Coles Group Ltd

ASX:COL

Earnings Call Transcript 2020-Q1

[Operator]

Thank you for standing by, and welcome to the Coles Group Limited FY '20 Q1 Sales Results Conference. [Operator Instructions] I would now like to hand the conference over to Mr. Steven Cain, CEO. Please go ahead.

[Steven Cain, MD, CEO & Director]

Thanks, Travis, and good morning, everyone, and welcome to our Q1 F '20 analyst sales call. I'm joined today by Leah Weckert, Group's CFO; and members of our Investor Relations and media team. Before I do a quick summary, I'd like to remind everyone that this is primarily a sales call. We've also got our AGM in 2 weeks' time, our first one, and we've got our half year profit results in February. So I won't go through the whole release because no doubt you've had a chance to read it all. I will just talk to a few of the highlights that we're particularly pleased with in the quarter. First of all, our group sales at 1.8% was a good result in the context of a great quarter this time last year. I think the 2 most notable achievements were obviously growing the comp sales in supermarkets and the first growth in fuel volumes that we've seen in 4 years, which was highlighted by Viva in their results yesterday. A couple of notable features. Obviously, Little Shop 2 was successful, but we also believe that the -- lowering the cost of breakfast, lunch and dinner and what's for dinner is how -- is resonating with consumers. And then from a sustainability perspective, we're very pleased that so many farmers applied to go to direct sourcing on milk, which gives them a better medium-term future as far as Victoria and Central and sort of the New South Wales are concerned. The other thing that we've done in the quarter which we're very happy about is signing up to the renewable power farms, 3 of them, which will provide 10% of our total electricity usage in the future. The other thing we're announcing today is the next collective scheme, which is glasses, which is the first time we've done something between liquor and supermarkets. And that runs through to the end of January, so a bonus for Coles shoppers over the next 3 months. So without any further ado, I'll hand over to you guys to sort of ask any questions.

[Operator]

[Operator Instructions] The first question today comes from Michael Simotas from Jefferies.

[Michael Simotas, Equity Analyst]

First question for me is on the supermarket business. Looks like new space has contributed quite a bit more than it has for some time, about 1.5%. It's been well under 1% for a while. I just want to understand whether there's anything in the base, bearing in mind the periods being shifted a week, and there's restatements associated with flybuys that would have affected that or if that's the sort of run rate we should think about.

[Leah Weckert, Chief Financial Officer]

Yes. Michael, it's Leah. Some of that is timing. So because the 1.5 percentage points that you're looking at there is comparing the headline number, which is looking at weeks 1 to 13 as a comparison point, you're comparing that to the like-for-like, which is comparing to the weeks 2 to 14, the amount is slightly lower. So it's not that materially different to what we've seen in the past.

[Michael Simotas, Equity Analyst]

Okay. That's very helpful. And then the second question for me is on Express. It's obviously good to see the fuel volumes turn around. A couple of things on that. I just want to understand how much of a benefit do you think Little Shop 2 was to fuel volume, bearing in mind that Little Shop 2 was accepted in the service stations, and it wasn't this time last year. And also, it looks like Viva's had to invest more than it probably planned to get that volume uplift given what's happened with the broader fuel retailing environment. Do you get the sense that there's continued appetite to invest and drive volume growth? Or have we seen a step-up and it probably levels off from here?

[Steven Cain, MD, CEO & Director]

Okay. Thanks, Michael. Couple of questions. I think it's difficult to disaggregate Little Shop 2 from the price investment that Viva made. It was actually done deliberately together, but anecdotal evidence is that it was very -- Little Shop 2 was very popular. And certainly, based on what we're seeing at the moment, it looks -- given that Little Shop 2 is finished, it looks as though fuel volumes are pretty stable. So it looks as though there's been a bit of stickiness to what's happened. Certainly, based on what Viva said yesterday and the conversations that we have with each other, they're still very committed to that 70 million to 75 million liter target. Clearly, none of us know exactly when that might be, and it's still very much a sort of medium-term target. But we're delighted with getting to that 65 million liter level, which is important from our perspective from a profitability point of view.

[Operator]

The next question comes from Shaun Cousins from JPMorgan.

[Shaun Robert Cousins, Senior Analyst]

Just a question regarding the commentary on the second quarter. You highlighted you're trending towards the fourth quarter at 2.2. Sorry, maybe what does trending towards mean? I mean are you at 2.2 or are you midway there between what you did in the first quarter and 2.2? I'm just curious, just trying to clarify the words you've provided, please.

[Steven Cain, MD, CEO & Director]

Yes. It means that if we were sort of 0.1 for the quarter, the last quarter, sales are heading from 0.1 towards that 2.2. It doesn't mean we're at 2.2.

[Shaun Robert Cousins, Senior Analyst]

Oh, so just maybe in the middle or -- that would be the best way for us to read that?

[Steven Cain, MD, CEO & Director]

Yes. We're not going to...

[Shaun Robert Cousins, Senior Analyst]

I'm just trying to interpret your words.

[Steven Cain, MD, CEO & Director]

I'm not going to give any more detail than that, but we're on an improving trajectory, which is the key takeout. And if it was materially different to what we said, we would have said something else. So I think that's the best we can really give you at the moment.

[Shaun Robert Cousins, Senior Analyst]

Okay. That's helpful. And then my second question, I guess, is just around sort of price investment. While obviously your quarter was assisted significantly by fresh and tobacco inflation, you've actually invested a bit more in dry grocery in the quarter relative to the fourth quarter. I think your food -- your dry inflation's gone from 0.7% down to 0.2%. Should we expect that dry inflation should hover more around that flattish sort of type number like you've done in the first quarter rather than heading towards 1% and beyond there? And how do you fund that investment? Particularly given you highlighted poultry, which has been a difficult category for the industry and broader proteins are in terms of feedstocks there. I'm just curious how should we think about inflation in dry going forward? And then how do you fund those investments, which seem to have worked for customers, as you've called out?

[Steven Cain, MD, CEO & Director]

Yes. Well, some -- a lot of what you just talked about is obviously commercially sensitive, but the broad idea is -- or certainly, the way -- when we stand back and look at it, what we've got is an overall inflation number which is stable from Q4 to Q1. It's been made up in different ways, as you've articulated. I think one of the key things that's going on at the moment is there is a bit of deflation coming into produce for the first time, which is good news for consumers. And I spoke on the call earlier that banana, as an example, I think they're 20% lower priced than last year. We are still seeing drought impacting certain states and certain product categories, which is dairy, wheat and meat. So we're continuing to see cost price pressures in there. Some of that has moved into grocery products. But overall, we're trying to deliver our strategy, which is -- we've articulated is inspiring customers through great value meal solutions. And part of the way we're investing is that we want people to get their dinner at Coles, so not 1 or 2 items but to buy the whole thing there. And that's really what we've tried to do with the campaign, is to make meals easy and to make sure that those 40% or 50% of people who don't know what they're going to put on the table at night have Coles at the top of their mind. So that's really what we've tried to do. And so far, it seems to have been quite successful.

[Shaun Robert Cousins, Senior Analyst]

And the comment or the outlook for sort of dry inflation, should it be hovering around more a flat number? Is that the way to think about it? Could you control dry inflation much more than fresh and tobacco?

[Steven Cain, MD, CEO & Director]

Well, it's not quite as easy as you might think. And it's different by category, and it's different by supplier. We're seeing some categories where there's no inflation, and we're seeing other categories where it could be double digits. And that really depends on what's in the product and anything else. And obviously, we scrutinize every single one and make sure that we only let through justified price increases. I might just hand over -- so we're not -- so I think in short, I'm not going to give you a forecast on grocery price increases, but I'm happy to give you anecdotes of what's happening. Leah, do you have anything else to add to that?

[Leah Weckert, Chief Financial Officer]

Well, the thing I would say about that, Shaun, is first of all, one of the significant contributors to that number has been the price increases in milk because dairy is included in the package number. And as Steven said, we've had a process in place now for some time where if suppliers are coming to us with cost price increases, which they can demonstrate there are -- there is real evidence behind cost increases flowing through into their business, then we have been taking a view that we will accept those. So I think it's hard for us to give you any guidance in terms of how the number will pan out because it does depend on what cost price increases we get coming through from suppliers. But we'll continue to see the impact from the increases in milk over the next few quarters, and we will continue to assess CPIs as they come through from suppliers.

[Operator]

The next question comes from David Errington from Merrill Lynch.

[David Errington, Head of Consumer Research for Australia and Asia]

Following that line of questioning on inflation, would it be true to say -- and I don't want to put words in your mouth, but hopefully this is the case that you're moving more to a less promotional type? Because I look at the price inflation ex tobacco and fresh, I admit, like fourth quarter, first quarter there have been -- there has been a sizable step-up like 146 basis points improvement in price inflation. Now this time last year, you had the very successful Little Shopper. So I'm assuming that you -- although you did run hard on flybuys, I don't know how that all works. But are you running less promotions now than what you may have based the business on some time ago? And so following Shaun's question, are we now in a period where we can expect to see more stability because you are less promotional, you are more toward ready meals, you're more predictable, if you like? Is that a way of looking at this? Because I look at that number, and there does seem to be a step-change happening in prices in dry grocery.

[Steven Cain, MD, CEO & Director]

Yes. I think we're certainly, over the last few years, David, trying to reduce promotional intensity and increase the everyday value. It's fair to say, in the first quarter, we did more activity in general and particularly around things like flybuys and so on -- or targeted flybuys to make sure that we got the best outcome possible on the sales line. We were all very focused internally, both -- well, the merch teams, the marketing teams in the stores was very keen to make sure that the 47 quarters turned into 48. So we obviously developed a sales plan, and it was actually very well executed. So I wouldn't sort of talk to the last quarter as being what we'll do every quarter. But strategically, over a number of years, promotional intensity has come down. It will continue to directionally come down, and we will be focusing more on solutions like dinner tonight going forward.

[David Errington, Head of Consumer Research for Australia and Asia]

Okay. No, that's good. And my second question is on online. A big pickup, 23% in the first quarter, very strong. Is it true or is it fair that -- your online sales, I think, at the full year were about $1 billion. So is it right to read that you're getting around about $230 million of annualized growth in online? So now you're starting to see a big pickup in the supermarket sales. It is now largely -- a large chunk of it is online. I mean when I look at your total supermarket sales, I think it's $150 million. You had a little bit of new store growth there. So a large chunk of the actual growth is online. Is that the way to look at it?

[Steven Cain, MD, CEO & Director]

Yes, and particularly this quarter, given the way the numbers panned out, it is driving growth. I think the way we looked at it was if you look at it on a 2-year view, I think this quarter last year was one of our highest growth quarters. And so when we look at the 2-year stack for online, it was, I think, something like 60% growth in 2 years. So it's really powering forward. Clearly -- and when you look at it, what it's -- as a percentage of sales, I think we've gone through 4% of sales for the first time this time as well. So yes, a good business that's continuing to grow. And clearly, we're focused, as we've said before, on how do we improve the margins in that business over the next few years.

[David Errington, Head of Consumer Research for Australia and Asia]

Is it pickup, Steven, or is it mainly delivery? I mean you said pickup is strong, but I mean I seem to see a lot more of the Coles online trucks running around more than I ever did before. Is it home delivery that's really picking up along with Uber Eats and that sort of stuff? Is that what's driving this?

[Steven Cain, MD, CEO & Director]

The -- it's both really. They're both in double-digit growth. We have rolled out a few more Click & Collect throughout the network in the quarter we're talking about. But we're happy with both sides of the business. And then Uber Eats, I think, is rolled out to 40 stores now. And again, what we're trying to focus on there is an alternative for dinner tonight. So if you're thinking about a takeaway, think about it from Coles or if it's that emergency grocery pop up where you can't leave the kids or the match is on, then think about ordering through Uber Eats.

[Operator]

The next question comes from Bryan Raymond from Citi.

[Bryan Raymond, VP & Analyst]

My first one, just on the pace of refurbishments that you guys have seen. So you called out 10 during the quarter. It is something you talked about at your Strategy Day as well as wanting to accelerate. Could you give us a feel how far through that journey you are in terms of that quarterly run rate of refurbs and what we could expect a little bit going forward, whether that should be picking up or the annualized is still only -- it doesn't feel like there's -- it just doesn't feel like sort of what you need to move the dial on sales. So can you just give us a bit of color around that?

[Leah Weckert, Chief Financial Officer]

Bryan, it's Leah. I mean it's really a fair observation from a run rate perspective. The thing with renewals in the business is they do tend to be quite sort of choppy in terms of how they get scheduled. So Q1 had less scheduled in it; Q2 has got a lot more. So we are currently on track still to be around 75 renewals for the full year.

[Bryan Raymond, VP & Analyst]

75 for the full year, okay. That's great. And then -- I mean you talked a lot about inflation on the call. One area that doesn't get much attention is tobacco inflation. Obviously, the excise in there and so on each year. But could you give a feel for how that was during the quarter? Did that sort of pick up or would there be more promotional investment in that category?

[Steven Cain, MD, CEO & Director]

Yes. I mean tobacco inflation is normally double digit, as you know. We had a sort of mixed quarter on tobacco. Well, we had a -- sales were impacted year-on-year. So one of the lower-performing categories, if you like. Our best-performing category was convenience meals or the whole convenience section, and our sort of worst-performing category was tobacco. Clearly, what we're always trying to do is to make sure that the pricing is very competitive. So we've been doing a lot of work in that space.

[Bryan Raymond, VP & Analyst]

Sorry, just to confirm that comment. So you’re saying tobacco was the worst-performing category in terms of sales in the first quarter or was that in FY '19, and you looked to address that through price in the first quarter?

[Steven Cain, MD, CEO & Director]

In the first quarter, yes.

[Bryan Raymond, VP & Analyst]

Right, okay, okay. Interesting. And then final one for me, just on liquor. Why has Liquorland slowed so much? You mentioned First Choice picking up with the renewals and the new brand there, but Liquorland has been quite strong for some time. Just interested in why that's not the front.

[Steven Cain, MD, CEO & Director]

Yes. I think the -- well, first of all, it's fair to say that the liquor business has improved in the second quarter and some of the reason for that is that we're looking at some movement in holidays, the NRL grand final and so on. So you'll see an improved result in the second quarter, I expect. If you look at the 3 brands, it's -- things always cycle. And it's fair to say that Liquorland has been the powerhouse for the last few years. But equally, it's fair to say that First Choice Liquor Market is currently driving most of the sales. I think when you look at the -- where the renewal programs are, First Choice/Liquorland is currently rolling out. Liquorland has mostly completed it. And so we're in the process now of what's the next generation of formats for Liquorland. And I think that if you look at the liquor market as to what's growing and what's not at the moment, spirits is the highest growth category, and RTDs are the lowest growth or the worst-performing category. And it's making sure that you've got your mix right in the store to take advantage of the growth that's out there. So we will continue to sort of try and drive spirits, the move to Own Brand and the drive to online sales as the way forward in that business.

[Operator]

The next question comes from Andrew McLennan from Goldman Sachs.

[Andrew J. McLennan, Consumer and Retail Analyst]

Just wanted to ask around the refurb progress and just the response you're seeing. You do mention a little bit in terms of The Glen and Eastgardens, but I'm particularly keen in terms of your view on the Format A versus the Format C stores, just getting a bit more color around the progress there. And also, we're seeing within stores some of the shelving getting prepared for the convenience ranges. So just want to talk, given you've got so many that you're looking to roll out 100 or so before the end of the calendar year, just how that's going. Obviously, you're calling that out as a performing category, but it's going from a very low relative positioning to a much more significant presentation within the store. So just if you could talk about how you're seeing that as a driver of sales and also the potential for returns there.

[Steven Cain, MD, CEO & Director]

Yes. Good question. The -- both A and C store programs are rolling along well. The Glen, results are terrific as was Eastgardens. And then we're seeing some encouraging results in all of the format Cs that we've done as well where obviously we're moving to self-serve delis in some of those stores, but we're also incorporating fresh bread from the nearest Coles in-store bakery as well. So we're pleased with those and obviously looking to accelerate the rollout of those over the remainder of the year. I think on the convenience layout, I think we've got 40 stores with the extended range at the moment or about 40, and we're hoping to get to 100 by December. Clearly, it's driving sales. The art of it there, when you're increasing the range so quickly in lots of different store types and locations, is to obviously manage the waste and markdown as well. So that's what the team is focusing on now, is quickly coming to new operating standards for all of that range with the stores.

[Andrew J. McLennan, Consumer and Retail Analyst]

And you're happy -- previously, you've been talking about the small basket growth wasn't coming through in line with market in those 40 stores, is that something you're already seeing? Or is it the existing customer that's coming for big basket shop that's actually picking up these convenience products?

[Steven Cain, MD, CEO & Director]

Yes. I want to dissect the performance of the 40, but what we would say overall is that we're seeing an improving trend on transactions in the business. And to some extent, that'll be driven by the ranging, but I also think that the what's for dinner campaign is also probably making Coles more relevant every night of the week and giving people a solution every night of the week. So we're pleased with how that's been received so far.

[Andrew J. McLennan, Consumer and Retail Analyst]

Yes, it's quite a visible campaign. Okay. And just quickly, in relation to second quarter, you've obviously provided the commentary that you've seen an acceleration. That's important to see. But when you look back, and certainly, the channel feedback from suppliers is just recognizing that the second quarter last year was incredibly impacted adversely by the weather and potentially some other factors and presents as a very load base compared to the trading experience on either side. Second quarter is an incredibly important period for profitability. I'm just wondering whether you're happy with that acceleration you've seen to date and how you're positioning yourself to take advantage of what should be a pretty strong quarter.

[Steven Cain, MD, CEO & Director]

Yes. I mean the one thing I've come to sort of accept in Australia is that I'm never going to forecast the weather and when the next event will hit or where it will hit. So it was a disrupted Christmas season last year. You're absolutely right, I think we had a record number of stores out and all of that sort of stuff. And there's no reason to believe it won't happen again, by the way, given sort of things are. But that's the one side. I think we've got -- we're encouraged by current trading and we're encouraged by the plan we've got for Christmas, which we launched a couple of weeks ago in Sydney. We've got a lot of great ranges out there that add not only great value, but hopefully it will be easiest to entertain this Christmas at Coles. And then that's complemented, of course, with the launch of the glass promotion that we're -- that we've announced today, which is the first one in conjunction between supermarkets and liquor. So I think to the extent that you can be in a good place, I think we're feeling that we've done as much as we can do to make sure we have a successful Christmas season. But obviously, we don't know what competitors are going to do and we don't know what the weather is going to be like.

[Operator]

The next question comes from Ben Gilbert from UBS.

[Ben Gilbert, Executive Director and Analyst]

Just first question for me, I'm wondering if you can just talk about how you're seeing sort of Coles performance in the context of the market growth. My understanding is that the market growth accelerated quite significantly over the last sort of 12, 13 weeks and particularly around just sort of traffic trends and also around price perception because it looks like the pricing gap between yourselves has probably pushed out a little bit, particularly versus ALDI.

[Steven Cain, MD, CEO & Director]

Yes. I think it's difficult to look at the quarter in isolation given the events of last year. So when you get spikes like that, we tend to look at it on a 2-year basis as well. And certainly, when we look at our performance on a 2-year basis, it's in a very good place right now. And when we look at our market share and then business comments, we're feeling that, again, we're performing reasonably well. As I've just said, transactions are improving in the business, which we're very happy about. So I think overall, the last year to one side, which was a record quarter, I feel as though the strategy is paying off. There's a lot of -- although there's -- the inflation is consistent, what we are seeing is that there is a -- the average selling price is moving up, and that's due to people trading into more premium products as well. So I think we're in a reasonably solid space at the moment.

[Ben Gilbert, Executive Director and Analyst]

Great. And just following up, just interested in your comments before about sort of making -- the comments sort of making sure you got the 40 at the period of comp growth. Just in terms of what you mean by that, was -- I noticed you obviously had the free delivery on online orders through September over sort of -- I think it was $100. Were you just pushing a bit hard around certain areas? And I suppose in that context, just how you're still seeing cost growth sort of through the period.

[Steven Cain, MD, CEO & Director]

Yes. We were certainly -- pushing hard is a good word or a couple of good words. We were certainly pushing hard. And it was a number of things. One is there's a lot of range change going on in the business, and that's having a positive impact. I think the marketing campaigns have landed well with customers. We did have some very strong flybuys activity, and we saw flybuys membership continue to grow. And home shopping, as we've talked about already, has passed through 4% of sales. Clearly, we'll talk about margins and profitability and all of that at the -- in February, but we feel as though we're in a solid space at the moment overall.

[Operator]

The next question comes from Niraj Sahara (sic) [ Niraj Shah ] from Morgan Stanley.

[Niraj-Samip Shah]

It's Niraj Shah here from Morgan Stanley. Just a quick one for me around Smarter Selling. I guess that this is primarily a sales call but some pretty meaningful reductions in [ roles ] at SSC late last year. And just wanted to get your sense or some color on how the business is handling that and coping with that operationally.

[Steven Cain, MD, CEO & Director]

Yes. I think it's coping very well. We've just had another pulse culture survey, and the results were very promising. So I think as far as these things can be done, they've been executed well so far. So we've spent a lot of time talking about how these changes will happen and to make it as seamless as we possibly can do.

[Niraj-Samip Shah]

And just, I guess, following up on that, I was just wondering if you could comment on sort of how you're tracking towards that $150 million of annualized Smart Selling savings at this stage.

[Steven Cain, MD, CEO & Director]

Yes. We've got -- we'll give you a full update at the half year. But again, we're in a -- I think, at the moment, a solid position in that regard.

[Operator]

The next question comes from Richard Barwick from CLSA.

[Richard Barwick, Research Analyst]

Can I just clarify -- your Format C stores, you've opened 4 of these during the quarter. But if I look back to what you talked about in the Strategy Day, which you then reiterated at the result, you didn't mention any Format C stores in terms of openings. You talked about opening 10 new Format As and Format Bs and some replacements. So is this a change or is it a case of some of the existing stores that would have been a Format A or Format B have been redesignated as a Format C? And then as a part of that, the Format C stores, how do they compare in size relative to your Format As and Bs? Are they the same size?

[Steven Cain, MD, CEO & Director]

Yes. I think it's just an interpretation. We're not -- I don't think we're planning to open any Format C stores. Those are renewals of existing Format Cs. The ones that we're opening at the moment are, we hope, as many Format As as possible, the odd Format B, and then obviously we've got some Coles local activity going on as well.

[Leah Weckert, Chief Financial Officer]

I think in the -- I'm just having a look back at the Investor Day deck, Richard. We -- the Format A, Format B and Format C, we had the FY '20 rollout plan. The thing that spanned all 3 of those was around 75 renewals. So to Steven's point, we weren't aiming to open any Format Cs, but we were planning to have, within the renewal plan, conversions to Format C of a number of stores. And that's what all these ones we've mentioned today are.

[Richard Barwick, Research Analyst]

Okay. I'm just a little bit confused by that because you've opened 4 stores and that reads in the text that one of those is a Format A and 3 are Format C, which should suggest they're new stores.

[Leah Weckert, Chief Financial Officer]

None of those Format C ones are new openings. They're conversions of stores that were already there.

[Richard Barwick, Research Analyst]

Okay. So therefore, you're confirming that the 4 new stores were basically all Format As?

[Steven Cain, MD, CEO & Director]

No. I see what you mean. What it means when it says an additional Format A store was opened at The Glen, that was already a store, but it opened as a Format A. It wasn't a Format A before it became one. It was -- they're all Bs until they become an A, B or C.

[Richard Barwick, Research Analyst]

Right. Okay, okay. This is quite confusing the way it's worded here. Just when you're opening 4, looks like you've got a 3 and a 1, okay. So you're really talking about refurbs of existing stores and, as you say, tweaking from a B to either an A or a C. And -- but the way that we should be thinking about new store openings then is they're going to be As or Bs.

[Steven Cain, MD, CEO & Director]

Yes. And the odd local...

[Richard Barwick, Research Analyst]

Okay. And also, the point is that it doesn't matter because it's -- you're talking refurbs, et cetera, there's no size difference between an A or B or C?

[Steven Cain, MD, CEO & Director]

No.

[Richard Barwick, Research Analyst]

Okay. All right. I think that is clear.

[Steven Cain, MD, CEO & Director]

Sorry about that.

[Operator]

The next question comes from Annabelle Diamond from Crédit Suisse.

[Annabelle Diamond, Research Analyst]

I just wanted to follow up on the question, repricing relative to ALDI. Just wondering whether you could, firstly, just comment on whether you have observed a price gap increase over the last few quarters, and secondly, whether you are comfortable with your current price position relative to ALDI.

[Steven Cain, MD, CEO & Director]

Yes. I mean obviously, we monitor a lot of pricing activity every week. I think we would say that we have improved our price gap versus ALDI in the quarter, but we're not going to get into the detail. It certainly hasn't increased, so I'm not quite sure where that's come from.

[Annabelle Diamond, Research Analyst]

Yes, okay. No worries. And I just wanted to get your thoughts as well on exclusive brands penetration across supermarkets in liquor, just how you're feeling about current penetration levels and whether you sort of had a target in mind in particular for the liquor business.

[Steven Cain, MD, CEO & Director]

Yes. I think we had a really successful quarter. I think versus the same quarter last year, I think penetration is up almost 100 basis points. And we're making -- we're beginning to make some inroads into categories that have been quite challenging in the past like coffee and so on as well as all of the fresh areas where we've been more successful.

[Annabelle Diamond, Research Analyst]

And liquor, do you sort of have a target in mind? You mentioned, I think, it was 19% or so. Would you like that penetration of exclusive brands in stores to increase?

[Steven Cain, MD, CEO & Director]

I think there might be a few different numbers out here. So what -- are we talking about supermarkets or liquor?

[Annabelle Diamond, Research Analyst]

Liquor now.

[Steven Cain, MD, CEO & Director]

Oh, sorry, liquor, okay. Yes. Sorry, on liquor, we're continuing to see an improvement in -- I'll take back what I said about coffee. Apologies.

[Annabelle Diamond, Research Analyst]

No, that's all good. I asked about both, so that's fine.

[Steven Cain, MD, CEO & Director]

We're not yet selling coffee in any of our liquor stores. The -- yes, the exclusive brands offer continues to go from strength to strength in -- as I say, in liquor. And we're seeing plenty of awards being won by the products that are out there as well.

[Annabelle Diamond, Research Analyst]

And would you like that 19% contribution to increase?

[Steven Cain, MD, CEO & Director]

Yes. We haven't specifically talked about targets in liquor, but we want to continue to sort of build that program. And it's extended in supermarkets, which is if you've got a great brand and you're innovating, I'd expect that you'd still continue to increase your sales with us. It's about just getting that mix right for customers.

[Operator]

The next question comes from Dan Bosscher from Perennial Value.

[Dan Bosscher, Portfolio Manager]

I was just asking -- can I ask about that 2.2 number and why it's not 2.1 or 2.3. I'm guessing it's because 2.2 is what the fourth quarter was. Is that right?

[Steven Cain, MD, CEO & Director]

Yes, that's right, yes. It's just a benchmark that's already -- I wouldn't read into the precise number, it's just talking about directionally where we're heading.

[Dan Bosscher, Portfolio Manager]

Yes, yes. That makes perfect sense because you're referencing fourth quarter. That's fine.

[Operator]

The next question comes from Phil Kimber from Evans & Partners.

[Phillip Kimber, Executive Director of Consumer]

I just wanted to ask on that second quarter momentum, and I missed the start of the call, sorry. So it sounds like you've referenced versus fourth quarter last year. If it's all a base effect, what should we be sort of thinking about why it wouldn't just bounce straight back to that number, especially if inflation's picked up a little bit these days. Is there -- is it just because Little Shop went over a little bit into the second quarter last year? I mean what are the things that we should sort of be thinking about in terms of that commentary? Because I would have thought once the base effects was through, it just bounces straight back to the old run rate.

[Steven Cain, MD, CEO & Director]

Yes. There's -- it's a good question, and there's just a huge number of moving parts. So we can see from week to week the sales move around. It's not like it is -- even within that Q4, you get some weeks that are a lot better than others. So it's never the same number every week or certainly average that. It’s not the same number every week. All you can do is talk about directions, and directionally, we're heading back to that sort of point. And there's so many moving parts externally. It's difficult to be precise or forecast what the next week, 8 weeks holds for us. But to the extent that we're -- we feel as though we've got a good plan and that we're comfortable with current trading we are.

[Phillip Kimber, Executive Director of Consumer]

Okay. And then my second question was just around net selling areas that you've shown in the release. The supermarkets was up 1.9%, which is a bit of an acceleration. Is that -- I mean is that a timing issue or is that sort of a useful number to think about for the whole of fiscal '20?

[Steven Cain, MD, CEO & Director]

Sorry, which...

[Leah Weckert, Chief Financial Officer]

The net selling area on supermarkets.

[Steven Cain, MD, CEO & Director]

Do you want to answer on that?

[Leah Weckert, Chief Financial Officer]

Yes. It's more timing than anything. When we land new stores, again, like renewals, it's a bit choppy. So it tends when developments come on and the like. I mean as we indicated at the investor presentation, we're sort of targeting now sort of starting to slow that between the 1.5% to 2%. And so we have a plan that helps us to get there over the next few years.

[Phillip Kimber, Executive Director of Consumer]

Okay. So 1.5% to 2% is sort of still the plan for the full year? Or 2% just being down to 1.5% is the plan for the full year?

[Leah Weckert, Chief Financial Officer]

Yes. We're coming off a property pipeline that's well in place, so moving down.

[Operator]

The next question comes from Scott Ryall from Rimor Equity Research.

[Scott Ryall, Principal]

I got 2 questions. Firstly, the timing of doing promotional activity between supermarkets and liquor is quite interesting given your major competitors in the process of demerging liquor. I'm just trying to get a sense of, Steven, what you're trying to find out, out of this. Obviously, it's to try and drive sales. But are you trying to figure out if there's a good synergy between the 2 businesses? Are you taking advantage potentially of some competitor, I guess, lack of focus on the business while it goes through demerger, which would be natural? Could you just comment on the timing and the fact that this is the first one we've seen, please?

[Steven Cain, MD, CEO & Director]

Yes. And I think we're trying to plow our own furrow on this. I mean I think what we're trying to do is think collectively, and it's a bit like the Little Shop 2. That was the first time that ran in Coles Express. This is the first time we've run a program with liquor. One of the key things we're trying to do is to drive more sales and make shopping easier for customers. And certainly, our analytics suggest that something like only 1 in 20 Coles customers goes and buys their liquor from Liquorland at the same time. And for us, that's a massive sales opportunity if we can drive a habit in that direction.

[Scott Ryall, Principal]

Yes. Okay, good. The analytics thing has answered my question. And then the second one, you talked a little bit earlier on the call about the meal kits, Coles for dinner, all those sorts of things in the context of food price inflation. And obviously, the proteins and the produce that go into those meal kits are a little bit all over the place at the moment. So can you just clarify, how do you guys think about balancing value versus popularity, I guess, in the sense of red meat prices are probably going to escalate faster than poultry in the next 12 months or so? There's a whole heap of moving factors there. But what -- how do you, I guess, make the decision as to what you put in store, please?

[Steven Cain, MD, CEO & Director]

Yes. Well, it's fair to say that the chicken movement has been going on for years. And it is now, by far and away, the most popular protein, and it's still the highest growth one. And so when we're thinking through recipes and what to focus on, that's one of the reasons why when we reduce the cost of breakfast, lunch and dinner, why we focused on chicken but -- and foremost with the additional benefit that it's also the healthiest white mainstream meat as well. And then on other nights, you can have a taco, which is made from Curtis mince, which is an exclusive product at Coles. So what we're trying to do is focus on value ingredients but also things that are easy to put together. And I think in online, we've also been experimenting with trying to group the recipes together so that you can click on tacos, and everything gets thrown into your order. So we're constantly thinking about how to provide better value meal solutions as easy as possible for our customers.

[Scott Ryall, Principal]

Yes. And if you change -- if you guys decide you need to change, I don't know, the protein or whatever the produce is that's in the meal kit, how quickly can you implement that just in terms of -- because obviously, I would have expected that scale and throughput are pretty critical factors, and it might take a little bit of time to change. But how often can you change those things? Is it a once-a-month thing, once every 2 weeks? Just give us a sense of that how dynamic you can be to changes in the market.

[Steven Cain, MD, CEO & Director]

Yes, it can be reasonably dynamic. I mean obviously, chickens grow a lot faster than a cow.

[Scott Ryall, Principal]

Yes.

[Steven Cain, MD, CEO & Director]

So that's helpful. But yes, obviously, we've got to keep our eye on what's happening around the country as far as what's in plentiful supply from a produce perspective and what might be increasing in price because of the drought or some weather impact or all those sort of things. So we're trying to be as dynamic as possible but also trying to keep it simple for the stores and for our customers.

[Operator]

At this time, there are no further questions. I'll hand back to Mr. Cain for closing remarks.

[Steven Cain, MD, CEO & Director]

Okay. Thank you very much for your time this morning, everyone. We look forward to either seeing you at the AGM or later in February for our half year results. And if we don't see you, all the best for the Christmas and the holiday season. Thank you.