J Sainsbury plc (SBRY) Earnings Call Transcript & Summary

Hello and welcome to Sainsbury's Q1 Trading Statement 2022 to '23 Analyst Q&A Call. On the call this morning is Simon Roberts, Chief Executive Officer; and Kevin O'Byrne, Chief Financial Officer. I will now hand you over to CEO Simon Roberts for the presentation.

Well, thank you. Good morning, everyone, and thank you for joining Kevin and I this morning to talk about our quarter 1 trading statement covering the 16 weeks to the 25th of June. I'm going to give you a brief summary of our performance first with a few slides, and then, of course, we'll be happy to take all your questions. So clearly, the environment out there is tough, tough for customers, tough for suppliers. And as a result, we are taking necessary but tough decisions on costs, on prices and clearly on our priorities, too. And the key point I want to make here is that we are very focused on delivering against our strategy for the long term and on further building momentum in each of these areas which are critical for this year ahead. And nearly 2 years into our plan now, we believe that we are well placed to navigate in this environment given the progress we're making. Looking first at our numbers. Well, I'm pleased with the performance we've delivered but, importantly also, how we delivered that performance through the first quarter of this year. We're trading in line with expectations, and there is no change to the outlook we set back in April. It's important to remember that the first 5 weeks of our trading period was against a lockdown last year. Year-on-year Grocery sales declined, but, as you can see, we were significantly ahead of pre-pandemic levels. And through the first part of the quarter last year, the closure of nonessential retail particularly impacted Argos; Sainsbury's General Merchandise and Clothing year-on-year numbers. So to unpack a little of what this means, Argos sales were down 19% in the first 5 weeks but down 7% for the remainder of the quarter once we passed that lockdown anniversary. As expected, we're seeing customers spending less across some categories. But we've also seen encouraging GM market share performance in that context with market share gains through the quarter in a number of categories. Fuel sales were 27% higher through the quarter than pre-pandemic levels. So turning to this next slide. We show you the same volume market share metrics each time we report. And we were only slightly behind the market on a year-on-year basis against what was a strong outperformance in the same period last year. We're pleased with this, and we're pleased, too, with our continued progress in putting Food First. Customers are recognizing our improved value, and they're choosing us for the big occasions like the Jubilee. We also performed well through the key events in the quarter, Easter, May bank holiday, Mother's Day and Father's Day. And as you can see here, importantly, we're holding on to the market share gains that we have made versus the pre-pandemic levels. On this slide, we've given some further context as to what's going on across the Grocery business in each of our channels. As you can see, supermarket basket sizes have settled at a higher level than the pre-pandemic. And you can also see supermarket transactions have continued to recover as some customers switched out of online and returned to our stores. Online sales are still broadly, though, double pre-pandemic levels. This normalization of customer behavior is also driving continued recovery of our convenience sales, as you can see on the right-hand chart. Now we are seeing some signs of customers changing behavior in response to the cost of living crisis. But it is also hard to untangle these effects from the COVID normalization we're also seeing. We're seeing some switching into economy own label, but premium is remaining resilient, and Taste the Difference is performing strongly. Clearly, in General Merchandise, demand is challenged and will continue to be, especially across big-ticket items. We have factored this into our forecasts. As we said, we would focus on value and competitiveness at the center of the plate. That's the absolute core of our strategy. And we have further invested in this with our own Price Match. And we're now matching Aldi on the 20 highest volume lines which customers buy most often. So we're taking a step back at what's happening here. I think we are really well placed to respond to the changes we're seeing in customer behavior. Most importantly, we are listening closer than ever to our customers so that we can be agile and adapt faster in our response and in our forward planning. As you know, we set course 18 months ago to be much more competitive. This is working for us and clearly is now more important than ever. We also have a customer base that expects great value for money but also one that is prepared to trade up into premium. And we have a breadth of assortment and brands across our offer, together with a service proposition that are differentiated and our customers are continuing to value. Now on this next slide, you'll be familiar with these two important charts. We're continuing to inflate behind the market by 1% to 2% overall and particularly, as you can see here, on the items that customers buy most often. We are seeing more spend from secondary customers, those who are shopping around more, and continuing to see growth from these customers. Being more competitive is the driver of our improved performance. Our value index to Aldi has improved over 350 basis points year-on-year. And the three core value programs, the Sainsbury's Quality, Aldi Price Match, our Price Lock and investing at the center of the plate, is absolutely core to our value strategy. And these three platforms are underpinned by Nectar prices, which is personalized value for customers, and that's really working for us. Also in the quarter, we moved a number of digital Nectar users to 9.6 million and so gaining further momentum there, too. Now moving on to this next slide, we've also seen customers choosing Sainsbury's for the key events during the quarter. And this is really reflecting the work we've been doing both on improving innovation and quality. Through the Jubilee, we outperformed the market by nearly 2%. Strong Taste the Difference performance came through as customers really bought into our premium ranges, and we were 12% up on Taste the Difference through the Jubilee. Innovation is an absolute key in our focus, and we'll launch around 350 new Taste the Difference products this year. We also saw our biggest ever beers, wines and spirits sales outside of Christmas and Easter through the Jubilee. We have more than 200 new Summer Edition products launched for this year. We've gone big on barbecue with our biggest-ever range that were well set for the summer and hopefully some warm and hot weather coming soon. Now I said earlier that we're seeing customers spending more cautiously on general merchandise and clothing, as we expected. But we are pleased that we're taking our fair share of the spend that is out there, and we're gaining share in some key categories like consumer electronics, technology, household and gardening. This chart shows the difference in the year-on-year growth initially against the period of lockdown closure last year in the first 5 weeks and then as we annualize that in the second 11 weeks of the quarter. We continue to be cautious on customer spending but also confident that there will be some offset to this both on the top line, where customers are seeing better availability, and on the cost base, where the Argos transformation program continues at pace and we're on plan in delivering the expected benefits. We guided to year-end that we expect high single-digit volume declines at Argos, and we're still comfortable with that guidance. And of course, it's still relatively early in the year given the weighting of GM sales to the second half. Now on this final slide, I just want to come back to our key priorities we set out now nearly 2 years ago. This is our plan: we're delivering against the five key priorities, and they're more important now than ever in the current environment with a real focus on putting food first, our Brands that Deliver and Save to Invest; we're maintaining a really sharp focus on innovation, on service and, above all else, value; and we're very focused on strong execution and continuing to be agile as we move at pace. And we're delivering and supporting this with a very focused program of delivering structural cost savings, as we've talked with you about before. And we believe this puts us in a strong relative position to our competitors to navigate in this environment. So to conclude before questions, quarter 1 sales have been in line, we're on track to deliver the guidance we set out in April, and we've been pleased with our market share performance. Of course, it's not easy out there, and we still have a lot to deliver this year. But we're well placed. And as a team, we're very focused on delivering our plan. I just want to thank my colleagues and all of our suppliers for all of their hard work in the quarter and everything that they're continuing to do to support our business and to do the best job we can for our customers. Thank you for listening. I'm now going to hand back to our moderator, and we'll open up the call for your questions. Thank you.

[Operator Instructions] Our first question comes from Andrew Gwynn, BNP Paribas.

Hopefully, you can see me emerging from the darkness a little bit.

A little bit.

First question for you, Kevin. Obviously -- yes, I think I'm coming through now. Here we go. First question for you, Kevin. Obviously, an announcement that you intend to retire. Frankly, with us for a few months yet, but just wondering, can we put some context around that? It's obviously a very difficult year, but maybe just overlay your thoughts. Second question. You mentioned the trading around but also actually the uplift in spend with secondary shoppers. So Sainsbury is a net benefactor from the shopping around.

Thank you, Andrew. Yes, just -- I'll take the first one. Yes, I mean, look, there's always going to be hard decisions when to decide to retire, and it's been a real privilege working for Sainsbury's and having this role. But when the time comes, I will be 58. I'll have done not far off 30 years of these types of jobs, 6 years at Sainsbury's, and had the pleasure of -- and 3 years since Simon was announced as CEO and working together. So it's the right time personally for a change. But the big news, and I'm really delighted, is that we've made an internal appointment with Bláthnaid Bergin taking on the role, and Bláthnaid is just a very strong contributor to the business right now and will be an excellent CFO. So -- and by the way, Andrew, if you need any advice on pronouncing Bláthnaid's name, I'm available for a one-to-one coaching.

As you noted -- as James -- earlier. But yes, on the trading around, sorry, Simon.

Yes. No, I mean, just to emphasize the point, great to be able to appoint an internal successor, and -- but Kevin and I have got appointed -- with Kevin over the next 9 months and the balance of this year. So just coming to your second question, look, I think just in the pack, hopefully, we've given you some color in terms of your question on secondary customers. I think look, going back to the core of our strategy, we said that we would be really focused on winning back secondary customers into Sainsbury's. That's where investing at the center of the plate particularly was really key. And look, on 7 in the pack, hopefully you can see as we continue to inflate behind the market and even more so on those products that customers buy more often, [ certainly ] we're seeing the results of bringing more secondary customers back into our brands and particularly compared to our rather large superstore competitors. So it's a continuation of what we've talked with you about before, but I think as the focus on value picks up, we're seeing the benefits of this coming through even more clearly. And that's one of the reasons why we've further improved the price match to focus now on the 20 highest-volume lines that costumers buy most often.

Next our question comes from Xavier Le Mené from Bank of America.

Hopefully, you can hear me.

Yes.

I have two questions, if I may. The first one, can potentially give us a bit of color about the Jubilee and what was the impact of the Jubilee on your food sales? And can you also potentially comment what was the exit rate for food growth rate, that is growth the end of the quarter? So provide that food -- here in the first 5 weeks as (sic) [ and ] the last 11 weeks? But can we get a bit of color to -- for food? The second question actually is about the higher penetration you're mentioning about value lines. So can you tell us where it's coming from? Is it consumers trading from branded goods to value lines or from Sainsbury products to value line? Just to get a sense of what could potentially the margin/mix impact.

Xavier, thank you. Well, look, why don't I pick up your opening questions on Jubilee and kind of the momentum in the food business? And maybe I'll hand to Kevin in terms of some of the net effects we're seeing. So look, I mean, first point, just to come back to Jubilee. So look, we really set ourselves up to make sure we could do a great job for customers. And Sainsbury's, over long period of time, has been strong at key events. I would say we've really pushed ourselves in terms of our activation to see what we could do, and it really worked. And so look, as you've heard me say, we beat the market substantially that week, and it made around 0.5% difference in the quarter in terms of overall impact of Jubilee. But I think really delivering for customers on quality, on innovation, on trade-up and making sure that we really were the go-to destination. So honestly, we also learn a lot from that as we look ahead over the balance of the year at what we think we can do better as we look at the events to come. So pleased with the performance. We learned a lot, and we really went to market with a very coordinated plan on activation to make sure that we really deliver for customers. In terms of more broadly in the food business against our strategy, the kind of two key points I would point out, first on value. And to your question, we are seeing the benefit of the Sainsbury's Quality, Aldi Price Match program and Price Lock because it is really asserting our commitment to maintain and hold the strength of our relative value position. And we're inflating behind the market 1% to 2%. You've seen where the market's inflating. Kantar last week talked around 7%. We're 1% to 2% behind that. And then clearly, customers are also making choices about what they're buying into. And you can see in our pack where we've just tried to give you some sense on the price match in categories like meat, fish and poultry and dairy and also in produce, that we're seeing higher participation of the economy own label as we put more of those products into the offer. So both delivering for customers but also creating the volume in that meat, fish and poultry and in produce, which is winning those secondary customers and they're shopping them across the rest of the store with us. So a continuation of what we said we would do. And as the focus on value for money becomes even stronger, exactly as we guided to, we're executing against that plan. Kevin, is there anything on the mix you want to add?

Xavier, I'd just draw your attention to Slide 6 in the pack, where you can see the change in mix there, where we've got Aldi Price Match offered to customers. And the category that's got the highest penetration is produce, almost 16%, but you can see a big move on meat, fish, poultry, where it's gone from just under 8% to almost 13%. And if you were to walk a store this morning with us, you'd see that. It's very evident in the aisle. It's very clearly communicated. I think we've improved our communication of it as well in-store. So strong offers there. And a point from an economics of the business, I guess, that's worth remembering as well is, although we're seeing much higher penetrations there and we're supporting customers at a tough time, we -- the mix in our business, it's still a lower percent of our mix than you might find in other businesses, which obviously helps the economics in the business. But from a customer point of view, if you look at the inflation that Kantar talked about in the market of 7%, let's call it like-for-like inflation, ours is lower for the reasons Simon has talked about. And then actually, from a customer point of view in the basket, it's lower still because people are shopping the value that we're offering and able to dial some of that out of their baskets.

Our next question comes from Victoria Petrova, Crédit Suisse.

Congratulations on strong results. Some of my questions were answered, but it is basically one question around margins. You're keeping your guidance despite the fact that you're very satisfied with the first quarter. Obviously, the comps probably would be easier for your -- what you need to deliver in the remaining 9 months of the financial year. How do you look at it? Have I understand -- understood you correctly that your shelf inflation is 1%, 2% and your cost inflation is below 7%, let's say, 5%? Broadly, is this the way to look at it? And has this sort of relative outperformance on the revenue side translated into underlying profit before tax? Or are there some things we should just keep in mind up until the end of the year given that there might be challenges which are yet to come, maybe another round of price increases by your suppliers? Or anything else we should just watch? Could you please help us with that?

Kevin, do you want to talk about some of the outlook and [indiscernible]?

Yes. Victoria, coming on to the guidance range, we're not changing the guidance range. It's as we've said before, and it's hard to be precise at this stage or more precise at this stage. So we're still within that range because there's a lot of moving parts. And clearly, the second half is very important for the food business and for General Merchandise. So as we said before, continue to expect food volumes down a bit with some offset by inflation, expect high single-digit volume declines in General Merchandise and, of course, [ old play ] for General merchandise in the second half. And hence, the outlook and the guidance remains the same.

Look, I've nothing much to add other than to say look, I think that we're learning a lot as we go, Victoria, as well about clearly where the challenges are but also where the opportunities are, too. And one of the things, I think, that's critical as we head into this year is all of the learning about agility and pace through the pandemic is going to be just as critical as we look out over the next 9 to 12 months. So as you've seen in the first quarter, we're staying very close to customers, and we're adapting and adjusting our plan based on what we're learning. And of course, everything we've taken for this period, we're using to think about the summer and the autumn and peak and making sure we're really well set given the conditions around us.

And any comments on price versus cost increases?

Yes, I mean, I think just -- I mean, just -- maybe just to reiterate the kind of key points. So look, you've seen Kantar report around 7% inflation in the market. We said at our prelims in April, and we're consistent with this again now, that we're inflating at the overall level 1% to 2% behind that. And clearly, in products that - -for example, in our price match we're inflating even less so there. On the other side of things, we're working very hard with our suppliers. The commercial teams, Rhian and Paul and all their team are working really hard on making sure that we're mitigating the flow of cost/price impacts. Of course, the issues around commodities continue, exacerbated by the Ukraine situation, labor costs, fuel, fertilizer. We're all well aware of those impacts. But I think that we, over a considerable period of time now, have been really focused with suppliers on, one, creating volume; and two, making sure that we're getting the most competitive terms in terms of what we're buying, and we continue with that work. Our job is to pass on the best value we can to customers and make sure clearly, we protect our shareholders, too, and that's exactly what we're doing. We're spending a lot of time in the supply base, really progressing those conversations. And it's all about deep, trusted relationships, robust conversations and finding the opportunities in the challenges.

Our next question comes from Andrew Porteous, HSBC.

A couple from me. I guess one of the main features of the market at the moment, certainly from big 4 perspective, has been sort of Tesco's consistent outperformance for a period. What do you think it is that's enabling them to sort of win share even as we sort of lap that lockdown comparative? And is there anything in your plans that sort of might narrow that gap? I know you're doing better than some of the others but just with respect to Tesco in particular. And then a second question really around Argos. How are we thinking about inventories and gross margins there? Are we starting to see more markdown come into the mix there?

Andrew, thank you. Well, let me take your first question and then maybe Kevin want to talk about Argos. So look -- I think, look, in terms of our plan, well, about -- in November 2020, you heard us be really clear on Food First, and you saw our level of outperformance during the first year of our plan. So look, I think we are pleased with how we performed last year, and we're pleased with how we performed as we've lacked that period of strong performance particularly given, as I say, how far ahead we were in the first half last year. So as we look ahead, we're entering into a period of time where some of the supply chain availability challenges were pretty prominent this time last year. We had CO2, we had issues with meat availability and labor in the meat industry. We had, obviously, the impact of the staycation. All of those things play through June, July, August and September as we look out. And so we're setting ourselves up to make sure we can continue the strong volume share performance that we are now really working on building. And that's how we see the performance. And clearly, as we put food first and get value right and improve innovation, we have more reasons to feel confident we can sustain that progress. On Argos, Kevin?

Yes, Andrew, on Argos, as you'll recall, I mean, there were four key things, obviously, with Argos: take costs out, closing stores and removing rent and rate. Margin discipline was an important one which you're touching on. Then there was availability and then there's improving the offer. On margin discipline, we stay focused on that. It's about profit, not sales for sales' sake, and we'll continue to do that against the current backdrop. And as far as stock is concerned, we're pleased we've got better supply. Now as you'll recall, we had some supply challenges through the pandemic. And I think also, our financial strength means that suppliers are very comfortable, obviously, trading with us, which is helpful.

Thank you, Andrew.

Just on the Argos point. Do you think more broadly in the U.K. sort of nonfood industry there's the same sort of inventory issues that you're seeing in the U.S.? Or do you just think that's not been the same sort of issue in the U.K?

I'll tell you we can comment on everyone else's. I mean we're very comfortable with our inventory position.

Now Kevin, look, I think -- I mean, the only other point for our business, Andrew, is that as we referred with you before, the pandemic was a period of really significant learning in terms of how we manage both margin, cost reduction and inventory levels. And everything that we learned through that period, the team are continuing to use. So clearly, we're focused now on Q3 levels of stock we want to buy for that period and making sure that we're really agile and well planned in how we do that. So a lot of muscle memory being built that will be deploying over the next 12 months.

Our next question comes from Sreedhar Mahamkali, UBS.

Thanks for taking my question. A couple of them. Firstly, can I just follow up on the secondary customers, please? Helpful data on Slide 7 there. Can you talk a little bit about the drivers and how important is Sainsbury quality, Aldi prices here? And also, sort of bigger picture, how has the proportion of shopping with Sainsbury's just changed over the past year or 18 months? That would be very helpful. And secondly, inflation. We talk about food and grocery. Can you give us a sense of where inflation is running at across GM and/or in August?

Sreedhar, why don't I take your questions on secondary customers, and then maybe Kevin will talk about what we're seeing in terms of inflation levels in GM? Look, I'm just going to -- I'm going to get back as a reference point to November 2020. You'll remember when we laid out our Food First strategy that we were really clear, having analyzed and listened to thousands, in fact millions, of customers, that we have to really work on the secondary customer base that were choosing to go elsewhere for some of the items at the center of the plate and then were coming back to us to top up. And really, what we've been doing over the last close on 2 years now is focusing in meat, fish and poultry and produce and dairy, winning the hearts of the basket, winning the center of the plate. And as we've done that, we've seen more secondary customers come back to us. So it's really a continuation of what we laid out back in November 2020. I think what's changing is as customers are more and more focused on value, they are looking every penny on the shelf in terms of where we are compared to others, particularly on those products that they buy most often. Now it's one of the reasons why we don't run multi-buys, why we don't do 3 for 2s and extended promotions, because what customers are interested in, especially now when they're managing every penny and pound in their spend, is what the shelf edge price is on full-pack chicken, breast portions, strawberries, milk, potatoes, the products that we all buy week in, week out. And so that's what the secondary customer focus is all about. And as you draw attention to the slide and my chart, what you can see is how we're growing with those secondary customers compared to our direct competitors. And the reason we're very focused on that is particularly now where customers are looking at where they can get best value, we want to make sure that we're putting our best foot forward in continuing to give customers confidence on those products with exactly the value they would expect. On August?

Yes, on -- Sreedhar, on General Merchandise, it clearly varies by category because there's a number of businesses in there, as you're aware. Now -- but it's high single-digits inflation we're seeing generally across the mix, and that's a combination of the cost of the -- underlying cost of the products coming through but also the freight to get it into the U.K. We're starting to see freight rates soften as we look out, but clearly the products that are in the country right now, we've had high freight rates. But we're seeing a rational market. We're seeing the market passing on those costs through pricing, which is what we would have expected.

Our next question comes from Rob Joyce, Goldman Sachs.

I might actually try and sneak three in. So first one on inflation. I think your own chart there definitely shows quite a pickup in inflation in June. Our own data suggests the market is tracking now at double-digit levels. I guess could you confirm that the sort of exit rate inflation is maybe tracking around those levels in the market data you track? And as those consumer behavior changes, have they started to accelerate towards the end of the quarter? Or have they been pretty consistent across the quarter? Second one, tied to this, is just on the Argos credit book. Can you just give us an update on how the sort of bad debt profile in that book is evolving? And anything else you'd highlight in the book's performance? And then thirdly, just people spending quite a lot on the holidays at the moment. From your own data, can you give us an idea as to how much your sort of Travel Money business is tracking versus, say, pre-pandemic levels? That might be interesting.

Rob, thank you. Why don't I take 1 and maybe 3 and Kevin maybe will take the credit question? So look, at the risk of repeating myself, Rob, I think, look, in terms of what we're seeing on inflation, undoubtedly, as you've described, the situation has developed through the quarter. And so customers having a propensity to shop more into the economy own brand product base, we've seen that accelerate, as I said in the presentation. We've also seen customers trading up, particularly on the key events, and that's where Taste the Difference plays a key role. I think just to reiterate the point that whilst in terms of the market reads we broadly subscribed to the Kantar numbers last week of market inflation, we're 1% to 2% behind that. And as I say, depending on how customers shop the basket, if we were to go through a store today and buy only products in the price match, then clearly there's a further level of saving and, therefore, less inflation in the mix. So I think the key trends we're seeing is customers are buying in more into that economy own label. We think the price match is really well set to prepare for that. And as we look ahead, I think what you can see us doing is continuing to adjust our price programs to make sure we're really well set to what customers expect and also continue to accentuate the breadth and assortment of the Sainsbury's offer. In terms of what we're seeing on prices going up, clearly there are some categories where there were more pressures. You'll be well aware of fuel, fertilizer, labor, some of the commodity issues that are out there. But what we're trying to do is position ourselves to be the most competitive on what product customers buy most often, and that's broadly playing through into how customers are buying into those product ranges. Just the other question you asked before I hand to Kevin, we've had a strong run on Travel Money, not surprisingly. Interestingly, from our credit card, we can clearly see the customer behaviors in terms of flights, eating out. Travel is at an elevated level, no surprise there. We are planning and thinking about at what point out-of-home food consumption will move back more in home and how we make sure in the food business we're ready for that. But strong performance in Travel Money to start the year. Kevin?

And Rob, on the Argos credit book. No...

And eating out versus '19 -- oh, sorry.

After you, Rob. Kevin.

Sorry, Kevin.

Okay. Now just on the Argos credit book, no change to date, but it is something we're watching carefully, which won't surprise you. And we would expect some weakness as we go through the year. But the key thing -- when we look back historically, a key factor in the strength of the Argos credit book relates to the employment market. So in a full employment market that we're seeing at the moment, then we're less concerned. But obviously something we're keeping an eye on.

I think in terms...

Okay. And then maybe you don't have the stats, but on the -- yes, just on the '19, is there -- I mean, I get the feeling that people are spending even more than they were in '19 on travel and restaurants and stuff. I don't know if you can pull that out of your data.

I mean that's the trend we're seeing. And I think, look, as you point to certainly on travel and eating out, the trends, we're not seeing any slowdown in that at the moment. So that -- we'll keep you updated as that picture changes. But at the moment, continued elevated levels against '19/'20.

Our next question comes from Will Woods, Bernstein.

Thanks for taking questions. Just a couple. So on the pricing chart that you've shared, it looks like the gap between you and the total market has kind of narrowed over kind of May and June. Do you think that's driven by greater pressure from peers bringing down inflation, holding it back? Or do you think you've just accelerated some of the inflation pass-through? And then secondly, just a bit of a technical one on the -- on Argos. You mentioned kind of furniture, home and technology suffering a little bit. Roughly what percentage of sales do they make up within Argos today?

Thanks, Will. I think look, on the first question, and just to absolutely try to be as clear as we can on this, we continue -- there's clearly a significant inflation coming through in the market. We're inflating behind others, and we have consistently put prices up behind others. But clearly, as you'd expect also, we want to make sure we manage our choices about value investment and margin to make sure that we're handling that appropriately, and that's what's happening through this period effectively. So as the intensity has picked up, so we pass through more prices where the market has moved. In terms of our relativity to others, I think that's an important dimension to this, which, as I said earlier, is linked to the proportion of promotions that different retailers have in their mix. We have a very low promotional mix within our offer compared to a number of our direct competitors, and that directly has a bearing clearly on the impact of those promotions in terms of what it means on inflation if customers were to buy into all those promotions. Our own view is that when customers are really watching their budgets and their spend carefully, we're not seeing their propensity to want to buy into 3 for 2s and multi-buys. They're buying what they need now and hence the reason why our real focus on shelf-edge pricing is working for us and we think really important. I hope that answers your question on inflation.

Shall I take furniture?

Kevin, yes.

Yes, just on the furniture, it's just over 20%, Will.

[Operator Instructions] Our next question comes from Nick Coulter, Citi.

Three quick ones, if I may, please. Firstly, to follow up on, I think, Andrew's question on Argos. I know you said you're happy with your inventory. But to what extent are you kind of preordering or preshipping general merchandise inventory? Or has that completely normalized? And then kind of a follow-up to that, how are you thinking about adapting your offer at Argos into the kind of the peak as the consumer weakens?

Nick, thank you. I can hear a fire alarm going on there. Okay. So just to try to -- let's -- I think you said three questions. I've got two there. So pre -- the situation on stock on GM, adapting the offer as we head into peak. Was there a third question that you wanted to ask?

There was, but we're having a bit of a fire alarm test here. So why don't you answer the first two and I'll [indiscernible] if that's okay?

I'll answer two. No problem. Okay, let me do that. So look, as I've begun to describe, the team are all over planning the peak period. I think, look, for all the obvious reasons, we are being very thoughtful about the stock commitments we're buying to. But also, we see a number of opportunities in this market as well. Argos has a really strong reputation with customers, a good value for money. Clearly, our digital reach is significant. And clearly, as we now have over 400 store in stores inside Sainsbury's Supermarkets, over 1,000 collection points, there's a number of elements of the Argos customer proposition that we think will be really important through this period of time. So we are planning and preparing for peak in that context. Availability is a key focus of what we're working on. You can see in our pack our availability has improved over the last 9 months. And of course, it's a careful balance between optimizing availability in the products people want to buy and making sure that we are robust and disciplined in our stock commitments. I think this period of time, we'll continue to do exactly what we've been doing. And then on the offer, look, I think we started on Argos in November 2020 and said we needed to phase into the operating model and operating cost of the business. We are coming up 2 years on that progress. As you've seen, we've accelerated substantially the store in stores and the rollout of Local Fulfillment Centres. We expect that to continue to drive both availability and the continued reduction in operating costs. And we're also making a number of efficiencies in our logistics operations as well. And so the cost base transformation was our first key priority. We're clearly also looking at the proposition, looking at our value, looking at our assortment, looking at our availability. And Paul and the team are very focused on that, and we've got a number of key plans that we're now working on. So brands that deliver is a key focus of our strategy, and the combination of cost takeout, margin discipline and improving the offer, all three of those, we're moving forward with.

Is it fair to say that you're expecting high single-digit down volumes, but then you've got high single-digit inflation coming through that kind of your inventory will be broadly flat in terms of monetary terms heading into peak from a GM perspective? Is that a sensible assumption to make, that you brought your inventory down for the lower volumes, but clearly, on a monetary basis, it'll be back up?

I think there's a couple of things we shouldn't miss in the history. Clearly, we were underoptimized on availability into last Christmas. There were a number of categories where we would have preferred to have had more stock in the system than we were able to get due to the global situation. So clearly, we're planning for both the impact of the demand down this year versus the availability shortfalls last year. And also, we're working closely with suppliers to make sure that we get more than our fair share of products where we think we've got a real opportunity to convert with customers. So it's not as straightforward as compared to 2 years year-on-year for that reason. But I guess the key point I would come back to is we see opportunities in this market to make sure we deliver for customers. We're equally being robust on where we're investing in stock and where we're not.

And one last one, if I may, just on inflation. As we stand here today, where do you expect grocery inflation to peak and when? And that's very much, obviously, on a best-guess-today basis.

Yes, Nick, look, you wouldn't, I don't think, expect me to be able to name a number. It's an uncertain situation. Clearly, the pressures are still in the system. And look, you can see, as I can, the continued pressures on some of the inputs still coming through. I would say that we're very close to this with our suppliers. As you'd imagine, day in, day out, week in, week out, we're constantly talking with our key suppliers, which gives us a good line of sight to where the inflation tracks are going. Some of the availability issues we've seen are starting to recover, particularly on some of the Ukraine-based issues. So look, I think what I would say on this is we're all over making sure we mitigate the impact, all over making sure we manage the mix impact such that we can deliver good value for customers but also make sure we deliver for our shareholders, too. And so as we look out for that, we're going to navigate those choices carefully, as we've been doing.

So your sense is that it still rises from here? There's no kind of plateauing or...

Look, I think there's still pressure in the system. But as you look further out, look, I think it's hard to call what's going to happen further into the autumn. There's still more to come. But I think we've got good line of sight of what we can see with our suppliers, and we continue to use that to inform the balance of what we're investing in price and, as I say, how we manage the impacts of this. And what we've done so far, I think, demonstrates the rigor with which we're doing that.

That's with -- our final question. I will now hand back to Simon Roberts for closing remarks. Thank you.

Okay. Well, look, thanks, everyone, for joining us this morning. We really appreciate your time, and I hope we've been able to give you some good color on our performance. Clearly, we'll focus now as we head into the second quarter. Thank you for your time and look forward to catching up again soon. Thank you.