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Coles Group Ltd
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Thanks, Izzy. Good morning, everybody, and welcome to our Q3 sales results. I'm joined this morning by Leah Weckert, our CFO as well as some members of the Corporate Affairs and Investor Relations team.I think my main objective today is to get through without saying unprecedented again. This is also a reminder that this is a sales call and not an earnings announcement, albeit we've tried to provide more outlook commentary than usual given the current uncertainty around COVID-19 and the associated social distancing restrictions.I want to start by saying we are lucky to live in Australia, and I feel lucky to have the 120,000 team members here in Coles. Through the bushfires and droughts, supermarkets have emerged as essential needs businesses. And our team on the front lines has now serve more than 100 million customers with pride and care since restrictions started. I want to thank them, our suppliers, SecondBite, Foodbank and the federal and state governments for keeping all Australians fed at this critical time. Team member and customer safety has been our #1 priority, and we are investing significantly in additional team members, sanitizer, checkout screens and flu vaccination rebates for our team members.Trading, as you know, was strong pre-COVID, and we went through that at our half 1 results in February as we successfully executed on our strategy. Panic buying then resulted in an extraordinary March sales spike, leading to the highest quarterly comp sales growth in Coles' history of around 13%. Sales in the supermarkets in April have returned to pre-COVID levels as customers are working and staying at home, doing more home cooking and baking from scratch inspired by MasterChef. Restrictions on purchases are gradually being lifted as demand eases and supply improves, including the now iconic toilet roll and also alcohol this week. There are, however, some categories that will take weeks and in some cases, months, to successfully recover and the merge team are focused on that. Liquor continues to trade at an elevated level. However, Coles Express volumes have dropped from 70 million liters a week to 40 million liters a week as a result of fewer vehicles on the road. This is something that we expect to recover as restrictions are lifted.As unemployment grows, we will be focusing on delivering more good things at great value.[Technical Difficulty]
Ladies and gentlemen, we have lost connection with the presenter. Please hold and the conference will recommence shortly.Thank you. I believe we now have them back on the line. Please go ahead.
Sorry about that, everybody. Some sort of cyber attack, hopefully not. Anyway, back to questions, please, [ Izzy ]?
[Operator Instructions] Your first question today comes from David Errington with BofA.
Steve, just 2. The events in April, you've called out Anzac Day and Easter a big event days. And obviously, this year, they just didn't really -- now, it's almost as if they didn't exist, those 2 particular. How big is not having events impacting your sales, do you think? Because you said that you're normalized, you're going back to pre-COVID levels. I'm trying to get an understanding is what would be a normal elevated level because restaurants and clubs and all that stuff, people are eating more at home. I'm trying to work out how much not having events in April actually clipped you in April and then when we come through May because May, June, July aren't really big events, then we just go back to this normality if people are eating more at home and not going out. What sort of level are we -- I'm trying to work out, now I don't mean to -- I don't want you to -- you're not going to tell me the answer, but I'm trying to work out how much did April clip you by not having those events?
Yes, it's a good question. And the short answer is we really don't know. But a couple of things are for certain. One is that when restrictions start getting lifted, we will obviously see more social distancing dinner parties and family gatherings and all those sort of things. And we expect that, that will be beneficial to our business. We're clearly benefiting from the fact that there is a restricted food service offering out there. However, what we -- because people are visiting supermarkets less, they're buying less impulse items whether that's drinks at the checkout, whether it's convenience, ready meals and so on. And they're doing more home baking and buying more meat and vegetables. So the change in sales mix is quite extraordinary. What we're also beginning to see, as we've called out in the report, is the beginnings of some destocking going on. And one of the first categories to be impacted is pet food. So it will probably take us a few more weeks, if not a month, to sort of understand what the underlying post-Easter trade looks like. But there's no doubt about it that sales would have benefited normally at Easter from all of the various gatherings that are going on.
Can you give us an idea of how much Easter and Anzac Day were? Obviously, they're big trading days. And this year, they didn't exist. I mean, I suppose so -- but what sort of magnitude are you looking at in terms of being down on those weekends? Can you give us any indication? I'm trying to judge to what April would have been like.
I don't want to give you an impression of a down. They were up. But ordinarily, a lot of analysts have done reports about what they expect the transfer from foodservice to be into both supermarkets and liquor. And certainly, that -- those are within the sort of ranges that we were thinking as well. What I don't think has been factored into analyst thinking is the parties and things at home and celebrations that normally -- even birthday parties that normally happen and all those sort of things that are not happening. The move to more economic home baking from scratch as opposed to value-added ready meals and salads, the fact that you're not selling as many a few dollar cokes at the checkout, all of those things. And then the beginnings of destocking as people realize that food security is here in Australia and that the threat of COVID is easing.
And just finally, just a quick question on like you're doing the great honorable thing being a leader in society by increasing the donations. But I raised my eyebrows when you increased your donations by $1 million a week to SecondBite and to Foodbank, which is really meritorious. But it gets to a point where that starts to chew into EBIT, not being mercenary about it. How long are you likely to sustain at $1 million a week? Because if you do that over a year, that's $50 million, Steven. That starts [ chewing ] the bottom line a bit. How long are you likely to continue that sort of level of donation?
Yes. It's a good question. And just as a -- by way of background on this one, we've been supporting Foodbank and SecondBite for a number of years. And interestingly, just before COVID sort of got to where it's got to, we did our 100 million meal celebration with the SecondBite team. I think one of the things that really concerned us a lot at the outbreak of the restrictions was the fact that there was no waste in store because literally, everything was being bought in those early weeks. And that meant that our normal contribution to Foodbank and SecondBite wasn't happening. They also, at the same time, had a reduction in number of volunteers picking things up from stores. So at a time when homelessness and people living below the poverty line was growing, they were receiving less food. And we took a decision that whatever happened, we would make sure that they were prioritized to make sure that we were helping as much as we could at a time in need.What's happened more recently is the government have also provided more support. And I would expect that as restrictions are lifted, we will go back to the normal process, whereby SecondBite or Foodbank receive products at the end of the shelf life rather than being prioritized in the way that we have done over recent months.
Your next question comes from Andrew McLennan with Goldman Sachs.
Thanks for the extra detail. There's obviously a lot going on, and you guys, like your peers, have made a tremendous effort over the last few months. So congratulations on that. The one question I wanted to -- well, 2 quick questions. One is are you able to sort of talk about impacts on working capital? I know it's a sales call, but obviously, these peak periods can make a pretty material impact. I'm just wondering if you could make a comment on how things have transpired from a working capital perspective. I imagine it will be normalized by the end of this half, but I just thought I'd pose that.And secondly, with respect to online, 14%, obviously -- again, a very disturbed period, but 14%, tremendously low. We know that's partly due to the fact that you have to shut it down. But it's the fact that you've proven that the online model of picking from store is obviously proven to be deficient in such extraordinary circumstances. You're not alone in that area. But I'm just wondering how you're looking to improve things going forward. You mentioned increase in capacity. But if you could just talk a bit more about online, where you think that things can be improved in particular? And how potentially maybe from April onwards your online sales are expected to go?
Andrew, it's Leah here. I'll take the working capital question. So obviously, at the peak of the panic buying, we did see some lag and lead effects on inventory going into stores. And so you were right, there were a few weeks there where we were seeing the working capital move around quite substantially. And as a result of that, we did have quite elevated cash conversion in the month of March. However, most of that has actually already normalized back. So the inventory level is sort of back to where we would have expected them to be for -- coming into the end of April. And the cash conversion itself, we are still targeting around the 100% -- greater than 100% for full year. And all of the panic buying effects should have flushed through the system by the time we get to that point.
And you would expect at that point to have the right kind of inventory? Obviously, there's been a huge compositional shift to what customers have demanded and what's available on the shelf. It's still obviously at a sort of improving but suboptimal level. Do you think that you'll be back to square one at that stage?
Yes, there's still going to be some categories which are going to be impacted. So things like rice has proven more difficult than other categories. They get full recovery on. We're still down in some cleaning products and things like that. Some of those are going to take sort of weeks and months to normalize. But if you had to sort of generalize for the whole of network, we're feeling pretty comfortable about where the inventory composition is headed and where we should be by full year.
Andrew, thank you. I'll take the online piece. So yes, just to sort of go through the sequence of events here, some of which you'll know. So what happened is as the panic buying unfolded, the availability deteriorated in store and online, which obviously, if you're delivering quantities of online product to a home shopper and there's a lot of unavailability, it sort of defeats the object of it. And so we took the view that we should stop whilst availability was poor. We then joined the government task force, and the government were very clear that the number of people who might be confined to home, if this got out of control, was significantly higher than either Coles or our competitors could deal with. And so we went away with the challenge of potentially having to home deliver to far more people than was the case prior. The team has done an outstanding job. And in broad terms, we've doubled our capacity in home shopping, both home delivery Click&Collect and the concierge service that we do. And we opened that back up again to our normal customer list last week and sales are recovering rapidly. So I'd expect this to be back in business properly during this quarter. We have added capacity. And we do expect that demand for home shopping in the future will probably be one of the things that increases. And obviously, we think we're in a good position with regards to our relationship with Ocado. The other thing that's in the release and not given too much detail is that we've got Ben Hassing joining us to run e-commerce in Coles. He's joining us from Walmart, and he ran e-commerce for Walmart in China for many, many years. So he will be a great addition to the team.
Your next question comes from Grant Saligari with Crédit Suisse.
Just a couple from me. Steven, could you give us some idea of what your capacity in online, so in delivery, in Click&Collect is at the moment? Like could it absorb 10% of total sales? 15% of total sales? Because as you pointed out, it should be an area where shoppers could see -- well, we could see some permanent change in shopper behavior.
Yes. I mean, as I've just said, it's broadly doubled than it was pre-COVID. And you'll recall that we were roughly tracking at around 4% of sales at the time.
But does that indicate your capacity? Could you actually absorb a higher level of online? And do you see that as actually a desirable thing strategically for the business to be encouraging and accommodating customers increasingly shopping online?
Well, if you assume that pre-COVID, we were close to capacity in a number of online operations, what we've done is we've doubled that capacity. And pre-COVID, we were at 4% of sales. So yes, there's certainly scope for more. Clearly, we've always said that the best home shopping business will be one where we make a similar profit too in stores. And the key to achieving that is better efficiency. And over time, we'll do that and ultimately, with Ocado, which is the most efficient in world. And then the other thing that's required is obviously finding the right customers who are prepared to pay the delivery charges. And if we can do those 2 things, then home shopping will be a profitable business in the future.
Just a second one, if I could. With the change in shopping behavior that's occurred, have you noticed that people are shopping more, I guess you would have, closer to home and sort of local shopping centers. Do you think that advantages the independence in the market at all? Or do you think Coles has sort of sufficient coverage that is not disadvantaged there?
Yes. No, it's great. We've seen -- I mean I think we've seen more changes in the last 6 weeks than we've seen in the history of shopping. It's extraordinary. I'll go through a few. I mean, obviously, we've talked already about what people are buying differently. In terms of how they're shopping, they're shopping less, and they're buying more when they do shop. If we look at our sales by type of, like, store, then our best-performing stores are standalone stores, stores that are in CBDs. Stores that are in resort towns. Stores that are in large shopping centers are not faring as well as stand-alone locations. It is fair to say that people are shopping closer to home. And that will benefit any store that's closer to home. What we think, however, is that the rising unemployment and the prospect of the economy dipping by 10%, or whatever it turns out to be, means that there will be a flight to value. And that's what we're focused on at the moment is to make sure we recover the trading program with suppliers as fast as possible and make sure that we continue to develop our own brand program.
Your next question comes from Michael Simotas with Jefferies.
My first question is on Coles Express. You've told us to expect a loss from the business, and that shouldn't surprise anyone given what fuel volumes have done. You've made the comment that you're working with the alliance partner to mitigate losses. Can you just talk about the type of things that you're doing there? And specifically, the industry seems to be cutting trading hours quite dramatically, just whether there's any scope in the alliance agreement for Coles Express to do that?
Yes. Look, we're in discussions with the parties around a number of opportunities. We've been talking about hours. We've been talking about rents. We've also been talking about how we recover when there is more traffic on the road. I think we've benefited in the business from having a better grocery offer than most fuel locations, and that should continue into the future.
Okay. All right. And second question from me on supermarkets. I'm sympathetic that this is a sales call. You've given us lots of comments around costs. There's not much in the release on gross margin, but clearly promotion is down, shrinkage is down, private label is up. You've got big sales growth, which should drive operating leverage. Surely, you're not telling us to expect margins to fall?
Yes. I don't think we've talked too much about margins because it is a sales call. Just in general terms, we've got a higher cost of doing business because primarily around safety. And we'll be following government guidelines on that going forward as that's the #1 priority for us. As far as gross profit is concerned then, clearly, in that March quarter, there were less promotions. There was more product going through at full price and so on. So to that effect, it was a better gross margin outcome. However, we are also trying to hold prices as much as we can to alleviate some of the output pricing pressure coming from the industry as a result of the drought and the bushfires. And that's probably most acute in the meat business at the moment.
Your next question comes from Shaun Cousins with JPMorgan.
Just a question regarding increasingly unemployed customer are seeking sort of value. In addition to sort of possibly gaining share as that consumer doesn't have the money to shop at restaurants, how are you seeking to manage the downside as that customer possibly trades down to more private-label trades to a smaller basket size and hence, sort of smaller pack size? I mean, do you think we've kind of missed the extent to which socialization doesn't occur, and that's weighed on sales. Should we anticipate in a slower consumer environment that you'll have a headwind to your sales from a weaker consumer buying more private label and just being unable to spend as much on a basket, please?
There's certainly a risk -- Shaun, there's certainly a risk that, that might happen. I think we've been talking about this for 18 months now that we were already entering a world of 2 cities here in Australia. And if anything, that is going to be accelerated. There are going to be people who are not as much impacted out of this. But there is definitely an increased number of people who are heavily impacted.Clearly, what you'd normally say is that that'd be impacting foodservice before it impacts groceries. But within groceries, we will certainly see trading down, which will mean a combination of people buying bigger packs because they're generally better value. It will mean more private label. It will mean more specials, and that's just something that we're going to have to deal with in the mix. And it's why our Smarter Selling program is important as well. Because if there is a sales impact because of the recession and unemployment and so on, then we'll need to cut our cloth accordingly. And it's good to have that program continuing in the background.
Great. That's helpful. My second question is just, I guess, how your supply chain managed during March. One of the biggest feedback we've been receiving consistently is the pop-up DCs that you introduced worked quite well, but that your allocation of product to stores was potentially a time suboptimal in that you had oversupply in certain areas and understocked in sort of some areas as there wasn't as much science being applied to how product was being allocated. Was there any negative impact on your revenue and/or margins in the way you were in that very stressed period in March during the peak in the way you were allocating inventory to stores?
Yes. Look, I don't think anyone would score themselves 100 out of 100 for March. And what happened, it was an extraordinary period of time. However, we do think that we did an outstanding job on supply chain under the circumstances. And we did have the 3 pop-up DCs put in place very quickly. That was to do with fast-moving pallet lines. We did have some suppliers starting to redeliver direct to stores. But it becomes a bit rough and ready. At the end of the day, you -- one of my local stores ended up with a pallet of sugar and flour one day. It's still sold out, by the way. But we were delivering in pallets, not cartons in some cases. And that will mean that the rate of sale is obviously different at each store. What we also had is a lot of lines that we don't normally stock. And you'll recall that at the beginning of this crisis, people were being advised to sanitize their hands, and that quickly changed to wash your hands because of the shortage of sanitizer. And so we ended up buying a number of products that, as I said, weren't normally ranged. They were being delivered in significant quantities. And as we look around the estate today, they're around in various shapes and sizes. And we're committed to making sure we clear those lines as fast as possible to make way for things that are selling in the current environment. So it wasn't perfect. But in terms of the volume shift, it was an extraordinary achievement given that in that whole period, people probably bought an extra 2 weeks stock for their pantry. So we normally spend 3 to 6 months planning for Christmas, and this was bigger than Christmas with no planning. So I'm giving the internal team 10 out of 10, albeit that externally, we might not be rated so highly. I've never seen such an extraordinary effort in just such a short period of time. The other thing that we did -- or that we've done is we've deployed a new forecasting system, which has a bit of machine learning in it. And our view on that so far is it's far better than the old forecasting system. But with product groups changing so fast, availability changing so fast, supply changing so fast, there isn't enough system in the world that could cope with getting this completely right. But I feel as though we're heading in the right direction.
Your next question comes from Ben Gilbert with UBS.
Steve and Leah, just -- and I appreciate the sales call. But obviously, as you mentioned these have been unprecedented times. And just thinking and trying to understand how you thought about managing labor through this period? Obviously, [ there are actually many ] people claiming but typically, obviously, labor sort of runs as a percentage of sales. Just how you thought about managing that? Did it still increase as a proportion of sales in some sort of environment given all the extra steps that you had to put in?
Okay. Ben, I promised not to say unprecedented. And if you say it, you've got to contribute $10 to charity each time. So I'm going down the extraordinary route today. But...
[indiscernible]
Yes, labor, it's been interesting. Again, we normally plan for Christmas and lay on additional team members. But again, this was double quick. I think we recruited 7,000 people in 7 days, and we're now up to 12,000. We've obviously got a natural churn going on in the background. And most of the people that we've hired are, of course, casual by contract. And most of those, we expect will want to return to their normal employer in due course. Where we've had the biggest change in labor is obviously at the front end of the store. Well, post the supply surge, where it was all hands to the deck and stacking shelves, we're now in security and safety mode. And what we're looking at now is how do we make as much of what we're doing more of a self-service operation rather than too many people. Because we didn't know what impact the social distancing would have, particularly with regards to queuing outside the stores. As it's turned out, we've got -- we've had queues outside stores for probably 5% or 10% of the estate and not for the majority of time. So we've had a lot of learning about queuing and this new level of demand and visitation. But clearly, what we're trying to do going forward is operate in a safe environment and then try and manage the hours accordingly.
How challenging is that? Because you, obviously, want to be a good social citizen out there at the moment, but if sales are moderately back to normal levels, do you pull those staffing levels back and so -- they usually run -- make up another 10% staff to sales at a store level, that's where we should be and we should manage accordingly? Or do you still say, look, we should be supporting the community. We should be probably taking a little bit more maybe overservicing customers for the foreseeable future?
It will depend on the health guidelines, really, which we've adhered to throughout. So if COVID disappears until a vaccine arise, then I'd imagine that the regulations might change accordingly. What we're trying to do is things like sanitization, for example. The more that, that can be self-dispensed going forward than someone stood with the dispenser, the better it is. We're also seeing less and less need for queuing systems outside the store. Clearly, if confidence returns, people might start shopping more frequently again, and that will need to be reviewed. But we're looking at it almost hour by hour on a store-by-store basis to make sure that we're compliant and giving our team confidence to serve.
And just final one for me. Just Australia, is obviously an extremely promotional market and one of the most promotional in the world despite the level of consolidation. I was interested, in your commentary you thought there'd still will be a lot of promotional activity going forward as people sort of -- given some of the economic hardship. But did you also say it's an opportunity to sort of pivot to less frequent, more impactful promotions, as I think all of the retailers in Australia have been trying to say and makes sense to shift to publicly over the last couple of years. Do you see this as a catalyst for this going forward?
Yes, possibly. I mean, we're not looking at everything and saying it has to return to the old way of doing business. But we have a promotional intensity, which was around that mid-30s level. It came down significantly at the peak of the panic buying. And it's probably got halfway back to where it was. We think there's more to do but this is a big opportunity for the industry to rethink the way it does promotions because there are far too many, as we've always said. And a lot of them have limited impact or profitability. What we've got to do is make sure we're offering the right promotions for the right period of time that drive sales and profitability. And that's what we'll be focused on.
Your next question comes from Bryan Raymond with Citi.
Just another take on the cost of doing business side in supermarkets. Just keen to understand of the 12,000 team members, what percentage of it you view as sort of variable costs? Obviously, some of that will stay in the business, but how much of that is going to really subside with the returns to normalcy on sales growth? And also just on that, with the overall wage rate for the net casuals, if you give still just for -- are they 50% more expensive per hour or less than that or more than that? Just versus your overall average wage rate just to get a feel for the cost of doing business impact.
Yes. Thanks for that, Bryan. It's fair to say that casuals cost more per hour because they don't receive the same level of benefits as part-time or full-time team members do. Clearly, there are rosters in place that reflect sales. And there is flex in the system up and down on hours based on demand. And the hard part over the last 6 to 8 weeks has just been tracking demand by department. So for example, grocery has been a big peak but bakery, for example, hasn't. And bakery is a highly labor-intensive area. And so product groups where you have impulse sales like soft drinks at the front end, bakery products with very short life codes, they've been impacted because people aren't in stores so much. And so things like bakery hours, you can flex down. But then you have to increase cleaning and security hours. But we do have a flexible model, and the store managers look at their rosters every week with regard to what the sales are. And our new forecasting system is reforecasting sales now every day rather than every week. And so we're in a much better position than ever before, albeit with a more noisy background than ever before to flex our hours.
Okay. And then just on the gross margins as well. It's been asked a couple of different ways. But if you've gone from underlying price inflation, excluding tobacco and fresh, of 0.4% in the prior quarter to 1.8%, obviously, fewer promotions could be the driver of that. Is that a proxy for gross margin expansion? I know there's lots -- there's all sort of moving parts in terms of stock loss, meat price inflation, ready meal rollout, et cetera. But is that -- would that be a reasonable starting point for the third quarter gross margin uplift?
No, I definitely wouldn't read that as a proxy for gross margin. It's a -- it's really a proxy for inflation. And so what we...
Clearly, but in terms of getting a read on gross margin. That's going to be, let's say, an input, obviously, to your promotions.
What that's made up of is a number of things, which is underlying price increases from suppliers, notably that have been impacted by the bushfires and the droughts. It's less promotional activity, which will be restored, as we've talked about. And it's also people buying everything on show, which is pack sizes and brands and so on that they wouldn't ordinarily buy. And as people have bought everything on the shelves, smaller pack sizes, that's also a higher cost per unit and so on. So I think some of these things will unwind, but I think inflation as a result of the droughts and the bushfires will take some time to work its way through the system. Also, what we've got out there are 3 types of supplier, I think. We've got suppliers who import product, and they're obviously looking at the A dollar and being impacted by where that's at. We've got suppliers who've been impacted by the move away or restrictions on foodservice. And then we've got other suppliers who have literally been knocking it out 24 hours a day to keep up with demand. So I don't think you can sort of look at inflation and think it's one size fits all. There's a lot of factors out there that are at play at the moment.
Right. I mean our general view would be that stock loss would have fallen a lot in March because obviously, things can't really go off or be stalling, if everything gets bought. But then all this volatility around stock levels and stockpiling generally, has that -- do you think there's some risk to stock loss going forward as you're recalibrating your replenishment models. Just typically when things do go haywire, it's either around little shop or around other things, I know stock loss can sort of move around quite a lot. Just interested in the -- in maybe the fourth quarter view on whether you feel that your systems are sort of caught up, and you're now starting to see more normalcy return on that front?
Yes. Look, it will move around a bit. I mean we've had -- I went into 1 store during this, and we had milk at $0.10, and that's the lowest price I've ever seen. And that was because they received a pallet that was allocated out because of demand versus supply and so on. And I've seen mints at less than $1 and so on. And so what we're always trying to do is to clear stock before the sell-by date. That's the #1 idea. Products are moving all over the place. And therefore, by store, there will be increased markdowns on selected lines during this quarter. You're right to say that there was less stock loss in March as we sold out on most products. What we are very cautious about is what impact higher unemployment and poverty might have on stock loss in relation to that. And so we're doing a lot of work on looking at where that might happen, products where it might happen and so on and just tightening up stores from that perspective.
Your next question comes from Ross Curran with Macquarie.
Just 2 quick questions for me. Firstly, around online investment. Is it possible to accelerate investment online? Or is Ocado seeing similar [indiscernible] to limit your growth to pull forward?
Sorry, Ross, you've just really broken up. Would you be able to put the phone a little bit closer to your mouth and try again for us?
Sure thing. Can you hear me all right now?
Yes, that's better, thank you.
Yes.
Excellent. So I was just asking about the investment online, if it was possible to accelerate your investment with Ocado? Or is Ocado seeing similar capacity constraints globally?
Yes. No, it's a good question. We're in regular contact with Ocado, and it's so the retail customers throughout this process to see what they're seeing on the ground and how they're coping with things overseas. I mean the one thing you can say categorically is Australia is coping better than anywhere else globally. And that's a terrific achievement by the various governments here. The good news about Ocado is that their first couple of international customers are up and running with CFCs, which is a good thing. And obviously, they'll learn as they roll out. And we've pretty much secured the 2 sites that we need in Victoria and New South Wales. And obviously, we'll be trying to work as fast as we can with Ocado under the restrictions that exist to sort of bring their system here. They continue to innovate themselves. They're looking at smaller CFCs. They're looking at micro fulfillment and so on. So they certainly haven't taken their foot off the brake. But it was interesting talking to one of the leadership team at Ocado, which -- and I think at one point, Boris Johnson got up and said he'd recommend that Brits shop from home. And I think the system crashed pretty quickly, but they're back up and running now and that's at full tilt.
So does that mean you can accelerate investment here?
If I was giving a quick answer, I'd probably say it will be difficult to accelerate, but we won't miss an opportunity if we can.
And the second question I had was around liquor. And maybe you could talk through the trading over Jan, Feb versus March. It looks like there might have been continued softness over Jan and Feb. Is that how you're seeing things?
Yes. As we called out in the half year results, the bushfire's smog was definitely having an impact on backyard barbecue, drinking, by lots of things. And then obviously, COVID brought it in a pretty quick end to the summer, full stop. So yes, it was trading down for those -- for that first period of time due to the bushfires. And then obviously, it's been the beneficiary more recently. And we've seen some elevated demand there due to the pubs and clubs situation. And clearly, what we haven't seen yet is what we're seeing in the food area where people are doing home cooking. But we haven't seen as yet a big rise in home brewing, but you never know.
Have you been able to clear the stock that you're looking to move out in the December period last year? Is that all done now?
No, not quite. I mean, that program is going to go on for some time in terms of the range change. The range change has obviously been delayed in the process. There's obviously been some moving parts there as well. It's been a little bit more difficult on the international side, the international sourcing side. But equally, we've had many, many opportunities from local suppliers. I think as of last week, we've had more than 500 approaches, I think, from local suppliers to help them. And obviously, that's something that the team are working through. So the range change program will go on to Christmas, I think. We'll be deleting lines as we go. We've probably seen a more prominent rush to value in liquor than we've seen in supermarkets. People have been buying cases of the big brands in particular, and that's impacted our margins.
Your next question comes from Richard Barwick with CLSA.
Just another 1 on thinking about the food inflation. Obviously, lower promotions, as you said, contributed to the uptick during the quarter. But you also talked about actively working to improve brand specials program going forward. And it seems like the promotional calendar is sort of heading back towards whatever the normal might be. What is your expectation for food inflation over this fourth quarter and perhaps even into the first quarter of FY '21?
Richard, you might know me well enough by now to know I don't do expectations of food inflation going forward. I think I'd be surprised if it hasn't peaked, for the reasons we've talked about in terms of pack sizes and in terms of promos. So we have got a lot of suppliers who are in the price increase launch that we're working through at the moment. And it's for different reasons, as we've talked about. Some of them are A dollar-related. Some of them are drought and bushfire-related. So we'll work through those. As -- our approach on pricing hasn't changed, which was we will only pass on the price increase or allow -- take the price increase if it can be properly validated. And then we take a view internally as to whether that price gets passed on to customers or not. And we're very conscious of the environment we're in and trying to alleviate the price increases wherever we can.
Okay. That's so helpful. And obviously, if you're doubling your capacity within online, and just I'm trying to marry up that with your comments around increased efficiency and therefore, improving your profitability through online. I mean, increasing capacity, presumably, that's more in reference to there'll be more deliveries in a given suburb or a given area as opposed to branching out and offering online into brand-new areas. If you could just clarify that? Because I think if it's a case of more intense offering as opposed to an expanded wider geographical offering than you [ mount in the ] case to say that's much more positive for the associated costs and margins.
Yes. No, it's what you've just said about more intensity around where we trade.
Yes. Right. And what proportion of, I guess, the stores or what proportion of the population does have access to online shopping now through Coles?
The vast majority. So I think we're in something like 110-or-so home delivery stores. We've got Click&Collect operating everywhere. And I think we've got concierges in close to 400 stores now.
Okay. And just last 1 for me on cost and the cost out. I think -- I remember you achieved $95 million in the first half '20. I think you were targeting something like $55 million in the second half?
Yes.
And have you still been able to progress those cost-out initiatives or have that been sort of put to the -- just 1 side as you've been having to deal with the big surge in demand?
Yes. Look, I mean, there were clearly some programs that sort of went on hold for a period. We're back full tilt on Smarter Selling programs. So there would have been some underlying costs though that were just naturally rolling through the system. But we'll give you an update on where we've got to in August, but it's back to business on the Smarter Selling front. And obviously, we're thinking through things that have happened over the last 2 months and what the learnings are. I think net-net, when we come out the other side, we've got more ideas than we had before, which is good.
Your final question comes from Phillip Kimber with EAP.
First question on liquor. You mentioned that you're seeing elevated sales there. I'm not sure if you've seen it, but in The Australia, there's an article today with CEB saying, they've seen a collapse in beer sales in retail, just so -- not in on premise, we're talking off-premise retail liquor stores in the month of April. That seems inconsistent with what you're saying. Is that -- have you seen any slowdown in the month of April in off-premise liquor?
Not really. The sales are, as we said, elevated above normal levels, which is what we'd expect given the pubs and clubs situation, but the -- probably the leading category has been spirits in the whole mix of things. But there's certainly -- beer is still selling.
Okay. Yes, so it's just interesting. You're not seeing in your stores and they sort of called it out this morning. They said down 10% to [ 15% ] year-on-year. The second question I had was just on both on the food business. You talked about impulse purchases are down and that value-add is down. And people are more baking from scraps and so forth. I mean are you calling out a material GP margin impact from that? I mean, should I assume that the more value-add impulse items do come with a higher gross profit margin?
It certainly come with a higher cash margin. And if we think about it, it seems like -- take sandwiches, no one's buying sandwiches, particularly in city locations because they're not working in city locations. So there's been some big changes to the mix. And if people want to make a sandwich, they'll probably make it at home and so on. What we've also got happening is there's no lunch boxes being made in Australia. There's -- kids aren't on taking them to school and mom and dad aren't taking them to work. So all of these things contain impulse items, whether that's healthy or not, snacks and so on. And that's impacting our sales in those areas. But people are eating overall, as far as we can tell, more healthily with more meat sales, more produce sales, more cooking from scratch. In many ways, it's potentially a good positive trend for supermarkets in that regard in the long term. But in the short term, until people get back to work and back to school, I think impulse sales and lunchbox sales are going to be -- continue to be depressed.
Okay. But you were saying -- when you say higher cash margins, are you talking gross profit margins? Is that...
Yes, look, it's different by category. By the time you've sold a sandwich and done the markdowns, you don't make the same gross profit as you might make on other lines. But equally, selling a can of coke for a few dollars at the checkout versus $0.50 on promotion in grocery is cash generative, and that sort of business is in decline.
Sure. And impulse, is that a small percentage of your business? Or is it more meaningful than I would have initially thought?
Yes. It's not -- I'm not referring to impulse necessarily as a category, although it exists. I'm talking about lines that you buy when you're in a supermarket that weren't necessarily on your shopping list. People have become safe, speedy shoppers, which is what we wanted them to be, but they're not loitering and looking at what other things they can throw in their basket. They're sort of getting in and they're getting out. And the fact that there are fewer shopper trips means that you sell less of those items. So whether it's a packet of hot cross buns in the bakery, whether it's a can of Coke at the checkout, whether it's convenience meals, bag of salads, sandwiches, the sales mix has changed extraordinarily. But overall, sales are up. The point to take out of this call is, if you take nothing else, is the sales are still up. It's just being achieved in a different way.
We do have another question, it's from Daniel Luth with BEM.
Steve and Leah, just a quick housekeeping question. Could you explain why there's such a big difference between comparable sales and sales per square meter growth? Well, I know they're not calculated the same, but it's just a very large cap. So I'm just wondering what I'm missing there?
Daniel, sorry, I just missed the start of that sentence.
It's just a gap between the comp sales growth and the sales per square meter growth, it's like 13% and 4% in...
Yes, so -- I'll take that one, Daniel. So the difference is really in your measurement period. So your selling area, your sale per square meter piece, that's on a rolling 12 months, whereas your comp sales is just for the quarter.
There are no further questions at this time. I'll now hand back to Mr. Cain for closing remarks.
Okay. Thanks, Izzy. Thanks, everyone. Look forward to catching up soon. Bye.