Robert Vitale: Well, the — in reverse order, the shell egg tend to be the smaller operators. So they are less represented in our customer base. So we would be adding distribution as we convert from shell eggs to value-added eggs. And for the first part of that question, we have an ongoing effort, multi-year, if not multi-decade, to move customers up that value-added pyramid. So, we continue to see growth in the higher value-added products, including the products that heavily skewed towards coffee outlets. And we would expect that trend to continue with the additional support of — we now have some tailwind created by increase in wage rates. So the single biggest variable in driving demand is that we are essentially taking labor and cost out of back of house operations by providing a product that’s closer to immediately servable.
So, as costs grow, that provides additional impetus for customers to move up the pyramid, both from value added — both from shell to value added, and up the value-added pyramid.
John Baumgartner: So, I mean, of that 40% of shell eggs volume out there, if it’s small operators, are those folks, do you think, more inclined to trading to — into precooked? Or if they’re kind of mom and pops and there’s less reason to take labor out of the system. Is there maybe less likelihood of chipping like that 40% over time?
Robert Vitale: I think you need to think about it like a pyramid with the 40% at the base, and we don’t necessarily take the base immediately to the top. What we do is we take the components along the pyramid as it thins from lower to higher in the pyramid. So, the first step will be to move an operator from shell to the lowest level of value-add. Meanwhile, we will be working on trying to move a higher value add to an even higher value add. So it’s a — you know, it’s not a leapfrog, it’s a continuum.
John Baumgartner: Okay. And then my follow up on Refrigerated Retail and the side dishes business there. Just given the theme this season from companies calling out consumer weakness, are you seeing any incremental erosion or a larger elasticity or risk to that business for the back half of the year? I mean, I know you have the innovation in marketing, but to what extent do you see that category becoming more of a discretionary product in this economy?
Matt Mainer: Yes, I mean, certainly I’ve seen that, like I mentioned, John, the pressure on the category, we don’t have the private label alternative. So I mean, that’s baked into our guidance. And as we talked about, we had the benefit of seasonality in the first half. And I think our challenge is how do we drive higher volume levels outside of the seasonal tailwind that we get. So I think, you know, definitely there’s elasticity within the category and that’s why we’re trying to invest behind the brands with both additional marketing and promo to try and drive people either the trial or back into the category.
John Baumgartner: Okay, thanks, Matt. Thanks, Rob.
Robert Vitale: Thank you.
Operator: Thank you. And our next question comes from Carla Casella with JP Morgan. Your line is open.
Carla Casella: Hi. You talked about some share losses, and I’m wondering, was that you specifically walking away or was it shelf space that went to a more value competitor?
Matt Mainer: I’m sorry, which segment, Carla?
Carla Casella: I think you talked about it in food service and, or Refrigerated. I thought I mentioned [Multiple Speakers]
Matt Mainer: Oh, Refrigerated. So that’s, again in cheese and eggs. Really the situation there is we lost with a couple of key customers and again, cheese continues more of the same. Obviously, we’ve had some challenges with our cheese business and we’ve continued to lose some distribution there. Small piece of the overall portfolio. And then on the egg side of things had some challenges given HPAI impacts, and we’re trying to get those from a year ago and we are trying to get back in some of that distribution and regain that distribution, but that’s really the situation there.
Carla Casella: Okay. And then can I just ask a follow up on pet? Once you get the distribution where you want it to be, will you be fully in house or will be using third party for any part of that business?
Matt Mainer: Yes, we’ll continue to have some third-party for sure in terms of a co-man given the — excuse me, the growth we’ve seen, especially in our more valued products. So, we will right size that and have to use some co-manufacturing.
Carla Casella: Have you disclosed who you use there?
Robert Vitale: We haven’t, but we’re moving from Smucker to independent third-party co-packers.
Carla Casella: Okay, great. Thank you.
Operator: Thank you. We have reached the end of our Q&A session. Thank you for joining us. You may now disconnect. Everyone have a great day.
