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Wesfarmers Ltd
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Ladies and gentlemen, thank you for holding, and welcome to the Wesfarmers quarterly retail sales briefing for Coles.[Operator Instructions] This call is also being webcast live on the Wesfarmers website and can be accessed from the homepage of wesfarmers.com.au.I would now like to hand the call over to the Managing Director of Wesfarmers Limited, Mr. Rob Scott.Thank you. Please go ahead.
Thanks very much. It's Rob Scott here, Managing Director of Wesfarmers. And I'm joined by the Coles Managing Director, Steven Cain; and Leah Weckert, the CFO of Coles.I'll provide an overview of our sales results for the first quarter. And then Steven, Leah and I will be available to take any questions.Clearly, these quarterly sales figures are of particular interest in the lead-up to the Coles demerger vote in a month's time, but I would like to emphasize that Coles' primary focus is on building long-term and sustainable performance. And this is consistent with Wesfarmers' focus on long-term value creation. Coles' sales performance during the first quarter were very pleasing, reflecting continued momentum in Coles driven by improvements in a range of metrics that highlight the underlying health of the business as well as the success of the Little Shop campaign.Starting with Coles Supermarkets. Headline sales for the quarter were $7.7 billion, up 5.8% on the prior corresponding period. Comparable supermarket store sales increased 5.1% for the quarter. The sales results for the quarter were supported by the successful Little Shop promotion, improved in-store execution and the ongoing promotional initiatives through the flybuys program. Price inflation was 0.6% during the quarter as a result of supply-driven inflationary pressures across key fresh categories. The drought on the East Coast of Australia affected the cost of grain and led to lower supply of livestock, impacting our bakery and meat categories. In addition, the significantly favorable growing conditions in the prior corresponding period last year also contributed to the inflation in fresh produce for the last quarter. Despite these supply-side cost pressures, Coles continued to invest in the customer offer, with underlying price deflation of 0.8% for the quarter when the fresh and tobacco categories are excluded. Coles continued to deliver pleasing customer satisfactory metrics during the quarter, particularly in the areas of range, quality and availability, supporting continued growth in customer transactions, basket size and units sold.Coles Online achieved over 30% sales growth for the quarter. And the business continued to invest in providing choice and convenience for customers, with more than 1,000 available click-and-collect locations across the network at the end of the quarter. In liquor, headline sales for the quarter grew 2.1% to $744 million. And comparable sales grew 1.3% for the quarter, driven by growth in basket size and transactions.In the convenience business, total Coles Express sales, including fuel, for the quarter were $1.4 billion, an increase of 2.5% on the prior corresponding period due to higher fuel prices. Comparable fuel volumes decreased 15.9% for the quarter; and were impacted by substantial increases in the cost price of fuel, which was caused by higher global oil prices and the lower Australian dollar. Coles Express is continuing to work with its Alliance partner to provide a more competitive fuel offer. Despite the decline in fuel volumes, comparable convenience store sales increased 3.4% for the quarter, driven by continued improvements in the food-to-go offering and the convenience range.So now Steven, Leah and I would be very happy to take any questions you may have.
[Operator Instructions] Your first question comes from the line of Rob Freeman for Macquarie.
Just on the fresh market share gains. I think Little Shop finished on the 11th of September. Can you please indicate if those gains were held into the back end of September and into October, please?
Rob, it's Steve here. I'm very happy to be doing my first quarterly sales and look forward to doing the quarters in the year ahead. I don't think we're ever going to get into reporting sales by month or by week. All I'd say is that it was a very strong quarter that Rob's already articulated. And within the quarter, fresh foods continued to perform the best. And that's probably about as much as we'd like to say about any sort of granularity at this stage.
And so that gain in market share comment, just to be clear: that comment is to the 30th of September.
That's correct.
Yes.
Okay. And then just on Little Shop, can you please just give us a bit of color as to how much the campaign cost and whether there is any plans to do another version of it in the next 6 to 12 months, please?
Yes, again we're probably not going to get into the details of costs of individual campaigns. I mean what we have said is it's probably been the most successful short-term campaign the business has ever run. Clearly, we will be doing a proper evaluation of it and deciding what to do in the year ahead. Obviously, we're looking at lots of innovative things that we could do, but we've been delighted with it and the excitement that it caused both for our team members and for our customers alike.
Okay. And then just finally: so your analysis of the kind of new Little Shop customer, how did their behavior vary? Were they picking up certain categories of Coles that they ordinarily wouldn't have? And how have you seen those shoppers behave post completion of the program?
Well again, we're not going to get into what's happened pre, during and post for the program itself. I think overall what we saw during the program was, as we've said, an increase in transactions, an increase in basket size. And the greatest increase in sales was in fresh foods. Having said that, there are some areas of grocery, packaged grocery, where there may well have been some forward purchasing to stock up as well.
The next question comes from the line of Shaun Cousins of JPMorgan.
Just a question, I guess, on inventory levels. The comment in the release suggested that stockless stockrooms saw a reduction in inventory levels. I'm just curious. We understand that one of the benefits -- or pardon me. One of the outcomes of the strength in -- of the plastic bags decisions you've made as well as Little Shop actually saw the company have to revert to start putting more inventory in the store, where in contrast stockless stockrooms was quite dogmatic about actually tightening inventory level to the extent that you missed sales. Can you talk about whether or not you've moderated and the degree of inventory you've cut on the back of stockless stockrooms, please?
So we're continuing to roll out the stockless stockrooms program, and we are making pretty good progress. I think we're seeing a steady decline in inventory over the last few years and continuing to push to roll that out. During the Little Shop promo, we did -- because of the heightened sales amount, we did flow quite a bit of additional inventory into stores to be able to support good availability for customers. And you'll note in the release we did make reference to the fact that our availability metrics was one of the key highlights for the quarter, but we had really good sell-through of that inventory, so in terms of the trajectory around it, we're continuing on what we were prior to the quarter and prior to Little Shop.
Is that -- but you're continuing on that trajectory even though you found that, when you've had more inventory, you've had better availability and better sales.
Shaun, Steve here. Just to be clear, the stockless stockrooms was designed to operate on -- with better inventory, i.e. lower gaps on shelves and less stock in the system. Obviously, you're seeing from the results today that Little Shop did drive an increase in demand across the store. That to one side, our availability data shows that this improvement in availability and in-store execution has been happening during the course of the year. And I think, as I mentioned on the demerger call a week ago, there's a huge focus on improving in-store execution not just from an availability perspective but in service and so on. And so I don't think we should try and link the Little Shop and stockless stockrooms. I think, independently of that, the availability was improving. And it's a big focus for the store managers every morning.
Okay, that's fine. And just, I guess, a question just on fuel volumes. I mean the past calls have suggested that fuel volumes have been somewhat flat quarter-on-quarter, but when we look at the data, the company endures like-for-like fuel volume declines in the mid-teens, and that's been going on for some time now. I mean, are you actually seeing declines on a quarter-on-quarter basis in fuel volumes?
Shaun, it's Rob here. I was just referencing some of the comments that were made in recent quarters. There were comments made, going back previous quarters, that we were seeing volumes stabilize in some weeks. I guess what we're calling out is happening is that we've seen a fairly mature reduction in the Australian -- in the exchange rates. We've also seen global oil prices increase. So the overall cost of fuel in the market has gone up, and it's not uncommon when you see quite strong increases. I think what -- we're talking about just under 20% year-on-year increase in fuel prices to the consumer at a market level. When you see those kind of increases, it's not uncommon to see the volumes come off. So yes, there's clearly been a change in the market price since those previous comments were made earlier in the year.
Okay, that's fine. And I guess, just finally for me, just in terms of fresh inflation. You've talked a little bit about the outlook there given we haven't seen all the negative impacts -- or pardon me, the positive impacts on inflation from drought. How is the company sort of expecting fresh inflation to play for the remainder of -- I guess, yes, the remainder of the fiscal year, just in the visibility that you've got in terms of how we're seeing sort of, be it, wheat or meat prices sort of play out? I'm just curious about your thoughts there on the outlook.
Yes, well, I think there's 2 separate questions there. One is around the cost price, and one is around the selling prices. I don't think it's something we'd want to comment on in this particular call, other than we can't really see any short-term change to the situation.
Your next question comes from the line of Michael Simotas of Deutsche Bank.
Look, I know this is a sales call, but you've called out a few costs coming through the supermarket business around EBA as well as service to move away from reusable plastic bags and the cost of giving away bags. I was just hoping maybe you could give us some commentary about what that actually means for Coles' P&L, particularly in the context of very strong like-for-like. Is that enough to offset the cost increases that you're taking?
Michael, it's Rob here. I might -- I'll initially talk to that and then hand over to Steven and Leah to provide some more context. So you'll recall that in previous calls, notably, our -- at -- well, at the strategy update in June and then at our full year results in August, we were very clear about the cost pressures that we faced this year around EBA, so we're just reinforcing that cost pressure message. And we noted that, that cost pressure was orientated towards the first half as well. So we're reiterating that. What we've also called out today is, as a result of the significant disruption and changes caused by the plastic bag transition, that there were some additional costs that flowed through associated with that. And obviously, the additional flybuys point benefit associated with the bag issue as well was related to that cost as well. So some of -- we're really just reinforcing what we have already said but also reinforcing this additional cost pressure regarding the plastic bags. As you say, this isn't an earnings call. And as you'll recall on previous occasions, we're embarking -- in the Coles team we're embarking on the busiest months of the year leading up to Christmas. So we've never, in the past, provided guidance in the way of earnings when we're about to embark on such a key trading period, but I don't know, Leah or Steve, if you wanted to provide more context or...
No. Good summary.
Okay, all right. And then second question from me, on pricing. I mean you've made some comments around fresh produce. Obviously, some of those input costs as well as energy and transport and a couple of other things are impacting on packaged good supplies as well. Are you seeing any sort of greater push for price increases on packaged groceries from your supplier base?
Again, Michael, I think this is -- the primary focus here is to talk about the sales in Q1 rather than every sort of underlying dynamic in the business. And I sort of regard the whole pricing situation as commercially sensitive, so it's not going to be something you're going to find me talking a lot about other than factually and in arrears. So what we have said on grocery is that there was some deflation in the period overall. And that was driven by the continued focus, for us, anyway, on the EDLP pricing program.
Okay, all right. And then maybe if I can just squeeze one more in, following in -- on from Shaun's question on petrol. Obviously, there's been a change in market price. And I completely understand and agree with Rob's comments on that, but can you just give us a bit of context around where you think the competitive position of Coles is on petrol? I mean my understanding is there was some investment made and it got a little bit closer to market price. Do you need to do more, or is it about where it needs to be?
Well, as we've -- Michael, as we've called out, we continue to work with our Alliance partner to look at various ways in which we can move to a more competitive offer. And we have and we are undertaking various trials in different regions to try that out. Just going back to my earlier comment, whilst -- in terms of the decrease that we're seeing in weekly fuel volumes has certainly flattened out over the last 3 quarters from where it was, going back a year ago. Now it's quite hard to discern what is driven by the very high market price versus what is driven by the pricing that we have, but I think what's also really important to note is that the team have been able to continue to drive fairly strong comp store sales growth in stores. So I think the team are doing a pretty good job controlling what they can control at the moment. We obviously can't predict what's going to happen with global fuel prices or the Australian dollar, but at the moment we're seeing the rate of decrease moderate. But clearly, the broader macro factors are what's impacting the business at the moment.
Your next question comes from the line of Bryan Raymond of Citi.
My question is also on inflation. Perhaps it would be helpful if you could give us what your inflation ex fresh food and tobacco -- what that measure, which was negative 0.8% in this quarter, just to develop a bit of a background to it. If, potentially if you could give that to us from the fourth quarter '18 or maybe even the first quarter of '18. Just to give us the yardstick to compare that number to.
Bryan, Rob here. I -- look, I think it's hard for us to provide much more granularity around deflation, inflation than what we've provided. We've obviously called out, we have called out the price deflation of 0.8% for the quarter excluding fresh and excluding tobacco. So we did see some price deflation. Obviously, that has moderated quite a bit from where it was. And fresh inflation as well was a key driver. So if you kind of look at how deflation excluding fresh and tobacco has tracked, it's certainly the lowest level of deflation that we've seen for the last few years, but it's difficult, as Steven said, Bryan. Look, we can't predict how that's going to flow through. There are always cost pressures out there, but at the end of the day, what we need to do is make sure that we maintain a very competitive price position for our customers. So ultimately, the market will determine the ultimate deflation level.
Yes -- no, understood. And in terms of just asking some of the previous questions in a slightly different way. In terms of the investments you've made in the store in terms of dealing with plastic bags and other issues, is it possible to give us a length on labor hours in store of late? When you're trying to deal with those slower scan rates with reusable plastic bags and also just investment in store hours that you're probably planning on making anyway, can you give us a feel for how that's trended over the past, say, 3 or 6 months or particularly as that plastic bag change has come through?
I think, again, obviously we want to try and focus this call on quarterly sales. We did put the mentions of the various cost drivers in there just so that nobody got too carried away with profit forecasts and so on, but I think, if we start breaking down individual cost elements in a quarter, it'll be a -- it's not where we want to sort of focus our time on this particular call. Clearly, if there's any medium-term changes, then that's something we'll discuss at the half year review. Clearly, it was highly disruptive for the first few weeks of the plastic bags. And clearly, we had to put more resources in to support the Little Shop campaign, but we'll have a much better answer and be able to give you any sort of visibility on ongoing changes at the half year mark in February.
Bryan, just to add to that. And we talked a bit to this at the full year results, but we deliberately -- or the Coles team deliberately didn't cut back on REM in the lead-up to the end of fourth quarter, and that obviously supported some of the momentum that we saw through fourth quarter. And as Steven said, the first quarter was an incredibly disruptive one given the plastic bag transition issue; and I think, a credit to the Coles team, that they didn't cut back on REM. They did invest to make sure that we had the team members in store to help customers through that transition. And I think, to go back to one of the key objectives that the Coles team set this year, it was to improve availability, improve customer service. And we actually saw -- for what was a very disruptive quarter, we actually saw the improvements in customer service. We maintained those levels through the first quarter. And you clearly can't achieve that if you're cutting back on in-store REM.
Sure, sure, okay. And just one final one from me is just on the store network. In the last page of your update there, your actual square meters went backwards in the quarter slightly. And you opened 4 and closed 4 stores on the supermarkets side. I'm just interested in whether that's a signal of a slowing store growth profile or if this is something that's just due to timing of openings and closings that happened to fall in this quarter. Can you just give us a bit of color around what that stalling of the store network in this quarter might mean going forward?
Yes, it's just a timing issue, as you say. It's just we're back-ended in terms of a lot of property activity for the year.
Okay, so previous forecast of 2 to 3 -- or previous guidance just generally from management of 2% to 3% store growth is kind of still the approach taken here for Coles?
Yes, the 2% to 3% space growth, not store growth, but space growth, yes, still in line with that.
Your next question comes from the line of Andrew McLennan of Goldman Sachs.
Just a follow-on on the petrol side. Obviously, the volumes are pretty terrible. And we've discussed it at length already on the call and previous calls. But despite all that, your comp sales performance within convenience has been relatively resilient, almost completely independent. I'm just wondering if you could talk a little bit about what's going on there that continues to drive that convenience offering. Has there been a particular promotional campaign or particular category that's actually helped there?
It's mostly the food-to-go offer, Andrew. And obviously, that includes things like sandwiches and coffee, where I think more than 100 stores have been converted in the last period of time.
Okay. And then I just wanted to go back to what was happening during the first quarter. Cross-shopping is prolific amongst the customer base, but there must be some kind of element of stickiness once you please a customer. The Little Shop has obviously enabled you for a period of time to pull in a significant market share gain. I'm just wondering if you could talk around the stickiness of the customers once you attract them back, and also what you may have been doing to try and either gather information on those customers through flybuys or try to engage them beyond the first quarter to actually extend the benefits of that event.
There's a lot of analysis being done, as we speak, in terms of who is new, who cross-shopped and all the rest. I'd say that some of those customers have proven to be stickier than others, but there's then the ebb and flow of day-to-day trading as well. So we certainly won't be reporting the same level of sales growth in Q2. And clearly, the most important part of Q2 is still to come with Christmas. We think we've got a much better year lined up from a product innovation point of view, but in terms of underlying business we will be heading back more towards what we saw at the end of Q4 than in Q1.
Okay. That is interesting, but I don't think it'll be dramatically different to people's expectations nor ours. But just in terms of the flybuys promotion, can I just confirm that investment, whether or not that was made to try and elongate the customer staying within Coles? Or what was the investment actually relating to?
It was a number of different things. Obviously, what the team are trying to do in flybuys is always come up with innovative ways of growing sales, and that's the beauty of the program. So even before Little Shop was launched, there were -- there was increased investment in driving basket spend in the business.
Your next question comes from the line of David Errington of Merrill Lynch.
Rob, I'm a bit worried about the petrol business. There's been a bit of talk about this, but it looks to me like, in FY '16, when the commercial terms were changed, Coles put the price up at the pump. And that caused a drop in volume, but the price in the pump offset that. And then -- well, that was, when was that? And then last year -- well, that was in '17, FY '17 year, so you had no impact on earnings. But then in '18, the drop in the volume, you couldn't put the price up so you got whacked heavily. And EBIT dropped by $60 million. And it looks as -- and that, I mean, is a pretty big drop in EBIT from petrol in '18. Now going into '19, the volumes, as you say, have stepped down again. You've got this unmarketable price out there where you're well above the market. I mean I don't think that's divulging any secrets out there. And your volume is still down 15%. Now this particular quarter, you're down 15.9% on a quarter that was down 20% this time last year. My question is, what are you going to do? I mean, if you -- this is a volume game, and it's a fixed-cost industry. Now you might sell a few more coffees and go sandwiches, but that's not going to offset another 15% or 16% drop in volume, which was around about last year. Last year, you dropped 16%, and that cost you $60 million drop in EBIT. What can you do here to avoid another step down in earnings? If petrol prices, which everyone is saying, are going to stay up at these levels, it looks like the joint venture partner is not going to come to the party. I mean you've been talking about this now for 2 years, and they're not going to come to the party. What are you going to do? I just don't know where you're going to go with this. Because if volumes don't pick up, you're sitting on a pretty hefty drop in EBIT again. Can you take cost out somewhere? Can you take -- I don't know where you can take the costs out because there's such low labor. There's low labor. It's just the fixed costs. It's just your leases and your operating costs. What can you do to avoid another savage drop in EBIT going into '19?
So David, I'll -- look, I'll start to answer that. And then I'll hand over to Steven because ultimately Steven and Leah and the team will be the ones that manage this going forward. But as you noted and as we disclosed in our scheme booklet, there has been a significant decrease in the profitability of this business driven by the factors that you mentioned. So going back a few years ago, this business had weekly fuel volumes in circa 90 million liters. And that has decreased, getting down to about the mid-60s earlier this year. Now the comment about stabilization came about because we were seeing the weekly volumes stabilize at around the mid-60s million liters a week. And if we look at what's happened in the last quarter, it's about that level as well. So on a month-on-month basis, we're not seeing a material decrease in volumes, but clearly if you go back a year, it is down. As you noted from the scheme booklet, the Coles Express business is not an overly material contributor of earnings to the broader Coles Group. It's clearly something that the team are focused on improving. As I said, a lot of the current impact, we think, is very much impacted by the broader market factors around exchange rate and oil prices. And these are challenges that will impact all competitors in the market rather than just Coles Express. So look, I'll let Steven talk in more detail to how the team...
Well, before -- Rob, before you go to Steve, just before you go to Steve: I know that you're saying stabilization, but I just can't see because you're down another 16%. And what worries me is that, when that price goes up, it changes behavior, where people are going to shop around more. So the risk is, is that you said you're at mid-60s, 65, what's -- if that is obviously the way you're headed, you could be very quickly in the mid-50s. And if you're in the mid-50s, as you say, it's not a material contributor. Yes, I get that. It's $120 million, but if you drop $60 million in EBIT, that is a material change in EBIT. So you could be -- and unless something changes here, that's the way this business is headed because, if -- because that's what effectively the numbers are telling us. So I hear this word stabilization, but what we see is a minus 16%. That's telling me that you're catching a falling knife here in a fixed-cost business and you're sitting on a serious drop in potential EBIT right at the stage of the demerger. So is Steven sitting on a bit of a land mine here that he just can't get out of?
Well, David, as I said, volumes have come down a long way in the last couple of years. As I said, it has been fairly consistently in the range of 64 million to 66 million liters a week for the last 3 quarters. But look, I'll let Steve...
What about the last quarter? What about the last month? I mean it can't surely be 65. It's got to have dropped in -- you probably had weeks where you were in the 50s. Is that a fair comment?
It's -- no. It's no. David, it's not -- it hasn't changed materially month-on-month. As I said, we did -- if you go back, this is the highest level of market pricing for fuel in the last 4 years, so...
And you've got an "out of the market" offer that's $0.04 or $0.05 above the rest, so for a conscious customer that's going to be looking there is potential that you could drop more volumes going forward. That's my concern. And that's what can Coles do to avoid that, other than drop the price at the pump, which means that you're going to have to wear a major hit, anyway. So I don't know where you're going with this business. It just looks to me that you're sitting on a land mine that Steven's inherited.
David, I think that it's certainly one of my key priorities to work with Viva and look for some win-wins. The team are doing a couple of experiments across the country to look at alternative pricing structures, let's call it. And we'll obviously be letting you know more about those in February, but the fact remains that it's probably something that both ourselves and our partner want to resolve to get to a win-win situation. You're right. Certainly, we're not going to solve it with -- the situation with coffee. But don't underestimate the good work that's going on there in terms of growing the sales, growing the margin in the convenience stores and then obviously continuing to work on efficiency programs.
Okay. And just -- okay, Steve, we're probably done with petrol to death now. On -- I'm sorry about that, but on flybuys, was there a step up in the activity of flybuys in this quarter? I mean I -- reading between the lines of the announcement, it looks as though there was a concerted effort to step-up sales in that first quarter. Was there a material step up?
Yes, there was an increased investment in flybuys. And obviously, it's a key part of our armory going forward. I think you'll see, post demerger, that both Wes and Coles want to drive this whole flybuys business hard. So I'm expecting that every 6 months we will be able to give you some good news about how flybuys goes from strength to strength.
And how does it work? So when you invest in flybuys, does the cost of the program -- you get the full sale, I presume, because then you wear the cost of the program. Does the cost go through cost of doing business or cost of goods?
It goes through cost of goods, David.
So cost of goods. So if you get a big step up in the flybuys -- so this quarter, there probably was a step up in sales, but then it goes through your cost of goods. That's the way to look at it. So then when you do the flybuys when you've got the JV, how does the JV going to work between Wesfarmers and Coles then? Is it a profit share? Do you -- like, how do you measure then the sales uplift, the increase in -- like Coles, where's the increased costs? How is all that going to work in the future? Or is that best to take that offline because it will take forever to answer?
Well, it'll work exactly the same as it does now, which is that we have a flybuys division within Coles which we take the cost in the costs of goods for the supermarkets and then the revenue goes to flybuys. Flybuys as an entity going forward of the JV will make a profit, and then we will take a share of that in terms of the earnings.
But the supermarket gets the sales uplift.
The supermarket gets the sales uplift. That's right.
Yes, supermarket gets the sales uplift, but then the cost of the program goes through costs of goods.
Correct.
Yes. And David, just to add to that. It's not -- look, the margin in terms -- the flybuys margin, as it relates to the Coles points process, is not overly -- it's not hugely profitable as it relates to flybuys, just to put it into perspective. So I wouldn't anticipate any change from what is currently the situation in terms of the utility of flybuys for Coles.
But it's a nice way of giving your sales a little kick up.
Yes. Well, I think it's just important to note that this is evolving as the team are just quite simply becoming a lot more sophisticated around how they use the targeted promotions, the one-on-one marketing through flybuys. So I would expect, given that they now have this enhanced capability, that it will become -- used more effectively in the future.
The next question comes from the line of Ben Gilbert of UBS.
Just 2 from me. Just firstly, just around the promotional intensity in the market, and if you could give us any color just around how you're seeing price perception from a shopper perspective and also just share of basket on promotion at the moment.
Ben, yes, I think it seems that, if you talk about generalisms, there's more product going through on EDLP. And you'll probably see most of the chains are marketing on that basis. And the sort of week in, week out promotional intensity is coming off.
Great. And then just a second one from me. Just as I think was said before, certainly the expectation was that comps do moderate post Little Shop, as you said, but just interested in sort of how you're seeing the consumer with respect to loyalty. Because they seem quite promiscuous out there at the moment in the sense that you get a good promotion, you win shoppers, but then it ends and you just sort of see this mean reversion in the industry. I'm just interested in how you are seeing the shopper and just in terms of where you guys think you're sort of trying -- or where you're looking to try and build a bit of a moat in your business to try and actually retain shoppers sustainably. Because it feels to me increasingly at the moment that -- in the absence of the sort of one-off-type promotions that it feels like a market where you just might see a bit of mean reversion and we sort of settle back into this sort of -- I won't say sort of cozy oligopoly. But just sort of more of an oligopoly stick-type market with sort of differentiation quarter-to-quarter or month-to-month but, as weeks move through, just more a bit of a everyone sort of performs in line with market. And I'm just interested in where you guys really think you're building that moat to try and grow above market or sustainably win share longer term.
We're trying not to be too focused on beating the competitor. It's more about doing a better job for customers. And you saw from the strategy making life easier, if we can deliver that better and faster, then we should be able to grow faster going forward. But we're certainly not obsessed by just doing a better job than competitor A, B or C. It is more around what are we going to do for customers. And certainly, as far as price is concerned, we have said that we will be moving to more of a trusted value, EDLP platform over time. And that's going to be a lot to do with an improved own brand program.
And to do things faster and better, do you think your back-end, at the moment, with respect to supply chain and capabilities there is at a point where you can do that to -- and not to compare it to competitors, but the consumers are obviously going to look to that, to do it better than the competitors? Or is this subject to that sort of big kick up in CapEx over the next few years to be able to achieve that?
Yes, I think the faster, better applies to everything, not just the supply chain. It's really about how fast the business can innovate and change. You look at the Coles Online results we announced today. It's a pretty significant achievement to get to $1 billion without it necessarily disrupting the bottom line. And one of the things I'll be very focused on going forward is how we make that into a more profitable sort of business. So the real intent is to sort of innovate and roll out faster, with a view to sort of winning in the marketplace because we're making life easier for our customers.
The next question comes from the line of Tom Kierath, Morgan Stanley.
A quick question for Steve, just on pricing. And when you compare your prices to other competitors out in the market, where do you kind of see it at the moment? Are you happy with where your prices are? I guess I've got to ask the question because we're seeing the highest inflation number for Coles in almost 10 years the quarter before it gets demerged. So I'd be interested to get your take on where you see prices at the moment in the market.
Yes, well, I think, as it's spelled out, we're in pretty unique situations at the moment with regards to the drought and some of the input prices. And remembering that the wholesale price of oil will impact prices across consumer land in terms of utilities and then product pricing as well. So it's not something we are actively driving, but equally if some input costs go up, then that's going to be reflected in the retail prices. As far as the grocery side is concerned, we are still investing in price, but it is more to do with EDLP than it is to do with promotions.
Is it fair to say just on the investment that more of the investment will be around online, labor, flybuys, like nonprice issues or areas? Is that a fair observation, and less will be actually invested in price going forward?
Well, I think we want to maintain our price competitiveness. We believe we are the best value sort of full-service supermarket out there, and we want to maintain that. As we invest in value over time, we'd prefer it to be engineered in rather than a hit to margins. But yes, we will be -- that making life easier for customers is going -- is going to be an absolute focus for the business. And we've got a strong position in online in Australia, and that's something we want to build on going forward.
Your next question comes from the line of Grant Saligari of Crédit Suisse.
I thought actually one of the big lessons of plastic bags and Little Shop was that the customer might not be quite as price-focused on -- to go on promotions as maybe the sector has led itself to believe. So I just wondered, just following on from the earlier questions, whether you think you can do a better job at innovation around the product and nonprice-based promotion in addition to your EDLP strategy.
Yes. And I think that's right. Everybody runs a few thousand promotions every week. And if you need a bit of extra sales, you do 1,001, but it doesn't always move the dial. Little Shop shows that, by doing different things, you can sort of move the dial by a few percentage points, but the reality is that in grocery retail people are fairly sticky by comparison to nonfood retail. And at the end of the day, you're talking about 97%, 98% retention whatever anybody else does, so you're talking about how to move sales at the margin. And Little Shop was a great example of that. If we look at what's happening for Christmas, then the amount of innovation that's coming through is probably more than ever before, and it is product based. It is more innovative, and it will create a better margin outcome for the business.
I've got -- secondly, if I ask a second question, just around convenience. To me the -- sort of the more interesting observation on convenience is how differently the shop is moving to the fuel volumes. I just wonder what that says about your -- about a possible heavier move into convenience for the business ex fuel? And I just wonder whether those shop sales would have been as positive ex tobacco. So I was wondering whether you'd comment both of those, please.
I actually didn't catch all that. It was a little bit quiet. There's...
Yes. Sorry, Grant. I missed it a bit. Were you saying, were you asking essentially what our plan -- what our thinking was around convenience more generally from a format point of view? Is that...
That's correct. And just on the shop sales in convenience, were they positive ex tobacco?
Yes, yes. So yes, they were. And I guess on -- and Leah and Steven can add to this, but in recent years, in terms of the property strategy at Coles, there has been a greater focus towards the convenience format. I think Leah talked to that back at the Strategy Day. Now this is -- it's not the core. It's clearly not the core to our property rollout, but the team is becoming more sophisticated at making smaller formats work financially and have identified opportunities where there is a customer need for that. So between the property team and Alister and the Coles Express team, we are starting to look at alternative formats there.
So I think, maybe just building on that just a little bit. So I mean convenience is increasingly a priority for us around convenience of shops because it's core to the whole vision of making life easier for our customers. And we have been doing some innovative things in the Coles Express network to support that. One which Steven referred to earlier is around the food to go, but you may be aware we've also been trailing a stand-alone convenience format with no fuel attached to it. The first of those sites is in Elsternwick in Melbourne. And that's performing quite strongly, and we're getting quite a few learnings out of that to move forward with.
The next question comes from the line of Richard Barwick of CLSA.
Question for you, Steven, first of all. In terms of this result, can you talk to some of the productivity metrics that were considered transactions growth, as opposed to growth in basket size?
Yes. I think we said in the release that we saw an increase in both. It was probably in -- if I had to sort of call it, it was probably a bit more in basket size than it was in transactions. But we'll probably not going to get to an increased level of granularity than that today.
Okay, well, which leads me to the next question. So for Coles going forward, and I mean you said in the announcement today that you will be providing quarterly sales growth, do you have any plans to lift or improve your level of disclosure to bring it more in line with Woolworths, bearing in mind that they do talk to volume productivity metrics and some of the customer metrics as well?
Yes. I think the -- yes, you're right. We will be carrying on with the quarterly sales. I think one of the things I'm going to do is -- post demerger is sit down with the team and look at all of our KPIs going forward. And then we'll decide which of those we'll report to on a quarterly basis, which we'll report with the results and which will be just internal measures. But that is on my shopping list.
Okay. And one more, Steven: liquor, to me at least, I thought that was a relatively weak sales growth, particularly in context with supermarkets. I mean my thinking would have been that, for the most part, as a convenience liquor retailer with stores that are often attached to a supermarket or not very far away from one, that there would have been some sort of halo effect from the stronger sales growth in supermarkets. And liquor would have seen a benefit, but apparently not so. Is that a surprise to you? Or is there any sort of any details that you can give there as to why we didn't see a bounce in liquor as we have seen in supermarkets?
Yes. First of all, what I would say about the liquor business is that the performance from Liquorland in particular was very, very pleasing. You've read about our plans regarding the upgrades there, which appear to be working pretty well. And then obviously we're in the process of converting some of the First Choice stores into Liquor Market, which again is going well.
So I mean that's it. There's no -- you -- there's -- you don't see a link at all between the supermarket growth and liquor growth then?
Well, as I say, Liquorland did perform the best of the brands. And they're the ones that actually are normally closer to a Coles.
And there are no further questions at this time. Presenters, please continue.
Okay, thanks very much, everyone, for joining us.Subject to the shareholder vote on -- at our AGM, this will be the last time that, from a Wesfarmers point of view, we do the quarterly sales, but look forward to listening in, subject to the vote, on Steven and Leah's quarterly sales in the future.So thanks very much, everyone.
Thank you. And that does conclude our conference for today. Thank you for participating. You may all disconnect.