Thank you for standing by, and welcome to the Coles Group Q1-21 sales results conference call. All participants are in the listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Steven Cain, the CEO. Please go ahead.
Thank you, and good morning, everyone, from a liberated COVID light and now sunny Melbourne. I'm joined this morning by Leah Weckert, our CFO. I'll be taking you through the highlights of Q1, but would like to remind everyone this is a sales call and that we'll be reporting interim profits in February 2021. The last four months in Melbourne have been difficult for everybody, including Coles team members, but I'm delighted to report continued progress on the second year of our strategy execution to deliver long-term sustainable growth. Coles is exiting the second wave of COVID, a better business, with record team engagement and Tell Coles customer satisfaction. Our online and digital capability has improved significantly this year and will continue to improve in the years ahead. We plan to give a strategic update regarding this at our results in February.
I'm now just going to some of the highlights before we open up for questions. So sales, obviously, strong in the quarter with supermarkets of 9.7% and online growth of 57%, liquor around about 18%, and online sales growth of 80%, and express stores despite lower fuel volumes, their sales were up 10%. We've got three strategic legs to our strategy: Inspire Customers, Smarter Selling, and Winning Together. As I said earlier, we've made significant progress on the strategy despite being in lockdown, which I think is probably the highlight of the quarter, and in particular on digital. So if we go to inspiring customers, obviously, we made the transformational announcement to move that we would no longer be delivering catalogs to people's homes, and that happened in early September. We're saving more than four million printed catalogs a week and cumulatively now more than 32 million.
I'm delighted to report that digitally, more people are reading our catalog now than we're reading the paper catalog before, and that's not just around promotions, but also extending into inspirational recipe ideas, and in the future, we'll see further personalization, so I'm delighted to have been able to make that first move in Australia, not only from a personalization and sales point of view, but also from a sustainability perspective. The online sales grew at 57%, but underneath that, the B2C sales grew at 73%, and in Victoria, that increased by more than 100% in the quarter. What we saw was a lot of variability by week, depending on COVID announcements, but in the quarter in Victoria, online sales as a percentage peaked at about 9% and then has gradually subsided as COVID numbers got better, but still very much elevated on where they've been historically.
The fundamentals of our online business have got significantly better during the quarter, and in part, that's an investment in people and team, and partly an investment in additional capacity and online accessibility and functionality. We expect to see further improvements in this quarter, and we'll give a detailed strategic outlook on the road to Ocado in February. Trusted value is very important to us and very important to customers, and we continue with our everyday low-price program. More than 800 products were moved on to that, and more than 680 owned brand products were launched, with owned brand sales increasing almost 13%. We talked about our refreshed liquor strategy at the full year, and that continues at pace as well. We have a new organization structure, and we've invested further in service availability and our online operations.
Smarter Selling has continued at pace with a number of notable achievements, and we're on track to deliver AUD 1 billion of savings by FY23. In terms of Winning Together, keeping everybody safe has been the priority, and I'm delighted with the work we've done with all of the governments over the last six months and in the last quarter, most notably the Victorian government, to establish world-class health and safety guidelines, not only in stores but in DCs, and where there's been COVID, we've been there to help, most notably in the Flemington Towers when they were the first place in Victoria to be locked down. You might recall we delivered their groceries, and then in the COVID wards across Victoria, we delivered 5,000 care packages to healthcare workers.
We're also on the road to a renewable future as far as energy is concerned, and you will recall that we signed a 10-year agreement in Queensland to supply 90% of our energy requirements there from wind farms and solar. There's been a huge focus on mental health within the business over the last six months, and that's not only to help our team members, it's to help their families and our customers as well, and that's been very well received by everybody, and then we've helped our community partners as well. We continue to be very strong supporters of SecondBite and Foodbank, who are helping those most in need, but we also managed to raise a significant amount of money for Redkite and Curing Homesickness, both helping kids either fight cancer or get out of hospital as quickly as possible.
If we look to the future, and it's the immediate future rather than the strategic future, but if we look to the future, we've reported that I think more detail here than ever before on how the first four weeks of the current quarter have gone, and sales are still elevated. And we've reported sales across the business, including and excluding Victoria for the first time because Victoria has been the outlier with the greater restrictions. And in supermarkets, that was 6.4% for the four weeks, and in liquor, that was 17%. And we've seen online sales in supermarkets to remain elevated at about 45%. As far as Christmas is concerned, I think we've got our best range ever. We've got almost 300 new products. A lot of them are focused around great value, easy entertaining.
We've got our MasterChef knives launching soon for those that are entertaining at home and whose knives have become blunt with the amount of home cooking that has gone on in Australia in the last six months. So we're expecting those to be successful. On a more serious note, there are probably five trends that we need to sort of talk about, many of which you've covered extensively in your own research over recent times, but they will impact our business for the foreseeable future. Personal hygiene and health and safety are very much top of people's minds, and we will continue to make sure that our stores and DCs are safe places to visit. What that is going to mean is continued elevated costs to do so.
You will have seen in the report that we've released this morning that we have managed to successfully manage those costs down from where they've been, but that's mainly down to efficiency initiatives within them. The other thing that's going on is increased working from home, and we expect that to remain for the medium term, and it certainly will be the case, at Coles too, in our support centers, and that's likely to underpin food and liquor consumption into the future. We expect online to remain very popular, and we expect digital visits to grow long into the future.
With restricted international travel on the cards until a vaccine is introduced, there are more Australians in Australia than ever before, and we expect that to continue to be the case for at least six to 12 months, looking at the various releases that are out there, and that will help our sales. And then as interstate borders open up, which we hope is sooner rather than later, the domestic travel will increase and fuel consumption will increase as well. So that's really all I wanted to say this morning. I might open up for questions. Thank you.
Thank you. At this time, if you would like to ask a question, please press star then one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star then two. If you're on a speakerphone, please pick up the handset to ask your questions. Please also limit your questions to two per person. Thank you. Our first question is from David Errington of Bank of America. Please go ahead.
Morning, Steve. Morning, Leah. Steve, fellow Melbournian, I'm suffering as well, but happy that the opening is up. Steve, the COVID costs that you were talking about, I know it's a sales result, but it is an important factor, and you did say it's AUD 65 million. I think you were running at the end of FY20. I think you were thinking about AUD 100 million as the recurring run rate. So it seems to be that you're doing a very good job at pulling that run rate down. Can maybe you or Leah give a bit of an overview as to what you're doing there to get that AUD 65 million or to get those costs down and to where it probably currently is at the moment?
So we've got a bit of an idea as to what to factor in going forward as to what would be a normal level of COVID costs in what is hopefully a COVID normal world with extra hygiene and health and safety, as you say, but what would be a normal level? Because it looks to me that that COVID run rate has really come down.
Yeah. Morning, David. I might well hand over to Leah, as you've suggested.
Hi, David. How you going?
Hi, Leah. Good, Leah. Thanks. Hope you're well too.
So I guess I'd start by saying we continue to be very focused on maintaining a safe environment for teams and customers, and that really is our priority, particularly going into Christmas when we do expect our stores to be busier. We've been very pleased with how we've managed to bring down the COVID cost run rate, and that has primarily occurred over August and September. So July was at a much higher run rate than what we're at now, and that was primarily because we were working through the impacts of positive cases in the DCs and then the implementation of the stage four restrictions in Victoria.
Both of those aspects had significant impacts, and actually, our COVID costs in the supply chain environment had actually been higher in Q1 than they were in Q4 because of the impacts that we had through July in working through that, where we saw things like whole-of-shifts being excluded and the like. In terms of your question around the look forward, we're currently at a run rate of about AUD 15-20 million per month, and it is moving around a little bit just depending on what is happening. And of course, I put a big health warning around that, that that is highly dependent on any changes in circumstances or in other ways that might come at us because that would significantly shift that.
Our ability to bring it down to that level has really, I think, in large part benefited from the stability that we've had over the last couple of months in terms of the routines we've been using, the restrictions that have been in place. Stability is our friend here because once we get into a good routine around things, we can start to drive efficiency into those. The one thing I would say that as we come into December, which is our peak trade period, and given the trends that we've got from a customer perspective at the moment, which is a lot more eating at home, and we are expecting for Christmas that there will be a lot more entertaining in the home than potentially there has been in the past, we are expecting the stores to be busy.
And so in order for us to maintain a safe environment for everyone, it's likely that we will probably sit at the upper end of that AUD 15 million-AUD 20 million dollar range I just indicated, and maybe even slightly higher on that. But that's our best view at the moment over the next few months.
Okay. Thank you, Leah. Thank you very much. Steve, the second question I've got is you called out your top 20 stores are up 48% and your bottom 20 are down 29%. Can you give a bit more detail? That bottom 20, are they big stores? And as we go to COVID normal, are you expecting those stores to rebound relatively quickly? Can you give a bit of an idea? Because I'm assuming that those bottom 20 is really having a bit of a drag on you, and I think you've called out before that the bottom this is sort of like a disadvantage that Coles have got because you're more focused on those shopping malls. So can you give a bit more detail on that, please?
Yeah, sure. I mean, it's the biggest variance I've ever seen during the COVID, of which this quarter was an important part of it. I think the reason for putting it into the report was really to just demonstrate that when we're reporting averages at the moment, that's what they are, and really your business is the summation of the parts. As you can see, some of our estate is doing extraordinarily well and is extraordinarily busy, and some have suffered from the disruption of COVID. If I look down the bottom 20 growth stores, there are a couple of big ones in there. I'll pick one just to give you a flavor. World Square in Sydney is our number one transaction store in the company.
I don't know exactly what it did last week, but normally it's doing around about 80 or 1,000 or so transactions a week, and that's the combination of being in the middle of the Sydney CBD, but it's also a very busy store for students, and that store is down around about 35%. So that gives you an impact, a sort of sense of what's happening in the CBDs where we're obviously seeing less tourists, less office workers, and less students. Does that answer your question?
Yeah. And going into a COVID normal world, are they starting to rebound? So in October, are we starting to see those stores come back a bit, or is that sort of like are they sticking on the way out, if you know what I mean? I see it as an opportunity, but I also see it as a bit of a risk.
Yeah, sure. So what we're seeing across the cohorts outside of Victoria is that most of the impacted groups of stores are improving. So those are shopping center stores, CBD stores, and so on. The only group that is flat to declining is the resort stores, which is not a surprise to you, presumably, and probably not a surprise to us. But as we enter the true Australian holiday season, then obviously we expect those stores to come back a bit as Australians have their first holiday for the best part of a year.
Okay, well, thanks, Steve. Thanks, Leah.
Thanks.
Apologies. Our next question is from Brian Raymond of Citi. Please go ahead.
Thanks a lot. My first one is just on the weather-like performance in October and how that looks over the balance of the quarter. Picking up on a comment Leah just made around, you said it's not too busy through December. Obviously, we're cycling the bushfires from last year.
Brian. Brian?
Yes.
Brian? Hi, Brian. Steve here. It's a little bit muffled. Is there anything you can do your end?
Is that any better, or is that?
That's fantastic. Thank you.
Okay. Sorry about that. Just looking at the growth, that like-for-like sales growth outlook and how you've tracked in October, I guess there's a few moving parts I'd just like to understand a bit better. So the first one is inflation has obviously slowed through the first quarter, and just interested if those trends have continued through the second quarter to date. The second part is around the bushfires and whether that was a meaningful headwind for you through November and December, in particular last year. And then the third is Woolies had their new operating model, which impacted the stores quite negatively as well, and you guys were a beneficiary there. So I'd just be interested in how you're thinking about the like-for-like path relative to that October performance of 6.4% like-for-like.
How do you see that tracking given those three factors, or if there's anything else that you think's meaningful on top of that?
Yeah. Well, I think we've probably given more detail in this quarterly release than we've ever given, and it might be the only time we do it going forward. But what we're trying to do is to give you and our investors as much visibility as possible in terms of what's a very rapidly changing landscape. And we expect it to continue to change over the course of the year because we're going to have a good performance, I think, as an industry and as Coles. And then we obviously face in March onwards the beginning of the panic buying war. So it's going to be an interesting year in terms of trying to read the future.
I think in terms of the run to Christmas, as we said in the release, we're very confident that we've got the best entertaining range around, and we think there'll be a lot of mini entertainment gatherings going on more than ever. And in Melbourne, it starts tonight. And so that's good news, and that's very different to where we've been for the last six months, particularly going back to Easter, which you'll recall was a bit subdued. So I think we're expecting this to be an amazing Christmas for Australians, more important than ever before, and more smaller gatherings than ever before. And so we've focused our range on easy entertaining and making sure that it's great value. I think what we might see a bit of is more of the tale of two cities.
And I think as far as the top end is concerned, there will be more trading up. And we've seen some evidence of people trading up over the last six months, but I think that will increase going into Christmas. And so things like in liquor, we've had champagne growth, for example, spirits growth 50% up. In the supermarkets business, certainly all of the premium lines have been selling very well. Floral is up, I think, around 25% as people put more flowers in their homes and obviously give them as gifts as well. So the underlying trends of premiumization and health will be tailwinds as we go through. Clearly, we also have to be catering for those who are unemployed and doing it tough as well, and we believe we've got a good range in that regard as well.
We've got, amongst other things, the AUD 5 steak was launched recently, and we've got more Down Downs coming in and so on. So we think we're in for a good Christmas. Where it is relative to the current trend, I wouldn't like to forecast, but it will remain elevated versus prior years.
And Brian, just on the inflation point, so you've actually got the latest data we do. We only do our reconciliation of inflation at the end of each month, so I'll get the next data point at the end of October. But I think what we would say is we still are of the view that Q4 was very unusual to the indiscriminate panic buying that we saw during that really sort of peak of trade period. And so we have been expecting it to moderate back, and that's exactly what it's done in Q1. In terms of some of the sort of the trends that sit underlying that, there are things like the beef livestock supply and, as a result, pricing because farmers are restocking herds now that the drought has broken.
Things like some of the increases that we're seeing in dairy and some of the effects of the African swine fever, those effects we expect to continue further sort of short to medium term.
Okay. Right. And just how much of the inflation step down is coming, at least in the September quarter, came from that normalization of promotions? A portion out, that slowdown, and maybe if you split out fresh and you look at going from, I think, 3.3% underlying inflation in the fourth quarter to 0.8% in the first quarter, how much of that would have been normalization in promotions versus the net effect of commodity prices and that underlying trend there?
Yeah. I guess what I'm saying is Q4 was particularly unusual because of that indiscriminate buying, which led to the promotional participation rates coming off. And so that normalization is a big part of the step off from Q4 to Q1. But ongoing, we wouldn't expect that to be sort of a significant factor as to why it'll move it around again, unless we end up in another wave.
Yeah. Yeah. Okay. Great. All right. Thanks, Leah.
Thank you. Our next question is from Shaun Cousins of J.P. Morgan. Please go ahead.
Thanks. Good morning, all. Just a question, maybe just around sort of back to the COVID costs. Leah, should we be thinking about it more as a dollar number, or should we be thinking it more as a percentage of sales number? I'm just conscious you made the point that the 15%-20% is interesting, but you're likely to be above that just given December's obviously such a very important month. Maybe how are you sort of suggesting the best way we look at it is, is it dollars, or is it a percentage of sales?
Yeah. I mean, I would suggest you look at it on a dollar basis because the vast majority of the costs that are in that bucket, so things like the store REM is driven by store greeters and cleaning routines. None of that is volume related. And so it's irrelevant as to how much sales are really coming through to what we put in there unless we choose to put additional greeters in, which is really about number of customers in store, what we're talking about with peak or where it's required, like in South Australia. Supply chain, again, it's your cleaning routines. Store expenses, again, it's masks. It's not volume related cost here of additional REM to fulfill replenishment onto the stores and the like. So we definitely think about it as a dollar number. We think the % of sales is a bit misleading.
Good. That's sort of helpful. And maybe just in terms of convenience, you've called out Victoria as being you sort of highlighted that a little bit in the fourth quarter for food and liquor. Could you maybe talk a little bit about the assistance? Did convenience get a boost in Melbourne? Just given you've got a very good network down there, there were restrictions on movement, your visitation or your fuel volumes down circa 20%, but your sales up a really strong 10.2%. Did you grow stronger in Victoria relative to the 10.2%? And did Melbourne really help you generate some of that sales growth in the convenience business?
Morning, Shaun. Yeah. The short answer is yes. And there were a number of businesses closed in the CBD, and so we did find that there was a transfer of trade to, I think, some of our Coles Express locations.
So that would be you'd have the store effectively within five kilometers of most consumers there in Melbourne?
Yeah. We've certainly got one of the best networks in Victoria, which has been helpful from a convenience store perspective, probably less helpful from a fuel perspective. But the other thing worthy of note is that we did a couple of things in the quarter. One is we're rolling out superb new coffee across the network, which we've also got here at Coles HQ. And the second thing was that tobacconists were closed in Melbourne CBD as well, or in Melbourne or across Melbourne. And so that's also been beneficial in the quarter.
Because that's where the industry, I think, is tobacco's over 35% of sales of the C- store. So that would have given you quite a boost, I assume.
Yeah. I don't think we sort of have talked about the percentages or participations before, but certainly the three most important things or the three biggest sales drivers in a Coles Express are fuel, coffee, and tobacco. And obviously, what we're trying to do behind the scenes is to make it into much more of a food-to-go experience.
Fantastic. Great. Thanks so much, Steven.
Cheers. See you.
Our next question is from Michael Simotas of Jefferies. Please go ahead.
Good morning, everyone. Would you be able to comment on how you think your market share in supermarkets has trended through the first quarter and maybe into the second quarter? And when you're doing that, maybe if you could give a little bit of color around some of the headwinds you've spoken about in terms of being overweight more stores and maybe how you think your collectibles program went in the market versus your opposition's program as well.
Okay. Yeah. Morning, Michael. We don't report market shares on a quarterly basis. We do, however, talk about it at the half-year and the full year. I think what we can say is that COVID has disrupted our operations probably more than any other chain from a food perspective. But what we have seen is an improvement since the panic buying back in well, when the panic buying started in March, we were probably a beneficiary, and we possibly had some of the best supply chain configurations for that March surge. And then following the lockdowns and restrictions, we were the most impacted. And I think what we are seeing is the market share since then has steadily been improving.
Okay. That's helpful. And the collectibles program, is there any comment you can make on that?
Yeah. I think the collectibles program was helpful. It was certainly engaging. When we look at these programs around how many people are collecting them and how avidly and do they like them, it was certainly right up there with the biggest and the best. I think from a sales point of view, it's getting more difficult to read because often you're recycling things, and then obviously, with the backdrop of COVID, it's a little bit more difficult given the ups and downs week by week to assess just how influential they've been on sales, and obviously, when there's restrictions in place around how far you can go, that has impacts as well, so I think we're pleased with it. We're pleased that it was sustainable, which is, we've said that our kids' collectible programs will be sustainable going forward.
That was the case with Stikeez, and it was the case with Little Treehouse. So what you had in the end was millions of little books going out during winter to help pass the time of day and help kids with their reading. So from our point of view, it was successful, but it's difficult to read into how successful from a sales point of view. It certainly contributed.
Yeah. That's fair enough. And then my second question, I'd just like to follow on from costs. And on costs, and look, I know it is a sales call, but it is a bit of a peculiar time. In August, you suggested that your margin was running about in line with the prior year. Your COVID costs have come in lower than what you were expecting. Sales have remained elevated. When I do the math, it looks like margin should have expanded. Is there any way you can update that commentary that you provided in August?
Yeah. So we did, at the full-year results briefing, indicate that our sales conversion to EBIT was broadly in line with the full year 2020 EBIT margin. And I don't have an update on that position today. What I would say is we've obviously continued to focus on having an appropriate level of cost. We've proactively managed it down, but our priority has definitely been about having a safe environment. But as we have managed down those costs, we've been also very focused on the other side of the coin of what are the customer trends that are coming about because of COVID. And we have made some decisions during the quarter to make some strategic investments into areas such as digital and customer engagement with what we've done on Coles & Co.
and the like, and also in the online and technology space with some capacity expansion work and upgrades that we've made to the online experience. So that would be sort of worth keeping in mind. In terms of looking forward, you obviously have seen from the outlook that the sales have moderated from the position that we're at. So it's pleasing that we have managed to bring those costs down so successfully as the elevated sales position was helping us to cover the elevated cost position.
That's really helpful, Coles. Thank you.
Thank you. Our next question is from Aryan Norozi of UBS. Please go ahead.
Hi, all. First one from me. Can you just talk about your promotional intensity this quarter versus the same time last year? So excluding all the COVID impacts from the prior sort of quarter, how has it looked year on year, please?
It would be good morning. It would be slightly below last year. But as Leah mentioned earlier, it's intensifying from where it was back in March and April, which was where it was probably at an all-time low. So it is on the way to normalizing.
Perfect. Second one, you might not have the data on hand, but can you give us some color around the trends, like white trends in WA and Queensland during the quarter? I mean, they're probably two states that have achieved a high level of normality, particularly WA. Any sort of color around that? I know you've given ex-Victoria, but particularly those states will be helpful, please.
Yeah. Look, I think we've given, as I said at the start, I think we've given an unprecedented amount of detail. And what was once called a quarterly sales report has turned into a monthly sales report. What we're trying to do here is to deliver a four- or five-year strategy, and we're at the beginning of the second year of that strategy. So our focus is about making this business better every week, whether COVID-19 is around or not. And that's what we intend to sort of focus on going forward. I think by splitting out Victoria from the results, that should give people a fairly good indication of what's going on in the rest of Australia. But I'm not going to get into a blow-by-blow of what's happening state by state month by month because that's not what we want to actually be reporting.
We want to be reporting what strategic programs are in place and have been executed in the quarter and how we're traveling against the strategy overall. And then every six months, we'll report on our KPIs, which include things like market share and so on, cash conversion, and all those other metrics. So I think we probably produce more than most public companies produce. We certainly produce more than any private company produces. And I think the numbers there probably give a good reflection on what's happening in the rest of the country.
Thank you.
All right.
Thank you. Our next question is from Ben Gilbert of Jarden. Please go ahead.
Morning, Steven, Leah. Just the first question for me, just around the category mixes. Just interested in you've obviously touched on tobacco, but if you could just talk to tobacco and fresh, is it fair to say both of those categories lifted their weights as a percentage of sales through this period? And just on the fresh side, just interested in how you're starting to look to leverage your data and your Flybuys piece to really sort of do some more targeted marketing, etc., around some of these categories as well.
Hi. Morning, Ben. And I think it's the first contact we've had in your new gig, so congratulations.
It is. Thank you very much.
It was a little bit muffled, to be honest. It felt like something about tobacco, so can you just is there any chance of making it just a bit clearer?
Yeah. Just interested around the mix in terms of the business, in terms of tobacco and fresh through this period, how you saw the mix of those two categories. Did they both lift as a percentage share? And then just interested in fresh, particularly around market share. Are you seeing participation rates lift? Obviously, that's a big driver for bigger baskets going forward.
Yeah. Look, it was pretty. There's nothing much to report on that front. I mean, while there's inflation in tobacco like there normally is, people are still smoking in smaller volumes. And the fact that the overall sales were up around 10% should give you a good feel for what's happening. So nothing in particular to call out there.
On the fresh side of things?
Yeah. Similar. It's broadly remained the same in terms of fresh participation. And that was driven by the fact that obviously a lot of the home cooking ingredients, pantry, and the grocery side of the grocery and non-food side of the business both had a very strong quarter driven by the trends we've talked about, which is home cooking and that sort of flour and ingredients piece. And then obviously in the cleaning area, it looks like people's homes have never been cleaner. So those were sort of important trends in the whole scheme of things. And on the fresh food side, obviously areas like vegetables were up more than average. Floral had a great performance and so on. So some big changes in the categories that we've called out, and those are the main sort of changes in the mix, if you like.
So it's not so much fresh versus grocery. It's more categories within those bigger product groups, if you like, that have really moved the dial one way or another.
Okay. That's all right. And just final one. Just in terms of announcing the strategic update online at the first half, is there any reason for that? Should we be expecting a change in strategy there? Or is it more just an update on where you're at with the cargo and the plans and timing looking forward?
It's a couple of things. One is we're making good progress with Ocado, and it's probably worth letting everybody know what that means in terms of the future and why Ocado remains the leading online grocery business in the world and what the competitive advantages are there. The second part is obviously what we're doing in the rest of the nation. We've had some new team members join in the last three or four months that we've talked about before. So Ben Hassing, who ran e-commerce for Walmart in China, has joined, and he's building a team around him. It's a good opportunity with him being six months in by then to sort of articulate what the rest of the nation looks like as well.
But I think we've made more progress in terms of creating a strong platform for online in the last quarter than we've made in any quarter in the last 20 years. And that's on all fronts, whether it's investing in capability, investing in capacity, and investing in a better online experience. And that's coming through in the customer data in terms of advocacy and retention and so on. And then as we head into Ocado, I've said it before, but the reason why Ocado is the best in the world is that it has the widest range that's available. It now has, in its average basket, in the U.K., it now has five products that you cannot buy at any other supermarket. And that leads to incredible stickiness. And it has the best customer experience. And of course, it's the most efficient.
And that's obviously what's coming to Melbourne and Sydney in a couple of years' time. The concrete is on the ground in Melbourne, and we should be able to start work in Sydney in the next few months. So we're delighted with what progress is being made there and delighted with the progress that we're making on Witron as well. So in a couple of years' time, Coles will be a very different business to what it is today. And it's also worth just standing back and noting that there is no business that I know of that has made a bigger commitment to online over the next five years than Coles has. And so really, we just want to make sure that because it is a big commitment, that everybody understands what the future looks like.
That's fantastic. Excellent. Cheers.
Okay.
Our next question is from Ross Curran of Macquarie. Please go ahead.
Hi, Team. Just two quick questions. Firstly, on liquor, are you able to talk us through? You've seen very strong volumes through your liquor business. Are you getting to the end of the clearance activity in that business? Can we expect that the new range to push through relatively sooner than initially expected?
Yes. So I think we said more or less at the full year that we were mostly through. Having said all of that, we're now into what you'd call the normal category review process. So every category, every year, we'll see some degree of change, and that means some new lines, and it will also mean some deletions. So there's just an ongoing process in liquor. But we are happy again that we're building some very solid foundations there. So what we saw in the quarter was a reduction in promotional activity and a move to lower prices for longer as a pricing strategy. And that appears to be resonating with people. So I think we're on a, again, a three- to four-year journey there to reposition the business.
Clearly, the focus is around a much better online operation, a much better range of exclusive liquor brands, and also a sort of replanning the stores to make sure that we're appropriately footaged in all of the growth areas. Even more so than supermarkets, the changes in categories in supermarkets is more pronounced with things like champagne and rosé and gin and low alcohol. Those categories are just really increasing quite fast. And then we've seen at the other end, cask wines reducing significantly, but also things like international beers have not sold as much, certainly in the last quarter, as we've done historically. And I think we're seeing, again, a shift to craft beers.
Thanks. And then secondly, around online penetration. So would it be safe to assume that as Victoria opens up, the online penetration Victoria should step down a little bit? And maybe we can expect online sales at approximately 6% maybe for the whole year. Is that kind of how you're thinking about things?
Was that in regards to supermarkets?
Supermarkets, yes. Sorry. Apologies. Supermarkets, yes.
Yeah. Yeah. Yeah. So I mean, it's been a fascinating, well, it's been a fascinating six months, but it's been interesting watching the numbers week by week. I think in Victoria, when COVID was at its peak, online sales reached about 9% of the total. And then we've seen that come down. And we would expect it to moderate as the liberation continues, but at a much more elevated level. And I think how elevated it remains in part will depend on people feeling safe. And there's a large minority who are very concerned about safety generally. And we've got to make sure that we maintain our standards in that regard. But it will also depend on what else people do with their time and how good a quality the online service is. And I think, as I said before, the online quality of our service has never been better.
To give you a feel, one of the most important metrics is delivered in full on time. We don't talk about what that is, but I can tell you that the actual number itself has doubled over the last quarter, and that leaves, that's obviously much better customer satisfaction. Because if you ask customers what are the biggest gripes about online, it's either products not being available or not delivered on time, and so getting those two things right are really important, and as I say, we're twice as good at that now as we were in the prior quarter, and I expect us to continue to improve.
Thank you very much.
Thanks.
Our next question is from Andrew McLennan of Goldman Sachs. Please go ahead.
Good morning, Steven and Leah. Thanks for the extra detail. I'm keen to sort of dig into some of the new information in a second. But just going back to the sales trends, I think most will tend to agree with Steven and your comments around expectations for a pretty strong Christmas for yourselves in the industry. But just in terms of those sales trends that we've seen, including your update into October, it sort of coincides with your implementation of the catalog, which I think has the potential risks to the short term as customers get used to that. But it's a long-term prize there around advertising spend for sure. So I was just wondering, is there anything, sorry, the other point was when you mentioned that your market share trends were starting to improve as well.
I think just putting all that together, and as we enter into the second quarter, is there anything to preclude you from seeing your market share improve further and sort of hold over this period? And if in answering that, can you just talk about your early experiences with the catalog? You have chosen to invest in Alexa and digital, etc. I'm just wondering if you could sort of explain what's going on behind the scenes there, please.
Yeah. Thank you, Andrew. As far as the catalog is concerned, we track a lot of things, and as far as we can tell today, more people read the digital catalog than read the paper catalog. We're also seeing, as we've said before, an increase in promotional intensity, so our view would be that this is the right move for Coles, and we want to head to a situation where the digital experience at Coles is the best around. And what that means is that we head towards a more personalized future with regard to promotions, with regards to recipes, with regards to supplier stories, with regards to community stories, so we feel as though we've taken the lead on a very important subject, and we believe over time it will drive sales, and obviously, it'll be more sustainable as well. There are still catalogs in store, by the way.
For customers who continue to want a paper-based version, they are available in store, and they are being used. As far as market share is concerned, I think, as I said before, we report market shares every six months. I think we're the only company that does that. So again, on the transparency front, I'd like to say that we're right up there in that regard. I'm not going to issue forecasts on market share. I'm happy to report every six months on what's happened in the last six months, but I'm not going to get into forecasting. All I can tell you is what we're seeing happening. What we said in our strategic commitments was that we want to at least hold or preferably grow our market share over the course of the five-year plan.
And we successfully did that in the last financial year as the first year out there. And we expect that we'll be able to do that in the future. What it's not is a commitment every quarter that that will happen because retail often doesn't work that way. So what we're trying to do here is build long-term foundations that lead to long-term success, whether that's in supermarkets, liquor, or indeed online. So that would be my view on market share. As I say, where we were impacted most back in April, we've seen a recovery. The only store cohort that we're seeing not recovering is those resort stores. They're not a huge part of our portfolio, but there are some important ones there. And we expect those to do a bit better as the Australian holiday season starts up in December.
Okay. No, thank you. And just in relation to your update on the supply chain, you've mentioned sort of the progress for Witron and Ocado. So it's good to see those details coming through. Obviously, there's been a lot of difficulty in getting the right people in the right place given the COVID constraints. Are you sort of able to update on how the progress is going versus plan? It'd be good to monitor the progress from here. But I'm just wondering, has COVID adversely impacted the time horizons for any of these projects?
It's certainly not helped, is how I'd describe it. But I'd also say it's not materially impacted as yet either of the programs. And we've had terrific support from Ocado and Witron. And it's interesting when you look at Witron, you'd almost expect that to be the case given they're on number 60. So it's a well-oiled machine. I think what everyone took a bit of satisfaction in from an Ocado perspective was that they managed to deliver the Parisian and Canadian operations during COVID, which were the first for them outside of the U.K. and therefore were very important. And that's certainly given us a lot of confidence that the show can go on.
Yeah. Okay. Thanks. If I could just quickly squeeze in one more, just back to your DIFOT comment that's started over the quarter. What have you done there to achieve such a great outcome?
So.
Perfectly correct.
Delivered in full on time.
Perfectly correct.
Yeah. Sorry. It was a bit low volume on that one. Yeah. So a lot of things, really. We've obviously put more people on the job, and that's both from a support center point of view and from a store perspective. There's a new organization structure in place that reports into Ben where there's much greater operational focus. So that's helped. And then we've done a lot of work on the technology side to make sure that the ranges online are the best that they possibly can be. And again, that's helped as well. So it's not any one thing, but I can tell you that the focus on it is enormous. And it's something that Ben has really managed to align the operations team around as well. So I think, like a lot of things, if you focus on it, it gets better.
It's certainly been the number one thing that they've been focusing on as we've increased capacity and invested in the online business.
That's great. Thank you.
Thank you. A reminder to ask a question. Please press star then one. Our next question is from Grant Saligari of Credit Suisse. Please go ahead.
Good morning. Thanks, Steven. Look, really strong result. I guess just one other question I would have is your sales productivity has been quite good, but one of the possible questions around that is just on the own brand penetration increase. And I noticed that you got a 12% increase in own brand sales that you called out during the quarter, but I just wonder whether you're also seeing improvements in sales productivity on your own brand because obviously we can put it on the shelf and people will buy it, but it's a productivity question as well.
Yeah. Yeah. Hi, Grant. Yeah, it's a great question. I think what we report is the number of new products that are out there. What we don't report on is the number of products that are being deleted, and clearly there are a large number of those, so if something doesn't perform, whether it's an own brand product or whether it's a branded product, then it gets deleted. And by the way, not everything works, and so we're not saying that everything we launched last year works. There'll be a proportion of those which don't and have already been deleted, so shelf space is one of our most valuable assets. But what I would say is that over the last 18 months, we have seen an increase in own brand penetration that's been quite significant.
And it is because, again, like the last question around delivered in full on time, there's a big focus on own brand in the business. And that's not just in terms of working on number of products. It's the quality of product and making sure that we're putting in a better offer at the entry price point level and a better offer at the more inspirational level, so to speak. And I think you'll see some amazing new products out there for Christmas entertaining. So we're investing more in own brand, but the productivity in terms of sales alignment. I don't think we sort of look at it at an aggregate level for own brand. What we do is we look at it category by category, product by product, and that's what the category managers do. And if it's not working, it comes out.
Okay. That's really helpful and just one second, one on the catalogs. There'd be a proportion of your customer base that wouldn't be as digitally enabled as others. How do you sort of approach those in terms of making sure you keep your share of mind up with that proportion of the population?
Yeah. So as I said before, we've got catalogs in store for those that need them. And we've also increased our spend on other media. So we've increased our spend digitally. And then I don't know whether you've noticed, but every Friday we have a four-page insert in all of the major newspapers as well. And so that's more of a rounding of the media spend to make sure we get greater penetration. What you've got to realize with the catalog is the catalog was invented when people used to do a weekly shop and when everything revolved around the week. The world doesn't revolve around the week anymore. It revolves around the day and increasingly the time of day. And outside of COVID, what we were seeing was shoppers shopping three times a week on average.
And that's driven by a higher penetration of fresh foods overall rather than ambient foods. So what you had was a vehicle which, and I've talked about this before, if you sort of sat people down around a table and said, "I'm starting a new supermarket. What should we do?" And someone said, "How about 3,000 promotions a week, publish a book, and then hand-deliver it to every store or to every household across Australia?" You'd sort of shake your head and say, "That doesn't sound efficient." And so that's what we've done. And it consumes a huge amount of your overall marketing spend. And then when you do your research, you find out that the minority of customers read it and that, in fact, most of them just end up in the blue bin.
And so then you start saying, in the digital world, what's a better way of balancing your marketing spend to appeal to a wider audience than the catalog once did? And how do you use that to drive sales and become more personalized with your customer base so that when they access you, whichever way they do, they get confronted with promotions and recipes and stories that they would prefer to see? And that's really what we're trying to do here. So we're certainly not trying for those who are paper catalog enthusiasts, that's in store. For those that are half-price enthusiasts, that's in store. It's on digital media like Facebook. It's in four-page spreads in newspapers, and it's in Coles & Co. online. So in many ways, our advertising media spend is broader now than it's ever been.
All right. That's really helpful. Thanks, Steven. Congratulations to the team through what's been a very difficult period.
Thank you.
Our next question is from Phil Kimber of Evans and Partners. Please go ahead.
Hi, Steven. First question was just around the supermarket sales momentum. I think halfway through the quarter, back at the FY20 result, you said it was around 10%. You've delivered 9.8%. Maybe there was a little bit of moderation towards the end of the quarter, like you mentioned. But in the last four weeks, it's sort of stepped down that growth rate by about a third. Don't want to overly focus on a four-week period, but just wanted to check if there was anything in the PCP that might have caused that magnitude of step-down.
Yeah. It's interesting, isn't it, when you report a 7% comp and everyone's talking about a step-down? You've got to remember that the first of all, this is in many ways stronger than parts of Q4 or the rest of last year. And so what we have seen in the past is average supermarket comp sales over the last decade have been more in those zones. And so you can still see that supermarket sales, and I'm sure this will be true across the industry, remain elevated. And they remain elevated for the reasons we've talked about. And that's predominantly about more people at home for more of the time. And that will continue. What we've also said is the more panicky people are, shoppers that is, the higher your sales.
So when the first panic happened, and it happened nationwide back in March, that's the biggest sales growth month ever in Australian history. What we found was when the COVID-19 cases were highest in Melbourne and the lockdown at its most severe, that's when sales were at their highest. And it's also when online sales penetration was also at its highest. So as people become more concerned, they stay at home more and they consume more from supermarkets. As they become less concerned, they'll go and spend their money in other ways. And that's where we're heading with the caveat that for the foreseeable future, there's going to be more Australians in Australia, and they're going to be spending more time at home than they would have done historically because more people will continue to work from home. So those are positive trends.
But I hope that's helpful in terms of where the spikes are and what's driving sales overall.
Sure. So there's nothing specific in the PCP. It's just Victoria would have given your sales throughout the quarter a boost in that, quite a big boost in that August period when that lockdown first came in. And that's waned off a little bit now, which is great, but it'll obviously have a sales impact. So I just wanted to make sure there was no abnormal promotion period or something in the prior period. And my second.
I think.
Sorry, you go.
I wouldn't go too far back on this one. I'd be looking more at COVID.
COVID's been the greatest sales changer that anyone has ever seen, and that's why when we talk about other initiatives, it's quite difficult to read. When you've got millions of people, five million people locked in their homes, or if you've got a panic buying across the whole country, that drives sales more than any other promotional event or whatever, and what we've seen throughout the six months is that as people relax, sales growth is reduced, and that's what we're seeing now, but all I'd sort of point to is sales are elevated versus prior years, but they are coming off what will be, we'll all look back on in the future and say where the COVID peaks.
And we've got a peak coming at us in March where last March, industry sales were 30% or whatever growth. And we're facing into that in that final quarter. So it's a peak and trough year, I think, in terms of ups and downs, but it's a year like no other in terms of being able to sort of say what will happen in the future. And equally, when you look at the sales week by week and when you look at the sales day by day and store by store, we're seeing a greater variance than we've ever seen.
Sure. And can I ask a quick one? Just on infant milk formula, with all the students and tourists, obviously not in the country, is that having a material impact on that business for you? It might be a small part of the business, but I just wanted to check.
Yeah. I think we called infant formula out as one of the categories that was in significant decline, and you may have seen a press report either earlier this week or last week around there being a significant find of baby formula and other products which were allegedly stolen from various places, so there's been that going on. We've obviously had the student trade back to other countries going on as well, and that's obviously down as well. I think I've read somewhere that there's been a reduction in the birth rate, but I think that all of those types of things are relatively small compared to the first two points. What we're also doing, by the way, just while we're on that point of baby formula is we're continuing to strengthen our theft protocols and so on.
And so we are continuing to put more glass frontages on stores, more retainers on shelves, and so on to make sure that we don't suffer disproportionately from that organized crime groups.
All right. Thanks, Steven.
Okay. Thanks, Phil.
Our next question is from Richard Barwick of CLSA. Please go ahead.
Hi, Steven. Just again, another question around a COVID impact, but from a slightly different angle. How do you feel the team has performed, or how much of an issue has COVID been with people, your staff and head office staff being forced to work from home, etc.? Has that been a hindrance, do you believe, in terms of your planning and so on, and I guess that's particularly important as we run into Christmas.
Yeah. Well, look, I think it's well known that we're the most Melbourne-centric supermarket chain, one of the largest employers in Victoria and proud to be so. But we've got about 4,000 people who normally work at the store support center, the vast majority of whom have been working from home. And we do do surveys on how they're feeling and so on. We launched a campaign which was making home a great place to work, and we give tips and so on, and we're improving connectivity and the way in which we use video conferences all of the time. We try to keep things exciting on the calls and so on. But it's different to being in the support center around the table. And what we have found is there's probably a small minority of people who have found it incredibly difficult, and that's because they have flatmates.
There might just be one table in the house, and it's the who gets up first gets it type thing. We've got homeschooling that's had a major impact on a lot of the moms and dads, for that matter, in the support center. And we've had people with pets and small apartments and things. So obviously, for those people, it's been incredibly difficult. There's also a group of people who are the social butterflies who really love coming into the support center to meet other people, have chats, have lunch with them. And there's also the collaborators where, if your job entails working with other people, then it is more difficult to collaborate and brainstorm and all those sort of things. What I'm most delighted about, though, is the fact that despite all of that, as I've said in the statement today, we remain on track with our strategy.
So we've not let COVID get the best of us. I think we're better now because of COVID in many respects. We're better as a team. We're more united as a team. The team engagement across the business is at an all-time high. The supplier engagement is higher than it's been for many, many years. And the customer satisfaction is at an all-time high. And so there's a lot to celebrate, but we have to also recognize that it's been a tremendously difficult six months for Australia, and particularly so for those of us who live in and around Melbourne. But I think the team has done an absolutely outstanding job of not making COVID into an excuse. We've tried to sort of navigate COVID, and we've also tried to continue to deploy our strategy to make the business better for the future.
So I mean, I understand, obviously, under some very trying circumstances, and it sounds like you've done an amazing job. I guess my question is, is there any sense, or do you believe the organisation, the planning, and so on, do you have everything where you would normally expect it to be, or has the work environment or the work situation meant that you are not where you would normally be? I'm thinking about plans in place for Christmas, plans in place for early next year, that sort of thing.
We are planning further forward now than we've ever planned. And as I said just now, the supplier engagement as measured by Advantage is higher than it's been. So we're not. I think another way of asking the question, well, would be, do you think you'd be in a better position if everybody was back at the support center? And the answer is probably yes. And that's not just better from better ideas and those sort of things. It's better from a mental health point of view and other things. One of the things we've learned from COVID is we can survive at home for a prolonged period of time. We can execute the strategy. We can navigate COVID.
If you just sort of said to anybody at Coles or any of the corporates nine months ago, half the people who work in offices in Australia will be working at home next year. They just said, "No chance." And I've long been a fan of people working from home part-time because there are benefits for the majority of people around quality of life and spending more time with the family and less time commuting. But it doesn't work for everybody. And that's what we've got to recognize. And so that's where we're heading as an organization, which is we don't expect more than 50% of people to be back in the support center at any one time, and we want more people to work from home permanently. That's a big change from where we were as a country and as an industry even six months ago.
So I think there's some real benefits that have come out of COVID, which will improve people's lives forever. So I don't want to make COVID an excuse. I don't think from what we've achieved this quarter, it is an excuse. And as I've said before, we will get better from more working together, but I'm delighted with what we've managed to achieve over the last six months.
Okay. Thank you. And just I have a quick question also on online. I mean, that was a stark improvement. The sales posted in this quarter relative to fourth quarter, which sort of went against the grain and was relatively weak. Sounds like, as you say, you put a lot more focus on it, and focus actually gets results. Is there any sort of sense you can give us with the big uplift in revenue from online in terms of progress and profitability, or at least relative profitability in the online sales?
Yeah. Thanks, Richard. You'll recall in Q4, by the way, that we stopped our online operations for, I think it was six weeks. So half a quarter. So when you stop things, the sales go down. So that shouldn't be a surprise. I think, to your point, though, there is a greater focus and a greater investment gone on in online in the quarter than probably any other quarter in history. So I think we are in a good space there, and I think we've got some good plans out into the next few years, which we'll share with you in February. What was the second part of that question?
Oh, just thinking about your big jump in sales within online, and it's more about the progress in profitability. I mean, that's something that you've been improving over time, and just getting a sense for the pathway to lifting the margins you are making in the online business.
Yeah. Sure. Yeah. Look, I think we said at the full-year announcement that we had seen a significant improvement in online profitability in that early part of Q1, and that's continued, and so it is not as profitable yet as the core supermarkets business, but it's vastly improved, and that's a number of factors. One is just the pure scale effect. It is the fact that the baskets are large, and there's a good component of fresh food, which comes with better margins and so on. So I think we're in a good space on profitability, but as I've always said, our objective over the next four or five years is to make sure that online profitability is as good as bricks-and-mortar profitability.
One thing that we certainly think about a lot is if you look back at supermarkets over the last 30 years and what's happened, there's been a massive move to self-service. And that self-service has enabled everyone to invest in better pricing, better technology, and so on. If the entire supermarket industry worldwide moved to personalized service and personalized picking for every customer tomorrow, then industry profitability would be reduced. And what you've got to recognize is the gross margins and net margins in food retail are significantly below other forms of retail and don't allow for that sort of personalized service, so to speak. And so we do have to find the right models in the future to make sure that online we're ambivalent about whether someone shops online or in the store. What we're finding is the best online shoppers are often your best bricks-and-mortar shoppers as well.
And so there's a lot of work going on as to what's the best form of home shopper in terms of stickiness, in terms of profitability, and so on. And how do you manage the mix of margin, supplier income, delivery fees, and so on to make sure that we can continue to invest properly? Because what we want to do here is we want to invest, and we are investing a huge amount of money in online, which is a more convenient form of shopping for many busy customers. And to be able to invest the sort of money as we're talking about, you need to have a line of sight towards a return on investment. And I think that's what we've got and the early signs of what's going on at the moment are encouraging.
Okay. All right. Thank you for that, Steve.
Okay. Thank you.
Our next question is from Scott Ryall of Rimor Equity Research. Please go ahead.
Hi. Thanks very much. And thank you for the level of detail you've given today. It's very helpful. I've got a very quick question, hopefully. You had a couple of weeks ago, you had an outage in your point of sale systems that certainly in New South Wales. I'm not sure if that was nationwide. Just in the context of the digital investment that you're doing and getting ready for some of your automated and online systems, could you just give us a sense of what happened there, please?
Yeah. Thanks, Scott. As with all good IT moments, it happened at about 5:30 P.M. on a Friday night, and it was nationwide, and there's been a lot of activity in Australia prior to that around cybersecurity and so on, so obviously, the first reaction was to make sure we understood the root cause of what it was and whether it was something internal or whether it was some sort of cyber attack, and it turned out to be internal, and to go back a few years, there was a bigger outage, I think, in 2018, and as a result of that, there were a number of new procedures that were put in place to try and prevent it from happening again. Anyway, what happened was during a peer review of some new technology downloads, there were four upgrades about to happen to our POS system.
Unfortunately, as part of that peer review, a part of the code changed to release two of the four upgrades early, and the four upgrades needed to be released together. No one did anything wrong. Quite the contrary, they were doing a peer review to make sure that everything was right, but there was an element of code that resulted during that peer review of changing. It meant that two of the four releases went early, and as a result, the system didn't work properly in terms of receiving money. They were rebooted, and the system was back up and running in three hours from beginning to end. We then tried to compensate customers by offering three times Flybuys points that weekend and free home delivery for the rest of the week.
So I think we've learned from that, one like you do from all IT issues, and moved on. But certainly, that sort of thing doesn't and shouldn't happen very often, but I was very pleased by the response of the team to get to the bottom of it. And the team stayed in store that night to make sure that they could serve as many customers as possible.
All right. Great. Thanks. That's all I have.
Okay.
Mr. Cain, there are no further questions at this time. Would you like to make some closing comments?
Thank you. Well, thanks for your questions this morning, everyone. I think this is our last scheduled event before Christmas. I'd encourage you all to get into as many Coles stores and spend up early and have a look at the Christmas ranges. I do wish you and your families a safe Christmas and a better 2021 than we've had in 2020. So thank you very much for this morning, and see you all in February. Thank you.
Thank you. That concludes today's call. Thank you for joining us. Please disconnect your lines.