Rick Patel: Thank you. Good afternoon, everyone. I just had a question on active customers. So to what extent are you still being impacted by churn of COVID cohorts in terms of the headwind? And as we think beyond macro and pet household formation, can you talk about the levers you have to accelerate new customers that are under your control. I’m curious if you would consider leaning more into discounting or marketing to get more consumers into your ecosystem?
Sumit Singh: Sure. So our COVID cohorts, I’m just looking at the data here, they continue to settle out well. And the highest amount of churn that we’re seeing is actually in the near-term cohorts. So I have provided a little bit of color on this in my — in the last quarter’s earnings script, around customers that were picked up in the 2022 or the near-term cohort that were demonstrating more discretionary-type behavior. Beyond that, our COVID cohorts continue to settle out well and churn rate there has continued to stabilize. Now that we’re past the two year mark for the 2020 cohort and the 2021, for the most part, 2021 cohort as well. And so just to be sure, we’ve been consistent in saying that their retention was just low single-digit percent point lower than our classic kind of best high-quality legacy cohorts.
And that theme has essentially stayed consistent as well. The second part of your question is what levers do you have to accelerate in customer growth? Will you lean to discounts on marketing? So marketing our philosophy, as you know, is not to govern ourselves with a specific dollar amount rather to essentially spend up to the point where we see profitable returns. So it’s a more fluid budget, and our marketing teams are fully empowered. A large portion of our spend is lower funnel with healthy mixes into mid and upper funnel. So while upper funnel budget is less flexible and a lower funnel basis is where we act based on how we see market demand and consumer kind of predictive lifetime value. So we’re optimizing there appropriately in our opinion.
The discretionary that actually drives a very healthy level of customer acquisition into the platform, of course, is muted. And the gaps that we’re seeing primarily from a historical point of view are all deltas that are coming from those categories primarily. Our premium businesses continue to outpace historical acquisition rates, which we’re happy about because they build high-quality cohorts. In terms of discounting, we’ve always believed in building a high-quality, recurring business, less so a transactional business. We leaned into discounting tactics early in 2023 and late in 2022. And that is part of the reason why we believe these cohorts are not as sticky as our legacy cohort. So that’s a good lesson learned, even though intuition was true, we went out, tested it, found it to be true again, and we’ve pulled back on that pretty dramatically.
We don’t expect to bring that back. Yes, happy to take a follow-up.
Rick Patel: Thanks very much.
Operator: Our next question comes from Steven Zaccone with Citi. Please proceed.
Steven Zaccone: Great. Good afternoon. Thank you very much for taking my question. I wanted to follow up on the pricing discussion. So it sounds like the fourth quarter outlook embeds that pricing will basically be flat year-over-year. Is that the right way to think about your initial outlook for 2024? We’ve heard more about pet food supply coming to the market. So I’m just curious how you think pricing trends into next year?
Sumit Singh: Yes, it’s a good question. So a couple of points there. First, from our vantage point, we do not expect deflationary pressure in the consumables or the health categories. We’ve heard certain questions or acknowledge that there has been commentary out in the market around potential food deflation in the near term. We do not believe that deflationary pressure, which may exist or impact traditional grocery and food players will translate into the pet category, right? There’s — consumables and pet category are branded. Our vendors have significantly invested. And jointly, we are motivated in protecting MAP pricing framework, which broadly speaking, does not exist in conventional grocery per se, which is non-branded.
So anyway, so that’s the comment there. Second, pet inflation continues to come down, and this quarter running at mid-single digits. Ultimately, we believe this will very quickly come down to low single-digit levels, and there will be no impact of pricing or no benefit from pricing as we get into next year. You might see a little bit of pricing benefit getting into Q1 based on kind of how the cost price increases came in through 2022, 2023, but you will not see any impact or any benefit of pricing as we move out of our Q1 quarter. So what does that mean? It means that as the pricing environment continues to normalize, structural unit growth will essentially drive the majority of the overall topline growth. And we expect Chewy to remain in share gain position in 2024 as well.
Steven Zaccone: Okay. Understood. I do have a brief follow-up. So the announcement around some of the cost savings, just to be clear, do you expect those savings to flow to the bottom line? Or will you need to reinvest those savings in other initiatives?
