Coles Group Ltd

ASX:COL

Earnings Call Transcript 2022-Q1

[Operator]

Thank you for standing by, and welcome to the Coles Group First Quarter FY '22 Sales Results Call. [Operator Instructions]I would now like to hand the conference over to Mr. Steven Cain, CEO. Please go ahead.

[Steven Cain, MD, CEO & Director]

Thank you, and good morning, everyone. Welcome to Coles' Q1 FY '22 Sales Announcement. Joining me on the call is Leah Weckert, our CFO; and Matt Swindells, our Chief Operations Officer. He will answer any COVID or supply chain questions that you might have today. We are thankfully presenting our results from an unlocked Melbourne where there is a new energy, smiles and relief all around. The shutters of our [ expect ] now seem a distant memory. As we enter the third year of our transformation strategy, the emergence of the Delta COVID-19 strain has presented significant new challenges for Coles and the wider industry. I would like to start by acknowledging how well our team, our suppliers, our community partners and the various governments have risen to the challenge. More than 20,000 of our team have been in isolation during Delta. In particular, our teams in the 12 lockdown New South Wales LGAs and our Victorian teams that supported the isolated Shepparton community deserve special mentions. The good news is the conditions are now improving as vaccination rates increase. I am delighted to report that around 90,000 of our team members have now had at least their first jab, and that all of our working team members in New South Wales and Victoria will be double vaccinated or have a medical exemption before Christmas, which will ensure a safe trading environment and minimize the number of team members in isolation. Returning to the quarter, group sales rose 1.5% year-on-year and 12.2% on a 2-year basis with our Liquor business leading the charge. The highlights of the quarter were, our Supermarkets and Liquor e-commerce sales increasing 48% and 72%, respectively, being ranked #2 globally in supermarkets behind Tesco in the U.K. for sustainability by the World Benchmarking Alliance and our continued work to help the vulnerable in the community with SecondBite and Foodbank. Coles incurred COVID-19 costs of approximately $75 million, inclusive of team member discounts in the first quarter and costs -- with costs accelerating in August and September, largely due to team members in isolation, additional door greeters to ensure QR code compliance and lower productivity due to shift bubbles in distribution centers. Turning to outlook and with the end of significant COVID-19 restrictions insight, consumer savings at an all-time high and the recent launch of a new range of great value, easy entertaining, we are optimistic for the Christmas and holiday period as family and friends get together again. In the first 4 weeks of the second quarter, Supermarket comparable sales were broadly in line with the first quarter and approximately 8% on a 2-year basis. In Express, current fuel volumes are impacting profitability. However, volumes are expected to recover in the second half of FY '22 as consumer behaviors normalize and mobility increases. COVID-19 costs are expected to peak in October and then start to moderate in November and December due to recent changes in isolation policies, particularly in New South Wales and Victoria. A lower level of COVID-19 costs are expected to come into the second half due to measures to ensure safe stores and business continuity in the supply chain. COVID-19 construction delays have impacted Coles' capital investment program in the first half of FY '22. As such, Coles expects some rephasing of the capital program into FY '23. In FY '22, capital expenditure is now expected to be in the range of $1.2 billion to $1.4 billion. A more detailed update will be provided at the half year results announcement in February. So to finish, we are looking forward to supporting a very spooky Halloween, reporting our first rapid antigen test sales and supporting the important November men's health program across the network in November and then Christmas, I think, which were all -- in the summer, which we're all looking forward to spending with friends and family. So with that, I will open up for Q&A. Thank you.

[Operator]

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

[Michael Simotas, Equity Analyst]

It looks like you've gained some sales momentum relative to Woolworths over the course of the first quarter, which is good to see. Just so we can sort of pull apart the underlying trend, I'd be interested in how you performed in tobacco given that seems to have been a major step change in sales across the industry, and Woolworths yesterday suggested that tobacco sales were down 20%.

[Steven Cain, MD, CEO & Director]

As far as tobacco is concerned, we saw some declines year-on-year. There's a couple of factors in that. Obviously, one is the long-term price increases of tobacco, obviously, the health situation around it, but also the fact that people are working from home is a driver as well. And I don't think anybody quite knows yet that as people return to work, will they have kicked the habit for good or will the smoke around the back of the office carry on in the future. So that's a bit of an unknown at the moment. Our tobacco declines were perhaps not as severe as maybe some others in the market. We believe that it would have impacted our comp sales by about 160 basis points.

[Michael Simotas, Equity Analyst]

Okay. I really appreciate that detail. The second question I've got is on the outlook for pricing. There's clearly a lot of cost pressures coming through the value chain with not seeing a lot of it in shelf prices yet. How comfortable are you that you will be able to pass on whatever cost impost you need to accept from suppliers in coming months?

[Steven Cain, MD, CEO & Director]

Yes, our policy -- I think I've been rolling out our policy for 3 years now, and it hasn't changed, which is that if it's a valid increase, then we'll accept it. And then obviously, the market will dictate whether it gets passed on or not because we want to remain very competitive on value. As I said last time at the full year, the main focus for us is we allocate a value spend each year, and our focus is on making sure that, that gets spent in the most productive way possible, which means well planned, coordinated with suppliers, plenty of stock in store and a marketing campaign around it. So that's our priority as far as how we move forward on value is concerned. But really, every price increase is on a case-by-case basis, whether that's accepting it or whether it gets reflected in the consumer marketplace.

[Operator]

Your next question comes from Shaun Cousins from UBS.

[Shaun Robert Cousins, Analyst]

Maybe just a question regarding online. Can you just talk a little bit about how -- what level capacity you've added to your online business, and how that's assisted your sales? And maybe when you're discussing online, can you talk a little bit about the headwind that you face in the B2B business, which is important for you? And maybe what the underlying trends are in the B2C place -- space as well, please?

[Steven Cain, MD, CEO & Director]

Yes. Shaun, thanks for that. I think in New South Wales, we said somewhere that we doubled our capacity. We're still rolling out more capacity across the country as we head into the holiday season. We'll have a much better offering this year in those regional and coastal places. So that's been a bit of a focus for us in the off-season. So it's not that it felt like the off-season. So yes, we've had a lot of capacity. We've done a lot more on the immediacy space. And we've also launched our shoppable app, which was very recent. So there's been a massive push and leaning in online. And there's certainly the -- it looks right now that all the consumer metrics are improving again after taking a bit of a dip during that sort of crazy time in those 12 LGAs where a significant number of team members were down and availability was less than anyone would have liked. So I think we're optimistic about the future for online as we head into Ocado, albeit that there is -- when you look overseas, that are a bit more advanced than us in terms of coming out of lockdown. The reports are that everyone should expect a declining penetration rate in that sort of medium term rather than continuing increases every quarter.

[Leah Weckert, Chief Financial Officer]

I think on the second part of your question, Shaun, just around the B2B piece. So the number that we've reported in the release is our all-in e-commerce numbers. So it's inclusive of B2C and B2B. It is a little bit higher if you just strip out to B2C customers. So B2B was a little bit of a drag in the quarter similar to what we saw this time last year because of the restrictions in New South Wales and Victoria with regards to trading for small cafes and restaurants and the like.

[Shaun Robert Cousins, Analyst]

Got you. I think, Leah, you made the point that B2B might have been -- I think it was $170 million at one stage. I mean is it fair to say it's sort of like 10% of your online sales, say, or -- I'm just curious just to sort of frame that smidge.

[Leah Weckert, Chief Financial Officer]

Yes. I mean it's obviously growing from that point, but it's still around about that mark.

[Shaun Robert Cousins, Analyst]

Okay. All right. And my second question, maybe to you, Leah, if you could help, please. Just in regards to COVID costs, you've seen quite an acceleration since July. Can you maybe sort of, I guess, talk a little bit about where we sort of expect COVID costs to decline to in November and December? And I'm just sure if you -- if it's better on a per month basis in dollars or as a percentage of sales. I'm just curious, you've called out that it will decline. I was interested in what it declines to, please.

[Leah Weckert, Chief Financial Officer]

Yes. I mean it's very hard to make forecast on this. It's literally a changing landscape week-to-week in terms of the health orders that we're working towards, delivering on. So as we've said, we expect it to peak this month in October with some of the changes that we have seen, and Matt might want to talk to these in a little bit more detail with regards to the way in which isolation requirements are now in place in Vic or New South Wales, which is quite different from what we saw in early October and August and September. That is going to make a meaningful difference because the 2 biggest drivers of our COVID costs are -- over the quarter where the team member isolations, but also the store greeters. Matt, do you want to just maybe talk qualitatively about where that's headed?

[Matthew Swindells, Chief Operations Officer]

Yes, sure. Thanks, Leah. On those isolation of team members, both in store and in distribution center, they clearly caused significant disruption to the capacities, our ability to move stock through the distribution centers, which led to the need to then remap our network and pull in stock from multiple states. If you think about COVID last year, it was a big issue that we supported really from New South Wales. In Delta in this quarter, it's been significantly more complex. So you have isolation payments but also the disruption to the supply chain. And then in stores, it's a case of losing large cohorts of the team in one go and then having to cover from other stores whilst obviously, you've got 14 days of isolation for those team members, too. So that's not only a cost in the isolation, into the cost of the disruption, the mitigation you have to put through. The work that we've done with the health departments in Victoria and New South Wales has materially shifted the impact of those isolations. And so we won't see a 20,000 number again. It's clearly hard to predict what the future holds depending upon where Delta goes, but with a higher number of team member vaccinations and with the new protocols agreed with the health department, it's significantly reduced. Therefore, the isolation costs will be materially lower, but also the disruption to the supply chain is lower. Not only is that good for cost, it's good for executing a great Christmas.

[Shaun Robert Cousins, Analyst]

Okay. And maybe then -- sorry, just further to that. Why is October the biggest month then, given you've made these changes? I'm just curious why you called out October as the highest cost month?

[Matthew Swindells, Chief Operations Officer]

Because those changes weren't really able to be brought into effect fully until the back end of that month. Having them agreed is one part. But then you've got a 14-day period of working through existing isolations. There's also the unwind of some of the complexities that, say, were in the supply chain. So to come back to operating fully within those new considerations, that takes a little bit of time.

[Operator]

Your next question comes from Tom Kierath from Barrenjoey.

[Thomas Kierath, Analyst]

Just want to ask on the CapEx stuff, I think you're saying there's some construction delays. I think previously, you've said Ocado is being rolled out late '23 and '24 in Melbourne and Sydney. Is there any kind of update on the timing of Ocado's implementation?

[Steven Cain, MD, CEO & Director]

Thanks, Tom. I think the main thing to say is that in Victoria and New South Wales, we've got a lot going on on the construction front right across the piece. It's too early to give a big update on what's impacted by when. We're still working through each of the programs with all of our key suppliers. So I think we'll be able to give a comprehensive update on state of the nation when we get to our half year results in February.

[Thomas Kierath, Analyst]

Yes. Okay. Fair enough. And then secondly, I think you're calling out 2-year food sales growth of 11%. Can you maybe break that across Victoria and New South Wales, like the lockdown states versus the free states or the non-lockdown states, just to understand what the kind of underlying growth might be in the business?

[Steven Cain, MD, CEO & Director]

Yes. Well, I think it's fair to say the one thing we know about a lockdown now is in a state is that it produces a double-digit outcome in the first year that it happens. So we saw that in the first year of the Victorian lockdowns last year, and we saw the same thing happening in New South Wales this year. So I'd sort of, say, when you're looking at things on a 2-year basis, locked down states are double digit, and the rest of the states make up -- are in growth, but they make it the rest of balance.

[Thomas Kierath, Analyst]

Right. Is there a way that you can quantify like the difference in the growth rates on a 2-year basis, like is one -- or the lockdown states at 15 and the non-lockdown states at like 5 or 8 or something or...

[Steven Cain, MD, CEO & Director]

Yes. I don't think we want to probably get into a state-by-state breakdown. But yes, it's double digit versus single digit. But in broad terms, we saw the similar things sort of happening this year in New South Wales to what we saw in Victoria last year. So the impact year-on-year in Victoria wasn't so great. But New South Wales is the big one. And obviously, when you're doing your analysis, you need to consider what percentage of our estate is in that metro New South Wales region because it's significantly less than our overall representation across the country.

[Operator]

Your next question comes from Bryan Raymond from JPMorgan.

[Bryan Raymond]

Just continuing on the supply chain issues that the industry is facing at the moment. I'm just interested how much that disruption has impacted on availability and promotional programs that you guys have in place over the quarter. Did you have to cancel a lot of promotion because you didn't have the stock because of either your workers or inbound service rates dropping off? Just be interested to know if that impacted sales at all over the quarter.

[Steven Cain, MD, CEO & Director]

I think it's been a real game of whack-a-mole through the quarter as you look at individual sites, individual categories and at times, individual suppliers. So it's definitely had an impact at a point in time, and I think everybody that's been out to various supermarkets would have seen it through the quarter. We've been focused upon maintaining supply throughout and working closely with our suppliers to make sure that any promotional programs that we had in the pipe we were able to execute and run. There were a number of promotions that have been reviewed in light of some of those changes, not only around the supply challenge but also the demand that moves around with COVID and lockdowns. It's not just about the supply, but it certainly had an impact, and it's been a priority for the team to work through, making sure that the network is flexed as much as possible to support states that have got capacity constraints and that we are in the process of, under those new health orders I talked about earlier, putting more capacity back into the network so that we can support and execute a great Christmas. So it's been a very difficult and complicated at times quarter from a supply chain perspective with lots of moving parts. As I said previously, the first lockdown was Victorian-centric supported relatively straightforwardly by the supply chain out of New South Wales. In this instance, we've had to reengineer the network for all states at times being utilized to support both New South Wales and Victoria. And when you're making changes on that scale that we've had to do, at the pace we've had to do with the teams working together, that's had some levels of disruption.

[Bryan Raymond]

Right. Right. Okay. That's helpful. And I guess in terms of the drivers of the disruption, obviously, there's many moving parts to it as you just outlined, but just thinking about some of the things that could be sold more quickly, like vaccination rates domestically impacting availability of team members versus longer-term issues like global supply chain problems that we're facing constraints, certainly, in other markets where products are getting sourced, lack of pallets, et cetera. How would you classify sort of the domestic shorter-term issues versus the longer-term global issues?

[Steven Cain, MD, CEO & Director]

Well, we've got a dedicated team that is focused on managing COVID so that were both safe for our customers to shop and safe for our team members to work in, and that also encompasses the protocols that we need to maintain our roles in essential service and provide food for all of Australians. The issues that come down the pipe are all managed at pace and they're managed across the end-to-end supply chain, not just within our business but with the suppliers. So in the instance of pallets, we work not just with our own supply chain teams and our providers of pallets, we've checked, we're also working with industry across AFGC to make sure that we can make changes to our supply chain and optimize existing pallets better to provide as much resilience there as we can do while we manage through the longer-term effect. So you've got to manage the here and now and you've got to plan for the future. And it's no different through the rest of the supply chain, too. We've got an incredible team of people that, for the last 18 months, have faced numerous challenges day-to-day. As a principle, we plan for the worst, hope for the best, and we keep the ball very close to our feet because we know we have to be able to be nimble and react quickly and make decisions that keep those food supplies going. So I don't know what the road to Christmas fully looks like. We've got a plan for team member isolation with new health orders. We've got a plan for recruitment to keep capacity going. We've got a plan for pallets. We've got a plan for international stock. And if we need to change the plan, then we'll do so.

[Bryan Raymond]

Okay. Great. So just to confirm that, if you could get through to Christmas without any major isolation issues with your local staff and it was just the global issues, do you think there would be a bit of a resolution to the supply chain problems you're facing? Or do you think that a lot of this is out of your control, that's a global problem that will need to be resolved over the next 12 or 18 months?

[Steven Cain, MD, CEO & Director]

I think we benefit from having a large proportion of our overall product mix sourced domestically, and we also benefit from long-term supplier agreements and partnerships where we work incredibly closely together. And there is a bit of muscle memory here now on being able to react quicker through the supply chain. So lead times are considered longer and safety stocks are thought of as higher because we know we have to have that flexibility. If you'd have asked me the question a month ago without the changes to the health orders on team member isolation or without the high levels of vaccination across the workforce, I had been a lot more pessimistic. But currently, we're pretty optimistic that we've got a great plan for Christmas.

[Operator]

Your next question comes from Grant Saligari from Credit Suisse.

[Grant Saligari]

Just first question around fuel volumes. Could you indicate whether you saw any significant change in fuel volumes in New South Wales as New South Wales emerge from lockdown through October?

[Steven Cain, MD, CEO & Director]

Yes. Happy to say we did, and we expect the same to happen in Victoria this weekend. I think Victoria opening up on a long Melbourne Cup Weekend from metro to regional will be a big thing this weekend. So -- and people will be topping up their cars and so on. So yes, we're definitely seeing shopping centers recover in New South Wales. We're seeing fuel volumes begin to recover, and we expect the same thing to happen in Victoria this weekend.

[Grant Saligari]

Do you think you'll be getting closer to a breakeven point? Or do you -- or is it still going to be sort of well below where we might think for breakeven for that business?

[Steven Cain, MD, CEO & Director]

Well, you'll recall that when we entered the new arrangement with Viva, we said that breakeven was in that sort of low 60s range. And over time, we've managed to work that down to sort of high 50s. So our expectation, certainly, in the next half, is that we would want to be getting back up towards the 60 million-liter mark. It will take, I think, some time to get back to where we were pre-COVID, which was, you'll recall, around that 70-million-liter mark.

[Leah Weckert, Chief Financial Officer]

And just building on that. So obviously, when we're talking breakeven there on the 62, we are talking about a pre-AASB 16 number. So you can find the AASB 16 adjustments that were for Express in the full year release in the appendix there. But as Steven has said, based on where we were for the quarter to date, we would have been well below that pre-AASB 16, breakeven point. Just making sure we're all on the same numbers from number basis.

[Grant Saligari]

That's helpful. AASB 16 has caused more issues that I think it solved. Just a second question...

[Leah Weckert, Chief Financial Officer]

I agree with you on that one.

[Grant Saligari]

Just a second question, if I could, on shopping behavior. You mentioned, I think shoppers returning to major centers in New South Wales post lockdown. Could you elaborate on that, whether you've seen any sort of changes in behavior like, for example, shopping more frequently, smaller baskets, any of that sort of reversion to normality?

[Steven Cain, MD, CEO & Director]

Yes, it's certainly beginning to happen. I wouldn't make a major call. I think the major thing at the moment is that the shopping centers are getting busier again. And but for now, we think that online demand has peaked, but it's still at an elevated level. So it's so far so good in terms of the unwind of local shopping, so to speak.

[Operator]

Your next question comes from Ben Gilbert from Jarden.

[Ben Gilbert, Head of Australian Research]

Just first question for me -- I appreciate all the comments you guys have made previously around neighborhood versus regional. When you go out and do your customer survey or studies, how are you seeing your scores or perceptions trend versus your competition through the last quarter? And the reason for it, I'm just trying to understand, as we get to some level of normality, it's mentioned your numbers are quite improving a bit relative to the last couple of months. Are you seeing anything there that gives you confidence that will continue? Just interesting how you're seeing some of the studies there.

[Steven Cain, MD, CEO & Director]

Yes. Good question. Obviously, we keep an eye on all of the reality and the customer perception. The good news is that our NPS scores in supermarkets and in -- well, across the business, actually, are all heading in the right direction. Clearly, we've had, like others in the industry, some fairly significant availability issues, which haven't gone unnoticed by our customers. And if you were to ask me what the number 1 focus of everybody in the business is today second to safety, it is availability. And as Matt said earlier, we're not through the woods yet. We had a meeting. We have our weekly trading meeting on a Monday. And there's still a long list of supplier facilities, which are down, and that list changes every week, as Matt said, in a whack-a-mole fashion. What we're trying to do is work with those suppliers to try and make sure that there is COVID safe as possible and that they get back up and running as fast as possible. But the hard part is deciding which lines to focus on when manufacturing opens up. So we're in a much better space than we were 6 weeks ago, in general and particularly with our own team. But this is just rolling through supplier facilities one at a time still, and we expect that to continue until vaccinations are at a higher level. Pleasingly now, we've got to the stage where vaccinations of our team in Victoria are over 90, and I suspect that's the case for a lot of our suppliers as well. So everyone heading in the right direction at pace.

[Ben Gilbert, Head of Australian Research]

So the relative gap to your competition presumably you measure the basket of competition, is that getting better or getting further ahead or closing the gap on? Are you seeing that?

[Steven Cain, MD, CEO & Director]

Which one, Ben?

[Ben Gilbert, Head of Australian Research]

In terms of customer perceptions around things like out of stock and your perception.

[Steven Cain, MD, CEO & Director]

We have 2 main scores that we look at. One is NPS, another is Tell Coles. The NPS -- interestingly, the NPS scores are on the -- overall on the improve and the Tell Coles is under pressure, so to speak, and that's mainly because of availability more than anything else.

[Ben Gilbert, Head of Australian Research]

Okay. That's helpful. Just final is -- now, I know everyone is talking about inflation, really sort of things at the moment. But is it conceivable because I saw a bunch of decent price increases go through across all the majors last couple of weeks, across big lines? Is it conceivable we could see 3% type inflation for dry grocery through next year? Because there's some big increases being talked about globally and they're seeing high single double-digit increases already starting to come through. It always seems like we're going to have to see 2, 3, 4 points of inflation in dry grocery just to support some of these cost pressures at the moment. Is that conceivable? And how do you think about that?

[Steven Cain, MD, CEO & Director]

A lot will depend on market dynamics and competitiveness and everything else. We will be doing everything to maintain or improve our relative position. I have to say, I don't think we'd passed what's going to happen over the next 9 months as far as pricing is concerned. So I definitely won't speculate on what it could be other than to say what it is today, which is we're still in deflation. There's a fair degree of promotional intensity. But as you've heard from others, things like tobacco inflation, not going through to the same degree deflation in produce is broadly offsetting the inflation we're seeing in areas like red meat.

[Operator]

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

[Scott Ryall, Principal]

I guess one of the first things I wanted to say is I think it's extraordinary what you guys have achieved in the last quarter. I imagine it's been the hardest ever over the last 18 months. I said the same to Woolworths yesterday, given the challenges you've faced operationally and with staff availability and all of that. And my question really relates to that. Woolworths yesterday announced the Christmas staff bonus. I was wondering what your thoughts on that to Coles, given you did do one in the middle of last year after the first quarter of the impact. And then operationally and maybe this goes towards your CapEx delays and some of the stuff that Matt has already spoken to. But are there any strategic initiatives, priorities that you just literally couldn't get to in the last quarter that given where you're really focused on availability to Christmas have to push into 2022 and has to get reinvigorated next year. If you could talk to anything there that you would have like to have done that you'll need to get back to in the next calendar year, that would be great.

[Steven Cain, MD, CEO & Director]

Scott, and thanks for those kind words, which we will share with the team. I'll let Matt talk about how we approach engagement at Coles with the team. But I might just cover your second question first, which is initiatives. The main thing that's been -- first of all, there's a lot that has happened. And so that's the good news. And we try and make sure that things do happen no matter what is going on around us as best we can. And as Matt said, we've established a separate COVID commander of our own and a separate COVID team as best we can so that the rest of the team can try and focus on improving the business. The main area that we've called out is CapEx. And so we've managed to sort of complete projects in the non-COVID states. But it's fair to say that things have just not been moving at pace in Victoria and New South Wales on any construction-related activity, whether that's big projects like Witron and Ocado or whether that's new stores, renewals or even minor upgrades. So all those programs have been impacted to different degrees. And we're still working through with all of our suppliers on how do we sort of try and recover as much time as possible. So it's mainly the construction piece that I'd call out. So I'll hand over to Matt to talk about the engagement program for our team because as you know, it's one of our strategic differentiators to have the most engaged team in Australia because we do think that having everybody on board behind the strategy, selling and saving is a long-term competitive advantage. So Matt, over to you.

[Matthew Swindells, Chief Operations Officer]

Thanks, Steven, and thank you, Scott, again for those kind words. I couldn't agree more. And you're right, the quarter has been one of the most challenging. What's interesting is that we see through that period in our latest engagement survey, the team lift in the engagement levels, particularly in the COVID-affected states. And we have an always-on strategy of reward and recognition as part of our team member engagement plan. That's centered essentially from a new initiative we introduced at the back end of last year called team member circles, where we talked to all of our team members from store, all the way up to our regions and states to our store support center to understand not just the pulse of engagement, but also how we can work together better and how we can work together at pace. And that's then led to an ongoing reward and recognition program, some of which is store level, so out stores, community in their own right, want to celebrate and recognize each of those efforts. Some of it is peer to peer, and we've had a program called appreciated, which has been hugely successful, where team members can recognize each other and reward each other with gift vouchers. So it's less of a one-off thank you at a point in time. It's more of an ongoing reward and recognition program, not just for this year but for future years to help build out the team member engagement. And so far, the performance there is really pleasing. Of course, there's more that we will do. We've got a great campaign that I'll talk to the team about it separately that starts mid-November and runs all the way through Christmas and actually includes not just team members, but their families, too. We want to make this a much wider appeal. So there's lots that's happening. We're really pleased with the progress that we're making, and we're going to stick to that long-term plan.

[Operator]

Your next question comes from Ross Curran from Macquarie.

[Ross Curran, Analyst]

Congratulation on a great quarter. I might just dig into the Liquor business. Are you able to give us some color around how Liquor is performing in the non-lockdown states?

[Steven Cain, MD, CEO & Director]

Yes, it's been performing pretty well actually in both -- well, in the lockdown states and in others. It's less in the non-lockdown states and it -- but still very pleasing. The various brands are performing differently. I think last year was more about big box and online this year. Liquorland is performing very well. And online has continued at pace as well. So just on those 2-year numbers, by the way, it's probably not too dissimilar to other things you've heard in the market, the lockdown states versus non-lockdown.

[Ross Curran, Analyst]

And then just secondly around collectibles programs. The Woolworths bridge program center have resonated well with families. Can you just talk to your thoughts around offering collectibles program in an environmentally sensitive way?

[Steven Cain, MD, CEO & Director]

Sorry, just repeat that question, Ross.

[Ross Curran, Analyst]

Sure. So I may have looked back from offering sort of plastic collectibles to families with the purchase, the Wooly's bricks program seems to be doing quite well with families. Is there a way you can offer a collectibles program that conforms to your ESG targets?

[Steven Cain, MD, CEO & Director]

Yes. I mean to be in our program going forward, it would have to be a sustainable piece. And so we wouldn't have run that particular program you're talking about. And although they were very popular, we stopped things like little shop for that reason. So popularity isn't going to be our measure of success going forward. It has to be popular and it has to be sustainable as well. And that's what we're putting our mind to. But I have to say that I wouldn't underestimate how popular the MasterChef range of products has been, whether that's the knives, which we're running for the second time. That's the most popular continuity program in the world, by the way. And then the second piece is things like the picnicware and the glassware and so on that we've run as well. So they've all been highly engaging for our bigger shoppers. So we're very pleased with the performance of our program. But when we said we were going down the sustainability routes with kids' collectible programs, we did mean it.

[Operator]

Your next question comes from Craig Woolford from MST Marquee.

[Craig John Woolford, Consumer and Retail Analyst]

Just a question, if I could, about the price inflation measures that you provide. The measure excluding tobacco and fresh, which was down 0.8% in the September quarter was actually minus 3.7% in the June quarter. So quite a sequential change in that deflation measure. I'm interested in understanding what might have contributed to such a change in the measure compared with the June quarter? Because if that does look a little bit different to what Woolworths had over that same time period.

[Steven Cain, MD, CEO & Director]

Yes. I think we've sort of given up trying to find links between different pricing metrics that are in the market. And Obviously, some of the CPI things we've seen recently are a bit different as well. The main things that are going on, there are some things which are relative to the year before, which is product availability and those type of things on promotional programs and promotional intensity. Promotional intensity is relatively high. And obviously, we've talked about availability already. But there is that undercurrent of price increases that we talked about at the full year, and we'll, no doubt, continue to talk about for the next few quarters as well. And those are the sort of key dynamics that are in those numbers.

[Craig John Woolford, Consumer and Retail Analyst]

Okay. Understood. The other thing that Coles as understandably called out is that the lockdowns in some ways have had a bigger impact on Coles with shopping center-based stores and obviously your online penetration level. What can you tell us -- that to be specific numbers, but what could you tell us about your market share performance in WA and Queensland, just the states that haven't really had any lockdowns of any significant note that a bit, but are there any? How is your market share performance being better in those states?

[Steven Cain, MD, CEO & Director]

Yes, I'm probably never going to get to market share by state as a metric. But I can tell you that certainly for the few months of data we've had since the full year, it looks like our share is reasonably stable compared to Q4 numbers. But recognizing that we did say in Q4 that share was increasing through the quarter. So it's come off a little bit in the first few months as that local shopping impact rolls through. And it's also worth noting that we have a far fewer number of stores in Metro Sydney than others. And obviously, that's the area that saw the greatest uplift this time around. So you have to sort of bear in mind all those sort of things as well. But we expect that we'll see the same as we did last time, which is when lockdowns ease, it's the specialist, i.e., nonsupermarkets that see the first recovery, the butchers and the bakers and so on. And then we come next. And we'll probably see the same thing happening this time as things open up. Of course, no one knows what's going to happen in those other states. And when you look at the vaccination rates there and things, that's still a risk for the future. But hopefully, those rates will come up significantly. But I think in New South Wales and Victoria now with these 90% vaccination rates, we're in a good space in terms of not having metro or state-based lockdowns going forward. And it's a two-edged sword because lockdowns drive supermarket sales, but they probably disadvantage us the most. So I think we're probably all -- I think we all probably had our fill of lockdowns, particularly those of us in Melbourne and looking forward to just getting on and delivering the rest of the strategy.

[Operator]

Your next question comes from David Errington from Bank of America.

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

Steve, 2 questions. One question, a little bit of a left fielder. Your big part of your COVID costs this quarter, obviously is when your staff go into isolation, you had 20,000 going into isolation. And now with -- we're all vaccinated, et cetera, et cetera, the history is though that when we all open up, the case numbers go through the roof, it's just the hospitalization rates don't. They fall significantly -- What happens in your stores then? I mean if your staff are vaccinated, but they still get COVID, do they have to go in isolation? So where I'm going with that is that we have to expect that once we open, cases are going to rise. So your team members, even though they're vaccinated, they will probably still get COVID more because the numbers will go. What happens then? Do you then -- do they have to go in isolation for 14 days? So consequently, we shouldn't really be expecting a reduction. In fact, we probably should expect an increase in the number of staff members, team members, everyone that go into isolation. Can you give a bit of an overview as to what you can expect, talking to help people, what is likely to happen in that scenario?

[Steven Cain, MD, CEO & Director]

David, I'm going to hand this one over to Matt, our SME on this one. But the one thing we don't know yet is what the settings -- the safety settings in supermarkets are going to be on the run in to Christmas. And of course, those settings will dictate how safe everything is we want it to be as safe as possible. So with that caveat, what -- just bear in mind though, David, I mean we've had COVID running rife through those 12 LGAs in New South Wales. And supermarkets themselves turned out to be a very safe place to be because of the protocols. The issue was either customers coming into the store with it and then the ensuing avalanche of isolation or our team members coming into store with it and the same protocols applying. So that was the reason for the issue in the first place. But I'll hand over to Matt to talk a little bit more about what might or might not be the rules and regs going forward.

[Matthew Swindells, Chief Operations Officer]

Thank you, Steven, and thank you for your question, David, because that's the exact question that we were playing out just over a month ago on the back of the modeling that we were reviewing to say where do we end up on isolations if we don't make a change, and what's the right risk versus safety protocols for industry. We did plan for a very -- a much higher increase in community transmissions in New South Wales with the easiness of the lockdown there. And interesting enough, we were having this exact conversation with New South Wales Health just this week on how encouraging it is that the community cases have maintained such low levels and whether or not that's due to the high levels of vaccination, both in the community and certainly within our own team members. So the outcome is more optimistic than we thought currently, but we're staying very close to it. With the changes that we've made, we would have a much lower impact in terms of duration of isolation across a much smaller cohort of the team. And so whilst the community cases could rise significantly, the impact upon our operations will not. Now the caveat to this is we continue to work daily with the health departments, and we continue to support contact tracing, and we continue to support revisions to those protocols. And we will always do the right thing for team member and customer safety. But at the moment, we're confident that even if the community transmissions increase, we're in a very strong position to maintain operations with a lower level of team member isolations on the protocols that we've got agreed.

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

Yes. So that's why you're confident that the cost -- the COVID costs will come down for the ISOs because less people, team members will be isolated because of -- and for a less period of time. Is that's what you're saying really? So that's why we can be confident even if the rate -- the numbers increase, we can be confident that the cost will come down because the rate of isolation will be lower. Is that the right way of interpreting it?

[Matthew Swindells, Chief Operations Officer]

It is. Yes, you're correct.

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

Yes. Yes, that's very good. Second question -- thanks, Matt, for that. I'd appreciate it. Steve, look, I want to talk about the Liquor business in particularly, where you currently sit now. It's improving, but it's still a fair way off the pace relative like your online penetration is 4.5%. And I think Dan Murphy's has increased to about 11.5% sales per square meter. It's still sizably beneath Dan Murphy's, et cetera. You've made some good changes here, but I'm just surprised that, that online penetration is still quite low at 4.5% versus Dan's at 11.5%. Why is that? What can you do to improve that? Because really -- I mean, there's been a big jump. There's not a low base, but really your online offer just doesn't seem to be catching in Liquor when really it's -- you've really probably been a bit left behind there. What can you do to get that right? And secondly, do you think you'll ever get to the metrics that Dan's are at?

[Steven Cain, MD, CEO & Director]

Well, thank you, David. Great question. I think there's a few different ways of looking this. One is if you look at percentage improvements that the Liquor business has been making in online, it's made some great strides over the last 18 months, including last month, the opening of our fourth dark store, so to speak, in Sydney. So we've now got next-day delivery sorted across the country through those 4 centers and they're performing very well. The other areas that we're still doing a lot more work on are Click&Collect store and then the immediacy piece. And on immediacy, we've been working with Uber Eats in Victoria, and that's planned to roll out into other states. So I'd sort of say that the highest potential part of our offering is in that immediacy piece plus as we roll through with the things like the Black and White program in Liquorland. We improved the Click&Collect offering as well. So I'd expect to see continued improvement in the online liquor space as we move forward. What I can tell you also about Liquor is that we compare our NPS and the measures to all of our major competitors, and I'm happy to report that we're making great strides in all of our brands against all of the key competitors. And I think there was some KPMG survey out this morning about favorite brands and our favorite retail brands. And I think Liquor -- it wasn't a Liquor survey as far as I can tell, it's a retail survey, and I think our first choice came second amongst consumers overall. So the work that's going on, on those Black and White, Liquorland, the renewal program at First Choice and some of the reformatting we're doing at Vintage Cellars seems to be paying off. And I think the biggest part of the program change that we've seen over the last 18 months in Liquor is really around local products and supply, and that's turning out to be -- Darren's only been here 8 -- coming on -- well, let's call it, 18 months, but he seems to have developed a bit of a passion for all the local that are going on in Australia, and that seems to be working well so far.

[Operator]

Your final question comes from Phil Kimber from E&P.

[Phillip Kimber, Executive Director of Consumer]

I'm not sure if this was asked earlier, but Woolworths mentioned on their call that they have seen a pretty significant deterioration in tobacco sales in the first quarter of FY '22. I was just wondering if you've seen a similar thing and whether there was the same sort of drag on your earnings -- your sales numbers or size. So what is that 200 basis points?

[Steven Cain, MD, CEO & Director]

Thanks, Phil, and it's a little bit -- your line is a little bit muffled, but I think you were asking for tobacco numbers in the quarter. We talked early on and sort of said that we have seen a decline in both Supermarkets and in Coles Express. It's a double-digit decline. It's probably not as much as others may have reported, but it probably pulled the comp sales back by around 160 basis points. And the big unknown is really what will change when people or when some people return to the workplaces and will it go -- will it recover or not. So that's the -- it's a bit of a wait and see.

[Operator]

There are no further questions at this time. I'll now hand back to Mr. Cain for closing remarks.

[Steven Cain, MD, CEO & Director]

Thank you. And thanks for your questions this morning, everybody. I hope you're feeling as relieved and is optimistic as I am that we're nearer the end than the beginning, and that this COVID will turn into hopefully something more akin to the flu going forward rather than what it's been over the last 18 months. But what certainly Coles is looking forward to getting back to executing our plan at pace. And we're looking forward to, I think, spend a bit of time off after a very busy 18 months with our friends and family over Christmas. And we hope that you are, too. So with that, I might wish you all the best for Christmas and the New Year. Don't forget about Halloween, supporting November, taken at one of these little rat test same and thus it making sure how to operate them, and we look forward to seeing you at the half year results in February. Thank you.

[Operator]

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.