Hi everybody, thank you for joining us today. I'm Robbie Ohmes at BofA Securities. We are really excited to have BJ's management team joining us today for a virtual fireside chat. With us today from BJ's, we have Lee Delaney, President and CEO. We also have Bob Eddy, Chief Financial and Administrative Officer. I can't remember, is Bill Werner on? Is he on there as well? If we do, if Bill's on there, he's SVP Strategic Planning and IR, and then we have Faten Freiha as well, VP of Investor Relations.
I'm going to do a little bit of Q&A, and then toward the end we're going to open it up to questions. At that time, we're going to use the Q&A chat functions to submit questions, so maybe write down your questions as we're going along here. But Lee, kick it off. You know, we just came off a Black Friday weekend. Anything you can tell us how it was versus expectations, early reads, anything like that?
Yeah, great. Good afternoon everyone, and Robbie, thank you to you and your team for hosting us. I hope everyone had a nice holiday. Look, we're not going to be making new news with a read into our Thanksgiving or Black Friday results, but let me add a little color behind some of our Q3 earnings call remarks, given some of the industry commentary describing pretty meaningful shifts in consumer behavior the last few days. First, and as we said two weeks ago, we pulled forward our Black Friday deals, anticipating the possibility of less crowded stores on Black Friday, and we've continued to lean into our omni offerings, which are growing at market-leading levels. and we're happy we made those changes as it helped drive a 20%+ comp in the first few weeks of the month.
And looking ahead, we're really happy with the overall state of our business as we head into December and January for a few reasons. First, we've made steady improvements in our overall in-stock position, and while we're below what we would like, and there are still some categories that are tough like paper towels, we're in pretty good shape relative to past quarters. Second, we've continued to flex our assortment to account for fewer holiday gatherings while leaning into seasonally relevant home categories.
And third, we're still extraordinarily relevant as members consolidate their trips and search for value due to the pandemic and just the general state of the economy. And fourth, our omni offerings are working hard, and the overall business scales really efficiently. So while we're assuming there might be a little headwind going forward due to fewer holiday gatherings, and it's a bit hard to predict exactly how things will play out, we feel really good about the overall state of our business.
And then, Lee, maybe just a follow-up to that. How do you guys feel about the inventory position into holiday? We were in your stores over Black Friday. It looked like you guys had what you needed, and it looked like some others maybe didn't. Just any kind of commentary you can give on that?
Yeah, sure. You know, Robbie, it's better than it was earlier in the year, although still not as good as we would like, and so we've steadily improved our in-stock position, really going back to late Q1 and Q2, where we saw some of the initial large stock up purchasing, and we've been aggressively ordering really across all of our categories and have made a slow but steady progress improving the inventory position, and we'll keep doing that. You know, we've gone all out. Our merchants and our supply chain teams and our field teams have done an extraordinarily good job of keeping product moving, of looking for new sources of supply that we might not normally have tapped into, and so there are a few places where manufacturing constraints are tight industry-wide, but overall we feel pretty good, all things considered.
That's great. I'm going to shift over to one of our favorite topics, membership. You know, Lee and Bob, there was some confusion about membership, you know, following your third quarter earnings call. How did members look sequentially from Q2, you know, in 3 Q versus 2 Q? A lot of questions about cash MFI. You know, maybe you could help us think about why that does or doesn't matter, and any thoughts you can share on expectations for membership fee growth and total number of members in the fourth quarter?
Hey Robbie, I'll take that. Let me first just say thank you to you for hosting this and for everybody on the call today for their interest. I know your time is valuable, so thank you very much. You know, you hit on an important topic for our business. Membership is the bedrock of our business, and you know, as we talked about on the call, we felt great and still feel great about the overall size of our membership, which has continued to grow. We feel great about the momentum that we have behind the growth, and we feel great about the quality of the membership, and let me dive into each one of those a bit, and then I'll come back and sort of specifically address your question about the confusion following the call.
So we talked on our call about membership being up 630,000 members year- over- year, about 12%. That's a great number. Typically, it would be 200,000, 250,000 members, and so we are significantly outpacing prior year's growth. The momentum has been great and sort of continuous throughout the year from that standpoint. Importantly, we're also improving the quality of the membership as we go. And we talked about a few things on the call where we're not only increasing the size of the overall membership, we are increasing the penetration of higher tier members. So more people are signing up for our rewards membership, and more people are signing up for our co-brand credit card proposition. Additionally, more people are into our Easy Renewal program. So there's about 70% of our membership in the program today. All three of those things are great indicators of the quality of membership.
You pair that up with the move away from trial memberships that we've talked about in the past and towards paid membership. You look underneath the covers and see the behaviors that these members are exhibiting. We are really excited about what's going on from a membership perspective and how that helps us look forward into our business. Unfortunately, the day after our earnings call, we ran into a little bit of a speed bump where one of your competitors at one of the largest Wall Street banks issued a report that said that our membership was shrinking, specifically shrunk from Q2 to Q3. That report was factually inaccurate as to that point. When in fact our membership grew by well over 100,000 members during the third quarter, that rate of growth is about twice what we had last year.
So from an overall growth perspective, we are continuing to grow. From a momentum perspective, we're doing twice as well as we did last year. We were a bit surprised by the confusion given we thought we were clear. Turns out the report just had a pretty basic mathematical error that was present in it. And people make mistakes, but it wasn't necessarily cleaned up in the way that we would like to see it cleaned up. It was sort of posted to that bank's website in the middle of the night on Friday night, and they didn't tell anybody about it. And so we feel an obligation to go out to everybody and say our membership is in fact growing.
The story is intact that we have a growing membership with great momentum and great quality, and that really helps us feel very good about what we're seeing in our business today and what we think we'll see in the future.
That's great. And when you, you know, there's a great answer. But you know, when you think about next year, one of the other questions I get about membership growth is how to think about the pull forward. Any kind of thoughts you can give us on how you think that dynamic works? Is it a pull forward, or is it just something you build from in a new base that you can keep growing on next year?
I think that's an interesting question. I think we obviously have many more members today than we've ever had in the company's history. Most folks know that first-year members renew at a lower rate than tenured members. And so you know, we tend to look at the behavior of that first-year cohort. We've talked a lot about this on the call a week ago Thursday. As to those members coming to see us more often, shopping more, engaging more with us digitally, being a little bit younger, all sorts of great indications of what we hope will be stickiness going forward. The key differentiators in our business as to stickiness are in fact those things, right? The number one predictor of renewal rate is frequency of shop, and the biggest predictor of frequency is breadth of shop.
We are seeing the new members and frankly, most of our members shopping more categories when they're with us, getting bigger baskets, consolidating their spend as we've talked about. They are also seeing us more often, and those two things together should power our renewal rate going forward. And so we tend to think the members will be sticky, that we will see improvement in the renewal rates, and therefore we will build on our membership going forward. We say that, but we also need to be a little bit cognizant of the situation we have in our country at this point in time and recognize that some of these folks likely came to us because of COVID. And so we humbly submit that the behaviors that are there that would indicate stickiness, we still don't know what's going to happen.
I would say the one thing that gives me the most confidence at this point is the big slug of those Q1 members will obviously come due for membership in three or four months. I don't think the public health situation is going to be much better than it is today, which gives us an even further confidence that these folks will renew and become part of our tenured base. So we sit here happy about the level of membership, the quality of membership, the momentum of the growth. We think they will be sticky, but we've got some water to go under the bridge before we actually see what happens.
That's helpful, and you know, you've done a lot with the quality of the membership. You know, how much do you think that was helped by COVID, or how much of it was the way that you approached marketing and the use of the credit card to drive the higher tier membership?
Yeah, I think it's a couple of things. First and foremost, I think it's outstanding execution at our membership desks. You know, to ask those folks to process the number of new members that they have and improve the quality has been something beyond what we've seen from that team in the past. And so that's been very exciting, and we are loving what we're seeing there. I would say the co-brand has provided a great opportunity for us to do that in the past and going forward. I think that our co-brand card offers the best value in the retail industry, certainly in the club space, and it provides an excellent selling point for our associates at the desk when they are signing up a new member.
As you know, those are our best members, and the best sort of indication of that is really not so much their shopping pattern, even though they do shop a lot more than an average member, but their renewal percentage is much, much higher. I think very high 90s from a percentage standpoint. And so we love the fact that we can get them in and get them to shop more by using this card. We give them tons of value through their rewards all year long, but they effectively become members for life when they sign up for the card given that renewal rate. And so we've really been doing an outstanding job with that and investing behind that thought so that we can improve the quality of the membership going forward.
And then when you think about the huge number of members that you guys have taken on just over the last six months, where do you think those people are coming from the most? Is there a different competitor that you think you're gaining share from, you know, because of the environment?
Yeah, I think as you know, as we look at those members, we're encouraged by a few things. One is they're skewing a little bit younger, and catching people earlier in their household formation or creation of family is important because you lay the foundation for a very long engagement with us, particularly if they're enrolled in the credit card. Two, they're more digitally engaged, and I think that goes hand in hand with being younger. But we're seeing more members sign up online. We're seeing more members engage in our omnichannel platforms. And we've shifted our assortment to try to accommodate that as well. But you know, in large part, they're members in our catchment area, which is really exciting. We're just penetrating more deeply.
And to the point Bob was making about the stickiness, the great thing about having a larger base of members to start from is we've been trying the last few years to get people to experience the changes we've made across the business. And the pandemic gives us an ability to do that, but also to market on the backside and make sure that we're keeping people engaged. If we don't see someone renew, we have the ability to reach out to them, create different incentives to hopefully keep them a part of our franchise for a long time. And so you know, the hallmarks of upgraded quality, number, demographics all seem to be really quite positive.
That's great. You know, Lee, I'm going to shift to merchandising. You were at our conference in March, right when all this broke out. And you know, I asked you a lot of questions about merchandising back then. And you know, one of the things that you had said was, you know, that you know the general merchandise is really going to grow faster than, you know, say, consumables and the other part of your assortment. I don't think that has been the case because of COVID. But you know, can you remind us what the goals were on general merchandise? And is that being accelerated, or is that kind of on track? Like, how do we think about where you are in the general merchandise SKU and additions and all the great things you were planning to do there?
Yeah, so let me talk a little bit about the kind of the journey we're on when it comes to merchandising and the assortment in store and what we're trying to do. You know, we have figured out that we offer a lot more choice in a narrower set of categories than our competitors do. In some places, that makes a lot of sense to us. So in fresh food, as an example, we have more choice. We drive more of a weekly trip than our competitors, and we're really happy with that degree of variety. We think it's relevant and appropriate, and it seems to be working well throughout the pandemic. In some of the more traditional center store grocery items, both edible and non-edible, we've had more choice than we need, and we've been under-indexed in some areas that are growing.
As we thought about that assortment, we've been shifting towards less canned food and more healthy snacking options. We've been shifting towards different types of cleaning supplies. So natural cleaning supplies where historically we would have many things covering the same space. But importantly, what we're trying to do is we're trying to free up space to enter into categories where we haven't historically competed. If you look at our general merchandise and services business in turns, so general merchandise is about 15%-17% of our business where our competitors would see a level that's meaningfully higher. And it's because they competed in a whole bunch of spaces where we haven't competed. We've been shifting the assortment throughout the year to get into new categories.
A good example of that is fitness equipment, where historically we might sell a low-end exercise bike, you know, kind of $100, $150 offering, and this season we're carrying both a bike and a treadmill at $699 with an integrated internet experience, kind of similar to a Peloton, just at a different price point that allows us to offer terrific value versus the market. We are meaningfully cheaper than other industry sources in a category we just haven't played, and it's working really well. Our members love the value we can deliver, and we just see that opportunity in so many places where we haven't historically played. Services is another great example of that, and we think is a huge deal, so services for us captures a bunch of different businesses. It's our home improvement business, our optical business.
We just relaunched our major appliances business where we know our competitors have a business that is meaningfully bigger than ours. And so we've dedicated a merchandising team with some very senior resources to grow our platform there. And we just see a tremendous amount of growth of deepening our reach into services, things like travel, things like elements of health services where we think there's opportunity like optical. And so we're just, we're very excited about the possibility of giving consumers, our members, the right degree of choice, which means a little bit less in places where we were way over-assorted and then a lot more in places where we didn't play. And we think that growth algorithm will serve us really well for a long period of time.
As you know, as you make this change in category focus, what's the profitability impact over time? Does it raise the long-term EBITDA margin potential, or how should we think about that?
You know, our first focus is always to invest in member value. So we want to make sure that we have terrific opportunities. And we're not by design looking to margin up our business in any degree. We always start with how do we make sure we're delivering industry-leading pricing on whatever it is we sell. That said, a number of these categories, particularly in services, will tend to have a bit higher gross margins. So if you look at our optical business, it will be higher gross margin, but then you have an in-club labor component. On the whole, there is probably some degree of margin accretion that we would see from this, but we're not by design trying to lever the P&L that way.
Maybe along that line, and also in terms of driving your membership and revenue growth, can you remind us how you're thinking about private label? I think you're way below a lot of your competitors in how much faster can that grow? What does that do for profitability? Like, maybe walk us through the next five years.
Yeah, so we are below our competitive set. So you know, we are at about 21% owned brands penetration today. That's been increasing roughly 100 basis points a year for the last several years. So we have made good progress. But you know, analogs would be in the 30%-40% range for owned brand penetration. Some players are even higher than that. And so there's clearly a big opportunity for us to drive that. And we want to do it. It creates some meaningful benefits. It's better value for members. It's better margin for us. And then it creates a novelty and a point of difference for our members where you can only get the items with us. And so we'll continue to lead into that.
We have been, you know, a bit put off track by the pandemic in that we're just so desperate for any goods given the degree of demand we've seen. You know, we've been running essentially up 20% all year, you know, plus or minus a few percentage points, and in that environment, it's hard to drive the same level of discipline around owned brands growth when we just want to keep the stores well stocked, and so we've added new national brands we never carried before.
Some of those are working really well and will become a permanent part of our assortment, but we haven't been able to make quite as much progress. The good news is, you know, owned brands are still growing with the overall business. Just the rate of growth overall has been high enough. It's hard to keep up with owned brands and drive the same degree of penetration increase we've seen in past years.
How has, you know, as your membership is growing a lot more than maybe would have been initially planned and you're making these merchandising changes, what are you seeing in the vendor community? What are you seeing from brands' willingness to sell to BJ's? You know, what kind of opportunities have maybe opened up for you guys?
Yeah, we're definitely seeing increased interest. I think, you know, there's a few forces at play. As you know, early on, we were one of the few essential retailers that was open and able to sell in categories where other classes of trade were closed. And so that was clearly an advantage. I think, too, people are taking notice of our growth in membership, our overall growth in share in the industry, and our ability to buy at scale. And then I think there is, you know, broad long-term disruption that will happen in other sectors of the retail industry that will, you know, likely create distress, and that will create an opportunity for us. And so it's certainly been the case that we've seen better engagement, and the merchants are having success reaching out to new suppliers, which is encouraging.
I think maybe something else that you had mentioned in the past, but maybe got delayed by COVID-19, is an increased focus on localization. Is that true, and is that a future opportunity, or how are you thinking about more localization in the clubs?
Yeah, you know, localization for us, to start with, today, we're still a relatively regional player. We're on the East Coast. So there's elements of our assortment that are skewed towards an East Coast player already. I think there's an opportunity for us to get further localized. It certainly is not something that we've been overtly focused on this year. It's really been focused on getting what product we can. You know, we've been buying cleaning supplies and paper products from literally all over the world. So if anything, we've probably gotten a little less localized during the pandemic, but that's simply to meet the demand we've been seeing.
Another topic I really wanted to get you guys to talk about more is the Michigan stores. You know, and it sounds like they've just come on really strong. How different are the assortments there versus the rest of the chain? You know, what is making them open up at such high rates and do so well? I know part of it might be the environment, but how does that make you think about store growth for the future?
Yeah, Bob, why don't I just touch on merchandise and then turn it over to you to talk membership. So, you know, the nice thing about our new stores is we're able to set them, incorporating all the things that we've learned are working elsewhere. And so in legacy stores, it's a little harder to do, right? You're upsetting the apple cart with members and with the space, et cetera. But in new stores, you can set them the way you like.
And so we've leaned in with a greater share of space dedicated to new categories. And we've been able to sign and feature different things and make a first impression that lets people know we're in some categories where our normal members, our older members may not have thought that we would play. So that clearly is working, starting, you know, fresh with a clean palette. You know, Bob, do you want to talk just about broader membership?
Yeah, certainly the clubs in Michigan have done well. Frankly, since we restarted the club opening program, all of our clubs have done well in membership. And I think that is really a couple of things. First, I think we'd be silly not to acknowledge the environment, to your point. Certainly, some of our success this year has come from what's gone on in the world. But that's why I tie it back to more than just Michigan. You know, Pensacola is doing well. The clubs we opened last year are doing well. It's really been sort of a fundamental shift in how we go to market. If I rewind the clock four or five years, we would spend about $1 million to open a club. Most of that was in pre-opening rent and payroll for team members.
And we would open the doors and hope people showed up to become members. Now we are much more aggressive and invest much more heavily behind the new store opening. That takes many, many forms: old school and new school. So old school would be direct mail. So we have always been a direct mail-heavy company. For some reason, our prospective members really don't fatigue from direct mail. And so we use it pretty regularly. We have done a lot more of that in this world. Importantly, we've optimized how we do it. So we've talked a little bit in the past about the better data models that we have. Our old data models would basically just stop being able to drill down at the ZIP+4 level, the carrier route level.
And now we can go all the way down to the household level and understand the differences between people and forecast our spending against better potential members. And so if Bill Werner were on the call, I would get to do my jag about both of us living in nice communities and make a lot of money. And our previous data would say, go after Bill and Bob equally. Our new data would say, wait a minute, yeah, Bob's going to be a fine member, but he only has two kids and one just went to college. And Bill has four kids under 10 and is therefore spending all of his money on food. And so we should really invest disproportionately behind attracting Bill. So we're taking something old and updating it.
I guess the other thing I point out is in new markets, we've taken a much more comprehensive approach to marketing, right? We are not just doing the traditional direct mail reach out. We are doing television, radio, digital, all sorts of things all combined to try and really get the word out as to the fact that we're coming to town, who we are, why we're there, why we're interesting, how to shop a wholesale club, all sorts of different things. And those have really, really resonated in Michigan and in the other markets that we've gone into. Provide us great confidence as we go forward. So we talked a little bit about on the call. We've got two stores left to open this year, one in Newburgh, New York, one in Long Island City, New York. Next year, we see six at this point.
And the following year, we see a path towards 10. So really ratcheting up how we go. The new stores we expect to be in existing markets and new markets. So next year, you'll see hopefully stores in Pittsburgh, our next new market to go attack, as well as filling in our existing markets. We'll have a club in New Hampshire that's under construction, a club in New Jersey, a club in Florida. So really old and new. And we're really excited to continue the momentum that we've seen so far.
So I think related to that, I think historically, and maybe you have to go back a while to when BJ's was opening a lot of stores consistently, but I think when you open new stores, they kind of pressured the income statement a little bit, and that might have kept BJ's from opening large numbers of stores in a single year. Are you seeing things that make you believe that that dynamic has changed, that you can open 10 stores in a year and it doesn't have the same pressure on the income statement that maybe it would have half a decade ago?
Yeah, listen, it will always have some element of pressure from a pre-opening standpoint. So think back to my earlier statement of spending $1 million. Now we're spending probably about $3 million on average. So that will pressure the income statement in the year before the club opens. Our clubs break even in the first year, you know, really almost as a rule. So you know, there's not tremendous in-year pressure, but there is that little bump at the beginning when you're trying to get the club open and to advertise to get members.
I don't know that we really care about that, right? We are tasked with growing the company for the long term. We're finding sites that have tremendous ROIs. As we talked about, the ones that we've done recently have been great. And so we'll continue to invest to grow the company as long as those things are happening. And we're seeing both of them today.
Yeah, and Robbie, if I might just add two things to what Bob was saying. So one is from a balance sheet standpoint, the terrific cash flow we've seen this year has allowed us to considerably remake the balance sheet, decrease the amount of debt we have, particularly relative to EBITDA, and increase this flexibility for us to invest capital in what we believe will be really attractive ways, which is exciting. But two, you know, I think the pre-pandemic knock on us was always we'd like to see you grow a little bit faster, both on the MFI and on the comp line. And one of the challenges that we noted at the time and is particularly relevant is we didn't have the benefit of a sizable new club component to either one of those. From an MFI, it flows through directly.
But from a comp standpoint, new clubs scale over time. So we know that without opening new clubs at an accelerated rate, it actually puts a backside pressure on comp. And so we're quite excited by our ability to invest in attractive ways, have the flexibility to do it, and drive a much more attractive growth algorithm for the company going forward.
And maybe related to algorithms, you know, as we look, you know, towards next year, and maybe this is a question for Bob, you know, maybe can you give us some thoughts on the puts and takes on the SG&A line? Are there things that roll off next year maybe that were related to COVID spending and things like that as other things come on? Any kind of thoughts you would recommend we take into account?
Yeah, look, I think there are a couple big ones, right? One is the spending that we are doing to keep our members and our team members safe and healthy. That I think stays on as long as the public health situation stays around, right? We spent about $12 million in the third quarter on that. And I think that persists for quite a while. There's a labor component of it too that I think will be variable based on what happens, you know, in our business and in the public health situation. The one thing that will roll off that we've been quite explicit about is in the front half of this year, we spent a pretty exorbitant amount of money on team member compensation, specifically through our management bonus program. And when I say management team, it's not just Lee and myself.
It's our top 4,000 odd people in the company. We accrued an extra $30 million in the first quarter, an extra $6 million in the second quarter, and then we capped out. We can't accrue anymore. We are at the top end of the plan, and so next year, we'll start over, right? We will arguably, when we set this year's plan, we didn't know COVID was coming, and so everyone has gotten the benefit of that. Obviously, going into next year, we know COVID is here, and so we will set the plan at what we think is a reasonable level, but I would argue that we're not going to see max payouts next year unless something gets materially worse from what we think, so that's the big one I would highlight is there should be about $30 million falling off the rolls next year.
That's really helpful. Another question I get is just how do we think about the omnichannel penetration and maybe just digital overall? How do you see that evolving over the next few years, you know, BOPIC versus, you know, ship from store or, you know, increasing the size of your ship from distribution center business? You know, maybe any thoughts there would be great. And profitability impact from that.
Yeah, I can take those. Look, I think we're really happy with the level of growth we're seeing from an omnichannel perspective, so we disclosed just a couple of weeks ago that we saw a 200% growth rate in Q3. So we know we're growing at relatively attractive rates vis-à-vis the industry, admittedly off of a bit smaller base as we've invested in omni over the course of the last few years. We do believe our economics are structurally advantaged, right? We have fewer SKUs with larger rings, and we're picking in a warehouse environment, and so it's just a little bit easier for us to get to attractive economics when it comes to picking items, and so if you think about the places where we pick, buy online, pick up in club, ship to home, delivery, curbside, BOPIC, we're excited about the economics of those.
We think as members engage in those platforms, we see incrementality and good overall economic picture. Although the variable cost is a little bit higher as you have to pick the item. And then when it comes to same-day delivery and our partnership with Instacart, we're essentially at neutral economics because the member is paying the delivery fee and any tip associated with that fee directly to the driver. And so we have, I think, a really good ability to grow those programs in ways that are economically attractive to us. And so as the market likely moves to greater levels of penetration, we're well positioned. I do think, you know, the early adopters here are clearly people who are willing to pay for convenience. And that pool has expanded somewhat during the pandemic because there is a meaningful portion of people who would prefer to avoid stores entirely.
I think as the pandemic abates, some of that likely recedes a little bit, but you still see overall growth in omni, perhaps at a bit slower rate. But overall, we'll keep leaning into these platforms because we think we have an advantage and see great economics and incrementality. And so we're excited about the progress and believe there's a lot more to come.
And so, you know, in this return to the normalized environment that we all are hoping to get to, are there, you know, a top two to three either marketing or merchandising things that you look forward to doing, you know, that you maybe had already planned that you weren't able to do, that you look forward to executing when we get back to normal?
Yeah, you know, look, so much of this year has been just trying to keep up with the incredible demands with safety, with hiring an adequate number of people, keeping the stores well stocked, and our members and our team members safe. You know, that said, I am continuing to just be amazed by the progress we're making on the long-term strategic priorities. You know, our examples of investing in assortment and new approaches to acquisition and new store openings, we haven't moved off the long-term priorities and so far, we've been keeping the plates spinning and the balls in the air, which is really encouraging. I think as we go into next year, we've learned how to operate at a meaningfully higher level of efficiency.
Hopefully, we can dedicate a little bit more time to some of the longer-term initiatives that we know have a lot of potential. That will, you know, that will accelerate as the pandemic abates. Until then, the first and consistent priority will be keeping our people safe and our stores well stocked to support members.
Do you think, I think I was surprised at how similarly, no matter where your clubs were, they seem to have similar responses from customers. If you go back to normal, do you think there'll be pretty significant differences between the suburban clubs and the urban clubs?
You know, it's a really good question. I'm not sure of the answer. We have been heartened that we've seen a bit more share gain in places where we've historically been a little bit weaker, so outside of the Northeast, I think we're seeing increased demand, and that really just reflects the level of development in some of those markets where we'd be more developed, northern New York, and a little bit less developed, The Carolinas, South, and, you know, I'm hopeful that we're able to hold on to some of that momentum and some of the people who may not have historically experienced the franchise see the benefits and the value that we can deliver and stay part of the family.
That's great. That's really helpful. And then any more color you can give, you know, you're saying you could be approaching 10 stores, but any kind of color on what geographies you might be looking at that you're not in?
Yeah, do you want to go Bob?
Yeah, I think you can read from my comments, Robbie. You'll see a mix of new and existing markets. That 10 store number will be at least one new market, if not a couple. You can sort of see by Michigan, Pittsburgh, where we're going, right? I would imagine you'll see us get into Columbus, Ohio, and Indianapolis, and Nashville, hopefully, you know, great cities in the Midwest that have disproportionate population growth. Like Columbus is growing like a weed, which is great. We've been able to see some wonderful real estate in new markets that will take a little bit of time to get to, hence 10 two years out, not next year. We're really excited about the type of real estate that we're seeing and the growth in the markets that we're looking at.
Maybe just as a follow-up to that, you know, on the conference call, on the third quarter call, you know, you in Q&A, I think you guys started talking about different types of real estate, you know, in terms of co-tenants or maybe higher traffic areas, maybe more expensive real estate. You know, could you talk a little bit more about that dynamic? Does it create a club that has a higher membership from the beginning? Or, you know, and what are we talking about here? Are these going to be highly visible, you know, locations, you know, in strip centers or maybe a little more color on these real estate locations, these newer type of real estate locations?
Yeah, it's, you know, it's really an evolving change for us, right? We have clubs that are in high retail gravity places, and we have clubs that are in office parks, and so there is a mix in the chain today. As you know, our whole fleet of clubs performs pretty well, and so I'm not sure there's a tremendous amount to glean from that other than the ones that with real retail gravity to them perform a shade better. You know, it was the company's culture for a long time to just go get the cheapest real estate possible, and that's why you get something in an office park, and that's great for the rent line. It's probably not great for the MFI line or for the sales line, and so we've been able to really get a mix of both.
And this type of a retail real estate environment allows you access to really great retail gravity locations at arguably lower prices than you might have seen a couple of years ago. And so we can look at these new markets and find excellent real estate in lifestyle centers next to great tenants that really have some mojo. And they don't cost you, you know, an arm and a leg. They are more reasonable. And you can make the ROI much more palatable that way.
That's really interesting. I want to pause here and allow people in the audience to queue up or, you know, submit questions on chat. So please, everybody out there, if you have a question, please use the chat function to submit your questions so that we can get it answered. I'm just looking. Is anybody?
I don't see any yet, Robbie. So feel free to keep asking away if you have more.
Okay. I do have more. So another question I wanted to get in was the fuel business. A couple of things, you know, first of all, you know, can you remind us what the fuel business, what happened with the fuel business in this environment? Because I think it became less of a focus of the investor community. How should we think about it going forward? You know, are all your new stores going to have fuel stations? You know, maybe some real color on the fuel business and its importance.
Yeah. The fuel business is a great part of our business, Robbie. And it is so because it's a tremendous way to show value to our members. We and our club competitors, frankly, don't make a ton of money relative to what other providers of gasoline make from a profit standpoint. We're not in it for the profit. It is profitable, but, you know, where an average station on the street makes $0.15 or more per gallon, sometimes over $0.20 per gallon, we tend to make $0.07, $0.08, or $0.09 per gallon net. And we do that really just so that we can show the lowest prices in town. And gasoline is probably the widest known commodity in the world because there's a price tag on every street corner.
And so you'll often see, you know, on one side of the street, our store, and on another side of the street, a Mobil or an Exxon station $0.25, $0.30, $0.40 higher than we are every day of the week. And so there's just a great value statement about gasoline to start. You pair that up with our co-brand credit card proposition where the members that have that card get another $0.10 off of their gallons every day of the week. And you get even further value. We have over 20% penetration at the pump going on the co-brand card now. It's been growing tremendously. And then you tie in the club to it where the merchants have done a great job building a High Octane program where if you buy certain items, you get $0.10 per item off of a gallon of gas that day.
So, you know, I bought a few of them the other day. And between my co-brand discount and the High Octane, I paid $1.35 per gallon. So that's a value statement right there at the pump, right? People do nutty things for a nickel off of gas, never mind 65 cents a gallon off. So we're really in it to provide that value. It is something that people point to when they renew their membership. And we've done that for quite a while. I think we're looking from here to continue to grow our gasoline empire. About 147 clubs have stations today. We would love to continue to go back and add them to the remainder of the fleet, probably for everything outside of Metro New York.
We've done that in the past couple of years, and we'll do that in the future, next year, maybe even as many as a dozen. Because we really believe in that value statement to our members. And we'll look to keep investing as we go, you know. This year has been a great performance relative to the market, where the market's down double digits in gallons. We've been up Q3. I think we were up 2, and the market was down around 10. And so, you know, members are consolidating their trips, and we're gaining tremendous market share, not only inside the club, but at the gas pumps as well. So it's been a fun business to watch.
That's really helpful. Okay, I got a question over my email from so-and-so, and the question is on membership. So the question is, when you guys look into next year and you have to anniversary the huge ramp up in members that began in the first quarter, and when you consider, you know, renewal rate levels, you know, should we think about scenarios where you could have a down quarter in members year- over- year next year?
Yeah, I think possibly, for sure. I think this will be something across retail broadly where there's just been an incredible surge in demand in, you know, in comp sales and in membership. And depending on the course of the pandemic, you could see a variety of different scenarios. Obviously, if the vaccines are effective, distributed widely, people take them, and the disease sunsets earlier, you'll see less demand than if those things play out a little bit more slowly. And I think we're rooting for the former, that, you know, the vaccines are effective and work quickly, which would be terrific. But as we, you know, look at the overall business and just the degree to which it's been transformed, you know, we really do think that the business is meaningfully stronger than it was before. Just take every, you know, portion of the business versus 2019 frame.
We've got more members under any scenario. The merchandising has transformed. We've got a new growth vector in services. Omni is firing on all cylinders. We're opening more clubs. The balance sheet has transformed. The business is just considerably stronger than it was post-pandemic, even if you see some erosion in the incredibly high in members that we've seen. And so, sure, it's a possibility. And, you know, we'll work to do everything we can to hold on to all the members and continue to grow. But I think the key thing is just considering how much stronger the business is versus any kind of relevant baseline.
That's really helpful. And then another question I got was on the merchandising side. When you look at the fresh business, how far are you into moving towards plant-based and natural organic and those things? You know, was that delayed at all due to COVID? And, you know, is that a multi-year thing that could be a driver to same-store sales and members?
Yeah, yes. I think, you know, we're still early in that journey. So at the beginning of the year, we had planned to do a pretty meaningful reset of our grocery business, more organic, more healthy options. And we went down that path. And I think that worked really well. We saw some categories just take off and grow meaningfully faster than the market. And we were excited about that.
So we talked about alternative snacking, which is really healthier snacking. So I think kale chips and products like that. As you get deeper into the pandemic, I think there was an element of, you know, return to comfort food. And we saw some of that play out in the business. So some of the more traditional categories gained strength. But I think the longer-term focus on healthier, more organic, more natural entry into new categories is certainly a good thing for our business. And we'll keep leaning in that direction.
That's great. I just want to pause one more time. If anybody has any questions, please jump right in that chat. And if not, I will end with my last question. My last question was actually in your, I guess, what Costco calls your ancillary businesses. You've talked about home improvement as a service and the opportunity there. I think, can you just catch us up where you are on that? I think there was a desire to make that more organized and maybe more consistent across the stores. Maybe Lee, just tell us where you're at, how soon we could see something change there.
Yeah, so historically, we've had a nice home improvement business, but it wasn't all that coordinated, and it wasn't all that well thought through. So, you know, just as an example of that, it wasn't historically managed by the merchandising team. We had a very talented team but reporting up into the ops organization, the field organization. And so we've centralized that under merchandising and have taken on an effort to really upgrade the quality and the consistency of what we can do. And we know that we can offer really good value in home improvement. We know that our competitors have large-scale businesses here. And we know that this offering resonates with members. And so we have relaunched it this year and will continue to optimize and refine it going forward.
So this is everything from kitchen and bath remodels to new roofs and siding and flooring and the like. You know, this year, it's been a little bit challenging because we had envisioned largely an in-club sales model. And clearly, that's a little bit challenging in just the environment in clubs, and people don't want to stop and have a consultation. And so we've continued to refine it. But we think as we build out more of an omni o ffering and as the pandemic subsides, we'll be really well positioned to see what we hope is pretty meaningful growth there.
That sounds great. Are there any questions in the chat out there? Okay, if not, guys, I want to thank you. I want to throw it out for any final comments and then also thank you guys again for doing this.
Yeah, Robbie, let me just close by again saying thank you to you and your team. Thanks to everyone on the call on the Zoom. We really do appreciate your interest in the company and wish you all kind of safe and happy holidays going forward. Stay well, everyone. Thanks.
Thank you again. Thanks, everybody, for joining.