J Sainsbury's (JSNSF) CEO Michael Coupe on Q1 2017/2018 Trading Update - Earnings Call Transcript

J Sainsbury plc (OTCQX:JSNSF) Q1 2017/2018 Trading Update Earnings Conference Call July 4, 2017 3:45 AM ET

Executives

Kevin O'Byrne - Chief Financial Officer

Michael Coupe - Chief Executive Officer

Analysts

Edouard Aubin - Morgan Stanley

Bruno Monteyne - Bernstein

James Tracey - Redburn

Clive Black - Shore Capital

Rob Joyce - Goldman Sachs

Andrew Gwynn - Exane

David McCarthy - HSBC

James Grzinic - Jefferies

Dan Ekstein - UBS

Niamh McSherry - Deutsche Bank

Mike Dennis - Lazarus

Stewart McGuire - Credit Suisse

Kiranjot Grewal - Bank of America

Michael Coupe

Good morning, everyone, and welcome to the Sainsbury's Quarter 1 Trading Update Call. And I'm joined here today by our CFO, Kevin O'Byrne.

We're pleased with the strong performance across the group driven by our differentiated strategy and our leading combination of quality, value, and choice across foods, general merchandise, clothing, and financial services. I'm going to ask Kevin to run through some of our Q1 highlights in a moment, and then we'll hand over to you all for the Q&A.

Kevin O'Byrne

Thanks, Mike, and welcome, everyone. I'll take you through the key numbers. And given that we've changed the way we report, I'll also make - just make it clear exactly what the new definitions are.

Turning first to like-for-like sales growth. Retail like-for-like sales grew 2.3% over the quarter. This is a combined Sainsbury's and Argos number and is effectively pro forma given that we didn't own Argos in the comparative period last year. It compares with the combined number of 0.3% that we reported for Q4.

We've also disclosed total sales growth for the 3 product categories: General Merchandise, Clothing, and Grocery, and this is how we now run the business, and we've given history on a consistent definition for Q3 and Q4.

In all cases, these are combined Sainsbury's and Argos sales, although the majority of the Argos sales fall into the General Merchandise category. Again, these are pro forma numbers for the comparative period last year.

Touching on grocery first. We've seen an acceleration over the quarter with like-for-like transactions growth across all our grocery channels, and total sales growth of 3%. We've worked hard with our suppliers to improve our price position versus competitors and seeing lower inflation in the quarter than the market average. We're also very pleased with online growth of 8% and convenience growth of 10%.

General Merchandise grew 1%, outperforming the markets. There are a number of moving parts behind this: Argos continues to deliver good growth over the quarter, well ahead of a slowing non-food retail markets despite some impact from lower TV sales as we anniversaried Euro 16.

Fast Track participation continues to grow and really comes into its own over periods like the warm weather we had during the quarter when we're able to provide fans, paddling pools, and barbecues, et cetera, on the same day.

However, at the total gross level, we closed another 36 Argos and Homebase concessions during the quarter. And while we also opened 36 Argos stores and Sainsbury's, 17 of these were replacements. So a net reduction overall.

In total, we've now closed 78 Argos stores and 84 Habitats in home-based concessions over the last year. Overall, this has been a drag on the headline sales growth rate.

Last but not least, our two clothing business continues to outperform the market with total sales growth of nearly 7%, well ahead of a weak clothing market. So overall, we've made a very good start to the year.

We'll now open up the call to your questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Your first question is from Edouard Aubin from Morgan Stanley. Please go ahead.

Edouard Aubin

Yes. Good morning, guys.

Michael Coupe

Morning.

Edouard Aubin

Good morning. Just wondering, just two quick questions for me. Your food volumes on a like-for-like basis, I guess, deteriorated a bit sequentially in Q4. Can you confirm that they improved in Q1 sequentially?

And second question related to that is were your food like-for-like volume still negative in Q1?

Michael Coupe

Yes, I mean, first of all, to be honest, the first answer is yes, they did improve sequentially. And the second answer was there was a slight downturn in volume, but around the margins. So yes, the answer to your question, both your questions is yes.

Kevin O'Byrne

Interesting. In the mix there, we saw own brand growing stronger than the overall business behind lots of innovation in the ranges.

Edouard Aubin

Okay. And just a quick one on produce because you highlight that in the release with volumes up around 1%, can you just come back on the drivers? Obviously, price must have been a driver. But can you come back on the other drivers of the good performance in produce?

Michael Coupe

Yes, I mean our produce, we think we did a pretty good job. We talked a lot in the past about Value Simplicity and the fact that that led to a combination of better availability, more fresh products in stores.

So we turned the products faster. We've also done lots of work on ranges, so a lot of innovation in things like prepared fruit, so we're pleased with the underlying performance.

And of course, it's become one of the battlegrounds within grocery of late. So the fact that we're able to see growth in that category, we think, is encouraging.

Edouard Aubin

Okay. Thank you.

Operator

Thank you. Your next question is from Bruno Monteyne from Bernstein. Please go ahead.

Bruno Monteyne

Good morning.

Michael Coupe

Morning.

Bruno Monteyne

Last year, at about the same time, you were just starting or finalizing the wage increase to your staff, which threw off the H2 profitability. Given that we have higher inflation this time than last year, so both the higher wage increase possibly and cost inflation, why wouldn't the impact on H2 be similar to last year and force us sort of downgrading of profitability?

And my second question is around the discounters. Were they not opening new space, so whatever you've been facing now for the period, do you see any material change in the way they trade impacting your like for likes more or less in the last 6 months than before?

Michael Coupe

Yes, I mean I - you would imagine it's -- we have a point of view on how we would see our colleague wages moving forward. And we've had that point of view for a number of years, especially on the back of the national living wage and have planned our business accordingly.

So you have to wait and see what we announce when we come to announce in August because that's when we tell our colleagues about their annual pay review and it will be wrong on this call to speculate about what that may or may not look like.

But what I would say is that we factored into our plans, not just in this year, but also in future years, what we think the impacts on our business is, and therefore what we need to do to mitigate the impact of any increase in the national living wage, and ultimately our ambition to stay ahead of that number as a corporation.

So I'm not sure I can go a lot further than that, Bruno. Again, I think the thing I'd say is that it's a trading statement and we are comfortable with consensus as it currently stands.

Bruno Monteyne

And is that different from last year? Because I understand, you can't give much on the wage increase itself. But if you say you factored it all in, how is that different from last year?

Michael Coupe

Yes, I mean, again, I'm not going to comment specifically on last year. I think we talked about some of the challenges last year in terms of underlying pricing, but also wage inflation.

But as I say, we've got plans for how we deal with national living wage as we look forward. Where we can, we will mitigate that impact on our business, and we're comfortable with consensus.

Kevin O'Byrne

Bruno, I think it's behind your question is that last year, there was an element of, sort of, having to give a wage rise ahead of where we had planned, if that's what's behind the question.

Our - when we're comfortable, consensus this year, it's in the context of the wage environment that we're living in. So we're happy with consensus given what our plans are for wages.

Michael Coupe

And then second question around discounters, I'm not sure I can give any specific color to that. I'm not sure there's anything that we could pull out in terms of particular trends, rates or trends, or indeed, impact of competition more generally. So I'm not sure if there's any more color I can give you on that, Bruno.

Kevin O'Byrne

I think the big change we all saw in the discounters over the last years is the increase in ranges, and we're not seeing that level of change anymore and that will be probably dictated by just space constraints, even increase the SKUs over the years, but they're limited with space.

Bruno Monteyne

Thank you very much.

Operator

Thank you for your question. Your next question is from James Tracey from Redburn. Please go ahead.

James Tracey

Yes. Good morning, guys.

Michael Coupe

Good morning.

James Tracey

Two questions for me. The first one is would you be able to say what your internal food price inflation was in the quarter? And the second question is, are you more confident on prospects of margin expansion versus how you felt 6 months ago?

Michael Coupe

Both interesting questions. I would point you as we did last time at the ONS headline numbers. You've seen a trend where food prices were deflationary as we came out at Christmas, as we came through back end of the quarter, our last quarter, so around March time, we're starting to see food inflation come through and that trend has continued and you can see that in the headline ONS data. We don't quote any internal numbers. There are lots of external data sources that you can look at, some of which are quite narrow and some of which are quite wide.

On the question on margin, it continues to be a competitive market. We would acknowledge that. We continue to do what we believe to be the right things for our business. And in the past, we've given you a point of view on how we'd expect our underlying net margin to develop over time.

So that 3% to 3.5% net margin over a 3 to 5 year period, we would continue to believe to be possible. After sort of the swings and roundabouts of how that comes about, I think we could spend lots of time speculating. Our job is to get on and do what we do, continue to look to differentiate our food offering and invest in the areas of business where there's growth potential.

Kevin O'Byrne

James, just in the context of the food inflation question, we're really pleased that we've improved our price position relative to others in the market over the quarter.

James Tracey

All right. Thanks, Mike. Thanks, Kevin.

Operator

Thank you for your question. Your next question from Clive Black from Shore Capital. Please go ahead.

Michael Coupe

Hi, Clive.

Clive Black

Hello?

Michael Coupe

Hello, can you hear us?

Clive Black

I am in Liverpool, yes. Not blessed by the warm weather downside, I’m afraid. A couple of things, if I may. Just on in terms of the weather, how much of a tailwind do you think that may have given you in the first quarter, so that we don't necessarily run away with our sales for the rest of the year in the food business.

And in terms of food price inflation coming through, you kindly gave an indication of the timing there in the first half of the year. How do you see the profile - what do you see the pressure points in terms of food pricing at the moment as we look into the second half of the calendar year, please?

Michael Coupe

So on weather, you'll be surprised to know that sort of year-on-year, there aren't that many different sunshine days and warm weather days. It just happens that they came a little bit later this year and of course, a bit of a flurry because of the timing. It actually happened last year in May.

So I wouldn't call a lot of significance to the weather year-on-year. It's not that significant, especially when you stretch it over a 16-week quarter that began at the back end of March. So don't get too carried away about that.

We did comment in the footnotes about the timing of Easter and Mother's Day, which is, on balance, more significant than any weather changes. And of course, because again, it's a stretch over a 16-week quarter, it's less impactful than it would have been in the previous quarter.

As far as food price inflation, its concern, as Kevin has already highlighted, we are pleased that our relative price position to our competitors has improved in the quarter. I think as always, it's very difficult to speculate how things will play out over the next period of time.

For instance, we have seen prices of Jersey Royal potatoes and strawberries drop in the quarter. That's because we're seeing commodity prices fall. And indeed, we've seen the price of fuel come down a couple of notches in the quarter as well. So as and when there are opportunities to pass on price, cost price decreases to customers, that's going through pretty quickly into the marketplace.

So as always, Clive, if you can call currency and if you can call commodity markets, either you can do a better job than we can at predicting how things will play out over the next period of time.

Clive Black

I guess just in that respect- thanks for that, Mike. I guess just in that respect, I mean you've annualized against the exit or the -- sorry, the referendum for the U.K. to the European Union when there's a big movement in the pound. So would that lead us to expect, all things being equal, oil and currency and whatever we harvest and more settled inflationary environment and other?

Michael Coupe

I mean certainly, some of the initial impacts, most obviously, fuel will be a good example, where pretty quickly, fuel prices went up reasonably significantly. I think you're probably right. However, there are many products that are bought at 1-year contracts, and they haven't necessarily fully played out in the environment that we're in.

One year on, even now, the cost price pressures were being felt in the supply chains. However, we think we've done a pretty good job of mitigating those cost price pressures while working with our suppliers, by looking at our own internal processes and what we can do ourselves to lower our cost base, and therefore, to limit the impact on customers.

And I think that's reflected in the fact that our price position, relative to our mainstream competition, has got better. And indeed, we are the second largest purchaser of food in the U.K., so I think scale does come to bear on these types of issues.

Clive Black

Okay. Thanks very much.

Operator

Thank you. Your next question comes from Rob Joyce from Goldman Sachs. Please go ahead.

Rob Joyce

Good morning, guys.

Michael Coupe

Hi, Rob.

Rob Joyce

A couple for me. First one, just on the comments you made about price competition improving versus your competitors in the quarter -- sorry, your price competitiveness. Can you say how you're measuring this and is this still the case? I think it's something you said before, Mike, that you're as price-competitive as you've ever been. Is that still the case? That's my first one.

The second one just on wages, you discussed the living wage and how that's been around. Was it the living wage or competitor wage movements that were the main driver of last year's decision to change the wage increase around August last year?

Michael Coupe

I mean, on the price competitiveness, the external data sources, like Nielsen and Kantar, that would show that improving price position, so that there's specific references. Clearly, we can also see it in our own internal indices, which would confirm that. So you can triangulate their external and internal measures.

As far as wages are concerned, we start with the premise that we want to be ahead of the national living wage or the old living -- sorry, the old minimum wage as it was. And that's the primary driver of how we pitch our underlying pay increases.

And as we've already said, we have got a fairly good indication as to where that's likely to get to over the next period of time, not just this year but over the next couple of years.

And we would expect to be able to stay ahead of the national living wage as currently pitched by the government. And we'll do that by continuing to make sure that our business is more efficient than by saving the money that we will, we said we will save over the next few years, that £500 million that we saved over the last 3 years but also the £500 million in the future.

Rob Joyce

Okay. So competitive wage movements are less relevant to you guys than the living wage.

Michael Coupe

Well, competitive wage movements do make a difference, and certainly, is part of the picture that we will color in. And you've seen 1 or 2 significant commitments, albeit over quite a long period of time. So you're talking about commitments that will be made by others over an 18 month period.

One of the metrics we'd look at very closely is what our, what I'll call, labor turnover is. We continue to be blessed with 20,000 colleagues who worked for 20 years in Sainsbury's. And we don't see any significant movements in labor turnovers. So in the round, our colleagues who are wage package, which isn't just a headline rate of pay.

It's also things like paid breaks. It's also things like premium for working certain periods of time. It's also things like pensions and colleague discount cards, and indeed, a bonus payment. We believe and we see from our internal surveys that our colleagues think that in the round, that we're competitive.

As I say, the headline, we would look at is what's happening to our labor turnover. And it hasn't moved significantly over the last period of time.

Rob Joyce

Okay. All right. Thanks very much.

Operator

Thank you. Your next question, from Andrew Gwynn from Exane. Please go ahead.

Andrew Gwynn

Hi. Good morning. We seem to give in for two questions, let's go for two. First question is really just on where you see the consumer at present. I mean, you commented a little bit around that. But obviously, as opposed further - those who reap the financial press, we should be worried. But out in the real world, things seem a little bit more relaxed.

And then the second question, you opened the door a little bit, just looking at the headlines from the press call that they're obviously talking a little bit around this, sort of speculative on the M&A front.

I'm just wondering rather than necessarily going to too much precision there, but what's the broad criteria for your M&A strategy? Just so we can sort of make comments where it seems relevant.

Michael Coupe

Okay. Yes. Well, I suspect on the second one, we'll just come back to the answer we've already given, but perhaps I'll give a little bit more color on the broader context without being specific about the detail. But if you start with the consumer environment, you can see from the headlines that we don't think the consumer environment has changed much in the quarter. You might be able to pick out a little bit from the fact that when consumers feel that their income is being squeezed, they tend to eat in rather than eating out.

Certainly, our headline, own label sales, have grown ahead of the underlying grocery performance, which in and of itself is quite strong for this quarter. And indeed, we're seeing growth in things like Taste the Difference during the course of the quarter, which again would indicate that, that there's an element of trading up and people are eating in, which is something again that we see when customers stop eating out and start eating in. But I don't think there's anything dramatic that can be picked out.

People are much more concerned about their day-to-day lives, about making the most of the good weather when it hits and about doing the right things for their families. So we're not seeing anything that I would call out as being particularly significant at this point in the cycle.

But clearly, if we see income squeezed, more of that may change over time. I think -- so if you look at that headline opportunities, I guess there are 2 comments I would make broadly.

Firstly, as the second largest buyer of food in the U.K., clearly, we have scale advantages and clearly, that scale advantage could be brought to bear in some context. And you can speculate as to where that might be. We're not going to be specific about it, but we believe that there is an arbitrage driven by that scale advantage, firstly.

And secondly, we have already trialled franchise - franchising the Sainsbury's brand on convenience shops with Euro Garages. And on the face of it, that has the potential to increase the penetration of Sainsbury's stores in the market overall where we can't acquire those shops because they're owned by somebody else.

But there again is an arbitrage because we know that when we put the Sainsbury's space on an existing stores, whether we purchased it or whether it's a franchise, the sales will go up.

The brand is very powerful. As we said on the press call, inevitably in a business of our scale, lots of things are talked about, lots of time and lots of people talked to us about what opportunities may or may not come up. And as you also know, because I'm sure you're aware of it, in terms of being part of a large financial institution, many of these things don't come off.

And so it will be wrong for us to speculate and if we had something significant to say, we would say it. But clearly, lots of conversations I had by lots of companies, and that's particularly the case in these types of times.

Andrew Gwynn

Okay. I think that was clear as you can be. So thanks very much.

Operator

Thank you. Next question is from David McCarthy from HSBC. Please go ahead.

David McCarthy

Yes. Good morning, everyone.

Michael Coupe

Morning, Dave.

David McCarthy

Hi. Two questions. One is you talked about own label. Can you give us a track on what your own label participation has done over the last few years, where it came from? What it's fallen to and what it - where we are currently?

And then secondly, just want to clarify, do you include the Argos relocations within your like-for-like sales?

Michael Coupe

The answer to the second question is not, so no. And of course, this is where it gets quite muddy in terms of how we treat these things as we look forward. We now have Click & Collect in 200 shops, 140 of which is serving Argos. We have 70-odd Argos stores in Sainsbury's stores.

And so we are trying to give the best picture of how we look at the business, a headline like for like number, which doesn't include the Argos relocations and then breaking out each of the individual businesses in a way that hopefully, gives you somewhere tracking that over time, and indeed, giving you the historical reference to make sure that there is at least, a basis on which you can make judgments about the underlying performance.

On the first question, maybe if Kevin could give a bit of color on the sort of relative performance of own label.

Kevin O'Byrne

Yes, I mean, own label is clearly a large part of our business. And we've seen in the period we're reporting on, David, growth in own label. We've seen volume and value growth in -- by Sainsbury's, so we've seen growth in Taste the Difference.

And as Mike said, some of that could be down to change in some consumer behaviour. I think a lot of it's down to the fact that we launched 430 new products as we've mentioned in the announcement.

We've completed another 32 range of views on the back of all the work that was done last year, which is covering about 17% of the grocery sales. So a lot of innovation, a lot of newness and we're seeing customers responding very strongly to that.

So a big part of our business is growing. So our own label side of the business is growing ahead of the total growth of the business and ahead of the branded side of the business.

Michael Coupe

I think we'd have to - we'd probably ask James to just give you the sort of tracker of that over time. But we would see our own label penetration relative to our competitors as higher. And I think that's been the case for a long period of time and you'll be talking about decades, I think, where that's been the case.

David McCarthy

Yes, sure. I get that. It's more, I'm trying to get a feel for it in the last 12 months. Has your own label participation gone up by 1% or 2%? Just getting the feel for that.

Michael Coupe

I'm pretty sure it would have grown. I couldn't tell you the percentages off the top of my head, but it would be of that order of magnitude.

David McCarthy

Okay. So [indiscernible] get back to you that would be helpful. Thank you very much.

Operator

Thank you for your question. Your next question is from James Grzinic from Jefferies. Please go ahead.

James Grzinic

Yes. Good morning.

Michael Coupe

Good morning.

James Grzinic

Good morning. I just had a very quick one. Can you perhaps clarify what your market share performance was over the period for food as a whole as opposed to produce?

Michael Coupe

I'm looking, I don't know if we got the numbers at hand. Market share performance, it will be slightly down off the top of my head. But we can give you the exact number again. It depends on which reference because Kantar and Nielsen will show something slightly different.

James Grzinic

Both references would be great, just on the basis of the ones we're spending a lot of the money on Kantar if it doesn't work.

Michael Coupe

Yes, so if I said it was something like 0.1%, 0.2% down year-on-year, I suspect it's of that order of magnitude off the top of my head. But we can break out what we do have in terms of the various market sources.

But as I say, they're not always consistent. So as you said, certainly on the short-term basis, not necessarily the most reliable indicators.

James Grzinic

Okay. Thank you, Mike.

Operator

Your next question is from Dan Ekstein from UBS. Please go ahead.

Dan Ekstein

Thank you. Good morning, everyone. And two questions from me…

Michael Coupe

Morning.

Dan Ekstein

Just trying to sort of get clarification on the underlying Argos performance. I appreciate it's a bit messy with the change in how things are reported. But in Q4, general merchandise total sales were plus 1.5%, whereas total Argos sales were plus 3.8%.

So there's about 230 basis point spread between the two. Should we be thinking about a similar kind of spread in the first quarter for how we sort of get back to how underlying Argos is trading?

And then secondly, you say that you are on track to achieve your GBP 145 million of cost savings. Without asking you to give a specific figure, could you say how that compares to the sort of internal plans and budgets you've got for cost inflation, so wages, rates, rents, utilities, transportation, et cetera? Do your cost savings more than cover the budgeted inflation and if so, is there a bit left over to invest as you see fit?

Michael Coupe

I'll ask Kevin to answer both of those questions so I'm just going to relax and sit back for a second.

Kevin O'Byrne

Yes, on the second question, Dan, the answer is yes, the cost savings this year will be head of the cost inflation, which leaves us a little bit to invest. And on the first question, Argos underlying, I think the first thing is just probably to say, why are we reporting the way we're reporting at the moment?

We're reporting at the moment not to try and be difficult for you guys to do your numbers. It's because how we run the business. Every day, the business is more integrated. We've got 1 toy-buying team, we've got 1 electricals buying team. You can pick up Argos products in over 150 Sainsbury's stores where there isn't an Argos, et cetera.

So the business is more and more running as one business. And Mike runs the business with the Grocery channel, a General Merchandise channel and a Clothing channel, which is why we're reporting - they're reporting. As far as for the looking at the movement, you can look - there's a number of things you can look at.

One is the total sales. You can see we've restated quarter 3 and quarter 4 for you. So you can see sort of 1.5% to 1% and draw whatever conclusions you want to draw from that. But as you say, there's a number of factors behind the scenes. There's the store movements, which overall with all the tos and fros, we've probably closed about 38, 39 stores as we closed stores in Homebases and some local stores. So that's 4%, 4.5% of the store base will have changed in the last 12 months.

It will have come out in the last 12 months, which clearly affects the top line reported numbers. There is some other factors. I mentioned the TV sales in this particular quarter because of Euro '16. Entertainment in this particular quarter probably has impacted the total sales by maybe 0.3% because we didn't have certain movie launches and some games launches that we had this time last year. So there's a number of factors moving around.

Overall, we're very pleased with the performance of Argos. It's outperforming the market. We're growing in a number of categories, mobile, tech, the core electricals, toys and outperforming the available market data that we can see. So we're very pleased with the performance of the business and the momentum in the business at the moment.

Dan Ekstein

So simplifying assumption, you would focus kind of on the 50 basis point sequential move?

Kevin O'Byrne

That's the total sales in the overall general merchandise business. And clearly, Argos is a big part of that.

Dan Ekstein

Yes. Thank you.

Kevin O'Byrne

Thanks, Dan.

Operator

Thank you. Your next question is from Niamh McSherry from Deutsche Bank. Please go ahead.

Niamh McSherry

Morning.

Michael Coupe

Morning.

Niamh McSherry

I just had a quick one about the Fast Track delivery service. And obviously, it's growing very fast. So I was wondering, is that broadly kind of in line with your expectations or ahead, or slightly below your expectations? And also, can you give any indication of how large that business is now, the Fast Track delivery?

Michael Coupe

I'll ask Kevin to give you a view on the second part. I mean I guess, on the first part, the thing that we're pleased with, and perhaps, may have surprised us -- but with the benefit of hindsight, these things shouldn't be a surprise. It's the way that this business flexes up during times when customers really want to buy stuff. And that's particularly in the warm weather period.

So we're very pleased that the business has been able to adapt to quite a big surge in demand. And it shows how flexible the supply chain is that we bought when we bought the Argos business. And it's fair to say it's one of the key drivers of the business. It's what we expected when we bought the business.

We think the proposition is very strong. And as we roll out more Argos stores and Sainsbury's stores, and indeed, more Click & Collect points, it becomes even more potent in the market that we're seeing develop over the next period of time. In the end, customers will demand of us and people like us that they can buy general merchandise products, clothing products very quickly, have it delivered somewhere convenient to them within same day, and in our case, within four hours and we think that's a very powerful proposition.

So broadly speaking, it's not a surprise at headline level. Although some of the trends in the quarter were a pleasant surprise in the sense that we saw a big surge in demand when customers wanted things like fans and paddling pools, coincidental with the good weather in terms of the overall business. I'm looking at Kevin [indiscernible] for you.

Kevin O'Byrne

Fast Track collection, which is where people order and collect in their local store, is about 9% of the business. And Fast Track delivery to home is again, sort of high single digits. So it's a growing part of the business, maybe 16% of the sales through the Argos channel.

The interesting thing, this is becoming more and more digital business, with a very big percentage of the sales being clicked - being ordered before people walk into stores. So only about 40% of the business are people walking in off the streets where we didn't know they were coming. And we didn't know whether they were going to buy, and it's changing sort of literally, sort of month-by-month to be more online, more mobile, more digital.

Niamh McSherry

Okay. Thanks.

Operator

Thank you. Your next question, from Mike Dennis from Lazarus. Please go ahead.

Mike Dennis

Yes, good morning. I've got three questions.

Michael Coupe

Morning.

Mike Dennis

Morning. First question is you give the online and the convenience growth. What's the growth in the supermarket business? And in terms of Argos, could you give us some sort of trend in terms of the 4.3% out of Q4 and the 4 out of Q3 where credit growth is within that now in Q1, if the Argos like-for-like is down in the sort of 1% region?

And what that actually means going forward, where is that figure in your likelihood going to go now from the sort of current trend that you're seeing in Q1 and what's the growth in Taste the Difference?

Michael Coupe

Okay...

Kevin O'Byrne

I'm not sure we give - I mean, the growth in the supermarkets is positive as you would imagine to deliver the numbers, but we don't give out -- we don't break it out. Taste the Difference is positive. As I said, we're growing both by Sainsbury's and Taste the Difference but not - we don't give out details sort of line-by-line on each category.

And Argos credit growth, it's - the Argos AFS business, I think we probably indicated before, this isn't the year that we're looking to materially grow that business. We're betting it into the group, frankly, running it better and changing it over in some of the processes in the bank.

But we're pleased with that business, it's well-provided for. I know some commentary about -- lots of commentary in the public domain about the credit in the market. Just a few words on the Argos credit business, the average loan there is about £450. The average monthly payment is £40 per month and we're very comfortable with the provisioning against that business at the moment.

Mike Dennis

But has anything actually changed in terms of - I mean, obviously, the loan - the credit growth, unsecured credit market, the growth rate has fallen. We can see that from the ONS figures. But within your business, has bad debt started to rise, or just the whole trend gone down to sort of 1%?

Kevin O'Byrne

No, what we forecast for bad debt actually to rise in our plan. So in our underlying numbers, which we'd be feeding into the consensus, we've actually forecasted them to rise a little bit. We think we're prudently provided. But we just think that's sensible given the current climate. But we haven't -- the FS loan book hasn't changed materially in the year in size.

Michael Coupe

Yes, I guess the underlying question is have you grown Argos sales through growing the credit book? The answer to that question is not.

Kevin O'Byrne

No.

Mike Dennis

Okay, and you didn't tell me about Taste the Difference. You said It was positive, but it must have been....

Kevin O'Byrne

Positive. It's positive -- well, the biggest part of our own brand business is the -- by Sainsbury's brand by some measure. So it's the largest part of the business. And that's grown both value and volume in the period. And overall, if you combine Taste the Difference by Sainsbury's and our other sort of sub-brands, those have collectively grown ahead of the total grocery business.

Mike Dennis

Okay. Thank you very much.

Operator

Thank you. Your next question is from Stewart McGuire from Credit Suisse.

Stewart McGuire

Morning, guys.

Michael Coupe

Morning.

Stewart McGuire

Just a couple of questions from me. Can you clarify on the like-for-likes that if you have opened an Argos store within a Sainsbury's supermarket, that Sainsbury's supermarket then comes out of your like-for-likes? I think that was far from Dave's question. Question number one.

Question number two, on online grocery, can you give us a split between what is Click & Collect, and what is delivery to home?

And then third question, I think you said at the beginning of the call that you're - you had lower inflation in the quarter than the market. Is that - you think that your input cost inflation is lower than the market or that you passed that lower inflation along to the customer?

Michael Coupe

Yes, so I think if I get the essence of your question on how we treat Argos stores in Sainsbury's stores, we continue to report our like-for-like grocery business as it was, if that makes sense.

So in effect, it's a store-on-store performance as the Sainsbury's store would have been either with or without the Argos implant. But we don't include the Argos sales of the store-in-store in the Sainsbury's stores sales. Does that help?

Stewart McGuire

It does. Can I...

Michael Coupe

So to some extent, it works slightly to your disadvantage because if we take space out of a Sainsbury's store to put a Argos store in-store, then in effect, that has the potential to have a slight impact on the Sainsbury's underlying store sales.

Stewart McGuire

Right, that was my point, good.

Michael Coupe

So it's probably on balance, slightly disadvantageous. And the way that we're doing it will be at the margins. So that answers the question.

Stewart McGuire

It does. Thank you.

Kevin O'Byrne

And on the Click & Collect points, too, there's 145 locations for groceries. You can Click & Collect. So it's a relatively small part of the total online grocery business.

Michael Coupe

As far as inflation is concerned, I guess you can answer the question both ways, one or another. We are passing on less to our customers and our competitors -- or at least some of our competitors are, at the moment, so we're seeing our price in position relative to our competitors improve.

And that's because we continue to challenge ourselves with our suppliers, challenge the sourcing of a lot of our products and also make sure that we do everything we can within the underlying constraint of our business to lower our costs.

And where opportunities arise where we can pass on benefits to customers, fuel would be a good sample where we've led the way recently. Strawberries and Jersey Royal potatoes and a couple of other examples where commodity prices have fallen.

And therefore, we're able to enjoy a lower cost price as we've been able to pass those on to our customers as well. So we do - we think we've done a pretty good job as a business at keeping a lid on the inflationary pressures that we see in the marketplace.

Stewart McGuire

Very good. Thank you.

Operator

Thank you. [Operator Instructions] Your next question is from Rob Joyce from Goldman Sachs. Please go ahead.

Rob Joyce

Yes. Just a quick one. Can you quantify any of the positive impact that you've seen in the supermarkets, on the grocery sales from where you've added in an Argos concession or an Argos store?

Michael Coupe

Yes, we've said very pretty publicly now for a couple of quarters that we see a halo of 1% to 2%, and that halo sticks around. So it's not a sort of one-off benefit that suddenly dies away. We see that now in the stores that have been open for well over a year.

So some of the stores are pushing towards their second anniversary, would you believe. So we've got pretty good experience now. And one of the things that gives us confidence in synergy case is that we see that, not just in the stores that we've had trading for a long period time as and when we convert stores and we're now up to sort of high 70s in terms of Argos stores in Sainsbury's stores. We see that halo effect pretty consistently across the business. So it's undoubtedly a benefit.

Rob Joyce

So sorry, so I may have misunderstood. I thought that 1 to 2 was the level of out performance of the Argos store versus the store it replaced. Or is that the grocery, what you're seeing in the supermarket sales?

Michael Coupe

Yes, just - so there are 2 things. One is when we take an Argos store and put it in a Sainsbury's store, broadly speaking, we see that sales transfer to the business so we don't lose sales, which is actually slightly better than the business case that we originally had.

So hopefully, that gives clarity on that point. And then secondly, when we put an Argos concession store in store in a Sainsbury's store, regardless of whether that's a relocation or a new piece of space in a new sort of white opportunity, clean opportunity, we see a halo of 1% to 2% on our grocery sales.

Rob Joyce

Okay. That’s great. Thanks very much.

Operator

Thanks for your question. Your next question is from Kiranjot Grewal from Bank of America. Please go ahead.

Kiranjot Grewal

Hey. Just two questions. One, how are your infill Argos stores performing? And secondly, you rolled out same day online delivery for grocery last year. How is that progressing? What's been the take-up of that so far?

Michael Coupe

Yes, I mean the in-fills are performing broadly as we said throughout, which is they're meeting the expectations, if not slightly exceeding our expectations, which is why we've got the confidence to go really aggressively and started rolling those out. And we will get to somewhere between 130 and 150 Argos stores in Sainsbury's stores during the course of this financial year.

And we've committed to the 250 Argos stores in Sainsbury's store within 2.5 years, which is some going, it means that not far off, half of the Sainsbury's supermarkets will have an Argos concession in them. In terms of same day and online, I think we're in the sort of 30s in terms of same-day delivery and online groceries.

It's an area of opportunity, and we're looking at how we can adapt to our business to improve the cycles of ordering and replenishment. So I wouldn't be surprised. Although we haven't made any public commitments if we see same-day delivery roll out over time as we get more confident in the underlying business model.

And of course, the more we can utilize the 24-hour clock, the more capacity we can put into our business, and therefore, the more orders we can fulfil over time. So actually, certainly, something that's high up our agenda, the ability to order and replenish more quickly for our online grocery business.

But so far, so good. Of course, the other thing we're doing is we've got, so 1-hour delivery service called, Chop Chop, operating in Central London, which is quite interesting and potentially quite exciting opportunity as well.

Kevin O'Byrne

Just to scale it, it's in about 30 stores out of 600 sort of supermarkets. So it's still a relatively small part of the business.

Kiranjot Grewal

Okay. Thank you.

Operator

Thank you. We have no further questions.

Michael Coupe

Okay. Thank you, everybody. No doubt, we'll see you over the next quarter. We are next due to update at the beginning of November. So we'll give you a little summer break, and we'll see you at some point in the next few weeks and months. Thank you.