Welcome to Bellring Brands 4th Quarter and Fiscal Year 2019 Earnings Conference Call and Webcast. Hosting the call today from Bellring Brands are Darcy Davenport, President and Chief Executive Officer and Paul Rhode, Chief Financial Officer. Today's call is being recorded and will be available for replay beginning at 1:30 p. M. Eastern Time.
The dial in number is 8005 58367 and the passcode is 487,8954. At this time, all participants have been placed in a listen only mode. It is now my pleasure to turn the floor over to Jennifer Meyer, Investor Relations of Bellring Brands for
call. With me today are Darcy Davenport, our President and CEO and Paul Rhoad, our CFO. Darcy and Paul will begin with prepared remarks and afterwards, we'll have a brief question and answer session. The press release that supports these remarks is posted on our website in both the Investor Relations and the SEC filings section atbellring.com. In addition, the release is available on the SEC's website.
Before we continue, I would like to remind you that this call will contain forward looking statements, which are subject to risks and uncertainties that should be carefully considered by investors as actual results could differ materially from these statements. These forward looking statements are current as of the date of this call and management undertakes no obligation to update these statements. As a reminder, this call is being recorded and an audio replay will be available on our website. And finally, this call will discuss certain non GAAP measures. For a reconciliation of these non GAAP measures to the nearest GAAP measure, see our press release issued yesterday and posted on our website.
With that, I will turn the call over to Darcy.
Thanks, Jennifer, and thank you all for joining us today. Excited to speak to be speaking with you on our first earnings call. As you are aware, the Q4 of fiscal 2019 was our last quarter fully owned by Post Holdings. We launched our IPO in early October and began trading on the New York Stock Exchange on October 17 under ticker symbol BRBR. I want to thank and congratulate everyone who worked so hard to make the IPO happen.
It could not have happened without the amazing team effort across Post and Bellring. I will begin today's discussion with a brief overview Bellring, our strategies for growth and our positioning heading into 2020. Paul will then provide you with greater detail on our 4th quarter, full year 2019 results, capital structure and 2020 guidance. Following that, we will open the call for your questions. For those of you who are new to our story, I would like to give you a quick overview of our business.
We are a fast growing leader in the convenient nutrition category, bringing great tasting nutrition to the mainstream consumer. Our business has scale, double digit growth, strong margins and high cash generation. Our business was formed from 3 acquisitions by Post Holdings Premier Protein, Dymatize and PowerBar, each of which helped establish and build the convenient nutrition category. Under these brands, we market and sell ready to drink protein shakes and other RTD beverages, powders and nutrition bars. Our flagship brand, Premier Protein, which represents 80% of our net sales, is the number one brand in the convenient nutrition category, but only has 5% household penetration, highlighting the brand's untapped potential.
Our other 2 key brands, Diamatize and PowerBar represent 13% and 5% respectively of our net sales and focus on powders and nutrition bars. Both brands are complementary to Premier Protein and offer future upside to Bellring. The convenient nutrition category is large and growing, representing 17,000,000,000 dollars of sales in the U. S. And growing at 7%.
Macro trends like mainstreaming of proteins, convenience and snacking are all fueling that growth. Mainstream consumers are increasingly entering consumers are key to Premier Protein success. Premier's RTD shakes combine category leading nutrition, great taste and approachable positioning that appeal to multiple consumer segments, need states and consumption occasions. This unique combination has resulted in category leading brand loyalty and repeat rates. In fact, Premier Protein is responsible for over 50% of total RTD category growth.
Bellring has a combination a strong combination of scale, organic growth, strong margins and high free cash flow generation. For fiscal year 2019, our net sales were $854,000,000 with adjusted EBITDA of 198,000,000 dollars We have organically grown sales since fiscal 2016 at a compound annual growth rate of 14 and our asset light model allows us to generate high free cash flow with minimal capital expenditures. Looking forward, we have multiple strategies to continue to drive growth. We expect our first three strategies, including increasing household penetration, expanding distribution and innovation to have the biggest immediate effect on our business. The final 2, international expansion and M and A, are longer term in nature.
Let's start with driving household penetration. We believe the RTD category and our product are in the early stages of consumer adoption. With Premier Protein having only 5% household penetration, increasing marketing and promotion in fiscal 2020 are key enablers to driving more households into the brand. Expanding distribution is another growth driver, both within our existing channels as well as new channels. Our biggest distribution opportunity is increasing our shelf space where we already have distribution.
Premier Protein represents 16% of RTD category sales, but only represents 5% share of shelf. Our e commerce business representing 6% of our net sales also has great momentum growing over 30% in 2019. Finally, we believe there also is a sizable opportunity in new channels. Innovation is our next growth driver. We've had tremendous success in product innovation through new flavors and package types.
We are encouraged by the incrementality of our new shake flavors and will continue to drive this strategy. Now to our final growth drivers, international expansion and value accretive M and A. We see significant growth opportunities in our current international markets, including Canada and Western Europe, as well as markets where we have distribution where distribution is more nascent, including UK, China and the Middle East. Regarding M and A, believe the single biggest opportunity is to organically grow the Premier Protein brand. We have good momentum heading into 2020.
Our best measure of the health of the business is consumption. During the Q4, Premier Protein Shakes dollars grew 16% and in October, this growth accelerated to 20%. We expect consumption and sales growth to continue to accelerate in our Q1 of fiscal 2020 as we lap the effects of our supply constraints. We are happy to say we are going into 2020 with solid safety stock, a stronger supply chain and a sales and marketing team excited to the business. We enjoyed meeting many of you on our road show in October and appreciate your support.
I look forward to updating you on our progress next quarter. And with that, I will now turn the call over to Paul.
Thanks Darcy, and good morning, everyone. As we preview during our road show, 4th quarter net sales were 214,500,000 Adjusted EBITDA came in at $46,000,000 with a margin of 21.6%. Darcy mentioned consumption for RTD shakes remained strong, up 16% this quarter. However, Premier Protein net sales and volumes declined 2% and 4%, respectively, in the 4th quarter. This decline was expected, primarily driven by the early delivery of RTD shakes to a large customer in the 3rd quarter to support promotional activity, resulting in an estimated $15,000,000 headwind to the 4th quarter.
Solid organic growth driven by strong e commerce sales and distribution gains in RTD shakes offset a portion of the net sales headwind. Diamatize had a good quarter with net sales and volumes each growing 5%. This result was driven by organic growth in international, e commerce and specialty and was partially offset by lapping a product pipeline fill in the prior year. Net sales and volumes for PowerBar declined directly as a result of our decision to discontinue all but the top 3 highest performing products in North America. We expect to lap the effect of the reduced distribution in the second half of fiscal twenty twenty.
Turning back to consolidated results, gross profit increased 4% this quarter with gross margin of 230 basis points to 35.8%, benefiting from favorable input costs. SG and A expenses as a percentage of net sales increased 230 basis points to 16.4%. SG and A included a $2,700,000 of separation cost, which we treated as an adjustment to non GAAP measures. Excluding this amount, SG and A as a percentage of net sales increased 100 basis points, driven by higher warehousing and compensation expense, partially offset by lower consumer advertising. Adjusted EBITDA for the quarter was $46,000,000 an increase of 5 percent with adjusted EBITDA margin of 21.6 percent, an improvement of 160 basis points.
Turning quickly to full year 2019 results, net sales of $854,000,000 grew 3% over the prior year or 4% excluding the impact of a recently adopted accounting standard. Gross profit margin was 36.5 percent and SG and A as a percentage of net sales was 14.9%. Adjusted EBITDA of $198,000,000 increased nearly 27% over prior year with margins improving 430 basis points to 23.2%. Before outlining our guidance for 2020, I want to review our capital structure that went into effect upon closing of the IPO on October 21. We issued 39,400,000 shares of Class A common stock at a price of $14 per share, raising approximately 552,000,000 in gross equity capital.
Net proceeds from the IPO were approximately $524,000,000 after deducting underwriting discounts and commissions. Additionally, we borrowed $800,000,000 in total principal value of debt, which provided approximately $776,000,000 in net proceeds. Subsequent to the close of the IPO, we used $1,227,000,000 of the combined net proceeds to repay the post bridge loan and related interest. Pro form a for these transactions, our cash balance is approximately $63,000,000 resulting in net debt of approximately $737,000,000 and pro form a net leverage of 3.8 times. Our net leverage target is 3 times, which we expect to achieve by mid fiscal 2021.
Turning to fiscal 2020 guidance, we expect net sales to range between $1,000,000,001 $500,000,000 Adjusted EBITDA is expected to range between $192,000,000 202,000,000 which will include $7,000,000 of incremental public company cost. We expect our quarterly cadence to continue to reflect variability because of the timing of key customer promotional events and related shipments, which can move from quarter to quarter. Last, giving consideration to both Bellring Inc. Taxes and tax distributions at Pulse Holdings, Bellring's total income tax cash outflows is expected to be approximately $30,000,000 in 2020. We expect cash interest expense to be approximately $47,000,000 With that, I would like to turn the call back over to the operator for questions.
Thank Our first question comes from the line of Andrew Lazar of Barclays.
Good morning, everybody. Congratulations on the recent IPO.
Thank you. Good morning.
Sure. Darcy, I was hoping to pick up a little bit on Paul's comment on what we know that there's more variability in the way results play out over the quarters just because of some key customers and promotional activity and such. I was hoping maybe there was a little bit more color you could add to that as we think about the cadence of earnings this year, how those key customer promotions tend to work in terms of timing? And then I guess what visibility you have currently as we think about the start to the fiscal year and the type of growth that I think is supposed to be pretty strong given some of these things. In terms of like what you know, what's locked in, in terms of new product shipping, things like that?
And maybe how much of it is predicated on takeaway trends remaining in that 15% to 20% range?
Yes. So I'll start just from a general standpoint of just building from overall a building block for our volume. So the way we look at it is that kind of we start with organic growth and we expect that to contribute kind of high single digits. And then we have because you're right, we are estimating pretty strong growth coming up because of our supply chain challenges last year that we are lapping. So the second piece is the supply chain lapping and we're expecting kind of middle single digit growth on top of that.
And then the remainder comes from the incremental marketing and promotion and distribution. And from the marketing, promotion and distribution, there. We also have good visibility into the promotional calendar for Q2, Q1 in this category, you really don't have very much promotion in the kind of OND period. But we have good visibility and locked in promotions for Q2 and we're already starting to have conversations about promotion for the Q3 and Q4. So that is from a general standpoint how we're looking at our growth and the building blocks and then I'll pass it to Paul for the quarterly cadence.
Yes. So if you look at kind of overall variability for your quarter versus fiscal 2019, so Darcy touched on, our Q1 will be lapping, that's the quarter that's most impacted by the supply issues that we had in prior year. So, Q1 will be lapping to a lower comparable, as well as some of the load in related to some of the promotional and display events that are occurring. So that's kind of the Q1. Kind of historically, the second and fourth quarters tend to be our lowest because there's only kind of 2 components.
There's a sales component and the load in, and then there's the EBITDA margin impact because when we have large promotions that are especially at our bigger customers, the club customers, that tends to result in quarters that have lower EBITDA margins. And historically, those have been in the second and fourth quarters, and we expect that to continue. So as you kind of look at as you look at the quarterly pacing, again, we'll be lapping Q1 last year with the supply constraints. And then the 3rd Q4 of this year had that $50,000,000 shift from Q3 to Q4. So we'll see if that occurs again, but that'll be something else that we'll be watching for as we go into fiscal 2020.
Great. Thanks for that. And then I guess just finally, maybe Darcy, could you share a little bit with us maybe some of the lessons learned, not from the supply chain issues themselves, but what you learned about sort of the premier protein brand visavis customers and consumers when you went from sort of the core 7 down to 2 and then now back up to 7 and what that sort of informs you a little bit about maybe where the potential growth opportunity is for that brand going forward? Thank you.
Yes, sure. Thank you. Yes, this last year was a big learning year for us. And I think that what we really learned is the resilience of the Premier Protein brand. As we went as you said, we went from 7 SKUs to 2 SKUs.
Really where you saw it affecting consumption was November and then we came back fully by April. So a considerable amount of the year and what we found is the majority of our consumers actually either went to chocolate and vanilla, so stayed dedicated to our brand and went to chocolate vanilla, or they actually left the category. So it just further emphasized, our tremendous consumer loyalty and the fact that they would stay with us during that period of time. Then we saw big bumps and a lot of consumer excitement when we came back with the flavors, which was also really fun to see. And so, yes, as we look back, we continue to see incrementality with the new And again, one of our biggest growth drivers is really around household penetration.
So the more we can tell people about the brand and what we stand for, we think that we'll continue to grow the household penetration.
Thank you.
Thank you.
Your next question comes from the line of Ken Goldman of JPMorgan.
Hi, thank you so much. One quick one and then a longer one. I wanted to ask Paul a little bit about the inventory. Obviously, it jumped this quarter for the safety stock. Can you just help us think about modeling that number or however you want to think about inventory going forward?
When do you sort of bleed that safety stock off and get back to normal?
Yes, that's a great question. So as you mentioned, we have built our inventory up to better levels, especially as we looked back to last year. As we go into fiscal 2020, we think we are prepared for our first and second quarter promotions and displays that we have coming. And so that's part of the reason we're carrying higher levels coming into Q4. So I think as we go through fiscal 2020, we'd expect the inventory levels to come down slightly, but I don't we aren't expecting them to have significant changes.
Obviously, demand will drive that one way or the other, but overall, our model would suggest that inventory levels will come down some, but not dramatically.
Okay. Thank you for that. And then a different question is on maybe migrating the Premier brand away from the pharmacy aisle. I got the sense in getting to know you guys, but before the IPO that some of the team felt like it was a little bit closer in proximity, maybe a couple of years away and some felt that that was a little bit farther away. What I'm talking about is maybe selling some of the product in aisles, maybe the beverage aisle, something like that.
So I just wanted to get a better sense from all of you sort of when do you think it's the right time for Premier to start pushing some of its customers so that it does what other convenient items have done and be sold not only in pharmacy, which you can still own, but maybe elsewhere in the store as well?
Yes, I'll answer that. It's a good question and you're right. Yes, we obviously had a lot of conversation about that during the roadshow. So I still believe that we have tremendous upside, just within pharmacy and building our block there. We've talked about and I mentioned in the prepared remarks about our 16% market share and only a 5% share of shelf.
So there still is a lot of room, kind of low hanging fruit from a distribution standpoint within the pharmacy, and it will take time. So we do believe that this is a mainstream proposition and overall is really being driven by mainstream consumers and really us. So we think that think 2 to 4 years from now that the category or part of the category will move to more of a mainstream aisle. Whether that is beverage or breakfast, I think that is still up for debate and likely will happen via testing. So we've seen part of the category, specifically in the nutrition bar space, some of the main successfully.
So we think it's a model that grocers are generally comfortable with. But now it's just a matter of doing it in a very thoughtful way in partnership with probably some of our competitors as well as with the grocery partners.
Great. Thanks, Darcy.
Thank you. Thanks. Your next question comes from the line of Jason English of Goldman Sachs.
Hi. This is Vivek Srivastava speaking on behalf of Jason English. Can you elaborate on the specific drivers of top line growth beyond FY 2020? And how much of this growth you think is because of the strength in the overall health and beverage category? And how much you think will be predicated on your share gains in the category?
Thank you.
Sure. So you're talking about drivers of growth past 2020?
Yes.
Okay. Yes, no problem. I'll hit that and then Paul can add on anything. So you're right. The first is simply category growth.
As I mentioned, the category is growing high single digits. We expect that to continue. And then the second is, we have a ton of distribution opportunity, both within within expanding into new channels. We see a lot of opportunity with e commerce Across both Dymatize and Premier Protein, we see upside there. If you think about it, we only started, really launching into e commerce a few years ago, and it's a different way of doing business.
So we are really building the foundation to date And now we know what works, we know what drives our business and now it's about just accelerating those activities. The third is really about marketing and promotion, especially with the Premier Protein brand, we have underinvested, especially this last year because of the capacity constraints. So now we will start investing at the levels that we believe drive the business and also drive the category. And then the other pieces are really around international and M and A. So we believe that international offers additional growth for all of our brands, including Dymatize and PowerBar.
And then innovation is another piece where we are launching. We've pulled back on innovation in the what expected by our consumer and also, what our company is excited for in the coming years.
Thanks.
Absolutely.
Your next question comes from the line of Pamela Kaufman of Morgan Stanley.
Hi, good morning. I was hoping that you could elaborate on the timing of innovation launches throughout 2020 and what the plan is for rolling out distribution for your new products from a channel standpoint?
Sure. So, for us, for our category, the resets are it's interesting. The resets used to be in this category more heavily weighted to spring. There has been some changes within some of the major retailers. And so now it's about fifty-fifty between spring and fall.
So our new products align with the reset windows of our retailer partners. Obviously, in the club channel, there's more flexibility. And from a category excitement standpoint, January, February, March is really the big time for the category. It's when most new consumers enter the category, kind of that new year, new you timeframe. And so we try to align our launches around that time to make sure we are there when consumers are entering the market.
So that gives you a sense of timing. And then distribution, again, also really predicated by the reset windows. So I think we've talked about expanding share of shelf as being a big growth driver, and then and that would be, again, based on the reset windows. For e commerce, obviously, you can put your items on e commerce at any time. So that is so we will be launching new items during the high kind of the high season, which would be January, February, March.
And then from a new channel perspective, those are ongoing conversations with those channels. And reset windows.
Thanks. And then can you talk about your plans for marketing spend increasing next year and elaborate on the types of initiatives that you'll be spending behind?
Yes, sure. So again, it go we really align with when new consumers would enter into the category since much of our volume comes from consumers outside outside of the category. So our Q2 timeframe will be a big push for us, very similar to other competitors in the category. And yes, we are excited to launch across multiple touch points and you can expect to see us not only on doing we have a very strong digital presence. So expect us to be on digital, but also launch on national television, which is exciting.
So I think that which,
I
think, internally, we've which I think internally we've been waiting for. Yes.
And just to touch on your question on spend. So I think for fiscal 2020, we are increasing our spend about 100 basis points of net sales and we expect that increase really to occur really throughout fiscal 2020.
Thank you.
Thank you.
Your next question comes from the line of Chris Growe of Stifel.
Hi, good morning. Just had
a question for you, if I could. And follow on a bit, I think you just said it, Paul, but the phasing of marketing that would happen throughout the year. Does any of that start to hit now or around the kind of the height of the season, the peak season? Is that when you tend to see the majority of that spending coming through? Or is it more ratable throughout the year?
It occurs. We will see it increase kind of as we go through the year, but it is spread across the 4 quarters. So we do have increased spend compared to last year really across all four quarters.
Yes. The one exception to that is this Q1. So this OND period is just is not a big spending timeframe for and it's as you can imagine, people are more concerned with Thanksgiving and the holidays, as opposed to thinking about changing their health regimen.
I guess those shakes would benefit them if they're eating a lot over the holidays, it would seem, but yes, right. Okay. I just had a second question, if I could. And with regard to the incrementality of new products, especially for Premier, you have some new products coming out, those tend to hit next year throughout fiscal 2020. I'm just a new flavor, for example, how incremental do you expect that to be?
And the degree to which you expect this penetration of new channels and customers and how much that can add to revenue growth in fiscal 2020?
Sure. So historically, we have seen new flavors represent about 38% of our growth. So obviously, that that depends on how many flavors. Obviously, if you're launching a 3rd, 4th flavor, that's going to have more incrementality as opposed to your 7th to 8th. But I think we internally continue to be surprised at the incrementality of new flavors.
And so we believe that will continue, especially through this year and beyond as we expand the flavor variety on the shelf. From a new channels in customers, as we've expanded channels, we see tremendous growth. And I think that what's interesting about it is, as we expand channels, it's less about people shifting, but it's more about increasing household penetration. We get people into the franchise, they fall in love with they go to other channels where they can buy bigger packs because our products are everyday products where they consume it for oftentimes breakfast every day. So we see a ton of incrementality both from a new flavor standpoint, as well as when we launch into new customers, and then we bring them into our franchise.
Okay. Thanks a lot for that.
Thank you.
Your next question comes from the line of Bill Chappell of SunTrust. Thanks.
Good morning.
Good morning.
Hey, Darcy, just
you talked about advertising and channel distribution, stuff like that. Just kind of wanted to talk a little more about the competitive launches and pressures that you may or may not be seeing. I mean, I think while you were on the road, somebody else threw out another 30 gram ready to drink shake. Pure, I think, Pure Protein is doing a lot of national advertising when you're soon to be doing that. And it seems that Pepsi will do something with more with Muscle Milk now that they've got control and expand the distribution on the more convenience channel, where you're kind of taking your time to get to.
So maybe help me understand the path you see is, are you late to the game? Are you feeling incremental more pressure? Or just any update there would be great.
Sure. So we really have seen the competitive activity increase really for the last 2 years. So we saw a lot of brands, competitive brands launch similar nutritious products over again, yes, the last like year and a half. And our brand really has not seen it hasn't been overly affected. I think that just goes back to how loyal our consumers are.
We have a 68% share requirement, which is a loyalty metric. And even I mean, I think it kind of goes back to the question around this last year and what we learned about the resilience of the brand, we are always aware of watching competition. But the latest entrant is we've seen a lot of other 30 gram products launch. And so far, again, they have not really affected our growth.
Got it. And then just a follow-up, I've forgotten, but I know you've told this to us before, but in terms of commodity outlook, are you locking in, are you largely locked in for kind of your protein needs for the next year?
Yes. So we have pretty good visibility several quarters ahead on our key commodities. I don't want to go too deeply into our coverage strategy. But yes, we tend to cover out, like I said, we have pretty good visibility several quarters out. So we feel pretty good about where we for fiscal 2020.
Got it. Thanks so much.
Thank you.
Your next question comes from the line of Ken Zaslow of Bank of Montreal.
Hey, good morning everyone.
Good morning. Good morning.
As you put out your incremental new products and you do your marketing, how much have you invested in analytics? As I listen to the conversation here, a couple of things you said is like it will be fun to see how much advertising actually helps the competition. We're surprised by how much the products haven't really competed with ours as much and we keep on getting share. How much is the needed for increased analytics to kind of hone in and say, all right, every dollar that we spend gives this type of lift, this type of incremental. Can you talk about that and where you're going on that?
Yes. Yes. So you're exactly right. I think as much as maybe my comments didn't come across that way, we are really we are a very data driven organization, especially in our marketing team. So just to give you a sense of we're going to be looking at multiple data points to assess the effectiveness of our advertising.
And we're going to be we're obviously looking at sales. We're going to look at online sales. We're going to look at web traffic. We're going to look at multiple data points to give us a sense of is it working and is it working as well as we have forecasted. The other thing that we're going to be doing is, after the campaign is over, we'll be doing, what's called a marketing mix analysis, which will be assessing all of our not just advertising, but all of our vehicles, including promotional vehicles, EPR or discounts to assess what moves our business the most.
So yes, so we have a ton of analytics going on in the background that's going to guide our future strategy even later in 2020, but also beyond.
Are there return on invested capital numbers as you think about investing in marketing or any other that you're willing to kind of give us as a proxy of every dollar that you invest you expect some sort of return or a way to think about that? Because I think that's kind of a 2021, 2022 kind of growth algorithm to think about? And I'll leave it there.
Thank you.
Yes. So we will be looking at all of those metrics to guide our strategy. So those are exactly the ones making sure that we're spending the dollar where it's going to have the biggest effect on our business.
But you don't have any metrics that we could that you'll tell us of what you're looking at? Like a 10% return, a 20% return, anything like that that we can think about?
Yes. I'm not I don't think in this forum I'm comfortable talking about those kind of specifics, but I'm happy to give you guidance on how we make our decisions.
Okay, fair enough. Thank you. Great. Thank you.
Your next question comes from the line of David Palmer of Evercore ISI.
Hi. Kevin Lehmann on for David. Thanks for the question. Darcy, you and your team have done a great job explaining how you plan to boost Premier Protein's penetration through wider distribution, more innovation, talked a lot about the loyalty that brand enjoys, even some capabilities on analytics that might help. When we analyze sales of Premier Protein state by state, we can see that you fairly significantly under indexed in places like New York, New England, California, essentially the coastal areas of the U.
S. Relative to more of the center of the country. Is it fair to assume that a big chunk of your targeted growth going forward should come from closing that coastal penetration gap? And if so, can you talk about some specific marketing initiatives or strategies or analytics you might employ to help do that in 2020 and going forward? Thanks.
Yes. I think that just goes back to the overall number of household penetration. So if you think of just going back to, I mean, we only have percent household penetration. The RTV category has 23% household penetration. Bars, nutrition bars have 45, the category has 55.
So there is just tremendous opportunity regardless of state. So I think that our focus is really just increasing that household penetration. Necessarily have the luxury to have so much opportunity that we don't necessarily have to go state by state or region by region. We're looking at national advertising. And so we're looking to blanket to just increase that 5% and we believe there's a lot of upside.
Okay, great. Thank you.
Thank you.
Your next question comes from the line of Brian Holland of D. A. Davidson.
Thanks. Good morning.
If I could just maybe kind of
peak out longer term here, I think you guys are targeting sort of 10 plus percent long term growth rate. I'm wondering how that's segmented out when we think about your key brands. Obviously, you're going to get some outsized growth this year. Is it sort of primarily or exclusively driven by Premier Protein? You mentioned earlier about lapping some of the rationalization efforts on PowerBar.
So I'm wondering if the expectation is that PowerBar would grow beyond 2021. And then also dimatize, obviously, you got an inflection this year, you've had some distribution. So wondering what the white space is for that. So if we could start there kind of big picture how that growth breaks out long term?
Yes. I'll give you big picture and if Paul you want to add anything. So the bulk of the growth will be coming from Premier Protein. I would think about Diamatyze and PowerBar as being long term contributors. You've already seen you saw the 5% increase in DYmatize.
We expect that to continue and potentially even grow. We've been very excited and pleased with the channel shifting strategy that that Dynamitize has gone through. And so and we're already seeing that brand return to growth. From a PowerBar standpoint, we think the opportunity is international. So yes, we're still going to be lapping through 2020.
But by 2021, we think that will also be a contributor. But the bulk and where I would think that you guys would probably spend most of your time would be on Premier Protein.
Okay, thanks. That's helpful. And then maybe just on the advertising side, you gave some good color about how that will phase and the step up there in 2020. But Silpa, you go back historically, and obviously, I understand last year, the spend was maybe impacted by the capacity constraints. But we think it's sort of peer group gross sales peer spending about 10% of sales on advertising.
Even maybe before last year, you were still kind of closer to the mid single digit range and that's kind of relative to sales base and that sort of seems to be what's implied by next year. And you can correct me if I'm wrong about that. But where does that need to be? Where do you think that needs to be long term? I don't know how much of that is a function of your channel exposure.
Club may require less advertising spend, certainly your aspirations go beyond that. So just curious where that number sort of evolves to over time? Thanks.
Sure. So I think what is interesting about the Premier Protein brand is that the brand was really built on word-of-mouth marketing. So friends and family telling their loved ones about how this product worked for them. So that is really we have the brand has never been a heavily advertised brand. And so we believe that by when we increase our spend, even if it is in the single digits, that we will get more bang for our buck because this passionate group of followers that will then take that and basically kind of extend our dollars, so to speak.
And so that is really where our thinking is. Obviously, we're going to make changes. This is dynamic, so we'll be watching to see how the business responds to more national advertising and then we'll adjust as we go.
Your next question comes from the line of Bryan Spillane of Bank of America.
Hey, good morning, everyone.
Just two quick ones for me. First,
I think Bill Chappell asked earlier about just some new products, some new competitors coming into the market. And I guess I wanted to tie that to just the overall capacity, availability of 3rd party capacity. So can you remind us just how much you have sort of increased your access to capacity? And then as you're seeing more competitors come into the market, are you concerned at all that there's going to have to be more capacity added to the industry to kind of support potentially more new competitors coming into the market?
Yes, sure. So we're feeling really good about where we are from a capacity The The first thing is, all our supply chain really stabilized and we have every co man over delivering on their commitments. We now have and you've seen it on our balance sheet, we now have between 8 10 weeks of inventory. So that gives us the flexibility to really see some increases in some of our promotions, maybe unexpected increases and the business will have the flexibility to manage those changes. And then and just from a capacity standpoint, we have long term commitments.
So we are feeling like those commitments will satisfy what our volume expectations are as well as some additional flexibility because of our arrangements that we'll be able to handle that. So again, I think that capacity, we now are in a very good place. And so we don't expect that to be a constraint.
Okay. And then maybe the second one, you talked a bit about and there's been some discussion on the call about expanding distribution. And I guess as I listen to it, it's getting your fair share in the pharmacy maybe into the breakfast aisle or other aisles within like a grocery store or food store. But it doesn't sound like immediate consumption or single serve is necessarily high on the priority list. And so I guess my question is, if that's true, is there just something that's structurally more difficult about that, whether it's getting the route to market or maybe having to be in a different package?
Just trying to understand how that could fit in and if it's just structurally maybe more challenging than maybe other parts of the store?
Yes. So, I think what is unique about this business is, all of the opportunities. So actually, I just didn't talk about it. So we do have a single bottle. We actually have 2 sizes.
We have a 14 ounce single serve bottle as well as an 11.5 ounce bottle. We have been very successful stores. So that is an active strategy that our sales team is currently executing. In addition, some of the newer channels of convenience and dollar and what we call kind of on the go, those are also active strategies that we are executing on. The one thing that I would just say is, the convenience channel is a highly fragmented channel.
And it is so it just takes a while to build. So that will be that is a long term strategy that we will continue to be moving on. But we are absolutely we think that is an important part of the business and part of our long term strategy.
Okay, great. Thank you for that and happy Thanksgiving to all of you.
Thank you. You too.
Ladies and gentlemen, we have reached the allotted time for questions and answers. We thank you for participating in the Bellring Brands 4th quarter and fiscal year 2019 earnings conference call and webcast. You may now disconnect your lines and have a wonderful day.