Unidentified Analyst: That’s super helpful.
Russell Diez-Canseco : Thanks, Guillermo.
Operator: The next question comes from the line of Matt Smith of Stifel. Matt, please go ahead.
Matt Smith: Hi. Good morning. I wanted to ask a little bit about the retailer environment. We’ve heard retailers prioritizing offering consumer choices in the inflationary environment and the desire to see more attractive price points. And maybe that fits in with the more aggressive promotional stance we’ve seen in the conventional egg category. But I wanted to get your perspective on if you’re still seeing distribution gains for the premium products? Are you hearing any pushback on your price points? Or are retailers seeing the benefits from the higher velocities that you bring to the egg shelf, and therefore, the premium product benefits the overall category?
Peter Pappas: Thanks, Matt. Yes, I think you kind of answered your own question. Yes, you’re exactly right. What retailers do see the value that we bring to the category and the fact that we are premium priced, we do deliver a healthy margin to them. And we’re a good counterbalance to the discounting and promotions that they’re executing currently. We still have a lot of runway from a distribution standpoint, both in new points of distribution, meaning new stores as well as increasing the number of items that we have in those existing stores. Our largest branded competitor has more than two times the number of items on shelves than we do in a conventional grocery store. And when you compare that to the number of SKUs that we have in our Natural segment, which is over almost six items, you can see the opportunities that exists in the largest channel of grocery and egg shopping in the state.
So we think that there’s just a tremendous amount of upside. Our partners are starting to recognize that upside and a lot of the work that we’re doing with them. So I’m extremely bullish in the second half, I think, really positions us quite well.
Matt Smith: Maybe as a follow-up, we’ve seen some retailer activity bringing in private label options that have some of the more premium attributes to them, whether it’s various claims other than conventional. Are you seeing shelf gains for those types of products as well? And if so, where are those shelf gains coming from? Is that the conventional products shelves that getting a little smaller to accommodate that?
Peter Pappas: Yes. I think imitation is the greatest form of flattery. And so we’re flattered that others seek to replicate what we’re doing. But our brand is a very, very powerful brand and it stands for something more than just the price. And fortunately, retailers and shoppers recognize that. So yes, we are starting to see retailers dabble a little bit in that space. But I think as you can see, it’s not encroaching in our performance. It’s not encroaching in the space opportunity that we have on shelf. So I anticipate they’ll continue to experiment and dabble. But it’s not a new trend for us. It’s something that we’ve been battling really almost since the time we entered the category.
Matt Smith: Pete, I’ll leave it there and pass it on.
Peter Pappas: Thank you.
Operator: The next question comes from the line of Robert Dickerson from Jefferies. Rob, please go ahead.
Robert Dickerson: Great. Just a — I guess, a few questions. First question, just in terms of like the higher ad and promo spend. When you think about, I guess, percent of sales, is that — you kind of view that as maybe ticking up a little bit back half probably through ’24, just given all the pricing taken? Or is this kind of an area where you can maybe incrementally weighted to the back half, but maybe for the full year, it’s not materially different. Just trying to get a sense of magnitude and kind of depth of promotional need.
Russell Diez-Canseco: Yes. Rob, it’s Russell. Let me talk about the marketing spend first because that’s the one that probably swings the most. And I think what we’ve observed over the years is that Q4 is the peak for this category. Q4 is a strong quarter for our sales and Q4 is where we want to do more promoting. And so when we — regardless of how Q1 and Q2 sort of played out, when we gave our guidance at the beginning of the year, our plans included a stronger level of marketing spend in the back half of the year, specifically to take advantage of that higher time of sales activity. So that’s not a — that may be a little less about trying to recover from high prices and a little more simply about the seasonality of how we want to promote and when we want to promote.
