J Sainsbury plc (SBRY) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to our interim results presentation. Thank you for joining us today. I'll begin with the key highlights of the first half, specifically how we're delivering for customers and how that's translated through to the strength of the performance we've achieved. Bond will then take you through the financial performance and outlook. Before I come back to talk with a bit more detail of the progress we're making across next Level Sainsbury's. But before that, I want to start by saying a big thank you to every one of our colleagues and to all our farmers and suppliers for everything they've done to deliver for our customers through the first half. We all know just how challenging conditions have been across the food supply chain through the course of this summer with 5 record heat waves, particularly for our farmers and growers. And that's extended to the pressures that the extreme weather placed on all our logistics and store colleagues. So many of our team working right across Sainsbury's went the extra mile to really deliver. a huge thank you to them. Now we've delivered another strong first half with continued grocery volume growth, market share gains and profit growth. And what sits behind that is something you've heard me talk about many times, our relentless focus on the things that matter most to customers, great value, outstanding quality, excellent availability and leading service. On value, we're in a really strong position, improving against most key competitors in the half. Operationally, we delivered outstanding availability at the most challenged times in the summer heat waves with fresh food availability 2 percentage points higher than the other choice grocers. We continue to pull ahead of the rest of the market on quality with the strength of our innovation across Taste the Difference and Discovery. And we're building momentum and differentiated capability using the strength of our balance sheet to invest in accelerating customer loyalty through personalized value, technology, which improves the customer journey and infrastructure and systems that deliver efficiency and resilience. Now the cost of living remains top of mind for customers, and we've continued to make very focused investment to ensure that we raise a sharp on price across all the items in the basket that customers buy most often. With the biggest Aldi Price Match in the market, Nectar prices in almost 11,000 products and personalized value through your Nectar Prices, where customers have saved GBP 250 million since launch in 2021. This is delivering a consistency in our value position that has really stood out over the last 6 months. And while we strengthened value, we've kept investing in what has always set us apart, our trusted reputation and the association Sainsbury's as a brand has with customers for our food quality, range and innovation. This year, we expect to launch more than 2,000 new and improved products, our biggest innovation program ever. This includes more than 700 Taste the Difference and Discovery products, really stretching our lead versus the market. And innovation isn't just about premium food. We're building on our leading position to make healthier choices easier by introducing new products, reformulating current ranges and improving the visibility of nutritional benefits on packaging. We're seeing real momentum as we bring more of our food offer to more customers with fresh food sales up over 4% in the first half. We opened 14 convenience stores and 2 supermarkets, both of which were former home-based stores, and we're really pleased with their performance. We've also invested in around 170 stores in the first half, focusing on those with the greatest potential. That investment is delivering with these stores seeing stronger volume growth and customer satisfaction scores higher than the rest of the estate. And to create greater fresh food capacity, we've been rationalizing general merchandise range and space, making the space work much harder with volume for general merchandise stocking point up 10% markets, we completed our biggest ever fresh food range reset, changing range and space allocations to reflect evolving shopping habits and improve availability and stocking efficiency. Sainsbury with a long had a reputation, a strong relationships with farmers and suppliers, and we're building that at a time when it matters more than ever. By the end of 2026, 60% of products in fresh produce, dairy, [indiscernible] poultry will be in long-term agreements, this goes way beyond to the agreements that you'll hear other retailers talk about. This is about our cost of production models, which give produces predictable profit margins, greater certainty and the confidence to invest for the future. That strengthens the residence of out of lichen and helps applier deliver the consistent quality and availability of food our customers rely on. So why do the inputs across what we're doing on value, innovation, quality and our relationships with suppliers and matters so much, it's the core delivering a winning formula that customers really trust. On value for money. I've talked before about how the customer perception to catch up with the real change we've made in our value position following the investment we started with Food First back in 2021 that has now shifted. Customers consistently recognize the value they get the same rating us ahead of our competitors. That reflects what we delivered over time and the trust we've built. And importantly, we've strengthened our value position whilst maintaining the quality advantage, there's always [indiscernible]. You can see that really clearly here. Our quality scores remained significantly ahead of the other full-choice grocers, maintaining an advantage we've built over many years. And it's the strength of that proposition that gives us the confidence to put more of it in front of more customers. In the stores where we've made the most significant investment, we've added an average of 1,500 new products at the store. And as part of our fresh food reset, we've given more space to key categories such as meat, fish and poultry. At the same time, we're getting more from the space we retain in General Merchandise with high trading intensity, with other working capital and simplified operations. [indiscernible] is a good example. It was 1 of the first categories to go through the full range reset and with fewer better products, sales grew 13% in the first half. So we're pricing more space for our stronger food offer, while at the same time driving better productivity from the rest of the store. This is where it all comes together. We are right there with our customers day in, day out, ensuring we deliver on the things that matter most to them. And at a time when the market has been a bit more volatile, we have maintained our lead and consistency of overall customer station with more customers continuing to do satra for their big basket shop. This shows how our consistencies translate into performance with strong volume growth in the market over a number of years. We knew we'd be wrapping some particularly tough comps through this period. So while we continue to grow volumes, we did a little below the market in the second quarter. The comp will remains top through quarter 3, and we're expecting it to be another very competitive period. but we are really well set up for the second half. Our food proposition remains consistently strong across value, quality and service, and we expect to deliver another winning peak. So let me bring all of that together. We are really encouraged by our first half. We're continuing to invest in the things that matter most to customers, and we can see those choices delivering strong customer satisfaction and continued growth of big basket main job customers. We're heading into peak with a strong value position, outstanding quality and our best-ever Christmas ranges, including 6 new take different discovery products. And we're going to continue to make the right balance choices that will deliver sustainable sales and profit growth and [indiscernible] today reflects that with our central case employing continued profit growth in the second half. With that, let me hand it over to Blathnaid to take you through the financial performance and outlook.

Good morning, and thank you, Simon. I will now cover the financial highlights for the 28 weeks to the 12th of September 2026. Starting with a reminder of our financial framework. This lays out the factors that underpin our commitment to deliver profit leverage from sales growth, strong cash flows, higher return on capital employed and enhanced shareholder returns. As we near the end of our 3-year -- next Level strategy, we are pleased with our progress. We delivered continued food volume growth, higher profits and strong cash flow generation. We are well on track with our plans to deliver GBP 1.6 billion of free cash flow over the 3 years to 2027. Together with the bank exit proceeds, we will have returned nearly GBP 2 billion to shareholders through dividends and buybacks. We are now going to look at the performance of our continuing operations, excluding Argo. As a reminder, we have entered into an agreement to sell Argus to Switch Partners. As a result, the performance and cash flow directly attributable to Argos has been represented as a discontinued operation. Underlying performance in this financial review refers to the group's continuing operations unless otherwise stated. Starting first with our sales performance. Grocery sales grew by 2.9%, reflecting continued volume growth and a lower level of inflation versus last year. Grocery growth was partially offset by a 3.4% decline in General Merchandise and Clothing. General merchandise sales were down 5% year-on-year, in line with our expectations, reflecting our strategy of allocating more space to food and simplifying the range. Clothing sales were down by around 2% in a subdued and promotional market and against tough comparatives. Despite this, volumes performed ahead of the market, reflecting the strength of our offer and improved availability. In total, Sainsbury's sales grew by 2.6% in the half. Fuel sales were up substantially year-on-year, reflecting higher average wholesale prices and a modest volume decline. Together, this delivered total continuing operations sales growth of 4.5%. Looking at the shape of that by quarter, grocery growth was lower in Q2 than Q1, entirely as a result of lower inflation. Volume growth was broadly similar across both quarters despite tough comparatives. Turning now to the sale of Argos. As announced in July, we have agreed the sale of Argus to Swift Partners, enabling us to fully focus on our core food business. This transaction is expected to complete in February 2027 with full separation expected by February 2029. Additionally, in July, we handed back our banking license. The final bank colleagues exited and we exited the last of the onerous contracts. Together, these have created significant complexity in the accounting for the half with the exit charges relating to the bank and moving Argus to discontinued operations. While the bank is now clear, the Argus exit costs will continue to move. The largest element will be the working capital true-up that we will need to complete at year-end. The numbers you are looking at today reflect the half year position. They will be adjusted for both trading performance and the working capital true-up as we finalize the sale and exit in February. While we have treated Argus as discontinued, given the fact that it is heavily integrated into Sainsbury's, this has driven a review of the Sainsbury's assets and resulted in some impairments in continuing operations. I will cover those in the next few slides. This table shows the breakdown of Argus discontinued operations numbers. Before I talk about some of the bigger numbers, you can see that Argus made a loss of GBP 8 million in the first half, slightly higher year-on-year. This was in line with our expectations, and we continue to expect Argus full year operating profit to be in line or ahead of last year. We have recognized a noncash impairment loss of GBP 215 million on the disposal of Argus, and we've also booked a provision of GBP 102 million in relation to separation costs, largely tech-driven. There will be further separation costs to be recognized as we finalize the exit. Separately, we recognized GBP 37 million of restructuring and impairment costs in line with our Save and Invest program. Turning now to profits from continuing operations. Last year, we reported total underlying operating profit of GBP 506 million. Excluding the Argos discontinued operating loss and taking into account perimeter adjustments, this creates a continuing underlying operating profit base of GBP 507 million. Versus this GBP 507 million base, underlying operating profit increased by 3.6% to GBP 525 million, reflecting volume growth, balanced investment in the customer offer and continued cost saving delivery. Underlying finance costs were flat year-on-year. And as a result, underlying profit increased by 5.2%. We expect continuing operations underlying net finance costs to be around GBP 300 million to GBP 310 million in '26, '27 versus our previous guidance of around GBP 320 million. Underlying earnings per share increased by 10.4%, reflecting a lower underlying tax rate year-on-year and a reduced share count as a result of the cumulative effect of share buybacks. This slide sets out items excluded from underlying results on a continuing operations basis. We incurred GBP 60 million of non-underlying costs during the half. The largest item was GBP 87 million of divestment costs. This primarily relates to noncash impairment of non-trading sites and Sainsbury's stores following the announced disposal of Argos operations as well as fees associated with the disposal. It also includes GBP 8 million of final bank exit costs. Retail restructuring program credits in the period primarily reflect gains from lease exits and the renegotiation of dilapidation provisions recognized in prior periods, partly offset by the redundancy and property strip out costs associated with bakery closures. Now turning to our cash flow metrics. Free cash flow increased by GBP 57 million year-on-year. There are 3 elements to this. Firstly, the working capital of GBP 67 million is largely driven by payment timings. We continue to deliver on our working capital program. Secondly, capital expenditure was GBP 71 million lower year-on-year in the first half, primarily driven by timing of spend. And finally, profits are higher year-on-year. Net debt will be covered on the following slide. This table shows the key elements of our cash flow and movements in net debt this year and last. Following the change in the Financial Services business model, net debt and associated cash flows from financial services are now included in the core net debt measure. Opening retail net debt has been adjusted accordingly as shown on the table. Comparatives have not been restated given the prospective nature of the change in the financial services operations. Before the impact of this change, net debt, including lease liabilities, increased by GBP 221 million, primarily reflecting shareholder returns, comprising of GBP 213 million of dividends and GBP 200 million of the GBP 300 million share buyback program, returning bank disposal proceeds received in the prior year. Free cash flow of GBP 333 million was partly offset by divestment cash costs, including the wind down of previously provided bank exit costs, not directly attributable to portfolio sales and adviser fees associated with the disposal of Argos operations. Current year discontinued operation cash flow represents trading cash inflows of Argos operations and cash outflows to settle onerous contracts previously provided for by the bank portfolio sales. We continue to expect to generate free cash flow of more than GBP 500 million in '26, '27, consistent with our commitment to generate at least GBP 1.6 billion over the 3 years to 2027. Continuing cash capital expenditure is expected to be between GBP 750 million and GBP 800 million in '26, '27 versus our previous guidance of GBP 800 million to GBP 850 million, with the reduction reflecting the movement of Argos to discontinued operations. Here, we lay out our balance sheet metrics. Net debt to EBITDA is broadly unchanged year-on-year at 2.6x and within our target range of 2.4 to 3x. Return on capital employed improved by 20 basis points year-on-year to 9.2%. Turning to shareholder returns. As previously announced, we intend to complete a GBP 300 million share buyback program this year, comprising a core of GBP 200 million and an additional GBP 100 million returning bank disposal proceeds. The GBP 200 million core share buyback was completed in the first half with the remaining GBP 100 million expected to complete in the second half. We are proposing an interim dividend of 4.1p per share, representing 30% of last year's full year dividend, consistent with our standard policy. In total, we expect to return more than GBP 600 million of cash to shareholders this year. In summary, we are pleased with our performance in the half. We delivered profit growth against continued tough comparators in a competitive market, generated strong free cash flow and are delivering strong cash returns to shareholders. We also announced the sale of Argus, which will allow us to focus our resources on our core food business. Looking ahead to the full year and the guidance we have issued to the market this morning, I thought it would be useful to clarify what exactly this represents and how it compares to our previous guidance. Our previous guidance was underlying operating profit of GBP 975 million to GBP 1075 million, including Argos. Last year, Argus contributed GBP 9 million of operating profit, and we said that we expect the profits to be broadly unchanged year-on-year. So on a continuing operations basis, if we exclude that GBP 9 million from the previous guidance and round down by GBP 1 million, that will be the equivalent to GBP 965 million to GBP 1065 million. Versus that range, we now expect underlying operating profit from continuing operations of between GBP 105 million and GBP 1065 million. I know plenty of you will ask about the Financial Services contribution. Financial Services contributed around GBP 3 million to operating profit growth in the first half. For the full year, we expect a contribution to continuing operations profit growth of around GBP 10 million versus the previously guided GBP 20 million. This reflects the financial services contribution that now sits with Argos in discontinued operations. For next year, we talked about GBP 40 million of incremental income, and we still expect to deliver at least half of that upside on a Sainsbury's-only basis. So roughly another GBP 10 million of incremental income from financial services next year. We won't separately disclose financial services income, and we will only make a comment when it has made a significant impact on growth in any period. And as a reminder, for future years, when we announced the divestment of Argus, we guided that the impact on underlying operating profit was broadly neutral, with lost Argos operating profit and dissynergies offset by Argos store in-store rental income and Nectar income. This included the change to our financial services contribution expectation. So no further adjustment is required. We remain focused on maintaining our strong competitive position, delivering strong cash generation of more than GBP 500 million and creating consistent value for shareholders. Thank you for your time. I will now hand back to Simon.

Thank you, Blathnaid. Let me now take you through the progress we're making across our -- next Level Sainsbury's strategy. When we launched -- next Level Sainsbury's in February 2024, we set a clear purpose and 4 strategic outcomes. We're now in the final year of the plan, and we continue to make sustained progress. As we announced in July, the planned sale of Argos is an important evolution. It will create a simpler, more focused Sainsbury's while enabling Argos to continue its transformation under dedicated ownership. I'll come back to Argos shortly, but let me start with First Choice for [indiscernible]. Now our ambition here has been consistent right back to when we launched Food First in 2021. We want many more people to choose Sainsbury's as the place they come to for geared feed. On value, what's distinctive is how the different elements work together. We have the biggest Aldi Price Match in the market and net to prices on almost 11,000 products. And increasingly, we're combining that broad-based value with personalized offers through your next prices. Together, that's delivering really meaningful value for customers, saving GBP 16 on average on a big trolley shop and consistent trusted prices on the items customers buy most often. And while customers have the reassurance of trusting us on value, they know they don't need to compromise on quality. As ever, it's the quality of our food that really sets us apart. Taste the Difference sales have increased nearly 50% over the last 4 years. And on that strong base, we're still seeing growth ahead of the market again this year. With continued investment in fantastic innovation and quality, we see huge further opportunity here. And our biggest program of Taste the Difference innovation is coming for this Christmas. Taste the Difference Discovery, our range of restaurant quality meal solutions and premium specialty products is building on that strength and opening up new territory for customers seeking the most exciting innovation in food. We've doubled the range this year, and it's now contributing around 1/4 of Taste Difference growth. Our product development teams working alongside our suppliers are doing a brilliant job, expanding discovery into new categories, including barbecue, Italian meals and premium meat, fish and poultry choices like Norfolk Black Chicken. And we expect the range to exceed 200 products by the end of the year. We want our customers to be able to access the best of our food offer, however they choose to shop with us. And we're encouraged by the growth we've continued to have across all channels, not just through supermarkets, but also convenience and groceries online. Online performed particularly strongly with sales up 9%, reflecting improved overall customer satisfaction, including the friendliness of our drivers, quality, range and availability. As you know, we were early into the rapid delivery grocery market, both with our own on-demand proposition, Shop Shop, and then we moved into partnership with Deliveroo, Uber Eats and -- just Eat through 2025. We've largely completed our rollout of on-demand now in more than 1,400 of our supermarkets and convenience stores. Alongside expanding our digital offer, we're making shopping at Sainsbury's easier and more seamless, creating a more joined-up experience both online and in-store. And we've bought SmartShop on-demand and groceries online together in our enhanced Sainsbury's app. We're also adding new features to take the effort out of shopping. Search -- your store helps customers quickly find products, while AI-powered smart lists turn a photo or even a meal idea into a shopping list, helping customers plan, find what they need and keep track of their budget. Now in T2, the work we've been doing to strengthen the customer offer is continuing to deliver. We've been focused on developing our ranges and style credentials alongside driving better availability through a step-up in operational performance. We're seeing the benefit of that focus. Customer perceptions of style are up, availability is stronger and T2 has outperformed the wider clothing market. We also delivered our best ever back-to-school performance with sales up 8%. This is being supported by the rollout of RFID across clothing, giving us better stock accuracy and helping drive availability and operational efficiency. So while the overall clothing market remains subdued, we're making good progress on the things that will strengthen the 2 offer for the longer term. Turning next to loyalty everyone loves. Nectar continues to be a really important part of how we deliver value for customers and deepen their relationship and connection with Sainsbury's. We're continuing to make Nectar more personalized and more rewarding while giving customers more ways to earn and benefit through our growing coalition of partners. At the same time, we're investing in the data and retail media capabilities that continue to strengthen the long-term growth opportunity for Nectar 360. And what's really powerful is how those 2 sides increasingly work together. For customers, it's about delivering great value through Nectar Prices, points and increasingly personalized rewards, alongside more ways to earn and redeem points through our coalition partners. And for suppliers, Nectar 360 brings together our customer insights, targeting and retail media capabilities to help brands connect with customers in more relevant, measurable and higher returning ways. And that's driving deeper digital engagement. Nectar participation continues to grow with digital Nectar users up 9% and 17% more customers are accessing personalized offers on their favorite products each week through your Nectar Prices. We know that this engagement drives a real difference in loyalty. And increasingly, personalization can help customers discover different parts of our range, whether that's making healthier choices or introducing more customers to taste the difference. Nectar 360 continues to be at the forefront of retail media in the U.K., fueled by innovation and the strength of customer engagement with Nectar. Pollen is the most advanced retail media platform in the U.K. We launched this proprietary platform at the end of last year, and we're now rolling out across a wider client base. It's revolutionizing the way that brands and agencies work with Nectar to run omnichannel retail media campaigns at scale. Pollen has now delivered more than 600 campaigns for around 100 clients. Nectar 360 has also become the first U.K. retail media business to be accredited and independently audited against the IAB Europe Retail Media measurement standards. This provides a unique guarantee of credibility on the way that Nectar 360 delivers and measures return on investment. And alongside Pollen, we're continuing to expand our in-store media network with more than 3,500 digital streams today and close to 5,000 expected by the end of the year. Now this slide brings to life what that capability can deliver for brands. Brands are able to connect with customers across in-store, on-site and off-site channels and measure the impact. This Diet Coke and the Devil -- was product campaign is a great example, reaching 8 million customers and delivering a 3.7x incremental return on advertising spend. Let me now turn to Argos. As we announced in July, we've agreed the sale of Argos to Swift Partners completing February 2027. This is the right next step for both businesses, creating a simpler, more focused Sainsbury's while giving Argos greater flexibility to accelerate its transformation under dedicated ownership. The team continues to make good progress in delivering the transformation plan with investment in people, stores and technology and encouraging marketplace launch and strong new customer take-up of the new credit proposition. And perhaps most importantly, it's business as usual at Argos, and we expect full year trading profits to be in line with or ahead of last year. So our focus is on continuing that progress and securing a stronger future for Argos as we move towards completion of the transaction. Save and Investor win is about investing in technology and infrastructure to deliver sustainable structural efficiency gains. We're creating a simpler, more automated and more productive business while continuing to invest in the capabilities that will make Sainsbury's stronger for the future. We're on track to deliver our GBP 1 billion cost saving target, taking total savings to GBP 2.3 billion over the past 6 years. Our focus has moved away from individual one-off saving initiatives towards end-to-end improvements in processes and ways of working that change the game in terms of costs. These will deliver savings well beyond the current year. Investment in technology is improving productivity and delivering benefits for customers. Our stores are becoming more connected from the shelf edge through to customer scanning. And AI is making a very real difference to in-store productivity and safety and loss prevention whilst improving customer satisfaction and availability. We've made good progress rolling out facial recognition technology following a successful trial, which saw logged incidents fall by 46% and more than 90% of identified offenders not returning to our stores. Self-checkout video analytics are now in nearly 600 stores with continued rollout across supermarkets and introduction into our convenience stores, driving significant reductions in mis-scanned items. SmartShop is now in all supermarkets with 20% more handsets year-on-year, supporting operational capacity and bigger basket shops ahead of peak. And we've rolled out our optimized reduction algorithm to all stores, reducing waste and improving colleague efficiency. This has already delivered a double-digit million pound saving. Before I close, let me come back to the commitments we made when we launched -- next Level Sainsbury's. We're now in the final year of the plan, and we continue to make good progress against those commitments. We've built on really strong foundations to sustain a very strong competitive position, consistently investing in our customer offer. We've grown food volume ahead of the market, and we expect to have grown profits faster than sales and improved ROCE, supported by our cost-saving program. We've generated strong free cash flow whilst investing in our stores and in the long-term strength and resilience of the business. And we expect to hit our target of more than GBP 1.6 billion of free cash flow over the 3 years of the plan. And we couldn't do any of this sustainably without keeping a strong focus on outcomes for customers and colleagues and our key plan for better outcomes. We'll give a full update on performance against all the metrics at the end of the year. And that brings us back to our key message today. We're delivering for all our stakeholders, building a stronger, simpler, more focused Sainsbury's with the capabilities that matter for today and tomorrow. Our winning combination of value, quality and service is consistently delivering for our customers. We have a strong and trusted value position and leading quality and innovation, building on the core strengths of the Sainsbury's brand. We're deepening loyalty through Nectar and growing retail media income whilst investing in technology, productivity and efficiency. And this is generating strong sustainable returns for our shareholders. Thank you for listening, and thank you for joining us this morning. [indiscernible] and I will now take your questions.

Welcome to the Sainsbury 2026-2027 Interim Results Announcement Analyst Q&A Call. On the call this morning is Simon Roberts, Chief Executive; and Blathnaid Bergin, Chief Financial Officer. [Operator Instructions] Our first question comes from Manjari Dhar with RBC Capital Markets.

I just have 3, if I may. My first question is on how you view the consumer outlook as we sit now versus when you originally set your guidance, the original guidance? And then my second question was just on how you view the competitive backdrop evolving in some of those faster-growing segments that you mentioned, online, on-demand, the premium market. And then finally, also on online and on-demand, I guess, how do you look at sort of the capacity that you have for growth now and the ongoing opportunity there?

Thanks. Okay. Well, let me take each of those in turn. So look, I think on the consumer outlook on where customers are at, you can see in our results today, we've been super focused on the value quality and service proposition absolutely at the heart of the Sainsbury's food offer, and that's really working with our customers. Obviously, customers continue to be concerned about the cost of living. And so having that consistent trusted value is making a real difference in the fact that we continue to win more big Troy shoppers in the first half of this year. And I think as you've seen over a number of years now, that's the absolute foundation of everything we've been doing at [indiscernible], and that's really working, and that will continue to be really important. Look, I think as we look out over the rest of the year, obviously, customers are waiting for the budget next week. Almost I think they've been sort of trained to kind of be more cautious around that over the last few years. And I think good news it's happening earlier this year, and we have to wait until November. But I think we look forward to the third quarter with the focus on cost of living being front and center, providing great value. But then obviously, as we get towards Christmas, signs already customers are starting to look to Christmas food ordering up, interesting grocery online slots that went live last week. We've got more of those, big focus on innovation and new products in the food offer. So I think customers looking for reasons to be assured on both value and quality that they can get what they want every week. In terms of how we think about the kind of competitive backdrop, look, I think you can see in the recent market reads that there's not a lot of volume in the market at the moment. It's being really clearly competed hard for and everyone is working hard for the volume that they can get. And I think that reflects a first half of the year. There's been quite a lot of noise in the sort of comparatives. Obviously, some extreme weather impacts this year, the impact of the prolonged cyber on last year's comps, changes in how customers have shopped, particularly the warmer weather meant that customers shop more frequently, but often with smaller baskets. And that's going to play through into a lower level of volume in the market. And I think obviously, that means that -- and everyone is working hard to secure volume. And within that, you can see what we're doing. We've continued to really deliver that combination of value quality and service. And then specific to your point on the channel shifts, I think really clearly, online growth at 9% in the half. We're really encouraged by that. We've been working hard over a period of time to build our capacity and also our service proposition and actually our customer satisfaction. We didn't show it in the slides there, but our customer sat moved back in front in the period as well as we continue to really make sure we're delivering for customers online. In terms of what's happening in there, you talked about some of the segments. So obviously, on-demand, the fastest-growing segment. We obviously went into that market last year. And so we've largely completed our rollout, getting into pretty much all of our supermarkets and convenience stores in the way we've rolled that through. And so I think as we look at that going forward, we delivered in the first half of this year, 27% growth in on-demand. And actually, interestingly, what we saw is that our total volume of grocery performance was a little bit up in quarter 2 compared to quarter 1. But obviously, as we lapped the rollout of on-demand last year, actually, we had stronger growth in on-demand in Q1 and Q2. So we're actually pretty encouraged our supermarket volume moved up a little bit in the second quarter. But obviously, we're lapping the rollout last year. Others are coming into that channel now. On-demand overall strong. And then you mentioned premium. Look, I think it's absolutely at the cornerstone of our food focused plan, which is customers want great value, but they also want great quality, and they want exciting new food ideas. And the innovation team working with our suppliers has done a fantastic job at the premium level, 2,000 new products this year, big focus on Taste the Difference, our biggest innovation program ever for this Christmas. So a lot happening across how customers are shopping the kind of products they want. And I think what we can see in that is our formula, our winning formula continues to make sure we can take a better share. We can win big troy shoppers and customers get assurance in the Sainsbury's offer.

Rob Joyce with BNP Paribas.

Excellent. So I'll go with 3 as well. So first one, I guess, sort of stands out as the relative slowdown in performance versus the market. I guess the other thing that stood out was the closing the gap of your sort of overall customer satisfaction versus the other 3 grocers. They all seem to have caught up quite a lot in the recent quarter. Given that wasn't value or quality, can you tell us what sort of driven them to catch up there? And do we think this sort of relative gap is going to sort of stay close versus competitors for the foreseeable? Second one, on quite a lot of press reports about your discussions with Morrisons that seem to have been quite extended. Should we consider that as potentially suggesting that the kind of through first strategy is coming to an end, the upside from that, you've maybe taken harvested most of that? And then the final one would just be on the overall competitive dynamic of the market. I mean, interesting to see Aldi there improving for the first time in quite a while. Are you seeing a step-up in particular from that element of the discounter space?

All right, Rob, super clear. Thank you. Three questions. So let me start, first of all, on your question on the quarter. Look, I think we're actually really encouraged about our performance in the first half of this year and the fact that we've continued to win share, particularly of large trolley shoppers, that's been really fundamental in terms of the strength of our proposition. I would just point out that we've just lapped some of the biggest comps we've seen in any of our plans so far. So this time last year, grocery growth was 5.9% and as we move into this quarter, a strong comp too. So actually, we come through the second quarter when there hasn't been a lot of volume in the market, and it's been pretty hard competed for, actually pretty encouraged by the fact that we grew a bit of share there, and we've continued to grow volume. And I think what we can see in the market is there's a bit more promotion out there. There's a bit more incentive out there. And actually, what we've continued to do is to deliver our plan and make sure we're giving customers that combination of quality, value and service that they really come to expect from us. And so as we come into the third quarter, you can see in the market reads, volume is subdued in the market at the moment. And in that context, we're making sure that we're absolutely delivering for customers what they expect from us. We've had continued very strong performance, and we continue to make sure that the proposition is very strong. And you can see that coming through in the fact we're growing in all channels. And in the key parts of the grocery shop, our value is as strong as it's ever been. In terms of your point on value, I'll just come to that next before your middle question. Look, I think as you can see, we've got some of the strongest value we've ever seen. And obviously, through the summer, as customers shop differently, different competitors have response to that. But all the way through, our consistency has continued to be really strong. And actually, we improved against most of the market. We continue to see positive switching from a number of our competitors. And you'll know when you think back over a number of years now, how much our value position has really stepped forward. And specifically on the discounters that you referenced, how much our value position has really stepped up compared to where we were before. So net-net, what would I draw out of that? Volume is more challenged than the market. You can see that. I can see that. Everyone is working very hard to get what they can. There's a bit more incentive promotion, vouchering out there at the moment. We continue to deliver our plan, and we've taken a bit of share in the half. And actually, as I said, volume gains were a bit better in Q2 than they were in Q1. On your middle question, look, I'm not going to -- and you wouldn't expect me to comment at all on the speculation in the media. What I'm just going to absolutely reinforce is the point I started with on the call, which is as a team, we're completely focused on our plan to continue to put food right at the heart of Sainsbury's. And you've seen in our food first strategy we launched in 2020 you can see in next level with a few months of this plan to go, how much year-on-year-on-year improvement in our performance we've been able to deliver. We've pretty much 6 years now of sustained outperformance. We've continued to win more customers. And everything we're about, not least given the announcement we made with Argos in the summer is continuing to double down on the opportunity, the very significant opportunity we see to continue to strengthen our food business. And that's everything that the team and I are about.

Okay. And I guess just to round out, I mean, do you still think you can grow profits in this kind of challenged volume environment?

You've seen in our report this morning and our update this morning, we've obviously lifted the lower end of our guidance range. We have obviously delivered an improvement in our profit in the first half. The central point of our guidance points to increasing profit in the second half. We continue to deliver all of the benefits of customers we committed to, but continue to grow our profits as we do that. So we've got a very clear plan for the second half. We are very focused on delivering our guidance there, I think, gives you a clear message that at the central point of our range, we expect to grow profit 2% in the second half. The range of GBP 125 million to GBP 165 million. Let's see how Christmas plays out, but we're definitely coming into this period with a very clear plan. And I would just make the point as well our cost savings program, GBP 1 billion over 3 years, when we complete -- next Level, GBP 2.3 billion over 6 years, and teams right across the business are doing a fantastic job to really drive through that cost saving work because it's so important both to make sure we can invest in the offer, but also to underpin the improvement in our profitability that we've committed to today.

Our next question comes from Matthew Clements with Barclays.

Sorry, [indiscernible] control on the side, obviously mess too much for the system. I'll keep it to one because I wasted everyone's time already. Nectar participations continue to grow, but you don't explicitly call out Nectar as a profit growth driver in the first half. If we assume that cost savings broadly offset cost inflation, is Nectar one of the key explanations for the delta between profit and sales growth? And then perhaps how important was mix, be it to full price or in grocery?

Matthew, thanks. Look, I think just to pull up on a couple of the key numbers we've talked about in the half on Nectar. I mean really important, we talk about Nectar as a big acquisition engine to bring more customers into Sainsbury's and to give them the confidence to get great value. And as you saw, we've had a 9% increase in the number of customers digitally using Nectar, that's significant in the first half of the year given the high bar we started the year with and 17% more customers now using your Nectar Prices. So I think that really shows how fundamental Nectar now is in really driving the total value proposition, but also giving more customers reasons to shop with us. And our participation levels now across our supermarkets and grocery online channel are moving into the highest level of performance that we could have expected well towards 90% overall. And I think the way we think about this, as you know, is that we want to give customers reasons to shop in Sainsbury's, and that's why acquisition of customers into Nectar is such a key part of our next Level strategy. And then obviously, as we do that, 2 things happen. First of all, customers get the value of Sainsbury's. They also get to benefit from all the coalition partners that we work with, and then that clearly turns into our ability to drive Nectar 360. So you'll be familiar that we committed over the course of this 3-year plan to deliver GBP 100 million incremental through Nectar 360 plan, and we're well on track to do that. Obviously, a few months of the plan to complete. You can see in our announcement to just the momentum in Nectar overall, and Mark and the team are leading in a fundamental change to make sure this is absolutely leading the way in retail media in the U.K. And you can see in the new functionality we've got with Pollen, the amount of activity that's now running through our Retail Media platform, how important that is in underpinning that additional profit delivery. And look, I think to your question, the heart of your question, what does Nectar do? It gives customers even more confidence to shop with Sainsbury's. More customers are doing that. That's helping drive our volume. That's helping drive our ability to drive trade up. You saw in the video about there, one of the things more and more as we learn about customers, we can personalize how we talk with them and help give them suggestions and ideas and recommendations, for example, to eat more healthily or outpace the difference ranges. And so more and more, it's helping in the mix in terms of what customers choose and then we're converting that, as I say, to Nectar 360. So we're really encouraged with the progress right across loyalty, everyone loves -- and obviously, as we look ahead, Nectar and our retail leadership -- our retail media leadership in the U.K. is one of the things that's really underpinning our confidence as we look ahead.

Our next question comes from Benjamin Yokyong-Zoega with Deutsche Bank.

Just 2, if possible. Firstly, on the markets, growth has softened. We're seeing promotions run ahead of full price sales. Have you seen any meaningful shift in customer behavior maybe in Q2 compared to Q1? And how are you thinking about balancing volume growth and share gains against potential margin dilution from further price investments as we move through the year? And then secondly, I guess, to go back to those higher-margin profit streams. It's great to see profits robust despite the softer sales. But can you comment in a bit more detail on the contribution from on-demand and Retail Media in the half? I assume these are key profit drivers.

Okay. Should I take the first question, maybe Blathnaid on the second one in terms of how we think about the other streams. So look, I think not to repeat, but just to kind of recap, I guess, in terms of customer behavior, look, I think what do we see in quarter 2, we saw a lot going on for the customer, not least driven by some of the weather impacts we saw through the summer. So I think 5 heat waves, people out a bit less, they shopped more frequently with smaller baskets. As I said, we had the annualization of some of the cyber impacts last year. And then obviously, we had -- we've just had a real focus in customers on the cost of living. I think all of those things together have contributed to not a lot of volume in the market at the moment, as I said earlier, and that volume being competed hard for, which has seen promotions running a bit up and more general incentives and keep on activity in the market. The way we think about this is, as I said earlier, we've got a very clear and strong proposition, which customers continue to respond well to. We're obviously pleased to be raising the lower end of our guidance today and pointing at the midpoint of our new guidance to our profit commitment for the second half of the year. Obviously, in setting that range, that tighter range, we continue to make balanced choices to make sure that as we enter the second half of the year, we can do exactly what we need to do, both in delivering for customers and to make sure that we get the right balanced choices across the business. Look, obviously, you wouldn't expect us to do any activity that won't deliver the right level of performance. And so we're very focused on getting things right for customers, making the right balanced choices and making sure that we've got the right plan as we come into the second half of the year and what is a more subdued volume set of conditions there to deliver the best outcome that we can.

Great. Look, we see Nectar and food on demand and on-demand very much just as part of our business. It's business as usual for us. Simon talked about the incremental 100 million from Nectar. That's well on track to deliver this year. There's always a balanced choice on how much we drop through to the bottom line versus how much we invest to drive our proposition. We make those choices as we travel through the year. Food on Demand, we got out of the blocks early on that last year. We're really pleased with its performance last year. Of course, others are coming into the market now. So we're seeing a little bit of a slowdown. But I have to say it grew by 27% in H1. So we're pleased with the Food on-demand performance as well.

Our next question comes from Izabel Dobreva with Morgan Stanley.