Hello, and welcome to the Tesco Q3 and Christmas Trading Call. Today's meeting will be hosted by Ken Murphy, Chief Executive Officer, and Alan Stewart, Chief Financial Officer. Today's call will be audio only. Throughout the call, all participants will be in a listen-only mode. Afterwards, there will be a Q&A session. Questions will be taken via the phone line. If you wish to ask a question, we recommend dialing in early as possible to avoid delays. Just to remind you, this call is being recorded. To start the meeting today, I'm pleased to hand you over to Ken Murphy, Chief Executive Officer. Please go ahead.
Thank you, Tracy. Good morning, everybody, and a very happy New Year to you all. Thank you very much for taking the time to join Alan and I this morning. I'll start by sharing a few reflections on Christmas performance, and then I'll talk you through our ongoing response to the pandemic before we open the call to your questions. We knew going into the festive period that this was likely to be a different celebration, and so I want to start by thanking our colleagues for their heroic efforts in ensuring our customers could still celebrate Christmas this year. There was a lot of uncertainty, but the business responded with a real sense of teamwork and everyone from stores to distribution, through to our product and customer teams, played their part brilliantly. This was our sixth consecutive Christmas of growth and a record performance.
We outperformed the market for each of the six weeks over Christmas, and we saw net switching gains from all key competitors. We had a really strong Christmas campaign, and our ad got particularly high ratings with customers for effectiveness and emotional engagement. Detailed planning ahead of Christmas ensured our customers could shop safely, and the comprehensive preparation for Brexit meant that we smoothly managed any potential for disruption. Our supply chain team did a fantastic job, and despite all the challenges, product availability reached record levels in December. Our customers also planned ahead. Customers shopped a little earlier than normal with our busiest shopping day being on the 21st of December. To give you a sense of the scale, our colleagues sold over 110 million products on that day. All our formats and channels grew, but I want to call out this record Christmas for online.
Online sales rose over 80% versus last year, and over Christmas we delivered more than seven million orders. We continue to lead the market online capacity, and we have more than 786 vulnerable customers registered with us who are eligible for priority access. We had a fantastic range for customers this Christmas, offering both high quality and great value. With more customers celebrating at home, many took the opportunity to treat themselves. Finest sales grew over 14% this Christmas. Our customers enjoyed 69 million individual Finest mince pies and took home nearly eight million bottles of champagne and sparkling wine. As demand for large turkeys was unsurprisingly lower this year, our smaller meat products sold really well. With beef steaks seeing over 100% growth and sales of our smaller Finest roast turkey breast up 190%.
In the run up to Christmas, our research told us that over a third of households were going to be catering for an alternative diet this year, and to make that easier, we had our biggest range of plant-based Christmas food available, including nine vegan centerpieces. Our Plant Chef pig in a blankets were a favorite. Customers ate their way through 650,000 of them. Overall sales of the Plant Chef brand were up 90% in the run up to Christmas. More broadly, sustainability was important to many customers this Christmas. We took 20 million pieces of plastic out of this year's Christmas range, and by the end of December, we'd hit our target to remove a total of 1 billion pieces of plastic from our business. The work we have done on value also put us in great shape too.
We're the most competitive we have been in nearly a decade against the entire market, and since Aldi Price Match launched in March, value perception has increased by 450 basis points. Clubcard Prices launched in September, and since then, Clubcard app has gained another two million active users. 80% of transactions in large stores now use a Clubcard. More broadly on the brand, we also saw a marked improvement in the overall brand health index over the period. In Ireland, total sales grew by 12.4% over Christmas, with a really strong performance in our large stores. All the work that has been done to improve the customer experience really came together this Christmas. Online is a big focus in Ireland too, where we are the clear market leader with online sales up nearly 70% as we increased capacity to support record demand.
Booker has done a fantastic job in very difficult circumstances. Total sales grew by 12.4% in the 19 weeks and by 6.7% over Christmas, with a strong performance from the retail side of the business, which continues to support thousands of small business and independents. The catering market was heavily impacted by restaurant closures at Christmas time, with catering sales down nearly 50% over Christmas. While of course that will weigh on Booker's profitability this year, it's well placed to continue outperforming the industry in what is a very difficult market. Total sales in Central Europe declined by over 4% this Christmas. The team were well set up to serve customers in Central Europe, but sales were impacted by COVID-19 restrictions, such as limits on the sale of non-food, evening curfews, and Sunday trading bans. Now turning to COVID-19, this has been a really difficult year for so many people.
We talk often about the professional challenges that our colleagues have faced, but I'm very aware that it's had a personal impact for all of us, too. I'm so proud of the Tesco colleagues and more broadly, retail workers for digging deep and carrying on day after day, looking after customers. Throughout the pandemic, we have been very responsive to all the challenges that it brings. Our approach remains the same, to provide food for all, safety for everyone, support for our colleagues, and help for our communities. Our current estimate of the costs associated with our response to COVID-19 is around GBP 810 million for the full year. The most significant cost is people.
As we support our colleagues with paid absences and have recruited thousands of temporary colleagues, we have also had one-off costs such as screens and signage, as well as the ongoing costs of things such as increased hygiene, which we expect to be with us for some time. On Food for All, as I mentioned, availability has held very strong throughout the period, and I want to thank all our suppliers for their partnership. I'm very proud that the 2020 Advantage Survey suppliers named Tesco as the number one retailer for collaboration during a crisis. This week, we have extended our improved payment terms for the smallest suppliers until the end of our next financial year. Since the start of the pandemic, we have made significant investments in safety and social distancing measures across every one of our stores so that people can shop safely and with confidence.
These include limits on the number of customers in store, a traffic light system in more than 1,300 stores, social distancing signage, sanitizing stations, protective screens at checkouts, and face coverings and other protective equipment for colleagues. While I'm grateful to the vast majority of customers who have been supporting our measures throughout, this week, to further protect our customers and colleagues, we strengthened the rules on face coverings so that we won't let anyone into our stores who isn't wearing one unless they're exempt in line with government guidance. In response to the latest government guidance, we have asked our 7,000 most vulnerable colleagues to remain at home on paid leave. We have seen an increase recently in colleagues needing to self-isolate, but over Christmas, we had support from around 35,000 additional temporary colleagues on top of the 11,000 we would usually hire for the Christmas period.
I'm delighted that many colleagues who joined for Christmas will be staying on in the coming weeks. I am so grateful to everyone for getting stuck in. I'm very confident we will continue to deliver for our customers every day. In 2020, we did what we could to help communities across the country. Over the last year, we donated over GBP 60 million worth of meals to food banks and charities, including a GBP 4 million cash donation to FareShare and The Trussell Trust to support them through the busy Christmas period.
In conclusion, I'm really proud of the business and everybody in it. As I mentioned at the beginning, every single colleague has stepped up for customers. Our focus on looking after our customers, prioritizing safety, service, and availability alongside great value, has contributed to a record Christmas. I'd like to say a big thank you to the whole Tesco team for their efforts. With that, I'm happy to take any questions you might have. Thank you.
Thank you. If you wish to ask a question, please dial star one on your telephone keypad now to enter the queue. Once your name is announced, please go ahead and ask your question. If you find it's answered before it's your turn to speak, you can dial the hashtag to cancel. Once again, that's star one to ask a question or hashtag to cancel. There will now be a brief pause while we register your questions. Thank you. Our first question comes from the line of Andrew Gwynn of Exane BNP Paribas. Please go ahead. Your line is open.
Hi there. Good morning. It's almost like announcing the winner of a result, almost. It's taken quite a while. Anyways, just two questions from me. You've mentioned there a couple of times, obviously, the COVID costs have stepped up more recently and clearly a painful situation for many people. I'm just wondering to what extent would you expect those COVID costs to drift into the next financial year? Obviously, I appreciate that's a difficult question to answer, but some early thinking there would be much appreciated. Obviously, aside from the obvious, the other big feature of Christmas for me, certainly in store, was the Clubcard initiative. Shifting promotions almost exclusively onto Clubcard. Just wondering if you can elaborate on how that impacted the business, any kind of material takeaways you would talk about, just very briefly on the Clubcard Plus.
It maybe feels like that's beginning to build up a bit of head of steam, but any statistics, any numbers you could share would be very much appreciated. Thank you.
Hi, Andrew. Many thanks for the questions. On the COVID costs, I think the truth of it is a lot of the one-off costs I think that you could say are in the rear view mirror, but that the costs that kind of linger with us are a combination of people costs and the ongoing cost of maintaining safety in the store, so sanitization, et cetera. Really, the biggest cost by far is the people cost. That is quite simply going to be a function of the rate of infection and the need to shield people and the continuing abnormally high demand levels. What I think you can take away is that as infection rates subside, as the restrictions ease, as people start eating out again, as the need to shield people reduces, we will see a corresponding level of reduction in ongoing COVID related costs.
What I can't guarantee is they'll disappear completely. I think we will see ongoing sanitization costs, ongoing social distancing for some time, and that we expect those to last well into the new year. Of course, we'll also, I think, see a sustained demand for online delivery, et cetera. That's our early thinking. I think it feels really early or premature to try and put a number on that, but we're staying very close to it and of course, we'll give you hopefully a more precise update at the year-end. In terms of Clubcard Prices, we have been very clear that our strategy has always been that Aldi Price Match is all about underpinning value. Rather than it being a kind of a leader of and a driver of shopping, we think it's designed to eliminate a negative.
It eliminates a reason why you wouldn't shop Tesco, because we're reassuring customers that the value they'll get in Tesco is as good as the market leading value, which we think encompasses the whole market, not just Aldi. Clubcard Prices is really all around rewarding our most loyal customers. That we have found to be very successful. We are continuing to see increases in participation. As I mentioned, there has been a surge in Clubcard usage and a surge in digital downloads of the app, which we think is part of the journey that we are going on to make sure that we are able to respond to all the individual needs and wants of our customers, and particularly of our best customers. With Clubcard Plus, we're happy with the way Clubcard Plus is going. I don't have any specific numbers to update you on on that.
I might pass you over to Alan, who might put a bit more color on it. It remains a strong offering for a proportion of customers, and they tend to be very high value customers. It is highly valued by a part of our customer subset. Alan, anything you want to add to those?
Thanks, Ken. Morning, Andrew. The only thing I'd add is that it's clearly a proposition which is aimed at in-store shopping. We've seen very strong in-store shopping. We haven't measured on it because of all of the other aspects. We're very clear that it continues to be part of our armory going forward, and we expect that to continue. It hasn't been a major focus for us over, in truth, the course of the last year, really because of all of the things we've been talking about.
Okay. Thanks, guys, and Happy New Year. Thanks.
Happy New Year, Andrew. Thank you.
Thank you. Our next question comes from the line of James Anstead of Barclays. Please go ahead. Your line is open.
Good morning, Ken, Alan. A couple of questions from me, if that's okay. Firstly, on Booker, you mentioned that you think it's outperformed the catering market as a whole. I wonder if you can just remind us roughly what Booker's share is in the catering market, and if it's possible to give us any idea on how much share you think it's gained this year and perhaps whether that share gain has accelerated as the year's gone on. That'd be one question around Booker and share. The second thing would be, I know that Tesco doesn't typically like to comment on competitors in these sorts of calls, but clearly one of your big initiatives last year was Aldi Price Match, and I wanted to know whether you've seen any sign of Aldi reacting and bringing down its own prices. Thank you.
Thank you, James. Interestingly, we tend not to get overexcited per se with market share in the distribution market for catering because barriers to entry are very low. It's a fickle market. Both customers and distributors enter and leave the market on a regular basis. Really the focus of the Booker team has always been around the quality of earnings and the quality of business that it maintains. It has been focused on winning share with the best customers in the catering market, and it continues to do so. We don't get overexcited about market share because this is a market that 10 new distributors will appear overnight in the catering industry.
I think where Booker has been brilliant is that it has really focused on making sure that it's always looking after the best quality operators in the market and making sure that they get the highest standards of customer service. Then, of course, typically, they're the ones that weather the storm the best. Therefore, our relative share of market grows, and we grow with them. I don't particularly want to put a precise number on it. Alan may wish to add more value or add more commentary to that.
All I can say is that our expectation is that Booker will emerge from this crisis a stronger business, even stronger than it is today. In terms of Aldi Price Match, of course, we have seen Aldi react, and we have responded to Aldi. I think what they have realized and what the market realized is our determination to maintain great value for customers. I think they see it, and we see it, not in any way as a price war at all. They see it as much more kind of a statement of intent that we will provide good value, and we will respond in whatever way we need to. That, I think, has meant that we've been able to maintain that position without destroying value. I think that's really the important message.
That's very helpful. Thank you.
Thanks, James.
Thank you. Our next question comes from the line of Nick Coulter of Citi. Please go ahead. Your line is open.
Thank you. Good morning, and Happy New Year. Three if I may, please. Firstly, would you be able to share the exit rate or latest number of orders per week for GHS, and broadly how that breaks down by delivery and collect, please? On Delivery Saver, could you talk about the uptick there and in more normal times, I guess, what that might mean for frequency and share of spend if somebody migrates onto the subscription scheme for Delivery Saver? Lastly, for Booker and Booker's wholesale to retail, could you give a sense of the shape of the 14% growth between the Q3 and the six weeks, please? Thank you.
Sure. No problem, Nick. Broadly speaking, the GHS order rate is running at about 1.25 million a week. We are seeing about 25% of that being click and collect. That's kind of the average.
Thank you.
Sorry, just remind me of your second question again.
It was on Delivery Saver and the uptick and what that might mean, obviously, post-COVID. What you've seen previously in terms of what that might mean for frequency, share of spend, the behavior as people migrate onto Delivery Saver?
Well, I think what the kind of uptick in Delivery Saver means from my perspective, and I think that this is shared more broadly in the industry, is that online penetration, or at least proportion of online penetration, that the dramatic increase we've seen over the last 12 months is here to stay, and that it's becoming institutionalized as part of customer behavior. As they've gotten into the rhythm of it, they've got comfortable with it, they've got their regular shopping list, they find it very convenient. They probably even get to know the drivers. It's just become an institutional part of their shopping habits. Our thinking is that a reasonable proportion of the increase in online penetration we've seen this year is here to stay.
Do you take that Delivery Saver subscription rate, it looks like it's kind of broadly half of your weekly slots. Is that an indication of how much sticks, or do you think more sticks?
I think it'll be a bit more than that. I think that some people like the optionality but will continue to use the service without the Delivery Saver. There could be even amongst a proportion of customers not using, there could just be a lack of awareness. As we reinforce and remind customers of that proposition, we would expect a steady increase in the proportion of customers using the Delivery Saver option over time.
Thank you. The last one was just on Booker's wholesale to retail and the shape of the 14% between Q3 and six weeks, please.
Yeah. Starting with the last part first. The Christmas trading for Booker was at a positive sales change of 6.7%, but -8.3% on a like-for-like basis. The Best Food Logistics had a significant impact on the total sales increase over the Christmas trading period. For Q3, the sales increase for Booker was 15%, but flat on a like-for-like basis.
No, I am asking about the retail element, so retail versus catering. I think you gave a 14% figure, and it was just how that 14% broke down between Q3 and six weeks.
I don't have that number in front of me, Nick.
Ken, I can give a bit of color on it. In terms of the color, what we saw is that in Q3 particularly, if you look at Q2 and Q3, they were actually pretty much the same percentage of impact. Actually the shape within that was very different. As the eating out became stronger, Booker saw a drop-off in its retail sales and an increase in its catering sales. That was the exit in Q3. As that then came to an end and as we got more constrained, we saw retail picking up quite strongly and the element of catering falling off. The retail 14% is actually a mix, Nick, in terms of shape.
That's something which I think is something we'll continue to see in the Booker business because of that mix between people shopping locally, shopping from the Booker retail partners when they're particularly constrained and needing to shop locally. Then as soon as they're able to eat out, they stop doing that. We've seen that particularly in Booker over the course. Whilst the numbers are pretty flat, the shape within it is definitely impacted by external events.
Sure. That's very helpful. Thank you so much.
Thanks, Nick.
Thank you. Our next question comes from the line of Andrew Porteous of HSBC. Please go ahead.
Hi. Good morning, team. Happy New Year. A few from me. Just can you come back on online? You talked about the fact that December was a record period, I think, in terms of profitability. Was that more driven by mix with a lot more click and collect in the mix than usual, or have you seen the home delivery profitability improve as well? Could you perhaps talk about what advantages you think you have in online? Does your scale mean that you should be structurally higher from a profitability perspective than any of your competitors can get to, given your drop densities? The last question I had was really, you talked about net switching gains from a lot of people. I think if you look back over the past year, clearly the business is in much better shape strategically.
I'm just wondering how you think you hold onto those gains in a more normal sort of trading environment and sort of what your thinking is around that?
Great. Thank you, Andrew. I think the online profitability story is one of ongoing improvements. We have increased the number of click and collect slots over the Q3 period. We're refining all of the time the picking methodology, van routing, the kind of efficiency of our process from order taking through to delivery at the door. We're on a kind of a constant trend of improvement, and I absolutely would say that our scale and our densities is an asset and as is our reach. Increasingly our flexibility, our ability to respond to surges in demand much more locally, I think is an advantage. This is, I think, an ongoing journey, Andrew. The important thing that we want to iterate and state today is that we're committed to the online channel.
We think it's a channel that's here for the foreseeable future and will only get stronger. We think that having been forced into this channel in the U.K. and having accumulated years and years of experience, we're really well-placed to maintain a constant rate of improvement of the customer experience, to open up an increasingly convenient and frictionless experience for them, and to do it at great value. That's where we think our advantages lie. In terms of the switching gains, I think that trying to pinpoint one single factor for those gains has been difficult.
What we have come to the conclusion on is that it is the culmination of brilliant customer work, brilliant product work, brilliant supply chain work, brilliant in-store execution, and a kind of a returning trust in the brand that it will do the right thing for customers and it will do the right thing for the community. Actually seeking to take a leadership position in the market. That's, I think, it's those combination of factors that we think will continue to serve us well as we seek to hold onto those gains into the new year. Also make us agile enough and flexible enough to respond to whatever changes come down the track in terms of customer habits and customer needs.
Thank you, guys.
Thanks, Andrew.
Thank you. Your next question comes from the line of Clive Black of Shore Capital Markets. Please go ahead. Your line is open.
Good morning, gentlemen, and a very happy New Year to you. A few questions from me, if I may. Firstly, you say that your outperformance was market leading over the Christmas period. I just wondered on what measure that was based. Just be interesting to know that context. Secondly, Ken, do you think that your online and offline activities can have similar rates of contribution to the business in the U.K. at any stage in the foreseeable future? Lastly, just more broadly from the context of a trading statement, I just wonder if you think we're reaching a point with the U.K. government where there may be a fundamental reappraisal of business rates, and alongside that, an introduction of digital taxation that perhaps balances online and offline fiscal policies. Thank you very much.
Thank you very much, Clive, and Happy New Year to you, too. In terms of a market-leading performance, we, as you will know very well, monitor our performance relative to the market through three different independent bodies that measure market performance and our performance relative to it. What we can tell you is that we beat the market consistently every week through the six-week period of Christmas trading. That's really what's underpinning our definition of a market-leading Christmas. I do accept that the headline numbers of some of the other retailers is better, but as you know, because of different trading periods, different definitions of like for like, it's not always as clear cut. We're very comfortable that the measure we used is a very robust one and a relevant one and underpins our kind of a relaxation that we have achieved a leading Christmas performance.
In terms of online versus offline contribution, we're getting closer all the time, Clive. It's been a continuous improvement journey, and we have a number of plans in place that we think will take us closer to parity in terms of operating contribution from online equivalent to offline. We're not there yet, but we believe we can see our way there. By your definition, foreseeable future, I would say absolutely yes. It is possible in the foreseeable future.
On your third question, in terms of the business rates, we believe that the decision by the industry to return the rates relief, in conjunction with the fact that the government is already running a consultation process with the industry, has put into stark relief just how big the burden of rates is on the retail business, how dramatically that rates burden has grown despite no extra sales coming from the stores that are bearing that burden, and how the transfer of that business online does require a fundamental reformation of the rates system, and we do believe that it should be offset by a digital tax. We believe the government are taking it seriously, and we sincerely hope that they respond to all of our urgings to make the changes that we think are necessary.
I think we mentioned it, that in an independent report commissioned to look at Levelling Up, it found that the areas most in need of inward investment, for which retail is disproportionately important from an employment perspective, are the worst case in terms of rates. It's actually having exactly the opposite of the intended effect that the government would desire.
Thank you very much for that, Ken. My only final comment is I am sorry for the disappointment of Munster versus Ulster over the Christmas period.
That's all right, Clive. We bounced back with a win against Connacht, and we're still top of the table, so I'm pretty relaxed about it. Ulster played very well, Clive, I'll give you that.
Happy New Year.
Happy New Year.
Thank you. Our next question comes from the line of Sreedhar Mahamkali of UBS. Please go ahead. Your line is open.
Hi. Good morning. A couple of questions on online and just another one on profit outlook, please, if I can. Firstly, in terms of online, can you give us any early thoughts, perhaps, in terms of West Bromwich UFC, on how that's shaping your thinking, what the learnings are so far? Secondly, I know you've shared a few thoughts, Ken, in terms of continuous improvement. Maybe if I can just take one metric in terms of pick rates in store. Are you able to say they are now where they were pre-pandemic?
That's the second one. Maybe just kind of stepping back in terms of the outlook for the year, in terms of profit. Just trying to understand why you maintain that outlook for profit for the year despite very good trading performance. I know there are some clear puts and takes here, especially Booker, et cetera. If you could talk through what some of those others would be, super helpful. Thank you very much.
Thanks, Sreedhar, and Happy New Year to you, too. Starting with your first question, the West Bromwich UFC continues to perform strongly. We're seeing it now approaching the expected pick rate that we had in the business case. It is delivering on all the metrics that we hoped it would do. As you know, we will have our second UFC open in Lakeside very soon, and it will have an even higher pick rate than West Bromwich. Really, we are progressing our UFC tests and trials. We're watching and monitoring very closely. We're very pleased with the progress. Once we move to a more meaningful kind of investment, I'll be sure to update all of you on that. All I can tell you though is that it's progressing as we expected.
Pick rates haven't returned to the pre-pandemic level because there are a number of safety measures that we have to take in terms of picking. That means that we're operating at about 10%-20% lower in terms of pick rates that we would have had pre-pandemic. We know very clearly how to get those pick rates back up. In the interest of safety, we have to live with it for now. In terms of profit guidance, I think that you answered the question yourself. In essence, we have a number of puts and calls. We have had a series of additional costs associated with the pandemic, which we've flagged to you in terms of absence rates, in terms of paid leave and shielding, in terms of the extra Christmas bonus, et cetera.
Of course, in terms of the continued pressure on the catering market, which means that we think at this stage that where we are is an unchanged picture in terms of the profit guidance we gave at the half year.
Thank you.
Thank you, Sreedhar.
Thank you. Your next question comes from the line of Victoria Petrova of Credit Suisse. Please go ahead. Your line is open.
Thank you very much, and Happy New Year. I have three short questions. First, it's on online and cannibalization. As far as I understand, your online market share has significantly improved. You talked about GBP five and a half billion of sales in 2020, 2021, potentially even GBP 6 billion. Your figures are very strong. Who are you taking market share from in online? Also, can you provide some clarity on what percent of your online sales is cannibalized from your existing stores and existing customers, and what percent is new? As well as when we look at the GBP 800 million COVID costs, what percent of what amount of it is associated with your online ramp-up? That's my first sort of group of questions. The second one is on discounters. Can you qualify or quantify the uplift of sales you were getting from discounters losing market share in 2020?
Do you expect it to continue, or it's, in your view, a COVID-specific development? My last question is very similar to the previous one. Aren't you expecting any operating leverage in the second half driven by this additional uplift in sales? Thank you very much.
Thank you, Victoria, and Happy New Year.
Thank you.
Okay. Let's talk about online first. Roughly, we think that the rate of new sales, additional sales is about 70% of the online sales that we have seen. We think the cannibalization rate's about 30%, give or take. We think that a proportion of that we will keep. What we don't know is what the rate and by how much sales will either revert back to eating out and to shopping in store as the pandemic eases. That's something that we just don't have a feel for at this stage. In terms of the COVID-19 cost of GBP 800 million, we don't really give a breakdown of how much is associated specifically with each channel.
It's a reasonable proportion, but a large part of the COVID costs that we talk about are really the exceptional costs that we incur in terms of employee bonuses, in terms of shielding, in terms of covering for absence, in terms of the PPE and sanitization equipment and consumables that we need to provide. That is it on COVID costs. Again, in terms of the discounters and how much market share, I think what we've seen is really a bifurcation in the discounter performance with obviously Lidl having a very strong performance and Aldi not.
We don't think that our Aldi Price Match is actually necessarily directly impacting Aldi. We're seeing switching from everyone. Really our intent isn't to go after Aldi, it's actually to underpin a value message to our customers against the entire market really. That's our continued desire. We're really interested in eliminating Aldi as a negative rather than our price as a negative rather than going after one particular competitor.
In terms of online, who do you think you are taking most of market share from? Is it Ocado or is it because you seem to be growing as one of the fastest and you're obviously the biggest online retailer? When you look at this remaining 70% of customers which are not cannibalized, who do you get them from?
I mean, Victoria, I think that really the market is growing. I think that almost all of the market growth is coming through the online sector. Really the market is coming from what would traditionally have been an eat-out market, and we're just winning disproportionately. I think that anyone with a strong online business, whether that's Ocado or Sainsbury's, are seeing dramatic increases. It's just that Tesco, because of its coverage, because of its size of its business to start with, because of the speed at which it was able to scale up, has just won disproportionately in terms of volume. I'd say it's less about taking share and more about winning disproportionately the increase in share available.
Understood. Thank you very much.
Ken, shall I pick up the question on operational leverage or are you going to?
Yes, please, Alan.
Great. Thanks. Hi, Victoria. Happy New Year. In terms of operating leverage, yes, we clearly see it. Our COVID costs, as you've seen, have gone up from what we estimated in early October at around GBP 725 million. We're now estimating at GBP 810 million. That's an GBP 85 million increase. Against that, we're holding our expectations for the year. We've seen some clear leverage. We've spoken about the improvements and how we see the online business improving. Booker went backwards in terms of our outlook and expectations from where we last were to where we are now because of the shifts in the catering market. There are pluses and minuses, clearly we see operating leverage through what we're doing, and we'll continue to focus on that.
Thank you very much.
Thank you, Victoria.
Thank you. Our next question comes from the line of Rob Joyce of Goldman Sachs. Please go ahead. Your line is open.
Hey, thank you. Good morning. Happy New Year. Three from me. Just to follow on from that one, Alan, actually. I think we're estimating Booker is a sort of GBP 100 million to maybe even GBP 150 million profit headwind this year is versus last year. Is that the right way to think about that? Just so we can understand the difference in performance versus competitors perhaps.
Second one, I appreciate it's pretty early and a lot of unknowns, but as things stand if you're looking into next year, FY 2022, do you think it's reasonable to assume you can grow profits from the base you're guiding to for this year? Then the third one is just, haven't talked about Brexit yet, but I guess a lot of seeing a few more reports of disruption in the ports. Are you seeing any disruption to your supply chain and any early impact on prices as a result? Thank you very much.
Thanks, Rob. Ken, shall I take the first one and maybe second, and then you pick up the Brexit? How do you want to do it?
Yes. That works, Alan. That's perfect. Thank you.
Okay, great. Thanks. In terms of Booker, Rob, as we've said and as you know, the catering part of the business is the more profitable within the Booker's mix. That's something which therefore does impact Booker proportionately in terms of profit and the, if you like, the leverage within Booker is particularly felt when catering sales go backwards. The way you're thinking about it is absolutely right. Clearly, as the expectation and the hope is that the eating out market recovers next year, and we would all hope that it's better from a customer perspective than it's been over the last 12 months. In that sense, there should be some upside in terms of Booker and its ability to recover profitability. In terms of next year, really, I think it's too early to talk about next year.
We'll give the best possible view as we get to the year end. We're off a period of uncertainty and clearly as we've seen, sales give leverage, operating leverage, but we see great opportunity. Really don't want to be at this stage given the fact that we're still six weeks away from close of this year and don't really want to be drawn into next year. The moving parts I'm sure are as you understand them. Ken, over to you for the Brexit.
Yeah. Hi. Thanks, Alan. Rob, in terms of Brexit, we have definitely seen some levels of disruption. What I can tell you, though, is that because of the planning the team has done and because of the supply chain preparation, investment in stock, et cetera, we weathered the storm incredibly well. While we are seeing in some limited areas continued issues, overall, our supply into the Northern Irish and to the Republic of Ireland, and indeed into the mainland Great Britain, it remains very strong. We're working very closely with governments on both sides of the Irish Sea to iron out any residual issues in terms of the movement of goods, processes, paperwork, documentation, et cetera. We're as well set up as we can be, and that we're maintaining good levels of service into our markets.
Thanks, Ken. Just to follow up, early doors, do you think there's going to be much of an inflationary or even disinflationary impact from the changeover into Brexit?
We think it would be very small. We're not planning any price increases into our business in the coming weeks and months as a consequence of Brexit. We're obviously going to keep a very close eye on it. At this stage, given that the agreement does effectively provide largely for tariff-free movement of product, we are confident that the costs will be minimal.
Thanks very much.
Thank you.
Thank you. Our next question comes from the line of Maria-Laura Adurno of Morgan Stanley. Please go ahead. Your line is open.
Thank you very much for taking my questions. I just have two. The first one, I was just wondering if you could potentially provide us some level of detail with respect to Everyday Low Price strategy and how much penetration you have from a customer basket standpoint. That would be question number one. Question number two, just wondering, given that this Christmas basic understanding is that it was heavily online grocery-led. From that standpoint, given the scale, given potentially also product mix improving into Christmas, would it be fair to assume that also the underlying profitability would have increased? Thank you very much.
Thanks very much, Maria-Laura. Specifically, EDLP penetration, we don't disclose, I think. Also, it moves by period. What we can tell you is that we have maintained our level, a number of products that are participating in the Aldi Price Match, and in fact, we increased it in the period leading up to the Christmas trading period. We've seen, as was mentioned in the trading statement, we've seen a 450 basis point improvement in our value perception as a business since we launched the campaign. Really, I think the message is that this is something that's working for us as a business. It's something that we will continue to focus on in terms of maintaining a very competitive price positioning, particularly as we head into economically uncertain times.
We will also continue to use the Clubcard pricing mechanism to offer our most loyal customers even better value. In terms of the underlying profitability of the period, clearly you're right that the mix effect is a positive one in some regards. Actually, it goes the other way in other regards. Yes, you see a trade-up over Christmas, and as we mentioned, we saw a 14% increase in participation in our Finest ranges. Equally, of course, you've seen a much higher level of penetration in beer, wine, spirits, and confectionery, et cetera, which is margin dilutive. They tend, to a certain extent, Maria, to balance each other out. Of course, you're also anniversarying a previous Christmas where you would have seen a similar mix effect. We wouldn't say that there's been a dramatic change year-on-year on our margin mix.
If I could just add to the first question in terms of everyday low pricing, Maria-Laura. Our promotional participation is down year-over-year, and we're very clear on that. We view it that also as being down relative to the market as well in the period. We feel that it's working, but as Ken says, we don't disclose the numbers.
Thank you very much.
Thanks, Maria.
Thank you. Your next question comes from the line of James Grzinic of Jefferies. Please go ahead. Your line is open.
Yes. Good morning. Happy New Year. I just have a very factual and brief one, really. Would you mind detailing the rates of absenteeism you see in the business now, and perhaps where they were in November and where they were in lockdown 1.0, please?
The rates of absence. Yes. The first lockdown, I think you'll remember, and we flagged it at the half year that we at one stage had over 50,000 colleagues out of the business during the first lockdown. I think that really is the starting position. Clearly then as the rates of infection eased and the lockdown restrictions eased, et cetera, we saw the absence rates come right down through the second half of the year and into quarter three. In the recent weeks, we have clearly seen a spike in absence, and we're now operating at about a 10% rate of absence, which is circa 30,000 colleagues. Lower than the first spike, but materially higher than the rates of absence we had during the second and third quarters, before we got into Christmas trading.
Sure. Yeah. Thank you.
Thank you.
Thank you. Our next question comes from the line of Xavier Le Mené of Bank of America.
Yes, good morning. Thank you for taking my question. Happy New Year to you. Two if I may. First one, just on the price positioning and a bit back to Maria's question. You stated that you've never been as strong as today, but can you share some data on how you compare potentially with your key competitors? What is the kind of price gap you're seeing there? Then, just on the EU performance and the like for like performance more specifically, can you just give us a bit of comment on volume inflation and you talked about the mix already, but volume and inflation could be helpful. Thank you.
Alan, do you want to take the volume and inflation.
Yeah
I will come back on the price positioning.
Okay. Yeah. Great questions, Xavier. Whether you look at it at value or look at it volume, we're really comfortable in terms of the growth that we're seeing against it. You know that we won't go into specific category by category, but as we look at it, we're really encouraged by what we're seeing both at the volume and at the value end of it. If you want to ask any more, then I'll see if I can help you on it.
In terms of price positioning, Xavier, we look really at customer perception on that, because clearly it's really difficult across all our products to give an exact like for like message because the discounters carry so much own brand with different pack size configurations, et cetera. What we can tell you is clearly, we are now effectively matching Aldi against thousands of products and we're maintaining that position. We think that puts us in a really strong position, particularly relative to the other major multiples. We don't talk about specific price gaps, but we think we're materially better value than certainly the large, full range retailers.
We're very comfortable with that historic relativity we've spoken about in the past as against each of the other players in the market, Xavier.
Right. Just if I may, but just on the inflation too, would you say that you were in deflationary territory or inflationary territory in Q3 Christmas period?
There was still slight inflation. I think it was somewhat lower than previously. It's still pretty muted in terms of inflation generally i s what we see on the input side.
Okay. Thank you.
Thank you. Our final question comes from the line of Tom Davies of Berenberg. Please go ahead. Your line is open.
Morning, guys. Happy New Year. I guess two questions from me. First in Europe, can you quantify whether there was like a top line drag from the Hungary retail sales tax on like to likes? Secondly, given you have this roadmap to equivalence with the online and offline channels and some of your peers have been commenting that the increased volumes through the online channels improve the profitability of it. Do you think there will be a change in behavior with regards to the groceries online channel versus pre-COVID-19 perceptions?
Thanks, Tom. Yes, we have had a drag from the sales tax in Hungary. We have seen it's a market-wide issue. As you know, the majority of retailers in Hungary are foreign multiple retailers, it's a sales tax that's affected pretty much north of 80% of the market. We have seen an impact, because it is to a certain extent constraining volume growth because it has driven price increases. Actually more materially have been the variety of restrictions that Hungary has put in place to try and contain their rate of infection over Q3, which have varied from curfews at 7:00 P.M. to an older age group restriction of only them being allowed to shop between 9:00 and 11:00 in the morning, et cetera.
It has been a tough time for our teams in Central Europe in terms of responding to all the changes and restrictions that have been happening. Without a doubt, it has been a drag. In terms of the increase in volume online, the impact on profitability and the longer term trends, we absolutely are seeing the same trend. We are seeing that the increase in volume is improving the efficiency of the overall picking process. We are seeing improvements in van rate utilization, and as a consequence, and because the basket sizes are larger, we are seeing an improvement in profitability year-on-year. In addition to that, we definitely believe, and I think we alluded to it when we talked about the uptick in participation in the Delivery Saver option, is that we do think that a proportion of these sales will institutionalize as online sales.
We do think it represents an inflection point in adoption of digital shopping in the grocery market. We think that this trend is only going to continue, particularly as customers find it easy and convenient to do, and they become very familiar with it. Really, our focus as a team and as a business will be in the constant improvement of the efficiency and profitability of this channel, improving the customer experience, opening up new shopping missions to customers through the digital channel, and just increasing the level of sophistication and personalization of the digital channel for our customers.
Brilliant. Thanks a lot.
Thanks, Tom.
Thank you. I'll now hand back to Ken Murphy for closing remarks.
Thank you very much, Tracy. Really, all I wanted to do by concluding was just to reiterate what a strong performance I believe this represents for the business. Just to reiterate my thanks to our team, who I think have done a magnificent job in incredibly challenging circumstances, who continue to show up every day to look after customers under a lot of pressure really make me very humbled and very proud to be part of this team. Really, this performance is a reflection of their efforts. I feel really proud of them.
I think the last thing to say is really that Tesco believes it is in a very strong position to cope with whatever the market throws at us over the coming months and years, because I think we are heading into very uncertain times, but I feel that we're really well positioned to cope with it. I'd just like to finish by thanking you all for your time and for your questions and interest in the business today, and some really great questions. I look forward to speaking to you all again in the near future. Thank you.
Thank you. That does conclude our conference for today. Thank you all for participating. You may all disconnect.