Good morning, everybody. Thanks again for joining the Evercore ISI Consumer Conference with a 9:30 A.M. session here with Krispy Kreme. Really happy to be joined today with Mike Tattersfield, CEO, and CFO, Jeremiah Ashukian, for this virtual fireside chat. Mike has served as President and CEO of Krispy Kreme since January 2017, overseeing the company's transformation from a hub model to a hub-and-spoke model. During that tenure, things have seemed to at least seem to be working. Sales per hub with spokes has increased more than 50%, helped by that spoke build-out, those points of distribution. Jeremiah also brings deep experience to the bench, having served various CFO roles across North America and Latin America at Mars and prior to joining the company.
We have plenty to discuss, given all the different areas of growth this company has, the multiple segments. First, I know that the company wants to do an introduction with some slides, so I'll turn it over to them.
Great. Thanks, David, appreciate it. Hopefully, you can see the slides are up. I'm Mike Tattersfield. I'm President and CEO. I'm not gonna slide deck you on this one. Just happen to be in Mexico City today, so buenos dias for folks there. It's one of our key markets, and it was great to spend some time yesterday with Santiago, who runs our business, and the team to see what they're doing in Mexico and kind of learning how they think about channels. I always put this slide up, you know, it shows our purpose and our direction of the company, right? The purpose is to touch and enhance the lives of others through the joy that's Krispy Kreme, and direction to be the most loved sweet treat brand in the world.
I was able to see it yesterday. You know, when I see our purpose and talk to our Krispy Kremers, what I call our Krispy Kreme folks, and, you know, they share their dreams and goals and what they wanna do and how Krispy Kreme's gonna help do that, just to give you an example. Another example, which I love about our purpose, is for folks that participated in the U.S., in National Donut Day, you can see how our brand really comes to life on special event days, whether it's Halloween, Valentine's Day, there's National Donut Day, Mother's Day, et cetera. You can see we're generous. We actually have people come in, you don't have to make any purchase, you can come in, and you can get a free donut, right? One way we can give back to the community.
Folks, there's only 300 producing donut shops in the U.S., so folks that make that trip tend to buy a dozen, right? They're very happy to be involved in the moment, and ultimately, it leads to our direction of how do you build the most loved sweet treat brand in the world, which we already are doing in many countries. We just go to the last slide. For folks that don't know the story well, David started to allude to it a little bit in the intro, it's really changed. Even though it's an 86-year-old brand, it still does donuts, but it really is focused on being a donut company. Not about opening up donut shops everywhere, but building access points to get to where customers are.
Think of a whole change of being a franchisor, franchisee model, which is what it used to do, and just open up franchisees anywhere in the world. Now it's a very thoughtful approach as to how do you get the highest quality donut experience to where customers are. Today, you roll forward, it's 400 producing donut shops throughout the whole world that can deliver to 12,500 points of access, which is grocers, convenience shops, and even some of our fresh shops, where they don't produce donuts, but they might be in a high-traffic location, such as Penn Station in the U.S. or many locations in London and around the world. You have that simple approach. It's a unique model, right? 400 producing donut shops that deliver fresh to 12,500 points of access.
Not a lot of businesses do that, and we do that in 34 countries. We have a very clear goal of the capital efficiency of doing that, building out those channels, a much more efficient way of getting our donut brand to customers. We will build in three-five countries on a yearly basis. It works well, especially the new model, in every country we open up in, and we have a very clear strategy of how do you build 10%-15% points of access on a yearly basis every single year. That is what we do. It's a global brand. It's really loved, and I'm always so appreciative of being at Krispy Kreme. As a CEO, like last night, I was having dinner with the team, I think about a dessert.
I started trying to tell the team, "Make that into a donut." How do we do that, right? You think about things in that way, and you try to teach the organization. You see a little bit of the fun in the brand as well. David, I'll open it up to you, and we'll just get into the fireside chat. If you don't mind, we'll end the slides.
No, it's great. Lots of things to talk about because you have so many initiatives. One obvious one, and the metric that you look at is that growth in points of access, U.S. and overseas, I think you're talking about 10%- 15% annual growth. Can you share with us, perhaps by market, how you're thinking about that type of growth? Maybe if you want to broaden it out, just perhaps where you think there's the, the market, the stock market, investors may be underappreciating the sources of growth.
You know, I'll start with the back end, right? When you really think about a business today that can get to 10%-15%, and we've shown that throughout the history, you know, since we took over the leadership of the company, on a yearly basis and do it consistently, and fresh, there's not a business that I'm aware of that actually tries to do that. And you do it in a space that's a sweet treat space, which is for gifting. It's a dozens business, people. It's an affordable, indulgent treat. There's a lot of things that go behind that. From that aspect, and people understanding that 400 producing donut shops can do that, it's pretty unique. It's very margin efficient.
As you've seen, we've continued to improve our margins, even in some high inflationary challenges that have happened most recently, but including COVID. If you go back to the first part of your question, which is: How do you make sure that the countries are hitting their targets? If the U.S. has a target of getting to 12 to eventually even 15,000 points of access, and they're a little north of six. Well, they've been doing it consistently on a yearly basis, so they will do that through the grocer channel. They will do that through the convenience channel. The U.S. is testing the QSR channel and even the club channel, which we think the uniqueness of our model applies the same logistics structure to all those channels.
That's pretty unique to Krispy Kreme. If you can do that where you're not changing everything in your operating structure. I think I mentioned in the last, you know, call that we had, an earnings call, we're as much a logistics company as we are a donut company. You see the same approach that's happening in international, and I'll include just for ease, our equity international businesses and all the franchise international business. They only open up in a hub-and-spoke model. Jamaica, which just opened up Friday, doesn't open up only with a donut production plan. It opens up with its theater, which it opened, which has capacity, and then they start figuring out what are the fresh shop opportunities and when will they build their spokes, i.e., to the grocers and including whether it's convenience, et cetera, and other channels.
Same approach, same markets. Long term, 75,000 points of access, which is a pretty big number when you're sitting at 12,500, but we've consistently shown that we can grow 10%-15%. The one other caveat that I'll give you on this one, David, will be, we will build 20-25 hubs on a yearly basis. Those are those theater-producing hubs, combination of equity and franchise, and just those will deliver about 10% of the points of access growth.
If you were to talk about the algorithm a little further, there's the high single-digit organic sales growth, low teens EBITDA growth target that you have. What's your confidence in you reaching that over the next few years? Perhaps, what's giving you a little bit more confidence today that you can achieve those?
You know, if you, if you think about just the. You know, we had a model, and we laid it out in the Investor Day, how do we get to $2.15 billion? You know, that translates to the old model, where we're saying, "Hey, how do you grow 9%-11%?" When the points-of-access growth that we've seen, that we've been able to do, ends up being about 50% of that growth, right? It's primarily even through existing customers, so it's not hunting always new customers. They're really waiting for us to make sure that we can deliver and you know, manage more doors for them, but we've got to make sure we're doing it properly with our route management, so there's a discipline of doing that. I'm very comfortable on that.
We see the channels, and recently in the last quarter, we saw e-commerce get to 20% global of the retail shops. It seems that customer continues to look for us, and this was a business that in 2019, or 2020 in February, was basically at zero, right? You can see now that is starting to continue to scale up, and we've seen, you know, by focusing on the indulgent and the donut category and dozens and the premiumization. I mean, in one channel, for example, in grocer, we were able to, at times, sometimes double the pricing power because of the freshness of the donuts. What you see happening in that channel now is the assortment that you see in our donut shops is the same assortment that you'll see in a grocer or convenience shop.
That is a big driver of the growth in DFD. The combination of all these things, plus new channel growth, plus testing in QSR, sounds like a lot, but it's still the same logistics and donut production model. That's why that hub-and-spoke, omni-channel approach, real simple, but nothing simple to execute on a operationally if you're an operator, right? It's just a very clear path of what we do every day.
You know, David-
David, the one thing I would add to that, you know, not only are we kind of bullish just on based on what we're seeing with respect to the top line and just the runway for points of access, and frequency, as Mike talked about, the frequency is quite low in the business, two-three times a year, that people actually interact with the brand. There's also plenty of space from a margin enhancement or margin expansion perspective as well, not only through growth, but through things like pricing, getting smarter around discounting, driving capital efficiency, and reducing our G&A, which we had identified at our Investor Day session.
You know, I think I often find myself explaining to clients a lot just why you've chosen the format strategy that you've chosen. you want to have fresh donuts to the consumer, yet their purchase frequency is not high. having your multiple points of access to support your existing assets, maybe adding that million dollars per hub through the points of access, makes it all possible at the purchase frequency that you have. it's a fascinating thing. I know there was a time in the yesteryear where you might have been pursuing coffee to drive frequency through existing hubs before you did, to pursue the spokes process, it's a fascinating thing that I don't think we will see elsewhere.
Yeah, you know, the past used to be, that's a coffee business. A coffee business requires a high intensive asset strategy. I came from Caribou Coffee, right? I'm fully versed into what that was, and that was one of the changes. Be a donut company. Be amazing at donuts. Don't worry about having breakfast sandwiches or any of that. you know, there's plenty of businesses that are gonna do that, and do coffee, and do that way. We'll figure it out with what we do in donuts and be really creative about how you can build that, and then take the channel approach that you just talked about. Get access. Where are they? Open up. You compete for the birthday occasion, you compete for Valentine's Day, you compete for Mother's Day. 70%, up to sometimes 80% of our dozens are shared.
40% of a dozen is gifted. Is a hostess gift. You know, last night we came in with four dozen doughnuts to the Mexican restaurant. Staff went kind of crazy, you know, they served you, they're just such an inviting way to show your brand, right? It's just a unique way that's shared, that's really unlocked the power of Krispy Kreme, not just U.S., but everywhere.
You know, the other thing I wanted to dig in with you is, you know, U.S. business, the U.S. market for you is both a growth market, but also a restructuring market in a sense, where you have certain markets where you're driving improvement in the profitability and turning more spokeless hubs into hubs with spokes, which dramatically has some outcomes, positive EBITDA outcomes. Could you talk about that process? I mean, on the restructuring side, and I want to then dig into your spoke growth or points of access growth that you have-
Sure.
planned out.
I'll start out, and then Jeremiah will get into a few details, but helpful to everybody. You know, when we bought the majority of the U.S. system, there was a line of sight to do this whole hub-and-spoke network, doing the DFD fresh, doing that. You just couldn't do it in the speed that everybody wants you. You're dealing with individual franchise systems that have had this in their families for a long time. It's not about trying to get the brand for control's sake, it's actually to get the strategy right. To do donuts, it takes time. As you saw, the business, which has been around for 85 years in some donut shops, clearly not all of them are gonna work in a hub-and-spoke model. To buy a franchise system back, you buy it all back, right?
You start to figure out: How do I then fix and transform this business? One of the hidden kind of unlocks, we had a lot of the franchisees having control of the eight of the 10 largest metros in the U.S., so there was no development. You start to unlock development, but unlock development now in a hub-and-spoke model. I'll let now Jeremiah just come in and give you a little bit more what's exactly going on in the transformation or even market specific.
Yeah, and I think, it's an excellent question, David. I think Mike tried to talk about what we were and what we are now. Just to remind everyone of the process we had to undergo in the U.S. specifically to get moving more quickly like we are now, essentially because of the legacy strategies, you know, selling three- to five-day-old doughnuts and grocery, building out with almost exclusively Hot Light Theater shops. It required a full business transformation to exit the old DSD business and building up the fresh DFD business.
As we did a lot of work around reviewing hubs without spokes to determine which ones to close, to transform, to continue to operate, before we were able to get the additional momentum behind the strategy that we're starting to see now and starting to show the margin enhancements, as a result of some of that stuff. you know, it, in Q4 of 2022, we announced a U.S. shop network optimization program, which focused on poor-performing hubs without spokes, what I just talked about, which did not benefit from DFD expansion. That's well underway. At the end of the first quarter, you know, 29 shops have already been closed. We're converting into different shop formats, versus just pure Hot Light Theaters and taking a look at the front of shop and how do we reconfigure, and where it makes sense.
As a result, hubs without spokes have seen 180 basis points improvement in margin year-over-year, and we expect another five-10 more shops to go through this process through the end of 2023.
You know, I remember around the time of the IPO, there were certain markets that were doing extraordinarily well on EBITDA margins. Obviously, some legacy markets that were doing well, the Atlantas, whatever, but there were some other markets that were negative. You know, some because of COVID, like New York, but some of them where you wanted to dramatically improve, like Texas, for example.
Mm.
Could you talk about other microcosms that really show this asset thing that's from... on a market level where the margins have really gotten better?
Yeah, maybe I can start, and Mike, if you want to build, you feel free.
Sure.
You know, a market like the one you're just describing for me would've been Dallas and Texas, as you mentioned, where I think we shared this at the Investor Day as well. We acquired the market from a franchisee in the fourth quarter of 2020. At the time of acquisition, it was a poor-performing market with relatively low retail sales, poor operations. Historically, it was a challenge with the franchisee in particular, we acquired the market for the potential of DFD. The market actually lost money. It was like a - 3% EBITDA when we acquired it. There were originally 10 hubs in the market that were averaging about $1 million AUV with no DFD operations in the market. DFD was added to the market.
in Q2 2021, but was not fully implemented with DFD until late Q3 2021, Q4 2020, one. At that point, we had two hubs in the market with DFD. Overall, the market profitability improved with the addition of DFD to slightly positive. There remained a drag from the hubs without spokes still. As part of the network rationalization project, which I talked about, we identified three hubs for closure, one hub for conversion. Two of the three hubs closed at the end of Q3 2022 as part of the first wave rationalization efforts. We're in the midst of closing the third one now in Q1.
As a result, we also converted one of the hubs to a drive-through only format, which allowed us to add DFD routes to that shop, as we were able to only stage, and we're now able to stage in the lobby, which is some of that transformation. Overall, that market has moved from a loss-making -3% EBITDA to what we believe is going to be close to 15% EBITDA at the end of 2023. A huge kind of transformation, but a great example of, you know, getting really kind of critical around the network and optimizing it.
Yeah, I'd only add one thing, David. This isn't just in America, you know, I know we're talking a lot about what are we doing in the U.S., and how did we transform that? When we bought Australia, and we bought England, the U.K., they had a hub-and-spoke model. We learned from them a lot. One even had a different drop, how it does logistics, right? Australia was a drop to one of their convenience partners that then managed the drop throughout the rest of Australia, right? You basically, your donut margins were done on that drop, right? They owned the waste, and they owned the distribution. In the U.K., we run the logistics system, the customers, and they built a very, very great business with Tesco and others, as they only really had 15 producing donut shops across the whole U.K.
When we took on countries like Japan recently, it was a loss-making business. You apply the same logic. How do you apply this omni-channel, hub-and-spoke system? How do you get to customers? By the way, where's the growth going to be? The growth in Japan is pretty easy to see. It's really dominated by the convenience channel. Three big players have 10,000 doors each. The Japanese consumer uses them for two or sometimes three meals of the day. How do you then unlock the business to be able to start serving them?
The approach of getting into that business in the grocer and convenience business, the approach of focusing only on donuts, bringing the dozens approach to the business, has completely transformed the business in Japan to one of the higher performing international businesses we have with just an enormous growth trajectory in front of them. They're just getting started. We saw that potential. They were just with a franchise partner that was actually trying to build out the old model, the coffee and the coffee model, which we know is not the model for Krispy Kreme.
One of the things that is cool is oftentimes when you have these points of access growth, it's with retailers where you have existing relationships. In other words, you can have high visibility growth that is high visibility, essentially, you know, sales per hub growth as well. Could you talk about the channels and retailers, you know, where you feel like you have good visibility in the growth? I think you've targeted 10%+ growth in points of access. What's your confidence in that, and where is that going to come from?
Yeah. Again, the real growth that we try and do points of access would be 10%-15%. It's always great. I mean, some of our partners are the best partners in the world, right? When you're talking about Walmart, Target, Tesco, Oxxo in Mexico, right? You're talking really sophisticated, big businesses that actually want Krispy Kreme to be in every single one of their doors. You know, that is their desire. Ours is, we want to make sure that we can deliver the product fresh, that the assortment is the right assortment that we want to see, so we can have that frequency chain and the discipline.
There's very few times that I'm aware of where you can go to customers and say, "Well, we're only in Walmart," and say, "We're only going to be in 25% of your doors, but you got to take us." They're like: Absolutely, we want you front and center. The why we're so bullish is we actually know that the premiumization that can even happen in that channel, the majority of those doors today, in the U.S., are served in towers, right? So dozens of doughnuts that are already boxed and ready to go. In Tesco, you have cabinets, so you see the full assortment of Krispy Kreme in front of you, and you get to make your own choices to build your dozen. The difference between the cabinet and the towers can be 100%, you know, from volume increase.
When we see that migration, and it is a migration that happens in the grocer because they tend to have their own bakery systems and tend to want to protect it. It's a very different business, right? You know, ours is used gifting, celebrations, unique donuts that you can only get at Krispy Kreme. You appropriately, you know, make sure you don't overprice, but you have pricing power, and make sure you run that through the business. We've seen that happen every single time now. The strategy is you get a tower, you then get the same assortment that's in the tower that's in the donut shop. They get a premium, and people clearly see the value in that.
If you get the visual display, which we're now in 200 in the U.S., in grocers, and they see the change, and of course, they want it in all of their shops as well. Why we have a 10%-15% is also helps us control the quality, right? You don't want to go racing to chase all this numbers. When we speak CPG, people think of it as a packaged goods that's not fresh. "Why can't you scale that to 300,000 doors?" This is fresh. This is every day logistics, right? You want to make sure that your demand planning is right, everything you're doing is right, and every grocer that we're with, and we're not with every grocer, don't plan to be with every grocer, don't plan to be with every convenience shop.
You still like that scarcity, you're giving, providing more access, right? Even in the big scheme of things, even before we get into the QSR channel, right, there's 300,000 potential doors in the U.S. from just convenience and grocer. We're in 6,000, right? So you can see your opportunity there. Even when if you got to 15, you're still not scratching the surface at a big amount. You're still scarce, you're still fresh, you're still unique. People will continue to push us, we'll look at other channels to try to you know, get to that level of growth. That's why channel strategies are also really important. 'Cause eventually you start to say each channel serves a different purpose and sometimes a different need state of the customer.
You know, there's the single usage breakfast occasion as I'm in my car. Well, Krispy Kreme has 300 producing shops in the U.S. That's not a lot of drive-throughs, right? You have to start thinking about, how do I get access to that? If I'm a donut company, I care about access. I care that I can do it fresh, and I care about which customer, so that I wanna have consistency in my pricing. That also matters to us. I don't wanna have channels just go all over each other, 'cause that's not gonna be helpful for the customers as well.
You know, last year, 2022, it felt like a year where you were moving the ball forward on a variety of initiatives, but the EBITDA growth wasn't where you want it to be. You know, there's a multitude of reasons. You had mix effects from certain high-margin markets not doing as well. Price was behind commodities. At your Investor Day, you laid out vividly the big buckets where you expect to get big margin gains, you know, 50 basis points from product distribution costs, 125-175 basis points from operating expense, and 50-100 basis points from SG&A. Could you provide an update on getting after these, this margin gain and the cadence of that?
Yeah, I'll take that. You know, we're feeling good about where we're at right now. We're definitely early in the transformation of some of the processes and building capabilities in our people and processes to ensure that we deliver across the board. Feel good about the projections that we've provided. As we talked about just previously, just around the network optimization work, that's well underway, and we're seeing kind of benefits from there. We've also gotten much smarter with respect to pricing and discounting, which is driving good margin expansion, and we're seeing that kind of flow through in the U.S. now. The international markets will follow. One of the areas in addition to pricing is just focused on overheads and things like leveraging shared services.
I don't see any kind of change to timeline or expectations right now to the outlook that we provided. I would say largely, most of those are on track.
I know, we talked about examples before, in just in terms of the trend rate, revenue per hub last quarter in the U.S. was up 7% per year. Any things that, any dimensions that you want to explain about how that growth will perhaps stay the same, accelerate, elements of that, pricing, uncorking of traffic in terms of productivity initiatives, anything that would help us think about the pace of sales per hub growth?
Yeah, sales per hub growth in Q1 was driven by both strong points of access growth and I would say record average weekly sales per DFD door. Driving the kind of underlying DFD door improvement in performance, things like pricing, which you referenced, which we think is high single or low double-digit pricing overall. Specialty doughnuts being introduced into DFD, which is creating news and buzz and higher kind of premiumization of that. Then we're starting to test new cabinets as well.
It's a very kind of small piece right now, but we've seen some of the display cabinets that we have overseas start to enter, and we put them in places like Ralphs, where we've seen increases of close to 70% of productivity or sales for each of those cabinets and hubs as well. We feel pretty good about that. Continue to grow revenue per hub in that kind of high single-digit range, those are some of the drivers behind it.
I'd just add only just two things, right? The doughnut merchandising mix was just great, right? You get great ideation with some of the strongest sales that we had in St. Patrick's Day, for example. You start getting the green glaze, you start to move that through. There's an energy that exists, whether it's also Valentine's Day, just some really great promotions doing global now with the Biscoff cookie, et cetera. You can just start to see the markets, as I think about markets that we run around the world, right, the 34. They have a clear understanding of how to use the omni-channel, how to do the hub-and-spoke, how doughnut premiumization and doughnut quality really matter.
On top, one we haven't talked about a lot, it's now 20% of the e-commerce, right, from a retail shop perspective, right? You put those at, you know, levers in there, you can see why we're very comfortable to manage that 9%-11% growth.
Mike, when you were talking about some of those blue-chip retailers that you're dealing with for your growth, one you didn't mention, which got a lot of people's attention and now in test, is McDonald's. That's, I think that test started in March. Could you provide any color on the learnings so far there? maybe even give us a sense of what the next milestones?
Sure.
or decision to expand would be?
You know, it was always clear to me when I was taking this on seven years ago, even in the acquisition part, like, what are you going to do, and then what's the pacing? I knew the gross inconvenience was going to be there, but then how do you want to get access to the customers, right? When are we going to be ready to serve them? We weren't able to do that in the U.S. because we just went fresh two years ago, right? Now you're doing, you know, the 6,000+ doors fresh every day, then you can start to unlock those dreams. The channel became clear. Most customers tend to want to talk to us, right?
Which is, "Can we do this?" Then we say, "As long as it fits with what we do logistically, and we can actually make the range, then potentially give, you know, use certain types of pack sizes that we wanna have in channels." It was a natural with McDonald's to say, "Hey, can you test three, you know, three donuts first in nine company shops in a small market?" We do a kind of a real big alpha test and see what happened. Well, when you go to beta test at 168, you can take the assumption that the customer from, you know, McDonald's side really enjoyed that, the franchise partnerships and what's there.
What we were really pleased about is we didn't skip a beat with Walmart, with Kroger, you know, the local convenience store that we still needed to deliver fresh doughnuts on time. That really was gonna be important to us, right? How does that work with a franchise system now? When you go to 168 shops, the majority of restaurants that drive-throughs, at least in America, right, tend to be franchise-driven, right? You have a lot of franchise operators, and they have a very high expectation of what demands they're gonna put on you, and it's whether the doughnuts are showing up on time, how long, what's the pickup, how's the team, what's the service? How does that interact with their business? Does it slow or improve their operations?
When you have a multiple-step process for doing a bakery as a McDonald's franchisee, that you eliminate all of that, and you have the simplicity of something, a brand that doesn't need a lot of... Are you aware of Krispy Kreme? You know, the customer knows that. You know, all we can say is it flowed through you know, from key next steps is McDonald's is a world-class in where they are because they rigorously test in their franchise system to make sure that, you know, all of the, you know, the newness, the steady state, what other things would you add to it that might drive, you know, other perspectives to it? We're in that phase, right? You want to see that that phase continues, and that we continue to drive operations and quality and freshness.
We've said before, we have capacity, you know, to handle, you know, more growth in the spoke system, yeah? We can handle a pretty good, you know, block from a QSR chain today under our existing operations. You just wanna make sure that you can do it in a route planning system, and you have to do it very logical, 'cause you know, Krispy Kreme's gonna really protect its quality and make sure that we can deliver our brand well, and our brand's well-represented in any channel that we go to. We wanna see that, you know, we get the right pricing and the right brand story that's happening there.
We wanna make sure our partners feel really, really good about what they're seeing in the space and how Krispy Kreme can lead a lot more into the donut category and really change, potentially, and impact a brand like McDonald's, right? Which we've seen we can do.
We're coming up on the end of time here. I wanted maybe a one-minute comment on the state of the consumer as you see it around the world, and if there's anything dynamic happening on cost that you think is interesting for your cost basket.
Yeah, we'll do... I'll do the front end...
Okay.
Jeremiah will do the back end, and then we'll exit out. You know, we see the low frequency and the gifting and the dozens business continue to still be very effective around the world. You'll always have some pockets of disruption that happen for a variety of reasons, right? Which, as a whole, we're very comfortable where we are from how the consumer thinks. Again, an affordable, indulgent sweet treat, not just in the US, but across the globe. From a cost perspective, anything coming up on your end, Jeremiah, you want to share?
Yeah, no, I think for key commodities like sugar, wheat, edible oils, those types of things, we're largely locked in for the year with low double-digit inflation on average for the year. The highest increases in absolute cost are gonna be in the front half of the year, and we'll start to see inflation softening in the second half. We're also kind of looking out to 2024, David, as well. We see a mixed outlook, to be quite honest, with things like wheat being lower than 2023, while things like sugar costs continue to kind of increase and rise. We do expect to see net inflation again in the mid-single digits in 2024, which we'll be thinking about in terms of, you know, pricing and those types of things and how we manage that.
We are beginning to start to think about and make purchases for Q1, for things like wheat and soybean oil to take advantage of some of the lower prices we're seeing, though.
That was great. Great discussion, Mike, Jeremiah. Thank you so much, and thanks everybody for joining us, at the Evercore ISI Consumer Conference. Thanks again.