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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Welcome, ladies and gentlemen, to your Analyst Call Q1 2018/'19 with your host, Mike Coupe. Please go ahead.
Good morning, everyone, and welcome to Sainsbury's Quarter 1 Trading Update Call. And hopefully, you all enjoyed the roller coaster ride last night. I'm joined here today by Kevin O'Byrne, our CFO.I'm going to ask Kevin to run through the quarter 1 highlights, and then we'll hand over to you for the Q&A. Kevin?
Thanks, Mike, and welcome, everyone. I'll take you through the key numbers. At a group level, total sales, excluding fuel, increased by 0.8% over the quarter, with like-for-like sales up by 0.2% against a tough comparative of 2.3% growth in quarter 1 last year. Grocery sales increased by 0.5%, with a similar year-on-year volume trend to quarter 4, but inflation significantly lower than in quarter 4 than that of our competitors.The GBP 150 million price investment that we made in March improved our price position versus key competitors and produced encouraging changes in switching gains and in items per basket. We've seen some strong volume responses in a number of lower-priced products, but we would always expect that -- these to take time to fully feed through to offset the deflationary impact. Overall, we're pleased with this outcome given that we additionally chose to change the timing of some key promotional activity in a crowded quarter of customer events in order to improve the return investment on these promotions. Within grocery, we continued to see growth from our convenience business, with sales up 3.6%; and online, with sales up 7.3%. General Merchandise moved back into sales growth despite a tough market backdrop. Good like-for-like growth at Argos was offset by declines in the Sainsbury's General Merchandise business as we continue to reduce General Merchandise space in Sainsbury's stores when we open an Argos.As a reminder, the sales benefit of opening Argos stores in Sainsbury's is treated as new space, while the downside of reducing Sainsbury's General Merchandise sales impacts like-for-like. This has now impacted more than 1/3 of our Sainsbury's superstores to date. And we've now largely annualized the impact of Argos and Homebase store closures, so the contribution to Argos sales growth from new space moved into positive territory in the quarter.Online participation in Argos stepped up another 4 percentage points year-on-year to 58%. We continue to see strong growth of Fast Track collection service and delivery. And we've seen our strongest ever Net Promoter Score as customers become [ familiar ] with the great availability and Fast Track delivery and collection options.We remain pleased with the performance of Argos stores in Sainsbury's and we continue to see very strong growth in these stores as they mature. We now have 78 stores opened at least a year, delivering average sales growth of 15% in the second year. The clothing market remains difficult and we saw slightly stronger growth in the quarter versus quarter 4, whilst up against a tough comparative of 7% growth in quarter 1 last year. Lastly, the bank passed a key milestone this month with our credit cards business moving off the Lloyds Bank platform on to our own systems as the last of the key products moves across and completes some major elements of a new bank program. So overall, we made solid progress in the quarter with good headline numbers for the General Merchandise business in tough markets and some good underlying trends in the grocery business. Retail markets remain highly competitive, but we remain confident, both in our strategy and in the profit outlook.We'll now open up the call for your questions.
[Operator Instructions] Please stand by for your first question, which comes from the line of Charlie Muir-Sands of Deutsche Bank.
I had 3 questions, please. Firstly, on grocery, I wondered if you could confirm that volumes were positive in the quarter. Secondly, in General Merchandise, clearly, that's a nice trend you've got there, and I note your comments about outperforming the market. I wondered if you could talk about the strength of any particular categories in particular there. And then thirdly, I note that you've announced that you have put together your financing package for Asda. I wondered if you could talk about the terms and, most specifically, the interest cost that you would anticipate on those facilities.
Maybe if I grab the first 2, and then Kevin can talk more specifically about the financials. The volumes would be slightly down year-on-year and the continuation of the trend that we saw in the second half, so not a return to volume growth, as you've characterized it. And the point we'd make and we've stressed is that there's about a 1.5% inflation difference between the 2 quarters, quarter 4 and quarter 1, and largely explains the difference in the headline sales performance. And we, as we would measure it, and indeed as most of you would measure it, we've seen an improvement in our relative price position relative to our mainstream competition. In GM categories like Mobile, we've had a good period of time. We saw a lot of garden furniture and paddling pools, and so certainly, in seasonal, we've done well. And then some categories, like audio and floor care, have done well as well. So we are very pleased with the General Merchandise performance, as you've highlighted. And actually, relative to the marketplace, it's a pretty strong beat, so it shows that the overall proposition is working extremely well. And we're very pleased with the growth of Fast Track, growing at around 20%. And again, as indication of the world moving online is the fact that the online participation [ in Argos ] has moved up 4%, so it would all point in the same direction.
Charlie, on the funding for the combination, we've put in 2 tranches of funding: one is about 3.5 years, one for 5 years. We can't disclose the terms of that for confidentiality reasons, albeit it's probably worth saying that, to some degree, it is a little bit academic because the plan would be that on completion, we would then refinance that. And given the vehicle will be investment grade and a strong financial vehicle, we'd expect that to be at very competitive rates. Certainly, the rates we've put in place for the temporary funding is -- are very competitive. We were oversubscribed, and we were very pleased with the outcome.
Next question is from James Anstead of Barclays.
Just 2 questions from me. The first one would be, I don't know if you could just remind us, clearly, there's been a benefit within the General Merchandise number from the Homebase drag reducing. Can you give us some kind of idea of what that drag's been in recent quarters? And if that's essentially 0 in the quarter that just happened? And secondly, might as well be the person to ask it, you mentioned early in May with the full year numbers, you're still happy with the consensus of, I think, GBP 629 million PBT for this year. Are you still -- is that still where you see the consensus? And are you still happy with that number?
Well, I'll ask Kevin to comment on the second point. As far as Homebase is concerned, there's about 1% drag at its peak, which was kind of second and third quarter last year. And it's now, to all intents and purposes, completely unwound.
And James, on consensus, yes, the consensus hasn't been updated. We don't think it would change materially if it was, but we're happy with the GBP 629 million that's in the market.
The next question comes from Bruno Monteyne of Bernstein.
2 or 3 questions. The first one is, I noticed that the amount of financing you raised is bigger than the cash component of the transaction, and so you're actually raising additional debt above what you need for the deal, and it seems you don't really have a strong record in reducing debt levels in the last few years. So why are you raising more debt? And what kind of signal does that set in terms of your deleveraging plans over the future? Can you raise more? My second question is, if I look at the growth strategies of the different grocers in the U.K., the quoted ones, Tesco and Morrisons are going to wholesale and food-related categories, they're growing at 3% total. You guys went into General Merchandise and you're growing at 0% like-for-like. So I'd assume that these big other supermarkets are getting some buying benefits from growing at 3% like-for-like rather than the 0 in their growth strategy. Are you still convinced though that growing in general merchandising is a better way rather than them or wholesale-oriented strategies? And my third question is, if you look at the explanation for the drop, you point a lot to the drop in like-for-like, the 1.5% you quoted and sort of saying you're in deflation or price is bigger than others. Whenever I sort of look at volume and price cuts in detail, whenever inflation goes up and down and consumers dial out quite a bit of that by doing more or less switchings; and when inflation goes up, they buy more private label; and the reverse, when inflation goes up, they buy a bit less volume. So normally, you don't see the same impact of your deflation or inflation in the like-for-like. A lot of that gets canceled out by the consumers. Why wouldn't you see the same? I mean, the other retailers have also seen a big [ growth ] in inflation, and they haven't seen the same like-for-like drop like you have. So does that argument really stack up?
Kevin could answer the question on financing, and I'll have a go at the other 2.
Bruno, the -- I guess the simple answer is, we just need to be prudent and make sure we have sufficient financing in place for any sort of working capital movements that might happen at the time. We are very clear, on the record, our focus on generating free cash flow to, one, pay the dividend and cover us comfortably; and two, pay down debt, as evidenced by the last 2 years when we paid roughly GBP 100 million off each year. And also, if you look at the gross debt we've repaid Eddystone last year, which is savings of about GBP 20 million a year in interest, so we're very clear that we will remain very disciplined on cash flow. And the new vehicle, the combination would focus initially on repaying some of that debt that we've just taken out certainly in the first 2 to 3 years to strengthen the balance sheet even further.
And I guess I'd combine an answer for questions 2 and 3. You're going to have to talk to the others about their overall growth strategy and the rights and wrongs of it. We've laid out our plans very clearly. We're adapting our business to a changing world and increasingly investing in the growth channels, online and convenience stores being 2 obvious examples. And if we look at the different streams, our sales performance quarter-on-quarter, there's a 1.5% reduction in inflation, much higher than our competitors. Certainly, you can see that in the external data. If you look to the underlying volume performance, actually, you'd find it's remarkably similar between the mainstream grocers. So I would point you at that external data, Bruno. So I'm not sure I necessarily agree with the underlying premise of your question. It's quite an interesting underlying point that we've seen in the data, which is for the first time in a long time, we're seeing items per basket stabilize in the last quarter. Actually, that's not just a short-term trend, that's like a 9-year trend where every year, since 2009, we've actually seen the items per basket drop year on year on year, and that gives us some encouragement. It's only 1 quarter, but it gives us some encouragement that, that particular trend might have stabilized. And you're right, there is an interaction between inflation and volume, but there tends to be a lag as well. So judge us in the long term, not on any individual quarter. And whilst we see volume improvements in individual SKUs, and we've called some of those out earlier on today, so for instance, virtual doubling in sales of rump steak as a result of our price investments. It takes a while, then you'll see this in other competitors as well, for overall volumes to come through as a result of price investments, typically a 3- to 6-months' drag. But I don't agree with the underlying premise of your question. And if you look at the volume performance of the relative players and strip out the inflationary effects, I think you'll find it's actually more -- a lot more close than you're actually characterizing it.
And Mike, just following up on that, you say that your items per basket have stabilized, now you still have negative volume growth, you said before as well, so that will indicate that you're having a decline in transactions. But at your last analyst session, you sort of argued that the big thing that gives you confidence in your trading was the growth in transaction, which was ahead of the other retailers. So has your transaction growth suddenly stepped back down again and obviously with flat basket -- items per basket?
I mean, you're talking about very marginal changes, but you're right and you got there very quickly, Bruno. There's also been -- we talked a little bit about this. We are making deliberate choices in this quarter. This business has been through a huge amount of change. There isn't a single person in our stores, apart from our store managers, that haven't been through or aren't currently in some form of personal consultation on their terms and conditions. And in effect, we're making choices. We won't be specific about those choices about promotions that we haven't run in this quarter that we may or may not choose to run at a different time of year when there's less pressure on our store management implementing changes, and that would be directly related to transaction levels for hopefully, obvious reasons, [ you actually pick ] through what we did this time last year. So actually, we have made some deliberate choices, which would have had an impact on our headline performance and, particularly, our transaction levels. We haven't called that out particularly in the statement because, as I already said, the main difference quarter-on-quarter and, indeed, the main difference relative to our competition is that we've seen inflation fall by 1.5%, and we've seen our relative price position to our mainstream competitors has improved by over 1%. And you can see that in any of the external data, and we see it in our internal data.
Okay. But -- so when your trading director at the analyst session you organized said he would only start worrying when you saw transactions decline not when it's only 1 quarter, how many quarters of declining transactions does your trading director need to see back to that session to start worrying about the trends?
I think he talked about share of transactions, not transactions. But you're right, I mean, in the end, transaction -- well, growth on many of the parameters, whether it's value per item, items per basket or transactions, are a case that we'd look at constantly. There are some peculiarities in this quarter. There always are. Another example would be the fact that this quarter didn't have Mother's Day in, and it did last year. We're not calling that back particularly because there are probably some upsides around weather, where we have made some deliberate choices on some promotional activity because of the amount of work that's going on in our stores. And judge us in the long term, Bruno. I stand by our track record over many, many years. Of course quarters will bounce around. And of course, there'll always be relative differences between the mainstream competition, but we believe we're making the right choices -- strategic choices for this organization for the medium to long term.
And Bruno, when Paul was referring to that, he was referring to the full financial year last year, so I'm guessing he's looking across a full year of trading rather than a quarter.
Your next question comes from the line of Kiranjot Grewal of Bank of America.
Just 3 questions from me. Firstly, are you seeing any differences in the conversations you're having with suppliers since the announcement of the Asda deal, I mean, particularly in regards to the larger suppliers? This is probably a long shot, but are you able to make any comments on the proposed Asda deal? How is it progressing, and is it in line with your expectations? And then lastly, on the wages stepping up, how are you funding this? And do you think this is going to continue sort of the pressures on the wage front?
Yes, I mean, we can't comment directly on suppliers. And indeed, as a result of the Asda transaction, our supplier relationships -- or the announced Asda transaction, our supplier relationships can't and won't change simply because of the legal framework in which we have to operate. So nothing will change until -- on investment and until the deal goes through. We can't comment above and beyond what's already in the public domain on the Asda transaction itself. We've said all that we can or would say on that. And on the wage inflation, we've made a public statement that we've increased the overall wage deal for our colleagues to GBP 110 million, but we're also looking at GBP 200 million-worth of savings in this year, and we'll manage it in the round. So we're confident and have always been confident we can cover the inflationary pressures we get through wages. But it's important that we reset our terms and conditions to make sure that we are fit for the future. So we continue to be well ahead of the national living wage in terms of what we choose to pay our colleagues and indeed anticipate being an industry-leading rate of pay by the time we get to September. But we will absorb that in the overall scheme of things through lowering our costs in our business, making ourselves more efficient.
Perfect. I mean, are you getting any comments from suppliers on the labor costs they are facing? I'm just sort of thinking more along the lines of Brexit. We have seen some comments or commentary in the press saying that it is getting tougher to get certain types of labor. Are you hearing anything on that from the guys you talk to?
What I hear from business leaders more than anything is that we want clarity, and it's pretty straightforward. And I think there is a clarion call for all business leaders, regardless of the shades of gray, on their particular views of Brexit, that the one thing that we would all want is to have some sense of direction, preferably sooner rather than later. And I think that would equally apply to businesses, particularly in the agricultural sector, that rely on a high level of migrant workforce or high levels of migrant workforce to pick fruit and vegetables at particular times of year. So all of it's wrapped up in the underlying challenge, which is to get key clarity on what happens next, including free movement of labor and, therefore, the impacts that, that would have on the food industry.
Next question is from the line of Rob Joyce of Goldman Sachs.
So just a couple from me. On the pricing level you're at now, can you quantify what that gap is versus, say, I don't know, Tesco or whoever you're basing that comment on that benchmarking? And just within that, you used to say a couple of years ago that you were at your best price position versus the remaining big 4 competitors. So if you can give an update on where that stands now. And then the second area is just in terms of on the nonfood side, are you all -- are you seeing any of the benefit of the strengthening of the pound versus the dollar? Is that coming through? And is there volume growth in that General Merchandise or is it mainly currency-based?
Well I'll ask Kevin to comment on the second of those. I mean, we don't quote an index relative to our competitors, but certainly in terms of the measures we would look at, there's pretty much a price parity on mainstream goods versus our mainstream competition. And actually, in my experience over the years, we've held a price position relative to our competitors, which probably is the best ever throughout the same period of time. So actually, we're pretty -- we feel pretty good about the changes that we've made to our underlying pricing and believe that, that will have a long-term impact on the business. So hopefully that answers the question as far as I can, but as I say we don't quantify the headline basket because we all measure different things in different ways. I don't think there's any external commentary that wouldn't recognize the fact that our price position relative to our competition has improved. On the other point, the dollar exchange rate, Kevin?
Yes. I mean, Rob, as you can imagine, it won't be a surprise to you that the margin in -- across General Merchandise is under pressure with such a competitive market, individuals exiting the market and clearing stock, et cetera. So that margin pressure continues, and we're managing that by taking actions on sourcing -- joint sourcing actions, et cetera, from our Asian sourcing office. We hedged the dollar on a rolling 12-month basis in General Merchandise, so the dollar impact comes through, I think, similar to the marketplace. It doesn't give us a competitive advantage or disadvantage, but we're managing the margin carefully in a tough market.
Okay. And is that a volume number or is there any inflation in there?
It's different by category. There's absolutely cost inflation in the numbers as well. And I haven't got an exact number to share on volume growth.
Next question is from Sreedhar Mahamkali of Macquarie.
Three questions as well, please. Firstly, I think, Kevin, you've finished your remarks talking about some good underlying trends in the grocery business. Was there anything other than the stabilizing basket that you referred to later on? I'm trying to understand what those good underlying trends are in Q1. That's the first one. And the second one, do you have any view in terms of impact from shift in trade plans, i.e., your promotional calendar from Q1 to perhaps rest of the year at some stage? The impact that might have had in Q1 would be helpful to know. And third one, just a space growth for the year, similar trajectory to Q1, what should we expect? That would be helpful.
Yes, I'll ask Kevin to expand on the comments he made.
I was simply referring to things like items per basket, relative pricing position. So some of the tough decisions we made to invest in the underlying value in the business are the right things to do for the food business, and we're seeing -- starting to see that impacting, whether it's items like -- issues -- areas like items per basket and the relative price position, which is healthy for the business.
Yes, I mean...
There wasn't any consumer trends that you were picking up on...
Well, I mean, we've -- as you said, you can see it in the headline numbers relative to our competition. And if we look at things like Net Promoter Scores for our pricing, we measure that every week, and we see improvements in our Net Promoter Scores, as an example. So that would indicate there's some recognition, or my experience would say any relative price movement tends to take 3 to 6 months to come through in terms of volume increases, so we'll see how that plays out over the next period of time. It's clearly commercially confidential what we may or may not do in the next couple of quarters from a promotional point of view, so I won't get drawn and then answer the second question other than to say...
No, no, my question was more just in terms of what might have been the impact in Q1, not when you'll repeat them in the rest of the year, but just directionally.
Again, we would view that as being commercially confidential. It is material, but I won't be specific about the headline numbers because we wouldn't want our competitors to get too carried away. I'll ask Kevin to come back on the space growth number.
Yes, I mean, you'll see we opened relatively few stores in the quarter 1 in convenience. We'd expect to probably open around 10 in the year. We'd like to open some more, but we're being very choosy on the sites and the rents that we're prepared to agree to, so -- but it's that order of magnitude.
Next question is from Dan Ekstein of UBS.
Just a question really about the effect that the GBP 150 million of price investments have had on your price position. I think when you announced those, I spoke to you guys, and you said there wasn't an objective in terms of where you'd get to relative to the market in terms of pricing. It was more about just doing the right thing for the customer and for the business. But it actually seems like a lot of those price investments have pretty much dropped through into a better relative price point, suggesting that perhaps there hasn't been as much of a competitive response from the rest of the industry as one might have expected. Is that sort of how you'd see things? And are you surprised that it has had the effect that it has?
Yes. It's a fiercely competitive market, as you know, and we all watch each other like a hawk on our absolute and relative pricing. And yes, I am pleased at a headline level that we've seen our relative price position improve versus our mainstream competitors. Of course, that could all change next week, so we have to be careful not to get too carried away. But our objective has always been to make our business more efficient, lower our costs to serve and to find ways of reinvesting that back in our underlying proposition, not just in prices, but also in service, in the quality of the products that we sell and in the rounds we make judgments on literally a week-to-week, day-to-day basis as to how exactly we will do that. But the fact that our relative price position has improved is encouraging. You'd have to ask the others about whether or not they should or have reacted to it. But certainly, any of the internal measures that we have on any external measure that we see would suggest that our price position has improved. And ultimately, that should result in us being more competitive and will ultimately lead to volume improvements if we're able to maintain it.
The next question is from [ Sonal Sodhi ] of Morgan Stanley.
Just on the financing, I want to understand -- because I see the comments in the press, you said 3.5-year and 5-year financing, and then you made a comment, you said this is temporary before we finalize. So just I want to clarify, is that -- is this permanent financing or this is a bridge to another finalization?
Yes, just to be clear, no, it's permanent financing. It's in place. If we want to use it for 3.5 years and 5 years, we absolutely can. But we would envisage that probably, we would do some bond issuance once we were complete and put something on a more sort of -- even a longer-term basis.
Okay. So this -- and so just as a follow-up, as you said, so this is not like saying that we are going to go the bank route completely, there will be some mix of bank and bond financing?
That's right.
Next question is from Nick Coulter of Citi.
Three from me, if I may, please. Firstly, on the GBP 150 million investment, are you able to talk around the sources of funding for those investments and the work that you've done in the supply or value chain source of funding? Secondly, could I just press you a little on the General Merchandise performance? That does seem like a very sizable outperformance versus a weak market. And I guess there must be some large standout cash-free performances on a relative basis. And is that performance in part due to your mix shifting away from Argos' historical areas of the focus? So just to better understand where you've beaten the market. And then lastly, on the various staff consultations that have been in process, have they now all concluded? Or are some still ongoing?
Yes, I mean, in terms of our price investments, we would seek to recover that through the programs we have on making our supply chains more efficient and reductions, ultimately, in cost of goods as a result of that. So we're working very collaboratively with our mainstream suppliers to bring down our cost of goods. So that is largely the source of funding for the price investments. In terms of cash...
Are you able to give any examples to bring that to light?
Not off the top of my head, but I'm sure there are plenty of examples. I know that, we, for instance, consolidated our fruit and veg volumes as one example. And we've taken -- we have a much more direct sourcing model for fruit and veg, which has resulted in significantly lowering our cost of goods and ultimately passing that back to our customers. I mean, our Dairy Development Group would be another example, where we work collaboratively with farmers on reducing their cost to serve our suppliers and, ultimately, their cost to serve us. So all of those things would climb their way through. But it's literally dozens, if not hundreds, of projects, not any sort of silver bullet.
Nick, you'll see less packaging, for example, in fruit and veg, that saving's gone into the price. We've renegotiated some of the terms of the byproducts of dairy. That's gone into the price. So it literally is -- it's across all the value chains.
And in terms of...
It's outside of SG&A, basically?
Yes.
Correct.
In terms of categories in growth, Mobile's had a good period. Not surprising, seasonal products, so we sold a hell of a lot of paddling pools and garden furniture in the last few weeks. Audio's had a good period. But I guess I would point at the overall strategy, in the end, what we're trying to do is increase the points of distribution for Argos and the fact that we've got -- we're on the way to the 250 that we talked about in stores-in-stores, the fact that they are growing and start making up a material part of the overall sales mix. And the fact that with the move to online, we've seen an increasing participation by 4% within the Argos business. And in areas like Fast Track, which performed particularly well when the sun shines because people want their paddling pools now, not 3 days' time, would suggest that the proposition works. And that's what gives us confidence that we've made the right choice in terms of buying the Argos business. It sets us up for that future. As far as consultations are concerned, there's 2 elements. One is the management teams, and that process was completed. So that new structure was put in place a couple of weeks ago. So we're already operating on the basis of the new management structures. For our colleague consultation, we've completed the group consultation, and you've probably read about that in the press. We changed a few things as a result of that consultation. And broadly speaking, our colleagues are very happy with the changes that we've made. We [ note those ] individual consultations, so every colleague has a right to 3 personal consultations. That's why it's a very significant management undertaking. That process will complete over the next 5 or 6 weeks. But as an initial kind of evidence to how our colleagues feel about it, in the first few thousand consultations, we're getting an 88% sign-up rate to the new terms and conditions. So that would indicate that, broadly speaking, our colleagues are pretty pleased about what we've offered them. But that process still has to be completed, and the actual pay deal will get implemented in September.
Okay, great. And just a quick one, if I may, on the General Merchandise Argos point. So basically, what you're saying is that you are taking share across the categories, that this is basically due to greater distribution, convenience and not any kind of standout performances within categories [ or won't ] be any mix shift away from electricals into other categories?
Oh, no, we've again made a strategic direction that we want to change the mix within the Argos business. So for instance, we are selling Sainsbury's Tu clothing within the Argos business now. We're selling Sainsbury's Homeware within the Argos supply chains. So over time, you'll see those changes coming through. The outperformance in the market is pretty significant. If you look at the general merchandise market, it's not particularly well-recorded. I mean, there's not quite the same level of scrutiny that you get through things like Nielsen and Kantar within the grocery market. But nevertheless, the numbers that we look at would suggest that we've significantly outperformed the market. Yes, we'd like to change the mix, and it's all wrapped up in our overall strategy, which is to increase the points of distribution, make the online offer as seamless and as friction free as it can possibly be. And actually, the Argos business has recorded its best ever Net Promoter Scores, and they're already pretty high in the quarter. So again, the relentless focus on the detail, pays dividends, and it's particularly the case at this time of year when the sun shines.
Next question is from James Grzinic of Jefferies.
I had 2 very quick ones, actually, just to clarify things. I was under the impression, I guess, from earlier in the call that part of that price cut effort had been funded by cutting back on promotional -- on your promotional program. Is that incorrect?
No. I mean, the direct read-through we've talked about already, which is effectively reducing our cost of goods resulting in lower prices. We have made some deliberate choices, as I said already, around the timing of some promotions. In the overall scheme of things, that wouldn't be particularly material relative to the investment in cost of goods. And I won't be specific about what those promotions are, but I'm sure, for those astute followers of Sainsbury's, you can probably look at what we were doing this time last year and draw your own conclusions.
Great. And second point, thank you for giving us the delta on food inflation but can you tell us what food inflation was for you in Q1?
No, we don't disclose that number. And we'd point you at the various market sources, so you can look at Nielsen and Kantar, I'm sure yourselves, and work it out. I mean, Nielsen and Kantar does have a few anomalies in it, as in it measures the sort of average item price as opposed to inflation, deflation. But nevertheless, we are -- as I say, we've lowered our prices more than our mainstream competition, and we certainly see inflation lower in our business than our competition. And to the question that Bruno was asking earlier, if you strip out the effects of inflation, you'll find that the volume performance of the relative mainstream competitors is actually a lot more closer than perhaps the headlines might suggest.
Great. But there was still inflation, just to clarify.
Yes, there's still -- yes, there is still inflation.
Next question is from Stewart McGuire of Crédit Suisse.
Two quick ones from me. Can you give us any idea of the quantum when -- in the sales loss for the space that gets reallocated to Argos from the Sainsbury's supermarkets? And then you said that you're going to open 19 new stores -- Argos stores in Sainsbury's this year, that will take you to around 280. Is there any reason why we couldn't project that growth going forward into the rest of the Sainsbury's estate? Or is there a natural cap somewhere? And if there is a cap, can you give us an idea of what that number could be?
Yes. I mean, we don't disclose the amount of space that comes out. What we would say, however, is the least advantageous way of measuring the change for us because, in effect, we don't count the Argos sales that the new space provides in our like-for-like, but we take out the effect of the General Merchandise business and the Clothing business out of our like-for-likes. That actually underrepresents, you could argue, on a true like-for-like basis. And if you looked at some other retail businesses, they've effectively attributed bringing a similar kind of change together in their underlying like-for-like. So we [ don't ] deliberately, as I say, do it differently and we, in effect, penalize ourselves at the headline level. We'll keep you updated on the number of stores. There's probably more than the 280, but you're starting to get into a sort of territory where it becomes increasingly difficult to find the right space in the right way. Inevitably, you tend to do the easier ones earliest. I don't think 280 will be the final number. And when we are ready to update on where we can go next, we will do. It most probably won't be more than 400, but it will be more than 280, just to give you an indication.
So about 350 then?
I won't be drawn. That's not a number that's halfway between, is it? So you're looking at -- but anyway, let's not go there. But it's clearly likely to be more than 280. We think the formula works extremely well. And of course, one of our challenges and one of the things we're experimenting with is how small can you make the footprint, because the smaller you can make the footprint, the more stores you can put it in. And typically, we can certainly get it down to 1,000 square feet and get it to work, which would be encouraging. And that's part of the experimentation we would be doing and one of the things that might lead you to be able to do more in the future. But it's too early to call exactly how you would do that and when you would do that, and we'll tell you next time we talk to you, as to where we might take it next.
And Stewart, another opportunity is the convenience stores and the pickups, so there's 37 of them being trialed at the moment. Clearly, you wouldn't imagine it ever being in 800 plus, but it clearly can be in a lot more than 37 in due course.
Next question is from Dusan Milo of Berenberg.
I have 3 questions, please. The first one is just on, you disclosed that concessions like-for-likes for the concessions during the second year of trading are plus 15%. Just wanted to make sure that that's year-on-year. So you were disclosing that those same concessions are up 15% to 20% on like-for-like basis last year, so 2-year step, they're up 30%, just confirming that that's correct.
Yes, that's correct. There's just a relatively small number of where we've got that -- we've got the extra year. So it's about 10 stores where we can see the third year. And hence, we've quoted the 15% because that's across a bigger group of stores, over 70 stores. But that's it.
Okay. So -- the numbers you're disclosing now is across 70 stores?
Yes, it's about 74, yes.
Okay, that's perfect. And then the second question is, I mean, I completely understand you won't talk about promotions and calendar effects in the quarter, but the first quarter of last year was, by a mile, the most difficult compare -- quarter in terms of comparatives. And if you look at your 2-year stacks, they're accelerating pretty materially relative to Q3, relative to Q4 on your inflation going -- being significantly lower. So is there a reason why we shouldn't be looking at your performance in terms of 2-year stacks, is the question, I guess. I mean, it's the same question that others have asked. I'm just trying to get some kind of answer.
I'm not sure quite how to answer it. I mean, you can look at it in 2 years, you can look at it over 3 years, and we'll stand by our track record over the long term. Relatively speaking, we've held on to more market share, I don't know if you took a 5-year period, than our mainstream competitors. And we've managed the business for the long term, not for the headlines on a quarter like-for-like basis. So all the things I'm talking about are, broadly speaking, tactical differences and help us manage the business, particularly in a period of significant change. But I guess in the end, you can stack it up and look at it however you choose. I'm not sure I can add any more color than the numbers that we've already put out there and perhaps to give a little bit of explanation as to what differences exist between the quarter 4 numbers and the quarter 1 number.
Okay, I guess you can't add more on that. But -- and yes, I mean that's fine. And then the final question is just I know that, obviously, you can't renegotiate any supplier terms as you are going through the merger process legally. But as some of your competitors are perhaps consolidating supplier base, as you're talking to, are you looking to onboard new suppliers at the moment? And do you see some kind of positivity in those negotiations as you talk to...
We have to be very careful. And so I reiterate what I've already said, we will run the business exactly as we've been running the business in the last number of years. The background noise of the Asda potentially as a transaction will have no difference on what we were doing anyway in the way that we relate to suppliers, including bringing new suppliers onboard. And we have to be doubly, doubly, doubly careful that we don't do anything that prejudices our legal position. So we're crystal clear with all of the people that interact with our suppliers. In no way, shape or form can the Asda transaction come into play in our discussions and negotiations, but it doesn't stop us doing all the things we'd do in normal course of business. And clearly, regardless of the Asda transaction, there's still a huge amount of change that this business needs to implement over the next period of time. And as we talked about in the face of our statement, this last quarter is probably -- or is the period of major change I've ever seen in this business. You don't go into a period of consultation with 130,000 colleagues without it being a significant undertaking. And that's something that should at least, in part, be recognized in the underlying trading performance of the business. Thank you. Thank you, everybody. I think we are through, so we can all look forward to football coming home over the next few weeks. Thank you, and goodbye.
Thank you, Mike. Ladies and gentlemen, that concludes your call for today. You may now disconnect. Thank you for joining, and enjoy the rest of your day.