Earnings Call: Q3 2021

Apr 29, 2021

Earnings release

Thank you for standing by, and welcome to the Woolworths Group F21 Q3 Sales Results Announcement. All participants are in a listen only I would now like to hand the conference over to Brad Banducci, Managing Director and CEO of Woolworths Group. Please go mode. Good morning, everyone. Thank you for joining us for Woolworths Group's 3rd quarter sales results for The 2021 financial year. Joining me this morning are Stephen Harrison, our Chief Financial Officer Amanda Bargo, Managing Director of Holies X Steve Wieh, Managing Director of Endeavor Group Therese Rendo, Acting Managing Director of BIG W Claire Peters, Managing Director of B2B and Everyday Needs Natalie Davis, Managing Director of Woolworths Supermarkets and Spencer Son, who recently joined the group as our Managing Director of Woolworths New Zealand. Mode. Just turning now to our Q3 results. We wouldn't normally split a quarter into a 7 and week period, but I hope today's announcement clearly shows the 2 very distinct trading periods we had during the quarter. The 1st 7 weeks of the quarter reflected the period mode prior to cycling COVID with the 2nd 6 weeks reflecting the period in which we cycled the COVID peak, which began in late February mode. Last year in our food business and peaked in late March. For the 1st 7 weeks of Q3, group sales increased by 8.1% mode. And for the final 6 weeks, group sales declined 7.3%, resulting in total sales of 16 point $1,000,000,000 in the quarter or growth of 0.4%. In the final 6 weeks, Australian and New Zealand food sales declined materially on the mode. Drink sales declined modestly. BIG W remained strong and hotel sales growth improved as the cycle closures At the end of Q3 in the prior year, 2 year average growth rates across Australian Food and Beverage Drinks and BIG W remained on trend mode at 5.3%, 8.2% and 14.8%, respectively, with total group sales up mode. 5.6 percent on the same basis. In general, we are seeing customers' shopping behaviors continue to normalize. While food customers are still shopping less frequently, the growth in the number of items customers are putting in their baskets is slowing. Mode. Customers are also shopping more on weekends, state based performance is becoming more balanced and there is less divergence in trading mode. And while we remain vigilant in looking after the safety of our customers and team, as foreshadowed, COVID costs continue to trend down over the quarter. Group e commerce sales continued to be strong, increasing 64.2% in Q3 to to 12,400,000 visits per week. During the quarter, we launched our latest micro fulfillment centers in partnership with Takeoff Technologies in New Zealand with Penrose opening in January at Leon Leicester and Moor House opening in late March. Mode. Together with Curran Downs in Victoria, we now have 3 micro performance e stores with the 4th launching in August mode in Mirutaudor in Queensland. Earlier this week, we announced plans for the next phase of our e commerce fulfillment program with our first Automated customer performance center to be built in Auburn, Sydney in partnership with KNAPP with a capacity of up to 50,000 orders per week. Mode. Clap are leaders in automated storage systems and warehouse logistics software and already partnered with Takeoff to provide the shuttle system for its units. Mode. In what has been a busy few weeks, we also recently announced an increase in the group's ownership of Quantium to 75%. Mode. This will reshape the way we partner with Quantum and is a very important step in the evolution of the group's advanced analytics strategy, a new business Q Retail will also be established to deliver against our advanced analytics roadmap and commercialize mode. It is important to mention the devastation on local communities of widespread flooding across the Eastern seaboard 2 of our customers, almost $200,000 was raised for our stand partner, The Salvation Army. We also supported Foodbank with food and essential items for emergency relief hampers and paid for the volume lost by the dairy farmers who Supply our pharma's own branded book in the Manning Vale. Taking a closer look now at each of our businesses. Australian Food Total sales for the quarter declined 0.7% on the previous year after being up 8.2% in the 1st 7 weeks. Mode. Comparable sales decreased 2.1% with 2 year average comp sales growth of 4.1%, mode, which is more typical of pre COVID growth. Average prices during the quarter declined 1.8% or 3.4% excluding tobacco, With all major long life categories declining largely as a result of cycling the temporary removal of promotions in March 2020 following the onset of COVID. Fruit and vegetable prices also declined due to improved growing conditions mode. And cycling higher prices in the prior year due to drought and bushfire related cost increases. Woolies X E commerce sales increased by 90.5 percent with a penetration of sales of 7.9%. Last year, some e commerce services were disrupted Following unprecedented demand during the onset of COVID and a decision to focus on our most vulnerable customers. Mode. However, even on a normalized basis, we estimate that e commerce sales growth exceeded 70% in the quarter. New Zealand Foods Total sales declined by 6.9% as New Zealand Foods cycled the peak of last year's pantry loading. 2 year average comparable sales growth was 3%, with the market continuing to be impacted by border restrictions, lower prices and lower growth in Fresh. Mode. Cowtown ex e commerce sales grew 37.9 percent with a sales penetration for the quarter of 11.6 mode. BIG W's total sales increased by 18% in the quarter with comparable sales growth of 20%. Sales growth was strong in every month of the quarter and across All major categories despite cycling the initial COVID demand surge in March last year. BIG WX e commerce sales Increased by 34.8% in the quarter with sales growth moderating from previous quarters as we cycled a strong uplift mode from when initial COVID restrictions drive a surge in demand for home delivery. E commerce penetration was 7.5% in Q3. Endeavor Drinks total sales increased by 6.3% in the quarter after increasing by 14.4% in the 7 weeks. Com sales increased by 5.5 percent with 2 year average comp sales growth remained strong at 7.2% mode. As consumers customers continue to consume more at home and favor more premium products, Endeavor X e commerce sales increased 23 3.8 percent with a penetration of 8% of total sales. Hotels total sales in Q3 increased 11.5 on the pre year to $390,000,000 Hotels saw improved trading trends in the 1st 7 weeks of the Quarter compared to H1 and a material improvement in sales in the 2nd 6 weeks at the business cycles last year's lockdowns, which started on the 23rd March. Turning to current trading and outlook. Sales growth for the 1st 3 weeks of April remains volatile and impacted by prior year growth rates and the timing of the Easter and ANZAC Day public holidays. Mode. In Australian Food, total sales were broadly flat compared to last year, and this reflects the cycle of mid single digit sales growth in April last year mode in comparison to double digit sales growth in May June. In Endeavor Drinks, sales increased marginally in April. However, Endeavor Drinks will cycle sales growth of over 30% in May June. And New Zealand sales growth remained materially negative in April, cycling sales growth of over 20% in BMW sales slowed in April to date relative to Q3 with sales growth in April last year of over 20%. Mode. We continue to expect sales to decline over the March to June period for all of our businesses other than hotels, mode where Q4 sales growth declined last year on 86% on a normalized basis. Despite this trading volatility, We remain focused on delivering the best possible experiences for our customers. The Endeavor Group demerger remains on target for late June and subject mode. Board and regulatory approval. The merger documentation is expected to be released in mid May. Finally, we also provided an update today On the independent panel review of the Dan Murphy's Darwin development, the Board has supported management's recommendations mode, and we will not be proceeding with the development at the site. We will take time to reflect on the findings of the Gilbert review and release our response to it once we've had time to mode. And we'll target through that by the middle of June. I will now turn the call over to the operator for questions. Mode. And may I please ask that you limit your questions to 1 per person and rejoin the queue for any follow on questions. Thank you very much. Please go ahead. Good morning, everyone. I don't think we've ever had as many sort of moving parts in terms of The way the base is shifting and timing of Easter and Anzac Day, etcetera. So I was just hoping you could give us a little bit of help with, firstly, the benefit that mode. Easter was to the business and predominantly food, but you can touch on the others if you like in the Q3. And then in terms of your April mode. Trading update, what impact, if any, Anzac Day had on that? And the reason I ask is Clearly, the market is comparing Coles to Woolworths based on the share price move today, and it looks like Woolworths is lagging Coles In April, so I just want to understand whether there's any nuances in the timing that's driving that? Thanks, Michael. Mode. You're right. We've never had more complex numbers. We used to talk of a game of 2 halves, H1 plays H2, then we started talking about mode. A narrative of 4 quarters. In fact, in Q3, it was really a tale of 3 very different months. You're up, You're flat, you're down. And now we're talking about a question of 3 to 4 weeks and the material differences in those So the word volatile, I think, is the best description of where things stand right now. Mode. And we haven't adjusted anything in truth for Easter or for ANZAC Day. We've just let the numbers fall the way they have in our document mode. Because any adjustment we thought would be just very hard for us to do. So let me just the average. So firstly, as you're aware, Easter fell in Q3 for us this year and Q4 last year. And so So you're looking at the Q3 number with it. And that's different because we've done therefore reported 3 weeks mode. Of trading for April versus the cold 4 weeks, so quite big differences in Redfern. Last year, you may remember Easter was very muted. Mode. Sort of was. COVID almost sort of stalled Easter, so to speak. So it was very hard to actually get a good beat on Easter last year. It was a very strange trading period. Mode. In fact, we even traded on Good Friday, which is something that we felt very uncomfortable on in New South Wales. The whole trading pattern was very different. Our e commerce business wasn't where it needed to be. So It was just very hard for us to understand. And then Anzac, as long weekend last year, was also quite muted, but again very different in where it In fact, our numbers don't report the benefit of this current week, which gives you the Anzac washover. So, so hard to make all the adjustments between mode. Those 2 in truth. But a couple of comments. We felt pretty good about Easter trading this year. We So it's trading well. We've got good seasonal sell through in all of our businesses, and we hit what we assumed was a sensible forecast. So We didn't feel uncomfortable around Easter and it felt good and we got out of it in a very clean way. As you know, it's a very expensive Holiday because of the 2 public holidays that sit there and it has its stop loss challenges because of those 2 public holidays as well. We got through What we thought was very pleasing. Anzac Day is very different, as you know, by state, whether the public holiday is not and when we got to trade or not. I happen to actually be in Adelaide on Monday, which we got to trade a half day on Monday. Mode. So it was very, very noisy. And we're actually only starting to see now some of mode. The overflow from that ANZAC weekend and how you want to adjust it. So we're actually getting a better bid on ANZAC this week, mode. And that's changing as we go. So again, very hard to understand. It would be fair to say that some of the benefits of ANZAC, of the ANZAC mode. We can. They're starting to manifest this week versus last week, but I wouldn't want to overplay that. So it's just very volatile, Michael. In truth, mode. We feel pretty good on our settings. Our price settings are good. General market share settings are Pretty stable and good. We know we've got a big mountain to climb as we cycle COVID this quarter, and that's what we focus mode. We're not feeling in a bad place on it at all. We just need to continue to execute and keep our team very focused on our 2 year numbers. That's our real metric. Mode. We're talking to inside our business, what is the 2 year number as we sort of normalize out COVID. So I'm sorry I can't answer your question in a precise way. Mode. But as I said, the word volatile is what we think best describes our business on all of our settings that we're feeling in the right place mode. For this critical transitionary quarter. But maybe something that would help is, I mean, you've clearly been mode. Leading growth certainly amongst the major supermarket chains for some time now. Do you think that's still happening based on The trends that you're seeing in your business? Or do you think that, that period of gaining share relative to Coles Has come to an end. Look, we're not overly we focus as always on our own mode. We're not only focused on that. As I said, there are just so many moving pieces. We feel we're in a good place. We We need to continue to execute against our strategy. We are seeing reversion back out of neighborhoods into malls that is This proportion of the impact in some of our competitors. We've got a much more representative of our fleet, so we don't We get the puts and takes washout in our numbers. So there'll be a lot of there is a lot of movement beneath the scenes, I would say. But as I say, That kind of washes out for us. We've got more natural hedges in our business between our metro and our city stores and our neighborhood stores and between our neighborhood Between our balance across the country in truth. So yes, we feel pretty stable. Mode. We aspire to continue to grow our business and grow our customer franchise, but not to use illogical ways to do it mode. Thank you. The next question comes from Grant Saligari from Please go ahead. Good morning, Brad. Thank you. Brad, there was a report last We'll talk about Woolworths launching an online marketplace. And you've now got some really consistent strong sales growth I mean, BIG W historically has been described as a portfolio business, which I've So I don't know whether those two events are connected in any way, but if they are, I'm wondering whether you could put some context around mode. And with its broader intention in the marketplace and its intentions with respect to BW. Mode. Thanks, Rod. Two different questions. Mode. Like many retailers globally, we are looking at providing extended range options to our customers. Mode. And we really do that inside Endeavour, in fact, inside with the Endeavour marketplace, which is primarily driven through Dan Murphy's where we have an extended range. So So we are looking at extended range. We actually have a very modest extended range of BIG W today that we're looking to expand. And of course, we do plan it to do likewise inside at the woolers.com.au. And so that would be the marketplace statement I think you saw last week. And it's just really providing that extended range to our customers. Mode. And some of that extended range being provided to the walrus.com.au customer will be some of the key ranges of BIG W We now complement what we do inside movies, particularly as you get to these entertaining categories and you get to party and things like that. So I I don't want to overplay it. It's just a logical evolution. It's not something we haven't been doing. We just need to do more of it because we know it's important for customers. Mode. And when we use the word marketplace, the way it was used, we're talking about a very curated offer, a very logic Extension, what we do today is start trying to go head to head with all the other marketplaces that are out there, the Amazons mode. Or Cogons or catches and so on. So I don't want to overplay that announcement last week. It is just expanding what we did today. But we do think that's important, granted it's logical that we need to follow what our customers want and they want to get a holistic solution and we need to provide it mode. I think the article actually came out of a very modest investment we've made in the platform that will be the vehicle to extend the marketplace, Which is marketplace. And it's I think it's actually just nice to be supporting the local Australian business. So it's pretty cool to be doing that. And that's Part of what we want to do in general is support whether it's Australian growers or Australian tech companies. So it's a very modest thing with it, but a really important mode. If you then come to BIG W, what is true and we said this and we'll engage with the board in May again on our strategy Thanks for the next 3 years. As we get into this digital world, BIG W has an important role to play for us. In a physical store world, it's Important, but in a digital world, it's much more important. And you see that, I think very importantly, if you just look through Some of the numbers that we start talking about around digital engagement or digital visitation and there the long tail of Products inside of BIG W became really critical for us. So we're kind of carefully thinking through how we can make more of the overall digital experience Big W and Supermarkets on a go forward basis. So we're certainly working through that. Now we could do that in partnership with Big W as we aspired With Endeavor or through ownership. So it's not an ownership play, but certainly we're feeling much more comfortable in this digital world of how we knit the assets together. Mode. So we'll come back to you on that. But yes, we are certainly feeling a lot more comfortable about how BIG W is performing And its role in the digital ecosystem of the future for Woolworths Group. Okay. Thank you. I was hoping we were going to get a question on your report last Okay. Right. Maybe we'll come back to that in your second question. Okay. Thanks. Thank you. The next question comes from Ross Corrine from Macquarie, please go ahead. Hi, team. Maybe we can delve into the deflation figures a little bit. So Price deflation 3.4 percent ex tobacco was larger than Coles was quoting. Can you just talk us through what's happening There and where you expect that to go from here. Thanks, Ross. This is very much like Michael's question, incredibly complex mode. I'll have a crack at it, but then I might turn to Matthew Davis to elaborate on some of it. It's Again, a very messy period. So let me just go through the individual components of it if I can. Firstly, mode. Of course, you need to think about the tobacco and how tobacco distortions and you'll see that we've Taking it out. I think that's quite important because of the we've still been living in the world of CPI driven tobacco increases. Now we'll see how that plays out going forward, but in our numbers, you're Getting that impact from tobacco. If I then take that out, then the next thing that we've Hold out, which I think is very important is we've seen deflation in fruit and veg and that has actually been in both fruit and vegetables. A useless fact, may I say, for many of you is we actually have a bigger vegetable business and fruit business, and it's unusual to see the level of deflation we've had in vegetables. Normally, in fruit where we get deflation, we get a volume uplift through deflation that's harder to claw back in vegetables, which tends to be relatively Pricing elastic, but most of them have been deflationary and really on the back of what happened last year with drought mode. And then the bushfires. So, they've been deflationary and continue to be that. So, mode. Park that for a moment. Then you get into the rest of the categories and there the big issue for us has been promotional programs. And we did Have to stop our promotions last year in general, and we're putting those back in. So you've seen that come through in the deflation. It's not We're not more promotional than we are on average, but we are cycling a period where we just couldn't execute promotions and therefore we needed mode. And you've seen that impact there. And I guess, sorry, the last one I should say, which is counter to all of that, which is the red meat inflation that we see, But that's all you get washed out by some of the other impacts. So it's incredibly messy for us, Ross. The question I have personally as I speak to our team is, what does this mean on a go forward basis and in a structural inflation sense? Mode. And I think we still see some inflationary pressure in the business. How it manifests in the go forward will depend on how we we still got a cycle of mode. Putting our full promotional program back in and it was this week a year ago that we actually went back into a physical catalog, which I think is quite important to log And it was a 28 page catalog and not our usual one. So we still got quite a period to go through. So we still think that there is some inflationary pressure, but still a lot to cycle before we see it manifest. I don't know, Matt, mode. I think that's a great summary. I think you have to look back at our inflation statistics a year ago and what you're really seeing is, Brad said, a resumption of normal promotional patterns as As well as some very favorable growing conditions in fruit and veg, which our customers really enjoyed in March and we really celebrated whether that was Grapes or broccoli and tomatoes, we continue actually to have some fantastic fresh Fruit and veg avocados are really great at the moment. So it's something that our customers have enjoyed. We don't get as much volume uplift on the vegetable We do see that deflation coming through. Can I just ask, given you are seeing greater deflation than the competition, Where does that lead to the price of a basket at Woolworths versus Coles? Ross, look, it's how you calculate it and what time frame you look at this. I wouldn't Look at these numbers, it's very hard for us to comment. We can only look at ours. What I would say is that we've been The price indices between our two businesses have been relatively stable, both very competitive as we work on delivering value. So we are seeing relatively stable Price industries, whether it's on shelf or on a promotional adjusted basis or on a basket basis. Mode. Just how they calculate inflation, we have different methods for doing that we just can't talk to, to be honest. No, Ross. This is Harrison. My Observation, just having studied these figures for a few years, is to look at the relative movements, which I think are pretty consistent across both retailers. Mode. Thank you. The next question comes from David Errington from Bank of America. Please Go ahead. Good morning, Brad. Brad, look, I don't know how to ask this question. The best way would be The detail that you've given us, all of us should already know. In that March last year, there was massive panic buying. April, there was the destocking where you had the pantry coming off and there was no Easter. But then May, June, mode. It normalized to a lot of at home eating, etcetera, etcetera. The way you're talking mode. Has disappointed me because you basically I mean, as a football analogy, you're waiting for the ball to come back to you. You're not going out there and getting the ball. And what I mean by that is when you basically said that April sales, you're flat on half mode. 5%, but then May, June we're cycling 10%. So, hey market, get ready for some negative comps. But then May, June last year, there was a lot of Trends there such as localization, there was online disruptions, there was inefficiencies in your stores. You're talking today more like You're just waiting for things to unfold. You have to cycle these comps. You're not talking about the opportunities that Woolworths have got. You're not talking about mode. The fact that April should be a month of opportunity, you're still not talking apologetically. Now I don't know if that's the message you're trying to give, but your current trading outlook was quite disappointing and bearish. And it wasn't in my opinion, I think May, June is an opportunity for you guys because as you say, there was the independents gained a lot of share through localization. You didn't capture as much mode. Market sharing online as you could have because there was disruptions to your supply chain. There's been enormous amount of disruption to your supply chain because of COVID costs. They're coming out. You You haven't talked about the upside. You've basically talked about, oh, yes, this month this quarter is going to be really tough and you're just going to have to wear it. Mode. Thanks, David. Great question. Mode. To be honest, we've always focused on the 18 to 24 months and we feel very positive over 18 to 24 months. And to be sitting here talking about 3 weeks and in fact not even adjusting The next 4 days after Anzac Day, I think is a peculiarly strange situation to be in. And we're just saying it is volatile. And it is it's It's very hard to make calls based on the next day or the next week or what it might look like after 6 weeks. So we're just trying to be very realistic and give you Do we feel positive over the next 18 to 24 months? Yes, we do. We can see a lot of things that will come that we Our plan against, we can deliver what our aspirations are. Do we think there'll be some ups and downs in the next 10 weeks? You better. Will some things go away? Yes. Will some things go against us? Probably. We're just saying we're cycling some very large sales numbers. This isn't a profit announcement. This is a sales announcement. And we're saying that there's just a lot of volatility out there. We don't feel in a bad place. We're on line with what we want our forecast Our customer metrics are good. Our price metrics are good. So, no, we're just Trying to be very balanced in the way we look at it and not get sucked into the volatile environment ourselves. And we're at our best when we plan and we mode. I have a meaningful amount of time and that's through me saying a meaningful amount of time, sorry. Question the way to do it then, is your business getting better? Or is it just the case that we've just got a it's a cyclical business basically that we just mode. Cycle through these comps and you got to wear the higher comps and you got to wear the lower ones. How much step changing are you improving your business? Mode. I think COVID, as I think I've said to you before, has made us a better business, and we continue to be a better business. We never improved quite at the rate we would like, mode. But we that's the last thing in retail. You get to wake up the next day and continue to focus on improving. And we feel very comfortable we're improving as a retailer. Mode. And that's across all aspects of what we do. And of course, as you all know, when we get to the full year, the proof will be in the pudding. So we'll need to show you then. But We feel not uncomfortable with where we're at. We feel very comfortable about our long term plan. And we just need to keep focused and execute and not get the emotion mode. Of COVID surge sale in day X or day Y knock us off course. Thank you. The next question comes from Brian Raymond from Citi. Please go ahead. Thanks, Brad. Mode. And team, just weighing in on the CFC versus MFC debate, which is I think Rajeev across the market. Interesting to see you guys doing your own CFC. Can Can you just help me understand how you're thinking long term about the mix of business that will be flowing through For online, obviously, through your stores in terms of fulfillment versus CFCs versus MFCs. But how you see the future looking on that front? Mode. Yes. Thanks, Brian. And we're all iterating as we go as the world changes around us. Let's agree. Mode. And I think by the way, the Nomenclature doesn't help us out of what is a CFC or what's an MFC, mode. And I'll come back to it. But let me just give you a quick run through and then if Amanda, if there's anything you wanted to please jump in. Our stores remain Key to our performance strategy across all of our portfolio, in fact, and it's how we actually enhance how we do performance in store. That's one of our biggest investments mode that we're making at the moment and how we do to boot services, how we put capacity in the back of the stores, how we redo our routing around the store, how we create real time systems, So we know what's taken off the shelf at any point in time are our biggest actual investments inside Woolworths right now. And we believe no matter what we do outside the store, which I'll Come back to that our stores will fall to somewhere in the order of 80% of our performance. And that can sound strange, but actually Just look at Australia and think about where you might do automation and you're not going to be doing it in outside of the 3 capital cities no matter how you model these things. So stores are key for us. We're trying to become a digital retailer where our store is still an important critical part of the customer experience. A lot going on there and I'd say that the highlight for me was that we managed To increase our pickup or to boot service inside the group, which is key, we do want stores mode. To continue to have relevancy and that is actually the highlight in the quarter where we drove up our pickup percentage, I think, from 34% to 39% mode. So you say, okay, we're going to get the store right, we said, but we'll never mode. On this drive to e commerce penetration of whether it's 20% or 25%, I don't think any of us know. You still need some extra capacity in the denser areas, So you have to pull it out. We've done that, as you know, today through manual CFCs. And we invested a lot in that In Q2 with the commissioning in December of a manual CFC in Litcombe, in Sydney and in Notting Hill, in Melbourne, And they complement the other 3 we had. So we've got 5 manual CFCs running right now. And again, we're working very hard to use technology to make those much more efficient And doing smart automation into those, which we've got a lot of work to do. We've got that working. Then we said, actually, now we need to look at these micro which we can ideally, as stores shrink, we can expand into the back of the store. And we've got 3 test cases running now. We started with current balance. All of us commissioned during the time of COVID. And I generally get to see everything. I still haven't been to Auckland or New Zealand to see other 2 that we've Commission there, which is intensely frustrating. But we've commissioned 3 of those. And if a store can do 2,000 orders a week of online, let's say, in crude terms, mode. A market performance center can take the 2 and turn it into 6, ideally. We're still trying to see whether we can get to 6. We've got 3 test cases running, Curran Downs, mode. Auckland and Moor House, actually learning a lot and our New Zealand ones are actually ahead of where we are with our Australian one and that's for very reasons, which I can bore you on now or at another time. So we learned a lot from those 3, but there are still only 6,000 orders and Richardor will, if at best, be the same. Mode. And so we've got that there. Then the final lab for us was a midsized CFC in these big capital cities. And when you get to the city of Sydney, And we've got very constrained stores in Sydney. Most of them are in malls. It's very hard therefore to do a truck roll at the mall. It's very hard to expand the back of house in a mall. We tend to have a high square meters in Sydney. So you say, well, we do need something in addition to that. And that's where mode. Our mid sized CFC that we've announced at Auburn comes in, and we spent actually this isn't a knee jerk reaction. We've just spent 3 years driving around Sydney, Amanda, myself and many of the Looking at many, many locations to do this. And that's what we've announced with Auburn. In terms of and that's 50,000 and Ocado units and you'd have to Coles, but the ones we looked at, they were 180,000. So it is probably less than a third of the size of what you look at. So we've gone mode. 2,000 inside a store, 6,000 in a marketer performance and then 50,000 in this facility. Our manual CFCs, by the way, are doing somewhere between 10,000,000, 20,000 depending on whether or well, ideally, we think we can get them maybe to 25. They're all put together in Empire in the store. KNAPP itself has been a very long term strategic partnership for us. They run the shuttle system inside the takeoff mode. So, we can show it to you. And we felt that they were the best partner to them, therefore, do a slightly bigger unit with us. And so, We felt that was a logical extension in our broader partnership. And we're excited because some of the people who are doing takeoff are also doing Knapp, and there's, therefore, And ability to create a learning network globally. But if you look at that, that you will only be there in Calendar year 2024, and we're sitting here in calendar year 2021. So most of the work for us is full back to the store. Mode. So I hope that all makes sense, Brian. If you had a question around the CapEx difference between this and perhaps what our competitors have done, It's because we're CapExing versus doing capacity as a service. And so there's just differences in how we're choosing to do these things. And Generally, across our whole supply chain, we've CapExed what we've done rather than using supply chain as a service and their trade offs and benefits to either one which mode. No, one is not better than the other. It's just how you want to approach these things. I think that's right. Having a balance It's certainly the right approach. I'm just interested in how you see the cost to fulfill and inclusive delivery costs out of those four methods. Is there one that's a Stand out that you think is a cheaper method of fulfilling that order including picking and delivery or is it about? I think it's a great question. Mode. That's a question we get asked a lot. So maybe just to recap on your starting point Brad, which is mode. Why we are excited about the potential of the store network is because we're seeing the speed to customer being really, really important. And mode. That's why when we talk about that 80% in terms of continuing to look to our store network to fulfill, we're excited about the potential there, both for Direct to boot, but also for some of our stores that will continue to provide home delivery services. And what we're seeing Certainly, increasingly in this quarter, there's more and more customers wanting that same day service and that faster service. So in all of the solutions that we've looked at in stores 1st and foremost because obviously proximity to customer, if you think about our network, that's one of our great advantages. So we want to leverage that first. Mode. The stores are continuing to improve in terms of both our voice of customer scores that we're seeing come through from the experience, But also in terms of our efficiency from a picking perspective. And manual C and Cs are also improving in terms of their performance. Mode. And then of course, we do anticipate that we will see significant efficiencies from an automated facility. But again, you do need to, as you rightly pointed out, look at that from an end to end perspective. And I think that's really important when we've looked at the Auburn facility. We've lined that up against the market that we look to serve, the speed with which we want to be able to reach those customers and that end to end cost. Mode. So I mean, in many ways, Brian, it's a bit like it sounds strange, but a non sequiturant back to David's Question. What we're trying to do is have balance. We're trying to balance and meet the needs of our customers and do that in a very balanced way. Mode. So we have sat on this decision for a couple of years, but we move forecast forward to 2024, We can see the demand we will have in that part of Sydney for home delivery, which is what we will pull out of the stores and it becomes the next day I'm selectively saying they're home delivery business. And so we've been very thoughtful in trying to model where we think the market goes and when we should anticipate bringing different mode. Layers of capacity and we've had lots of conversations, when do we pull it into the capacity plan and that's when we think it's the optimal Tom, from what we know now. Yes, absolutely. Thank you. The next question comes from Andrew McLennan from Goldman Sachs. Please go ahead. Mode. Good morning, everyone. Thanks for that. A little bit detail on the e commerce side. I'm just wondering, that's obviously very insightful for the longer term strategic change going on. But I was just thinking more from and I'm not From profit management perspective, there's lots of volatility right now. As you said, you're benchmarking on fiscal mode. So 2019, that was to get a better understanding of the sort of the longer term trend. But is there anything that's going on here That is requiring you or the industry to be more adaptive that may not have been in line with sort of your expectations mode. From 12 months ago as this all started to play through? Mode. Thanks, Andrew. Obviously, this is a sales forecast, not a profit result. But actually, Broadly this year, we are tracking in line with plan in a funny way. The only thing that is surprising us on the upside is the Continued strength of consumer confidence. I would say the rest in terms of digital growth, the need to make sure we've got e commerce capacity, the need to continue to think through our store network. Mode. The fact that we're going to go negative on sales in late February early March, actually the year is playing out very, mode. Very much the way we had broadly looked at, except consumer confidence has remained higher than we'd initially anticipated. We'll see how that plays out, of course, with the roll off of JobKeeper into Q4. But no, it's mode. Now, steady as you guys. I mean that's not to say on any one day or day of week, there's not some excitement somewhere in our business that we've called something wrong. But if you kind of look at the broad shape of what We're expecting it's basically in line with that. I don't know, Steve. I think there's just more consistency actually in how we're trading the business. So actually, as we look at it, just on a linear basis, it's actually pretty consistent. It's the relativeities to what we're comping That makes some of the comparisons hard to look at, but actually it's pretty stable week on week on week. As customers get back to normal shopping patterns mode. Post, if I'm going to get back to school, the weekends are much bigger shopping days, etcetera. Those type of things are actually much more predictable. Mode. And when you think about that sorry, go ahead. No, that's it, Andrew. Sorry. I was just going to say when you talk about that mode. Underlying CAGR that you're trying to benchmark to, is there an expectation that the supermarket system or yourself specifically are anticipating that mode. You've been able to hang on to some additional sales for a longer period of time that's come across from the dining out category? Mode. Well, I mean, so I think there are 2 different levels of question. One is, do we think the market We'll inherently have higher at home consumption related to it. And then secondly, can we get more than our fair share of mode. And we do think in line with other comments that have been made that mode. In home consumption of food and everyday needs will continue to slightly elevated level going forward. How much of that we'll kind of see, the washout and the pantry stocking is gone, right? So the pantry stocking stuff's gone. But elevated at home consumption, we do expect to continue Mainly because of the flexible working and just the fact that people are spending more time at home and that just leads mode. To more consumption at home and we do think that creates good opportunities for us, actually more in breakfast and lunch than dinner, which I'll Come back to, so we think the everyday needs, which is never underplay on the household, plus then I've been trying to make sure we hold share And get sharing breakfast and lunch. In the dinner category, we are seeing customers starting to go out a little bit more for dinner or we're still seeing the continued growth of Uber Eats into the home. So we need to hold on by providing You brought the Uber Eats into the home. So we need to hold on by providing more solutions in Tunna. So while there'd be more in home dinner consumption, we're at risk of as a Collected, not only, I will also losing some share, particular to Uber Eats if customers aren't going up. And we're starting to see a little bit of mode. The tussle on that occasion play out in some of our more premium or what we call up stores, where you would have seen a bit more mode. Of the more affluent consumer segments dialing out a little bit more or leveraging new breeds a little bit more. Mode. So, yes, we think there is an opportunity, but we need to be quite forensic and strategic in doing it. And let's say, feel a little bit better about Breakfast and lunch, and we need to continue to be very focused on simple solutions for dinner. Otherwise, we could use a little bit of share there. And, thanks to Amanda's point on same day and on demand and things like that where we can hopefully hold relevancy and mode. In terms of our overall share position, we aspire to modestly, of course, continue to chip away. And the fact We've got the balance we have, I think, gives us an ability to do that. And of course, we've got to continue to make sure the e The services are there to do that. And as you kind of feel like you're getting on top of capacity in one area, then you feel like you need to focus on the next. So we If you came to one of our meetings, all the narrative of growing e commerce is the same, but in any one month, the priority changes. So if we were talking about On delivery capacity, then we got into, hey, we need to make pickup more convenience and boot solutions or then you'd come and say, we need to get sale day right mode. We need to come and be very thoughtful in the sub-sixty minute segment where we've seen DoorDash and Uber Eats or Uber Delivery becoming a lot more aggressive and providing more immediate mode. So it sort of makes retail fun actually, but it's changing as we go. Thank you. The next Question comes from Phil Kimber from EMP. Please go ahead. Hi, Brad. Just wanted to ask a question about normalization. So I get the sense that you've talked a lot more about it, mode. This result, so late April versus, say, late Feb when you had your profit result. And I'm just wondering, mode. Have things really changed as dramatically as it seems in the last 2 months? Or is it more a case that the data that you're looking at has now just ticked over the COVID mode. Impact period. And so as a result, all the percentages are changing. And so that sort of makes it feel like things are normalizing. I'm just surprised that in 2 months, both yourself and Coles are talking normalization a lot more than you were 2 months ago. Mode. We decided not to normalize anything, Phil. So we're in the 2nd camp. The latter not the formal. We haven't normalized anything because it's Too hard to mobilize right now and too many judgment calls. So we're just focused on executing against forecast versus Trying to normalize the plan. So Right. So when I said normalization, I meant talking about the localization people moving back to shopping centers. I wasn't talking about normalized numbers per se, just the commentary that mode. Shopping habits are going back to normal. It just seems like there's a much bigger focus versus 2 months ago, and I'm surprised things It would change that quickly. No, I mean, I think to be honest, in our half year profit results and when we spoke to a lot of yourselves and to our shareholders, We talked about being able to see even from July to December the reversion to mean, it was just coming in very gradually. Now what's happened is we've sort of done The tipping point, so to speak, of the peak COVID peak. But no, no, no. We've seen the normalized the version to me in terms of consumer shopping started in July. Mode. It's just we've now sort of gone through that tipping point. So no, no, we've seen it as a very consistent trend. As I say, if you look at COVID and COVID is this Calendar year phenomenon and we're trying to model it in financial years, which is a problem. But actually, you sort of hit the peak in April, May. Mode. And then from there as well, depending on which business, some part of June and then we started to see a slowly tail away from there and that's changed over time. There's little lockdowns that happen mode. This has gone up and down, but no reversion to me has been going on as you say. We just clicked through though the big peak of last year, which Well, I guess there's more focus on it. And that's enormously relieving to know that the theory of the reversion to me is working out because One of the big conversations we had before was structurally, does that mean people are only going to shop locally for the rest of their lives? The truth is no. As they mode. Go back to work at least a couple of days a week as they take the kids to school or whatever the case may be or they actually So on holiday, even if it's locally, you start seeing a very different shopping pattern and that starts manifesting back in our stores. So mode. I think you it's a point well made, but yes, we're in the second narrative, not the first. Yes. And as a follow-up, can I just say, mode? I assume that holds also on a profit result, but for your COVID costs that as you normalize, they will continue mode. Yes. And I think we alluded to that in the report. We are seeing the trend lines understandably and logically do that, mode. We'll see what happens in the next 10 weeks, but yes, or next 9 weeks in a bit. Thank you. The next question comes from Ben Gilbert from Jarden. Please go ahead. Good morning, Brad and team. Mode. You guys have obviously done a fantastic job over the last sort of through COVID and you've outperformed all of your vertically integrated peers as I look at it. And you've obviously collected enormous amount of data. You've grown online at 2x to the input levels of your peer set and probably generate a lot more cash. Mode. What are you how are you thinking about how to capitalize on that now? You've obviously got a stronger balance sheet. CapEx is peaking. And specifically, I'm thinking around mode. Presumably online is going to have to moderate to some extent. So how do you look at the value of that customer from a lifetime perspective? Do you decide to go a lot harder mode. Trying to drive them into store, capture as much share of wallet. And then secondly, around price, because there is a big delta between your mode. Deflation versus last year versus Coles and there's obviously a lot of talk around price wars. Just interesting how you're thinking about capitalizing on the momentum that you've Most people will not ask one question, Ben, I think you've got far there. They're all good questions. I'll try to fit it into 1. Mode. Yes, the 3rd machine is a cluster to hold into 1, the future of retail. Mode. Look, I mean, as you know Maybe the two ones I suppose is just the data piece and how you're going to really try to monetize the hedge fund. Yes. Look, I mean, We're still very early. We're thinking our journey of how we lay out digital and e commerce services on our mode. The journey has just started. It feels like it's come massive, but actually when you look at it, mode. It's the old paraphrase, it's the end of the beginning, not the beginning of the end. So we're still very early in the journey. And Mos. What was personalization, for example, as a narrative 6 months ago is not personalization today. Personalization is very contextual. It's not if you like this, you like that. It's where are you, what did you buy last, what are you looking for right now, what's the way of the patent, whatever the case may be. So mode. There are layers and layers and it's actually we're getting into the more interesting, but I would actually say. So we're still very early on building our digital and e Commerce services around the store network and then expanding into the extended range that we want to do then. We've got a lot of plans, Of course. And as we said in David, you've got to judge us on what we execute in the next 18 to 24 months. And no one thing by itself will get us to where we need mode. Get there, but collectively they will. Quontium was a very big step for us and a lot of challenges on execution. So As always, when I sit here and talk to you, I remain anxious of making sure we execute against it. But we knew that advanced analytics and therefore, been able to Port our team with the right tools to make the right decisions was going to be central to our future, and we needed to do that. And it'll be great sort of mode. Coming into 1 July, having Q Retail up and running for us. Yes, but tons to do on the whole agenda mode. And it's continuing to what we're trying to do is connect everything and that connection is the key. And it's hard to do, but mode. Yes, we're feeling pretty good about it. So there's no one answer there. Ben, whether it's e commerce, mode. We can switch on 8% now, but we know it will end up at 20%, but it's not going to be 20% the next day. It will be some same day. It will be booth services and say sub Many, many things to do around it. The digital engagement side is still the thing we feel is most important in the shopping journey starting digitally and how we do that, how we do it through the app. And you'll see some of the And how we do that, how we do it through the app, and you'll see some of the stats we've shared. We're obviously working very hard on those. We believe that The shopping list is the sticky thing that helps you manage the customer experience and pause for the customer. And We think that's the key to driving lifetime value for customers. So yes, I think very early in that journey, mode. Lots to do, but in a good place, we just need to keep focus and not get caught up, if you don't mind me saying, into what's the sales Forecast is going to be for April versus May. It's going to be how we layer that on to Q1, Q2, Q3, Q4 next year and so mode. Just price or labor in that, Brad? Yes, sorry. Say that again, sorry, Ben. You were just about to talk about it. I was just going to say it's price or labor that you think about as well. Mode. Yes. Look, on the price, I'd say we are in a very rational market right now. There's no lack of mode. We all know pricing importance. We all wake up every day looking at our thinking, you've got a hard time on his basket because we tried to reengineer his basket On the reported that we could go, rest assured we spent a lot of time on this issue, all of us. And so It's a rational market. We're all jostling on price and making sure we deliver value for customers. So that's no less Important, but it's been very rational to date and we'll wait and see how it plays forward. The key focus for us is, as Natalie pointed out mode. But earlier is we're trying to do a lot more through 1 to 1 promotions or 1 to many delivering personalized value in particular through our rewards program. That's Big area of focus for us as it is for many retailers globally and locally. And so there's a lot of work going on there. Mode. And if there's a thing that we know is as we move into this next phase of COVID and also the economic outlook is that we need to be much more deliberate on 1 to 1 promotion So we drive meaningful value for different customers and that value differs by customer. Sometimes it's price, sometimes it's affordability of basket, sometimes it's inspiration. Mode. So that's one of our biggest areas of focus right now. That's one of the biggest opportunities we want to use our Q Retail mode. The team to do is help us be a lot more thoughtful and forensic of what we deliver and when we deliver it. And so that will be an important part of our long term mode. And a lot of work to do there. But pricing outlook right now is stable. We'll see How we go going forward, I don't know why I could sound that. No. I mean my one build, Ben, would be look through methodologies on how You calculate price and look at relative movements between periods. We look at our price index and we feel very comfortable with that index Staying very stable over, really the last 12 plus months. So in that sense, mode. We see it as a rational market. The only thing we should reference and hopefully everyone is aware, we run indexes against Kohl's, but then we also run an LD index and it looks like And as warehouse index, sometimes an individual movement to more risk could look illogical relative to perhaps the Coles, but it's with an eye to mode. Some of our other competitors. So you may see individual SKU be look a bit irrational in a very lineal sense, but in an overall sense, Steve's mode. And we think that's important for us. We've got to make sure we keep balance against full competitive set that we operate against. Mode. Thank you. The next question comes from Scott Ryall from Roomba Equity Research. Please go ahead. Mode. Thank you very much. Brad, you've given a few comments on different fresh categories over the call. And I was wondering if you could just comment on what You're seeing more broadly with Fresh. And I guess the things that I'm most interested in are the mode. Inflation, the reaction of consumers to that changing price dynamic and what you're seeing with respect mode. To e commerce, which is clearly going gangbusters and whether you are underrepresented there and what you I didn't get as many as Ben in, but yes. Let me just say that one of the higher growth categories probably for everyone is health and fresh extends into health food. So I should call that Health food is a trend, is a very strong trend in Australia and globally and the growth of health related products and how we merchandise them is a topic That's very front of mind for us. And so fresh extends into health. And so if you look at it as a broader category, you'll see a lot of growth in general In the market, they're in products. You can debate the health attribute, but certainly not a health attribute. And that's no different in Brilliant drinks as well even with some of the high growth categories we've seen. So I think that's important. The point I made earlier, which I think is a very important one, mode. Firstly, we're delivering great value, as Natalie mentioned, for our customers with great value prices in fruit and veg, and that's true across the market, and I think that's great. Mode. We went through a milestone of which is sort of charismatic for us giving away 100 1,000,000 pieces of fresh fruit for kids. And we started that program really quite early in our turnaround mode. Strategy. So, but the veg deflation is generally not mode. Reflected in a material lift in consumption just is delivering great value and affordability, whereas fruit, generally as You get prices going down, there's elasticity. So there's a different trade off between those two businesses. But there is great value at the moment. Mode. It continues on. We expect at some point, of course, it turns because at some point there will be a pinch in some of the picking costs. We've just not seen that today, but our team suspect that will be true as we get deeper into this. So a lot going on mode. There and we expect at some point it will turn slightly inflationary or won't be deflationary, but that will play out in the next 3 to 6 months, I think, mode. On meat, very importantly, meat has been as part of the fresh category, we have very challenging wine process, In particular, in Red Meat and the price increases we've had, we've done a lot of work on this. You may have seen last week, we announced Anna Spears Becoming our Managing Director of Greenstock, which is a really important business for us, to just a much better job of managing our end to end It's our red meat business, and we try to provide a lot more specialist skills, actually a lot more AI so we can optimize carcasses So on inside the forecasting of that business. And so we are really trying to do a lot of work there to drive Profitability up in a very challenging category, but that business mode. Yes, it's challenging, but it's growing a bit. A business that we don't talk enough about, but it's actually highest growth. Our business right now is seafood and You move into protein, and I think that's very interesting. It's pink protein. Seafood is growing very strongly for us as it would be for everyone in fresh and up and down the aisle mode in long life groceries. So that's an interesting trend. It's not as economically challenged as Red meat, but it's sort of an interesting one that we're working very hard on providing a better experience. And of course, in there, so that's Interesting. I don't know, Claire or Nat, are there other key ones to call out on what's happening in fresh? Yes. I think it's interesting. We're still seeing that Trade up across protein categories, whether that's in seafood. We had a very successful seafood sales through Easter. The lobster came back. Oysters were up and we're finding a lot of the demand moving into our convenience section, which is growing more strongly than our service Section as well. The other trend I'd probably call out is easy to cook ranges for both meat and veggies Are growing strongly. So as we're seeing some of this annual cyclical decline in more of your scratch cooking categories like pasta mode. And last, we are seeing growth in our short cut ranges. We've got some fantastic own brand ranges called Barbecue and Cook mode. That have really resonated with our customers. And actually this week, we've got a new range of new products going out into stores. We've got a beef wellington that I'm Looking out for and also a lot of plant based options like halloumi chips and zucchini fritters. So mode. Our customers are definitely looking for those plant based options. This is an infomercial. The new cookware we just saw on Monday, we're hearing Fabulous things about it. We can't wait to go and sit out of town, buy something, try it yourself at home, and we hope you win back that dinner occasion. We're at risk of losing mode. Thank you. The last question comes from Richard Barwick from CLSA. Please go ahead. There we go. The best to last. Thank you. I've got a question actually online again because when you talk about reversion in Assume the behavior, I mean, that seems true. But for online, and you've talked about the lift in pickup, you See the voice of the customers improving as well. But what's actually driving the growth here for online? Is it more shoppers sorry, is Same shoppers shopping more online, Brad? Or are you actually bringing in brand new online shoppers? And mode. If you are, how many of those are you winning from other customers or how many of those are just switching from shopping in store? Mode. Yes. Thanks, Richard. And I don't know if I can do this. Again, these are complex questions. But essentially, when we say reversion, to me, We have seen a lot of people start using online. And once you start using it, you tend to continue to use it unless you have a very bad experience. And In COVID, we had a lot of one off people use vulnerable customers in particular, but quite like ANSYS stores. So we're cycling out of that and the The size of the core online shopper customer database, because it really is a database business, continues to grow very, very pleasingly. Mode. Now what we know for those online shoppers is they don't do all of their shopping online. They do still continue to top up in store. And so you can debate the cannibalization mode. But essentially, you don't move from 1 channel to the other, you build a composite of channels. And if we can continue to help our customers build Composite of channels, we get a higher share of their wallet. And then to Ben's point, hopefully, a higher lifetime value of the customer. So the core The database of regular predictable shoppers is growing and we're becoming much better at measuring that. And so the core active database as we think about it is An area we focus on greatly and that is growing was growing very strongly before COVID and has continued to grow pretty strongly Through COVID, what we find in, Richard, though, is as we enhance online services, that involves the next level of growth Because our theory has been and it has been proven to be true to date in all of our businesses is that customer demand has been ahead of Services we provide. And so as you provide the service, you find actually it resonates. So if you go to our pickup service, our pickup service when we started it By practical nature of it, needed to be on a service desk and that was true in all of our businesses. Actually, as we got into COVID and we decided we needed to In the boot to make it safe for the customer, we thought it just accelerates and that said, well, the customer wanted it in the boot, which made sense. The business that model the best for us was Dan Murphy's and when we We're careful that we'd have to close our stores in Melbourne. The team just made the pickup service and good service worked and it was an inspiration for the rest mode. So we found actually the reason pickup is great is not because we can sell anymore get in more customers to come to our services, but because we've changed the service mode. And made it a boot service and we need to make it a vast service. And so we've got a lot of work to do there. We found the same in home deliveries as we got to Same day, we've actually found that's added. And there are a whole series of customers who it's very valuable some customers to pick a day, but some customers aren't planned enough and they need it same day. So as you add that, mode. You see the growth. So we still see the underlying database grow. The demand has been ahead of what we think is the right Experience for the customer as we provided, we've seen the customers resonate with that and continuing the growth. But we don't we're now washing through we We still have a bit to go to watch through the one off COVID search for vulnerable customers and we'll hope to cycle that in the next few months. But the core data The core active database is growing. And as I say, people just we're habitual creatures and we mode. Habituality is so striking when you go to focus groups on food retailing that we the 2% of our lives where we do something interesting, we think makes us spontaneous, but the 98% of the time we're habitual. E commerce has been built into the habituality of the customer and once it's built in, it's very hard to see it unwind. Mode. So, Samadhi also, Richard, but we see a Chatter stay. It's actually just back on the trend line we saw before. It will bounce up and down as Cycle COVID surges, but we expect it to continue to drive. Okay. Thank you. I was going to say, talking about that habituality, is it fair to say that Well, if someone is online shopping at a particular retailer, that is more habitual than the in store shopping. So for instance, my understanding is if In store shoppers, which shop across a range of supermarkets. But if you're an online shopper, you tend to only shop at 1. Is that mode. Well, I mean this is a really tough one. And we think if it's a great experience, yes, but if It's a bad experience. They'll switch more quickly because bad experience online is more profound and more impactful than bad experience in the store. You can always talk about outside the store, but if it's bad online. So yes, but boy, if you don't do a good job, you can lose them. So We think that's important. And the shopping list, which is key in the online environment and using that shopping list and so you just make mode. The reorder very easy is the key, but it has executional risk, if not well done. Thank you. That was our last question. I'll hand the conference back to Mr. Banducci. Thank you, everyone, for your interest in our business. We've never talked in such macro details about 3 weeks of trade. I'm deeply anxious on a Wednesday of the 4th week of trade, so we'll have 25 And more trade at the end of this week. But thank you for your interest in our business. Thank you for your support. The truth is always is mode. So go and try our cooked grains, tell us what you think and speak to you all soon. Thank you. That does conclude our conference for mode. Thank you for participating. You may now disconnect.