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Thank you for standing by, and welcome to the Woolworths Group F '21 Q3 Sales Results Announcement. [Operator Instructions]I would now like to hand the conference over to Brad Banducci, Managing Director and CEO of Woolworths Group. Please go ahead.
Good morning, everyone. Thank you for joining us for Woolworths Group's third quarter sales results for the 2021 financial year. Joining me this morning are Stephen Harrison, our Chief Financial Officer; Amanda Bardwell, Managing Director of WooliesX; Steve Donohue, Managing Director of Endeavour Group; Teresa Rendo, acting Managing Director of BIG W; Claire Peters, Managing Director of B2B and Everyday Needs; Natalie Davis, Managing Director of Woolworths Supermarkets; and Spencer Sonn, who recently joined the group as our Managing Director of Woolworths New Zealand. Just turning now to our Q3 results. We wouldn't normally split a quarter into a 7- and 6-week period, but I hope today's announcement clearly shows the 2 very distinct trading periods we had during the quarter. The first 7 weeks of the quarter reflected the period prior to cycling COVID, with the second 6 weeks reflecting the period in which we cycled the COVID peak, which began in late February last year in our food business and peaked in late March. For the first 7 weeks of Q3, group sales increased by 8.1%. And for the final 6 weeks, group sales declined 7.3%, resulting in total sales of $16.6 billion in the quarter or growth of 0.4%. In the final 6 weeks, Australian and New Zealand food sales declined materially on the prior year. Drink sales declined modestly, BIG W remained strong, and hotel sales growth improved as the cycle closes at the end of Q3 in the prior year. 2-year average growth rates across Australian Food, Endeavour Drinks and BIG W remained on trend at 5.3%, 8.2% and 14.8%, respectively, with total group sales up 5.6% on the same basis. In general, we are seeing customer shopping behaviors continue to normalize. While food customers are still shopping less frequently, the growth in the number of items customers are putting in their basket is slowing. Customers were also shopping more on weekends, state-based performance is becoming more balanced and there is less divergence in trading across our fleet, other than in CBD and transit locations where foot traffic remains below pre-COVID levels. And while we remain vigilant in looking after the safety of our customers and team, as foreshadowed, COVID costs continued to trend down over the quarter. Group e-commerce sales continue to be strong, increasing 64.2% in Q3 to $1.3 billion. Digital engagement also continued to grow with average weekly traffic to Woolworths' digital assets up 48% to 12.4 million visits per week. During the quarter, we launched our latest micro-fulfillment centers in partnership with Takeoff Technologies in New Zealand, with Penrose opening in January at Leon Leicester and Moorhouse opening in late March. Together with Carrum Downs in Victoria, we now have 3 micro-fulfillment eStores with a fourth launching in August in Maroochydore in Queensland. Earlier this week, we announced plans for the next phase of our e-commerce fulfillment program with our first automated customer fulfillment center to be built in Auburn in Sydney in partnership with Knapp, with a capacity of up to 50,000 orders per week. Knapp are leaders in automated storage systems and warehouse logistics software, and already partnered with Takeoff to provide the shuttle system for its units. In what has been a busy few weeks, we also recently announced an increase in the group's ownership of Quantium to 75%. This will reshape the way we partner with Quantium and is a very important step in the evolution of the group's advanced analytics strategy. A new business, Q-Retail, will also be established to deliver against our advanced analytics road map and commercialized products externally. It is important to mention the devastation on local communities of widespread flooding across the eastern seaboard and bushfires in Western Australia. Our team rallied to ensure communities were supplied with essential groceries. Together with the generosity of our customers, almost $200,000 was raised for our S.T.A.N.D. partner, The Salvation Army. We also supported Foodbank with food and essential items for emergency relief hampers and paid for the volume lost by the dairy farmers who supply our Farmers Own branded milk in the Manning Valley. Taking a closer look now at each of our businesses. Australian Food's total sales for the quarter declined 0.7% on the previous year, up to be -- up 8.2% in the first 7 weeks. Comparable sales decreased 2.1% with 2-year average comp sales growth of 4.1%, which is more typical of pre-COVID growth. Average prices during the quarter declined 1.8% or 3.4%, excluding Tobacco, with all major long-life categories declining largely as a result of cycling the temporary removal of promotions in March 2020 following the onset of COVID. Fruits and vegetable (sic) [ Fruit & Vegetables ] prices also declined due to improved growing conditions [ impacting ] higher prices in the prior year due to droughts and bushfire-related cost increases. WooliesX e-commerce sales increased by 90.5%, with a penetration of sales of 7.9%. Last year, some e-commerce services were disrupted following unprecedented demand during the onset of COVID and the decision to focus on our most vulnerable customers. However, even on a normalized basis, we estimate that e-commerce sales growth exceeded 70% in the quarter. New Zealand Food's total sales declined by 6.9%, and New Zealand Food cycled the peak of loss just pantry loading. 2-year average comparable sales growth was 3%, with the market continuing to be impacted by border restrictions, lower prices and lower growth in fresh. CountdownX e-commerce sales were 37.9% with a sales penetration for the quarter of 11.6%. BIG W's total sales increased by 18% in the quarter with comparable sales growth of 20%. Sales growth was strong in every month of the quarter and across all major categories despite cycling the initial COVID demand surge in March last year. BIG W X e-commerce sales increased by 34.8% in the quarter with sales growth moderating from previous quarters as we cycled a strong uplift from when initial COVID restrictions drove a surge in demand for home delivery. E-commerce penetration was 7.5% in Q3. Endeavour Drinks' total sales increased by 6.3% in the quarter, after increasing by 14.4% in the first 7 weeks. Comp sales increased by 5.5%, with 2-year average comp sales growth remaining strong at 7.2% as consumers -- customers continue to consume more at home in favor of more premium products. EndeavourX e-commerce sales increased 23.8%, with a penetration of 8% of total sales. Hotels' total sales in Q3 increased 11.5% on the prior year to $390 million. Hotels saw improved trading trends in the first 7 weeks of the quarter compared to H1 and a material improvement in sales in the second 6 weeks as the business cycled last year's lockdowns, which started on the 23rd of March. Turning to current trading and outlook. Sales growth for the first 3 weeks of April remains volatile and impacted by prior year growth rates and the timing of the Easter and Anzac Day public holidays. In Australian Food, total sales were broadly flat compared to last year, and this reflects the cycling of mid-single-digit sales growth in April last year in comparison to double-digit sales growth in May or June. In Endeavour Drinks, sales increased largely in April. However, Endeavour Drinks will cycle sales growth of over 30% in May and June. In New Zealand, sales growth remained materially negative in April. Cycling sales growth were over 20% in the prior year. BIG W sales slowed in April to date relative to Q3, with sales growth in April last year of over 20%. We continue to expect sales to decline over the March to June period for all of our businesses other than Hotels, where Q4 sales growth declined last year 86% on a normalized basis. Despite this trading volatility, we remain focused on delivering the best possible experiences for our customers. The Endeavour Group demerger remains on target for late June and subject to board and regulatory approval. Demerger documentation is expected to be released in mid-May. Finally, we also provided an update today on the independent panel review of the Dan Murphy's Darwin development. The Board has supported management's recommendations, and we will not be proceeding with the development at this time. We will take time to reflect on the findings of the Gilbert review and release our response to it once we've had time to consider it, and we'll target to do that by the middle of June. I will now turn the call over to the operator for questions. [Operator Instructions]
[Operator Instructions] The first question today comes from Michael Simotas from Jefferies.
I don't think we've ever had as many sort of moving parts in terms of the way the base is shifting and timing of Easter and Anzac Day, et cetera. So I was just hoping you could give us a little bit of help with, firstly, the benefit that Easter was to the business and predominantly food, but you can touch on the others, if you like, in the third quarter. And then in terms of your April trading update, what impact, if any, Anzac Day had on that? And the reason I ask is, clearly the market's comparing Coles to Woolworths based on the share price move today, and it looks like Woolworths is lagging Coles in April. So I just want to understand whether there's any nuances in the timing or if that's driving that?
Thanks, Michael. You're right. We've never had more complex numbers. So we just talk of a game of 2 halves, H1 plays H2. Then we started talking about a narrative of 4 quarters. In fact, in Q3, it was really a tale of 3 very different months. You're up, you're flat, you're down. And now we're talking about a question of 3 to 4 weeks and the material differences in those weeks. So the word volatile, I think, is the best description of where things -- where things stand right now. And we haven't adjusted anything in truth for Easter or for Anzac Day. We've just let the numbers fall the way they have in our document because any adjustment we don't report would be -- it's just very hard for us to do. So let me just -- the average. So firstly, as you're aware, Easter fell in Q3 for us this year and Q4 last year. And so you look into the Q3 number with -- and that's different because we've done, therefore, reported 3 weeks of trading for April versus the Coles' 4 weeks. So quite big differences in what went on. Last year, you may remember, Easter was very muted. Sort of was COVID almost sort of stole Easter, so to speak. So it was very hard to actually get a good beat on Easter last year. It was a very strange trading period. In fact, we even traded on Good Friday, which is something that we felt very uncomfortable on in New South Wales. And so the whole trading pattern was very different. Our e-commerce business wasn't where it needed to be. So it was just very hard for us to understand. And then Anzac, a long weekend last year, was also quite muted, but again, very different in where it fell. And in fact, our numbers don't report the benefit of this current week, which gives you the Anzac wash over. So -- so hard to make all the adjustments between those 2 in truth. But a couple of comments. We felt pretty good about Easter trading this year. We thought Easter traded well. We've got good seasonal sell-through in all of our businesses. And we hit what we assumed was a sensible forecast. So we didn't feel uncomfortable around Easter and it felt good, and we got out of it in a very keen way. As you know, it's a very expensive holiday because of the 2 public holidays that sit there, and it has a stock loss challenges because of those 2 public holidays as well. But we got through it, what we thought was very pleasing. Anzac Day is very different, as you know, by state, whether it's public holiday or it's not, and when we got to trade or not. I happen to actually be in Adelaide on Monday, which we've got to trade a half day on Monday. So it was very, very noisy. And we're actually only starting to see now some of the overflow from that Anzac weekend and how you want to adjust it. So we're actually getting the better bean on Anzac this week, and that's changed in this regard. So again, very hard to understand. It would be fair to say that some of the benefits of the Anzac weekend are starting to manifest this week as versus last week, but I wouldn't want to overplay that. So it's just very volatile, Michael. In truth, we feel pretty good on our settings. Our price settings are good, general market share settings are pretty stable and good. We know we've got a big mountain to climb as we cycle COVID this quarter, and that's what we're focused on doing. We're not feeling in a bad place on it at all. We just need to continue to execute and keep our team very focused on our 2-year numbers. That's our real metric. We're talking to inside our business, what is the 2-year number as we sort of normalize out COVID. So I'm sorry I can't answer your question in a precise way. But I said very volatile is what we think best describes our business on all of our settings, though we're feeling in the right place for this critical transitionary quarter.
But maybe something that would help is -- I mean, you've clearly been leading growth certainly amongst the major supermarket chains for some time now. Do you think that's still happening based on the trends that you're seeing in your business? Or do you think that, that period of gaining share relative to Coles has come to an end?
Look, we're not -- we're focused, as always, on our own -- running our own race. So we're not overly focused on that. As I said, there are just so many moving pieces. We feel we're in a good place. We just need to continue to execute against our strategy. We are seeing reversion back out of neighborhoods into malls that is proportionately impacting some of our competitors. We've got a much more representative fleet. So we don't -- we get the puts and takes wash out in our numbers. So there'll be a lot of -- there is a lot of movement beneath the scenes, I would say. But as I say, that kind of washes out for us. We've got more natural hedges in our business between our metro and our city stores and our neighborhood stores, and between our neighborhood stores and our malls, between our balance across the country, in truth. So yes. No, we feel pretty stable. We aspire to continue to grow our business and grow our customer franchise, but not to use illogical ways to do it and to do it in an unsustainable way.
The next question comes from Grant Saligari from Crédit Suisse.
Brad, there was the report last week about Woolworths launching an online marketplace. And you've now got some really consistent strong sales growth out of BIG W. I mean BIG W, historically, has been described as a portfolio business, which I've interpreted as noncore. So I don't know whether those 2 events are connected in any way. But if they are, I'm wondering whether you could put some context around Woolworths' broader intention in the marketplace and mix intentions with respect to BIG W?
Thanks, Grant. Two different questions. Like many retailers globally, we are looking at providing extended range options to our customers. And we really do that inside Endeavour, in fact, inside the Endeavour marketplace, which is primarily driven through Dan Murphy's where we have an extended range. So we are looking at an extended range. We actually have a very modest extended range in BIG W today that we're looking to expand. And of course, we do intend to do likewise inside woolworths.com.au. And so that would be the marketplace statement, I think, you saw last week. It is just really providing that extended range to our customers. And some of that extended range being provided to the woolworths.com.au customer will be some of the key ranges in BIG W we know complements what we do inside Woolies, particularly as you get to these entertaining categories, as you get to quality and things like that. So I don't want to overplay. But it's just a logical evolution, it's not something we haven't been doing. We just need to do more of it because we know it's important for customers. And when we use the word marketplace, the way it was used, we're talking about a very curated offer, a very logical extension of what we do today. It's not trying to go head-to-head with all the other marketplaces that are out there, the Amazons or Kogans or Catches and so on. So I don't want to overplay that announcement last week. It is just expanding what we do today. But we do think that's important, Grant, and it's logical. And we need to follow what our customers want, and they want to get a holistic solution, and we need to provide it to them. I think the article actually came out of a very modest investment we've made in a platform that will be the vehicle to extend the marketplace, which is Marketplacer. And it's -- I think it's actually just nice to be supporting the local Australian business. So it's pretty cool to be doing that. And that's part of what we want to do, in general, is support whether it's Australian growers or Australian tech companies. So it's a very modest thing we did, but a really important step for us. If you then come to BIG W, what is true, and we said this, and we'll engage with the Board in May, again, we'll have our strategy settings for the next 3 years. As we get into this digital world, BIG W has an important role to play for us. In a physical store world, it's important. But in a digital world, it's much more important. And you see that, I think, very importantly, if you just look through some of the numbers that we started talking about around digital engagement or digital visitation, and there, the long tail of products inside of BIG W becomes really critical for us. So we're kind of carefully thinking through how we can make more of the overall digital experience between BIG W and Supermarkets on a go-forward basis. And we're certainly working through that. Now we could do that in partnership with BIG W as we aspired to do with Endeavour or through ownership. So it's not an ownership play. But certainly, we're feeling much more comfortable in the digital world on how we knit the assets together. So we'll come back to you on that, but we are certainly feeling a lot more comfortable about how BIG W is performing and its role in the digital ecosystem of the future for Woolworths Group. I was hoping we were going to get a question on your report last week, Grant. But maybe we'll come back to that in your second question.
The next question comes from Ross Curran from Macquarie.
Maybe we can delve into the deflation figures a little bit. So price deflation, 3.4% ex Tobacco. It was larger than Coles was quoting. Can you just talk us through what's happening there? And where you expect that to go from here?
Thanks, Ross. This is very much like Michael's question. Incredibly complex environment. I'd have a crack at it, but I might turn to Natalie Davis to elaborate on some of it. It's, again, a very messy period. So let me just go through the individual components of it, if I can. Firstly, of course, you need to think about the tobacco and how tobacco distortions, and you'll see that we've taken it out. So I think that's quite important because of the -- we've still been living in the world of CPI-driven tobacco increases. Now we'll see how that plays out going forward. But in our numbers, Woolworths' getting that impact from tobacco. If I then take that out, then the next thing that we've called out, which I think is very important, is you see deflation in fruit and veg, and that has actually been in both fruit and vegetables. A useless fact, may I say, for many of you, is we actually have a bigger vegetable business than fruit business. And it's unusual to see the level of deflation we've had in vegetables. Normally in fruit, where we get deflation, we get a volume uplift through the deflation that's harder to call back in vegetables, which tends to be relatively pricing elastic. But both of them have been deflationary. And really on the back of what happened last year with drought and then the bushfires. So they've been deflationary and continue to be that. So park that for a moment. Then you get into the rest of the categories. And there, the big issue for us has been promotional cost management. We did have to stop our promotions last year in general, and we're putting those back in. So you've seen that come through in the deflation. It's not -- we're not more promotional than we are on average, but we are cycling a period where we just couldn't execute promotions, and therefore, we needed to stop them. So you've seen that impact there. And I guess, sorry, the last point I should say, which is counter to all of that, which is the red meat inflation that we've seen, but that still gets washed out by some of the other impacts. So it's incredibly messy for us, Ross. The question that I have personally when I speak to our team is, what does this mean on a go-forward basis and in a structural inflation sense? And I think we still see some inflationary pressure in the business. How it manifests in the go-forward will depend on how we've still got a cycle of putting our full promotional program back in. And it was this week a year ago that we actually went back into a physical catalog, which I think is quite important to log, and it was in 28-page catalog and not our usual one. So we still got a -- quite a period to go through. So we still think that there is some inflationary pressure, but still a lot to cycle before we see it manifest. I don't know, Nat, anything to add? It's very complex.
I think that's a great summary. I think you have to look back at our inflation statistic a year ago. And what you're really seeing, as Brad said, a resumption of normal promotional patterns as well as some very favorable growing conditions in fruit and veg, which our customers really enjoyed in March. And we really celebrated, whether that was grapes, or broccoli and tomatoes, we continue actually to have some fantastic fresh fruit and veg. Avocado is really great at the moment. So that is something that our customers have enjoyed. We don't get as much volume uplift on the vegetable lines when we do see that deflation coming through.
Can I just ask, given you are seeing greater deflation than the competition, where does that leave the price of a basket at Coles -- at Woolworths versus Coles?
Ross, look at how you calculate it and what time frame you look at this. So I wouldn't look at these numbers. It's very hard for us to comment. We can only look at ours. What I would say is that we've been -- the price indices between our 2 businesses have been relatively stable, both very competitive as we work on delivering value. So we are seeing relatively stable price indices and whether it's on shelf or on a promotional adjusted basis or on a basket basis. So just how they calculate inflation, we have different methods for doing that. We just can't talk to, to be honest.
No, Ross, this is Harrison. My observation, just having studied these figures for a few years, is to look at the relative movements, which I think are pretty consistent across both retailers.
The next question comes from David Errington from Bank of America.
Brad, look, I don't know how to ask this question. The best way would be the detail that you've given us, all of us should already know, in that March last year, there was massive panic buying. April, there was the destocking, where you had the pantry coming off and there was no Easter. But then May, June, there was -- it normalized to a lot of at-home eating, et cetera, et cetera. The way you're talking has disappointed me because you basically -- I mean, as a football analogy, you're waiting for the ball to come back to you. You're not going out there and getting the ball. And what I mean by that is when you basically said that April sales, you're flat on half, 5%. But then May, June, we're cycling 10%. So pay market, get ready for some negative comps. But then May, June last year, there was a lot of trends there, such as localization, there was online disruptions, there was inefficiencies in your stores. You're talking today more like you're just waiting for things to unfold. You have to cycle these comps. You're not talking about the opportunities that Woolworths have got. You're not talking about the fact that -- the fact that April should be a month of opportunity. You're still not talking apologetically. Now I don't know if that's the message you're trying to give, but your current trading outlook was quite disappointing and bearish. And it wasn't, in my opinion, I think, May-June is an opportunity for you guys, because as you say, there was -- if the independents gained a lot of share through localization, you didn't capture as much market share in online as you could have because there was disruptions to your supply chain. There's been enormous amount of disruption to your supply chain because of COVID costs there coming out. You haven't talked about the upside. You've basically talked about, oh, yes, this month, this quarter is going to be really tough, and you're just going to have to wear it.
Well, I mean, thanks, David. Great question. To be honest with you, we've always focused on the 18 to 24 months, and we feel very positive of our 18 to 24 months. And to be sitting here talking about 3 weeks, in fact, not even adjusted for the next 4 days after Anzac Day, I think, is a peculiarly strange situation to be in. And we're just saying it is volatile, and it's just very hard to make calls based on the next day or the next week or what it might look like after 6 weeks. So we're just trying to be very holistic and give you a sensible view. Do we feel positive over the next 18 to 24 months? Yes, we do. We can see a lot of things that will come that we can -- if we execute our plan against, we can deliver what our aspirations are. Do we think there'll be some ups and downs in the next 10 weeks? You better. Will some things go away? Yes. Will some things go against us? Probably. We're just saying we're cycling some very large sales numbers. This isn't a profit announcement, this is a sales announcement. And we're saying that there's just a lot of volatility out there. We don't feel in a bad place. We're on line with we want our forecast to be. Our customer metrics are good. Our price metrics are good. So no, we're just trying to be very balanced in the way we look at it and not get sucked into the volatile environment ourselves. And we're at our best when we plan and we execute over a meaningful amount of time, and 3 weeks ain't a meaningful amount of time. Sorry.
The best question -- the way to do it then, is your business getting better? Or is it just the case that we've just got a -- it's a cyclical business, basically, that we just cycle through these comps and you've got to wear the higher comps and you got to wear the lower ones? How much step changing are you improving your business?
I think COVID, as I think I've said to you before, has made us a better business, and we continue to be a better business. We never improve quite at the rate we would like. But we -- that's the nice thing in retail, you get to wake up the next day and continue to focus on improving. And we feel very comfortable we're improving as a retailer. And that's across all aspects of what we do. And of course, as you all know, when we get to the full year, the proof will be in the pudding. So we'll need to show you then. But we feel not uncomfortable with where we're at. We feel very comfortable about our long-term plan. And we just need to keep focused and execute and not let the emotion of COVID surge settle in day X or day Y and knock us off course.
The next question comes from Bryan Raymond from Citi.
Just weighing in on the CFC versus MFC debate, which is, I think, raging across the market. Interesting to see you guys doing your own CFC. Can you just help me understand how you're thinking long term about the mix of business that will be flowing through for online, obviously, through your stores in terms of fulfillment versus CFCs versus MFCs? Like how do you see the future looking on that front?
Yes. Thanks, Bryan. And we're all iterating as we go as the world changes around us, that's agreed. And I think, by the way, the [ moment catches up ] and help us show what is a CFC or what's an MFC. And I'll come back to it. But let me just give you a quick run through, but if Amanda, if there's anything you want to add, please jump in. Our stores remain key to our performance strategy across all of our portfolio, in fact. And it's how we actually enhance how we do performance in store. That's one of our biggest investments that we're making at the moment in how we do to goods services, how we put capacity in the back of the stores, how we do our routing around the store, how we create real-time system so we know what's taken off the shelf at any point in time, our biggest actual investment inside of Woolworths right now. And we believe no matter what we do outside the store, which I'll come back to, that our stores will still do somewhere in the order of 80% of our performance. And that can sound strange, but actually just look at Australia and think about where you might do automation, and you're not going to be doing it in -- outside of the 3 capital cities, no matter how you model these things. So stores are key for us. And we're trying to become a digital retailer where our store is all -- an important critical part of the customer experience. A lot going on there, and I say that the highlight to me was that we managed to increase our pickup or to boost service inside the group, which is key. We do want our stores to continue to have relevancy. And that is actually the highlight in the quarter where we drove up our pickup percentage, I think, from 34% to 39% in quarter 3, which is terrific. Now then, once we -- so you say, okay, we're going to get the store right, you say, but it will never -- on this drive to e-commerce penetration of whether it's 20% or 25%, I don't think any of us know. You still need some extra capacity in the denser areas. And so you have to pull that out. We've done that, as you know, today through manual CFCs, and we invested a lot in that in Q2 with the commissioning in December of a manual CFC in Lidcombe in Sydney and in Notting Hill in Melbourne. And they complemented the other 3 we had. So we've got 5 manual CFCs right here, right now. And again, we're working very hard to use technology to make those much more efficient and doing smart automation into those, which we've got a lot of work to do. We got that working. Then we've said, actually, now we need to look at these micro-fulfillment centers, which we can ideally, as store shrink, we can expand into the back of the store. And we've got 3 test cases running now. We started with current balances. All of this is commissioned during the time of COVID. And I generally get to see everything. I just haven't been to Auckland or New Zealand to see how the 2 that we've commissioned there, which is intensely frustrating. But we've commissioned 3 of those. And I was talking to 2,000 orders a week of online, to say, in crude terms, a micro-fulfillment center can take the 2 and turn it into 6 ideally. We're still trying to see whether we can get to 6. We've got 3 test cases running: Carrum Downs, Auckland and now Moorhouse. Actually we're learning a lot. And our New Zealand ones are actually ahead of where we are with our Australian one, and that's all very practical reasons, which I can bore you on now or at another time. So we learned a lot from those 3, but there are still only 6,000 orders, and [ Richard will always ask to be the same ]. And so we've got that there. Then the final layer for us was a midsized CFC in these big capital cities. And when you get to the city of Sydney, and we've got very constrained stores in Sydney, most of them are in malls. It's very hard, therefore, to do a [ truck haul ] at the mall. It very hard to expand the back of house in the mall. We tend to have a high square meters in Sydney. So you say, well, we do need something in addition to that. And that's where our midsized CFC that we've announced at Auburn comes in. And we spent actually -- this isn't a major [ aggression ]. We just spent 3 years driving around Sydney, Amanda, myself and many of the team, looking at many, many locations to do this. And that's what we've announced with Auburn. In terms of -- and that 50,000 on the [ corner ] units, and you'd have to speak to Coles. But the ones we looked, they were 180,000. So it is probably less than 1/3 of the size of what you look at. So we've got 2,000 inside a store, 6,000 in micro-fulfillment and then 50,000 in this facility. Our manual CFCs, by the way, are doing somewhere between 10,000 and 20,000 depending on whether -- well, ideally, we think we can get to maybe to 25,000. They're all put together and empowering the store. Knapp itself has been a very long-term strategic partnership for us. They run the shuttle system inside the Takeoff facility. We can show it to you. And we felt that they were the best partner to them, therefore, do a slightly bigger unit with us. And so we thought that was a logical extension in our border partnership. And we're excited because some of the people who are doing Takeoff are also doing Knapp, and therefore, an ability to create a learning network globally. But if you look at that, that -- you will only be there in calendar year 2024. And we're sitting here in calendar year 2021. So most of the work for us is pulled back to the store. So I hope that all makes sense, Bryan. If you had a question around the CapEx difference between this and perhaps what our competitors have done, it's because [ we CapEx in ] versus doing capacity as a service. And so there's just differences in and how we're choosing to do these things. And generally across our whole supply chain with CapEx, what we've done rather than using supply chain as a service and there are trade-offs and benefits to either one which -- one is not better than the other. It's just how you want to approach these things.
I think that's right. Having a balance is the right -- is certainly the right approach. I'm just interested in how you see the cost to fulfill and inclusive delivery costs out of those 4 methods. Is there one that's a standout that you think is a cheaper method of fulfilling that order, including picking and delivery? Or...
I think it's a great question. Amanda?
That's a question we get asked a lot. So maybe just to recap on your starting point, Brad, which is why we are excited about the potential of the store network is because we're seeing the speed to customer being really, really important. And so that's why when we talk about that 80% in terms of continuing to look to our store network to fulfill, we're excited about the potential there, both for direct to food, but also for some of our stores that will continue to provide home delivery services. And what we're seeing, certainly, increasingly in this quarter, is more and more customers wanting that same-day service and that faster service. So in all of the solutions that we've looked at in stores, first and foremost, because obviously, proximity to customer. If you think about our network, that's one of our great advantages. We want to leverage that first. The stores are continuing to improve in terms of both our voice of customer scores that we're seeing come through from the experience, but also in terms of our efficiency from a picking perspective. And then you'll see if sales are also improving in terms of their performance. And then, of course, we do anticipate that we will see significant efficiencies from an automated facility. But again, you do need to, as you rightly pointed out, look at that from an end-to-end perspective. And I think that's really important when we've looked at the Auburn facility. We've lined that up against the market that we look to serve, the speed with which we want to be able to reach those customers and that end-to-end cost.
So I mean, in many ways, Bryan, it's a bit like -- it sounds strange, but it's no secret. Back to David's question, what we're trying to do is have a balance. We're trying to balance and meet the needs of our customers and do that in a very balanced way. And so we have sat on this decision for a couple of years, but when we move to forecast forward to 2024, we can see the demand we will have in that part of Sydney for home delivery, which is what we will pull out of the stores. And it becomes the next day, only selectively, same day home delivery business. And so we've been very thoughtful in trying to model where we think the market goes and when we should anticipate bringing different layers of capacity in. And we've got lots of conversations, when do we put into the capacity plan. And that's when we think is the optimal time from what we now know.
Yes, absolutely.
The next question comes from Andrew McLennan from Goldman Sachs.
A little bit detail on the e-commerce side. I'm just wondering, that's obviously very insightful for the longer-term strategic change going on. But I'm just thinking more from -- and I'm not expecting guidance here. But from a profit management perspective, there's lots of volatility right now. As you said, your benchmarking on fiscal -- so 2019 that was to get a better understanding of the sort of the longer-term trend. But is there anything that's going on here that is requiring you or the industry to be more adaptive that may not have been in line with sort of your expectations from 12 months ago as this all started to play through?
Thanks, Andrew. Obviously, there's a sales forecast on a profit result. But actually, broadly this year, we are tracking in line with plan in a funny way. The only thing that is surprising us on the upside is the continued strength of consumer confidence. I would say the rest in terms of digital growth, we need to make sure we've got e-commerce capacity, that we need to continue to think through our store network, the fact that we're going to go negative on sales in late February and early March. Actually, the year has played up very much the way we had broadly looked at, except consumer confidence has remained higher than we had initially anticipated. We'll see how that plays out, of course, with the roll-off of JobKeeper into Q4. But now, it's now it's steady as she goes. I mean, that's not to say on any 1 day or day of week, there's not some excitement somewhere in our business, and we've caught something wrong. But if you kind of look at the broad shape of what we were expecting, it's basically in line with that. I don't know, Steve?
I think there's just more consistency actually in how we're trading the business. So actually, as we look at it, just on a linear basis, it's actually pretty consistent. It's the relativities to what we're comping that makes some of the comparisons hard to look at, but actually it's pretty stable week on week on week. As our customers get back to normal shopping patterns, post -- from your back-to-school, the weekends are much bigger shopping days, et cetera, those types of things are actually much more predictable.
And when you think about that -- sorry, go ahead...
Andrew, sorry.
I was just going to say, when you talk about that underlying CAGR that you're trying to benchmark to, is there an expectation that the supermarket system or yourself specifically are anticipating that you've been able to hang on to some additional sales for a longer period of time that's come across from the dining out category.
Well, I mean -- so I think there are 2 different levels of question. One is, do we think the market will inherently have higher at-home consumption related to us? And then secondly, can we get more than our fair share of that at-home consumption? And we do think, in line with other comments that have been made, that in-home consumption of food and everyday needs will continue at a slightly elevated level going forward. How much of that will kind of see the wash out of the pantry stocking is gone, right? So the pantry stocking stuff is gone. But elevated at-home consumption, we do expect to continue mainly because of the flexible working and just the fact that people are spending more time at home and that just leads to more consumption at home. And we do think that creates good opportunities for us. Actually more in breakfast and lunch than dinner, which I'll come back to. So we think the everyday needs, which is never under plan on a household, plus then, I've been trying to make sure we hold share and get share in breakfast and lunch. In the dinner category, we are seeing customers starting to go out a little bit more for dinner or we're still seeing the continued growth of Uber Eats into the home. So we need to hold on by providing more solutions into dinner. So while there will be more in-home dinner consumption, we're at risk of, as a collective, not only a Woolworths, of losing some share particular to Uber Eats if customers aren't going out. And we're starting to see a little bit of the tussle on that occasion play out in some of our more premium or what we call up stores where you would have seen a bit more of the more affluent consumer segment dining out a little bit more or leveraging Uber Eats a little bit more. So yes, we think there is an opportunity, but we need to be quite forensic and strategic in doing it. And as I feel a little bit better about breakfast and lunch, and we need to continue to be very focused on simple solutions for dinner. Otherwise, we could use a little bit of share there. And it plays to Amanda's point on same-day and on-demand and things like that where we can hopefully hold relevancy and share. In terms of our overall share position, we aspire to modestly, of course, continue to chip away. The fact that we've got the balance we have, I think, gives us an ability to do that. And of course, we've got to continue to make sure the e-commerce services are there to do that. And as you kind of feel like you're getting on top of capacity in one area that you feel like you need to focus on the next, so we -- if you came to one of our meetings, all the narrative of growing e-commerce is the same. But in any 1 month, the priority changes. So if we were talking about home delivery capacity, then we got into how we need to make pick up more convenient and boost solutions or then you'd come and say we need to get the same-day right or we need to come and be very thoughtful in the sub-60 minute segment where we've seen DoorDash and Uber Eats or Uber delivery becoming a lot more aggressive and providing more immediate solutions. So it's what makes retail fun actually, but it's changing as we go.
The next question comes from Phil Kimber from E&P.
Brad, I just wanted to ask a question about normalization. So I get the sense that you've talked a lot more about it -- this result. So late April versus, say, late Feb when you had your profit result. And I'm just wondering, have things really changed as dramatically as it seems in the last 2 months? Or is it more a case that the data that you're looking at has now just tipped over the COVID impact period, and so as a result, all the percentages are changing and so that sort of makes it feel like things are normalizing. More just surprised that in 2 months, both yourself and Coles are talking normalization a lot more than you were 2 months ago.
We decided not to normalize anything at all. So we're in the second camp. The latter, not the former. We haven't normalized anything because it's just too hard to normalize right now, and too many judgment calls. So we just -- we're just focused on executing against forecast versus trying to normalize the past. So...
Brad, sorry, when I said normalization, I meant talking about the localization theme, the people moving back to shopping centers. I wasn't talking about normalized numbers per se. Just the commentary that shopping habits are going back to normal. It just seems like there's a much bigger focus versus 2 months ago, and I'm surprised things would change that quickly.
No. I mean, I think, to be honest, in our half year profit results and when we spoke to a lot of -- to yourselves and to our shareholders, we talked about being able to see even from July to December the reversion to mean. It was just coming in very gradually. Now what's happened is we've sort of gone through the tipping point, so to speak, of the COVID peak. But no, no, no. We've seen the normalized -- the version to mean in terms of consumer shopping started in July. Just we've now sort of gone through that tipping point. So no, we've seen it as a very consistent trend, as I say. If you look at COVID and COVID is this calendar year phenomenon, and we're trying to model it in financial years, which is a problem. But actually, you sort of hit the peak in April, May. And then from there, depending on which business, some part of June, and then we started to see a slightly tail away from there, and that's changed over time. There's a little lockdown that happened and gone up and down. But no reversion to me has been going on. As you said, we just clicked through the big peak of last year, which is why, I guess, there's more focus on it. And that's enormously relieving to know that the theory of the reversion to mean is working out because one of the big conversations we had before was structurally, does that mean people are only going to shop locally for the rest of the lives? But the truth is no. As they go back to work, at least a couple of days a week, as they take the kids to school or whatever the case may be, or they actually go on holiday even if it's locally, you start seeing a very different shopping pattern and that starts manifesting back in our stores. So no, I think you -- it's a point well made, but we're in the second narrative, not the first.
Yes. And as a follow-up, can I just say, we assume that holds also -- I know it's not a profit result, but for your COVID costs, that as you normalize, they will continue to come down significantly?
Yes. And I think we alluded to that in the report. We are seeing the trend lines understandably and logically do that, of course. But we'll see what happens in the next 10 weeks. But yes -- or next months, 9 weeks [ at the most ].
The next question comes from Ben Gilbert from Jarden.
You guys have obviously done fantastic job over last sort of pre-COVID and you've outperformed all of your vertically integrated peers as I look at it, and you've obviously collected enormous amount of data. You've grown online at 2x the incident levels of your peer set and probably generate a lot more cash. What are you -- how are you thinking about how to capitalize on that now? You've obviously got a stronger balance sheet. CapEx is peaking. And specifically, I'm thinking around presumably online is going to have to moderate to some extent. So how do you look at the value of that customer from a lifetime perspective? Do you decide to go a lot harder trying to drive them into store, capture as much share of wallet? And then secondly, around price, because there is a big delta between your deflation versus last year versus Coles. And there is obviously a lot of talk around price wars. Just interesting how you're thinking about capitalizing on the momentum that you've got in your business across those 2 specific areas over the next 3, 6, 12-plus months?
Most people will only ask 1 question, I mean I think you've got 5 there. They're all good questions.
I tried to fit it into one.
Yes. There's a certain key just to cluster and roll them into one. The future of retail. Look, I mean, as you know...
Maybe the 2 ones, I suppose. Is the data pacing, how you're going to really try to modify it and then just [indiscernible].
Yes. Look, I mean, we're still very early, we think, in our journey of how we layer digital and e-commerce services on our store network. The journey has just started. It's -- we -- it feels like it's become massive. But actually, when you look at it, it's the old paraphrase of the end of the beginning, not the beginning of the end. So we're still very early in the journey. And what was personalization, for example, as a narrative 6 months ago, it's not personalization today. Personalization is very contextual. It's not if you like this, you like that. It's where are you? What did you buy last? What are you looking for right now? What's the weather pattern and whatever the case may be. So they're layers and layers. And it's actually -- we get into the more interesting bit, I would actually say. So we're still very early on building out digital and e-commerce services around the store network and then expanding into the extended range that we want to do that. We've got a lot of plans, of course. And as we said in David's, you've got to judge us on what we execute in the next 18 to 24 months. And no one thing by itself will get us to where we need to get there. But collectively, they will. Quantium was a very big step for us. A lot of challenges on execution. So as always, [ we're about to chat and ] talk to you, I remain anxious on making sure we execute against it. But we knew that advanced analytics, and therefore, being able to support our team with the right tools to make the right decisions was going to be central to our future, and we needed to do that. And it will be great to sort of [ have it ] into 1 July and having Q-Retail up and running for us. But tons to do on the whole agenda, and it's continuing to -- what we're trying to do is connect everything, and that connection is the key, and it's hard to do. But we're feeling pretty good about it. So we -- there's no one answer there, Ben. Whether it's e-commerce, we can set you on 8% now, but we know it will end up at 20%. But it's not going to be 20% next day. It will be some same day. It will be boost services and, say, sub 60. Many, many things to do around it. The digital engagement side is still the thing we feel is most important and the shopping journey starting digitally and how we do that, how we do it through the app. And you'll see some of the stats we've shared. We're obviously working very hard on those. We believe that the shopping list is the sticky thing that helps you manage the customer experience and enhance it for the customer. And we think that's the key to driving lifetime value for customers. So yes, I think very early in that journey, lots to do, but in a good place. We just need to keep focus and not get caught up, if you don't mind me saying, into what's the sales forecast going to be for April versus May. It's going to be how we layer that onto Q1, Q2, Q3, Q4 next year and so on.
[ Just ] products and labor in that, Brad?
Yes, sorry. Say that again, sorry, Ben.
You were just about to talk about, I was just going to say it's price or labor that you think about as well.
Yes. Look, price, on the price, as I said, we are in a very rational market right now. There's no lack of -- we all know pricing is important. We all wake up every day looking at -- I don't think he's going through a hard time on his basket because we're trying to reengineer his basket that are on the report that week ago. Rest assured, we spent a lot of time on this issue, all of us. And so it's a rational market. We're all adjusting our price and making sure we deliver value for customers. So that's no less important, but it's been very rational to date, and we'll wait and see how it plays forward. The key focus for us, as Natalie pointed out a bit earlier, is we're trying to do a lot more through one-to-one promotions or one-to-many, delivering personalized value, in particular through our rewards program. That's a big area of focus for us as it is for many retailers globally and locally. And so there's a lot of work that came on there. And if there's a thing that we know, is as we move into this next phase of COVID and also the economic outlook, is that we need to be much more deliberate on one-to-one promotions, so we drive meaningful value for different customers. And that value differs by customer. Sometimes it's price, sometimes it's affordability of baskets, sometimes it's inspiration. So that's one of our biggest areas of focus right now. It's one of the biggest opportunities we want to use our Q-Retail team to do is help us be a lot more thoughtful and forensic of what we deliver and when we deliver it. And so that will be an important part of our long-term narrative and a lot of work to do there. But pricing outlook right now is stable. We'll see how we go going forward. Is there more you I can say on that, Steve?
No. I mean my 1 build, Ben, would be look through methodologies on how you calculate price and look at relative movements between periods. We look at our price index and we feel very comfortable with that index. It stayed very stable over really the last 12-plus months. So in that sense, we think we see it as a rational market.
The only thing we should reference, and hopefully, everyone is aware, we run indexes against Coles, but then we also run an ALDI index and a Discount Chemist Warehouse index. So sometimes an individual movement in Woolworths could look illogical relative to perhaps a Coles, but it's with an eye to some of our other competitors. So you may see individual skew a bit, look a bit irrational in a very linear sense. But in an overall sense, it's right. And we think that's important for us. We've got to make sure we keep balancing in full competitive set that we're operating in.
The next question comes from Scott Ryall from Rimor Equity Research.
Brad, you've given a few comments on different fresh categories over the call. And I was wondering if you could just comment on what you're seeing more broadly with fresh. And I guess the things that I'm most interested in are the inflation, the reaction of consumers to that change in price dynamic, and what you're seeing with respect to e-commerce, which is clearly going gangbusters, and whether you are underrepresented there and what you can do about that, please?
Thanks. Wait. That's a really...
I didn't get as many as Ben in, but yes.
Yes. Let me just say that one of the higher growth categories probably for everyone is health, and fresh extends into health foods. So just -- I should call that health foods as a trend is a very strong trend in Australia and globally and the growth of health-related products. And how we merchandise them is a topic that's very front of mind for us. And so fresh stands in to help. And so if you look at it as a broader category, you'll see a lot of growth in general in the market there and product. You can debate the health attribute, but certainly not a health attribute. That's no different in -- really in drinks as well, or even with some of the high-growth categories we've seen. So I think that's important. The point I made earlier, which I think is a very important one, firstly, we're delivering great value, as Natalie mentioned, for our customers with great value prices in fruit and veg. And that's true across the market, and I think that's great. And went through a marathon of -- which is sort of [ talismanic ] for us, giving away 100 million pieces of fresh fruit for kids. And we started that program really quite early now in our turnaround strategy. So -- but the veg deflation is generally not reflected in a material lift in consumption just as delivering great value and affordability. Whereas fruit, generally, as you get prices going down, there's the elasticity. So there's a different trade-off between those 2 businesses. But there is great value at the moment. It continues on. We expect, at some point, of course, it turns because at some point, there will be a pension, some of the picking costs. We've just not seen that to date, but our team suspect that will be true as we get deeper into this. So a lot going on there. And we expect, at some point, it will turn slightly inflationary. It won't be deflationary, but that will play out in the next 3 to 6 months, I think. On meat then very importantly, meat has been -- it's part of the fresh category. A very challenging one for us, as you know. In particular, in red meat and the price increases we've had. We've done a lot of work on this. You may have seen last week, we announced Anna Speer becoming our Managing Director of Greenstock, which is a really important business for us. It's just a much better job of managing end-to-end red meat business, and we're trying to hire a lot more special skills, actually a lot more AI so we can optimize carcasses and so on inside the forecasting of that business. And so we are really trying to do a lot of work there to drive profitability up in a very challenging category. But that business is challenged, but it's growing. But a business that we don't talk enough about but is actually our highest growth business right now is seafood and the move into protein. And I think that's very interesting -- into [ pink ] protein. Seafood is growing very strongly for us, as it would be for everyone in fresh and up and down the aisle in long-life groceries. So that's an interesting trend. It's not as economically challenged as red meat, but it's sort of an interesting one that we're working very hard on providing a better experience. And of course, it's in there, so that's interesting. I don't know, Claire or Nat and the other -- the key ones to call out on what's happening in fresh?
Yes, I think it's interesting. We're still seeing that trade up across protein categories, whether that's in seafood, we had a very successful seafood sales through Easter, the lobster came back and oysters were up. And we're finding a lot of the demand moving into our convenience section, which is growing more strongly than our service section as well. The other trend I'd probably call out is easy-to-cook ranges for both meat and veggies are growing strongly. So as we're seeing some of this annual cyclical decline in more of your scratch cooking categories like pasta and rice, we are seeing growth in our shortcut ranges. We've got some fantastic own brand ranges called Barbecue and Cook that have really resonated with our customers. And actually, this week, we've got a new range of new products going out into stores. So we've got a beef wellington that I'm looking out for. And also a lot of plant-based options like halloumi chips and zucchini fritters. So our customers are definitely looking for those plant-based options.
This is an infomercial. The new cook range you can [ steal ] on Monday. We're hearing fabulous things about it. We called one to go, should [ hand it out to Martha ] and try it herself at home. And we'll hopefully win back that vendor occasion we're at risk of losing to Uber Eats.
The last question comes from Richard Barwick from CLSA.
There we go. The best to last. I've got a question actually online again because when you talk about reversion in consumer behavior, I mean that seems true. But for online, when you've talked about the lift in pickup, you can see the voice of the customers improving as well. But what's actually driving the growth here for online? Is it more shoppers -- or sorry, is the same shoppers shopping more online, Brad? Or are you actually bringing in brand-new online shoppers? And if you are, how many of those are you winning from other customers? Or how many of those are just switching from shopping in store?
Yes. Thanks, Richard. And I don't know if I can do this. Again, these are complex questions. But [ essentially a ] reversion to me, we had seen a lot of people start using online. And once you start using it, you tend to continue to use it, unless you have a very bad experience. And in COVID, where a lot of one-off people use -- or vulnerable customers, in particular, but quite like heading to stores. So we're cycling out of that and the size of the core online shopper customer database, because it really is a database business, continues to grow very, very pleasingly. And now what we know for those online shoppers is they don't do all of their shopping online. They do still continue to top up in store. And so you can debate the cannibalization number, but essentially, you don't move from one channel to the other, you build a composite of channels. And if we can continue to help our customers build a composite of channels, we get a higher share of their wallet. And then to Ben's point, hopefully, a higher lifetime value of the customer. So the core customer database of regular predictable shoppers is growing, and we're becoming much better at measuring that. And so the core active database, as we think about it, is an area we focus on greatly. And that is -- was growing very strongly before COVID and has continued to grow pretty strongly through COVID. What we find in -- Richard, though, is as we enhance online services, that involves the next level of growth because our theory has been, and it has been proven to be true to date in all of our businesses, is that customer demand has been ahead of the services we provide. And so as you provide the service, you find actually it resonates. So if you go to our pickup service, our pickup service when we started it, just by practical nature of it, needed to be on a service desk, and that was true in all of our businesses. Actually, as we go into COVID and we decided we needed to put it in the boot to make it safe for the customer, we found it just accelerates. And that said, well, the customer wanted in the booths, which made sense. The business had modeled the best for us with Dan Murphy's. And when we prepared for it we'd have to close our stores in Melbourne, the team just made the pickup service or boot service worked, and it was an inspiration for the rest of the group. So we found actually -- the recent pickup strategy is not because we could sell into more -- get in more customers to come to our services, but because we've changed the service and made it a boot service, and we need to make the drive service. And so we've got a lot of work to do there. We found the same in home deliveries. As we go to the same day, we've actually found that's added. And there a whole series of customers who -- it's very valuable from customers to pick a day, but some customers aren't planning enough, and they needed same day. So as you add that, you see -- you see the growth. So we still see the underlying database grow. The demand has been ahead of what we think is the right experience for the customer. As we provided, we've seen the customers resonate with that and continuing the growth. But we don't -- we're now washing through -- we still have a bit to go to watch through the one-off COVID search for vulnerable customers, and we hope to cycle that in the next few months. But the core data -- the core active database is growing. And as I say, as people just -- we're habitual creatures, and we -- habituality is so striking. When you go to focus groups on food retailing that we -- the 2% of our lives where we do something interesting we think makes us spontaneous. But the 98% of the time, we're habitual. E-commerce has been built into the habituality of the customer. And once it's built in, it's very hard to see it unwind. Some other great -- also Richard, but as we see at [ charter's day ], it's actually just back on the trend line we saw before. It will bounce up and down as we cycle COVID surges, but we expect it to continue to grow.
Okay. I was going to say, talking about the habituality, is it fair to say that if someone is online shopping at a particular retailer, that is more habitual than the in-store shopping? So for instance, my understanding is if in-store shoppers would shop across a range of supermarkets, but if you're an online shopper, you tend to only shop at one. Is that -- is that [ how it is done ]?
I mean, this is a really tough one. And we think if we -- if it's a great experience, yes. But if it's a bad experience, they'll switch more quickly because a bad experience online is more profound and more impactful than a bad experience in store. Because you can always talk about that inside of the store, but it's bad online. So yes, but boy, if you don't do a good job, you can lose them. So we think that's important. Then there's the shopping list, which is key in the online environment and using that shopping list. And so you -- just makes the reorder very easy is the key. But it has executional risk if not well done.
Thank you. That was our last question. I'll hand the conference back to Mr. Banducci.
Thank you, everyone, for your interest in our business. We've never talked in such micro details about 3 weeks of trade. I'm deeply anxious on a Wednesday of the fourth week of trade, so we'll have 25% more trade at the end of this week. But thank you for your interest in our business. Thank you for your support. The truth is always is out there in our business, in our stores. So go try our quick range, tell us what you think, and speak to you all soon.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.