Good morning, welcome to the Sainsbury's Q1 Trading Statement 2021/2022 Analyst Q&A Call hosted by Simon Roberts. I will now hand over to your host, Simon. Please go ahead. Thank you. Well, good morning, everybody. I want to thank you for joining us this morning to talk through our quarter 1 trading statement, which covers the 16-week to June 26th. I'm joined this morning with Kevin O'Byrne, our CFO. I'm going to give a brief summary first, of course, we'll be happy to take all your questions. The webcast will show the slides I'm going to refer to over the next few minutes. Just in case you've dialed in by phone, we've also sent those around by email this morning and also available on the website. I hope everyone's got the slides to hand. Okay, turning to the slides then. To begin with, of course, I want to thank my colleagues for the brilliant job they continue to do in delivering for our customers. As we said in the statement, sales have been significantly ahead of our expectations across grocery, general merchandise, and clothing. We put more grocery volumes through our business this year than we did last year when we were dealing with panic buying and of course, the first lockdown. Now, this has taken huge efforts throughout the business, particularly in the light of some of the well-known challenges through the supply chain. As well as thanking all of my colleagues, I'd also like to recognize the great support we continue to receive from our suppliers in keeping products available for customers despite the demand and logistics challenges that are out there. Turning to slide two, whilst the strength of our grocery sales is in part due to a stronger market, it is also a reflection of the work we've done to improve all aspects of our customer offer and the very high standard of customer service we're now delivering both in stores and online, which alongside the improvements in value and product innovation, is really driving some encouraging market share gains for us. The result of this was a retail sales growth, as you can see, of 1.6% or 10.3% on a two-year basis, which was ahead of our expectations. Grocery sales were up 0.8% year-over-year and up more than 11% on 2 years ago. We've been seeing a really good response, really good customer response to the investments we've been making, particularly in value, innovation, as I say, in customer service. I'm really encouraged that we'll be able to use some of that quarter one sales outperformance to accelerate investment in the customer offer and bring forward investments we'd originally planned for next year. In particular, as you'll have seen, we announced yesterday an additional GBP 50 million of price investment, which is focused on the center of the plate and on the everyday essentials that really matter to our customers this summer. Now, in addition, we stated today that we expect underlying profit before tax this year to be at least GBP 660 million, having previously signaled our comfort with prior consensus at around GBP 620 million. Overall, I think we have a good balance between flowing through some of that revenue benefit to the bottom line and clearly reinvesting to keep on improving the customer offer in line with our Food First strategy we laid out in November. Turning to the next slide, to slide three. Looking at this slide on sales growth and working across the chart, you can see here that grocery growth is up on the year despite the very challenging comparative period, which does reflect the ongoing strength, I think, of both the grocery market and of course, of our market share gains. Argos sales were down against the extraordinary period, of course, last year, driven by the first national lockdown and the very good weather we had this time last year. We're ahead of our guidance of sales being in line with 2019/2020 as a base. Beneath that headline number, we've seen some very encouraging growth in areas like home and furniture, offset by declines in some categories that performed exceptionally well during the first lockdown last year, such as laptops, office furniture, and outdoor products. As you can see, sales of General Merchandise and Clothing have also bounced back strongly in Sainsbury's stores as transaction numbers have recovered. We're also particularly pleased with the clothing growth, as you can see, against a relatively strong performance last year, winning market share here, even as some of the competitors have reopened stores fully for the first time. Turning to the next slide, you can really see here some context as to what's changing in the grocery business. When we look at this slide, it shows a very gradual but clear normalization of in-store transaction and basket spend levels. Now, this is something that we expect to continue as restrictions ease further and customers spend more time eating, working, socializing, and having holidays outside homes and time outside the U.K. We're not expecting the exceptional benefit we've seen to grocery sales to continue into the second half or into our next financial year. Turning to the next slide in continued growth in digital sales. This really shows the shift digital sales has been versus 2 years ago, even as we've been able to open and reopen other stores and more customers are returning to supermarkets with online grocery participation slightly down on peak levels, but still, as you can see, significantly higher than in Q1 last year. We would expect some further gradual change as customer habits normalize, but we are adapting really well and delivering, as I say, strong customer service online and in stores, and we're making sure too, that we deliver that efficiently. Turning to slide six, we committed that we would consistently show you the same market share metrics every time we report. I'm really encouraged by slide six, because what it shows is our volume growth versus the rest of the market over the first quarter. It's, I think, a clear demonstration of the progress we're making with our Food First strategy, showing that in Q1, our volume growth on both a 1-year and 2-year basis was not only ahead of our superstore competitors, but also ahead of the market in total. This demonstrates how well customers have responded to the better value, the innovation, and the customer service that we've been delivering. It's early progress, of course, as we execute against our Food First plan, and we still have much to do, but we are encouraged by the strong momentum we're already seeing across fresh food and across grocery too. Now, turning to the next slide, looking at customer satisfaction. You'll be familiar with the format of what we're showing here, and it really highlights the customer satisfaction against our superstore competitors. For us, this is really fundamental because as we come through COVID, we've seen that the core service attributes of availability, colleague friendliness, and speed of service are even more important to customers. In Supermarkets, we've improved quarter-on-quarter and grown our lead at the same time versus our key competitors. In April, I said that we have more to do to improve the online customer experience, and again, as you can see, we've made a good step on here as order numbers have normalized, and we've moved back to further improve our position at the top of the pack. We, of course, at Tu have been very focused on safety throughout, and we continue to lead the industry on safety too. Turning to slide eight, slide eight really is an update on what we showed you in April, demonstrating the further progress we've made on our pricing position versus Asda. We're very focused, as you know, on the center of the plate products that we know really matter to our customers and where we know we're generating particularly strong and good halo spend elsewhere in the basket. We've made this week's announcement of GBP 50 million worth of price investment in key products like seasonal soft fruit and meat, fish, and poultry lines against the backdrop of the strong customer response we've seen from this initial price investment activity. Versus Tesco, we're flat on the quarter and continuing to make progress over the longer term. Just to be clear, we're comparing ourselves here with a Tesco basket that assumes 100% Clubcard prices penetration. Turning to slide nine. I know there will be, of course, a lot of focus on what the new normal looks like for online grocery. As the chart on the left shows, customers are beginning to return to more normal shopping patterns as restrictions ease, with online demand reducing gradually from peak levels and transaction numbers increasing in stores. We are really well-placed to serve customers whatever the balance might settle at, and we're encouraged by the number of customers who shopped online with Sainsbury's for the first time during the pandemic and who've now gone on to become loyal customers shopping online and in-store. Looking at the chart on the right-hand side of this slide, we've been clear that there will be some online cost headwinds as order numbers reduce. We've also said that we expect store pick rates to improve, and that's clear from the top right-hand chart with item pick rate per hour up 42% year-on-year and up 11% on 2 years ago. This, of course, has a significant benefit to online operating costs. Turning to the next slide, this really demonstrates the fundamental transformation of the Argos business. Argos stores were reopened early in the quarter, but the shift to online ordering has endured with 90% of sales starting online. We've made further progress too with the Argos estate, with a standalone store count now down to 387 stores from around 600 at the start of the pandemic. We actually opened our first local fulfillment center in Bristol last week, and this is the first part of a network that will transform the economics of rapid fulfillment and improve the speed and breadth of product availability for customers. Turning to the next slide on our key priorities. Well, we're only 4 months into the financial year and of course expect a lot of change in the months ahead. We do feel we're making good early progress on the priorities that we set out in November. With food customers noticing and responding well to the progress we've made on value and innovation, we're well underway with the Argos Transformation Plan and the Bank is in good shape. We've also got better visibility and confidence on the cost savings that are helping fuel improvements to our customer proposition. Finally on slide 12. Well, I committed to come back to you every time we speak on our key metrics. On the operational metrics first, well, I'm encouraged, we're encouraged by our grocery market share performance on both a 1 and 2-year basis. One of the drivers of that has been our customer satisfaction, where we're improving year-on-year and importantly, extending our lead versus key competitors. As you know, we outlined our plan for better commitments last month. With the launch of Helping Everyone to Eat Better, we've now fully integrated that into our customer plan and our customer communications. We'll, of course, update more on the financial metrics with our interim results in November. I'm pleased that we've been able to upgrade our guidance today. Really more than that, I'm delighted that we've been able to use the benefits of our sales strength to reinvest faster in the customer offer than we'd originally planned. Just finally to say, our team right across the business are very focused on the important summer months ahead and on showing that we continue to deliver the best grocery experience for all our customers. Of course, it's early days in the execution. As I say, Our Food First plan, but we're in good shape and there's great energy, focus, and momentum in the business behind what we think we can deliver next. Thank you for listening as I shared those slides, and we'll now open up the call for your questions. Thank you. If you do wish to ask a telephone question, simply key star one on your telephone keypad. It's star one on your telephone keypad to ask a question. Please stand by for your first question. Your first telephone question comes from the line of Andrew Gwynn, Exane. Please go ahead. You're live on the call. Good morning. Good morning. Morning, Simon. Morning, team. Yes, one question, actually, but covering a few areas, but really around disruption. Obviously, you flagged in the statement some of the disruption we've seen in non-food. I'm wondering if you could also cover off the HGV shortage we've been reading a lot about. Secondly, the Brexit and Northern Ireland, just where we are in terms of latest there. Thank you very much. Thanks, Andrew. I'll try and give you some context on that. I think couple of important things to say. Clearly, there's a number of factors at play here which is making supply challenging in some areas for retailers. I think, the key point is that our team are working really hard, both up within the supply chain with our suppliers, with our key partners, to make sure we keep flow of goods moving really well in the circumstances so we can get product on shelf for our customers. You can see in our results today that our availability performance, particularly, we're really encouraged by. It's challenging. We've got a high level of demand, but the team across supply chain logistics, retail, every part of the business in all of our relationships with our suppliers are working really hard to keep driving that. I think the industry has stepped up a lot, hasn't it, over the last 18 months, and we've learned a lot and achieved a lot, and we've all really come together on these challenges, and that's exactly what's happening right now. Of course, there are issues well documented in terms of HGV drivers. As I say, the team are working really hard to secure the best support we can. We have in-house logistics in Sainsbury's, which is important in terms of being able to be sure of between depot and store of our capacity, but the supply chain issues further upstream are ones that we're focused on. On Northern Ireland, to your second point, well, I'd say two things here. The first thing is that we continue to work closely with the government and the industry to find solutions. We would urge the government to find solutions that, of course, can help simplify the border requirements, particularly in terms of the cost and complexity there. We're working really closely with our suppliers to make sure that customers can get the products that they need. You'll be aware that we set up a local partnership in Northern Ireland with Henderson Group. That's going well. Across our 13 stores in Northern Ireland, the combination of what we're doing with our suppliers, how we're moving goods into Northern Ireland, and the support we've got from our local partner there means that for the largest extent, we can still provide good availability. We're working hard on this. The teams are working very hard to maintain availability. It's not straightforward. As I say, lots of focus on making sure we can simplify the border requirements when, if that's possible. Okay. That's all very clear. Do you think we're sort of past point of peak disruption, say, in non-food or in the Northern Ireland situation? Yeah. Thanks, Andrew. Maybe a little bit on the non-food side, giving you some context there on food. I think on the non-food side, clearly there are some challenges, particularly given from a global perspective. Supply chains are under a lot of pressure. That's the impact of lockdowns in India particularly. A lot of challenge on container availability, raw material challenges. I think these issues on the General Merchandise and Clothing side will continue. We've described that through the remainder of the year. The combination of the supply chain challenges alongside the level of demand we're seeing means that every stage of the supply chain is under pressure. Again, the team are working really hard to improve availability as far as we can. I think as far as we can see, everyone's on a level playing field with this. Everyone's working hard to improve it. It's challenging on the non-food side and we're working through it. In terms of Northern Ireland, I think, as I say, we're working hard industry and government-wise to effect the positive momentum that we need, and we'll continue to do that over the weeks and months ahead. Okay, great. Thanks very much. Thanks, Andrew. Thank you. Next question, Clive Black at Shore Capital. Please go ahead. You're live on the call. Hello, Clive. Good morning. Morning, gentlemen. Very well done. A start at the end of the first quarter. One question from me that follows on from Andrew Gwynn's, actually. When one speaks to people in the supply chain, they are seeing enormous inflationary pressures across the board, really. I just wondered how you're managing and potentially mitigating that in grocery and non-food, please. Thank you. Thanks, Clive. To speak a bit on some of the inflationary pressures, as you say. I think I'll come back to our price position in a minute. I think overall, absolutely, there are pressures, particularly on freight, particularly on logistics, containers. That's definitely the key point of challenge in terms of where we're seeing inflation come through, actually in some of the product categories. We've seen a bit of deflation in the quarter, particularly on the fresh side. Exactly as you say, high demand for movement of goods, that situation's continuing to intensify, demand is higher. That's why our trading teams, our supply chain teams, our procurement teams are really close to this issue. As we've seen this elevated level of demand come through the first quarter, ahead clearly of what we expected, it's one of the things we're having to adapt and move fast on, particularly when we look at over the summer months with a combination of all the sporting events happening, high levels of demand, staycation in the U.K. There's more challenge ahead here we're going to have to work through, Clive. Is there productivity initiatives you can go above and beyond that you've talked about to- date? As I say, we're waiting for inflationary pressures to come through on the shelf side specifically. Yeah, if we talk more broadly beyond freight and logistics impact, as we've talked, and I think when we look at what we're seeing on inflation in the first quarter, the first thing to say, and as you've heard in my opening comments, we're absolutely committed to strengthening our price position relative to our competitors, and we're really seeing the benefit of that. We enter this period with our relative competitiveness at some of the best levels we've seen, and that's clearly an important part of our customer offer as we go into a potentially higher inflationary environment. That being said, in the first quarter, we've seen some inflation in some categories. We've talked about some of the commodity areas that are driving that. As I say, too, in some of the fresh categories, and actually the areas where we are investing more of our price investment, we've seen some deflation. That's quarter one. As you say, I think it's pretty well trailed that inflation pressures are building. That's why we are very focused on our cost saving program. When I think about all of the activity we're driving through, we're encouraged by that progress, Clive. We've committed, as you know, to reduce our cost of sales by 200 basis points over the cost of our plan. The team are really focused on the key programs in year 1. That's about the Argos transformation, and that's about the work that's happening in our supply chain logistics area. All of this is about making sure we can mitigate our cost headwinds and continue to invest in the offer. I think if I was to sort of pull this back up to the key point, our first quarter trading results show the COVID impact in the market of demand, clearly. They also show that we've grown market share because we've improved our value and we've improved our offer in food, and that's one of the things we're determined to keep finding the fuel so we can continue. Well, thank you, Simon. Again, very well done on a cracking Q1. Thanks, Clive. Next question, Victoria Petrova, Credit Suisse. Please go ahead. You are live on the call. Morning, Victoria. Good morning. Congratulations on good results. I have two short questions. First is obviously there is a lot of discussion around potential sale and leaseback schemes and overall interest of retail real estate in the industry. You own around 50% of your real estate and land. Could you please remind when was your last sale and leaseback deal and what yield was implied in it? What is your view on your real estate overall, just in the context of an increased overall interest? My second question is there is probably an ongoing sort of privatization in the sector. Do you see any additional challenges, assuming you stay as a listed independent from private equity company? Do you see any challenges if one or now two of the big four are private and are put under less pressure in terms of immediate results outlook, in terms of potentially pricing, et cetera? What's your view on that? Thank you very much. Victoria, thank you. Look, Kevin, do you want to take the first question and I'll come back to the second one. Kevin. Sorry. Our property, if you look at our supermarkets, if you look at the percent of space, we own about 57% of the space. It's about 53% of the stores, 57% of the square footage. We have no plans to do any sale and leasebacks. Our focus on free cash flow and cash generation is focused on underlying cash generation from the business, not sort of financial engineering to generate cash. I can't remember when we last did. We certainly haven't done a sale and leaseback in my time in the business. We have no current plans to do them. Thank you. Thanks, Kevin. To your second question, I think, as you say, a lot of interest in the sector, of course, and a lot of moving parts. I'm just going to focus on where we are in our business. As you know, we set out a really clear plan in November, which is focused on the core value creation priorities of Food First, brands that deliver, and safe to invest, underpinned by being really connected with our customers and our plan for better. Victoria, we're really focused on delivering this plan. While the context of the market is clearly focused on an industry that's been undervalued over a period of time, supermarkets, strong assets, a lot of strong cash generation, I think our job is to deliver that plan. I hope the results that we're sharing with you today show the momentum we have in the business by focusing on the execution of these key priorities. We committed to improve what we can do for customers and what we can do for our shareholders. Whilst there's a lot of speculation going on that I'm not going to comment on today, the team and I are really focused on delivering our plan so we can drive the value and do an even better job for customers, and that's where we are on it. Thank you very much. Thanks, Victoria. Next question, Nick Coulter, Citi. Please go ahead. You're live on the call. Hello, Nick. Good morning. Morning. I have two questions, please. I'll go one by one, if I may. First on Argos. Could you talk about the growth rates for categories that weren't in super normal growth in Q1 last year? I'm interested to get a sense of whether year-over-year underlying market share is building or falling now that everyone's stores are open, please. Sure. Let me just try and give you some color on that. I think overall, you'll have seen in our statement that Argos sales were up 6.7% over two years. The first thing to say at the headline level is clearly we're encouraged by that, and that's a bit ahead of what we've expected. You'll remember in our guidance that we planned for flat sales through the year on 19/20. As you say, the shape of the performance by categories varies a lot given the impact of last year's lockdown. The area that we're seeing particular growth in is in the home and furniture category. Furniture is up against last year, driven by strong performance in all of the subcategories of furniture. We're also seeing strong performance as we further roll out the Habitat brand and the products that go with it. Home and furniture would be a strength. On the other side, we saw really strong sales in the seasonal areas last year. Two factors there really. One, just the fact that clearly in lockdown last year, that elevated demand. Secondly, I think we had six or seven weeks of just brilliant weather through this period last year, which clearly, let's hope it's going to change soon, but hasn't anniversary this year. There's a compound impact on some of the seasonal areas that just have been impacted by those things. In the consumer electronics space, again, a lot of demand last year driven by all of the obvious customer behavior that really resonated through the first period of the lockdown. They're the key moving parts of the Argos performance. I come back to the headline guidance here, which is we planned for flat sales in the year. We were 6.7% up on the two years. As we talked earlier, there's a bold and big transformation plan in the Argos business this year. Actually profit delivery is primarily driven by that cost transformation program and by the tighter promotional stance we're taking in the Argos business. That's where we are. Do you think underlying market share is sticking or are you gradually ceding some of the gains from last year? Obviously, the scenario is way better than you initially anticipated. Could we get a sense of your best guess as to how that goes forward? It doesn't feel like everything's just going to drop off a cliff into H2 for you. I think, as we've said a number of times over, we're prudent about the second half in Argos because, of course, we did have a particularly strong Christmas and we had a very strong quarter four. You'll remember the quarter four performance that we'll anniversary was strong too. I think just the two key points I would make here is the first thing is that the reopening phase, we're still relatively early into that. I think customer behavior is still normalizing. It's quite a gradual normalization effect, so we're not seeing the full work through of that yet. The second issue is, as we've talked, there are some challenges on the supply side, which is impacting our availability in Argos at this point in time. Whilst we've grown 6.7% on 2 years, whilst we're seeing growth in home and furniture, there are areas of the product offer in Argos where the availability isn't where we'd want it to be at the moment. It's challenging, and that's holding back some of the sales, and we see that situation continuing through the remainder of the year, but beginning to improve as we get further out. The other point I would just make on this, which I think is just worth adding, is that we do think customer spending will be more cautious as we get into the second half too, and that's one of the reasons why we factored in this flat assumption on 19/20 sales. Kevin, I think you want to add. Nick, the only build would be if we looked across the share over the 2 years, we're happy with consumer electronics, and that's obviously an important part of the business. Lost a little bit of share in some of the large domestic appliances, but very small. We've intentionally reduced our focus on toys, so that's a conscious decision. We're gaining share in things like sports, leisure, et cetera, and we're very pleased with the share we're gaining in furniture and home. Yeah. Thanks. Perhaps if I could just ask a question, I'll come back to the issue of leverage. I guess events away from you both with Asda and Morrisons suggest that some folks think that the U.K. grocery sector has evolved a little, perhaps to be more predictable and perhaps suitable for a higher level of leverage or directionally higher. It would be great to get your nascent thoughts here, both on the predictability and then directionally on leverage. Do you, seeing events away from you, think incrementally you need to pay down more or pay down less before you start returning cash? Well, Nick, I'd probably start by saying this is a trading statement, so we'll probably give you some more considered thoughts at another time. Look, we've got clear net debt leverage targets, as you know, net debt to EBITDA less than 3 x. We feel this gives us the right level of financial flexibility in a changing market. We have a responsibility to manage this business for the medium term for all our stakeholders. That's shareholders, it's our pensioners, it's our colleagues, et cetera. We need to ensure the business is resilient, not just for now, but for decades to come. Maybe the other point I'd make is we're also very disciplined about our free cash flow generation. We think this business should generate at least GBP 500 million a year free cash flow. That free cash flow is for shareholders. We're very clear about that. We're pleased with the progress we're making. I think the appropriate time to probably update on the targets is on the next steps is when those targets are met. We'll talk more about it at the right time. That's helpful. Thanks so much, guys Thanks, mate. Cheers. Next question, Rob Joyce, Goldman Sachs. Please go ahead. You're live on the call. Hello, Rob. Good morning. Hey, morning, Simon. Morning, Kevin. Thanks for taking the questions. Just two from me. Just in terms of the GBP 660 million, you sort of said that's at least GBP 660 million. 2-year stack on grocery around 11% in that first quarter. What kind of 2-year stack number do we expect have to see for you to hit the GBP 660? Can we think about how that might flex? The second one, sorry to harp on about inflation, but I guess two things. The industry data suggests that, as you say, we're into deflation and maybe some of that input cost isn't being fully passed to the consumer. Outside of your own investment programs, is there any sense that the consumer isn't willing to accept inflation if it's passed to them? Do you anticipate this being more of a concern if inflationary pressures build in the second half of the year? Thank you. Rob, thanks. Maybe Kevin talks to the first question, and I'll come back on inflation in a minute. Kevin? Rob, one thing we'd say is we can't assume that the demand would remain as strong as this. We think this is a first half effect. I've been all my years in retail. I don't think I can remember a time when it's been more challenging to forecast what's going to happen in the coming months for a number of reasons, whether it's consumer demand, availability for all supply chain issues that various people are talking about. Do we have further lockdowns? What consumer reactions there might be. It remains very challenging. Our best imbalance view at the moment is for at least GBP 660. We're budgeting cautiously for the second half for some of the reasons I've said. I think that's probably all we can really say on the outlook. Thanks, Kevin. Just trying to pick up a couple of points you make there, Rob, on inflation. I think two things. I think as you said, the level of impact in the first quarter as being broadly flat. We've talked about the areas where it's been a bit up and a bit down. As you say, I think it's pretty clear that inflationary pressures will flow through. I think two things to say, as we've talked this before, I'd expect the industry to respond rationally to that. We start in a stronger value position relatively than we've been before, our intention here is absolutely to be committed to strengthening our price position as and if inflation builds a bit. To be able to relatively improve our price position as we do that. As we've said, we've got a strong cost program, and we're working hard with our suppliers to mitigate that impact as far as we possibly can. Whilst it's clear that inflation pressures will likely build, to your question in the second half, I think as we look at our pay to invest plans, we look at the work we're doing with suppliers, we're doing a lot to make sure we can mitigate those headwinds. The last thing to say, I think at the end of the day, my job, our job as a team, is to make sure we give our customers what they expect of us. They're asking us to improve our price perception. We're working hard to do that. Actually, our price perception measures are 4% up on a year ago, so we're starting to see the benefit of that coming through. Despite these headwinds, we'll continue to work really hard to continue to build that. Okay. Thanks, Simon. Where you are seeing inflation and choosing to pass it to the consumer, you're not seeing any indication they're trading down or trading for different products? Yeah, just to be as clear as I can be. In quarter one, the pass-through has been relatively limited. As I say, if you looked across the business, in the fresh categories, we're seeing some deflation. In some of the grocery categories impacted by some of the commodities that we said there's a bit of inflation there on in freight. Overall, I would describe the inflationary pressures in the first quarter as being broadly flat overall, some ups, some downs. As we look ahead, as I say, the combination of the cost programs and the work with suppliers, we'll look to mitigate it as far as we can. Okay. Thank you. Thank you. Thank you. Next question comes from Demetris Demetriou, Schroders. Please go ahead. You are live on the call. Good morning, Demetris. Hi, good morning, and congratulations on the set of results. Most of my questions have actually been answered. I just wanted to quickly get a bit more clarity on the topic of cost inflation, specifically on the topic of freight and container availability. I imagine sometimes you are looking at ways to mitigate those impacts. I just wanted to understand a bit more, how much is it in terms of adapting to these challenges in terms of resourcing or finding alternative suppliers? Are you potentially looking to relocating some of your Asian supply base? How does it work? Thank you. Demetris, thank you. I think I got most of your question, which I think is just trying to give you some more color on the impact of some of the challenges, particularly in logistics and supply chains and the potential impact in terms of cost and inflation there. A couple of things to say and one or two points to reiterate from the earlier questions. As we've said, there's a number of factors at play here. Clearly, a higher level of demand, which is really the sort of first driver of this. Supply chains around the world, particularly on the general merchandise and clothing side, where the combination of the lockdowns, India, for example, shipping container shortages, raw material challenges. Even in some of our key categories, such as consumer electronics, shortages of memory chips, and then all of the associated impacts on freight around the world to get products here. I think a couple of things going on. The first thing is we've done, actually through the pandemic, a lot of work to buy ahead on freight and buy container capacity ahead. Our teams in supply chain and procurement have been working really hard to buy as much capacity for the demand at the best price we can, and we continue to do that. Secondly, this is all about day-to-day, hour-to-hour conversations with our key partners. The team are working around the clock actually to make sure that in the challenges that we have, we continue to do that. I think that the second point I would make is that we do see this situation continuing on the GM and C side for a period of time. For obvious reasons, global supply chains will take an extended period to get back into some sense of normality, particularly given the demand curve that we've seen. On the food side, as I've said, again, wouldn't want to underplay, there are some significant issues upstream that's impacting the ability to get product through the supply chain, particularly in the areas that are peaking at this time of year. Again, the teams are working really hard to make sure we protect availability for customers and the conversation we're having, we mitigate the cost impact as far as we possibly can. So far, we're doing a solid job doing that. Thank you. I hope that answers your question, Demetris, because I couldn't hear all of it, but I hope I've given you some further sense on what you were looking for there. It does answer my question. Thank you so much. Thank you. Thank you. Thank you. Next question comes from James Grzinic at Jefferies. Please go ahead. You're live on the call. Hello, James. Thank you. Good morning. Good morning, Simon, Kevin, and James. I had two questions, really. The first one for you, Simon. Can you perhaps clarify now that we're shifting back to the new normal, what change in customer behavior you think is going to be most helpful for your earning model? Sure. Yeah, no problem. I think a couple of key points I would pull out here, and hopefully the presentation this morning gave you some sense of this. I think as we've seen through the pandemic, there was, as we know, a very dramatic shift online. I think one of the first normalization effects we're seeing actually is that we're clearly maintaining a significantly elevated level of online performance where we are so significantly up on 2 years. Some of that online volume over the last quarter has come back into store. Customers that shopped online are now returning to the physical store. One of the key manifestations of that, if you think at the peak, we were serving around 860,000 customers online. That was in quarter 4. That number at the exit point of quarter 1 is about 710,000. We've seen a lessening of the online volume, but that coming back into store. Actually that works for us because customers are shopping in the way that they want to shop, but also we can pick more efficiently at that order volume than we can at 860. 860, we're right at the top of the capacity, whereas at 710, we're seeing our item pick rates, for example, up 40% just over on a year ago and up 11% on two years. The movement in the online channel we think is helpful, led by customers. I would make the point we're still serving 710,000 customers a week online compared to 340,000 before the pandemic. The second big change in how customers are shopping has clearly been eating, preparing, and enjoying more food at home. That trend that started in the first lockdown, we see a good chunk of that enduring. I think, clearly when you've been doing that for a year, and there are elements of that, the customers are enjoying. We can see in this elevated level of grocery demand, with more home working, with more desire to cook and prepare food at home, that trend is likely to continue. The third thing I think underpinning all of that is the actions that we're taking. We said we would put Food First. We've committed to help our customers to eat better. I think when you think about the big changes in the trends around food, improving our value, improving our innovation, improving our customer service is all about making sure that we really give our customers what they want. As this change happens through the summer and the autumn, of course, we're setting course to try and maintain as much of the share that we captured as possible by being there for what customers want. The headlines are changing goal, changing the level of home consumption, more home cooking, and improving our value, innovation, and service so we hold onto the share that we've seen come through. Very clear. Thank you. I had a follow-up for Kevin, and just really a follow-on from what Victoria and Nick were asking. I take your point on leverage, do you think the right leverage is not an absolute level, and it can be shifted according to how more broadly the industry has leveraged that? How do you think about that, Kevin? Probably a conversation for another day, James, but I think it's something, as a board, that we talk about reasonably regularly. As a board, we're comfortable, given our responsibility to manage the business through the medium to long term, to manage it on behalf of all of our stakeholders, as I say, the shareholders, the pensioners, our colleagues, et cetera. I think the net debt to EBITDA of less than three times gives us that level of financial flexibility that we think is appropriate at this stage. Understood. Just one clarification question? You mentioned the level of freehold ownership that applied, obviously, that the convenience channel is fully leased for you guys. Yeah. We own about 3% of our convenience stores, which is a very small percentage. It doesn't even register in square footage because they're tiny stores, so it's the supers where we have our freeholds. Right. Thank you very much. Thank you. Thank you. Before we take the next question, a quick reminder, if you do wish to ask a telephone question, it is star one on your telephone keypad. Next question comes from the line of Sreedhar Mahamkali, UBS. Please go ahead. You're live in the call. Hi, Sreedhar. Hello, good morning. Thanks for taking my question. A couple of them on the price sort of value reality and perception and one on online, please. Firstly, in terms of value reality, the slides you've shown improving versus Aldi. Aldi Price Match is currently running around 270-280 items. Is that the right level for you to run this at or do you see room to extend it further now that you understand the impact? Clearly, a significant impact on value perception. That's the first one versus Aldi. Secondly, when you're measuring prices versus Tesco, you actually referred to some, you're including Clubcard prices. At Sainsbury's, do you think there's any merit to go down the route of personalized pricing promotions or levers in Nectar? That's the second one. Third one, online economics, your overall economics. I think last year you talked about improving overall operating costs by four percentage points or even more. I think in the release today, you've talked about two-year pick rate up 11%, which I think is pretty impressive. Broader operating cost in online, can you talk to it? Are you continuing to improve it this year, especially now that the demand is slightly easing? Those are the three questions. Thank you. Sreedhar, okay, thanks. Let's try and give you some perspective on value and Sainsbury's Quality, Aldi Price Match, then maybe Kevin will come to online economics in just a second. I think going back to the first point here, when we laid out our strategy in November, we committed to bring better value for our customers. I have to say, we're really encouraged actually by what we're seeing on Sainsbury's Quality, Aldi Price Match, which we launched, as you'll remember, back in quarter four. The key objective of this plan is to win a bigger basket with our secondary customers, and that's what we're seeing is happening. It was specifically about investing in those products in the basket, as you say, around the mid-200, 250 products, where it really matters to customers on value, meat, fish, poultry, produce, dairy. You remember we've talked before that compared to some of our competitors, we have a higher proportion of our product range in the fresh categories. Actually the further impact that we've made this week, we put some further products into Sainsbury's Quality, Aldi Price Match. Again, the weighting of those are very much towards our fresh categories. Just to give you some examples of that, if you looked at some of the reductions we've done this week, encourage you to go and have a look in store, high volumes, Sainsbury's strawberries this week, down from GBP 1.75 to GBP 1.59. Lots of investment in the meat, fish and poultry categories in key areas like chicken breasts, chicken portions, bacon. Key products at the heart of the shopping trip, where we're getting our value even sharper against Aldi, and we're encouraged by what we're seeing there. Really, I would say that in terms of what we're doing on Sainsbury's Quality, Aldi Price Match, it's the halo benefit we're seeing not only in secondary customer, but across the wider basket. As we get our value sharper here, we're seeing customers spend more across the rest of the store, which is exactly what we set out to do. That's why we put more products in, particularly focused, as I say, on fresh food, fresh vegetables. That's why our VPI has improved again in the quarter, as you can see. In those center of the plate categories, you can see we've improved against last year by 380 basis points and Q1 and Q4 by 170. That's the position on value. As we execute our Food First plan, the team are really focused on driving this through because it's giving us some good benefits. More broadly on pricing, I think as you saw us talk about in our prelims, we're really encouraged by the number of customers that are both buying into Sainsbury's Quality, Aldi Price Match, also Price Lock, which is a key part of our value commitment on over 2,300 products. Again, some of our investment this week has gone into those products too. Then on Nectar, to your point, you'll remember that we updated that we are now over 7 million digital app users. We think that gives us a really important access point to customers that shop Sainsbury's and Argos digitally. Of course, as you would expect, we're looking at all the opportunities that we see in terms of reaching our customers more personally with a higher personalized offer. The team are very much on with that. Having that number of customers means we can speak relatively more than any of our competitors in that space. We'll talk more about the Nectar plans later in the year. Sreedhar, we're going to have a Nectar event, as we talked about, and we'll give you a good sense of the plans that are developing there on personalization, particularly when we reconnect on that. That's where we are on value. Maybe just to hand to Kevin on online. Sreedhar, morning. Just on online economics, you saw the material improvement last year where we had fourfold increase in profit contribution and a twofold increase in the margin percentage, and we're happy with the progress we've made in Q1. The four elements of pick rates, van utilization, the basket size and the stem mileage, all if you look at year-on-2-years, and we've given some examples this morning, pick rates up 11% on 2 years, basket size up 5%. All that works well. O n then slides, slide nine today. That allows us to be more efficient actually at that level of volume. Of course, if you look at the overall box economics, as many of those customers go back to shopping in store, that helps the overall economics of the business. We're pleased with the online economics and the overall box economics improve as some of those customers and many of those customers come back into store. Thanks, Kevin. Thanks, Sreedhar. Thank you all for attending. That concludes your conference call for today. You may now all disconnect. Thank you for joining, and enjoy the rest of the day. Thank you, everybody. Thanks for joining us this morning.