Thank you for standing by, and welcome to the Woolworths Group Financial Year 2020 Q3 sales announcement 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. Please go ahead.
Good morning, everyone. Thank you for joining us this morning for Woolworths Group's third quarter sales result for F20. And in the era of social distancing, joining me in the room this morning is Stephen Harrison, our Chief Financial Officer, and Claire Peters, Managing Director of Woolworths Supermarkets. Joining us by phone are Amanda Bardwell, Managing Director of WooliesX; Natalie Davis, Managing Director of Woolworths New Zealand; David Walker, Managing Director of Big W; Steve Donohue, CEO of Endeavour Group, and our Chief Legal Officer, Bill Reid. No one will be surprised to hear me say that the last four months have been one of the most challenging periods in the history of Woolworths Group, as it has been for all Australians and New Zealanders and the broader global community.
For the first seven weeks of the quarter, our focus was on droughts and bushfires, but this changed rapidly on Monday, the February 24th, with the surge in COVID-19. The last six weeks of Q3 and the first three and a half weeks of Q4 have all been about COVID-19. The COVID-19 health crisis has disrupted the world in ways we didn't think possible and has tested the infrastructure, capacity, and agility of food and retail businesses globally. The increased product demand and customer and key safety requirements as a result of COVID-19 has meant that we have, at times, had to compromise our core customer experience, but I'm proud of the way we have adapted and innovated to support our customers, each other, and the communities in which we live and operate.
I'm particularly proud of how our frontline team has responded to this crisis, and I'd like to thank all of them for their dedication and commitment to meeting the needs of the community while managing the personal impact and anxiety of the crisis. Our customers have recognized the adversity, with customer metrics holding up very well under the circumstances, and customers appreciating the convenience provided to them through our online services. The safety and care of our team and customers is our number one priority, and we remain vigilant to responding to official advice as well as the feedback from our team and customers as it evolves. Across all of our operations, we have adopted comprehensive safety measures, including the enforcement of social distancing practices and enhanced cleaning practices.
This focus has also been extended to our support offices, with a large majority of team members working from home and very effectively, I should add. To ensure our team feels safe and supported, not only at work but in their personal lives, a number of new initiatives have been deployed to bolster our existing mental and financial well-being programs to assist all team members and their immediate families. Following the federal government's guidelines, the group's hotel business has been closed since the 23rd of March. Of the hotel team members affected, over three and a half thousand have been redeployed across the group to support essential operations, including the redeployment of some of our chefs to FareShare community kitchens in Brisbane and Melbourne to help produce over eighty thousand meals per week for vulnerable Australians.
To further support our team and help us implement our new social distancing and hygiene standards, over 20,000 new short-term roles were offered across Woolworths Supermarkets supply chain, e-commerce, and Drinks. The rapid increase in demand for e-commerce services resulted in significant disruption to the group's online businesses during March, which led to temporary suspension of Australian pickup and delivery services from store. Home delivery was prioritized to vulnerable customers through the establishment of Priority Assist programs in Australia and New Zealand, and also the creation of a Woolworths and Countdown Basics Box, and more recently, the creation of Community Pick up and the start of crowdsourced home delivery. In recent weeks, our e-commerce businesses have materially scaled up capacity, with normal levels of service now returning.
The COVID-19 health crisis is far from over, but I'm hopeful that we're now settling into the new normal, and I'm confident that we will get through this together if we continue to work better together, both inside our group and with the broader industry, government, and supply base. Turning to our financial performance, group sales for Q2 were strong across all businesses, with the obvious exception of hotels due to its closure in late March. Total sales from continued operations were AUD 16.5 billion, up 10.7% on the same quarter last year. Group online sales was 34% a growth of 34% for the quarter at AUD 817 million. However, as mentioned, online growth was materially constrained by capacity issues in March.
The Q3 sales result is very literally a tale of two halves, with the last six weeks of the quarter very different to the first seven weeks. Australian food sales for the quarter were AUD 11.2 billion, an increase of 11.3% on the previous year. Comparable sales increased by 10.3%. Sales growth increased materially from the week ending Sunday, the 1st of March, and peaked in the week ending Sunday, the 22nd of March, with growth of around 40%. Growth has since moderated, but remains above pre-COVID-19 growth rates. Customer metrics were negatively impacted by material disruptions in store during March, with VOC NPS declining by 3 points compared to the same month in the prior year.
Seasonally, VOC NPS has began to recover in April, with VOC NPS, NPS for April to date at record highs of 57. Average prices increased by 2.1% in the quarter. Excluding tobacco, average prices increased by 0.6%. Growth pre-inflation was driven by the continued impact of price-related cost increases, as well as fewer in-store promotions, which were used to help improve availability in March. However, in recent weeks, promotional activity has returned to normal with a printed catalog back in mailboxes across the country this week. Australian Food online sales growth through WooliesX was below recent growth rates due to the material capacity constraints I mentioned previously. Online sales increased by 26.5%, with online penetration of 4.1%, despite growth of over 40% in January and February.
As mentioned, online capacity is now being dramatically increased as we resume normal service, services for our loyal customers. New Zealand Foods sales increased by 13.7% to NZD 1.9 billion, with comp sales of 13.4%, benefiting from pantry loading and from more customers preparing and eating at home following tighter lockdown restrictions and stay-at-home restrictions in Australia. Unlike Australia, all fast food and takeout outlets, as well as greengrocers and butchers, were closed under New Zealand's Alert Level Four restrictions. Online sales growth of 36.2% in the quarter saw an increase in penetration to 7.9%. Similar to Australian Food, online services in New Zealand were impacted by capacity constraints, with priority assistance customers given first preference, in particular in March.
While trading well in January and February, Big W's sales growth accelerated in March, although the mix of sales has shifted towards low margin everyday needs and household items. Sales increased by 9.5% to AUD 866 million, with comp sales increasing by 9.9%, making it the eighth consecutive quarter of positive comp sales growth for the business. For Big W, Easter-adjusted comp sales grew by 8.8%, with Big W daily business really materially impacted by Easter timing. Online sales in Big W grew by 73%, with online penetration of 6.5%, up from 4.1% in Q3 in 2019, due to increased demand for home delivery. Endeavour Drinks sales surged later than in our food business, but ended the quarter very strongly.
Total sales in Q3 increased by 9.5% to AUD 2.3 billion, with comp sales growth of 8.9%. January and February sales were subdued and impacted by low market growth due to weather and bushfires. The increase in March was more pronounced and came later in the month as customers became concerned that they might not be able to buy alcohol under the lockdown and follow the closure of on-premise spendings. Their offerings performed particularly strongly in March, given its strong brand resonance and breadth of range. For WooliesX, online sales increased by 42.1%, significantly above run rates, with online penetration increasing to 6.9%. ALH Hotels sales for the quarter were AUD 350 million, declining 12.9% from Q3 2019.
Prior to the closure of our venues, sales for the first 11 weeks of the quarter were strong and increased by 3.2%, with comp sales for the 11-week period increasing by 2.4%. Moving to current trading and our outlook. The outlook for the rest of the financial year remains difficult to predict. However, the group remains in a strong operational and financial position. Sales growth has continued in March, although sales growth rates have moderated in April to date relative to March. Australian Food sales growth in April to date is in the mid-single digits. The rate of sales growth for the remainder of the year, of course, is very difficult to predict at this stage. Sales growth in March was partially offset by materially higher operating costs.
Looking forward to Q4, there are a number of costs which are expected to continue for the remainder of the financial year. These include ongoing costs associated with implementing our social distancing and hygiene standards in store, additional warehouse costs, scaling up online, and in particular, home delivery, as well as ongoing PPE costs. In Q4, these incremental costs are expected to be in the range of AUD 220 million-AUD 275 million. The extent to which these higher costs will be offset for the remainder of the financial year will depend on the rate of sales growth and the level of safety measures required. However, we remain focused on doing the right thing for our customers and teams. Hotels team members have been redeployed into other group businesses, and where possible, discussions are ongoing with landlords about rent reduction.
However, realistically, there are costs that cannot be avoided, and based on current expectations, hotels will make a loss before interest and tax of approximately AUD 30 million-AUD 35 million dollars per month while the business remains closed. While Big W has continued to trade strongly, our sales mix has changed as customers have bought more everyday needs and leisure products and apparel. The key question for the remainder of the quarter is that with the onset of cooler weather, what it will mean for apparel? In the second half of Big W will also be impacted by incremental costs due to COVID-19 and higher online fulfillment costs. Based on our current forecast, it is expected to still make a profit for FY 2020 post 16.
In the event of a more challenging economic environment in the midterm, the group remains well-positioned through its focus on food and everyday needs, convenience, online, and the group's financial position remains strong, with access to funding and liquidity, as well as significant headroom under rating agency metrics and banking covenants. In conclusion, as we enter a new phase, a phase of new normal, it's incredible to see the changes to how we all live and shop. We are committed to adapting our business to meet the changing needs, and I want to thank our team for the incredible efforts to date, as well as our customers, for their patience and support as we face these unprecedented, unprecedented challenges together.
I will now turn the call over to questions, and can I ask that you limit your questions to two per person, and we join the queue if you have any thereafter.
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 Shaun Cousins from JP Morgan. Please go ahead.
Thanks. Good morning, Brad and team. Just a question regarding the higher costs. You've called out the AUD 220 million-AUD 275 million incurred in fourth quarter 2020. Can you talk about what additional costs were incurred in the third quarter 2020, and what of these costs can be reduced or variabilized if sales growth moderated? Then conversely, what are the permanently higher costs that you will incur? I assume cleaning will be greater going forward, and you might need more staff, but do you mind me talk a little about third quarter, 3Q 2020, and then also what's variable and what's ongoing, please?
Yeah, I'll give you a high level answer, Shaun , but I'm going to turn to Steve Harrison to give you the detail. In summary, really, our elevated costs started in March and really were on the back of the demand surge and the fact that we needed to therefore get some additional warehouse capacity as well as beef up our team forward just to manage the on shop floor. And then we're outside of that, were primarily related to social distancing, hygiene, and protective clothes and equipment, and keeping our teams safe and not being willing to compromise on team or customer safety. As demand becomes more stable, we can start unwinding a lot of the additional warehouse costs that we've incurred.
But then in terms of the additional operating costs, they will depend very much on the government direction and how we unwind the current social distancing and hygiene practices in the business. The numbers you see take a relatively conservative view of those, and none of the costs that we are calling out, in truth, are structural. It will just depend on what the new normal looks like. At the same time, social distancing and hygiene perspective. So I'll turn to Steve to talk about, give you a bit more color to how those overall costs break down. Over to you, Steve.
Thank you, Brad. Yeah, Shaun , so I think to give you some clarity into how we've come up with that estimate and what was in Q3, we effectively projected forward the costs that we saw in Q3 and to an extent what we've seen in April to date. I think as Brad talked about, our key priority here is about customer and team safety. So you know, we broke them out into, I think, four buckets. The first one is really about cleaning and security costs. So as you pointed out, Shaun , the customer and team expectations is a much greater level of hygiene in our stores. So we do see that cost to be ongoing for a period of time, certainly for the balance of Q4.
You know, how that flows into FY 2021, I think will depend on how quickly restrictions change from a government perspective and also customer and team expectations. The second bucket of cost is, you know, what Brad called PPE or personal protective equipment. So that's hand sanitizers, it's bacterial wipes that we're using to wipe down every trolley before someone uses it coming into our stores. It's giving our teams masks to use as an option if they choose. It's the plexiglass screens or sneeze guards that we have in each checkout, and now in most self-checkout areas or in checkout areas. That's the second bucket. The third is surge capacity. So we put on additional warehouse in each of Victoria, New South Wales and Queensland. We've actually already exited the surge facility in Queensland.
We've still got the facilities in New South Wales and Victoria. The extent to which we need those is gonna depend on, you know, the period of time for which we see elevated sales levels, to be honest. And then the fourth bucket is obviously the team costs. Some of those team costs we've incurred in April, for example, so having additional trading hours above our normal levels for Easter and Anzac Day, for example, in terms of penalty rates. But it's mostly around additional roles that we've put into our stores around ensuring customer and team safety and hygiene standards and social distancing. So that is a store manager who's wiping down every trolley before or basket before people come into a store.
It's in some cases, door counters, so, managing traffic in and out of the store. Now, you know, we've had that in a lot of stores, initially through March and April. We're gradually phasing that out, depending on the demand and the turnover in that store. And then the checkout hosts is essentially maintaining social distancing at the checkout, and directing customers, you know, to the appropriate checkout area, the other door. So, you know, we are very focused on doing the right thing here for our customer and team and, keeping the social distancing standards in place. We're also very mindful, though, of the cost of that, so we wanted to call it out.
These are costs that we've been incurring. We expect to incur moving forward for the balance of the quarter. We will be very sensible about winding them down as the opportunity arises, but a lot of that depends on ultimately the government direction.
That's sort of very helpful. Maybe just to clarify, Brad, you said some of these costs started in May, pardon me, in March. So is this actually a Q4, or is this really post, you know, the COVID-19 issues, this is the quantum of costs? Sorry, I was just a little confused there, please.
So it started in March, is what I've said. Shaun , I mean, it's, you know, he's been giving an estimate for Q4.
But it is Q4, Shaun .
Yeah, so there is some cost that sits in Q3. We don't know, but there, there's something that would sit in that period as well.
Oh, yeah. I mean, the costs were substantial in March, in particular, so we obviously had that very substantial surge in sales from the beginning of March, which came with the costs. The way we've projected forward the Q4 estimate is based on what we saw in March, and, you know, in reality, we're almost at the end of April, and so it's a combination of those two that we use in the project forward.
I mean, if you look at it, you know, I think security is the classic, Shaun , in, as we got through the demand surge, particularly in early March, you know, there was a bit of friction which was covered on social media in our stores and there was a whole issue of team safety. We made the decision across the group to put security into all of the stores in the group. It was something that we felt was the right thing to do. It took us a while to get enough security to put across not only Supers but across all of the stores in the group.
You know, as we're now getting into an environment where we're seeing much better behavior and interactions, we're slowly scaling all that out of the business, and we expect that to go back to where we were by the end of the quarter. So those kinds of activities that you see start building in March, and we just got to be very thoughtful on how we unwind them. You know, we provided, you know, the options for our customers, our team to use gloves or masks. It was something our team really felt they needed. It was above and beyond, but it was something we wanted to address the mental safety for our team. We've bought those, we've put those into store.
Again, we'll slowly see them decline over time as people feel more, our team feel more comfortable and safer, that they don't need to use them. So there's a whole other range of moving factors going on there. But you know, in a post-COVID world, outside of our cleaning standards, which we'll continue to be highly vigilant on, and elevated use of hand sanitizer, which we actually as a nation, just interestingly enough, are all using much more of, a lot of those are really not structural factors.
Gotcha. Okay, thank you. My second question is just around the broad of promotions. During March, product availability was the priority, and there was significant sort of collaboration, goodwill with suppliers, and promotions sort of came off. Looking forward, and I think you're back on, you highlighted the catalog starting again, should the level of promotional intensity return to where it was, say, earlier in this calendar year? Or should, I guess, particularly, you know, should it increase given there's a desire of value, or will you be able to take the learnings of these promotions are wasted, we don't need those ones? And I guess sort of finally, will Woolworths chase up promotional monies that weren't spent in March, or will there be a recognition that you'll only chase up from suppliers' promotional monies from May onwards, please?
So Shaun , you can answer this one, and I might ask Claire for some help as well. Clearly, in March, when we saw the demand surge, there were a couple of weeks where we went away from a physical catalog. We pulled a digital catalog, but the catalog was also tilted away from specials just to our red program, you know, great value every day. And that was just based on practical issues in the store. As I understand it, and Claire, please come back and correct me, those promotions were re-slotted with suppliers. We didn't go and take money for promotions.
No.
We executed. The team did an enormous amount of work, and our suppliers, as I understand it, speaking to our buying team, were fantastic and being flexible on doing the re-slotting. We then have started to, of course, put promotions, specials back in, given the customer focus and need for value. As I talk this week, and I ask the team on where we're at, we're about 90% of what our previous promotional program was. So it's basically back in the business, and in a digital sense, which we get a much higher resonance on, but also in a printed sense.
Now, within the context of that program, we are continuing to work on fine-tuning how many promotions we do on winners and losers, so there is clearly some benefits coming through as we continue to fine-tune that, but that's always been our plan. It wasn't our view or decision to dramatically use COVID-19 as a way of just taking this important mechanic out of our business for our customers, and we're very sensitive to their search for value. So, Claire, is there anything you want to add on the supplier front? I feel we've re-slotted and done what we needed to do.
Yeah, I think just for completeness, it was one week where all promotions were canceled. It was two weeks where our shelf price promotions were canceled, and from week three, they started to be stood back up, being advertised through the digital brochure, which has proved actually very successful. As you rightly said, Brad, as of this week, we are back in market with a full paper promotion, which we have only been able to do by the support of our suppliers. As you rightly pointed out, through many phone calls and support from the buying team and the suppliers team, no money was obviously taken for a promotion we didn't run, and has been re-slotted with the upcoming events that we've got as the normal calendar.
But we will continue, as we have done and saw in Q3, our sustainable promotions. So we will continue now with that piece of work of promoting winning promotions rather than losers.
Thank you.
Shaun , I should finish it by.
Thank you.
It's a strange quarter, a strange quarterly sales announcement. We've been talking around fact a lot about sales, but our voice of the supplier, just like our voice of the customer and our voice of the team, is a critical measure for us. We just got our best voice of the supplier scores. It's terrific to see that, and I'm hoping that that's another validation for what I've talked about. I should add just a shameless promotional ad break, that our voice of the customer scores in April have been the best that we've experienced. When I look at reputation, which has increased dramatically, voice of the customer, voice of the supplier, we just got our voice of the team pulse check.
The business is in a very strong position, and I would like to think that we've come out of this phase of the crisis, and we're going to the normal, with, you know, real strong goodwill across all of our key constituencies.
Great. Thanks, Claire, Steve, and Brad.
Thank you. The next question comes from Michael Simotas from Jefferies. Please go ahead.
Good morning, everyone. The first question from me, just following on from Shaun 's question about the additional costs. I think I know the answer, but just to clarify that that is incremental relative to where they would otherwise be and not relative to the PCP. And then also, in the third quarter, is it reasonable to just assume that a third of that AUD 220 million-AUD 275 million was incurred in the third quarter?
Michael, it is incremental. It wasn't the third quarter really needs to be seen as its own or two halves, really, with the surge and the social distancing practices really were a March story. So we sort of had a relatively normal January and February, if anything's normal in retail, and then we got the surge in March. So you need to break it. Steve, I don't know if you'd like to.
Yeah, that's how I get my third. So is it reasonable to assume a third, or would it have been more than that?
It's slightly higher than a third, Michael.
Slightly higher. Okay. No, that, that's helpful. Thank you. And then the second question, current trading for supermarkets, you said slow- to mid-single-digit. You had Easter and Anzac Day in that period. And I presume when you say April, you mean the first few weeks of the fourth quarter rather than the first week of April, which was included in your third quarter. But can you just talk a little bit about what you saw over Easter and Anzac Day, and whether cycling those holidays from last year with a very different situation this year was a meaningful drag?
So Michael, we said, trading to date as the three and a little bit weeks of Q4 for us have been mid single digits. We expect to end up in high single digit growth over the quarter, and I'll come back and explain why. We'll see how that plays out. I mean, there's a lot of uncertainty.
Yeah
Out there. So, that's the range we see. As to your point, that's incredibly, it's incredibly volatile. So, you know, Easter for us was a very, very strange period. It was really right in the middle of the COVID crisis. And then we ended up with an Anzac, and then we ended up starting with an Anzac weekend that didn't have an extra public holiday attached. So it's, it's been incredibly noisy period in a normal course of business, never mind with COVID-19 thrown on top. It did look like to us, our customers are y ou know, you lose a lot of discretionary entertainment, as you know, when you don't you normally get a lot of discretionary entertainment over Easter and the Anzac long weekend.
We certainly saw the compression of the discretionary entertainment over Easter. We saw a little bit of a comeback over the Anzac weekend, even though there wasn't a public holiday. So we remain cautiously optimistic here, but gee, it's hard to call it, really.
Okay. And your point that you expect high single-digit sales growth, can you just elaborate on that a little bit more?
Well, not-
I mean, I don't, I don't disagree. I'm just interested in your thoughts.
Elaborate on this data. I'm going to use two data points to try and trade third, but this time we're using one data point to, no, I mean, I just think we get into a more normal phase. We look forward to sort of our version of a back to school. You know, we do expect that people are still going to practice social distancing and stay at home. We do expect and hope that people continue to, you know, do a little bit more home cooking, a little bit more home and so on. We hope they do a little bit more sensible, low-risk home entertaining, which would be helpful and obviously very prudently and cautiously and keeping everyone safe through the process. So, you know, that's our thinking.
We're starting to see a much more sensible trade impacting in the business as we're now back in stock, and the customers know they can get a great experience in our stores. Seems, you know, online has now been restocked up for us, which was a big issue for us in March. And so we're starting to see pleasing resonance from that.
Okay, that's very helpful. Thank you.
Thank you. The next question comes from David Errington from Bank of America. Please go ahead.
Morning, Brad. Hopefully all are well. My question follows on from the previous couple. Clearly, you know, the cost increase is expected, you know, whether you're doing too much or not, you know, or whether, whatever, that's a separate issue, and you know, only you will know the answer to that. But my question is: I understand the cost increase, but I suppose what's disappointing is to see the sales slide back to that mid-single digit, and effectively, the current sales is not going to be able to carry that cost. So my question is, is that can this cost increase that you've put in, to what degree of sales increase can that support?
In other words, if you, say, get 20% increase in sales, like we get stage two of COVID-19, we get a second wave, and we go into a bit more panic and all the rest of it, would you need to go to the bank again and get more put more costs in? Or is this cost increase that you've put in pretty self, fully inclusive, that it can cover all bases? I don't know if you understand the question, but
Yeah, no, I think I do, David. Look, we have. You know, everyone says it, but it's not what you say, it's what you do that counts, and I'd like to think our team and our customers can see it. We've decided we cannot compromise on our customer or team safety, and therefore, what you're seeing is a plan that anticipates a very heightened level of expected social distancing and hygiene from our customers and our team, irrespective of, you know, where regulations go. And I think we should take a conservative approach to it. And so that's what you are seeing in the cost forecast we called out. You know, and we're unashamed about it.
As I say, if it turns out that we've overreacted, and we need to wind this thing off, we can, but it just, it does not feel like the kind of issue we should underreact to or underestimate. So you are seeing, you know, a very prudent, conservative position on these things, as we think is the right thing to do. And as I said, we are worried on expectations and, you know, we just think our team expectations in particular, they do expect us to keep them safe, and we've just got to be very prudent on how we go forward. So you're seeing a very prudent position there, David. On cost, we are not saying. I think it's very hard to predict what the cost is for the rest of the quarter.
We're just saying in the first couple of weeks, we're sort of in the mid single digits but on sales. But you know, we're starting to get into a more key period now. And so we are, you know, hopeful that we will continue to see the momentum we've seen come back in the business with the availability right for the customer experience, right for the online. That gets us something higher than that. So where it gets to, I can't. I honestly can't tell you, but that's our hope and expectation and our plan.
So, like, in other words, if you did get a jump in sales with a second wave of COVID, your stores are probably in the right place to cope with that. That's where I was going with this.
Yeah. Oh, definitely. Absolutely. Sorry, yeah, absolutely. Well.
So that's where I was going.
But if we did, yes, we're still in a good place from the change to our supply chain.
Yeah. Yeah. So if you got a 10%, say, if you like the likes, went to, say, 10%-15%, you know, you went back to a, another, you know, we went to COVID Mark two, you'd be able to handle that without a significant increase in costs. That's where I was going with this.
Yeah, well, I think we're all wiser and more sensible, and we've got things much better organized. Yes, David, that's certainly the case.
Yeah. Yeah, so you this is sort of like an investment up front, if you like. That's where I was going with that.
Yeah. Well, I mean, it's a conservative setting, but we think the right setting, you know-
Yes.
We've got to be very vigilant in.
Yeah. Yeah, and probably given the conditions, deemed appropriate. So yeah, yeah. Okay, that's where I was going. Brad, the second question, I mean, this is going to be really hard, but what is hotels gonna look like? I mean, I know we're only into this, but you obviously talk to the government. Clearly, you know, you got a direct line in there, which you should have. But what social isolation, and when it reduces, what will hotels be like? Is this a permanent damage to the hotels business? In that, you know, how long will it take to get back up? Because obviously, it's shut down, doors are shut, et cetera, et cetera. But when do you think things might start fading back to normal?
Now, I know that it's a difficult question, but it's a very relevant one, given that every day that the hotels are closed, you're losing money.
Yeah, thanks, David. I mean, It's a really difficult question to answer as you know. You know, so I mean, but if we were realistic, you know, they will be open in the next couple of months. I think that that's probable. But when they do reopen, there will be very strict social distancing practices required inside them. So, you would expect that that would naturally demand constraints on them, just like we've had to with some of our stores on certain occasions. And you would see those social distancing restrictions only come off gradually. So, you know, we think it's gonna be a gradual glide path between now and certainly the end of this calendar year, and that's our expectation.
But you know, we're in the land of supposition in many ways, but we want to take a very conservative setting to that. Of course, our aspiration is to go from, you know, losing money on the same cost to at least above breakeven. But that will. We've got to, again, follow government restrictions and be very safe in anything we do. So we do expect to see a challenge in H1 of next year, and that's what we're planning on. But we would hope that under the right conditions, our venues are operational for H1.
Because the demerger is on hold, really, isn't it? And so because effectively, hotels as a business is, well, it's not a going concern at the moment while they're closed, but depending on what they look like, you've got to basically put the demerger on hold, don't you?
That's what we've said, though, David, and so it's not certainly happening in this calendar year.
Yeah.
We would still planning on success and planning on it happening in 2021 . If the deferral has done anything, it's just helped us actually set up the partnership agreements between the businesses. We've planned what Endeavour Group looks like in the new world, so there are some benefits. There's always, before, you know, there's always a silver lining in a dark cloud, so there are some benefits in the deferral, which will make it a much easier and more seamless process if we decide to proceed.
Thanks, Brad.
Thank you. The next question comes from Andrew McLennan from Goldman Sachs. Please go ahead.
Oh, good morning, everyone. And Brad, congratulations to you and the team for working so significantly for the community. I think that's, you know, certainly a great outcome from the whole sector, really. Just one final question on costs. I know we've run through it a lot. You've given us some great detail. You mentioned that you shut down your pop-up DC in Queensland. I just wanted to get a sense of, you know, linking back to David's question, around your preparations, if there is a second wave. I imagine you'll still need that upside capacity.
So I'm just wondering if you could talk to, firstly, what proportion of that cost guidance for the fourth quarter is actually logistics, and whether or not you may potentially need to sort of renegotiate a pop-up facility in Queensland, or alternatively, whether you can actually shut down these supplies in Victoria for you?
No, no, thank you for the question. I mean, I'll go high level, and I'll get Steve to talk it. In the height of the COVID crisis, I actually spent every week, I was on the phone to leading retailers around the globe and trying to learn from them. And one of the fears in the early stages of the crisis was just how deep it could be and how long it could continue. And we used that to then set up our plan to protect the downside, which was the right thing to do. We thought for Australia and for all, you know, all the community, but particularly the vulnerable customers in Australia.
So we set up a very conservative plan, but with the information we had in early March, that was the right plan we felt, and I don't think we would do anything different. We turned out not to need everything we did. So with that in mind, for example, absenteeism in Italy picked up 30% and came back to ten. We actually are running absenteeism actually where we're used to. In fact, we saw a peak, but only for a week, and it's come back. So we thought we're gonna get this absenteeism. It was a real worry.
We're now going to have to do the social distancing, and then we're worried about just the surge in demand and how we flow through particular bulk lines and actually pulled them out of our automated or semi-automated sheds, and just use bulk storage facilities to drop by and flow through bulk lines. And that was really what led to the warehousing extra capacity. As we get into the new normal and the need for this extra capacity just falls away, which is why we're now taking it up. The problem with getting the leases off some of these sheds is with a two-month leases, so it just takes a practical step. It gives you a bit more color.
Look, two small builds. Andrew, to your question of what proportion of the costs are for supply chain, they're less than 10%. The reason we feel comfortable with exiting the pop-up facility in Brisbane is because actually Brisbane is our largest shed within our existing network, and so we actually have the capacity there to cope with more surges in demand.
Yeah. Gotcha. Excellent. Okay. And with respect to online, given the very significant sort of complexities there, I think you've done a pretty good job. You've been able to scale up your capacity, you've said, in the last weeks by, I think it was 100%, I think you doubled the capacity. How are the MFCs playing a role there? Is that still too soon? And just how do you see things progressing from an online perspective, maybe over the next sort of 12 to 24 months?
The MFC, sorry, the CFCs, you mean, Andrew? Sorry.
Yeah, the micro fulfillment centers.
Yeah. Okay. Yeah, so look, you know, what the crisis has done is really forced us to pull forward a whole series of investments into this year, but investments we were planning to make over the next 24 months, and that we don't think it's a bad thing. Actually, it's pulled us forward to do a series of things to essentially double the capacity we stood at really, in many ways, from December last year. So if you just kind of looked at what our capacity looks like. In doing that, we've really leaned very much into our stores and leveraging our existing store footprint to do it. Our MFCs are on schedule to be commissioned by the end of the year.
They're actually getting an engineering team down from the U.S. to commission them, and we'll kind of see how the travel works. So the stock was driven by our Takeoff micro fulfillment centers, although we are on track to get them up by the end of the year. And we've been forced to just lean into our store network and learn a lot more about the store network and what we can do out of it. In addition to that, we've done a lot more work through our manual CFCs, and it's been amazing. We've done a third more through them than we thought we could do. So we've learned a whole lot how to run our three existing manual CFCs, which has been this fantastic innovation from the team.
We also, in the short term, did not open one store that we just ran as an online store, which has been an interesting learning for us, Eastlands and Queenstown, Australia. But actually, New Zealand, the New Zealand team have innovated even more and taken four existing stores and turned them into dark stores. So there's a lot of learning there for us going forward. So, automation will still be an important part of our plan going forward, but all the capacity we've done is really done through a version of switching our existing assets better and some ingenuity from the team. All of this will really help us going forward. It's teaching us a whole lot on how to improve our online business across the group.
And I said this to the board, the last two months have been like three years in e-commerce time, really, and I don't exaggerate by much in saying that.
Yeah. Can I, can I just follow on with that, just to ask you if you've provided some stats around the e-com store sales drivers through transactions and average transaction value. Was there any dynamics to point out from an online customer's perspective?
Well, there was a very, it was a very weird quarter for online, and we've been acutely sensitive to the issue that especially in March, when we had these demand surges, and particularly in Australia, we had to shut down pickup just because we couldn't guarantee the product was going to be available. We then had to take online, and instead of servicing our loyal, regular customers, we pivoted it to supporting vulnerable members of the community. And I'm, i t was the right decision, but it's one that always sits uncomfortably with us as a management team. We didn't really recognize our loyal customers, but vulnerable customers, and, at the dust settled, it appears as if our customers have accepted and understand the logic to that, so we actually ended up servicing and introducing ourselves to a range of people we had never serviced before.
In fact, we took a whole lot of people online and taught them how to order online. And so we've, in a way, technology enabled a whole range of particular older Australians, which actually is something quite nice in thinking about that, actually, funny enough. So basically, all of the capacity we had in March was with new customers to us, generally vulnerable customers. So what we've got to now do going forward is for those vulnerable customers, they're still online, we need to meet their needs, but we now need to go back to servicing our existing customers. And that's what we started doing in the first couple of weeks of April. And so far, so good. I know it's not exactly in line with your question.
I wish I had a different answer, but that's really what's happened in the last eight weeks.
Okay. So not really representative of what's going to be happening going forward?
I mean, basically, we have a much larger online customer database now, and we just need to meet their needs is basically what we've learned. In terms of the mix they buy, look, to be honest, the product mix impacted online as much as it did stores. The product mix changed. We really, we'll see a real lift in basket size. We've been pleasingly surprised by online and just how it's resonated in a week and a half with 700 stores, you know, really pleasing. Community Pick up, I think our whole pickup experience will have to change. We see people do not want to come to a service desk to get pickup just in this world of being contactless.
Our drive-throughs will become more important going forward. In the case of Dan Murphy's, a wonderful innovation, we actually come and do a boot service for you just using geofencing. That will inform the strategy for the group going forward, how we actually do boot services and just take risk or perceived risk for customers at a store. Some amazing stories, but still very early in that next phase of our journey.
Okay, great. Thank you very much.
Thank you. The next question comes from Brian Raymond from Citi. Please go ahead.
Good morning, Glenn. Believe it or not, my first question is also on this AUD 220-275 million costs. I just want to understand the variable component of it. Given you said, I think, earlier, somebody mentioned before that the March impact had been slightly higher than this run rate. I would have thought there would be some material headcount being added in here, which is to do with the actual surge in sales. So my question is essentially, is this the right run rate at March, at a mid-single digit sales growth level that you're seeing in April? And if you could give us a feel around the variable, the fixed component of that while we're in this lockdown type area, that'd be really useful.
You know, age of flexible or remote working, you're gonna have to upgrade your technology, if you don't mind me saying. I think it's a very high fixed component to that upgrade. I think we know the question, which is what portion of our costs are variable versus fixed for Q4, right? I think that's the question.
Of the incremental cost. Sorry, Brad, just to be clear. So of the AUD 220 million-AUD 275 million , yeah.
Okay. Yeah, no, got it. Yeah.
Yeah. So Brian.
But these are largely fixed or fixed for the period of the quarter, would probably be the way I'd describe it. So if we see a surge in sales, you know, in May and June, we would obviously have variable costs associated with wages in our stores and costs in our DCs and transport fleets. What we're trying to call out here is what is the incremental cost of decisions we've made or the way we're supporting and enabling safety and social distancing in our stores. So in the short term, it is largely fixed, but obviously over time, it's variable.
Okay. And just how much of that is in Australian Food of that AUD 220million-AUD 275 million? Would it be proportional to sales or over indexing?
I don't know the number off the top of my head, Brian, but it's, you know, this is a group number, but I think it'd be fair to look at the proportion of the costs across each of the businesses and assume that, you know, Australia has its fair share of it.
Okay. And then just on Brad, your earlier comment around high single digit sales growth that you expect to return during this very unusual period that we're in. Obviously, out-of-home consumption is a big part of that, but I'm just interested in how you feel, how you're seeing trading down occurring. Obviously, there's some income pressures across the economy, so just trying to understand if that high single digit expectation also includes a number of other factors, like shift to private label, shift to maybe smaller pack size or trading down in that expectation?
Yeah. So, I mean, we're in the sense, it's good to hire, right? So, you know, you know, and with all the caveats around unpredictable it is at the moment. We had the same question in the media call, and it's very hard to be definitive on trading down right now, just because the demand has been so all over the place, and if you're out of stock, actually, if you backsell for any week, have a look at ASP. ASP has actually gone up, but that's probably as much driven by availability issues as by anything else. So if you actually go and have a look at it, it's been all over the place and particularly if you, I mean, you don't get much of ASP by category.
I know you'd quite like it, Brian, but you don't. But if you look at it, you'll see that. So it's not in the historical data. However, it's, you know, I think it's a fair supposition that people are gonna focus on value going forward. And we know what value going forward means, really does, reason it's. If you look at it, it does come back to core everyday needs that people will focus on. And, you know, for the core everyday needs, we have a red program already where we do lock those lines down. As you know, to say right now, the red programs have not grown in the last quarter, but that's through all the reasons I've talked about. So we expect the red program to grow in our business.
But it does play back to our Low Price Always, which is very own brands driven and program, and our Prices Dropped, which is a bit more consumer driven, third-party driven. So we would expect this, yeah, but we're not really seeing it now. Maybe a little bit of it in drinks, but I just wouldn't call it. It's just too early to call.
Right. Okay, thanks. And then just, I'll just make one more, and just on the CapEx outlook, you previously guided for AUD 1.7 billion. Just checking if that's still on track for your CapEx guidance for FY 2020, or if there's been any delays or actually any unforeseen CapEx with what's going on out there at the moment?
No, broadly on track. I mean, you know, we're obviously thinking about what our FY 2021 CapEx needs to look like in the world we're gonna move into. But, you know, we've had a series of commitments, and Steve, I think we're broadly on track.
Yeah, I think, I mean, there's been some projects that have been delayed, you know, in places like New Zealand, where we've seen. We haven't been able to move forward because of the restrictions, but I don't think we're talking about anything material in terms of changes in our CapEx outlook.
We'll be at the lower end versus the upper end, Brian. I mean, that's certainly true, but you know, there hasn't been t here has been some more thought of, you know, a lot of things we've done in e-commerce, but they really are just bringing forward, and we've taken them in an OpEx sense, in a way, because they're mainly around software and like that.
The next question comes from Grant Saligari from Credit Suisse. Please go ahead.
Thank you. Brad, I'm interested in how you actually come out of this period as a business. You're doubling your online capacity and online now growing, you know, very strongly, your Everyday Rewards membership going up. Do you see Woolworths, you know, let's look further down the track. Is Woolworths going to have a stronger market position, a bigger market share, basically a stronger moat coming out of this than it was coming into this? Or do we look back in 12, 18 months, two years' time and say, "Well, that was, you know, an interesting experience, but fundamentally, Woolworths' position hasn't changed?
I think it's a great question, Grant, and time will tell. Our aspiration is to come out of this as a stronger business than we were in, and it's one of the reasons we've been so dogmatic around, you know, keeping our team and customers safe. And, you know, to us, reputation is everything. And within reputation, you get, you know, your NPSs of your customers, your team, and your suppliers, and all of those things give you long-term benefits if you do the right thing. So that's been our focus, and it is our true north, and so far, so good on that.
So certainly, in a culture, in a reputational sense, we hope and aspire to come out with an enhanced one through doing the right thing, not through a marketing message or whatever the case may be. So I think that's true. In terms of e-commerce, it definitely has brought forward and made us do. And just the ingenuity of our team, and agility is almost extraordinary for us in the last eight weeks, what our team has managed to do inside New Zealand, Australian Food, you know, Dan Murphy, Big W. Yeah, I was saying to the board, if we could just wipe all this up and take this creativity and just turn it into a normal year, it's amazing.
Just the creativity and productivity we got in the e-commerce space in the last eight weeks is well over a year's worth of effort. And that's because we all just leaned in, and it was all driven by a noble cause of really primarily looking after vulnerable Australians and New Zealanders, which is a pretty amazing, energizing. And we were just willing to take maybe a few more risks, be a little bit more agile. But yeah, we will come out of it with a much better digital and e-commerce capability across all of our businesses, and it's fantastic, and it's thanks to the team.
Okay, and secondly, if we focus in specifically on Big W, which is a business that you've been looking for opportunities to create options for yourself, by rebuilding the profitability of that business, is there anything that you can point to that would suggest that you've been able to build customer loyalty or build some better underpinning profitability of that business post the crisis that we're going through now that would give you some optionality around Big W?
Well, I mean, I think it's like my comments on the overall group, when I look at the Big W's NPS reputation, being there for its customers, that it has been enhanced in this period. I mean, we have been committed to being open, doing whatever we need to do to meet the needs of our customers, and they know we're there, and you can see it reflected in, I think, in the sales number, but actually a more important use in the customer metrics. So we do think we've had good resonance. Importantly for Big W, as always for us, we're looking at our inventory and how the health of our inventory. So far, so good. We've got to wait and see what happens with the powerful winter, but so far, so good.
We're in a very good position with inventory management, thanks to the team, and you know, online works very well for a discounted department store. In the department store, just your pick, pack, and dispatch costs are just much more effective, and so having that really grow to the extent it has is good for us, and we've got the space in it, so we feel the business is in a good place, in a better form. It does create more options for us, of course, so we're not uncomfortable with where it's at, and of course, we've got to deliver a profit this year, and that's our focus. You know, there's still many things unknown for the next couple of weeks, but hopefully that's the case.
But then the real opportunity for us, we think, going forward, is how we more thoughtfully stitch Big W digitally together with Woolworths, and that's something we'll work on as a bit of a priority in the next year, and how we, you know, we leverage the two brands a little more.
Okay, that's helpful. Thanks, Brad.
Thank you. The next question comes from Ross Curran from Macquarie. Please go ahead.
Thanks, team. It's Ross Curran here from Macquarie. Two quick questions. First one's just on online penetration. So you've doubled capacity in online. Should we assume then, going forward, that online sales, as a percentage of total sales, is gonna be up at that high single digit figure by the end of the year?
Oh, right. I mean, that will depend very much, you know, by business and so. It'll certainly grow dramatically based on customer demand, I should add, not based on the capacity. It's. We're trying to keep up with our customers and their needs and wants. So, I haven't back-solved it, to be honest, but we really expect to see material growth in Q4 based on the pent-up demand that's out there. You know, so you look at New Zealand today, and I think it's 79%, and look, I mean, that certainly would be the case. We've seen just fantastic growth through Dan Murphy's and the digital presence, and it's supplier direct as well as normal rates, but we expect that to really get up there.
You know, food is just much lower, and so how that comes through will depend on that solve, to be honest, but we really expect meaningful material growth.
Yeah, I think, we called out in the New Zealand section, 11% penetration in the last week of the quarter. So, you know, it's potentially illustrative of, you know, we've been sitting around that 8%, 7% to 8% mark. You know, we've got quite a surge just in New Zealand, where we've had more capacity, and obviously, the circumstances with the lockdown in New Zealand and the level four restrictions have probably played more to an acceleration in New Zealand. But I think that's illustrative of the type of growth that we can get, and we're very focused on unlocking capacity so that we can meet the customer demand.
Is any of the investment required to improve the online capacity, is any of that included in that AUD 227.5 million incremental investment for the fourth quarter?
Yes. Yes, there is some.
Yeah.
I mean, there is also some capital costs associated with just putting equipment into stores as we put more stores online for home delivery, but it's modest capital.
Yeah, the capital's not gonna be as big as I mean, you know, a lot of the OpEx that we talked about is, yeah, I mean, there's an element there.
Thank you. The next question comes from Niraj Shah from Morgan Stanley. Please go ahead.
Good morning, everyone. Just first on MSRDC, I guess firstly just to confirm that Hume was shut in late January, and that it sort of stayed shut through this period. But also more generally, how did MSRDC perform through this period? And you know, the disruption we've seen, what does that mean for the path towards sort of business case type returns?
Sorry, there was a very bad line. The questions were on MSRDC and our performance.
Yeah, MSRDC.
Yeah, we did close Hume in line with plan. MSRDC, the automation in MSRDC is tracking in line with plan, achieving its business case in line with plan. You know, obviously, a few things have been delayed here and there at a store level around trying to extract productivity, as you might imagine, because it hasn't been the time or place. But actually, MSRDC has had a very positive four months in terms of tracking in line with our expectations. So no, so far, so good, and actually, yeah, I mean, very helpful for us as we think about the future.
At the start, if you don't, so this is an opportunity to reduce sort of your promotional intensity and focus more impactful promotions, given I think in the past you've talked to it. And just the second part of which is interesting in your comment is, given you've sort of got another 300,000-odd consumers from online and 700,000-odd in rewards, I would've thought this is more of an opportunity to leverage the database coming out of this, taking advantage of say independents, et cetera, that might not have that capability, versus sort of just reverting back to sort of some of the more blanket promotions, which I think you sort of indicated in the past probably haven't been. There probably have been too many?
Yeah. No, sorry. So then the question I've, a gain, the line's just really bad. I'm sorry.
No, apologies.
The first thought I wasn't.
Yeah, I was just, I'm just surprised that you've gone back to the same level of promotional intensity, given that I think in the past you've said you think there are too many in this market, you should be more impactful. And I would've thought it's more of an opportunity to put more money into leveraging the database and the capabilities you've got sitting behind the rewards program.
Yeah, no, look, I think it's a great one, Ben. We've gone back, but as I said, we're continuing to refine what we do in store. So, but just given the current market we're in, doing anything radical there with our customers, you know, we just have a bit gun shy, although we're continuing to consistently and thoughtfully reduce the number and improve the number of one-off scattershot promotions. So that's certainly true. We just didn't feel, given where the customer is right now, that just, you know, doing something dramatic was right. We really, you know, we've been monitoring our value scores all the way through this, and we wanted to make sure we did that.
In terms of taking value and delivering it below the line, via the rewards program, this is a big priority for us, as a group, and we're working on that, absolutely, and this will accelerate that, if we, if we can do the right thing. You know, we're very hopeful of accelerating, moving it from the store into below the line. And there will be, of course, benefits for our customers, but hopefully benefits from wanting to do that. That's. There's no question that that will be helpful. You know, just given right now where the consumer is, we've just got to be very cautious we don't lose their trust on the way through. We do see upside there. When and how we bank it in the next couple of months is an open question.
Because there's, in theory, a larger share opportunity now, to Grant's point before, because you've got this customer base that didn't probably shop as much as previously, and obviously independents don't really have a very strong, even now, the strong online offering. So it's, it's-
Yeah, online. Well, you know, we've got to execute. I mean, but we do see yeah, we have great aspirations online, and, you know, we do aspire to grow. We do have a bigger database, to your point, so we do plan to market into it. I think we've doubled our capacity. We'd like to fill that capacity, of course. So yeah, we have great aspirations there, and we'll continue to work on those. And we know that online is accretive to store, so if we can execute against online, hopefully it helps our overall share position. We saw a little bit of the impact of that on the negative side in March, of course, when we couldn't actually do what we wanted to do online. So I absolutely agree with the point.
Just a question of when and how.
Okay, thanks. Thanks very much.
Thank you. The next question comes from Rod Sleat, from Rimor Equity Research. Please go ahead.
Hi, guys. I just wanted to very quickly come back onto MSRDC. You certainly said it's tracking along according to plan, but I'm just interested, given the advanced technology employed there and presumably some excess capacity versus current volumes, did that make handling the spike in Victorian demand easier than perhaps the experience you had in New South Wales? Was there any material?
No. No. For lots of reasons, and I've done. We spent a lot of time this on the phone with Sobeys, Kroger, and many others, sharing messages. Automation is unbelievably powerful where you've got predictive demand, because you are essentially building a pallet that's supposed to put down an aisle. So, it is. Its real strength is its ability to curate a pallet for an aisle in a particular store, and therefore do that in an automated, seamless way overnight and dispatch it to store and really help the team then fill the shelf. So its real strength is in a time of non-demand, unpredictable demand surges, where flexibility becomes important, and flexibility in a manual shed is just easier, if not significantly more expensive to do.
It hasn't helped us in Victoria. We felt Victoria was very challenged for a variety of reasons to be where we wanted to be, availability, the demand surge there was higher through a number of announcements that came out of Victoria. We felt we didn't deliver the right customer experience across the country, but Victoria, we particularly felt we didn't do everything. Well, we didn't do what we wanted to do for our customers. That is not the fault of MSRDC , I might add. What we did find, though, is the automation worked. It hit the capacity we wanted it to do. It hit the actual cost per carton that we wanted to hit, and we know that it materially helps the stores.
But actually, what you've got to have in the demand surge, which we will continue to have, is manual flexibility, where you just want to do full pallet, you know, cross docks and things like that, which don't really need automation. They just need good old-fashioned grunt. So, clearly, it didn't help us, but what it did was we stress tested the automation, and we put through the volumes we wanted to, and we didn't have any issues. And I say, touch wood, we didn't have literally a scintilla of one major issue that we had, so.
Yeah. Well, lots to learn. In some ways, it gives us confidence in the automation-
Yep.
Through having tested its capacity limits.
But you always want to have a bit of manual capacity on the side, as I learned.
Yeah, absolutely. All right, can I also just ask about the, a lso, a question on the cost. With the 22,000 additional staff that you have hired temporarily, presumably they are all casual staff, and presumably they are not-
Yep.
full-time equivalents. Otherwise, that would be all of the additional costs that you've been talking about, I would imagine. Could you talk about that additional cost range? How much of that is coming directly from additional staff? I would presume it's the majority of it. And then secondly, is that staff component really pretty much fully variable, depending on, A, store demand, and B, on the continuing extra actions that you have to take as a result of COVID-19? So as things are up-
Yeah, so.
Become variable.
Absolutely. So we hired the extra team based on initially actually looking at the absenteeism that had been experienced everywhere else as people stayed home, or family members stayed home, or the kids stayed home, and you know, being able to operate the store. So you wouldn't have the absence. We wouldn't have the right staff there to just manage product flow. Actually, as it turned out, most of our demand turned out to be in social hygiene standards, not in that demand surge and the absenteeism. The team that was hired is all casual, so it was never meant to be anything more than a short-term. But we're also sensitive to you know, you can't turn something on and turn it off. So it is a casual team, but we still want to be very thoughtful.
If someone comes across and takes a casual job at Woolies versus somewhere else, we can't just turn it off immediately. So it is casual. Most of the hours now, though, for it, are associated with social distancing practices. So if those come off, you can manage the glide path, and we intend to manage the glide path between May and June. I'm not sure if there's anything, any other color you know?
There are a few key ones. Obviously, ALH and Qantas would be casual as well, and some of the extra resource would have gone into stores that were stood up for home delivery, which didn't happen.
Before. Yeah, so it's a good point.
Yeah.
And then sort of in the AUD 40 million-AUD 50 million, the cost range?
Yep. Yeah.
Oh.
Thank you. The next question comes from Phil Kimber, from Evans and Partners. Please go ahead.
Hi, guys. Just wanted to explore when you talked about the pubs, you know, you're working with your partners and suppliers around, you know, cost reduction. I mean, is there a realistic ability to, one, you know, reduce rent? And then secondly, are you getting any benefit from the JobKeeper? Have you shifted any staff onto that system?
Phil, well, as you say, we're not getting any benefit from anything right now, if I was gonna just. And that's reflected in the commentary we've made and the numbers we've quoted. Any benefit we'd get would be greatly received, but it's nothing above anything you see in the documents. We just. So, on rent reductions, we have spoken to a number of our landlords, particularly in venues, but also in some cases, our CBD stores, for example, in Metro, are down 70%. And so we have spoken to our landlords, asking for their support in the context of those stores. We haven't done anything unilateral in that regard. We know, you know, certainly a number of other retailers may have, but we haven't.
But we have spoken to them. That's not reflected in the numbers we have today. So we've not seen any rent benefits right now. I should add, we've not done that without acting on our own. What is reflected in our commentary is that for our own specialty tenants in those marketplace malls we own, we have actually addressed their rent in the short term. So we think that's the right thing to do, and we would have done it either way, but we're not having the benefit. On JobKeeper versus JobSeeker, we're still engaged with the government and the ATO on how we deal with that in the context of those ALH team members that haven't got a role in Woolworths or didn't want a role somewhere else in Woolworths. We're still working through that.
We're hoping, ideally, to get to some resolution at the end of the week. It does weigh heavily on us to make sure that just inadvertently, someone who's caught up in the Woolworths structure doesn't get penalized versus someone who worked in a different kind of a venue, and that dialogue's just happening tentatively with at a government level, and we hope to resolve it and stay by the end of the week, but in all of our commentary, you're not seeing any assumed benefits from either of those.
Okay, that's great. So you, the numbers that you've given, you know, hopefully could be better if some of those things fall your way, but, you know, that remains to be seen whether that'll happen.
Yeah, exactly. Exactly.
Yeah. And then, just last one for me, if I can now. Is one way to think about the Easter impact, in the past, you know, when Easter's timings moved around, you've given us, Easter-adjusted growth rates. Is that a good guide to work out what the impact would be on the quarter? Obviously, it'll be higher on just the month of April. As to what, you know, as circumstances have meant that we didn't really get a proper Easter from a supermarket and liquor store sales business this year. Are those sort of historic adjustments that you made, some sort of a guide, or is it just too messy to work out?
Outside of the Easter Bunny coming, taking a lot of Easter eggs to families' home, there really wasn't an Easter in Australia. I'll let Steve talk to the technical details. We sold a lot of Easter eggs, but outside of that, you know, really it was. There really wasn't the headline Easter in Australia this year.
We would typically adjust for Easter if we saw a change in the timing between quarters. The reason that, with the exception of Big W, we've made no Easter adjustment, is largely because Easter was in Q4 last year. It's in Q4 this year. The only business that saw any benefit of sales ahead of Easter in the back end of Q3 and the last week of Q3 was Big W. We've looked at it in every other business, and there's no benefit. That's why we've made no Easter adjustment.
Thank you. The next question comes from Richard Barwick from CLSA. Please go ahead.
Okay, thanks, guys, for taking the question. Just, you know, we're going back on the, these incremental costs, just to really clarify some. One, does the 220-275, does that include the recognition bonus that you're talking about paying to frontline staff?
Richard, no, it doesn't. But, you know, we also need to work through exactly what the hard work is. We're not gonna do anything that's imprudent in that regard, so no, it doesn't. It will be dependent on trade and a number of other factors that we're working through.
Okay, thank you. And I know we've sort of talked around it a little bit already, but, I mean, if you assume that the 220-275 is genuinely a fixed cost for the quarter, what level of sales growth would you actually need to be able to offset that?
Hold on for that. Look, to be honest, we haven't back calculated what that is, if I'm being honest with you. But if we did, you know, we wouldn't necessarily talk to it now either. So I think it's a fair question, but we haven't backed off on looking at these fees.
No, I think one of the challenges here is these costs are across the group. We're seeing different levels of sales offsets in different businesses, and so the sales that we've seen in New Zealand is higher than we've seen in Australia, and in reality, we've seen quite a bit of volatility by business. You know, at this stage, we're not prepared to sort of make an estimate of what we think profit would be, but you know, I'm sure you can do some math yourself on that one.
I think we're at the end of questions, but I'll still take some of any questions. Just final remarks from me if I can. Our aspiration, and I think Ron asked the question, what is to use this time to actually build a better Woolworths and to come out of a business that is a better business that sets us up for the future? Many, it's a humanitarian crisis of some significance, but there are many good things that have happened at Woolworths in terms of what we've done, how we've lived our purpose, and how we've invested in the areas that are central to the future growth of Woolworths. And I'm hopeful as we come out of the crisis that this will position us appropriately for that future.
I'd also just call out to me what I found interesting in our results, and I always find interesting in our results, is just, you know, similar to our home, our venues, our growth was between 9.5% to 13.7%. And so we're really sitting there, very nice elevated growth across the group, and I like that because it says something about us as a business, as a culture, as a team, and, and how we've all lifted together in the crisis. As importantly, setting aside, some home delivery scores, and, we've come out of it, in Q4 with record customer scores, in general, with, with very strong, supplier scores and enhanced reputation scores across every dimension. And it's incredibly important to us at times like this and, and hopefully reinforce, what is our aspiration.
Thank you all for your support and questions. We're gonna sell 12 million toilet rolls this week, if you're interested, that's for current Woolies mates. But going down from the 15 from an average growth rate of 10.5%. We look forward to reporting on how we perform together better in the new normal. Thanks very much.