Good morning, everyone. Thank you for joining us today. I'm here in Welwyn with Imran, and in a moment, we'll be delighted to take your questions. Before I share a few key highlights, I'd like to start by thanking the entire team for the fantastic contribution that they make every single day. Their ongoing hard work is evident in the strength of our offer and ensures we can deliver brilliantly for our customers. I'm really pleased with the performance of the entire business in what continues to be a competitive and challenging market. This strong performance has been underpinned by our ongoing and relentless focus on value and quality, ensuring customers can benefit in every part of their basket. It's really important that we continue to support customers as they face ongoing and significant cost of living pressures.
I'm therefore really pleased that we have led the way in cutting prices on the everyday essentials that customers rely on, such as milk, pasta, and cooking oil. To give you a sense of the scale of the impact of our recent price cuts on some of our most popular own brand products, bread is now 12% cheaper, broccoli is 16% cheaper, and pasta is 16% cheaper also than it was just a few weeks ago. Our overall focus on value is, of course, much broader, and we have continued to invest in our offer through our powerful combination of Aldi Price Match, Low Everyday Prices, and Clubcard Prices. Our price index has strengthened not only against the discounters, but also versus the whole market.
I'm also very pleased that our continued focus on quality is reflected in 9 consecutive periods of switching gains from premium retailers as we help customers who want to celebrate or treat themselves to something special. We've made further progress in developing our Finest offer, launching 126 new products, with nearly 70 in our barbecue and picnic ranges, including summer-inspired sweet treats and chill desserts. The recent launch of our Finest Signature Vegetables dishes is a great example of increased focus on innovation, health, and convenience. Of course, fantastic tasting food that our reinvigorated product team is delivering. Overall, I'm really pleased with our progress in the first quarter. Our performance is strong on every front. Our in-store execution is best in class. We're the most competitive we've ever been for our customers. We continue to make meaningful strategic progress.
This all means we are well positioned for the months ahead. I'm therefore confident in our ability to deliver again for all of our stakeholders. We are reiterating our guidance for the full year. With that, I'll hand the call back to the operator for Q&A. Thank you.
If you would like to ask a question, please press star one on your telephone keypad. Please ensure your line is unmuted locally, as you'll be advised when to ask your question. Once again, that's star one if you would like to ask a question. The first question comes from the line of William Woods from Bernstein. Please go ahead.
Hi. Good morning. Thank you for taking the question. I've got two, if that's okay. The first one's just on the price cuts that you've talked about. Do you think we'll see wholesale deflation over the next couple of months? Is what you're talking about kind of month-on-month deflation? Are you deflating any products year-on-year? The second question is, obviously, in the Groceries Code Survey that came out recently, your position has come down over the last year. How are your relationships with suppliers at the moment? Thank you.
Well, thank you for the questions. Let me answer the second question first. I think the supplier relationships are really strong. We continue to be seen as leaders in terms of transparency and fairness in the way we deal with our customer or our suppliers. Although we've slipped a couple of places in the rankings, you know, there's literally one or two percentage points that separate the top six, and we're still voted as compliant with the GCA by over 95% of suppliers.
I think you can take that as an indicator that while conversations are very robust around cost of goods and the pass-through of inflation, and making sure that we only pass through the prices and the costs that we absolutely have to consumers, I think what you can rely on is us to take a long-term strategic view, for us to always act in a fair and transparent way with our suppliers. I think that the fact that we're a more demanding partner is not necessarily a bad thing, in my view. In terms of inflation, I'll pass over to Imran for his view in 1 second. I think, you know, my point simply, but is you just have to differentiate between structural and transitory inflation. Structural inflation, such as energy and wages, appear to be here for some time.
Who knows what will happen to energy over the next 12 to 24 months, but wages will persist. On commodities, it's much harder to judge.
Yeah. The deflation that you're seeing is really the month on month, to your question. Clearly, you know, our mantra has always been that we want to be there on value and you know, the good thing is, as of today, we are stronger than ever on our price index versus all the key competitors, and that's important to us, and I think it's reflected therefore as well in how we delivered quarter one. Look, where commodities continue to ease, clearly our goal will be to make sure we can pass those on, but there will also be some that go the other way. The reality is we need to judge it month by month, and that's sort of part of the day job.
Perfect. Thank you.
Thanks, Will.
The next question comes from the line of Nick Coulter from Citi. Please go ahead.
Hi, good morning. I just wonder if I may, for Imran, please. I know it's a trading update, but could you talk about how the onset of disinflation or lower inflation will impact the business and whether that presents any challenges for you further down the income statement, please? Thank you.
Look, I mean, it's a little bit like the, the, you know, what we've just gone through. I think what we've demonstrated over the last two years is that as you're dealing with inflation, you know, whether we save, whether you drive the mix, whether where we invest in value, I think similarly, as we start to see deflation or disinflation, as you referred to it, we need to continue to make sure that we keep winning, you know, making sure we get the right volume, protecting our market share, and doing it in the right way for customers. I think that's sort of, again, you know, what we'll call just day job. Obviously, everything is on the way up and on the way down, you need to handle it. I think so far we've demonstrated that ability to manage, as prices move.
Thank you. Just to be clear, you don't see an increased risk of margin squeeze as we see lower inflation coming through?
No, look, I think what we are seeing at the moment is, you know, the moving pieces are pretty much playing themselves out as we talked around six weeks ago, right? When we met in April. We continue to ensure that we drive our savings, we continue to drive the mix. Where we have seen some disinflation, we have passed it on, but protecting our margins. I don't actually see that as a big challenge. You know, remember, the one thing, and this is critical for us, the way we run the business is for absolute profit delivery, right? That's always a combination of getting the best volume we can get at the best price for our customers to maximize profitability and cash returns. I think so far that's played out well.
If you ask me at this stage, do I see anything different than what I told you 6 weeks ago? Absolutely not, and I feel quite good after the 1st quarter of where we are.
Brilliant. Thank you so much.
Thanks, Nick.
The next question comes from the line of Andrew Gwynn from BNP Paribas. Please go ahead.
Yeah, good morning. Yeah, two questions, but one very quick clarification. Could you just clarify if you are seeing actually deflation across the whole basket sequentially at present? You've called it a few products, but across the whole basket, presumably, we're still seeing a little bit of even inflation versus where we were a few weeks ago. The two questions, firstly, on suppliers, we already touched on that briefly. Is there a risk or is there any evidence that suppliers are potentially hanging on to some of the price increases that they've already pushed through and are reluctant to sort of move downwards? The second question, Central Europe, clearly very subdued given where food inflation is. Some more comments beyond what we can see in the press release would be welcome. Thank you.
Look, on deflation, Andrew, the first thing I'd say is that, you know, I'll go back to my earlier point around structural versus transitory. I would say that we've see structural wage inflation in the system through our producers, our supply chain, and our own retail operations. That is a combination of obviously, inflation-driven demand and also a reduced supply of labor on the back of Brexit, et cetera. There are two factors at play in the U.K. One is specific to the U.K., the other is much more general. The second point is that a lot of energy cost inflation has been hedged into the system, and so that will persist for some time, even though energy prices on the spot rate are falling.
In terms of the transitory inflation, actually, you're seeing a bit of a mixed bag. Where there has been commodity inflation in the areas of dairy and cereals, you are seeing us take prices down, so and that is evidenced by the price drop on milk and butter, and the price drops on bread and pasta and oils. In other areas, you are seeing actually some, you know, persistent inflation in the areas of rice and potatoes. It's not all straightforward, and some of that is driven by weather-related crop yields, et cetera. It's not really a kind of across the board. It's very different by commodity sector.
In terms of our suppliers, the first thing I think, importantly, is that where we've seen the greatest levels of inflation has been typically in fresh categories, and that's because they are the most exposed to wage inflation and energy inflation, and also to feed cost inflation. They are the ones who've experienced the most significant spikes in prices. For the majority of those, we operate open book contracts, which means that, you know, we had to take those prices up quickly when the inflation was coming through their books. Equally, as commodities come down in some of those areas, we're able to take the prices back down. That is where I have a high degree of confidence that we will see deflation reflected in prices when the actual deflation occurs.
I think it's harder to see what will happen in the rest of the sector because it depends on the individual efficiency of that supplier, and of the strength of their brand, et cetera. That is where, you know, it becomes a more, I think, judgment-based negotiation. What really helps us is we have a fantastic sourcing model, which basically we call it very imaginatively, should cost. It gives us a breakdown of every product in terms of its components, and its composition, and therefore, we can judge reasonably accurately what the product should cost. That is where we get into fairly robust conversations with suppliers, and we push all of us, including Tesco, for greater efficiency so that the customer doesn't bear the brunt of the impact of inflation.
Maybe I'll take the question on Central Europe. I mean, look, as you point out, like-for-like sales were around 1.1% up for the quarter. The way that we think about this going into the year, we knew that we would be lapping a extremely strong quarter one last year, where we had a very resilient volume and performance, as well as relatively high inflation. Last year, as background, there was a lot of government stimulus, especially in Hungary, that went straight into people's sort of bank accounts, if you wish, and that really propped up the volume performance in quarter one. I mean, the inflation, in general, is much higher in Central Europe than it is in the rest of Europe, and clearly, that does bring with it some sort of softness on the discretionary spending side as well.
It's not really a surprise. I feel overall, the team's in a good place. You know, we've put in place the right sort of price cut promotions, the similar, Low Everyday Prices campaigns that we have been running in the U.K., similarly in Central Europe, and they're doing the job. We feel good about where we are in Central Europe, but clearly lapping a, an extraordinary year last year, was always gonna be a bit more of a challenge this year.
Just following up on that, would you anticipate a material improvement as we go into the second half or even Q2 for Central Europe?
No, I think the team is certainly feeling good about as we sequentially go into the second half of the year. Yes.
Okay, clear as always. Have a great weekend. Thank you.
Thank you.
Thank you.
The next question comes from the line of Izabel Dobreva from Morgan Stanley. Please go ahead.
Hello, good morning, and thank you for taking my questions. From your comments so far, it sounds like we will likely see quite different pricing dynamics in some of the private label or fresh categories relative to the brands, where some of the CPGs are still talking about price increases. My question is, do you see more willingness from the brand manufacturers to fund promotions, and any changes in your supplier income? My second question is around volumes. In the release, you called out a strong volume response to the Price Lock campaign. The question is, how do you expect the volume elasticity to behave as pricing starts to roll over in food? Is there a risk that the volumes might remain muted due to wallet mix shift back into non-food?
Thanks, Izabel. Let me start by addressing the second question first, which is that I think there are a number of dynamics at play here. I think first of all, I think that again, back to the point on structural inflation, is that, you know, the elements of inflation are unlikely to ease in the next 6 months or so. We would hope commodity prices will start to ease more, and then you'll start to see a kind of a steadying, if you like, and a slow decline of inflation over the course of the rest of the year. That remains to be seen.
I think that, whatever happens, given the huge savings programs and efficiency programs that we've undertaken over the last two years, you know, we're a much leaner business coming through this cost of living crisis, and those structural savings will persist. The other thing I think we've demonstrated, firstly through the pandemic, then through the supply chain crisis, and now through the cost of living crisis, is an incredible agility and an ability to respond. I feel particularly pleased about the fact that despite of all the inflationary pressures, you know, we have managed the balance incredibly well. You know, we're the most competitive we've ever been in the market relative to competition on pricing. We are rewarding colleagues at the highest rate we've done for many years. Our suppliers remain confident that we're a great partner to work with.
Of course, we've done a great job for investors as well. That kind of balance is something that we will seek to maintain right the way through my tenure in the business, because I believe that is super important for the long-term health and sustainability of the company. It's proven to work for us as a business where we've chosen to do the right thing at each juncture. I think, Sorry, your second question again, Izabel, just let me remind me.
It was around volume elasticity as price food inflation rolls over.
Right. You know, volumes have been suppressed through the cost of living crisis, and is evident by the delta between inflation and sales growth. You are seeing some, albeit, by the way, that the true rate of inflation that consumers see through shopping at Tesco is significantly lower than the headline rate of inflation that you're seeing quoted in Kantar, et cetera. Of course, that's because they were able to trade down to cheaper alternatives and different types of protein and fresh to frozen, easing out to easing in. They're using a number of different tricks in their repertoire to manage that budget. Of course, they are cutting down on discretionary spending.
General merchandise and clothing is, you know, 7% of our sales in the quarter, so we are less exposed to those discretionary categories. Equally, we would start to expect a gentle trading up and a gentle volume improvement as cost pressures increase. Clearly, wages have also increased meaningfully over the last 12 months, and we are still in a full employment market. We feel reasonably good that we're well able to manage any future dynamics in the market, including deflation.
The next question comes from the line of Clive Black from Shore Capital. Please go ahead.
Good morning, gentlemen. Thanks for your time. Two quick ones, if I may then. Just interested in a period where volumes are sustainably lower, how you manage the traditional working capital dynamics of the business? Secondly, just intrigued about what you said on the online market in your statement, gaining market share. Just wondered, could you give us some color, where you're gaining that from, do you think, but also, how the contribution from online is evolving for you? Thank you.
Great, thanks very much. Let me hand over to Imran to talk working capital.
Yeah, look, as you know, I mean, cash flow and working capital in particular are sort of key focus areas for the last two years and continue to be. As you point out, you know, it managing lower volumes is critical in that work that we do. Maybe two areas. One is we've been very disciplined on ensuring that the stock levels, the complexity that we have, the SKU management, doesn't lead to any inefficiencies and has actually been a positive contributor to working capital improvement, so have been the areas with our suppliers on the payable side. You know, actually feel really good, even, you know, when I look at quarter one, where we landed on cash and working capital. It's all in the right place from that angle.
Great. Thank you.
The next question comes from the line of Sridhar Mahamkali from UBS . Please go ahead.
Hi, good morning. Thanks for taking my questions. I've got one follow-up from Clive and a couple of other questions, please. Just on Clive's question on working capital, does the fuel sales down quite meaningfully? Does that change anything in the way, I suppose, Imran, you're thinking about working capital inflow for the year, around about that GBP 100 million mark? That's the follow-up. Second, well, a couple of other questions. Going back to the commodity-driven price cuts you pointed to, just wanted to understand the timing and the quantum of these price cuts. They are reflecting the commodity price decline, or is there a greater willingness, I suppose, is the question in the market and for yourselves to trade a bit of margin for better sales and market share?
The second question was just in terms of channel performance, growth in large stores seems to be very strong, well ahead of convenience. If you could explain that a little bit more, is that just to do with comps from last year or consumers getting back into larger stores, doing fuller shops? That would be so helpful. Thank you.
Let me take the first one on fuel. Look, I mean, clearly, fuel prices is something we deal with every year, right? Last year was one direction. This year, prices have come down, so have volumes. To be fair, we sort of assumed that within our guidance range, that would be the case. It doesn't give me an additional headache versus the guidance we laid out, and I feel actually quite good so far on how we're dealing with that. On the channel performance, Ken, I don't know if you wanted to.
The channel performance really is, as you suggested, mostly a reflection of incredibly strong performance in the convenience channel this time last year. To a certain extent, a normalizing, therefore, of customer behavior. I think there is also shoppers increasingly buying with a view to batch cooking. They're buying more in bulk. They're cooking two, three days worth of meals in a go, therefore, you know, that does lend itself to larger format shopping. They're probably being a bit more planful, which I think is no bad thing.
Maybe just on the commodity price cuts, sorry.
On the commodity price cuts, we, I think I mentioned earlier, you know, for those particular commodities and areas, most of our fresh areas, we operate at an open book policy, and therefore, as I said, when there was inflation, that inflation flowed straight through to us. Conversely, when you see deflation, that flows back straight through the other way. Our policy has been to pass that saving on straight on to the customer.
That, what is broadly reflected in the market? I think one of the questions we keep getting is the market remained, phenomenally rational as the way the inflation went, through. On the way down in the disinflationary period, is it still-
It's exactly-
Would you still characterize it as being rational?
I would. I think it's exactly that. I think that everybody is behaving responsibly and rationally, because I think people realize that this is an important time for the industry. It's a time for the industry when you have to be as efficient as possible to make sure that you're minimizing the impact on your customers, but you have a lot of other stakeholders that you need to look after at the same time, and that includes your colleagues, includes your supplier base, and of course, your investors. I think everybody is mindful of that, and therefore, we are seeing a very rational market right now.
Thank you.
Thank you.
Before we move to the next question, as a reminder, please press star one if you would like to ask a question. The next question comes from the line of James Anstead from Barclays. Please go ahead.
Good morning, Ken, Imran. Two questions for you as well, please. Firstly, Booker catering sales up by almost 11%. I just wondered, Booker serves the range of catering customers from reasonably high-end to fast food. I wonder if you're seeing the cheaper priced customers growing faster? That would be the first question. The second one would be, I've read various articles in the trade press talking about the work you're doing on refreshing the look and feel of your stores, particularly in the fresh areas. I wonder if that's a fair representation of you increasing your focus and, yeah, does that suggest your customer feedback implies your stores looking a bit tired?
Thanks, James. Two very good questions. I think, yeah, very strong growth in Booker, across both retail and catering, by the way. It's been successful in both parts of its market. Catering, particularly strong, and I think the watchword here is not necessarily price per se, but value for money. What Booker has been incredibly successful at doing is helping caterers manage the value for money equation, which is kind of supplying kind of great product and meal combinations, menu combinations, that allow restaurants, pubs and bistros to maintain their margin, but offer a great value proposition to customers. They're the customers that are particularly doing well in the market. They're customers that, you know, seem to be in a sweet spot with Booker, and they're driving their mutual performance.
In terms of the Fresh refresh, Fresh is an area which. Look, as I came into the business, I was very conscious that Fresh drives the quality perception of the whole shop. We, by the way, have a very comprehensive refit program that we follow, and we put, you know, north of GBP 300 million a year into our refit program. It's something that we kind of stick to pretty religiously for two reasons. First of all, because we want to avoid our estate getting tired, so it's an essential part of doing business. Secondly, is because it drives our ESG program, because as we replace our refrigeration, we do so with much more energy efficient and much better emission stats on the refrigeration. That's the first thing.
The second thing is that we did a lot of work in Ireland in terms of completely reinvigorating our bakery and fresh areas. That's had a big impact on sales. We've taken a lot of the learnings from that and applied them to our U.K. business. We're in the process now of trying to optimize the Fresh, particularly around the areas of produce and bakery, to really, kind of elevate the customer experience, and that's something that, you know, we're feeling excited about.
Just to check, I presume any additional work you're doing is stuff that you can accomplish within the CapEx envelope that Imran set out?
Yes.
Yeah. Just to be clear.
Yeah.
Thanks very much.
Thanks, James.
We have no further questions in the queue, so I'll now turn the call back over to Ken Murphy for some closing remarks.
Thank you. Listen, thanks, everyone, for joining us this morning. We really appreciate it. As you see from the numbers, it's been a really good first quarter. I'm really proud of how we continue to be the customer's champion with great value and great quality. Look, we look forward to seeing you all in October, if not before. Thanks very much for your time and interest in the business, have a great summer.