sales are significant. When we look at the market analysis of, you know, breakdown of what customers are doing, there's no doubt that we are doing well as a business in terms of attracting customers. The challenge is making sure that we've got the availability as we would like. Clearly it's improved a smidgen or a small amount since Q2. As, as you say, the Scotts absent Scotts, it would have been a more material improvement in availability, and that impacted our chilled and frozen supply chain.
It's fair to say that we're probably a bit more dependent on it than almost any other retailer, albeit that there were a lot of brands in that chilled and frozen space who were also involved. Matt, is there anything else you'd like to add?
No, it's probably worth commenting that our meat business was significantly supported by Scotts, and we had a process very early on to migrate that across to protect it, recognizing that that's a critical part of the consumer's basket. Beyond that then, it was working with a number of multiple brands to make sure that the supply and industry was supported. We check our availability on shelf at a category level in hundreds of stores with uncertain every week. Through that period, we didn't see ourselves materially disadvantaged against what happened to the rest of the market through that period for the majority of it. It was a difficult transition, well executed by the team and the rest of the industry.
Just to add a couple of examples, I described it earlier, Michael, as a bit like whack-a-mole at the moment. There's some ongoing issues, and there's just, you know, weekly news issues. The latest issues are CO2 is in short supply again, which impacts a number of industries, and obviously most notably carbonated soft drinks. More recently or as recently, the main packaging supplier for the egg industry has run short of packaging. We've now got more eggs, but not as much packaging as everybody would like. When you look around this, you're looking at, you know, globally renowned suppliers.
You're looking at some of the best suppliers in Asia, and you're looking at some of the best suppliers in Australia who are, in many cases, you know, really struggling to get to grips with their end-to-end supply chain. You know, certainly from the, you know, the MDs I've spoken to, they're getting stuck into the detail like never before in terms. 'Cause you're, you know, you're only as good as your worst part, if you like. Everyone is drilling down supply chains and looking where the weaknesses are and who's holding what stock of what and, you know, contingency plans and so on and so forth. It's fair to say, it's impacting a lot of suppliers.
It's also fair to say there's, you know, still, you know, hundreds of suppliers who are not missing a beat and are delivering where they were pre-COVID. On average, we're not where we need to be, and we are, you know, losing sales as a result. Obviously, it causes, you know, frustration for us, a lot of extra work and frustration, more importantly, for customers as well.
Thank you. Your next question comes from Peter Marks with Barrenjoey. Please go ahead.
Morning, Steve. Just wondering with the Express transaction expected to complete in May, could you give us a sense of the product sales, like the quantity of the product sales you retain post that completing? You know, will you be reporting those in the food business going forward?
Thanks, Peter. I might hand over to Charlie on this one 'cause he's gonna be responsible for future reporting.
Absolutely. No, look, so, thanks for the question, here. In relation to, the Express sales
We're obviously first on the completion. We're working towards completing the transaction within the next month, and that's where our focus has been on. In relation to there is a, as we indicated, a product sale agreement which we'll be supporting Viva as part of the transition, including ensuring our customers have access to own brand products. The value of that, I think, I mean, you can read into the sort of sales number. We're not gonna specifically disclose what the value of that wholesale contract, if you like, or product supply agreement is. Essentially we'll be working. There'll be elements of where we supply Viva out of our facilities through the cross-dock facilities as we do today.
There'll be elements that are actually delivered direct to store through suppliers. We'll give a broader breakdown of or a further color on obviously once the transaction completes and when we report, and you'll see how it's reported going forward. At this point, it's really focusing on the completion.
Thank you. Your next question comes from Adrian Lemme with Citi. Please go ahead.
Good morning, Steven and team. Just a question on the strong Coles exclusive growth. I just wanted to get a better understanding of what's driving it, whether it's categories or new products or even just whether it's linked also to the DROPPED & LOCKED price campaign, since my understanding would be a lot of those products are private label or exclusive to Coles, please.
Yeah, thanks, Adrian. I'll hand over to Leah in a second. We've obviously seen a thing a few quarters. Well, we've been growing own brand faster than total sales for quite some time now, as you know, it's been a key part of our strategy to do that. Obviously we wanna provide trusted value every day, which is what own brand does. We've got to the stage where we do have the largest range in Australia. If you look at what's happening, we're continuing to launch products across the spectrum from Coles Finest into, you know, value ranges. If you take one category that's done particularly well, I'd point to pasta, where own brand pasta sales are up 40% year-over-year.
you know, it's only growing in some areas faster than others, like on all averages. In those commodity areas, where we've got great quality at a low price, pasta, for example, we're still at $1 and have been there for years, it's really resonating with customers. Leah, did you want to?
The only other extra color I'd probably add to that is, we are seeing the switch to own brand within categories. The areas where we're seeing that happen, I guess, the fastest is what I'd probably call that is the core pantry category. Pasta is a great example of that. Rice is another good example. Oils would be another one. If you look generically across the store and how our sales are made up, the contribution to our sales from what we would describe as the best or the premium tier that we have across the store, proprietary and own brand, that is starting to trend down, which is a little bit different to where we've been over the last few quarters.
We're actually just starting to see that start to tick down now and where we're seeing that offset to is in the good tier. You've got the good, better and the best. The best is coming down and good is increasing as a % contribution to overall sales. You know, a large proportion of the products that we have in the good tier are own brand products. In terms of the equation that's happening here, you're seeing customers change behavior because they're focused on their budget. They're optimizing their grocery spend. Our research says that about 75% of customers have changed their grocery purchasing behavior over the last few months. What we're seeing them do is much more meal planning, much more batch cooking, freezing off that batch cooking to make the meals go further.
Own brand is featuring more in that meal planning because a lot of the basics that would go into that, they're moving into the good tier or the own brand tier.
Actually, Leah, did you wanna comment on DROPPED & LOCKED?
I mean, DROPPED & LOCKED, we're onto the third phase now. We had the first phase back in Q1, Q2. Second phase was January through until Easter. We've just launched our third phase, which actually is the biggest set of products that we've put onto the product. Adrian, you're right. A lot of those are own-brand products, partly because, you know, we know that a lot of those are staples for the basket that we can put in. I mean, one of the call-outs that I would make there is something like the one-kilogram mince product that we've put on in the latest round that we know is an absolute staple in a family basket.
The bigger size of it means that that sort of batch cooking more in one go, makes it possible for families. We've been really pleased with the performance of DROPPED & LOCKED. The SKU performance in terms of sales uplift is very strong. We've also got really good customer recall on the campaign itself. It's traveling along really well, and I think has proved to be the right campaign for the right time.
Thank you. Your next question comes from David Errington with Bank of America. Please go ahead.
Morning, Steve, and team. Steve, before I ask my question, I'd just like to say how much I've enjoyed following you as a CEO. I don't think there's any doubt that Coles is a significantly better company today than what it was back in 2018. When we measure, Steve, the key metric is the company in better shape now than where you were when you started? I think all kudos to you. Congratulations on the job that you've done at Coles. Even though you put announcements on before public holidays and ruin people's golf games, it's been an absolute pleasure watching and following Coles, 'cause I think it's you've done a great job.
Getting on to my question now, convenience and your Rapid Click & Collect and Rapid Delivery, can you give us a bit of an explanation here? Is this a growth strategy or is it a defense strategy? We all know it's a sales call, it's not a profit, but we all know that this, you know, Rapid Click & Collect and Rapid Delivery and all that, very expensive. We look at what Ampol Viva's done by buying On the Run, everyone's going convenience and all the rest of it. Is it a strategy that you really need to win to go forward? Or is it something that you just have to be in to defend market share because others are going in it more aggressively than you?
I'd really be interested to know where this Rapid Delivery, 'cause I've yet to see anyone that do it very well and make profit from it. I know it's not a profit call, it's a sales call, but I'm just really intrigued where this whole convenience area is going, 'cause everyone's putting a lot of money in it, yet no one seems to be able to make any money off it. I'd just like to know where Coles is going ahead with this strategy, please.
Well, first of all, David, thank you for those very generous comments at the start. If anyone else has got any other generous comments I think we have got a bit more time for them. The on immediacy, it's a great question, and it's actually so great, I might hand it to the expert in Ben in a second. What I would say, that's a bit different from the past is, you know, as we do more and more research into the omni-channel customer, it is about looking at, you know, how do you satisfy your best customers for all of their shopping needs?
And that's what omni-channel means, and how do you make that e-commerce and in-store experience as seamless as possible. Also having a keen eye on, you know, what are you making money by channel and all of those sort of things. Obviously, in the long term, you want to make money in all of your channels, but equally, you wanna make sure that you're retaining the lifetime value best shoppers that are out there. That's, that's the strategy of it all, so to speak. I might hand over to Ben to, you know, talk through a bit more detail.
Yeah, thanks. Great question. Really appreciate that. If we look at just on the quarter, our same-day businesses, whether it's Rapid or same-day delivery, growing double-digit, certainly the customer is very pleased with the offer. I think from a customer standpoint, it's really about having optionality. You know, there's different use cases for each of the different services that we have. If you look at those customers that are purchasing from us for next day and also same day and also Rapid, they're spending, in effect, three times more with us at Coles than those that are only shopping one of those propositions. We do see incrementality from a growth standpoint.
I think also just having the benefit of inventory close to the customer is just taking advantage of that omni-channel, preferred asset that we have in the market. It's definitely working for us. What I was really excited about it for the quarter was we scaled really quickly. If you think about within the quarter, we got to 460 stores, and we couldn't do that on our own. We've got great partnership with store ops team and with the rest of the organization to make that happen so quickly.
Thank you. Your next question comes from Ross Curran with Macquarie. Please go ahead.
Hi, team. Congratulations, great result. I might just ask around the liquor business. It looks like you're taking share there again. I was wondering if you might be able to help us understand, the difference in performance between the Black & White stores and the legacy stores.
Yeah. Thank you. Good morning, Ross. I'll hand over to Darren. He's desperate to talk about Black & White liquor stores, which is what he spends a fair amount of his time looking at and doing. There's just a couple of things here. I mean, I've seen a lot of renewal programs in my time, but I've never seen anything that's been able to be rolled out as quickly and as cost-effectively as this program. Darren can talk to some of the other metrics there, but it really has resonated well, and it's really created a focus on product, and, you know, resonated with consumers. Darren, can I just hand over to you?
Yeah. No, I think, I mean, listen, we're start by saying I think we're really pleased that, you know, we've got through the first half. We're now back into growth in Q3. I think that's really pleasing to see. That's being driven by a number of different things. I don't want everybody thinking that it's just Black & White, we'll come onto Black & White in a second or two. We're seeing really good growth in our online sales in the renewal programs. We're really good growth in ELB, I think that we've highlighted as well, together with new stores. I think the team
I think deserve recognition for the work they've been doing on the fundamentals of the offer, particularly around the work we've been doing on value, on gaps and service as well. But there is no doubt that Black & White has played its part. And as I think I said last time, you know, I think we've now opened, we opened our 400th store matter of weeks ago, in Rochedale in Queensland. And that program, the team managing that are doing an absolutely fantastic job. We opened 39 stores in the quarter, and that continues as we go forward. To give you a bit of flavor, as I said before, it isn't simply just colorway has changed.
It very much is geared towards making us that simpler, more accessible, locally relevant drink specialist. A lot of work has gone into the ranging, particularly of local craft boutique pro-boutique products, more premium products that actually locals want in their stores. We've done a lot of research in the local areas as well. We've optimized space, we've increased refrigeration in a number of stores, and we do a lot of work with the team to ensure that they start to serve our customers better as well. The program itself works on a number of different fronts. We're really, really pleased with the results. To give you a bit of a flavor, we're seeing sort of mid to high single-digit sales performance above the red and yellow fleet, which is really pleasing to see.
As we go forward, though, what I would say is we probably expect that to ease slightly as we get into the tail of the fleet, just to moderate that slightly. 'Cause obviously there's more difficult stores as you get towards the tail. Yeah. Overall, we're really pleased with the way it's going.
Okay. Thank you. Thank you, Darren.
Thank you. Your next question comes from Lisa Deng with Goldman Sachs. Please go ahead.
Hi. I had a question on the net sales or selling area growth for the period. If I look at the revenue growth, it was 7% for the supermarkets, I mean. The sales density growth was about 4.7%, we actually had net one store closure. Can you maybe help me with understanding what the sales growth was? Sorry, the selling area growth was? Thanks.
Yeah.
Sorry, let me repeat that.
Well, I think we've had this line of questioning before, and the fact that some of these things are moving annual totals and some of them are quarterly. It's a mix of denominators that sort of drive the differences. I think it's fair to say that, you know, we are getting to a point in our program. You'll recall that what we've said about our store opening program is over, you know, since demerger, we've opened what was in the pipeline, obviously, but we've also closed a fair number of stores as well. We've not had that benefit of a high contribution from net new stores.
What we are going to see in the future is we've said that, you know, we'll see at least 1%, you know, growth in our footprint from the new store opening activity. Charlie, did you want to add anything else?
Yeah.
Yeah.
I mean, you're spot on. I mean, the moving annual target doesn't equal the sort of Q3. If you look at that, what we do is we look at that last 12 months worth of sales, and you divide it by space, which is actually different to the Q3, if you like, growth rate.
Yeah. Hopefully, that explains things. If you need a bit more explanation, then I'm sure the team would be delighted to take you through the calculation of it a bit later. Thanks, Lisa.
Thank you. Your next question comes from Bryan Raymond with J.P. Morgan. Please go ahead.
Good morning. Just following on from Leah's comments earlier around private label and trading down and the various tiers of product. Do you help us understand sort of, really just around the margin implications of that? I understand it's a sales call, just thinking about that sort of good tier, which, you know, has a lot of private label in there and entry-level private label. How would that look generally speaking from a gross margin perspective compared to some of those more premium tiers? Even if there's more private label, I would have thought that might actually be a bit lower gross margin typically as customers trade down into those tiers. Thanks.
Thanks, Bryan. I think you answered your own question there, which, and, you know, I always like to say it at least once in one of these meetings that it is a sales call, and obviously we'll get into margins and P&Ls, or Leah and Charlie will get into margins and P&Ls in August. Look, there are some private label products that we make above average margin on, and there's some that are below average. Obviously a lot of it is driven by competitive pricing and so on. You know, what you have seen over the years is that as Smarter Selling has been delivered and has private label has grown, we've still managed to keep the gross margin in check.
The one thing we did call out in the release that isn't, you know, normally part of the sales call is the fact that, you know, there's still ongoing. The supply challenges are driving ongoing waste and markdown issues, 'cause that's, you know, very difficult to sort of manage. The second area is obviously loss, where again, retailers worldwide are all reporting heightened activity and, you know, we're certainly not immune to that, despite all of the measures that we're putting in place.
Thank you. Your next question comes from Shaun Cousins with UBS. Please go ahead.
Great. Thank you. Steve, it's been good having you, engaging with you on these calls during your time here and then also even back in your earlier iteration of at Coles. Thank you for the discussion over the years. Maybe if I can start with a question just on liquor. Just on 1.5% comp, how should we think about that relative to 3.7% excise on the 1st of February and 4% in August? I'm just curious around, you noted trading down to own label sort of products there and obviously wine is not part of the excise there. Given the tailwind you get from inflation on excise, how are you feeling about the 1.5%? Do you think you're gaining share?
What's happening to broader volume trends, please?
Yeah, thanks. Thanks, Shaun. Look, I've enjoyed our in-interactions over the years, and it's great to have you keeping me on my toes. I look forward to keeping Leah on her toes later in the year. I might hand this one over to Darren just to talk through 'cause it was related to liquor, isn't it, in terms of the liquor excise that's recently happened. I think to, you know, again, at the strategic level, I think we've done very well in liquor over the last three or four years. You know, we've certainly outperformed some of our competitors.
I'll hand over to Darren just to talk about where, you know, what that means for volumes and how he's seeing the current environment as well. Darren?
Yeah. I mean, I think, what I would say, Sean, is, it's been changing through the quarter, to be honest. If you look at it going from, you know, sort of Q2 into Q3, and the way that inflation has started to impact the business, it's been sort of building as you go through the quarter. You're starting to see a different shape of P7 into P9. Overall, the sales are being driven very much by transaction growth year-over-year. Whilst you're seeing an increase in average unit prices, which is broadly in line with sort of figures you're quoting, from an average basket perspective, basically it's flat.
There is evidence that customers are switching to better value products, which I think in some part explains some of the growth that we're getting from our Exclusive Liquor Brands of late as well. That's the sort of the flavor really of our sales.
Yeah. Okay. Thank you.
Thank you. Your next question comes from Ben Gilbert with Jarden. Please go ahead.
Good morning, team, echoing everyone else's comments, Steven Cain, it's been fun eight odd years from here in Coles and all the back and forth and adventure and wishing you a nice, relaxing break as we move forward. Just one question, Steven Cain, whether it's to you or to Leah Weckert. I'm just interested in how you're seeing your relative value position in market at the moment. Are you comfortable with it? As we look out there at the moment, ALDI's obviously had a pretty material resurgence, as we've sort of seen in the press. How focused are you on them? Is there any sort of scenarios you look for that thinks you need to go harder on price as the consumer becomes more value conscious?
Yeah. Look, I'll, as you'd probably expect, I'll leave the forward looking picture to Leah. I'll just cover a bit of the history. Our price position is both everyday pricing and when you include promotions is very strong. And the fact that we've got the widest range of own brand, which isn't in the pricing, by the way, if you factor in what those 6,000 products do, if you wanted to just buy an own brand basket, then, you know, we are the best place to go, and we've got the choice as well. And I think versus discounters, you know, what sometimes people miss is the fact that, you know, Coles has 10 times the range of a discounter, and in fact, 3 times the range in own brand.
Those are at all tiers. Obviously, that's something that consumers are recognizing. As you look around the world at the moment, there's no doubt that own brand is growing everywhere. Discounters are benefiting from that because they mainly sell own-brand product. We're in a good position in terms of the work that we've done over the last, you know, four or five years to really beef up our own-brand ranges. Obviously, we're very vigilant in terms of what's going on in the marketplace. I think Leah's already talked to some of the own-brand things we've seen. You know, own-brand pasta was 40%. That entry-level pasta has been $ 1 for years.
We've got obviously great prices on things like mince, and, you know, where possible, we see prices easing, we're obviously trying to do our best to pass those on. I think we've got three or four categories in produce now that are in 30% deflation year-over-year. Some of the beef prices are down year-over-year. I think from a value point of view, we feel as though we're in a good position, but remaining vigilant. You know, DROPPED & LOCKED, the three programs have really resonated. Flybuys membership is increasing significantly. Flybuys redemptions are increasing significantly. We've got a record number of people engaged in the latest MasterChef Cookware collectibles.
As you look across that mix of what we're trying to do, it's quite a unique combination, and it's certainly resonating with a lot of a lot of customers. Leah, do you want to just talk to the future?
Well, I think the key point here, Ben, is, you know, we're gonna run our own race on this. Our proposition is different, as Steven has outlined. We have a much bigger range. We have much broader choice for customers. We also have a lot more promos each week that customers can select for. We know from all our research that actually the shopping of the catalog for, you know, that core cohort of customers that are really budget-focused and value-focused, those promotions actually will give them a basket that they feel they get better value on than when they compare it to discounters.
We also have the Flybuys program, which gives a number of different benefits, whether it's discounts that you get off categories, discounts you get off products, whether it's a spend stretch offer. We've now got the member pricing that comes through as well. That is very different as a proposition that layers in a level of value over the top that you won't get at any of the, any of the discounters. Then, you know, I just go back to the basics, which is the own brand range that we've got. We spend a lot of time making sure that from a range perspective is really competitive with the discounts in terms of the items in that range, but also the price.
I definitely would stand behind for your grocery basket, if you're coming in to buy own brand, we are very competitive, versus discounters. I think once you put that all together, the promos, the Flybuys, and actually the core underlying offer, you know, the customers that are budget-focused know how to shop that, and they know that we are very good value.
Okay. Thanks for those comments. Ben?
Thank you. Your next question comes from Phil Kimber with E&P Capital. Please go ahead.
Hey, guys. Just a question on both supermarkets and liquor. Just your thoughts on your market share over, you know, the recent quarter that you've just reported. I mean, we can see it versus the ABS category, but I'm sure you've got more visibility than that. If you could make some comments around that'd be great. Thanks.
Yeah, I think, you know, we'd be, you know, we'd sort of be pleased with both supermarkets and liquor in terms of their performance on, you know. As you say, Phil, we get multiple reads, and we're able to triangulate lots of data points and everything else. I think we're, you know, we're in positive territory across the business, which is good.
Do you want me to try to talk about?
Well, not unless you got a bit, but if you want to add something, Darren, you can do, but.
No, no. All I would say is it's notoriously difficult, I think, in liquor-.
Yes
to get a good read of the market in terms.
Yeah.
I think ABS only reads part of the market, so you've got to be very careful with ABS reads for liquor specifically. IRI uses algorithms for some of the participants. Again, isn't necessarily a fantastic read.
Yeah. Yeah. A bit more difficult in liquor than it is in supermarkets, but, from the various data points we've got, I think we're pleased with the performance in the in the quarter.
Thank you. Your next question comes from Craig Woolford with MST Marquee.
Career in retail here and overseas, and enjoy your post-Coles life.
Mm-hmm.
whatever that may bring. I just wanted to ask about inflation. The comment that was buried in the release suggested that there was... I'm just trying to find the quote, that it was the magnitude, the level of supplier cost increase request has dropped. Is there anything you can quantify around that, even if it's just a relativity to what was the case a year ago? Are you referring to both the number of requests as well as the size of the price increase those suppliers are requesting?
Okay. Thanks. Thanks for those comments, Craig. I might hand over to the subject matter expert here. Leah, do you want to, do your best on this one?
Well, we were asked this on the media call earlier. I think where we ended up when prodded on the issue was, it's been a meaningful reduction quarter-on-quarter. It is, you know, it's not just a slight decrease. It's quite a meaningful decrease that we've seen in those CPI requests coming through. I think the journalist asked me, "Was it a 50% decrease?" I said, "No, it's not as big as 50%, but it is a meaningful decrease." I think that's probably the most we can say in terms of the quantification of it. It is definitely slowing, we would expect that to continue on into Q4.
Thanks, Leah.
Thank you. Your next question comes from Richard Barwick with CLSA. Please go ahead.
Hi, Steve and team. I wanted to ask about the delay with the Ocado fulfillment centers. Can you give a little bit more detail in terms of exactly what has been the cause of those? It made me wonder is if this was a really, a, maybe a prioritization issue for Coles. You actually elected to prioritize Auto DCs over the Ocado ones.
Thanks, Richard. I wish that was the end. I mean, you're absolutely right. The two WITRON ADCs are on, you know... Well, the first one's open, of course, and the second one in Kemps Creek in New South Wales is on track and coming along nicely. I went to the Victorian Ocado on Monday, and it's come on a long way since I was last there a few months ago. Progress is being made on the build. Progress is being made on the bakery, the produce cutting room. Internally here at Coles, we're making a lot of progress on ranging.
The IT systems are where we need them to be, the app is where we need them, it to be at this stage and all of those sort of things. We're ticking a lot of boxes, but it is fair to say that there are, that progress is slower than we'd like. I might just hand it over to Charlie just for a bit more, a bit more detail.
Yeah. No. Thanks, Steven, and thanks for the question. Well, yeah, very specifically, and as we sort of called out last time, look, there have been a number of these that have been built globally. I think when we sort of focus on specifically where the delays have been, it really is in the fit out and in relation to The Hive or if you like, where the bots actually do the various picking, etc . The delays are really simple. There are different construction methods and practices that need to be adopted in Australia compared to what has been used globally. That's really contributing to sort of the delay that those processes and, if you like, and procedures, need to be continued to be worked through.
Once we've worked with Ocado to better understand exactly the timelines, we'll clearly communicate that to the market. That's what's causing the delays. Thanks, Charlie.
Thank you. Your next question comes from Bryan Raymond with JPMorgan Please go ahead.
Thanks for taking a follow-up. Just quickly on the partnership with Uber Eats that was announced mid-April. Just wanting to get a bit of color around how that is expected to work, both operationally and in terms of just general economics of it. It seems a bit odd that they would, if the press report's correct, that they are picking product off the shelf. I'd imagine that's pick rate for an Uber employee might be a bit below a Coles employee, but just trying to understand how that might play out and what it might mean for Coles longer term. Thanks.
Yeah. I'll hand over to Ben in a second. Bryan, thanks for that one. I wanna give you a bit of local knowledge, though. Mrs. Kane used this service at the weekend, and the thing that delighted her most was the fact that she was getting a live update from the picker in terms of what was available and so on. She was one happy shopper, which always makes my life a little bit easier as well. I'll hand over to Ben.
It's a great question, and it's important to note that like this, these models, we also work with DoorDash, they're a very small part of our total e-commerce revenue. If you look at the range that we offer the customer, it's far less than what you can get from a Coles online, whether it's same day or it's a rapid service or it's a next day service. It's early days, but the full proposition is really available at coles.com.au. We're also seeing good growth here. It's a good service for customers like Mrs. Kane and others. It's a way to acquire some new customers that weren't considering us as well.
Long term, we think it's gonna be a great acquisition channel when it comes to customer, and it's a great service, for customers, and it's a profitable model. Thank you.
Okay. Thanks, Ben.
Thank you. Your next question comes from Craig Woolford with MST Marquee. Please go ahead.
Hi, Steven. Yeah, just to follow up, a quick one on online. You know, we are still... We're almost done with talking about COVID, but back in January 2022, there was the Omicron outbreak and may have accelerated online perhaps. Just interested in what you, how you would describe the underlying trend of e-commerce growth in the supermarket business. It was obviously still a lower rate of growth than bricks and mortar in that third quarter.
Yeah, sure. Ben, do you want to take that one?
I think there's some good underlying growth. It's great to be back to positive growth in online. We expect more in the future. I think the biggest change in the overall consumer trend, like Leah was talking about, is more customers are shopping with us digitally. More customers are actually engaging with us digitally, whether they're looking at a shopping list, pre-planning their shop before they go and visit a store and make a purchase inside the store. That's probably the bigger trend that we're seeing. I think overall, the fundamentals that we see in the e-commerce channel, like retention of customers, cost of acquisition, other things, they're very favorable for us, and we expect continued growth in the future quarters. Thank you.
Yeah. I think as you identified, there was cycling of the first two weeks, first three weeks of January last year. If we look at the sort of online participation penetration rates, reported 7.8%, I guess, 12 months ago, 7.5% there. It's been relatively around that sort of mid-sevens now for a few quarters. Thanks, Charlie.
Thank you. Your next question comes from David Errington with Bank of America. Please go ahead.
Oh, thanks for taking the call again, Steve. Look, just a quick question on this acquisition of two milk processing assets from Saputo. Can you go into why a retailer, I know this has been a development theme of Coles going into closer to the source, but why do you need to own two processing facilities in milk? What competitive advantage is that gonna give you? Is it just surety of supply, or do you think you can do it a better job than what the current processors are doing? If you can give a comment on that'd be great.
Okay. Thanks, David, and a good question. I'm gonna hand this over to Charlie in a second. I just want to sort of, for those who, on the call who don't know, this is our, you know, sort of third foray into integration, so to speak. You know, we've got a very automated meat facility in New South Wales. We've got one of the most automated and advanced convenience meal operations in Sydney, and now we've made the decision to acquire these sites. I went to visit the Victorian one, and it's incredibly impressive, and the linkage between them, to the extent that there are linkages, is that they are, you know, some of the best suppliers out there.
They're predominantly own-brand products, and we think we can, you know, grow all of those businesses. If you look at what we have done in our other facilities, you know, ROA continues to grow and is important. ROA is our meat one. That continues to grow, and it's an important part of our meat business. We continue to grow what was the deli ready meal business with a great range and a unique range of convenience meals for our customers. I'll hand over to Charlie just to talk specifically about the Saputo acquisition.
Yeah, well, I think, Steven, and thanks for the question. Clearly, Steven, I think you've hit on clearly most of the key elements here. Yeah, firstly, the vendors were selling obviously the assets. Well, you know, it's probably an important first point. These facilities do our own brand milk, are actually the majority of the volume and significant part of the volume that already gets processed in these two facilities. They are the best milk processing facilities in Australia and U.S., built back in 2014, 15 under the old Murray Goulburn sort of days.
we think these facilities are really sit nicely with some of the other investments that we've made as Steven's outlined. You know, that theme around sort of highly automated sort of facilities, and that's very much our meat and poultry processing model and certainly the deli convenience meal offer facility is also very or the Chef Fresh that is very much in that space. we think this is also another opportunity to potentially look at further product innovation as well on these facilities, 'cause they are actually underutilized from a volume perspective. great, David. I think, you know, they are highly automated. They're consistent with the sort of strategies that we've taken to date.
They absolutely help secure our own brand milk supply going forward.
Thank you. It's a strong combination with our direct sourcing models with the farmers.
With the farmers.
We've got 100 farmers on long-term contracts where they're earning, you know, good and sustainable farm gate milk pricing. A bit of an end-to-end approach in milk. Thank you. We have the next question, please.
Thank you. Your next question comes from Michael Simotas with Jefferies. Please go ahead.
Thanks very much for taking another one. You've mentioned reduction in hospitality spend and shift to in-home consumption a couple of times in the release. Seems very logical that that will happen as households are under pressure. Are you seeing anything in your own sales or in any data that suggests that that's starting? When we look at ABS restaurant spend, and it might not be a perfect measure, but it's been stubbornly strong for the last few months. Just any comments on that would be great. Thank you.
I mean, there's a few data points. Like ever, Michael, there's lots of numbers that you can prod and poke and try and triangulate. I think I'm right in saying that pre-COVID, hospitality spend was around about 27% of total food expenditure, and I think it's currently, the last numbers I think I saw were about 29. It's about 2% higher. There's no doubt that the growth is moderating. All our research says people are, you know, the majority of people are starting to sort of pull back. I saw a...
I spoke to a supplier this week who deals with, you know, all sectors, and then they were saying that they'd started to, you know, see some shift into supermarkets and so on as well. I think there's lots of data points out there that say it's happening. It's probably happening more in that mid-tier of hospitality rather than the QSR at the moment. I think there's a lot of, you know, there's still a lot of Uber eating going on backwards and forwards with the likes of McDonald's and so on. And again, going to data points of 1, it seems to be easier to get into some of the restaurants now than it was pre-Christmas.
I think we will see a bit more of a shift over the next three to six months as these mortgages come off fixed rates and as the energy prices begin to take their toll.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Cain for closing remarks.
Okay. Thanks. Thanks, everybody, for your for questions. I've thoroughly enjoyed these calls over the last five years. I don't know what I'm gonna do without them. I'll try and tune into them and and so on. Thank you for you know, your questions and the analysis that you've all brought to the sector. I wish you all well. Don't forget Mother's Day. Thank you.
That does conclude our conference for today. Thank you for participating. You may now disconnect.