Thank you for standing by, and welcome to the Woolworths Group FY20 analyst briefing. 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 Mr. Brad Banducci, Managing Director and CEO of Woolworths Group. Please go ahead.
Good morning, everyone, and welcome to the Woolworths Group full-year results for the two thousand and twenty financial year. Stephen Harrison, our Chief Financial Officer, joins me today as a fellow presenter, and will cover our financial results a little later this morning. Also joining me today are Claire Peters, Managing Director of Woolworths Supermarkets, Amanda Bardwell, Managing Director of WooliesX, Natalie Davis, Managing Director of Woolworths New Zealand, Dave Walker, Managing Director of Big W, Endeavour Group Managing Director, Stephen Donohue, and our Chief Legal Officer, Bill Waite . In the interest of leaving enough time for your questions, today's briefing will include an update on key issues, followed by the progress on our strategic priorities in FY20. Steve will then present our financials before turning back to me to provide an update on our current trading and outlook for FY21.
Before I start, I again want to recognize our entire team for the incredible efforts over the last year as we and our competitors have provided an essential service to our customers and communities. I should add that we couldn't have done this without the support of our supplier partners and the federal and state government, as we have all worked together with a truly collaborative spirit to achieve a common goal of keeping all Australians and New Zealanders fed and in stock in everyday essentials, and also, very importantly, safe. Unfortunately, we cannot yet talk about COVID-19 in the past tense, and I wanted to start with an update on our group response to COVID-19 and how we are making being COVID-s afe a part of our everyday business.
The recent increase in positive cases, as well as the tighter restrictions in Victoria and New Zealand, is an unfortunate reminder that we will be living with COVID for the foreseeable future. As one of Australia and New Zealand's largest employers, we're represented in most communities in Australia and New Zealand. As a result, this is very real for us as a business. As of this morning, 37 team members have tested positive for COVID-19 in the August month to date, all from Victoria, and 18 of the 37 have since recovered. Since July, 97 team members have tested positive for COVID-19, with 76 now fully recovered. This represents about 0.5% of our workforce, which sits below the percentage of the population that have tested positive for COVID in the wider community.
As a group, we want to lead in role modeling COVID Safe behaviors across our team and communities and make them a normal part of how we operate and live. This involves us applying a COVID Safe lens to all of our decisions. As part of resetting our operating rhythm, we have established a group COVID Safe tribe with this broken into three squads. Our COVID planning and response squad, our COVID Care squad, really focused on what will become the next priority in COVID, which is looking after the mental and financial well-being of our team, and our COVID Digital squad. We have also appointed a chief medical officer.
If you look to slide five, you will see that we have developed a series of COVIDSafe standards for the group, focusing on five key areas, including PPE, health, hygiene, cleaning, and social distancing, and we are working on the equivalent for COVID Care as I speak. Earlier this month, we also launched the Woolworths Group COVIDSafe website to provide a common location for up-to-date information for all of our retail businesses, as well as practical tips on social distancing, the use of face coverings, and any positive case alerts that eventuate, and also our COVID template, processes, and procedures. These are all available for other retail businesses to download and use. Turning to slide six of our investor presentation and a summary of the key achievements in the financial year 2020.
During the year, our team and our communities were impacted by droughts, the devastating bushfires, New Zealand's White Island volcanic disaster, unrest in Hong Kong, and then COVID, the COVID-19 crisis. Our team have continually risen to the challenges that have faced us and lived our group purpose of creating better experiences together for a better tomorrow. We have tried to take a non-negotiable attitude towards the safety of our team and customers, and this was reflected in the material COVID-19 costs incurred in the second half. However, this was recognized by customers and team alike and reflected in strong customer brand and reputation metrics. We're also pleased to record our highest ever Voice of Supplier results in our recent survey completed in July.
We achieved strong sales growth across all of our businesses, excluding Hotels, and while FY20 will be remembered for the impact of COVID-19 in the last four months of the trading year, the group had good momentum prior to COVID. FY20 sales from continuing operations were AUD 64 billion, up 8.1% on a normalized basis compared to FY19. Our group Voice of the Customer , NPS, ended the year at 67, up two points on June two thousand and nineteen. After a strong H1 EBIT normalized growth of 11.4%, EBIT growth in H2 was impacted by COVID-19 in three key ways. The closure of Hotels for most of the last four months of the financial year led to a material decline in its second year EBIT compared to FY19.
However, this impact was partly offset by strong sales and from an EBIT growth across the rest of our businesses, despite the materially higher cost of sales and team safety measures. We achieved strong group online sales growth of 41.8% and record sales online penetration of 5.5% in FY20, with a much higher exit rate coming out of the year. This was despite the initial capacity constraints we experienced in March and April across our food businesses, but the speed with which services, our services have scaled up and capacity increased during the half is a testament to how quickly our team have responded to a clear need from our customers.
We are very proud of the achievements of the Big W team during the half, with Big W achieving a material improvement in EBIT compared to the prior year, with EBIT of AUD 39 million, compared to a loss of AUD 31 million last year on a like-for-like basis. Big W had clear momentum before COVID, but Q4 comparable growth of over 30% was a clear highlight. And finally, we made tremendous progress in completing the restructure and then merger of ALH and Endeavour Drinks to form Endeavour Group. While delayed due to current circumstances, we are continuing to pursue a separation of Endeavour Group, which we expect to take place in calendar 2021.
I want to talk to slide seven, which is a reminder of the group's priorities, but on slide eight and slide nine, I will call out some of the highlights of our progress against these priorities. It was particularly pleasing that the group's collective commitment to love our group purpose was reflected in increases in both the group's VOC Net Promoter Score and in our brand metrics in FY20. According to the RepTrak , Woolworths' brand reputation score was improved by nearly six points from Q3 to Q4, which is heavily influenced by our response to COVID. But we're also very proud to be named Australia's second most trusted brand during COVID-19 by Roy Morgan. To recognize the extraordinary efforts and contribution of our team in FY20, we announced our Better Together recognition award in June.
As a result, more than 100,000 Woolworths Group team members have been awarded shares in Woolworths Group, which will allow them to participate in any increase in value that they have helped to create. I have already spoken about the strong digital and online growth across our X businesses in FY20, and the way in which our businesses have responded to the increased demand. However, we were also able to launch our Everyday Rewards app in just at the end of the year. Released in May, it has already been downloaded over 1 million times, and the app makes it easier for our customers to interact with their accounts, activate their personal offers, and adds greater convenience to their digital experience with the group.
Despite our plans being disrupted, we were still able to make good progress on differentiating our store, our food propositions during the year via the in-store customer experience. We completed 72 renewals, including our latest value formats in Mount Druitt, our Smart Store 2.0 in Millers Junction in Melbourne, and our first store using 100% renewable energy, again in Melbourne, at Burwood Brickworks. We also made good progress on our eStores in Australia and New Zealand, which will include micro fulfillment technology in partnership with Takeoff, and we hope to have this operational in some form in October or November this year, and that's despite the various travel restrictions which the tech teams have been under. In Drinks, we accelerated many initiatives to make the customer experience easier and safer due to COVID.
Dan Murphy's introduced contactless Direct to Boot pickup to over 50% of its fleet, and BWS dramatically increased its on-demand delivery service to over 950 stores. Other initiatives include an extension of Endeavour's marketplace service and local ranging programs to assist small producers with the route to market, and approximately 400 new suppliers have been added to the marketplace, offering over 4,000 new products online and in-store. We also made progress in improving safety for our team and customers in FY20, and it became even more important following the onset of COVID-19. Our safety metrics improved significantly against targets set for the year, including a 19% reduction in total recordable injury frequency rate from FY19.
We also focused on mental health for our team and providing financial assistance to support team members where required, although, as I mentioned at the outset, COVID Care is an incredibly important priority for us in FY21. Steve will provide a more detailed update on our supply chain a little later, but we have seen MSRDC continue to ramp up in the second half. We also announced our New South Wales network transformation in late June, which are important steps to be better for customers and simpler and safer for stores. On slide 10, it shows Woolworths Group's food and everyday needs ecosystem. In FY20 we made good progress in all four growth adjacencies. Last week, we announced our proposed strategic investment in PFD Food Services, which will give us access to a large, fragmented market where we currently have no presence....
We also made good progress in our other B2B growth adjacencies as we scaled up Woolworths International and Woolworths at Work. We successfully extended our digital and data platforms with the relaunch of the Everyday Rewards program and rolled out digital screens across Cartology to 957 stores. We also made progress on our partnerships with Endeavour Group and Caltex, and revamped our decade-long partnership with Qantas Frequent Flyer . Turning to e-commerce. I wanted to highlight on slide 11, the growth we have seen over the last five years, and as we have materially increased our investment in digital and e-commerce in response to our customers' increasing demand for convenient and connected ways to shop. Over the last five years across the group, we have achieved a compound annual growth rate of 26%.
Growth has further accelerated in FY20 to 42%, and of course, is growing even stronger in the first eight weeks of FY21, which I'll talk about later. And while we know that some of the uplift will be temporary, we think we are seeing a permanent and structural change to the way many of our customers shop, with customers becoming increasingly comfortable shopping with us in many different ways. As a result, we will continue to build connected capabilities for the future to meet the evolving needs of our customers. I will now turn to Steve Harrison, who will present our financial results before returning to me to provide an update on our outlook. Over to you, Steve.
Thanks, Brad, and good morning, everyone. Look, before I start, let me give some context on the presentation of the numbers and in particular, the impact of AASB 16 and the fifty-third week in FY19. The FY20 reported results reflect the adoption of the new lease accounting standard, AASB 16. As we did at half one, we focused on the reported FY20 numbers, which reflect the adoption of AASB 16, and compared those numbers to FY19, adjusted as if the new standard had been in place. In FY19, we also had a fifty-third week, and throughout the presentation, I'll comment on normalized performance, which has adjusted FY19 to be comparable to FY20, both on a post-AASB 16 basis and a fifty-two week versus fifty-two week basis. We have included pre-AASB 16 numbers for FY20 in the appendix in the slides.
However, we'll no longer be reporting pre-AASB 16 numbers going forward, having fully adopted the new lease accounting standard both in, for internal and external reporting purposes. I'll start today with the FY20 full year group results summary on slide 15. Starting with statutory results, sales from continuing operations were AUD 63.7 billion, up 6.2% on the prior year. Performance in half one and half two were very different. In half one, all businesses delivered solid sales growth, with group sales from continuing operations up 6%. In half two, we saw very strong double-digit growth across all of our retail businesses following the onset of COVID-19. However, the closure of Hotels in late Q3 and for much of Q4 reduced sales growth rates for the group, with normalized half two sales from continuing operations increasing by 10.5%.
EBIT from continuing operations before significant items increased by 18.3% on a reported basis, with the growth compared to prior year benefiting from the introduction of AASB 16. Reported NPAT decreased by 8.4%, also impacted by the introduction of the new lease accounting standard and the fifty-third week in FY19. On the twenty-third of June, we updated the market on a number of significant items to be booked during the year, including the following: AUD 176 million associated with the New South Wales grocery supply chain transformation, AUD 230 million for costs associated with the Endeavour Group transformation, and AUD 185 million for charges related to interest and other costs for the salary team member remediation. All of these are around on a pre-tax basis.
Including significant items and discontinued operations from Petrol in the prior year, the group's FY20 statutory NPAT attributable to shareholders declined by 56.7%. However, this is not a very good indication of the underlying performance of the business, and at the bottom of slide 15, we've shown normalized post-AASB 16 EBIT and NPAT after significant items, which were both broadly flat on the prior year. Turning to EBIT by business on slide 16. EBIT in Australian Food was up 6.3% for the year to AUD 2.232 billion. H2 EBIT increased by 4.6%, with COVID-related sales growth in the last four months of the year being somewhat offset by roughly AUD 290 million of cost in half two associated with operating in a COVID-safe way.
In addition to our investment in digital and the mixed impact from volume growth in e-commerce, CODB was also impacted by higher team costs associated with the 2019 enterprise agreements, higher store team salaries, higher depreciation, and of course, higher variable costs to support the higher sales growth. New Zealand Food EBIT increased by 10.7% in NZD. Half Two EBIT growth was 15.1%, driven by very strong sales growth associated with the Alert Level 4 restrictions in New Zealand and higher GP, despite also being impacted by higher operating costs due to COVID-19. Big W delivered a strong improvement in EBIT for FY20, with a profit of AUD 39 million. Sales momentum were strong prior to COVID-19, but the business had an exceptional Q4, with sales growth over 30%.
Endeavour Drinks EBIT increased by 5.7% for FY20 and 4.2% in half two. After a more subdued start to half two in January and February, sales accelerated in late March and remained strong in Q4. EBIT growth in half two was impacted by higher COVID-19 operating costs, higher team costs due to the recent EAs, and the write-off of legacy IT assets no longer in use. After a strong half one EBIT growth of 8.3%, hotel sales and EBITs were impacted by the government-mandated closures from the twenty-third of March. As a result, FY20 EBIT declined by 51% compared to the prior year, with half two recording a loss of AUD 52 million compared to a profit of AUD 144 million in the prior year.
Central overheads was broadly in line with the previous guidance of AUD 151 million. You may recall at half one, we restated half one FY19 Central Overheads by AUD 26 million to reflect the in-year cost of salaried store team member remediation costs for the half. There was a further AUD 26 million cost related to this in half two of FY19. However, for the full year of FY19, the net impact was only AUD 2 million, as we'd previously booked a AUD 50 million provision in the second half of FY19, which broadly offset the full year salary remediation cost of fifty-two million dollars. In addition, as communicated in our FY19 annual result, Central Overheads in half two of FY19 also included around AUD 90 million of one-off gains, which is why the half two FY19 Central Overheads may appear confusing on first glance.
For FY21, we expect Central Overheads to be approximately AUD 160 million due to higher insurance and ongoing salary payments, shortfall remediation, and compliance costs. Finally, on this slide, we've shown normalized EBIT from continuing operations, excluding Hotels and Central Overheads before significant items, which increased 8.8% in half two and 9.3% for the full year, and it's probably also worth explaining that the total COVID costs we incurred in Q4 of just under AUD 290 million, disclosed on slide 52, includes the net cost of the team recognition award payments, which were not included in the original estimate of costs we provided at the Q3 sales announcement. Turning to slide 17, and the key balance sheet metrics.
Average inventory days from continuing operations improved 2.5 days compared to the prior year to 37 days. Not surprisingly, in the last four months of the year, there were some material impacts on inventory from COVID-19 across the group, although our average inventory days had been showing improvement over the entire year. Inventory levels in our food and drinks businesses were initially impacted by the surge in demand, but inventory was gradually rebuilt with additional grocery and freezer inventory held at the year end. With more exposure to offshore sourcing and extremely strong sales in Big W, inventory levels were below typical levels at year end. We expect, however, inventory to return to normal levels by mid-September. Normalized returns on funds employed from continuing operations declined by 49 basis points to 13.7%, largely due to the impact of the closure of Hotels.
All businesses reported higher ROFE, with the exception of Hotels and Central Overheads . The reduction in ROFE compared to the pre-AASB 16 FY 2019 reported numbers reflects the inclusion of leased assets in funds employed in FY 2020. Turning to slide 18, I wanted to spend a couple of minutes today talking about how the group allocates capital. This slide starts with the key reasons why we think Woolworths Group is an attractive investment proposition, but of course, that's ultimately for investors to decide themselves. These strong business attributes, however, should allow the group to generate strong operating cash flows over time. Thinking about those cash flows, we look to invest enough to sustain our existing assets through sustaining CapEx, and that investment should broadly be in line with depreciation over time.
We also prioritize dividends, and we expect to maintain the dividend payout ratio at around 75-- 70 to 75% of NPAT. This leaves us with choices around how we invest any excess cash. In this context, one overarching principle for the group is to ensure we maintain a solid investment-grade credit rating. Currently, our credit ratings are BBB and Baa 2 with Standard & Poor's and Moody's respectively, with a stable outlook, and we remain comfortable with those settings. Turning to the free cash flow, any excess free cash flow can then be invested in growth opportunities that reinforce our investment proposition. We could choose to pay down debt if required, or return excess cash to shareholders through a special dividend or a buyback. In recent years, we've done all three of these based on what we believe will deliver the best returns to shareholders.
Within this framework, the most important element is the cash we generate. So turning to slide 19, as you can see, when you look at the cash flow, AASB 16 has also had a material impact on the presentation of the cash flow. But as you know, the cash flows, rather just the presentation. EBITDA from continuing operations was up 44% before significant items, but was positively impacted by AASB 16. Offsetting this somewhat were the petrol earnings in the prior year and a significant item expense in the current year compared to a significant item gain in FY19 on the disposal of petrol. Working capital and non-cash movements were positive in FY20 and reflect the higher payables and provisions offset by higher inventory at year end as we increased holdings of key grocery lines.
The prior year was impacted by the non-cash gain on the sale of petrol. Interest paid increased materially due to the recognition of lease interest of AUD 701 million, while tax paid declined due to lower installment payments and higher tax refunds compared to the prior year. I will talk to CapEx on the following slides. The cash outflow associated with dividends declined on the prior year, as FY19 included the 10-cent special dividend declared in FY18. Adding all this up, free cash flow for the year was AUD 249 million in FY20. Our cash realization ratio was strong at 124.4%, which benefited from some payable timing issues at the end of FY19 , as well as higher payables at the end of this year due to COVID-related inventory purchases.
On slide 20, I want to share with you how we think about our CapEx spend and what we include in sustaining CapEx versus growth CapEx. Sustaining CapEx include areas of spend, like maintenance, safety, store renewals, IT, and supply chain, and productivity initiatives focused on cost efficiency. Growth CapEx refers to spend in areas like new stores, e-commerce and digital, and other projects that we expect to drive higher sales and increase margins over time. We've shown CapEx broken down this way on the following slides. Turning to page 21. Operating CapEx for the year was AUD 1.64 billion, roughly AUD 90 million below the prior year, and a little below the AUD 1.7 billion that we'd expected at the half. CapEx was lower due to reduced renewal spend in Australia and New Zealand, and lower supply chain spend.
Growth CapEx increased due to high spend on property development and acquisitions of AUD 585 million in the year, which as you know, can be lumpy. Spend in the year included over AUD 100 million on the acquisition of some strategic sites from Caltex. We expect the CapEx in FY 2021 to be approximately AUD 1.9 billion, reflecting the lower planned spend than planned spend in FY 2020, as well as increased investment in e-commerce and digital as we expand capacity and focusing on meeting customer expectations and as well as on supply chain. Turning to slide 22 and capital management, the board today has approved final dividend of AUD 0.48 per share, taking the total dividend to AUD 0.94 for the full year, which is 7.8% below the prior year.
Our dividends are based on NPAT, including discontinued operations, and it's important to note that the prior year included petrol earnings for nine months of the year. When normalizing for this and the fifty-third week, this is equivalent to AUD 0.08 per share. So on a normalized basis, our AUD 0.94 dividend is in line with the prior year. We had previously indicated that the dividend wouldn't be impacted by AASB 16, given this is a non-cash change in accounting. This has resulted in our payout ratio increasing to 74% on a post-AASB 16 basis, and we would expect the dividend going forward to be in the 70%-75% range. Turning to debt and funding, the group's sources of funding and liquidity remain strong, with strong access to bank and capital markets debt.
In May, the group was the first Australian corporate to access the domestic bond market post-COVID, with a bond issue at very attractive rates that extended the group's weighted average maturity. The proceeds will be used to refinance bonds maturing in the first half of FY 2021. The final slides from me today on slides 24 to 26 are to provide a little more color on our broader supply chain transformation, our New South Wales grocery supply chain changes announced on the 23rd June, as well as the current progress on MSRDC. There's been a lot of focus on our fully automated shed in Melbourne and our recently announced shed in Sydney, due to open in a few years. However, we have been investing to progressively transform and upgrade our supply chain over the last few years, including our Tasmanian, Adelaide, and Townsville Regional Distribution Centres .
We also have a number of new facilities under development, as you can see on the right hand of the slide twenty-four. Turning to slide twenty-five and an update on MSRDC. The facility has been, has seen a material ramp up in throughput in the second half of F Y20, and subject to COVID-19, we expect the facility to achieve business case volumes and costs during the course of F Y21. The slide provides a comparison of the MSRDC to the Hume Regional Distribution Centre , which it replaced across a number of key metrics. MSRDC is materially safer and more efficient to operate, has a bigger range and capacity, can build pallets in a way that's efficient for stores, and that has a 100% pick accuracy.
And probably most important to those on the call, it's expected to operate at a materially lower cost per carton than the facility it replaces. It is worth noting that due to COVID-19 and the supply chain volatility experienced in Melbourne, we're not yet achieving these costs per carton consistently. As announced on the twenty-third of June, turning to page 26, we will be building a fully automated regional distribution center and a semi-automated national distribution center in Moorebank. These facilities will replace three existing distribution centers in Sydney and Melbourne. Similar to MSRDC, these two facilities will provide a safer environment for our teams, improved availability, ranging, and accuracy for our customers, a lower cost to operate, and we're confident that this will deliver double-digit returns over time. Thank you. That's it from me, and I'll now hand back to Brad.
Thanks, Steve. Turning to the current trading and outlook on slide seven. Current trading has remained strong across the group in the first eight weeks of FY21, with the exception of Hotels, with group sales of 12.4%. Hotel sales growth, while pulled down materially, has improved on Q4. COVID costs have also remained elevated, but at a lower run rate than the March to June period, with costs for the first eight weeks of FY21 of AUD 107 million, which represents approximately 1.1% of sales. Australian food sales increased by 11.9% in the first eight weeks, with the stricter restrictions in Victoria resulting in a consistently strong growth rate in that state.
New Zealand food sales have slowed relative to the second half of FY 20, increasing by 8.3% in the first eight weeks. Sales in week 7 increased sharply as restrictions were introduced and have since reverted to single to mid-single digits. Big W sales growth has continued to be strong, increasing by 21.1% in FY'21 to date. Since the fifth of August, 22 stores in Metro Melbourne have been closed to in-store customers. However, online services and pickup have continued during this time. In Endeavour Drinks, sales growth has also remained strong at 23.7%, as Endeavour continues to benefit from greater in-home consumption.
On slide 28, it illustrates the weekly sales growth for the first eight weeks, as well as the two-year average growth by business, which shows that sales growth remains strong despite cycling some higher sales activity in FY20, such as Lion King Ooshies and Australian Food. Finally, turning to slide 59, we have given you more detail on the COVID costs as we continue to prioritize operating in COVIDSafe. While it is almost impossible to predict, we are currently assuming that some level of elevated sales and costs will continue for the remainder of the first half of FY21 and beyond. In summary, there are many uncertainties in the year ahead, but we will continue to be guided by our purpose, and we are committed to making COVIDSafe part of our everyday operations.
We have had a strong start to FY21 and remain positive on the many opportunities to create better experiences together for our customers, team, and communities in the year ahead. I would now like to hand back to the operator to open the line 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 are using a speakerphone, please pick up the handset to ask your question. The first question today comes from Michael Simotas from Jefferies. Please go ahead.
Good morning, everyone. The first question from me, and it's great disclosure that you've given on the COVID costs and the sales you've seen, so far in FY twenty-one, but I was just hoping to explore that a little bit further. So based on that COVID cost run rate that you've provided, it looks like you probably need an extra, maybe 4% incremental sales growth to offset your underlying costs, plus the COVID costs, which would suggest that all else equal, your margins for the food business should be up quite meaningfully relative to the first quarter of last year. Am I thinking about that in the right way, or are there some other moving parts that may offset that?
Thanks, Michael. Look, obviously, we're not giving guidance for the year ahead, and there are many moving pieces in our results. You've talked about a couple, of course, elevated sales, but in that, in parallel, elevated COVID costs, but we're still working through all the other aspects on our P&L. In FY20, the things that we don't really call out enough are still continuing to work very strongly on making sure, when our promotions, that we continue to refine our promotional program to deliver value for customers, but also to make sure we have more winner promotions than we used to, and that continues to progress. We're still working very hard on stock loss. We actually finished the year with a much better stock loss position in Australian Food.
I'm gonna get a question later on it, so it's just over 2.7%. We're continuing to progress that into FY21, a very important lever for us. Then, on the cost of doing business side, we did actually make progress on our Simpler for Stores efficiency program in FY20, but in truth, it was slowed down, understandably, by COVID and our need to pivot to being COVID Care. So we're continuing to work on that, although we need to be very sensible and pragmatic on that, just given, you know, the environment we're in, with progress there being offset by COVID Care kind of investments we continue to make across the business.
And then very importantly, of course, within all of that, is our continued investments in online. You know, we have double capacity, but you can see the growth rate that we're experiencing online. We'll come back, I'm sure, and I'll get questions to talk about the profitability of online. It is profitable, but it is still margin dilutive. So there's a whole series of factors that are going into our overall result there. You've talked to a couple. We're not gonna give a forecast, but there is many positives, as there are negatives, quite frankly.
Thank you. The next question comes from Shaun Cousins from J.P. Morgan. Please go ahead.
Great. Thanks, guys. Maybe just a little bit on the labor costs. Can you just talk a little bit about how you're thinking about labor cost inflation for fiscal '21? Conscious of the, I think there was an agreement you recently reached with the SDA around back pay and penalties, and maybe if you could just sort of quantify what that labor cost is. And maybe, Steve, your comments on MSRDC, should we not expect business case at MSRDC until we get more normal sales growth, or is it really that you couldn't get that when you had panic buying, so we should envisage MSRDC savings coming through in fiscal '21, please?
Sure. I'll make some comments on labor costs, and I'll turn to Steve to provide-
Thanks
... a little more detail and then get into into the detail on on MSRDC. In FY20, when you look at the year rolled up, we did experience a material lift in in our wage costs. It was over 5% for the year once you annualize the enterprise agreement that we had implemented the year before, once we went about adjusting a department manager salaries to make sure that we were fully compliant with the award and then just general salary inflation. So it was quite a material year for us in FY20 . In FY21 , we are hoping to see that moderate.
Now, the issue you raised was the Fair Work Commission had come out with the base rate for FY '21 for the General Retail Industry Award , and said the 1.75% would become effective next February. We were seeking clarification whether what were our obligations is, was it February or was it June, sorry, July of this year? But it's still quite a moderate rate to what we had seen historically. And so, what you saw we did overnight was really just decide that we wanted to provide certainty to our team in this time of COVID, and not get caught up in trying to get clarification, but just execute against the base increase from one July.
That number is actually in our budgets, and we don't think it's an untoward number in the context of the business. That doesn't mean we don't need to continue to work hard on our CODB, Shaun, as you would imagine, and the Simpler for Stores program continues to work hard. It is behind what we would like to have achieved in F Y20, but, there's a lot of momentum and a lot of work on all aspects of it in 2021. Steve, I don't know if there were specific points you wanna talk to CODB or you wanted to move on to MSRDC?
Brad, I think you've covered the labor inflation question. Just, Shaun, picking up your comments on MSRDC. Look, we're pleased with the ramp-up and the performance of the facility, but I think it is important to note that the ramp-up has been impacted and slowed down due to COVID-19. And just to clarify this, we exited the Hume Regional Distribution Centre and moved all that volume into MSRDC in the third quarter of the past financial year. But the plan had always been to move the remaining volumes of ambient servicing Victoria out of our Melbourne Liquor DC, which is sort of a shared facility between grocery and liquor, and also our Moorebank National Distribution Centre .
It's been that transition of volume to ramp up the scale of MSRDC that has just been slowed down by the disruption that's occurred in Victoria really since March. That said, we continue to grow volume in the facility. We did roughly 1.8 million, sorry, 1.8 million cases on average per week over the first eight weeks. We hit 2 million cases two weeks ago, so we are gradually ramping up. In terms of you know our expectations of hitting our business case, we firmly expect to hit once we get all the volume into the facility, the business case cost per carton.
'Cause I think the advantage of a facility like this is, there's very limited additional variable costs that you add, as you add more volume into it. But we won't hit those rates until later in the year. So in terms of a P&L perspective, you should anticipate some benefits this year, or we certainly anticipate benefits this year, but full run rate benefits won't be realized until FY 2022. It's probably also worth noting that just given some of the restrictions in Victoria around operating in a COVID-safe way, there are some minor impacts to productivity in the facilities and some costs associated with running those facilities at the moment.
Great. Thank you very much, guys.
Thank you. The next question comes from Grant Saligari from Credit Suisse. Please go ahead.
Thanks. Good morning. Brad, I'm just trying to work out and make sure it's clear in my own mind, why the profit leverage in the second half was so different between Australian Food and New Zealand Food. Because, I mean, you've obviously called out the COVID costs, but I would've thought things like cleaning and the like, team member bonuses would've, you know, basically hit both businesses. But New Zealand Food had something like a 15% increase in EBIT in the second half, and obviously the 4.6 for Australian Food. So maybe just talk to that and, you know, it obviously goes to sort of the guidance you've given on costs going into the first quarter of 2021 as well.
Thanks, Grant. That's a really unusual question, and but I think it's a great question actually. The biggest issue we had, in a funny way, New Zealand going into very rapidly into a Stage 4 lockdown got into a very structured demand pattern. And while it was elevated, it was very structured, and we managed to. And actually, the trading hours were trimmed down. We just managed to manage through the supply chain. In Australia, actually, by not getting into the structured process, we had a lot more volatility, in particular through our supply chain. And so we had to, and we did invest materially in extra warehousing capacity in Australia, which was one of the biggest cost elements we had.
And we don't, we didn't regret it, but that was a big investment for us. The second one, particularly in Australia, again, by not getting into the structured process early in the crisis, we were very worried on the security side and just for our team's sake, and the rules weren't clear. I mean, when you go into a Level 4 lockdown, the rules are clear, the police are clear, everyone's clear. We invested materially in security. This was in a lot of conversations with the federal government. I don't resent it at all, but we basically committed we were gonna have security in every store within Australia. So we were very forthright on doing that.
Thirdly, in particular in Australia, again, when, you know, we didn't know where COVID was gonna go in Australia and New Zealand, you know, there were very few cases, very limited absenteeism. We made the decision again, to be safe and to recruit up to 20,000 new roles based on an assumption that we would get this very high absenteeism of up to 20%, which was the experience we'd seen, in community transition COVID scenarios, which we didn't have in New Zealand, but we thought we might have in Australia. We did play that too safe. We turned out to only get to about 6% absenteeism.
So I know it sounds paradoxical, but actually moving very rapidly into a very structured Level 4 lockdown and an operating cost level is actually materially lower. I know it sounds somewhat strange. Steve, did you want to elaborate?
I think probably just two other builds, Grant. Firstly, the margin growth, GP margin growth was slightly higher in New Zealand in the second half. As Brad talked about earlier, we have that two X level of inflation in Australian Food on our wages, but we didn't have that same impact in New Zealand.
Yeah.
All right, thanks. Helpful.
I mean, it's as I say, once you get into a very normal rhythm, being able to plan our business is easy. When you're in this volatility, it's incredibly hard. Sorry, Grant, your second question was to do with the outlook after the first eight weeks. Was it to do with sales or costs? You mind just coming back to that?
Yeah, it was more to do with the cost outlook. And I think what you're saying, and maybe correct me if I'm wrong, is that most of those additional costs are probably accruing in the Australian Food business, not. That's what was my take from your previous comments.
I'm not certain I understand your point, but what is clear for us is as we get into a more structured, more organized approach, our COVID costs, and I think as a percentage of sales, it's quite a handy way to look at it. You can do your own overseas benchmarks. You'll find that they are between 1% and 2%, depending-
... which retailer you look at and depending what they include in it. But I'm sure you'll work through them yourself. So we find kind of looking at it as a percentage of sales is just a handy thing to do.
Yeah.
Not materially done as a percentage of sales for us, in, as we go to the new year, and again, that is because we're better planned, we're better organized, and the rules of engagement are clearer. Things like security, we still do have security, but we're not trying to have security in every store, in every hour. We're just trying to make sure we are, you know, we're the risk side, that we make adjustments. Things like, PPE, at the peak of the crisis, just, you know, putting yourself in a position to have masks in stores, you're paying AUD 0.84-AUD 0.85 a mask versus the 12 or so cents now. The cost of hand sanitizer, again, is sort of, you know, in the cents, in the dollar from what it was during the peak and things like that.
So you're seeing us be better planned. We've seen the cost of actually operating COVIDSafe coming down, and we've got a lot of other interesting initiatives underway to continue to adjust it down. An interesting thing is just for us in making sure we count how many people are in a store, we will automate that process. We do a manual process right now. There's work being done to use automation to be able to do that. So we feel that there's that the number you see, we can continue to chip away at it without making our business any less safe. So that is an important part of our plan.
Yeah
... in the year ahead.
All right. That's helpful. Thank you.
Thank you. The next question comes from David Errington from Bank of America. Please go ahead.
Morning, Brad. Morning, Steve. I don't wanna sound negative, Brad, 'cause I think the results are really, you know, very pleasing. But I'm targeting our MSRDC and your CapEx that Steve outlined. When I look at slide 25, look, I've gotta say, I'm pretty underwhelmed by the benefits that you're getting on a cost per carton basis, 'cause when you do the numbers, you're halving your workforce, you're only getting around about, what? A AUD 0.30 reduction in the cost per carton. And when you look at that on a 2.5 million case per carton per week, you're only saving about AUD 40 million from... Now, unless there's more benefits here in your stores, when you look at what you've done, it's taken you eight years to do it.
You've probably spent AUD 500 million to build it, and you're only gonna save AUD 40 million in costs. What am I missing here in saying that these things are good investments, and that you're gonna commit another AUD 1 billion for your next one? What am I missing here? Because on that slide, on the math, it does look to be an underwhelming investment.
So I think, David, two things. The cost per carton here are fully loaded, including the depreciation. So if you're assessing the cash benefit versus the cash outlay, you need to add back the depreciation. And then the other component is, there's two other efficiency-
What's the... How much is that then, Steve? What's the cash return then, please?
Oh, David, you can do the math on the depreciation of the 400 million of cash CapEx.
So it costs you AUD 400 million. How long do you depreciate it over?
Different parts of it have different depreciation rates. So, you know, the building is different from the automation, but, you know, it'd be, it'd vary from 10-20 years, depending on the different types of equipment in it. But-
So you're probably looking at what, AUD 30 million, AUD 30 million of depreciation? You'd have numbers for it.
Oh, probably, yes, yeah, in the 20-30 million range. But, but, David, let me just-
So you're talking about AUD 65 million of cash benefit, cash return?
That's just looking, David, if you let me finish, at the cost benefit just within the digital-... There's also labor benefits and efficiencies in the store from the way the pallet is delivered to the store, which makes the picking process much more efficient. We don't need to do the splitting activity, which used to occur at the back of the store. And secondly, we actually get transport benefits because you get improved cube efficiency of the pallet in an automated pallet build versus a manual. So, you know, overall, you know, and I know this is a topic we, we've debated many times, we are confident that we're gonna get the returns over them from the investment in MSRDC.
It has taken a long time to get to the point where we have that fair criticism, but I think in the last 12 months, we've made decisions based on protecting volume in Victoria leading into Christmas, and then in the last 6 months or 8 months, in particular, the disruption associated with COVID and bushfires, actually, at the beginning of half two.
There was no problem with that. Sorry.
Just to add a point to raise on it. One is, of course, we're talking about the cost this year. You know, one of the issues we have in our standard warehouse is the continued inflation, which we have, which you do materially offset in the context of automation as the depreciation comes off. So the benefits get better by year in an accounting sense, as you well understand. The second one, and I think a very important one, is the ability to just get the extended range, because essentially, you're not working to a pick face. All of your pallet positions can be picked from. And so, that's not a value we ascribe to.
We've really done it on a cost play, but you do actually get an ability to hopefully flex up range. You know, one of the biggest costs in our business, and one that we continually need to work on, is balancing our RDC, or regional distribution center range, to the NDC. So we get a really interesting range optimization play going forward. I'm not embarrassed by how long it's taken us, David. I think we've been cautious, as we should have, and you've challenged us on this many times. We needed to get one right. It is incredibly hard to get these things right. We feel we are 80% of the way there.
You know, that's why we announced a Moorebank, but they look pretty easy on paper to do, but they're much harder to do in practice. So I think us taking a prudent, long slowing the process down was the right call.
I think it makes more sense when, as Steve just explained, AUD 400 million of cash out, AUD 40 million bucks running, AUD 25 million in depreciation, plus other benefits in store, which is probably about AUD 10 million-AUD 15 million or so, then it starts looking pretty good. But on the second question on the CapEx, Steve, slide 21, I'm trying to. I mean, I'm really, you know, pleased with the extra disclosure, et cetera, but what are you actually trying to tell us with sustaining CapEx, those numbers there, and growth CapEx? You're really pushing the, to split the two out. Are you basically telling us that we should expect no improvement incremental EBIT from the sustaining CapEx, that that, in effect, is a cost? Because I would've thought supply chain, renewals, IT, productivity, we should still expect an EBIT uplift from that investment. Is that right or not?
And why the property? Property's a big number, 585. I mean, when you look at what you did last year, too, you guys must have a lot of property on your books at the moment. Can you just give a bit more color on that, please?
Yes. So look, though, I just wanted to give a bit more flavor about how we're thinking about CapEx and, you know, some of the elements of sustaining capital are maintenance in nature, but we've moved away from calling it staying in business to actually sustaining, because part of growing your business and sustaining it is expecting some benefits from it.
And so, as we look at, you know, a replacement, and we talked about this, you know, a few weeks ago when we talked about the New South Wales supply chain, you don't just replace like for like, and so we're trying to be disciplined to say, "What's the like for like replacement, and then what's the additional benefit you get from enhancing an asset?" And so that's how we think about sustaining the business, 'cause, you know, we definitely want to get productivity benefits from renewal, we wanna get sales uplift from renewal, and certainly, you know, we're enhancing as well as just maintaining assets when we do replacements and upgrades in things like supply chain and IT. The second part of your question, sorry, reminds me.
Property.
Property. Yeah, so one of the things we've been thinking a lot about property is how we unlock opportunities through our balance sheet, through securing sites, developing them, and then cycling them. But equally, we're also looking at what are strategic sites that we should continue to own? And I think in some ways, the lease accounting standard helps us to think about this because ultimately, you know, there'll be certain sites that we wanna continue to own and certain sites where it makes sense to lease. And one of the things we have been doing progressively is trying to reduce our WALE or our length of lease, which creates capacity in our credit metrics.
And so we're just trying to think about how do we, over time, balance the mix of lease debt versus borrowed debt. And so what you're seeing is some of that transition, but this is lumpy, right? And I think there have been a few opportunities that have arisen in the last twelve months that we've unashamedly taken advantage of the opportunity to acquire. Now, what we need to do is develop them and then get that cycling for those non-strategic assets.
And what we've tried to do, with the good old, I think it is good, actually, is, do a network plan, a holistic network plan across the country for, what areas are we under-penetrated in, and do what combination of supermarkets or small stores or e-commerce? And do we want to put together in that area and use that to then do a quad disciplined ranking?
When you get to the sites where we're under-penetrated, if they're not out and when the suburban creep invariably come into very tough places for us structurally to enter, and that's where Fabcot, a business you'd know well, comes into its own, and we're trying to get a much more strategic and disciplined focus on unlocking value for us there, which does require an element of development, and often with joint venture partners and matched together, residential as well as commercial. So we are getting much more disciplined. I thought the highlight to me was the fact that we cycled out a number of properties as well.
Yep.
So I would urge you to look at the net number of property in, property out.
Plus, we've got some great examples of where we've done a terrific job at this. You know, Double Bay is a highlight, as you'd be aware, and I'm sure you're aware of the Elsternwick development, we're currently in the process of working through the approvals for in Melbourne.
Thanks, Brad. Thanks, Steve.
Thank you. The next question comes from Andrew McLennan from Goldman Sachs. Please go ahead.
Good morning, everyone. Yeah, thanks for the extra details. Just wondering if you could just talk to, from a sales perspective, particularly on slide fifty-eight in food, if you could just point out whether or not the Ooshies promotional program was cycled at exactly the same time, and then if not, which weeks may have been impacted? Because that sales number is really quite strong. So well done there, and-
Yeah, I think it's a great question. I'll take the highlight, and then I'll ask Claire to elaborate. But the Lion King was really in this period last year, so the... It is like last periods. I'm sorry, I think it started the second week of July. Claire will-
All right.
Come back and correct me. So you're looking at like-to-like Ooshies or Lion King last year. It plays really out just a value campaign, which was very important to do going into the new year and get your money's worth. What it doesn't include, very importantly, though, is the launch of the next version of Ooshies, which is Disney +, which launched yesterday, which is week nine for our fiscal year. So it includes one, but not the other. Claire, I don't know, you've got... You know the dates better than me.
Yeah, just to give the very specifics, so Lion King last year started on the seventeenth of July. So there's a couple of weeks where we are lacking that. And as Brad rightly said, we started our Disney+ Ooshies campaign yesterday. And to date, we are very pleased with day one sales.
Okay. So just following on from sales, I mean, obviously very strong performances, particularly with respect to online. But and certainly the industry feedback has been suggesting you guys have performed very, very well with respect to online. Without sort of discriminating on the sources or the channel of those sales, how did you feel about the performance of the physical stores during the fourth quarter from a sort of physical sales growth perspective?
Yeah, look, I think we're good, to be honest. I mean, I think, you know, we've got two things going on. Firstly, you know, in the middle of the COVID crisis, you know, which was it really hit us in March and into April. The fact that our team recovered in-store and our customer scores got to where they were was fantastic, actually. And then, of course, as you know, when you look through our results, you see the strong sales growth we had during the same time frame, anyway. So I think it was a real testament to our team that they managed to not only hold on to the sales, but just that whole recovery of, you know, the material out of stocks and availability issues we had.
And if you look at slide 58, one of the highlights to me in that slide, each business tells a different tale, but it's the consistency of performance inside Australian Food. When you look at the like for likes, and that actually, if you go back into June, you see that consistency. So I feel like we've been trading relatively consistently. Clearly, the last couple of weeks in Victoria has been elevated, but it has been quite a consistent tale, which to me has been the highlight. And our store team not only got safety right, got in-stock availability right, got the customer experience right, but you've got to remember that e-commerce business is really picked in-store with 80% of it picked in-store.
So they really also went and did the in-store picking and got that right for us as well. It felt very good. On e-commerce, well, I think it's just an achievement by the team and incredibly hardworking during this period. On e-commerce in general, we've called out the overall growth rate. We said it in the media call, so I'm, you know, repeating it. We had a very strong start, as everyone would be aware, to trading with the group online sales for the first eight weeks being up 84.6%. Actually, the food sales were up about 97.9%. Sorry, I mean, you don't get to the 100 mark. So a really good start.
And again, it's the store team that's been doing that. So they've been managing the store sales as well as really managing that position. So it's been very... One of the highlights to me, actually.
Brad, I'm glad you mentioned that point, because I know the increase in capacity was a decision you made for, I think, in particular, delivery, for the fourth quarter. How is the business tracking versus capacity at such a high growth rate? And, excuse me, sorry, could you also just make a quick comment on how, Takeoff Technologies, you obviously haven't embedded it yet, excuse me, but just what you're seeing offshore in terms of its ability to,
... to drive efficiencies in this area?
I'll make a few comments on online, and then I'll just ask Amanda Bardwell to talk about it. Obviously, just keeping up with this growth rate has been just an immense achievement by the team. Between Woolworths Supermarkets and WooliesX, we've doubled our online capacity in Q4, which was incredibly important just to make sure that we could service vulnerable customers with a safe alternative. The fact that the capacity doubled was just an outstanding achievement. It's a much bigger online database we have now than we did before. We're gonna have to work hard just to keep driving capacity, in particular for Christmas.
We're very focused on creating the safe, affordable, inspiring Christmas, and we get peak trade in stores in Christmas, and we know a number of customers will still select to rather get a home delivery. So a lot of work going on, which I'll let Amanda talk to. Our home delivery pickup rate, which has been running sort of 65-35, has obviously got more home delivery in the short term. Very importantly, though, across our business, and I'd just like to call out the growth in same-day and on-demand or often on-demand if you pay through partners, which has continued to grow very, very strongly, and that's become a really important part of our business, in particular in Dan Murphy's, but more broadly.
The reason I call that out is one of the reasons we went with Takeoff was our belief that we needed to have a very strong same-day proposition to meet the needs of customers. Everything we've seen suggests that that was a good decision. In terms of our go live for our Takeoff facilities, actually, I can't get to Melbourne to see it, but it's working. I've seen the videos. We're not shipping yet. We are three months behind shipping, but that's just to do with getting the engineers in the country and just a lot of visa restraints. But we're very hopeful. The units are in, and we're hoping to actually start shipping October, November, out of Melbourne, Carrum Downs.
We had hoped to actually start first in Auckland, but getting the engineers into New Zealand has been even harder. So, I think we will hopefully activate Moorhouse at the end of January, early February next year. But Amanda, just would you mind providing some comments just on online capacity? I know it's still a really challenging area for us to keep up with customer demand.
It is. Thanks, Brad. Look, I'll just summarize, I think, what you've just run through, which is, I'd say, a huge amount of capacity coming out of our stores. And I think really those early first waves of COVID taught us a lot around how we can actually work together with Claire and the supermarket team to drive more volume of orders through our store network. And so we've been really pleased, I think, to discover the additional capacity we're able to deliver there. That was really important. I think the CFCs have really stepped up for us, particularly in Melbourne and Sydney, and we've more than doubled the volume out of those facilities. And then the way that we're managing the last mile has also been a big unlock in terms of capacity.
And so home delivery has certainly been the key driver of sales results. However, interestingly, I'd say the last three months, it's been very much closely followed by Drive. And so back to people looking for COVID-safe way to shop, and again, back to our store network, you know, the way that Drive is actually performing for us, particularly with that contactless to-boot service, has been really exciting to see. So yeah, we're confident that there's still a lot of capacity in our existing network. We're just working on making it more efficient.
Thanks, Amanda.
Thanks, Brad.
So, very high growth. Keeping up with it is a real focus for us, for our supply for Christmas, a real collaboration across our business to get that done.
Thank you. The next question comes from Bryan Raymond from Citi. Please go ahead.
Thanks, Brad. Look, I'm also happy with the disclosure you guys have given around the COVID cost. That's really useful. Just interested in, given Victoria has likely ramped back up in terms of some of those costs, how that profile looks between Victoria and the rest of the country, and whether we could see any further reduction should Victoria continue on their current path of moderating cases? That's-
Yeah. Thanks, thanks, Bryan. Looking forward to a very precise question on our trading coming up as your second question. But on the first question, as I said, on New Zealand, paradoxically, in a lockdown, you get into a much more predictable trading pattern, and therefore the cost impact is not quite what you would think it might be. So we do have some additional costs that we're putting in, you know, PPE, and making sure we do the right social distancing, but it's not quite the lift that you might expect in a Level Four lockdown. So, you know, as I say, it's...
Once you get there, it is quite predictable, and outside of just getting the team safety right, you know, you've got a much more predictable trading pattern with, you know, pretty contained hours, so it's not quite what you might expect.
Okay. Interesting. Just on renewals, the CapEx was down about 20% year on year. It looks like the number of renewals is fairly stable. Just interested in if you guys are changing the strategy a bit there in terms of investment per renewal, or if there's just some COVID-related timing stuff going on that sort of explains some of that?
Yeah. Thank you, Bryan. No, it's just a timing issue. If you actually went back to FY 2019, you'll see it was a bit higher. So if you looked over a multi-year period, you'll see it's actually quite consistent. So a little bit more than we did in the last quarter of 2019, which and then so that made us look a bit lower year-on-year, and then there have been a few delays. Actually, there are more delays coming up on the renewal program in Melbourne, just given the nature of what's happening with building in the building lockdown, that has slowed things down there. So now, you know, what we're trying to do is, and one of the key things in this sustaining capital is just to get very strong predictability and plan and execute well.
And so, you know, it's a pretty smooth program, overall. And I would just say the renewal store continued to perform, very well for us. We just, I mean, I've called out, you know, Mount Druitt as a value store. We've also just done our, first, low turnover value store in Melbourne, that opened about three weeks ago, at Hoppers Crossing.
South Dandenong, yep.
Yeah, so that's, sorry, South Dandenong, not Hoppers Crossing. So we're continuing to try and be much more focused and finesse what we do, depending on where the store is.
Okay. And then just last one for me is around inflation. You know, competitors called out a slowdown in inflation in the month of June, and then sort of just continued into early FY twenty-one. Interested if you're seeing the same things, and then also just a comment around whether you're committed to catalogs as well, and how, given they've sort of moved online on that front, and how you think about the promotional program. So the progress of that in a holistic way, you know, they're all pretty much related, but it'd be-
Yeah, some of the... Sorry, can you just repeat your question on inflation? I mean, it has been-
... slowly trending from negative to positive if you take out tobacco, and you're slowly seeing that come through. And of course, we saw it come through in Q4. What was your question on that? Was it that whether that was driven by a reduction in promotion or was it a more structural issue?
Yeah, sorry. I'll repeat it because perhaps I wasn't clear. So Coles called out that in late fourth quarter 2020 and early 1Q21, they've seen the rate of inflation moderate quite a lot, step down. And just interested if that's something you've experienced? They've called out promotions returning back towards normalized levels and so on, but they've also more recently looked at taking out their printed catalog. So I'm just interested in how you're seeing the promotional environment more lately. Yeah, thanks.
We've seen a very smooth, more consistent line. We were back into a relatively full promotional program in June. Actually from mid-May, I would say.
Yeah.
And stop me if I'm wrong. So we went - we were back into a full promotional program from mid-May, so been a much more consistent trend line, you know, there's this. So no, I wouldn't call anything out on that. And we - you know, and that's just flowed through into July for us. Specifically then on the whole topic of catalogs, I wouldn't confuse, and I'm not saying you are, by the way, but I wouldn't confuse a number of promotions and then the mechanics in which they delivered. Most businesses in Australia and New Zealand have been getting out of physical catalogs and going into more digital catalogs, but not with a reduction in the number of promotions in those vehicles.
Our New Zealand business has phased out its physical catalog. Dan Murphy's has done it as well. So it's not about reducing the number, it's just a different way of delivering it. And we certainly have plans to continue to be a much more digitally driven special business. We are thinking through when and how we do that, but I wouldn't. It's not a way of reducing the number of specials. It's just a way of improving the effectiveness of them and making them much more personalized.
Thank you. The next question comes from Ross Curran from Macquarie. Please go ahead.
Hi, team. Just quick questions about Big W and Endeavour. Just on Big W, the sales and profitability is running well ahead of competitors there. And I just noticed from your slide, it's come through weeks, you know, three and four-ish. Can you just talk through what categories are driving this and how you expect that to play through for the remainder of the year? And then similarly on Endeavour, gross margin was up despite increased promotional activity of competitors. Are you not seeing your customers trade down? It doesn't seem to be coming through with margins there. Thank you.
Yeah, thank you. Two good questions. I'll ask Dave to talk to the sales issue. As you might expect, with people staying at home, there's been a real surge in leisure and entertainment at the home. But actually, the highlight to me has been what's happened on our apparel side of the business. So it's been more than just a stay-at-home driven demand surge. So Dave, I don't know if you want to elaborate on what you've seen on a more micro basis.
Yeah, I mean, certainly, Brad, as families stay at home, our whole business is focused on really supporting families and communities. And so right across the board, we're seeing, you know, strength in any categories that either support kids being at home, either from education or being in entertainment or, you know, parents working from home or just, you know, more home cooking. So small appliances are really taking off. Anything in sporting and leisure, toys, games, and puzzles. And pleasingly, we're now getting back into stock in, you know, kids' wear, women's wear, and men's wear, and, we're seeing growth there. But frankly, it's, you know, we're seeing a consistency right across the store and the offer, that is really supporting the sales.
So, you know, there's a few areas you'd call out specifically, but it's not one area that's really driving the growth. It is the full collection of an offer for families.
... Thanks, Dave. And then on liquor, actually, on the media call, I made the point, and I'll get Steve to elaborate in detail, that actually, we're seeing a bit more trading up. It's not a volume issue, it is really a bit more of a trading up, but Steve, you're more-
Yeah.
A lot more detail.
Like we've seen with all COVID changes, it's accelerated the long-term trend of lower volumes at higher values, and that's definitely played out in both retail and Hotels, actually. So in spirits, we've seen continued growth in gin, for example, and craft beer sales are materially outstripping commercial beer. And interestingly, as we've opened Hotels again, that's played out on premise as well with back bar. It's growing a lot faster than standard pours, as well as craft beer is materially outstripping commercial growth. So yeah.
Thank you very much.
Thank you. The next question comes from Arian Norozi from UBS. Please go ahead.
Hi, good two from me, please. Just on the gross margin, it was up fifty-six basis points in the second half of food. Can you just give us a rough breakdown of the drivers? I know you mentioned shrink was one of them, and how we should think about that in terms of annualizing those stock loss benefits into fiscal 2021, please.
It was a bit hard to hear. I'll make a few comments then to Steve and then Claire, if they wanted to elaborate. We had had a bit of a challenging year. You know, you're always cycling things, as you may remember, in FY19 on stock loss. It was a really pleasing year of us consistently improving our overall loss over the course of the year, and we finished it with an average of just over 2.7% for the year, but it was actually as is often the case, it was really the journey over the year that was really pleasing, and a lot of other things going on in our GP rate that become really important as well.
I think I'd just like to call out that there were some mixed benefits there in a percentage sense, if nothing else, with tobacco really being a flat sales year for us after the CPI increase, which can make mix look better than it is in a percentage sense, given it's a low GP category. The same is true with infant formula. And then I'd just like to also call out on the negative side there that red meat continues to be an incredibly challenging business from a GP perspective. You know, and every year we kind of hope it'll change, but we're really battling to offset the livestock cost increases we've seen. So there've been quite a few movements there.
Stock loss is a real benefit, improving our win/loss promotional program. We're really continuing to work on having a much better promotional mix. I would see those as the two real benefits, but then changes in category mix based on what I said is also there as well. Steve?
I think just to build on that, the really big driver of those stock losses. So, you know, last year, we deteriorated stock loss performance in the second half. I think one of the real highlights for me for the year actually is the consistency of the improvement of stock loss that we ran. You know, that two point seven level's pretty consistently in both half one and half two, and so you just get a bigger delta in the improvement, in the second half of F-20 because of the deterioration of last year.
Okay, and how are you?
I would just pop a bit of flavor to that, kind of momentum, which, the plan would be to continue into this year. I think as we discussed last year, particularly the work we did around, the changes to making our front of stores more secure, whether that was in welcome gates or, the weights on our assisted checkouts, did give us that benefit we were wanting to see in long life, particularly. But I'd also add, the benefits we saw in fresh food on the back of some of the changes we made in one of our transformation programs in Fresh Made Easy, where we took out over 400 overspaced spaces in deli.
So clearly supporting having the right range into the right store and also continuing the progress in some of the work, technological work we've done in waste and markdown, making it simpler for stores to get a much better clearance rate through, and again, right time, right place relevant to the store.
Perfect. And second one from me, just moving outside of sort of shorter term trading, I mean, as you... I mean, key consideration whenever you start to cycle these strong numbers from a top line perspective, I mean, what are you doing internally in terms of capitalizing on trends that will happen post-COVID and once things sort of normalize? Is there anything around meal kits or anything around your the business strategy that you sort of want to accelerate the sort of growth share as you start cycling these comps?
I think it's a big question. You know, clearly, digital and online are a key part of what we need to do, so we're working very, very hard on that. We are continuing to refine, of course, the stock loss number. But in terms of category-specific strategies, Claire, did you want to elaborate on that?
I think just some of the key ones, as you rightly point out, you know, everyone has turned into remarkable bakers, or adults. So we're seeing that obviously be a very huge trend from March, and that continued through, and with events like Christmas and others coming up, that would be a particular one. As you rightly point out, you know, more meal occasions being had in the home, whether that's breakfast, lunch, or dinner, would be obviously an area which we will continue to review. And probably the last one I'd pull out is everything we're trying to do for the year ahead is very much have that COVIDS afe overlay.
So when we look at some of the key events coming up, ensuring that customers can still have the surprise and delight, whether that's in Halloween at home or what Christmas will mean has meant we've changed some of our plans, but in order that actually we still maintain a great event for the customers, but actually understanding that's gonna be more likely to be done at the home.
... Perfect. Thank you.
Thank you. The next question comes from Richard Barwick from CLSA. Please go ahead.
Hi, hi, Brad. Thank you. I just want to talk about the last question around slide 30. Thought that was pretty telling with regards to the change in behavior, so you know, less trips, but obviously significantly bigger baskets. What can you tell us as to what that means for shopping behavior and the way that's rolling forward now into FY 21? So if we could put Victoria to one side, what are you seeing in terms of you know, the locations or the types of stores that people are shopping at? Because I know you've talked-
Yeah. Thank you. I mean, Richard, it does depend on what stage of lockdown you're at. I mean, you know, in aggregate, what you found was, people shopped less often, but bought more when they shopped. And that's pretty logical. And you tended to choose one core store you shop from, and then you got your whole basket at that store. And that was a trend in Australia, New Zealand, and in all the international countries. And the size of that basket was exacerbated by the move to online, where instead of you having 10 or 11 items in a basket, you're running in the fifties. So that's the mega trend.
Then in terms of specifics, and it's incredibly noisy with borders shutting and everything else going on, but in general, we saw customers shop more locally, and I think it was borne out by competitor results. And based on what we look at as well, when we look at our neighborhood stores, you know, the old marketplace, so to speak, that many of you remember that Woolworths used to develop, people are shopping there instead of going into the regional or subregional malls. So we've sort of seen a move to local. It doesn't... And that sort of, in many ways, can advantage independents over the chains, but that seems to be quite noticeable.
Then within that, when you look at when people shop, we used to talk a lot about this move to the weekend and, you know, weekends and Sundays becoming the big day. Actually, we're starting to see that flatten out a lot more. We're getting more growth in the middle of the week, but essentially it's just a flattening of the shopping experience. It's not really a volume move, it's just the week's been flattened out as people have changed that. Now, the question becomes how long that will continue going forward. We truly believe that the e-commerce part is sustainable. To what extent we'll see this move back into the more mall scenario as people feel safer is not one I personally have a view on.
I suspect it, it'll happen, it's just a question of when and how. So we think that that side will rebalance, and we also think people will probably slowly, cautiously, over time, probably also flex their basket between retailers. But those are the key trends we see as of now.
You said it yourself that the move to local, you know, can advantage the independents, but I guess what I'm trying to get my head around is typically or oftentimes the independents can be smaller stores where people might not be doing their main shops. So as you say, people are shopping less often, but bigger baskets, and there's a bit of a contradiction in that if they're gonna shop local, if local means smaller, so yeah.
No, I agree. I agree. It's a tricky one. I wish I could give you a definitive view on it, but it's just very noisy right now. Actually, we structurally have a relatively strong neighborhood store network in a relative sense, and that is to say, through the marketplace developments of standalone Woolworths. And so we were really quite dependent on these standalone or very small local neighborhood malls, which many will remember. And so it's quite noticeable, the strength that those have in these moments. But, I mean, it depends so much by geography, to be honest, Richard, right now. Just hard to get more granular than that.
Okay. That's fair. Thank you. And just on the loyalty card, we see you're getting a nice growth in scan rates. Can I just clarify, does that scan rate, does that actually relate to the number of transactions that are scanned with a card, or is that actually, the proportion of sales going through?
No, it's scan rate, and so when you start looking at the tag rate or the volume-adjusted basis, it's higher. I'm particularly keen on scan rate because I'd like us to kid ourselves. We could put in other numbers that look higher, but it's how many people actually use it, and I think that's quite an... I know it sounds strange, but it's an engagement metric to me, but the tag rate is higher than that.
Thank you. The next question comes from Scott Ryall, from Rimor Equity Research. Please go ahead.
Hi, thank you very much. I guess firstly, congratulations. You guys have done an amazing job keeping supermarkets stocked for all of us to keep eating over the last six months, so well done. My first question... and thanks also for the additional detail on the supply chain transformation. I thought that was pretty useful. Can I firstly ask about MSRDC? And I know you've done this a little bit today. You talked about variability and predictability being key drivers of the performance of facilities like MSRDC. I wonder, can you just comment on how it performed during lockdown, and you've got two lockdowns, I guess, to comment on. And whether or not, I know your volumes are ramping up-...
But I would have thought that that predictability in a facility like this is less important than it is for a more manual facility. So maybe just help me understand how it's performing, you know, admittedly in ramp-up, not in full operation, but relative to some of your other DCs, please.
Scott, that's a pretty tough question. We did a lot of benchmarking in the crisis with a whole series of international retailers, and we still meet with them and share case studies. In a completely unpredictable demand surge, automation is not your friend because you really are pushing full pallets that you didn't predict you were gonna have to push out to store. So a bulk warehouse, where you can just move the full pallet through is the key.
And so we found whether it was Kroger or whether it was Sobeys, we all experienced the same issues that you are not as worried about brands, you're worried about commodities, and you're worried about getting a full pallet flow through to a store, and therefore, having great automation to pick items just intuitively doesn't, you know, doesn't play to your advantage.
Okay, yeah.
But as we get out of a demand surge into a more predictable demand pattern, that all changes. You know, a warehouse is only as good as the forecast it gets, I guess. And as we now get into good forecast, and Claire can talk to it, we start getting much better pick, pack, and dispatch through the warehouse. Important point I never mentioned earlier was, just in a COVIDSafe world as well, these warehouses are much more COVIDSafe. The big issue in warehousing is how you contact and contact times. And of course, we can much better manage it in the context of this. Claire, is there anything you wanted to add on the relative differences in the warehouses, depending where we are in the-
Yeah, I think on your last point is critical, Brad, 'cause clearly with some of the restrictions in Victoria of having less people in the DC, obviously an automated site has less of those challenges. So the ability to have that site operating twenty-four/seven to keep that increased demand in Victoria is definitely given as a positive benefit versus some of the other sites in the other states which aren't automated. But the key call out, I'd say, for now we're in that more predictive pattern is deliveries on time, a shed that can operate twenty-four/seven in a COVID-safe way with less people in it is everything we would want to minimize any risk.
Yeah. Okay, so can I then move on to New South Wales? And obviously, you've been able to use learnings from Victoria for the design of your New South Wales facility. How much of the benefit... I think the benefits are pretty clear from slide twenty-five, so thanks for that. But you've got the added benefit, I guess, in Moorebank of having merged locations in your little diagram on page twenty-six, showing the elimination of transport legs. I assume that's pretty meaningful. So how much extra? And you don't have-- this is not a qualification, but I assume that there is meaningful additional benefits for you of the co-location and the closure of three sites and moving to one, relative to what you found in Melbourne.
Is that a fair comment to make?
Yeah, look, a couple of points I'd make on that, Scott, and Steve, feel free to elaborate. This site is in a really terrific location for us because it really is an inland port. You know, you get the automated rail link directly from Botany Bay, and so you... And then you're straight from there into the national rail system or actually on right on the key arterial roads where we need a warehouse. So, irrespective whether two or one, the actual location and the infrastructure links for Moorebank are a material standout from MSRDC, which was in South Dandenong.
And for those who went there, you'll remember it's just in a paddock, actually, one side of Melbourne, where a lot of the growth right now is actually taking place on the other side of Melbourne. So location-wise, this is superior, and I think the fact that we've got these rail links is incredibly important for the NDC portion of it, in particular, given you're trying to service the whole country. So some real structural advantages in where it is. And then, of course, having the two together clearly is yet another benefit between them. But in terms of the infrastructure potential of the site, there I don't think there's anything like it in Australia.
Yeah, probably my only two builds would be, you know, there are always puts and takes in any business case, and, you know, we wouldn't have made the investment decision were we not confident. There are, you know, there are a couple of different dynamics going on, with New South Wales. Firstly, land costs are a bit higher in New South Wales, and, you know, you've got difference in currency as well. So that said, we think the benefits are there to justify the investment.
Thank you. The next question comes from Michael Simotas from Jefferies. Please go ahead.
Oh, hi, everyone. Sorry, I got cut off before, but I did get the answer. Just a second question from me on the Hotels business. So clearly, the Stage 4 restrictions have a heavy impact, but could you just comment on how well that business is operating under sort of more normal, if we can call it that, social distancing requirements? And also, whether we should expect any significant stock write-offs relating to the Stage 4 restrictions in Melbourne?
... The second is easy to answer, Michael, no. And I'll come to the first. The team have done an outstanding job of twice now shutting down our venues. And it's just, I couldn't call them out enough for the way they've done it. In the first, I'll make some comments when I get to Steve to talk to them. As I said on pubs actually, we've got quite a strong neighborhood portion of our fleet. And that is doubly so inside our ALH venues, which tend to be relatively suburban, you know big venues, where the ability to implement social distancing is much easier than it probably is in...
If he's looking at the kind of venue I'd like to drink at, yes, Steve, a small underground bar, it's much harder to implement social distancing. But we've found with a structural asset that actually is better in the COVID Safe world we're into. And process simplification in the venue, plus the ability in these bigger venues to execute COVID Safe distancing, we think is a really important strategic advantage of the venue. But Steve, I mean, you're living through it.
Yeah, well, you're right about the first point. There's no stock issues for us with the reclosures. I think what we're seeing from customers in Hotels is recognition of the safety of the hotel, to your point, Brad. And it's local, obviously, but it's also very familiar, and customers are seeking those more simple and familiar experiences, and that's what Hotels have been able to provide, and it's reflected in their results.
Thanks. Can you, can you give us any indication of what sort of patronage it's running at relative to normal levels?
I'll give you a taste of, say, Western Australia, for example. It's growing in the double digits, so you know.
Yeah, and that's a non-gaming market.
But bars and food are performing well.
But down on last year, I think that it all depends on the level of restriction in every individual state.
That's right.
Right.
We have to contextualize everything in with Victoria.
Yeah.
So.
Okay.
But it's a tricky one, given the differences in the states that we've seen. So it's kind of hard, I think, to-
It is. It's very state-by-state basis. But I think, yeah, Michael, as we put in the investor presentation on 57, you know, for the first eight weeks, our Hotels are still down. Now, a lot of that's driven by Victoria. Yeah.
Okay, thank you.
We can operate COVIDSafe with 80% of our previous capacity, at least, in place. You know, between 70 and 80, it depends on what part of the venue, but it is the ability to do that. You know, Steve, you're working through that. It depends on what the regulation is, a 1.5-meter, 2-meter-
Sure.
A venue cap. But, you know, as you work through it, and it's all state specific, there is an ability to be relatively sensible in the gaming rooms. We're calling out about a 57% machine availability.
Varies by state again.
Varies by state, but it's not quite as bad as it might sound prima facie.
Whether you're able to stand and have a drink, whether you have to sit down to have a drink, all these things play a part in the numbers on a state-by-state, venue-by-venue basis.
Okay, thanks.
Thank you. At this time, we're showing no further questions. I'll hand the conference back to Mr. Banducci .
Thank you everyone, as always, for your interest and support in our business, and hopefully as customers, as well. Obviously, we're all living through these times of trying to make sure we're all COVIDSafe, and so I hope you're all safe as well. Look forward to coming back in not too long and talking about our Q1 sales. Thank you for your ongoing interest and support.
Thank you. That does conclude our conference for today. Thank you for your participation. You may now disconnect.