Good morning, everybody, and welcome to Coles' 2020 full year results announcement from a lockdown boardroom here in Melbourne, a sunny Melbourne, I might add, which looks more like an operating theatre this morning. Joining me on the call today is Leah Weckert, our CFO, and Darren Blackhurst, the Chief Executive of Liquor, who will take us through the details of the refreshed Liquor Strategy. It goes without saying that this has been a year like no other. Some may say unprecedented, and the word resilience is also in the air. Just over a year ago, in June 2019, Coles set out to refresh strategy to transform our business and lay the foundations to succeed in our second century. Since that time, we've been presented with a number of unforeseen challenges, including drought, the devastating bushfires, and, of course, the ongoing COVID-19 pandemic.
This has provided the greatest test of our lifetime, and we are experiencing things we never thought we would see in a supermarket or, for that matter, Australia. Coles, for its part, has become a designated essential service, playing an important support role during these crises, and it will play an important role as the nation recovers and returns to growth. We owe a huge thank you to our team members, supply partners, and the communities we serve for the way that they have pulled together. I'd also like to thank the federal and state governments for their speed of response, including establishing the Supermarket Task Force and unprecedented collaboration to help us to continue to feed Australian families safely. There has and will be much to learn from COVID-19. We're determined to emerge as a better, stronger business and team.
Our purpose of sustainably feeding all Australians to help them lead healthier, happier lives is now more relevant than ever. The pace of change in the business is accelerating, particularly with our digital assets and capabilities, and we are demonstrating true agility on a week-to-week basis. For our many shareholders, we have successfully executed the first year of our strategic plan and restored group profit growth for the first time in four years, and we are on track to grow long-term shareholder value. The interim and final dividend payments, totaling AUD 767 million, importantly benefit millions of our fellow Australians. So, turning to slide three in the deck for those who have it handy, the financial highlights.
The FY20 financial year marked the first full year of operations under our refreshed strategy, and momentum in the business was strong leading into Christmas as customers began to respond to the strategic initiatives being implemented. With regards to our financial results, sales increased roughly 7% to AUD 37.4 billion. EBIT increased by 4.7% to AUD 1.4 billion for the first time in four years that we had growth. Supermarkets' comp sales grew by 6.9%, the 51st consecutive quarter of comparable supermarket sales growth. Our Smarter Selling initiative saw us deliver in excess of AUD 250 million in cost out, and I will discuss this in more detail shortly. As we invest for future growth, we incurred gross operating capital expenditure of AUD 833 million, which included CapEx in relation to our store renewal program and the supply chain modernization project, in particular, WITRON.
We reported operating cash flow of AUD 2.2 billion, with strong cash realization of 111%, and net debt of just AUD 362 million pre the new AASB 16 leasing standard. For our shareholders, I am pleased to report a final dividend of AUD 0.275 per share, fully franked, growing 14.6% from last year. This takes the total dividend for FY20 to AUD 0.575. Finally, the well-being and safety of our team members is always a priority and was brought even more into focus over the last year. Pleasingly, we saw a reduction in the total recordable injury frequency rate, or TRIFR, of 18% for the year.
Also, during the year, more than 85,000 team members participated in a safety refresher training, and approximately 1,000 leaders also completed mental health first aid training, which provided leaders with skills to respond to a mental health crisis and also create a mentally healthy workplace, which we believe both contributed to the safety outcomes. Moving on to our strategy in more detail on slide four. As a company, we feel proud of the progress we've made to date in achieving our vision to become Australia's most trusted retailer and grow long-term shareholder value. I believe one of the biggest factors in our success has been how brilliantly we've worked together across Coles. During the bushfires and COVID, we truly worked as one Coles team to support our customers, communities, and each other.
We want this culture and way of working to build and grow, and that's why we launched our Coles Group values, which you can see on the slide here. These values, customer obsession, passion and pace, responsibility, and then health and happiness, describe what is important to us here at Coles. There are various ways in which our experiences over the last few months have really brought our values to life and confirmed that they are right for Coles. For example, customer obsession was brought to life through the introduction of Community Hour and Coles Online Priority Service to support our vulnerable customers. A great example of passion and pace was setting up the pop-up distribution centers in a few days, ensuring high-demand products were sent into stores to meet customer needs.
Responsibility, very much about introducing purchase limits on products in short supply to improve availability for all of our customers. Health and happiness, the introduction of social distancing measures to protect customers and team members, the 1.5 rule that we're all familiar with now, limiting the number of customers in store at peak trading, as well as enabling 3,000 of our store support team members to work remotely from home. During the year, we also had a big focus on mental health and well-being, with 110,000 packs sent out to team members to support them and their families. Importantly, these values were developed by input from our team members and are supported by our lead behaviors of look ahead, energize, and deliver with pride. They will guide the day-to-day decisions and actions of all team members shaping the way we work together to get things done.
Moving on to slide five, we've strengthened the executive leadership team in the year with five new recruits. I'd also like to sort of thank the rest of the team that have contributed enormously to the year that we've had. In terms of new appointments, we've got Ian Bowring in Transformation, Sally Fielke, Corporate Affairs, Darren Blackhurst, who you'll list here shortly in Liquor, George Saoud, Emerging Businesses, which is mostly financial services, but also helping us to integrate the Jewel business that we acquired, and then Ben Hassing, who's joined us from Walmart in the States to lead our e-commerce charge. Each of the new executive members have already made a great contribution to their teams and Coles, and I look forward to continuing to work with them in the future. Moving on to the strategy, slide six. Okay.
While COVID created a great deal of incremental complexity, I am pleased to say that we have successfully executed the first year of our refreshed strategy. The most important thing for me was we were starting to see the fruits of the new strategy prior to COVID and will be a better business coming out of COVID. I will take you through some of the proof points on each pillar, starting with inspiring customers. We continue to tailor our offer by using data-driven ranging tools. We saw one of the largest tailored range changes in Coles' history, with more than 1,600 new SKUs introduced over the last year. We delivered trusted value through our helping lower the cost of breakfast, lunch, and dinner campaigns and overall lowered the cost of living with 1,500 new products introduced on everyday low prices.
We achieved more than AUD 10 billion in own brand sales for the first time, growing by 10%. Own brand now accounts for over 31% of supermarket sales, and 1,850 products were launched during the year, including Coles Asia and Coles Mexico ranges and the Daley St Premium range of Colombian and Kenyan Arabica coffee beans blended locally here in Melbourne. We have now rolled out our dedicated convenience meal section across almost 150 supermarkets with 240 new lines launched, including the new Coles Kitchen range from a Jewel manufacturing facility in Sydney. In online, we almost doubled capacity through the rollout of contactless Click and Collect to the boot of your car, which is now in 400 supermarkets. We also replatformed the Coles website and all three Liquor banners websites.
During the year, we made a significant investment in Flybuys to build a cloud-based data analytics and loyalty management platform that will benefit members through a seamless digital experience. We now have a refreshed Liquor Strategy focusing on being a simpler, more accessible, locally relevant drink specialist. Darren will take you through this shortly. Finally, we continue to deliver to drive our meat export business, which experienced double-digit revenue growth for the year with strong growth across Asia. These are all great initiatives. It was a very busy year, but one of the most pleasing aspects was that it translated to an improvement in customer satisfaction across Supermarkets, Liquor, and Express in the fourth quarter. So, a great result. Moving on to Smarter Selling on slide seven.
I'm pleased to report we realized an excess of AUD 250 million in cost efficiencies this year as we pivoted to greater use of technology. Some of the smarter selling initiatives driving the cost savings include a more streamlined store support center. In the store support center, we implemented new systems across finance and procurement, making it easier for our team members to do their jobs. We established transport hubs in Victoria and New South Wales, enabling us to optimize logistics and significantly increase backhaul, and introduced new data and technology-led solutions in stores, such as easy ordering in the deli and bakery production tools. Energy and waste management reductions have been achieved through retrofitting LED lights, which have delivered significant electricity savings, as well as the installation of new refrigeration control systems, leading to a reduction in energy consumption.
We've also implemented measures to reduce stock loss in stores, such as glass panels at the front of the stores and anti-sweep shelving, which you may have seen. The Smarter Selling pillar of our strategy also includes an optimized store network and formats. This year, we renewed three Coles Local supermarkets, 10 Format A's, 31 Format C stores. This was the biggest renewal program since 2012. Finally, on Smarter Selling, the technology-led optimization and automation of our supply chain to reduce costs and improve availability is continuing to accelerate. Structural work at the WITRON Automation Distribution Center in Queensland is progressing, while the New South Wales Distribution Center is at the approval stage. We also entered into long-term leases for development of the Ocado sites in Sydney and Melbourne, with construction commenced on the Melbourne site.
It is worth highlighting that in line with the business case for both of these projects, as project activities peak in F22 and F23, we expect to incur incremental operating expenditure relating to project implementation costs, and in F23, we also expect to incur double running costs. In FY22, we expect these costs to be up to $75 million, and we'll provide further detail on these as the projects progress. Moving on to the final pillar of our strategy, winning together, slide eight. As I said at the start, this pillar of our strategy has never been more relevant, and we remain focused on helping all Australians lead healthier and happier lives, including our team members, our suppliers, and our communities. In addition to the group values, which I've already spoken to, we raised $5 million for FightMND to support research into treatments for motor neurone disease.
We delivered more than AUD 7 million of additional contributions to SecondBite and Foodbank at their time in need during COVID. We increased diversity with more than 4,700 Aboriginal and Torres Strait Islander people employed across our stores, representing almost 4% of Coles team members, and a significant step towards our target of employing 5,500 by 2023. We strive for Coles to be a great place to work. This was recognized during the year, with Coles being named the most popular retail and FMCG employer in the top 100 graduate awards. We also entered into a five-year agreement to be the official supermarket to the Australian Football League and the ladies, which is now pleasingly back on our screens. We've partnered with Stephanie Alexander Kitchen Garden Foundation to promote healthy eating, and of course, we continue to support MasterChef, which recorded record ratings during the year.
Finally, we are extending our model of buying milk directly from farmers into South Australia and Western Australia for our own brand milk. We launched the direct sourcing model a year ago with the aim of building long-term relationships with Australian dairy farmers, and we're pleased to be able to provide them with certainty of income and the confidence they need to plan for the future with contracts up to three years. We measure success of this pillar by our team member engagement and safety scores, pleasingly both improved significantly. Okay, moving on to slide 10, the strategy tracker. Many of you will be familiar with this now. It's had a couple of outings. I'm very pleased to say that we remain on track against each of the eight metrics that you can see here, and we will continue to report on this scorecard as the years progress.
With that, I will now hand over to Darren who joined us back in January, which seems like a long time ago, who will take you through the Liquor Review of Operations. Darren.
Thanks, Steven. Good morning. Firstly, by way of introduction, I should start with a little bit about me. I've worked in retail for the past 30-odd years, started out back in Tesco in 1988, worked there for the first 18 years of my career, and was the commercial director of Tesco Lotus in Thailand for my final five years there before joining ASDA, where I was group trading director for four or five years, and then latterly, I was the group commercial director at Morrisons PLC in the U.K. I am delighted to be with you today. It's good to be able to share the recent work that my new leadership team and I have undertaken over the past seven months. Since joining in 2020, I was going to say actually that it's been a bit of a baptism of fire.
It's actually probably more appropriate now to say that it's been a baptism of fire, storms, floods, and a global pandemic, but thankfully, while charting a course through what has been an exceptional few months by any standard, I'm pleased that we've now completed a full end-to-end review of the Liquor Operations and reset our Liquor Strategy. We turn to page, sorry, to slide 12. In undertaking the review, we looked through four key lenses: our customers, the market, our suppliers, and our business, and I think taking each of these in turn from a customer perspective, as you can imagine, coming from the U.K., it was important for me to truly understand the Australian market, and most importantly, Australian customers and how they like to shop.
As such, we spent 852 hours talking and listening to more than 1,000 customers to understand their thoughts on us, our offer, how they like to shop, and how we compare to our competitors. And customers were really clear with us on a number of issues and opportunities. Overall, they want an easier shopping experience with less clutter, particularly in Liquorland. They expect friendly team members to be available and on hand to help them. They want our offer to be relevant for them and simple to understand, with more local craft and boutique products being mentioned. And they told us that it's still essential to continue to offer good value for them every day.
A number of customers echoed the overall longer-term industry trend that health is important to them and said they were trying to reduce the amount of alcohol that they were consuming during the week, looking for more no and low alcohol alternatives. From a market perspective, it's important to recognize that our size, scale, and banner portfolio means that we're large enough to make a difference nationally, yet agile enough to be relevant in the local market. It's also clear online is becoming a much more important and relevant channel for more customers, especially during this COVID-impacted period, and the omnichannel customer is becoming much more important to us. Our feedback from suppliers was also clear. They want us to simplify the way we work together, provide clear strategic direction, and build longer-term plans and partnerships with them, and finally, we looked at key aspects of our business.
Having visited around 140 shops across four states and the Northern Territory, all prior to the current lockdown in Victoria, I should add. I have to say I was really impressed with the team members that I met across the business at all levels, really, and as you know, our team members in shops and the store support teams work tirelessly every day to serve our customers and improve our business, and their commitment and dedication through the last few months has been an absolute inspiration. Our three distinct and complementary store formats means we're well placed nationally and locally to serve our customers. First Choice continues its successful transformation. Vintage Cellars is evolving with strong results in the suburban and trial, and Liquorland has considerable potential to capitalize on its convenient locations around the country. Another clear positive is our developing an award-winning exclusive brand portfolio.
The key challenge for us is that a lot of our systems and processes are quite manual, and we have a largely fixed cost base that now requires a level of investment to lay the foundations for future growth, particularly online, where we have considerable opportunity to grow. Turning to slide 13. Taking all this into account, we created a new strategic framework for growth to guide the business, our team, and our supply base over the coming years. Reflecting on the four lenses, we set ourselves the vision going forward to be a simpler, more accessible, locally relevant drink specialist. This is driven by a focus on six key priorities that sit under the group's three strategic pillars. Under Smarter Selling, we will simplify the operating model and refocus the business. Under Inspire Customers, we will differentiate our offer, serve our customers better, and be more relevant and accessible.
And under Winning Together, we will build our capability and engage safely, responsibly, and sustainably. These priorities are underpinned by 30 key deliverables across three time horizons that all started concurrently and are linked to our group values, guiding the way that we work and engage internally and externally with our suppliers. Turning to slide 14, looking at the six priorities in a little more detail, our first priority is to simplify our operating model. And this is really all about good shopkeeping to ensure our offer, our communication, our pricing, and the way our stores operate doesn't become too confused or cluttered. It's essentially making our smaller stores easier to shop and our offer more engaging for customers.
Our second priority is to refocus everyone's efforts across the whole business on some retail fundamentals, being clear on where we can add value for customers while reducing and removing needless cost and wasted effort in the process. Thirdly, we need to differentiate our product offer to enable us to serve our customers better. The development of our exclusive brands and our relationships with local suppliers across all channels and formats are key to this, as is team member engagement with customers. Our fourth priority, that of being more relevant and accessible, relates directly to the way we plan to optimize and evolve our shops, our estate, and our online business. The latter is a big opportunity. And with regards to our estate, as we complete the First Choice Liquor Market Renewal Program, we will be turning our attention to Liquorland.
After considerable customer research, we've reimagined Liquorland and put a shovel in the ground in our Oakleigh store to refresh the look and feel of the shop. It's actually a relatively light touch change, but with a big overall impact. And whilst it's early days and there's still a lot of refinement to come, it appears to be resonating with customers and with team members alike. Given this, we will be moving to a multi-store trial in the coming weeks and months. Our fifth and sixth priorities underpin the delivery of the first four. It's important we continue to invest to build our capability, particularly in our team and our systems and our estate, to enable us to deliver long-term growth. And we will always trade safely, responsibly, and sustainably in the communities that we operate and serve. And given the time available, I'm going to stop there.
But by way of summary, I'd leave you with three key points. Firstly, it's clear that there is considerable latent potential in all our liquor brands. Secondly, the market and our customers are evolving, and this is an opportunity for our business. And thirdly, our desire to be a simpler, more accessible, locally relevant drink specialist and the delivery of our six priorities will lead to sustained growth over the long term. Thank you. I look forward to updating you along the way. And I'll now hand over to Leah, who will take us through the financial overview.
Thank you, Darren, and good morning, everyone. Great to be talking to you this morning. Before I get started, just a couple of housekeeping items. From FY21, Coles will report its financial results on a post-AASB 16 basis. Therefore, this will be the last year that we'll present numbers on a pre-AASB 16 basis in these result presentations. As FY19 comparatives have not been restated, any changes from FY19 to the FY20 post-AASB 16 position are not meaningful. And so my commentary in this presentation, with the exception of the balance sheet, will be on a pre-AASB 16 and significant items basis. Next year and going forward, I am very glad to say that there will be alignment between the comparative results as we will have fully transitioned to a retail calendar and be reporting post-AASB 16. So let's get into the financial results.
On slide 16, you'll see that the group sales revenue increased by 6.9% to AUD 37.4 billion. Group EBIT increased by 4.7% to AUD 1.4 billion. This was despite a significant decline from express earnings and FY20 being our first full year of corporate cost post-merger. Net profit after tax increased by 7.1% to AUD 951 million, and basic earnings per share increased by 7.1% to AUD 0.713 cents. The board has declared a final dividend per share of AUD 0.275, an increase of AUD 0.146 versus last year, and this takes the total FY20 dividend to AUD 0.575 per share. Moving on to the segment financials now on slide 17. It's very pleasing to be able to report sales revenue growth across all our segments and strong EBIT growth in supermarkets. In supermarkets, sales increased by 6.8%, driven by the implementation and execution of our strategy that Steven has just spoken to.
This included increased penetration of own brand and the rollout of tailored ranges. In addition, sales benefited from increased at-home consumption and pantry stocking associated with COVID-19. Online growth, while strong relative to bricks and mortar, was meaningfully impacted by a temporary suspension in March and April as we pivoted the business to ensure that we could meet the needs of the most vulnerable in our community. Supermarkets' EBIT increased by 10.7%, supported by the first year of our Smarter Selling Program and strategic sourcing initiatives, which helped offset significant incremental costs related to COVID-19, which were approximately AUD 170 million in quarter four. Despite the additional COVID-19 costs, we delivered just under 18 basis points of operating leverage for the second half and 14 basis points of operating leverage for the full year.
Turning now to liquor, sales growth was a result of a strong performance across all three banners, as range changes in high-growth categories such as gin were well received by customers, and in addition, the significant shift to at-home consumption. Liquor EBIT was stable at AUD 120 million, with high sales offset by ongoing clearance activity associated with range changes and some margin deterioration from mixed changes as a result of COVID-19. Express C-store growth also benefited from COVID-19-related pantry stocking and strong basket size growth in the latter part of the year, which more than offset lower foot traffic in store following the government's stay-at-home directives across the country. While not included in sales revenue, fuel commissions were impacted by the stay-at-home restrictions, with lower fuel volumes in the latter part of the year. This material decline in fuel volumes resulted in Express reporting a loss of AUD 16 million.
The other segment recorded net costs of AUD 27 million for the year. Underlying corporate costs were broadly in line with our previous guidance of AUD 66 million, offset by the self-insurance provision release of AUD 15 million in the first half. There was also approximately AUD 10 million of additional COVID-19-related corporate costs, including donations. Earnings from property operations were AUD 37 million, and Coles' share of the Flybuys JV result was a loss of AUD 6 million. I'll turn now to the normalized cash flow on slide 18. Operating cash flow, excluding interest and tax, was AUD 2.2 billion, with strong cash realization of 111%. This reflects both a strong trading performance and disciplined working capital management, with inventory reducing faster than trade payables towards the end of the financial year.
Higher provision compared to last year is largely a result of the award-covered salary team member review and the annual leave provision, with less team members taking entitlements in the latter part of the year due to the COVID-19 restrictions across the nation. I'll turn now to capital expenditure on slide 19. Gross operating capital expenditure on an accrued basis decreased by AUD 60 million year on year to AUD 833 million. This was a strong outcome during a year that presented many challenges, with COVID-19 impacting project deliveries in the second half. While spend on store renewals was higher, lower CapEx was incurred on new store openings, which we categorize as growth CapEx. Five openings have been moved into FY21 as a result of COVID-19-related delays. Overall, there were 70 supermarket renewals and 30 liquor renewals.
From a new store's perspective, there were eight supermarkets and 20 liquor stores opened during the year. CapEx was also incurred in relation to the supply chain modernization program and a number of initiatives in the Smarter Selling Program. Finally, we reported a net inflow of property CapEx of AUD 167 million in line with our previously communicated guidance as we took advantage of market conditions. Turning now to the balance sheet on slide 20. The balance sheet as of June 28th is provided on this slide on a post-AASB 16 basis. As of June 28th, we reported working capital of negative AUD 1.1 billion, capital employed of AUD 3.5 billion, and net assets of AUD 2.6 billion. We continue to maintain a strong balance sheet, which will provide flexibility for future growth.
If I talk to working capital first, working capital improved from the prior year, with higher inventories being more than offset by an uplift in trade and other payables to support the heightened trading activity, particularly in supermarkets and liquor during the fourth quarter. In capital employed, property, plant and equipment and equity investments remained relatively stable year on year, with property acquisitions moderating. A net lease liability of AUD 1.4 billion was also reported following the adoption of AASB 16, which also largely drove the movement that we see in the net tax balances. Both inventory and payable days increased compared to FY19, reflective of the legislative change to the recognition of duties and taxes on tobacco inventory and the exclusion of fuel inventory and payables for the full year in FY20 from the implementation of the new alliance agreement with Viva Energy in the second half of FY19.
Turning now to slide 21 on capital management. As we have said in the past, we will continue to take a disciplined approach to capital management. The total dividend for the year of AUD 0.575 per share represents a dividend payout ratio of 82% on a post-AASB 16 basis. We reported net debt of AUD 362 million, and the weighted average debt maturity was 5.6 years, with undrawn facilities totaling AUD 2.2 billion. During the year, Coles issued AUD 600 million unsecured fixed-rate Australian dollar medium-term notes comprising AUD 300 million of seven-year notes and AUD 300 million of ten-year notes. We remain committed to diversifying our funding sources and extending our maturity profile over time. On a like-for-like basis, leverage has decreased 0.1x .
But as we have now transitioned to AASB 16, the comparable leverage ratio going forward is 3.1 times, which better reflects how both rating agencies and debt investors have viewed our leverage for some time. Finally, on credit ratings, we remain committed to investment-grade credit ratings with S&P and Moody's. I'll now hand back to Steven, who will make some concluding comments on Outlook before we get into the Q&A.
Thanks, Leah. COVID-19 continues to have a significant impact on our team members, suppliers, and the communities we serve. We believe the impact on the overall supermarket sector is likely to be ongoing well into calendar year 2021. While the environment remains highly uncertain, we are in a strong position to take advantage of opportunities as they arrive. By way of a trading update, in the first six weeks of FY21, supermarket comparable sales remain broadly in line with the levels achieved in the second half of FY20. In online, following a significant increase of capacity in the second half, sales are up 60% in supermarkets in the first six weeks of FY21, driven by Victoria. We have also continued to incur significant incremental COVID-19 costs in the early part of 2021.
Given these incremental costs, Supermarkets is achieving an EBIT margin consistent with the full year at the current time. The extent and duration of these incremental costs will depend upon a number of factors as we continue to proactively manage the unfolding COVID situation. In Liquor, sales have remained elevated, with any moderation of sales growth dependent on social distancing restrictions for hotels, pubs, clubs, and licensed venue operators. Aside from incremental COVID-19 costs, Liquor also expects to step up its investment in customer service in the coming 12 months as it implements its new strategy. In Express, average weekly fuel volumes in the early part of the first quarter are broadly flat, with the Q4 exit rate with significant variation between states.
In other FY21, corporate costs are also expected to be slightly above FY20, driven by a market-wide increase in insurance costs, while net earnings from property operations are expected to be more modest than FY20 and weighted towards the first half due to lower anticipated disposal activity. Coles' 50% share of Flybuys net result is also expected to be broadly in line with FY20. We retain our AUD 1 billion cost-out target for Smarter Selling to be achieved by FY23. In FY21, we will continue to focus on realizing opportunities. However, the timing will in part be dictated by COVID. Coles' optimized store network and formats is already transforming the makeup and performance of our extensive store network, with plans to renew approximately 65 stores in the year and to open between 15 and 20 new supermarkets in FY21, including five stores that were delayed in FY20 due to COVID.
Finally, gross operating capital expenditure is expected to be approximately AUD 1 billion and includes increased investment on the Witron Ambient Automated Distribution Center as the project enters its third year. In addition, Coles also expects net property CapEx to be plus or minus AUD 100 million in FY21. Thank you for listening. I'll now hand back to Travis and open up the line for 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 then two. If you are using a speakerphone, please pick up the handset to ask your question. We ask that questions be limited to two per person. The first question today comes from David Errington from Bank of America. Please go ahead.
Morning, Steve. Morning, Leah and team. Steve, can I delve into your operating costs, notably in supermarkets? Now, the first question, I understand the COVID costs, which you've called out, of AUD 170 million in the quarter. But when you strip out the COVID costs in the second half, your underlying cost of doing business in supers increased by about 6%. And I'm assuming that's even with the benefits that you would have had through your Smarter Selling. Can you highlight some of the cost pressures that you would have excluding COVID costs? Can you highlight some of the other costs that you would have incurred in that second half in being able to manage the very strong sales that you incurred? And whether those costs you can gain efficiencies on that going forward, or whether that cost increase is what we need to expect.
Okay. Morning, David. I might hand that one over to Leah.
Hi, David. How you going?
Hi, Leah. Good, Leah, yourself?
Yeah, pretty good. Nice to talk to people.
That's good.
There are a number of factors at play in there. Let me just talk you through those. We've got AUD 170 million of COVID costs, which are for quarter four. There were some COVID-related costs in Q3 as well, around about the AUD 30 million mark, so about AUD 200 million for the second half. In addition to that, as you would expect, there is quite a bit of increased cost in there related to increased sales volume. The COVID costs that we've called out, that 170, is what I would probably describe as sort of semi-fixed costs. That's things like we've put a door greeter on every supermarket. Now, that's completely independent to sales volume. You need to add on what I would describe as the variable costs related with the sales volume.
So that's going to cover things like your store rent, your consumables, like your bags to put bakery items in, bakery boxes, foil rolls, things like that, as well as some additional tenancy, CODB as well. And you would expect those to be growing in line with sales. Then, in addition to that, we did make a number of strategic investments in the half as well, particularly in the IT and digital space to get things like Coles & Co. stood up. And then you've got your underlying cost growth. And that's all offset then by the Smarter Selling. When I do the triangulation on that, and granted, I have the benefit of the detailed numbers, I get to an underlying cost growth in there of between 3%-3.5%.
Right. So it's about 2.5%-3% in that increased cost, excluding COVID that's increased because of, effectively, these strange conditions. Is that the right way of looking?
It's the variable costs, which are really the biggest driver in there.
Yeah. And the second question, the point that I'm trying to get my head around is your comment, the second bullet point in your Outlook, where you're basically calling out a flattish EBIT margin, but you expect to incur significant incremental COVID costs in that. Can you elaborate? But that depends upon a number of factors. Can you elaborate more on what you mean by that second bullet point, what those factors are, and whether we can actually expect to see operating leverage? Because, as you said, you're running at 10% sales growth at the moment, but you're calling out flattish margins. I suppose where I'm trying to go with it is, when can we start to see some real leverage coming here, or is that just an unrealistic expectation?
Yeah. So, I mean, the statement that we've put in there is really based on the results that we're seeing in the first six weeks. And we felt it was important to give some transparency around that, given just the number of moving parts and the uncertainty. I mean, when I sort of triangulate that, David, if I take the second half as an example, if you were to assume an underlying sales growth rate ex-COVID, and a good estimate of that would probably be where we were at the early part of Q3 prior to COVID starting. You then can look at your incremental sales that you've got, which is really due to the shift to in-home consumption. You apply the GP rate to that.
You apply that variable cost of doing business rate there, which is what I just talked to around your store rent, your consumables, and your tenancy. And then you take off the costs. And basically, what we're indicating is we had about 170 in Q4. 70 of those we don't expect to recur. But there is a substantial amount there going into Q1 that we expect to continue. And that is things like the additional cleaning routines that we've got in store, the additional door greeters that we've got, DC cleaning, things like that. Those additional costs, once you take that off, I, by and large, broadly, get back to the number that we've sort of indicated in terms of the EBIT margin. So while the COVID conditions continue, we do need those higher sales to maintain the EBIT margin.
It would need to increase above that for us to start to see fractionalization.
Okay. That's very thorough. Leah, thank you very much.
Thank you. The next question comes from Shaun Cousins from JP Morgan. Please go ahead.
Thanks. So good morning. Or maybe to continue that theme, Leah, further to David's question. In regards to the start of the year, has there been any change in the trajectory of gross margins, i.e., has promotional intensity become greater, given that that was less of a factor in the second half where you were able to extract or achieve margin expansions? Or have you been unable to extract those Smarter Selling cost savings, which, again, you were able to do in the second half 2020? I'm just curious around, particularly, gross margins and the Smarter Selling cost savings as factors that were present in the second half 2020 and might not be present in the first half 2021 to date, please.
Yeah. Hi, Shaun. I might take that one.
Hi, Steve. Thank you.
Hope you're well. The basic trend here was that we saw, obviously, in the early days of COVID, a higher GP because of a lower promotional intensity. And then that sort of promotional intensity gradually rose through the remainder of the quarter. And it's now sort of broadly stabilized. It has stabilized at a level which was slightly lower than last year. And we are seeing more everyday sales going through. But that's partly because we've got more products on every day, low pricing in any event. Just from a GP perspective and the split between CODB and GP for Smarter Selling, we did say, I think, at the outset of Smarter Selling that there was broadly going to be a 70/30 split between CODB and GP. So that's partly the rationale or the reasoning behind some of the improvement we saw in GP in F20.
Clearly, we're still working on more programs that are around logistics and other things that will come into that as well, but we are also investing, continuing to invest in value as well.
I mean, are you saying, are you expecting Smarter Selling cost savings, or is what's going on in Melbourne making that very difficult to do right now?
Yeah. Look, we've announced 250 for the year. The program is marching on. There's a very exciting slate for 2021, and we're working on what 2022 and 2023 looks like in more detail. Clearly, we're trying to get as much done as we can. The rules and regs change every week, as you probably know, and we're now sort of probably going a bit slower on some of the construction here in Melbourne. But that is just something I think we've all got to live with and accept that we're in a rapidly changing environment. When we do see panic buying or increased demand, the GP does increase, but that's only in the state that it happens in.
Great. Okay. Thank you. And my other question would just be around sort of convenience. Can you just remind us? I believe, when you announced the deal with Viva, it was broadly if you were doing 60 million L a week, you're break even, and you needed to do 75 million L a week to get to 50 million L EBIT. This is all pre-AASB. So we should envisage if June continued, which was around 53 million L a week, you're actually losing money in convenience. Does that volume EBIT trajectory and sort of alignment still hold on a pre-AASB basis, please?
Yeah. That's approximately correct. Yeah.
Okay. And just finally, what was your online exit rate at the end of the half, please? Online as a proportion of sales.
What we said was that excluding the pause that we did, we'd have been growing at about 30%. So you should be able to work that out. It's around about 4% of sales. And then what we also said on the media call earlier is that we're currently sort of trending towards that 6% mark in the first six weeks of the current year.
Great.
6%.
Thank you very much.
6% excluding market sales. Yeah.
Supermarket. Yep. Thanks, Leah. Thank you, Steven.
Thanks.
Thank you. The next question is from Michael Simotas from Jefferies. Please go ahead.
Morning, everyone. Can we talk a little bit more about the COVID-related costs in supermarkets? Just trying to understand exactly what's included. And just a couple of things that you've called out. So lower utilization of annual leave, which has led to an increased provision, whether that's included in your COVID costs. And also, there's a comment, unsurprisingly, that mix shifted away from mall and CBD stores as well as resort towns. Whether there are incremental costs associated with that that are included in that COVID cost bucket as well, please.
Yeah. So in terms of what's in the AUD 170 million, let me just talk through the big buckets for you. So far and away, the biggest bucket in there is store rent and expenses. So that covers things like the addition of door greeters to every store, additional service that we've put in, particularly into the self-service areas, and then the cleaning routines that we've put into store. So that is our biggest bucket. The second biggest bucket after that then is the thank-you payment that we gave to all of our store team members and DC team members as well. And then we get into a number of other things. So the unused annual leave, which you raised, that is included in our COVID costs because we would typically see a certain run rate of annual leave, which draws down on the provision.
When we're not drawing down on that provision, then we're paying it as salary costs. So it is a direct cost into the business. We would be thinking about that as more of a one-off because our hope is that that could reverse as the restrictions start to lift and people are more inclined to go for a holiday. Or here in Victoria, I should say, even able to take a holiday. The fourth bucket I call out was the double team member discount that we provided over the period of a few months. Then we're down into things like logistics. So there is additional cleaning in the DCs. We did have some additional costs associated with the positive cases in Laverton, which resulted in increased agency costs and line haul in the latter part of the fourth quarter.
And then there's a bit of stuff in there around the introduction of the sanitization stations, the sneeze guards, some ad hoc marketing that we've done, and then some costs associated with actually managing the business continuity process that we run. So there's a lot of bits and pieces in there. But the biggest ones are the store rent and expenses, the thank-you payment, the double team member discount, and the unused annual leave.
Yeah. That's really helpful detail.
Great. So then moving to the second part of your question, which was around the different performance that we're seeing in the store network.
Yeah. Yeah. I might take that one. Hi, Michael.
Hi,
Michael.
The variance is quite pronounced. I don't think I've ever seen anything quite like it. If you look at our top 50 stores versus our bottom 50 stores, the variance is extraordinary. You can be talking about a 50 down, 50 type thing at its peak. The broad dynamic is that CBD stores, as you'd expect, are trading down. Resort stores outside of Victoria are gradually recovering. Shopping centers are still soft and obviously in decline in parts of Victoria. And the best-performing cohort is the neighborhood stores. And when you look at our mix of stores, we probably have, as a percentage, more shopping center stores than most. And so that's something to factor into your thinking.
Okay. Great. Thanks. And then the second question is just on the debt. So debt's down to AUD 362 million. At the time of the listing, we were sort of talking about a capital structure that would accommodate a billion dollars. And there was a bit of criticism or concern at the time that there wouldn't be enough cash flow to support dividend payments. So well done for proving us all wrong on that. What's the right capital structure for this business going forward, given the CapEx envelope that you've got coming?
I mean, at this stage, our focus is really on maintaining a strong balance sheet. We aren't at a point, I think, in our evolution where we're going to be talking about any form of capital management yet, and that would be a decision for the board anyway.
Okay. Thanks.
Thank you. The next question comes from Andrew McLennan from Goldman Sachs. Please go ahead.
Good morning, everyone. I just wanted to discuss the online sales trends in a bit more detail. I know that I think it was around the timing of the third quarter update, you mentioned you were increasing capacity for click and collect versus delivery. I'm just wondering how you can talk about the relative performance, particularly over June and July of both click and collect and delivery, and just how you're going versus capacity, please?
Yeah. Morning, Andrew. Both home delivery and Click and Collect are sort of working well. But Click and Collect is ahead of home delivery. And really, what we've done is put on more drivers. We've managed to work with landlords to open up more concierges, which is contactless Click and Collect, which is broadly to the boot of your car. And obviously, we've recruited more pickers in store. So we've seen quite a significant increase in capacity. Obviously, we're doing contactless delivery. But yeah, the whole online piece has seen some extraordinary growth post the Stage 4 lockdowns in Victoria, albeit that we are seeing elevated demand in other states as well, but not quite as big.
So the 60% trend, if you looked at it on an ex-Victoria basis, would it be similar to the 30% run rate you mentioned earlier?
No, I think a bit higher than that, and particularly in New South Wales.
Yeah. Yeah. Yeah. Okay. Now, I also wanted to just go back to the cost-out program. Obviously, you've been in expectations with now the target being in excess of AUD 250 million. So a great effort there that's giving you a strong tailwind on costs when there are so many other incremental costs coming through. Could you just clarify, though? I just wanted to make sure whether you're not providing the guidance here. But just around 2021, what expectations for incremental costs are anticipated for fiscal 2021? And then secondly, you have also mentioned sort of the duplication costs that come into play in 2022 and 2023. Just wondering how you're thinking about your cost-out versus those incremental costs to sort of give an idea of what the net impact could be. Thanks.
Yeah. Thanks, Andrew. So for FY21, our plan is to do a level of cost-out that's broadly in line with what we've delivered in FY20. Now, the one health warning I'd put on that is that that is somewhat dependent on our ability to execute those initiatives in a COVID-19 environment. If we ended up with other states in a stage four lockdown, that would start to provide some challenges on that front. But in terms of what we are planning, that is what we are planning. In terms of how that feeds into then the additional OpEx associated with the WITRON and the Ocado build, which is, I think, the second part of your question. Is that right?
Yeah. That's correct. Yeah. Yeah.
Yeah. So we don't really think of those two as sort of interchangeable or related. So the Smarter Selling is about taking sustainable costs out. Those OpEx charges are really sort of they're going to be relatively one-off in nature over a couple of years while we execute the project. And so they form part of that business case and will be an impact on our P&L in those years.
Yeah. Gotcha. And so just in terms of the expectations for 2021, you said in line with 2020, you initially anticipated 150. You're now sort of talking 250. So is the plan to take an incremental 150 out of the cost line or 250?
I think the FY20 number that we announced sort of 12 months ago was in excess of 150 and what we've delivered is in excess of 250. What I'm saying is for FY21, our plan is to do a similar level to what we have achieved in FY20.
Right. Okay. Thank you.
Thank you. The next question comes from Richard Barwick from CLSA. Please go ahead.
Good morning, all. I just wanted to go back again looking at the sales growth. Obviously, it sounds like you've really accelerated with your like-for-like for the first six weeks, which would have been boosted somewhat by the strength in the online. Are you able to give a view as to what the like-for-like's looking like if you backed out Victoria? Because it does sound like if it's Victoria's spiking your online and then your online is really providing a material boost to the like-for-like if there's a big gap between Victoria and the rest of the country.
Hi, Richard. Thanks for that one. What you might recall from the last time we reported Q3 was that we'd said that we were experiencing a bit of a subdued Easter, and that was definitely the case. There wasn't very celebratory anywhere, I don't think. But what we saw post that was we saw a gradual improvement in sales throughout the rest of the quarter, and I think that was partly people getting back to shopping centers and so on, and you've seen that the overall comps for Q4 were around about 7%, which at the time was fairly evenly distributed across the country, so I think you can assume that what you're seeing now is broadly the contribution from mostly Victoria, but also a little bit more in New South Wales.
All right. That's helpful. Thank you. I just wanted to pick up on another point. You mentioned before, Steven, you said that you thought you probably got more stores in shopping centers than most. I just want to draw that back to your target where you obviously you're targeting sales growth at least in line with the market. So you got there across FY20, you talked about the 6.8 versus the 6.7. I mean, I don't know. I was, I guess, assuming that you might have performed better than that relative to the market. I'm picking up on that point. Do you think that's a reflection of your location of stores? If you are over-indexing in supermarkets or in shopping centers, then that's creating just a bit of a relative drag for you at the moment.
just be interested to hear your thoughts or how you might explain that.
It's been a tale of four quarters and two halves. Without wanting to state the obvious. The first quarter was obviously cycling Little Shop 1. You'll remember that was touch and go as to whether we could get over the line. We managed to do that successfully, albeit not with a great deal of growth. Then what we saw is accelerating growth through to Christmas. We had a very good December and Christmas. Then we had a strong start to the new year in January and February. We then had, in my opinion, an outstanding March. We took a view that we would focus on stores and try and serve as many customers as we possibly could do in the time of need, so to speak. Then what we saw as restrictions kicked in in Q4 was the move to local shopping.
And that definitely impacted us vis-à-vis some of our competitors. But having said that, in other states, we've seen sales start to recover from where they were at that period in Easter. So if you stand back from the whole thing and say, "What happened there then?" Quarter by quarter, that's the running blow-by-blow account. If you looked at it in two halves, we gained, I think, a very small amount of market share in the second half, which was broadly up a bit in Q3 and then lost a bit in Q4 due to the move to local shopping, which we expect to unravel over time. It's just a question of nobody knows what that over time is.
Yeah. Okay. No, that's actually really helpful just to step it through like that. So thank you.
Thank you. The next question comes from Grant Saligari from Credit Suisse. Please go ahead.
Good morning, and thank you. The outperformance on the Smarter Selling program was obviously very strong. I'm wondering whether you can actually elaborate on what you actually did additional to achieve the AUD 250 million of cost saves and whether that was a bring forward of activities, so basically outline what was done in a little more detail, and what are the major cost-save initiatives in FY21 and FY22 in terms of nature of activities that you need to change?
Yeah. So I mean, one of the big things that we've obviously done in the last 12 months is to set up the central transformation office. And that has put a lot more rigor and generated a lot more accountability and pace around the delivery of the program. And I think that that, from a structural and cultural perspective, has definitely helped. In terms of the sort of significant buckets in there, the sort of the top five I'd probably call out is the streamlining of the SSC, so the removal of 450 roles from the organization. The second would be the work that we've been doing with the logistics optimization. So the most significant component of that has been increasing the backhaul, which has really been facilitated by the establishment of the transport hubs.
Bringing together our supply chain and ops under a single point of leadership is also enabling us to really drive quite a bit of end-to-end productivity benefits as well. So getting agreement to move to things like full pallet picks out of the DCs that are delivered into store and then adjusting frequency of delivery of orders on ambient lines, but enabling us to offset with a little bit higher frequency on fresh overall gives us a better cost position, and then probably the other one I'd call out is some of the work that we've been doing in the energy space, so the replacement of a lot of the lighting with LEDs, looking at the way in which we purchase electricity, and also some of the work that we've been doing in managing the energy load for refrigeration, which is obviously a very significant draw for us.
That's kind of the ones for this year. I think we called out last year that we expected the split to be about 30% GP, 70% CODB, as Steven referred to earlier. In terms of what we've actually delivered this year, it's turned out it's around 35% GP, 65% CODB. Broadly in line with what we said, but a slight shift. In terms of the looking forward, it's probably a bit facetious to say it's a little bit more of the same, but it is really looking at how do we continue to use technology to remove tasks in the business.
An example would be, that's already in train to be landed in this year is removing a lot of the paper receipting that we do at the DCs, for example, which requires a person to be there to meet the truck, take the paperwork, check the paperwork, automating all of that so that the truck just drives in and there's a scanning process and they're on their way into the DC. That streamlines the operation substantially. That would be a good example of we're using technology and automation to take our cost. We're continuing to do more work on energy and reduction of electricity. This year, for example, we'll be looking to look at things like demand-based HVAC for stores and things like that. Then a big focus, I think, as we go into this year will be around the loss agenda.
Rolling out to more stores, particularly as we, I guess, start to enter an environment that's a little more recessionary in nature. Things like the glass bollard arrays that we've put up in the front of stores that are particularly susceptible to high loss rates, security gates, anti-sweeping shelves, things like that. They'd be some of the things that I would call out as the big initiatives over the next 12 months.
Oh, that's very helpful. Second question, if I could, just on online. It almost strikes me that you're trying to manage the rate of growth in your online. For example, your Delivery Saver option, which is the subscription option, is still not available. I wonder whether you can sort of comment on that, on the reason for that, and whether you are actually somewhat capacity constrained in the delivery part of your online business and what can be done in the sort of near term to accommodate that.
I think, Grant, it's fair to say that we are trying to manage things. Online would be one of them. Clearly, the demand for online at one level is insatiable. It really depends on what the price and service proposition is. Clearly, in Victoria, you've got a slightly different situation at the moment where people or some customers are preferring not to go down to the shops. That's causing elevated demand. What we are trying to do is to lay on additional capacity in the most efficient way possible as we are on that journey now, as we've said before, on that three-year journey into Ocado. Our main objective is to make sure that we have the right volume and quality of volume heading into that Ocado.
The Ocado world will be very different to the current one because you'll have almost perfect orders and you'll have an extended range on offer. The Ocado online shopping proposition is not the Coles Online one that you get today. Obviously, we're clearly very cognizant of that. We're trying to create a glide path in. With regards to the subscription piece, that is something that the existing customers are continuing to enjoy. We haven't sort of rolled out any further at the moment as we concentrate on the existing operations and trying to make that as good as possible for customers and particularly new customers.
Okay. Thank you.
Thank you. The next question comes from Ross Curran from Macquarie. Please go ahead.
Hi, team. Thank you for the time this morning. Two questions. Firstly, online, are you able to give us a feel in Victoria, which seems to be coping quite well at the moment, but the percentage of sales in Victoria that are online at the moment, and whether that can be used as a reference point where you can take capacity across the rest of the country?
Yeah. Well, we've given you some facts and figures at the back of the release, I think, where we give you the number of stores for supermarkets across each of the states. And I think it works out that it's around 30% of just under 30% of the stores are in Victoria. So I think on the basis of everything we've told you, you might be able to work that out. But overall, we're heading towards 6%. And obviously, in Victoria, it's somewhere north of that. I don't expect that to stabilize at that level post-COVID. It will depend on how good the proposition is in terms of value and accuracy of pick and all of those types of things. But we do expect that it will also remain at levels beyond what we saw in FY20. So I hope that answers the question.
I might come back to it offline, but maybe the second part, the AUD 170 million of COVID spend, the 100 that is a recurring spend. If we're unlucky enough that the virus stays around for another 12 months, are you saying that we can expect AUD 400 million worth of incremental costs over the full year? Is that the right way to read that from incremental virus measures?
Currently, we are at a run rate where it's about 100 million of extra costs in Q1 that we would expect. So we're going to have to all see what happens in terms of how the environment evolves from here.
But would that tail down if what is extra spent at the moment becomes normalized? Can that be offset over the course of the year?
Yeah. I mean, even throughout Q4, we were working very hard to optimize the cost. So we're using quite a bit of advanced analytics throughout the process to look at what numbers of the customers we were getting into stores, so which stores needed additional staffing and additional cleaning and things like that. So it's going to be one of those things that we're going to have to manage very closely. And we are certainly paying a lot of attention to that. I mean, certainly, the variable costs associated with higher volumes, that will come down. But there is an element here, which is semi-fixed around we just need to have some of these in place while we're at a Stage 3 or Stage 4 for lockdown. And so that's going to be dependent on where we get to nationally on that.
Thank you. Thank you. The next question comes from Bryan Raymond from Citi. Please go ahead.
Thanks, Grant. Just want to just unpick that 4% margin that you called out or similar to FY20 margins, I should say, that you said. First of all, just the implied gross margin trajectory within that. Are you still seeing about 30 basis points of gross margin expansion underpinning that? And then just secondly, within that question is in first half 2020, you delivered 3.8% EBIT margin. So implicitly there, you've got about 20 basis points of expansion if that's consistent for that same six-week period. But obviously, I don't have visibility on what you generated in the first six weeks of FY20. So I just want to understand how we should think about the year-on-year around that margin profile. Thanks.
Yeah. Well, I mean, what I'd say is the GP at the moment is sort of fairly stable going into Q1. So as we've seen the promotional participation sort of recover from the period where there was low availability, we're seeing GP that's relatively flat. And then the key thing is the variable costs that we've got in terms of CODB, which would need to flow through at the higher rates of volume that we've got flowing through, and then the additional sort of semi-fixed costs that we've called out related to COVID. And all of that is when we put that through the mix, that is getting us to an EBIT margin that we've observed in the first sort of six to seven weeks that is broadly in line with what we achieved for the full year.
Right. Okay. And then just to follow up this question, just sort of your sort of costs that you called out, the AUD 70 million so you have AUD 100 million, which I don't understand. AUD 70 million you did call out you've extended double discounts for the team through August. So I just want to understand what that AUD 70 million looks like into the first quarter. And I assume the AUD 16 million is sort of rolled off now, given that was sort of a bit of a one-off. So if you could just help me understand those other two components.
The double team member discount that we've put in place for Q1 or for the first part of the quarter is only for Victoria because that's the state that's operating under the stage four restrictions and where we have higher amounts of COVID cases, which is approximately, as we've just sort of discussed on the previous question, just under 30% of stores. In terms of the 70, that's made up of things like the thank you payment, the team member discount. There's also some one-offs in there around, for example, some of the logistics costs associated with dealing with the cases that we had in Laverton, the OpEx that we had for things like the sanitizing stations, the sneeze guards, those types of things were all in that 70. So now that we've done that and spent that money, we won't be recurring it.
Okay. Great. Thanks. And then just my second question is just on like for like. So you've seen I understand April was a softer month than, say, June, probably, but didn't look too different to what you're seeing in July and August. But just in terms of the composition of it, you've got inflation has slowed by about 150 basis points. And like for likes picked up from the full fourth quarter into the first quarter 2021 by about 300. So you're seeing quite meaningfully better volume growth. I understand Victoria would be part of that. But just want to understand if there's anything else going on in that pickup in underlying volumes and how you think that compares to the broader market if you're taking share or if that's sort of broadly in line with competitors.
Yeah. Hi, it's probably a little bit too early to talk about market share in this current quarter. But we certainly did see a pickup from when the stage four was announced in Victoria. We've seen a sort of improving position in New South Wales as well. Whether or not supermarkets who offer online at the moment are gaining at the expense of others remains to be seen. But that's the other thing. Apart from that, I think we're all probably concentrating on trying to make sure that we've got back to where we want to get back to as far as availability and so on is concerned.
I guess it mixes the other thing in that. Is there much trading down occurring, or are you seeing still pretty good mixed effects coming through the business?
There's things happening at both ends of the spectrum. The tale of two cities, as we say, are meat sales. Meat is the fastest growing category and has been for quite some time as people go to scratch cooking at home. If we look at the liquor business as an example, spirits is the fastest growing category by far, but across the piece, we're seeing also things like bulk packs, so big packs of beer and liquor. We're seeing everyday price products in supermarkets growing, so I think it's difficult to sort of draw a conclusion from the average. It's really in the detail, which is there's a lot of things changing in consumer behavior, but that move to home cooking is still very evident, and it's also very evident that consumers are changing their repertoire of what they drink as well.
So a lot of interesting things happening across Australia at the moment.
Thank you. The next question comes from Phil Kimber from E&P . Please go ahead.
Hi, guys. So just first question was a clarification question. Earlier, I think Leah mentioned the way she triangulated the supermarket business. She got 3%-3.5% underlying costs of doing business growth. I just wanted to check whether that was after the benefit of the cost savings or was that before the benefit of the Smarter Selling cost savings.
The purpose of Smarter Selling we put in place is to offset the underlying cost increases that we have coming through in the business.
Yeah. So that 3%-3.5% is before any Smarter Selling cost savings because you said that when you backed out COVID and you were trying to do some adjustments, you got an underlying cost growth of 3%-3.5%, I think was what you said earlier in the call. And I just wanted to check that that was before any Smarter Selling cost savings.
That's correct. Yep. Because the Smarter Selling.
Right. Okay. And then.
The purpose of having it in place is to offset those costs that we have coming through.
Yeah. I just wanted to double-check that, and then the second question was just on the liquor outlook. Obviously, sales are incredibly strong at the moment, but your outlook commentary sort of alluded to some more price investment or investment in the offer, sorry. I mean, is that really so that we should just be careful about applying the sort of flat margins on very strong sales growth numbers that actually you might reinvest some margin back into the business so profit growth won't be quite as strong as sales growth? Is that sort of where you're trying to direct us with those comments?
Yeah. Hi. What we might do is hand over to Darren to talk about how he sees the next six months going in liquor and the various moving parts. Darren?
Yeah. Hi, Phil. Yeah, I think the first thing to say is it is a very volatile environment at the moment. Making any sort of outlook, I think, is difficult for all of us. The reality is our focus at the moment is going to be to listen to our customers and get on with this plan of delivering these six priorities, but we will be making investments that we need to improve the business for the long term. I think it's probably important to remember that it's a multi-year plan, but we will be delivering or we're looking for sustained growth throughout that, but yes, we will have to make some investments in the short term.
Okay. Thanks.
Thank you. The next question comes from Scott Ryall from Rimor Equity Research. Please go ahead.
Hi there. Thank you very much. First of all, I wanted to say congratulations. You guys have done an extraordinary job, I think, in terms of keeping things stocked and selling during a very challenging period. I wanted to just ask a couple of things about that, particularly with the recent Victorian changes in restrictions. Have you seen any meat supply issues? You mentioned what an important category it is for you. Have you seen any issues with respect to supply, and does that impact your export business?
Hi, Scott. Thanks for the thanks. Yeah. Meat has been an interesting ride over the last three or four weeks. As we know from the Victorian government, there's a few hotspots out there of which care homes and meat facilities tend to be the hottest of the hotspots. We've worked with all of our suppliers over the last couple of months to sort of develop what are best practice standards as far as health and safety is concerned in. I think gone down pretty well with both the Victorian government health department and our suppliers. But nonetheless, it is a higher-risk environment. And we've seen, I think, at any one time, three or four facilities go down in a similar period. And when they get closed down, they tend to get closed down for the full two weeks. The meat team is very agile.
We're mainly talking about, in fact, we are talking about Victoria, not elsewhere here, although I think Victoria produces around 35% of the nation's meat supply. It's one of the net exporters, as I understand it. But what we have seen is patchy availability over the last few weeks. That's also extended into chicken from time to time. Certainly, the stores I've visited over the last few days are in the best position I've seen for probably two or three weeks. But there's no guarantees at the moment regarding COVID and particularly COVID in Victoria. It will be, I think, patchy. But at least if you go into store now, you'll be able to get meat. It might not be the exact cut you wanted, but it's got a lot better.
Hopefully, all of the standards across meat production in Australia and most notably in Victoria are improving rapidly to minimize the chances of these outbreaks occurring.
Okay. Great. Thank you. And then the second one's a little bit longer-term question. You've mentioned well, you've talked a fair bit about online today. And obviously, the Ocado stuff is well known. But I think you indicated that you've got a three-year glide path on that front. And obviously, some nearer-term challenges. And six months ago, you probably didn't expect to be doing pop-up distribution centers and things like that. So I wonder if you could just comment on some observations around what you've had to do for online in the last six months that makes you change what you might think you require over the course of the next three years, if that makes sense.
Yeah. No, it's a very good question. And obviously, we're in contact with other retailers around the world, most notably the ones who are Ocado customers. Ocado now has a couple of sites up and running outside of the U.K. for the first time. So there's one in Toronto, and there's one in Paris. And they've done a great job in getting those CFCs up and running. And it's fair to say that everybody is learning a lot. And if you speak to the Ocado team, they're learning a lot in the U.K. as well. They've simply not been able to keep up with demand in the U.K. and certainly thinking about which customers are the customer base that they would like to focus on going forward.
As far as we're concerned, what we're looking at is what investments do we need to make that are complementary to what Ocado does today and are not going to be regret costs going forward, and most of that is around the customer digital experience on things like the app and so on, so there's a lot of focus going into digital development, making the app easier to use. From a store-ops perspective, we're trying to make it an easier experience for the customer by moving to the booth as opposed to the customer service desk, so there's stuff happening everywhere, but we see it all as being complementary to whatever the Ocado experience is when it lands in three years' time.
Okay. Great. Thank you. That's all I had.
Thank you. At this time, we're showing no further questions. I'll hand the conference back to Mr. Cain.
Okay. Thank you very much, everybody. And thank you, Travis. I think if we were summing things up, it would be pretty much back to the headline that we've got, which is we're very happy that we've been able to deliver the first year of our strategy whilst also supporting team members, suppliers, and community through drought, bushfires, and COVID. And we look forward to giving you further updates soon. Thank you. Take care.
Thank you. That does conclude our conference for today. Thank you for your participation. You may now disconnect.