Ben Theurer: Good afternoon. And thanks for taking my question. So Lubi, I wanted to dig a little bit into the potential of your gross margin and how we should think about this? Because clearly, I know you were targeting to be somewhat positive this quarter. You’re talking about breakeven for the year, this quarter still didn’t turn out. But just help us understand what’s been driving the cost up so much compared to 3, 4 years ago when you were able to achieve gross margins in the 30% plus range? And is that something you think is achievable? Or is there something structural to the cost of your product that is impacting and impeding you of reaching those levels you had, just call it maybe pre-pandemic, right before the pandemic? That would be my first question.
Ethan Brown: Yes. No, that’s a good question. So I think this is an area that kind of can frustrate our operations team. We’re about a year in now to implementing lean management and it all takes 5 years to get an organization to be fully leaned out and operating according to those principles. But we’re taking it very seriously, and they’re doing great work at the plant level. They’re driving – I think we took like $1 or so out of COGS on a year-over-year basis, but two things are working here against us on that front. One is just pricing, right? Like we’ve taken down pricing dramatically since the period you referenced. And second is mix has changed. There’s definitely a pretty significant impact from mix. So the gains that we’re seeing on whether it’s direct labor or direct material or reduced logistics or things of that nature are kind of being swamped by the pricing measures we took as well as some of the mix changes.
And so that’s why we’re so focused right on pricing. We obviously are going to continue to drive down costs, and address the mix issue and things of that nature, but the primary tools that we are looking at from a change perspective is moderating our pricing programs. But Lubi, don’t know if you want to add to that?
Lubi Kutua: Yes, Ben, the only thing I would add to that is from a COGS per pound perspective, if you look over the last couple of years, say, the last 12 to 24 months or so. Clearly, there has been some softness in demand. And so there has been an impact from just volume deleveraging and also the impact from underutilization fees, right? And so we’ve done a lot of work over the last 12 months or so to really try to consolidate the network. We think we’re going to start to see greater benefits from that in future periods. But those are things that I wouldn’t consider structural. I mean clearly, there’s challenges that remain in the category today, and we got to figure out a way to stabilize the business in the U.S. and get that back to growth.
But I wouldn’t consider those as structural hurdles, right, in terms of the cost structure. And so as Ethan said, I think a large part of this does come down to pricing and then I think if we’re successful at restoring growth in the business and some of the fixed cost absorption issues and things like underutilization along with the work that we’re doing from a network perspective should sort of resolve itself.
Ethan Brown: Yes, I think that’s exactly right. And we – as we look at sort of what changed between August and now, certainly, the lower volumes impacted our ability to call this one, right? And then our trade payment, right, so it’s less on the COGS side and more on those factors for right now.
Ben Theurer: Okay. And then just one for me to like kind of try to get your thoughts on this idea of the concept of if you want to – you obviously said you’re going to spend a lot of time on telling consumers and convincing consumers of the health aspects and just the benefits it has, not only to health but also to the environment, etcetera. So ultimately, talking about this being a superior premium product and usually in consumer products for healthier products, for superior products, you can charge premiums, you ultimately get a better pricing, making this a more exclusive product. So is that something that you would consider within your strategy, particularly in retail, creating brand value, creating something that just on purpose is not striving for price parity, but actually for a significant premium because it is something better and to make it profitable through that?
Ethan Brown: Yes. Look, that’s a great question, and I don’t want to sort of show too much of our hand. So I can’t give a particularly detailed answer. But I think the way to think about our pricing and our value proposition is going to be vary in certain segments, it’s going to be very aggressive in terms of reaching price parity. And we’re seeing some absolutely amazing exert that our team has done such good work in some of those channels. But in retail, particularly as we try to remove some of the targets even though we think they’re unfair. We are going to kind of get into that area of maybe a more premium good. And that will, I think, drive a justification for pricing at a higher level as well. And it gets back to are we trying to in retail right now across the chasm to the mainstream consumer.
Are we kind of regrouping getting our margins right, getting the product value proposition cleaned up and selling maybe a higher priced product to a group of early adopters in early mainstream. So I think that the direction of your question, I think, is spot on.
Ben Theurer: Perfect. Ethan, thank you very much.
Operator: Thank you. Next question will be from Adam Samuelson, Goldman Sachs. Please go ahead.
Adam Samuelson: Yes. Thank you. Good evening, everyone.
Ethan Brown: Hi, Adam.
Adam Samuelson: Hi. So I guess going – continuing on the pricing and margin discussion, if I look at the business, the U.S. pricing per pound is $0.80 or so, $0.80, $0.90 higher than it is internationally. It moves around quarter-to-quarter a little bit depending on promotions and mix and FX. How big of a difference would you frame the cost to serve that international business versus the domestic? So as part of the plan here, hey, we have better – we’re seeing better consumption growth. We’re seeing better demand. Maybe there is less price elasticity if we can get our pricing points in Europe closer to where they are in the U.S. or is the point that domestically in retail, we need the price – kind of price cuts are not working, and so we can make it profitable you raise price even if we have to sacrifice volume just trying to dimensionalize where along the continuum we are in terms of the plan of attack going forward?
