Scott Morris: Yes. Let me touch on this, I’m sure Billy might add to it. But I look at this a lot, and I think it’s interesting. And I’ll try and be brief, but just from a perspective standpoint. Today, let me talk about grocery for a second first. So in grocery, we’re 72% ACV, and we’re by far the number one brand. All the other number one brands are in the 90s from an ACV standpoint, right? And that — and that’s typically in 4 feet. So across grocery, we have 2,000 coolers, 2,000 double coolers, 2,000 stores with double coolers. So you start thinking about that, like there’s upside in ACV, but think about the upside on the double cooler standpoint, especially because we are the leading brand in total, right, in total dollar sales we’re the leading brand in grocery, and we only have 4 feet in most stores.
That — I mean that’s pretty extraordinary opportunity sitting in front of us. And when we do add that, that gives us opportunity to add a wider variety of SKUs, have increased presence in aisle. So it’s pretty amazing. Like now, switch to mass for a second. In total mass, we have 200 double coolers that’s across Walmart and Target. So the opportunity there is pretty amazing, too. So we have around 80% distribution in mass. But we have very few double coolers. So we think that the opportunity is not only on the ACV side, but on the double cooler side, that gives us broader visibility in aisle. It gives us more TDPs, more of variety of products. And the other thing that’s importantly in a lot of these stores, more holding power because over the course of a weekend, especially on some of our key SKUs, they’re constantly out of stock.
And if we can add a second fridge, it allows us to have more holding power on some of those. So add all that with developing online, which we touched on a few minutes ago, Canada being years behind, the UK opportunity, et cetera, it’s pretty — we feel terrific about the opportunity from an ACV standpoint. Now all that being said, the majority of our model is driven by same-store sales. We typically see high teens and up to low 20% same-store sales growth with like existing stores, existing coolers. So that’s the core of it. It’s driven by the advertising, but there’s so much upside from an ACV and a growth from a cooler standpoint.
Jon Andersen: Scott, you talked about…
Billy Cyr: Jon, just one other thing on the unmeasured versus measured. We are expecting to have unmeasured growth that would add about 3 points to our growth in 2024, I call it at least 3 points. It was heavier than that in the fourth quarter, as you can obviously see. We’re in an awful lot of Costcos at this point. We’ll continue to see the benefit of that, particularly in the first half. It won’t be quite as strong in the second half of the year as we lack the performance we had in the second half of ’23.
Jon Andersen: Okay, great. That’s helpful. I’ll leave it there. Thanks.
Operator: The next question is from the line of Bryan Spillane with Bank of America. Please proceed with your question.
Bryan Spillane: Hey, good morning guys.
Billy Cyr: Good morning.
Bryan Spillane: Hey, so just wanted to follow up on one quick point. I think you just mentioned it in response to the last question, in terms of just out of stocks on key SKUs. Can you just update us now on sort of where you stand on in-stock levels on a regular basis? And I guess, what I’m really trying to drive at is, are out-of-stocks still impacting sales growth, right? Meaning, are you still leaving some on the table because you’re out of stock in key periods on key SKUs?
Billy Cyr: Yeah. Bryan, if there are out of stocks at retail, it’s a function of the high velocity in that store and the store’s inability to keep the fridge stocked at an adequate level. Our actual shipments to our customers, we’ve been running in the 98%, 99% fill rates very consistently since the beginning of this year, actually, even in the last back part of the fourth quarter of last year. And so there’s not an issue with our shipments or supplying to the customers. It’s really a matter of how well the stores execute on the replenishment of the fridges.
Bryan Spillane: Thank you.
Operator: Our next question is from the line of Bill Chappell with Truist Securities. Please proceed with your questions.
Bill Chappell: Thanks, good morning. Thanks for taking my question. Billy, Scott, just kind of asking it a different way, why isn’t CapEx going to be greater over the next year or two? I mean, I guess going back to the original IPO, the thought was, we’re going to build out Bethlehem, and then we’re going to add one in the Midwest, and then maybe we’ll add another facility on the West Coast as more and more demand gets there. And you just talked about this year being an inflection point, how you’re kind of going mainstream, how you could be 40 million households even before we get to UK and Canada. Why aren’t we talking about another facility or somebody on the West Coast or stepping things up? And I understand things and you’ve been more conservative on the existing, but if we’re now at an inflection point, why aren’t we talking about the future?
Billy Cyr: Bill, it’s a good question. First of all, as we described in the prepared comments, the three things that we’re doing to maximize the throughput on our existing footprint. So first is on the existing lines, drive up the OEs. The second part is on each of our sites, find ways to get more lines in them so we avoid having to construct all the infrastructure. Think of that as wastewater treatment facility, central utilities, loading docks and whatnot. And the third part is investing in new technologies. Our assessment based on what we know today is that, that infrastructure that we’ve got within the normal technologies we have planned can allow us to meet our growth goals all the way out until almost 2029 at this point if we maintain our growth at, call it, the 25% rate.
The question then could be why wouldn’t you want to go faster? And our comment on that has been, we have found, we execute very well at around the 25% growth rate level, meaning engineering, staffing, organizational capability, design, construct and start of facilities, the ability to hire and train people. And if we were to push ahead and grow at an even faster rate, we think we might get ourselves in a little bit of executional trouble. And so we prefer to stay at that rate. And so if we stay at that rate, our existing footprint will meet our needs, we believe, until about 2029, at which point we would need to look at another site if some — if we haven’t had another — some other technology change or any other form of intervention.
Bill Chappell: Got it. And I guess kind of related, does that kind of put international somewhat on the backburner for the foreseeable future? Because I know, you feel like there’s still opportunity in Canada and the UK and other places in Europe. But you’re going to be capacity constrained just to meet your existing needs in the US. So is that kind of the way I should be looking at it? Or would there be some additional CapEx if you saw the international starting to tip?
Billy Cyr: Yeah. Bill, I should have put an asterisk behind that. All that was very focused on the North American business. We’ve concluded over the last couple of years that our European business is very robust and it’s a very good opportunity. But supplying the business from the US was not the most reliable. It wasn’t really a cost issue. It’s more of a reliability issue. So we are in development on alternatives that would give us a more reliable source of supply coming out of Europe. But we have been very clear that if we were to do that, it would not be a greenfield operation on our own part. We would find a partner to do that with. And so we don’t want to get any further than saying that. But suffice it to say, if we were to go down that path, it would be much, much lighter on the capital than what we are doing to build out greenfield operations in the US.
Bill Chappell: Got it. Thanks for the color.
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.
Billy Cyr: Good morning.
Michael Lavery: You’ve touched on some of the ways you’re looking at better technology for efficiency and adding stuffing lines anywhere you can in the place that you have. But can you give us a sense of how much opportunity there could be from longer run times and just having a way to reduce changeovers? Is that something that could also have an impact? And if so, how achievable or how within reach could that be?
Billy Cyr: Yeah. Michael, it’s a really interesting point because we started up in Ennis, the second bag line in the fourth quarter of last year, and it’s now running at a — not full time, but it’s running at a pretty good rate. And we’re starting to see some of the benefit that you’re describing because now that we don’t have to produce the entire product lineup of bags on a single line, which forces you do lots and lots of changeovers, that second line is much, much more productive. We’re expecting to see a similar benefit when we start up the second rolls line in Ennis, and we already get that benefit in Pennsylvania because we have six lines in Pennsylvania, and we use them very judiciously, the high-speed lines run long and deep runs, and the smaller lines run lots of changeovers.
And so our belief is that as we build out the Ennis site and we get enough lines so we could be more and more specialized, we think we’re going to see a very significant benefit from that. It is not modeled into our forecast going forward, but we are already seeing early indications of that based on the start-up of the second bag line in Ennis.
Todd Cunfer: Yeah. So Michael, just to follow up on that. Today, we have 12 lines in operations, six in Bethlehem, three in Ennis, three in our Kitchen South facility. Fast forward a couple of years, we’ll have over 20 lines. So to Billy’s point, you can imagine there’ll be certain lines that will be just dedicated to just one or two SKUs literally. And then the efficiency that we will get off of that, we believe there’s a tremendous amount of upside. And we’re constantly looking at the SKU mix to make sure they’re optimizing the portfolio as well to not put under burden the facilities. But we’re seeing some early signs of the benefit of having that extra capacity, and we think there’s more to come.
Michael Lavery: And that is a benefit that you said you haven’t modeled in, in terms of how you’ve given any of your targets or as going forward?
Todd Cunfer: No. Not yet.
Michael Lavery: And then just to follow up on the Complete Nutrition launch. Can you just give us essence of how that’s going? And is it playing a role that you had hoped and expected? And just an update on kind of how that’s progressing.
Scott Morris: Yeah, it’s actually done a little bit better than we anticipated actually. So something we put in last year to make the portfolio a little bit more accessible, little bit more affordable to consumers. We wanted to react to what was going on in the market. And again, I want to say that, that is margin neutral for us. But we were able to do some work around formulation in order to provide a great product that we’re incredibly proud of. In fact, I fed my dog that last night. And it’s done quite well. It’s been exactly what it was designed to do, bring in new consumers into the franchise. We’re seeing nice sales on it, and we’re seeing — we’ve also been able to see really nice amount of new consumers coming in, and we know that they’re trying that product.
So it’s done what we’ve designed it to do, and it’s performing well to the point where we’re even — we’ll continue to consider is there anything else around the portfolio we might do on that over time. But actually, to the last question that was asked, we are — as we’re adding things, we are decreasing our number of SKUs over the kind of the next 12 to 18 months. We’re actually going to bring down the end of our tail and clean it up so we can be more efficient in our production.
Michael Lavery: Okay, great. Thanks so much.
Operator: Thank you. Our next question is from the line of Robert Moskow with TD Cowen. Please proceed with your questions.
Robert Moskow: Hi, thanks for the question. Two quick things. You mentioned that your buy rate is now at $96 a year and you’re bumping up against your household penetration target, you’re at 19% and the target’s 20%. And I think you’ve answered this in different ways, but doesn’t that really mean that the buying rate this year will have to increase pretty substantially assuming — if 20% is the number. Is this the year where buying rate really needs to increase? And do you have like a number internally as to where it needs to go? And then I have a quick follow-up.
Billy Cyr: Yeah. We’ve always said, Rob, that sort of the long-term algorithm here is that you have penetration growth rates in the 20%, 21%, 22% range, and then buy rate be up in the, call it, 5%, 6% range, and that collectively gets you to the growth rate. So you’re right, we do need to see that grow. Going back to the Scott’s comments earlier, a big part of that is from the increase in number of HIPPOHs because that obviously pulled the whole portfolio up. They’re obviously a smaller share of the total business, but they do pull the portfolio up. And so as we increase the number of HIPPOHs, the buy rate will go up in addition to the consumers who are in the franchise. But you’re right, we do need to see the buy rate growing in the, call it, mid-single-digit range.
Robert Moskow: Okay. And then the follow-up is, I didn’t hear any mention of repeat data today. I’m sure it looks great. But this is a year where there was a lot of trial. You’re advertising a lot. One of your competitors was advertising a lot. What data do you look at internally to make sure that the people who are trying this for the first time are repeating it at the rate that you would hope that they would?
Billy Cyr: Yeah. Rob, part of the reason we haven’t talked a lot about lately was there has been a data source change on that, it’s kind of confusing to look at the two different data sources. Suffice it to say, in either data source, the repeat rates are continuing to be strong and growing. It’s just there’s a different metric, and we just need to get ourselves comfortable that the new metric that’s available to us is consistent and predictable. But we are — no matter which sources we’re looking at, we’re seeing that the repeat rates are in line with where they’ve been in the past, maybe a smidge higher.
Todd Cunfer: And if it was — if they weren’t strong, you would definitely see that. You wouldn’t see the HIPPOHs growing like they are.
Robert Moskow: Thanks, guys. Thank you.
Operator: Thank you. Our next question is from the line of Kaumil Gajrawala with Jefferies. Please proceed with your question.
Kaumil Gajrawala: Hey, guys. Good morning. Lots of conversation on managing growth to that 25% number. Can you maybe just talk about how you do that practically? Obviously, one thing that’s been asked a few times is around media spend. But how do you do that in practical terms, given where it seems like demand — seems like demand is? Is it — how are you dealing with your retailers, what the commitments are. Just generally sort of the nuts and bolts of pulling that — managing that figure?
Billy Cyr: Yeah. By far, the single biggest driver of our growth rate and the thing that we have to do to manage the growth rate is to control the media spend. And so we’re looking out across the year, but literally looking at it on a month-by-month basis and quarter-by-quarter basis because we know that when we spend money like we did in the fourth quarter, while we saw some benefit of that in the fourth quarter, particularly on household penetration growth, the real impact of that is felt in the first quarter of this year because they’re sort of a, acquire a consumer and let the consumer start down the purchase journey that they go through. So as we think about trying to manage our capacity, for example, before our rolls line in Ennis gets up the new rolls line in Phase 2, we have to really manage the media spending that we’re going to have in Q1, Q2 and Q3 in order to make sure that we don’t get ourselves in a position to do short shipping.
And we literally look at it on a monthly basis and on a quarterly basis. That’s really the biggest driver. We don’t really regulate what we do with our customers because those plans take a long time to put in place on both their part and our part. And so we really rather do is manage the demand with our media investments.
Kaumil Gajrawala: Okay, got it. Thank you.
Operator: Thank you. Our next question is from the line of Tom Palmer with Citi. Please proceed with your question.
Tom Palmer: Good morning. Thanks for the question. Wanted to ask on the logistics side, it’s been running lower than your long-term outlook assumed. I know last quarter, you mentioned favorability. But as we roll into 2024, I guess, how do we think about this progressing? And is 2024 kind of embedded in guidance more of a reversion to kind of the long-term target?
Todd Cunfer: No. We’ll — year-over-year, we will have a decline in the cost structure of our logistics. So we’re benefiting, obviously, from less miles, opening that second DC, and Texas is paying huge benefits. Billy mentioned our fill rates, our trucks are full, which obviously makes us more efficient as well. I mean, everyone is benefiting obviously from lower diesel and lower lane rates, and that’s always a wildcard what that looks like in the future. But with the steady market rates, we think there’s still some favorability to go. So whether there will be some inflationary impacts down the road, I’m sure those rates will move around a little bit. But at this point, long term, the 7.5%, we’re very, very confident that we can do better than that going forward.
Tom Palmer: Okay. Thank you. And then I just wanted to follow up on volume growth. Maybe asking it a bit of a different way, right? You are ramping capacity to your progression. So I would assume the absolute level of sales increases sequentially over the course of the year. Is there a point just given capacity rolling on that we might see a bigger step-up just from a sequential standpoint in one quarter versus another?
Billy Cyr: I mean the capacity — so we’ve guided our capacity to match up with what the normal sales patterns are. And if I understand the question correctly, the real focus here is that we’re managing our rolls capacity. Our business grows quite evenly across the whole portfolio. And so as you think about the cadence for the year, I think the cadence is a very normal cadence. It’s just — the one difference this year is that we’re going to start hot, but we’re going to start very hot in the first quarter because of the media we spent in the fourth quarter. And we have to pull that down a little bit as the year unfolds to live within the capacity limit we have on that rolls line. I think that’s the question you’re asking, is sort of the cadence. Is that where you’re going?
Tom Palmer: Yes. Yes. Thank you. That’s helpful.
Todd Cunfer: Yeah. sequentially, every quarter, the dollar amount, the way we see it right now, it will be higher. The growth rates will differ. And we believe right now, just based on capacity, the growth rates will slow as the quarters go on. But sequentially, the absolute dollars will increase.
Tom Palmer: Okay. Thank you.
Operator: Our next question is from the line of Connor Rattigan with Consumer Edge Research. Please proceed with your question.
Connor Rattigan: Hey guys. Good morning. Thanks for the question. So you’ve mentioned, one, to increase household penetration, convert users to HIPPOHs and then convert toppers to main meal users. So I guess just stepping back and thinking about consumer LTV, could you maybe help us just understand where you see the greatest opportunity? So I know you’d love to say all of the above, but I guess, if you were forced to pick or rank where you see the greatest opportunity, what would you rather see? Would it be adding an incremental user? Converting a user to a HIPPOH? Or converting a topper to a main meal user?
Billy Cyr: Yeah, Connor. So the way I think about this is that when you’re in the early innings of developing a category as we believe we still are, then you really is going to be focused on adding households, adding as many households as you can, and that’s really the focus of the bulk of our media. As you get further into it, you will turn and focus your time and attention on increasing the buying rate within those households. And that is naturally happening based on the product assortments that we’ve got, the presence of second fridges and whatnot. But the biggest driver for us right now is to get as many households into the fresh business. And then over time, we’ll migrate that more toward buying rate. But today, at the early stages of this category development, we believe household penetration still is the number one most important driver.
Connor Rattigan: Got it. Makes sense. And then I wanted to touch on the commentary on digital orders as well. So, Billly, I think you noted and expected about $100 million in 2024 sales online. So I’m not sure if I missed it, but did you quantify the current size of your digital sales? And also, too, I’m just wondering, I guess, right, is the expectation that the continued growth in digital orders is just representative of adding incremental consumers who are, I guess, digital-only consumers? Or is there some expected cannibalization or, I guess, migration from brick-and-mortar to online? Thanks.
