Okay. Well, welcome. Welcome to the Freshpet Kitchens, everyone. Thank you very much for coming in the middle of a pandemic and crappy weather outside.
But we really appreciate all
of you being here. And we hope that it's worth the journey that you've made to get to see us. I also hope for those of you who this is a second or third visit that you'll notice the significant advancements that we made. Because that's what we're trying to show you today. We're trying to demonstrate to you how we have advanced manufacturing at the Freshpet kitchens in a way that will create some near term and medium term economic value, but it will also create some long term strategic advantages for us.
For a long time, we've talked about many other aspects of this business, and we've given you data galore, as Bill Chappell always reminds me, which where is Bill? We're getting started. There he is. We've told you all kinds of things about the top line of this company and many of the ways in which we create revenue. What we want to show you is how we meet the demand that we create.
And hopefully, you can see from that that there's significant opportunity for us to have manufacturing as a core competency and strategic advantage, and I certainly feel good about where we're going. For those of you who don't know me, I am Appa's father or pet parent, I guess is the right term. But if you haven't had a Zoom call with me in a while, you won't have recognized that photo. But if you have, you've seen that's my virtual background. That is Appa.
She is the fourth Samoyed my wife and I have had since we got married thirty four years ago. And she lives here locally because that's where we live.
What I would like to do
is do some quick introductions of a few people. Unfortunately, one of the most important people is not here today, and that is Steve Weiss. Steve is the Executive Vice President in charge of our manufacturing operations and has been with us since 2015. We recently announced that his role will shift in anticipation of his retirement at the end of next year. Steve came in this morning but wasn't feeling well, and I said, go home.
So otherwise, he would be here, but you should know he is every bit involved and engaged in our business. Another person who is not here, who is also very engaged with us, is Dick Kassar, who I think many of you know. Dick is serving as our Vice Chairman. He was our CFO prior to Heather becoming the CFO. But Dick is on his way to Hawaii for a wedding.
And so he wishes he could be here, but he's obviously not available. One other person who's not here is the plant manager for the Freshpet Kitchens, Rafael Velez. Rafael had previously scheduled a family vacation, and so he's not here. Having said that, despite those folks being gone, I hope you'll take away there's a tremendous amount of organizational depth that we've built in the organization here at Freshpet. I can't start a meeting without having our safe harbor statement.
You've all seen these before. You know what they say. I'm going to give you a quick view
of the agenda. So I'm going
to outline for you a business update and then also take you through the long term vision for us as a company.
Then we're
going to turn it over to our manufacturing experts, and you'll get a sense for the depth of our team: Ricardo Moreno, who is our VP of Manufacturing Michael Hegar, who is the SVP of Engineering and Willie Everett, who is our Innate Site Leader. And they will tell you about the things that we've done to build manufacturing expertise. And then Scott, whom I think all of you know, cofounder and COO, will take you through our Pets People planet and the sustainability work that we've done in the broader area of ESG. Justin Joyner is also here, and Justin leads our ESG work now. He's of Sustainability for us.
And he's been with us for quite a long time, and he's really an expert in that area. And then I'll take you through the governance roadmap, and then we'll break and we will do the tours. And we have, I think, a pretty good tour lined up for you. So I want to start with a quick view, though, on since in the middle of COVID, I want you to feel safe being here. But I want to start with Thomas is here.
There's Thomas. One of the actual very positive outcomes of the world of COVID is we realized after we hired nurses and athletic trainers to screen our people at the door, that they actually were serving a much broader purpose than just the normal health screening. And so we now have Thomas on staff with us. He is actually an employee of St. Luke's, which is the big health care provider locally, but he is full time on staff here because we realize the significant benefits of having a health care person on staff to help avoid injuries, take care of sort of the broader health than just COVID.
This is he's now doing this as part of a broader program with putting in athletic trainers in manufacturing facilities, and it's a pilot program, but we are thrilled with it. An added benefit is Tomas is a native Spanish speaker, and we have a lot of native Spanish speakers who are employees here. So we're glad to have him here. And he is here not just during the day. He comes in various times, so he sees all of our employees all the time.
So thank you, Thomas. I also want to turn it over to Steve Monshine. The world of COVID has obviously impacted us significantly as a manufacturing facility. And wanted Steve to just tell you what we're doing here to keep people safe, so you know how we're keeping you safe, but also what we've
done to keep people safe. This will be a
real quick review, but I want him to talk to you
a little bit about it. He's in charge of
health and safety for us.
All right. Good morning, everybody. So I just wanted to kind
of go through some of the things that
we have done to keep both our team members safe here and also any visitors like you are today for us. So first thing, if you have noticed, we do require masks. We go by the CDC guidelines. We saw them very closely for for the COVID guidelines that they put out. So, at this point, we are requiring masks of everybody even if they are vaccinated.
So, that's why you are required to wear a mask today. As you saw when you came in this morning, we have health screening for anybody that's coming into the facilities. They ask they have questions. They take your temperature and those types
of things and if you
notice, we also have scanning devices for times when we don't have a health screen here. So, have 20 fourseven coverage of health screening of anybody coming into the facility. Mandatory negative cuts or vaccination on fireball visitors, if you guys have experienced that coming in. Ventilation, when this first started, we really took a hard look at our ventilation within our facilities and we upgraded our filtration in our area. So our production areas are already HEPA filtration.
There's HEPA filters in our production areas. So we looked at our office areas and upgraded those areas from a if you heard or are familiar with ASHRAE guidelines, we went from a MERV-eight filter up to a MERV-thirteen filter, which is the highest we're able to do with our systems without doing a whole redesign of our system. So our filtration here and the amount of energy needed per hour that we get are well above any type of ASH rate guidelines that are put out regarding any type of ventilation. Sanitizing, we have daily sanitizing. Our team members go throughout the facility every day and sanitize high touch areas.
And then we also, on a biweekly basis, we bring in an outside firm to come in and do cleanings of all of our office areas and all of the high touch areas as well just as an added measure of protection. And then as you noticed, we do follow
social distancing as
much as we can. Outside, we've added some ticket tables, some tents, some things like that to keep our team members safe and when they're taking breaks, give them some extra areas so they're able to social distance while they're taking breaks. So just again, quick overview. If you do have any questions throughout the day or anything like that, I'll be available Tomas will be available
to answer any of questions.
So I'll turn it back over to Billy. Thank you.
Thanks, Steve.
All right. So I'm to jump right into it. What we're going do
is a business update part first, just so we
get the questions out of the way, and then we'll turn into the longer term vision. Since we just did
our
earnings announcement two weeks ago, there's not a whole lot of new development. So what I want to talk about is basically the answers to the questions that we've gotten from some of you as well as others in the period after the earnings. And so we just want to talk you through this. All these slides, by the way, will be available posted on our website as soon as the session is completed today. These are the four questions that we've heard most commonly from folks.
What happened to the Nielsen's in July? When will Freshpet's consumption growth reaccelerate? Are the Freshpet capacity expansion plans on track? And when will the margins, both adjusted gross margin and adjusted EBITDA margin, recover?
So we want to try
to address those as quickly as we
can so we can move on to the broader topic that you came all traveled here to see. So I'll start with what happened in the Nielsen's in the month of July. We have a third party warehouse we use. It's the largest third party warehouse company, cold storage company in the country. And like many other people, they had significant labor issues at the July and into the July that prevented them from getting our product that we were producing shipped.
And what the chart on the left shows you is in the green line is what our shipments out of that facility were on a rolling thirty day basis over the last for this year, with the yellow line being last year. And you can see there was a fairly sizable drop that happened in the month of July. That was not a production issue. That was we were producing plenty. We were shipping it over there, and it was sitting in tractor trailers unloaded not unloaded into the warehouse, and they're having a hard time keeping up.
We've now addressed that with a third party provider. They're having lots of labor issues like other people are. But we think that it's now resolved, at least for the time being. As you can see, that line goes back up fairly steeply, and we're having we're off to a really good start in the month of August. But that did impact, as you see on the chart on the right, that shows TDPs, which I view as the best proxy for our out of stocks that's publicly available.
And that's data through 07/17. Unfortunately, we'll get the next four weeks of data weekly data we'll get that next week. But you can see we peaked at the July, and then it went down. And I guarantee you, when we see the data for the last two weeks of July, it will also be down. Because when you don't ship well, it takes a while until it shows up in retail and it kind of trickles down through retail.
But we are comfortable based on the uptick that we're seeing in August that it is coming back as we've now got the shipments going out the door. There's about a two three week lag from when the shipments fall off to when you start seeing an impact in retail. So that's why the Nielsen's looked a little bit soft in the month of July and into the very August. I also want to remind you, and this is a chart that I've with a lot a little bit more detail on and this answers the second question about when will our consumption growth reaccelerate. We've been saying for quite some time that this year is going be like a bow tie, where we're going to have a big gap versus year ago early in the year.
It was going to narrow. Right now, this week is probably the narrowest it will be for the entire year, and then the gap will get bigger. And the
reason it's going get bigger as it goes
on is because last year, we went basically dead flat, as you can see on the yellow line. That Nielsen number didn't deviate by more than like $50,000 a week against a $10,000,000 base for the balance of the year with the exception of being the weeks of Thanksgiving and Christmas. We went flat because we ran out of capacity last year. This year, we aren't running out of capacity, and we have advertising support on the air until the end of the year. So we expect to follow that green line up, and that's where the data is showing.
It's going up in this direction. And the way you get to with the consumption numbers we've got, the way you get to the guidance that we gave you is based on the idea that we expect to average 25 points of deal spend ahead of year ago from the second half of the year. It will be 15 points at the beginning of the second half. It will end the year at somewhere in the mid-30s. Average will be 25.
The shipments, though, will be different because last year, we undershipped consumption by nine points. And this year, we're refilling trade inventory, we'll over ship by about 10 points. So 25% consumption growth will turn into 44% net sales growth. That's how we arrived at our guidance and why we raised our guidance is because we're very comfortable that this is what is happening. Next question was, are the capacity plans on track?
The chart on the left shows, and you'll see when you go down on the floor today, we are producing very, very well. We actually had a record production week last week. You can see that is the yellow line and the uptick on it compared to the year ago. And that's before we add another line of production that comes on next on September 6 at Kitchen South, incremental production coming online. So we feel very good about our ability to supply the demand that we have this year.
The chart on the right is one you've seen before. I would just tell you we've checked off all the boxes that we have come up to so far, and we're on track to complete all the projects that we had, with the most imminent one being this kitchen south Line two starting up on September 6. And we had a review of that project yesterday, and we feel very comfortable that it's going to get going. And we'll start up with a two shift operation, which will help us meet all of our needs. At this point, August production is over 50% up versus year ago.
And if you actually look at last week, was over 60% headed the same week year ago. So we're doing very well on production. These are all the projects we've talked about. Everything is moving along the way we wanted to. You'll hear more from Willie about how we're doing at Ennis in a little bit.
But you should also know that Kitchen South Building 2, the design work is underway. We're selecting what kind of lines those are going to be. That process is underway. And we've also begun doing the planning for Ennis Phase 2. We don't have to commit to that for a little while, but we're doing the planning that goes with it.
You can see in gray the new technology that we're talking about. We are actually going to be implementing that first round of that technology at Line three in Kitchen South, which starts up between Christmas and New Year's of this year. And we'll get a chance to see whether that works because that could be the next generation of our manufacturing expertise. So when will the margins recover? We obviously took a step back margins, in part due to our own temporary operating inefficiencies and also in response to some inflation.
I want you
to think about it this way, and I'll give you
a few more metrics around it. But we are taking a price increase increase effective on eleventwenty $9 It's orders effective eleventwenty $9 So, it'll be shipments sometime in December. And so, it will have a de minimis impact on this year. But that price increase is expected to fully offset ingredient, packing materials, labor and freight inflation on a dollar basis. We also are expecting incremental efficiencies will neutralize any inflation on a margin basis over time.
It won't be instantaneous, but it will happen over time. We are doing the new ERP system launch. It's planned for November. That will eliminate the 200 basis points of temporary freight inefficiencies when fully implemented. So you should think of that as being done and operating well by the end of this year.
Our labor strategy, which we announced on our earnings call and we've been rolling out to our production team here, will reduce the temporary operating inefficiencies. Basically, we think we're going have a much stabler and more and stronger workforce. And that we think will drive operating improvements during the first half of twenty twenty two. The final point I just want to remind you is when we start shipping from Ennis in the second quarter of next year, we will have startup costs and be subscale in 2022 and the first half of twenty twenty three. So there might be a little bit of margin erosion that comes from being subscale.
But we're very convinced, as you'll see later on, that the underlying technology, underlying operating efficiencies are very robust. So this is sort of representation of what I just told you, but you can see how we're applying the core capabilities that we're going to talk about today: innovation, taking care of our people, sanitation, speed and automation, and how those will collectively impact our business over the near term and over the long term, and where there's some health and where there's some hurts. And we'll go through this in a little bit more detail later on. We are on track to deliver our long term goals from a margin perspective. What you can see is we're absorbing some of those near term pains on operating inefficiencies and growing into capacity.
But the offsets that we've got and the things that we're taking will get us to the place where we said we would be in at $1,250,000,000 in capacity. We'll have that at 25% adjusted EBITDA margin, largely driven by SG and A improvements, but we will have the gross margin back to where it had been. And at $2,000,000,000 capacity, we think it will have a significant advancement in the gross margin. So I'm to shift gears and move from where we are in the current quarter to where we are in the year to kind of map out a little bit of the long term vision, so you can see how the manufacturing fits and where we're going. Those of you who were at our Investor Day at NASDAQ back in February of twenty interesting time to have been in New York.
If we'd all known what was coming next, I don't know that we would gone to New York. But we told you in that presentation that we think that Freshpet has a chance to be one of those brands that changes the world. And we described what that means, is that the brands that change the world are brands that change things we do every day. Mark, do you want to put a spot right here? There we go.
Change things we do every day. They reflect significant changes in society's values and priorities, and they leverage technology to make the previously impossible possible or more broadly available. And so what we've talked to you about how those brands all do that. Our mission fits within that, is we're trying to awaken the world to a better way to nourish our pets. In essence, it's reflecting many of those changes that we see in society and the way people think about their pets.
And it's not a surprise. We introduced you to this concept at NASDAQ, ZOYAH, which is, in essence, the health benefits that humans derive from their interactions with pets. So early in life, you learn about you can acquire immune benefits from your interaction with the dander of your cat or the saliva of your dog. Later in life, you get psychosocial development, where you learn how to treat an animal and you expect the animal to treat you well. It catalyzes social interactions.
You go out for a walk with your dog, and when you go out for a walk with your dog, you meet people. It encourages you to get exercise because you want the dog to get exercise. And also, when things aren't going well, it gives you support for coping and recovery. And so we think that those that synergy between humans and pets is going to continue to drive long term growth and adoption of pets because humans will recognize the benefits. And we see that.
A lot of talk has been made about dog ownership and what happened with dogs during COVID. The American Pet Products Association now has their results out on what the pet population looks like. And what you can see is dog ownership is growing. The dog household population with dogs is now 69,000,000 households have a dog. 54% of households have a dog, and we think that bodes well for us, and that's up considerably from 2018.
It's about 5% a year in penetration growth for households with dogs. Millennials are the largest share of the dog food market today. The last time we presented this data, they were actually 34% and now 33%. The reason they dropped down a little bit was not because they declined, they actually have more dogs. It's because the Gen Zs behind them became a bigger share of the pet population.
The attributes that they're looking for, millennials are looking for in their pet foods are basically what Freshpet is. High quality ingredients, non GMO, locally sourced ingredients, all kinds of things that they're looking for that tell you they're looking for a higher quality experience for their pet. It's not a surprise. We think the share of millennial households with a pet that will plateau within a few years, while Gen Z will be on the rapid rise to the next decade. The simplest way to think about this is, if I'm a Gen Zer, think of Gen Z as a population cohort being 18 year range, only six of those 18 years have already reached the age of 18.
There's another twelve years to come. Between the age of 18 and the age of 24, 50 percent of those Gen Zers will get a dog in that six years. So by the time they get 24, roughly fifty percent of them will have a dog. And so we have twelve more years coming of Gen Zers getting dogs. And that's a huge opportunity for Freshpet over the long haul.
And if you consider that there's about 4,000,000 Gen Zers who are entering adulthood each year for the next decade, and they're all having fewer kids, and dogs are replacing their kids. So this is a huge opportunity for us. Gen Z is a growing segment of the pet market, as we all know. You can see the percentage of them that got a dog since COVID began and what percentage of pet owning population. They're at fifteen percent today.
You should expect that Gen Z will peak out somewhere in the mid-30s, maybe the high-30s as a percentage of doggling population by the time they are fully mature. They're choosing Freshpet even more than the previous generations. This is the data we gathered over the last year. That talks about their likelihood to try Freshpet, and they're double what you would see from the baby boomer generation or from Gen X. So their predisposition for a product like Freshpet is very strong.
You've also seen, as we described, Freshpet's prime prospects, they're 30% households and it's growing, and they are basically have the values of the next generation. We have not updated the size of the addressable market from the $20,000,000 we last gave you at the beginning of twenty twenty, but we believe based on all the demographics that we expect this to continue to grow. So on that basis, we think that Freshpet is a brand that will change the world. We've got this model that you've all seen before, which is our Feed the Growth model, where we're creating scale and leverage through our accelerated growth rate. And the one thing that I don't think people fully appreciated when we first launched this in 2017 and refreshed in 2020 was we view this as a productivity loop where you go around each time.
But unlike the laps on a track at a car race, where you go the same speed every lap, this thing actually picks up speed as you go. Each time you go around, you get a higher degree of velocity because what you did in the previous lap provides momentum, scale, leverage that then you can capture and drive a much higher rate of growth. So we've demonstrated accelerating growth rate for each year for the last four years, and we certainly believe that we can continue to do that. It also creates a very interesting marketing model that provides strong household unit economics. It's very simple.
We invest in media. Media converts to a household that is a Freshpet household at a very consistent rate over a long period of time. That converts into loyal users at a very consistent rate over a long period of time. And that creates what we would basically think of as an annuity. And this is sort of a simple way to create the measure of the lifetime value of that investment.
It costs us about $50 to acquire a household. It's been a little higher than that, but it's been lower than that, and it's been on a general downward trend over time. In fact, in 2020, was significantly below that, but we think that might have been a little bit of an anomaly. But it costs us about $50 to acquire household. And if you use the current buying rate data of an average buying rate of $130 that today is not the number in the future.
What you can see is that the average consumer will be spending $130 a year. Our average pet is our dog is four years old. They live to 10 to 13, so you have eight years left. That gives you about $10.40 dollars worth of purchases lifetime purchases from that investment of $50 And at a contribution of 40%, we end up with $416 of contribution. If you subtract out the marketing investment of $50 and the fridge investment, and this is where I divided their purchases against the life time value or cost of a fridge.
So, their $1,000 is the share of what fridges would have as revenue over that eight year life. It's about $20 Their share of the cost of a fridge is about $20 So that $50 investment we've made has turned into over $400 or 6x return. And what's even more interesting is that when that dog finally passes away, there's a very high likelihood you'll get a second dog or a third dog or whatever number you're on. And over ninety percent of those dogs will consume Freshpet. They'll start on Freshpet.
So this annuity has a life beyond the current dog, beyond the eight years that I've described. Our goals that we've talked about before, getting to 11,000,000 households at the 23% CAGR from where we were at the end of twenty nineteen or 2020, and then also the buying rate going up to $162 We've seen lately that it has skewed a little bit more towards buying rate in the last two quarters because of our out of stock issues. You should expect that the penetration gains will start again when we get the in stocks and the advertising going, but still growing at 19% penetration rate is nothing to sneeze at. We talked about our goal of $1,250,000,000 and 25% adjusted EBITDA margin, and those remain unchanged. All of that then serves to create this model that we've talked about, a fortified business model that provides strong competitive insulation with every one of those boxes get scale, this added scale creates greater insulation for us.
It is very clear to us that we will get competition. In fact, many of you probably are aware that we have a new competitor arriving right about now. A new competitor is coming. It is a single retailer, very limited product assortment and a premium priced product showing up in a very small number of stores, but we are having a competitor show up. We've now seen it.
But this isn't the first
time we've had a competitor. If you remember, in 2016, the Australians who pioneered this category came to this country with a product lineup that was much broader than what we're going to see in the first incarnation from our new competitor. They had a variety of different product forms under the Farmers Market name, and it was sold in HEB stores in Texas. They had a fridge program. They had a broad product lineup.
It was a pretty extensive program. Four years later, we were out selling them seven:one, and they left. They then came back after talking to virtually every retailer in America. And in talking to all the retailers, they finally got PetSmart to take them. They were in 700 stores with a rebranded proposition under the Billy and Margo brand name.
And they were in those stores for about a year. And at the end of the year, we were out selling them six:one and they exited and we bought the fridges. And once we bought the fridges, we saw another 35% increase in our net sales. So I'm not here to tell you that if we get competition, we will deliver seven:one or six:one result. What I can tell you is we've seen this movie before.
We know how it plays out and we know how to be successful in that environment. Because in the end, we are accumulating what you'll see today is we've demonstrated product technology mastery. We have broad scale distribution, scale and manufacturing distribution, broad awareness and expanded lineup and loyal users. And the whole program, we think, creates a very large consumer franchise that we think is preferred. So today is all about showing you how brands change the world.
And in this case, we've told
you about
how Freshpet changes the things you do every day, feeding dogs. We've told you about how Freshpet reflects the humanization of pets changing society values and pets. What you're going see today is how we've leveraged technology to make the previously impossible possible and more broadly available. So you're going see the Freshpet kitchen's magic. And the simplest way to think about it is we start very clean.
You have to start very clean if you want to create a fresh product with an extended shelf life. We then add fresh, frozen and dry ingredients. We mix in significant cooking expertise, and there's a lot of art to that. We package it just right, a lot of art in the packaging that we do and how we what the packaging looks like and how it works. It becomes delicious, nutritious, and you get a happy, healthy dog.
And we do that all in a way that's good for pets, people, and the planet. That's in essence what you're sitting here in this building, what you'll see today and what this is all about. By the end of today, we hope that you'll understand how we deliver outstanding nutrition that delights pets through our mastery of the cooking process. It's not as straightforward and simple as you might think. We deliver consistently outstanding quality through automation, and that's a big step change versus the kitchens one that you'll also see.
We use best in class sanitation and product protection practices to deliver outstanding quality without the use of artificial preservatives. And how you'll see how we can continue to improve those practices, particularly when we get to Ennis. You'll see how we're using higher speed equipment to increase throughput that enables us to keep costs down and reduce labor intensity. You'll learn how we are continually seeking ways to make Freshpet more environmentally sustainable. You'll see how we're investing in R and D to increase our mastery, driving further improvements in quality, cost, reliability and workplace safety.
And you'll see how we're investing in and care for the people who work here every day. And if we do all that well, what you'll see is that the manufacturing technology that we practice here can drive margin improvement. What this chart shows you is how we have several different things going on that shape the margins over time. So the form mix that we have, the form mix, as we've talked about many times, is increasingly moving towards bags from rolls, and there's a margin impact of that over time. The facility mix, stuff that we pack and produce versus what's packed by our partner at Kitchen South, there's obviously a margin difference when you account for the margin of our partner.
But then you look at the technology and the technology advancements that we've made and that Ricardo and Michael will show you today. As the technology more and more of our facilities are operating against the later and later generations of technology, what you'll find is that those provide the offsets to any headwinds we might have from a form mix or a facility mix and allow us to get to our margin targets and potentially beyond. So I want to turn it over now to Ricardo Moreno, who is our VP of Manufacturing. Ricardo joined us last December. He's got a long history in the food business.
He came to us interestingly, he grew up his wife, he grew up in Venezuela, but he came here to go to school, Lehigh University for his master's degree. And now he finds himself back living in Bethlehem. We're thrilled to have him join our team and provide the focus and intensity on manufacturing. And so that's what he's been doing. And he's going to talk to you about the journey that we're on and what some of
the results are that we've achieved. So without further ado,
here we are.
All right. Thank you, Billy. All right. So the piece of the manufacturing vision that I'm here to talk to you about is I have the privilege to show you the journey that we experienced that Freshpet has gone through. So it's exciting for me to put this in front of everyone.
So you can see here how we've evolved in our manufacturing journey. We started in Quakertown in a little corner of this facility, then we purchased Kitchens one next door, installed the first couple of lines, expanded that Kitchens one for the next couple of lines. Last year, we opened KitchenStoup here where we're sitting. And we also opened up KitchenStout. Next year, we're to be starting up KitchenStout three in Ennis, which Will is going to be talking about.
And then we're in the process of designing Kitchen South. So there's a lot of pride behind where we've come from to where we are. I'm very excited to see where we're going towards. Throughout the whole journey, we've enabled innovation. So you can see on the left, we started with our rolls, we introduced bags, we created fresh from the kitchen, we created small dogs.
Then you see towards the right, Homestead Creations with patties, our multi protein Homestead Creation and more to come. So all throughout this journey, we've enabled and continue to enable innovation. We've also increased speed, right, and throughput. So you can see that when we were in Quakertown, we were putting out about 18 rolls per minute. Here in Kitchens two, we're putting out 32 rolls per minute.
In bags, we started with a very modest six bags per minute, where we're hitting up to 50 bags per minute hitting kitchens, too. And when you think about it, we used to put every ten seconds, we put one bag out, whereas here, every one point two seconds, we're putting a bag out. So big, big step up in speed, but not only speed, we've also increased efficiency, right? It's not only faster processes, but more efficient processes. So you can see here for rolls and for bags, the improvement on the labor efficiency, depicted as pounds per team member per hour.
So not only faster processes, but more efficient too, all enabled through technology and automation, which you will see. We've also enhanced our team member experience throughout this whole journey, right? So from expanded benefits with free meals for our team members, gym membership, we've introduced behavioral safety. We have launched our Freshpet Academy, which provides progression opportunities for all of our team members. We've introduced TWI training program.
And then most recently, we are increasing our compensation and revamping our Freshpet Academy with an accelerated strategy to progress our people through the whole steps of the Freshpet Academy. So we keep our people as the core of our business. We continue to invest in our people to enhance their experience in Freshpet. We have also expanded employment. So you can see twenty fifteen, about 200 people, and we're projecting to be about 1,500 by 2025.
Where we sit right now, right there in 2021, that yellow bar, which is Bethlehem, we have about six thirty three people who are active team members on this campus in Bethlehem today. So we continue to enhance employment throughout our journey. And you can see at the top some of the key milestones to get to that level of employment. We have also improved sustainability of all of our facilities in this journey. So we match all of our electric energy usage with renewable energy certificates from wind energy in Bethlehem.
We are a land free campus in Bethlehem. We have installed a combined heat and power CHP highly efficient system here in our facilities. We most recently last year, we installed and commissioned our wastewater treatment plant and also a rainwater recapture system for irrigation. We're using low carbon concrete in the construction of our Ennis facility. And we will have an on-site solar generation energy generation system in our Ennis facility.
And we're not done, right? We continue to evolve in our all of our environmentally sustainable programs in fact. So each step of the way, we have enhanced our manufacturing expertise, right? Whether it's in our cooking processes, our mastery of our cooking processes, whether it's in our innovation with new products through technology automation, introducing speed, introducing more environmentally sustainable programs, whether it is improving our best in class sanitation processes and ultimately also enhancing our team member experience. Each one of those milestones, each one of those steps that we've taken, we've touched several of those buckets.
And ultimately, we're building a $2,000,000,000 worth of net sales capacity business. So you can see on the left, basically a time line based on milestones and then on the right year by year. So by 2025, we're projecting to be to have 2,000,000,000 worth of sales capacity. And then we're also doing a well balanced blend of bags and roll lines. As you can see here, by '25, we're projecting to have 13 bag lines and eight roll lines across all of the sites.
And if you see through the matrix, you'll see that we will have at least two of each one of the lines in each site on each site, which provides business flexibility, business continuity. So it's a well balanced blend of lines. And then the exciting piece is that we're not done, right? We have significant opportunities still to improve on in all of the different buckets, right? Whether it's on the automation in the automation bucket with automated guided vehicles, even higher speed packing lines, improved and enhanced CIP or cleaning place systems for sanitation, technology enhanced training processes for our team members, recapture energy recapture applications in our sustainability bucket and new products, new forms, new packaging.
So the cool stuff is not only that we know that those opportunities are there and we acknowledge them, but we're exploring a bunch of them already. So it's been an exciting journey up until now, and there's a lot of excitement on what's to come. All right. So now I'm going to introduce Michael Heber. So if anyone deserves credit for this journey that I've put in front of you from the very inception of Freshpet all the way to what you will see today here in kitchens, you'll see in Kitchens kitchens two.
So if anyone deserves credit for that evolution, that progression, that technology introduction and ultimately that operational improvement is Michael. So he's been the architect, the designer and ultimately the lead for all of this Bethlehem campus that you will see today in the tour. So Michael will touch specifically on Kitchen Stew and some of the key highlights on how we've added tremendous value with our Kitchen Stew.
Thank you, Ricardo. Welcome to Kitchens two point zero. Today, we're going to quickly go through some of the improvements that we've done from Kitchens 1, which you'll see on your tour later today, and improvements that you've seen over here in 2. And it's been quite the journey to get here. We bought this property back in 2015.
We started the engineering and design work back in 2017. June of '20 '19, we finally broke ground on the facility for construction. And then September of twenty twenty, we went through commissioning to get the line started up and start getting products going down the lines. And while we were doing that design process, we really kept four things in front of us we were wanting to achieve. We wanted to increase our team member safety.
We wanted to increase our product quality. We wanted to increase our efficiencies and throughput. And then we also wanted to make sure that we were being nice to the environment and increasing our sustainability. And we did that in a lot of different ways. We used automation to increase our team member safety designing and building and installing a frozen block separating system.
Those systems are in place that you'll see on your tour later today, and our team members don't have to go through some of the back breaking and painful tasks they have to do over in Kitchens one to get those frozen blocks apart, so was a good use of some automation. We've also used automation in our dry batching process. Over in Kitchens 1, you'll see it's lot of manual weighing and it's a lot of moving those 50 pound bags around. We put an automated system in here in Kitchens two point zero and don't have to go through those steps anymore, again enhancing our team member experience. We also use automation to change the way we handle our inclusions on the roast to meal line.
Over in Kitchen one point zero we do a lot of manual mixing of inclusions and manual moving of those inclusions around. And over here in Kitchens two point zero, we install an automated system to fully automate all of that and take a lot of those tasks away from the team members out on the floor. And to increase product quality, we again use automation to install inline leak detectors. What those do, they are testing each of the cases and the pouches of product going down the line to ensure that we have the highest product quality in those pouches and ensure we don't have any leaks in those pouches. But that's on the risk meal line.
On the chub line, we increased our chilling capacity so we could run our chub machine faster. And it's worked out for us very, very well. And we also want to make sure that we were thinking about throughput capacities. And so we ended up installing double ovens on the roasted meal line here, and it really has worked out well for us. It increased our capacity and it was working out well.
And also, of course, it's put in a high speed pouch line and you'll see that on the part of your tour today as well. And we want to make sure that we were taking care of the environment. So we are capturing the rainwater that falls onto the building here and in some of the parking lot areas. And we're then using that to irrigate the landscape and the lawns around the facility as well. We put LED lighting throughout the building.
All this lighting here as well as out on the production floor, all LED lighting. We also installed a wastewater treatment plant, and we'll talk a little bit more about that in just a minute. And I think we're going through an update.
I'm trying to restart.
Well, it's probably gonna take a few minutes to just to come back to life. Keep keep keep going or wait for it. Anybody needs a five minute restroom break? They're out around the corner. Coffee's in the next room.
We're just going to take
a free memory for those on the webcast. If you can just hang with us for a few minutes. Okay, we're back. Michael, can you continue, please? Thank you.
All right. We can blame Microsoft for that
and we will make sure
that we disable that update next time we get together. Anyway, back to our conversation and our presentation here. That's a Java update. They can hear it. Anyway, back to the slide here.
This slide is pretty straightforward and simple. Essentially, what we have done, we have doubled our throughput here on the Road to Meals line, and we've essentially kept the staffing the same as we have on one line over in Kitchen 1. And so it's been very nice to us from a gross margin standpoint. Some of the environmental impacts and sustainability things that we have worked on here in Kitchens two point zero. We are purchasing wind power for renewable energy.
We talked about the LED lighting throughout the facility. And from a waste perspective, we are a manufacturing facility. We do produce waste. We just want be really smart in what we do with it. All of our cardboard and plastic, we recycle all of that.
Our organic waste, and that may be product that hits the floor, maybe product that's left over at the end of a run. We end up sending that to an anaerobic digester and they process it and eventually turn that into fuel for electricity. And then our inorganic waste goes to a waste to energy facility, and again it's used for fuel for electricity. So we are a landfill free site here with both Kitchens 1 and Kitchens 2. And then we also installed a wastewater treatment facility.
We got that up and running over the last year. And what that essentially is doing is separating the solids from our wastewater. We can then take those solids and give those to anaerobic digester. Again, they turn that into fuel for electricity. And getting the solids out of the wastewater reduces our surcharges to the municipality sewer and puts less of a load on their system as well.
We're also working with a vendor and we're very close to getting something going with them to be able to turn that waste stream directly into biofuel of those solids. And if that is the case, it would be a nice cost reduction for us as well. So that's some of the upgrades that we've done here in Pigeon Two Point Zero. Are there any questions on anything? We will see a lot more of that on the tour
in just a few minutes.
All right. We will next turn it over to Willie Everett, who is our site leader down in Texas and Annis for Plant 3.
Thank you, Michael.
I appreciate you getting that update out of the way for me. Good morning, everyone. I get the opportunity to talk about Ennis 3 and really excited to be able to spend a few minutes with you this morning. This is the site plan for Ennis. We're on 68 acres.
52 of those are developable. Ennis, Texas is the Bluebonnet capital of Texas. Bluebonnet is the state flower of Texas. It's also the home of the National POCA Festival, if you like POCA. Kitchens three point zero in Ennis, construction is on time for a Q2 start up in 2022.
You're going to see all the technical advances that we have made from one point zero to two point zero in Ennis. Plus, you're going to see additional improvements that will drive not only increased sanitation, quality, throughput, and sustainability. Freshpet's mantra of continuous improvement is on display every day. Every time we add capacity, you're going to see a much improved, more productive, say, quality plan. This is off a drone video.
This is just a clip off a drone video. We take drone videos every two weeks. Rather than see a picture, I'm going play a little bit of last Friday's drone so you can see what's going on in the site. Before that starts, down here on the right hand side is the south side of the plant. That will be shipping and receiving.
The north side of the plant, this is Phase one. Phase two will attach to that. You can see we're putting on our evaporated condensers now in the middle of the roof. You'll see a yellow nine ninety ton crane that is putting that up. As you go through this site, we're coming around again down the south.
Warehouse finished goods is down here in the lower corner. As the drone pans this way, it's looking south, probably goes all the way past those trailers on the left hand side. You'll see, again, we're putting the evaporated condensers for the production space up on the platforms right now. You get over to this side, that's going to be receiving, freezer, meat cooler, dry ingredients. That building there to the right is our Central Utilities Building.
It's 35,000 square feet, and that's where all our power, ammonia, water, compressed air will come from. Our evaporative condenser is about 30,000, 40 thousand pounds. Thus, the need for a nine ninety ton crane. Give you one more look as we come to the front of the building or to the north side, excuse me. So here's Big Yellow, as we call it.
This is the north side of the building. Again, Phase two will match up to that at a later time. It's a very active site, a lot going on, and just wanted to share a little bit of that with you. We started design of this facility two years ago next month. We had a design team.
I was the only Ennis employee at the time, and Michael and many, many Bethlehem teammates helped us create the design criteria. Number one of the design criteria was to make sure we maintain the Freshpet culture. Number two was roasted meals separation, how do we separate that line? And number three was separation of pre and post cook. And what you're going to see today is a real example of executing a design criteria that was created with myself and many Freshpet experts who have done this before.
So that's a little bit about the drone video. Where I want to start is I want to start with sanitation. Like Billy said, start clean. And what we've done in this area is we have physical separation between all raw and cooked areas in the facility. Each line that we have is capable of being shut down, cleaned and sanitized without affecting any other line or any other area in the plant.
So, can clean when we need to with no impact to production. We have a cascading air pressurization scheme. And what that means is we want the most positive air pressure in the most sensitive areas, the packaging areas and the chilling areas. And that allows us to make sure that of the precooked side, that's the most negative air pressure in the plant. And so we maintain this positive air pressure throughout the very sensitive areas of the plant.
We're doing little things, but they do make a difference. We're using a centralized high pressure system for cleaning. It'll be the first one for fresh bath. Again, how do we always get better every time that we add capacity? This will reduce cleaning time.
It saves 42% of the water compared to how we do it today. We're installing CIP systems, more CIP systems on major pieces of equipment. What that does is it makes it more efficient. It's less physical work for sanitizers to have to scrape, to have to do those type of things. And it gets us up and running faster.
We look at automation. Just a few of the things. We'd have several pages, but just a few of the things that we're automating. Leak detection. You heard Michael talk about leak detection, and we do it by the case.
Before that, we did it on a random check. The way we're getting better and making improvements in Ennis is we'll actually check every bag before it gets into the case. We'll have X-ray detection. We'll have X-ray detection of all incoming raw materials in our on-site chicken process building, which will be up and running in the third quarter of twenty twenty two. In addition, we'll also leverage the X-ray detection of finished product on the rolls line that Michael and team put here.
Automated guided vehicles, it'll be our first foray into AGVs. It's been really good to be able to build a greenfield site to where we can ensure that AGVs will not have any problem navigating the Ennis kitchen. Improved team member experience. I am truly grateful to work for a company that has such a long line of sight that invests in training. We will have 75 Ennis full time employees that will be trained here in Bethlehem in Plant 2, where 90% of the same equipment will start up in Ennis, Texas.
We've had 10 people here for six weeks. We have another 14 people that show up on Sunday. And by the end of it all, we'll have 75 teammates here learning that will take that knowledge back to help facilitate a very efficient startup of Kitchens three point zero. We've got the first we have a certified apprenticeship program from the U. S.
Department of Labor. This is the first apprenticeship program in the state of Texas for a food operator. One of the neat things about this is it also speaks to our people value. For those that complete this program, on our dime, with their time, that they'll walk away with an associate's degree in business administration after a period of three years stick with this apprenticeship program. It's also going to make sure we have more higher trained people.
And at the end, they walk away with something very tangible as well besides the skills. We're going to use augmented reality in our training. I heard somebody talk about TWI, Training Within Industry. This augmented reality is going to help streamline the training from the trainer standpoint to the trainee. It's something that we've already been working on, doing a little work with it already.
I think it's going to be a much more efficient way to get out of paper and somebody doesn't have to carry books. They basically have a glass where they can pull up anything, any training material on any piece of equipment in the plant. Improved work environment. There's so many things that we're doing there. We're going to a frozen pallet grinder.
And so what that does is, rather than throwing frozen blocks of meat, we'll dump it by the pallet. So that's a lot less physicality when it comes to working in our processing areas. There's really one benefit that I like about this especially, is it opens up the applicant pool to the processing area where the physical demands of the job are not near as much. And so, that really helps us to widen that applicant pool. We got reduced exposure to dry ingredient dust.
We continue to build on what we did here in 02/2000. We'll also have a minor auto batch system, which will be one addition that we have relative to the two point zero. Speed and throughput improvements. Overall, in Phase one, we'll increase speed and throughputs by over 10% relative to two point zero. We have a unidirectional flow for the production lines.
And the so what of that is, it allows a lot more area, space, to be able to clean equipment, to move equipment in and out, to keep it in a straight line from one side of the plant to the other. Reduced workload. Talked about the reduced block handling. Minor ingredient batch will be automated in Kitchens three point zero. Clean in place systems that we talked about.
We continue to push equipment vendors to help get us farther along in the use of clean in place equipment. And, again, the so what of that? It gets done quicker. It's safer. People aren't having to do a lot of manual hard scraping to do those type of things.
Again, I think it increases the size of the applicant pool when we make these type of changes. And finally, AGVs to deliver raw materials and finished goods to the production lines and to the warehouse. Sustainability improvements could give a whole talk on that with all the great work that we're doing in sustainability when it comes to Ennis. I'll start off with water. We're installing an ultrafiltration system on our wastewater treatment plant that will filter 74,000,000 gallons of processed waste back into the utility section, and we'll use that for ammonia compressors.
It's 200,000 gallons a day of water that we'll be using. We're using MBBR, which is a moving bed bioreactor, for cleaner treated wastewater. We will far exceed what the city specifications are. We have a great relationship with the city of Ennis. And this is one more way that we can prove that to them.
Energy, like Michael, we're doing the LED lighting. We'll we'll have combined heat and power units that will produce five MW of our own energy. We'll have two MW of solar power with full battery backup. Bottom line, the Ennis three point zero kitchen will be able to supply seven megawatts of its own power even if the grid is down. Waste recycling, we'll carry on the tradition of being landfill free.
Some of the things, though, that we're doing, again, as we continuously improve, we're taking our cooking grease waste, which is a waste product today. We're taking it through. It bypasses our wastewater treatment system, goes through a fog buster with a bath oil and grease buster, and then into a tank. We have three biodiesel companies that are going to buy that cooking grease because it's a very good feedstock for biodiesel production. So we're taking something from a waste to a revenue stream, and more importantly, it's going into biodiesel.
It's restarting. Also, if you look from a sustainability standpoint don't look
at these guys over here
All the structural steel that we used, 93% recycled structural steel. We're using 3,000 tons or 6,000,000 pounds of steel in this building. We're using 24,000 cubic yards of low carbon concrete in Phase one. It really doesn't matter whether it's part of the construction or part of the running of the operation. Freshpet takes this view of how can we make our lives most sustainable when it comes to our operations.
Kitchens three point zero will meet its objective of improving sanitation, quality, and throughput, all while providing for a more sustainable operation. I appreciate your time. A man that needs no introduction, I'll say it anyway, Scott Morris, President of Fresh Cap.
Hey, Billy, thanks a lot.
The thing I find amazing is that the guys that are fixing, building everything for our entire company, unfortunately, had crashed the computer twice.
So hopefully, I'm not going
to have that happen. But anyway, it's great to see everybody in person. Eyes up is always good. But it really is terrific to see everybody. All right.
So I'm going to touch on our sustainability work. So let me start with posing a question to you guys. If you guys were able to think about your company, if you were able to start from zero, literally zero, start all over, what would you do? How would you do it? Who would you ask to come and work with you?
How would you change things? I see a lot of under math, I see smiles or smirks, I'm not sure. But it's really pretty amazing, if you think about it, we were able to do that. We were able to do that with Freshpet. And it's kind of empowered us along the journey.
So we released the sustainability report last week. There's a ton of information in there. What I wanted you guys to do is tell a little bit
of the story of how
we got here and how it's part of our company and why it's important. It's not something we're doing out on the side. It's really kind of core of everything we've done for many years. But I do want to start at the very, very beginning. So this is myself, a gentleman named Kaaba Walsh, one of the other founders.
There were three of us. And when we really started the company, we did say, well, how do we want to make pet food? Who do we want to work with? How do we want to do it? How do we want to work together?
So it really allowed us to really think about what was the kind of company that we wanted to build. And it's a tremendous opportunity to do it, I'm glad with all the progress that we've made over the years. But the reality is it wasn't the two of us. There was a founding team of people. There were actually 34 people that were on that founding team.
And those people are super important today. The vast majority of those people are still here today with the company, and they really form an incredible backbone. Many of the people that are here that you see pictured here, some of the people that are in the room, Michael and I have worked together in three different companies. We worked together at Purina, worked together at Meow Mix, and we've worked together really since the very beginning of Freshpet. And there's multiple of them.
So it's pretty amazing. So I always equate it to a great basketball team. When you see a great basketball team playing, they don't even know they don't even have to look where the other guy is. They're just being able to pass the ball. And it's true of the people that we've worked with for many years.
And that's why we've been able to be successful across the many things that we've done for a long time. So the next thing is, so we had this idea of like, hey, how should we make pet food? What should
it be like? What should it look like? How should
it be? So we really kind of weighed into this idea. I'll talk about the food in just a minute a little bit more. So we made a huge commitment. We brought our food to market, and what started happening was the phone started ringing.
Literally, the phone started ringing. People started calling up and going, hey, my dog won't eat anything else. He's eating this. Or the next thing was, wow, my dog was really sick, and now he's better. My dog was having skin issues.
My dog was having all the way to my dog was dying. I fed him this, and I swear it gave him six more months of life or a year. And we hear it over and over and over and over again. And what that did, that great product really became kind of really a foundation of our purpose. And what we found over time is that purpose of having great food and doing things in the right way created passion within our organization.
And I would tell you that every organization needs to basically have an incredible purpose to increase that passion for the people that work there. So it's the decision of do I care about the product? Do I care about the work that I'm doing? And are you motivated to say, you know what, I'm going home, or I'm passionate about what we're doing and what we're doing bringing together some market and how we do it. So that purpose creates incredible passion.
We also had with that group, we had great values. We really we had worked together many of us have worked together for many years. We really had good fundamentals in the values, everything from the way we talk to each other, the way we work together, having passion in the work that
we do, the
way we I always call it do the right thing. How do we do the right thing? Another one that we talk about all the time, make sure everyone wins. How does everyone win? If you work hard, you can figure out a way to make sure everyone's winning.
So we had those things in place. But what we may not have had all the way figured out, we went to consumers and we started asking them. We gave them an assignment, and this is back in 2010, okay? And this is important because it tells you the story of how we got here. So we went to consumers and we said, what would Planet Freshpet look like?
And we asked them to create collages and bring them into the focus groups and talk about them. And I wanted to share I dug these up because I thought it was kind of cool because it's going to tell you why sustainability has been so important to our organization. So
this is one
of the first collages. You'll see love, peace, recycling. There's a 6 figure farmer down here. There's a barn. Seems like a pretty good place.
Another one and there were tons of these. There were probably 25 or 30 of these collages. And every one of them, the themes are unbelievably consistent. You have flowers, plentiful fruit, the sun is shining, healthy people outdoors exercising. In this one, you see more recycling symbols, people really close to the earth, organic.
And again, this was back in 2010. This is back in 2010. This one, Peace on Planet Freshpet, a more kind of nature scenes or natural theme. Respectful people live on Planet Freshpet. Being in touch with Mother Earth.
Here's one that I love, right? I should hang this in my office. Planet perfection, right? And so same theme over and over and over again. Look at this, there's healthy choices in you can
see no longer this way.
So you can kind of get a feel for what was going on. And what we realized were two key things when we did this work. First of all, we had done a really good job bringing our company and our brand to market. People believed in what we were doing. They believed that we were doing it the right way.
They were inspired by it, excited about it. But what happened is our inspiration to them actually ended up inspiring us because what we realized is we were good, but they expected us to be extraordinary. They expected us to be great. And it forced us to rise to the occasion and develop, take the team, take the values that we had, take the products that we have, and then finally, a vision that they helped us create, and it helped us create this idea of Pets People Planet. And you guys, you probably have heard us kind of go on about it, that's how this came together.
I mean it was pretty wild. Because again, we were on a really good path, but they inspired us
to be extraordinary and pull this together.
And you're kind of wondering, well, this Pets People Planet stuff is good. It is so, so, so important because there's two people, two groups of people that's extraordinarily important for today. The first group is the consumer. The consumer expects companies to operate this way. We've been doing this for ten years.
You'll hear from Justin in just a minute. He took the last ten years of work that we have done as an entire organization around sustainability, and he's actually made sense of it into a report that we shared last week, as I mentioned. The second group that is so, so important, it goes right back to that purpose equals passion. Of course, we have a purpose around food. But doing things the right way is what really motivates and keeps the organization excited and really passionate about what we're doing.
So really kind of really important. So everyone's seen Nourishing Pets People Planet. And one of the things that we've really started talking more and more and more around is who has pets here, actually? Who has pets? Sorry, I can't see anyone on the phone.
Okay. So the majority of people have pets. I will share with you, you've heard this before, Billy mentioned earlier, this idea of Zuwaiya. People live longer, healthier lives with pets. And there's a whole host of reasons why.
Everything from purpose to having a pet, being responsible, emotion. It's microbiome stuff, which Gerardo is not here, but you'll see him on the tour. Ask him about that. There is a whole list of reasons why. It's activity.
It forces you get outside. So we love that, and we want to make sure that we're making the best healthy pet food to people, and pets can have longer, healthier lives together. So if you have an organization that is only focused on sustainability and doesn't have a great product and a really strong business strategy, honestly, from the very, very beginning, we were not perfect. We screwed a lot of stuff up along the way, and we're far from perfect. But if you don't have a great business strategy, if you don't have this Bill shared this earlier, that's a charity.
We're not a charity. We are focused on sustainability because it's great for our business, it's great for our people, the people in the company and also our consumers. So I don't think this video is going to work because we're on the other computer, right? The
relationship with our pets has evolved. We're now pet parents. We love our pets as children, and they love us back. They bring us joy. They remind us to play and inspire us to improve our lives.
They're our travel partners. They celebrate with us and comfort us when we need them. We rely on them, and they rely on us. We would do anything to make them happy. And in return, to We have our our grow sustainable
food
Our landfill free kitchens in Pennsylvania use renewable energy, reclaimed rainwater, and best in class safety and quality protocols to help ensure every meal is sustainable and nutritious. Thanks to technology like on-site solar panels and seed capture, the new kitchens in Penas, Texas will further our mission to producing nourishing, fresh food while doing it in a way that is good for pets, people and the planet.
So hopefully, the video gave you a little bit of a highlight of some of the things that we're doing.
We're going
to talk in more detail. Justin is going talk in more detail in a minute. I want to take you through a handful of highlights that I'd like to make sure that you take away because this is an enormous area with a ton of work. The work we've done in sustainability, I mentioned, it really has been since our founding. It's been baked into our culture.
It's how we think. It's how we make decisions. And it goes all the way from how we make our foods to how we think about our interactions in the community to how we work together, etcetera. If you think specifically about the pets piece, that idea of improving pets' lives, our commitment to our food started when we first started, we couldn't find anyone to co pack for us because the pet food people couldn't make it. The human food people didn't want to touch it because that was an crazy idea to bring pet food into a human food facility at the time.
So we took a $5,000,000 leap of faith and built our own manufacturing. That was our and the other thing is no one put refrigerators in because it's an unproven concept. So we invested in the refrigerators, right? So our commitment around this has been pretty extraordinary, we believe, in the pets piece. The other thing is this whole idea of the human animal bond, so we also want to support that.
So please take that away.
From a people standpoint, we want people that are missionaries, not mercenaries. We're going talk a lot about pay here. We want people that are passionate about what we're doing and what we're building here to work in organization. We think about the people that work here as chefs versus people that are just making stuff. And we want them to think of themselves that way, too.
From a planet standpoint, the way I talk about it is I want us to think about how do we have the lowest impact, the lowest wave. Anyone here everyone has been on a boat at some point. When you look behind the boat, there's always a wake. When you're in the no wake zone, there's literally almost no The boat is moving through the water with no impact. That's how we want to think about our company and have the lowest impact we possibly can.
We want to be a leader in CPG. Why? First of all, from a consumer standpoint, we want to be a leader, and hopefully, going to demonstrate some of that today. Secondarily, if we are raising the bar, I hope everyone else that is working, not only in pet food but in the rest of CPG, is looking around going, wow, I need to do this too. And that's a way for us all to kind of have increasing incremental impact or punching above our weight in CPG.
And then finally, you'll hear Billy talk a little bit and touch on what we're doing from a governance standpoint. We released a plan last year. It's a long term plan. We think we're very age appropriate, but we've also laid out a really kind of detailed long term plan around governance. All right.
So first one, looks like we lost a little highlighting here. It's supposed to be an outcast, right? I talked about the nutritional ideology, how we make the food, so hopefully everyone is living a longer healthier life together, but we're also supporting the human animal bond. The first thing is how do we think about our ingredients? We want to take as many ingredients as possible that are fresh, unadulterated, not cooked beforehand, etcetera.
We want them as simple as possible. We want to take basic ingredients, things that you've heard of that you can see into our products. We also want to cook
them a lot less than anybody else.
So I was using an analogy of broccoli. If you take broccoli, it's good raw. If you steam it, it's good. If you cooked it for two hours, you're going to destroy the bioavailability of it. We see the same thing here.
I'm going to show you an amino acid chart in a second. So we cook those ingredients as little as possible. You'll see examples of other dry and wet food, where they're processed much more. It makes a huge difference in the protein or the amino acid availability of the products. So from a nutritional ideology, we think this is really important.
We've invested in it. We're committed to it. And it's how we think about all of the products that we make. The next piece is because of that food, because of the great products that we make, what we see is that 82 of people see a visible difference in a pet's health. So this is not we've shared this before, but this is one of the things that keeps us so motivated.
This is why we got this phone call that I was talking about a few minutes ago. And it's why there's so much passion around the products that we make across the organization. The next piece is how we think about the human animal bond. Well, one of those ways and one of the most extraordinary ways is to make sure that pets end up in people's homes. We also work with two different groups, multiple groups.
But two of the key groups I want to highlight today is Fort Paws for Ability and also St. Hubert's. They're not up here. But they are both leaders in their area. One is a shelter in New Jersey, and Fort Paws is in Ohio.
They do extraordinary work providing assistance dogs for things that are not typical assistance needs. And you can see when people get those pets that four paws trains for them, it is life changing, absolutely life changing. And it's everything from people with autism to seizures to learning disabilities to all kinds of issues. It is life changing for those people. And we know that when we see the work that they're doing, that that's how people and pets should be living together.
We've donated millions of meals, but we also want to support the programs that they're doing around the human animal bond in general. The next piece, Justin is going to take over and talk about people and planet. And again, this work has been part of our organization, but Justin has done an extraordinary job pulling it together and putting out the sustainability for us. I want to thank him for that.
Great. Thank you. I'm Justin. I'm the Sustainability Director here at Freshpet, and I'm really excited to take you through the people and planet sections of the presentation. I should mention that this is going to be kind of an abbreviated overview of our efforts, and I would invite you to go to freshpet.com under the Investors section.
There's a Governance tab there, and you can download the full sustainability report. Scott mentioned it before, but we really are proud. This is our first year of doing a full sustainability report. It provides a lot of data and transparency that we just haven't ever compiled before. So we're excited to hear your feedback on that and excited to share it with you.
So as Scott mentioned before, there's a
lot of us that have worked together forever. I haven't gone back as far as sending Michael to Karina, but I have worked with both those guys for about twenty years now. And there's probably 15 of us on the team that have worked together for about that amount of time. And it's been an incredible place to work. I think one of the founding reasons, the foundational reasons that, that's we've all stuck together is that there's so many great ways that the company takes care of We've got four zero one programs with matching for every single employee.
We've got health care programs, top notch health care programs for every single employee. We just added tuition reimbursement for employees so that if they want to further their career with Freshpet and learn new skills, they can do that now and Freshpet pays that. So they've always thought of ways to take care of employees as almost as a family and it's fostered a loyalty and commitment to the company. To Scott's point, we almost know each other as family now. So it's very easy to share ideas and it contributes to an efficiency and entrepreneurial shift that maybe you
don't see for a lot
of other companies. It also shows up in our employee surveys. So we do an employee survey every year. And this past year, we got an 8.3 net promoter score, which is in the ninetieth percentile of all companies.
We also got 82% employee engagement,
which is four typical companies. So a lot of benefits there for Freshpet as a company and then obviously for employees that work with Freshpet. Moving on to Planet. Environmental sustainability has been a foundational principle at Freshpet. And our mission really is to create the most sustainable pet food in the world.
And it's not only the right thing to do, and it's something that, as Scott explained, it's kind of where we started when we were such a small company. We chose suppliers to work with that were environmentally sustainable, like at the time, Bell and Evans supplied a lot of our chicken. We worked with suppliers that were sourced from within a 200 mile radius of these kitchens here for the majority of our ingredients. As we've grown, we've had to expand our reach with those ingredients, but we're still around 50% of our ingredients are sourced within 200 miles of the kitchen. So we've always had that as our core DNA, and it was the right thing to do.
But what we've also learned is as we try to grow towards 2025 and reaching our growth goals and our household penetration goals, consumers are really concerned about that these days. And Billy was talking about millennials and Generation Z. As you get younger in the consumer spectrum, they want to do business with companies that are environmentally and socially responsible. And Freshpet is a company that they can believe in because when you look back at our history, we've been doing this for a long time. So it's an authentic place we're coming from.
We're not just greenwashing our way there or throwing in a few projects. We already covered a lot of our initiatives, and I love that some of the manufacturing guys were sharing that because it really shows how deep within the company we care about these topics, and we've implemented these topics.
But I'll highlight a couple here. One of
my favorites is back in 2012, we launched the Nature's Fresh brand at Whole Foods. And when we launched that brand, Nature's Fresh was a concept. We had a couple of different ideas. Whole Foods said to us, hey, we want you to work with this company, Global Animal Partnership. They're a nonprofit.
They were working with farms to certify animal welfare standards and help farms raise their chickens and their cows with animal welfare in mind. So Whole Foods was committed to buying the chicken breasts and the like the higher cut higher quality cuts of meat. Where we came in is we purchased chicken livers, chicken thighs, the chicken hearts, and we were able to make that program financially more viable for all the farmers. So we were able to give them added value for those cuts of the chickens and turkeys that they might not have been able to sell for a decent price if we hadn't been there. We were their first pet partner.
Now there's a number of other pet food companies that use Global Animal Partnership But we're super proud about that. In 2020, we bought about 6,000,000 pounds of Animal Welfare certified chicken and turkey from that partnership. And then 2016, I love the story. You used be part of the sales team. So we were installing a ton of chillers.
And this was something that we were was near and dear to our heart because we were replacing and swapping out a lot of old chillers with this new model. It's a TRU TBM48 model, and we developed it in conjunction with TRU. It used LED lighting, a new R290 refrigerant, which is ozone friendly and also has very low global warming potential. And as a result of the new compressor and all that technology that went into it, it's about 8.5 times more efficient than the chiller models that we replaced. What was interesting to hear the backstory on it was that we kind of pushed through to introduce this model.
They had already started developing some of the technologies. They just didn't have a major customer to really put it out there. So we knew we wanted this technology. We wanted the brighter lighting. We wanted the merchandising ability because this chiller actually holds quite a bit more products than our old models can hold.
So we were their first major customer, and now it's our number one best selling unit. So like Scott and I were talking, I mean, this is an example of us kind of punching above our weight in terms of pushing our supplier to do more, which then led to some greater good that we're proud of. And we talked a lot about wastewater treatment, and I'll talk some about it in the breakout. But this is an area that's going to continue to receive focus for us, water stewardship, because we know how important it is to us as a business that does use a considerable amount of water. So we'll continue to talk about that, and this is going to be really a showcase for that in the future.
But 2021,
we've been really busy.
It's not over yet. One of the first things that we started 2021 off doing was trying to document our efforts. I think by having sustainability as a core foundation of the company, we had done a lot of good, but we necessarily didn't do a great job of communicating how much had been accomplished. And we certainly hadn't provided standardized data that made it easy for people to compare our efforts versus other companies. So we partnered with Three Degrees and calculated our carbon footprint for 2019 and 2020.
We also completed our first CDP questionnaires for climate and for water. And then we published our SAB aligned environmental metrics. Metrics. So those are all in our sustainability report. Another thing that we did is, as part of just really wanting to take the leadership role here, is we've committed for 2021 to be carbon neutral now across our Scope one and two emissions.
And that was something we just announced last week. We are accomplishing that with carbon offsets, all from U. S. Projects that have been verified and we purchased those through three Degrees. So we feel great about the projects we're participating in.
We consider this a starting point. We just feel like there's such urgency behind this topic and it's something that we wanted to do now rather than wait. But the long term plan is to work with our suppliers, work with procurement, work with our own engineering teams to reduce our carbon footprint so that our reliance on offsets drops. You'll also see in the latest sustainability report, our first publicly published supplier code of conduct. And you'll notice it isn't a big legalese type document.
We don't it's not like a sign your name here kind of contact, although there'll be some of that in the back end. But what we wanted everybody to understand is the aspirational aspect of our code of conduct. So our partners, a lot of them, we've been buying food from the same supplier for fifteen years, and they've grown with us. They've been there for us. They've helped us.
So we expect to help them come to a place that will help us achieve our goals. So we are going to start asking them to provide carbon footprint data by 2023 as well as water footprint data by 2023. And for some of the vendors, they've already been doing this work. For other ones, they have some work to do. So it's going to be a two way conversation where we can help them elevate their analysis.
And then some of them, honestly, they've been doing this longer than us, and they might be able to help us with our efforts as well. And of course, looking to the future, NS, you've already gotten a
sneak peek on that.
I can't wait to give you the details there. There's been so much great work going on, and it's just going to be a true showcase. And then for 2025, our commitment is to be carbon neutral on scopes one, two and three through the use of emission reduction projects that we've started discussing. We started looking at some major ways we can work with our suppliers, work with our own internal processes to reduce our emissions. And then what we can't reduce, we'll be using offsets to get us
to carbon neutrality by 2025.
And we feel like this is a really important claim, a way for us to show leadership here, hopefully spur other companies to follow our lead. And then based on all of our consumer research, we know that our consumers are looking for leadership here, and we think this will be something that will enhance our brands and help us increase our household penetration. And then just to highlight two of our brands because these are really our sustainability focused brands. Nature's Fresh has been around since 2012. We continue to that's like the tip of the spear for us in terms of sustainability, and we continue to refine it.
Originally started out with just animal welfare certified protein. It is now carbon neutral as of July of last year. It was carbon neutral across all scopes one, two and three. But look for that brand to be further cutting edge in the future, like maybe it will include different ingredients, different proteins, different farms that we partner with, and those will be featured first in Nature Express. Spring and Sprout is super exciting.
That's just launching now. But that really is a culmination of all of our consumer research, all of our R and D development, where we know that consumers are looking for a meatless product. They're looking for a vegetarian product. They're looking for a lower carbon footprint product that tastes great and delivers great nutrition for their dogs. And when you see this in person, I think you're going be really impressed.
It's got eggs, it's got plant proteins as well as vegetables and fruits. But just to recap, sustainability really has been a foundational principle for Freshpet as we accomplish our mission of improving the lives of pets and people while being kind to the planet. And another big focus as part of our ESG efforts has been governance. And Billy and the whole team did a ton of work on that last year, and we have some updates for him to share with you right now.
Thank you, Justin. And I'll be real quick because your next step is to go on a tour. But we're very proud of the work that our team has done. It's not just Justin. Justin is clearly passionate about this topic, but it's also the entire organization.
We have very, very many people who are involved in it. I just want to highlight very briefly what we've done in governance because what we did last year was viewed by most people as somewhat novel, where we laid out a long term governance roadmap, where we call it the Governance Transformation Plan. It's been guided by our Board of Directors. This is our Board of Directors. We feel very good about the Board that we've acquired.
These folks are very engaged with our business on a very frequent basis, and they bring a wide range of skills. And the way we think about it and what's really important as part of our governance transformation is that we think their involvement is guidance more than it's governance. Ultimately, when we become a fully mature company, it will be much more about governance than it will be about guidance. But right now, it is about guidance because as we grow, we need to acquire a range of skills. So, the skills that are accumulated and represented by this team is incredibly helpful to us.
And every one of our senior leaders has a path into one of these people or more that get advice on topics of interest, and we do that very frequently. This is a commitment that we laid out. We laid out a path that was going to take us from a company that was, as Scott described, age appropriate. There we are, a relatively immature company in 2014 when the company went public. We had all the governance practices of a company that you would expect with private equity backing and a very small high growth company.
And our goal is to transform that into the practices you'd expect of a fully mature company by the time we reach 2025. Last year, we asked our shareholders for the first step in that in our proxy, and we got a very strong vote of approval for the plan that we laid out, and we feel very good about it. This year in our proxy, you'll see that we have two other items. One is declassifying our Board process between 2023 and 2025. There's other practices that the Board has approved that the shareholders don't have to approve.
But we feel like this is consistent with the way we do everything else, which is highly transparent. We do it in a very rigorous and disciplined way, and we do it in a way that is very pragmatic. It matches the growth of the company and the needs of the company to the needs of the shareholders. And so this plan has been implemented. We'll be glad to answer any questions about it.
But this is in our proxy that we just released last week as well. So at this point, we think of ourselves as a company has a founding that's really built on sustainability and good ESG practices as something that we strive for. And our goal is to, over a long period of time, be a very sustainable company. So that concludes the formal part of our presentation. Our plan for now is to we'll take questions after the tour.
And we know we don't want to starve you, but we'd rather have you do the tour and come back and get lunch, and we'll do questions and answer over lunch. So the way this is going work is every one of you has been assigned to a tour group. The number is on your badge, tells you what number you are. We have picked five people who are members of our organization to lead these tours. And these folks are I selected them based on their ability to be really good cat herders.
So if they're plotting you along, that's what I've asked them to do to keep you moving. There are 13 stations that you're going to stop at for, call it, five to seven minutes each. Each one of them has a poster that explains what it is you're looking at, and there will be a subject matter expert there who will explain to you what you're seeing. And the idea is for you to understand all the things that we talked about today related to our manufacturing capability expertise, our innovation and the way in which we do various elements of sustainability as well as the other elements of ESG. The five tour guides also represent a variety of different functions within our company.
So one of them comes from R and D, another one comes from our procurement organization, another one's from manufacturing, one's from HR I'm missing one there's five folks, sorry about that. But there are five different folks who feel free to ask them any questions about their experiences with the company, what brought them to Freshpet, why they're here. They're here to escort you along the path. The way we're going get started, is you all know your badge tells you where you are. The room where the breakfast is, next door, has all the PPE that you're going to need.
So you will go from here, go next door, find PPE that fits you, put on your PPE. The guides who are taking you, you guys are each going to indicate where you are by your number. And they'll meet you over in the other room and begin you on your tour. We do need to keep you moving along. And when you come back, you'll grab lunch.
Come back in this room, and we will do Q and A at that point. Are there any questions, or did I miss anything? Yeah. You can feel free, Leo. This is perfectly safe.
Leave anything you want here. Great. Thanks. What? Okay.