Brian Harbour: Okay. Understood. In the Foodservice segment, I think in the most recent quarter, your growth in gross profit and growth in operating expenses were sort of similar. Do you think that you can see kind of more operating leverage in that segment going forward? Is that kind of just a function of where you are with kind of the hiring cycle or what else will kind of drive, the growth rates of those two lines?
George Holm: Well, we see that, our productivity has got much better, and we’ve had a good comeback there, but there’s still more to be done. Actually, Core-Mark, who was probably affected the most, going through COVID was the one that came back the fastest from an operational standpoint, they did a terrific job. So, that’s part of it. The hiring of salespeople, we’ve carried a big payroll of people that were not on commission for a period of time. We’ll cycle through that. It was a good investment. Glad we did it. And then the capacity that we’ve added. When you open new facilities, there is a definite learning curve, and it’s going to have, it’s going to come along with higher expenses for a period of time, also good investments.
And then, from an IT standpoint, we’ve invested heavily there. We’re on the path to get to one ERP, a very slow path, because that always comes with disruption, and we’re pretty careful with that. And then those would be the areas, I would say, where our expense is higher. Certainly insurance, which I should probably have Pat address that.
Patrick Hatcher: Yes. And I’ll just jump in on that. So, I mean, as we’ve talked there, we definitely have seen some higher OpEx, but I do want to point out that, yes, we were able to grow gross profit faster and so it dropped nicely, some nice margin expansion at the EBITDA line. When it comes to insurance specifically, not to go into too much details, but we are a high deductible insurer. And, so we have third-party insurers that cover everything above the deductible with some limitations, but for that deductible, according to GAAP, we established an accrual. And, there’s just been some market dynamics. And so this quarter in particular, that expense was a little higher than what we expected. And that has a lot to do with how many miles you’re driving, it has a lot to do with the industry and the incidents they’re seeing and the severity of those incidents.
But we don’t expect going forward that we would have that additional expense like we saw this quarter. It was really a bit of a catch up. And, we expect to manage it going forward. But there are some things that we can’t manage, like we don’t manage the overall industry, obviously.
George Holm: Yes. And I would make the statement too. When you look at the quarter that we just reported, when you look at the insurance headwinds that we had, the inventory holding gains that we had the previous year, It was quite a quarter for us. We were really up against a lot, particularly from an inventory standpoint within Vistar. So, couldn’t be more pleased.
Brian Harbour: Thank you.
Operator: And we have our next question from Joshua Long with Stephens.
Joshua Long: Great. Thank you for taking my questions. Encouraged to hear about the growth on the new account side. It also sounds like you had noted maybe a reengagement of your kind of existing consumers, maybe some opportunity to drive wallet share penetration. Could you talk a little bit more about that?
George Holm: Well, it’s interesting when you look at the detail in the account level. There are certainly more restaurants. I don’t have, what the actual numbers. I don’t think anybody does. But, these spaces are all filling up, and it’s very rare that a restaurant that goes dark, that something else ends up coming in to that location other than a restaurant, very rare. And what we see is that, our penetration within the account appears not to be what they would normally be for us. We typically have the ability to add SKUs to existing business, and that wasn’t showing up. But then when we get to the end of the month and we run reports around the amount of SKUs that they’re buying and are they not buying SKUs that they were buying a year ago.
What we’re finding is, we’re adding SKUs with that customer that was, buying 14 cases of French fries a week last year, maybe buying 11 now. I think it’s because there’s more competition out there, and there’s just more units open. So, that’ll settle back in. One of the things I think that is helping our sales at the account level is, a lot of customers reduce their days and reduce their hours. And that was more, of course, around labor, availability than anything. We’re seeing that start to go the other way as well where, they’re adding hours and they’re, going back to six days, or going back to seven days a week in which they’re open. Just another one of those many things that changed, during this pandemic, and are gradually going back to normal state.
So, the fact that we’re still adding SKUs to the account or the accounts in general tells me that, as the industry totally normalizes, these spaces are awful, then I think that’s going to show up in better, actual dollar or case penetration within those accounts. So that’s where I see some upside for us.
Joshua Long: Great. Thank you for that. And then recently, you announced a pretty interesting product partnership on the premium dessert side. I’m just curious if that’s something that was maybe a one-off opportunity or something you could see or we should expect, other opportunities down the line in terms of just being able to kind of add options, elevate, product quality, but then also, kind of speak to the convenience and just overall value proposition that you bring to your customers.
George Holm: I think if there’s an area that will do more of that, it’ll probably be in the Convenience area. But the arrangement that we did, it’s just a high quality manufacturer. We’re making sure that for our specified product that they’re using their products so that we can then market their brand alongside of ours. It would be great if we could do that in more areas. I think this is probably not a one-off, but it’s certainly not a new strategy.
Joshua Long: Got it. That’s helpful. And then last one for me. When we think about kind of segments where you’ve had an opportunity to drive continued growth and you already have a leadership position, micro markets is something that we’ve talked about on prior calls. Curious if you could just provide an update there in terms of, maybe the kind of end consumer, end customer moving towards and building out that micro market business as we think about kind of a normalization and the return to office and work environment?
Patrick Hatcher: Yes. Josh, this is Patrick. Micro markets just continue to grow. The technology gets better and better and less expensive. So, let’s checkout, and the opportunity to provide just a much broader selection, you can bring in refrigerated, frozen, hot, and then all the different types of candy snacks and beverages in all different sizes. So, there’s just a lot of attractive things to it. So as the operators that Vistar works with, they’ll sell that into office spaces. They just have the opportunity to really expand upon what they’ve had in the past, and we see just it continuing to grow, and they continue to either create new spaces for micro markets, or they replace old vending banks and put in a micro market. But either way, it’s a net positive because of all the additional SKUs and categories they can add to that market.
George Holm: Yes. We’ve also had places where they had an employee cafeteria in the past, shut that down during the COVID, and then open back up as a micro market as opposed to, a trade line type situation. And, that’s great for us because we really don’t play in most of the non-commercial areas of our business, from the Foodservice.
Joshua Long: Thank you.
Operator: And we have our next question from Jeffrey Bernstein with Barclays.
Jeffrey Bernstein: Great. Thank you very much. Two questions. First one, just the, I think you mentioned strong and accelerating sales growth to close fiscal 2Q, and I know you mentioned into the holidays, obviously, early fiscal 3Q hit by weather. But besides weather, are you seeing any change in the macro in I mean, your foodservice accounts, are they within the Foodservice segment, or do you think it’s purely weather? I know some people have talked about maybe a slower macro in recent weeks or months, I’m just trying to get your sense how you decipher between weather and perhaps a slow and macro? I’m going to have one follow-up.
George Holm: Yes. Well, we only have the one week coming out of the weather, and that was very normal. So, I mean, that’s a good sign, but it is only one week. And certainly, in Q2 at the end of Q2, we were helped by, having a five day ship week versus a four of the previous year. So, that helped at the end of the quarter. I don’t really see a difference. I just don’t know that I can say that three weeks from now. But right now, we look at what happened in January as a flip that was weather related.
Jeffrey Bernstein: Great. Now, that’s encouraging. And then, George, I think you just mentioned in terms of restaurant boxes, I feel like through COVID, a lot of people came to a consensus that maybe there were 10% fewer restaurants or 10% closed COVID. And for a while, it sounded like those boxes were not necessarily filling. That month-after-month, maybe somebody would come into one, but that there was another that was emptying out. So in the end, you weren’t seeing a net recovery in terms of the number of units, but I think you mentioned that it sounds like maybe you’re now seeing those empty boxes filling up. So, I’m just wondering I know you said it’s hard to find good data. So, for sure, it’s much harder for us than for you. But where are we in terms of the recovery back to the prior peak restaurant count? Just trying to get your sense for, those boxes filling back up again, which would be good for everybody.
George Holm: Yes. That’s hard to tell. I can say them in my travels. I don’t see many empty restaurants any longer. I probably wouldn’t have said that even six months ago. So, I think they’re filling up. I look at our number of accounts, and we’re, so far ahead of 2019 as far as number of accounts, particularly independent restaurant accounts. I think that for the health of the industry, I hope that we don’t get overbuilt again. But I think we’re in a pretty good spot.
Jeffrey Bernstein: And actually just lastly, the independent segment, I know you mentioned it’s always competitive and you continue to invest in your sales force. I think you mentioned it’s up 8% year-on-year. It sounds like some of your peers are perhaps more aggressively doing something similar. So, I’m wondering whether you’re finding any incremental challenge, finding good labor or increased turnover or anything that’s making it harder for you to pursue what you’ve always done because other players are now getting more aggressive going after similar independent salespeople perhaps? Thank you.
