Coles Group Limited (COL) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Coles Group 3Q '23 Sales Results. [Operator Instructions] I would now like to hand the conference over to Mr. Steven Cain, CEO. Please go ahead.

Okay. Thank you, and good morning, everyone, and welcome to our third quarter sales results. Before I start, I wish to acknowledge the traditional custodians of this land on which we meet today, Wurundjeri people of the Kulin Nation, and we pay our respects to their elders past, present and emerging. Joining me on the call today is Charlie, CFO, and a number of DLT, including incoming CEO, Leah Weckert, who takes over on Monday. She's here in her capacity as Commercial and Express today, [indiscernible]. And then Matt Swindells here from operations and sustainability; and we've got Ben Hassing from e-commerce. We've also notably got Darren Blackhurst from Liquor at his last quarterly sales as well. I'd like to start by acknowledging Darren. He's made the difficult -- you'll have read this last week, I think it was, but he's made a difficult decision to return home to the U.K., to be with his parents, sons and daughters at the end of June. He's made an outstanding contribution to our liquor business since joining in 2020, and under his leadership, the liquor strategy was reset to be a simpler, more accessible and locally relevant drink specialist. The results speak for themselves. We've seen significant sales growth in the Liquor Online business [indiscernible] and we've also renewed more than 400 liquor stores to the highly successful Black & White format. So we thank Darren for his contribution to Coles and wish him the best for the future. As you know, these are also my last results, and as I reflect back to the demerger in 2018, we've always endeavored to deliver outcomes for all stakeholders and become one of Australia's most trusted consumer brands in that time, and we've delivered upper quartile returns to our millions of direct and indirect shareholders. It was also pleasing and perhaps timely yesterday to see the Prime Minister of Australia and Premier of Queensland officially opening our first Witron Automated Distribution Center, which was 5 years in the making and will make Coles more efficient, more sustainable and safer, as well as driving better availability for our customers. Turning now to the Q3 results themselves; on a continuing basis, Group sales were 6.6% ahead to $9.4 billion, and in supermarket sales, revenue grew by 7% with comp sales of 6.5%, supported by the expansion of our dropped and locked value campaign, the commencement of the latest MasterChef cookware continuity program and an increasingly popular Flybuys program. Home brand sales continue to surge. They were up 11% and e-commerce returned to growth of 2.7%, driven by our media [indiscernible] offerings. Lower produce prices helped inflation moderate to 6.2% in the quarter and supplier availability, which we talked about at the half year, did improve marginally. However, there's still a lot more work to do to improve the resilience of Australian food and drinks supply chains. In liquor sales, revenue growth returned to 2.6%, again, driven by strong e-commerce performance of 29% growth and exclusive brand growth of 15%. With regards to our outlook, supermarket sales growth continued into the fourth quarter, with volumes remaining modestly positive, supported by solid Easter trading and the new Dropped and Locked 3 campaign, which extends to July. Price inflations, we expect will continue to moderate during the period. Further to previous updates, construction delays are ongoing in relation to the 2 CFCs being built by Ocado. Work is continuing to determine what impacts these delays will have on previously advised timelines, and will provide an update in due course. We expect the Coles Express transaction to complete by the end of May, and just as a reminder, customers will still be able to take advantage of Flybuys points, the $0.04 digital docket and of course, Coles' own brand products. We have, of course, the largest own brand portfolio in Australia, and it's standing us in good stead, and we expect that we will continue to be able to deliver trusted value for our customers. when many households are experiencing increasing cost of living pressures across numerous elements of their expenditure, including, of course, mortgages and energy. We also expect that availability will continue to improve. It's good news yesterday on the immigration front, but we are seeing higher immigration numbers and we are seeing hospitality expenditure, moderating, and obviously, supermarkets will be the beneficiary of that. So we expect those 3 tailwinds to benefit the business on an ongoing basis. It would, of course, be remiss of me not to talk about upcoming Mothers' Day and why everyone should head into Coles as soon as this call finishes. We've got $8 roses over the next couple of weeks, and we've got Satin PJs for $25 for those who have not yet thought of the appropriate gift. Finally, thank you to everyone at Coles', our shareholders and our business partners for your support over the last 5 years. I know I'm leaving Coles in very good hands, and I wish everyone continued success. So with that, I'll hand over to Q&A. Thank you.

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

Can we talk a little bit more about availability? And maybe if we can just sort of talk qualitatively around what you think the drag is on sales right now compared to where it was at its worst and how much improvement you expect to come through over the next few quarters? And maybe just to round it out, if you could comment a little bit more on Scotts and whether that was a significant disadvantage for Coles relative to the broader market during the quarter as well, please?

Okay. Thank you, Michael. We have a daily loss sales report. We look at it on a regular basis and it's fair to say that lost sales are significant, and when we look at the market analysis of breakdown of what customers are doing, there's no doubt that we are doing well as a business, in terms of attracting customers. The challenge is making sure that we've got the availability as we would like. Clearly, it's improved a smidgen or a small amount since Q2. But as you say, the Scotts -- absent Scotts, it would have been a more material improvement in availability, and that impacted our chilled and frozen supply chain, and it's fair to say that we're probably a bit more dependent on it than almost any other retailer, albeit that there were a lot of brands in that chilled and frozen space who were also involved. Matt, is there anything else you'd like to...

No. Just it's probably worth commenting that our meat business was significantly supported by Scotts, and we had a process very early on to migrate that across to protect it, recognizing that that's a critical part of the consumer's basket beyond that, and it was working with a number of multiple brands to make sure that the supply and industry was supported. And we check our availability on shelf at a category level in hundreds of stores, but [indiscernible] every week. And through that period, we didn't see ourselves materially disadvantaged against what happens to the rest of the market through that period for the majority of it. So it was a difficult transition well executed by the team and the rest of industry.

And then just to add a couple of examples. I described it earlier, Michael, is a bit like whack-a-mole moment. There's some ongoing issues and then there's just weekly news issues. And so the latest issues are CO2 is in short supply, again, which impacts a number of industries, and obviously, most notably carbonated soft drinks. And then more recently or as recently the main packaging supplier for the egg industry has run short of packaging. So we've now got more eggs, but not as much packaging as everybody would like. So when you look around this, you're looking at globally renowned suppliers. You're looking at some of the best suppliers in Asia, and you're looking at some of the best suppliers in Australia who are, in many cases, really struggling to get to stick with their end-to-end supply chain. And certainly, from the MDs that I have spoken to, they're getting stuck into the detail like never before in terms -- because you're only as good as your worst part, if you like, and everyone is drilling down supply chains and looking where the weaknesses are and who's holding what stock of what and contingency plans and so on and so forth. But it's fair to say it's impacting a lot of suppliers. It's also fair to say there's still hundreds of suppliers who are not missing a beat and are delivering where they were pre-COVID. But on average, we're not where we need to be, and we are losing sales as a result. And obviously, it causes frustration for us, a lot of extra work and frustration, more importantly, for customers as well.

Your next question comes from Peter Marks with Barrenjoey.

Just wondering with the Express transaction expected to complete in May. Could you give us a sense of the product sales, like the quantity of product sales you retain post that completing? And will you be reporting those in the food business going forward?

Thanks, Peter. I might hand over to Charlie on this one, because he's going to be responsible for future reporting.

Exactly. So thanks for the question here. So in relation to the Express sales, we're obviously first on the completion, but we're working towards completing the transaction within the next month, and that's where our focus has been on. In relation to -- there is -- as we indicated, a product sale agreement, which we will be supporting Viva as part of the transition, including -- ensuring our customers have access to own brand products. The value of that, I think -- I mean, you can read into the sort of sales number, we're not going to specifically disclose what the value of that wholesale contract, if you like, or product supply agreement is. But essentially, we'll be working -- there'll be elements of where we supply Viva out of our facilities, through the cross-dock facilities as we do today, and there will be elements that are actually delivered direct to store through suppliers. So we'll give a broader breakdown or further color on, obviously, one more transaction complete, when we report, and we'll see how it's reported going forward. But at this point, it's really focusing on the completion.

Your next question comes from Adrian Lemme with Citi.

Just a question on the strong Coles exclusive growth. I just wanted to get a better understanding of what's driving it, whether it's categories or new products or even just whether it's linked also to the dropped and locked price campaigns, is my understanding would be a lot of those products are private label or exclusive to Coles, please?

Yes. Thanks, Adrian. I'll hand over to Leah in a second. We've obviously seen, I think, a few quarters -- well, we've been growing own brand faster than total sales for quite some time now. And as you know, it's been a key part of our strategy to do that. And obviously, we wanted to provide trusted value every day, which is our own brand does. We've got to the stage where we do have the largest range in Australia. And if you look at what's happening, we're continuing to launch products across the spectrum from Finest lab into value ranges. And if you take one category that's done particularly well, I'd point to pasta, where our own brand pasta sales were up 40% year-on-year. So it's certainly growing in some areas faster than others, like on all averages, but in those commodity areas, where we've got great quality at a low price, pasta, for example, we're still at $1 and have been there for years. It's really resonating with customers. Leah, do you want to...

The only other extra color I'd probably add to that is, we are seeing the switch to own brand within categories, and the areas where we're seeing that happen, I guess, the fastest, is what I'd probably call that as the core pantry category. So pasta is a great example of that. Rice is another good example, oils would be another one. And then if you look generically across the store and how our sales are made up, the contribution to our sales from what we would describe as the best or the premium tier that we have across the store, proprietary and own brand, that is starting to trend down, which is a little bit different to where we've been over the last few quarters, we're actually just starting to see that start to tick down now, and where we're seeing that offset to, is in the good tier. So you've got the good, better and the best. The best is [ coming down ] and good is increasing as a percent contribution to overall sales. Now a large proportion of the products that we have in the good tier are own brand products. And so in terms of the equation that's happening here, you're seeing customers change behavior, because they're focused on the budget, they are optimizing their grocery spend. Our research says that about 75% of customers have changed their grocery purchasing behavior over the last few months. And what we're seeing them do is much more meal planning, much more batch cooking, freezing off that batch cooking to make the meals go further, and our own brand is featuring more in that meal planning because a lot of the basics that would go into that, they're moving into the good tier or the own brands here.

Actually, do you want to comment on dropped and locked?

Yes. Well, I mean, dropped and locked, we're onto the third phase now. So we have the third phase back in Q1, Q2, second phase was January through until Easter, and then we've just launched our third phase, which actually is the biggest set of products that we've put on to the product. And Adrian, you're right, a lot of those are own brand products, partly because we know that a lot of those are staples for the basket that we can put in -- I mean one of the call-outs that I would make there is something like the 1 kilogram means, products that we've put on in the latest rounds that we know is an absolute staple in a family basket, and the biggest size of that means that, that sort of batch cooking, cooking more in one go, makes it possible for [indiscernible] families. So we've been really pleased with the performance of Dropped and Locked, a skewed performance in terms of sales uplift is very strong, and we've also got really good customer recall on the campaign itself. So it's traveling around really well and I think has proved to be the right campaign for the right time.

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

Steve and team, Steve, before I ask my question, I'd just like to say how much I've enjoyed following you as a CEO. I don't think there's any doubt that Coles is a significantly better company today, than what it was back in 2018. And when we measure CEOs, the key metric is the company in better shape now than where you were when you started. And I think well [ kudos to ] you. So congratulations on the job that you've done at Coles. And even though you put announcements on before public holidays and ruin people's golf games, it has been an absolute pleasure of watching and following Coles, because I think you've done a great job. But getting on to my question now, convenience and your Click and Collect Rapid and Rapid Delivery. Can you give us a bit of an explanation here? Is this a growth strategy, or is it a [ beefing ] strategy? Now we all know, it's a sales call, it's not a profit -- but we all know that this Click and Collect Rapid, Rapid Delivery and all that, very expensive. Is it really -- and we look at what Viva has done by buying on the run, Everyone's going convenience and all the rest of it. Is it a strategy that you really need to win to go forward, or is it something that you just have to be in, to defend market share, because others are going in more aggressively than you. I'd really be interested to know, where this rapid delivery -- because I don't get to see anyone that do it very well and make profit from it? I know it's not a profit call, it's a sales call, but I'm just really intrigued, where this whole convenience area is going, because everyone is putting a lot of money in it, yet no one seems to be able to make any money off it. And I'd just like to know where Coles is going ahead with this strategy, please?

Well, first of all, David, thank you for those very generous comments at the start. And if anyone else has got any other generous comments, I think we have got a bit more time for them. On immediacy, it's a great question, and it's actually so great, so I am about to hand it to the expert in Ben in a second. What I would say that's a bit different from the past is, as we do more and more research into the omnichannel customer, it is about looking at how do you satisfy your best customers for all of their shopping needs, and that's what omnichannel means and how do you make that e-commerce and in-store experience as seamless as possible, but also having a keen eye on, are you making money by channel and all of those sort of things. And obviously, in the long term, you want to make money in all of your channels, but equally, you want to make sure that you're retaining the lifetime value, [ to the best ] shoppers that are out there. So that's the strategy of it all, so to speak. I might hand over to Ben to talk through a bit more detail.

Yes. Thanks. Great question. Really appreciate that. So if we look at just on the quarter, our same-day businesses, whether it's Rapid or Same-Day Delivery, growing double digits. Certainly, the customer is very pleased with the offer. And I think from a customer standpoint, it's really about having optionality. There's different use cases for each of the different services that we have. But if you look at those customers that are purchasing from us for next day and also same day and also Rapid, their spending is in fact 3x more with us at Coles, than those that are only shopping one of those propositions. So we do see incrementality from a growth standpoint, and I think also just having the benefit of inventory close to the customer, is just taking advantage of that omnichannel preferred asset that we have in the market. So it's definitely working for us, and what I was really excited about it for the quarter, was we scaled really quickly. If you think about within the quarter, we got to 460 stores, and we couldn't do that on our own. We've got a great partnership with store ops team and with the rest of the organization to make that happen so quickly.

Your next question comes from Ross Curran with Macquarie.

I might just ask around the liquor business, it looks like you're taking share there again. I was wondering if you might be able to help us understand the difference in performance between the Black and White stores and the legacy stores?

Yes. Thank you. Ross, I'll hand over to Darren, he is desperate to talk about Black and White liquor stores, which is what he's spent [ some amount of ] time looking at and doing. Just a couple of things here. I mean, I've seen a lot of renewal programs in my time, but I've never seen anything that's been able to be rolled out as quickly and as cost effectively as this program. So Darren can talk to some of the other metrics there. But it really has resonated well, and it's really created a focus on product and resonated with consumers. But Darren, can I just hand over to you?

Yes. No, I think -- I mean, listen, we're -- I'll start by saying, I think we're really pleased and we've got through the first half, we're now back into growth in Q3. I think that's really pleasing to see. And that's being driven by a number of different things, I don't know what you [ are thinking ], it's just like my opinion, Black and White, and second, we're seeing really good growth in our online sales in the renewal programs, but really good growth in ELV, I think that we've highlighted as well together with new stores. And I think the team I think deserve recognition for the work they've been doing on the fundamentals of the offer, particularly around the work we've been doing on value, on gaps and service as well. But there is no doubt that Black and White has played its part, and as I think I said it last time, I think we've now opened -- we opened our 400th store a matter of weeks ago in Rochedale in Queensland. And that program and the team managing that are doing an absolutely fantastic job. We opened 39 stores in the quarter, and that continues as we go forward. To give you a bit of flavor, as I said before, it's not -- it isn't simply just [indiscernible] exchange. It very much is geared towards making us that simpler, more accessible, locally relevant drink specialist. And a lot of work has gone into the ranging, particularly of local craft boutique products, more premium products, products that actually locals want in their stores. We've done a lot of research in the local areas as well. We've optimized space. We've increased refrigeration in a number of stores, and we do a lot of work with the team to ensure that they start to serve our customers better as well. So the program itself is -- works on a number of different fronts, and we're really, really pleased with the results. And to give you a bit of a flavor, we're seeing sort of mid- to high single-digit sales performance above the red and yellow fleet, which is really pleasing to see. And as we go forward, what I would say is we probably expect that to [indiscernible] slightly as we get into the tail of the fleet, just to moderate that slightly because obviously, there's more difficult [indiscernible] to get towards to the tail. But overall, we're really pleased with the way it's going.

Your next question comes from Lisa Deng with Goldman Sachs.

I had a question on the net sales or selling area growth for the period. So if I looked at the revenue growth, it was 7% for the supermarkets, I mean, and then the sales density growth was about 4.7%, but then we actually had net one store closure. So can you maybe help me with understanding what the sales growth was -- sorry, the selling area growth was?

Yes. I think we've had this line of questioning before Lisa, and the answer last time was around the fact that some of these things are moving annual totals and some of them are quarterly. And so it's a mix of denominators that sort of drive the differences. I think it's fair to say that we are getting to a point in our program. You'll recall that what we've said about our store revenue program is over -- since demerger, we've opened what was in the pipeline, obviously, but we've also closed a fair number of stores as well. So we've not had that benefit of a high contribution from net new stores. But what we are going to see in the future is, we've said that we'll see at least growth in our footprint from the new store opening activity. Charlie, did you want to add anything else?

You're spot on. I mean the moving annual target as an equal to sort of Q3. So if you look at that -- what we do, do, is we look at that last 12 months' worth of sales and you divide it by space, which is actually different to the Q3, if you like, growth rate.

Hopefully, that explains things. If you need a bit more explanation, then I'm sure the team would be delighted to take you through the calculation of it a bit later.

Your next question comes from Bryan Raymond with JPMorgan.

Just following on from Lisa's comments earlier around private label and trading down and the various tiers of product. Can you help us understand sort of really just around the margin implications that I understand it's a sales call, but just thinking about that sort of good tier, which has a lot of private label in there and entry-level private label, how would that generally speaking, from a gross margin perspective compared to some of those more premium tiers and if there's more private label, I would have thought that might actually be a bit lower gross margin typically as customers trade down into those tiers?

I think you answered your own question there, which -- and I always like to say that at least once in one of these meetings that it is a sales call. And obviously, we'll get into margins and P&Ls all year, and Charlie will get into margins and P&Ls in August. Look, there are some private label products that we make above average margin on, and there's some that are below average. And obviously, a lot of it was driven by competitive pricing and so on. But what we -- what you have seen over the years is that as smarter selling has been delivered and as private label has grown, we still managed to keep the gross margins in [indiscernible]. The one thing we did call out in the release that isn't normally part of the sales call is the fact that there's still ongoing -- the supply challenges that are driving ongoing waste and markdown issues because that's very difficult to sort of manage. And then the second area is obviously loss where, again, retailers worldwide are all reporting heightened activity and was certainly not immune to that despite all of the measures that we're putting in place.

Your next question comes from Shaun Cousins with UBS.

And Steve, it's been good having you engagement with you on these calls during your time here. And then also even back in your earliest -- earlier iteration at Coles. So, thank you for the discussion over the years. Maybe if I can start with a question just on liquor. Just 1.5% comp. How should we think about that relative to 3.7% excise on the 1st of February and 4% in August? I'm just curious around you noted trading down and treated to own label sort of products there. And obviously, wine is not part of the excise there. But given the tailwind you get from inflation on excise, how are you feeling about the 1.5%? Do you think you're gaining share? And what's happening to broader volume trends, please?

And look, I've enjoyed our interactions over the years, and it's great to have you keeping me on my toes and I look forward to keeping Leah on her toes later in the year. I might hand this one over to Darren just to talk through the -- because it was related to liquor isn't it in terms of liquor excise that's recently happened. I think to -- again, at the strategic level, I think we've done very well in liquor over the last 3 or 4 years. And we certainly outperformed some of our competitors. So, I'll hand over to Darren just to talk about where -- what that means for volumes and how he's seeing the current environment as well. Darren?

Yes. I mean I think what I would say, Shaun is it's been changing through the quarter, to be honest, if you look at it from sort of Q2 into Q3 and the way that inflation has started to impact the business. It's been sort of building as you go through the quarter, so you're starting to see a different [indiscernible]. Overall, the sales are being driven very much by transaction growth year-on-year. And whilst you're seeing an average -- an increase in average unit price, which is broadly in line with sort of figures you're correctly you're quoting and from an average basket perspective, basically, it's flat. And so there is evidence that customers are switching to better value products, which I think, in some part, explains some of the growth that we're getting from our exclusive liquor brands of late as well. So, that's the sort of the flavor really of our sales.

Your next question comes from Ben Gilbert with Jarden.

Echo everyone else's comment, Steve. It's been fun 8-odd years from here in Coles and all the back and forth [indiscernible] and wishing you a nice relaxing break as we move forward. Just one question. Steve, whether it's to you or to Leah, I'm just interested in how you're seeing your relative value position in market at the moment. Are you comfortable with it? And as we look at there at the moment, ALDI has obviously had a pretty material resurgence as we've sort of seen in the press. How focused are you on them? And is there any sort of scenarios you look forward that thinks you need to go harder on price as the consumer becomes more value conscious?

Look, I'll -- as you probably expect, I'll leave the forward-looking picture to Leah. I'll just cover a bit of the history. Our price position is both everyday pricing. And when you include promotions is very strong. And the fact that we've got the widest range of own brand, which isn't in the pricing, by the way, if you factor in what those 6,000 products do, if you wanted to just buy an own brand basket, then we are the best place to go, and we've got the choice as well. And I think versus discounters, what sometimes people miss is the fact that Coles has 10x the range of a discounter and in fact, 3x the range in own brand. And those are all tiers. And obviously, that's something that consumers are recognizing. And so as you look around the world at the moment, there's no doubt that own brand is growing everywhere. Discounters are benefiting from that because they mainly sell own brand product. But we're in a good position in terms of the work that we've done over the last 4 or 5 years to really beef up our own brand ranges. And obviously, we're very vigilant in terms of what's going on in the marketplace. I think Leah has already talked to some of the own brand things we've seen. Own brand pasta was 40%, that entry-level pasta has been at $1 for years. We've got obviously great prices on things like [ mints ] and where possible and we see prices easing, we're obviously trying to do our best to pass those on. So, I think we've got 3 or 4 categories in projects now that are in 30% deflation year-on-year. Some of the big prices are down year-on-year. So, I think from a value point of view, we feel as though we're in a good position but remaining vigilant and dropped and locked the 3 programs have really resonated. Flybuys' membership is increasing significantly. Flybuys' redemptions are increasing significantly. And we've got a record number of people engaged in the latest MasterChef cookware collectible. So, as you look across that mix of what we're trying to do, it's quite a unique combination, and it's certainly resonating with a lot of customers. Leah, do you want to just talk to the future?

Well, I think the key point here, Ben, is we're going to run our own rate from there. So, our proposition is different. As Steven has outlined, we have a much bigger range. We have much broader choice for customers. We also have a lot more promos each week that customers can select for, and we know from all our research that actually the shopping of the catalog or that core cohort of customers that are really budget-focused and value-focused, those promotions actually will give them a basket that they feel they get better value on than when they compare it to discounters. We also have the Flybuys program, which gives a number of different benefits, whether it's discounts that you get off categories, discounts you get off products, whether it's a spend stretch offer. We've now got the member pricing that comes through as well. And that is very different as a proposition that layers in a level of value over the top that you won't get at any of the discounters. And then I'll just go back to the basics, which is the on-ground range that we've got, we spent a lot of time making sure that, that from a range perspective, is really competitive with the discounts in terms of the items in that range, but also the price. And I definitely would stand behind for fee grocery basket. If you're coming in to buy by own brand, we are very, very competitive versus discounted. So, I think once you put that all together, the promos, the Flybuys and actually the core underlying offer, the customers that are budget-focused know how to shop that and they know that we are a very good value.

Your next question comes from Phil Kimber with E&P Capital.

Just a question on both supermarkets and liquor, just your thoughts on your market share over the recent quarter that you've just reported. I mean we can see it versus the ABS category, but I'm sure you've got more visibility than that. So, if you could make some comments around that, that would be great.

Yes. I think we'd be reasonably pleased with both supermarkets and liquor in terms of their performance as you say, so we get multiple reads and we're able to triangulate lots of data points and everything else. But I think we're in a positive territory across the business, which is good.

Do you want to try to talk about...

Well, not much if you want to add something Darren, you can do.

But no, no, all I would say is notoriously difficult, I think, in liquor to get a good read of the market in terms. And I think ABS only reads part of the market. So, you're going to be very careful with ABS reads for liquor specifically and IRI uses algorithms for some of the participants. So again, isn't necessarily a fantastic read.

Yes. So a bit more difficult in like than it is in supermarkets. But from the various data points we've got, I think we're pleased with the performance in the quarter.

Your next question comes from Craig Woolford with MST Marquee.

[indiscernible] in retail year-end and overseas and enjoy your post-Coles life, whatever that may bring. I just wanted to ask about inflation. The comment that was buried in the release suggested that there was, I'm just trying to find the quote, but it was the magnitude, the level of supplier cost request has dropped. Is there anything you can quantify around that, even if it's just a relativity to what was the case a year ago? And are you referring to both the number of requests as well as the size of the price increase those suppliers are requesting?

Thanks for those comments, Craig. I might hand over to the subject matter expert here. Leah, do you want to do your best on this [indiscernible].

Well, we were asked this on the media call earlier, and I think that we ended up when probed -- prodded on the issue was, it's been a meaningful reduction quarter-on-quarter. So, it is -- it's not just a slight decrease. It's quite a meaningful decrease that we've seen in those CPI requests coming through. But I think the journalist asked me was it a 50% decrease. And I said, no, it's not as big as 50%, but it is a meaningful decrease. So, I think that's probably the most we can say in terms of the quantification of it. But it is definitely slowing, and we would expect that to continue on into Q4.

Your next question comes from Richard Barwick with CLSA.

I wouldn't ask about the delay with the Ocado fulfillment centers. Can you give a little bit more detail in terms of exactly what has been the cause of those? And it made me wonder is if this was really maybe a prioritization issue for Coles. So, you actually elected to prioritize auto DCs over the Ocado ones?

I wish that was the one. I mean you're absolutely right. The 2 Witron ADCs are on -- well, the first one is open, of course. And the second one in Kemps Creek in New South Wales is on track and coming along nicely. I went to the Victorian Ocado on Monday, and it's come on a long way since I was last there a few months ago. And so progress is being made on the build, progress has been made on the bakery, the produce cutting room. Internally here at Coles, we're making a lot of progress on arranging, the IT systems are where we need them to be. The app is where we need them to be at this stage and all of those sort of things. So, we're ticking a lot of boxes, but it is fair to say that there are -- the progress is slower than we'd like. I might just hand over to Charlie just for a bit more -- a bit more detail.

Very specifically, and as we sort of called out last time, look, the -- there are a number of these that have been built globally. And I think when we sort of focus on specifically whether the delays have been, it really is in the fit out in relation to the high or, if you like, where the bots actually do the various picking, et cetera. The delays is really simple. There are different construction methods and practices that need to be adopting in Australia compared to what has been used globally, and that's really contributing to sort of the delay that those processes and, if you like, and procedures need to be -- continue to be worked through. So once we work with Ocado to better understand exactly the timelines, we'll clearly communicate that to the market. But that's what's causing the delays. Your next question comes from Bryan Raymond with JPMorgan.

Just quickly on the partnership with Uber Eats that was announced mid-April. Just wanting to get a bit of color around how that is expected to work both operationally and in terms of just general economics of it. It seems a bit odd that they would -- if the press reports corrected, they're picking products off the shelf, I'd imagine that's pick rate for an Uber employee might be a bit below a Coles employee, but just trying to understand how that might play out and what it might mean for Coles longer term?

Yes, I'll hand over to Ben in a second, Bryan. Thanks for that one. I want to give you a bit of local knowledge though. Ms. Cain can used this service at the weekend. And the thing that delighted her most was the fact that she was getting a live update from the picker in terms of what was available and so on. So, she was one happy shopper, which always makes my life a little bit easier as well. But I'll hand over to Ben.

It's important to note that like this Eats models, we also work with DoorDash. They're a very small part of our total e-commerce revenue. If you look at the range that we offer the customer, it's far less than what you can get from Coles Online, whether it's the same day or it's a rapid service or it's the next-day service. So, it's early days, but the full proposition is really available at coles.com. But we're also seeing good growth here. It's a good service for customers like Ms. Cain and others. And it's a way to acquire some new customers that weren't considering us as well. So long term, we think it's going to be a great acquisition channel when it comes to customer and it's a great service for customers and it's a profitable model.

Your next question comes from Craig Woolford with MST Marquee.

Just a follow-up, a quick one on online. We are still -- we're almost done, we're talking about COVID. But back in January '22, there was the Omicron outbreak and may have accelerated online perhaps. So, just interested in what you -- how you would describe the underlying trend of e-commerce growth in the supermarket business. It was obviously still a lower rate of growth than bricks and mortar in that third quarter?

Yes. Sure. Ben, do you want to take that one?

Yes. I think there's some good underlying growth. It's great to be back to positive growth in online and we expect more in the future. I think the biggest change in the overall consumer trend, like Leah was talking about is more customers are shopping with us digitally. Customers are actually engaging with us digitally, whether they're looking at a shopping list, pre-planning their shop before they go and visit a store and make a purchase inside the store. That's probably the bigger trend that we're seeing. But I think overall, the fundamentals that we see in the e-commerce channel like retention of customers, cost of acquisition, other things, they're very favorable for us and we expect continued growth in the future quarters.

Yes. I think as you identified, there was a cycling of, obviously, the first 2 weeks, first 3 weeks of January last year. So, if we look at the sort of online participation penetration rate, so reported 7.8%, I guess, 12 months ago, 7.5% there. So, it's been relatively around that sort of mid-7s now for a few quarters.

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

Steve, just a quick question on this acquisition of 2 milk processing assets from Saputo. Can you go into why a retailer -- I know this has been a development theme of Coles going into closer to the source? But why do you need to own 2 processing facilities in milk? What competitive advantage is that going to give you? Is it just surety of supply? Or do you think you can do a better job than what the current processes are doing? If you can give a comment on that, that would be great.

Thanks, David. And a good question. I'm going to hand this over to Charlie in a second. I just want to sort of -- for those who on the call who don't know, this is our sort of third foray into integration, so to speak. We've got a very automated meat facility in New South Wales. We've got one of the most automated and advanced convenience meal operations in Sydney. And now we've made the decision to acquire these sites. I went to visit the Victorian one, and it's incredibly impressive. And the linkage between them to the extent that there are linkages is that they are some of the best suppliers out there. They're predominantly brand products. And we think we can grow all of those businesses. And if you look at what we have done in our other facilities, RROA continues to grow and is an important -- RROA is our meat one. That continues to grow, and it's an important part of our meat business, and we continue to grow what was the dual ready meal business with a great range and a unique range of convenience meals for our customers. But I'll hand over to Charlie just to talk specifically about the Saputo acquisition.

Yes. Thanks, Steven, and thanks for the question. Clearly, Steven, I think you've hit on clearly, most of the key elements here. Yes. Firstly, the buyers were selling. And I think just -- sorry, the vendors were selling, obviously, the assets. So, it's probably an important first point. These facilities do our own brand milk are actually the majority of the volume and significant part of the volume that already gets processed in these 2 facilities. They are the best milk processing facilities in Australia and U.S. built back in 2014, '15 under the old Murray Goulburn sort of days. So we think these facilities really sit nicely with some of the other investments that we've made that Steven has outlined, that theme around sort of highly automated sort of facilities and that's very much our meat and poultry processing model. And certainly, the dual convenience mill offer facility is also very much or [ refresh ] that is very much in that space. And so we think this is also another opportunity to potentially look at further product innovation as well on these facilities because they are actually underutilized from a volume perspective. So, I think they are highly automated. They're consistent with the sort of strategies that we've taken to date, and they absolutely help secure our own brand milk supply going forward.

And it's a strong combination with our direct sourcing models with -- we've got 100 farmers on long-term contracts where they're earning good and sustainable farmgate milk pricing. So a bit of an end-to-end approach in milk. Thank you. Can we have the next question, please?

Your next question comes from Michael Simotas with Jefferies.

You've mentioned reduction in hospitality spend and shift to in-home consumption a couple of times in the release. It seems very logical that, that will happen as households are under pressure. But are you seeing anything in your own sales or in any data that suggests that that's starting? Because when we look at ABS restaurant spend and it might not be a perfect measure, but it's been stubbornly strong for the last few months. But just any comments on that would be great.

Yes. I mean there's a few data points like ever, Michael. There's lots of numbers that you can prod and poke and can try and triangulate. I think the -- I think I'm right in saying that pre-COVID, hospitality spend was around about 27% of total food expenditure. And I think it's currently, the last numbers, I think I saw were about 29%. So, it's about 2% higher. But there's no doubt that the growth is moderating. All our research sales people are -- the majority of people are starting to sort of pull back. And I sort of -- I spoke to a supplier this week who deals with all sectors and then they were saying that they've started to see some shift into supermarkets and so on as well. So, I think there's lots of data points out there that say it's happening. It's probably happening more in that mid-tier of hospitality rather than the QSR at the moment. I think there's still a lot of Uber eating going on backwards and forwards with the likes of McDonald's and so on. But -- and again, going to data points of why it seems to be easier to get into some of the restaurants now than it was pre-Christmas. But I think we will see a bit more of a shift over the next 3 to 6 months as these mortgages come off fixed rates and as the energy prices begin to take their toll.

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

Okay. Thanks, everybody, for questions. I've thoroughly enjoyed these calls over the last 5 years. I don't know what I'm going to do without them. I'll fine-tune into them and so on. But thank you for your questions and the analysis that you've all brought to the sector. So, I wish you all well and don't forget Mother's Day. Thank you.

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