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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 Q3 for 2017/'18 analyst call with your host, Mike Coupe. Mike, please go ahead.
Good morning, everyone, and happy New Year. Welcome to the Quarter 3 Sainsbury's Trading Update Call, which covers the 15 weeks to January 6. I'm joined here today by our CFO, Kevin O'Byrne. And I'm going to ask Kevin to run through some of our Q3 highlights in a moment, and then we'll hand over to you all for Q&A. Kevin.
Thanks, Mike, and welcome, everybody. I'll now take you through the key numbers. Turning first to like-for-like sales growth. Retail like-for-like sales grew 1.1% over the quarter, slightly ahead of the 0.6% we reported for Q2. We've also disclosed total sales growth for the 3 product categories: Grocery, General Merchandise and Clothing. On Grocery first, we've seen a good performance over the quarter, reflecting a strong operational performance with great availability in stores and strong online growth. Grocery sales grew 2.3%, a better performance than Q2, with a broadly unchanged inflation contribution, so an improved volume performance quarter-on-quarter. We continue to generate strong growth in our online business, up over 8%; and our convenience stores, up over 7%.General Merchandise saw sales decline of 1.4%, outperforming a weak market despite a continuing drag on sales from closure of the Argos stores in Homebase stores. That impact accounted for the majority of the sales decline. It was broadly in line with Q2, so this represents an improvement from Q2.At Argos, we saw a second year of very strong growth from our market-leading Fast Track delivery and collection offer over the peak Black Friday and Christmas trading periods. And we continue to be pleased with the performance of the Argos stores inside Sainsbury's supermarkets. Stores in their second year of trading are delivering average growth of 15%. And stores in their third year are showing average sales growth of more than 30% higher than across the 2-year period. So good numbers suggesting consistent maturity of these stores as customers become more accustomed to using them.Market conditions weren't easy over the quarter with weakness across the whole market in some key categories like toys. But we had great availability and strong growth in areas such as video games, smart audio and mobile phones. Finally, on Clothing, headline sales growth of 1% was impacted by the well-documented warm weather period in October, but consistently outperformed the market and saw stronger growth through the remainder of the quarter.So overall, a good trading performance through this key quarter and good progress with the Argos integration, where we're expecting a higher contribution from synergies this year than we previously guided. As a consequence, we've stated that we expect underlying profits for this year to be modestly ahead of the published consensus of GBP 559 million UPBT. We'll now open the call up for your questions.
[Operator Instructions] The first question is from Bruno Monteyne from Bernstein.
Three questions from me. So if I look at the negative growth in general merchandising, could you quantify how much is that due to the space impact, so whether it's closing some of the general merchandising space in stores and moving stores? And also, how much of the decline is due to that? Which now leads into my second question is, do you see any impact or signals of weakening consumer confidence in general merchandising? Are there any categories where you can say, yes, we see softer demand? And my third one is on the synergies, you're clearly bringing them forward. Is there no indication that the synergy will be higher given how much quicker you can reap them? Or are you very firm there is definitely not an increase in the synergies?
We'll try -- I'll talk about sort of weakening GM and ask Kevin to talk specifically around the sort of space in and outs, which is slightly complex and so we can work it out. And in answer to your last question, we committed GBP 160 million. We'll deliver them as fast as we possibly can. And then we'll draw a line under that and get on with managing our business on a day-to-day and month-to-month basis. So this is a bringing forward of synergies, as you quite rightly talked about. I mean, in terms of the weakening marketplace, I mean, clearly, where customers are finding their disposable income being squeezed a little bit, where they can defer certain purchases, they are, and I think we can see that reflected in things like car sales. If you look specifically at categories, actually tech was reasonably strong, so things like games consoles and some of the more new tech stuff. I think overall, the performances were strong. Where we saw weakness was probably in things like toys where certainly, year-on-year, there was probably a bit more pressure in the marketplace. Well, that's because people were buying game consoles instead of toys. Quite difficult to unpick, but that was kind of the area that felt like it was under most pressure. And I think you can see from other people's results, perhaps again areas where perhaps the market was a little bit weaker, certainly clothing is an example with the warm October. That was pretty challenging, but the quarter actually got better as the weather got colder and people were able then to buy scarves and gloves and woolly jumpers, which is always helpful to our business. But if there's one category that we can kind of pick out, it was toys. But that was offset by gains in things like tech and wearables and those types of technologies. On the GM space, I'll ask Kevin to...
Well, Bruno, as I just said, the majority of the decline was due to space. So I think you can probably infer from that, it's more than 100 basis points. And clearly, we closed Argos stores that were inside Homebase stores. We also closed some stores in the estate as we went through the period. So we're in this sort of a complex period as we're going through this change, but I think the majority would point you in the right direction.
Okay, none of that sounds very much like you're feeling a big consumer squeeze just yet in your consumers. Most of the impact you're seeing is either self-inflicted on space or the weather from -- on clothing. Is that fair enough?
Well, we've grown our market share in general merchandise. We've grown our market share in clothing. But if you unpick the underlying market, so I think you'd find that both general merchandise in its general sense, in its wide sense, and indeed clothing would have been challenged in the quarter. And I think we'll see that reflected, and we've seen it already reflected in some of the result announcements of others. This time last year, we saw close to 4% growth in the General Merchandise business. So the comparatives were relatively tougher. But I guess, the fact that it was, broadly speaking, flat year-on-year versus 4% growth last year would probably be reflective of how consumers are feeling and how they're perhaps just starting to be slightly more thoughtful about some of the discretionary purchases that they're making. And realistically, you'd expect that to be the case for the next 6 to 9 months.
Your next question is from Clive Black from Shore Capital.
A couple of questions, if I may, just about the kind of the Grocery business. Firstly, are you able to just give us an update where the convenience and online combined in grocery standard are rough participation within the business at this stage? Secondly, could you perhaps characterize how you saw the mix of the Grocery business over Christmas? Did you feel that year-on-year, people were enjoying themselves at the same level of trading up or whatever? And lastly, in that respect, how did your private label perform within the Grocery business?
Yes, I think on participation, our online is around 7% of the Grocery business, and convenience is about 12% or 13%. So roughly 20% of the business in online and convenience, and that's probably doubled in size over the last 5 years, just to put it in perspective. Actually, we had a good performance in Taste the Difference. You'll know that we significantly overtraded in the premier end of the market, but we saw 6% sales growth on Taste the Difference. We saw growth in our own label products overall. I haven't got a number off the top of my head. I'm just looking at Kevin if we can give you a specific number in terms of the growth of the own label participation. So actually, there was a general sense that customers were prepared to trade up over the Christmas period. I think that's reflective of the offer that we had within our Christmas ranges. But when we look at the growth of our Taste the Difference product ranges, you always have to remember that that's from a much, much higher base than many of our competitors. We massively overtrade in Taste the Difference compared with our mainstream competitive set.
Yes, okay. And just -- sorry, as a quick...
Clive, sorry, just to add there, just picking up on Mike's point. We saw the participation of own brand in the mix growing by about 1 percentage point in the mix. So good growth.
And then just very quickly, guys, how was availability over Christmas? Because maybe there was just some mischief out there, but there were 1 or 2 photos flying around of empty shelves in 1 or 2 stores. Was availability consistent year-on-year? Or any difference to that?
No, we would take the completely opposite view. We thought we did a spectacular job of managing our online -- sorry, our overall operational standards, including availability. And we did it in the context where we actually saw our Christmas waste performance at record low levels. So we think we did a good job. There are a couple of stories that always get written post-Christmas. The first one is the rancid turkey story, which somebody else got nailed with. And secondly, it's pretty easy, you could do it on a Saturday afternoon if you really wanted to, and most grocery stores have taken a photograph of empty shelves. We actually thought our post-Christmas recovery was pretty good and better than it was last year. So no worries from our perspective. You know as well as I do that we basically sell out of many, many fresh food products completely on Christmas Eve. And we reopened our shops in many cases on Boxing Day and, in effect, have to refill them, particularly in the fresh food areas, from scratch. So that's, by no means, a small undertaking. So inevitably, if people wanted to, they could take photographs of empty shelves and in this particular case, a journalist or some journalists chose to do so. But we were pretty -- we were, in fact, more than pretty pleased. We thought we did a very, very good job, probably the best job I've seen in my time in Sainsbury's of managing both of the operations, whether that's the Sainsbury's food business or indeed the Argos business as well.
Your next question is from Sreedhar Mahamkali from Macquarie.
A couple of quick questions, please. In clothing, you suggested it to be expected growth in October. But can you talk through an exit rate, please? I mean, was that back to Q1, Q2 levels? And the second one, in terms of inflation, are you able to give a sense of what it was? I knew you said, Kevin, on the Wire that it was behind market inflation of 3.7, which I think you reported in Kantar. But more broadly, what level of inflation do you think, for yourselves then the market, could start to be a bit of a tipping point? Are consumers getting out of traditional grocery stores into discounters? Is there something that looks like a concern to you or not really at this stage?
Maybe I'll ask Kevin to reflect on the second of those, although I might chip in as well. We don't -- we would never give you an exit rate on any part of our business. So sorry, I can't really help you with that. What I would say is that remember, it's a 15-week quarter. And I think any market data would suggest that October was particularly challenging for the Clothing business. And you can surmise from that that the performance of our Clothing business got better as the quarter progressed. And if you compared, let's say, the 54 days that [ Next ] published with our performance, we would have significantly outperformed the numbers that they talked about last week. So without giving too much of the game away, clearly, the performances got better as the quarter progressed, and that's not least because it got a lot, lot colder back end of November and the early part of December. And maybe Kevin can just reflect a little bit on inflation, and I might come back on the sort of the competitive dynamic.
Yes. Well, as we said, yes, we saw a situation where inflation was a little bit below what we're seeing published in the market. And we're pleased that our value position improved versus key competitors during the quarter. We're also seeing quite a rational market. So if you look at things like dairy, whether there're some commodity pressures, we're seeing people act rashly right across the piece, whether it's the discounters or the Big Four or other chains. And I guess we would expect this in the second half of this year. We'd see a lot of the inflation pressures we've seen post -- largely driven by currency, will have flown through. So hopefully, a more -- if ever there's a normal market, with the usual ups and downs of commodities and seasons, et cetera, probably more into a more normal situation.
Yes, and I think the sort of pig has probably going through the python as far as the sort of the Brexit-related currency changes and the pressure that's had on input prices. We live in uncertain times, so who knows what's going to happen over the next 3, 4, 5, 6 months in the political arena and what that might, may or may not do as far as either commodity prices or indeed, exchange rates. But all other things being equal, I suspect we might see inflation gradually drop out of the market over the next 6 to 9 months. Again, in terms of our business strategy, whilst investing in making sure that we maintain our very high operational standards and the quality of the products that we sell, we did make some quite significant price moves pre-Christmas, so amongst the lowest turkey prices, 25p veg. And indeed, again, we've realigned some prices in the last few days to be much, much more competitive on some key commodities relative to the discounters. And we've been able to do that in the context of also upgrading our profit forecast for the year. So we think we're doing a pretty good job of delivering against the synergy number of lowering our costs, and we talked about last time about increasing this year the delivery of that by GBP 40 million. And that gives us the way to also pay our colleagues more money and also to continue to make our proposition more competitive.
Just very quickly, circling back on the point Kevin you made. Value position improved. Are you able to give a sense versus who and how much perhaps, maybe that's too much to ask, but give us a bit more, if you can?
No. Well, maybe a little bit. I mean, we would say that relative to the discounters, actually, our value position would have got stronger in the quarter, and relative to some of our mainstream competitors, and you can choose which ones you might want to look at. I think the Kantar data actually might give a few clues, some of the published data might give a few clues as well. But generally speaking, in the roundup, our overall value position has got better during the quarter. And clearly, with some of the investments we've talked about in this week, we'd expect that to step on again over the next quarter.
Your next question is from Kiranjot Grewal from Bank of America Merrill Lynch.
Could you maybe give us some color [indiscernible] synergy for this year was driven by? And also, you mentioned Argos record sales over Black Friday. Maybe some color on how much the sales improved or to what extent are the Black Friday sales dilutive as well.
Unfortunately, you broke up. I think you asked about more color on where the synergies came from, and maybe Kevin can talk about that. We won't put a lot more color on Black Friday. It's no longer a Friday. It's actually 2 weeks, so that's probably a reflection of the market we operate in. And we think we did pretty well in the kind of 3 big critical trading periods around the Christmas, New Year period. So we did a very good job both operationally in terms of value delivery on Black Friday. The run-up to Christmas, again, we held up well, and that continues to be a key trading period as well. We're into the January sales now, but they went off pretty well as well. So we'll reflect more on that when we talk about our quarter 4 trading statement. To the color of synergies or color on synergies?
It's across 3 big buckets. There's the store-in-store as we opened -- closed stores and opened stores in site. Sainsbury's has 56 stores, which have closed as we've opened stores in Sainsbury's. So clearly, we're saving on costs there, and we're getting the benefit of the store-in-store and margin contribution as well. The Goods Not For Resale is another big bucket where things like media, almost anything you can imagine, we buy uniforms, et cetera, just going through line-by-line and putting the 2 volumes together and getting savings and then across overheads. So for example, combining back-offices, putting Argos back-office into our Manchester instead of an accounting back-office, et cetera. So it's right across the piece. And we're just -- we're not changing the overall GBP 160 million number, but we're just getting after these synergies faster. The teams are doing a great job.
Do you think that the lines, such as Goods Not For Resale and your combining back-offices, you'll see the full extent of the synergies this year or will they continue to roll into 2019 as well?
No, they'll continue to roll into 2019. We'll complete the work in 2019 where we'll get to the GBP 160 million EBITDA. So more to do, more work to do on that.
Your next question comes from Dusan Milo from Berenberg.
Just a quick question. I mean, you have said that over the -- generally, the Homebase closures accounted for most of the sales declines, and that would kind of imply flattish like-for-like growth in GM. Is that also in line with what you expected? Or is it better or worse than what you expected given the market conditions?
Yes, I mean, it's broadly in line with where we expected to be. And we knew about the Homebase closures, and we talked about that in the previous update. It kind of is the low point of -- this quarter would be the low point of that effect, as in it will have the most significant impact in this quarter. The other moving parts that you have to be aware of are as we put Argos stores in Sainsbury's stores, we tend to take away space from some of the general merchandise categories. Actually, in the round, it makes the Sainsbury's business more profitable. That's one of the synergistic benefits. But it will have and does have a detrimental effect on the headline general merchandise sales associated with the original core Sainsbury's business. So that's another moving part which makes the numbers actually quite difficult to unpick. But in the round, the performance is broadly in line with where we expected it to be. And there's nothing in the quarter that would be anything other than giving us confidence that the basis on which we bought the Argos business still holds true. And to the point that we make in the trading statement, actually, we're delivering the synergies faster than we expected, and we'll get on with making it happen. And indeed, if you look at the second and third year growth of the stores-in-stores, that gives you lots of confidence, gives us a lot of confidence that over time, the space effects we're talking about will unwind, and we'll see that business continue to grow market share.
And just a quick one on food growth. You said -- would you be willing to say what it was kind of over the Christmas period or in December, given that peers are reporting under different time periods than you are?
No. Yes, the only thing we'd point out is the fact that it is a 15-week quarter and that has lots and lots of ups and downs in it. I've given you a little bit of color on clothing. We don't break out the quarters, otherwise we end up having to dissect every part of our business. But it is roughly 1/3 of our total annual sales in that quarter, in that 15 weeks. And we think it's a pretty robust performance. And indeed, if you take the food business in isolation, an improvement on the previous quarter. So in the round, we think we did a pretty good job.
Yes. And overall, just looking at the numbers today, we're happy with the profit we expected coming out of this very important period to deliver the year-end. We were happy with right across on balance, the retail business and the moderate upgrade has to do with the synergies. So we're kind of where we expected to be over a very important trading period.
I think one other reflection in terms of some of the published data, so because of the way that Kantar is calculated, the effect that I've talked about on spaces in general merchandise in Sainsbury's effectively comes out of that number. So it will tend to under-report it. And of course, we don't get the benefit, and Kantar don't measure the effect of Argos stores in Sainsbury's stores from a sales point of view. So there's been lots of commentary about the Kantar numbers. But as we look forward, they become increasingly unrepresentative of the underlying performance of our business, and I just think it's important that people recognize that. As I say, people draw all sorts of conclusions both on the 4-weekly and 12-weekly numbers. But increasingly, the effect of general merchandise will distort those numbers as we go forward.
And of course, the new Argos stores-in-stores are not included in their like-for-like.
Very clear. Can I just clarify on one more quick comment that you made? So in respect to the GM trading, you upgraded synergies, and Argos came -- it was my understanding Argos came kind of in line with what you expected in profitability in terms of margin.
I was commenting on our overall business. We don't break the businesses out. Because they're so integrated now, we run this as one retail business. As you can imagine, with 164 stores-in-stores, pickup points in about 220 supermarkets and convenience stores, it's -- we have one P&L. So overall, the profit for the retail business across this very important trading period was in line with our expectations.
The next question is from James Tracey from Redburn.
Three questions from me. First question is on inflation. So Kevin said on the wires this morning that he saw inflation being around 3.7%, the food in the market. So could you confirm that that's what you said? And where you see the direction of that going and why? The second question is on Argos/general merchandise gross margins. They have been falling steadily over the past decade really in the Argos accounts. Are the synergies that you're getting from combining with Sainsbury's enough to offset this sort of long-term trend and the weakness in the market we have seen recently? And the third question is, could you please say what percentage of Argos sales are in the stand-alone Argos stores versus concessions today and what the target for this would be in 2019?
Okay. I think I'll have a go at correcting Kevin on the inflation number. Correcting you on what Kevin, I think, said rather than what you thought he said. And then we'll come back on -- I'll ask Kevin to come back on the Argos gross margins and the potential sales breakdown. Yes, we haven't talked about a specific inflation number. We just point at the Kantar data. I think that's where the 3.7% comes from or the RNS data, which again would show sort of around 3.5%. And again, we've commented on the inflationary underpin in our business where we would see numbers which are lower than that, but nevertheless in that sort of area. And the inflation number that we see in our business reflects in the fact that our price position relative to where we were in the summer has actually got better and better versus most of our competitive set. So I think we've already commented on this, or the general shape of it. But I don't think you'll hear either of us talk about a specific number in our business. And so if that's the impression you've got, that's not right. As I say, the number that we look at is the Kantar number and use that as kind of the reference point for any commentary that we're making. I'll ask Kevin, well, all those gross margins that we just won't talk about.
Yes, James, I mean, I think all we'll say, unfortunately, on the gross margin is the overall profits, which we run as an integrated business, the same teams run general merchandise across a Sainsbury's store and an Argos store, et cetera. And overall, the profit for the period, we were happy it was in line with our expectations, as I said earlier. And unfortunately, we don't break out the sales between the stores-in-stores and the stand-alone Argos sites. As you can imagine, over time, we've talked about having 250 Argos stores-in-stores. It may get higher than that in time. We shall see. In time, you will see a greater shift to stores-in-stores, and you'll see some shift to pick up points as well. We had 37 of the convenience stores where you could pick up your Argos products coming up to Christmas, and they performed very well. In time, clearly, we'll have more convenience stores in the mix as well. So it will change quite materially, but we haven't -- we're not breaking that out, and we will talk total general merchandise regardless of channel. We're focused on sort of the customer offer, and we'll use all the channels available to grow sales.
Are you able to give an indication of the percentage of the Argos space which is within Sainsbury's? Because surely, that's one of the big drivers of the synergies on the operating cost side.
Yes, it -- we probably could, we don't. But I'm not sure how meaningful it would be, James. That's the problem because in some of the stores, we've got actually relatively small space, and they're effectively a spoke for products, and we've got a hub down the road where we delivery in. So we keep a tight range in store of the most popular products. And then within a few hours, you can get the full range available. In some stores, depending on the amount of space, we'll have a larger range. So I think it wouldn't be a helpful number for you, but it's not something we break out currently.
The next question is from Rob Joyce from Goldman Sachs.
A couple of areas from me. Just to follow up on the Argos side. Sorry, if you could remind us how many Homebase concessions you've now closed. And then just on the Argos concessions themselves, in terms of sales per square foot, I know you're performing better than the general merchandise space they replace in general. I would have thought they might have done. That's the first one. And then the second is just looking at the year ahead. It looks like -- sorry, 2019, it looks like the market's assuming higher profit growth next year despite what I think looks to be lower cost savings and lower synergies. Is that reflecting the easier sort of pass-through of inflation? Is that what you were sort of implying earlier, Mike?
Well, I'll let Kevin talk about '18, '19, such as we got line of sight. On the -- first, to answer your question is it's roughly 100 Homebase stores. I think it's 97 if you want to be specific. But it's that kind of that order of magnitude, and it's about -- just over 1% drag on sales, which I think we've already commented on. I can't give you an exact sales density number, but I would be pretty confident that the Argos stores in Sainsbury's stores are materially ahead on sales than it is compared with a typical Argos store. So to give -- certainly, I say meaningful percentages ahead of a typical Argos store, and that's one of the reasons why it drives a profitable model. And in fact, the smaller footprint like the 1,000 square foot version, the micro-stores that we're doing deliver pretty spectacular sales density. Of course, a lot of it is Click & Collect. A lot of it is reflective of the Fast Track proposition. And so in many cases, these smaller stores, these smaller points of presence are just acting as pickup points for online delivery, which again is one of the things which over time we think will become a bigger part of the offer. So as well as the already committed 250 Argos stores in Sainsbury's stores, we'd expect Click & Collect to roll out to more places. And depending on how you want to allocate the space for Click & Collect, the sales densities on Click & Collect would look pretty spectacular in some of our convenience stores. So that's one of the reasons why we have confidence in the underlying model because it is inherently more efficient, more sales dense. And again, we've reflected on the fact that the first -- the 1-year growth and the 2-year growth continue to be very strong at 15% and 30%. So again, it gives us confidence that, back to the previous question, the proportion of business going through Argos stores in Sainsbury's stores and Click & Collect, more generally, will continue to increase. As far as profit outlook is concerned, I'm now looking at Kevin.
Rob, first of all, there's a wide range of consensus out there. It looks like consensus is at around GBP 620 million for the '18/'19 year at the moment. But it's something we'll really talk more to at the May update as we go through our budgeting process, and we can give you more color then.
Okay. And just quickly, Mike, sorry, on the Argos point. I guess what -- I'm struggling with the 1% drag is that it looks like you've closed 97 Homebase; 56, I think you said, Argos stores; so give or take, 150. But you've opened 164, it says in the release, now total in Sainsbury's supermarkets. So I'm trying to tally up, I can't work out why there's a space drag?
It's a timing effect. Remember -- so I'm sure James can take you through a little bit more with the arithmetic. It's a question we've been asked several times. And of course, the other effect is that we do take space away from the Sainsbury's General Merchandise business when we put Argos concessions in Sainsbury's stores, which has a drag on the headline GM number as well. So all of that kind of plays out over time. The underlying point that we would make is that we still have high levels of confidence in the model that we bought the Argos business on and that we are seeing an over-delivery in the round against our original expectations, our original models, and that's one of the reasons why we're able to bring forward the synergy number.
The next question is from Andrew Gwynn from Exane.
Just 2 from me, very quickly. So the first is on market environment. You had commented at the first half results that there were some in the market chasing unprofitable sales. I'm just wondering how things stand and how you expect that to evolve into the new year, mostly with their happy new year. And then the second one is on the pig in the python. You talked a little bit before about the food side of the equation. But obviously, with a longer hedging, I'm just wondering how far that pig is for your python?
Crikey. We're going to stretch our metaphors quite a lot.
You love a metaphor.
I mean, so if we get actually the sort of choreography over the last, what is it, in our best part of 18 months, so Brexit vote was 18 months ago, you'd have seen, again it's been well-commented on, some cost price pressures coming through reasonably quickly because many trading commodities are bought on a day-to-day and week-to-week basis. And at the other extreme, as you say, some products hedged, in some cases, for a year. So I think a sort of a balance of probabilities assessment would say that we are probably at the peak of price inflation and that we'd expect it to mitigate over the next 6 to 9 months. I don't think we'll see a massive drop-off over the next quarter. But over time, you'd expect it to reduce, all other things being equal. And as you say, again, if we take nonfood in the round, we would hedge that typically as we buy it, so on a 9- to 12-months buying cycle. But there's a level of uncertainty. The political environment is still uncertain, but who knows what's going to happen over the next 3 to 6 months. Again, we don't know exactly how commodity prices would move. We've seen reasonably significant increases in oil prices over the last period of time, which has a knock-on effect in terms of input prices as well as a knock-on effect in pricing of fuel at the pump, which clearly has a knock-on impact on customers' disposable income. So there are lots and lots of moving parts. I don't want to get carried away in making myself a hostage to fortune other than making the observation that, all other things being equal, you'd expect food price inflation and inflation more generally to drop out of the market over the next, let's say, 6 to 9 months. I mean, as far as on profitable sales are concerned, yes, the market continues to be very competitive. We ourselves made some quite significant price investments on things like turkeys and 25p veg, and indeed have announced today a further set of price reductions on some core commodities. But actually, in the round, you could take the view that the market is also behaving reasonably rationally against the expectations that have been set. I think, again, we've observed before that sometimes it takes longer than perhaps the input price pressures would suggest for the market to behave rationally and for those input prices to be passed on in the form of retail prices. But I think it's fair to say that the market is behaving reasonably sensibly from our perspective, and that's particularly the case if some of our majoring competitors are to hit the kind of targets that they've set for themselves.
Okay, that's great. And I'm going to have one last stab on the Argos synergy number. To the extent that you have -- well, I suppose said another way, have you found costs that go beyond your original and even actually the revised synergy target to get out of Argos? So without mentioning the GBP 160 million, but are there avenues that you found and said, well, that's a surprise, we can deliver that?
So I'll have a go and then I'll -- so the way that we looked at it, we would look at this is that we will deliver the GBP 160 million that we've committed to the marketplace, and we would expect that to fall through to the bottom line of the business. We would always look for opportunities above and beyond that. But we would take the view that those opportunities will be, one way or another, reinvested back into the business. We'd acknowledge that the market conditions are probably a little bit more challenging than we would have expected at the time we bought the business. And so we don't want to make ourselves a hostage to fortune by making commitments above and beyond the GBP 160 million. So we'll deliver the GBP 160 million as quickly as we possibly can. We'll draw a line under it and then we'll stop talking about the synergies, and we'll just talk about the business in the round. But it is often commentated that the market is competitive and that we'll need to continue to be competitive. And anything that we can find above and beyond the GBP 160 million, I would imagine, one way or another, will be invested back into our underlying proposition. But don't lose sight of the fact that there's a degree of skepticism about whether or not we'll deliver GBP 160 million to the bottom line and hopefully, the upgrade today and the commentary today will increase the level of confidence that we will deliver the GBP 160 million to the bottom line, and you will see that come through in the fullness of time. Above and beyond that, we're not going to make any further commitments.
Your next question is from Niamh McSherry.
Most questions have been asked, by I had 2 quick ones. On online grocery, can you make a comment about maybe basket size versus volume growth? And then secondly, on Argos online growth, you did talk a little bit about this, but the future for Click & Collect. Can you say whether Click & Collect sales within Argos grew faster than delivery sales and/or anything above that?
Yes, I mean, on online, there was a slight increase in baskets, which is a slight move away from the trend that we'd have seen this time last year where baskets were tending to forward as a result of things like Delivery Pass, which made it easier for customers to order and, therefore, they tended to spend a little bit less on average. But sometimes, again, people lose sight of the fact the relative size of our online grocery business. And we continue to run a pretty significant business and seeing 8% year-on-year growth. And indeed, 20% year-on-year growth in Christmas week in that business, we think is a pretty good performance, particularly against the context where we are looking to Sainsbury's customers and we're not out there sort of "buying sales." We are looking to make sure that we manage a sustainable business in the medium to long-term. Click & Collect, I think we said on the face of the statement, we saw a sales growth of 39%, and home delivery saw a 25% growth as well. So that gives you an idea of the changing shape of the business. And overall, online sales grew by 80% within Argos. So that means the overall mix of online became even greater than previously, which again reflects changing customer habits and the shape of the business going forward? And again, we've talked about everything about the fact that over the quarter, 20% of our sales in the business were online, which is just incredible if you think about the progress in this business over the last 3, 4, 5 years. And we think -- although we've talked a lot about some of the short-term pressures in the marketplace, let's not lose sight of the fact that there is a very significant long-term changing customer shopping behavior. And the whole basis of our strategy is to set ourselves up for that changing customer behavior, whether it was in the Groceries Online business or whether it's in the General Merchandising and Clothing business. Now the Argos acquisition helps us accelerate that, but the long-term trends are there to stay. Let's take a 3- to 5-year view, not just a 1-quarter view.
Next question is from Stewart McGuire from Crédit Suisse.
I had 2 questions and now I've got 3. Sorry. Just some clarification. You were quoted on the wires that volume growth was slightly negative in Q3. And with the increase in Taste the Difference, can you give us some color as to where that -- where the losers are in volume growth? And I guess also that implies that inflation was slightly higher than 2.3%, given that's where your grocery numbers were. So some clarification, that would be great. Question number two, on PBT, you kind of hinted that you expected PBT to move up. But am I reading too much into this in saying that you are not expecting it to go up by the additional synergies that you're talking about, the GBP 15 million, GBP 16 million that you're pulling forward? And then question number three, I think it was a follow-up to Andrew's question. Did you just say that anything above the GBP 160 million in synergies would be reinvested in the business?
Yes, I mean, the answer -- the last question, I think I've gone as far as I can, but we will deliver the GBP 160 million. We've always said we'd expect that to be delivered to the bottom line of the company. We'll always look for opportunities above and beyond that. But in the round in the way that we think about our business, the way that we plan our business, we would make assumptions that, one way or another, we'll invest that back into either paying our colleagues more money, mitigating inflation, improving the competitiveness of the offer, whether that's investing in the quality of products that we sell or the prices that we sell them at, and we look at it in the round so we don't look at it as an Argos in isolation number. We'd always seek to optimize our business with any efficiency savings we can make or synergy savings we can make. And we'd look at that indeed from a cost reduction point of view as well. So we've talked before about the way that we look at the components of our business. Hopefully, from this trading statement, you can see that we're delivering against what it is that we said we would deliver against, and we have confidence that we'll continue to be able to do that in the future. I think you've narrowed down the corridor of inflation from somewhere between 2.5% to 3.7%, so let's not go any further than that. We talked a little bit about the fact that we saw good growth in Taste the Difference and indeed, we saw our own label participation go up in the quarter. I guess from that, you can surmise that the other part of the equation, say branded sales, would be less good against that backdrop. In the round, that's probably helpful to us rather than a detriment. So we would see that as a, broadly speaking, positive outcome. But I don't think we'd go any further in terms of breaking down the specifics of any categories other than the other observation we make in our trading statement, which is we think we served a record number of Christmas dinners this year because of our price competitiveness on turkeys and on 25p veg. Did that help?
I think so, yes. And on PBT, am I reading too much into that?
Yes, on the underlying PBT, the consensus is currently GBP 559 million. And we've said, on the base of that, we see the opportunities to moderately beat that number. And I guess, you can decide what does moderate mean. But I think people are coming at it 2 ways. One, they're looking at is moderate around 5%. And then you've got the increased synergies, which is really -- what we're saying is the base retail business delivered the profit, and it's delivering the profit that we expected, and it's on track to do that. And because of the synergies, we're going to moderately be ahead of that consensus, but also would put us slightly ahead of the previous consensus, which was GBP 572 million back in July, which has dropped slightly. So on either number, we're going to be a little bit ahead, moderately ahead of the GBP 559 million and slightly ahead of the GBP 572 million.
That's great. Very clear.
And multiply 5% by GBP 559 million, just to be absolutely clear.
I think it's even bigger.
Yes. They say you can [ wipe ] that one out.
The next question is from Nick Coulter from Citi.
Just one from me, please. Is it possible to have a sense of the quantum of the headwind from the reallocation of the general merchandise space in your supermarkets? Obviously, you've referenced it a number of times. Or are you able to expand on what you're actually doing there? How much space you're typically reallocating and where that space is going? And what impact that reallocation is having on the recipient category?
I think we've probably already covered it in as much detail as we can at this stage. Given the line of questioning, I suspect that -- maybe when we come to our next trading update, we might try and give a little bit more clarity around it. I mean, we don't have the numbers, I don't have the numbers in front of me. Just make the observation here. Typically, if you're putting a 5,000 square-foot Argos store in a Sainsbury's store, some of that is space that you can achieve without having an impact on our Sainsbury's Clothing and General Merchandise footprint. But if you took a, I don't know, a 50,000 square-foot store, maybe 15,000 square feet of that store is given over to Clothing and General Merchandise pre the Argos store-in-store, you might lose somewhere between 5% and 10% of that space typically as a result. The observation we'd also make is that the mix is much more beneficial, so the kind of categories that we give space over to within any of these types of refits is clothing, soft goods and the more own label driven and more profitable parts of our business. So actually, the space becomes more profitable, but the sales do, in the case of general merchandise, sometimes go down because of that reallocation of space. But I think on the basis of the questioning that we've had, we will attempt to give a little bit more color next time around and perhaps give a little bit more guidance and direction because there are a number of moving parts that will make it quite difficult to unpick.
But just for clarity, if I may. The total of the space reallocation in the supermarket and the impact of store closures and concession closures for Argos, that sum is greater than the decline that you disclosed for total sales decline in general merchandise.
Yes. Thank you. We're all done. So thank you, everybody. Thanks for coming on. I'm sure we'll see most, if not all of you, over the next few weeks and months. Happy New Year to everybody, and we look forward to updating you next time around, which is, I can't believe, on the 2nd of May, so 15 weeks' time. Thank you.
See you then. Cheers.
Thank you. Ladies and gentlemen, that does conclude your conference call for today. You may now disconnect. Thanks for joining, and enjoy the rest of your day.