Good morning, everyone, and welcome to the interim results presentation for Tesco. My name is Ken Murphy. I'm the CEO of Tesco, and I'm joined by my colleague Alan Stewart, our CFO. Let me briefly introduce you to the agenda for today's presentation. Firstly, I'll talk you through our highlights. Then I'll pass to Alan to go through the first half results. Then I'll talk to you a little bit about why I joined Tesco and why I'm so excited about this role and the future of Tesco. We'll finish with some Q&A. Before I start, let me just give you a brief introduction to me. I've been 25 years working across wholesaling and retailing, initially with UniChem back in 1995, and then through a series of mergers, ended up working in retail, firstly with Boots in the U.K. and then laterally with Walgreens in the U.S.
I have to say, I'm really excited about joining this business. I think it's an absolutely fantastic business. Before Alan talks you through the financial metrics, let me tell you about some of the customer and other stakeholder metrics that we're really proud of for this first half performance. The first thing to say is that we've got over 1 million customers more loyal to Tesco at the end of the first half of this financial year. We've seen net switching gains from Aldi for the first time in over a decade. We've more than doubled our online capacity in just five weeks. If you remember, we had 600,000 delivery slots at the start of the pandemic, and now we're operating at 1.5 million. We gave 12 weeks' pay for vulnerable colleagues, in fact, full pay from day one of absence.
We sheltered over 26,000 colleagues who were vulnerable during the pandemic. During that time, at one stage, we had 50,000 colleagues absent initially, and we had over that period to recruit 47,000 temporary colleagues in just two weeks. I'm delighted to say that a number of them, over 16,000, will be staying on with us permanently. From a supplier viewpoint, our satisfaction score improved by 7% despite the crisis. I'm really, really proud of the fact that over that period, we doubled our food donations in a time of extreme need, from GBP 15 million to GBP 30 million in the first half. Of course, Booker did an amazing job in supporting small community retailers across the country during the crisis. Really, really strong performance across a number of different aspects of our business.
I'd now like to hand over to Alan, who'll talk you through the first half of financial performance.
Thank you, Ken, and good morning, everyone. I'll now give you an overview of the performance in the first half. The numbers I'll share with you today exclude Asia and Poland, as they're both now treated as discontinued operations. Clearly, the effects of the COVID-19 crisis shaped performance in the first half, with significant changes in shopping behavior and a substantial impact across all our operations. Sales grew by 6.6% at actual rates to GBP 26.7 billion, driven by strong demand in the U.K. and Ireland. Retail profit increased by 4.4% to GBP 1.2 billion, as a substantial level of COVID-19-related costs were more than offset by the contribution from sales volume and business rates relief. The bank made a loss of GBP 155 million in the half, driven by an increase in the potential bad debt provision and a decline in income.
We generated GBP 554 million of free cash, which was in line with last year on an underlying basis before a higher level of store buybacks and lower property proceeds, which makes it down 14.1% year on year at a headline level. In line with our dividend policy, we're proposing to pay a dividend of 3.2 pence per share as an interim dividend, set at 35% of last year's full year dividends. The interim dividend will result in a cash cost of approximately GBP 315 million payable in November. This slide shows a summary of our key sales and profit numbers by segment, including the bank's loss in the half. Group operating profit before exceptional items decreased by 15.8% to GBP 1.037 billion. I'll now talk about each of our four segments in detail, each of our segments in more detail, starting with the U.K. and Ireland.
The effects of stockpiling early in the half contributed to a like-for-like of 8.2% in the first quarter, and a strong top-line growth continued into the second quarter, reflecting the ongoing shift from out-of-home to in-home consumption. We saw material changes in customer buying patterns, including as customers sought to shop less often, average basket size increasing by 56%, while frequency of visits declined by 31% year on year. Our response to COVID-19 continues to be based on four key priorities: providing food for all, safety for everyone, supporting our colleagues, and supporting our communities. Providing food for all has involved collaboration across our supply base to maintain availability, as well as the significant expansion of our grocery home shopping business. We more than doubled capacity, and as Ken said, now offer one and a half million weekly slots.
We have also worked with the government to prioritize the most vulnerable customers and now have 674,000 customers registered with us for priority deliveries. As you know, we invested to ensure we keep our stores safe with extensive social distancing measures, additional cleaning routines, and protective equipment implemented in all stores. Colleagues who are ill with COVID-19 or in isolation, as Ken has said, continue to receive full pay from their first day of absence. We also took measures to protect our most vulnerable colleagues by supporting them to stay at home with full pay for 12 weeks from March. To support our store colleagues, we recruited the 47,000 temporary roles that Ken mentioned and helping to backfill the absence and to serve the increase in customer demand, especially in online.
We've delivered on our commitment of a GBP 30 million community support package, making an additional GBP 15 million of food donations over 12 weeks on top of our usual monthly donations and increasing our support for local communities, including 2 million donations through our partnership with the British Red Cross. We've seen a significant shift in demand across our channels and product categories, resulting in a substantially different sales and margin mix. Sales grew across all channels. Our convenience stores, particularly in neighborhood locations, were well placed to serve customers closer to home, resulting in growth of 7.6%. Our online grocery business grew by 69% in the half, with a rate of growth reaching 90% in the second quarter. We work closely with our supplier partners to maximize availability in food, where sales grew by 9.2% year on year.
Demand in household and grocery categories was particularly strong during the earlier period of stockpiling. This was followed by increased demand for products in our meat, fish, and poultry category, and also in beers, wines, and spirits. Sales in discretionary categories such as clothing declined, although volumes were strong and we outperformed other major supermarkets. Our general merchandise performance was resilient, benefiting from increased demand for electricals and homeware. Our fuel business declined by 41% but had recovered to around 75% of pre-COVID-19 levels by the end of August. In Booker, the retail side of the business performed well as we supported our retail partners to broaden their grocery ranges in response to customer demand. The catering business was impacted as pubs and restaurants closed. However, sales started to recover from the end of the first quarter.
Turning to COVID-19 costs, this table is an updated view of the estimate I shared with you in June. In the first half, our most significant costs related to payroll, including 12 weeks' paid leave for the 26,000 vulnerable colleagues and the recruitment of the 47,000 temporary colleagues I mentioned earlier. These costs were lower than we'd estimated in June as colleagues were able to come back to work earlier than we'd expected. As a result, the total cost of GBP 533 million for the first half was GBP 63 million lower than our previous estimate. While forecasts are still highly likely to change, as always, we're going to give you an update on costs as we currently see them for the full year. Our latest estimate is for GBP 725 million of COVID-19-related costs, including an ongoing payroll cost and additional safety consumables.
Business rates relief of GBP 532 million is the same as the estimate we shared in June. Moving now to online, where the extent and speed of change has surpassed what any of us could have envisaged at the start of the year. We ramped up capacity from around 600,000 to 1.5 million delivery slots. Whilst profitability was challenged in the first quarter as we prioritized responding to increased customer demand, we made a number of operational enhancements across the second quarter, which improved productivity. Complementing our store picking model, our first urban fulfillment center is now delivering to customers, with two more planned in the current financial year, the first of which is in Lakeside.
The continued rollout of this technology will enable us to capture growth well beyond our original ambition, with a sales run rate from our online business for the full year of at least GBP 6 billion. Turning now to our overall shopping trip, our focus on delivering the best shopping trip for customers in very challenging circumstances has resulted in some of our strongest brand scores to date. Our overall brand index reached its highest level since 2011, with improvements in customer ratings across the board. It is particularly pleasing to see that our quality and value scores have again both stepped forward by 350 and 530 basis points, respectively. Further to this, safety has clearly been a primary concern for customers in recent months, with around 90% of our customers rating our stores as a safe place to shop.
Following the initial launch in March, we recently extended Aldi Price Match to over 500 products, including brands and own label. You can see from the chart that our relative price position has improved strongly through the half. In addition, we're working alongside our supplier partners to simplify ranges, remove pack size variants, and reduce promotional rotations. In the half, we reduced our promotional participation to 22%, down from 30% last year. Reflecting the strength of our customer shopping proposition, 1.1 million customers have become more loyal to Tesco during the half. Whilst we've not sought to accelerate the take-up during the crisis, our Clubcard Plus product is seeing a basket uplift around 300% higher than our original expectation.
As part of our program to reward loyalty, last month we started the extension of Clubcard Prices to around 2,000 products across the store, giving our 19 million Clubcard holders access to exclusive offers every week. In Booker, sales were up 11% in the half, including a 9% contribution from Best Food Logistics, which we acquired in early March. We saw exceptional growth in the retail side of the business, up 23.5% in the first quarter. Sales remained strong in the second quarter with growth of 21%, including a significant uptick in tobacco. Sales to catering customers declined by 12% overall due to the temporary closure of restaurants from March. We then saw a consistent recovery from May onwards, first as we supported restaurants to switch to a delivery and take-out model, and then as they started to reopen and customers began to eat out again.
During this time, we were also able to utilize capacity in the Booker catering business to support Booker retail and the U.K. online grocery operation, including using their distribution fleet to offer an additional 100,000 pick-and-collect slots for customers during the peak of demand. Having delivered on our merger commitments, overall, we're very pleased with the ongoing potential for the Booker business. Booker continues to hold leading positions across its market segments, and the acquisition of Best Food Logistics has brought further scale with approximately GBP 1 billion of additional sales in a normalized year. We also see significant opportunities to realize value from the combined Booker and Tesco businesses, including the rollout of Jack's products into stores operated by Booker retail partners.
If we move now to Central Europe, we saw similar changes in shopping behavior as in the U.K., with strong online demand and high sales growth in essential items. The Central European markets remain highly competitive, and in the second quarter, sales declined as we came out of lockdown and traded over one-off activity last year. Having completed the transformation of our range and space changes in these stores, we're well placed to better serve customer needs in the region. While underlying profitability improved, this was more than offset by COVID-19-related costs, a decline in income due to temporary COVID-19-related mall closures, and an GBP 11 million impact of a new sales tax in Hungary, which was introduced in May. In the bank, COVID-19 has had a material impact on our performance.
Due to a marked worsening of macroeconomic indicators, particularly unemployment and GDP, our provision for potential bad debts was around GBP 140 million higher than last year. In combination with a reduction in income across the bank's activities, this drove an operating loss of GBP 155 million in the first half. We continue to expect an operating loss in the current year of between GBP 175 million and GBP 200 million. Despite these challenges, the bank's balance sheet remains strong, with a total capital ratio of 24.3%, and its resilience to various stress scenarios is regularly assessed. On this slide, we've shown a pro forma adjusted EPS measure. Our usual measure of adjusted diluted EPS is not meaningful as it excludes earnings from our discontinued operations but does not take account of the expected share consolidation. Our pro forma measure adjusts for these factors.
Whilst the precise impact of the share consolidation we will make later in the year will depend on the share price at the time, we've approximated this based on last week's share price. This gives a pro forma adjusted diluted EPS of 7.56 pence in comparison to 9.01 pence last year, which we feel better reflects the underlying performance in the half. If we move now to source and use of cash, I've shared this waterfall many times, representing how we think about sources and uses. As a reminder, it reflects our free cash flow definition, including repayments of obligations under leases as required by IFRS 16. I'm going to call out the most notable items, starting with the GBP 1.8 billion cash generated from retail operations.
The net inflow from working capital was GBP 170 million, which includes a GBP 93 million drag due to lower fuel sales, more than offset by the benefit from increased purchases in food and reduced promotional activity. Exceptional cash items were a similar amount to last year, with the largest component being costs associated with the settlement of legal claims in the period. In line with our disciplined approach, cash CapEx was just under GBP 370 million. We provided the usual breakdowns by region and type in the appendices. CapEx spend was around GBP 40 million higher year on year, reflecting higher maintenance and technology spend. Net interest paid of GBP 319 million was GBP 45 million lower than last year, primarily driven by better rates on our medium-term notes, loans, and bonds.
Cash tax paid in the half was GBP 125 million, which is in line with last year, although there were a number of moving parts. We had two additional quarterly payments and a one-off tax charge on an exceptional item. However, these were offset by a credit on bank losses and a tax deduction relating to the GBP 2.5 billion one-off pension contribution we'll make later in the year. The main driver of the net property transactions was a spend of GBP 148 million buying back five stores. This was GBP 59 million higher than last year, reflecting additional opportunities we saw in the property market. Overall, this resulted in a retail free cash flow of GBP 554 million. Our balance sheet and liquidity position is strong.
In line with how we manage our debt on a portfolio basis, we repaid EUR 200 million during the half through the early redemption of a euro bond, and we issued GBP 500 million of new 10-year debt at attractive interest rates. We recently renewed our committed facility for three years at GBP 2.5 billion. The rate of interest payable on utilization of these facilities is linked to delivery of three of the group's ESG targets. The new facility is also the first syndicated loan transaction in the U.K. that uses risk-free rates rather than LIBOR. The facility is undrawn, and we have significant cash liquidity of GBP 2 billion. Our credit rating is investment grade with all three agencies. Our total in debt in this was GBP 15.9 billion, up GBP 982 million since the year-end.
This was primarily driven by an increase in the IAS 19 pension deficit due to a reduction in the discount rate, partly offset by an increase in the assets. I'll remind you that the IAS 19 deficit is totally independent from our actuarial pension deficit and does not drive contributions to the pension scheme. We've agreed the tri-annual pension valuation as of 31 December 2019 with the trustee. This is subject to the completion of the sale of our businesses in Thailand and Malaysia and the payment of the GBP 2.5 billion one-off contribution to the scheme. This payment will eliminate the actuarial deficit and significantly reduce the likelihood of ever having to make any further pension deficit contributions. We provided a pro forma view of total indebtedness on a post-Asia transaction basis. On this basis, total indebtedness for the half would be GBP 13.2 billion.
The most material difference relates to the payment of the one-off contribution to the pension scheme. The proposed sale of our businesses in Thailand and Malaysia was approved by shareholders in May. We expect to receive regulatory approval and to complete the sale before the end of the calendar year, following which we will seek shareholder approval for the return of capital in the form of a special dividend. The sale of our businesses in Poland will generate GBP 165 million of proceeds on completion, followed by an additional around GBP 140 million of proceeds from the sale of properties. Cumulative proceeds from the sale of our loss-making business in Poland are expected to reach over GBP 500 million. As usual, I have a slide summarizing our key technical guidance. This remains unchanged from our preliminary results in April, other than in relation to tax.
We now expect the effective tax rate for the current year to be around 22%. This is lower than the 24% guidance we shared previously, primarily due to the tax credit of the bank's operating losses. In the medium term, our guidance remains at around 21% for the effective tax rate. We expect CapEx for the year to be in the middle of the range that we gave in April of GBP 0.9 billion-GBP 1.2 billion, so around GBP 1 billion. In summary, we entered the year in a strong place, and this has enabled us to be agile in responding to the challenges in the half. We saw strong top-line growth. This volume, along with business rates relief, offset the significant additional costs relating to COVID-19.
For the bank, we continue to expect the operating loss of GBP 175 million-GBP 200 million for the year, but its liquidity and capital ratios remain strong. The sale of our businesses in Thailand, Malaysia, and Poland are progressing well. We're continuing to invest in great value to help customers in increasing challenging times. As a result, we expect a broadly even balance of retail profitability in the year. While there's still clearly significant uncertainty, we now expect retail operating profit to be at least the same as last year on a continuing operations basis. Thank you for your time. I'll now hand back to Ken.
Thanks very much, Alan. I think you'll all agree it's a very strong set of results given the challenges that every business has faced during this COVID-19 pandemic.
I'd now like to take a couple of minutes just to talk you through why I joined Tesco. I think the first thing to say is that this is a company that is values-led, something that is hugely important to me personally and something that I really look for in any organization that I seek to join. I was really happy to commit to Tesco because I felt that they have a very strong set of values. The second is a statement of the obvious, but it is the U.K. market leader and therefore has scale with 440,000 colleagues across three regions.
We have the U.K.'s largest loyalty program, and we have some really strong and enduring supplier partnerships that have meant that we have been able to stay in stock and continue to support customers right through the crisis, but also partnerships that will help us innovate for the future. Last but not least, our reach is a huge strategic advantage. No matter what the changing habits of customers, we're there to support them, whether it be big basket shops in large stores—we have almost 800 of them—or small local shops in convenience stores where we have nearly 2,000, or indeed the fastest-growing trend online where we have increased our capacity to 1.5 million grocery slots per week, of which 363 are click-and-collect locations. Through Booker, we serve 88,000 community retailers and over 400,000 catering customers.
It's really a business with unrivaled reach in this market. The next thing I'd like to talk about are our people. The outside-in perspective of Tesco sometimes can be seen as a bit cold and functional, but I've found exactly the opposite since I've joined. I've found a very warm and welcoming environment. I have felt fantastically supported by the people since I've joined this organization. The second thing you're struck by when you join is the capability that we have within the organization. It's truly humbling to see some of the amazing experience and some of the can-do attitude that you see around the business, something that really runs deep in the Tesco organization.
This is definitely an organization that has a bias for action, and this really came to the fore during the crisis where the whole organization stepped up to the plate and did an amazing job for customers. That kind of response does not just happen when you need it. It only comes from being led for a number of years to wanting to do the right thing for customers, to wanting to do the right thing for each other, and to building a really strong team spirit. That is something that is really in evidence in this business and sets us up really well for the future. The things that really resonate for me in that is the relentless customer focus I see in the organization, and it all stems from the brand purpose of serving shoppers a little better every day.
Of course, doing things a little better every day adds up to some really big things over time. You can see it in everything we do, from the Aldi Price Match and Clubcard Prices to the improvement in our customer interaction through our loyalty card, through our willingness to look after colleagues who are vulnerable regardless of the cost. It's been really, really fantastic to see. All of that is only possible if we're hugely cost-conscious, and we only spend money on things that really, really will make a difference for customers and seek to get rid of all the costs that don't. This is something that was started under Dave and the leadership team here in Tesco and something that we'll absolutely be seeking to continue with as time goes on. We are awash with opportunities.
There are too many to mention. We've put a few up here on the slide, but this is a company which really has put itself back on a very solid footing, is very innovative, has huge capabilities in a number of areas, and therefore I feel really excited about the future potential of the business. What can you expect from me? The first thing is a relentless focus on doing the right thing for customers and for the brand, to integrate our passion for nutrition and sustainability into everything we do, make it a core part of how we run the business. Through all of that, I have every intention of maintaining a disciplined approach to managing cash and capital allocation and to seek out profitable growth through serving customers a little better every day. What's next?
The first thing to do is to take the time to listen and to learn. I'm going to spend as much time with colleagues as I can, customers, supplier partners, out in stores, out in our distribution centers, out in our Booker depots, really getting to know our business, time with the bank team, time with the Central European team. This is really a time for me to do less talking and more listening. The second thing, of course, is to maintain the momentum of the Asia sale, complete it, and to return GBP 5 billion of capital to shareholders. Last but definitely not least, is supporting the team to deliver a great Christmas for customers.
This has been a really challenging time for many, many people in our communities, and this is really the moment for us to make it as best a Christmas as absolutely possible in the circumstances, and you can count on us to do that. That concludes the presentation. From a formal perspective, we'd now like to throw the forum open for some questions and answers. Thank you.
Thank you. If you wish to ask a question, please star and 1 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 is answered before it's your turn to speak, you can dial #toCancel. Once again, that's star 1 to ask a question or #toCancel. If you are asking a question, please remember to mute your online webcast to avoid any feedback. There will now be a brief pause while we are registering your questions. Thanks for waiting. Your first question comes from the line of Andrew Gwyn, Exane BNP Paribas. Please ask your question. Your line is now open.
Good morning, morning team. Two questions, if I can. It's a very, very big picture, I suppose, for you, Ken. Anything obvious that you think needs changing? Anything you think that Tesco has been doing wrong? I know it's a very open question, but just a quick thought there, maybe. The second one, which I'm sure is going to come up quite a bit in the Q&A, but it's really around online profitability. Clearly, a very, very significant step up in capacity during this period. I think the question that many investors have is really around the profitability of online. Maybe some thoughts about integrating some of the things from the UFC. Thank you.
Great. Thank you for the questions, Andrew. I think the first thing to say is that my focus really is on maintaining momentum through Christmas. You should consider me happy with the strategy of the business until you see a change in stores. Really, right now, the organization is not focused on change; it is focused on delivery. I think that is absolutely right because that is really what is going to make the difference for customers this season. In terms of online profitability, it is true that we had to obviously react really quickly to the surge in demand for online slots at the start of the pandemic. This incurred a number of costs as we did it. However, as we moved into quarter two, we worked hard on improving productivity and profitability in our online space. We were helped by a number of factors.
The first is, of course, the average basket size increased substantially during COVID. The second is that we also had better van utilization. The third is that almost a third of our slots are actually click-and-collect slots, which are just structurally better from an economic perspective. Of course, we are not finishing there. We are continuing to work on improving online profitability all the time. The UFCs, which we are in the early stages of developing with the first having landed in West Bromwich, will be another step towards us improving productivity, lowering costs, and improving the options available for customers over time.
A very quick sort of follow-up to that. Do you think online can be as profitable as the stores in time?
I think online is here to stay, Andrew. It is our job to make sure that we integrate it and make it as profitable as it can be over time. I think that we are on a very good trajectory to do that.
Thanks, Ken, and welcome.
Thanks so much, Andrew. Appreciate it.
Thank you. Our next question comes from the line of Sirada Mekhali from UBS. Please ask your question. Your line is now open.
Yeah, hi, good morning. Ken, welcome. A couple of, again, probably big picture questions, perhaps. First one, you've referred to capital allocation, Ken. I think previously Tesco talked about achieving 2.5 times net debt EBITDA as a threshold for the group to start returning cash to investors by way of buybacks. Do you think that's still the right way to think about it? I appreciate it's very early days for you, but any sort of thoughts really helpful there. The second one, I guess, in terms of Aldi Price Match and how you think about it, I guess it's sort of connected to the move to EDLP and away from promotions. Your thoughts on how you see it? Is it a tactical thing that you're doing with Aldi Price Match? Is it a strategic thing? And how do you fund it if it's a longer-term thing?
That's the second question. Maybe just one quickly for Alan. I'm still trying to understand your commentary or guidance on fully retail EBIT being maybe slightly ahead because I think you said at least the same as last year. Is that instructed by some caution that you're seeing in recent trading, or is it just a case of a lot of prudence? I think looking at the bridges, you've absorbed almost GBP 300 million net hit to the first half profit from COVID-19 costs versus rates relief. That clearly becomes a pretty big tailwind in the second half. I'm curious to see how you think about the fully retail profit outlook. Those are the three questions. Thank you so much.
Ken, shall I take the I'll take the third. Products on Clubcard prices. We've got the 500 products under Aldi Price Match. We continue to invest. We continue to keep really close to the customer and offer great value. Ken, I'm sure we'll come back to that. In relation to the indebtedness ratio, we've never made that close linkage, that direct linkage between the indebtedness ratio and excess cash and capital, which we have said we're likely to return to shareholders by way of share buyback. What we've set out is a framework for capital allocation in terms of how we look at capital, and that remains the same. Whilst it's a target, it's never as closely linked quite as your question might have implied.
Thanks, Alan. Sirada, I think that answers the capital allocation question.
Regarding the Aldi Price Match and EDLP, I think the one thing I can tell you is that strategically, Tesco is committed to providing value to customers. We do not anticipate any changes to that, particularly in light of future challenges we may face from recession or whatever. We will really stay in touch on value at all times. I think the Aldi Price Match is a part of that.
Just a quick follow-up on that. In terms of the move to EDLP, clearly you've succeeded in the first half to take down promotions in a meaningful way. I know you're talking about migrating on a long-term basis to suppliers. Can you give us an update on how those conversations are going? I think there's quite a lot of news flow around July time with suppliers pushing back on the timelines and your expectations on that will be helpful.
Sirada, I don't think you'd be surprised to hear that I can't comment on conversations between ourselves and suppliers, other than to say that as far as I can see, our suppliers are fully on board and support the Aldi Price Match initiative.
Thank you, Ken.
Welcome.
Thank you, Sirada.
Thank you. The next question comes from the line of Nick Coulter from Citi. Please ask your question. Your line is now open.
Good morning, both. Welcome, Ken. Three, if I may. Firstly, could you talk about your promotional shape across the half and the extent that you can disaggregate, I guess, the impact of the crisis initially and what that meant for promotional shape? I guess, how your more strategic or tactical decisions evolved across the half with regards to promotions? Secondly, please, could you expand on your comments around the online operational improvements from Q1 to Q2? It sounds like you've been hard at work with respect to the productivity. Lastly, if I may, Ken, would it be possible for you to talk a little bit about the main avenues or opportunities for growth that you see within Tesco? Thank you.
Thank you very much, Nick.
Can I take the first two, Ken?
Yeah, sure.
In terms of promotional shape, I think it's worth stepping back to our expectations for the year. We entered the year, we felt in a very strong position. We'd achieved what we'd set out to achieve, and we had strong momentum behind us as we entered the year. It's a year when we expected to invest for customers, and we were set up to do that. Now, clearly, the impact of the COVID-19 pandemic and the resulting surge in demand meant that some of what we'd had to do, we had to rethink and step back from. That definitely impacted some of our thinking about shape.
I think it's fair to say, Nick, that the reduction from 30% to 22%, which I referred to, is something which is consistent with what we were aiming for, which is the everyday low pricing. We had to temper some of that in terms of the demand. As you can see, towards the end of the half, we really are stepping up the momentum in that. That's something which, as you've heard us say before, you'll see it first in stores and in front of customers before we tell you about it. It's something which we continue to be focused on. That forms an important part of our thinking through the second half of the year.
In respect of the online operational improvements, little more that I can add other than what we've already spoken about in terms of the move from satisfying the demand, increasing the capacity to meet that demand, and then improving the operational delivery behind it. It is great that we can get the online delivery vehicles utilized more quickly. We continue to look at ways that we can make our routing schedules most efficient, which takes out costs, gives more time, and ultimately means that we can serve more customers. We continue to look at ways that we can make it more efficient. Little more that I can add other than what we've already said.
Thanks, Alan.
Nick, in terms of main avenues for growth, I think I alluded to it in the earlier part of the presentation when I talked about our reach and our capability to adapt to whatever change there are in customer trends, probably better than most of the competition. I feel like as long as we stay focused on customers, as long as we stay focused on value, as long as we anticipate their needs and seek to remove pain points and make it as easy for them as possible to shop with Tesco, we won't be short of opportunities of growth. Clearly, the specifics, we shouldn't go into because they are competitively sensitive, and you will see them as soon as they land in stores.
Thanks so much. All the best.
Thank you. The next question comes from the line of Clive Black from Shore Capital. Please ask your question. Your line is now open.
Thank you. Good morning, gentlemen. Yeah, welcome and all the best, Ken, in the new role. Happy holidays, Alan, for next April. One question, nobly. You mentioned nutrition and sustainability in your presentation. I just wonder how you see shareholders benefiting from the work that you plan to institute, please.
Hi, Clive. Great to hear your voice, and thank you for the question. I'm really glad you asked that question because I think this is at the very heart of how we want to lead this business going forward. We think that democratizing nutrition, being able to provide great nutrition at great value and in a sustainable way, is at the very core of how we run the business going forward. Our view is that if we do the right things for customers, the right thing for communities and the environment, that customers will reward us. Of course, shareholders will be rewarded as a consequence of that. That is really how I see the link.
I respect the points you've both made about not wishing to encroach on commercially sensitive information. In terms of what's visible to us today coming into Tesco, what would you highlight as key achievements that we can hang our hats on?
I think, Clive, I hesitate to talk about past achievements simply because they were not mine. They were the teams that delivered them in the past. I think you can look at Tesco's leadership in food waste, which has been really impressive. We have had food waste over the last five years in the U.K. You can look at our food donations in terms of how we've supported food banks. You can look at the work we've done on sustainability. Also, we have, in terms of our innovation process, every on-brand meal, every on-brand product we launch typically has to have better nutrition values than the product that went before it. It is already a kind of embedded way of working in our business.
Okay. Thank you very much. Ken, all the best.
Thank you. The next question comes from the line of Tsawwali Mena from Bank of America. Please ask your question. Your line is now open.
Yes, good morning. Thank you for taking my question. To be fair, the first one, just back to online, I'm trying to think a bit longer term. Significant sales increase. What potentially is the impact in the long term on your stores? How do you see that in terms of expansion, potentially reducing space? What is your view on that? The second question is about the challenge you mentioned, COVID-19 and Brexit, of course, going forward. Any thought on how Brexit could impact the business going forward and potentially a word on inflation, food inflation for the next 12 months?
I think the first thing to talk about in terms of expansion of online and the impact on our stores, the first thing to say, of course, is the vast majority of our online business is serviced from our large stores. It is very much been a symbiotic relationship between the large stores and our online business. The second thing to say, and I think this has been a big lesson from COVID-19, is that you never know how the customers' habits are going to change. What's most important is that you're there to respond, and you have the capability to respond. I think this is what Tesco has shown over the last nine months, that no matter what changes we see in the marketplace in terms of customer shopping habits, we have the capability to respond and to fulfill those needs.
I feel very comfortable about that point. The second is Brexit. Brexit, clearly, this is not our first time having to face into the prospect of Brexit. We've had a dry run before. The business is well prepared for the eventualities that may occur. There's not much point in speculating about what those individual possibilities are because we don't know the terms of the agreement yet. We feel like we're well prepared no matter what they may be. I think regardless of those terms, we plan to provide great value to customers in the future.
As regards inflation, what we've said before is that whenever there is inflation, we seek not to pass it on. If it's valid and our suppliers are incurring it, then we will understand it. To the degree that it can't be mitigated, we will try not to pass it on. If it does get passed on, we will always seek to be competitive in the market. You will have seen most recently that food inflation is running, actually, at slightly negative levels, chiefly because of the drop-off in promotion and some of the underlying dynamics. We don't know what the future will hold, but that's the way that we think about it.
Thank you.
Thank you. The next question comes from the line of Maria Laurae Adurno from Morgan Stanley. Please ask your question. Your line is now open.
Thank you very much for taking my questions. I have two. The first one is, at the beginning of the presentation, you mentioned you had added 500 products to everyday low prices. I was just wondering what your thoughts were in terms of continuing to extend this strategy. Any color would be helpful. The second question, you talked a lot about Christmas. I was just wondering, from that standpoint, are you preparing for anything different this year versus last year? Perhaps if you can provide some thoughts on this, that would be helpful to understand. Thank you.
Thank you, Marie Lowrey. The first thing on EDLP and the Aldi Price Match. We have, as you quite rightly said, added 500 products to the Aldi Price Match. This is a strategy that we are happy with, that we will continue with, and one that we believe is working for us. We have to wait and see what is right in terms of whether we add more and in which categories. I cannot really comment on that at this point. Our commitment to value is here to stay. In terms of Christmas, we are not planning anything dramatically different for Christmas this year. We think that demand will continue to be high. We think that our customers want to celebrate Christmas this year. Clearly, family sizes, gathering sizes will be smaller, but we are anticipating a strong Christmas season, and we are preparing for it as such.
Thank you. The next question comes from the line of Victoria Petrova from Credit Suisse. Please ask your question. Your line is now open.
Thank you very much. I have a couple of small remaining questions. First is on your price investments. In the beginning of the year, you already mentioned that 2020, 2021 were supposed to be the year of investments. For you, now it seems that you are going through with that. Is it necessary right now? We're seeing other markets where this shift to home cooking, home eating is actually supporting profitability of existing retailers. We're also seeing everyone else being pretty aggressive on pricing as well. How do you look at it? How do you avoid the situation of a price war in the U.K. food retail sector, given your size and leadership in the market? My second question is a follow-up on your online. How do you see it? You mentioned that it is there to stay. It's a new reality.
What do you expect it to be as % of your next five-year sales? What do you expect to be your key channel, click and collect versus delivery? What automation level do you target, or would you expect a certain combination of pickup versus your UFCs? Is there any chance you can capitalize on your Booker facilities in the context of online? Thank you very much.
Thank you, Victoria. A very comprehensive set of questions. The first thing to say is that, as the market leader, our commitment to value for customers, I think, is really important. We do not and have not taken any advantage of the crisis to move away from a value position because we just thought that was the wrong thing to do for our customers. We maintain that position. We will do that for the foreseeable future. In terms of our online business, it is actually quite difficult to predict where the market will top out. It may top out at around 20%. It is currently at about 11%, between 11 and 15, depending on which part of the year you target. We see growth continuing in that channel. We are planning for that.
I think the UFCs, the productivity improvements, the streamlining of our service and our click and collect model are all components of that. We will respond and use those components to serve customer needs as they change. Of course, Booker is a part of that. Booker has helped us to increase our number of slots by 100,000 this financial year. Booker is definitely a key component of any strategy going forward. Alan, is there anything you want to add to that?
No. Sorry. The one thing I would add is that you remember that when we spoke about the UFCs originally, the Urban Fulfillment Centers, we spoke about them as helping us get to that doubling of our capacity. Now, for the reasons which we all know and the spur that was given to us, we have already more than doubled the capacity. The UFCs potentially help with the economics and the underlying efficiencies. If they help to serve a greater demand, then we'll be ready for that. They do form an important part of the development of our online business.
Thank you very much.
Thank you. Once again, if there are any further questions, please press star one on your telephone keypad. The next question comes from the line of Rob Joyce from Goldman Sachs. Please ask your question. Your line is now open.
Hi. Thank you. Good morning. Welcome, Ken. Just a couple from me. Firstly, just sorry to go back to online. As you have laid it out, you continue to see online growing. Basket sizes are elevated. If everything stayed as it were, does this stay? Is this a permanent profit impairment, profitability impairment for the industry? Would you be able to maybe help us understand how much more profitable using UFCs versus a pure store pick model is? The second one, just noticing in terms of the online slots you are now offering, it seems to have flatlined at that 1.5 million for about the last three months in the bar chart you gave there. Is that because you have now satisfied all the demand out there, or is there still a lot more demand than can be satisfied at the moment from online? Thank you very much.
Thanks.
Yeah. Look, in terms of the second question first, Rob, at the moment, the slots we are delivering are the maximum that we can within the system. We do continue to look at them, but there are times when that capacity is reached. Around a third of the online slots are click and collect. That is a part of the business that, providing we can get picking, and this is where the UFCs come through. The more we can pick in a time period, the more we can deliver. Whether that is then delivered or click and collect, we will see. At the moment, having moved from 600,000 to 1.5 million within the period from beginning of March to now, that is really where we are.
In terms of the other elements, I think it's difficult to say exactly what happens because the growth is there and has been there. Clearly, as customers began to eat out, we saw some lessening of that very, very strong demand. It is linked definitely to how much food is being consumed and where it's being consumed. The other thing I'd say in terms of the economics is that our business, as Ken has said, is essentially a pick from store model. We get an efficiency from that already invested capital. Now, there are some extra marginal costs, and we've borne those during this year. I think for us, we will continue to deliver to customers what they want. It is up to us to make that as efficient as we can behind the scenes.
Moving from an already invested store base is, for us, not only economically viable and sensible, but it's also, as we've shown, a very agile and responsive way of serving customers.
Thanks, Alan. I'd just add a couple of points to that. The first is that clearly the UFC represents a chance to further enhance the productivity and the cost-effectiveness of our online distribution model. The second thing to say is that, as Alan alluded to, a third of our slots are click and collect. The economics of click and collect are obviously better than deliver to home. The last thing I'd say is that you need to look at our model holistically. What we've found is that customers who shop us across multiple channels, convenience, online, large store, are typically much more loyal and therefore more profitable customers. Really, our strategy is about serving customers regardless of their preference and trying to make sure that their lives are as easy as possible.
We are reasonably convinced that over time, if we satisfy those needs, regardless of the channel, the overall profit mix will be right.
Okay. Thanks very much. Just one quick follow-up. Does the 1.50 charge, I think, for click-and-collect, does that cover the picking costs? Do you break even on that sort of on a pick basis?
Rob, we don't go into that level of detail. Clearly, there's an element of cost, and we're seeking to help customers understand. We've spoken about this before. You'll remember that if it's actually delivered to you in your home, that for us is the most costly. You should recognize that. We would seek to help you recognize that through what we charge for it. If it's convenience and you're walking to it, it's likely to be a bit more expensive than if you drive the furthest distance to a large store and you do it yourself. Click-and-Collect, large store pickup, you've gone there. Clearly, there's an element of you've made effort. The pricing will reflect that. The specific economics, we don't go into that level of detail externally. We clearly do understand it ourselves.
Good to hear. All right. Thanks very much. Cheers.
Thank you. The next question comes from the line of Andrew Proctor from HSBC. Please ask your question. Your line is now open.
Hi, guys. Welcome, Ken, to the sector. A couple from me, sort of small ones tidying up. Just on the online piece again. I know people have asked about the sort of profitability of online. I just wondered whether you feel there's anything, asking in another way, whether you feel there's anything within your model, any structural advantages that you have that mean that it will be difficult for any competitors to sort of replicate the profitability levels that you generate in online. Secondly, I just wanted to talk about Clubcard Prices. Obviously, it's something that's fairly new in store. Just wondering whether there are any sort of early learnings from that initiative. Lastly, around sort of Aldi Price Match, again, something very prominent in store across your offer. What sort of engagement have you seen from customers on that?
Are they shopping that sort of part of the ranges when they're coming into store?
Andrew, hi. Thanks very much for the welcome and for the questions. The first thing to say is I do believe that Tesco have some structural advantages in the online space. The most obvious one is our scale and our reach. As far as I'm aware, we're over 99% of reach in terms of every customer in the U.K. I think the second point is that Tesco has a really, really deep and long-standing competence in this space and continues to improve on that and work on that all the time. I think that's very hard to replicate. I think that a number of the other players were later to the game. That also is something that we'll be looking to for the future.
The third thing, of course, is as the habits of customers have changed, as we've seen basket size increase, as we've seen van route utilization improve, that makes the economics structurally better all the time for players as large and as established as we are. In terms of Clubcard Prices, Clubcard Prices really is a refinement of our promotional strategy to give our most loyal customers the best possible deals. We've been really impressed and surprised by the response of customers to this initiative. It's been really well received in the market. One of the things that, of course, was part of the strategy is to increase the level of Clubcard participation and also the downloading of the Clubcard app to increase the levels of engagement with customers across a number of different areas.
I think it's early days, but so far, so good. We're very pleased with the progress on Clubcard Prices. Last but not least, the Aldi Price Match. I think, look, the evidence is in how customers perceive us on value. I think that Alan alluded to it in his presentation that we've seen a substantial improvement in value perceptions from customers. I think that's the clearest indication that this is working. Of course, yes, people are shopping those ranges. Absolutely.
Thank you. Once again, if there are any further questions, please star one on your telephone keypad now. The next question comes from the line of James Pearse from Jefferies. Please ask your question. Your line is now open.
Yeah. Thank you. Good morning, Ken and Alan. Ken, I had a quick one for you. I presume as you're shaping your view of growth versus margin versus cash flow for Tesco, and you look back at history and where the Tesco relative price position was going to, I guess, the end of 2008 and how things developed in 2009, where do you find the business to be now post Aldi Price Match, post what you're doing on sharpening on Clubcard Prices relative to 12 years ago? That'd be very interesting. Thank you.
Thanks very much for the question, James. I think the first thing to say is that it's a completely different world in Tesco today relative to 2008, 2009. I think it would be wrong to talk about Tesco's value position just in terms of the latest initiatives of Aldi Price Match and Clubcard Prices because I think the value journey started some time ago, probably six years ago when Dave joined the business and the current executive team formed. They have been very clear throughout their tenure that value is hugely important to Tesco and to Tesco customers. You will have seen through the last number of years, through the farm brands initiative, through the sharpening of price points generally, through the promotions that Tesco has run over the last number of years, a commitment to value.
You'll see no change in that as we go forward. I'm very committed to making sure that whatever the economic environment going forward, Tesco is very strong on value for customers.
Thank you. There seem to be no further questions coming through at this point. I will hand back to Ken Murphy for the closing remarks.
Listen, guys, all I want to say is a huge thank you for taking the time to join us this morning. Thanks, everybody, for your questions. They were greatly appreciated. The interest in Tesco is greatly appreciated. As you can see, these are very uncertain times, but actually times where Tesco feels it's in a great position to look after its customers and look after its colleagues. I just want to close the session by saying a huge thank you to all our colleagues who've done an amazing job during this period. I'm very humbled and very proud to be part of this great team. You can count on us to continue to look after our customers in the coming months and years ahead. Again, thank you and goodbye.