Thank you for standing by, and welcome to the Woolworths Group FY22 Q3 Sales Announcement. There'll be a short introduction followed by a question and answer session. I'd now like to hand the conference over to Mr. Brad Banducci, Managing Director and CEO of Woolworths Group. Please go ahead.
Good morning, everyone. Thank you for joining us today for Woolworths Group's Q3 sales results for the FY22 financial year. Joining me this morning are Stephen Harrison, our Chief Financial Officer, Pejman Okhovat, Managing Director of BIG W, Amanda Bardwell, Managing Director of WooliesX, Spencer Sonn from New Zealand, Managing Director of Woolworths New Zealand, Natalie Davis, Managing Director of Woolworths Supermarkets, and Claire Peters, Managing Director of B2B and Everyday Needs, and she'll be mortified for me to mention it's actually her birthday, so happy birthday. Turning to our Q3 sales results. Q3 has been another challenging quarter for our business and the wider community.
During the quarter, our team had to navigate the ongoing impacts of Omicron and the significant supply chain disruptions caused both in Australia and later in New Zealand, as well as the devastating floods in northern New South Wales and southern Queensland. On top of this, we are also actively managing rising inflationary pressure across our value chain. Despite the disruptions experienced in the quarter, group sales growth was strong as we saw customers return to COVID-related shopping behavior, particularly in the early part of the quarter. We know our customer experience during the quarter was inconsistent due to the disruptions in our supply chain, and this was reflected in our customer scores. Pleasingly, in recent weeks, we have begun to see more stability across our business. However, stock service levels to stores remain below normal levels and COVID-related absenteeism remains above normal levels.
e-commerce sales growth was again a highlight with group e-commerce sales up 33.4%. Digital engagement increased in the quarter with a growth of 3 million weekly visits to our digital platforms across the group over last year, and weekly average traffic to our digital platforms reaching 20.3 million weekly visits. Turning to Australian Food. Total sales for the quarter increased 5.4% to AUD 11.4 billion, with all retail sales increasing by 5.2%, benefiting from elevated in-home consumption and rising shelf price inflation. Inflation continued to trend upward in the quarter, with average prices increasing by 2.7%, driven by a number of industry-wide cost pressures, including input cost pressure in long-life categories, higher livestock prices in red meat, and adverse growing conditions in vegetables.
While we've generally seen volumes hold up despite higher average selling prices, we know that value is extremely important for our customers, and we remain focused on helping them get their money's worth by providing them with great value and affordable alternatives through our seasonal price drop and low price program, our great value own brands and also continued enhancements to Everyday Rewards. WooliesX B2C commerce sales continued to grow strongly in the quarter and also benefit from a return to COVID-related shopping behavior. 38.1% to AUD 1.1 billion and representing 9.9% of Woolworths Retail sales. Everyday Rewards members increased to 13.5 million, and engagement with Everyday Rewards app has now surpassed 1 million active weekly users, up 70% on the prior year.
This is a significant milestone and reflects the growing importance of Everyday Rewards in providing our customers with great value and personalized offers. Australian B2B sales growth was strong, with total sales for the quarter of AUD 995 million compared to AUD 314 million in the prior year. This increase was largely due to the partnership with PFD and the recognition of Endeavor Group revenue not included in the prior year. However, all B2B food businesses re-reported sales growth in the quarter other than Summergate, which was impacted by challenging trading conditions in China. PFD sales specifically were up marginally on the prior year on an underlying basis, despite the impact to its customers during the quarter. It was a difficult quarter for New Zealand Food.
The impact of Omicron later in the quarter led to significant supply chain disruption and high levels of team absenteeism. The cost of keeping our customers and team safe and minimizing disruption to our supply chain are expected to result in H2 EBIT of between NZD 120 million and NZD 140 million. Somewhere between 16%-28% decline on the second half of FY21. Turning to Big W. Total sales were down 3.5% on the prior year, impacted by COVID and reduced customer mobility early in the quarter. Please bear in mind that Big W was cycling growth of 18.3% in the prior year and the three-year CAGR remained strong at 7.7%.
Pleasingly, Big W customer metrics increased and sales momentum has improved over the quarter as customer behaviors return to normal. A highlight for Big W was the material improvement in the e-commerce customer experience, particularly for pickup. E-commerce sales increased by 21.2%, with penetration reaching 9.4%, up 190 basis points from the prior year. We have had a good start to Q4 with strong Easter trade. For the remainder of the second half, we remain focused on returning to a more stable operation rhythm and delivering consistently good shopping experiences for our customers. While the operating environment continues to be volatile, in recent weeks, we're beginning to see some stability across our business. We're also seeing direct COVID costs continue to moderate as we cautiously look to reduce costs in areas where no longer required.
Managing industry-wide inflationary pressure will continue to be the focus for us as we work hard to continue providing our customers with great value in partnership with our suppliers and ensuring our team's wage growth keeps pace with underlying inflation. In closing, I would like to thank our teams for their amazing efforts in supplying our communities with food and everyday essentials under difficult circumstances and our customers for their patience and support. Our thoughts are with those who continue to be impacted by COVID and the recent floods. I will now turn the call over to the operator for questions.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. In the interest of time, we ask that you limit to one question per person and rejoin the queue if you wish to ask further questions. Your first question comes from Michael Simotas from Jefferies. Please go ahead.
Good morning, everyone. Look, I know this is a sales call, but you have called out a material second half earnings drag in New Zealand. COVID costs continue, and maybe a lot of those are in New Zealand, and maybe you can comment on that. You probably had some flood costs as well. In February, you suggested that you should be able to deliver much better EBIT outcomes. Given these costs that you're still facing, are you still able to do that this year, or are we gonna need to wait a little bit longer for that?
Thanks, Michael. It is indeed a sales call, and we've called out the one issue of materiality in our business, which is New Zealand, in an earnings sense, which I felt appropriate given the challenges that we have there, although we have had a good start to Q4 in New Zealand as well. Look forward to coming back at the end of the half and talking about how we've gone performance-wise. Our focus for the second half, as you'd be aware, is sustaining our sales momentum and getting into a more sustainable operation rhythm, which is key to us in not only getting a great customer experience and great team experience, but also managing our operating costs.
While there were some challenges early in the quarter, we are continuing to slowly get back to the kind of operation rhythm we aspire to.
Thank you. Your next question comes from Shaun Cousins from UBS. Please go ahead.
Thanks. Good morning, Brad. Just a question regarding how is Woolworths managing supply cost inflation requests from a gross margin perspective? Is Woolworths seeking to reduce, maintain, or expand gross margins when passing on these price increases? If Woolworths is seeking to increase gross margins, and we're getting trade feedback that that's the case, what does Woolworths believe it's found for it to be expanding gross margin when cost pressures are so prevalent?
Thanks, Sean. Let me just start by saying, you know, price trust for us is a critical aspect of our business, and we dogmatically look at the railroad tracks that all of our businesses need to operate in terms of the price index we expect them to have against the relative competitor set, whether it's Countdown with Pak'nSave and New World in New Zealand or Big W with Kmart and a broader set of specialty retailers in Australia or Woolworths Supermarkets with its competitors as well. Rest assured, we, given our experiences back in 2050, we're incredibly focused on that, and that is a given for us.
To your question on the broader issue of supplier cost increases, just like any business, we engage directly with suppliers on what are legitimate increases that we would agree to. We do understand at the moment that there are legitimate supplier cost increases. Where we can agree those that they're legitimate, we accept those. In the past, in order to honor those, Sean, and this is where it gets very messy, and I know everyone on this call is doing their own math. On average, Woolworths, for the ones we've accepted, have been passed on into shelf price on average. In any one period or any one category, when you accept one increase, you often have to adjust your pricing architecture in a category.
You might just be seeing quite a lot of noise as you look at it, depending on the time frame you look at it or the analysis you do. That just has to do with the fact that supplier cost increases don't all come through at once. You don't review them all at once, which is the way it would normally have worked in a category review process in normal, more stable times, and then do a once-off reset of your price architecture. There's just a whole lot of work to make sure that that's done well. Price trust is key for us. We need to continue to work on it, to double down on it. At the moment, on average, shelf price increases, supplier increases have been passed through to shelf price, increases.
there is a lot of noise, as I say, just given any one time frame that you might be looking at or any one specific category you might be looking at. I hope that makes sense.
Thank you. Your next question comes from Ben Gilbert from Jarden. Please go ahead.
Morning, Brad and team.
Just on the pricing piece, which I think we've got a lot of questions about today. You said in February that you're earning between 2%-3%, and you're sort of around the midpoint of that, and your inflation number was a little bit lower than your friends down south that you reported as well. Could you give us just some color, Brad, on how you're thinking about maintaining your relative pricing position? Do you think you've improved that versus the peers through this period? Are you starting to plan or gear up for the return of the value shopper in the market?
Thanks. Thanks, Ben. Just quickly, technically what we talked about, which is an unusual number for us to quote, but we did think it was important when we talked about our start to the first seven weeks of Q3. We quoted shelf price movements have been between 2% and 3%. We did that because there was such disruption to the promotional program, it was hard to get an accurate weighted price movement. What we've quoted now in the 2% is our more traditional official-based methodology price movement. They are clearly correlated then, but they're slightly different numbers that have been quoted. But yes, that is the number that you see, and it has been trending up, as you would know, from Q2 this year.
In terms of then getting to price competitiveness itself, we, you know, as we just said in the context of Shaun's question, continue to look at the index, work very hard on our indices in all of our businesses, and probably the number one thing, to be honest, we do on a weekly basis, if not a daily basis. The relative price positions for our businesses remain very stable despite what you see now in the marketplace. That is that we're at the indexes we expect to be at, and we need to continue to work to ensure that that's the case going forward.
You know, these things might change as we go, but to date, it has been continued to be a very competitive but relatively stable operating environment from a price perspective. You know, on the go forward, what we've got to work hard to do is for our value shoppers or what we would call our traditional or saver customers, we need to make sure that we provide them with affordable alternatives so that they can meet the budget that they want and also, you know, you know, balance out their cost of shopping for food and Everyday Needs.
We're working very hard on affordable alternatives, and we're delivering those through our Red Price program, Prices Dropped, Too Low Price, our weekly promotions, and importantly through our own brands and our Everyday Rewards booster program. There's a lot of work going on to make sure that for any one of our value customers, these alternatives are there, and they can meet their budget needs in a cost-effective way.
Thank you. Your next question comes from David Errington from Bank of America. Please go ahead.
Morning, Brad. Brad, can I bring your attention to a slide that you presented, a very powerful chart in my view on page 10, the DC outbound service level slide. I mean, when you look at that, I'm surprised that you were able to deliver the sales growth in this quarter that you did, given how low that DC outbound service level's gone. Can you give a bit of an overview as to what is the key driver? Is it purely absenteeism? Because where I'm going with this is I'm trying to obviously get an idea as to how fast that service level can get back up to where it should be, which hopefully is up around where that, you know, that 95% would be obviously where optimal would be.
Can you give us a bit of an idea as to, one, is it absenteeism? Two, is there something a little bit more to worry about? Like is there embeddedness in their inefficiencies, like labor availability is starting to creep in, transport, you know, difficulties, you know, roadblocks, et cetera, coming in there. Three, what can we expect for you to get that back to that operating level that can be, you know, normalized? There's a bit in there, I know, but if you wouldn't mind having a go at it, that'd be really appreciated.
David. No, thank you. You wouldn't be surprised if I said today this morning when we're looking at our release, we were wondering whether we should include these two charts, and we had a very long conversation on whether we should include them or not. The reason we did is they are snapshots of a very complex supply chain, but it just gives you a sense of the discombobulation that has taken place in our supply chain. The fact we got the sales we did, I think speaks volumes for our business and our teams in replenishment, DCs, transportation, and stores. You're right, incredibly challenging, but it just gives you a sense of what's happened. I wouldn't use them as anything more than just senses of the challenge.
They're directly correlated in many ways when you look at our COVID costs, just above that. When we call out the AUD 48 million of COVID-related costs in supply chain, you know, you do see the correlation between them. They also show you, to your point, the opportunity for us is if we can get back to the stable operating rhythm, get back to what is a more traditional level of absenteeism for us, in our stores or our DCs. In fact, our DCs saw absenteeism, in particular in New Zealand, has been much higher than the number you see here. Get back to the service level we'd like to have for our stores, what we can achieve, and that's what we're up to, for Q4.
I wouldn't, I'd just take them as snapshots of the challenges that have been going on in the supply chain. As we said in our announcement, they are getting better in Q4, and that is very pleasing to us. In particular on the DC outbound service level one, just a couple of points to make. It is. You're looking at a combination of factors.
You could be looking at either late inbound deliveries into a DC from a supplier or in some cases the cancellation of that because of their own challenges they've had in their factory, or in fact, we had a point within the quarter where Larapinta, which is the biggest DC in the Southern Hemisphere, never mind inside Woolworths, was at risk of being cut off by water restrictions around the road and inbound, which was kind of a remarkable stat that has stuck in my mind. You've got a lot of inbound challenges that are affected there. Of course, you see this manifest, you know, in the outbound.
The outbound is not only gonna be, you know, the inbound, but also there are all the challenges on getting trucks and availability, so you can actually meet the need of the store. There's been a whole ton of challenges that you would be aware of availability of truck drivers, where trucks are in terms of, you know, in which state they are at any one point in time and so on. It has not been easy and, I think your point is right. To have got the sales we have with the challenges shows. Speaks volumes for our team. Rest assured of our commitment to getting back to the right levels. This is something we've traditionally been very good at. We're making good progress. There's no reason why we won't continue to make progress.
We might repeat the slide one last time at the half year, at the full year, to show you what our exit rate is. I'm very hopeful store service level will be back at 98%. Outbound service level will be well north of 90%, maybe 95%. Aim stock position in store will run 1.5%, Nat. Whatever the number is. Yeah. It has been challenging, Dan, but we're making progress and just giving you a snapshot of what's going on beneath the surface.
Thank you. Your next question comes from Adrian Lemme, from Citi. Please go ahead.
Oh, hi, Brad and team. Just wanted to follow up on your earlier comment that the supplier price increases, you know, aren't all coming through at once. From memory, you indicated at the first half results that you'd had discussions with about half of your supplier base at the time on the price increases. I just wanted to see if you could talk to how progressed you are in working with suppliers on these. You know, I am sort of wondering if suppliers that, you know, put through price requests in, say, the September quarter last year are starting to come through again with, you know, another round of price increase requests. Thanks.
Yeah. Thanks, Adrian. I'll talk to. We'll just start with Australian supermarkets first or Australian Food, if you don't mind, and then we can talk to the other businesses because it does vary. To be precise, in Australian Food, the cost increases started coming through in December, but really the early volume was January. The big volume was January, February. The numbers I've quoted were Q3 more than they were Q2, and that was related to us just being transparent that there was inflation coming through the system, you know, in the 2%-3% of shelf price increases we referenced. You just need to see the comments in that context. It really is more in Australian Food, a Q3 issue.
It started earlier in New Zealand Food, and it you know we can come back and talk about Big W, which varies materially by the nature of the category and where we are with seasonal and so on. If we just stick to New Zealand Food, the major increases we found and obviously with the usual caveat of fresh is very different to long life. With fresh, where it is really the commodity prices of the growing, processing of the product that we drive to. If I just park to the long life, we have, and Natalie, please correct me, but I'll just give the broad numbers and pass over to you. About 40% of our suppliers have come for an increase, which is about 60% of our sales.
It's the big suppliers that came first. Generally, the global consumer goods companies who are experiencing pressure on their plants across the world and engaging with a broader group of suppliers across the globe. They were a smaller segment, but a bigger set of our sales. That's been processed. We're currently in negotiations for about another 20% of our supplier base, and I don't know the sales number they comprise. I'm sorry. There are about 40%, which tend to be our smaller suppliers that you would reasonably expect would still want to engage with us. It is a work in progress, you know, right now, and that's how we're working through with them one-on-one.
To your point on whether suppliers are coming back twice, there may be an instance of it. I am not aware of it if there is. Clearly, suppliers have signaled to us that given the stresses everyone is under, that they would expect that door to be open if they have legitimate increases, on the go forward. I'm told by some of the retailers in the US that has started to happen in the US, but there's no, let's say, big case study I can reference that's happened, in Australia. Nat, do you wanna add a little bit of color to that?
Yeah. I think as Brad said, it's around 58% of the cost base now, which has either been submitted and closed or is in progress. It's certainly skewed to our larger suppliers with about 160 of our top 200 suppliers having submitted a cost increase this year. There are indications from some of our larger suppliers that within 12 months, they will come back for a second cost increase. That's really reflecting the ongoing cost pressures they're seeing on commodity prices, manufacturing costs and international.
Adrian, it's still a work in progress for obvious reasons. Hope that makes sense. We can certainly at the right point, if anyone wants to come to the question, talk about the very different scenario that's happening in Fresh.
Thank you. Your next question comes from Craig Woolford from Credit Suisse. Please go ahead.
Thank you, and good morning, Brad. Brad, I thought there were just a couple of unusual numbers in the AusFood sales result. For example, the store-originated sales were up strongly and has been discussed on the call, the food inflation numbers may be a little softer than expected. Is there any? Can you elaborate at all on any sort of mix impacts or pantry restocking following floods or other factors that sort of might have obfuscated the underlying measures to some extent? That'd be helpful.
Sorry, Craig Woolford. Your second part of your question just broke up a bit. I said store-originated sales. What was the second observation that you wanted us to talk to?
The food inflation number for AusFood was lower than I think market had generally been expecting. I guess my question is: Are there any sort of substantial mix effects in the business, pantry restocking following floods or other factors that might have sort of impacted those measures, please?
Yeah. Thanks, Grant. You know, everything we say needs to be seen with the caveat of the availability challenges that we just talked to with David mean that a lot of numbers have been distorted by the nature of what's been available. It has made this you know, relatively. Well, it's always noisy, but this has made it disproportionately noisy. On store-originated sales, actually, like in a unit sense, they are just slightly negative. You are seeing that inflation that we quoted to the 2.4% decline. You know, the trend of online growing and sort of flat units or slightly declining units was true in Australian Food in Q3. It can look a bit higher.
We are very thoughtful right now looking at units, as you might imagine. For those interested, we both track our value share and our unit share just to make sure that there's not a rising gap between the two, which there isn't, if anyone was gonna ask me the question. Because we just wanna make sure we don't fall into old traps back in 2015, where we had great value share, but we were losing volume share, and it was an indication that we were missing something in the trading down. We are tracking both, and both are trending right now in the same way.
Actually, the 2.4% does work very well with the 2.7% growth if you actually, you know, look at the two together and back solve back to items for us. Inflation, we all measure it slightly differently, as you will be aware. I think you need to look at the trend line in inflation of what we did in Q2 and what we did in Q3. That'll help you kind of have a look at what the overall trend line, you know, looks like. I recognize in the comments that I would say anyway. It's still a work in progress in terms of what costs are coming through, or not. I think that becomes important. I can't talk to what others are doing.
I can just assure you that, on average, the increases we have got from suppliers are reflected in our shelf prices. Us and our competitors all have options on if we would like to invest in promotions or whatever we should distinguish shelf from promotional and investment activity and promotions. And that's happening and then in addition to that, our price index at the moment remains competitive and stable and that's where we need to continue to keep us.
Thank you. Your next question comes from Thomas Kierath from Barrenjoey. Please go ahead.
Morning, guys. Just wanted to follow up on David Errington's question around the impact of absenteeism and the outbound service levels. I mean, Coles said the same thing, that they're missing out on sales. I just wondered who, where the sales are going to, and can you maybe talk about the categories where you're missing those sales and all the states? Just, yeah, just love some commentary on that. Thanks.
Yeah. Look, I'm sure we have lost sales somewhere, Tom, but when you look at our underlying number and we haven't Easter adjusted it, and it's stronger yet again, if you actually take out the tobacco trend, it's kind of hard to say definitely. I would say in e-commerce, we had a point where we had to really stop a number of services just because we didn't feel we could fill the basket as effectively as we might like. Our e-commerce sales number actually, in an underlying sense, is a little bit better than you see because there was a month really, February, where it actually dropped materially just given availability and worried about satisfaction. I certainly think we're understating the e-commerce sales trajectory if you look at it over time.
At a food level, I feel we've, you know, It's been a good result, and we've got the number we wanted to. We are sensitive to the fact that our customer couldn't always get the brand they wanted and therefore had to substitute, and that's reflected in the customer score. That's not something we would like to see going forward. We've generally been where we wanted to be, but it hasn't been perfect. There have been alternatives, but they haven't always been the alternatives for the customer. To me, it speaks volumes for the extraordinary efforts of our team in WA and in Far North Queensland, which have just done whatever it took to feed those communities, which is in line with our strategy and our aspirations and our purpose.
I would say, Brad, we prioritize across the whole business what we're sending into stores to make sure we have a product to meet our customers' needs. We also measure something called our loss to-
That's at the moment 95%. You know, we'd like to get it up to 96.5%. That probably gives you a sense of, in terms of what customers are finding on the shelf. They are finding what they're looking for. They might have to substitute a brand, potentially, but we are getting those products into our stores and we are growing market share.
I mean, one of the things we were talking about just after the media call, Tom, things like cat food availability has just been a challenge for us for actually the whole quarter. You know, we probably lost a little bit of share in something like that, and it's gone into specialty probably. I mean, that'd be the only one I could really point to that says it's been structural, systematic. You know, we just because a lot of it's imported, we haven't really got to the position we would like to for our cat-owning customers.
Thank you. Your next question comes from Bryan Raymond from J.P. Morgan. Please go ahead.
Good morning, Brad and team. My question's just around the fourth quarter trading momentum you mentioned there, it's continued. That Easter adjustment historically has been about, you know, 30 to 50 or 60 basis points, something in that region, just, which is obviously a headwind in the third quarter. Just interested in how that comment should be construed given the timing of Easter. Should it be that you're running at a similar run rate on an underlying basis to the third quarter, or has it seen a bit of an acceleration or deceleration in April? Thanks.
Thanks, Bryan. It's just hard to tell, if I'm being honest, because to have three consecutive long weekends is just not in the norm over school holidays. It's quite an unusual sequence of events. It's very hard, and we'll only really know how we're going in the next couple of weeks, you know, we go back to school. You know, we're always nervous about looking at a couple of weeks and generalizing. I think given the strange characteristic of confluence of events for these three weeks, it's hard to generalize. Our momentum is strong, as we said. I just want to call out the biggest adjustment we didn't adjust for Easter, as everyone would know, just because, again, of the noisiness.
The biggest impact is actually on Big W, which is much higher than the numbers that you quoted. There is, of course, some benefits that we haven't called out for Australian Food. Yeah, look, as I say, it's just too hard to tell right now, as I say. We'll know really in the next two weeks. For the first time, touch wood, we hopefully will have a more stable kind of consumer environment and operating environment. We'll know really where we're at. It has been a good start, very good seasonal sell-through on Easter.
Thank you. Your next question comes from Craig Woolford from MST Marquee. Please go ahead.
Good morning, Brad. I just wanted to ask about, probably a technical question, just around the impact on price inflation from reducing promotions during some of the worst of the, you know, Omicron spike in that third quarter. If I can sneak in, just what was the inflation ex tobacco and fruit and veg that you sometimes quote for us?
Yeah. Thanks, Craig. I'll try and answer it. Then I'm, you know, Paul, given the technical, you know, side of this can maybe jump in. Paul then Mirs. The promotional activity is messy because, you know, we like, you know, cat food. The promotions we've pulled were due to the lack of stock availability. We pulled the promotion when there wasn't stock there, that we felt was just not the right thing to do for our customers. It sort of would appear in the New South Wales or up into Queensland. It really wasn't always national in its manifestation. Normalizing for it is hard, and it was off, on, off, and then on again. It really came in and out through the business.
If we had a really detailed number, I'd give it to you, but I wouldn't like to overplay its overall impact on the numbers. It's more in the 10 to 20 to 30 than anything, a number bigger than that, basis points. I certainly wouldn't like to overplay that. Paul, I know you've looked at the specifics.
Yeah. Nothing to add on that, Brad. I think that, yeah, that definitely wasn't the driver of the majority of the increase.
Sorry, wait, and what was the second part of your question?
I'll tell you. Craig, there's really no difference between our overall inflation and overall inflation ex cigs and fruit and veg. They're broadly in line.
It is worth referencing, and you'll be able to back solve from that statement, that tobacco continues to decline in price in line with consumption trends. I think it was down 10% or 11% in the quarter, and therefore, underlying food and grocery sales are much higher than the reported number. You can back solve from there.
The lack of CPI means there's not really the distortion between overall inflation and excluding cigs the way we've had historically.
Thank you. Your next question comes from Lisa Deng from Goldman Sachs. Please go ahead.
Hi, Brad and team. Just a question on the shape of growth for e-commerce or online, especially for Australian Food. It looks like we were still very strong with 38% year-on-year sales growth, but weekly traffic grew 18%. Does that mean, or can you give us some color around, you know, the growth for conversion and basket sizes, please? Thanks.
Thanks, Lisa. Well, that's a great question. There were patches during the quarter where we moved more to home delivery and less direct to boot, which was related to Omnichannel primarily. As you do that, you get a higher basket size, given the incentive to be over the AUD 360 delivery. I think the average home delivery basket size is still running, you know, AUD 190 or so versus the pickup one, which is, you know, running, I think, AUD 140. Amanda, correct me. You know, that was a big part of it, I think. It bounced around a lot for us over the course, so that would be the major reason.
I think, Brad, just the other bit would be, you know, digital traffic is visits to all of our properties, our apps, our websites, and our e-commerce customers are only a very small proportion of that traffic.
Yeah. Sorry, yeah. To direct traffic, absolutely.
Yeah.
Obviously.
Thank you.
That's it.
Your next question comes from Phillip Kimber, from E&P Capital. Please go ahead.
Hi, Brad. I'm just wondering, you know, you look at the UK supermarket chains, they're all commenting around, you know, keeping a strong value offer, which both yourself and Coles have talked about. Could you remind us about your private label business. I'm really talking about Australian Food here. You know, roughly how big it is, SKUs, 'cause I know it is quite big, but it's something you don't really talk about that much.
Thanks, Phil. Yeah, we actually called out the number for once, which actually is not something we normally do. You know, you will see. I'm just trying to find the reference to it. We actually had a very good quarter with the Woolworths Food range, and it grew, I think yeah, 5.4%, so it had good growth. That's despite some out-of-stocks in core value lines there, which we need to work on, which are important to the range. Underlying growth for that was higher than that. By any benchmark, it is in line with our key competitor in Australia in terms of overall size, slightly less SKUs, so a little bit of slightly higher volume per SKU.
It is basically the same size and in tracking its progress during the quarter. In terms of preference and brand resonance, it actually had a really, really good quarter. We feel the program itself with the Woolworths branded products as well as Macro and then our category brands is in a good place. The key issue is to continue to pull out that range and enhance the proposition. You will have seen, I think we launched 140 new products during the quarter. That was both new NPD as well as repackaging and reformulating existing products.
The real focus for the team right now is making sure we have all the value alternatives we need to have in our range, in particular in our value stores, for as I say, our traditional and saver customers. I think that's a great question. It was a really good quarter. We fully recognize the importance it has to play for us on the go forward.
Thank you. Your next question comes from Scott Ryall, from Remor Equity Research. Please go ahead.
Hi. Thank you. I also wanted to talk about the DC outbound service level, if that's okay. You provided that same chart at the first half results, and obviously the January number there is the same and February, March was much the same as January. I guess I was a little surprised that March hadn't improved, given COVID restrictions improved and, you know, all the close contact rules and things like that improved. I was wondering if you, I know you're saying your exit rate, you wanna get back up to 90% inside of the three months that's remaining. How
Once you start seeing some of the improved availability of your team for the DC and some of the other impacts that you talked about in response to David Errington's question, what's the lag for getting it back up? Is Victoria, is Dandenong better or worse than these blended numbers? I'd be just interested to hear that.
Yeah. Look, I mean, Stephen, correct me if I'm wrong, but this is the 14 DCs that goes to make up this number.
Yes.
In Australia. You've got a composition of 14 DCs. We'll come back to Melbourne South, which did about 2.14 million cases on average a week during the quarter, actually performed well. Predictability is the key issue there, which we're working very much on to make sure it's not only does the volume, but it's predictable in terms of delivery schedule to stores. You've seen a whole range of DC charts today, not just Melbourne South. This is really the flood impact, as I've mentioned a bit earlier. It's not a DC we talk about, but Larapinta literally is the biggest DC in the Southern Hemisphere. You have that disruption in Northern New South Wales or Southern Queensland and all the impacts it does on us are just material.
We had moments there where we were shipping out of Adelaide straight up into FNQ from DCs. The whole discombobulation was very material based on those floods. What you're seeing, as I say, is not only how the DC operates and the absentees in there, which did hit very high numbers, which is now much lower, over 30, well over 30 in some of our DCs, and it's down back under 10. But you are seeing the impact on manufacturing facilities for our suppliers not supplying the product into the DC, and then availability of truck drivers. There's been a lot of challenges around truck driver availability and all the challenges that sit in that industry as well, not only in the short term sense of COVID, but in the long term career sense.
There's been a lot of pressures there. You've seen it all in one place. It is improving. As I say, March was a particularly acute month for these floods, so we certainly are trending back up on average. Although Spencer, it's still got a long way to go in New Zealand. It is. Thank you. Hopefully that answers it.
Yeah.
It's a really tough one. I mean, it's happened. Just to give you a sense of disruption more than a sense of fundamental structure of what we're doing.
Thank you. Your next question is a follow-up question from Shaun Cousins from UBS. Please go ahead.
Thanks, Brad and team. Just conscious of, I guess, the messiness of the quarter, and then real like-for-like sales growth not being always the best measure of volume. Maybe could you discuss, I guess, the current and expected volume impact you think in Australian Food from the consumer getting, you know, starting to work to work from home less and come back into the city, and to their offices, and also the extent to which the consumer can eat out. Are you expecting that to sort of weigh somewhat on your volumes to a degree, please?
Thanks, Shaun. As I think I said earlier, volume share and value share have been tracking relatively consistently for us, and that's a big area of focus for us, just to make sure that we're not kidding ourselves in value share versus volume share. We are working hard to track those. A movement from in-home consumption to out-of-home consumption. We sort of see moments in pockets all over the country. It was very pronounced in December, in particular with Victoria, when everything opened, and it was a huge move. But just given we open, we close, we're open in New South Wales, it's sort of been hard for us to be definitive. We look at the impact on our city stores. They are still very muted. Our city traffic.
Our city stores are probably at 60% of what they normally would be at a run rate level, and it's caused a lot of issues for us in the city. Stores in general, of course, we're a bit more indexed to them for our metros, but that is the marked characteristic of where we're at. If we look at the next quarter, Shaun, to your point, do we expect to see a move to out-of-home consumption? I would say not if we do our job on value, because we provide great value, and we can compete for a whole ton of additional meal occasions at home. If we think about our meal solutions, whether it's you know, affordable lunch or, even more importantly, affordable dinners.
We feel that there's a lot to play for us in those meal occasions, hopefully moving back into the home if we can deliver value.
Thank you. Your next question comes from Richard Barwick from CLSA. Please go ahead.
Oh, g'day, Brad. Just noting your store numbers, so net store closures for the quarter. I can't recall another quarter when store numbers actually went backwards. Just makes me think it's worthwhile asking about what your plans are for net store openings going forward. Probably a bigger picture question is how you balance that up or how you think about balancing that up in the context of online sales growth.
Yeah. Thanks, Richard, and attention to detail. We also thought it was weird, and we went in a blind panic this morning, and we couldn't figure out why we were seeing a negative. It's not our expectation. I think we're gonna open 11 net supermarkets this year. It just happens to be the nature of the quarter that you're looking at, where we shut 2 supermarkets.
We shut two supermarkets, a smaller one in Victoria and one in Queensland. That's just part of, you know, our normal strategy cycle around looking at the performance of our stores. It just happens that in this quarter we closed two. We continue to look for opportunities to open new stores.
I wouldn't say our approach to network has changed. It's just a function of timing of openings and closures in the quarter. I think there is a little bit of delay in construction if you think about.
Yeah.
The rain in, you know, down the eastern seaboard and delay in construction materials. Yeah, you're just seeing some of those openings pushed back a little bit.
Yeah, I think that's fair. On a page, in the context-
Q3 this year compared to Q3 2021, there were three stores closed in Victoria, I believe. Box Hill, Broadmeadows and Armadale.
In terms of our go forward, Richard, and mix of stores versus e-commerce, as you'd be aware, I think at the moment, about 85%-88% of our e-commerce business is fulfilled from our stores. We're working very hard. That number will go down, but we can expect to see it over 80% if you look at the next three years. Within that context, we're not unhappy with our CFCs and how they're going, and we're learning a lot out of them, and we'll continue to grow them, of course. But in that context, we still see room not only for physical retail sales, but those stores and landing stores that enable us in particular to do great same-day, but particularly in direct route.
We still see a number of gaps in our network in Australian Food or Woolworths Supermarkets. You know, we've sort of talked about, you know, the sort of 10%-15% long-term rate for us. We don't feel uncomfortable with that. What the store is gonna change those, as I say, given the nature of how we wanna allocate more space to Pick Up & Sign and remember a number of other things at the right point, we can come back and talk to. In the context of BIG W, we have been shrinking the portfolio just for reasons to do with a lot of things you remember in the past and very prudent setting.
Interestingly enough, what it means for us with a store-based performance model is, we estimate about half of all geographies in Australia, we can't give our BIG W customers an e-commerce solution. We do need to think a little bit more creatively. That doesn't mean we're gonna open a whole lot of new BIG Ws, but we do need to stand back and think of how we provide the option for all Australians to get great value from BIG W.
Thank you. Your next question comes from Adrian Lemme from Citi. Please go ahead.
Oh, thanks for taking another question. Just trying to read through again this issue of whether there'll be a volume reduction or trading down in response to the higher prices. I'm just sort of focused on New Zealand since it seems to be further down the path of inflation. It looks like it had negative implied volume growth of 0.5% for the quarter, whereas the prior quarters were quite positive.
Yeah.
Volume numbers. Just wanted to see if there's any parallels or learnings we can draw from that for the Australian business or if the volumes in New Zealand were maybe impacted by COVID or something else. Thanks.
Yeah, Adrian, I would just say New Zealand was impacted by a combination of Omicron and then the challenges we had with our supply chain. It made it very different to our competitors in New Zealand who really run direct-to-store models and central warehouse models are fabulous in calmer stability. They're very challenging in these times when you can get a supply chain gridlock and, you know, their ability to go direct to store, in particular for the large pack and play. We lost volume in the quarter. I wouldn't read anything into the New Zealand results and what it means. It was a combination of Omicron, our challenges in the supply chain that are reflected in our numbers and a decline in market share.
If you look to the going forward, you know, I think there's as much trading across as there is trading down, and so you will see that no doubt come through. It's the conversation we had of maybe fresh vegetables with the challenge of prices into frozen or, you know, beef into pork or chicken or whatever the case may be. We do expect to see volume trading down in category and trading across in certain between categories because our shoppers shop by occasion, not by category, if you see what I mean. What we think it might mean for units, I think it probably is muted unit growth, but we don't see a major decline.
The only caveat, if I sound hesitant, is how we model through some move to bulk packs, and bulk packs are growing in the value stores. If you just, I suppose, volume adjust bulk packs, you'll see a slow, muted unit growth but still positive.
Thank you. Your next question is a follow-up question from Craig Woolford from MST Marquee. Please go ahead.
Hi, Brad. I spent a bit of time analyzing the breakdown you provide of sales between, you know, transaction numbers and basket size, et cetera. It is interesting that even, you know, right through, we haven't seen a recovery in transaction numbers. You know, what do you attribute that to? You know, have you seen very recently transaction growth recovering or do you expect that it will have, you know, fewer but bigger baskets for a more permanent period of time?
Yeah, thanks, Craig. Obviously, when you're looking at that, by the way, it includes the very large e-commerce basket. As e-commerce grows, there is a bit of a natural headwind, you know, to the number, if you know what I mean. You almost need to unpick the e-commerce growth rate in looking at it. Yeah, it has stayed where it is. You know, maybe in a post-COVID world when we're into more, we're out and about more traditional shopping patterns, we'll see it go up as we become less planned again. Certainly our average items per basket has gone up and remained relatively stable. Funny enough, the big move for us has not been size of basket and the trend line.
The basket size of a store shopper has remained constant. You're looking at the decline generally through e-commerce. What we've seen is the massive movement between mall-based neighborhood and city stores, you know, which is where all the movements have been, right? I don't have a good answer on the going forward. I would expect it to slowly come back, but yeah, just hesitant. I think the combination of the different manifestations of COVID, kids still working from home, and then the weather we've had, it's hard to read a lot into it. I don't know, Amanda or Natalie, if there's anything specific you want to call out. I would just isolate for e-commerce, right?
You know, you get an e-commerce basket that could be in the 50 items versus a store basket that's 11-12. I would just call out, by the way, that we have seen a nice basket growth in BIG W. I think that's worth calling out. We've always known we've been under-penetrated in the size of an average BIG W basket, which traditionally, you know, a couple of years ago in our tough times was sort of in the low 3s and it started to see it in the mid 4s. That's actually been quite a nice trend line actually to call it out.
Thank you. Your next question is a follow-up question from Ben Gilbert from Jarden. Please go ahead.
Thanks. Just one final quick one for me. Might be one for Amanda. I don't know if we'll get this number, but in terms of Cartology, I appreciate a lot of that gets net out against COGS, but would turnover there be annualizing over AUD 150 million now?
I'm happy to take that one, Ben. Thank you for asking it. We don't break it out in any great detail, as you know. What was interesting in Q3 for cartology was with the cancellation of some of our promotional program in the stores, we didn't do a lot of store-based media, and that did impact somewhat our top line revenue for cartology. However, we made good progress in our digital media business and doing a much better job of providing partners access to our digital platform. You know, there was a swing there. Net-net decline, though, was very muted for cartology, given the headline challenges of doing media in stores.
Thanks.
Thank you. The next question comes from David Errington from Bank of America. Please go ahead.
Brad, just to follow up, I think while I was listening, I thought it'd be remiss not to ask a question on Big W because I don't wanna show you food guys up or anything, but Big W looks like it was the star of this result. I mean, when you're looking at what it's done, comping literally 30% over a two-year period, and it was very heavily disrupted, and it's Easter adjusted, it looks like Big W is really performing well in light of other retailers really starting to struggle. Can you give a bit of an overview where it's at the moment? You must be pretty pleased with where Big W is currently performing.
Is it at the stage now that we can have confidence with regard to predictability, or is it sort of like just a recovery where it should have always been? Because it looks like to me, Big W was a really good basically last 12, 18 months. Could you give a bit of an overview? I think it'd be remiss not to talk about Big W.
Thanks, David. Look, in our internal comms, we recognize the amazing efforts that the BIG W team have had. If you look at the level of disruption they've had at a store level with, you know, particularly in the first half with the store closures, lots of challenges in stock flow. Every conversation we've had about stock flow inside Australian Food and New Zealand Food is that plus actually exponentially inside BIG W. The year-on-year or the two-year, actually the three-year number for BIG W is strong. More importantly, the consistency of the customer and brand metrics, which is, you know, a real highlight. Yeah, just a great effort by the team. It's sort of
You know, I know we joked a few years ago whether we had the Steven Bradbury, first year of COVID effect of, you know, we just happened to have the stock flow and others didn't. I think what's proven to be true in the last, year and a half is that it's more profound than that, and it's a brand that's going to get great resonance and cut through back with its, customers and that's a testament to the team. In particular, as I say, given that you realize that half of Australia, we don't have a Big W offer right now, and that the nature of the way we do e-commerce means that we're not servicing half of the country. Yeah, I agree with you. You know, it was a challenging first half profit-wise for Big W.
you know, we need to be quite cautious and get the right momentum in the second half. Yeah, a really good result, I'd say.
Thank you. That does conclude our question.
Of course, BIG W app, by the way, David. Give it a lash. We just launched the app two weeks ago as an infomercial. Finally.
Thank you. That does conclude our question and answer session for today. I'll now hand back to Mr. Banducci for closing remarks.
Thank you, everyone. As always, my mind is on where we're at in Q4, and we're 8 weeks out to the end of the fiscal. As I think we mentioned, we have got off to a good start in Q4. It's hard to be precise on it given the nature of the sequence of events. We do have Mother's Day coming up, which is, I think our last big event in the quarter. The truth is always in our stores, shop our stores, whether physically or digitally, get a sense of where we're at. We're very focused on managing affordability and cost of living for our customers and our team, and that'll be our focus, plus getting back into the right operating rhythm in the rest of the quarter.
Look forward to speaking to you all too soon on our profit result for the year.
That does conclude our conference for today. Thank you for participating. You may now disconnect.