Thank you for standing by, and welcome to the Woolworths Group Limited FY 2022 full-year earnings announcement. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Brad Banducci, CEO and Managing Director of Woolworths Group. Please go ahead.
Good morning, everyone, and welcome to the Woolworths Group's FY 2022 full-year results briefing. Joining me today are our Chief Financial Officer, Stephen Harrison, who will present our FY 2022 financial results a little later. Natalie Davis, Managing Director of Woolworths Supermarkets. Amanda Bardwell, Managing Director of WooliesX. Spencer Sonn from New Zealand, looking after our New Zealand business. Pejman Okhovat, Managing Director of BIG W. Claire Peters, Managing Director of B2B and Everyday Needs, and Bill Reid, our Chief Legal Officer. Before I start the presentation, I would like to acknowledge the traditional custodians of the land on which we meet today, the Gadigal people of the Eora Nation, and I'd like to pay my respects to elders, past, present, and future.
I will start today's presentation with an update on the group performance and our progress on our strategic agenda, including the activation of our food and everyday needs ecosystem. Stephen will then present our financials before handing back to me to finish with current trading and outlook before handing over for questions. For those of you who are following via our management presentation, I'll just call out that I'm gonna start on slide four. Let me go into the high-level summary of the year and drill into some of the detail. FY 2022 marked the third year of navigating COVID-related challenges, as I'm sure you're all aware. We started the year with the Delta outbreak, with Q2 particularly impacted by disruption and inefficiencies across our supply chain and stores and rising levels of team COVID-related absenteeism.
At the beginning of H2, Omicron began to take hold with the half made even more challenging due to inclement weather and flooding events. Combined, this led to an inconsistent customer experience and financial performance below our aspirations, particularly in H1. Importantly, we had a strong Christmas trading period and the group's operating performance, financial performance improved over H2 with a gradual return to a more stable operating rhythm. On a continuing operations before significant items basis, H2 group sales increased by 10.5% with improved momentum in all segments other than New Zealand Food. Excluding PFD and Quantium, group sales increased by 6.2%, and group sales for the full year grew by 9.2% to AUD 60.8 billion or 5.1% excluding PFD and Quantium.
Group EBIT in H2 increased 8.1%, driven by 9.7% growth in Australian Food. This resulted in a full-year EBIT decline of 2.7%, much improved on the 11% decline in H1. Just moving on to slide five. We presented these charts, if you're looking at slide five, which just show you our outbound service level and absenteeism, just as a way of contextualizing the operating challenges that we have had and still, to some extent, continue to have. On the left-hand side, you see our DC outbound service levels, which have improved somewhat relative to the low point in February and March, but remains well below pre-COVID levels and even FY 2021.
As hopefully everyone understands, this doesn't equate to 20% of perishable products not being available to customers in our stores, but it does give you a sense of the impact to our suppliers and supply chain from COVID-related and weather-related disruptions. Team absenteeism remains an issue throughout H2 and is still above last year and pre-COVID baselines. We expect to see improving trends in FY 2023, but we're not yet back at a normal operating environment. Just on slide six, this gives you a sense of our customer experience. Invariably given what I showed you on slide five, our customer experience was not as good as we would have liked during the year. This was reflected in our FY 2022 customer advocacy scores. With all businesses down in the prior year with the notable exception of BIG W.
Despite this, the effort and commitment of our team cannot be questioned. They've shown remarkable resilience over the last three years and have responded and adapted quickly as each new challenge has presented itself. I and the Group ExCo are particularly proud of the fact that our customer metric measuring whether our customers felt cared for remained strong for all group businesses. I'd like to thank our team for their efforts and for continuing to put customers first. On slide seven, FY 2022 was another record year for digital and e-commerce, with group e-commerce sales increasing 39% compared to FY 2021, with e-commerce penetration of 11%. Since 2017, group e-commerce sales have increased at a CAGR of 42%.
Customers are also engaging with our websites and apps more frequently with an average of over 19 million customer visits per week across our group digital platforms during the year, up 24% on the prior year. Growth rates slowed a little in H2 as customer behaviors began to normalize, but sales and penetration rates remain well above pre-COVID levels. Pleasingly, we delivered good profit leverage in our Australian Food and BIG W e-commerce businesses. While New Zealand was impacted by higher team costs due to COVID, it remained profitable at an e-commerce level with a good underlying run rate. Across all of our e-commerce businesses, we are becoming ever more efficient as our scale increases and as we continue to optimize our processes. Slides eight and nine just give you a sense of our progress against our strategic priorities.
I won't go into them in detail, but a few highlights for me. The launch of our new group brand in February to better reflect our purpose of creating a better tomorrow was a very important moment for us. We are very committed to being a purpose-led organization, and it gave us the opportunity to reengage with our team on our purpose of working better together to create better experiences for a better tomorrow. Another one that I think is very important has been the re-imagination of our supermarkets and our latest concept stores in Port Macquarie, which is a core store, Miller Value store, and Double Bay Up store, have given us enormous learnings on how we take our core value and up segmentation forward.
The rollout of RT3, which is a fundamental change to rostering and task management in our business. It's a key foundation both for a better team experience, but also our productivity agenda in the years ahead. On slide 10 is just a reminder of our food and everyday needs ecosystem, with each segment working to reinforce the other with the customer first, team first focus at the core. We've made pleasing progress on activating our ecosystem, which I just wanted to briefly talk through in the next few slides. Firstly, just going into retail platforms. Primary Connect, of course, is our key retail platform, and we materially progressed our multi-year supply chain transformation during the year. This despite the disruptions I talked about earlier.
Amazingly, we commissioned six new facilities during the year, including Heathwood Chilled and Frozen DC in Queensland, which opened ahead of schedule in H1, and a new state-of-the-art Auckland Fresh DC, which opened at the end of the year in June. In addition, MSRDC is starting to deliver for us our automated regional DC down in Melbourne, delivering 2.2 million cartons per week in H2. In July of this year, we opened a new CFC, Customer Fulfillment Centre, in Rochedale, Queensland, which is the first in our network with an attached direct-to-boot. Just this week, we are opening our latest CFC in Caringbah, Sydney, which will also have an attached direct-to-boot, and I can't wait to go and see it, hopefully on the weekend.
Construction is underway on our automated CFC in Auburn together with our partner, KNAPP, a new regional and national distribution centers in Moorebank, Sydney. On slide 12, we just wanted to show you our increased scale across digital e-commerce, loyalty, and media. This just gives you a sense of where we're at. Now, the slide is focused on Australia, but we are making good progress in all of the same areas in New Zealand. Industry benchmarking all of these areas is very difficult, but hopefully this gives you a sense of relativity in where we're at on each one of the things. Just to call out a few highlights on this page.
We are increasingly one of Australia's leading digital platforms as more and more customers use our websites and apps every week, whether to purchase groceries, pre-plan what they're gonna shop in store, prepare a shopping list, or search for a recipe or weekly meal inspiration. In terms of e-commerce, we are the largest 1P e-commerce retailer in Australia today. Of course, have aspirations of growing our 3P marketplace presence, and we're trying to do that both through Everyday Market, which we have been incubating inside our business, and more recently, the deal we've announced with MyDeal. As value has become increasingly important to our customers, we recognize the imperative to continue to evolve our Everyday Rewards program, and we've added over 620,000 new members in FY 2022, with 13.7 million members at the year-end.
Our increasingly personalized, relevant, and timely customer offers have led to about 2.5 million customers activating boosts per week in our stores in the month of June. Just in terms of retail media, there's a slide on the next page, slide 13, which just gives you a bit of context where we are with our retail media business, Cartology. We see this as obviously a critically important platform for our group. We've had very strong growth from Cartology since its inception, with revenue doubling since FY 2022. If you look at the slide, or you have it near you'll see that we've grown retail media across the board, but in particular, in the context of digital.
In FY 2022, Cartology revenue increased 29%, supported by higher traffic, in particular, as I say, to our digital properties and the launch of new Cartology media products. The team also delivered over 8,000 campaigns in the year across all channels and expanded across the group, including completing its first full year in New Zealand and preparing for the launch of BIG W in FY 2023. In July, we announced our proposal to acquire 100% of out-of-home media specialist, Shopper Media Group. Shopper currently operates over 2,000 screens in over 400 shopping centers, which will be highly complementary to our current in-store screen network. Subject to ACCC approval, we anticipate completion to occur by the end of this calendar year.
Just on slide 14, keeping on the theme on platforms. In this, in June of this year, we formalized and strengthened our partnership with Quantium and lifted our shareholding to 75%. At the same time, WIQ, or Q-Retail as it was originally known, was established, and WIQ brings together the best of Quantium and Woolworths Group's collective data science and advanced analytics capabilities to deliver on our aspirations in this area. The team brings together more than 600 professionals, and they're working on over 20 high-priority use cases across the group, with early progress already being made on optimizing promotional effectiveness and personalizing customer offers. In addition to this, we are also working on tailored ranging at a store level and enhancing operational efficiencies both in-store and online. On slide 15, as I've talked about earlier, we announced our intention to acquire 80% of online marketplace, MyDeal.
MyDeal is an established marketplace platform with approximately 1 million customers, over 1,900 sellers, and more than 6 million products on the site. It also includes a range, as of last week, of BIG W products, which we officially launched. The share of non-food retail sales via marketplaces in Australia is well down on other mature countries, and the addition of MyDeal to the group expands our marketplace ambition, particularly in furniture, homewares, and an extended range of everyday needs. On slide 16, actually a real epiphany for us and a highlight in the challenges of COVID was that our customers told us that in addition to being kept COVID safe and us delivering great value for money, they wanted us to remain focused on creating a better tomorrow, and we were able to make good progress on our sustainability agenda during the year.
Remained our gold tier status as part of the AWEI Australian LGBTI Inclusion Awards for the fourth consecutive year, and we also made really pleasing progress, in particular on team safety, with our total recordable injury frequency rates down 9% compared to the prior year. We also continued, of course, our focus on the planet with our scope one and two emissions down 31% since 2015. On the product side, we spent a lot of time working to improve the quality of data, and working on plastics and how we can take plastic out of our business with over 10,000 tons of virgin plastic removed in Australia through targeted reduction initiatives, equivalent to a 22% reduction relative to the 2018 baseline.
A lot of work still to be done here, as you know, and we will be releasing our sustainability report later next week. I'd now like to turn over to Stephen to talk about our financials, and then I'll come back to talking about our priorities, given we are now in the ninth week of the new financial year. Over to you, Stephen.
Thanks, Brad, and good morning, everyone. I'll start today with the FY 2022 group results summary on slide 19, and I'll focus my commentary on continuing operations before significant items which adjusts for the Endeavour Group in the prior year and the impact of the demerger. Group sales increased by 9.2% on the prior year to AUD 60.8 billion, benefiting from the first-time inclusion of PFD and the acquisition of Quantium in June 2021. Excluding PFD and Quantium, FY 2022 sales growth was still strong at 5.1%. Group EBIT was down 2.7% to AUD 2.69 billion, reflecting the extremely challenging operating environment in FY 2022, given the significant impact of supply chain disruptions, product shortages, and absenteeism.
I'll talk further about this on the next slide, but H2 performance was a strong improvement on H1, with H2 Group EBIT up 8.1%. Group NPAT for the year was up 0.7% to AUD 1,514 million due to lower interest and tax compared to the prior year, and I'll discuss our dividend later in the capital management section. Turning to slide 20. On this slide, we've laid out our full year and H2 performance by business unit. H2 performance improved significantly compared to H1, and I'll focus primarily on the second half as we discussed the first half performance extensively in February. In H2 of FY 2022, Australian Food operating performance improved materially. Sales increased 5.6% with EBIT up 9.27%.
Sorry, 9.7% to AUD 103 million. H2 benefited from higher inflation, a recovery in store-originated sales, as well as a gradual improvement in our operating rhythm over the second half. The strong second-half EBIT growth resulted in a small improvement in Australian Food EBIT of 0.3% for the year. Growth in Australian B2B is distorted somewhat by the acquisition of PFD and the first-time inclusion of Endeavour Group's partnership revenue. PFD had a successful first year as part of the Woolworths Group, with momentum improving over the course of FY 2022 as restrictions eased. Our other B2B businesses grew sales on the prior year. New Zealand Food had a challenging second half as Omicron resulted in significant supply chain disruption, team absenteeism, and low stock availability.
Despite half two sales increasing by 3.1%, sales momentum slowed over the half with item growth below the prior year, and EBIT declined 30.8% to AUD 116 million, slightly below the guidance we provided at our Q3 sales announcement. BIG W sales rebounded strongly from February with Q4 sales growth of 11.9% after an extended period of store closures in half one.
Half two EBIT increased relative to half one, but was 23.5% below half two of FY 2021 due to COVID-related costs, particularly in early Q3 when the impacts of Omicron were most significant. Finally, other net costs, which includes group costs and our share of the Endeavour Group earnings with AUD 123 million, broadly in line with our guidance of AUD 190 million excluding the Endeavour Group contribution. The reduction in other compared to the prior year was due to our share of Endeavour Group's NPAT, and the full year contribution from Quantium somewhat offset by higher COVID costs, including the team thank you bonus.
For FY 2023, excluding the Endeavour Group, we expect other costs to be approximately AUD 220 million, reflecting increased investment in advanced analytics in FY 2023, with the benefits from these costs largely accruing to the business units for initiatives such as next-gen promotions. On slide 21, we've outlined comparable sales by business unit and the impact of COVID restrictions. We've included this slide in our recent presentations to help provide some context on what we're cycling on a quarterly basis. Given the varying impact of COVID over the past three financial years, we're now showing three-year average growth rates for Q3 and Q4 to better reflect a pre-COVID baseline. In Q4, three-year growth rates increased in each of Australian Food, New Zealand Food, and BIG W as we ended the year with good momentum.
Looking forward, consistent with our current trading numbers provided, Australia and New Zealand Food are cycling very strong growth in Q1 due to COVID restrictions in Q1 of FY 2022. Whereas BIG W is cycling a less challenging base due to the impact of store closures in the prior year. Moving to COVID costs on slide 22. In FY 2022, group COVID costs were AUD 323 million or 0.5% of sales, and were broadly in line with COVID costs of AUD 332 million in the prior year. Following the peak in Q2 at 0.9% of sales, COVID costs moderated over the remainder of the year, with COVID costs of AUD 18 million or 0.1% of sales in Q4.
COVID costs also shifted progressively from the eastern seaboard of Australia to Western Australia and New Zealand over the half, where the impact of Omicron was felt later, with the majority of the COVID costs in Q4 incurred in New Zealand Food. We've consistently stated that subject to health, the health and safety of our customers and team, we do not expect COVID costs to be permanent, so we're pleased to see the reduction in COVID costs in Q4. We would expect direct COVID costs to continue to reduce in H1 of FY 2023, assuming no further COVID outbreaks or requirements to return to strict COVID restrictions. Moving to our balance sheet metrics on slide 23. Average inventory days from continuing operations declined by one day compared to the prior year.
This was due to higher sales during the year in our food businesses, despite the increase in inventory over half two to mitigate supply chain disruptions. Group average inventory days benefited from mix following the demerger of Endeavour Group, which typically carried higher inventory days than our food businesses. The calculation of ROFEs has been impacted by the demerger of Endeavour Group. The continued operations ROFE has also been normalized to remove Endeavour Group in the prior year, but ROFE now includes our 14.6% investment in Endeavour and its NPAT contribution for the year, together with the first full year impact of PFD and Quantium.
FY 2022 ROFE was 13.7%, a decline of 3.1 points, reflecting higher funds employed from our acquisitions and longer dated capital investment profile and largely flat EBIT given the impact of COVID across the group, in FY 2022. Moving to slide 24 and our capital management framework. We've included a recap of our capital management framework and called out some highlights. In FY 2022, we generated operating cash flow before interest and tax of AUD 4.8 billion, which was up 4.2% on a continuing operations basis. This was largely allocated to AUD 3.2 billion of dividends and capital returns to shareholders, together with growth in CapEx and investments in new businesses. I will touch on some of our other capital management highlights on a later slide. Moving to our cash flow on slide 25.
EBITDA from continuing operations increased by 3.1% to AUD 505.2 million, driven by Australian Food's EBITDA growth. Cash flow from operating activities before interest and tax was up 4.2% to AUD 4.8 billion when we exclude Endeavour Group in the prior year. Investing activities in the current year primarily related to CapEx, with the increase versus FY 2021 driven by the acquisition of the 65% interest in PFD Food Services. Interest payments were below the prior year due to the demerger of the Endeavour Group, together with the benefits from refinancing borrowings at lower interest rates during the year.
As a reminder, following the demerger in June last year, Endeavour Group repaid its intercompany loan of AUD 1.7 billion to the Woolworths Group, which was used to fund the majority of the AUD 2 billion off-market buyback we completed in October. Our cash realization ratio, after adjusting for the non-cash gain on the Endeavour Group demerger was 86%, which is below our target of 100%. This was impacted by a decision to invest in inventory, resulting in higher working capital and non-cash outflows of AUD 235 million, and higher cash tax paid relative to the P&L charge due to FY 2022 tax payments, including Endeavour Group earnings from FY 2021. On tax, our effective tax rate was unusually low this year due to some one-off factors.
Going forward, we would expect it to be approximately 29%, all things being equal. Moving on to slide 26 and a quick overview of CapEx. Operating CapEx for the year was AUD 1.9 billion. This was marginally below our AUD 2 billion guidance, but up on an underlying basis compared to FY 2021 after excluding the Endeavour Group. The increase in sustaining CapEx compared to the prior year largely reflected supply chain investments and renewals, with the increase in growth CapEx largely reflecting CapEx related to supporting our growth in e-commerce. In FY 2022, CapEx also included AUD 150 million of projects with strong sustainability benefits such as refrigeration and solar. Moving to slide 27.
Today, the board has approved the final dividend of AUD 0.53 per share, which is up AUD 0.02 Per share on FY 2021 when the Endeavour Group contribution is excluded. This brings the full year dividend to AUD 0.92 per share at 1.1% versus last year excluding the Endeavour Group. This equates to a full year dividend payout ratio of 74%, which is within our 70%-75% target payout ratio. Moving to slide 28 and our debt and funding. The group's sources of funding and liquidity remain strong with total committed undrawn facilities of AUD 2.5 billion in addition to cash. We successfully completed the issuance of AUD 1.6 billion of sustainability-linked bonds in the first half, and in Q4, refinanced AUD 1.25 billion of bilateral revolving bank facilities.
We remain committed to solid investment grade credit ratings and a significant headroom under our current ratings of BBB from S&P and Baa2 from Moody's, with a leverage ratio at the end of FY 2021-FY 2022 of 3.1x when measuring net debt to EBITDA. Thank you, and let me hand it back to Brad.
Thanks, Steve. Moving all the way to the back of the document to slide 46, and just talking about the first eight weeks. Sales in the first eight weeks of FY 2023 for Australian Food were down 0.5% as we cycled two consecutive years of elevated sales growth. However, three-year CAGR remains strong at approximately 5%. Team absenteeism and supply chain disruptions continue to be above pre-COVID levels, and we're seeing cost pressures in other areas as well. Subject to no further material COVID restrictions, COVID-related costs should decline substantially in FY 2023 compared to FY 2022 as customer behaviors continue to more normalize and the operating rhythm of our business continues to improve. Inflation is beginning to impact all aspects of our customer shop, and we've seen a gradual change in customer shopping behavior.
We recognize the cost of living pressures being experienced by our customers, and our commitment is for every Woolworths customer and team member to be able to get their Woolies worth. We're continuing to work hard on tailoring store ranging, including own brand, as well as our prices dropped, low price and low price freeze, and promotional programs, both in store and via Everyday Rewards to deliver value for all of our customers. Operating conditions in New Zealand remain challenging. Sales growth declined by 1% in the first eight weeks, but was up 4% on a three-year CAGR basis. Due to inflation, materially higher costs, and a very competitive trading environment, EBIT for FY 2023 is currently expected to be materially below the prior year, and we will provide a further update on this at our Q1 sales.
BIG W sales, on the other hand, have been very strong in the first eight weeks, increasing by just under 30% with a three-year CAGR of 10%. We believe that the value, quality, and convenience that BIG W offers will be a strength in the current environment. Balancing the needs of our stakeholders is more important than ever in this environment, and we remain committed to offering great value to our customers, at the same time recognizing the cost pressures being felt by our suppliers, rewarding our team fairly, and delivering an improved financial performance in FY 2023 for our shareholders. We'll 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 then two. If you're using a speakerphone, please pick up the handset to ask your question. The first question comes from Michael Simotas from Jefferies. Please go ahead.
Good morning. The first question from me is on the productivity benefits that you are looking to achieve in FY 2023 after three years of delay. Could you talk a little bit more about the source of these, and how should we think about the FY 2023 year? Is it just sort of going back to where you would've been and kind of starting again, or do you think you'll get a little bit of a catch-up? Any help you could give us on the potential quantity of these would be helpful.
Sure, Michael, I expect quite a few questions on CODB. I'll dive into the specific, but just, I guess the one thing I just wanted to reference as you look at our CODB for 2022, it really is an all-in CODB. You know, I think there's become a bit of a fine art on classifying COVID costs and first order, second or third order, the investment required in digital or e-commerce, supplier disruption of productivity. You've seen a very all-in cost of doing business, which we think and we're working very hard, of course, to improve on the go forward.
If I come into productivity, the number one priority for us is to be consistently good on item-based productivity in our business, and to get ourselves to or ahead of where we were pre-COVID. The name of the game in FY 2023 is item-based productivity, because what we're gonna start seeing is a scenario where the top line will be somewhat driven or more driven than not by inflation, but with items flat or declining. You started to see that in Q4 if you looked at New Zealand Food and Australian Food. Item productivity is key. We always talk about our business being driven by items, but we need to ensure that we get and are consistently good on that in every aspect in our business.
That hasn't been the case in the last couple of years for good reason, with all the disruptions we've had, whether it's, you know, cartons per hour in our DCs, our nighttime full rates in our stores, our scan rate at the front end of our stores or whatever the case may be, our pick rate for our e-commerce business per hour, and so on. That is the biggest opportunity. When we look at our underlying item productivity metrics in 2022 and 2021 for that matter, there's enormous upside that sits there for us. On top of that then you get into the more, you know, traditional programs of how we improve our underlying processes and bank the benefits of that. Of course, there is a lot of work underway there.
As I think we were quite adverse in the middle of COVID, it was hard to progress those. With all the disruption we had, you just didn't have a stable foundation on which to do those. Again, there are active programs, as you might imagine, across all aspects of our business. In our supply chain, really we have commissioned a number of new sites. We just need to now effectively ramp those up and achieve what we would like to achieve. We have made good progress on MSRDC, but it has still been patchy. We just wanna be consistent on the 2.2-2.4 million cartons a week there. We wanna lift our Melbourne Fresh DC to a consistent 1.5-1.7.
We want to start seeing the benefits that we know are available to us in Heathwood. Same is going to be true in Auckland Fresh, our new Hilton facility in New Zealand. You know, at the two facilities we just transitioned back into Woolworths to Primary Connect for BIG W and so on. We can just see enormous opportunity and benefits there. We're also working very hard in collaboration between Woolworths Supermarkets and Primary Connect to think through the number of deliveries we do to store. There's enormous pressure in the transportation side of the business, not only fuel, but driver availability.
We are just being very thoughtful on rosters, and we've reduced the number of rosters very successfully in Victoria, which leads to better load building logic for the pallets, and can create productivity in both DCs and stores, and we're looking to roll that out across the country. In Woolworths Supermarkets, and we can come back and talk about this more specifically later if someone wants another question, and Natalie will talk to it. Our focus at the moment is landing RT3, which is really we've rebuilt all of our standards in our stores around how we want productivity to work and then how we would like to roster. The priority in H1 is to land that. We're well on track to do that.
That will then give us a very firm platform, and we'll make sure we've got a better right team, right task and right time in this half. It will give us good foundations to drive a more ambitious agenda into the second half. Very pleased on our SMART series of initiatives. You know, ESLs has been the story of Donkey and Shrek of are we there yet? Are they ever gonna work? They do work now for us. We're very pleased with them. They're starting to become base, just part of what we roll out. We can see the efficiencies that are there.
If I move into WooliesX, a lot of work's been done in combination between WooliesX and WIQ on improving process for picking algorithms of CFC, as we call it, on what sequence we pick items in a store. Has material improvement done with our new refresh program. 15% less steps on average to pick the same basket of items, so a lot of work going into process efficiency. Another big opportunity there, one of our big costs actually, has been when we have to do a substitution. We've had a lot of out of stocks, as you know. We do a substitution. That was a second process we run through the store to substitute items for customers. We're now doing that in line with the first pick, so a lot of work going on there.
In our home delivery business, we are very successfully complementing route efficiency, which we are starting to get, which is very exciting, with point-to-point deliveries from our stores. We believe routes and point to point actually together give you a better outcome than either one or the other and a lot going on in that side of the business. You know, I think it's a very comprehensive program. It is all based on, though, if I come back, item-based productivity is the key because we aren't uncomfortable on the sales headline number, but we need to be realistic on as we normalize through COVID, item growth will be muted at best, probably slightly negative, and therefore it all needs to come back to that foundation.
If there's a bright spot in that, it is that with a more muted item growth, it gives us the ability to really focus and land this productivity agenda that I've just talked through. Happy to come back, happy for Natalie to talk to BIG W in a later question or Natalie in the WooliesX question, or Page or Claire in other parts of our portfolio. Hopefully, that gives you some color on what we've got going on. One of the key things for me, and we'll talk about all aspects of FY 2023 for Woolies, is everything that we need to achieve in FY 2023 we started in FY 2022. There's nothing we want to add to our agenda in FY 2023.
We just wanna do a better job of scaling and executing all the things that we started either in 2021 or 2022.
Thank you. In the interest of allowing all parties an opportunity to ask a question, please limit questions to one per person. Please rejoin the queue for any follow-up questions.
The next question comes from David Errington from Bank of America. Please go ahead.
By the way, Michael, I think you didn't ask two questions, but I gave a very long answer, so I think I should apologize. I'll try and be a little bit more brief going forward. But over to you, David.
Good morning, Brad. How are you?
I'm well.
Brad, look. That's good. That's good. Thank you. Thanks for giving me. Look, thanks for that reply, but I'd sort of like to re-ask the question. We're all trying to work out the latency of what you've got in your business when you get back to what you call normal operating rhythm. Now, the slide that you gave on slide five is really interesting, but it raises a couple of issues. You know, absenteeism is running at very high levels, which is obviously going to cause operating rhythm disharmony. You've also got other cost challenges there where your DCs are coming on stream, but they're not running at the levels that you want them to.
I absolutely understand everything that you said, but we're trying to work out. I'm trying to work out the latency of operating efficiencies in your business in terms of how much costs can we expect to come out when you do get back to that operating rhythm of normality. Really, you know, this absenteeism is a productivity issue now. A staff is taking the you know what, where they can take a sickie whenever, and it's accepted now. You know, is this the new norm? We're trying to get an understanding to elaborate on the previous question. What does normal now look like when you get back to operating rhythm and what is the latency in your business? Because listening to Coles yesterday, you do seem to be two or three years ahead of them. They've got to go through their DCs.
You've got yours on the ground. Now, you've just got to get them to run. If you could go and talk about the future a little bit more and give us an understanding of the earnings latency, that would be really appreciated.
Thanks. Thanks, David. I've got more gray hair, of course, correlated with us, you know, commissioning a lot of these sites. One goes with the other.
At least you've got hair on it, Brad. I've lost a lot on it.
I think on all of these things, if we showed you the first half numbers versus the numbers now, we're in a much better position. We've been working hard, really, since our very painful moments in early December when we came to you and talked about our earnings challenges of trying to get into the right operating rhythm. On average, the trend lines have all improved. They're just moments when you still have challenges, and it reminds you of the fragility that's out there. When I look at, you know, that absenteeism, David, which sort of sits there at 5.3% versus 4% before, in the first half, we had peaks inside our stores where it was 10%-15%. In Sydney, it was 20%.
If you look to the first half of FY 2022, we hired over 60,000 people into Woolworths. We normally hire 30,000. This year, we're hoping to hire 20,000. The cost of actually training that team, getting them up to speed, it's hard to quantify, but it's very material. I look and say that's a much better number than we had before. We had warehouses with absenteeism of 30%. We're down at maybe 15% right now. The difference in that and having an experienced team in the store, I couldn't actually calculate it 'cause it's hard to, but our contractor absenteeism or turnover was running close to 40%. It's now under 20%. We're working hard to get it better, David. It is on average getting better. I just want to be a realistic.
I'd hoped we would have it where we wanted it by June, but now we are sort of looking for October, so we can really lock and load for Christmas. I wouldn't want to overplay it. It is getting better. The peaks that you've seen in June on absenteeism really do correlate with the peak of winter with flu, influenza and then COVID BA.8, 882 or whatever it was. There is a lot of noise there, in a sense. We're not unconfident we'll get to the right place. Actually, one of the key things for RT3, which Natalie can talk to you later, is we wanna hire those people and give more hours to our casual and our part-time team.
That's a big flex for us, which will really help us because it will just help us address the underlying efficiency of our team members. Our issue is not absenteeism. Our issue is someone who doesn't know our business, it does take them a while to get up to speed, and that's why you see it in the item productivity numbers in my mind. If I come back to our DCs, you know, and I think we said this in December, I know we said it in February, you wouldn't have wanted to commission what we commissioned if you knew what lay ahead with the disruptions that we were gonna go through. It's you know, we thank goodness we did it because we did it. Now our focus is on the ramp up.
Again, on average, we've seen a really positive ramp up into those DCs, and they have the capacity we need on the go forward. One of our biggest issues historically has been, we've had to use overflow facilities going into Christmas, causing us enormous issues, in particular in Melbourne, and that caused a whole lot of transportation fragmentation. We're now working very hard to get all of our product into our DCs, stopping to use or reducing our reliance on overflow facilities, and be ready to actually have a great service level to our stores, hopefully for Christmas. Great on-shelf availability for Christmas, which we didn't have last year. We think that can make a big difference. When we look at our first year sale, first half sales, we feel we lost a lot of sales through not being in stock.
We see a lot there. I can tell you, Primary Connect for the first time in maybe 24 months hit all its productivity objectives for us in July. I think that's a great testament to the team, and it says something about stability. Now, July doesn't make a year, like eight months done, but eight weeks don't make a year, but we are starting to see the momentum come through. David, as you know, the virtuous loop in retail is based on actually getting good item-based productivity in a world where there's a slight bit of inflation. That is what we're hopefully planning for. There's no doubt there are gonna be challenges during the year.
We're experiencing them right now in New Zealand, but we remain optimistic that we can slowly see these things come together. If our team is stable, which they increasingly are, if we get predictability into our customer shopping patterns, which we're increasingly seeing, we start seeing the benefits. That is true even in the eight weeks of this year. If you and I walk to store right now, or Natalie walk to store with you, we'd be going up and down the toilet paper aisle, full somewhat despairing. We'll be in the cat food section, wondering what's going on there. There will still be bad days in frozen vegetables in our stores, and so on. We don't wanna kid ourselves that there's still some work to do.
Thank you. The next question comes from Shaun Cousins from UBS. Please go ahead.
Great. Good morning, Brad and team. Maybe just talk about gross margins in Australian Food, please. Could you just, with Nat, where are you at with stock loss and maybe the burden of sort of higher meat costs if that's easing at all? Then maybe just how you're getting a benefit in dry grocery because there appears a policy almost based on trade feedback of seeking higher margins to accept a price rise. Maybe it's to, you know, equalize margins at, within a category. But can you just talk a bit about some of the components of your gross margin, particularly in the second half, please?
Thanks, thank you, Shaun. As with all, you know. The reason we're in retail is there's always positives or tailwinds, and there's headwinds, and that's the way I would think about 2023, and that's the same case here. Stock loss first, though, Shaun, we had a very strong year in stock loss, in particular in the first half of 2022. You know, stock loss running at about 2.5%. Feel free to correct me, Steve, in Australian Food. There's some risk in stock loss in 2023. In particular with Shaun, what we call stock adjustments, which often are missing items. You know, we know that there is gonna be some risk sitting in that part of our overall loss.
We continue to work hard to make good progress, which we are on our fresh loss, which is produce, as you know, that we need to dump because it doesn't hit our fresh expectations. The stock adjustments which are in long life, there is a risk of, you know, more stock adjustments in our business. We're realistic about that. We're closely monitoring it. We're not seeing it yet in a macro sense, but it is a risk for us, and we need to keep right on top of it. We see some negative there.
If I look at margins in general, and I said this in the media call, and it is true in a macro sense, in the second half of this year, and to some extent we might see it in 2023, the expansion in margin in the second half, first half was stock loss. The second half is really about mix, Shaun. And a mix benefit that we are seeing. It's not through us putting up prices. We're in a good place in a price sense and delivering value for our customers, but it is actually just mix.
Logically, as you would expect, as we've seen vegetable prices increase for fresh vegetables, and we've seen beef prices hit extraordinary highs, we've seen our customers shopping more of our long life in our frozen and chilled business and it is a slightly higher margin business, and you see it come through. Importantly, you're also seeing come through there the early benefits from us in our investment and collaboration between Woolworths Supermarkets and work on promotional effectiveness. Our biggest use case, as you would know, given we spend AUD 3 billion on promotions, is to improve the promotional effectiveness of what we do, to make sure we deliver for our customers, but also, you know, make sure we are, you know, investing thoughtfully.
We made really good progress on that, you know, in the second half, which was a big one of the highlights for us and is a massive opportunity and a massive area of focus, as you might imagine, going into the year. The third part of one question, this is how you get three questions in one, I guess, Shaun, is coming back to do we have some policy where we, you know, we ask or we somehow pass on more on shelf than we accept from suppliers? We don't have that policy. On average, our cost increases from suppliers are reflected on shelf. That is not gonna be true for individual products or individual categories or individual suppliers. I think 50% of the cost increases we've had in 2022 came from 20 suppliers.
Most of those are global consumer goods companies. Most of those are in long life sections. Most of those are, or some of those would be where the product that they've asked for increases on is below our category average margin. So you will see adjustments, pricing letters and so on, given the prevalence has been, I'd say, on a very small number of Global CPG where that is the situation. But there is no policy on that. What we're trying to do is navigate that very vexatious balance between doing the right thing for our suppliers, accepting legitimate cost increases, but also trying to deliver value for our customers. That's what you're seeing go through in the grist in the mill there. I think your last bit really was on meat.
You know, every six months in my time, we've talked about hopefully we're gonna do a better job on meat economics and it never quite gets there. That was no less true in the first half. You know, beef prices continued to go up and up. That's slowly started to trend down in the last couple of weeks. Given how long it takes to flow through, which is sort of somewhere between 90 and 120 days, I don't wanna overtalk it, but it was incredibly challenging half for red meat in particular. The margin pressure we're feeling there is material. There comes a point where you can't actually pass it on to customers.
We are in effect, you know, having to, you know, I guess, you know, just take a lower margin there because of our worry for our customers. Hopefully that will slowly rebalance over the year. I just don't wanna be too optimistic on it. Hopefully that gives you some color, Shaun, and some sense of where the positives and negatives are in what we're up to at the moment.
Thank you. The next question comes from Bryan Raymond from JP Morgan. Please go ahead.
Morning. My question is just around the change in customer behavior that you called out earlier in terms of the timing and magnitude of it, whether that came through much in the fourth quarter or whether that's predominantly come through in July and August. Then just a follow-up to that is how you plan to respond to this change in customer behavior and really try to capture that value shopper, which I'd expect to become more prominent over the course of FY 2023. Thanks.
Yeah, thanks, Bryan. You know, it is a very discombobulated, as you know, right now. Actually the major driver of our very low sales number for the first eight weeks really is the normalization of the world in New South Wales. You know, we are very indexed to New South Wales. We have a strong position there. If you look at New South Wales and Queensland, they are really driving the muted sales number because of what we're cycling from last year, and it's very clear to us. It's slightly different scenario than you would see in Queensland or in South Australia or WA. I mean, they're massive states, and so we index to them. The headline reduction is based on what we're cycling from this period a year ago.
It's amazing, you know, we've all lost track of time, you know. I was in Berala, which is a value store, and I'll come back to it, Bryan, on Saturday. Berala was at the epicenter of Fairfield and what happened during the Delta outbreak this time a year ago and the extreme lockdown we had in Sydney. I think we saw e-commerce, you know, go up to 20%, Amanda, of penetration of our stores in Sydney, and it was just an amazing time. Of course it was, sadly in the context of Victoria, a continuation of what we've seen there. I don't wanna get caught up in that the headline doesn't show what we've seen. This is just a normalization you've seen, going through. We are seeing customers normalize.
The good news in what you see in our numbers, we are seeing the normalization between standalone and malls. That has been going on, in fact, through Q4 and into the first eight weeks. We've seen a rebalance, where, you know, people are going back to malls. We're starting to see the growth more in the mall than the neighborhood. We've seen that normalize, in our business. We've seen the normalization come through of Delta as the same, the two big states. We always look at normalization. Is a Saturday bigger than a Sunday? I know it sounds crazy, but it is, and it's back to where the normal shape was. You know, kids sport has started to happen again on a Saturday, which I think most families are hopefully happy with.
We're starting to see people starting to change the shape of their shopping. We're starting to see the same happen in e-commerce. Normalization is taking place. Coming to your question, we'll only know in the next couple of months what normalization means in terms of customers shopping. I don't know if I even like these words, trading down or trading across or trading out, but anyway, they're words I guess we all use and what's happening. On average, what we've seen today, Bryan, is there are slightly less items either in the e-commerce or a physical shopper's basket. Sure, they're shopping a bit more frequently now that we're through COVID, but that is not offsetting the decline in items in their basket.
What we see on average is it would appear that our value shoppers or what we call our traditional and saver customers are shopping to budgets versus items. That makes logical sense to us. We see them shopping to a total and so some items are falling out of the basket. The items that are falling out of the basket tend to be the more expensive items in our store. It's unsurprising. It is red meat or beef. It is some of our expensive, well, relatively expensive vegetables as they move into the frozen or canned categories as we talk. Actually a material step down in our business in tobacco or smoking. We're starting to see those categories, which are fresh categories, reduce.
Our hypothesis is, has been, continues to be that our value and traditional customers will shop to dollar numbers and look for value within the dollar number. We see that happening in the items. We also see that happening in the way people start use shopping lists in our business or start using online as a way of, a disciplined way of budgeting, you know, what they do. If you then move to our business, we are very focused on segmenting, as you know, core value in up stores and delivering different experiences in those. Value has different meanings in each one of those stores. Value in Mount Druitt, Emerton, Berala where I was, Blacktown where we had our executive meeting week before last, of value stores, right?
If I look in that, you're gonna see a very different scenario than you're gonna see in an up store in a Double Bay or Neutral Bay or, you know, wherever the case may be. If you look in those stores, we are starting to see, you know, customers being a little bit more thoughtful on value. Now, they still will spoil themselves, so I wouldn't like to underplay that. You'll see impulse categories are strong. Eating away from home is distorted by material inflation, hopefully you're aware. The headline number is big, but the physical occasions is not quite as big as the headline number. But we're starting to see snacking is still very big. People are still doing a lot of treating themselves in those categories.
In other categories, they are making conscious choices. You know, that might be the move from beef into pork or into chicken, which would make sense to us, or the move from fresh to frozen vegetables, which I know was talked about yesterday, all makes sense. We're starting to see those cues, and it'll depend on the store and what's happening. What I'm excited about is we have nice value that we can deliver through that, and it does not necessarily need to be less at the detriment of our underlying economics. We can thread the needle if we are thoughtful and careful of delivering value for our customers and making sure we get the right balance in our economics. As you would know, our long life categories, our canned categories are a strong part of our business.
We can deliver the value we want there. I think we can thread that needle. As I say, I come back to the point we made today that we've got to be realistic on item count that goes through the store and item productivity because it won't be at the GP line that we'll be exposed, it'll be at the item and making sure we do the right thing and do the right forecasting at that level, if you know what I mean.
Thank you. The next question comes from Tom Kierath from Barrenjoey. Please go ahead.
Morning, guys. Maybe just to change tack on New Zealand. Just be interested if you think that business is kind of recoverable and you can get back to maybe where you used to be from a margin sense. Obviously, there's some short-term impacts, but you got the regulator, you know, making some decisions there. Just be interested in how you look at that business, maybe on a three- or four-year view rather than kind of the next six or 12 months.
Yeah. Thank you, Tom. I think it's, you know, a great question. The impact we've seen, our economics are not based on the regulator or any of the other announcements that we've seen, although we're engaging constructively, and we understand the issues at a government or political level. They're based on just the challenging economics we've had and our New Zealand economics. If we talked about what happened in Australia, as you get into a smaller environment, you get a more extreme whipsaw in the economics, and that's really what we've seen in New Zealand. You know, the impact of COVID on our supply chain into our stores has just been massive. If it was big in Australia, it's double that in New Zealand, and that's what we've seen.
You know, we're much more import- or indent-driven in New Zealand on long life categories. When the shipping gets kind of populated into Sydney or Auckland Harbor has a software glitch, and the ships don't wanna go there because they're gonna get stuck on a 24-day wait and they're diverting to LA, you just end up with huge exposures. We've seen just this massive challenge having flown through our New Zealand business. In that market, value is even more important. We actually do sit against one of the best value competitors in the world in PAK'nSAVE. It is just a you know, fabulous business. It's very competitive, and so we need to be very focused on executing relative to them.
You know, you start seeing the pinch a lot more and a lot more acutely there. That's what you're seeing. Again, we're commissioning DCs and so on. We are slightly underinvested, though, to your point, and this has been our issue for the last couple of years, and we are changing that. We have been underinvested in New Zealand. We haven't done the same renewal program we did in Australia. We haven't invested enough in our supply chain. We have actually, funnily enough, in our digital assets is the one place I'll call out we have done that. You know, that's caught us out. You know, if we continue to be thoughtful and execute against our investments, I'm confident we will have a good business in New Zealand in the medium term.
We need to be thoughtful, continue to deliver value, continue to constructively engage with the government, continue to constructively show them the reality and the facts of what we can deliver for New Zealand, which is our commitment. I think we can get there. I'd call out there's positives. There are many negatives we've got, yeah. If there's positives, our last five store openings, both new and renewals, have been fabulous in New Zealand. They're delivering for the community. They're delivering value. Our Melbourne Fresh DC, which is co-located with our Hilton multi-protein meat plant that does all forms of protein and has the ability to deliver outstanding fresh in New Zealand.
It has not been done very well to date in New Zealand, but we have the ability to really lift the bar there and drive huge value for Kiwis through giving freshness at home for long periods. You know, we are very committed on the digital front to continue to lead and we have an opportunity. We've tried to be very transparent. We see it as a tough year. We're not trying to gild the lily on this one. Do I think if we look into the midterm, we have a good franchise in New Zealand and an even better one year.
Thank you. The next question comes from Adrian Lemme from Citi. Please go ahead.
Hi. Good morning, guys. Look, I just wanted to explore the cost inflation a bit. We understand the in-store wage inflation quite well, but can you talk about the cost inflation you're seeing in other areas?
Like digital, you know, what are your hiring intentions there, and what are the unit costs going up there? Then also just, I guess, insurance and utilities, I imagine they might be up double digits this year. Just some overall comment, please. Thanks.
Yeah. Thank you, Adrian. I'll talk broad and then I'll get Stephen Harrison to give a little more color. I guess if you looked at our second half CODB results, the point I made at the beginning remains true to me. You see an all-in kind of number with a whole range of different cost issues in there. Those include, from our perspective, having to invest in talent retention, in particular in digital, advanced analytics, and e-commerce. You know, it has been a real challenge in those areas. There's been, I suppose, a war for talent, and we have had to be proactive and invest in there and continue to do that. That also impacted materially actually Quantium, by the way, which is probably most exposed given everyone's searching for analytical talent in Australia.
I'd just say as a board, it was a great achievement for us to be rated number two on LinkedIn as the second-best place to work in Australia, but it cuts both ways. We all of a sudden, to the great irony I think of the circumstance, have been targeted by a whole range of institutions who, you know, who wouldn't have historically targeted us. You know, you are seeing an all-in cost I think on our digital side there. We're very happy with the size and scale capacity we have in digital and e-commerce. We don't have great plans to step that up. We've already invested materially, as many on this call would know, but we need to hold our fabulous team and keep them focused on delivering against the use cases that we've outlined.
You know, you've seen that there. On the energy side, actually, I'll get Steve to talk about it, we've been quite privileged to date. I'll talk energy, and we'll come back to fuel transportation, fuel cost separately. We've been quite privileged to date that all the hard work we've done in reducing our intake of energy has offset the cost increases we've had. We need to continue very much on that line and, you know, our move to the Internet of Things, shutting down and managing energy consumption at a store level. Our Solar Programs have positioned us very well, but, you know, we need to continue to work on that, and Steve will talk to that in the second half. The fuel cost is a big one for all of us in transportation, and I don't think I'd avoid it.
We're fortunate it's not our biggest cost, but Steve will come back and give you some context. I think I was thinking very judiciously, though, about, you know, the number of rosters per store, consolidating our DCs to stop split loads will materially help us there. Yeah, you know, lots to do, but I think pretty decent plans. The biggest individual cost we've had as an increase is construction, just to be clear. It's nice to be well underway on a number of our store renewal programs or DC construction because cost of retendering right now is material, and we're in a fortunate position to have got those tenders in place. Steve, a bit more color from you.
Yeah. I think you've covered the majority of it, Brad, particularly on the digital and talent front. I mean, if I think about cost inflation, you know, clearly the biggest cost in our business is our team costs. You know, Adrian, you referenced you're very well aware of the inflation we have on our store teams and our teams in our DCs. You know, that is by far our biggest area of cost inflation. We do have inflation across the board. We've got a procurement team very focused on how do we, you know, mitigate that by looking at, you know, contracts, but also the volume of things that we use in our stores or across our business or the specification to try to offset some of those cost increases.
You mentioned and referenced energy and, you know, we're all seeing our energy bills right now. I think one of the things we've tried to do as an organization is have a degree of staggered contracts on energy at a state level. You know, we try not to have any one or any more than one or two states coming up in any one particular year. We typically get a degree of smoothing on some of those energy impacts. But I think it's fair to say we will see some exposure. But as Brad said, we've got a lot of focus on productivity initiatives and have been investing capital actually really for a number of years on energy reduction initiatives, be it solar or refrigeration or HVAC or LED lighting.
I think insurance is really not a material number for us. You know, overall, you know, we're conscious of it. You know, we set our teams the ambition of trying to cover inflation with productivity to the extent that we can. That will be difficult on the wages front, just given the size of the inflation next year. We'll be working hard to offset it.
Thank you.
Thanks, Adrian.
The next question comes from Grant Saligari from Credit Suisse. Please go ahead.
Good morning. Maybe just a quick question on BIG W. I mean, a while ago, you know, a year or so ago or even longer, you closed some of the DCs. But I think at the time you said you hadn't reaped the sort of productivity benefits from that. Maybe just a quick update on where you're at in terms of resetting the cost base for BIG W and whether what we're seeing at the moment in the second half is the cost base we should take forward or whether there's more productivity to come through that business.
Thanks, Grant. Good to get a question on BIG W. I thought you were gonna ask me the weighted average lease expiry term, which has moved I think from eight to seven years when you talked about the past, and we're very focused on that number. On productivity, it's sort of the same narrative as Woolworths Group. I'll let Pejman or Claire talk in more detail to it. You know, I mean, COVID did overwhelm us in terms of what we needed to do, and we needed to go slow and thoughtfully on what we did. I guess one of the things that's important to reference is that you know, as you move into e-commerce, it might be profit accretive. It drives a lot of cost into the business.
Our balance from our first half of having a very high e-commerce mix really does sort of reflect itself in our CODB. I think I mentioned the first half, Pejman Okhovat, was sort of, you know, running at 30% or something in penetration. As that normalizes, there's one nice tailwind there. I'll let Pejman Okhovat talk more broadly to any of the other thematics.
Yeah, thanks, Brad. I think in terms of answering your question, you're absolutely right. A couple of areas to perhaps put more color on. One, our supply chain and distribution cost. As we've transitioned through two of our main DCs from a third party to Primary Connect, and with the change in the trade pattern from half one to half two, and more importantly, as it's improved from quarter three to quarter four, we've seen a significant improvement in the productivity of our supply chain at item cost, as Brad discussed, and also in our stores. Similarly, we have productivity initiatives for our stores as well as our end-to-end supply chain planning for FY 2023 and also going into FY 2024.
We actually see that our unit cost will continue to be an improving pattern as we go into FY 2023.
Thank you. The next question comes from Ross Curran from Macquarie. Please go ahead.
Hi, team. Sorry about this. Can I go back to New Zealand again? I just would like to get a better feel as to whether New Zealand is the canary in the coal mine for Australia coming forward. You know, can we read consumer behavior there and how it shifted over the last six months? Is that what we should expect for Australia over calendar 2023?
Look, there are lots of learnings we're trying to share both sides of the Tasman, I would say, Ross. Funny enough, where New Zealand right now is with the inefficiency in sort of the overall operations is where we were in Australia last October, November. In an operating sense, in a very broad sense of that, what they're experiencing now is what we felt between October and November last year, with the just ginormous challenges of being in stock, in store, and getting the right flow through the supply, the DCs into the store. I sort of feel they're in an operating challenge, which we talked about, as you know, in December. There's lots of upside there as they get that right.
If I then come back to the customer, actually, you know, we're not trading badly in New Zealand in a customer sense. What you're seeing is the cycling of much more extreme COVID peaks. If you look at the numbers, you'll see the huge peak that we had in the first half of last year that we're now starting to cycle. Actually, if you start looking for like for likes over a three-year period, you'll see us about just over 4%, I think, in New Zealand and close to 5% in Australia. It's just a more volatile environment, probably not surprising, a smaller country and so on. I think that's what you're seeing there.
If I then come back to, you know, how we work our economics of our business between Australia and New Zealand, New Zealand has actually had more challenges on stock loss than Australia, and I think that's one of these opportunities, as I say, that can come through. Both sides are very focused on delivering our price for the customers, and they're both in the relatively same place on doing that. The underlying customer trend for both sets of customers is the same. I think in a consumer commercial sense, I'm not certain I would agree with that view that it's a canary in the coal mine at all. You know, obviously very different, you know, political landscapes and contexts in both countries.
Thank you. The next question comes from Lisa Deng from Goldman Sachs. Please go ahead.
Hi, Brad. Just a question on actually new businesses, including Cartology and Marketplace. With the two pending acquisitions, obviously we're looking to scale sooner rather than later. Can you please talk us through, you know, the timeline of scalability? What the scale actually mean and the profitability profile in us getting there? Thank you.
Two very different scenarios, Lisa. Cartology is at scale. I always get stressed talking about headcounts, as the team will know, but I think we even referenced the 200 people who work in Cartology. It is at scale. It is performing well for us in Australia and, you know, we've been very successful in rolling it out in New Zealand, and early signs are promising in BIG W, although still a long way to go. Cartology is at scale. Shopper just really helps extend our overall proposition. We've known the Shopper guys for a very long time actually and always engaged with them. Their capabilities in helping us improve how we manage screens is particularly attractive to us.
They run a very good screen business, which is only part of the Cartology proposition. It really helps us build some more capabilities in screens. Most of our effort in Cartology is really going into building our digital capabilities, and being actually providing the right products to our clients in the digital environment. One of the major opportunities there will be in the context of marketplaces. Marketplaces are very strong media platforms. You can see that in the case of Amazon. We do see that even benchmarking our colleagues at Walmart or Loblaws. You know, we're probably not quite at scale in Cartology yet in e-commerce or digital, but the rest is at scale.
What Shopper does is just give us real capabilities or enhance our capabilities in screens where we think we've got a lot still to learn and develop. Marketplace, we're at ground zero, I would say. Not to be unkind to Amanda Bardwell, I know our Managing Director, WooliesX, we're still learning our way through it. What we found with Everyday Market was there is a very long learning curve. When there was an opportunity to partner with MyDeal, in particular in the context of BIG W, it was attractive to us because it will help us get more rapidly up the learning curve. There's a big difference between dealing with the supplier and dealing with the seller.
They may end up in the same organization, maybe in very rare circumstances, the same SKU, but there's very different ways in which you provide seller services, seller experiences than you do supplier experiences. We did feel that MyDeal would really help accelerate our learnings. Recognizing Everyday Market was very focused on associated selling around food, and we needed to get a marketplace quite urgently into BIG W. We did a build versus buy comparison and felt buy would get us there quicker and also give us better group capabilities. Both are pretty different. We look forward to having MyDeal as part of our team. They will, I say, really help us move more quickly to scale. When they're in the team, we still won't be at scale.
I guess you're at scale when you make money, if you don't mind me saying, Lisa, and we won't be there yet, but we'll look forward to engaging with them and see how quickly we can get there in the next 12-18 months.
Thank you. The next question comes from Richard Barwick from CLSA. Please go ahead.
Good morning, all. Can I go back and talk about e-commerce profitability? You talked about it materially improving, and it looks like that's true for WooliesX and BIG W, where you obviously call out the profitability is growing ahead of sales, but not true for Countdown. I know you touched on a couple of things, Brad, in your answer to Michael earlier, but can you actually talk a little, in a little bit more detail what's actually changed across the WooliesX and BIG W to drive that profitability and also to give us a sense just how dilutive to margins online sales still would remain?
Thanks, Richard. Look, I mean, New Zealand, by the way, has been our strongest performing online business. The problem with availability we've had when you start doing substitutions, as I was saying earlier, and you do a second run through a store and you have all these. Otherwise you substitute a more expensive product, which would be our policy versus the existing one. You know, It costs you a lot of money, and so that's what you see in New Zealand. The underlying operations there, like the rest of our business, are getting better. What you've just seen, in these businesses, in my view, if you go to macro level, everyone underestimates the learning curves. You can talk about scale curves and whatever else, or the experience curves.
Running these businesses, running them over time, you just get better and better at understanding where the issues are, where the bottlenecks are, and addressing them. You're just seeing the benefits of that experience flow through what we do. I think there's still enormous way still to go. The nice thing here is that you can productize that. You know, just as I say, picking in a store, looking at the average items we pick per hour, we can see it, we can benchmark it. As we redesign a process, we can put it in a store, we can see the improvement. If we weren't in a time of COVID disruption, you can really apply the learning curve or the experience curve quite rapidly.
you know, that's what I think you're seeing happen in our business. you know, these are big businesses now. you know, whether it's AUD 1 billion in a BIG W or AUD 4.5 billion in B2C e-commerce inside WooliesX. They're big businesses. They have commercial teams. They have finance teams. They're analyzing the numbers. The reporting we get monthly, and I know we don't yet show it to you, is lighter than the data we used to get, you know, a year ago. you know, we know the profitability of a direct-to-boot versus a store-based pickup versus a truck roll, a CFC, a metro delivery now. We know them down to every aspect. That's what you're seeing.
In aggregate, just like in our normal business, we didn't get the efficiency we wanted to in 2022, to be clear. We hope that that'll address itself in 2023. In particular, I need to call out our CFCs. When we put COVID safe practices in there, it was very costly into a DC, but it's even more costly into CFC. You end up with one-way aisles, a whole range of changes that are very costly. I look at it and say, on a good week, Botany could do AUD 3.5 million-AUD 4 million a week. With COVID restrictions, we were restricting ourselves to about AUD 1.5 million a week. You know, we can see that unwind come through.
E-commerce, back to your second part of your question, is less profitable than store-based performance, but ever increasingly less so, and we need to continue to work hard to ensure that's the case going forward. If there's a positive going into 2023, it'll be that our percentage growth in e-commerce will be much lower just as we cycle through some of the COVID bumps, in particular in New South Wales. It gives us hopefully the ability, and we'll work through it, to further reduce the gap and get the right balance between store growth and e-commerce growth.
Thank you. The next question comes from Craig Woolford from MST Marquee. Please go ahead.
Good morning, Brad and Stephen. I wanted to ask a question about price inflation, more about the going forward, but I will try and squeeze in two parts to it. Firstly, can you clarify the comment you made in response to an earlier question about the top 20 suppliers? I think I heard you say there were 50% of the price increases. That's my first part. What are you seeing in July and August as far as further supplier price rises and what are you seeing in magnitude and whether it might peter out later this calendar year or next year?
Thanks, Craig. I'll make some clarifying comments and I'll ask Natalie Davis to sort of talk about it since she's really on the front line of this one. Just to clarify my point, we've had cost increases from around 60% of our suppliers. When we look at the quantum of increases we've had, 50% of it is related to really the top 20 suppliers we deal with. Most of those also tend to be Global CPG. Generally, most of them are all the people you're talking to as you do benchmarking in the background on us. I think we should just all be clear on this one. That's the point I was making, maybe too subtly.
That is true, and that's what you see coming through the numbers. There is still a lot of pressure in the system, and Natalie and Paul and team are working through it. You know, we're still running four to one in terms of elevated cost increases. I'll turn over to Natalie to give you a little bit more color on how we're thinking about it.
Thanks, Brad. I think in terms of packaged, if I start there, in July, we continued to see very elevated levels of cost asks, and you know, they remain probably five times our normal rates, so we haven't seen that subside yet. The level of cost ask remains high, very high. There are a number of suppliers now coming back for a second or third time request. It's difficult to say when is this gonna peak, but at the moment, we do expect a peak somewhere around November, December this year, and that's largely as we begin to cycle the start of this elevated cost ask situation. In packaged, the requests are still there, and they're still relatively high.
You know, suppliers are referencing commodity prices, manufacturing costs, labor shortages are still things that our suppliers are experiencing. Pallet shortages is also a significant issue still at the moment. I think fresh is the one where actually fresh inflation at the moment is higher than packaged, and that's being driven by vegetables in particular that Brad has spoken to. The good news is we have seen an improvement. We have had strawberries come in in the last two weeks and, you know, we're at AUD 2.50 on strawberries. Lettuce, we're at AUD 2.50 in New South Wales. When we do get that value as the supply improves, then we'll pass it on to our customers.
We do expect with fruit and veg that level of inflation will drop off. You know, our farmers are also experiencing increasing costs such as labor, fuel and fertilizer, and we're very conscious of that.
Thank you. The next question comes from Ben Gilbert from Jarden. Please go ahead.
Morning, Brad and team. Just another sort of clarification similar to Craig, and a follow-up with something very short as well. Just in terms of, I think you said a couple of times in response to previous questions, Brad, that you're sort of expecting volumes flat at best in food. I'm just wanting you to confirm that and for what period. Then secondly, just following on from the latency and investment you've put in the business over the last sort of number of years around tech, supply chain, et cetera, do you think you're now in a position where you can accelerate your share gains or really, I suppose, start to demonstrate more obviously or clearly to us around sustained leading comp trends, et cetera, that we've obviously seen through Q4 and presumably we've seen into the start of fiscal 2023?
Thanks, Ben. Look, on the item front, it is just recycling through COVID. If you look at three-year CAGRs, and I think the best way to look at our business is through three-year CAGRs, not three-year absolutes, but three-year CAGRs, and you'll see, I think, quite good trend lines. But if you look at, you know, unit growth of the first half last year, Ben, and all the COVID disruptions, you know, we do expect that to normalize out, and that's what we you know see you know sort of reversion to mean, and it's happening and therefore, you end up with very low or negative item growth.
It can get a little bit hard to be quite precise on a given, you know, vegetables has a lot of items, actually, and so when that falls away, it can distort numbers and so on. It's not an easy number to be precise on. It's gonna be low, if not negative growth, at least for the first half and maybe into the second half as well. On a three-year basis, it'll be slightly positive in line with population growth, we think. The reason I reference it is just as much talking to ourselves in our business on how we set our plans, our resourcing, and flow.
You know, I'm very focused, as is Natalie and Pejman Okhovat, the rest of the team, on looking at volume share and value share. We just keep a beady eye on both, and we're as focused on wanting to make sure we've got our volume share position right as value. Yeah, I don't know if there's anything more color I can add there, but it's just a really important underlying metric. It's important for productivity, it's important for share, so we don't see anything getting away from us, and we're not kidding ourselves. It just is the flush out, I think, of COVID that we see. You know?
It's a pretty consistent trend and it does play a little bit back into value of people balancing their budgets and tailoring their basket, you know, accordingly. I think that's what we see. In terms of the latency issue, Ben, it's a really hard question to answer and I thought, you know, it was a great question from David. I think the way I would answer it is we're pretty aware in December and January that we didn't get the balance right in terms of how we monetized our investments in the context of the FY 2022 year. We just didn't get the right balance. We have this great story to tell on strategic progress, but the numbers weren't there for our shareholders. It was not a pleasant experience for us.
We felt we got a much better balance in the second half, and our commitment is to get that balance into FY 2023. It is a really important point inside our business. We work to our quarterly agile operating rhythm. In fact, we've got our OKR conversation under way at the moment for Q2. Nothing we need to do in FY 2022 we haven't started in FY 2022. There's nothing we're looking at and saying we need to go big on X or Y. We just need to monetize better all the plans that we've put in place for FY 2022, whether that's productivity plans, whether that's advanced analytics use cases, whether that's continuing to progress and stand up some of our new incubations, which we started.
Which again, with the benefit of hindsight, we just started in a tough year. I'm not certain, but they're all making good progress. I feel we've got a much better shot of getting the right balance in 2023 and, to be honest, in 2024 as well. It's nice to be underway. It's really unpleasant to get underway. It's nice to be underway and be continuing to try and rapidly iterate now. Sorry, it's a bit of a wishy-washy answer to a really good question, but it's kind of hard to quantify. I don't know if Steve, if there's anything you feel we can add.
No, I don't, I don't think so. I mean, yeah, the other component of Ben's question was on, you know, share and comps. I mean, I think, yeah, we would say we've had a good two years actually through the COVID period and the approach that we've taken. We've delivered consistently strong comp growth ahead of market. You know, that's reflected in our share results as well. Yeah, we would look to just continue to hold that share and continue to gradually build that share, you know, reflecting the investments that we've made over a series of years.
Yeah. I mean, I think, you know, even if you look at format, you know, Ben, our biggest individual investment, our format team were very emotional during the year of Port Macquarie, which is a new core format, mainly 'cause it was our 500th renewal, in the last sort of six years. They're halfway across the Harbour Bridge, we told them. Painted on the way back now as well. But on painting it on the way back, if you look at it, you know, we're doing our 60 or 70 renewals a year, but they are different today. Materially different than they were a year ago.
You'll see core value add up, you'll see smart tech overlay, you'll see a lot more operating efficiency embedded into the structure of the store for the team to be able to operate. There's nothing new, but it's each iteration is just trying to be more precise, more efficient than the previous one. That's really where we're trying to get to.
Thank you. The next question comes from Phillip Kimber from E&P Capital. Please go ahead.
Hey, guys. Just a quick one on BIG W. You talked about consumer trends in the supermarket business, but are you noticing any particular trends in the BIG W business from, you know, consumers getting more value conscious?
Yeah. I think it's a great one, Phil. I'll let Pej talk to the thing that really struck us in the second half and was a big highlight was our existing customers when our stores opened, came back and they put an extra item in their basket. We've always felt, and we still feel actually even with the extra item in the basket, if you don't mind me saying, Pej, that we don't get as big a basket as we would aspire to in a BIG W. When we look at our competitors, they still get in a much bigger basket than we do, even if we're at four and a half items.
Customers have come back, they're starting to shop across the store more, putting more in the basket, and that means we're obviously doing a better job of showing the value across the store. I know Pej, you can talk to the peculiarities of us moving away from buying consumer electronics when we're locked up at home to buying clothes when we're allowed out and about.
Yeah, no. Thank you. Great question. I'll probably answer it in two ways. Just on, in terms of number of items and what we've seen our customers do, it's been really encouraging in the second half as we've seen the bounce back from half one. Continuing into quarter one, our items have actually grown even on two-year and three-year CAGRs. So it shows customers continue to be engaged with BIG W. In terms of the specific shopping patterns or category changes as the consumers are facing into some of the inflationary challenges, areas that are related to kids, our customers are continuing to shop really well. Our apparel programs and home programs as our customers have seen, we're developing new product ranges and investing into value and quality. Again, we've seen a good uplift into those.
Whereas about a year or so ago where customers were probably spending a bit more money to tame their home, we've seen an element of shift back into normal trading patterns for us. We remain pretty optimistic. The other area our customers are continuing to be heavily engaged with us is what we call our big events. You know, coming out of Q3 and Q4, Easter program was fantastic. Our toy sale was a growth on last year. Of course we're into Father's Day right now, and we've seen our customers really enjoy investing a bit of time in celebrating those special family moments.
Thank you. That does conclude the question and answer session. I'll hand the conference back to Mr. Banducci for any closing remarks.
No, thank you for the great questions. Sorry if we didn't answer them as well as we would've aspired to. You know, we're nine weeks into the new financial year. So our mind is very much on this, and it's not far till we talk to you about Q1 sales. So, look forward to coming back and updating you on our progress. As we said in the media call, and as I think you've all heard us say before, the truth is in our stores. So if you wanna know what's going on in our business, please shop us. Look forward to speaking to you soon.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.