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Thank you for standing by, and welcome to the Woolworths Group Q3 Sales Announcement Analyst Briefing. All participants are in a listen-only mode. [Operator Instructions] I would now like to hand the conference over to Mr. Brad Banducci, CEO. Please go ahead.
Good morning, everyone. Thank you for joining us this morning for the Woolworths Group Third Quarter Sales Results for F '18. Joining me in the room this morning is David Marr, our CFO; Richard Dammery, our Chief Legal Officer; Claire Peters, Managing Director of Woolworths Supermarkets; Dave Chambers, Managing Director of Progressive Enterprises; Dave Walker, Managing Director of Big W; and last but not least, Martin Smith, Managing Director of Endeavor Drinks. They will assist me in answering your questions today. Today, we reported group sales from continuing operations for Q3 of F '18 of $14.2 billion, up 4.3% or 3.6% on a comparable Easter-adjusted basis on the same period last year. This result is despite factoring strong prior year sales growth and the impact of the New Year's Day calendar shift into Q3 from Q2 in F '17.In Australian Food, our customers are continuing to notice the improvements we are making with consistently high scores in our overall customer satisfaction and store controllable Voice of the Customer. I should add that our store controllable Voice of the Customer now includes an additional major ease of pickup reflecting the increasing importance of pickup to our customers. Australian Food sales for the quarter were $9.6 billion, an increase of 4.7% from the previous year. Comp sales increased by 4.4%, or 4.0% on an Easter-adjusted basis, which was the result of strong growth in comp transactions for the quarter.We continue to accelerate our digital investments, aiming to deliver increasingly personalized and convenient shopping experiences for our customers. Our online sales growth for Q3 in Australian and New Zealand Food grew at circa 30%, and we delivered a number of key digital initiatives in the quarter, including the commissioning of 2 new customer performance centers, one in Melbourne and the second in Sydney. We completed 6 upgrades and 20 -- 6 renewals and 20 upgrades in the third quarter, and we expect to complete around 70 renewals and over 50 upgrades by the end of the financial year. Endeavor Drinks delivered pleasing sales growth with an increase of 6.9% in the third quarter to $2.0 million, with comp sales increasing by 6.1%. On an Easter-adjusted basis, comp sales increased by 3.3%. Dan Murphy's and BWS both delivered solid sales growth in-store and online with online sales growth of just over 20%. New Zealand Food sales increased by 3.4% for the quarter to NZD 1.6 billion with comp sales increasing by 3.5%. Easter-adjusted comp sales increased by 3.8% with material improvement in comp transaction growth, which was somewhat offset by less items per basket. New Zealand sales growth has been consistent with improving their promoter scores and has benefited from our investments including [indiscernible], Fruit and Vegetables and online. Online sales momentum continued with strong increase in pickup sales, in particular. BIG W sales increased by 3.2% to $770 million with comp sales increasing by 3.3%. On an Easter-adjusted basis, comp sales declined by 1.2% impacted both by the timing of the shift of New Year's Day into Q3, and the timing of school holidays in New South Wales.Hotel sales for the quarter were $390 million, an increase of 3.3%. Comp sales increased by 3.2%, or 3.9% on an Easter-adjusted basis, with growth across all key categories and benefiting from the performance of our refurbished venues. Petrol sales for the quarter were $1.2 billion, were largely in line with the prior year. Easter-adjusted comp sales declined by 0.8% with lower volumes offset by higher fuel prices. In summary, we are pleased with our progress during the quarter and remain energized by the number of opportunities to continue to improve our business. I would like to thank our customers and our team for their ongoing support. Our focus for the remainder of F '18 is on delivering consistently good shopping experiences across all of our stores and on all days of the week and continuing to improve our online offer. I will now turn the call over to questions. And can I please ask that you limit your questions to 2 per person, and rejoin the queue if you have any thereafter.
[Operator Instructions] The first question today comes from Shaun Cousins from JPMorgan.
Just a question on Food. I'm just curious about how your Voice of Supplier is, sort of, going? You're, sort of, quite public and you've got -- on Voice of Customer and that's, sort of, moving in the right direction. Just curious, how you're finding Voice of Supplier, if there has been any changes in recent quarters or the like there?
Great question, Sean. Voice of the Supplier is up materially on where it was a year ago, but in the last quarter, it plateaued at an all-time high, but still it was a plateau, so something for us to work on. Within the context of the plateau, we actually got very good feedbacks on our joint business planning, the work that we are doing on the grocery code. The issue that we got a little bit of negative feedback on was accessibility of our team, and we intend on working very hard on that. And a little bit of feedback on opportunities to improve execution. So still need to improve. We'd like to have improved giving us some focus going into our next supplier forum.
So just on that accessibility of the team. Obviously, you've had a lot of change there with Steve going to liquor, and then Peter and Paul, sort of, taking on, is that accessibility to Claire? Or is that accessibility to [indiscernible].
Yes. We think it's a combination of all of the above in truth, Shaun. But just something for us to be clear on. Steve has gone and Paul and Pete have stepped up to really take on his portfolio. And of course, Claire is now firmly in the seat. So it's just really getting around to making sure we're accessible, but it is also, I think, just coming back to the basic courtesies of response times to suppliers and making sure they are good and focused. So the score hasn't gone down, but it's given us something to focus on in terms of improvement.
Great. And my second question is just regarding BIG W. Obviously, you have invested in price and that's, sort of, helping items of basket out, but your transaction growth has actually shifted into a slight negative or flat at 0.1 down, but it was growing at 1.5 and 1.7 in the second and first quarter respectively. What's driving that reduction in the rate of transaction growth? I'm just curious about how that plays out, because that seems to have contributed to your shift back into negative comps even, and you're actually cycling a pretty undemanding compass well in the third quarter '17 as well, please.
Yes. Look, I think this is related to the points I made. The move of New Year's day into Q3, which we don't adjust for, but obviously it's quite a large impact as you know, because it's 0 sales day that come into the quarter. And so you get a direct impact from the number of transactions you'd have and so -- and it really does fall away from that. And then the big difference in New South Wales in particular of Easter and school holidays being separate. And the way we do our adjustments means that we actually adjust in a way that you can say sort of penalizes the underlying trend lines. So there's nothing we can see that [ alongs ] us on it. That said, we still have a long way to go, and we are very realistic that we've got still a lot more work to do to attract new customers into our stores. We feel we're not doing a bad job of growing the basket of our core customer, but -- and have a lot of work to do still on getting a noncore customer to shop us.
The next question comes from Michael Simotas from Deutsche Bank.
I was hoping we could talk a little bit about the food pricing environment. So your headline deflation improved a little, but it looks like it was driven by fruit and veg. Can you just talk more broadly on what you're saying on an underlying basis, please?
Yes. So look, I think Michael, we still see as we have said for the last couple of years, a very competitive but rational marketplace. And I think it was quite a positive side in the rationality chain that we saw adjustments to bread prices and towards chicken prices, because they were, in many ways, very, very low in the context of the launch, and that could be achieved in those categories. So we still see a very rational market. If I then come back to deflation itself, we did see deflation soften somewhat during the quarter. As recall that, it was somewhat driven by fruits and veg prices, and the fact that we still have material deflation in fruit and veg, but in particular, avocados and bananas have gotten back into inflation. So the big volume items, tomatoes and [indiscernible] are very deflationary, but it's somewhat been offset by those. So that's been helpful, but full materially deflationary. We've also -- we have, however, then seen some inflation in perishables, and in the chiller category with cream and butter given what's happening on the international commodity markets. And it's very hard to break it down, but it does seem clear to us the impulse category has seen a softening of deflation and that's been driven, we think, somewhat by the container deposit scheme, although that's very hard to get very precise. So it's not only been one category that has driven the softening but a couple, but we see a very rational and competitive market right now.
Okay. So it sounds like the message is still pretty competitive, but at the margin may be a little bit of improvement coming through in some categories?
Yes. Absolutely, absolutely.
Yes. Okay. And then -- sorry, go ahead.
No. I was going to say that this sort of movement to meat goes up and down, but we're seeing lamb prices lift a little bit, but we've seen some deflation in beef. So, yes, it does vary generally by category.
And then a related question. If I look at your comparable item growth in food, it's actually a very similar number to your like-for-like sales growth. Now we know that prices are in deflation, so it implies that ASP is very different to what's happening with average prices. What's moving the mix there to -- that would boost your numbers there?
Yes. So it is clearly a mix issue. I called out the pleasing growth we have had in perishables. Actually in the quarter, it's been a very strong category for us as we have done our customer first range and then a lot of work on in-store availability. So perishables, in particular, the chiller, but also including frozen have shown some very strong performance during the quarter.
The next question comes from David Errington from Merrill Lynch.
Brad, you seem to have had a very strong March. And I remember when we were talking when you were doing your rounds, you were a bit concerned that with calls coming at the sport for schools, et cetera and those programs, you thought that you might drop a little a bit in terms, they might buy some short-term sales. So my question is did you do anything differently in March? And I suppose, begs the question, these sorts of promotion programs, were programs, where it be sport for schools and these sorts of things, do you think that they're productive in terms of being able to generate sales growth? Or do you think it's best to keep the programs directly in line to customers' wallets and their basket sizes rather than ancillary schools? I'm interested to see what your thoughts are on that.
Thanks for the question, David. These meetings come around all too often. But we were concerned. We've seen from our own very real experience what happens with continuity programs which is you do tend to get a short-term balance, but that tends to be quite temporal in nature, and we can't -- and that's not a comment on the cold, but that's a comment on our experience with continuity to our programs such as sports in schools. I think what we did in March really -- that's really a credit to Claire and the team, is just focus on running our own race and executing. And we have been very -- try to be very thoughtful on major events, and just doing a much better job of them so that whether it's even ballooning New Year or the move to the build up into Easter. We just want to really execute well on those events. I think you've seen focus in execution coming through.
Has it continued into April this thing or is it...
Well, it's too early, as you know, to talk to it, but the other point I would make more April is, it's a very -- it's a very hard month to get a clear read on in truth, with the move of school holidays and in particular, New South Wales and where they are relative to Easter. And then ANZAC Day on a Wednesday, it's just been a very, very hard month to get a very clear beat on, but obviously we don't want to get into forward projections.
Okay. And the second question, you called out, jeez, it would've been probably 6, 12 months ago now, and I'm just trying to get an idea of where you're at today. You called out some shoppers that you believe that you weren't hitting the mark on whether they're a large Sunday shopper or the discount shopper. Can you give a rundown where you're currently at in terms of the target you're trying to hit with the -- where you're at getting the shoppers? And where you think you've still got plenty of upside potential? Where do you reckon these -- where do you reckon going? This is a question for the next 12 to 18 months. So it's not the next 3 months, it's the next 12 to 18 months. Where do you reckon is the most leverage to sustain uplifting sales from areas that you are not currently hitting the mark on at the moment?
Well, we'd like to get more out of our existing shoppers, of course, and more shoppers in our stores. So there are 2 different areas, but we know that at the moment, on our existing shoppers, in particular, with our more premium existing shoppers, we still have a relatively low share of wallets and so we'd love them to, of course, spend more of the overall food spend with us in store. And that's why we're working very hard on our renewal program and the quality of our fruits and veg, and general fresh offer, it's a really good share of wallets and the premium customer. The area that we are under-indexing with customers choosing to shop us is really the young family, in particular, the value young family, and that's a slightly different strategy we're working on, which is really around making sure we deliver a price deception and impact and have a very strong EDLP program in place for those shoppers so that they can trust us to help them manage their budgets. And in the context of that program, we're very focused to the sale now read EDLP program, both across all ways and prices dropped on the re-branding of our own brands and just the way we talk about visual pricing the store, which is why a renewal store like Plumpton is very important for us in that context and falls very important in the premium context. So we've got to the point of granularity of knowing where we sit with each segment and then trying to make sure we do a better job in the context of a local store to meet the needs of that segment. But the customer is always moving to 8 to 9 months ago, were still the young value families, and they do tend to shop in very large baskets on weekends.
The next question comes from Tom Kierath from Morgan Stanley.
Couple of questions. You mentioned that online is up about 30%. Is it fair to say that you, kind of -- market share is in line with the market here and online of about, kind of, 2%. So it's adding, kind of, 60 basis points to the like-for-like number in real numbers?
Sorry, Tom, I'm not certain I fully understand your question. I'm just looking at David Marr to see if he does. Can you just repeat it? I am sorry, I don't know if I've fully understood the question.
So is online about 2% of sales? And if it is, should we think about it contributing about 60 basis point uplift to like-for-like sale in Food business?
Got you. It's 3% -- just under 3% of sales actually, so that's the way to think about how you mark up and back [ solve it ]. When we talk about online as well, just to be very clear, we talk about home delivery as well as pickup at stores. The real growth for us as you might understand has been in pickup at store, which, as we have activated pickup at all of our stores has shown very pleasing growth.
Okay. Great. And then just secondly, you mentioned the CDS. This is the first quarter where we've seen New South Wales goes through it for the full quarter. Is that driven the like-for-like number in the Food business? Is there a number you can call out so we can...
Not -- it's a different scenario in the Drinks business, which Martin Smith can talk to, but in the Food business, as we have looked through, in truth, we have seen customers moving from smaller containers to bigger ones so that just given the price differential that's happened. But the increases we have seen have been generally offset by lower purchase of the product. So it hasn't been meaningful for us. And I mean it's still a very small portion of our overall sales, so just doesn't have material impact in overall top line sales. It does, as I alluded to in the previous message, contribute somewhat, we think, to reduction in deflation because of the pass-through of it, but not a material it's rather best we could tell.
The next question comes from Bryan Raymond from Citi.
My first one is more of a clarification just around the New Year's Day impact across the component of comp growth. You talked about the [indiscernible] basket being flat year-on-year is largely due to the shift in the New Year's Day timing. I would've thought that would be shared across both transactions and items. Was there -- is it outside in the autumn for some reason or -- how should we be thinking about we are going to make an adjustment in New Year's Day to your reported numbers? How should we think about one, the magnitude of that New Year's Day impact overall and then two, how it impacts the components of your like-for-like growth?
Thank you. So look, Bryan, in truth it has, the New Year's Day timing has a differential impact on each one of our businesses, so let me just talk to Supermarkets, and we can come back. The other question was really more of a BIG W question and hopefully, everyone in the call well understands New Year's Day fell in Q3 this year. So the big buy up that happens on New Year's Eve was in Q2, and then the day where we had no sales really is -- or diminished sales was in Q3 inside Food. So it actually has quite a material impact on when you look at the food numbers. We called out at the end of H1 that the overall impact on our business was between 30 to 50 basis points. In Food, it would be at the top end of that and less for the quarter and less than that for the other businesses. So if you look at -- so in Food itself, it would have impacted the transactions of items probably the same in a way, maybe probably just -- we haven't really broken it down, so probably we had some bigger baskets so maybe it's impacted items a bit more than transactions, but nothing that I would call out about.
Okay. And just a follow on from that question then just on the BIG W impact is school holidays and New Year's Day. It might be tricky to do it, but would you be able to give us a feel for what the underlying like-for-like growth would be there. If you adjusted, would it be close to zero? Or how should we be thinking about your underlying trend given it's, obviously, deteriorating quarter-on-quarter?
Yes. You are in the right ballpark. We could have gilded [indiscernible] the delivery on this one quite frankly, but we are very early in our turnaround and still have a lot of work to do, and we wanted to take a very tight straight line on how we did the adjustment. So we could have done slightly different adjustments and got to zero or above that, but we are very clear that we want to have a consistency of approach on how we do adjustments across our group. And secondly, we wanted to take a pretty tough line on this one so, as I said, with our issue of being very early in our transformation process.
Okay. Great. And then just my second question, okay, it's just on -- you mentioned 1POS and 1Store in your commentary in Food -- in Australian Food is probably where I'm most interested. Just interested in the economics of that, and how that plays out through the P&L. Is it something that contributes more to the efficiencies or stop-loss improvement and overall materiality. Given you are talking about, I assume there is some materiality there. Could you, sort of, explain a little bit about what involvement...
Yes, it's -- it is both an enabler and -- well, it's an enabler to both sales opportunities as well as process improvement or cost opportunities. So it can do both for us. It's just a cloud-based much more flexible system for running our stores. We need to get it in for 30 June just by the way so everyone knows to really make sure we have a low-cost way of complying with country of origin labeling, which could if you don't have a system like this, brought quite a lot of cost into your business just to actually to adhere to it and to the standards that the government has set. In terms of the productivity opportunities, which it has, it is a system that should give us some scan speed upside at the front end. And it's easier to train people to use it. It's easier to do refunds and track refunds at the front end, so there's quite a lot front-end productivity, but there is also improvements in the aisle on real-time inventory management, how we print tickets, how we deliver tickets to the store. So there is also an inventory management opportunity that sits there as well. So there's quite a lot of process improvement. And then the system itself gives us the ability to deliver real-time customized office to customers. Right now, we have constraints with our systems of how many offers we can deliver to and as to what those rewards [indiscernible] and how they look and how they manifest in the store. This system changes a lot of that for us in terms of what capabilities it provides. So cost and revenue, that opportunities that's at -- the draft to get in for 30 June is for country of origin, labeling reasons, but it'd be terrific to have it in so we can get on with realizing these benefits.
Okay. And just a follow-up on that then. The high profile, sort of, outage you had a few weeks ago, was that related to the 1POS system or something else or...?
Yes, so it was a very unfortunate -- as I said to the board yesterday, it really was a black swan event that we had, which, essentially, our data center at Eastern Creek went down on the Sunday. It came back up, but in the process of coming back up a series of, actually, personalized offer files were sent to the stores in the wrong sequence, and the 1POS system did not expect this and froze for 30 minutes before the order corrected and went back into accepting customers' transactions or scanning them through the front end. So it was a combination of a bug in the software with the data center going down and files sent to the store in the wrong sequence. The issue has been addressed. We're not happy about it, I must say. It has cost us some sales. Actually, our customers have responded much better than probably we deserved and I think that's a testament to the way our support team responded and engaged with our customers in store. But technically, these things shouldn't happen but it was these 2 related incidents that caused the outage. More than an outage, it was a system freeze for 30 minutes.
The next question comes from Ben Gilbert from UBS.
Just the first question for me is, interested around service and particularly, around the staff for store wages just how you're seeing that because I think your wage costs, particularly in [indiscernible] stores are probably quite a bit higher than your peers, or your matching competitor. How are you managing that? And if sort of the stronger sales are coming through, you are having to start fractionalizing those costs? Or whether you're putting in staff at a similar level to sales?
Thanks, Ben. This is a sales call so I'm not going to talk at this stage to the profit implications of what we're doing. We are aware of the challenges, of course, of always balancing sales and service. And we feel like, in the quarter, we actually got that right as should be seen in our Voice of the Customers calls, which may have been flat versus Q2 but the January Blues are well-known in food retailing, and it was very nice to be in a position this year where we didn't have them and we managed to call the consistency of our customer experience over the quarter and sort of having this dip which we've historically tended to have in January. So we feel we've got the balance right. We're not going to talk to the cost implications at this call.
Maybe then a second one from me just around the renewals and the upgrades. Can you just talk to sort of the benefit you're seeing from those? I think there was sort of a number flying around a while ago, said we've spent 1/3 of sort of the contributor growth for sort of the renewals and the upgrades, just how are you seeing those in terms of the benefits flowing through? Are you still getting sort of similar top up lifts to where you have been? Or have they started to sort of fade off a bit as you move further into the flight?
No, we feel that they're still consistent with where we were before. We're learning a lot more as we go, so the program is clearly evolving and will continue to evolve going forward, and really increasingly the way I certainly think about the program is, we will take each store and optimize it for what that store needs to best service each customer needs. Right now we do a sort of the full lot connection on the store and actually going forward, we really want to be much more thoughtful on what we do where. So we now know -- have a long list of things that we would like to do to stores. We know which kinds of customers, which kind of stores they resonate in, and we'll go around to more individual store optimization and want to have a renewal and upgrade program that will sort of morph, but at this stage we do run the 2 programs that are tracking in line with expectations in terms of the performance we're getting out of them. So no new news to report on that front.
The next question comes from Grant Saligari from Crédit Suisse.
So, BIG W, you did have some, I guess as you said, some pleasing -- slowing I guess in the sales decline and some good performance in some of the Easter products, but you did call that the clothing was probably underperformed to expectations and I'd imagine that's sort of really core to the turnaround. So could you, maybe, just expand a bit on how the different categories, I guess, that accord the repositioning of BIG W are performing?
Thanks, Grant. I wouldn't say clothing, per se, is core to the turnaround. It is a component of it. As you know, BIG W is generally more of a hard goods retailer than a soft goods retailer, so we're more indexed to non -- to nonapparel items actually. And so it is only one component. There is a challenge we have is the lead in lag times of getting the product into the country, given that it is all generally direct sourced out of Asia. So it's a more challenging lead in lag category but it's only one component of the business. We are continuing to be challenged with apparel and I think, hopefully, everyone's aware of the impact of this with the delayed onset of winter, which is, I think, impacting the whole sector, not only ourselves. So it is an ongoing challenge, no question about it. And it is the part of the business that has performed least well, but it has been offset by some of our other core categories that we're really focused on as well.
Okay. And on the online in Food, I thought it sort of interesting comments that a lot of your growth in online is coming from Click & Collect, so pickup from store as you roll out that capability, so I guess that's quite pleasing. But then you have the 2 new fulfillment centers, which presumably for the delivery side of the business. So I'm just wondering how you're feeling about utilization of those centers and whether the growth coming through in delivery is presumably sufficient to -- well, to build utilization in the new fulfillment centers?
I think it's a great question. We've already tried to move into situation of online into growth-for-growth sake to more sustainable growth or customer-led growth. And so that's our focus. So we've tried to actually go forward not to -- try and get ahead by a number of online growth, but just meet the needs of our customers, because if we don't, of course, they'll be met by someone else. So our overall growth rate is not -- trying to drive it up is not an objective of ours, but it's just meeting customer need. Now in terms of your question on the customer performance and to balance with an in-store pick, which is the real issue, we know that for home delivery, our preferred model of delivering to the home is through customer performance center or CFC, and we can get a much better experience for the customer through that through basically our in-stock position on the order that they have as one of giving them any standard range. So our current thinking is we would like most of our home delivery to be done through our CFCs and then our pickup to be done through our stores. And so this was a step in that regard to try and get to the right balance. In truth right now, the 2 CFCs adding to the third one we have, when they are at full capacity will do no more than 40% really of our home delivery business. So it's not -- we haven't built capacity ahead of demand, if that was the heart of your question.
The next question comes from Richard Barwick from CLSA.
Brad, just wanted to ask -- sort of talk about the renewals and upgrades and the first one is a bit more of a clarification. Can you just remind us of the difference between how you define a renewal versus an upgrade?
Yes. Look, as I said earlier, our definitions are changing as we learn more and more as we go. But right now the difference is when we do a renewal we change everything in the store. It's the whole flow of the store. It's generally all of the equipment in the store. We retrain the team. It really is a new store in essence that you see when you walk in. So it's a very extensive process that costs $4 million to $6 million depending on what kind of store and what you're trying to achieve. An upgrade is -- when we started actually was taking a leaf [indiscernible] out of -- the Coles book in some ways was about changing the front end of the store and the increase and just getting the more logical flow. As we have evolved though, our upgrade is starting to address fixtures and fittings in fruits and veg, starting to address some of our macro space opportunities of how we allocate macro space in the store. So that program is really changing quite dramatically as we learn more and more. But an upgrade is essentially where we just touch portions of the store and renewal is when we touch everything. But, as I said, the upgrade program is the one that will evolve most going forward. Hope that makes sense.
Yes. It does. And so where -- so in the context of your 1,000-or-so stores, what's the, I guess, the plan here for how many stores actually will need a complete renewal? And how many are still yet to be upgraded?
Luckily, the good news is we've got lots of upside. I'd say there's, thinking about the sales, and if I look at our CFO who thinks about it from a capital perspective, you may have slight divergence on this one. But in all seriousness, we -- our issue with upgrades is our ability to do them well. And so we started the program as you may be aware somewhere [indiscernible] 120 a year. We are finding really, we can't execute as well as you would like more than 80. And this year we're only going to do 71. I'd like us to get to the 80 next year. So we're just finding with the renewal, you get this amazing opportunity and you have to get it right and you have to plan, you have to execute the amenities and the center as well as the store. And so it is actually just a capacity constraint to do more than 80. So we -- as we look forward, we can see plenty of opportunity to continue to do in that order. While we see that's what we are -- execution constrained on renewals, we look at -- we are quite excited by lifting the number of upgrades we're doing. We're looking to see whether we can do more of those going forward. And you'll probably see us do as many upgrades, if not even more upgrades going forward than renewals. But we see a lot of upside out there. We're just being quite cautious on how we evolve the programs and make sure we execute well.
So is it a case of going up? In some instances, stores that might have been renewed as you sort of evolve this upgrade process, you might say an upgrade is enough rather than a complete renewal?
Yes. Absolutely, no question. There will be a whole series of stores that you end up just doing upgrades on, and you never do a full renewal. So I'd like move to a world where you actually just -- each store has a plan and each store you know what the plan is for the next 5 years and what you are going to do in the store. And so you don't get into these major disruptions, which an upgrade is 10 to 12 weeks of material disruption, I mean, a renewal, sorry. It will have to be more of a rolling type upgrade process if possible.
Okay. And just the sort of approximate CapEx tied in with an upgrade?
This one varies a lot based on what we choose to do. It's something under $2 million. It could be like $800,000, but it could be $1.5 million if it's something a little more dramatic. But it really does vary dramatically depending on what we're trying to achieve.
The next question comes from Craig Woolford from Citigroup.
Brad, I just wanted to ask about the Petrol division, it's still a discontinued operation and the way -- the words you have used previously is because the BP agreement is still in place. I just wanted to clarify, is there a sunset clause on the BP agreement, if the business doesn't change hands? And is there any dates we need to be aware of around an appeal to the ACCC if that is the path you are going to take?
Yes. Craig, thank you. A good question. I wish we didn't classify it as a discontinued business, it's terrible for the -- it's close to 7,000 people who work in there to be classified as such, but, obviously, it's a technical issue and that counts. The BP deal is slow footage, as you know. There is a sunset clause towards the middle of this year as to when it expires and we of course could by mutual agreement extend it. The truth is we are still working through the myriad of options we have. There's been a lot of expressions of interest from a range of parties in the business. We're very cognizant of the challenges posed by ACCC, so as we look at all of our options, making -- developing a package that is acceptable to the ACCC is very top of the list in terms of our priorities in that regard. But yes, we've still got a bit more work to do. But the good news is there is a lot interest in the business in the context of its situation it's performing well.
Okay. The comment you made in the release about the sales of [indiscernible], which was a good result, was against what has been stronger baseline as we move to the fourth quarter, the June quarter, it's a much higher baseline for the Food segment. Is there anything that we should be mindful about that may have artificially boosted the fourth quarter of last year? Is there anything that will make it a tough quarter to lap in this fourth quarter which might impact the results in 3 months' time?
No. I mean, I think we had -- the June month of what was it 6.5% -- 6.4% is obviously a very challenging number to let, but that's what we have been calling out consistently. Really we are talking about produce inflation as you know on the back of Cyclone Debbie so where there is very material inflation and we are now in quite dramatic deflation. It had softened somewhat in Q3 versus Q2, but that is not our big concern. So as we look out of Q4, it's hard not to believe we are still not going to be in material produce deflation. So that's our concern in terms of -- that's the real underlying anxiety we have about what we cycle in Q4. Nothing material to call out outside of that, because cycling at this deflation will be good next year, but still painful to go through.
The next question comes from Rob Freeman from Macquarie Group.
Have you noticed any change in behavior from your major competitor in the last few months either around price or ranging?
Thank you. Thank you, Rob. In the last quarter, there's nothing I couldn't particularly call out. We are still seeing a very competitive market in terms of pricing. I don't think it's become less competitive. It may have become slightly more rational in the context of bread and roast chicken as we talked about. So it's still a very competitive market and I think it's in line with their comments during their sales call as well. So the competitive market on range. Again, we see them being much tighter on range than we are, much more trying to drive a lot more efficiency and you do get a lot of benefits as you manage down a range. So we don't see a major change in the ranging strategy. So what we would like to do, of course, is we want to lead on range, that has this balancing issue for us on availability and our underlying store costs to maintain the range or to maintain the store. And we want to make sure we stay competitive on price and that's sort of been the story of Q3 for us.
And then on their sales call, they were willing to sort of stand behind comments made in February around profit expectations for the business. Just to confirm your comments in February around the levels of investment in the business, whether it be OpEx, price, whatever it might be, is the current view kind of consistent with that mindset in February? Or has there been any change?
Look, we are very focused on executing our plan, so there's nothing changed really in our plan, which is we need to be competitive on price, and we need to differentiate our business on range and Fresh, in particular fruit and veg, and provide a great in-store service experience. So we're just focusing on executing against that set of priorities.
But the rate of investment, has there been any change since February?
Look, as I said, this is a sales call, but we haven't changed materially our modus operandi at this stage, but it is a sales call.
The next question comes from Scott Ryall from Rimor Equity Research.
Brad, I was hoping this is an easy question. In terms of your Online, what's the rough proportion of deliveries versus pickup, please? And where are you planning for that to be in, say, 3 to 5 years' time in terms of the plans? And I recognize you're at the will of the customer, but in terms of the intelligence you have gathered so far, I would be interested in your thoughts on that, please.
Well, as you know, it's got to -- it varies dramatically across the globe. The balance between pickup and home delivery in the French market is the leading pickup market in the world with about 90% pickup versus 10%. Home delivery in the opposite is true in the U.K. So in a short stretch of water, you have 2 businesses with virtually the opposite mix between home delivery and pickup. And then we have seen in -- certainly, in North America, a real focus on pickup, in particular, by Walmart as their major point of differentiation against Amazon. So the models across the world are very disparate, and it is very hard to look at those and use those to form what we do. In truth, right now, pickup is just over 20% of our sales in Food. It's actually closer to 40% -- or closer to 50% just looking at Martin Smith in Endeavor or in Drinks. So they are quite different in terms of where the balance is. Right now, it's actually -- it's just over 30% in our New Zealand business. I think we'd reasonably expect in our New Zealand Food business, we'd reasonably expect pickup to get to 30%. It's hard to understand or believe whether we'll go much higher than that, but we'll let the customer lead us there. It goes back to the previous call of being quite prudent in molding customer performance centers because you don't want your capacity to get ahead of demand. Although, on the other hand, of course, you don't want to be too out of balance, so we're approaching the balance issue with caution. Hope that makes sense.
It does. And then, I know that you keep stressing it's a sales call, but you have mentioned in your hotels division the investigation that you've got going on? Can you please tell me why it's worthwhile owning that business or what works given every newspaper article writes it up as Woolies' pub division or Woolies' gaming division when it's less than 3 percentage of sales, but the potential for brand damage is immense?
As you know, it is a joint venture. I can turn to our chief legal counsel to elaborate on why we wanted to put the clarification in our announcement, which you are right is not allowed in sales clarification. But the reason we are in this business is because it provides us with a vehicle to really grow our retail drinks business and it really started, of course, you may know with the history of Queensland of where you need to either -- you do need to own a pub in order to have a retail liquor license. So it's been on that logic that we have entered this joint venture with the Mathieson group. As to why we put the clarification in there, there has been a lot of wording around independent reports and whatever else. We just wanted to be clear as to what we're doing in the context of this business given the comments we made at the AGM back in November of last year. So it's really just a point of clarification. Richard, anything you'd like to add?
Brad, thanks. I mean, I think the main thing is that there's been so much interest in the whistleblower allegations that we wanted to give an update on the investigation process, which is being conducted by the ALH board with support from a number of advisers, including responsible [ guide ] in Canada, who I've talked about previously, doing a benchmarking exercise to ensure that we have a proper understanding of what this practice looks like.
Okay. And the timing of those reviews, please?
Underway. We're not going to commit to a hard time front, but we're making good progress.
Right. Okay. But you'd expect it calendar year, right? Prior to your next AGM, presumably?
Most certainly. Yes, most certainly.
The next question comes from Phillip Kimber from Evans and Partners.
Just my first question was, I couldn't find it in the result. Do -- are you able to give us the sales per square meter improvement in the third quarter?
Thanks, Phil. I'll just turn to David to talk to that.
Phil, we effectively did at the full year and the half year, but it is fair to say given our sales improvement, we have an average -- we have an increase in average space across all of our businesses, so sales per square meter is going up, but we'll detail that at the full year.
Okay. And can you just remind me, because I know you have spelled it out before that it does look a bit unusual the total sales for Food is pretty close to the like-for-like, but I think your stores are about 0.6% or 0.7% higher. But, I think, you've highlighted in the past there was something to do with the way you changed your accountings, might be newspaper and magazine sale. So just wanted to reconfirm that but also when that sort of washes through?
Thank you, Phil. David has been waiting for this question for the whole call. So over to you, David.
Thanks, Brad. So Phil, firstly the -- effectively there's 94, I think it is percent of our stores are in the comp calc. So the difference between comp and total will always be pretty small on that basis or at least at the moment. There is a contribution from new stores, but as you know, we stripped out that contribution. We also stripped out the cannibalization impact from those new stores on existing fleet. So they effectively net out each other, so that's why the difference is quite small. The agency adjustment you referred to is in there, but it's actually very minor and we start to let that in Q3. So, yes, you won't see that as a big impact coming forward.
Okay. Do you think we will ever get back to -- in the past, I think there was typically a, sort, of 1% gap between your total and like-for-like, which broadly matched your space, might be a little bit less. I mean, I think you talked to space in the 1% to 2% growth range. I'm just thinking, going forward, should we think that, that gap might expand? Or is it likely to stay pretty narrow in the next year or so?
Well, I mean, you're right. It will entirely depend on how many new stores we open on a net basis and what the ongoing impact of cannibalization is. So in the very short term, I wouldn't expect to grow materially, but as we look forward and we look at the opportunities in the market for new stores that, that gap may widen somewhat, yes.
[Operator Instructions] The next question is a follow-up from Richard Barwick from CLSA.
Just a quick follow-up on Petrol. You sort of mentioned you're happy enough with the performance, but that volume outcome is the weakest in some time. So in terms of market share at least in the Petrol sense, are you suggesting that you're at least holding market share?
We are -- all the majors in Australia are actually losing some market share to the smaller independents, often the value players. Effects seemed to have been escaped by a few colleagues from the ACCC. So there is a move, but in the majors, we have been holding our share quite consistently over the period.
Again, this might be a tricky one to answer, as you say given the sales call, but that sort of loss of market share...
It's been really driven by new site openings.
Yes. Okay. I was just wondering if it's meaningful from a valuation point of view in terms of what you think you can sell this business for?
We can't get into that on the call, I think.
Thank you. At this time, we're showing no further questions. I'll hand the conference back to Mr. Banducci for closing remarks.
Thank you, everyone, for joining us this morning, and for all of your questions. We look forward to speaking to you as soon on the rest of the year. So have a great day, and as I said, thank you for all your questions.