Woolworths Group Limited (WOW) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Woolworths Group F '21 Q1 Sales Results Announcement. [Operator Instructions] I would now like to hand the conference over to Brad Banducci, Managing Director and CEO. Please go ahead.

Good morning, everyone. Thank you for joining us for the Woolworths Group's first quarter sales results for financial year 2021. Joining me this morning are Stephen Harrison, our Chief Financial Officer; Amanda Bardwell, Managing Director of WooliesX; Steve Donohue, Managing Director of Endeavour Group; Claire Peters, who has taken up the new position of Managing Director of B2B and Everyday Needs; Natalie Davis, who has recently come back from New Zealand and has stepped into the role of Managing Director of Woolworths Supermarkets; and Dave Walker, who you would have seen last week, has recently been appointed as our Chief Risk Officer. It has been a pleasing start to F '21 with all of our retail businesses delivering strong sales growth and customer metrics remaining solid. We continue to focus on operating COVIDSafe during the quarter and rolled out key well-being initiatives under our COVIDCare plan, including additional leave entitlement to encourage our team to take a break ahead of a busy trading period as well as extending our team discounts. I want to take this opportunity to acknowledge our Victorian customers and team members for their resilience and efforts over the last few months and their contribution in slowing the spread of COVID and taking care of each other. Turning now to our results for Q1 of F '21. Total group sales were $17.9 billion for Q1, up 12.3% on the same quarter last year with continued strong momentum across our retail businesses despite the ongoing impacts of COVID. COVID-related costs remained material in the quarter as we continue to prioritize the safety of our team and customers but are tracking materially below Q3 and Q4 of F '20. Customers' demand for e-commerce services shows no signs of slowing with group e-commerce sales of $1.5 billion in the quarter, representing growth of 87%. This was supported by further capacity increases across our network as we worked to open up more home delivery and pickup options across the continent. Australian Food sales for the quarter increased by 12.9% on the previous year to $12 billion. Comp sales increased by 11.5%, with 2-year average comp sales growth of 9.1%. Sales benefited from customers continuing to consume more at home, growth in e-commerce as well as our successful Disney+ Ooshies campaign, while sales growth was boosted by Victoria with growth of 20% in Q1, and the states continue to grow strongly. Excluding Victoria, Australian Food sales increased by 10.6%. Customer metrics were generally up in the prior year but lower than Q4 of F '20, where scores were at record highs as our customers recognized the efforts of our business to provide safe and convenience shopping experience. Ease of pickup and queue wait time were impacted by sustained higher trading volumes during the period, and improving in these areas remains a focus for us in running the business. Average prices for the period increased 1.2%, which was below recent run rates. Excluding tobacco, average prices declined by 0.2%, with lower inflation across grocery food, health, beauty and baby and household and pet. Promotion activity during the quarter was closer to pre-COVID levels, following lower average levels in Q4, given our availability challenges. WooliesX e-commerce growth accelerated in the quarter, up 100% on the same time last year to $961 million. E-commerce penetration increased to 8% of sales compared to 6.3% in Q4, following increased demand and significant increases in capacity. A further 44 home delivery stores and 92 contact delivery services were rolled out in the quarter. Digital engagement across Woolworths websites and apps continued to grow with average weekly traffic up 76% year-on-year as customers look for meal inspiration, greater convenience and smart shopping lists and value by personalized offers. New Zealand Food's total sales for the quarter increased 6.9% with comp sales growth of 5.8%. Market growth rates slowed in the quarter following the substantial easing of restrictions in New Zealand in Q4 of F '20. There was a temporary spike in sales in August after new COVID cases were identified. However, growth quickly moderated with lower inflation. Despite the easing restrictions, transactions continue to be materially below the prior year as customers maintain their habits of shopping locally and using online services. E-com sales growth was 50.5%, with penetration for the quarter at 11.9% of sales, which was in line with Q4 of F '20 During the quarter, we also opened a third dedicated e-commerce fulfillment center in Wellington. Big W's total sales increased by 20.4% in the first quarter with comp sales growth of 22.3%. Excluding the 22 stores closed in Metropolitan Melbourne, comp sales increased by 28.5%. Comp sales growth was mainly driven by customers putting more items in their basket. And if we exclude the closed Melbourne stores, comp transactions also increased in the quarter by 5.3%. E-com sales were up 175% on the same time last year with record e-com penetration of 9.3%. E-com growth was boosted by the 22 Melbourne stores that adapted to fulfill online orders while closed to in-store customers as well as improved availability across the board. Last Wednesday, all 22 Big W stores in Metropolitan Melbourne opened -- reopened to the public. Endeavour Drinks' sales also benefited from increased in-home consumption during the quarter with the Father's Day trading performance a highlight. Total sales increased 21.4% in Q1 to $2.7 billion, with comp sales increasing 20%. Comp sales growth for both retail businesses remained strong. However, Dan Murphy's continued to outperform. Digital and e-commerce momentum was strong in Q1 with e-com sales increasing by 58% compared to the same period last year. Income penetration across Endeavour Drinks increased to 8.6% during the period. The My Dan's loyalty program ended the quarter with 4.8 million members, with more than 1 million new members added since its prelaunch in Q1 of last year. Hotels trading during the quarter continued to be impacted by the closures in Victoria with total sales declining 33% at $330 million. All ALH Victoria venues will reopen on the 9th of November, but we'll continue to operate with applicable state government restrictions. Despite the Victoria closures, hotels were profitable in Q1 but materially down on last year. Turning to current trading. Comp sales growth in October has been in high single-digit growth with a moderating trend over the month for Australian Food. And New Zealand has continued to slow relative to Q1 as well. Endeavor Drinks and Big W have, however, continued to perform strongly. For the remainder of the calendar year, while the experience of every business will be different, we expect that sales and costs will remain elevated as customers travel less, spend more time at home, embrace e-commerce and shop in a COVID-safe way. Christmas will be very different to previous years as we adapt the ways we shop and celebrate. And given 2020 so far, it would be surprising if there weren't some challenges that lie ahead. However, we have made good progress during the year to ensure that all our businesses provide our customers the opportunity to celebrate Christmas and the holiday season in a safe, enjoyable and affordable way. I will now turn the call over to the operator for questions. [Operator Instructions]

[Operator Instructions] The first question comes from Shaun Cousins from JPMorgan.

Maybe just a question around online growth. It's obviously been sort of very strong. I'm just curious around scale advantages. Do they help reduce the extent of EBIT margin dilution relative to a store-based sales? And maybe could you talk a little bit about what your -- what the proportion of same-day versus next-day sort of deliveries and why the customer has that attraction to same-day, please?

Thanks, Shaun. Obviously, this is a sales announcement, so I'll keep most of my questions to sales. But in answer to, I think, a very good question, obviously, we're seeing continued growth in e-commerce. The key trend for us is really we -- we're more supply-constrained than demand-constrained, i.e., when we add additional services, we see those services pull up very quickly. And that's true for all of our services, but in particular, our same-day services. And so we still got a lot of capacity which we need to open up in same-day. So it is probably the most demand-constrained portion -- or supply-constrained portion of our offering. And it's what customers want, and there's a great saying that says, today's convenience is tomorrow's friction. The more convenient you becoming, what you provide, the more customers demand their services or reinvent what they demand on them. I should add that our drinks business, Endeavour Drinks, leads in our group on the topic of same-day, and I'll throw it to Steve Donohue in a moment to talk about where we are in same-day in Endeavor Drinks. But it's been the standout for us, not only through the pilots who were done by BWS, but in the last 6 months, the work done by Dan Murphy's to provide a truly great on-demand drinks delivery experience. So it is growing, but it hasn't yet hit its right balance, and that's because we haven't provided enough growth into the sector. We'll continue to open up growth there, and it's just been a challenge for us, of course, just as we try to keep up with the overall market. In terms of e-commerce itself, while we won't talk to profit in this meeting given it's a sales call, it is fair to say that the more scale you get into it, the more efficiencies you get. And if you think about your key costs, it's actually the items you pick per hour, whether in a CFC or a store, and that is definitely improving continuously for us. We've redefined what capacity is in our manual CFCs. And you may have been, I think, Shaun, to Mascot on a prior occasion, which would be one of our manual CFCs. But if you haven't, we found that we can actually drive almost 100% additional volume out of that CFC as we're just smarter in how we lay it out and how we route it. And we're continuing to benchmark ourselves and improve our in-store picking in parallel. So the overall picking speed is going up across the group, irrespective of where we go with automation, Takeoff, and other forms of automation, which, of course, give you another step function. Then in terms of delivery, that's true as well, and we found, as we get to drop density, you get more drops per hour. We see that particularly in New Zealand, which has got the best density inside the group. And you start driving yourself up to the 4 or 5 drops per hour. We don't do that everywhere, but we actually can see it working. Very important in drop density is also the routing software, working very hard on having an AI predictive routing software in the business, which we're rolling out. Where we do roll it out, we start seeing a lot of benefits with it. So scale is coming. It is helping us improve our business all the time. And as I say, we truly believe that in an unconstrained world, we will find that same-day will be bigger than next-day. That is not true yet today, but that is because we are still in a transition period. But Steve, it might be worth just -- to me, the highlight of the half has been the way drinks, and in particular, Dan Murphy's, has really followed BWS with same-day delivery.

Yes. So Dan Murphy's numbers total e-commerce is 50-50, just about pickup and delivery. And on that delivery number, about half of that is same-day, and it's growing exponentially higher than all other elements of e-commerce for Dan Murphy's. So it will quite soon be, I think, the largest element of delivery -- or e-commerce, I should say, for Dan Murphy's.

Thanks, Steve. So hope that makes sense, Shaun?

Yes. No. Absolutely. And my second question is just really around supply availability. Just in terms of, I guess, Australian Food and Big W across both any of the impact of Victorian lockdowns on manufacturing. And then in Big W, particularly around port restrictions that are going on, just curious around how you're thinking about availability of supply leading into Christmas, please.

Look, I'll make some comments, then I'll ask Dave on BIG W and perhaps Claire just on Supers just to add to those comments. We had our moments on availability, as you know, during the height of the COVID challenge. As we stand today, availability across our group is actually in a good position. And so we don't feel exposed on availability today. There are, of course, legitimate questions on import volumes, which Dave can talk to in Big W, and some of the stone fruit challenges which we have with seasonal workers as we go into stone fruit season in Victoria, we're transitioning at the moment into that. So there are availability -- some availability challenges going forward, but I wouldn't want to overplay them, our in-stock position today is very strong. Dave, I don't know if you'd like to just elaborate on where we stand with Big W. I mean, obviously, we've had our -- with the demand levels we've had, we've had some availability issues to where we stand going into Christmas.

Certainly. I mean feedback from our customers through Voice of the Customer is that we're now back to pre-COVID levels, slightly higher, in fact. Inventory is actually in a really healthy position. There are a number of gaps, but they're relatively minor and very much in the same areas that we see. Fitness is an area that is really driving quite hard. As we get into moving into the Christmas period, we're actually pretty comfortable with our inventory position. We're working incredibly closely with our suppliers and really working very collaboratively with them, and we're getting great Voice of the Supplier feedback. The port has been a challenge. But again, the teams are really prioritizing and managing that, and we're seeing that winding through into Christmas. Not to say Christmas won't be a challenge for us, but it is an area that we are very close to and actually feeling pretty confident at the moment. But again, there's lots of unknowns that could hit us.

And I think from a supermarket point of view, Shaun, as you said, during Q1 in Victoria, we would have seen some availability challenges when we did have some positive cases in our DCs and our restrictions on meat manufacturing. But pleasingly, as Brad has said, we are very much back to pre-COVID levels on availability, which our customers are telling us, and that's our e-com customers and our customers who shop our stores. On the specifics around stone fruit and fruits in general, we're working very closely with the relevant bodies and government to work through those product mixes. I'm delighted to say that the mango season is going to be fantastic coming out of Northern Territory, and we're looking at product-by-product over the days and weeks to come to have the right support from the right body to minimize any of that impact at all. I'll probably conclude by saying we are putting through about 1.5 million, 2 million [ customers ] and more same time as we were last year to maintain that demand and to get ahead of any concerns that there may or may not be at force, et cetera. So we are in a comfortable place on being preplanned for the next 50 days.

So I mean, Shaun, it's the right question. We're always nervous at this time of year on availability, irrespective of the fact that this will be a bigger Christmas than usual. So it is the right question. We do remain anxious, but we're in a good position as of today. In terms of COVID costs, I should just call out that some of the COVID costs in our supply chain relate to, of course, the COVID cases we had in Mulgrave, in our NDC and RDC, but also with us taking quite a -- hopefully, a sensible, but cautious approach to having additional warehouse capacity available for Christmas. And so you see that reflected in the numbers today and also in the numbers going forward, where we just made sure we've got some bulk warehouse capacity available, particularly in Victoria, but not solely in Victoria.

The next question comes from Michael Simotas from Jefferies.

Look, I know it's a sales call, but you've given us an update on COVID costs, and Brad, you just touched on them then. Can we talk about that a little bit more? Looks like you've seen some moderation in your costs in the last 6 weeks of the quarter, but it looks like it was probably all driven by those supply chain costs that you spoke about. Can you just sort of give us some color on your expectations for that going forward? And maybe it would be reasonable to benchmark relative to Coles, which seems to have seen a much larger moderation in its COVID costs from a base that was already quite a bit lower?

Michael, that was a very nice [ important segue to a now very important ] political elections. So you could do well in that space to pull our COVID costs into profit forecasts. But on COVID costs in a more serious manner, it's hard to benchmark ours versus our competitors'. Let me just talk to ours. And what we're trying to do at Woolworths is take a very conservative approach to the way we manage this issue. We still believe Christmas customers -- many customers will choose where they shop at Christmas based on where they feel most COVID-safe. And we intend to be that place and working very hard to be that place, which is why we're taking a conservative setting. The costs have come off, as you see in the back of our release, from sort of the 2% to the 1%. And when you look through those numbers, I think you get a good sense of them. I've really just talked to the supply chain one, which was actually up in Q1 as referenced, partly through the issues in our supply chain, primarily driven by Mulgrave in Melbourne, but not totally. And of course, we would expect that to be -- continue to be material but unwind somewhat as we're -- assuming we don't have any more COVID cases in our warehousing going forward. The rest, I think, are pretty straightforward. The one difference for us I should call out is we have the size of our team discount. We are running an extra 5% team discount for our team, and we'll run that to the end of Christmas. We feel good about that. We think it's the right thing to do. It is perhaps different to other people [ who count ] these things. But that's -- well, you can see that $25 million there once you watch through recognition payments that are slightly up from where we were in Q3. But that is, I suppose you could say, more discretionary investment but one we think is really important for our team at this stage. But we feel in a good position on those costs. We feel we've got the right settings for Christmas. And if we continue to see limited community transmission, we do have some options to reduce that ever so slightly, but we'll take a very cautious approach to it.

Okay. That's fair. And then my second question is on inflation. I mean everyone's numbers are different. But to be fair, we've seen a similar moderation from you, from Coles as well as ABS food CPI. Can you just give us some color on what the biggest drivers of that deterioration, if you like, in inflation are? I mean you've mentioned promotion. You've called out a few categories. I guess I'm just a bit surprised that in this environment on your measure, inflation ex tobacco has gone negative again.

Yes. Look, I'll make some comments, and I'll get Stephen Harrison to make some as well. It would be fair to say in the markets that we're operating with at the moment and the volatility, it is probably as messy a series of analysis as you can do. We've pored over it as I'm sure everyone else, but it is incredibly volatile with what is going on. So I think that's an important caveat to make. Clearly, one of the most important issues is we have full promotional programs back in place inside Woolworths, and we started to put that back in June. But you see that now run through the business. And we thought that was important. We're concerned about delivering value for our customers. So that's been a big issue for us. Interestingly as well, some of the ones that we were very short on supply, we now have sufficient, and we can go back into promotional plans with -- I'll particular call out the whole hand hygiene sanitizer. We can all of a sudden start promoting products that were very short supply before. So we are rotating back into promoting those, which we think is legitimate, and there was a point in time where we couldn't do that. Clearly, as you see in our numbers, there have been -- there were some benefits of tobacco, not only in the excise increase, but the fact that we had a decent tobacco sales, in particular, in Victoria, with the closure of the -- on the tobacconists. So there's been a lot going on. On the inflation side, there has been inflation in fruit and veg, as you know, and that has then been somewhat offset by some deflation. In particular, I would call out impulse and then health and beauty, which is where we've got the sanitizer example I called out. The fruit and veg increases really are just basic supply and demand. The item that had the highest cost increase for us in an inflation sense was actually in avocados. The WA avocado crop was large avocados as it turns out but a limited number, and therefore, there's been a bit of price pressure that we'll work on for the rest of the year. The impulse one actually has just been a success on our promotional programs, have been very strong and very successful. We actually had a very good Halloween in impulse as well. So there's been a lot going on in this, and I'll talk to health and beauty. But Stephen, it's a very messy science in truth at this time given everything we cycle, and I don't know if you would add -- want to add anything?

Just a couple of small builds. Firstly, I think our red program, so our Dropped & Always program, as we came into better stock availability, we did see some improved penetration on those relative to prior periods. And I think the other thing we look at quite closely is our promotional metrics. And interestingly, promotional count was down year-on-year. Promotional depths are pretty consistent year-on-year, but actually the percentage of sales in promotion was increased certainly versus Q4, partly due to that increase in promo count. But just the effectiveness of promotions actually in some of the impulse numbers are a bit messy, but we're cycling some lower impulse penetration last year, and they came back pretty much to normal levels. Those would be my adds.

So I mean you can see that it has softened. But I think there's just been a lot of noise, and I think we'll get a much cleaner read of it as we trade through the rest of the year. As we said in the last quarter, there has been cost input pressure, in general, across the business. In general, that has been passed through in the form of sharp prices. And I think what you've just seen is a lot of mix and promotional noise around that at the moment.

The next question comes from Aryan Norozi from UBS.

Okay. First one for me, just around what you guys are doing to retain shoppers post your collectibles program and how successful you've been, particularly for the bigger-basket shoppers, please?

So post which program, which is what?

The collectibles, the Disney one.

Yes. Sure. Let me make some comments and then, Claire, if you wanted to jump in. I think what's quite important when you look at our results is to remind yourself what we did last year. In essence, last year, we had quite a unique Q1, where we ran almost back-to-back collectibles programs with Lion King, which at the time we talked about as our most successful collectibles program, Lion King. And then with the 1-week break, we went into Discovery Garden in just the time of year when people needed to get pots to grow plants. And so we had 2 in Q1 last year, and they were both very strong. One more sales-driven; one more brand-driven. But in aggregate, very powerful. And in fact, last week, we were just cycling the final wind down of Discovery Garden. This year, we did one program, which was Disney+ Ooshies. And really that one -- and when you look at aggregate numbers -- in particular, when you look at our 2-year comp numbers, we sort of -- we used that to cycle the 2 very powerful programs of last year, in truth. So sort of a -- in the [ lens of ] the industry was a 2 for 1. So it was a like-for-like and very much a wash. In terms of customers, one of the issues with every collectible program, and that's no different to Lion King or Disney+, when it's not a brand of a one like a Discovery Garden perhaps is, is how many of those customers you can retain going forward. That will be the question really that we'll need to -- that we'll challenge ourselves now given that Victoria only just came out of Ooshies. So it's still very early days in that journey. But Claire, any insights from you?

Yes. My 2 builds would be, obviously, we know the particular campaign over indexed particularly to young families. And we set ourselves a goal that for -- going into Christmas, knowing where it's going to be around affordable, wanting to ensure that our value customers still got a great deal, we do, in fact, have another collectibles program which we'll launch to market next Wednesday, which is an ability for customers to collect tokens and be able to participate in the glass containers, which we know actually from -- when we talk to our customers, whether it's -- the things we're trying to focus on is it is that budget consciousness. It is that festive season. It is about the food waste, and it is about summer entertainment. So we feel that will encompass that same group of customers that we did see participate heavily into our Disney+ program. And probably the last one, Brad, I'd say, is say for Christmas being very relevant for this year, particularly for our rewards customers and where we launched, so for Christmas, back in July, again, we're seeing pleasing results for the number of customers who have switched into, say, for Christmas, ready to be able to obviously spend that across all of the banners come December.

Thanks, Claire.

And second one is, I mean, in August, you mentioned for the sort of cost out in Simpler for Stores program, there was no sort of plan there, given you guys are busy with COVID. How have you sort of factored that? Is that -- have you started any programs around the Simpler for Stores?

One of the highlights for me at the full year, and I think it's a good question, we called out, and it continues to be an internal highlight for us at Woolworths, is we have continued to be able to, hopefully, keep focus on the customer and trade, but also progress our broader set of strategic initiatives. They're not perfectly on track, as you might imagine, given all the risks and challenges we've had but they continue to progress. And that's no different on Simpler for us. It's not quite where we would have budgeted it to be, but it's actually progressed materially. And I think the fact that we've managed to progress it in parallel with everything else, I think, is a real positive for us. So we're very cognizant that this is a 12-month, and the second half will be particularly challenging as we get into -- cycle in the numbers of last year, and so we're continuing to progress our Simpler program. And it's something we will talk about at the half year.

The next question comes from Bryan Raymond from Citi.

My first one is just on the COVID costs as well. Just looking at the profile from the first 8 weeks that you gave, the result for the last 6 weeks, it looks like the overall costs have come down about 20%. But I've just noticed in terms of the composition of that, staff costs are up a fair bit, and cleaning and PPE is down quite a lot. I would have thought cleaning would have been pretty sticky, and staff costs would be moderating. I just wonder if there's anything going, the Victorian lockdown and more staff needed there. Can you just help us understand that? And then maybe just the outlook into 2Q '21, whether we would expect that to continue to fall.

Thanks, Bryan, and I'm going to use my prerogative to ask our CFO to talk to that question. They have continued to step down, and there are clear reasons, the PPE one I just called out, we're putting a lot of costs upfront on things like masks and things like that. So we've costed that -- we've expensed those kinds of things. So you would expect that to step down. Our cleaning regime has certainly not stepped down, and we are continuing to invest materially in cleaning. Steve can talk to the team cost, but some of the work our Victorian team we've applied in South Australia around health ambassadors has been really powerful for us and health marshals. And we like that program. We think it keeps our teams safe. So we're looking at continuing with those and financing them. Perhaps not having them all the time, but at peak times of day, that will be a big driver. But Steve, any point?

Yes. So just on your point on cleaning, Bryan. At a store-by-store level, it's pretty consistent, but I think the thing that drives some spikes is if there's any hotspots. And so you would have seen slightly higher costs on cleaning in that first 8 weeks associated with the closure of our CFC in Melbourne with Footscray. Some of the stores that were in hotspots and also the Mulgrave DC, which would have seen some spikes in cleaning costs in that first 8 weeks. And I think more generally, on all the costs, and this applies to team costs as well, it won't be surprising to you that a lot of those costs are driven by Victoria. And so we're constantly looking at what is the appropriate setting in terms of the right team to manage customer and team safety. And where we can, we look to widen those costs down and reduce the hours. But it is very much on a store-by-store, case-by-case basis. But I think the general point, and consistent with Brad's comments upfront, our goal unashamedly is customer and team safety. We will look to mitigate the cost as we can but not to the point that we would compromise that customer and team safety.

Right. So just a follow-up on that. So the staff measure, that weekly run rate of staff costs, now that Melbourne has sort of reopened and things are, hopefully for all Victorians on the call, starting to get back to normal, would we expect that staff component of the COVID cost to moderate into 2Q '21?

Yes. As I said, Bryan, I think one of the key things to me is we're still going to run health ambassadors, depending on what the volume of trade that we expect between now and Christmas. We are still going to have a lot of interventions in our store and a whole series of additional roles that we provide, whether it's we have to do the count to make sure we've got the right number of capacity of team members in the store, or we have -- making sure we help direct team -- customers through the checkout and so on. So those costs will become more volume-related to make sure we are COVID-safe in our distancing, in our store, and more flexible and -- but will be driven by our view of how big Christmas trading can be and the risks that, that could pose for us if we don't continue to be diligent. Steve, anything else you'd add?

No, no.

That's great. And then just my second question...

On the -- we're under control, yes. Is it more forensic? Yes. Are we getting more automation and more learning on the way through? Absolutely.

Excellent. And then just my second question was just actually on hotels. I noticed you didn't give a like-for-like for your comp number this time. I understand there's a lot of closures there. But just interested in how the hotels are going to open at trading? Are you still like -- just to get a feel for how that might progress going forward given we're starting to see some early reopenings now in Victoria and things that are picking up over the next -- from the 9th of November. So are we seeing sort of positive like-for-like growth in those hotels that are operating?

Look, I'll make a high-level answer, and then I'll get Steve Donohue to elaborate. But given every state has different rules, and we've had different hotspots, up and down, it has been incredibly complex to actually just start. But in aggregate, actually, Queensland has held up very well, which is not surprising. And New South Wales has been a bit more challenged, which, again, is not surprising given the weighting in Sydney and some of the COVID hotspots we've had and the different regulations we've had. WA has continued to motor along through, and we've had an up and a down inside South Australia. So that has been sort of the broad trends. When we open on the 9th of November in Victoria, the issue we've got is the capacity constraints, we still need to operate in, not only in terms of number of people allowed in the venue, but then only 1/4 of them were allowed into the gaming room. So there's sort of a double capacity constraint in the process. So until it opens, it will be hard to tell. One thing I will say, when we reopened venues, say, in New South Wales, you get a real bump, as you might imagine, in the first couple of weeks anyway as everyone just decided -- happy to get out and about. And then it sort of does tail off. So there is an up and a down that also needs to be factored in. But Steve?

There's probably not a lot to add to that, Brad, I think you've covered it well, other than to say, for example, in Queensland, when the COVID rule shifted from everybody having to be seated to consume a drink versus being able to consume a drink standing, it does make a material difference to bar sales. So it's every little incremental change of COVID rules that make a difference to the performance of a hotel.

But we do find that people, if they have a choice, would like to go out to a venue. We do find our venues, as with freestanding supermarkets, tend to be more suburban with a lot of space around them, in particular, our beer gardens and outdoor drinking areas. So we do find that it can work if you have the right series of restrictions lifted on you.

The next question comes from David Errington from Bank of America.

Brad, a question I've got is sort of like a very broadest type of question. But you've highlighted consistently now over the last 6, 12 months that you continue to increase capacity online in, I suppose, response to the very significant increasing demand. Can you talk about what you actually mean by that increasing in capacity? What do you actually do? Is it variable capacity that you add? Like is it more drivers? Is it more picking ability? Or is it actually more efficiency? Or is it more opening more CFCs? What actually do you mean by increasing more capacity? And how easy is it to continue to increase capacity? So I suppose where I'm going to is, where are you at in terms of capacity utilization? And how easy is it to add to capacity? Sort of where do you think you could get to? You're at 8% of sales, could you comfortably go through 10% of sales before you need a monumental step change again? Where are you actually in terms of that capacity?

I think it's a great question, David, and I'll start, and then I'll get Amanda and Natalie to add. But essentially, just if you think about capacity, which we do, which is windows that you can place an order, either to pick up or get a home delivery or do an on-demand, just look at theoretical windows, and I think we've got 250,000 theoretical windows a week to 750,000 windows a week. Now they're not all taken because they're not always at the right time of day or day of week or particular service. And certain days or time of days or same day tends to be sold out. So there's still a lot of noise in that. But it's sort of essentially we've tripled capacity to our customers, but we're still sold out in certain very key pinch points, and we're working hard to resolve them. And that's pretty amazing in really 12 months to have done that. That's a year-on-year comparison in number of windows. Now what we've found is that, from where I sit, and Amanda and also Nat, because New Zealand has really led the way for us and shown how much can be done by our existing assets, is that we've managed to [ utilize ] our existing assets more than any of us could have anticipated 12 months ago. If we talked about what we said we could have done via our existing stores 12 months ago and what we're managing to achieve, it's orders of magnitude higher. And that's just because I think we're becoming smarter on how we route, how we manage the in-store customer and not -- and make sure they get a great experience inside the store and so on. So it's been a whole series of learnings that have been forced on us by the fact we've needed to use our existing infrastructure and not rely on investing outside of the store, in a manual CFC or an automated CFC. That said, our 3 manual CFCs, which we've been operating for at least a year, which are Brookvale, Mascot and West Footscray, have all -- we've proven to be able to essentially double the capacity out of those too. As we've just become smarter and thinking about how we route and that's gone up and down depending on COVID safety practices, of course. But on a like-for-like basis, we've just become much smarter in operating those. So it's been a massive learning for us on what you can do when you need to do it. But Amanda, I don't know if you want to talk about Australia, and then Nat, come back into the New Zealand experiences.

Yes. Thanks, Brad. Look, I think that's exactly right. So I think COVID taught us that there's a lot more opportunity in our stores. And that was one of the really, frankly, exciting unlocks is the last 4 or 5 months has been to say that each of our stores, we went back and reviewed very carefully with the Supermarket team and really on a store-by-store basis can work through how many additional orders can we actually serve to those customers. And so that's been one area of unlock. Then actually, you overlay that with a whole series of different rostering approaches that the team have taken as well. So rather than it being 2 picks a day, it can be 3, et cetera. And so that's unlocked another level of capacity. And then you start to also think about the time in which a customer is placing an order. And so the faster turns that you get in terms of turning those orders around, you can actually get more capacity out of your existing store units, and the same applies for CFC. And then the only one I'd add, I would include there is also, of course, we're looking at, yes, there's variable components to this. So there's team, there's fleet, but then also the crowd for us has been a really great unlock as well because that's another way that we're servicing our customers out of our existing assets. And then yes, the Takeoff unit for us will be a really interesting exercise in efficiency and a new way for us to pick orders very much attached to that store experience as well. So there's a whole series of things happening. One is around capacity. The other is around efficiency. And then the third, I'd actually say is around the way that we're thinking about partnering and providing that last mile is important as well.

Thanks, Amanda. And is there anything you'd like to add on?

Yes. I think as Amanda and Brad have said, we've definitely been looking at how we increase capacity in our stores, and that's largely around staging. And then also, when customers come to pick up their orders, where do we have the orders for the customers to pick up so it's easy for our team to actually get that to the customer quickly. So in New Zealand, we've only just opened our first dedicated e-store in Auckland just -- during the first wave of COVID. So we've heavily penetrated our store network in terms of home delivery capability. And we continue to look for opportunities to do that in New Zealand. I know we've looked at lot of rooms at the front of stores, which we've turned into pickup rooms. And I know I've seen in the last few weeks in Australia, we've looked at meat preparation areas, locker rooms and tried to convert those into e-com capacity. So I think we'll continue to do that on both sides of the Tasman, and then obviously, in parallel, innovate our service proposition, and it's really exciting to see the acceleration and drive in Australia and all the work that's been done on same-day on both sides of the Tasman. So there's work to be done and more opportunity on both capacity and service optimization.

So David, you normally lead up to the CapEx question, and I look forward to that, of course, after the half year. We are spending CapEx in this area. And essentially what our format team are doing is going back to every store, looking at the back of house, as alluded to by Natalie, and looking at how that back of house can be repurposed. And as I say, when you don't -- we no longer have meat preparation areas. They've proven to be incredibly valuable a space for us to stage our chilled product, in particular, for home delivery. And where we look at the back of our stores, in many of our stores, is the additional space that we can do rental, we're not using today that we can repurpose today. So we've learned a lot through it. There is CapEx involved, but in a relative sense, it's relatively capital-light if you use your store network to open capacity. And that's why it's our first port of call. And then as you would be aware of, where we can't do that, that's when we move into a manual CFCs, and we have the 3 that we are doing a much better job of operating. But we rarely have had to stand up another 1 -- another 2, hopefully, will get stood up before Christmas. But -- and we've taken the learnings out of the manual ones and putting those into the other manual ones when we open them, which is really terrific. And then of course, the third leg is automation, which is a longer-term play, which is more capital-intensive, but we'll learn a lot out of our Takeoff units. The first one is 2 weeks, and I hope that makes sense.

And I'd love that phrase, sweating the asset with what you've got, Brad, and driving increased efficiencies. And I love that phrase. And please take on notice for February because I won't ask it now, but I'll be asking the question. There shouldn't be much dilution in margin given what your team has just really wonderfully put forward there. So please, look forward to that question in Feb. And second question, I want -- this one will be a quick one. In terms of Big W, you highlighted leisure and toys as really stand out. And I think the big performer here, Big W, and even like 20% up. There's fabulous growth. Are they sustainable? What's going on in those areas? Particularly, so it's just target Big W's leisure and toys. Is that because of COVID lockdown that people are buying up? Or because it looks like it's continuing even post lockdown. Is it just fantastic execution of your team? What's going on there because it's a really pleasing number?

Yes, I'll make some comments and I'll let Dave Walker to talk to the detail. I would say it is leisure and toys, but also hard and soft home. And I think it's really important because it's basically -- there's not 1 category that's driving our business, there's a range of categories. And I think it's really important for us. And hard and soft home is a really important categories, if you think about how the shopper will shop at discounted partner store. So it's very broad and multifaceted, which is a pleasing thing. The highlight to me is the number we called out, which is more people are shopping us than have before. The first stage of our turnaround at Big W was to do a better job of holding on to our existing customers who we found were leaving us. And we've talked about that before, we managed to stem that. And of course, once you've done that, then the question becomes how you get more people back in to see hard work you've done to improve your business. And people who were noncore Woolworths or Big W shoppers had a very negative NPS view of the business, a lot of noncore detractors. And if there was one benefit that happened to us in COVID is that a number of people who had not shopped us came back and what they found was something they liked, and they started to shop with us again. And that's why you see transactions grow. And so if we continue to provide a good experience, we're hoping that a lot of these noncore shoppers, of course, will become core shoppers again, and that will give us sustainability into what we're doing. But -- so that's a very macro view. Dave, you'll have a much more precise view of this.

Thanks, Brad. I mean, David, we run our business thinking about our different categories and how they perform in different levels. And we think about a number of our categories being destination categories, which give our customers a reason to come and shop with us to walk through the front door. And then from there, it broadens out in terms of what they can get because we're effectively a one-stop shop for a lot of things related to kids, families and home. And certainly through COVID, we've seen customers adapting their behaviors and their needs. And we really fit that well. It really comes down to, over time, will that focus on kids, family and home change? I think it will take some time. I don't think it will diminish quickly, but we'll see how we perform in time. But certainly, the categories we called out, toys and leisure, frankly, it's anything to do with kids, kids' apparel, books, and anything to do with home. As Brad said, all the soft furnishings, kitchen, small appliances. It's reasonably consistent growth right through our whole offer. There's a number of areas that don't -- aren't doing so well. We're not selling travel as much as we have done for obvious reasons, but certainly anything that's kids and home related are performing strongly.

For the macro on Big W, it's striking how consistent the growth rate is across the network. And of course, Big W didn't benefit from what happened to Victoria, the lockdown. COVID had us closing our venues. But this really good, strong, consistent resonance across all states and both urban and regional. So that's a highlight to say that actually something more systemic is happening in the business. That's been the case.

Well done, guys, on turning that business around. 2 years ago, it was looking pretty dire. So well done today to doing such a great job.

That's why we thought you could be the Chief Risk Officer.