And it really answers any questions that we have, around how this is not a topper, it is a main meal.
Robert Moskow: Okay. Scott that explains the marketing. But like I guess my question is, quantifiably, does it – does that number have to go higher to hit your 2027 goals? Or could you get there without it going higher?
Todd Cunfer: Rob, we look at this pretty closely because, ultimately, if you’re going to drive 25% growth in a simplistic form, a portion of it is going to come from penetration, a portion of it is going to come from buy rate. And the way we think the model works, is low 20% growth on the penetration. That gets us to our 20 million households. And you have to have, call it, low to mid-single digits growth in the buy rate, in order for that to work. So the sum of those two should be 25%, 26% kind of number. And the mix is not particularly important. Obviously, you want to have some of both, but we wanted really to be led by household penetration being in the low to mid-20s. That’s the range that we’re looking for. So, the direct answer to your question is you do need to see buying rate continue to grow, but it needs to grow at a low to mid-single digits.
Robert Moskow: Makes sense. Thank you
Operator: Our next question is from the line of Michael Lavery with Piper Sandler. Please proceed with your question.
Michael Lavery: Thank you. Good morning. I just wanted to come back to some of the new technologies you’ve touched on, and I understand that they’re in process and you probably don’t want to be too specific. But can you just help us understand, is it more – would it be retrofitting equipment or replacing it? Or is it like a software upgrade that can increase speeds? Or maybe just some way to have it in our heads the right way. And then a little bit of a sense of the magnitude of cost. And is that already contemplated in things like potentially, I don’t know if the timing could be as soon as this year, but would it be in this year’s CapEx? How do we think about just where it fits from a magnitude and timing of cost piece of that as well?
Scott Morris: So Michael, I’ll handle the first part and either Todd and/or Billy can touch on the second part from a capital standpoint. So – the very first thing that we’re doing and the single biggest focus is, to optimize the current manufacturing footprint that we have and the lines that we have. And there is a lot of opportunity there, and we – within the results that we’re showing in this quarter and that we have planned over the next 12 to 18 months. You’ll continue to see really nice progress in that area. Secondarily, there are small retrofits to existing lines that we have, and we’ve done enough work on where we know that they can be increased productivity, and throughput levels on those lines. And then third, there is a next generation of technology that we’ve touched on.
We are 100% confident it is going to work. It’s just a question of when. And we – and I’ll turn it over to Todd from a capital standpoint. But we’re basically going to work this out over the next kind of periods of time here in the not distant future, where we’ll look at what’s happening on the throughput – we’re getting and then the new technologies. And we will layer these things in – at the appropriate levels, but we have budgeted this very, very conservatively too.
Todd Cunfer: So from a CapEx perspective, this new technology, as you know, will be the seventh line that we have on the Bethlehem campus. We believe it will be ready to start producing product sometime in the first half of 2025. It absolutely – we’re spending money on it now. It’s absolutely part of the $210 million capital guidance we’ve given the year. A big chunk of the, spend on this new technology will be this year. There will be some in next year as well, but a good chunk of it is this year. As we look forward, and if it proves to be successful, we will use this technology on new lines in places like Ennis, as we build out bad capacity. And then potentially, depending on how big of a margin improvement, we have with us do technology. We will look at potentially retrofitting existing lines as well, but that’s kind of TBD.
Billy Cyr: Yes. I just want to amplify that we view manufacturing, as a core competency for us and a significant competitive advantage. And so, both Scott and Todd referenced a significant investment in the new technology. But as Scott indicated, there are other pieces, too, that are less significant than the seventh line in Bethlehem that we are implementing as we go along. The ultimate goal of all of this, though, is to end up in a situation, where we’re delivering a significant improvement in the return on invested capital for our shareholders. And we’re also delivering improvements in the quality that the consumer gets. And we think if we do those things well, it will be very, very difficult for somebody to match our execution and our capability.
Michael Lavery: Okay. That’s great color. And just a quick follow-up on the commodity color. You had, I think, about almost a 400 basis point benefit there. Anything in particular driving that? And I think the chicken processing plant in Ennis – not only is going to get more favorable as volumes build, but I think pricing that’s a little bit more stable. So would it be right, to think chicken isn’t a big swing factor there? Or is that favorable as well?
Scott Morris: Yes. So obviously, as we talked about on the call back in February, we do have some deflation. We’re about 75% covered now. So obviously, we’ve got risk and opportunity for about quarter of our input costs at this point, but we feel very good about where we are from an input cost perspective. You mentioned chicken processing. It’s going really, really well. I mean, it was a headwind last year as we were – as we brought it up as there just was not enough volume going through that facility by design, as Ennis grows in volume over time. But with Ennis being close to 25% of our capacity this year. It’s starting to – the economics of that are improving greatly this year, and they will continue to improve over the next couple of years.
We obviously yield Billy in his comments. As mentioned, what a fantastic start to the year we’ve had in yield. All the OEE projects we have, particularly in Bethlehem also in Ennis have been tremendous. Our Kitchen South facility is operating really, really well right now. We’re – we could not be more pleased with what’s going on there. And then we obviously had some a little bit of pricing in Q1 that has benefited. That’s the last piece of that that does not persist for the remainder of the year. But those are the components of it.
Michael Lavery: Okay. Great. Thanks so much.
Operator: Thank you. Our final question for today comes from the line of Jon Andersen with William Blair. Please proceed with your question.
Jon Andersen: Hi, good morning. Thanks for the question. Mine is on – I have a two part on media. I think you mentioned in the prepared remarks that media was about 14% of sales in the quarter. Can you remind us what your kind of plan for the year is, and talk a little bit about the cadence there? And then I think I also heard maybe Billy mentioned that the customer acquisition costs, have improved of late. Could you discuss a little bit how volatile that CAC figure is has been in the past, and perhaps why you think you’re seeing current improvement? Thanks.
Billy Cyr: Yes, I’ll start off, and I’ll let Scott talk about the CAC. Yes, about 14% of net sales this year grew about 23%, 24% year-over-year. That percent of net is down year-over-year. So, we are starting to get a little bit of leverage in the P&L from media. Our expectation is it will grow relatively with sales for the full year. So last year it was around 11%. We think it will be approximately 11%, or slightly less this year as we’ve talked about, volume is too strong. We will potentially look at pulling back a little bit of media spend to pull things off a bit, and we continue to monitor that very, very closely. From a cadence perspective, we will spend fairly heavily in Q2. But from first half, second half, it will be a little bit more balanced than we normally have. So more in the first half, but less as a percentage of than we’ve historically had. I’ll let Scott talk about the CAC.
Scott Morris: Yes. I’ll start by saying, when we plan this out over many years, we did not anticipate that we would be able to keep CAC as stable as it has been. It’s been really – it’s been pretty amazing to be able to like years and years in, to have a similar CAC level. Typically, the deeper you get into your TAM, our total addressable market, typically the higher your CAC go up. Now it’s — to even start talking about CAC from a packaged goods organization, a little bit unusual. But we do think about it that way and track it that way. So, we’re getting further and further into our theoretical TAM, which we watch and continues to expand a little bit every year also. We see our CAC being incredibly stable. The only time we really saw volatility in our CAC.
It’s been very range-bound. The only time we really push towards the top, top of the range and stay there for a bit was during like kind of the unwinding of COVID, and along with the really significant price increases that we’ve put through. It took a while for that to settle consumers to get comfortable. And then, for the CAC to return kind of into those normal levels. Now one piece on that that I think is helpful. When we look at not only the communication and the advertising, the performance is extraordinary on the creative. But the other piece is on the media planning piece, there’s incredible work that goes into that and we continue to press into some new areas. And some people – I have people come and go, oh, I saw one of your ads for the first time, you were on golf, or you are on some type of sports.
We continue to kind of press into these new areas. And we’re actually seeing in some of them better performance than, we have in existing areas, which leads us to believe that as we continue to expand into these new media channels and using some of these new techniques. And even technologies that we have a really nice runway ahead of us, to continue to keep CAC within that range.
Billy Cyr: And let me just add to that, John, is one of the things that we’ve seen is, as we have grown the visibility of our retail presence, meaning second fridges, larger fridges, end cap fridges and whatnot, it does help with the efficiency of the media, meaning advertising that you’re spending against a business that has a very high level of retail visibility, is much more efficient than if we were spending the media against small fridges in the middle of the aisle. And so, the significant improvement in second and third fridges and end caps and fridge islands and some retailers, is helping maintain that CAC at a very, very effective or efficient level.
Jon Andersen: Great. Thank you.
Operator: Thank you. At this time, I’ll turn the floor back to further remarks from management.
Billy Cyr: Great. Thank you. I’ll leave you with one thought. This is from an unknown author. But if you want the best seat in the house, you’ll have to move the dog. To which I would add, all you have to do is make a move for the fridge where Freshpet is kept and the dog will gladly vacate the seat. Thank you very much for your interest.
Operator: This will conclude today’s conference. You may now disconnect your lines at this time. We thank you for your participation.
