Woolworths Group Limited (WOW) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Woolworths Group F '22 Q3 Sales Announcement. There will be a short introduction followed by a question-and-answer session. I'd now like to hand the conference over to Mr. Brad Banducci, Managing Director and CEO of Woolworths Group. Please go ahead.

Good morning, everyone. Thank you for joining us today for Woolworths Group's Q3 sales results for the F '22 financial year. Joining me in this morning are Stephen Harrison, our Chief Financial Officer; Pejman Okhovat, Managing Director of BIG W; Amanda Bardwell, Managing Director of WooliesX; Spender Sonn, Managing Director of Woolworths New Zealand; Natalie Davis, Managing Director of Woolworths Supermarkets; and Claire Peters, Managing Director of B2B and Everyday Need and we mentioned that it's actually her birthday. So happy birthday. Turning to our Q3 sales results. Q3 has been another challenging quarter for our business as the wider community. During this quarter, our team had to navigate the ongoing impacts of Omicron and the significant supply chain disruptions caused both in Australia and later in New Zealand as well as the devastating plants in Northern New South Wales and Southland Queensland. On top of this, we have also actively -- we're also actively managing rising inflationary pressure across our value chain. The sponsor disruptions experienced in the quarter, group sales growth was strong as we saw customers return to COVID-related shopping behavior, particularly in the early part of the quarter. We know our customer experience during the quarter was inconsistent due to the disruptions in our supply chain, and this was reflected in our customers course. Pleasingly, in recent weeks, we have begun to see more stability across our business. However, stock levels -- stock service levels to store remained below normal levels, and COVID-related absenteeism remained above normal levels. E-commerce sales growth was again a highlight with the group's e-commerce sales up 33.4%. Digital engagement increased in the quarter with more than 3 million weekly visits to our digital platforms across the group in last year with more than growth of $3 million over last year. And weekly average traffic to our digital platform reaching 20.3 million weekly visits. Turning to Australian Food. Total sales for the quarter increased 5.4% to $11.4 billion, with Woolworths retail sales increasing by 5.2%, benefiting from elevated in-home consumption and rising shop price inflation. Inflation continues to trend upward in the quarter with average prices increasing by 2.7%, driven by a number of industry-wide cost pressures, including input cost pressure in normalized categories, higher livestock prices in red meat and adverse growing conditions in vegetables. While we've generally seen volumes hold up despite higher average selling prices. We know that value is extremely important for our customers, and we remain focused on helping them get their Woolworths by providing them with great value and affordable alternatives through our seasonal price drop and low price program, our great value owned brands and also continued enhancements to Everyday Rewards. Only SPC e-commerce sales continued to grow strongly in the quarter and also benefit from return to COVID-related shopping behavior, up 38.1% to $1.1 billion and representing 9.9% of Woolworths' retail sales. Everyday Rewards members increased to 13.5 million, and engagements with Everyday Rewards app has now passed 1 million active weekly users, up 70% on the prior year. This is a significant milestone and reflects the growing importance of Everyday Rewards and providing our customers with great value and personalized offers. Australian B2B sales growth was strong, with total sales for the quarter of $995 million compared to $314 million in the prior year. This increase was largely due to the partnership with PFD and the recognition of Endeavour Group revenue not included in the prior year. However, all B2B food businesses reported sales growth in the quarter other than Summergate, which was impacted by challenging trading conditions in China. PFD sales specifically were up marginally on the prior year on an underlying basis despite the impact to its customers during the quarter. It was a difficult quarter for New Zealand Food. The impact of Omicron later in the quarter led to significant supply chain disruption and high levels of team absenteeism. The cost of keeping our customers and team safe and minimize disruption to our supply chain are expected to result in H2 EBIT of between NZD 120 billion to NZD 140 million somewhere between 16% to 28% decline on the second half of F '21. Turning to BIG W. Total sales were down 3.5% from the prior year, impacted by COVID and reduced customer mobility early in the quarter. Please bear in mind that BIG W recycling growth of 18.3% in the prior year and a 3-year CAGR remained strong at 7.7%. Pleasingly, BIG W customer metrics increased. Sales momentum has improved over the quarter as customer behaviors return to normal. Our highlights for BIG W was the material improvement in the e-commerce customer experience, particularly for pickup. E-commerce sales increased by 21.2% with penetration reaching 9.4%, up 190 basis points from the prior year. We have had a good start to Q4 with strong e-trade. For the remainder of the second half, we remain focused on returning to a more stable operating rhythm and delivering consistently good shopping experiences for our customers. And while the operating environment continues to be volatile in recent weeks, we've seen -- we're beginning to see some stability across our business. We're also seeing direct COVID costs continue to moderate as we cautiously look to reduce costs in areas where no longer required. Managing industry-wide inflationary pressure will continue to be the focus for us as we work hard to continue providing our customers with great value in partnership with our suppliers and ensure our team's wage growth keeps pace with underlying inflation. In closing, I would like to thank our teams for their amazing efforts in supplying our communities with food and everyday essentials under difficult circumstances and our customers for their patience and support. Our portfolios are low -- are with those who continue to be impacted by COVID and the recent floods. I will now turn the call over to the operator for questions.

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

Look, I know this is a sales call, but you have called out a material second half earnings drag in New Zealand. COVID costs continue and maybe a lot of those are in New Zealand and maybe you can comment on that. You probably had some flood costs as well. In February, you suggested that you should be able to deliver much better EBIT outcomes. Given these costs that you're still facing, are you still able to do that this year? Or are we going to need to wait a little bit longer for that?

Thanks, Michael. It isn't a sales call and we've called out the one issue of materiality in our business, which is New Zealand in an earning sense, which I felt appropriate given the challenges that we have there, although we have had a good start to Q4 in New Zealand as well. So look forward to coming back at the end of the half and talking about how we won performance wise. Our focus for the second half, as you'll be aware, is sustaining our sales momentum, we get into a more sustainable operation rhythm, which is key to us in not only getting a great customer experience to go team experience but also managing our operating costs and while there were some challenges early in the quarter, we are continuing to slowly get back to the kind of operation of the most part here.

Your next question comes from Shaun Cousins from UBS.

Just a question regarding how is Woolworths managing supply cost inflation requests from a gross margin perspective? Is Woolworths seeking to reduce, maintain or expand gross margins when passing on these price increases? And if Woolworths is seeking to increase gross margins, and we're getting trade feedback that, that's the case, what does Woolworths believe it's sound for it to be expanding gross margin when cost pressures are so prevalent?

Thanks, Shaun. Let me just start by saying price trust for us is a critical aspect of our business. And we dogmatically look at the railroad tracks that all of our businesses need to operate in. In terms of the price index. We expect them to have against the relative competitor set, whether it's countdown with Pak'n Save or New World in New Zealand or Big W with Kmart and a broader set of specialty retailers in Australia or Woolworths markets with its competitors as well. And rest assured, given our experiences back in 2015, we're incredibly focused on that, and that is a given for us. Then to your question on the broader issue of supplier cost increases. Just like any business, we engage directly with suppliers and what are legitimate increases that we would agree to. And we do understand at the moment that there are legitimate supplier cost increases. And where we can agree those at the legitimate, we accept those. In the past in one of those, Shaun, this is where it gets very messy. And I know everyone on this call is doing their own math. On average, Woolworths for the ones we'd be accepted are have been passed on to shelf price on average. In any one period or any one category, when you accept 1 increase, you often have to adjust your pricing architecture in a category. So you might just be seeing quite a lot of noise as you look at it, depending on the time frame you look at it or the analysis you do. But that just has to do with the fact that supplier cost increases don't all come through at once. You only review them more than one, which is the way it would normally have worked in a category review process more stable times and then do a once-off reset of your price architecture. And so there's just a whole lot of work to make sure that that's done well. But price trust is key for us. We need to continue to work on it to double down on us. At the moment, on average, shelf price increases, supplier increases have been passed through to shelf price increases. But there is a lot of noise, as I say, just given any one time frame that you might be looking at or any one specific category you might be looking at. I hope that makes sense.

Your next question comes from Ben Gilbert from Jarden.

Brad. Just on the pricing piece, just in particular a lot questions out today. You said in February that you're running between 2% and 3% and you're sort of around the midpoint of that and your inflation number was a little bit lower than your friends down south that you reported as well. Could you give us just some color, Brad, on how you're thinking about maintaining your relative pricing position. Do you think you've improved that versus the peers through this period? And are you starting to plan or gear up for the return of the value shopping in the market?

Thanks, Ben. Just quickly, just technically, what we talked about, which is an unusual number for us to quote, but we did think it was important when we talked about our start to the first 7 weeks of Q3. We quoted shelf price movements have been between 2% and 3%. And we did that because there was such a disruption to the promotional program. It was hard to get an accurate weighted price movement. What we've quoted now on the 2% is more traditional Fisher-based methodology price improvement. So they are clearly correlated, Ben, but they're slightly different numbers that have been quoted. But yes, that is the number that you see, and it has been trending up, as you would know, from Q2 this year. In terms of then getting to price competitiveness itself. We -- as we just said in the context of Shaun's question, we continue to look at the index, worked very hard on our indices in all of our businesses. And probably the #1 thing, to be honest, to do on a weekly basis, if not a daily basis. And the relative price position for our businesses remain very stable despite what you see now in the marketplace. And that is that we were at the indexes we expect to be at. And so -- and we need to continue to work to ensure that, that's the case going forward. So these things might change as we go. But to-date, it has been -- continued to be a very competitive but relatively stable operating environment from a price perspective. And on the go forward, what we've got to work hard to do is for value shoppers or what we would call our traditional or save our customers. We need to make sure that we're providing with affordable alternatives so that they can meet the budget that they want and also balance out their cost of shopping for food and everyday needs. And so we're working very hard on affordable alternatives, and we're delivering those through our Red price program. Prices dropped to low price, our weekend sale promotions and importantly, then through our own brands and our Everyday Rewards Booster program. So there's a lot of work here on to make sure that for any one of our value customers, these alternatives are there, and they can meet their budget needs in a cost-effective way.

Thank you. Your next question comes from David Errington from Bank of America.

Brad, can I bring your attention to a slide that you presented a very powerful chart in my view, on Page 10. The DC outbound service level slide. And when you look at that, I'm surprised that you were able to deliver the sales growth in this quarter that you did given how low that DC output and service level has gone. Can you give a bit of an overview as to what is the key driver? Is it purely absenteeism? Because where I'm going with this is I'm trying to obviously get an idea as to how fast that service level can get back up to where it should be, which hopefully is up around where that 95% would be obviously, where optimal would be. But can you give us a bit of an idea as to, one is it absenteeism? Two, is there something a little bit more to worry about? Like is there embeddedness in there inefficiencies like labor availability is starting to creep in transport, difficulties, road blocks, et cetera, coming in there. And three, what can we expect for you to get that back to that operating level that can be normalized. There's a bit in there, I know, but if you wouldn't mind having a go at it, that would be really appreciated.

David. No, thank you. You wouldn't be surprised about this morning when we're looking at our release, we're wondering whether we should include these 2 charts, and we had a very long conversation on whether we should include them or not. The reason we did is they are a snapshots of a very complex supply chain, but it just gives you a sense of the discon modulation that has taken place in our supply chain. And the fact we've got the sales, I think, speaks volumes for our business and our teams in replenishment, DCs, transportation and stores. So you're right, incredibly challenging, but it just gives you a sense of what's happened. And so I wouldn't use the existing more than just sensors of the challenge. And that directly correlated in many ways, when you look at our COVID costs above that and when we call out the $48 million of COVID-related cost in supply chain, you do see the correlation between them. They also show you, of course, to your point, is the opportunity for us is if we can get back to the stable operating rhythm, get back to what is a more traditional level of absenteeism for us, in our stores or our DCs, in fact, DCs, store absenteeism particular in New Zealand has been much higher than the number you see here, get back to the service level we'd like to have for our stores, what we can achieve, and that's what we're up to for Q4. So I wouldn't -- I'd just take them a snapshot some of the challenges that have been going on in the supply chain. As we said in our announcement, they are getting better in Q4, and that is very pleasing to us. In particular, on the DC outbound service level 1, just a couple of points to make. It is -- you're looking at a combination of factors. You could be looking at either late inbound deliveries into a DC from a supplier or in some cases, the cancellation of that because of the own challenges they've had in their factory or in fact, we had a point with -- in the quarter, where Larapinta, which is the biggest DC in the Southern Hemisphere -- never mind inside Woolworths, was at risk have been cut off by water restrictions around the roading on inbound, which is kind of a remarkable stat that is stuck in my mind. So you've got a lot of inbound challenges that are reflected there. And then, of course, you see this manifest in the outbound. And the outbound is not only going to be -- the inbound also that all the challenges on getting trucks and availability so you can actually meet the need of the stores and there's been a whole ton of challenges that you would be aware of availability of truck drivers, where trucks are in terms of -- in which state they are at any one point in time and so on. So it has not been easy. And I think your point is right. I've got the sales we have with the challenges are speak volumes for our team. Rest assured of our commitment to getting back to the right levels. This is something we've traditionally been very good at. We're making good progress. There's no reason why we won't continue to make progress and we might repeat the Slide 1 last time at the half year -- at the full year to show you what our exit rate is. And I'm very hopeful store service level will be back at 98%. Outbound service level will be well north of 90%, maybe 95% and our in-stock positioning store will run 1.5% net. Whatever the number is. Yes, it has been challenging, David. We're making progress. And just giving you a snapshot of what's going on we need to see here.

Your next question comes from Adrian Lemme from Citi.

Just wanted to follow up on your earlier comment that the supplier price increases aren't all coming through at once. And from memory, you indicated the first half results that you had discussions with about half of your supplier base at the time on the price increases. I just wanted to see if you could talk to how precast you are in working with suppliers on these? And I am sort of wondering if suppliers put through price requesting say, the September quarter last year are starting to come through again with another round of price increase of course.

Yes. Thanks, Adrian. I'll talk to -- and we'll just talk to Australian supermarkets. First of all, Australian Food, if you don't mind, and then we can talk to the other businesses because it's starts very -- to be precise in Australian Food the cost increases started coming through in December, but really the early volume was -- the big volume was January, February. So numbers are quoted where Q3 more than they were Q2, and that was related to -- I've just been transparent that there was inflation coming through the system in the 2% to 3% of shelf price increases we referenced. So you just need to see the comments in that context really. It's more in Australian Food. Q3 issue, it started earlier in New Zealand Food, and we can come back and talk about Big W, which varies materially by the nature of the category and where we are with seasonal and so on. But if we just stick to New Zealand Food, the major increases we found and enormously at the usual caveat of Fresh is very different to long life with Fresh where it is really the commodity prices of the growing processing of the product that we drive to. So if I just part to the long life, we have -- and Natalie, please correct me, but I'll just give the board numbers and pass over to you about 40% of our suppliers have come for an increase, which is about 60% of our sales. So it's the big suppliers that came first in the global consumer goods companies who experience some pressure on their plants across the world and engaging with a broader group of suppliers across the globe. So they were a smaller segment, but a bigger set of ourselves. And so that's been processed. We're currently in negotiations for about another 20% of our supplier base. And I don't know the sales number they comprise, I'm sorry. And then there are about 40% which tend to be our smaller suppliers that you would reasonably expect would still want to engage with us. So it is a work in progress right now, and so we're working through -- within one-on-one. To your point on, where the suppliers are coming back twice, there may be an instance of it. I am not aware of it if there is. But clearly, suppliers have signaled to us that given the stresses everyone is under that they would expect that door to be open if they had a legitimate increases on the go forward. I'm told by some of the retailers in the U.S. that has started to happen in the U.S., but there's no -- it's a big case study I can reference that's happened in Australia. But Nat, do you want to add a little bit of color to that?

Yes. I think as Brad said, it's around 58% of the cost base now, which has either been submitted and closed or is in progress. It's certainly skewed to our largest suppliers with about 160 of our top 200 suppliers having submitted a cost increase this year. And there are indications from some of our larger suppliers that within 12 months, they will come back for a second cost increase and that's really reflecting the ongoing cost pressures they're seeing on commodity prices, manufacturing costs and international freight.

So Adrian, it's still a work in progress for obvious reasons, if that makes sense. We can certainly at the right point if everyone wants to come to the question, talk about the very different scenario that's happening in Fresh.

Your next question comes from Grant Saligari from Credit Suisse.

Brad, I thought there were just a couple of unusual numbers in the Aus food sales result. For example, the store originated sales were up strongly and has been discussed on the call. The food inflation numbers maybe a little softer than expected. Is there any -- can you elaborate at all on any sort of mix impacts or pantry restocking following floods or other factors that sort of might have obfuscated the underlying measures to some extent. That would be helpful.

Sorry, Grant, your second part of your question just brought up about the store originated sales. What was the second observation that you wanted us to talk to?

And the food inflation number. For us food was lower than I think markets have generally been expecting. So I guess my question is, are there any sort of substantial mix effects in the business. Pantry restocking following floods or other factors that might have sort of impacted those measures, please?

Thanks, Grant. And everything we say needs to be seen with the caveat of the availability challenges that we just talked to with David mean that a lot of numbers get -- have been distorted by the nature of what's been available. So it has made this relatively -- it's always noisy, but this has made it disproportionately noisy. On store originated sales actually -- in a unit sense, they are just slightly negative. So you are seeing that inflation that we quoted to the 2.4% they've got. So the trend of online growing and sort of flat units or slightly decline in units was true in Australian Food in Q3. So it can look a bit higher. We are very thoughtful right now looking at units, as you might imagine. And for those interested, we both track our value chain, our unit share just to make sure that it's not a rising gap between the 2, which there isn't, if anyone was going to ask me the question because we just want to make sure we don't fall into old traps back in '15 where we had great value share, but we were losing volume share and it was an indication that we were missing something in the trading down. So we are tracking both and both are trending right now the same way. So actually, the 2.4% does work very well with the 2.7% right if you actually look at the 2 together and backfall back to our items for us. Inflation, we all measure it slightly initially, as you will be aware, I think you need to look at the trend line in inflation of what we did in Q2, of what we did in Q3. And that will help you kind of have a look at what the overall trend line looks like. Recognizing the comments that I was, we -- still work in progress in terms of what costs are coming through or not. So I think that becomes important. I can't talk to what others do. And I can just assure you that -- on average, the increases we have got from suppliers are reflected in our shelf prices and our competitors, all have options if we would like to invest in promotions or whatever we should distinguish shelf from promotional and investment activity and promotions. And that's happening. And then in addition to that, our price index at the moment remains competitive and stable, and that's where we need to continue to keep us.

Your next question comes from Tom Kierath from Barrenjoey.

Just want to follow up on Adrian's question around the impact of absenteeism and the outbound service levels. I mean Coles said the same thing that they're missing out on sales. I just wondered who -- where are the sales going to? And can you maybe talk about the categories where you're missing those sales and all the states. Just yes -- I just had some commentary on that.

Yes. Look, I'm sure we have what sales somewhere, Tom. But when you look at our underlying number, and we haven't Easter adjusted it and it's stronger yet again, if you actually take out the tobacco trend, it's kind of hard to say definitely. I would say, in e-commerce, we had a point where we had to really stop a number of services just because we didn't feel we can full the basket as effectively as we might like. And so our e-commerce sales number actually get an underlying sense is a little bit better than you see because there was a month really February where it's actually materially just given availability and worried about satisfaction. So I certainly think we're understating the e-commerce sales trajectory if you look at it over time. But at a food level, I feel we've -- it's been a good result, and we've got the number we wanted to. But we are sensitive to the fact that our customer couldn't always get the brand they wanted and therefore, had to substitute and that's reflected in the customers call, and that's not something we would like to see going forward. So we've generally been where we want it to be, but it hasn't been perfect. There have been alternatives, but there haven't always been the alternatives for the customer. And I just -- yes, to me, it speaks volume for the extraordinary efforts of our team in WA and finally, in Queensland, which have just done whatever it took to see those communities, which is in line with our strategy and our aspirations and our purpose.

And I would say, Brad, we prioritize across the whole business, what we're sending into stores to make sure we have a product to meet our customers' needs. So we also mentioned something called our lost sales metric. And that's at the moment in the 95%, we'd like to get it up to 96.5%. So that probably gives you a sense of in terms of what customers are finding on the shelf, they are finding what they're looking for, they might have to substitute a brand potentially, but we are getting those products into our stores, and we are growing market share.

I mean one of the things we're talking about this after the media call, Tom, things like cat food availability has just been a challenge for us for actually the whole quarter. And we probably lost a little bit of share in something like that, and it's gone into specialty probably. But I mean, the only one I could really point at that as it's been structural systematic. And we just -- just because a lot of it is important, we haven't really got to the position we would like to for our cat-only customers.

Your next question comes from Bryan Raymond from JPMorgan.

My question is just around the fourth quarter trading momentum you mentioned there it's continued. That Easter adjustment historically has been about 30 to 50 or 60 basis points, something in that region, just -- which is obviously a headwind in the third quarter. Just interested in how that comments should be construed given the timing of ASDA? Should it be that you're running at a similar run rate on an underlying basis to the third quarter? Or has it seen a bit of an acceleration or deceleration in April?

Thanks, Bryan. It's just hard to tell if I mean, honest because to have 3 consecutive where we can it is just not the normal over school holidays. It's quite an unusual sequence of events. So it's very hard, and we'll only really know how we're going in the next couple of weeks that we got back to school. So we're always nervous by looking at a couple of weeks in generalize, I think given the strange characteristic of cultural events for these 3 weeks is hard to generalize. But our momentum is strong as we said. I just want to call out the biggest adjustment -- we didn't adjust for Easter as this everyone would know for just because again of the noise is. But the biggest impact is actually on Big W, which is much higher than the numbers that you quoted, but there is, of course, some benefits that we haven't called out for Australian Food. So yes, look, it's just too hard to tell right now to say, we'll know really in the next 2 weeks as for the first time, touchwood. Hopefully will have a more stable kind of consumer environment and operating environment will know really where we're at. But it has been a good start, very good seasonal sell-through on Easter.

Your next question comes from Craig Woolford from MST Marquee.

I just wanted to ask about probably a technical question. Just around the impact on price inflation from reducing promotions during some of the worst of the Omicron spike in that third quarter? And if I can sneak in, just what was the inflation ex-tobacco, fruit and veg sometimes quote for us?

Yes. Thanks, Craig. I'll try and answer it and then Paul, given the technical side of this can maybe jump to all the mere. The promotional activities is messy because we like casting the promotions we've called were toward the lack of stock availability. So we pulled the promotion when there was no stock there that we felt there was just not the right thing to do for our customers. And so it sort of would appear in the New South Wales or up in the Queensland, so it really wasn't always national in its manifestation. So normalizing for it is hard, and it was off, on, off and then on again. So it really came in amount for the business. So if we had a really detailed number, I'd give it to you, but I wouldn't like to overplay its overall impact on the numbers. It's more in the 10 to 20 to 30 than anything than a number bigger than that basis points. So I certainly wouldn't like to have to play that. Paul, I know you looked at the position.

Yes, nothing to add on that, Brad. I can clear that this definitely wasn't the driver of the majority of the entry.

Sorry. And what was the second part of your question?

I'll take it. Craig, there's really no difference between our overall inflation and overall inflation exceed, that they're broadly in line.

It is worth referencing, and you'll be able to back sold from that statement that tobacco continues to decline, price in line with consumption trends. And so I think it was down 10% or 11% in the quarter and therefore, underlying food and grocery sales are much higher than the reported number.

And the last of CPI, I mean, it's not really the distortion between overall inflation and excluding seek through the way we've had historically.

Your next question comes from Lisa Deng from Goldman Sachs.

Just a question on the shape of growth for e-commerce or online, especially for AU Foods it looks like we were still very strong with 38% year-on-year sales growth, but weekly traffic grew 18%. So does that mean -- or can you give us some color around the growth for conversion and basket sizes, please?

Thanks, Lisa. Well, that's a great question. There were patches during the half quarter where we moved more to home delivery and list ready to boot which was related to Omicron primarily. And so as you do that, you get a higher basket size given the incentive to be over the 300 new delivery. So I think the average home delivery basket size is still running 190 or so versus the pickup one, which is running, I think, 140, Amanda, correct me. So that -- there was a big part of it, I think, bounced around a lot price over the course that would be the major reason.

But I think, the other build would be digital traffic is visits to all of our properties are our websites and our e-commerce customers are only a very small proportion of that traffic.

Yes, sorry. Yes, to direct traffic, absolutely. Yes.

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

Just wondering, if you look at the U.K. supermarket chains, they're all commenting around keeping a strong value offer, which both yourself and Coles have talked about. Could you remind us about your private label business, and I'm really talking about Australian Food here. Roughly how big it is SKUs because I know it is quite big, but it's something you not going to talk about that much.

Thanks, Phil. Yes, and we actually called out the number for us, which actually is not something we normally do. But you will see I'm just trying to find the reference to it. But we actually had a very good quarter with the Woolworths Food Company range, and it grew, I think, 5.4%. So I had good growth. And that's despite some of the supplies in core value lines there, which we need to work on, which are imported into the range. Underlying growth for that was higher than that. By any benchmark, it is in line with our key competitor in Australia in terms of overall size, slightly less SKUs a little bit of slightly higher volume per SKU. And so it is basically the same size and tracking its progress during the quarter. In terms of preference and brand resonance that actually had a really, really good quarter. So we feel the program itself with the Woolworths branded products as well as macro and then our category brands is in a good place. The key issues to continue to fill out that range and enhance the proposition. And you will have seen, I think we launched 140 new products during the quarter, and that was both new NPD as well as repackaging and reformulating existing products and the real focus for the team right now is making sure we have all the value alternatives we need to have in our range, in particular, in our value stores for our traditional and save customers I think it's a great question. It was a really good quarter. And we fully recognize the importance it has to play for us when we go forward.

Your next question comes from Scott Ryall from Rimor Equity Research.

I also wanted to talk about the DC outbound service level, if that's okay. You provided that same chart at the first half results and obviously, the January number there is the same and February, March was much the same as January. I guess I was a little surprised that March hadn't improved given COVID restrictions improved and all the close contact rules and things like that improved. So I was wondering if you -- I know you're saying your exit rates, you want to get back up to 90% inside of the 3 months that's remaining. But how -- once you start seeing some of the improved availability of your team for the DC and some of the other impacts that you talked about in response to Adrian's question. What's the lag for getting it back up? And is Victoria is banded on better or worse than these blended numbers. I'd be just interested to hear that.

Yes. Look, I mean, Steve, correct me if I'm wrong, but this is the 14 DCs that goes to make up this number in Australia.

Yes.

So you've got a composition of 14 DCs. We'll come back to Melbourne South, which stood about 2.14 million cases on average week during the quarter, so actually performed well. Predictability is the key issue there, which we're working very much on to make sure, it's not only does the volume, but it's predictable in terms of delivery schedule for stores. So you've seen a whole range of DC charge today about just Melbourne South. And this is really the slight impact, as I mentioned a bit earlier, it's not an easy we talked about, but below our printed list it is the biggest DC in the Southern Hemisphere. You have that disruption in Northern New South Wales, Southern Queensland and all the impacts that does about adjust material. We had moments there where we were shipping out of Adelaide, a straight up in traffic from DCs. So the whole discombobulation was very material based on those sides. And what you're seeing, as I say, is not only how the DC operates in the absentee's in there, which did hit very high numbers, which is now much lower over 30 -- well over 30 in some of our DCs and its stand back under 10. But you're seeing the impact on manufacturing facilities for our suppliers, not supplying the product into the DC and then availability of truck drivers. There's been a lot of challenges around truck driver availability of all the challenges that's within that industry as well, not only in the short-term sense of COVID, but in the long-term career since there's been a lot of pressure there. So you've seen it all in one place. It is improving. Same -- March was a particularly acute month for these floods. So we certainly are trending back up on average, all those spends have -- is still a long way to go in New Zealand. Hopefully that answers it. It's a really tough one. I mean just to give you a sense of disruption more than a sense of fundamental structure of what we're doing.

Your next question is a follow-up question from Shaun Cousins from UBS.

Brad, just conscious of, I guess, the messiness of the quarter and then real like-for-like sales growth not being always the best measure of volume. So maybe could you discuss, I guess, the current and expected volume impact you think in Australian Food from the consumer getting -- starting to work from home less and come back into the city and to their offices and also the extent to which the consumer can eat out. Are you expecting that to sort of weigh somewhat on your volumes to a degree, please?

Thanks, Shaun. As I think I said earlier, volume share and value share have been tracking relatively consistently for us, and that's a big area of focus for us is to make sure that we're not kidding ourselves in value share versus volume share. So we are working hard to track those. A movement from in-home consumption to out-of-home consumption. We sort of see moments in pockets all over the country. It was very pronounced in December, in particular, with Victoria when everything opened, and there's a huge move. But just given we are open, we're closed, we're open in New South Wales. It's sort of been hard for us to be definitive. We look at the impact on our city stores, they are still very, very muted. Our city traffic. Our city stores are probably at 60% of what they normally would be at a run rate level. It's caused a lot of issues for us in the city stores in general, of course, we're a bit more indexed to them for our metros, but that is the market characteristic of where we're at. If we look at the next quarter, Shaun to your point, do we expect to see a move to out-of-home consumption. I would say not if we do our job on value because we provide great value and we can compete for a whole ton of additional meal occasions at home if we're thinking about our meal solutions, whether it's affordable lunch or even more importantly, affordable dinner, we feel that there's a lot to play for us in those meal occasions hopefully moving back into the home if we can deliver value.

Your next question comes from Richard Barwick from CLSA.

Just noting your store numbers. So net store closures for the quarter, and I can't recall another quarter when store numbers actually went backwards. So just makes me think -- or worthwhile asking around what your plans are for net store openings going forward. And probably a bigger picture question is how you balance that up? Or how do you think about balancing that up in the context of online sales growth.

Yes. Thanks, Richard, and attention to detail. We also thought it was red in blood panic this morning. We couldn't figure out why we achieved a negative. As thought I would state, I think we opened 11 net supermarkets this year. It just happens to be the nature of the quarter that you're looking at where we shut 2 supermarkets.

Yes. We shut 2 supermarkets. Smaller one in Victoria, one in Queensland, and that's just part of our normal strategy cycle around looking at the performance of our stores. It just happened that in this quarter, we're close to, but we continue to open opportunities to open new stores.

But I wouldn't say our approach to network has changed. It's just a function of timing, of openings and closures in the quarter. And I think there is a little bit of delay in construction if you think about the rain down the Eastern Seaboard and delay in construction materials. We're just seeing some of those openings push back a little bit.

Yes, I think that's fair. On that page, in the context of Q3 this year compared to Q3 of '21, 3 stores closed in BIG W, Box Hill, Broadmeadows and Armadale. In terms of -- on a go forward, Richard, and mix of stores versus e-commerce as you'd be aware, I think at the moment about 85% to 88% of our e-commerce business is full from our stores. We're working very hard. That number will go down, but we still expect to see it over 80%, if you look at the next 3 years. And so within that context, we're not unhappy with our CFCs and how they're going, and we're earning a lot out of them, and we'll continue to grow them, of course. But in that context, we still see room not only for physical retail sales, but those stores and landing stores that enabled us, particular, a great same-day business, particularly in direct group. And so we still see a number of gaps in our network in Australian Food or Woolworths supermarkets. So we've sort of talked about the sort of 10 to 15 long-term rate for us. We don't feel uncomfortable with that. But what is the store you're going to change those to say, given the nature of how we want to allocate more space to pick up the side and remember number of other things at the right point, we come back and talk to. In the context of BIG W, we have been shrinking the portfolio for reasons through with things you remember in the past and very prudent setting. Interestingly enough, what it means for us with a store-based fulfillment model is we estimate about half of all geographies in Australia, we can't give our Big W customers an e-commerce solution. So we do need to think a little bit more credit. That doesn't mean we're going to open a whole lot of new BIG W's, but we do need to stand back and think of how we provide the option for all Australians to get great value from BIG W.

Your next question comes from Adrian Lemme from Citi.

Just trying to read through again this issue of whether there will be a volume reduction or trading down in response to the higher prices. And I'm just sort of focused on New Zealand since it seems to be further down the path of inflation. It looks like it had negative implied volume growth of 0.5% for the quarter, whereas the prior quarters were quite positive following numbers. So just wanted to see if there's any parallels or learnings we can draw from that for the Australian business or the volumes in the New Zealand may be impacted by COVID or something else.

Yes, Adrian. I would just say New Zealand was impacted by a combination of Omicron and then the challenges we have with our supply chain remain very different to our competitors in New Zealand to really run direct to store models. And since warehouse models are fabulous in time and stability. They're very challenging in these times when you can get a supply chain we'd look and their ability to go direct-to-store, particularly for the large packs. So we lost volume in the quarter. So I wouldn't read anything into the New Zealand results and what it means. It was a combination of Omicron, our challenges in the supply chain that are affected in our numbers and decline in market share. If you look to the go forward, I think there's much trading across as there's trading down. And so you will see that no doubt come through. And so it's the conversation we had on maybe fresh vegetables with the challenge of prices into frozen or beef into pork or chicken or whatever the case may be. So we do expect to see volume trending down in category and trading across these certain -- between categories because our shoppers shop by occasion, not by category if you know what I mean. What we think it might mean for units I think it probably is muted to unit growth, but we don't see a major decline. The only caveat, if I sound hesitant is how we model through some moves to bulk packs and bulk packs are growing in the value stores. So if you just -- I suppose volume or just bulk pack, you'll see a slow muted unit growth but full positive.

Your next question is a follow-up question from Craig Woolford from MST Marquee.

I spent a bit of time analyzing the breakdown you provide of sales between transaction numbers and basket size, et cetera. And it is interesting that even right through, we haven't seen a recovery in transaction numbers. What do you attribute that to? Have you seen very recently, transaction growth recovering? Or do you expect that we'll have fewer of the bigger baskets for more permanent through the time?

Yes, thanks, Craig. Obviously, when you're looking at them on the way, it includes the very large e-commerce basket, so as e-commerce grows. There is a bit of a natural headwind to the number, if you know what I mean. So if you almost need to unpick the e-commerce growth rate in looking at it. But yes, it has stayed where it is. Maybe in the post-COVID world when we enter more, we're asking about more and more traditional shopping patterns for customers as we've become less planned again. Certainly, our average items per basket has gone up and remained relatively stable. Funny enough, the big move for us has not been size of basket and the trend line, the basket size of the store shoppers remain constant. You're looking at the decline generate between e-commerce. But what we're seeing is a massive movement between our mall-based neighborhood and city stores, which is a movement to the price. But I don't have a good answer on the go forward. I would expect it to slowly come back. But yes, it just hasn't. I think the combination of the different manifestations of COVID, keeps Woolworths staying from home and then the weather we've had, it's hard to read a lot into it. I don't know, Amanda or Natalie, is there anything specific to call out. I would just ask like for comments, right, because you get an e-commerce basket that could be in the 50 items versus the store basket that's 11 to 12. I would just call out, by the way, that we have seen a nice basket growth in BIG W, and I think that's worth calling out. We've always known we've been under penetrated in the size of an average BIG W basket, which traditionally a couple of years ago in our tough times. So in the low 3s in this year and in the mid 4s. So that's actually been quite a mass trend line due to all of that.

Your next question is a follow-up question from Ben Gilbert from Jarden.

Just one final quick one for me. It might be for Amanda, I don't know if we'll get this number. But in terms of Cartology, I appreciate a lot of that gets net out against COGS, but would turnover there be annualizing over $150 million now?

I'm happy to take the one. Ben, thank you for asking this. We don't break it out in any great detail, as you know. So what was interesting in Q3 for Cartology was with the cancellation of some of our promotional program in the stores, we didn't do a lot of store-based media, and so that impact somewhat our top line revenue for Cartology. However, we made good progress in our digital media business and doing a much better job of providing partners access to our digital platform. And so there was a swing there. Net-net, the growth though was very muted for Cartology given the headline challenges during media report.

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

Right. Just a follow-up. I think while I was listening, and I thought it'd be remiss not to ask a question on BIG W because I don't want to show you food guys up or anything, but BIG W looks like it was the star of this result. I mean when you're looking at what it's done comping literally 30% over a 2-year period, and it was very heavily disrupted and it's Easter adjusted. It looks like BIG W is really performing well in light of other retailers really starting to struggle. So can you give a bit of an overview where it's at, at the moment. You must be pretty pleased with where BIG W is currently performing. But is it at the stage now that we can have confidence with regard to predictability? Or is it sort of like just a recovery where it should have always been? Because it looks like to me, BIG W was a really good -- really good basically last 12, 18 months. So could you give a bit of an overview. I think it'd be remiss not to talk about BIG W.

Thanks, David. Look, our internal comms, we recognize the amazing efforts that the Big W team have had. If you look at the level of disruption they've had at the store level with particularly in the first half foreclosures. Lots of challenges in stock play. Every conversation we've had at our stock flow side, Australian Food and New Zealand Food is that plus actually exponential for BIG W. So the year-on-year or the 2 year -- actually, the 3-year number for BIG W is strong. And more importantly, the consistency of the customer and brand metrics, which is a real highlight. So yes, this is a great effort by the team. And it's sort of -- I know we joked a few years ago, whether we had the Stephen Bradbury in first year of COVID effect. We just happened to have the stock flow and others didn't. I think what's proven to be true in the last 1.5 years is at a small profounder that, and it's a brand that sorted to get great resonance and cut through back with us. Our customers, and that's a testament to the team. In particular, as I say, given that you realize that half of Australia, we don't have a Big W offer right now and that the nature of the way we do e-commerce means that we're not servicing half of the country. So yes, I agree with you. It was a challenging first half profit-wise at BIG W, we need to be quite cautious and get the right momentum in the second half. But yes, a really good results out there.

That does conclude the question-and-answer...

So of course, BIG W, by the way, David, give it a last, we just launched out 2 weeks ago as in commercial, finally.

Thank you. That does conclude our question-and-answer session for today. I'll now hand back to Mr. Banducci for closing remarks.

Thank you, everyone. As always, my mind is on where we're at in Q4, and we're 8 weeks out to the end of the fiscal. As I think we mentioned, we have got off to a good start in Q4. It's hard to be precise on it given the nature of the sequence of events. But we do have Mother's Day coming up, which is -- I think our large big event in the quarter. So the truth is always in our store, shop our stores, whether physically or digitally. Get a sense of where we're at. We're very focused on managing affordability and cost of living for our customers and our team, and that will be our focus, plus getting back into the right operating and resonating for the rest of the quarter. Look forward to speaking to you all soon on our profit results for the year.

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