Woolworths Group Limited (WOLWF) CEO Brad Banducci on Q2 2022 Results – Earnings Call Transcript

Woolworths Group Limited (OTCPK:WOLWF) Q2 2022 Earnings Conference Call February 22, 2022 6:30 PM ET

Company Participants

Brad Banducci – Managing Director and Chief Executive Officer

Stephen Harrison – Chief Financial Officer

Amanda Bardwell – Managing Director of WooliesX

Spencer Sonn – Managing Director of Woolworths New Zealand

Conference Call Participants

Michael Simotas – Jefferies

David Errington – Bank of America

Grant Saligari – Credit Suisse

Adrian Lemme – Citi Group

Ben Gilbert – Jarden Limited

Tom Kierath – Barrenjoey

Craig Woolford – MST Marquee

Ross Curran – Macquarie Group

Bryan Raymond – JPMorgan

Shaun Cousins – UBS

Phillip Kimber – Evans & Partners

Scott Ryall – Rimor Equity Research

Operator

Thank you for standing by and welcome to the Woolworths Group Limited F2022 Half Year Earnings Announcement Analyst Call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions]. I would now like to hand the conference over to Brad Banducci, Chief Executive Officer and Managing Director. Please go ahead.

Brad Banducci

Good morning, everyone. And welcome to the Woolworths Group F’22 Half Year Results briefing. Joining me today are Stephen Harrison invested our Chief Financial Officer, who will present our H22 financial results a little later on, Amanda Bardwell, Managing Director of WooliesX. On the line from New Zealand, Spencer Sonn Managing Director of Woolworths New Zealand, Natalie Davis Managing Director of Woolworths Supermarkets, Pejman Okhovat Managing Director of BIG W, Claire Peters Managing Director of B2B and everyday needs, and last, but least, Bill Reid, our Chief Legal Officer. I will provide an update on the whole thing up [Indiscernible] ’22 strategic priorities. Steve will then present our financials for the half before handing back to me to finish with current trading off to seven recent outlook. Thereafter, we will take any questions you may have. Hope everyone has a copy of this presentation. I was going to start on page 4 for those of you who are following through the presentation. H22 was a half dominated by COVID. It was bookended by the outbreak of the Delta strain in to July as most of you — hope you will remember and suddenly unimpaired field. And then later in December, somewhere between Christmas and New Year by the outbreak of Omicron. Altogether, this was one of the most challenging hearts we have experienced as a business and its [Indiscernible].

All the COVID outbreaks led to increased in-home consumption, which benefited sales, the impact of direct and indirect COVID-related costs, and the BIG W store closures, had a material impact on our earnings for the half. Pleasingly, we ended the half of the year strongly, with a good Christmas helping our customers enjoy a much needed fixed-up holiday season. The spot to disruption and our primary focus on our team and customers. We made good progress on our strategic agenda during the [Indiscernible]. While it feels like a lifetime ago, we completed the de -merger of Endeavour Group at the beginning of the financial year and began our partnership in PFT with the Smith family on the same day. We have also established Q-Retail in partnership with Quantium to deliver on the Group’s advanced analytics ambitions following the increase in our shareholding in Quantium to 75% in May. I will touch on some more strategic hollered shortly and I will also come back to our performance, [Indiscernible] in the outlook section. However, despite the challenges, postpartum economy [Indiscernible], we are confident we can deliver improved financial performance in H2. For those following, I was just going to turn into Cloud 5 and what we’ve just laid out for those of you who are interested in a very colorful highlight which we still working to refine. You’ll see a simple summary of all the challenges that we faced between July and January. So after the introduction strict of trading restrictions in New South Wales [Indiscernible] two our largest state. And as opposed to previous [Indiscernible], most Big W’s were close to in-store customers with 91 BIG W stores impacted while mandated store closures. August saw a large number of our team across the group impacted by isolation requirements and strict lockdowns in the 12 LGAs in New South Wales. Big W’s e-commerce penetration reached over 13% and peaked at 15%, Australian food sales in Q1 in New South Wales, placing enormous pressure on our online team in New South Wales. In terms of DCs, we introduced split shifts and smart badges in DCs to try and minimize the impact of stock flow and ensure a steady supply of food and everyday needs. And in September, we stood up Australia’s largest rapid antigen 50 program in our DCs throughout in the New South Wales and Victoria.

Our supply chain moved over $26 million quarters to original Australian food at Kimber loan, higher than the amount of carbon emitted in 2020 before COVID. We continued to rebalance our DC across the country to ensure all types where appropriate. While our customer scores were impacted by the various interruptions, as a result of COVID, a real highlighted that we managed — maintained strong scores and our customer came metric across all retail business. This reflects the extraordinary efforts of our team to care for our customers during this challenging times. As sales growth began to moderate in October, in line with these new restrictions in this up well in Victoria, COVID related cost remained high, as we keep COVID set hitting in place and border supply chain disruptions continued. [Indiscernible] COVID, Omicron [Indiscernible] unprecedented level of team at — absenteeism. Not only within our own stores, DECT, but also in our supply and transportation point. As an aside, I’m pleased to say that we have seen some stabilization in the operating environments in recent [Indiscernible] with have principle that on the go-forward. Let’s move on now to Slide 6. You’ll just see a summary of Slide 6 of just how will the impact came through on our supply chain, and I’ll let you read that tool to ratio. Slide 7 is one IO. Just look the last moment. Just to give you a same of disruption that’s just a way of looking at it really, I report to you our outbound service every new to look at a store front from different years. And what’s the size? It’s not a perfect measure of what happens in the business, but the change in what are the store order and what do they get from DCs? It doesn’t measure with the — a large was late or whatever they [Indiscernible]. It doesn’t attribute to why the order wasn’t able to be fulfilled. But what you see, if you look at that slide, is a material full reduction in our [Indiscernible] services, which we’ve done below 70% in January.

But really, materially below what we used to which you can [Indiscernible]. We actually — we always want a 100%, as you might imagine. And we also want to always on turn. If you looked at this in a perfect order topic logic, as you would in e – commerce, we look at. Whether you’ve got a full basket or whether it’s in turn of a number where they’ve gone probably below [Indiscernible] It just gives you a sense of a challenge. Certainly not to make excuses and I’m sure we will come back and talk about our CODB. Certainly hopefully during the half, but still gives you a sense of the volatility that we [Indiscernible]. Moving to Slide 8. I think very important for us, and this is always our focus for the half, was to ensure we got great stock flow through our stores, and made sure that we gave everyone, every customer in Australia an inspirational Christmas. And we did achieve that. So we ended the half with good momentum, a strong Christmas trade across the grid. Strong customer advocacy across the [Indiscernible] issued in our stores, which the customers gave us appropriate feedback on. I’m just looking at brand NPS what reputation. and we maintained a strong market chain. Some [Indiscernible] to call out would be the total sell about 3.6% in December in Australian Food, where [Indiscernible] would focus on getting stock in store, a good trade plan. Our [Indiscernible] companies seasonal ranges performed really well and actually just amazing performance by our [Indiscernible] connecting with 2 million more cartons than December, 2020 despite the interruptions. Importantly, towards the call out, the digital traffic remained strong across all brands around 54 million visits on our digital platforms in December capital in December and a record number of Everyday Rewards users in a month, a number the team would know always interested in the number digital visits versus physical visits in that group.

And in December for the first time, in certain weeks, we had more digital than we had physical. And I thought there was a really important inflection point, which have been talk about later. In terms of slide 9, I’m pleased to say that while we talked about it, we have work to do on our financial performance and we made good progress on our strategic priorities. And slides 9, 10, and 11 acquired some achievement, but also some areas where we have more work to do, and that’s why we all like working in retail because we’ve always got more to do. But it was [Indiscernible] where we didn’t really continue to launch our strategic agenda. And that’s what will stand us in particularly good stead as we [Indiscernible] in various initiatives in F2022 in the second half and then into ’23. We touched on some of the areas really, but we would like to focus on a few more. As you would have seen in our materials this morning, we have provided an update to our team member pay remediation. In F2021, we launched an end-to-end payroll review to ensure compliance with our — all of our obligations, ensuring we pay our team appropriately. The awards enterprise agreements, and so on. As part of our review, we had pushed out into [Indiscernible] certainly are it’s more complied in relation to Alipay team members employed under three Woolworths Group enterprise agreement with our retail enterprise agreements amongst other team members, and we apologize to those impacted. And we’re committed to rectifying any and all [Indiscernible] shortfalls and we will continue to fix issues as our [Indiscernible] and as our review progresses. We’re committed to Woolworths Group to [Indiscernible] a hot water bench markets, in terms of payments and ensure we do the right thing by our team. And our view is on guidance. We hope to have a complete [Indiscernible] by the end of this calendar year. At this stage, we’ve reviewed more than 85% of our team members and more than 70% about type — total payroll costs. We’ve booked a provision of a $144 million to reflect expected cost of remediating. What is our biggest individual group of team is disposing employed under our retail, it’s process agree. Just moving on to priority to and sort of core not strong parking e-commerce. Hotels across the group increasing by 48%, 69% of the two-year compound annual growth basis, but right by to look at price if you want to look at a mini. Our direct-to-boot service continues to transform our core pickup experience.

A team effort between Woolworths chief markets and WooliesX. And we now have 6,532 markets offering the service. And have also increased the capacity of existing stores to provide the servicing department. I’ve added a sensible pick up orders on our direct goods, rather than added service tech in front of the store. And our highest rated customer net promoter score spread in Saudi commented outdoors. Amazing efforts by our team in [Indiscernible] to continue to grow that business. [Indiscernible] is also making progress in convenience with E-lockers and [Indiscernible] rolled up [Indiscernible] by the end of the half. And it would be remiss not to mention the continued progress across e-commerce and digital Epic W, which was critical, especially during when our stores were closed. [Indiscernible] that’s keeping us moving. On Slide 10, we look to our food retail proposition. Our curated core value operated in space has been rolled out across all supermarkets nationally in 30 major categories, and we’re continuing to make sure we have the right range and the right [Indiscernible] for our customers. It’s full early days, but we are seeing this range really resonate with our customers. We’ve also expanded our multicultural range, staffed by [Indiscernible] But particularly to the progress we’ve made, increasing customer engagement without their reward at an ability to provide more value for our customers. This will be essential to us forward, as we took to the topic and lead to the topic of price increases and its patients. We achieved record membership up 4.5% to 13.3 million members, compared to Q2 last year was scan rights also increase. Everyday Rewards Bruce program continues to resonate with our customers. Around 39,000 new customers [Indiscernible] in December. And I have a 100 supplier-partners [Indiscernible] participated in the program. But in personalized offers to our customers. Moving on to Slide 11, as we disclosed in Q1, we have a new reporting segment called Australian B2B, which includes PFD and other B2B food businesses, as well as B2B supply chain, which has a Primary Connect third-party business and statewide independent wholesalers in Tasmania. We’re all getting listed reporting to the segments. And I’ve no doubt will encourage questions on the go-forward on [Indiscernible]. Of course, it’ll settle down as we get into [Indiscernible] the quarterly and [Indiscernible]. Just in terms of PFD specifics, PFD has a [Indiscernible] hot spot impact on its customers of the mini COVID [Indiscernible] shutdowns, and pleasing you all B2B businesses reported sales growth by year.

I mentioned the successful launch of Q-Retail bringing together the best of what was Quantium retail analytics into one prehensive team. And we’re already seeing results from initiatives to optimize promotional activity and further our range localization strategy. And we look forward to seeing the benefits, of course, delivered to the bottom line, unites to 2023. Moving on to Slide 12. I’m moving through our sustainability progress. One of the things that — actually, I look to now, open [Indiscernible] and I don’t think we tailored right to the math is 6% decreasing Scope 1 and Scope 2 emissions across the Group Nights One, which is terrific. We still have a long way to go, but it’s driven rarely by continuing to focus on improving our electricity and refrigeration consumption, making it 14. And finally on Slide 13. Before I close, slide 13 is a lot of our Woolworths Group ecosystem or adjacent fee strategy for those of you that — who’ve been from what — how you like to describe the thing. I had received some feedback that it was too competent. So thank you for those provided it and we’ve thought to simplified. During the half, we have made good progress in all the quarter in store for members of food and everyday needs ecosystem, but we could have more work to do to build a bit of business for the future. I will now hand over to Steve to present our H22 financial results and come back to close on current trading outlook. Over to you, Steve.

Stephen Harrison

Thanks, Brad. And good morning, everyone. I’ll let me give you a quick recap on slide 16. In mid-December, we provided an update on our statement, hockey trading performance due to the impact of COVID-related costs in the more [Indiscernible] pulling the easing of lock down in New South Wales and Victoria in Q2. Pleasingly, trading momentum improved in mid-December. We had good Christmas trading periods as a result for Australian Food and [Indiscernible] in line with the only [Indiscernible] providers in December. Turning to the specific numbers on slide 16, [Indiscernible] the demerger of Endeavour Group on the 28th of June. I’ll focus my commentary on continuing operations before significant items which adjusts for Endeavour Group in the prior year ended the merger accounting. Group sales growth for the first half, was stronger that potentially style of $31.9 billion. South benefited from the first-time inclusion of and the acquisition of $20 million, excluding pasting Quantium sounding Craig by 4.2%. EBITDA declined by 11% to $1.4 billion reflecting the challenging operating environment in Australia, which adversely impacted Australian Food earnings and also BIG W, through store closures. Craig impact declined by 2.5% to $795 million. It’s a smaller reduction relative to David, did a lower financing costs and tax compared to the prior year. We also booked significant outcomes from continuing operations at a $119 million, primarily due to the increased provisions with 15-member remediation. Discontinued operations in the current year reflects the non-cash gain on the merger in debit group of $6.4 billion. Now, I will discuss the dividend later in the capital management section. On Slide 17, I want to quickly touch on the outperformance and strength. We take highlights the ongoing volatility we see new codes restriction, and probably talking impacting the comparability of one e-growth numbers. Price slide in Q2, in both strength in New Zealand, based on a one year basis, it is the benefit from high 800 assumption reduced discounting restrictions. And BIG W South and maintenance improved materially in Q2 following a period of slope by the [Indiscernible] target, but only Q1. See average growth for all businesses remained solid.

Moving to Slide 18, when we start Group EBIT and EBIT by business to the half. So just trying to EBIT declined by 7.6% to $1.217 billion, due to the material disruption to have stood [Indiscernible] and team get a high volume COVID impact and an increase in income [Indiscernible], which runs at a higher legacy south ratio. COVID also impact our ability to offset CODB inflation in the half. Due to delay in implementing productivity initiatives and we continue to invest selectively where appropriate. However, given the strong finish to the half, EBIT was at the higher end of our previously sledge range at $1.19 billion to $1.22 billion, EBIT [Indiscernible] 2.6% on a two-year basis. As disclosed in Q1 and as Brad just discussed, we’ve created a new operating segment post-training baked in 1.5 of it ’22, which includes the addition of PFD to the group. The first-time contribution from PFD and they EBITDA was somewhat up about it by the amortization I can be intangibles on the acquisition, as well as selective investments across the portfolio that [Indiscernible]. This result also reflects the impact of achieve my ability on out-of-home consumption, which impacted both paid and vice of working in the house. New Zealand Food even increased straight 0.3% to $200 million. Both our strength in half two was strong, so half one was strong due to COVID restrictions in place and higher inflation. COVID-related costs increased materially on the prior year and impacted the flattery Davis. BIG W EBIT declined 81% to $25 million due to the material impact to sales from [Indiscernible] budgets in Q1 EBITDA. For the half, total other costs were $69 million. Other now includes our share of Endeavour Group impact and also includes the same thank you bonus for 34.5 million. Excluding Endeavour Group ‘s contribution, we expect Group costs to be $190 million, approximately. full year. Turn to Slide 19, to cover COVID cost. In half one, Group COVID direct costs were $239 million or 0.7 percentile. [Indiscernible] below, the $257 million excluding Endeavour Group in the prior year. [Indiscernible] I only capture the cost that could be directly attributable for COVID, such as health ambassadors enough [Indiscernible] the cost of cleaning and PPE, rapid antigen testing and additional warehousing, as required. Due to the profound impact of Delta had on the influence supply [Indiscernible] there a number of additional impact including increased Paymap [Indiscernible], an incremental advertising out to ensure the cape outdoors and DCs running and lower efficiency and productivity levels via ongoing disruption.

We have had indirect COVID costs in the line of business, [Indiscernible] the impact was largest in Australian Food in indirect COVID costs to $69 million in the half. Moving to Slide 29, the [Indiscernible] key balance sheet metrics. Average inventory days from continuing operations declined by 0.4 days compared to prior year to 30.2 days, due to strong sales in Food, possibly offset by high inventory days in BIG W due to the impact of store closures on sales in the half. For ROFE, we’ve normalized to remove the Endeavour Group from EBIT and [Indiscernible], however ROFE includes a 14.6% investment in Endeavor Group, and its contributions to earnings in the half. Normalized ROFE from 15 [Indiscernible] declined by 290 basis points to 14.1%, largely driven by lower group [Indiscernible] in the half. On Slide 21, we’ve included a recap of our capital management framework and called out [Indiscernible]. Despite lower EBITDA from continuing operations, we generated operating cash flow of $1.7 billion in the half. This was used to sustain our assets and fund growth journey in half 1 and I will touch on some of the other capital management highlighting later slides. Moving to Slide 22, and let me go to that cash flow.

Cash flow from operating activities before interest and tax was $2.6 billion, which was broadly in line with the prior-year excluding Endeavour Group. Lower EBITDA from continuing operations was somewhat offset by working capital benefits, which we’ve laid out on the following slide. Lower interest paid reflects the demerger of Endeavour Group and the refinancing of borrowings effect will interest rates during the period. Adjusting to the impact of the Endeavour Group demerger, the cash realization ratio was 91%, largely due to higher cash taxes [Indiscernible] related to financial year ’21 in half, relative to the tax in the P&L. Adjusting for these one-off cash tax installment in December, the test realization ratio was over a 100%. Investing activities increased compared to the prior year, largely due to the acquisition and the increasing capex in the half. I’ll cover kept team on the next slide. Finally, to fund the entities Endeavour Group prepaid an intercompany loans of $1.7 billion of Woolworths Group following the [Indiscernible]. This was used largely to fund the buyback that’s $2 billion completed in October this year. In total, there was a net cash outflows of $1 billion in the half reflecting an $0.6 billion increase in [Indiscernible] cash returns to shareholders in the half. Moving quickly to Slide 23 to cover working capital of non-cash movements. On these pages, we separated, [Indiscernible] capital movement to continuing operations and discontinued operation, increasing inventory from continuing operations reflected higher inventory levels due to strong trading. And if it’s to minimize so far in January. Increasing trends

Payables, increased purchases, somewhat offset Barwick payment Davis will cause and the timing of timing growth, and total continuing operations, working capital, and non-cash increased by — to 122 million largely to an increase in provisions reflected chain [Indiscernible] remediation provision, and ensuring. Discontinued operations reflect the non-cash gain on the demerger of Endeavour Group of approximately $6.4 billion. Turn to slide 24 on capex. As a reminder of our capital allocation classifications, sustaining capex includes [Indiscernible] areas like maintenance, safety, renewals, IT and supply chain, and investments in productivity initiatives. Growth capex refers to spend in areas like new stores, e-commerce, and other projects that are expected to drive [Indiscernible] growth and increase gross margins over time. Operating capex other half was $822 million up from $730 million in the prior year. This includes a $126 million on projects with strong sustainability benefits in areas such as refrigeration and so on. An increase in spend year-on-year reflects a higher [Indiscernible] supply chain and e-commerce as we [Indiscernible] in August. The FY2022 operating capex is still expected to be approximately $2 billion. Moving to Slide 25, the Board today has approved the [Indiscernible] term dividend of $0.39. It’s fortunate that while the half 1 FY2021 dividend was $0.53, these include the $0.13 related to the Endeavour Group earnings.

Excluding this impact, the interim dividend was marginally below half 1 of FY2021 which when adjusted for assisting tend to would have been [Indiscernible]. While we maintained typical power ratio for the half, the reduction in the dividend is less than the reduction in impact due to the lowest years on issue because opting for the buyback. Together with the interim dividend, the F’21 final dividend tied in hop on $102 billion buyback, $3.2 billion will be returned to shareholders in F’22. Moving to debt and funding on Slide 26, the Group’s sources of funding and liquidity remains strong with good access to both bank and the capital markets. Having total undrawn facilities of [Indiscernible] total tribute that undrawn facility to $2.6 billion in [Indiscernible] cash. September, the Group’s successfully completed the $1.6 billion of dependability linked bonds with a direct link trust dependably commitments regarding the reduction in carbon emissions. We remain committed to a solid investment grade credit rating has significant headroom to our current ratings attributable [Indiscernible] and VWAP H2 for me. And finally on Slide 27, I will give you a breakout that on pharmacokinetic. While it’s very difficult to offer our pharmacokinetic, even the disruption in COVID, we continued to make good progress on that supply chain transformation. In [Indiscernible] DC continues to increase through put despite COVID disruptions averaging $2.2 million happened in the week in half one, with increases in volumes expected in half two. The [Indiscernible] day thing point bend over data generally in the high, co-managed COVID disruption, and we also opened the comments in North distribution center in New Zealand in September. We have begun construction on a fourth automated CFC in Auburn, and we expect to lie flat for our new Moorebank this month. With that, let me just say thank you, and I’ll hand back over to Brad.

Brad Banducci

Thanks, Steve. I’ve heard the line is still bad, so I’m gonna talk up a little bit more. And apologies if I felt receive a bit hard to hear. Apologies to my colleagues in the room if I’m shouting. Australian Food sales — turn to the trading and outlook. Australian Food sales have increased by 5%, approximately 5% under the first two weeks of the year, with a two-year CAGR of around 6%. Sales growth has been driven by a return to in-home consumption by customers, as due to Omicron. And in some cases, of course, within that self-imposed isolation. were also seeing inflation continuing to trend upward, with shelf prices increasing by 2% to 3% in the half to date compared to the prior year. COVID costs have remained elevated in the first seven weeks of Q3 with direct COVID costs of $34 million or 0.4% of sales. We expect to see a normalization of default in the half. We are starting to see some signs of stabilization in the operating environment and are confident we can restore a more predictable operating rhythm across the group. For BIG W, sales declined by 4% in the first seven weeks, but remained at 6% CAGR devices. We expect a challenge in half, a decrease expected business full to be profitable in H2.

And New Zealand, sales growth of 5% in the first half, [Indiscernible] 2% and exceeded over basis, has benefited from higher inflation and lower sales growth in the prior year with Omicron not yet having a material impact. We’re doing what we can to prepare for Omicron to mend more disruption to our team and customers. Despite the many challenges experienced in the first half of ’22, I am confident that we’re well-positioned to deliver for our customers, our team, and our shareholders, in the second half and in the years ahead. I would like to finish by thanking our team for the extraordinary efforts during an extremely challenging costs. And of course also our customers, for their patience, understanding, and support. I will now turn the call over to the operator for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] If you’re using a speakerphone, please pick up the handset to ask your question. The first question comes from Michael Simotas from Jefferies. Please go ahead.

Michael Simotas

Good morning, everyone. Can I ask the first question on your COVID costs performance on a year-to-date basis? The COVID costs as a percentage of sales moderated, caught significantly, notwithstanding Omicron, what did you do differently in January to be able to achieve that? And can you make some comments on what the indirect COVID costs trend has been as well, please?

Brad Banducci

Thanks Michael. Back to some high-level comments and then we’ll have Steve to talk to some of the detailed. In many ways, when we look to the first half and all the challenges we had, really we’re committed to the [Indiscernible] side of Christmas and so we put a lot of effort into, in fact, in many cases, over recruited into our DCs and our stores with an expectation that we would see some level of absenteeism or oscillation or whatever the case may be. And so we really were focused on stock flow and having a great Christmas and the momentum effect that gives us in the second half. When Omicron hit, actually, we were very thankful that we had done this because it’s helped us materially to adjust to the world of Omicron.

In addition, we were the biggest [Indiscernible] rest hit in the country when there we’re extremely thankful and we had nurses and everything else to do with it. But again, when we transitioned from PCR to [Indiscernible], we felt ourselves in a very good place to be quite frankly on how we dealt with it. I would say, when you look at the first half, we took a lot of learnings and lessons and some of the hedging reports really helped us. This has been coming to the second half and you see that in our sales number, as well as in our direct COVID costs that Steve spoke to, and hopefully also ultimately will tip flow through our bottom line. I’ll let Steve now talk to how we desegregate it. But the one thing which we’ve tried to do which I should just be clear on is we’ve tried to use some of the methodology for calculating direct cover costs for the last couple of years. We haven’t changed definitions as we went. Our version of direct cover costs is the one we set up for our business in F’21. So when we allude to the second order ones, those — and everything and it wasn’t in the way we measured in F’21. And the reason we did that was just to create some forced robustness in the way we measure. But Steve, I want you to talk about H1 plays seven weeks on [Indiscernible] material step-down, and then also the second order impact.

Stephen Harrison

Thanks, Brad. And thanks for the question, Michael. Just on the direct costs and we laid this out in the profit announcement. I think that the thing that I would reflect on is, we saw in the move from Q1 to Q2, the [Indiscernible] down in [Indiscernible] costs. And I think that Q2 number we tend after 51 to 34, that actually is a blended number throughout the quarter. As the settings and restrictions changed in the different sites where I would reduce that in costs. And that’s the vast majority of why direct to COVID costs had come down over Q2 and into Q3 and I think, you see when you look back at the second half of last year, and steady.

We are looking to remove that cost as quickly as we can. I think it’s fair to say that the in direct cost has continued to be in fact, particularly in January, I think the slide that Brad referenced was 70 in the pack and showing some of the disruptions in service levels which reflects the disruption in our [Indiscernible] doors. The question of why we can see that some of those indirect costs are continuing. But as things start to stabilize, we will obviously be very focused on trying to manage those costs down over the course of the quarter and the half.

Michael Simotas

Okay. Thank you. And my second question is, regarding the comments on inflation in the second half as well as shelf process. And then we can certainly say a lot of price increases on your shelves and those of your competitors. What success have you had so far in recovering the input costs that you’re facing in terms of realizing no sale pricing crisis?

Brad Banducci

Michael, because, you just asked a lot, we’re going to let you off the second question. It was supposed to be one and then back into the queue. We started to see — so we’ve got pressure across internal value chain on cost increases. And we can come back to talk about obviously the ones from our suppliers, our sources, everywhere. Our biggest individual cost increase that we’ve seen by the way is commissioning with our new DCs or new stores. And while it’s been a very painful half, and then so much work underway probably can be. Actually, if you look at on a replacement cost basis, actually I’m quite thankful that works underway given the material inflation, we see an infrastructure and right now for very obvious reasons to do with, and help fight the role in special fight plays in that. If I come to supply cost increases to Woolies, we started to see the pressure starting in late November, in terms of increases that we’ve been requested to process, [Indiscernible] possibly about through December. We were really trying to use just where we deploy through some cost increases. But red meat once, and so we’re trying to be very sensible and very focused on delivering a great, affordable, inspirational Christmas for our team. That then has continued in January and February.

And that’s why we called out the number we did there, and reason to call that shelf Michael is, it is quite hard at the moment, given us a need to dynamically adjust promotions depending on out-of-stock labels to actually give you a break. So to me, I’m quite focused looking at shelf because that’s a good early indicator of where things will go. We’ve only at this stage engaged with about half of our suppliers on the various cost increases and so we still have a lot of ways to go, since it’s very early in the journey. But in terms of what we’ve seen at this stage, we’ve seen a very rational process. The cost increases from our suppliers have flowed through, and we’re obviously testaments, [Indiscernible], get them to validated as you might imagine. So, we don’t accept everything we lost to accept. But the ones that we have except that have flowed through self-process at the stage of the game side for being a very rational I don’t know if there’s anything you wanted to call out specifically?

Amanda Bardwell

Just to give an overall of the rationale behind some of the supply costs requirements. international freight costs increasing clearly had something everyone is staring into commodity costs. Increasing sugar, coffee, dairy products, and manufacturing costs. That’s playing through at the moment across our long-life categories so on the flip side, it’s as Brad mentioned earlier, we’ve had significant thing questioning Fruit continuing. Now, we expect that to continue for a few moments and we’re very conscious about what we staring today’s costs TASC, looking at the whole relationships and seeing what we can optimize that we need this opportunity. Those are reviews if you think like promotional funding and Mexico, they’re getting the best investment for our customers. And really balancing out value equation. Very important.

Brad Banducci

Just to get ahead of a question about fruits deflationary, that really comes down to have a quarterly, which we control the growth rate of our future supply benefits sitting there that achieving process which we’ll fabulously set.

Operator

Thank you. The next question is from David Errington from Bank of America. Please go ahead.

David Errington

Morning, Brad. Brad, I’m wondering if you could help me out a lot, because I’m as confused as an analyst as I probably ever been. I’m trying to work out why your cost performance is so much poorer in cost of doing business in supermarkets, than your major competitor in Coles. And if I could call out some numbers, Coles’ cost of doing business only increased a $100 million, 2.6%, they had a headwind of COVID of that $50 million. Your cost of doing business increased by $520 million, with a COVID cost tailwind because your COVID costs were $20 to $40 million below.

The disparity in your operating performance is really stark. I know that you look at Coles performance, and I don’t expect you to comment on Coles, but I certainly expect you to, if you could, please, give us an explanation as to why your operating performance in cost of doing business grew by 10% when Coles had exactly the same challenges in terms of supply disruptions, etc. So where am going to, I’m starting to wonder, have you got to financial control problem eye in numbers? Now we had a downgrade in December that was really light. That was a surprise. I’m worried about whether you’re on top of these control issues. Are they — because the costs just seem to blow out. I mean, we’ve gone through the capex issue a lot.

We weren’t do that now. But the costs just think to be uncontrolled at the moment Brad and we were having this discussion today because of what calls delivered yesterday, coal seem to be in control of their cost. I gave a very good explanation that they have weekly meetings and I really control every costs that goes. I’m not sure that you guys do the same. So can you give us a bit of an explanation because we as investors are trying to work out wherever there’s an opportunity here for these costs to come at, or wherever there is something systematic in your business that we just continue to see cost blow outs. So if you could help us say that would be terrific.

Brad Banducci

Thank you, David, and we look for your complementary message as my colleagues in Endeavour, we do think it was great results this year. And then I have yet, but we call and talk to competitors — talked our numbers, and Steve will give you the breakdown. But if you look at the half and all the disruptions that happened, then we also we paid lip service to front-line teams and doing the hard during the rough thing. But then, as we’ve seen, actually, us investing in our store teams to get the body strength for our customers with a lot thing to do, and a lot thing to in that [Indiscernible] throughout, validated in our sales number and our reputation number, that’s hits us after the second half.

That’s very hard to such are not say we didn’t — we focused on doing the right thing, and we did the right thing for our team. That included the thank you bonus to our team and improved at estimate Consumer, the store management team and they work on a Hoff step for paint the appropriate step for the Hoff at ensure to make sure there was enough safety in DCs and stores. So you that’s what you see, David and I. And one walk away from that, we need to deliver for the Hoff and we look forward to for the full-year, and we look forward to, of course, making sure we do in the second half, but we’re going through the numbers, but when you add up the additional costs we put into store teams, any two DCs. That’s a $350 million somewhere outside of the Tysonism one. Anything else.

I think about the way we should talk to cash CODB and just a [Indiscernible] depreciation limit. You’ll see how it hasn’t gone up closer to [Indiscernible], but we just bought that, so we get a care message. Back to [Indiscernible] recognize as you should well know our DC costs are now CODB and their GP for most other retailers, I think. We should also just make sure that we’re looking at the right apples-to-apples. But Steve, if you can just talk to the high-level numbers and I’m happy to take — for you to come back David, and take accountability for us to do the right thing to do for our team and environment that was as far as it gets, and keep track any metrics around how our team is feeling mental fatigue, physical fatigue uncertainty. We think these room investments they put us in a good position on the go forward.

Stephen Harrison

Yes. Thanks, Brad. Look, I’ll give you the high-level represent, but I think the key is the color to it. As you rightly point out, over $500 million adding back out day, and about $450 million, as Brad said, roughly $350 million of that is for our teams in our stores and the cost in our supply chains. There’s another $50 million across conscious decisions with any investments we’ve made on our people, systems, and some of the costs associated with the remediation investments in cyber, and then there’s a range of other things we’re doing. But we’ve made some conscious decisions to grow our business that we’re investing in driving digital traffic to our digital assets. We’ve put in driving [Indiscernible] in our stores, also important in driving the strong growth in digital advertising in Cartology that you see going through our GP line. We do have general inflation in our business and I think we would be the first to acknowledge that we’ve made conscious decisions to afford our productivity initiatives going into stores and the realization of benefits.

But because of the material disruption that doting an hour, they take tends to COVID. And we are also continued to invest in businesses that have a drying on the paydown in the first half and about we think a long-term investment through capability in the business that can be invested they come at us or adapt [Indiscernible] with some of these we started. But at the end of that, what drive the healthily as the disruption that we’ve had from COVID intrigued the South properly much more quickly in the second quarter than we would’ve liked. We put it made choices to reduce some of those costs in top lightning stores in December, we made a very clear decision not to do that. We’ve done that in talking with things that we think that’s not the way we run these days.

We do say that fill that ambition to offset much needed productivity, we want to get back to that. [Indiscernible] there in the second half of this year. Once we see stability in our operating rhythm, stopped to prove. And I think we agree with the sentiment hot costs are higher than we wanted to be, and we need to get that balance right in the future when you can get that balance throughout the hospice DCs earnings results. But at the end of the day, we focused on delivering for our customers and for our team and making a better business long-term, and sustainable. Having to take any questions, but we take the feedback on, we do manage across very carefully. There’s a strong DNA in the retailers in all the people that’s sitting around the table and [Indiscernible] afterwards. We’re gonna have to see we have a very disciplined cadence, looking [Indiscernible] on a weekly basis, as do our colleagues down south, and so we will be very focused on that in second half.

Brad Banducci

I just would also like to log David. I don’t — retailing on tentatives in [Indiscernible] when we have the information needed to call out earnings [Indiscernible], that was not a thing we wanted to do in early December, but it is in line with our values and our purpose of open transparent, will basically have an issue in [Indiscernible]. That was called in, you’re seeing the consequences of losing the numbers. Now as [Indiscernible] you played through. However, you do see the market share across our various businesses. You do see the reputation and efficacy we have, and you do see the good thought to H2.

Operator

Thank you. The next question comes from Grant Saligari from Credit Suisse. Please go ahead.

Grant Saligari

Good morning. Brad and team. Question just around I guess price perceptions in the reality of price, in the number Tysons who were saying to be leading shelf price. That’s increases across the industry and it should not added process up average 3-4% in the first 7 weeks. Just came to hear and we’re also seeing promotional intensity down years at it from supply, pounded promotions. So just came to a hear about any feedback you’re getting or what you’re thinking about in terms of price perceptions at development with what works. And how you’re thinking about managing the reality of price comparisons. Given that we will recognize, prices are going up, but they going up a different rates amongst different retailers space?

Brad Banducci

Thank you, Grant, and what a hard question, so I’ll just give you some comments in [Indiscernible]. First thing, we said 2% to 3%, not 3% to 4%, but be that as it may, in our [Indiscernible], actually our promotional programs are actually relatively back to what they’re on year-on-year in a number of items and ranges that we provide in different promotions. So we’re not really promoting less than we have historical though, and actually alluded to an uncertainty with our colleagues at cue retail. We want to be much more thoughtful in making sure we drive up the number of Woolies promotions in our business for that store. We’ve invested materially on building the capability to do it in the first half and hopefully we’ll see some of those benefits to see these comments coming through in the second half.

Our promotional program is relatively stable. What you’ll see in some weeks reduced promotions where they just stop flourishing. So if you’ve got a stock plus supply issue on toilet paper or whatever the case may be, you have to sometimes pull us promotions just because you get to the customer side. I don’t think we’ve seen a less emotionally active period, and then we have a star-filled level. We do want to be much more for [Indiscernible] and get the one of potential job, but you all see this movement in charge process. Since our customers listing, we’re tracking our customers. We can see their focus on processing and value for money, and those really we consider. In terms of the relative process position, again, as you’ve seen through our history, very anxious on this topic, and we do track it.

The cold discount chemist hospitalized. And we do look at the context of brand or that on Bryan and we looked at the shelf and question mix attached and we’re in the guard roam. We have been for the last couple of years. Now if you go to the go-forward, I think growth. Clearly this issue is not going to get smaller, it’s going to get bigger. And how we manage it through the business is one of the top three things we’ve focused on inside the group. It’s how we make sure all of our customers get their what is worth. And there’s not one simple solution to those as you know. Our store segmentation is continuing to proceed and how we think about that and display and delivering value working core value [Indiscernible] just important to us. And they are slightly different mechanics than what we should be doing there. Everyday Rewards is really fighting to deliver, and again, how we do much more through that in our one-to-one promotional platform, which is now live again, an investments in H1, but actually live and we started doing it to become primary, where we can actually deliver real time one-to-one offers to our customers, but we need to be much more portfolio basing of that program becomes key. And then it’s stood, as I said, we’ve done a lot of work in one of our biggest in business in the CODB line, David. In H1, it was around QCell and be much better at folding promotional, full cost in engine slow that the price show goes up for the group. That’s where we’re at.

We’re comfortable with where we’re at. We would, of course, prefer that shelf process decreases were expected in each and every retailer on the same day or other retailers before us. It will depend on the product, I think, Greg, because we actually do look at that, by the way, just like we do at every other number on that we provide. We do certainly look at that weekly. And so that’ll depend on the product really. You’ll see us probably just because of our slightly bigger [Indiscernible] position, you might see us yield a little bit more than in other categories, but we have reason to [Indiscernible]

Operator

Thank you. The next question comes from Adrian Lemme from Citi please go ahead.

Adrian Lemme

Good morning, Brad saving and just wanted to understand how the economics of direct-to-boot work. I’m not surprised that you signed customers lot domain my cellphone, it’s fantastic. So those science in our more of my time, but I’m just wondering you how the economics makes sense for worse happen. You improve them down the track and just a piece to maintenance is a great deal for customers, but perhaps quite costly for Woolworths. Thanks.

Brad Banducci

Thanks, Adrian. Look, we can improve every part of our business and — so that it’s just a given for us. What has surprised us in a week and let Amanda talk to some of the specific areas for improvement. But what has surprised us is the percentage mix we can hold through directly, but somewhat picking up versus home delivery. No matter how you cut it, home delivery is the most expensive thing that you end up doing for customers, you can imagine, primarily through the cost of a truck haul. Next, we’re getting much more efficient as regarding [Indiscernible] one of the highlights in the half was that, but still the cost of [Indiscernible] to the home, even post

Brad Banducci

A fee you might charge the customers materially different. So actually to see direct-to-boot growth to close to 40% is really sparking and net tried off makes a big difference to the overall economics of our e-commerce business. But in terms of improvement, as Amanda said, menu-wise, we can improve it.

Amanda Bardwell

Yes, Brad, and it’s a hot topic we’ve talked a lot about with the WooliesX team and the [Indiscernible] team as well. So if I just start with customer, if I can, because, yes, we’re focused on direct to boot and so what a customer spends with us in that channel. But we’re also looking at the holistic spend of that customer both in-store and online and that’s really important in terms of then looking at the choices that we make and we take that all the way through the line down. If you look at individual contribution at a profit level of those individual channels and then make sure that we’re making the right choices in terms of how we’re encouraging and rewarding our customers to shop with us. So I think that’s a really important tenet of our strategy, which is all about customer loyalty.

When it comes to direct-to-boot there’s a lot that we can do is Brad [Indiscernible] points out and we have done a number of things in the last six months to actually really improve our ability to pick the borders, any stores. And so over the last six months together with supermarket, we’ve rolled out a new picking up, which actually optimizes the Half which team member walks around the city markets. We’re seeing some really encouraging very positive reductions in that bolt-on, which is great to see wholesale continued to improve the user interface for our tank just to make it a holiday, the actually a really hot Joel paying a personal shopper announced stores.

And so as much as we can do to help our team members operate in a faster and more efficient way is give them some great tips on the way through. We’ve also just improved actually, our product substitutions, which is always a hot topic. And you could imagine for our team, as they’re standing in front of the shelf. And we might have a product that’s not available, particularly over the last six months. It’s really hard for them to decide what product to substitute. And actually, we’ve just launched in the last three months, a substitution engine, which helps our team to actually look at a recommendation quickly and select that product. Lots more that we can do on the experience for our customers as they’re coming up to the direct-to-boot experience in our capex in terms of notifications and the like, we’re continuing to try and improve that. So I think we’re really excited about direct-to-boot as a means of driver of growth for that comments in the first half. We see that continuing on, and we can only just continue to focus to make it better.

Brad Banducci

But one of our biggest capital is this in the Hoff was actually growth and through Sorsby, our guest has surprised us, but more convenient, you might draw than they’ve authority to do. The more reason that you get with the customer and our new drive is another 69 rods. And that really does come to actually learn those drops, it takes, probably years training We could even execute the flood full of being a couple of years in the making. But actually, if you want to do direct-to-boot, 46 lines to call about customer service, and you need to be directly from our daily from a door and staging area that extends from a store into the car park. So we’re learning a lot. Continue to evolve, forming our strategy. But I said personally I always worried that we’ll be a 70% home delivery, 30% pick up business. We’re running 40-60, everything reduced [Indiscernible]. And may get better resonates with customers which [Indiscernible] hard on that materially, changes the blend of economics of what you are doing.

Operator

Thank you. The next question, from Ben Gilbert from Jarden. Please go ahead.

Ben Gilbert

Morning, Brad, and thanks. Second, just a question for me. Sorry. Just direct costs. Just following on from an era. Pre-COVID. I think you guys were still running probably heavier than your peers in terms of skill labor available as a percentage of sales, good live heads, etc. I’m just trying to think about when you guys sit around the management team and when you sit at the board level, do you feel that given the capex, if you put in and where you going to, you’re going to start pushing costs more hard. I mean, I know you don’t want to get back in the old days, we just have business for margin. But is there going to be do you think are more considerate markets are and trying to drive costs and bring that percentage cost down as next few years.

Brad Banducci

Yeah, thanks, Ben. Look, I think we’ve made no bones that the first half, we felt like we really drove our strategic agenda very successfully. But we didn’t get that balance back to our shareholders. We make no bones about that. We’re sort of kind of like a weird duality of all the things that we achieved, but then that’s nothing if you don’t also do the same for the shareholders. But we didn’t get the balance right and we do intend to put focus in getting that balance right In the second half. In terms of costs that we should be very precise on how we talk about the issues. There are investments that you’ve mentioned and new businesses where you [Indiscernible] and the cost of actually running your DCs stores, which are where the majority for us, about $8 billion [Indiscernible]. It isn’t there. And in those costs areas, we were very delivered in making decision, well, kind of daily making decisions, but very deliberately making decisions around the challenges in our supply. China, eventually commissioning the DC within the half-year, probably different times in DC and [Indiscernible] spend and so on. Not the ideal half to commission a lot of new supply chain assets.

As a fact, I think the replacement costs for legacy will look better in many years. Although we were very deliberate as we continued across this coming on the part to be a lot more forceful of making sure that we supported our 14th [Indiscernible]. And those costs weren’t supplies. That’s why we called them out [Indiscernible] and we kind of had hoped that we get through the worst across us, but its toolkit building and that’s one and they said that if you look on the go-forward, do we feel positive about our various Pulmonx improvement plans. I think we’ve, yes. Do we intend to be getting much more focus on implemented in the second half? Yes. Do we expect to see some benefits in the second half? Yes. And even more in Slide 23 times. We’re not getting ourselves below. This is the half way mark in the year. Maybe months in the year. I’ll try to make sure we do plan the year correctly and of course the other year.

Amanda Bardwell

If I can build on some of the DCs we have continued to focus on in stores and manage [Indiscernible] for the work we’re doing is going to improve peaking. And so we’re really try to use technology to make cost simpler for our store team, rather than just constrained costs. We’ve tried to as much as possible keep that work going, even throughout lockdown. So the online picking algorithm I think is a great example where we’re getting improvements in our pick rate, and making things much easier for our team, the walking distance in the stores is decreased for them as they take customer orders. After The lockdowns based in the half, we also launched [Indiscernible] planogram. So that’s replacing lots of black-and-white pieces with typo, with the sourcing to doing new category reviews. They now have a tablet where they can see what the shelves would look like, which most of us — the product with scaling up to purchase system towards Monaco, which removes manual temperature and particularly around product, like chicken, so again making it easier for the team. And we just started rolling out our electronic shelf labels, which again is a really significant segment for our store team. You can imagine the amount of work that goes into ticketing and how we would change over the catalogue every week. The electronic shelf labels now do that automatically and the team really loves them. So we’re building a lot of that technology through our [Indiscernible]. And as we’re confident on the technology, we’re also beginning to sell those up across the fleet. So there definitely were delays to many of those programs, particularly productivity initiatives that we rely on our supply chain colleagues to help us so that we are continuing to progress them to make sure that we continue to simplify our first stores and achieve productivity, but do it [Indiscernible].

Operator

Thank you. The next question comes from Tom Kierath from Barrenjoey. Go ahead.

Tom Kierath

Morning, guys. My questions on line on delivery. This year, on delivery on limited customer, a 130 bucks you guys delivered to me over a 100 times. I think I side $2,000. It’s a great deal for me. I guess the question is, It’s really on a great deal for shareholders just interested to know how in the future you are going to process for this and whether they are wise that you can — other than becoming more efficient, other ways you can actually charge more to reflect the high costs. So upon delivery.

Brad Banducci

Thanks, Tom, and it’s great to have you as a very regular customer. We’re done enjoy [Indiscernible] sent out. And we think it’s the right question, and I’ll let Amanda talk specifically to the investment remain in delivery unlimited, which was a very conscious investment. And while we saw the benefits, and just one point that leads me to point out is the cost for using problem in Australia is materially lower than Australia and the U.S. And it hasn’t gone up as the U.S. has. And in addition in Australia, not only to six months, $8, but you also get free deliveries from the U.S. So we are seeing a very aggressive investment by Amazon even today, in providence. Trying to say — everyone’s doing the benchmarks. Please use the Australian benchmarks, and you’ll see the sign benchmarks suggestion, look at the take rates on the marketplace. And so we’re seeing Amazon still invest materially into this market at the moment, which is in sharp contrast to [Indiscernible] as before, last week. But if I then come back to delivery on Limited, and this is obviously a scripts as you will see from our various competitors talking about their programs, I’ll just give you — I’ll let Amanda talk to — our logic and [Indiscernible].

Amanda Bardwell

Yes, thanks. Thanks, Brad. I think with delivery on limited, it is a really important part of our overall strategy. And again, it comes back to the same point I made earlier, which is we’re really focused on the total value of our customers and how we can grow their loyalty, grow their engagement with us overall. And ultimately, of course, increase their overall share of wallet. And so what we see when a customer signs up to delivery unlimited, especially if they’re still continuing to shop in-stores, and yet they spend more with us online, and over time what happens is actually, and we’ve been monitoring this for many years now, those customers increasingly spend more with us in terms of the total share of wallet. And we look at that not just in terms of the spend lines, but also all the way down to the profit end. And look to monitor whether or not at a holistic level, both at the sales and the profit, we are in a better position and our customers are positioned. Sorry, I’ll kindly just say yes, we have adjusted some of the offers for our delivery on Limited customers. It’s been incredibly well received. And what we’d say is significant increases in share. I think we are really satisfied with where that program currently is. I think we are at 60% increase in paid subscription. And a really important way of really locking in the loyalty customers for the future.

Brad Banducci

I mean, I’d also finish what — as with most of the things we talked about, we don’t need new ideas, we need to implement everything we’ve got, whether it’s productivity in stores, getting us up as always [Indiscernible]. The central issue, I think for every major retailer or retail ecosystem, how they provide a more cohesive, better experience for the customer across all the channels and variably, some form of, probably say, delivery plus whatever you want to — whatever you choose to put to us and actually set forth good and we’ve been looking for a long term, and that gets moved at all in a good way for us and very positive in the next month. Tom, if you’re brave enough and I’m brave enough, if you send me your details and give us approval to use your capital come back intangible [Indiscernible]. So why do we do that separately and hope we make some money.

Operator

Thank you. The next question comes from Craig Woolford from MST Marquee. Please go ahead.

Craig Woolford

Good morning, Brad and Steve just wanted to ask a question around the cash cost of doing business, I think in response to that earlier question, you mentioned that staffing and supply chain costs were up $350 million, I assume that relates to the food segment. An amount that’s about 7.5% cost growth. So rather than going about COVID and some of the indirect costs. So I’m just interested in what’s driving such a level of, let’s call it underlying cost growth? And just as importantly, what does that look like in the second half? Is it going to be that level of growth in underlying costs?

Brad Banducci

Yes, Craig, I mean, all these numbers becoming so complex in the environment we’re in. So I think just looking year-on-year and then look at the increase then just looking at that level has a lot of merit as we’ve told you. Before I look at what drove a lot of the supply chain costs for us in the half, it was partly driven by we were in the process of activating the whole [Indiscernible] spot and so we ended up with some split slots because it was supposed to be for activation. And so we ended up with drawing them from more than one site, which caused some inefficiency In the DC as well as it actually led to split flowed through towards quotation. So particularly true for us in Pretoria where we were transitioning children frozen farm America, Colton lineage, and with a lot of benefits. We were in the process of commissioning our new Melbourne Fresh DC. And then we were scaling up, which has gotten will MSRDC. So there were a lot of issues around using taken recites primary thoughts in efficiency there as well as putting loads and transportation as a benefit in that, of course, before the [Indiscernible] we’d done you had backup, and so there was there was a bit of a safety factor. Then there was the rebalancing up and down the Eastern Seaboard, as we have various issues in — left sort of almost [Indiscernible] all the way up to Brisbane, and at certain points would have the Brisbane DC service in New South Wales. And you would have [Indiscernible] servicing Victoria and so on. So you had this constant team up and down the coast. And then right into that was what range you put in your fast movers into your regional DCs, and your — Just let movers in your DCs. Get that bit out of a fix.

There was a whole range of those issues, and then you overlay on that split shelf, which means that you stop it before someone comes in and you rely on that Rapid Antigen Testing which essentially takes somewhere around 30 minutes before you go into a DC. For T-Mobile to have it, and you have a nurse, you have a test and cost you — has cost around $50, actually, any [Indiscernible] testers prices. And so that’s how you get low issues [Indiscernible] the DCs as well as, we’ve been working hard on our new warehouse management systems and transportation management. Kind of get the benefit. If you then get to the stores, you have the same issue of your productivity benefits as I started to come through. We had to slow down and pause those because our stores were getting under pressure having through absentee of recruiting new team members. But then through the load spin late, or coming the next day. And so just the whole way you fill the shelf has become very unpredictable, and team members around a whole ton, and then actually just in, that even take current Delta, but even when we got to Omicron, you have all this absenteeism in a store level and so you start shuffling team members from other stores into new stores and I think we had to onboard, it was a remarkable number, 50,000 team members in the first half of the year. The training, the inefficiency that comes through all that just to get you used to our business, settling to what they do, whether it’s in-store or in e-commerce. You can’t do that in Primary Connect in the same way.

So it was all those issue that collated us to do that. And we can compare it, we measure of course, as we should, items per label, our scan rates per minute, our cartoons moved per hour, and so on. But you just saw that all kind of come through and actually just sort of flatline for us which will be issue that. Is all of that stuff addressable. Absolutely. None of that stuff is structural. That’s a test to do with the stable operating rhythm. Once you get into some predictable rhythm. A lot of those costs come out. What we’re going to be quite thoughtful and how we want amount for our DC costs. I catalysts talk Brad, refinancing 1 day and then something happened pretty exciting you back into it. They just need to be careful on the way that you lad out. But our focus in Q3. Just a lot out of assets and that’s a lot out is underway, which is why sworn dissipated and continue to unwind as it should be very foreclosed on unwind. And if you get the [Indiscernible] diamond by Easter, which is an aspiration that’s the right position. Try to strong east, and that will be back in stock for each for but actually have a great Q4. But that’s where the focus is. Steve?

Stephen Harrison

We only do it by that, probably, the rise of e-commerce and the mix impact on our cost. If you look at it as an aid to a profitability level, actually mixed it, excellent improve the profitability in implementing the half. But in need of higher costs — cost us to channel for us, as it runs at pause and attribution themselves or a store. And so that mix impact is feeding into some of that high [Indiscernible] in store. If you just look at the [Indiscernible].

Brad Banducci

I think that’s fair. The balance between e-commerce growth and store growth has been out of whack. As you might imagine during the half, know I think is a very important factor. As has been a lot of the new team members we’ve recruited and planning to install picking. And it’s a lot to get into [Indiscernible] of doing that business, no doubt. By the way, the same issues that I’ve just described in Food, just looking at Care and [Indiscernible]. that on steroids [Indiscernible] Big W just so you know, what I call it out as much, that it was a bigger issue there as it was in Food. And actually we had similar versions of issues [Indiscernible] pushing [Indiscernible] into December that’s really putting even more pressure into that. And we haven’t quantified, but even the cost of commission in our new meat plant [Indiscernible] rates that is in the CODB [Indiscernible]. We haven’t pulled out the commissioning cost of Heathwood [Indiscernible] completing the stand-up of Auckland Fresh, but all of these costs are in what I’m talking.

Operator

Thank you. The next question comes from Ross Curran from Macquarie. Please go ahead.

Ross Curran

Hi, team. I’ve just got a question around inflation. So New Zealand seems to be a bit ahead of Australia in the inflation journey. Can you talk to us through how customers are reacting to inflation over there? Are you seeing adjustments in the basket? Are people preferring to shop own-brand, trying to reduce the cost of groceries themselves or how is it playing through?

Brad Banducci

That’s a great question? What inches of diet and particular rise review team really prepared for the Omicron spot, which is a well-documented delay. in New Zealand. But Spencer Sonn, navigate the questions are hopeless. Lot, lot hasn’t fully increased. [Indiscernible] having been out looking a high inflation environment, we looked throughout the hour treatment. We all can remember it, but it sure is long-term ago that we’ve operated in. We need to challenge all of our assumptions, actually promotional models of a massive issue, because you should think is, but I’ll let Spencer see if there’s any color that he can give to the [Indiscernible]

Spencer Sonn

Yeah, I absolutely, Brad, and wonderful to get a question for Stephen. So thanks very much for that term. Maybe just a little bit of background. We saw inflation hitting up or starting to edge up a little bit before Australia, so around about September, October, we started to see inflation moving up to sort of 3%, by December it was at 4.3 PD to-date. We had 3.3 currently, as I think you’ll know, CPI in New Zealand is at 5.9 and on a year-to-date basis, our inflation is at about 4.8. All effects are the same ones you would’ve heard on the call today, be driven by cost pressures on material wages adverse wager with our particular reliance on supply chain. So, all of those playing through and of course. We, therefor as a team have to be acutely aware of how we are offering value in this market. And so it’s the same focus is that you’ve heard in particular, just a guardrails we apply to our pricing, relative to our competition so very rational process in terms of how we’re working with our suppliers, how we flowing those price increases through to shelf.

Of course, when they are justifiable, we have to flow them through for our customers. But it’s making sure that we keeping a good between all of the matrix and offer our customers are all of the mechanics that are throw our customers good value. Guys, Vice President, which reflects about see thousand skews and ah, promotional program. And our rewards program. So I think from a customer dynamic and behavior perspective, we said we are seeing more and more through our Customer scores, customers focusing on value for money being, being, being a challenge for them in amongst all of the other cost pressures that it’s not only the price of food. And so it’s something that we’re going to stay acutely aware of. I think that competing in this market, as many of you will know, that is singularly focused on price as a single-minded proposition in the marketplaces keeps us honest. And that’s a good thing because that means we will have to stay very focused on offering the customer the best value that we can.

Brad Banducci

Thanks, Spencer. You know, Ross, in Australia, [Indiscernible] too early really, to call a particular trend at this stage in Food. I would say by the way, this is minimal mechanics. And if you look at protein, affordable protein, while we’ve got beef and lamb, records that [Indiscernible] we’ve actually seen the meat — a softening on price increase in pork can certainly, [Indiscernible] protein as well-priced. And actually depending on supply issues, actually we think protein is becoming more affordable as well. So if you look at the protein for example, it’s not only — we know the price in for all those categories is the ability to — for customers to credit across protein categories, which is — which we think is an important way of delivering value for the customer and not necessarily margin dollars upfront. So we’ve got to think very thoughtfully and carefully of our segments by how we wanted to fund the category and what the consumers are looking for and that what solution that they are looking for. But I think that we’re cool [Indiscernible] ahead of us.

Operator

Thank you. The next question is from Bryan Raymond from JP Morgan. Please go ahead.

Bryan Raymond

Good morning. One is just on the gross margin line. I just noticed a comment in there, in [Indiscernible] just going to hear how you’re managing the current inflationary environment with price increases? Are there opportunities for Woolworths to take some price along with the long side supplies or is there other factors that are contributing to that comment in there that’s driving margins up quite a lot on the gross margin line? Not for the sustainability of that price in gross margin and gross. Thanks.

Brad Banducci

Thanks you Bryan. I know you didn’t mean to. Give me the commission to talk about Tobacco, I think it’s very important to log that one of the reasons our GP percentage went up was the 22% decline in Tobacco ourselves and saw the Group, which actually cost us in the order of $80 million dollars of somewhere between EBITDA and GP, depending on how you are Sonn costs Tobacco. Some of our percentage increase in GP line is actually [Indiscernible] the business. But the thing worth mentioning, we’ll call it out on us, but there wasn’t $90 million hit which we talked about because of earnings downgrading in December. Actually, we’re starting to see they’re stabilizing now, which is positive in thought up business, but it wasn’t material change when the CPR adjustables that we flowed through in to Cuba and quite a painful reciprocal.

Part of our GP increasingly based on that, in terms of better buying, we’re always engaging with our suppliers, this will grow on, and any increase and trying to look at the absolute numbers and see what we can get it down to through credit in a more efficient businesses agreement with the supplier. And for every dollar increase that we get it really, we came to take somewhere between 50 to 70 [Indiscernible] hit it and hopefully where it does, we try to work where we can’t put the true to the consumer predictive. That’s a lot in the context side. We’re always working through that process to [Indiscernible] and get the right thing done. And it very be one of the things we’re always interested in is where the promotional program that we’re running with the supply is actually delivering what we needed to, whether we can re-purpose some of the promotional monies into just been every day process. And I’ll take the supply. So those comments will allude to those contents off things that are tied tonight, things that we’re doing more with a continuing to do. I’m always very worried with scores, but actually, I’m pleased to report that at the end of January, we just saw our best score and voice of the supplier from our supply partners. So it feels like our team did a good balance on managing that. That’s a very serious, very difficult issue that That’s the page clear we bolted.

Amanda Bardwell

I want to also add, I think the work we are doing, we [Indiscernible] retail, and really using data insights. It’s really helping here, so segmenting our store’s value core up and making sure we get the right range into our UP stores. So our customers are finding the products they want. And if I use coffee as an example, more space on the shelf for more range. In ground coffee, local coffee, capsule. And then in a bag in-store, we have waiting, the space and arranged much more towards instant coffee and that’s true as well as to how we are thinking about the promotional end. So we are really moving 10% to 15% range differentiation from our value and UP stores.

And that means that premium customers are finding the products that will keep full that we’re also managing stock costs in these stores and really promoting those products that have that looking forward, say that’s definitely helping. As I next-generation promotional insights really mix so that we’re optimizing at the money that ourselves and suppliers are investing.

Brad Banducci

But some of that solution, we invested materially with the partnership with Quantium in each one that’s a credit and analytics road-map. We’ve been lucky enough that Ametek will join us as our Chief and Luc mentioned already, acute retail. And the number one huge case of the team has been working with, it’s been rebuilding up promotional program in partnership with that over to markets that are leaning into support topic WN obviously that was the case. And we’re really thought about they’ve on SEM pool hall current and how people see some of those Morgan, Andy. Thanks to what to be positive about. But when you look at the percentage mix, don’t forget about the tobacco, Bryan, sorry to go come back to it. I wish I wasn’t but it’s a major issue that we’ve talked to you, but it’s significant for us healthy with the GPM

Amanda Bardwell

Tobacco as well as some COVID mixed benefits our customers are switching for into category [Indiscernible].

Operator

Thank you, the next question is from Shaun Cousins from UBS. Please go ahead.

Shaun Cousins

Thanks and good morning. Just regarding gross margin, could you just talk a little bit about where stock loss was in Australian Food? And I think you highlighted that the full-year result, it was less than 2.5%. Where do you expect stock loss to get to, particularly given some of the technology initiatives that you’ve got in place to optimize that? Could we be looking at 2% or possibly even a sub 2% stock loss, once the operating environment turns of something a little bit more normal place?

Brad Banducci

Yes. Thanks, Shaun. Well, I think that worries me about our total performance, which has been impressive is that a smart just being driven by the elevated sales events through the store and therefore, it pops back up when sales go up we will [Indiscernible]. I mean particularly, I think it’s on the basis on the message over the anxious about procuring ourselves to a [Indiscernible] process. The best we can tell our performance of the stores has been driven actually by a very good process and all the controls we’ve put in place across the business. I’m hopeful that that’s not our risk. But your point therefore, improvement opportunities.

We think about Fresh and long amount. Fresh’s total running maybe $4.6 million loss, [Indiscernible]. And so we’ll continue to work through those as go forward and improve them. And there’s a lot of great initiatives on way, again, using — we’ve done some things with our welcome guidance and how we think about the store, but increasingly using technology, how you think about markdowns in Fresh. How you think about flow in Fresh. And then otherwise we can use technology around at our front-end and [Indiscernible] distribution and so on. So we don’t want to have a plant. We feel like we’re in a good spot to keeping — to make sure we continue to improve the [Indiscernible] spark and when sales maybe sort of normalized.

Stephen Harrison

Brad, it was broadly flat in the half, and stayed sub 2.5%.

Brad Banducci

Which is good. I mean, we see so much better than that. Of course you want every store to be a tough quarter. It’s in the right place.

Operator

Thank you. The next question is from Phillip Kimber from E&P. Please go ahead.

Phillip Kimber

Just a quick one from me. the P&L tax rate looked at lot of silver and 25%. Was there — I wasn’t sure if you commented on that somewhere in the release. Or if you didn’t if you could just explain why? Thank you for getting the question. I’ve been waiting for the last 3 hours.

Stephen Harrison

Thanks, Phillip. It really just relates to tax provision turning to season last few weeks, we’ve taken some considerably savings on the ability to call on the demerger and provided the state wouldn’t be deductible, it fit out as we would through that prices that they were and so we think we just have a tax over provisions from the prior year reversing, are you thinking of a permanent difference. Just that’s having you.

Operator

Thank you. The next question comes from Scott Ryall for Rimor Equity Research. Please go ahead.

Scott Ryall

Hi, thank you very much. I was wondering, in terms of the out-of-stock items, I think, Brad, you spoke about this a little bit, but I was wondering if there is a meaningful difference in performance between New South Wales and Victoria, given the different supporting infrastructure. I was wondering if you could make some comments, and if you’re not seeing big differences, why not?

Brad Banducci

That’s a great question, Scott, some flagship Product myself look into all the numbers that our core Luc, mainly because the first half of H1 was challenges in New South Wales have mid actually had slipped into challenges and Victoria, so we caught up as we felt the growth New South Wales in a bit of price and we. And that’s when we started to see the challenges in Victoria and they struck out some out of stocks, by the way, has been variability so I remember at the heart of the cross since October royalty to Victoria had a look at the stores. And you can go to one store that was right. And you got to the next one. It was putting it all has to do with what warehouse service is and whether the load was light on that particular day or not. So it is very noisy.

I would say when we get Victoria into the right rhythm, it really works for us. But we’re still back in to get into that right rhythm. And we have one of our most experienced operators and all [Indiscernible] managing, into in-stock [Indiscernible] coordination across our supply chain, and our stores in Victoria. And when it works, it works. But it’s still — we still kind of a got a few hoops to go through. But I don’t know on that for a few quarters, better on-site.

Amanda Bardwell

Look, I think it’s changed over time depending on the circumstances, and they’ve been thinking back to January thinly on the front ways in Sydney, and now Sydney had a say, first, out before then moving into Victoria insight, I think now Victoria. And Brad mentioned the entry to all out-of-state team in general are having twice the data and look forward to really react to what’s happening every day, get different dynamics in different states. In Victoria, we had issues before Christmas on truck drivers’ availability, which we worked through, so I would say in general though now, if I look at details both in Victoria, both states are very similar in terms of their recovery and getting back towards normal levels of book-in-store, with a recovery in certain categories like toilet paper and protein come over the course of March. Queensland is beginning to catch up as well. And then WA.

Brad Banducci

But Scott, I was in Victoria last week, in our physical stores, [Indiscernible] change over time, [Indiscernible] bad time anyway. Some of the loads were late and it put the stores, just opportunities there. So it is patchy. That’s why we just want this predictability. When we get it, our business works. We will get the efficiencies we want. We will deliver outcomes and win for our shareholders, but still a little bit patchy, it’s getting a little better, but these things are still happening.

Operator

Thank you. Unfortunately, we’ve run out of time for further questions. I will now hand back to Mr. Banducci for closing remarks.

Brad Banducci

Thank you, everyone, for your questions today. We get the issue on not delivering what we want to spot for our shareholders. We talked about in December. We accepted, we understand the words to taking costs, whereby, such are with confidence with our colleagues on the momentum we had in January, the momentum we’ve got in December and January, the customer isn’t it [Indiscernible], habits I look through doing the right thing. And actually the trust and support of our team and how we just want to do the right thing as well, and able to [Indiscernible] and making sure we do the right thing for them to show who we are and we look forward to coming back and reporting Q3. And of course, for your [Indiscernible]. Thanks very much.