Simon Roberts: Good morning, everyone. Welcome to our interim results presentation. Thank you for joining us today. I will begin with the key highlights of the H1, specifically how we are delivering for customers and how that has translated through to the strength of the performance we have achieved. Bláthnaid will then take you through the financial performance and outlook before I come back to talk with a bit more detail on the progress we are making across Next Level Sainsbury's. Before that, I want to start by saying a big thank you to every one of our colleagues and to all our farmers and suppliers for everything they have done to deliver for our customers through the H1. We all know just how challenging conditions have been across the food supply chain through the course of this summer with five record heat waves, particularly for our farmers and growers.
Simon Roberts: That has extended to the pressures that the extreme weather placed on all our logistics and store colleagues. So many of our team working right across Sainsbury's went the extra mile to really deliver. A huge thank you to them. We have delivered another strong H1 with continued grocery volume growth, market share gains, and profit growth. What sits behind that is something you have heard me talk about many times, our relentless focus on the things that matter most to customers, great value, outstanding quality, excellent availability, and leading service. On value we are in a really strong position, improving against most key competitors in the half. Operationally, we have delivered outstanding availability at the most challenged times in the summer heat waves with fresh food availability 2 percentage points higher than the other full-choice grocers.
Simon Roberts: We continue to pull ahead of the rest of the market on quality with the strength of our innovation across Taste the Difference and Discovery. We are building momentum and differentiated capability using the strength of our balance sheet to invest in accelerating customer loyalty through personalized value, technology which improves the customer journey, and infrastructure and systems that deliver efficiency and resilience. The cost of living remains top of mind for customers, and we have continued to make very focused investment to ensure that we are razor sharp on price across all the items in the basket that customers buy most often. With the biggest Aldi Price Match in the market, Nectar Prices on almost 11,000 products and personalized value through Your Nectar Prices, where customers have saved GBP 250 million since launch in 2021.
Simon Roberts: This is delivering a consistency in our value position that has really stood out over the last six months. While we have strengthened value, we have kept investing in what has always set us apart, our trusted reputation and the association Sainsbury's as a brand has with customers for our food quality, range, and innovation. This year, we expect to launch more than 2,000 new and improved products, our biggest innovation program ever. This includes more than 700 Taste the Difference and Discovery products, really stretching our lead versus the market.
Simon Roberts: Innovation is not just about premium food. We are building on our leading position to make healthier choices easier by introducing new products, reformulating current ranges, and improving the visibility of nutritional benefits on packaging. We are seeing real momentum as we bring more of our food offer to more customers with fresh food sales up over 4% in the H1.
Simon Roberts: We opened 14 convenience stores and two supermarkets, both of which were former Homebase stores, and we are really pleased with their performance. We have also invested in around 170 stores in the H1, focusing on those with the greatest potential. That investment is delivering, with these stores seeing stronger volume growth and customer satisfaction scores higher than the rest of the estate. To create greater fresh food capacity, we have been rationalizing general merchandise range and space, making the space work much harder with volume for general merchandise stocking point up 10%. Across all our supermarkets, we completed our biggest ever fresh food range reset, changing range and space allocations to reflect evolving shopping habits and improve availability and stocking efficiency. Sainsbury's has long had a reputation for strong relationships with farmers and suppliers, and we are building on that at a time when it matters more than ever.
Simon Roberts: By the end of 2026, 60% of products in fresh produce, dairy, meat, fish, and poultry will be in long-term agreements. This goes way beyond the agreements that you will hear other retailers talk about. This is about our cost of production models, which give producers predictable profit margins, greater certainty, and the confidence to invest for the future. That strengthens the resilience of our supply chain and helps our suppliers deliver the consistent quality and availability of food our customers rely on. Why do the inputs across what we are doing on value, innovation, quality, and our relationships with suppliers matter so much? It is because they are delivering a winning formula that customers really trust.
Simon Roberts: On value for money, I have talked before about how long it took for customer perceptions to catch up with the real change we have made in our value position following the investment we started with Food First back in 2021. That has now shifted. Customers consistently recognize the value they get at Sainsbury's, rating us ahead of our competitors. That reflects what we have delivered over time and the trust we have built. Importantly, we have strengthened our value position whilst maintaining the quality advantage that has always set Sainsbury's apart. You can see that really clearly here. Our quality scores remain significantly ahead of the other full-choice grocers, maintaining an advantage we have built over many years. It is the strength of that proposition that gives us the confidence to put more of it in front of more customers.
Simon Roberts: In the stores where we have made the most significant investment, we have added an average of 1,500 new products per store. As part of our fresh food reset, we have given more space to key categories such as meat, fish, and poultry. At the same time, we are getting more from the space we retain in general merchandise with higher trading intensity, lower working capital, and simplified operations. Toys is a good example. It was one of the first categories to go through the full range reset, and with fewer, better products, sales grew 13% in the H1.
Simon Roberts: We are creating more space for our stronger food offer, while at the same time driving better productivity from the rest of the store. This is where it all comes together. We are right there with our customers day in, day out, ensuring we deliver on the things that matter most to them.
Simon Roberts: At a time when the market has been a bit more volatile, we have maintained our lead and consistency on overall customer satisfaction, with more customers continuing to choose Sainsbury's for their big basket shop. This shows how our consistency has translated into performance, with strong volume growth relative to the market over a number of years. We knew we would be lapping some particularly tough comps through this period. While we continue to grow volumes, we dipped a little below the market in Q2. The comp will remain tough through Q3, and we are expecting it to be another very competitive period. We are really well set up for the H2. Our food proposition remains consistently strong across value, quality, and service, and we expect to deliver another winning peak. Let me bring all of that together.
Simon Roberts: We are really encouraged by our H1. We are continuing to invest in the things that matter most to customers, and we can see those choices delivering strong customer satisfaction and continued growth of big basket main shop customers. We are heading into peak with a strong value position, outstanding quality, and our best ever Christmas ranges, including 60 new Taste the Difference Discovery products. We are going to continue to make the right balanced choices that will deliver sustainable sales and profit growth. Our guidance today reflects that, with our central case implying continued profit growth in the H2. With that, let me hand over to Bláthnaid Bergin to take you through the financial performance and outlook.
Bláthnaid Bergin: Good morning and thank you, Simon. I will now cover the financial highlights for the 28 weeks to 12 September 2026. Starting with a reminder of our financial framework. This lays out the factors that underpin our commitments to deliver profit leverage from sales growth, strong cash flows, higher return on capital employed, and enhanced shareholder returns. As we near the end of our three-year Next Level Sainsbury's strategy, we are pleased with our progress. We delivered continued food volume growth, higher profits, and strong cash flow generation. We are well on track with our plans to deliver GBP 1.6 billion of free cash flow over the three years to 2027. Together with the bank exit proceeds, we will have returned nearly GBP 2 billion to shareholders through dividends and buybacks. We are now going to look at the performance of our continuing operations, excluding Argos.
Bláthnaid Bergin: As a reminder, we have entered into an agreement to sell Argos to Swift Partners. As a result, the performance and cash flow directly attributable to Argos has been represented as a discontinued operation. Underlying performance in this financial review refers to the group's continuing operations unless otherwise stated. Starting first with our sales performance. Grocery sales grew by 2.9%, reflecting continued volume growth and a lower level of inflation versus last year. Grocery growth was partially offset by a 3.4% decline in general merchandise and clothing. General merchandise sales were down 5% year on year, in line with our expectations, reflecting our strategy of allocating more space to food and simplifying the range. Clothing sales were down by around 2% in a subdued and promotional market and against tough comparatives. Despite this, volumes performed ahead of the market, reflecting the strength of our offer and improved availability.
Bláthnaid Bergin: In total, Sainsbury's sales grew by 2.6% in the H1. Fuel sales were up substantially year on year, reflecting higher average wholesale prices and a modest volume decline. Together, this delivered total continuing operation sales growth of 4.5%. Looking at the shape of that by quarter, grocery growth was lower in Q2 than Q1, entirely as a result of lower inflation. Volume growth was broadly similar across both quarters, despite tough comparatives. Turning now to the sale of Argos. As announced in July, we have agreed the sale of Argos to Swift Partners, enabling us to fully focus on our core food business. This transaction is expected to complete in February 2027, with full separation expected by February 2029. Additionally, in July, we handed back our banking license. The final bank colleagues exited, and we exited the last of the onerous contracts.
Bláthnaid Bergin: Together, these have created significant complexity in the accounting for the H1 with the exit charges relating to the bank and moving Argos to discontinued operations. While the bank is now clear, the Argos exit cost will continue to move. The largest element will be the working capital true-up that we will need to complete at year-end. The numbers you are looking at today reflect the H1 position. They will be adjusted for both trading performance and the working capital true-up as we finalize the sale and exit in February. While we have treated Argos as discontinued, given the fact that it is heavily integrated into Sainsbury's, this has driven a review of the Sainsbury's assets and resulted in some impairments in continuing operations. I will cover those in the next few slides. This table shows the breakdown of Argos discontinued operations numbers.
Bláthnaid Bergin: Before I talk about some of the bigger numbers, you can see that Argos made a loss of GBP 8 million in the H1, slightly higher year on year. This was in line with our expectations, and we continue to expect Argos full-year operation profit to be in line or ahead of last year. We have recognized a non-cash impairment loss of GBP 215 million on the disposal of Argos, and we have also booked a provision of GBP 102 million in relation to separation costs, largely tech-driven. There will be further separation costs to be recognized as we finalize the exit. Separately, we recognized GBP 37 million of restructuring and impairment costs in line with our save and invest program. Turning now to profits from continuing operations. Last year, we reported total underlying operation profit of GBP 506 million.
Bláthnaid Bergin: Excluding the Argos discontinued operation loss and taking into account perimeter adjustments, this creates a continuing underlying operation profit base of GBP 507 million. Versus this GBP 507 million base, underlying operation profit increased by 3.6% to GBP 525 million, reflecting volume growth, balanced investment in the customer offer, and continued cost-saving delivery. Underlying finance costs were flat year on year, and as a result, underlying profit increased by 5.2%. We expect continuing operations underlying net finance costs to be around GBP 300 to 310 million in 2026, 2027 versus our previous guidance of around GBP 320 million.
Bláthnaid Bergin: Underlying earnings per share increased by 10.4%, reflecting a lower underlying tax rate year on year and a reduced share count as a result of the cumulative effect of share buybacks. This slide sets out items excluded from underlying results on a continuing operations basis. We incurred GBP 60 million of non-underlying costs during the H1.
Bláthnaid Bergin: The largest item was GBP 87 million of divestment costs. This primarily relates to non-cash impairment of non-trading sites and Sainsbury's stores following the announced disposal of Argos operations, as well as fees associated with the disposal. It also includes GBP 8 million of final bank exit costs. Retail restructuring program credits in the period primarily reflect gains from lease exits and the renegotiation of dilapidation provisions recognized in prior periods, partly offset by the redundancy and property strip-out costs associated with bakery closures. Turning to our cash flow metrics, free cash flow increased by GBP 57 million year-on-year. There are three elements to this. Firstly, the working capital of GBP 67 million is largely driven by payment timing. We continue to deliver on our working capital program. Secondly, capital expenditure was GBP 71 million lower year-on-year in H1, primarily driven by timing of spend.
Bláthnaid Bergin: Finally, profits are higher year-on-year. Net debt will be covered on the following slide. This table shows the key elements of our cash flow and movements in net debt this year and last. Following the change in the financial services business model, net debt and associated cash flows from financial services are now included in the core net debt measure. Opening retail net debt has been adjusted accordingly, as shown on the table. Comparatives have not been restated given the prospective nature of the change in the financial services operations. Before the impact of this change, net debt, including lease liabilities, increased by GBP 221 million, primarily reflecting shareholder returns, comprising of GBP 213 million of dividends and GBP 200 million of the GBP 300 million share buyback program, returning bank disposal proceeds received in the prior year.
Bláthnaid Bergin: Free cash flow of GBP 333 million was partly offset by divestment cash costs, including the wind down of previously provided bank exit costs, not directly attributable to portfolio sales and advisor fees associated with the disposal of Argos operations. Current year discontinued operation cash flow represent trading cash inflows of Argos operations and cash outflows to settle onerous contracts previously provided for by the bank portfolio sales. We continue to expect to generate free cash flow of more than GBP 500 million in 2026/2027, consistent with our commitment to generate at least GBP 1.6 billion over the three years to 2027.
Bláthnaid Bergin: Continuing cash capital expenditure is expected to be between GBP 750 million and GBP 800 million in 2026/2027 versus our previous guidance of GBP 800 million to GBP 850 million, with the reduction reflecting the movement of Argos to discontinued operations. Here we lay out our balance sheet metrics.
Bláthnaid Bergin: Net debt to EBITDA is broadly unchanged year-on-year at 2.6x and within our target range of 2.4x to 3x. Return on capital employed improved by 20 basis points year-on-year to 9.2%. Turning to shareholder returns, as previously announced, we intend to complete a GBP 300 million share buyback program this year, comprising a core of GBP 200 million and an additional GBP 100 million returning bank disposal proceeds. The GBP 200 million core share buyback was completed in H1, with the remaining GBP 100 million expected to complete in H2. We are proposing an interim dividend of 4.1 pence per share, representing 30% of last year's full year dividend, consistent with our standard policy. In total, we expect to return more than GBP 600 million of cash to shareholders this year. In summary, we are pleased with our performance in the half.
Bláthnaid Bergin: We delivered profit growth against continued tough comparatives in a competitive market, generated strong free cash flow, and are delivering strong cash returns to shareholders. We also announced the sale of Argos, which will allow us to focus our resources on our core food business. Looking ahead to the full year and the guidance we have issued to the market this morning, I thought it would be useful to clarify what exactly this represents and how it compares to our previous guidance. Our previous guidance was underlying operation profit of GBP 975 million to GBP 1,075 million, including Argos. Last year, Argos contributed GBP 9 million of operation profit, and we said that we expect the profits to be broadly unchanged year on year.
Bláthnaid Bergin: On a continuing operations basis, if we exclude that GBP 9 million from the previous guidance and round down by GBP 1 million, that will be the equivalent to GBP 965 million to GBP 1,065 million. Versus that range, we now expect underlying operation profit from continuing operations of between GBP 1,025 million and GBP 1,065 million. I know plenty of you will ask about the financial services contribution. Financial services contributed around GBP 3 million to operation profit growth in the H1. For the full year, we expect a contribution to continuing operations profit growth of around GBP 10 million versus the previously guided GBP 20 million. This reflects the financial services contribution that now sits with Argos in discontinued operations. For next year, we talked about GBP 14 million of incremental income, and we still expect to deliver at least half of that upside on a Sainsbury's-only basis.
Bláthnaid Bergin: Roughly another GBP 10 million of incremental income from financial services next year. We won't separately disclose financial services income, and we will only make a comment when it has made a significant impact on growth in any period. As a reminder for future years, when we announced the divestment of Argos, we guided that the impact on underlying operation profit was broadly neutral, with loss to Argos operation profit and to synergies offset by Argos store and store rental income and Nectar income. This included the change to our financial services contribution expectation, so no further adjustment is required. We remain focused on maintaining our strong competitive position, delivering strong cash generation of more than GBP 500 million and creating consistent value for shareholders. Thank you for your time. I will now hand back to Simon.
Simon Roberts: Thank you, Bláthnaid. Let me now take you through the progress we're making across our Next Level Sainsbury's strategy. When we launched Next Level Sainsbury's in February 2024, we set a clear purpose and four strategic outcomes. We're now in the final year of the plan, and we continue to make sustained progress. As we announced in July, the planned sale of Argos is an important evolution. It will create a simpler, more focused Sainsbury's while enabling Argos to continue its transformation under dedicated ownership. I'll come back to Argos shortly, but let me start with First Choice for Food. Our ambition here has been consistent right back to when we launched Food First in 2021. We want many more people to choose Sainsbury's as the place they come to for good food. On value, what's distinctive is how the different elements work together.
Simon Roberts: We have the biggest Aldi Price Match in the market and Nectar Prices on almost 11,000 products. Increasingly, we are combining that broad-based value with personalized offers through Your Nectar Prices. Together, that is delivering really meaningful value for customers, saving GBP 16 on average on a big trolley shop and consistent trusted prices on the items customers buy most often. While customers have the reassurance of trusting us on value, they know they do not need to compromise on quality.
Simon Roberts: As ever, it is the quality of our food that really sets us apart. Taste the Difference sales have increased nearly 50% over the last four years, and on that strong base, we are still seeing growth ahead of the market again this year. With continued investment in fantastic innovation and quality, we see huge further opportunity here, and our biggest program of Taste the Difference innovation is coming for this Christmas.
Simon Roberts: Taste the Difference Discovery, our range of restaurant-quality meal solutions and premium specialty products, is building on that strength and opening up new territory for customers seeking the most exciting innovation in food. We have doubled the range this year, and it is now contributing around a quarter of Taste the Difference growth. Our product development teams, working alongside our suppliers, are doing a brilliant job expanding Discovery into new categories, including barbecue, Italian meals, and premium meat, fish, and poultry choices like Norfolk Black Chicken. We expect the range to exceed 200 products by the end of the year. We want our customers to be able to access the best of our food offer however they choose to shop with us. We are encouraged by the growth we have continued to have across all channels, not just through supermarkets, but also convenience and Groceries Online.
Simon Roberts: Online performed particularly strongly, with sales up 9%, reflecting improved overall customer satisfaction, including the friendliness of our drivers, quality, range, and availability. As you know, we were early into the rapid delivery grocery market, both with our own on-demand proposition, Chop Chop, and then we moved into partnership with Deliveroo, Uber Eats, and Just Eat through 2025. We have largely completed our rollout of on-demand, now in more than 1,400 of our supermarkets and convenience stores. Alongside expanding our digital offer, we are making shopping at Sainsbury's easier and more seamless, creating a more joined-up experience both online and in store. We have brought SmartShop on-demand and Groceries Online together in our enhanced Sainsbury's app. We are also adding new features to take the effort out of shopping.
Simon Roberts: Search your store helps customers quickly find products, while AI-powered smart lists turn a photo or even a meal idea into a shopping list, helping customers plan, find what they need, and keep track of their budget. In Tu, the work we have been doing to strengthen the customer offer is continuing to deliver. We have been focused on developing our ranges and style credentials alongside driving better availability through a step up in operational performance. We are seeing the benefit of that focus. Customer perceptions of style are up, availability is stronger, and Tu has outperformed the wider clothing market. We also delivered our best ever back-to-school performance with sales up 8%. This is being supported by the rollout of RFID across clothing, giving us better stock accuracy and helping drive availability and operational efficiency.
Simon Roberts: While the overall clothing market remains subdued, we are making good progress on the things that will strengthen the Tu offer for the longer term. Turning next to loyalty everyone loves. Nectar continues to be a really important part of how we deliver value for customers and deepen their relationship and connection with Sainsbury's. We are continuing to make Nectar more personalized and more rewarding while giving customers more ways to earn and benefit through our growing coalition of partners. At the same time, we are investing in the data and retail media capabilities that continue to strengthen the long-term growth opportunity for Nectar360. What is really powerful is how those two sides increasingly work together. For customers, it is about delivering great value through Nectar prices, points, and increasingly personalized rewards, alongside more ways to earn and redeem points through our coalition partners.
Simon Roberts: For suppliers, Nectar360 brings together our customer insight, targeting, and retail media capabilities to help brands connect with customers in more relevant, measurable, and higher returning ways. That is driving deeper digital engagement. Nectar participation continues to grow with digital Nectar users up 9%, and 17% more customers are accessing personalized offers on their favorite products each week through Your Nectar Prices. We know that this engagement drives a real difference in loyalty. Increasingly, personalization can help customers discover different parts of our range, whether that is making healthier choices or introducing more customers to Taste the Difference. Nectar360 continues to be at the forefront of retail media in the UK, fueled by innovation and the strength of customer engagement with Nectar. Pollen is the most advanced retail media platform in the UK.
Simon Roberts: We launched this proprietary platform at the end of last year, and we are now rolling it out across a wider client base. It is revolutionizing the way that brands and agencies work with Nectar to run omni-channel retail media campaigns at scale. Pollen has now delivered more than 600 campaigns for around 100 clients. Nectar360 has also become the first UK retail and media business to be accredited and independently audited against the IAB Europe Retail Media Measurement standards. This provides a unique guarantee of credibility on the way that Nectar360 delivers and measures return on investment. Alongside Pollen, we are continuing to expand our in-store media network with more than 3,500 digital screens today and close to 5,000 expected by the end of the year. This slide brings to life what that capability can deliver for brands.
Simon Roberts: Brands are able to connect with customers across in-store, on-site, and off-site channels and measure the impact. This Diet Coke and The Devil Wears Prada campaign is a great example, reaching 8 million customers and delivering a 3.7 times incremental return on advertising spend. Let me now turn to Argos. As we announced in July, we have agreed the sale of Argos to Swift Partners completing February 2027. This is the right next step for both businesses, creating a simpler, more focused Sainsbury's while giving Argos greater flexibility to accelerate its transformation under dedicated ownership. The team continues to make good progress in delivering the transformation plan with investment in people, stores, and technology, an encouraging marketplace launch, and strong new customer take-up of the new credit proposition.
Simon Roberts: And perhaps most importantly, it is business as usual at Argos, and we expect full-year trading profits to be in line with or ahead of last year. Our focus is on continuing that progress and securing a stronger future for Argos as we move towards completion of the transaction. Save and invest to win is about investing in technology and infrastructure to deliver sustainable structural efficiency gains. We are creating a simpler, more automated, and more productive business while continuing to invest in the capabilities that will make Sainsbury's stronger for the future.
Simon Roberts: We are on track to deliver our GBP 1 billion cost-saving target, taking total savings to GBP 2.3 billion over the past 6 years. Our focus has moved away from individual one-off saving initiatives towards end-to-end improvements in processes and ways of working that change the game in terms of costs. These will deliver savings well beyond the current year.
Simon Roberts: Investment in technology is improving productivity and delivering benefits to customers. Our stores are becoming more connected from the shelf edge through to customer scanning. AI is making a very real difference to in-store productivity and safety and loss prevention, whilst improving customer satisfaction and availability. We have made good progress rolling out facial recognition technology following a successful trial, which saw logged incidents fall by 46% and more than 90% of identified offenders not returning to our stores. Self-checkout video analytics are now in nearly 600 stores, with continued rollout across supermarkets and introduction into our convenience stores, driving significant reductions in mis-scanned items. SmartShop is now in all supermarkets with 20% more handsets year on year, supporting operational capacity and bigger basket shops ahead of peak. We have rolled out our optimized reduction algorithm to all stores, reducing waste and improving colleague efficiency.
Simon Roberts: This has already delivered a double-digit million-pound saving. Before I close, let me come back to the commitments we made when we launched Next Level Sainsbury's. We are now in the final year of the plan, and we continue to make good progress against those commitments. We have built on really strong foundations to sustain a very strong competitive position, consistently investing in our customer offer. We have grown food volume ahead of the market, and we expect to have grown profit faster than sales and improve ROCE, supported by our cost-saving program. We have generated strong free cash flow whilst investing in our stores and in the long-term strength and resilience of the business. We expect to hit our target of more than GBP 1.6 billion of free cash flow over the 3 years of the plan.
Simon Roberts: We could not do any of this sustainably without keeping a strong focus on outcomes for customers and colleagues and our key plan for better outcomes. We will give a full update on performance against all the metrics at the end of the year. That brings us back to our key message today. We are delivering for all our stakeholders, building a stronger, simpler, more focused Sainsbury's with the capabilities that matter for today and tomorrow. Our winning combination of value, quality, and service is consistently delivering for our customers.
Simon Roberts: We have a strong and trusted value position and leading quality and innovation building on the core strengths of the Sainsbury's brand. We are deepening loyalty through Nectar and growing retail media income whilst investing in technology, productivity, and efficiency. This is generating strong, sustainable returns for our shareholders. Thank you for listening, and thank you for joining us this morning. Bláthnaid and I will now take your questions.
Operator: Hello, and welcome to the Sainsbury's 2026, 2027 interim results announcement analyst Q&A call. On the call this morning is Simon Roberts, Chief Executive, and Bláthnaid Bergin, Chief Financial Officer. If you have a question, we ask that you please use the raise hand function at the bottom of your Zoom screen. Once your name has been announced, you can ask a question. If you want to withdraw your question, please lower your hand using the raise hand function. Thank you, and a moment for the first question, please. Our first question comes from Manjari Dhar with RBC Capital Markets. Please unmute your line and ask your question.
Simon Roberts: Morning, Manjari.
Manjari Dhar: Morning.
Bláthnaid Bergin: Morning.
Manjari Dhar: Morning, Simon. Morning, Bláthnaid. Thank you for taking my questions. I just had three, if I may. My first question is on how you view the consumer outlook as we sit now versus when you originally set your guidance, the original guidance. My second question was just on how you view the competitive backdrop evolving in some of those faster-growing segments that you mentioned online, on-demand, the premium market. Finally, also on online and on-demand, I guess, how do you look at the capacity that you have for growth now and the ongoing opportunity there? Thank you.
Simon Roberts: Thanks, Manjari. Well, let me take each of those in turn. Look, I think on the consumer outlook on where customers are at, you can see in our results today, we have been super focused on the value, quality, and service proposition at absolutely the heart of the Sainsbury's food offer, and that is really working with our customers. Customers continue to be concerned about the cost of living, and so having that consistent, trusted value is making a real difference in the fact that we continue to win more big trolley shoppers in the H1 of this year. I think, as you have seen over a number of years now, that is the absolute foundation of everything we have been doing at Food First, and that is really working, and that will continue to be really important.
Simon Roberts: Look, I think as we look out over the rest of the year, customers are waiting for the budget next week. Almost, I think they have been trained to be more cautious around that over the last years, and I think good news, it is happening earlier this year, and then we do not have to wait till November. I think we look forward to the Q3 with the focus on cost of living being front and center, providing great value. Then obviously as we get towards Christmas, signs already customers are starting to look to Christmas. Food ordering is up, interest in Groceries Online slots that went live last week, we have got more of those. Big focus on innovation and new products in the food offer.
Simon Roberts: I think, customers looking for reasons to be assured on both value and quality that they can get what they want every week. In terms of how we think about the competitive backdrop, look, I think you can see in the recent market reads that there is not a lot of volume in the market at the moment. It is being really clearly competed hard for, and everyone is working hard for the volume that they can get. I think that reflects a H1 of the year. There has been quite a lot of noise in the comparatives. Obviously, some extreme weather impacts this year, the impact of the prolonged cyber on last year's comps, changes in how customers have shopped, particularly the warmer weather meant that customers shop more frequently, but often with smaller baskets. That has played through into a lower level of volume in the market.
Simon Roberts: I think obviously that means that everyone is working hard to secure volume. Within that, look, you can see what we are doing. We have continued to really deliver that combination of value, quality, and service. Then specific to your point on the channel shares, I think really clearly, online growth at 9% in the half, we are really encouraged by that. We have been working hard over a period of time to build our capacity and also our service proposition and actually our customer satisfaction. We did not show it in the slides there, but our customer sat moved back in front in the period as well as we continue to really make sure we are delivering for customers online. In terms of what is happening in there, you talked about some of the segments, obviously on-demand, the fastest-growing segment.
Simon Roberts: We obviously went into that market last year, so we've largely completed our rollout, getting into pretty much all of our supermarkets and convenience stores in the way we've rolled that through. I think as we look at that going forward, we delivered in the H1 of this year 27% growth in on-demand. Interestingly, what we saw is that our total volume of grocery performance was a little bit up in Q2 compared to Q1. But obviously, as we lap the rollout of on-demand last year, actually, we had stronger growth in on-demand in Q1 and Q2. So we're actually pretty encouraged our supermarket volume moved up a little bit in the Q2. But obviously we're lapping the rollout last year. Others are coming into that channel now. On-demand overall is strong. Then you mentioned premium.
Simon Roberts: Look, I think it's absolutely at the cornerstone of our food-focused plan, which is customers want great value, but they also want great quality, and they want exciting new food ideas. The innovation team, working with our suppliers, have done a fantastic job at the premium level, 2,000 new products this year. Big focus on Taste the Difference, our biggest innovation program ever for this Christmas. So a lot happening across how customers are shopping, the kind of products they want. I think what we can see in that is our formula, our winning formula continues to make sure we can take a better share, we can win big trolley shoppers, and customers get assurance in the Sainsbury's offer.
Manjari Dhar: Very clear. Thank you.
Simon Roberts: Thanks, Manjari.
Operator: Thank you. Our next question comes from Matthew Clements with Barclays. Please unmute your line and ask your question.
Bláthnaid Bergin: Matthew, good morning.
Bláthnaid Bergin: Morning, Matthew.
Operator: Matthew, your line is unmuted. Matthew, please unmute your line and ask your question. We will circle back to Matthew in a moment. We will now move on to-
Simon Roberts: Let's just check, Matthew. See whether Matthew can get through before we move on. Matthew, can you hear us? Matthew, we will come right back to you. Okay.
Operator: Yes, Matthew. We will move on to Rob Joyce with BNP Paribas. Please unmute your line and ask your question.
Simon Roberts: Rob, morning.
Rob Joyce: Hi. Hopefully. Morning.
Simon Roberts: Can hear you, Rob, loud and clear.
Bláthnaid Bergin: Morning, Rob. Good morning.
Rob Joyce: Excellent. I will go with 3 as well. First one, I guess, stands out is the relative slowdown in performance versus the market. I guess the other thing that stood out was the closing the gap of your overall customer satisfaction versus the other 3 grocers. They all seem to have caught up quite a lot in the recent quarter. Given that wasn't value or quality, can you tell us what has driven them to catch up there? Do we think this sort of relative gap is going to stay closed versus competitors for the foreseeable? Second one, there are quite a lot of press reports about your discussions with Morrisons that seem to have been quite extended. Should we consider that as potentially suggesting that the Food First strategy is coming to an end? The upside from that, you have maybe taken, harvested most of that.
Rob Joyce: The final one would just be on the overall competitive dynamic of the market. Interesting to see Aldi there improving for the first time in quite a while. Are you seeing a step up in particular from that element of the discounter space? Thank you.
Simon Roberts: All right, Rob. Super clear. Thank you. Three questions. Let me start, first of all, on your question on the quarter. Look, I think we are actually really encouraged about our performance in the H1 of this year and the fact that we have continued to win share, and particularly of large trolley shoppers. That has been really fundamental in terms of the strength of our proposition. I would just point out that we have just lapped some of the biggest comps we have seen in any of our plans so far. This time last year, grocery growth was 5.9%, and as we move into this quarter, a strong comp, too.
Simon Roberts: So actually, we come through the Q2 when there has not been a lot of volume in the market, and it has been pretty hard competed for, actually pretty encouraged by the fact that we grew a bit of share there and we have continued to grow volume. I think what we can see in the market is there is a bit more promotion out there is a bit more incentive out there. Actually, what we have continued to do is to deliver our plan and make sure we are giving customers that combination of quality, value, and service that they have really come to expect from us. As we come into the Q3, you can see in the market reads, volume is subdued in the market at the moment. In that context, we are making sure that we are absolutely delivering for customers what they expect from us.
Simon Roberts: We have had continued very strong performance, and we continue to make sure that the proposition is very strong. You can see that coming through in the fact we are growing in all channels and in the key parts of the grocery shop, our value is as strong as it has ever been. In terms of your point on value, I will just come to that next before your middle question. Look, I think as you can see, we have got some of the strongest value we have ever seen. Obviously, through the summer, as customers shop differently, different competitors have responded to that. All the way through, our consistency has continued to be really strong. Actually, we improved against most of the market. We continue to see positive switching from a number of our competitors.
Simon Roberts: You will know when you think back over a number of years now how much our value position has really stepped forward. Specifically on the discounters that you reference, how much our value position has really stepped up compared to where we were before. What would I draw out of that? Volume is more challenged in the market. You can see that, I can see that. Everyone is working very hard to get what they can. There is a bit more incentive, promotion, vouchering out there at the moment. We continue to deliver our plan, and we have taken a bit of share in the half. Actually, as I said, volume gains were a bit better in Q2 than they were in Q1. On your middle question, look, I am not going to, and you would not expect me to comment at all on the speculation in the media.
Simon Roberts: What I am just going to absolutely reinforce is the point I started with on the call, which is, as a team, we are completely focused on our plan to continue to put food right at the heart of Sainsbury's. You have seen in our Food First strategy we launched in 2020, you can see in Next Level with a few months of this plan to go, how much year-on-year improvement in our performance we have been able to deliver. We have pretty much six years now have sustained our performance. We have continued to win more customers and everything we are about, not least given the announcement we made with Argos in the summer, is continuing to double down on the opportunity, the very significant opportunity we see to continue to strengthen our food business. That is everything that the team and I are about.
Rob Joyce: Okay. Thank you, Simon. I guess, just to round out, do you still think you can grow profits in this kind of challenged volume environment?
Simon Roberts: Well, look, you have seen in our report this morning, in our update this morning, we have obviously lifted the lower end of our guidance range. We have obviously delivered an improvement in our profit in the H1. The central point of our guidance points to increasing profit in the H2. We continue to deliver all of the benefits for customers we committed to, but continue to grow our profits as we do that. So, we have got a very clear plan for the H2. We are very focused on delivering it. Our guidance today, I think, gives you a clear message that at the central point of our range, we expect to grow profits 2% in the H2. The range GBP 1,025 million to GBP 1,065 million, let us see how Christmas plays out, but we are definitely coming into this period with a very clear plan.
Simon Roberts: I would just make the point as well, our cost savings program, GBP 1 billion over three years. When we complete Next Level, GBP 2.3 billion over six years, and teams right across the business are doing a fantastic job to really drive through that cost saving work because it is so important both to make sure we can invest in the offer, but also to underpin the improvement in our profitability that we have committed to today.
Rob Joyce: Thank you.
Simon Roberts: Thanks, Rob.
Operator: Thank you. Our next question comes from Matthew Clements with Barclays. Please unmute your line and ask your question.
Simon Roberts: Matthew, can you hear okay?
Matthew Clements: Hi, apologies for that.
Simon Roberts: Loud and clear, Matthew.
Matthew Clements: Yeah, I can. Sorry. The muting and unmuting is out of our control on the side. Obviously, messed too much with the system. I will keep it to one because I have wasted everyone's time already. Nectar participations continue to grow, but you do not explicitly call out Nectar as a profit growth driver in the H1. If we assume that cost saving broadly offsets cost inflation, is Nectar one of the key explanations for the delta between profit and sales growth? Perhaps how important was mix, be it to full price or Taste the Difference in grocery? Thank you.
Simon Roberts: Matthew, thanks. Look, I think just to pull up on a couple of the key numbers we have talked about in the half on Nectar. So really importantly, we talk about Nectar as a big acquisition engine to bring more customers into Sainsbury's and to give them the confidence to get great value. As you saw, we have had a 9% increase in the number of customers digitally using Nectar. That is significant in the H1 of the year, given the high bar we started the year with, and 17% more customers now using Your Nectar Prices. So I think that really shows how fundamental Nectar now is in really driving the total value proposition, but also giving more customers reasons to shop with us.
Simon Roberts: Our participation levels now across our supermarkets and Groceries Online channel are moving into the highest level of performance that we could have expected, well towards 90% overall. I think the way we think about this, as you know, is that we want to give customers reasons to shop in Sainsbury's, and that is why acquisition of customers into Nectar is such a key part of our Next Level Sainsbury's strategy. As we do that, two things happen. First of all, customers get the value at Sainsbury's. They also get to benefit from all the coalition partners that we work with. That clearly turns into our ability to drive Nectar360. You will be familiar that we committed over the course of this three-year plan to deliver GBP 100 million incremental through the Nectar360 plan, and we are well on track to do that.
Simon Roberts: Obviously, a few months of the plan to complete. You can see in our announcement today just the momentum in Nectar overall, and Mark and the team are leading a fundamental change to make sure this is absolutely leading the way in retail media in the UK. You can see in the new functionality we have got with Pollen, the amount of activity that is now running through our retail media platform, how important that is in underpinning that additional profit delivery. Look, I think to your question, the heart of your question, what does Nectar do? It gives customers even more confidence to shop with Sainsbury's. More customers are doing that. That is helping drive our volume, that is helping drive our ability to drive trade up.
Simon Roberts: You saw in the video back there, one of the things more and more as we learn about customers, we can personalize how we talk with them and help give them suggestions and ideas and recommendations. For example, to help eat more healthily or our Taste the Difference ranges. More and more it is helping in the mix in terms of what customers choose, and then we are converting that, as I say, through Nectar360. So, we are really encouraged with the progress right across Loyalty Everyone Loves. Obviously, as we look ahead, Nectar and our retail media leadership in the UK is one of the things that is really underpinning our confidence as we look ahead.
Matthew Clements: Okay, thank you. Thanks for your patience.
Simon Roberts: Thanks, Matthew.
Operator: Thank you. Our next question comes from Benjamin Yokyong-Zoega with Deutsche Bank. Please unmute your line and ask your question.
Simon Roberts: Benjamin, good morning.
Benjamin Yokyong-Zoega: Morning, Ben. Morning. Just two, if possible. Firstly, on the markets, growth has softened. We are seeing promotions run ahead of full price sales. Have you seen any meaningful shifts in customer behavior, maybe in Q2 compared to Q1? How are you thinking about balancing volume growth and share gains against potential margin dilution from further price investments as we move through the year? Secondly, I guess to go back to those higher margin profit streams, it is great to see profits robust despite the softer sales. Can you comment in a bit more detail on the contribution from on demands and retail media in the H1? I assume these are key profit drivers.
Simon Roberts: Ben, okay. Shall I take the first question, maybe Bláthnaid on the second one in terms of how we think about the other streams. Look, I think, not to repeat, Ben, just to recap, I guess. In terms of customer behavior, look, I think what are we seeing in Q2? We saw a lot going on for the customer, not least driven by some of the weather impacts we saw through the summer. I think, 5 heat waves, people out a bit less. They shopped more frequently with smaller baskets. As I said, we had the annualization of some of the cyber impacts last year. Then obviously we have just had a real focus in customers on the cost of living.
Simon Roberts: I think all of those things together have contributed to not a lot of volume in the market at the moment, as I said earlier, that volume being competed hard for, which has seen promotions running a bit up, and more general incentives and coupon activity in the market. The way we think about this is, as I said earlier, we have a very clear and strong proposition which customers continue to respond well to. We are obviously pleased to be raising the lower end of our guidance today and pointing at the midpoint of our new guidance to our profit commitment for the H2 of the year.
Simon Roberts: Obviously, in setting that range, that tighter range. We continue to make balanced choices to make sure that as we enter this H2 of the year, we can do exactly what we need to do, both in delivering for customers and to make sure that we get the right balanced choices across the business. Look, obviously, you would not expect us to do any activity that will not deliver the right level of performance. We are very focused on getting things right for customers, making the right balanced choices, and making sure that we have the right plan as we come into the H2 of the year in what is a more subdued volume set of conditions there to deliver the best outcome that we can.
Bláthnaid Bergin: Great. Look, we see Nectar and Food on Demand and On Demand very much just as part of our business. It is business as usual for us. Simon Roberts talked about the incremental GBP 100 million from Nectar. That is well on track to deliver this year. There is always a balanced choice on how much we drop through to the bottom line versus how much we invest to drive our proposition. We make those choices as we travel through the year. Food on Demand, we got out of the blocks early on that last year. We are really pleased with its performance last year. Of course, others are coming into the market now, so we are seeing a little bit of a slowdown. But I have to say it grew by 27% in H1, so we are pleased with the Food on Demand performance as well.
Benjamin Yokyong-Zoega: Understood. Thank you very much.
Operator: Thank you. Our next question comes from Izabel Dobreva with Morgan Stanley. Please unmute your line and ask your question.
Simon Roberts: Isabel, good morning.
Izabel Dobreva: Hello, good morning. Thank you for taking my questions. My first one is around the phasing of your price investments across the year. We have seen a big improvement in your value credentials over the H1. I am wondering to what extent did your expectation for the food inflation evolution over the course of the year impact the phasing? Was there a case of frontloading as perhaps you expected higher input cost headwinds in the H2? My second question, just following up on the rapid grocery market.
Izabel Dobreva: What, in your view, is the best action plan to defend market share from here, given the entry of some competitors in the space who have their own market share ambitions? Is your expectation that their entry may actually enlarge the market, meaning that you can still sustain a high level of growth? And then my final question on Nectar360. Could you talk us through how you are adapting the proposition for agentic commerce?
Simon Roberts: Excellent. Okay. Let's take each of those in turn. So in terms of your first question, we've delivered our plan in the H1, Isabel, exactly as we planned. So when we look at our relative price position, obviously that's a function both of what we've done, but also what others have done. And so when we think about the environment overall, we come to the end of the H1 of the year in a very strong value position. We've constantly obviously made sure we look week to week to make sure our competitiveness is where it needs to be. But just to be really clear, we've not made any different choices to we planned. To your point, what is different is that inflation is at a lower level than I think most of the forecasters imagined at the beginning of the year.
Simon Roberts: We never made a specific view on where inflation would get to, but obviously inflation is running lower than most forecasters thought. For us, around 2%. And I think as we come into this period, we're not seeing a lot of move at the moment, as you'll know. I think when we look at the food categories, I think a couple of things going on there. I think it's clear, obviously, in some of the branded categories where it's more dominant suppliers there, very focused on maintaining volume. Whereas in fresh categories, I think the pressure is building for obvious reasons, and when we think about fertilizer and energy and the other inputs into fresh food. So I think in fresh food, a bit of pressure is building now, which I think will feed through in time.
Simon Roberts: And obviously what we'll continue to do is balance the right value position for our customers and getting inflation through to the shelf where we need to. I think it's hard to be clear of the timing of that what exactly play out. As I say, so far in the quarter, there's not been too much where the hedging rolls over. I think the pressure on fresh food categories will build. In terms of the rapid grocery market, look, I think just to recap there. Obviously, we were really pleased to take advantage of the move we made last year. We talked to you at the time about the growth that gave us in our performance. And actually, as I said earlier on in the call, we've come through the H1 of the year. Others, not surprisingly, have moved into the market. It's the fastest growing channel.
Simon Roberts: To operate in this market, it is not surprising everyone wants to be there. Actually, what we are finding is we would not expect there to be a lot of growth coming from that into Q3 because we have taken the growth that is there. But we are finding lots of opportunities to improve the operational performance, think about how the efficiency of the operation works, and I think once you have taken a big scale capacity on, that should not be underestimated in terms of how we improve operationally and from a profitability point of view, how we continue to drive that.
Simon Roberts: I think, look, On Demand is clearly going to be a very important part of the way consumers shop, and that is why businesses like ours are really thinking about and starting to put in place all of the propositional and operational requirements we need to be right there for customers however they want to shop. We have seen online grocery overall grow by 9%. I would also make the point that as we think about On Demand, it is 3% of our total grocery sales today. It has given a lot of growth, but by far and away, the biggest channel is still physical shopping. I think, as we look ahead, we will see growth in On Demand. Obviously everyone will cycle through their first year of building capacity. We continue to be really confident in our overall proposition.
Simon Roberts: As I say, we grew volume a bit in our core supermarkets in Q2, even though we were lapping a very big period of On Demand last year. Then on Nectar360, Bláthnaid Bergin might also want to come in on this as well. I think, looking at we continue to be really focused on the strength of Nectar360. As I described earlier, the capabilities that we are building in Nectar360, the capabilities for brands and clients to build their own campaigns, the capabilities to be able to convert the customer participation into really strong campaigns and returns is all coming through well. Obviously we are looking ahead, are not we, Bláthnaid Bergin? To make sure that we are also in a really strong place as customers shop differently, however agentic commerce develops.
Bláthnaid Bergin: One of the things we are quite focused on at the moment is how do we improve our discoverability, how do we improve our customer experience. We are really watching the trends, what is emerging, and how do we stay aligned with those and move at the pace that the market is moving at and our customers are moving at on that.
Simon Roberts: Thank you, Subha. I hope we have answered all your questions there. Thank you.
Operator: Thank you. Our next question comes from Xavier Le Mené with Bank of America, Merrill Lynch. Please unmute your line and ask your question.
Xavier Le Mené: Xavier, good morning.
Xavier Le Mené: Good morning.
Simon Roberts: We can't hear Xavier.
Operator: Xavier, please unmute your line and ask your question.
Simon Roberts: Let's just try.
Operator: Xavier?
Simon Roberts: See whether we can make this work.
Xavier Le Mené: Oh, yes. Sorry. Working now.
Simon Roberts: We can hear you. Great.
Xavier Le Mené: Okay, good. Okay. It's not like it was. Thank you for taking my question. First one, if you look at the underlying operating profits, which grew by 3.6%, and your top line growth excluding fuel was lower than that, can you help us to think about the operating leverage that you had in H1 and what we should expect in H2? Especially, can you help us to understand the cost bridge from here, labor cost, energy cost, and how are you hedging the cost going forward? Because potentially that's where some inflation should start to rise going forward. That is the first question. Second one, just on the operating profit you did in H1, so the GBP 525 million, what would need actually to go wrong in H2 to land at the bottom of your guidance? Just to understand a bit of that.
Xavier Le Mené: The last point is more on transferring non-food space into food. Can you help us to understand the kind of return on invested capital you've got there? What it means in terms of sales density, but also in terms of margin?
Simon Roberts: Xavier, thank you. Bláthnaid, do you want to take the first two?
Bláthnaid Bergin: Why don't I start with the first two? If you look at the middle of our guidance range and you look at where we plan to land for the year-end, we will deliver profit leverage over the life of the plan. We're pretty pleased with that outcome, subject to everything going our way, which is a great second question on that. What would need to happen for it to land at the bottom of the range? Look at volume and what happens in the budget next week and consumer sentiment. But we are fully locked and loaded for Christmas. We're going to serve up a great Christmas to our customers. We are ready to go on that. What is coming through?
Bláthnaid Bergin: If we stand back and look at the costs in particular, if we look at the hedging, we hedge about 12 to 18 months out in advance. We're pretty locked and loaded for this year and for the H1 of next year. Let's see where energy prices move in the market, but we may see some of those costs coming through into the COGS from our suppliers as well, as Simon Roberts talked about earlier on that. Do you want to take the
Simon Roberts: Yeah, no, thanks. On the space questions, Xavier, maybe just a half step back in terms of what we've been implementing through Next Level Sainsbury's. You'll remember two key streams of strategic drive here. One was to make sure that we repurpose, to your question, more of the space in our supermarkets to food. Specifically, we've been continuing to drive that program forward. We actually made investments in the H1 of this year overall in about 170 stores, supermarkets, and convenience stores. In supermarkets, we've been increasingly reducing the space to general merchandise and correspondingly increasing it to food, and particularly fresh food. We added significant space to food in the half. Importantly, the general merchandise change, just to give you a couple of points to emphasize that.
Simon Roberts: We've been able to improve the sales per stocking point up 6% in general merchandise. We've been able to make substantial labor reduction costs and also improve our working capital through reducing the stock holding in GM. Improved trading intensity in GM, improved assortment and operating cost benefits in food as we continue to drive that program in terms of our supermarket space. Separate to that, as you know, we continue to selectively open new stores, and we continue to open new space, in areas of the UK where we're very confident we can get a good return.
Simon Roberts: Actually, some of the stores that we've opened now which are now coming through their second year are getting good double-digit progress in performance. We're seeing in the stores we've added more space to food, both improvements in volume compared to the overall business and also in customer satisfaction as well. In summary, the space move in More for More is really delivering as we expected. Thank you, Xavier.
Operator: Thank you. Our next question comes from Elizabeth Moore with Citi. Please unmute your line and ask your question.
Simon Roberts: Hello, Elizabeth.
Bláthnaid Bergin: Hello, Elizabeth.
Elizabeth Moore: Morning, Simon. Morning, Bláthnaid. I just have one question, please. It was on On Demand as well, and given the kind of shift in competitive context there, obviously you still got your first-party platform in Chop Chop, which I assume is very small. I kind of think of it as maybe less than 5% of your total On Demand business.
Elizabeth Moore: I was just wondering how you are thinking about that now, given the step-up in competition on the third-party platforms and whether you might look to reemphasize your first-party platform. Thank you.
Simon Roberts: Well, look, I am not going to talk about our next phase plans today because we are here obviously talking about the H1 of this financial year, but maybe a couple of stats if it is helpful. Look, Chop Chop sales in the H1 of this year grew actually a bit ahead of our marketplace on-demand platform, with 34% up in Chop Chop. It is a much smaller part, as you say. Overall, in the marketplace, in the aggregators, we were up 27% in the half. As I said, actually, as we lap the comp, what we found was we have 35% up in the Q1, 17% up in the Q2. Whereas what we can see is a slightly higher performance in Chop Chop. So look, obviously, Chop Chop is a really important part of our proposition.
Simon Roberts: You heard on the presentation how what we have done on our app now is join together all of our propositions so it is easier and much less friction for customers to shop. We are very focused on making sure we have got the capabilities today and tomorrow in the online space. Sales up 9% in online overall. Customer satisfaction improving. We have done a lot of work to make sure that the customer experience in online is the one that we want to deliver for our customers.
Simon Roberts: So it is a real focus for us. As we look ahead to how customers can continue to evolve the way they shop in grocery, we are giving a lot of thought to make sure we continue to do the job that we need to do for them and build the capabilities accordingly. So we are really encouraged with how we have delivered on demand.
Simon Roberts: Chop Chop, a key part of our proposition, making sure that we create a seamless experience. As I say, part of doing that, of course, is to make sure that the physical store has great availability because we are picking in our stores, right? So one of the things we should never miss here is our availability performance is absolutely an underpin of delivering in on demand or in our core Groceries Online or in Chop Chop. You will remember in the presentation, we actually outperformed the market through the summer on availability by 2 points. I think that just shows how we get our store and logistics operations working to power online is also a really important part of this total platform we are building.
Simon Roberts: I will use that moment to say a big shout-out, actually, to all of our teams across supply chain logistics and in our stores this summer, because it was a really demanding summer. Actually, with temperatures up 38 degrees Celsius, it put fresh food supply chains across the UK under real pressure, and our team did an amazing job to make sure that we could deliver that outperformance on availability to keep operations strong, even despite the weather. I think that just shows the combination of both the human determination and commitment, but also the capabilities that we have in our business now. Thank you.
Operator: Thank you. Our next question comes from Sreedhar Mahamkali with UBS. Please unmute your line and ask your question.
Simon Roberts: Sridhar, hello.
Sreedhar Mahamkali: Hi, good morning. Can you hear me?
Simon Roberts: Yeah, I can hear you, Sridhar.
Bláthnaid Bergin: Loud and clear.
Sreedhar Mahamkali: Okay, very good. Thank you. Listen, thanks for taking my questions. I think most of them are done already. Just a couple of ones. One is a clarification, Simon. I think what you are saying, I understand what you are saying, but just wanted to double-check. That is, I think in the context of this period of what in some time versus industry for you, what does making balanced choices mean? Is that a change in trade plan to drive more volume or really trying to focus on profitable volume? I thought I heard the latter, but I just wanted to understand that a little bit more. Secondly, I think you hinted at efficiencies to come. You have built the bulk of the volume there in on demand and I guess really online as well. Have you started to see profitability improve already in the H1 in on demand?
Sreedhar Mahamkali: And maybe take a very big step back, talk about the online as a whole, how you are seeing profitability trend there, either in the H1 or maybe year out. If you could just talk through your thoughts there. Thank you.
Simon Roberts: Well, shall I try and maybe pick up the first question then, Bhanu, then maybe more broadly on online? Yeah, let us just recap because super important, Sridhar, to make sure we are all clear together. So look, I think we are all clear on the reality of volume in the market at the moment. We are all clear that it has become more subdued through Q2 for all the reasons we have talked about and just how much in what is already a very competitive market, everyone is competing hard for the volume that is there.
Simon Roberts: As I said a few minutes ago, we consistently see the strength of our proposition really connecting with customers, and therefore, our focus is on delivering and executing our plan to make sure that that trusted value week in, week out, and the ops that go with it, we are really in a good place.
Simon Roberts: Look, obviously, you wouldn't expect us to add activity in that isn't sustainable or isn't profitable. So when we think about where our plan is, we are going to obviously deliver for our customers the very best proposition in the H2 of this year. We are going to focus on the things that we know our customers really respond to. In our range, we have obviously tightened up our range a lot today. We have brought the lower level up, so now the 10.25, 10.65. And we have done that to make sure that within that framework, we will make the balanced choices we need to. So, we are not going to do things that aren't profitable. We are going to really focus on delivering the best offer this Christmas for customers. And we feel very confident about our food business.
Simon Roberts: After multi years of volume outperformance, multi years of new customers joining Sainsbury's, year on year on year now, we've demonstrated the strength of our offer, and we'll continue to make sure we deliver that in the H2 of this year and grow profit as we do it.
Bláthnaid Bergin: Let me take the online operations. Look, we are really proud of what we do in online. We've been at this for decades. We're pretty good at it. If I talk about the Groceries Online, let me start there and then I'll move on to FOD. If I look at the Groceries Online, our items picked per hour is really top end, top quartile. But if we look at some of the technologies that's coming, some of the AI, some how that can drive efficiency, we see further opportunity to get even better at what we do today. If I look at the FOD then on the other side of it, that has emerged and developed really quickly. There's a lot of learnings from Groceries Online that we can bring into that operation to drive efficiency.
Bláthnaid Bergin: For us this year, it's really about standing back and saying, how do we make a better, more efficient operation? How do we improve the customer experience as well, in the Food on Demand? More to come on that in the new year as we talk about our strategy.
Simon Roberts: Thank you, Sharada.
Operator: Thank you. Thank you. Our last question comes from Clive Black with Shore Capital. Please unmute your line and ask your question.
Simon Roberts: Clive, morning.
Clive Black: Yeah, morning. Glad to see you have changed the name of my company, which is novel. Thank you for your presentation and time. My questions, three if I may. Quick ones. Simon, you talked about changes in the game with respect to your productivity program. I know in the new year you will set out the next medium term outlook, but what do you mean by that? What is it that is changing the game? In that respect, are you indicating that you are confident of more productivity benefits to come? Then you set out on the Nectar program that you were looking for GBP 100 million of incremental gain to 2027, which is on track. I just wonder to what extent Pollen has changed that metric, gives you more confidence or even, again, could lead to an elevated contribution in time.
Clive Black: GBP 100 million is 3% of sale. The amount of questions on quick commerce at 3% of sales versus these other moving parts kind of staggers me. Then just lastly, diet suppressant drugs. You talked about fresh food sales being up 4% plus. I just wonder whether you are starting to see corresponding changes in demand around the impact of ultra-processed food and diet suppressant drugs that may be starting to influence the layout of your stores and where you take things going forward. Thank you.
Simon Roberts: Clive, thank you. We will definitely, it is corrected now on screen.
Clive Black: Very good.
Simon Roberts: So all good. Let us take those in turn. Look, I think on the first question that you know well, throughout our plan since we started in 2020, we have been really clear that we have to save in order to create the investment capacity in order to win. That has been the core foundation of how we have thought about our plan now over six years. As we said in the upfront presentation, we are on track to deliver GBP 1 billion of cost saving over three years. That will be GBP 2.3 billion of cost saving over the six years of Food First and Next Level Sainsbury's. We have got fantastic team in our business working day in, day out, looking at where we can become more efficient.
Simon Roberts: It is not about cost saving, it is about efficiency and productivity so that we can deliver better for customers, and we can also find new ways of working. I think you can see today, even in the H1 of this year, and if you take a fundamental in grocery retailing, how do you handle reducing products in the most optimized way so you reduce waste, you go back to the products as few occasions as necessary, and you make sure you get that freshness back in the supply chain? That would be a really good example where we are using AI technology. We have put a new capability in place. It is making double digit million impacts on the cost base. It is saving time in store. It is giving customers better freshness.
Simon Roberts: So whether it be that, whether it be what we are doing on self-checkouts, video analytics to make sure that we are helping everyone that comes to our store to fully pay for the items at the checkout, whether it be what we have done on facial recognition. So these are examples of technology-driven capabilities. We are thinking a lot about how we connect the whole operating system in the store together. When we think about all of those store operational tasks that happen hundreds, thousands of times every day in a store, there is a huge opportunity actually to think about how we do that in a really connected way with technology helping that. And we will be talking more about that with you as we look forward.
Simon Roberts: So productivity is absolutely the heart of the way we have delivered our plan today and of course, will be fundamental as we continue to look forward. It is one of the things you remember in 2024 when I said to you, we said to the market, we were taking the opportunity to invest in new technology, to invest in new capabilities at a time when other competitors did not have the balance sheet strength to do that. And you can see in the Next Level plan how that has really played through. Look, I think on your second point, we are really excited about Nectar and Nectar360.
Simon Roberts: And as I said earlier, Mark and Emma and the team have done a fantastic job really building a platform in Pollen, which means that now 600 campaigns in the H1, 100 plus clients, building unique capabilities that no one else in the retail media space are able to do today.
Simon Roberts: And you saw as a result of that investment and that capability, the kind of accreditation that Nectar360 is now getting. And look, we are not complacent here at all, but it is moving very quickly, as you know, and as you said, it is a fundamental part of delivering and building strategic capability for the future in grocery. And so we have got very exciting plans to continue to drive this forward. The highest returning investment in terms of capital, and it has been a huge focus in Next Level and will continue to drive on track to deliver GBP 100 million we committed. And almost more importantly, having leading capability in this, absolutely at the heart of this, that we made strategic investment choices that are giving us that competitive advantage. And look, I agree with you.
Simon Roberts: When we think about the topics we have covered on the call, retail media and loyalty that customers love is fundamental to creating value in this industry, and we have taken, as you know, a real leadership position in doing that. And then on your last question, look, I think maybe just half a step back on this. Sainsbury's over decades has always been at the heart of the nation's food conversation, however customers want to shop, whatever choices they want to make. And I think as we enter this period where making healthier choices is very front of mind for customers want good value food, but they do not want to compromise at all on the quality or on the nutrition of the food that they buy. And as you say, there are new trends happening, not least with GLP-1.
Simon Roberts: And so, we look at all of these shifts happening in the market. We are making a big shift on how do we shift in health. We have made a lot of moves in the H1 of the year, for example, in fiber, really putting fiber choices at the front of our customers' thing. Actually using Nectar, we are helping to nudge and point customers towards personalized choices about the different products we have, the different health choices they might want to make. Then specifically to your question, look, no surprise, the categories that are growing fastest as a result of GLP-1 are protein, dairy, produce. So we have just done the biggest space reset in our company for six years in fresh food, which means we are using our space to make sure we are responding to how customers want to shop.
Simon Roberts: Our job is to give customers the best choice and assortment. One of the things that we have done through Food First and Next Level Sainsbury's is to really champion the assortment we have. So whatever diet you want to buy to, Sainsbury's becomes your first choice, and that is the reason for the big fresh food reset we have just done this autumn. We have moved pretty much every fresh food area around in our stores, opened up capacity to the areas that are growing. So, in dairy, for example, one of the fastest fresh food category growth areas, we have really reset the store and we are seeing the benefits of that already.
Clive Black: Thank you very much for your time. Appreciate it.
Simon Roberts: Thanks, Clive.
Bláthnaid Bergin: Clyde.
Simon Roberts: Have we any more questions?
Operator: That was our final question.
Simon Roberts: All right. Let me just wrap up the call then to say, first of all, thank you for some very good questions this morning. I hope we have been able to give you all the color on the results on our latest this morning. It has been very good to speak together with you this morning. So a big thank you to Bronagh and I, and obviously look forward to seeing you soon. Thanks a lot for joining the call.
