So your assumptions are smart in the sense that we are more developed in the West and in the Midwest and down through the middle of the country, those are some more likely targets for us going forward. We will ultimately seek to enable much of our conventional business through DSD across the country.
Operator: The next question comes from Andrew Strelzik of Bank of Montreal.
Unidentified Analyst: This is Daniel [ph] on for Andrew Strelzik. Can you discuss how the delay in recovery of SKU level distribution at retailers is evolving? And if at all, that’s impacting strategies to drive sales?
Amy Taylor: Sure. I would say the — we have returned to customer fulfillment levels that are sort of our baseline or historical customer fulfillment levels. So we are pleased with the stability of our supply chain and we are delivering excellent service to our customers. What we underestimated was the volume impact of SKU level distribution in-store of temporarily lost distribution because of last years’ service level gaps. And so while this impact does not impact our strategy, our focus and our strategy remains the same. It does impact the full year outlook in the sense that the first half of the year is much softer than brand demand would indicate and the second half of the year more reflective of demand and our accelerating growth expectations.
So strategically, we remain very focused on the productivity initiative that Girish walked us through on investing in marketing and we see positive early indicators of those investments on the regional phase rollout of DSD and on the accelerating growth of the brand as we focus on soda and optimize our portfolio.
Unidentified Analyst: Okay. Great. And a follow-up to that, can you frame what the expected cadence of the cost saves are and how that will show up in the P&L?
Girish Satya: Yes. I mean I think as I noted, you’ll begin to start seeing it in Q3 and I think you’ll start seeing it sort of over the next 4 to 6 quarters thereafter. And I think largely, it will be sort of 1/3, 1/3, 1/3 [ph] between COGS selling and warehousing expenses and SG&A.
Operator: The next question comes from Eric Serotta of Morgan Stanley.
Eric Serotta: Hoping you could provide a little bit more color in terms of the path to profitability. Your quarterly adjusted EBITDA loss? Is it that far from breakeven in terms of dollars. You’re talking about not reaching profitability until 2026, despite the productivity program ramping up. So I guess why the long runway, what does that imply that you’re assuming for reinvestment, DSD investment and potential hiccups along the way?
Girish Satya: No, I appreciate the question. And I think ultimately, there is a bit of a balancing act. We are trying to ensure that we can have the appropriate resources to really focus on driving top line and evolving our route to market, particularly as we discussed from sort of West to East and further accelerating singles and convenience store penetration. So it is that balancing act and so we are giving ourselves enough time to ensure that we can revitalize the top line, while also having sort of a smoother path to profitability. So I think we’d say that’s sort of how I would think about it.
Eric Serotta: Great. And then a shorter-term question. I assume that the second half top line recovery depends in part on regaining space in the spring resets. We’ve heard from players in other categories of these resets are a bit later than expected, a bit later than typical years. Wondering if you have any early reads with customers who have reset already and what you’re generally expecting in terms of regained shelf space this spring into summer?
Amy Taylor: You’re right. We’re seeing the same things. Resets are a little bit later, not really sure exactly tactically why it could be as simple as operational. But when we look at our 23% growth in the latest read in the food channel which is our largest channel, we look at our top 2 grocery operators. They grew at 20% and 15% nationally. Our top regional grew at 40%. We grew at 98% in the world’s largest retailer. The reason I share these with you is to say that when Zevia is in stock and properly supported, it’s really growing. So we are bullish on the rolling impact of the reset in the spring and you see that in the difference between our second half guide versus our expected first half results. Inch per inch, I can’t tell you exactly what we expect in terms of space gains but we do expect accelerated recovery on just flavors and SKU availability on our existing footprint where we already had space dedicated and then we continue to grow our penetration in what I’ll call conventional channels.
We’re back to growth in natural and we’re continuing to increase space in conventional channels almost across the board which you see again reflected in the second half. So we’re bullish on resets but we’re also bullish on continuing to impact in-store presence through the balance of the year, be it as being justified through our velocity or as we roll out regional DSD support to implement that.
Operator: Our next question comes from Sarang Vora of Telsey Group.
Sarang Vora: I have a quick question on the DSD distribution. Can you share how the economics of DSD would work for you couple of, one, how the economics work? Second is, will the DSD partners also cater your existing customers as you look at the route-to-market and then obviously, the new channels, can you share like which new channels beyond convenience, you are looking to grow in the DSD side?
Amy Taylor: Sure. Yes, sure. Sure. I think we’ve been talking for a while now about the opportunity with DSD. We’ve been focused on placing branded company equipment and talked about coolers. We’ve talked about cold penetration. And these are some examples of what we expect from DSD. I’ll answer your second question first and then go back to economics. In terms of the impact that we expected the primary new channel penetration we look forward to as a result of the introduction of DSD in the limited footprint within the country that we have DSD today, is convenience. But there’s also opportunity with what we call the independent channel. So independent individual grocery stores throughout the footprint that we may or may not call on a headquarter based on the size of our organization.
DSD expands your reach. We also expect significant impact on our existing footprint and we turn our attention first to the food channel, so conventional grocery where we believe the DSD operators will have the greatest immediate impact. So that’s how I would have you think about where to look for that impact, albeit over a ramp-up period and just regional today. In terms of the economics, one of the reasons we’re pleased with a strong foundation of a solid gross margin which is sequentially improving, is that, that allows us to invest in DSD. So that would indicate that it is gross margin points investment that is required in order to continue to drive DSD. The rest of the investments, if you think about selling and marketing expenses has just become more effective.
