Woolworths Group Ltd
ASX:WOW
Earnings Call Analysis
Q4-2023 Analysis
Woolworths Group Ltd
Woolworths Group exhibited a strong financial performance in fiscal year 2023, with group sales climbing 5.7% to $64.3 billion and EBIT surging by 16.8% to $3.116 billion. This marked an uptick in the EBIT margin by 43 basis points to 4.8%, thanks to a combination of solid sales growth across all segments, cost efficiencies, and the benefits from past investments. Impressively, net profit after tax (NPAT) attributable to equity holders grew by 13.7% to $1.721 billion, contributing to a 7.4% compound annual growth rate (CAGR) in EBIT over the last four years.
The Australian Food segment noted a 5% rise in total sales, with e-commerce witnessing robust growth in the latter half of the year. The segment's EBIT jumped by 19.1%, even when factoring out the previous year's significant COVID-19-related costs. Australian B2B sales also grew by a notable 17.4%, with a corresponding EBIT increase of 13%. Conversely, New Zealand Food faced a tough year with a 21% EBIT drop, whilst Big W flourished with sales up 8% and EBIT climbing 165% in the first half.
The Group's efficiency measures are reflected in an increase in Return on Funds Employed (ROFE) by 120 basis points to 14.9%. Moreover, the company generated a hefty operating cash flow of $6 billion, marking a 25% improvement over the prior year. This strong cash generation, supported by working capital efficiencies and reduced cash tax payments, led to a cash realization ratio of 113%.
Woolworths Group demonstrated its commitment to sustainability and inclusion, achieving platinum status from the Australian Workplace Equality Index and launching its Innovate Reconciliation Action Plan. The company also made strides in environmental stewardship, with a 36% reduction in Scope 1 and 2 emissions and a pledge to transition to a fully electric home delivery fleet by 2030.
Capital expenditures for the year amounted to $1.9 billion, slightly below the guidance of $2 billion, with a significant portion allocated to sustainability projects. Looking ahead, the company plans to maintain a similar operating CapEx for fiscal year 2024. Furthermore, Woolworths Group increased its final dividend payout to $0.58 per share, up 9.4% from the previous year, aligned with steady earnings growth.
The Group fervently reduced its net debt to EBITDA ratio from 3.2x to a more favorable 2.6x, aided by strong cash flows along with strategic asset sales. Woolworths Group remains dedicated to preserving solid investment-grade credit ratings and plans to refinance or repay a $400 million maturing note in April.
The first eight weeks of the current fiscal year maintained the growth momentum seen in the previous quarter, particularly in food businesses. The company is realistic about the impact of upcoming cost pressures due to wage increases, and inflation in energy and transport. Nonetheless, with sound productivity initiatives in place, the Group remains cautiously optimistic. The retail landscape remains uncertain, but Woolworths Group is dedicated to innovating its customer offerings to ensure continued competitiveness.
You don't have any saved screeners yet
Thank you for standing by and welcome to the Woolworths Group Limited FY '23 Full Year Earnings Announcement. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [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, and welcome to Woolworths Group’s full year results for the 2023 financial year. Joining me today are our CFO, Stephen Harrison, who will present our financial results a little later; Natalie Davis, Managing Director of Woolworths Supermarkets; Amanda Bardwell, Managing Director of WooliesX; Von Ingram, Managing Director of W Living; Spencer Sonn, Managing Director of Woolworths New Zealand; Dan Hake, Managing Director of Big W; Guy Brent, Managing Director of The Woolworths Food Company; and last but not least, Annette Karantoni, Managing Director of Primary Connect.
I'm going to start today actually just talk through the slides if you've got the slide presentation, you can follow the commentary in parallel. And we’re going to start on Slide 3 with an acknowledgement of country. And before we start the presentation, I would like to acknowledge the many traditional owners of the land on which we operate and pay our respects to their elders, past and present. We recognize their strengths and enduring connection to the land, waters and skies as the custodians of the oldest continuing cultures on the planet. We remain committed to actively contributing to Australia’s reconciliation journey through listening and learning, empowering more diverse voices and working together for a better tomorrow.
I will start today with an overview of the Group's performance and our progress on our strategic agenda. Steve will then present our financials before handing back to me to finish with current trading and outlook before we move to questions. Just on Slide 4, inflation and rising cost of living pressures on household budgets was the key issue in F '23 for both our customers and our teams. As a Group, we prioritize delivering value and convenience in response and it remains our key priority as we move into F '24. Our improved financial performance in F '23 reflects a return to relative stability following the material disruption in the last three years.
Group sales increased by 5.7% with high growth in H2 as we finished cycling COVID impact in the prior year and inflation remained elevated. Group EBIT growth of 15.8% was driven by higher sales and improved operating rhythm, the non-recurrence of $323 million direct COVID costs and the benefits from our ongoing investments in our customers, teams and platforms over a number of years. Excluding direct COVID costs in the prior year, EBIT increased by 3.4%.
On Slide 5, you will see our customer metrics remained largely stable over the year. However, value perception was impacted by the inflationary environment. As customers returned to shopping more on weekends and in the evenings, some small controllable voice of customer measures were also intact as we worked hard to adjust team rosters to reflect more traditional shopping patterns.
We recognize we need to do more in the year ahead to improve customer advocacy by delivering consistent customer shopping experiences and providing evermore value to our customers. While we have room to improve, I am encouraged and proud that our team continued to show care for our customers where that metric remained in our highest store controllable VOC metric across the Group.
On Slide 6, we wanted to highlight the shift back to pre-COVID customer behaviors. After many years of disruption, during the year we saw customers shopping more frequently but with smaller baskets. Customers are also using more shortcuts to find value, particularly our Saver Families. Own brands are growing strongly, particularly in the last quarter and especially in areas like pantry essentials, such as rice, pasta and long life drinks. Our members are also unlocking extra value through everyday rewards, with active everyday rewards members continuing to grow.
Inflation is impacting all parts of our Group, but its impact on the cost of living is having uneven impact on our customers as shown on Slide 7. While inflation has been rising for much of the last two years, we have seen it begin to moderate in Q4, which has continued into the first quarter of F '24. In Australian Food Retail, item growth has been broadly flat in H2 despite higher inflation. The impact of cost of living pressures on our Big W customers has been more pronounced than in our food business, as you would expect. H2 sales were below our initial expectations as customers cut back on discretionary items, and the sector became increasingly competitive, in particular in Q4. Pleasingly, while we have seen our budget customers reduce their spend, mainstream and premium customer numbers are increasing as customers trade into Big W for its value.
On Slide 8, we across the Group are responding to -- it shows how we across the Group have responded to the challenging environment by delivering value to our customers in a number of different ways. This includes our seasonal Prices Dropped campaigns with our latest Prices Dropped campaign for Spring launching this week, representing a saving of 17% on the basket of dropped products. Our everyday rewards members are increasingly looking for ways to save through Boosters and Bank for Christmas.
And we also launched in-store member prices this week to add to the way our members can unlock additional value. Big W has also played a role in delivering value for our customers with great prices and specials, particularly for key events such as back to school and our annual toy sale. As mentioned at the outset, value remains our number one priority in F '24 and we remain focused on finding ways to help our customers and members stretch their dollar further every time they shop with us.
On Slide 9, while value remains the key focus for all customers, demand for convenience and seamless connected shopping experiences continues to grow. Average weekly traffic to Group digital platforms in F '23 increased by 16.3% and weekly average visits to Woolworths and Everyday Rewards websites and apps reached 16.3 million in Q4. For the first time, digital visits to our Food and Everyday Rewards apps surpassed web visits in F '23.
WooliesX eCommerce sales reached $5.1 billion in F '23 which was up $3.7 billion or a CAGR of 38% on F '19. After some challenging normalization in the first half, eCommerce sales returned to growth of 13.2% in H2 with same day and express services growing rapidly as customers seek evermore convenience. Amazingly, over 80% of our eCommerce sales are now fulfilled within 24 hours of order.
I will skip over Slide 10 and talk about some of the highlights across our connected group on the later slides. Then moving to Slide 11. Delivering sustainable growth and creating long-term shareholder value is only possible through investing in our customers, team, communities and platforms. Having the right prices for our customers is paramount, and we continue to ensure that all of our businesses have a strong customer value proposition. But good prices are not enough. Customers also expect us to provide them with convenience and a good shopping experience. eCommerce and digital is an area where we have invested materially in recent years to meet customer demand and to build a strong foundation for future growth.
We have also made good progress in our Value, Core and UP store and merchandizing segmentation program in Woolworths Supermarkets. Turning to our team, we're not only focused on supporting our team through competitive pay but also through delivering meaningful hours and careers through multi-skilling opportunities as well as cross-store working which has recently launched nationally to all team members. Our enhanced team members are rolling out Everyday Extra with team and continue to prioritize safety, health and well being with further investments planned in F '24 to upgrade team safety measures. Investment in our community aligned to our purpose of sustainability commitment for a better tomorrow.
I’m pleased to say that we have not only removed single use plastic bags, but also reusable plastic bags which once the phase out is complete, it equates to more than 350 million pure bags in circulation annually. As announced last week, we have also updated our food waste commitments called reducing hunger and food waste, which will see an additional $9 million of investment in our food relief partners across the Group in F '24 to help address the issue of food security. And finally, investment in our platforms, including our infrastructure, is critical enabling greater efficiency, greater efficiency and improving the resilience of our end-to-end value chain. Digital and analytics capabilities are also an increasing importance and we will continue to build on the strong foundation and momentum. I will touch on some of our supply chain progress in a later slide.
On Slide 12, we wanted to provide some examples of how the Group's adjacencies are increasingly contributing to growth. PFD had a strong year with sales growth of 28%, supported by new customer growth. Our customer or retailers many call it media business Cartology grew sales by 29% despite a more challenging advertising end market with a sharper media integration now complete. wiq also had a strong year to deliver over 30 high value analytics use cases in the year and Primary Connect, a third party business, PC+ also enjoyed strong growth. In our everyday needs businesses, Big W is working in partnership with MyDeal with the Big W range available since August last year on the MyDeal marketplace. And we expanded our online help offer with the acquisition of key technology and warehouse assets of Superpharmacy. Our proposed investment in Petstock remains subject to a CCC approval.
Turning to Slide 13. Since we provided an update at H1, MSRDC and Melbourne Fresh DC have reached new levels of consistency, averaging 2.4 million and 1.4 million cartons per week, respectively. Development of new projects remains on track, including the Moorebank precinct where our national distribution center has transitioned to its commissioning and testing phase and is expected to launch in H1 of F '25. Our Christchurch Fresh DC in New Zealand and our Auburn eCommerce fulfillment center in Sydney also are on track to open in 2024.
Slide 14 shows some highlights on our sustainability journey across our three pillars in F '23. Woolworths Group was recognized once again for our efforts on inclusion and belonging, achieving platinum status from the Australian Workplace Equality Index. We also launched our latest Innovate Reconciliation Action Plan in June of this year. Efforts to reduce our Scope 1 and 2 emissions in the year resulted in a 36% reduction from our baseline. And we announced our commitment to fully electric home delivery fleet by 2030. On the product side, we are proud to maintain the title of Healthiest Owned Brand for the fourth year in a row.
And it is great to see our customers continuing to embrace Free Food for Kids with 30 million pieces of fruit shared in F '23. It's also important I think at the stage for me to acknowledge the tragedy of two of our team members who lost their lives during work this year in our Woolworths Supermarket and in our Minchinbury distribution center. We’re deeply affected by this loss and our thoughts remain with the family and friends and colleagues affected. Investigations into these events are ongoing and we are absolutely committed to ensuring learnings are acknowledged and rapidly implemented. Our teams deserve to go home safe.
I will now turn over to Steve to talk about our financial results, and then come back to talk about our outlook. Thanks. Steve?
Thanks, Brad, and good morning, everyone. I'll start today on Slide 17 with the F '23 results summary for the Group. Group sales for the year increased 5.7% to $64.3 billion with solid sales growth across all segments in F '23. In H2, sales benefited from a return to more normal trading conditions no longer cycling the impact of COVID and the impact of elevated inflation. Group’s EBIT before significant items increased 16.8% to $3.116 billion, with the Group’s EBIT margin increasing 43 basis points to 4.8%. EBIT growth reflects sales growth, the non-recurrence of COVID costs in the prior year of $323 million, a more stable operating environment and the realization of benefits for investments we've made in recent years.
Group NPAT attributable to equity holders of the parent entity before significant items was up 13.7% on F '22 to $1.721 billion. The last three or four years has resulted in some earnings volatility for the Group with significant disruption from COVID, which has largely normalized in F '23. As we look back over the last four years and as presented on this page, sales have increased at a compound annual growth rate of 7.1% and EBIT increased at a 7.4% CAGR, which we believe reflects strong growth for the Group over that period. And I'll discuss the dividend later in the capital management section.
Turning to Slide 18 in our Group trading performance. On this slide, we've laid out our F '23 trading performance by business units, showing the performance for the full year and for the second half. In Australian Food, F '23 total sales increased by 5% with H2 sales up 7.6%. Sales growth was driven by items returning to modest growth from mid January, eCommerce returning to strong growth in the second half, and the impact of elevated inflation in the half. Australian Food EBIT increased by 19.1% in F '23 with H2 growth of 21.1%.
Excluding the material COVID costs in the prior year of $211 million in Australia Food, F '23 EBIT increased by 9.5%. The EBIT, excluding the cycling of COVID costs in the prior year, reflects leverage achieved from sales growth, gross margin improvements primarily from improved promotional effectiveness, category and business mix changes and an improvement in underlying productivity from a return to a more normal stable operating environment. As you may recall, we also provided an additional disclosure on WooliesX in H1, so the profit contribution of eCom and our other WooliesX businesses.
Woolworths Food Retail is our Woolworths Supermarkets and Metro Food Stores and eCommerce. Woolworths Food Retail EBIT increased by 18.3% in F '23, largely driven by stores. eCom directly attributable profit declined marginally on the prior year. However, that grew strongly in the second half as eCom sales returned to strong growth. WooliesX profit measured through directly attributable profit for eCom and EBIT for the balance of WooliesX increased by 23% to $181 million in F '23, a 4.9% decline in eCom DAP for the year driven by the performance in half one was more than offset by 71% increase across the other WooliesX businesses driven by another strong performance from Cartology in F '23.
Australian B2B sales increased by 17.4% in F '23 with half two sales growth slowing somewhat to 12% growth. While PSD had another strong result in half two, Australian B2B trading results were impacted by the sale of Summergate and the exit of our international business in the half. EBIT for F '23 increased by 13% to 63 million. But excluding exit costs and losses from discontinued businesses in B2B, EBIT would have increased by 68.7%. It was a very challenging year for New Zealand Food in F '23 with EBIT declining by 21% to NZD$249 million. Despite continued challenges for customers and teams from devastating weather events, in half two we did see more stability return to the business.
And in half two, EBIT was up by 10.3% on the prior year and also up on half one. Big W’s first half performance delivered a strong F '23 result with sales up 8% and EBIT up 165% to $145 million. However, the sales environment became increasingly challenging over the year with half sales flat due to a decline in sales in Q4 of 5.7%. Half two EBIT declined by 64% to $11 million with flat sales, increased stockloss, higher wage cost impacting the result despite strong owner based productivity in Big W.
Our other segment, which includes Group costs, the performance of Quantium and MyDeal, property and our share of profits from Endeavour Group, the net loss for the year in other was $185 million, which was in line with the guidance of $250 million, excluding our share of Endeavour Group earnings provided at the half. And for F '24, we expect our net loss from the other segment to be in line with F '23 at $250 million, excluding our share of Endeavour earnings. We also reported significant items of $117 million before tax in F '23 which included $76 million recognizing half one and 41 million recognizing half two relating to the reevaluation of put option liabilities on non-controlling interests in PFD and Quantium which we are required to review and if necessary, revalue each reporting period. EBIT from continuing operations, including significant items, increased by 4.6% to $1.618 billion in F '23.
Moving to Slide 19 in our key balance sheet metrics, average inventory days increased by 1.1 days to 29.7 days. This was largely driven by the impact of higher inventory holdings across the year to improve availability together with the impact of inflation on inventory holders during the year. Closing inventory days declined by 0.6 days as inventory levels normalized, particularly in Q4. ROFE increased by 120 basis points compared to F '22 to 14.9% and was up 71 basis points on half one F '23, largely driven by higher Group EBIT.
Now on to our capital management framework on Slide 20. Our capital management framework continues to serve us well as a way to create long-term value for our shareholders. In F '23, we generated operating cash flow of $6 billion before interest and tax, which was up 25% on the prior year. I'll describe some of the other highlights in the following slides. Moving to the cash flow on Slide 21, the Group generated operating cash flow of $6 billion for the year. This was driven by a 10.4% increase in EBITDA and a working capital inflow of $439 million.
The reduction in working capital was largely due to a reversion to more normal inventory levels, following strong sales growth during the year and a gradual improvement in supply chain reliability, particularly in Q4. While interest was flat on the prior year, non-lease interest increased by $74 million, reflecting higher floating rates and higher average net debt during the year. Cash tax paid declined by 30% compared to the prior year.
In F '23, we’re mainly paying F '22 tax liabilities with the decline in cash tax paid largely reflected in the decline in taxable earnings in F '22. Investing activities of $1.8 billion was below F '22, primarily due to the proceeds of $634 million on the partial sell down in our Endeavour Group shareholding in December, and I'll provide a bit more detail on CapEx on the next slide. Finally, our cash realization ratio for the year was 113% with working capital inflows and lower cash tax pay driving the strong result.
Moving to Slide 22 on CapEx. Operating CapEx for the year was $1.9 billion broadly in line with F '22 and a little below our $2 billion guidance. The split between growth and sustaining CapEx was also consistent with the prior year. Within sustaining CapEx, supply chain declined on the prior year reflecting the lumpy nature of some of the investments in supply chain transformation, particularly the Moorebank precinct. This was offset by an increase in SIB investments and IT projects across the Group in F '23.
Growth CapEx was broadly in line with F '22, while the net investment in property increased year-on-year. CapEx also included $123 million on projects with strong sustainability benefits in areas such as refrigeration, solar, LED lighting and energy management. As we look forward to F '24, our operating CapEx is again expected to be approximately $2 billion.
Moving to dividends and funding on Slide 23. The Board today approved a final dividend of $0.58 per share, an increase of 9.4% on the prior year, reflecting the strong earnings growth in the half. The F '23 dividend payout ratio of 73.6% is in line with our typical payout ratio in the range of 70% to 75%.
Turning to debt. Net debt to EBITDA in F '23 declined to 2.6x from 3.2x in the prior year due to strong cash generation during the year and the increase in EBITDA. However, the reduction in net debt also benefited from the cash inflow from the sale of a 5.5% stake in Endeavour Group in December, which will be used to fund the investment in Petstock Group which remains subject to a CCC approval. We remain committed to solid investment grade credit ratings, significant headroom under our current ratings of BBB from S&P and Baa2 from Moody's. The Group has $400 million in domestic MTN maturing in April which will be refinanced or repaid prior to maturity.
Thank you. And I'll now hand back to Brad.
Thanks, Steve. Turning to Slide 42. Before I talk to current trading, we announced in July our plans to strengthen our [indiscernible] and accelerate the transformation of our New Zealand business. The program includes store renewal plans for approximately 80 stores over the next three years focusing on some of our oldest stores across our New Zealand store fleet. We will also roll out everyday rewards early next year in New Zealand and materially improve our fresh offer through the commissioning of our Auckland Fresh DC to 2024.
For our team, we will continue to pay the team competitively, enhance team benefits and leverage existing Group platforms to make Woolworths New Zealand a better place to work. We'll also continue our sustainability efforts to focus on grassroots community support. Countdown stores are being rebranded towards New Zealand with our first converted store in Bethlehem launched on Thursday last week to a pleasing reaction from customers and team. I'm sure I'll get questions on that later.
Turning now to our current trading and outlook on Slide 43. Sales in the first eight weeks of the year have continued similar trends to Q4, with solid growth in our food businesses and Big W sales declining on the prior year. In Australian Food, Woolworths Food Retail sales growth was approximately 6.5% but stores and eCommerce growth remaining solid. Inflation has continued to moderate in the year-to-date, with item growth in the low single digits benefiting from strong volume growth in fruits and vegetables.
Cost in F '24 will be impacted by material wage increases and inflation in energy and transport costs. However, we have made good progress in restoring our operating rhythm and have strong productivity plans in place. We remain cautiously optimistic about the year ahead in food and are confident in the plans we have. However, EBIT growth in Australian Food in F '24 does need to be viewed in the context of above mentioned cost inflation and a strong focus on value for our customers. These improved sales have increased by approximately 4.5% in the year-to-date.
We are clear on what we need to do and are committed to investing where appropriate to ensure we continue to improve our customer and team experiences. We're confident that this will lead to a better New Zealand business in the longer term for all of our stakeholders. But the short-term outlook remains challenging. Big W sales momentum continues to be challenged with sales down approximately 6% on the prior year. While Big W has been impacted by the broader spending slowdown in Australia, some categories like everyday essentials are performing strongly.
The outlook for the remainder of the year is uncertain. And as always, training in Q2 will be key to the full year results. We are committed to helping our customers spend less every time they shop at Woolworths Group in F '24 and we will continue to innovate our various customer propositions to ensure we do so. I would like to end by thanking our hard working team for their tremendous efforts in F '23 and for making us better together. During COVID, we needed to be better together. And in F '22, '23, we want it to be better together. And this is our real achievement.
I will now turn the call over to the operator for questions. Can I please ask we limit it to one question per person to allow everyone to have a turn?
Thank you. [Operator Instructions]. The first question today comes from Michael Simotas from Jefferies. Please go ahead.
Good morning. My question is on gross margin in Australian Food. It was a very strong performance across both hubs. There's been a lot of conversation around stockloss and theft, and you've mentioned it today as well. Can you give us a little bit more color on how theft transitioned across the haves? And in the past, you've given us some color on where your total stockloss sits. If you could give us any indication of that, that'd be helpful to please?
Michael, let me -- that sounds like a couple of questions by moving to one. From here we can talk about Balmain, the Metro transition later, if you like. Why don't we just talk to the -- because everyone I know is going to be interested in this. I’m going to ask Steve to just walk through for everyone if you don't mind the gross margin bridge. And then we'll come specifically back to stockloss. I’ll talk to it broadly, but then Natalie will dive into some of the factors there. Both of these are big topics and we'll probably shorten a couple of questions if we do them properly. So if you don't mind bearing with us if we just flip through that in a very stepped way. So Steve, maybe you could just start on the gross margin evolution and then as I said we'll come back to stockloss as a component of that.
Sure. Thanks, Brad. And you would see in our profit announcement disclosure that there is a 76 basis point improvement in gross margins. It is just worth referencing for those who didn't see it a couple of weeks ago. We have restated our gross margins to now include supply chain costs in our gross margin, and so some of that improvement in gross margin does actually reflect COVID costs in supply chain that we've removed in F '23. But we've tried to articulate that variance in the profit announcement. But the underlying improvement when you strip that out is just over 50 basis points. There's a number of drivers that we've continued to see cigarette sales decline in the teens which whilst we make less absolute gross margin dollars does have a mixed impact on the gross margin percentage, which we've pulled out. One of the areas that we’ve focused on with our advanced analytics team is how do we optimize promotions and really drive promotional optimization, promotional effectiveness, and that has had a big impact for us as part of it drives a positive margin. Equally, Cartology sits in our gross margin line. So Cartology, our retail media business continued to grow very strongly and had a very favorable contribution to gross margin. And then --
We said there was 29% growth in Cartology revenue and included then, we've also got the Shopper Media acquisition, which started to have some benefits in Q4.
That's right. And then the other elements are there are just some category mix impacts in there. Our long-life categories did grow slightly faster. We make more margin in long life. So there's a mixed impact also driving those outcomes. There are some offsets. We did have some higher fuel costs and stockloss was a headwind for us. So that's probably I’m going to say, Brad, to come back to you.
Yes. The only one I would add to that is because of us moving DCs into GP, some of our COVID costs that we took out of the business and cycled actually come out in GP not in DB -- excuse me, on so many numbers, just over $700 million of COVID-related costs. So those were the positive factors. The negative factor, which is the one that you've alluded to Michael is the topic of stockloss. And we've got quite a few questions on it in the media call. And again, we'll just go through it end-to-end if that's okay. It clearly was up over the year. The point I made in the media call is if you'd go back to pre-COVID time as it sort of was running where it was in pre-COVID time, so it was stockloss but fairly reduced during COVID primarily through all the good work we were doing that Nat will talk to, but also because there was just less movement of people, and therefore this topic that has become very big on theft did materially ameliorate during that period. So it went back to where it was before, but it was an increase on what it was previously and was one of the drags. But Nat, maybe you can just give some color to some of the positive things we've done in stockloss as well as some of the negatives as well. We can come back to the outlook.
Yes. And I would start by saying that stockloss has been a focus for us over the last three years and continues to be so. We definitely have seen a benefit to stockloss as we stabilized the business, because often particularly in fresh, stockloss just reflects bad processes end-to-end. So as we've stabilized our business, we've made sure that we're sending the right amount of stock into stores and therefore still don't have to clear or dump that stock at the end of the day. In fresh, over the last few years, we continue to have great benefits from our waste and marked down processes and tools, and that's been driven through advanced analytics. So we've really simplified in fresh the number of times our store teams do markdowns. We've made it more consistent across different departments. And across the past few years, we've seen a real benefit in fresh stockloss from reduction in clearance. I would also say that over the last month or so, as we've had a lot of volume velocity in our fresh department, particularly through the vegetables, that’s also contributed to a lower stockloss figure in fresh. So the extra terms of velocity you get, the less stockloss you get on items and the fresher the product is for the customer. So that's been a real benefit to both our customers and to our stockloss results. We have unfortunately, as Brad has mentioned, seen a step up in what we call stock adjustments in long lines over the past 6 to 12 months, and that's particularly the case I would say for high value items in personal care. So electric toothbrushes, razors, for example, were items that were very conscious. We've seen an increased in depth. We've certainly been working towards how do we reduce that kind of headwind in our stores? And we prioritized this year in our capital envelope two major programs. One is Scan Assist, which is a technology on our checkout, which really focuses on ensuring that all our customers are scanning product accurately through the checkouts. And we're very conscious that we don't want to slow down our checkout for the 99% of our customers who do the right thing. So we're very much focused on making sure that intervention in our self checkout areas is as low as possible, and certainly no more than what it was with the waits we've had on our stores before. And then double welcome gates. And again that just prevents anyone from taking a trolley full of goods and running out the entrance. So we've certainly seen in stores where we've put in Scan Assist and we've put in the double welcome gates, we've seen a reduction in headwinds on stockloss and theft. And so at the end of the financial year, we were in over 474 stores with Scan Assist, 447 supermarkets with double welcome gates. And we continue to roll that out over the course of this year. So we're now at over 500 of our stores having Scan Assist. So I think we're making very good progress in terms of rolling that out across the fleet. And we plan to complete that rollout this financial year.
So Michael, I hoped that answered the question. In a Group sense, actually the biggest step up in stock adjustments or theft have actually been in New Zealand and Big W. The New Zealand numbers is thought to trend down materially in the last few months as Natalie has alluded to inside food, they have stabilized and slowly come down, but they're certainly spiked to come down in New Zealand. And we've got a lot of work underway in Big W. But in the second half, there was another spike. Scan Assist or the ever seen computer vision, computer video-based scanning has also not only been scaled up now more with supermarkets and partners and stores, but also into Big W and into Woolworths New Zealand. So we're taking the technology much broader, but it's nice to have it working at scale for us. And importantly, as Natalie referenced, can actually improve the customer experiences as much as say stockloss is better than having the scales on as we call it in checkout, but obviously a big area going forward and a big area of focus for us. We need to make sure we keep ahead of the curve on this one.
Thank you.
Thank you.
Thank you. The next question comes from Tom Kierath from Barrenjoey. Please go ahead.
Good morning, guys. Just a question on RT3. It looks like it's been really successful. Just trying to understand I guess what the impacts of that will be through FY '24 and how big of an impact you saw in '23? If there's any numbers or color you can share on that program please?
Yes. Tom, let me talk to it broadly, but I'll pass over to Natalie. This was an important program for giving us a greater level of granularity in terms of when we wanted to see tasks performed and make sure that our team got the right roster. So it was as much about the level of control and precision we had in the business as it was a cost reduction plan [indiscernible] and just getting the yield right that you do those. And so it is an incredibly important platform for delivering productivity, but also for team experiences going forward. These rolled out in two buckets. It's taken us two years to do that inside our Metro food stores. But I just like to call out in the last eight weeks, we've managed to roll it out in New Zealand as well. So it is a capability we're trying to build and roll out and a variant of it has been worked with and engaged with the Big W team. So it is some way that we would like to roll going forward. And so we think it just gives a foundation which is one of our key metrics for everything we want to do. In terms of some of the benefits that have enabled, I’ll turn it over to you, Nat, just talk to some of the benefits.
Yes, it was a major initiative for us in supermarkets and it was really about getting the foundations right for us. So when we rolled out RT3, we also updated all of our labor standards. And so we actually had to reinvest money into certain parts of our stores like fresh convenience to update the standards and true that on our labor standards. But we spent a huge amount of time in every store working with our team to move the hours into the right place, into the right department. And we did that very carefully because we wanted to make sure that actually the hours were there when our customers were shopping our stores and actually therefore it will be easier for our team to serve customers and to do all the tasks that we're asking them to complete in-store. But we recognize that that had personal impact on our team because they may have spent the last few years being rostered on a Tuesday and we were now asking them to work a weekend day or a Sunday, for example, or work in a different department. And so we spent quite a bit of time just making sure that we had really great conversations with our team and explained the why. We now are at the point where we would say that our hours are in the right place in-stores. So we kind of mentioned that. I would say we're at 80% of what RT3 I would say and we think that's a good outcome. We continue to really focus on weekends. And one of the trends we've continued to see throughout the year and into the first few weeks of this financial year is just customers shopping more and more on weekends, and in particular Sundays. And so that's a continued focus for our store teams just to make sure that we've got the right hours on Sundays when customers are shopping our stores and the right leadership coverage and coverage on our checkouts in particular, they get very busy. So RT3 then helps us to inform our productivity pipeline. And so we have a very strong pipeline of initiatives going forward that we know will improve customer experience and also create more efficiency and effectiveness. And for example, one of those business cases that kind of we've built based on RT3 is our ESL, which were now our electronic shelf labels, which we're now rolling out to stores outside of the renewal program as well as through our renewal program. Our team absolutely loves electronic shelf labels. They make life a lot simpler when we changeover on promotion weeks. And that creates a lot of productivity benefits for us in our store. So it's been foundational, and I think it will help to inform a really good productivity pipeline.
Thanks, Nat. And hopefully you get a sense of that, Tom, it is a key foundation enabling ESL and the many other important issues of. The ESL learning for us as a team is also playing out to the Group. And that's the way you'll see us trying to work, taking learning from one part of the business and apply it more broadly.
Got it. Thanks, guys.
Thank you. The next question comes from Lisa Deng from Goldman Sachs. Please go ahead.
Hi. I have a question on eCommerce. It looks like there's a slide on the deck that actually shows the foot traffic's up 2.5x, but I think the sales are actually up 3.5x or more. Can we talk through how the traffic conversion baskets are sort of progressing as we move? And then also, how do we think about incrementality of sales or consumers spend versus the store generated sales please? Thank you.
I think there were a few questions in one there as well. Lisa, let me give a high level summary and we'll pass it to Amanda, Amanda Bardwell. Firstly, if you just look at what we're trying to show in the slides was COVID actually brought forward a lot of demand for digital and eCommerce that actually once you normalize out there and look over the long-term timeframe, the trend line is clear that it's an increasingly important part of what people do. And the numbers you see in the document are the average eCommerce penetration for the year. But the exit rate obviously is much higher. When you start looking at the sales momentum, we started to build in H2 as we left the COVID disruption that had brought forward previous sales. So that's what needs to be seen in the context. I think we're way past this issue of cannibalization, Lisa. So we're not happy to mention it. We see it as a different choice a customer makes for a different mission. And theoretically, it may cannibalize the sale. But that's not the way we think about it is incredibly important part of the overall customer experience at Woolworths if they can shop stores and eCommerce. And we look at the overall sales, we get a much stickier customer experience if they shop physically and digitally. And I think if you pull any retailer in globally who works in this space that will give you a very consistent view on this one. So we'll park that one, but rather come to just what's happening in eCommerce, the trend lines and the basket sizes receive as well as this. And I actually use the word myself of being quite stunned on the 24-hour cycle for 80% of our orders. But over to you, Amanda.
Yes. Thank you. And thanks, Lisa, for the question as well. Can I just start by coming back to the digital conversations? I think it's really important. I think sometimes we're confusing digital traffic with eCommerce growth and actually we look at digital as Brad's talking to is a way of actually connecting with our customers, helping them shop, helping them save across both our stores and eCommerce. And so when we see the growth numbers in digital, that's actually fantastic for all of our channels and it's better for customers as well. When we're looking at then conversion, actually conversion is relatively steady for us. So we're delighted with the fact that we're seeing increasing numbers of customers connecting with us on digital. And then for those customers who want to shop in a particular way via eCommerce, converting into eCom. So we're very happy to see digital grow and we hope that that continues going forward. From an eCommerce perspective, again, it's been a really interesting year, Brad, as you say, the first half we had cycling out of COVID and the normalization of that. And then in the second half, there's been just a tremendous demand from our customers around convenience, in particular looking for same-day convenience, express convenience. And so to see those numbers now, 80% of orders being fulfilled within 24 hours. And in particular, our direct to boot services just continuing to see strong growth, mainly coming out of those same day, direct to boot services and windows that we've opened up. We feel I’d say very positive about yes, the digital growth, but equally, the eCommerce growth. And then, Brad, just coming back to your point, we look at customers holistically, and most of our customers who shop eCommerce also shop our stores. And if they shop both of those channels, they generally spend about twice as much as a customer who only shops one. And so it's a really important part of our strategy to look at it holistically at a customer level.
Thanks, Amanda. The only other point I think would be useful to add is the most important segment for us right now in digital tools and eCommerce are our cyber families. And we're finding that cyber families can get a lot of value out of both using digital tools to plan the shopping. But then on occasion, of course, also do an eCommerce transaction on the backend. So the role of digital is not in addition to that. It becomes a key part of delivering value. And that can also be true of eCommerce order as well. So just fascinating to us. It's a much broader, more holistic opportunity than a narrow one.
Can I just ask what's the penetration of the boost [ph] office usage? We've seen the growth, but what's the penetration?
Lisa, why don’t we come back to everyday rewards in the next sequence of questions? That's a different conversation, which is a very important one, but maybe we'll come back to it in the rotation.
Thank you. The next question comes from Shaun Cousins from UBS. Please go ahead.
Thanks. Good morning. Maybe just a question for Spencer. Can you just talk a little bit about I guess the trajectory we should think for New Zealand EBIT? The guidance in the second half was for it to be above the first half, and it's done that. But can you maybe talk a bit about how you think about the catalyst to improve EBIT and maybe just touch on the sales to date? They seem to step down relative to where you were in the fourth quarter, that 4.5 relative to 8.3, and inflation was 9.2% in the fourth quarter. I'm just curious if there was anything, either a step down in inflation or a step down in item growth or volume there that played out, but maybe just give us an idea about how the outlook for the New Zealand businesses please? Thank you.
Thanks, Shaun. I don't know what the right analogy is breaking down the wing and trying to see whether we can get Spencer to talk about earnings outlook. We don't do that. We've all talked about what is positive and what our challenges are in New Zealand. So I’ll turn over to Spencer to give that color. But as you know, we can't avoid it, in particular, where there's a lot of volatility which is an earnings outlook. So thank you for giving it a lash. So I'll turn over to you, Spencer. Hopefully you're online from New Zealand to talk about where we stand on some of the positive things we've seen, but some of the challenges that we're still working through.
Yes. Thanks, Brad and Shaun. Thanks for the question. I might just turn to the bleeding, which is just when a customer finds themselves, which I think Nat just talked to where the performance has been just over the last little while, but New Zealand customer -- all customers are under significant pressure, but the New Zealand customer in particular. And just to remind, they have been living with that sustained pressure for quite some time. So whilst we see inflation moderating across the Group, it is much less so in New Zealand. Food inflation still sits at 9.6%. And actually, that's the first time in a year, Shaun, that that's dropped to single digits. So we're sitting well above that at sort of the 12% mark. And that's meant that the cash rate has increased and will probably remain higher for longer, which I think gives some indication of us looking I guess our ability to start to see items lift materially and trade really, really sharp. And so cash flow is putting pressure on customers. And just an interesting fact is that on average, New Zealand is -- about 26% of disposable income goes towards housing. So it's an extremely price conscious market. And especially, we've seen that for families and the young people segment. And the market, of course, is intensely competitive. So that's what we play in. It plays to the discounts at the moment, a formidable discounter with 30% share. And then what we have seen increasingly of late is just the strength of the rest of markets. And there's a number of value players in that space that's grown but also just the strength of independence. I guess that's really what we compete against in this high inflationary environment, and we classically see the independence is offering them good value. Saying that, I think the transformation of New Zealand business points to us doing the things that we need to do to really make ourselves more formidable in this market. And that includes a real focus on value. Much of what you see in the Australian supermarkets is what is starting to land in New Zealand in terms of our value mechanics. The fact that we become movers means that we can open up a larger range of our own brand products, and that's a big focus for us. I think Brad mentioned at the start of the call just the space of our stores, but 40% of our stores are over 10 years and older. And so we've got a lot of work to do to just improve that customer experience, and then very excitingly everyday rewards coming to this market later on. So I guess the key themes are intensely competitive market, a very strong set of value players both in the formal sector and probably the informal sector. But what gives us confidence is we’re focusing on the right things to start to deliver a sustainable growth in the medium term. It will probably still be challenging for the next little while whilst we learn those, but that essentially is our focus.
Thanks, Spencer. Just a couple of points to add, Shaun. We are seeing inflation moderate in Australia. There's been a bit more of a lag in New Zealand, but we will start to see the same moderation take place which is much, much needed. The vegetable price deflation is starting to flow through [indiscernible] given the hurricane or cyclone that impacted. So we are seeing that happen, which we think is very important. And we also know that at the moment in the process of resetting our price mechanics and lining them up with Australia are in early days, but it also would be fair to say positive early resonance with our customers.
Thanks, Brad.
Thank you. The next question comes from David Errington from Bank of America. Please go ahead.
Good morning, Brad. Brad, I'm not going to win any friends asking this question but it needs to be addressed. The amount of money that Woolworths over the last journey has spent on its supply chain and particularly its stores, but particularly the supply chain has been in the many, many billions of dollars. But you had a death this year from an accident where one person died and two other people were seriously injured. Can you please tell us as investors what happened there, because this is a serious event. I can't remember many companies that I've covered where there's been an accident of this level, and particularly at your DCs where you're investing so much money that you've had an accident to this level. Now this is relevant to us as investors, because we need to know the quality of your DCs. Now clearly your DCs and nowhere near the level of standard operating procedure. Forget about productivity. We're talking about basic essentials for keeping workers safe. Your DCs are a mile behind benchmark as to where they should be. So I'd like to know what you're going to do here. What we as investors should expect? I'm assuming at the least none of your management team are going to get bonuses this year. I'm assuming that. But could you go through please and spell out what happened? What the state of your DCs are in and what you're going to do to rectify this please?
Thanks, David. It's a tough question and one that should be asked. So thank you. [Indiscernible] none of us feel good about it, so I should just accommodate at the start. Firstly, for the facts, we actually lost an employee in Minchinbury and we lost a contractor in Jesmond supermarket. The only two fatalities we can remember in 10 years in Woolworths, if not more. So this has not happened in our collective experience working together as a team, and it's devastating. Now it is an important juxtaposition, severity injury, right, which is the way we measure things, we've actually been making good progress. We've been keeping our team safer. We've had a lot of protocols in place that are doing that. And so this comes in contrast to that. And it could be easy to excuse them and we're not. We own them. And I'll talk to the consequences. But it is actually flies in the face of everything else that we're doing. We've actually been making great progress. But we do need to learn in and learn from both incidents. So you want to know what we think about and how we feel about things. In the Jesmond supermarket, a cleaner in the early hours of morning was cleaning our store. There was a team there, but a limited number of team, I think 5 o'clock in the morning with somebody there or about [indiscernible] into a corner, they got caught by the cleaner and crushed against the wall. And unfortunately, they passed away and none of us knew. And we felt terrible. We found out by 7.30 and we had to get the medics and there's a full investigation taking place right now. There are a lot of extenuating circumstances, but we feel accountable for what happened. Amongst the many things we're doing about it is setting up our own practice services so we can manage the right specs of equipment, space and everything else. And it's a part of our business that we just simply need to do a better job of. We've contracted out that part and we tend to enforce it and build the capabilities we need. And we've done that in 76 supermarkets. We’re committed to doing that, but also making sure that all our contractors are safe. And that was I think in November, correct me if I’m wrong. In Minchinbury, it was actually outside of the financial year, but in the context of it, we see it as in the financial year. It happened in our Minchinbury DC and is a DC as you know that has been part of the Woolworths Group for a very long time. So our new automated solution which we have in Melbourne, south, which you have been to, or a new automated CFC. So it's a very traditional spot where one of our team got killed in a pallet stacker. Again, this is under investigation as to what happened. They went to unlock the jam and consequences are being investigated right now. We have, of course, stopped using all those forms of pallet stacker, doing a full review of them and how the process work. So those are the two incidents. In terms of what we're then doing outside of that is every piece of physical equipment is now being reviewed and more with how we use it, because both of those were equipment related. There were two near misses. And it's good that people report near misses and we encourage it at Woolworths, I should say, with other forms of -- this one with other forms of physical equipment. So we reviewed all equipment and then we coming back more broadly on the whole topic of safety and how we validate all of our safety procedures. In terms of consequences for management, I don't think you can ever monetize in any way someone's life. So let's not kid ourselves. But in terms of the consequences, the overall bonus of Woolworths for everyone on the group bonus has been reduced by 10% as a starting point, because of this and has been done in collaboration with our Board, but certainly at the behest of management to feel this is a minimum starting point. We will then go through the investigation and figure out what other consequences take place. So there's no doubt it puts terrible weights and pale on a year that we had many achievements, but it overwhelms all of them. In DCs themselves, David, this in no way flies in the face of our current automation plans and the progress and the safety that does come with those plans. It is very clear to us that the automated DCs if you follow the right processes are safer. So it doesn't -- you could say we should accelerate those plans, but actually this will take a while which is why we need to do the full reboot that's going on inside the group.
Thank you. The next question comes from Bryan Raymond from JPMorgan. Please go ahead.
Thanks, guys. Just on the outlook commentary, you did have a bit of a cautious tone there in terms of food labor growth, given the need for value and the cost pressures coming through the wage line. I was hoping you could expand on that a little bit further, particularly around if there's any sort of mitigation incrementally around whether it's RT3 or other methods around the wage pressure. And then gross margins are very high by historical standards once you adjust the history for the new accounting process. Is that sustainable in this environment if you think value is going to be important? Thanks.
Thanks, Bryan. Look, we're not giving earnings forecast as we've talked about with Shaun. So we're just giving you a sense of the things we're balancing as we go through the year. So we’re not pushing an earnings outlook. We have to balance as we did in '23 deliver value for our customers, making sure our team get fairly paid for what they do and then trying to reconcile those back into an overall result. And there are positives and negatives in there, as you can imagine. So I don't think I can say more at this stage.
Okay. Is it possible to sneak another one in then given it’s relatively quick?
I think that's fair actually. Let me just say [indiscernible].
Excellent. This should be a bit less challenging than on that front. Just in terms of this new everyday rewards member pricing, just interested in incrementality over your yellow and red tickets, if these are orange tickets. I haven't been in the store today to see them, but the incrementality there or is it just moving product around -- sorry, promotional dollars around and also the funding of the program, obviously suppliers are involved. But how do you see that playing out in terms of scale and those other elements versus your existing yellow and red programs? Thanks.
It's got a lot of analogies. And this actually ironically it does come back and I think I’ll answer Lisa where you were going. If you think about everyday rewards or you think about digital eCommerce and stores, we're trying to think very holistically from a customer perspective on what's the overall experience in Woolworths either as a customer, if you think about digital eCommerce and stores or as a member, if you think about everyday awards, and as a member of shopping physical stores or digital stores or across the Group. And so we're trying to backfill back to the member in this case, and the overall value they get of being a member of everyday rewards. And so there's a whole series of mechanics that you need to think about in that context and how you bring them together to get the right outcome. Clearly, every time a customer scans the card, they get points, whether it's online or in-store, and in supermarkets or Big W as well as a number of partners that is a base earn. Through that process, we get to learn a lot about the member and therefore we get to personalize a lot of experiences for them, as well as a lot of offers for them. So you always want to start with of course the size of your database, and then trying to measure within that which one of customers are active and get them to be as active as possible so you can personalize the experiences with you as much as possible. And each customer does want to take a slightly different journey through our group. What we had layered on top of that a couple of years ago was then providing personalized direct offers to a customer that met their particular needs. And so things they either shop regularly or items that we thought we could have suggested they might want to add to their basket, a new product or whatever and we call those boosts. But it really was just a personalized offer that the customer got in addition to that. In the last couple of years, and Dan Murphy's I think has been a poster child for this in Australia. You started to see a lot of retailers start bringing member pricing into store and to give our members a choice to also get a price of a particular product in a store. And when I say store, I mean physical and digital, by the way, not just physical. And the interesting question is how that is accretive to the overall experience? And the UK has done a lot of this find as you should be aware with Tesco Clubcard and then everyone else responding to it. That's become very driven by member pricing. We have looked at it. We've pushed the alternative into store a few times and get pleasing results. What it does for us is it reminds a customer that they are a member of everyday rewards and it does prompt and therefore to scan the card to get all the personalization. So it does help us with scan raters we call it or tag rate and it reminds the customer, and it does actually then just add a little bit more value to their overall basket. So it provides some other benefits and is in addition to our red and yellow programs. It would be fair to say that some of the offers that you see in the yellow program may become orange offers or member price offers. Over time, if we think that the ability to do it gives a better experience for the customer strike member and for the supplier concerned. But that's something we'll learn and evolve and iterate on as we go. So that's -- I don't know if I've missed anything, Amanda, that you'd want to call out?
No, I think you've covered it. And I think the summary then coming back to Lisa's question of we've got a very strong and growing active membership base, we've also got a very strong and growing group of members that are boosting. And so they're taking advantage of those personalized specials that they need to actually take an additional action, which is to boost. With the member pricing, it's actually much more accessible for all of our members to get more value, because they only need to scan as they shop. And so I think we're just going to test and learn together with all of our banners across the group over the next six months, and then we'll assess on where we take it after that.
Bryan, when we look at it, we think there's amazing value inside Woolworths. And our challenge is actually making sure our customers can find it and they can appreciate it. So we're obsessional as you would well know on our price indices, which are looking in a good place and making sure there are affordable options in every store for every customer top. But actually, if you're going to just find it through physically walk in the store, you're not [indiscernible] digital initiatives that we're doing in the store. There's a lot of core value in our merchandizing segmentation that Natalie can talk to. But there's no doubt that being able to overlay a personalized experience for a customer strike member just enhances the probability that we can make sure that value is delivered. And that is the macro goal that we are focused on delivering. And with a program that's now got over 14 million members and over 9 million active members, it's something that we feel that we can do as a group and add value to all of the businesses in the Group.
Thank you. The next question comes from Craig Wolford from MST Marquee. Please go ahead.
Good morning, Brad. My question’s on CapEx, if I can. So the guidance for FY '24 is CapEx of 2 billion. Can you give a sense in two ways? One, what's the contribution that Moorebank has for that? And I'm really kind of asking about lumpy items. And the motivation for the question is to try to understand where CapEx may settle in the medium term, thinking about those sustaining and growth buckets?
Yes. Thank you, Craig. I'm going to get Steve to answer, but one point and I think everyone on the call understands this but if you don't mind me just log in it. Some of the performance that we see in F '23, whether it's, again, digital growth or eCommerce growth or even the resonance of our stores relates to the investments we made in previous years in CapEx. So there's no question that this help us in '23 in terms of where we sit right now, and whether it's the ever seen tech [ph] platform that we've rolled out for system scan or whatever the case may be. So if '23 does need to be seen in the context of previous investments in terms of prospect of CapEx and inherently lumpy nature of supply chain investments. I’ll turn over to Steve to give some color where we stand.
Yes. Thanks, Brad. Craig, it's a good question. Our CapEx, just looking at it in preparation today, has been pretty stable for the last few years around the sort of 1.8, 1.9 level, we're calling at around $2 billion. We will continue to have spend [indiscernible] on our Moorebank facility in our supply chain CapEx program just given where we're at on that program. So just for context, we've just taken practical completion of the national distribution center from the builder, the automation contract we moving in, that's the national DCs. The regional DC will follow the year after. So we still got a couple more years on the project. As with every year there's a lot of list of opportunities for capital in our Group. And so we're always focused on how we continue to sustain and maintain our business. Keep that team safe, renew our stores. But where do we then best allocate the capital to drive the best returns for the group? There's a lot of focus on some of our productivity initiatives. We continue to roll out electronic shelf labels. We've got the second phase of our rollout of Scan Assist. It's very important to get that stockloss initiative that we talked about. You'll see movements between categories, a little bit of lumpiness in supply chain. But overall, we think this sort of 2 billion is about the right level for us.
We try and run it on a three-year window, so we find sort of looking at it over three years it will sort of change up and down. Very important to call out and I know Nat, this is your accountability. Moorebank is the biggest individual project. We will commission I suspect just over $1.4 billion of investment. It's slowly days and we certainly need to keep highly focused on it. But our CapEx plan is tracking to budget as it is with our Auburn CFC, so two very important projects. There’s still work to be done, but tracking to budget.
If I can just clarify, is Moorebank in the sustaining CapEx and it's that supply chain figure on Slide 22?
It is, Craig, yes.
Thank you. The next question comes from Phil Kimber from E&P Capital. Please go ahead.
Hi, guys. I just had a question thinking about cost growth into FY '24 and if we just focus on Australian Food, I think the growth in the second half was in round numbers 8% with a little bit of help from COVID cost dropping out. Is that a good starting point for thinking about FY '24, or are there some other sort of large components that we should consider? Obviously, there's wage step-ups but other things that we should consider about when we think about cost of doing business growth in FY '24?
Thanks, Phil. So we’re not focused on giving guidance. But maybe Steve you can give some color to the considerations that sit there, in particular actually just call it out, maybe the D&A that's in there and the cash difference to that, and some of the things we’re trying to balance?
Yes, happy to, Brad. So that numbers are right for the second half, Phil. There is certainly some benefit from cycling out of COVID costs. That’s been about 60 million of COVID costs in the second half last year, although a number of those sort of fell into supply chain. But if you think about what drives our cost growth as a Group, wages and the cost of our team is half our cost base. It’s well communicated what the fair work increase is going to be. The other big increase, so that was inflation on team cost and then inflation across other areas such as energy or some of our people related costs, like contractors for the cleaning or repairs and maintenance, rather big drivers. So inflation generally was about two thirds of the inflation in gross terms. We obviously work hard at productivity. And we've known and expected that cost inflation was going to be higher in F '24 than in F '23. And so we do have a very robust productivity agenda for F '24. And we would expect to generate more productivity savings in '24 than we're able to do in '23, just given the stage of disruption from COVID in '22 impacting our delivery of productivity in '23, we might be able to have a better runway at '24. I think the other one is as Brad pointed out D&A. D&A did step up, again, which is really just the consistency of our capital spend over a number of years, a little bit more in the second half that contributes to some of that higher cost growth in the second half. But I think probably the other element to just talk to is volume growth. We had negative volumes in the first half of Australian Food. We're back into just under 1% volume growth in the second half. And so a lot of the costs in our business relate to the volume we moved the boxes in our DC or the items that we put on the shelf, we scan through our checkout. So there's actually about a five-point shift in volume between half one and half two, which contributes to some of that volume growth across the two halves. But as we think about the year ahead, there are a number of cost pressures. But equally we feel comfortable about the number of the productivity initiatives. I think Nat talked about some of them earlier. We know it's all ahead of us, but we’re cautiously optimistic about ability to offset a portion of that cost inflation.
Thanks, Phil.
Thank you. The next question comes from Ross Curran from Macquarie. Please go ahead.
Hi, team. I just actually got a question about your credit card book and Wpay. What are the plans around credit cards going forward?
Thanks for the question, Ross. As you would be aware, we are in the process of transitioning out of the arrangement we had with Macquarie Bank on our credit cards. So that process is well underway, and therefore we're actually out of provisioning credit cards. Wpay is really just focused on being the most efficient possible payment merchant can be for us. We've upgraded the platform that provides services to Woolworths Group. But it's actually also started to grow with providing services to other retailers who have the same sort of broad need as Woolworths Group. It’s another profit stream for us. Hopefully it gives us a nice volume back into the platform. So it's a merchant service. It's a merchant acquirer, not a credit card provider, Ross, and we feel comfortable with where it is and the services it provides to us. Within that context, you may have noticed something that we still have a lot of work to do, which is on our digital wallet, Everyday Pay. And so we still have a lot of work to do with activating our own digital wallet in the context of website or inside our store, so some work to be done there that’s rather critical.
Thank you. The next question comes from Scott Ryall from Rimor Equity Research. Please go ahead.
Thank you very much. Brad, not notwithstanding David's earlier comments, you've used the term operating rhythm in the printed results announcement. And you've talked about that over the last few years in trying to get that back given the external pressures on the business and variability and things like that. So if we're in a period of smoother operating rhythm, if that's the right word, I wonder if you could just detail what you might talk to the Board about over a three or five-year period, maybe the top two or three initiatives that you think will add meaningful shareholder value over that time? And I know that the little things added together, that I was wondering if you could just give us a guide as to in the Australian business where you're turning your mind to now that that operating rhythm seems to have come back into the business place?
Yes, let me -- I think there were a couple of questions there as well, Scott, so let me try and parse that. Firstly, I think your point gives me the opportunity to just talk to a very specific issue which is underlying process efficiency inside Woolworths Group and operating rhythm actually is process efficiency, if you think about what it is for us. And one of the achievements for the year that you kind of get glossed over in all the results is when we look at all of our operating metrics and we're looking at what good looks like, virtually every operating metric in our Group has gone back to being good. And good was sort of the highs we had before COVID. So it could be a source service level, an add-on service level, and items per labor hour inside a store, a scan rate, the number of cartons per labor hour in a DC. Over the course of F '23, every one of our operating efficiency measures got to where it was pre-COVID. There's a lot of conversation right now in the economy about this productivity malaise. I think our biggest achievement in the year was actually getting back and getting back to where good looks like. Now that will provide a real foundation for our results in F '24. And I wouldn't underestimate the importance of that as a productivity offset against the wage rates, never mind the other initiatives that you put on top. It's easy to always talk about the next initiative. But if your base operating efficiency is not there, it’s diddly-squat. It just will never offset that. And it was terrific to get there and an amazing achievement. And that's true across every part of our group. And we only got there really in May, June and it's continued into the new year. And by the way, those underlying operating metrics have reflected into our customer scores in the last eight weeks. One of the biggest measures of efficiency in retail of course is having a product on the shelf when a customer wants it, right? There is a moment of truth for all of us. And to see our shelf availability be where it is and see the customers recognize it in the last eight weeks, I think we're all nodding our heads to the table. It says a lot about where we're at. So I think that is the most important thing. I think actually we stabilized stockloss which talks to -- what Nat talked to earlier, good process that's implicit in there provides the foundation. So everything else is interesting when you've got that, just like price. Once you've got price, you can talk to value. But if you don't have price, value doesn't count. Initiatives don’t count unless you got that. If you look at what we're trying to do as a Group and you're looking at the Group’s strategy or the adjacencies we have, we feel that that is definitely directionally correct and it’s how we continue to activate that. That is our priority over the next three years. So when you're talking to the Board where we go with everyday rewards and how we build a group membership program that adds immense value to our best customers who are members is key. And so we've got a lot of work going on how we activate that. But that shouldn't be expensive of all the individual business plans we have outside of that then. We haven't talked a lot about it now. I know David Errington has often asked this question on where we are on upgrading our DCs or our tech debt. We actually suggest today it was probably the best position we've ever been in underlying IT infrastructure in our business. And you could say, so what? Well that provides stability to then drive very creative productivity solutions using advanced analytics, whether we're doing enterprise AI or general AI or just basic machine learning, so just good sense of decision making. We now have a platform to drive a true end-to-end optimization through analytics. So that's -- I would call that out as a third thing. Many other things going on in the Group, but we are not growth constrained in the midterm, but it is all based on fundamentals.
Thank you. That's all I had.
Thank you. The next question comes from Adrian Lemme from Citi. Please go ahead.
Good morning, Brad and team. I might change track and talk about Big W, if I could. So with the unseasonally warm and dry weather we've seen this half, do you think that's been the main driver of the weakness you've seen in Big W's apparel sales more recently? And how are the inventories in that business tracking their relative history please?
I don't think there's any exclusive. People are adjusting based on their spend and how they changed their spend and what they do with their spend. So clearly, it will change timing and so on. And in the apparel business, we are in competition with other discounters, [indiscernible] but also specialty stores as well. So there's a lot going on in the space. I'm going to turn to Dan to just give some color of what's going on in apparel. But I had promised someone to talk about Barbie mania fever, talk about our great colors for spring in apparel that make us very excited about the ability to mix and match some great Barbie pink.
We are selling a lot of pink right now. Thanks, Brad. I’ll maybe give some color and start with your question on winter. I would say the warm start to winter contributed in the early days to solar cells. But I would really describe it as a mix of largely around discretionary spend being deferred and especially our budget customers and our budget families managing their spend much more quickly. And then from an inventory perspective, we are comfortable with our position. We're managing it very, very practically to make sure we get out of seasonal stock when we need to. And we do -- while we don't report it, we track a measure of inventory out, which is ancient excess and quit stock as a percent of telemetry that's measured. It actually improved year-on-year. So we think we're in a reasonably good position.
Thanks, Dan. The only other thing I learned from your apparel that was men's apparel is actually going quite well at Woolworths. So for all the men on the call, come and shop at Big W. It'll be a new experience for you and we've got some great value.
All right. Thanks very much.
Thank you. The next question comes from Ben Gilbert from Jarden. Please go ahead.
Good morning, Brad and team. Obviously there's a great result in the food business in the context of the market. But it does look like you're probably peaked just in Q4 from a growth standpoint and probably came in third behind Coles and Aldi and I appreciate your base effects. But just on the tech investment, and again fully appreciate you're getting good benefits on GM and the alternative revenue I think sounds great. But do you think you're actually driving loyalty benefits from rewards at the moment, because I know shoppers are cross shopping more, but it just doesn't seem like from what we can see there are tangible evidence that you're driving top line market share from all the investment you've made around the tech and rewards?
Thanks, Ben. It's a lot of questions to get us fired up at the end on all the stuff we need to do in the year that lies ahead. When we think about sales, we're actually thinking about customers and are we retaining customers? Are we building bonds with customers and are we building loyalty? Our data suggests we did that in Q4. So we feel our customers and we're looking at how they're shopping us and what our annual or quarterly sales are to them, it feels very good and very solid. So we don't take that for granted. We've got to win our customers loyalty every day. But actually, when we're looking at share of customer or customer mix and the customer spend inside Australian Food or across the Group, actually it was a very, very pleasing quarter and we actually report that number to the Board. And it was in the context of that -- I should add that when we're looking at our pricing guiderails of making sure we're delivering value to customer, we had Q4 probably our best quarter in that sense, and we exited with being exactly where we wanted to be pricing wise. So we saw it as a good quarter. Always love to -- of course, we'd love to have the bragging rights to sales. But that's how we look at it. And we felt in a good position on that. On everyday rewards, we still need to continue to scale up our program and how we use it. But we think there's no doubt that it makes a better experience for customers shopping more with Group and then hopefully in that term, what makes them sticky to us. If I just look at digital, given this is I think our last question, Paul, I can go a bit more extensively. Not only is the digital growth going up, which we think is key. But the number one area that has grown is how customers are using our various tools to help them manage their shopping with Woolworths, of which shopping lists or lists as we call it has had material growth and are close to 1 million people who use this inside our digital platform is the way that they engage with us. And what a privilege it is to have the ability to have them do that. And then to be able to add more and more capabilities of have you forgotten into the list or it has a great value alternative into the list or whatever the case may be. So we are seeing the digital platform work. As a Group, if we added it all up, we have more digital than physical. But that's not the point. The point is people are starting their shopping experience with us digitally and that's critically important for us. If you look at rewards, what we have seen over the years, but in the last quarter, is most engaged rewards customers are spending more with us than just a customer who's not an engaged rewards member. We're lucky enough that our customers also spending more with us than our rewards customers are spending more. And we think that that's critically important because it's so we get to personalize experience more for them. And hopefully, in return they spend a little bit more with us. And then critically for us, if we look at Big W and it's alluded to in a chart we put in the document, more than all of our growth at Big W has come from our everyday rewards members coming and spending a bit more in Big W and we using everyday rewards as an ability to introduce customers who could find value in Big W who hadn't previously come in and doing that in Big W and that's been really, really exciting for us. And on a far more micro scale, we've seen the same with MyDeal. There were no questions on MyDeal. Essentially, our marketplace business in the GM was up year-on-year, margin was slightly down but if you had that in everyday market, directly up year-on-year. But again, if you look through the growth inside MyDeal, everyday rewards has been a critical component to driving overall marketplace growth. So as per the previous question from Adrian, we've got a lot to do, Ben, as you might imagine on everything but in particular digital and rewards. But the funds are very promising at this point in our journey, but a lot to do.
I think that was our last question. Thank you, everyone, for all of your questions. As always, I'm always cognizant as we talk to you, we’re halfway through week nine of the new financial year and we've only got a couple of weeks left before we talk Q1 sales. So I look forward to engaging with you all this. As we like to say, the truth is in our stores, whether digitally or physically, so I’d encourage you to get out there. See the experience you get in our store. Hopefully you'll see what we believe, which is it’s a more consistent, more compelling experience for all of our customers and you'll feel that too. Thank you very much.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.