Okay, great. Thanks so much everybody for joining us. My name is Mike Montani. I'm the lead analyst on food retailing here at Evercore ISI. And it's my pleasure to introduce Vivek Sankaran, President and CEO of Albertsons Company, 1 of the largest grocers in the United States.
Certainly, an interesting time in the industry. And what I wanted to do is to kind of let Vivek say a few words about how they're positioning, what they're seeing in the market, and then we have some questions to run through from there. So with that, I turn it over to Vivek.
Thank you, Mike. Good to see you again, Mike. And I appreciate you giving me a couple of to tell you just give you a little context to tune in, tune you all into where we are. Mike, when you met with us in December of 2018 in Boise, I emphasized a few things on our strategy. Number 1 was growth that was based on better in store execution, focus on fresh, focus on our own brands, rapid expansion of our e commerce business, doubling down in investment in our loyalty program so that we can continue to make the customers sticky.
And a growth that was just focused on we want to just refocus the company on unit growth, customer growth and top line growth that comes with that. A second big priority for us was the investment in technology. And we have, over the last couple of years, enabled just about every core process in the company with technology. We've invested significantly in elevating the technology our customers see and use that interface and the technology that our associates see and use. And we've also over time, by the end of this year, we would have moved just about all our applications to cloud to give us so much more flexibility and all the data that comes with it, especially the customer data that comes with it.
The 3rd pillar I talked about was productivity. And you recently saw us increase our productivity goals to 1 point $5, 000, 000, 000 from $1, 000, 000, 000 which we shared with you back then because of not only the progress we've made, but also the upside and potential we see in other areas, which I'll get into later. And the last area we put a lot of energy into is elevating talent, both from within the company and from outside, so that we can pursue all of these new areas with fresh thinking and insight. And we've also put a lot of energy into changing the culture. So we appreciate not just the nimbleness that we get locally, but the scale we have as a national retailer.
I will tell you that we have come out of the pandemic stronger than we went into it. Our strategy is resonating. I look at our numbers every week. We're gaining market share both in food and food on a 1 year basis and food and muleaux on a 2 year basis both on dollars and units. So I feel very good that we've got not only the momentum in the business, but also a lot of potential with not just what we're doing, but where we're going with the business.
So I'll stop with that and take questions from you, Mike.
That's great. Thank you, Vivek. So first, what I would do is maybe dissect a little bit the comp, such strong growth obviously last year, healthy double digits. Maybe just talk a little bit about what you saw in terms of traffic and trip consolidation visavis basket growth. And then if you think about this year, how do you see the dynamic evolving between those 2 obviously critical components of same store sales?
Yes. So, Mike, you're right that we saw tremendous consolidation of traffic. And then with the pattern that we all of us saw different patterns on weekend versus weekday and all of that. But the pattern we found interesting was a lot of steadiness and frequency on the fresh shop, which I think anchored people's strips, because I mean, there's only so much room in your refrigerator and your freezer and you were betting on quality, especially when you were eating at home. So anchored in the fresh shop, less frequency on the remaining part of the store, but a lot of consolidation.
And in the early days of the pandemic, a lot of traffic upside and then the traffic overall shifted down went negative in the later days pandemic with bigger baskets, right? And so to me, there's 2 things that we're observing now. We expected some degree of deconsolidation of trips, if we can call it that, but it's moderate. And Mike, we do a pulse on our customers week month to month and we also ask them their desire to consolidate trips or deconsolidate trips. And that has not changed much.
So I think and the numbers are panning out for us that the deconsolidation is not what I imagined at all. Now, we are lapping a very difficult time in that everything, every number in the company was up in our Q1. If you remember, our 1st period is 47% growth, I think, or 46% growth. And so we're lapping those. But I expect that we will start seeing positive traffic as we go through the year and the baskets will come down as people get more comfortable coming to the store.
And I'll close-up with this that people are coming to the store. There are a lot more people who are shopping online are coming back to the store, which is just interesting to see. I think there's just this pent up demand to get out there and enjoy the ambiance per store again.
That's great. Thank you for that context. The hot button topic that we're getting and I'm sure you are as well is around inflation at the moment. In the past, Albertsons and some of your peers have discussed kind of 3% to 4% inflation to start the year. We're seeing some of the CPI data monitoring a little bit for food at home since then.
But I guess the question I had for you is kind of what's the ideal level of inflation for a grocer both in terms of input and then to consumers? And if you look at the visibility that you've got into the chain, how do you see potentially the back half of the year shaping up on the inflation front?
Yes. So a couple of contextual things, Mike, that I don't think we've all seen often. Number 1 is that the consumer is very strong, right? Great balance sheets, plenty of cash in the bank, notwithstanding there is a segment of consumers are hurting, no question, mortgage delinquency is up too. But in general, you're finding the consumer, the demand and therefore demand is high.
We're also seeing supply shortages. So the question really is how much of the supply shortage that we're seeing, whether it's in proteins or now the it's certain if you go down the drink aisle, you'll see holes just about in every store. So how long will that last? Because to me, that's what's driving a lot more of this inflation, because people are having to pay more for transportation and pay more for resin, so on and so forth. And the question is, is how transitory is that or will because people will find a way to supply it and solve that challenge or is this going to be long lasting?
So here's how we think about it. If you look at last month, I think it was 70 bps of inflation in food at home. But you do a 2 year stack, you'll find it was like 7 and change, 7.5 or something. The prior month was 5.5 ish, I think 5.3 or something. And so in that range, so we're still in the 3% to 4% range of inflation on a year on year basis.
And Mike, I think that in today's environment is imminently manageable, because I mean very manageable given that the consumer is strong and frankly the food away from home inflation is even higher than that, right? So I think that is very manageable. The question is really what happens if it gets higher than that, which will be dramatic. I mean, if you get to 7%, 8%, that will be a dramatic increase in pricing. I mean, that stuff we've never seen.
I think at some point there, a consumer is going to look at it and say, they will start trading down. My sense is they'll start trading down. And what we have to do as retailers to be prepared for that trade down. And what we have, I'll speak for us is we have, number 1, the ability to do that smartly because we do have labor in our stores. So if you need to cut put more hamburger out there and less prime beef, we can do that in a jiffy in our stores.
And so there's that whole management approach. And the second thing we have is a very robust productivity program that's yielding it. So to the extent we there is a squeeze between the cost and the price, we have ways we can offset it. And at least certainly for several months, right, as we look forward. And that's how we're thinking about managing it, Mike.
Frankly, we don't none of us knows where this goes.
That's great. And 1 way to think about this too is in a historical context, Vivek, and if you look in past inflationary cycles, at different times, I would say the competitive intensity was maybe a little bit greater or sometimes a little bit less. You mentioned the consumers in a strong point. Can you just talk about kind of what's the overall attitude in the marketplace that you're seeing? Is it more rational?
Is it a little bit more competitive coming going back old school? How would you kind of describe that dynamic?
Still very rational, Mike. And I think the real issue is that, 1, you have supply constraints if you want to truly want to compete on pricing because when you price it down, you need volumes to go up for it to pay for itself and you want strong elasticities there. And I don't think you'll see it in today's marketplace. Even if you see it, you're going to run out of stuff soon and you won't have the numbers to make it up. So I think you're going to see that as a constraint in pricing.
The second thing, I think all of us have become smarter in that we have learned that we have more data and we have more insight and we have more technology, digital capabilities so that we know which promotions work and so we don't waste it. And we're also able to target promotions in a much more precision and deliberate fashion. And that makes a difference too. So when we're able to price and if we choose as an industry to price, I think you'll find a lot more discipline than we ever have in the past.
Great. So what I did want to hit on the top line front, obviously, is some of the initiatives that you all have in place. 1 of those, I think, would be Doug, if you wanted to discuss a little bit where we're at with that. And then there's a few more from there. So I'll let you start with Doug.
Yes. Let me start though with our philosophy on e commerce, right? And because our strategy is built around principles we believe in. Number 1 principle is that we want we believe that a customer is going to expect very short windows for delivery and or done, okay, drive up, whichever way you could it. So click to deliver, click to from the time she clicks it to the time she receives it.
I think in our market, people want speed because that gives you control. Speed gives you control as a customer. But the second principle is we do not want you to have to compromise any of the personalization you can get that you can get today in our store, a steak cut the way you want, a flour arrangement made the way you want, a cake baked the way you want, so on and so forth. We don't want to compromise that. If you just take those 2 and the third is we don't want you to lose the curation that we've done for you in our stores, right?
We've done that over many years. We've our stores carry the assortment that matters to that catchment area. I don't mean the 80%, I mean the 20%, by the 20% matters, Mike, okay. So if you take those principles, then our philosophy is the e commerce business should be built around our stores because they're close to where you live, it solves the speed problem. It's got the capabilities for personalization and it's got the curation.
So that's our philosophy. And so when you think about DUG and delivery, the back end process is the same. It's the same picking algorithms. You pick it in a store, you get all of those cuts of meat and so on in the store. And then you either have the customer come and pick it up in the store, which by the way is the fastest growing.
We find that not only in our sector, but you can look into others and you'll see the same thing in America. The fastest growing seems to be the desire to go to a store and pick it up because you're 100% control when you do that, when you want to show up. And so we're focused a lot on making sure that we're efficient in the pick in the store and then we either deliver it for you for a charge or you pick it up in our store for no charge. So that's the principle and the approach we're taking. That helps.
Yes. And just to dig into that a little bit further on the e comm front, 2 fascinating things to me. 1 of them is just for you loyalty and personalization on the marketing front. So I'd love to kind of get the latest update. And then the other 1 was the new partnership with Google relatively new that you all had disclosed.
If you could just talk about how that helps to build the multichannel ecosystem?
Yes. Now, first on let me talk about the Google partnership itself. It's all about finding ways to drive traffic, Mike, and who better than them, right, to think of to access traffic. It's about finding ways to remove the cognitive load on people when they want to make decisions. A simple thing would be back it's smoothened out now.
Now you can walk in somewhere and get a vaccination. But a couple of months ago, 3 months ago, that was a complicated process. So anything we could do to reduce friction so that you can get vaccinated, those types of things. So the partnership is all about reducing friction for the customer and finding what they need and the and so to me, that never ends. We continue to find ways to do that, working with them and other partners, in particular with them around early part of the traffic coming to our sites and their sites.
Is there other question you had, just go back to that 1, please?
Yes, it was just kind of you all are in this great position with the loyalty.
Yes, yes, yes. I will talk about it. Yes. So 25, 400, 000 members as we finish quarter 4. And Mike, that's a 20% increase from the same time last year, okay?
So loyalty is it's like airlines. When you don't travel at all, you don't care about it. When you travel a lot, you really care about it, right? So when you shopped a lot, you really cared about it. And I think so we are seeing both enrollment and engagement going up significantly in our loyalty program.
And it's a targeted effort. So in markets like if you go to the Northeast, where we don't have a high level of enrollment, in fact, our enrollment is growing the fastest. So we have programs to drive that. If you go more to the western half of the country, you'll see more engagement. And what we are doing now is we are going past engagement simply being rewards like a fuel reward or a price discount on a product, we're also engaging some of our loyalty members with experiences.
It could be a cooking lesson, it could be wine tastings and so on. So we think that has so much more potential. Now you can imagine what this does, Mike. So for these 25, 400, 000 households, we now understand what they buy, what they care about. We have a holistic point of view.
We understand their e commerce behavior, their in store behavior. We're able to target what they we're able to target ads, we're able to target experiences. The whole notion of this is to create more and more stickiness with these customers, right? And it gives us digital engagement, which is invaluable, as you can imagine. So we are very excited about it.
You'll see more and more coming out on the loyalty program over the next 3 to 4 months.
So this is a great point, Vivek, which is you all have gained new customers during the pandemic. You've seen some incremental opportunities to grow wallet share with them. And I guess the question I'd industry perspective then, which is really, if you think about post pandemic, could we potentially see faster normal and sustainable growth for the industry? Pre pandemic, I always thought kind of 2%, 2.5% was kind of an industry norm. But now if you assume some of these behaviors are a bit stickier in terms of food at home consumption, could we be looking at something 50 bps, 100 bps better than that?
Yes. To me, we haven't come out with a new algorithm, and I'm sure we'll come out with that as we finish this year and get through this noise. But let's talk about a few forces at play, right, Mike. Number 1, I don't know if you're seeing it, but the tenor of working at home is going up dramatically. People choosing jobs because they can work at home.
And you just need to eat 1 breakfast and 1 lunch at home and that is 20%, almost 10% of the total occasions in a week, okay? So that's a substantial number when you think about it of what gets consumed at home. So I think there is that 1 structural change. The second structural change I think you're going to see is that if when it comes down to investing in technologies, in own brands, all of the things I talked about, building a robust e commerce business, having a robust loyalty program and investing behind it, scale starts mattering, right? So I think the second structural thing is you're going to see coming out of this pandemic that scale matters even more than going into this pandemic in my opinion.
You put those 2 things together, there is a tailwind on just raw consumption happening at home and therefore a tailwind for retailers like us. And the second is a better share gain. So, I actually I'll tell you, I was I am pleasantly surprised to see that we're gaining food share year on year. Think about that, right, after what we saw last year. So I think you're starting to see the effects of what we are doing and what large players can do in this market right now.
Great. So let me switch gears a little bit. I think we've hit on the top line a bit, but just in terms of the cost front, Vivek, we'd love to get your thoughts around some of the pressures that so many have called out, whether it be labor and some wage inflation, transportation costs, vis a vis trucking and or shipping. Can you just discuss a little bit kind of what the pressures are that maybe Albertsons has seen? And then also the follow-up becomes the $1, 500, 000, 000 of productivity.
What is it that's in Albertsons power to do to offset that and control it and manage it?
Sure. So, let's take the cost piece and I'll break it down into a few things. Of course, the cost of goods, we've talked about the inflation already. We'll see where that goes and we'll have a we'll all know more in the next few months. And now if you take other components of cost, wages.
Wages recognize that more than 2 thirds of our associates are part of a union. And so those are contracted wages with benefits, good wages, good benefit package that includes health and pensions contributions. And so we are not seeing and those are contracted 3 years out, 5 years out. So we're not seeing the pressure that wage pressure that some others might be seeing, especially if you're on the restaurant or a service industry like hospitality or something. The second thing to note there on the cost front is transportation costs.
In transportation, by the way, I'll just go back to the wages. I think the challenge is not so much wages at this time, but like many others, we are experiencing in certain pockets, it's maybe certain distribution centers in certain markets, higher turnover and ability to get but it is not let me put it this way, it's not a problem I'm spending a lot of time on. We are okay on that front. The second thing is transportation. In transportation, all of the most of the transportation we do is with our own fleet.
It's a very small portion that we use external support for. So we're not seeing it. I think you're hearing a lot more challenges on inbound freight to our DCs from certain suppliers, right? There's a shortage there. Interestingly, it's resulting in more out of stocks and shortages than it is in pricing at this point.
And that's where I don't know my call to all that plays out over the next few months and whether that's transitory or not, okay? Now on the productivity. When we first talked about productivity in the $1, 000, 000, 000 we talked about things we're doing with promotion excellence, the technology we're putting in there, indirect sourcing, so sourcing of our grocery bags and computers and everything else that we buy that are not for resale. We had productivity in store labor with a lot of automation that we're putting in there, a lot of best practices that we're putting in there, lean practices and so on. So those were the nature of the buckets that we were driving for productivity, some G and A productivity.
The 2 added buckets that we have now are both in the spirit of leveraging our national scale. So if you take our cost of goods, there are many categories, most categories we have been buying as 13 separate divisions And we are going to leverage our scale on those categories. So it's buying better, consolidating the buying, giving the suppliers greater opportunities to participate in our franchise. And the second area of opportunity there is likewise in the supply chain. So we've run the business with 13 independent supply chains and BCs that go vertically.
And so now we're thinking about how to think about this network more nationally, how to transfer best practices across the supply chain, so we get better labor costs in it, we get a better utilization of our transport trucks, etcetera. So what I'll tell you and what all of you should know is that these initiatives we have are new to our company, but they're not new to the world of retail, which gives us higher confidence in generating the dollars as we did in last year, we generated 500, 000, 000
dollars So you've mentioned obviously some headwinds and then tailwinds as well here. If you think about longer term Vivek, so not this year, but kind of 2022 beyond, is there a certain comp you need to lever? Presumably, you need some sort of positive growth to lever overhead?
Yes. I think, to me, the old algorithm holds because the way I think of it now let me put it this way. The old algorithm, which we knew around 2%, Mike, that is that's enough to leverage the cost structure that we had and generate the EPS commitments that we made. Now, obviously, there's more productivity within that P and L. And honestly, we are choosing to invest that for growth.
We want to invest that for growth. So we would actually to me, the better formula is to not just to increase the comp, to invest it to increase the comp because 1 thing we learned in the pandemic is that in our model, when the comp goes up, the flow through in our EBITDA is fantastic. We just had some fantastic flow through through the pandemic, probably some of the best in the industry. And so our philosophy is always to drive more units and growth. So I don't want to get hung up yet on the 2% comp.
I want to see how it comes up, how we come out of the pandemic and rethink and calibrate that.
Okay. And then the other 2 related topics, Vivek, was 1 private label. Maybe just talk about where we are in that journey. And then second is automation. 2nd is what?
Automation, sorry.
Automation, yes, good. Yes. Okay, private label. You know, I know there was concern early in the pandemic, Mike, that boy, are people just going to brands. And I can see why people felt that because the numbers were showing that.
But I think the real phenomenon of what was happening there is that there were many, many categories, which were getting wiped out. So in a normal course of business, you'll have an A brand selling, a B brand selling and a private label selling. So the mix turns out, let's say, whatever, 25%, 75% of the brands. When people shop the entire thing, by definition, your market share of private label drops dramatically, right, when people are picking up everything on the shelf. So I think you saw that.
You saw some early supply issues. What I can tell you is that starting towards the end of last quarter, our private label penetration went right back to pre pandemic, 25% not a change. And we are right back into that cadence of delivering innovation, delivering product on private label. And our strategy is very simply think of it as 2 broad plays. 1 is an opening price point with a compelling product, okay?
We'll always have that. And the second, which is bringing excitement to the customer. And it's on some benefit they care for organic, open nature, which is brief, antibiotics and so on, but our responsible seafood like our Waterfront Bistro. So we play both those, on both ends of that spectrum to provide value to customers. Now I still think there's plenty of headroom to be going to stake in the ground that we're going to get to 30% penetration.
I think we can go north of that, but we are going to be a house of brands, Mike. I want to be very clear. We believe that we should give consumers choice and give them an ability to complete the basket with us. And so that's the role private label plays for us. It's 1, 000 basis points more margin.
So more growth we get, the better for the bottom line, Jim.
And then just on the automation front, Vivek, whether it's self checkout or even the MFCs?
Yes. Automation, in my mind, Mike, has to be pervasive. Just have there has to be an incredible quest to automate anything and everything in our business. So you can think about self checkouts, and we continue to roll that. What's remarkable is the uptake we're seeing with customers.
There's a segment of customers who just love it. And so we continue to roll that. We have automation in our stores in other ways. So all of the ordering now is automated. So people are not having to walk around and spend time doing that.
There are things behind the deli that we're automating. We are I'll get to there's warehouse automation that we're doing, which is depalletizing and storing all of that without being touched by a human. So we are pursuing automation on every front. The automation that we're also excited about is the micro fulfillment center, which is an important component in the store. So if you think of store based e commerce, I think the micro fulfillment center gives you a step change in labor productivity.
And we have 2 of them running now. We have 3 now. We just added a third 1 in April. Then we're going to add 6 more this year. And what we're doing is we're experimenting with different modes of it, different configurations of it, so that we coming out of this year, we'll have a template on maybe 2 or 3 configurations that really work, where to optimize the mod or the system itself.
And so we feel promise there in that automation, which will make a big difference in e commerce.
Right. Okay. Well, we have a few minutes left. So I just wanted to hit on maybe 1 or 2 things and then see if there's any Q and A, but just 1 kind of lightning round here would be a couple of years now past the Safeway merger, there's been obviously debt pay down and strengthening in the balance sheet. Are we at a point now Vivek where we could start to see organic growth again in the stores or is it more about smart acquisitions either from a geographic or capability perspective with the excess capital?
Yes. So, Mike, with the store expansion, we're going to be very opportunistic on it. It's there are we'll typically add 10 new stores a year, but these are in markets where we see a lot of population growth. And so to me, it's that I'll keep that that would be the new store addition. We will always look for opportunistic tuck ins like we did with Kings and Balducci's, anything in a contiguous market or end market that can increase density for us.
And when you think of an acquisition, you have to think about the digital and the technology capabilities we're able to bring on top of it to create even better accretion, right? So that's why we feel even more confident about doing those tuck ins. We will continue to invest in digital. To me, the magic with digital is the stickiness you get with customers. You engage them in.
Once you get customers to engage on this phone, whether they are in store, frankly, or whether they're ordering online and you just continue to increase that level of engagement in digital, you get a high degree of stickiness, you get because you get data. And when you get that data and you can start using that with some precision, you're giving them more and more of what they value. So we'll continue to invest in digital. We'll continue to invest in making sure our fleet is contemporary, right? So we have a meals program rolling out, Mike.
So to me, that's 1 way of starting to capture more and more of meal locations, with versus just selling ingredients and doing that with convenience and freshness that we can deliver in our stores. So we'll continue to do those types of things.
Okay. And then just talk about the portfolio at a high level at this point, Vivek. Are you all pleased basically overall? And where would you maybe look to make investments in the future just topically?
From a you mean from a geographic standpoint, Mike?
Yes, I would say whether it be brands, geographic or just capabilities.
Yes, we feel very good about the where we are from a geographic and banner standpoint. What we like, if you look at our map of our stores, Mike, you'll see 2 things. 1 is, yes, we're not national in a sense, we don't have a strong presence in the Southeast or Michigan and those areas, but we've got enough national coverage. But where we are, we have high density and that matters a lot, right? And that matters a lot for local market strength, it matters a lot for e commerce.
So we have a lot of high density where we operate. And so our first philosophy will always be to keep increasing density in the market. So from a portfolio standpoint, opportunities that continue to increase density, we will pursue. We are always looking for things that would drive more capability, right, capability in our in the business. And so there'll be some use of capital if the right opportunities came along, the capabilities will always be towards driving more digital engagement with our customers.
Think of it that way is the best from a portfolio standpoint.
And just the last 1 for me Vivek was, if you think about some of the behaviors during the pandemic and now as we hopefully reopen and get back to normal, maybe talk about what it is that would have surprised you? And or if you think about the future, what do you think is going to be sticky in terms of any shifts in behaviors that you see in your consumer?
The 1 is certainly more online purchasing, Mike. It's going to be sticky. I don't think it's going to grow at the rate that it grew in the pandemic. So my belief is that we had a certain growth rate. It took a step up.
And now I don't think that comes back down. And from there, it gets back to a more normalized growth rate. So but that is sticky. And we like it because the best customers, our best customers are the ones who are both shopping online and shopping in the store. They spend 20% more with us, okay, than they did before, which is fantastic.
So we like that part of it. The second trend that I believe will stick is more meals at home, a few more meals at home and therefore more cooking at home, right? And I think that's going to stick only because people are going to spend more time at home when you're not going out, when you're not commuting to work as much as you did. So I think and by the way, there are some ingrained behaviors and we're seeing that. We're seeing that in our business today, right?
That will continue to stick. My sense is, I think, just if I separate out e commerce, just more digital engagement every day around a retailer like us is going to stick. And we like that because it could be, hey, I've got a wine tasting experience coming up and I enjoy that. It's nothing to do with shopping, so which is also a positive sign for us. But those are 2, 3 areas, Mike, that my belief will stick.
Yes. I was going to suggest perhaps you start some cooking lessons, Vivek, with the team because I can certainly use the help. I think my family would appreciate it.
We do, Mike. We actually do. We do for our top tier loyal customers, we offer all that.
Step ahead. Great. Well, thank you so much, Vivek, for joining us. I think we've had a great discussion today and we look forward to seeing where everything will take us with the consumer.
Thank you, Mike. Look forward to seeing you again in 1 of our stores. Okay. Take care.