Greetings, and welcome to the Freshpet First Quarter twenty twenty one Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, mister Jeff Sonick with ICR.
Please proceed, sir.
Thank you. Good afternoon, and welcome to Freshpet's first quarter twenty twenty one earnings call and webcast. On today's call are Billy Cyr, Chief Executive Officer and Heather Pomerantz, Chief Financial Officer. Scott Morris, Chief Operating Officer, will also be available for Q and A. Before we begin, please remember that during the course of this call, management may make forward looking statements within the meaning of the federal securities laws.
These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward looking statements. Please refer to the company's annual report on Form 10 ks filed with the SEC and the company's press release issued today for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward looking statements made today. Please note that on today's call, management will refer to certain non GAAP financial measures such as EBITDA and adjusted EBITDA, among others. While the company believes these non GAAP financial measures provide useful information for investors, Presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to today's press release for how management defines such non GAAP measures.
Reconciliation of the non GAAP financial measures to the most comparable measures prepared in accordance with GAAP and limitations associated with such non GAAP measures. Finally, company has produced a presentation that contains many of the key metrics that will be discussed on this call. Presentation can be found on the company's investor website. Management's commentary will not specifically walk through the presentation on the call, rather it is a summary of the results and guidance that we'll discuss today. Now I'd like to turn the call over to Billy Cyr, Chief Executive Officer.
Thank you, Jeff, and good afternoon, everyone. I want to start by giving you the punch line upfront. The Freshpet kitchens are delivering the increases in output we had expected and are now producing at a rate that is almost 50% above year ago. That is enabling us to refill the trade inventory that we had drawn down during the back half satisfy our customers and consumers with much better in stock conditions. We are not done refilling the inventory on all the SKUs at all customers, but we are getting close.
We are incredibly grateful to the customers and consumers who have stood by us during the supply challenges we had over the last six months. We know it is frustrating for our customers to not be able to provide their shoppers with the high quality in stock conditions they pride themselves on and for consumers to have to search high and low for the Freshpet products that their pets have become accustomed to. Our team has done everything they could to catch up to demand under very challenging circumstances. I can't say enough good things about the efforts of our production, sales, logistics and consumer care teams and their tenacity through the challenges of the past year. The progress we've made has allowed us to get back to doing what we do best, change the way people nourish their pets forever.
Our advertising is on the air, household penetration is growing, we are launching new items and our customers are planning to install new fridges, upgraded fridges and second fridges. As a result of this progress and the strong fundamental trends we are seeing, we remain very bullish on our prospects for both this year and for the next several years. We are off to a very good start in 2021 despite the numerous challenges we face. In Q1, we grew net sales 33%, our strongest quarter of growth since the third quarter of twenty fifteen. Basically, we sold everything we could make in Q1.
We also grew adjusted EBITDA in Q1 at a rate slightly above net sales growth, up 35% versus a year ago. Heather will provide you with more detail and color on those results. I want to focus my comments on a few of the highlights and choices we made that drove the results in the quarter and update you on our expectations for the balance of the year and early next year. I want to begin by discussing the state of our manufacturing operations. Overall, we are doing very well, delivering the commitments we had made on both our near term and long term capacity projects.
As we have previously outlined, we made several additions to our capacity last year, including a two shift operation in Kitchen South Last June and the startup of Kitchens 2 in October. Despite those additions, our total output did not go up, I. E, we lost just as much output in our existing kitchens due to COVID testing and quarantine as we gained from those incremental operations. You can see this on the chart on Page 36 of the accompanying investor presentation. In December, we made several interventions designed to correct that and the plan is working.
We are now getting the benefits of the incremental production capacity we added last year and adding more. Other than the two significant snowstorms in February, we've consistently produced in excess of Nielsen measured consumption every week since January 1, have not lost any production shifts due to COVID, and our April production was about 45% ahead of a strong month a year ago and more than 60% greater than was consumed a year ago. We've now demonstrated the ability to produce at a level that will support the significant growth we are guiding to this year. We've been able to do this because of work our HR team did to bolster our staffing. We raised the wages for our night shift and recruited a flex pool of talent to both insulate us from any further COVID related absenteeism and to further expand our capacity.
COVID still exists in the Lehigh Valley community where the kitchens are located, so we are still incurring some COVID related costs. We expect that to wind down in Q3 as our entire team became eligible for vaccines on March 31, and we strongly encourage them to get vaccinated if they can. We have provided incentives to our team members to share their vaccination history with us, offering two incremental days of vacation and a $25 cash incentive if they share their vaccination record with us within the first two months after they became eligible, one day of vacation if they share it within the following two months. Further, while the state of Pennsylvania has not allowed companies to do on-site vaccinations, we hired nursing staff to sit in our break rooms for eight hours per day, work with our team members to navigate the challenges of finding vaccination appointments. They've successfully found vaccine appointments for numerous team members at times and locations that work for them.
We are thrilled with the success of this program and our team members are very appreciative that we made it so much easier for them. While not everyone will choose to get vaccinated, we believe enough will choose to be vaccinated to reduce our dependence on most of our COVID related interventions by the end of Q3. Due to our success in navigating these unusual and dynamic variables, we do not expect further supply interruptions this year due to COVID. And as a result, we anticipate winding down our COVID add back to adjusted EBITDA by the end of Q3. We are mindful, however, that the future of COVID is uncertain and there is the possibility of new variants that evade our vaccines, further government mandated lockdowns and new unforeseen supply chain interruptions.
We will remain nimble, always keeping the safety of our team as our top priority, and we'll communicate any changes to our expectations in a timely manner. Looking forward, we remain on track to add a new production line at Kitchen South later this year and another one early next year. And construction of our largest kitchen in Ennis, Texas is making good progress. We remain comfortable with the timetables we've communicated previously in terms of facility startup timing and the total production capacity each of those facilities will provide. Further, when Ennis opens next year, it will be another example of our ability to continually improve the manufacturing technology for Freshpet, creating higher quality products at an attractive cost and in a very positive work environment.
Kitchens two point zero was a major step forward for us against those metrics. NS will be another step beyond that. I also want to point out that we are constructing the NS facility with environmental sustainability in mind. For example, we've already poured 3,700 cubic yards of low carbon concrete, that is concrete that uses fly ash to lower the carbon footprint. That has saved approximately 100 metric tons of CO2 emissions so far in the construction of that facility versus ordinary concrete.
We can't replace all of our concrete with low carbon concrete, but where we can, we are doing it. We are also installing a variety of measures designed to both limit our water and energy usage, but also generate clean water and energy on-site. We will provide a much more in-depth review of our entire environmental sustainability and broader ESG effort this summer when we release our first ESG report. The second topic I would like to address is the composition of our growth in the quarter. As we said when we provided our guidance in late February, the year on year comparisons are not particularly meaningful due to the COVID surge and trough in the base year.
In the accompanying presentation, we attempt to provide a bit more clarity so that you can understand the various moving parts, including not only the year ago COVID impacts, but also the impact of our out of stocks this year. The key points I would highlight are first, the out of stock impact was most significant in mid February when winter storms Orlina and Yuri interrupted both production and distribution. You can see this in the drop in total distribution points, TDPs, monthly net sales versus a year ago in February and our two year stacked Nielsen consumption growth rate. Prior to those February storms, our improving production resulted in strong January shipments and healthy consumption growth. Since the end of the second storm in mid February, we've seen similarly strong bounce back in shipments, consumption, retail availability and our production levels.
Those trends continued into April with a strong upward trend in the weekly Nielsen consumption through the most recently reported week. We are now running at the consumption growth rate we need to deliver our guidance for the year. Second, we successfully refilled a portion of the trade inventory in Q1 and expect shipments to exceed consumption in each quarter this year. We believe that we refilled about $3,000,000 of trade inventory in Q1 and that contributed about four points to our growth rate. We would have filled considerably more, but we lost $3,500,000 of production to winter storms, so virtually all the trade inventory refill happened in March and it is accelerating.
While estimating trade inventory levels is always very difficult and imprecise, we believe that leaves another $12,000,000 of trade inventory to fill in Q2 and we have seen a significant portion of that happen in April performance. As we indicated in the presentation, our net sales in April are anticipated to be up about 42%. While consumption in April is expected to be up by a similarly strong growth rate, please remember that we are also refilling trade inventory in the year ago. Last year, we reported our total Q2 net sales growth rate included 11 points of trade inventory adjustments. We expect that this year's Q2 trade inventory refill may contribute to our growth rate at a level equal to or slightly above last year's adjustment.
Looking to the second half of twenty twenty one, I'd remind you that in late Q3 and all of Q4 of twenty twenty, we could not keep up with demand, so shipments did not grow as fast as consumption and we drew down trade inventory. We believe we will have adequate capacity this year to meet the increasing demand and our shipment growth rate should exceed the consumption growth rate for the second half of the year. Third point, despite our out of stocks in the first quarter of this year, we continue to successfully build both household penetration and buying rate in the quarter. As you know, maximizing our first mover advantage in the fresh pet food space is a critical strategic priority for us. So our bias is always to lean in to maximize the number of households to become part of the fresh pet franchise.
In early November, we delayed the start of our advertising in Q1 twenty twenty one to mid February in an effort to better match our projected timing for improved retail conditions with a healthy media schedule to follow for the balance of the quarter. If we'd known in early November about the production challenges we would face in late November and December due to COVID, not to mention a series of major winter storms that would curtail our production and accelerate out of stocks, we would have made a different choice. Needless to say, that was not ideal. Despite that, we were still able to bring in new households at a very strong rate. Consumers saw the advertising and were motivated by it, driving household penetration up 25% and exceeding 4,000,000 households for the first time.
The efficiency of the spend was likely reduced from our twenty twenty levels, but our early reads suggest that it was in line with our 2019 levels of efficiency, which was still quite positive. We also built the buying rate by 3% despite consumers' inability to find our items for a good portion of the last six months. Once it became apparent that the retail conditions would not be restored until the April, we delayed the start of Q2 advertising until April 19. While that will delay our ramp up in household penetration gains in Q2, we believe we got the timing right as retail conditions had improved dramatically by the time the advertising went on the air. We will now be on the air almost continuously for the balance of the year, and that will provide significant momentum, particularly in the back half of the year.
The third topic I would like
to cover is how our retail partners are thinking about Freshpet today in light of our recent out of stocks and the implications for fridge placements later this year and next year. If there's anything that this experience has taught our retail partners and us, it is that Freshpet has become a very important destination for pet parents. When a store is out of stock on Freshpet, consumers are willing to go to a second or third store to find the product and they will call us asking where they can find it. Freshpet really is that important to our pet parents and their pets and our retail partners have noticed. Freshpet is now larger than all dry dog food brands in the grocery channel, which is where some of our biggest distribution opportunities lie.
And our total dollar sales growth is now larger than the growth of every other wet and dry dog food brand in the Nielsen megachannel. While the out of stocks didn't always make for the most comfortable conversations with our customers, one clear theme emerged from them. They now realize that winning with Freshpet is very important to their overall success in pet food, and many of our leading customers are now planning to lean in on fresh. In fact, eight of our top 10 customers now have significant tests or expansions of dual fridge placements and many are planning more. But before we place new fridges, we need to be able to supply them.
It makes no sense to put lots of new fridges in stores if we can't supply the fridges that we already have. As a result of the out of stocks we incurred in Q1, in cooperation with our customers, we delayed many of the new store fridge placements until later this year, early next year and our capacity could support them. Thus, our net new stores were only up 174 to 22,890 in Q1. However, we had a strong quarter on upgrades placing two ninety three of them and a decent quarter second fridges, placing 121 of them. This pace is consistent with the guidance we provided in February, and we are on track to deliver our full year 2021 goals.
We expect to see a steady stream of new placements throughout this year, with the most significant placements occurring in Q4 and the first half of twenty twenty two. We continue to expect to have the capacity to support a $590,000,000 revenue run rate business by the end of this year and about $1,000,000,000 revenue run rate by the end of twenty twenty two. That will give us plenty of capacity to support the aggressive expansions our customers are contemplating and we have shared that information with them, so we remain coordinated. Before I turn it over to Heather, I want to personally thank all the investors who supported our recent equity offering. That offering is allowing us to accelerate our pace of capacity expansion, enabling us to build the capacity to support a $2,000,000,000 revenue business and helping us achieve our goal of changing the way people nourish their pets forever.
While we have lots of work to do, we are well on our way to deliver those projects. Now I'll turn it over to Heather to provide the details on our financial results.
Thank you, Billy, and good afternoon everyone. As Billy indicated, net sales for Q1 of twenty twenty one were $93,400,000 up 33% versus year ago. Actual Nielsen megachannel consumption was up 24%. So after adjusting for one less day in the quarter this year, continued improvement in the reduction of spoils and the trade inventory reduction in the year ago, we estimate that four points of our growth came from our efforts to rebuild trade inventory and refill the fridges. That is about $3,000,000 of our net sales in the quarter.
We believe we have another $12,000,000 of trade inventory that we will refill in Q2 and we are on track to do that. We believe we could have sold more in the quarter if we could have produced more. We lost about $3,500,000 of production due to two major snowstorms that occurred in the quarter. While winter snowstorms should not surprise anyone, these storms had a disproportionate impact on us because of the magnitude of the storms where we have production facilities, the fact that we had no excess capacity and neither we nor our customers had any inventory to buffer the impact. The growth in the quarter continued to be led by strong performance in the pet specialty channel with Nielsen measured big box pet specialty consumption up 43% in the quarter.
Our e commerce business also performed well growing 156% in the quarter and now accounts for 6.3% of sales. Additionally, we had very strong performance in our international markets. Our international business grew 36% in the quarter and we continue to see strong momentum in those markets behind the advertising investments we have been making. Clearly the Freshpet business model works outside The U. S.
Adjusted EBITDA for Q1 was $7,800,000 up 35% versus a year ago slightly outpacing sales growth. The profitability would have been greater except we incurred significant freight cost increases in the quarter. Part of this was due to the freight inflation we saw coming and communicated on our February call, but a larger portion of the increase was due to our low order fill rate. Due to system limitations we have in our current ERP system, we don't have the ability to consolidate loads very easily when we are shipping less than 100 of a customer's order. Thus when customers gave us very large orders to meet both weekly demand and also refill their inventory and we only had limited inventory to satisfy the order, our fill rates dropped quite significantly.
The result is that we shipped trucks that were half empty driving up our freight cost per pound. I have provided a chart in the presentation that describes how this happens and the impact that it has. This problem will be remedied as we rebuild our inventory both ours and our customers and customer orders better reflect actual weekly consumption. We expect that to happen gradually throughout Q2. However, modestly until we rebuild our internal inventories on the vast majority of SKUs.
In other words, we anticipate refilling trade inventory before we are able to completely solve the fill rate inefficiency. We expect that will likely occur sometime in Q3. Our new ERP system will also have the capability to allocate inventory to orders before shipment allowing for order consolidation, which will be of immense value should we ever face this problem again. That new system is targeted to go live at the beginning of Q4. Until the remedies are put in place, we believe we can offset these higher costs elsewhere in the P and L and still deliver our adjusted EBITDA guidance for the year, but they will reduce our opportunity for SG and A leverage gains until that is completed.
Adjusted gross margin improved modestly from Q4, up 90 basis points to 46.7%, but was well below the year ago of 49.5%. We continue to incur the higher beef costs and higher wages which were anticipated, but we also incurred higher unabsorbed fixed costs due to the lost production caused by the storms in February. Additionally, expanded production at Kitchen South drove higher processing costs. We believe that the investments in both the higher night shift wages and the expanded production at Kitchen South are paying significant dividends in terms of strong production that is enabling us to refill the trade inventory. Because there is much discussion about cost inflation in the market today, I want to comment on how we are seeing that today and outline what you can expect from us.
As many of you know, chicken is our single largest ingredient expenditure and we lock that price for the year in December at prices that are flat versus the year ago. I have already mentioned that we are experiencing inflation in beef and freight both of which we plan for this year with those increases being in line with our expectations at this point. We are beginning to see some inflation in resin based materials such as packaging. The total impact appears to be modest and manageable within the context of our guidance. We are also beginning to see evidence of labor cost inflation, but we are not expecting a significant increase this year.
We will continue to watch these costs as the year progresses before making any determination about whether we need to take any action. Although if we did, it would not have any impact until 2022. Media investment in the quarter was in line with our long term rate at slightly above 12% of net sales, but below the 16.7% we had in the year ago. Recall, we delayed the start of advertising in Q1 to give us some time to rebuild trade inventory first. Excluding the higher freight and lower media costs in the quarter, quarter, SG and A was down 160 basis points versus a year ago giving us the confidence that our long term roadmap towards 1,000 basis points of SG and A leverage by 2025 excluding media spend is on track.
We incurred $950,000 in COVID related expenses in the quarter and have added those back. We expect to complete our COVID add backs in Q3 as we anticipate enough of our team to have been vaccinated by then to roll back some of the incremental provisions we have put in place. Our net cash used in operations was $5,500,000 in Q1. Our cash used in operations was driven by accounts receivables and inventory working capital needs due to strong net sales growth and production in the last month of the quarter. We successfully completed our equity offering in the quarter netting $332,500,000 Our cash on hand at the end of the quarter was $341,000,000 We spent $49,300,000 in CapEx in the quarter.
The Ennis facility is entering some of its highest investment quarters as all the site preparation is complete, foundations have been poured and steel has been going up for about a month now. Additionally, our project to add a second line at Kittens South is on track to produce product by the end of Q3 and the third line there will come online at the beginning of twenty twenty two. We are also taking advantage of the incremental capacity that is coming online to make some upgrades in our existing Kitchens one point zero and expect to have that work completed by the end of the year. That work will improve quality and reduce some of our labor costs on one of the existing lines. I also want to comment on the productivity we are seeing from the new lines in Kitchens two point zero.
You will recall we raised our throughput expectations for those lines when we provided our updated long term capital plans in late February. In that plan, we acknowledge that the higher speed lines and greater automation that we placed in Kitchens two point zero can deliver higher output than we included in our original projections. We are continuing to see that level of productivity as we increase the hours of production on those lines and we are also seeing outstanding quality. We are not done expanding the ship in that facility yet. So we have significant incremental production capacity yet to come.
But it's very exciting for us to realize the benefits of the manufacturing expertise we have been investing in. We believe we have created a new standard for Freshpet production and look forward to sharing it with you when the world opens up and we can host visitors again. Turning to our guidance for 2021, we are reiterating our guidance for the year that calls for net sales of greater than $430,000,000 and adjusted EBITDA of greater than $61,000,000 In the presentation, you will see some of the many assumptions that go into that guidance and also some details on the cadence we are expecting. As we have said, the unusual nature of last year's consumption patterns and our short shipments will make the year on year comparisons a bit odd. So we are doing our best to clarify as many of the moving parts as we can.
In particular, as we look to Q2, please take into account the following. In the quarter, we expect to complete the refill of the trade inventory hole we created in the back half of twenty twenty. However, we did something similar in the year ago. So we will not necessarily experience a significantly higher shipment growth rate than the consumption growth rate reported by Nielsen. But based on what we are seeing so far, the consumption growth rate has been robust.
So we are projecting continued strong shipments. We expect to see sequential improvement in adjusted gross margin as we continue to produce at a very high level and expect to exit 2021 with a fourth quarter gross margin run rate higher than our full results. We are still on track for the average adjusted gross margin to be flat to 2020. We will continue to experience higher freight costs due to our depleted inventory levels for most of Q2 and potentially part of Q3. This will diminish our leverage gains in adjusted SG and A excluding media this year, but we expect those increased costs to be gone by Q4.
We will have a very strong advertising investment in Q2 as we ramp up our growth to catch up to the increased production capacity we have created. That investment will continue through the end of twenty twenty one with comparable spending in absolute dollars planned in each of the three remaining quarters. In closing, our guidance for 2021 continues to call for net sales greater than $430,000,000 up 35% versus year ago and adjusted EBITDA greater than $61,000,000 up 30% versus year ago. We believe our strong performance in Q1 particularly in manufacturing has positioned us well for the balance of the year. We are producing about 50% more than we did in a year ago and we have more capacity coming online.
Our advertising is driving household penetration gains and we have a strong continuous media presence for the balance of the year. Retailers recognize the value that Freshpet brings to the category and are planning more and larger fridge placement and our innovation pipeline is deep. We have not had the luxury of all those conditions being in place all at the same time in a long time. So we look forward to taking advantage of the momentum that provides accelerating our growth towards our 2025 goals of 11,000,000 households, 1,250,000,000.00 in net sales and a 25% adjusted EBITDA margin. That concludes our overview.
We will now be glad to take your questions. Operator?
Thank you. At this time, we'll be conducting a question and answer session.
Session.
Your first question comes from the line of Ken Goldman with JPMorgan. Please proceed with your question.
Hi, good afternoon. Thank you.
I know there's some year on year, I guess, lumpiness to or there's some lumpiness of the year on year numbers. But the way I see it, you've guided to annual run rate capacity in 1Q of $390,000,000 in potential sales. You've guided to $490,000,000 in 2Q for the run rate. So I guess if you just average those out, it kind of gets you to a quarterly run rate of about $110,000,000 in dollar sales capacity this quarter. I apologize for doing the math on the call, on the fly, but it just feels like you're sort of saying to us, you should probably get close to that $110,000,000 number in dollar sales unless you undership consumption, which seems unlikely.
So I just wanted to make sure my math there is not totally inaccurate in how to think about, you know, implied guidance for 2Q revenue.
Hello?
Hi, Ken.
Hi, Ken. Sorry, I'm sorry Ken, I was talking on mute. I apologize.
No, I thought I answered someone for the first time in history.
Yes, no. Sorry. Scott, thanks for trying to jump in. So Ken, your math is right, but I caution that there's a couple of assumptions that are built in there. The first assumption is that we have at the end of the quarter that we that the demand is fully utilizing all the capacity.
We're filling the trade inventory hole now. So it assumes that at the end of the quarter, the Nielsen consumption is using all of it up. The second assumption there is as we continue to ramp up production, the assumption is that what we produce and what is in demand is a dead match. And so as you can imagine, we're going to start doing longer production runs and try to refill some of our inventory to improve our customer service because we know as we have more inventory in house, our ability to do fill trucks goes up. So we may end the quarter with higher inventory as opposed to necessarily selling everything that we make.
It's not the ideal way to do it, but it's ultimately what could end up happening. But other than that, your math is right.
Okay. So just to clarify, and I'm not I don't want to pin you down
on an exact number here because
I know things are so fluid right now, but 110,000,000 seems like the maximum you can produce, but there are some caveats to that that could bring it potentially slightly below that. I'm not holding you to that. I'm just trying to get a sense of what you're Yes.
Just recognize that there's a human component. Yes. I mean, let's put it this
way, can you get
in that direction? Yes. There's a human component. We're adding staffing. We have to produce well every week.
You get the idea, but we're in that ballpark.
Understood. That's helpful. Thank you for that. And then you spoke last quarter about a major expansion in e commerce. Obviously, e commerce is doing great for you still.
I didn't hear though another mention of that major expansion today unless I missed it. I just wanted to know, you still on schedule with those partners or maybe have your production challenges temporarily delayed some of the bump up you might have expected? Just hoping for an update because that was such an important part of the story last quarter.
No, you want to
take It's Scott.
Yes. It's Scott. So no, everything is running on schedule. I wish everything was running as tight as this is. So I think what you're going to see from us over the course of this year, you'll see a lot of expansion in e commerce in general.
We've actually had to shut down a lot of the marketing and advertising that we've done over the past year just because of some of the capacity issues. So see expansion with many of the folks that we currently work with, where the majority of it goes through our existing Bridge network, and you also see some additional e commerce partners coming where you would be able to order different things from some new partners. We're going increase the marketing. We anticipate it will continue to increase our share overall share of the business. We're getting a ton of inbound requests from consumers from a subscription standpoint.
We think we'll be able to we will be able to solve that this year. So we're very excited about that. And we're really planning on working with the right partners under a really, really good kind of joint set of terms that we can really kind of make a major impact in e commerce over the course of this year.
Your next question comes from the line of Steph Wissink with Jefferies. I
have a question for you, Heather. Just on the overall cost structure. So you talked about chicken being locked in, beef being a little inflation, some packaging inflation and then freight separately and the selling expense. Can you just help size up each of those to your overall cost pool so we can just understand a little bit about impact in each of those big buckets? Sure.
Sure, Steph. So just to sort of dimensionalize how to think about our input costs and where they show up. So first, cost of goods, when you split up the input costs are about 40% of our cost of goods. And then just as a reminder, freight costs are in SG and A. So when you're thinking about margin impacts, that's the split there.
So yes, I mean, we touched on it, but I'll go into a little bit more detail. We anticipated inflation in beef, which is on track in terms of what we've it's in line with what we've gotten guided. We also anticipated packaging inflation, mainly in corrugate, and that's also reflected in our plans. The only new one that's really emerging is around resins. And right now, the resin impact, appears to be pretty modest in terms of how that will impact our packaging costs overall.
So not a major driver. It's something that we're comfortable that we can absorb within the overall P and L structure and overall guidance. And then in freight, we touched on it, but I'll just go into a little bit more detail. We anticipated freight inflation, both in carrier inflation as well as fuel surcharge. And those assumptions haven't changed versus what we had in guidance.
The bigger driver is the issue that I talked about around the cost implication of our low fill rate. And that's a pretty meaningful on cost. If you look in the presentation, you'll see that, that's when you look at a 50% fill rate versus a 90% fill rate, about zero seven dollars a pound. So it's pretty meaningful. The impact in Q1 on a margin perspective is about 200 basis points.
So we had 300 basis points versus planned logistics, of which 200 basis is driven by that fill rate issue sorry, versus prior year. And so it's pretty meaningful, but we do expect that as fill rates improve, it will naturally come down as we touched on. Okay. That's great. And if I could, just one follow-up.
This also relates a little bit to e commerce being about 6% of your business. But as you're thinking about deploying more dollars in advertising, can you share with us a little bit about digital versus traditional mix? And then as you see e commerce continue to climb higher, do you distort more and more towards digital activation and conversion?
Yes. It's a really interesting question. It's something we've tested our way through over the past kind of even five years on how we go to market. And we're a we make sure the dollars that we're spending, we keep incredibly close track on, do an incredible amount of analysis to make sure that they're as productive as possible. The vast majority of our spending continues to be on television.
We are finding that there's some great places in Connected TV and OTT that we can spend dollars and they're really productive. We have nice spending in digital, but it's definitely not the it's the minority of our overall spend. As we do a little bit more in e commerce and what we've done over the past year, we get a really, really good return on ad spend when we're advertising specifically and the dollars go to a partner that has a way for a customer consumer to order it directly. So you took Instacart as an example. So as we're doing advertising in some of these different areas, we're getting really, really good return on ad spend and we're going to continue to kind of press into that area until we see any type of diminishing returns.
So I don't think it will cause a dramatic shift in what we're seeing overall because it's still a very, very small piece of the total pie for us. But over time, we definitely anticipate potentially moving some dollars into that area.
Thank you. Very helpful.
Your next question comes from the line of Rupesh Parikh with Oppenheimer and Company. Please proceed with your question.
Good afternoon. Thanks for taking my question. So as you look at the April data, clearly consumer mobility has increased. I was just curious, Billy, if you guys are seeing any changes in consumer behavior or whether purchasing fresh pet as you've seen some changes with the increased vaccinations, etcetera?
The data first of all, in the deck, show our estimate of what April's consumption is or our sales were. And then also you see the Nielsen data for the month. And so you can see we're seeing an upward trend along in terms of both consumption as well as the shipments that we're doing. The thing that's tough for us to tell is we have two things going on at the same time. Advertising went on the air for us on April 19, and our in store presentation has improved consistently throughout the month of April.
And so with those two factors, we'd expect to see continued strong upward trends in consumption. So it's hard to separate that out from anything else like vaccinations and people having more mobility. The attitudinal data we've seen, the the consumer comments we're getting all suggest that the behavior is very similar, but I I have to believe that psychographically, you know, consumers are feeling a little bit more liberated.
Okay. Okay. Great. And then may maybe just one follow-up question. So clearly, you guys have you you have some cost pressures in your business.
It seems like this year, you'll be able to manage through. How do you think about the pricing lever going forward? Is that something maybe you raise it later this year for next year? Or just curious just on pricing, how you guys think about that going forward? Yes.
Rupesh, Heather had made some comments in the prepared remarks that basically said, we'll take a look at that, but probably later on this year, we'll look at it and see what the cost picture looks like. Frankly, we have to restore our customer service and get ourselves in a good position with both our retailers and our consumers before we even think about that. And then we'll take a look at it and see what the position, what the cost inflation is that we have.
Rupesh, that being said let me add on, Penny, that being said, we have done pricing in the past. We've been able to manage it very well. The business has responded incredibly well to it. So we do know it is a lever, but as Billy said, it's not something that we want to apply in the near term. Okay, great.
Thank you.
Your next question comes from the line of Bill Chappell with Truist. Please proceed with your question.
Good afternoon. Hello there. Just, I guess, first question, trying to understand kind of the out of stocks and how we see it at retail. A fair amount of store checks, you can find some pretty bare fridges. You can even this recently past couple of weeks.
And historically, it's always it's rare where you could find a fully stocked fridge just because it was either growing so fast or just because of kind of customer service or getting it to the fridge levels. Should that change over this year? I know you said you're going to have production enough to make your sales goals, but I didn't know if the out of stocks would still be an issue throughout the year where you may be leaving some sales on the table.
Yeah. Let me take a shot in, and Scott might have some comments to add on it. But the out of stocks were at their very worst, shortly after the snowstorms that we had in February. And whether you measure using TDPs, which is sort of a poor man's but publicly available way of identifying what our out of stocks are, or we do some of our own internal audits. The bottom line is we've seen consistent improvement week on week since that deficit in February.
And to the point that as of the most recent week, there are still some fridges out there. And it's in certain places and certain customers and on certain SKUs, you'll see some spotty conditions. But we fully expect to see much better looking fridges in the next several weeks. And if you take a look at the TDPs as a sort of a benchmark of it, last August, mid August, when we were just the first time we sort of ran out of capacity, that was our high watermark, and we had a lot of very full fridges back then. And I'd expect us to be back at that level within the, call it, the next six weeks or so.
And at that point, yes, you'll find some fridges that don't have all the SKUs all the time, but you will find largely well stocked fridges.
Scott, do you have anything to add to that? Yes. Bill, we've touched a little bit on it in the past. And sometimes we look at it, and we're I think everyone in the organization sometimes is scratching their head on how we're putting up the numbers we're putting up with some of the in stock conditions that we have, which I think is a good signal. We have in stock conditions at some retailers that are as low as 30%, forty % all the way up to 80%, but no one's even into the we may have a couple of people that are recently getting into the mid-80s, but we're we have lot of opportunity, a ton of opportunity.
And I think as we continue to get the rest of the people want to buy certain things. If we get the rest of the portfolio filled out, I think there's really nice upside for us over the course of the year.
Got it. And you talked about
kind
of pushing out some of the new store openings. I wondered a little bit, and I might have asked this before about innovation and even kind of SKU count expansion. Have you done any near term adjustments with everything that went on in the quarter where you need to push that out even further just to increase throughput of the most popular SKUs?
What we've had Billy,
do you
want to go ahead? No, no. I was
going to say go ahead.
Bill. So we were a lot of our innovation this year was actually centered on lines that were not our high capacity lines. We have a handful of smaller, lower capacity lines that enable us to get some of that newer innovation out. We've been able to utilize those, so it didn't take away from a lot of the capacity that we needed to put towards our base items. So we were fortunate with that.
We did get some of that innovation out. There was a little bit of it that did kind of slide, slip and some of it will even go to next year at some retailers. But the majority of the innovation will go out as scheduled and as planned throughout the year.
Okay, great. And then I'll sneak one last. Any updated kind of sense of how much the The US pet ownership has spiked over the past twelve months?
We've seen so many numbers on that just like you have as I I will tell you, I've seen numbers that were as low as 2%, and I've seen numbers in high mid single digits. The best number I've seen would suggest that the pet ownership, I'm now speaking mostly about dogs, was up like 3%, maybe a little bit more than 3%. There was a big pull forward last year, but I don't believe the numbers that said it was a whole lot more than. If you got me to 4%, I'd be surprised.
Yes, the other thing on the pet ownership piece, I saw a study that was done recently that was really encouraging that not only was there some increase in pets, there's only so many pets to go around, but there is still pent up demand and it's still it seems like it's continuing. I think hopefully people are realizing it's pretty awesome to have a dog or a cat or a pet in your family. And so I don't think it's going away and it may continue to grow over the next year or so.
Your next question comes from the line of Peter Benedict with Baird. Please proceed with your question.
Hi, guys. I guess one question on kind of production. I know one of the slides you had in here, you had about 519,000 pounds a day as the average in April. And I think during the presentation or the call here, you spoke to some improvements coming from some of the Kitchen 2 lines, some increase coming in Kitchen South. Just trying to get a sense for where you think pound production per day could be as
we look out over, I don't know,
maybe towards the second half of
the year or the end of
the year benchmark or however you want to frame it?
Yes. I don't think I haven't mapped it out in terms of pounds. One of my one of our manufacturing guys might have done that. And it's also very we have to be careful because we use pounds because we bring in a lot of ingredients and that's the way we measure the throughput, but it turns into cases and it turns into meals ultimately that we feed a pet. What I can tell you is the chart that we've also included in the deck that shows sort of as you convert it into revenue, that shows what the revenue would be in each of the quarters is probably the best indicator of what we think we're going to get.
Because one of the things that's going to happen as we expand the capacity, one of the lines that we're expanding the capacity on the most and where we're shortest right now is on our Fresh From the Kitchen line. And Fresh From the Kitchen is the highest price per pound of our mainstream items. And so when we start producing that, the pounds won't be as big as some of the other items, but the dollars will go with it. And so I just caution that using pounds is the only metric to think about our capacity could become a little bit misleading as we get further into the year. But suffice it to say, as we're going from where we are today, where we have all of our equipment running, we're now adding shifts.
As we add shifts, we pick up capacity first on our bag line, then on our roll lines, and then ultimately, we start up another line at Kitchen South, which will be another bag line. So we'll see more of the mix moving near term into rolls, longer term into bags, and that will impact both the pounds and the dollars.
Okay. That's helpful. Thanks, Billy. I guess the P and L, you have the loss on equity investment line in there. Not sure if you guys are willing to speak a little more about that or provide some color into that, but since it's in the P and L, I figured I'd ask.
Scott, you want to talk about that?
I can.
You can grab that.
Yes.
Is that Heather?
Sorry, we went on mute. Sorry about That loss there is representative of our percentage ownership in the investments that we've made reflective of that businesses Q4 performance and that's basically all that we could share.
Okay.
All right. That's right. And then I guess last question for Scott. With your social media video today, it's approaching 2,000 views across Instagram and Facebook. How is that trending relative to expectations?
Yes. Well, we launched it around 11:00. And I was quickly told that I have no chance for any type of award from the video. So I'm a little concerned, but I'm going to work harder next time. I mean, look, Peter, I think it's been pretty well received if you kind of go through the comments.
I think very, very well received, honestly. You'll actually see some people in there like, send me a subscription kind of thing or I waited for you. I think it's been really supportive, and I think it's been supportive all the way through, and it's been great to see. Over the next kind of two weeks, this will have a long tail on it, and we'll be putting a little bit of spend behind it to communicate it out because it's not about vanity. It's about like really trying to be transparent and communicating with our consumers and making sure that people see it.
So I think we'll see some the numbers grow, and the people that want to hear about it will get a chance to kind of see what we're talking about. But so far, so good.
Think if Andrew Cuomo got an Emmy for his COVID press conference, guy should get an Oscar for that.
The thing is I'm not acting. There's no acting going on.
It's just the real deal. Well, listen, well done on that. I think all you can do on with the letters and now the video, it's great because obviously a tough situation for some consumers, but I think it goes over well. Anyway, just wanted to flag that for you.
All right. Thanks, guys.
Yes. Thanks.
Your next question comes from the line of Jason English with Goldman Sachs. Please proceed with your question.
Hey, folks. Hello there.
I have
no clue what that last exchange was.
So it looks like I've got
to go to check out my MySpace account and figure out what's happening on social media these days. But I will say,
we are one household that is thrilled to have be
able to find Freshpet once again on a regular basis for having to go to six different stores. So I'm very happy to see the out of stock situation in a better place. On to my questions, a couple of quick ones. Logistics, we talked a lot about
it today. Remind me, what is it? Like how big is
it as a percentage of sales? And can you give us order of magnitude in terms of the impact this quarter of what it changed from them to?
Heather, do want to take Sure.
Yes. So last year so prior year kind of full year is around 8.5%. And all else being equal, we expect that to continue to go down with scale. Having said that, we anticipated freight inflation and fuel surcharge inflation of about 100 basis points. In Q1, actually, the performance was 300 basis points worse than prior year.
So it's about 200 basis points impact for Q1 from the fill rate issue. And if you look at the have a chance to look at the chart in the presentation, you can see how it moves the fill rate. But on a cost per pound right now, we're looking at about a $07 per pound on cost due to the issue.
Big numbers. Thank you. And I appreciate the store additions have been derailed by two things. You cited your service levels. I'm sure COVID has also been a disruptor too in terms of resets, new store builds, etcetera.
But if as we think about the out of stocks, which arguably weren't in plan, I think you thought you'd be up and running or back to better service levels quicker than you were. Have you missed any key windows? So is this just a deferral of when we get the stores? Or is it possible that we just missed until next year? So we just have to move store count out of this year and into next year.
Me let Scott will talk about the customer dynamic. Will tell you, recall when we gave our guidance, it was the February. So we had fairly good visibility about what the customers would be doing. So the guidance we gave for the year accounted for any of those kinds of shifts that might have occurred. But Scott can tell you a little bit more about how customers are thinking about what will come this year versus next year.
Yes. So there are a couple of windows that we did miss because they were just we just couldn't kind of get our what we needed to from a production standpoint together. They're meaningful, but as Billy mentioned, they're reflected in the numbers already from a store count standpoint and also from an annual revenue standpoint. So we're I think we're in good shape from that. And we're already as people are starting to see some fill rates come back, we're sharing with them being incredibly transparent on all the information we're sharing with them what lines we're opening when, how we're opening them up, adding the shifts.
I think that they've had a lot of confidence in what we've been communicating, and we're actually back in conversations with a bunch of them on additional opportunities, which some of them will develop potentially later this year, but I think most of it will be really be early next year and kind of the front half of next year. I would think that we would outpace what we've historically done would be my guess.
I think it's also important to note that many of our customers right now are looking at year on year trends that are not very favorable on the rest of the pet food market, and we're growing at a very strong rate. You'll see there's a chart in the deck that shows literally how big we are now in grocery compared to the other brands and how much our growth rate is for the total category. And so I think if you're a customer and you're trying to figure out where you want to put your investment in space, we are increasingly an important part of that conversation.
Okay. You invited me to ask you a follow-up in on that one. Say more. You said the category I mean, here's what I heard. The category outlook for the category is not that great for the rest of the year, is what I just heard you say.
You're the exception. But my question is, why would that be? I mean, back to the point earlier, we got 3% more pets, they're getting larger, they're going to eat more. I get it on pet snacks where maybe people aren't at home as much. I mean my kids are feeding my dogs treats left
and right. I can't wait
to get back to school and save on my treat budget. So I imagine pet treat sales go down. But is there reason to be cautious on the overall category?
The reason is that I'm speaking from the perspective of the retailer who saw a fair amount of their business move to e commerce and it didn't come back.
Got it. So if you
were thinking about how you're now taking your space at retail, our Freshpet fridge is a really good way to invest your space. Yeah. That
makes sense. Thank you. Your next question comes from the line of Mark Astrachan with Stifel. Please proceed with your question.
Yes, thanks and afternoon, everyone.
I guess I wanted to start
with a follow-up to the
last question. So you made a pretty, I guess, forceful statement about stay tuned on e commerce and partners there. Is there any way to think about the incrementality from an e commerce customer, maybe even a pure play e commerce customer relative to what you would do potentially in a store and how you're thinking about that in terms of flow through in the model?
Yes. We have done a fair amount of work trying to establish exactly what the impact will be on our business. And everything from what we can tell is in a very first of all, it's going to be a very kind of slow, ease launch. It's going to look, it takes some time for people to realize that it's available in different places no matter where that is. So it's going to take some time to kind of have its full impact.
We think in the very beginning, it will be as much there'll be penetration gain, but a lot of it will be kind of moving consumers from potentially from one place to another. We want to limit data as much as possible. That's not our goal by any means. Over time, we think the single greatest benefit is it will increase our buying rate dramatically. And I'm not talking like a little bit, I'm talking like multiples.
Because when you see someone that is on either some type of subscription or some type of consistent basis where they're getting a product on a certain cadence, the overall dollars that they spend is significantly higher. So we think it's going to open our buying rate up tremendously, and it won't be something that will just have this year's impact. It could be next year and even the year after impact. We have specific dollar amounts that we've kind of put into our budget that roll into our overall guidance for this year for what we're doing in e commerce. So there's no there shouldn't be kind of any upside surprises if we have done our modeling correctly.
And I think as we kind of get some of these launches behind us, I think that we'll be able to kind
of share a little bit
more detail. At this point, I think I'm telling you probably as much as I feel like we can share.
Yes, that's helpful. On the buying rate, just not relating to the last question, just broadly, was up year on year in 1Q. And I guess relative to last year, and it's always sort of been thought of, at least by me, that household penetration goes up, buying rate comes down because you have people kind of coming in at a lower buying rate, sampling rate, however you want to think about it. So what drove the increase in 1Q? Was there people kind of pantry loading from an out of stock standpoint?
How do you think about that number over the balance of the year? And how do you think about it as well in terms of the incremental that you're talking about in terms of the products which have been out of stock but which also have a higher dollar value going forward?
Let me take a shot at that and then, if you want to add to it. But first of all, remember the buying rate number that we quote in the deck is a fifty two week number for the ending at the end of the quarter. So the up 3% reflects the past fifty two weeks. And our historical run rate has been in the, call it, mid single digits kind of run rate. We'd like to see that number up in the 6% or 7% range.
It was lower than I would have expected because of the out of stocks, where basically consumers couldn't find the products that they were looking for. Is there any hoarding? I would say if there was any hoarding or loading up by consumers, every one of those who loaded up, it was offsetting somebody who couldn't find any other product elsewhere. So my sense is that as we get better in stock conditions, you're gonna to see the buying rate go up in addition to the buying rate improvement that Scott mentioned related to the e commerce.
Got it. Okay. That's helpful. Thanks
think as Bill was saying, Mark, there's a ton of like there's puts and takes So it's like what products that we have available, what do we not have available, was there a hoarding, were people some people couldn't find it, so they couldn't buy as much over the quarter. I think it's honestly, it's a tough one to read. I would go with the historical progress that we've made. It's probably a cleaner look.
And until our kind of in stocks get settled out over the next kind
of six, eight weeks, when they really get settled out,
I think you'll see kind of that real consistent progression how we've modeled over time.
Got it. I don't know if one's full on it. I wanted to ask maybe a follow-up related to that. Have you seen any of your customers kind of push consumers into different products as a result of these out of stocks? And how are you addressing that?
Has that had any impact on the business?
Yes. Look, there's a handful of customers. They've done what they need to do for the business. They have consumers coming into their stores. We don't have product.
Shame on us, right? We're not taking care of anybody that way. And they have pushed some people in some different directions. Honestly, going through the comments today, there's not a ton of comments. I mean we usually get we'll get 1,000 plus comments on when we post these notes.
Most of the people are cheering for us and telling us, I tried some other things. I mean, you can see it in some of the notes already. I've tried other things and I'm coming back and my dog didn't like or my dog didn't eat or whatever it may be. So I think once we get ourselves set, once we get the innovation out there over the course of
this year, I think we're going to
see people coming back to the business. And it's frustrating to have some of our customers pushing people in different directions, but I understand it. And I hope they most of them are they understand the situation and they're good partners and we'll work our way through it.
Got it. All right. Well, thanks all.
Thanks Mark.
Your next question comes from the line of Jon Andersen with William Blair. Please proceed with your question.
Hey, good afternoon everybody.
Hello there.
Just a few. Most of my questions have been asked and answered. On e commerce, if you were to add a new partner, significant new partner, how should we think about the economics of that relationship? Do you shoot to be agnostic relative to the overall business? Or are there some distinct considerations there that you might take the incremental household, the incremental buy rate over the long term in exchange for maybe a tighter margin?
Yes. So it's interesting. I got a early on in my career, I got an incredible lesson on as you develop a piece of business, make sure it is not margin dilutive if you think it's going to get big over time. And just like everything that we've done at Freshpet, we've really tried to be thoughtful and just do things the right way. We margin neutral with really almost entirely across our business other than Europe, we're very margin neutral.
I mean it's amazingly margin neutral. And we've made sure that we want to develop partnerships that are really going to be margin neutral because you can't have a huge piece of business that develops over time. All of a sudden, 10%, fifteen %, twenty % of your business, and now you've got a massive margin problem. So you created one opportunity and dug yourself a giant hole that's almost impossible to unwind. So we've worked really hard as we've developed all of our partnerships to make sure that the relationship and the margins look appropriate for our business.
And it works from a value standpoint for the consumer. It works for the partner, our retailer or ecom partners. I mean it works for us. And if you can't figure out how to make it work for all three, you got to go back to the drawing board. And we've done it a lot of times, quite honestly, over the past kind of ten years, call it.
But especially in the last moves that we make in the market, you've got to make sure that you're putting yourself in a good spot. Typically, there's one way these margins go over time and it's down. So you got to make sure that you're putting yourself in a good position upfront.
That's helpful. Shifting gears, media spend. 10%, I think, last year was the media ratio. You started out this year with 12% in Q1. I understand the puts and takes around that, but it sounds like the spigot is on for the balance of the year.
What's the right way to think about the media ratio for the year and the cadence following Q1?
So we the ratio for the year, we're targeting 12% in that ballpark is the way to think about it. And we have in the deck, we give you a pretty clear indication of the cadence that once we're back on the air, which was in April, that the media will be on continuously for the basically for the balance of the year and the spending will be comparable in each of the quarters. Perfect. On an absolute dollar basis.
Okay. Last one for me. Pet Specialty, you're killing it in Pet Specialty. Could you talk a little bit about the dynamics there? Is this a format or channel phenomenon?
I mean the category performing well in that channel? Is it a Freshpet specific situation? And how long do you expect it to persist? Yes.
I think that there's a few things that are going into play on that one, John. One of them is I think we put ourselves in a good situation from like a foundation standpoint, meaning there were a lot of stores with big fridges and a lot of stores now with second fridges, and there's been really nice expansion in pet specialty over the past year or two. And that's still paying dividends. Because when we have a second fridge, it allows us to get more variety and innovation into the fridge in addition to having more inventory. So it solves a handful of challenges there.
I think the other dynamic that we have seen a little bit with pet specialty is I think we are really, really suffering in a few other formats. And I think people are making a trip, especially the more involved pet parents are making a little few extra trips to PetSmart or Petco or Pet Supplies Plus type of store, any type of pet store, and they're finding our products there. And I think that's adding to it too. But I do think it's a combination of several factors: good base, good foundation, innovation and then also, I think some people finding it where they have not necessarily seen it before. So and I think this is going to continue for quite a while.
I mean we also know that once people start in a spot, they're pretty darn sticky in location where they originally found the product.
Yes, that makes sense. Thanks so much everybody and good luck going forward. Thanks.
Your next question comes from the line of Robert Moskow with Credit Suisse. Please proceed with your question.
Hi. Just a couple of quick ones. You might have mentioned in the beginning the call, like what percent of your COGS is labor. But I wanted to ask again because you talk more than most of your peers about wage inflation and what it takes to get people to get to the come to the plants. And you're also expanding, you have a really successful product.
So I'm just kind of curious, are you seeing wage inflation rise to a level that is getting more alarming to you? Or is it just kind of like mid single digit kind of inflation that wouldn't necessarily on its own necessitate price changes? And then I had a quick follow-up.
Let me take that and Heather might add some commentary on how much labor is part of our P and L. But the overall piece is it's not at the alarming level. There is a more of a localized issue that we're addressing here in the Lehigh Valley where the Freshpet Kitchens are. The Lehigh Valley has become a major distribution hub for Northeastern Part Of The United States. And, so there's a fairly significant number of sizable employers who are fishing in the pond looking for, warehouse labor, you know, FedEx, Amazon, Walmart, whatnot, a lot of big warehouses.
And so it means the lower end of the market is fairly overfished. And so one of the things that we're trying to figure out is what does it take to get the skilled labor that we need and what are the wage rates to do that. We're competitive today. We're attracting people. The total package that we offer people includes more than just wages.
It also includes what we think is a fairly generous benefits package. We feed people and whatnot. So it's very good working environment. We want to win on environment, not on the wages, but it is more of a localized effect is the way I would describe it. Heather, do you want to give any other commentary on the labor as a part of our P and L?
Sure. So just to be more specific around the implication for this year. So wages are about 60% of our COGS or labor and overheads, I should say, about 60% of our cost of goods. And within that, of course, is wages. We low single digits in terms of broad inflation.
But just as a reminder, we've also increased our night shift premium by $2 an hour. So we have now a $3 premium on the night shift and that was an on cost that we've included in our plans for the year, but certainly is an inflationary item that we've got this year.
Okay. So the inflation wage inflation is different in Ennis, Texas? It's not quite as acute?
Yes. We're going to start doing our hiring in Ennis, Texas Second Half Of This year. We'll have to see what
it ends up looking like.
It does feel like there's a lot
of people moving to Texas at this point. But when we picked that as a site, we were very comfortable with the wages in that market. And we frankly, I think we can get very high caliber talent at the wages that we'd expect to pay. So we're optimistic about that.
Okay. And then just last question. You mentioned that you're the top selling pet food brand in grocery stores, very impressive. Is it similar in mass also? Is that implied in those charts too?
Or is it a little lower in mass?
No. It's lower in mass. So think of it this way is we have the biggest brand. We're bigger than all the dry dog food brands in grocery. And the reason I called that out was because that's where some of our significant distribution expansion opportunities are.
So if you're one of those retailers who have been looking at that data and say, this is where I should invest some of my space. The broader number, when you think about the whole Nielsen mega channel or including that including in that as mass, is that we are the fastest growing, and not just in percentage, but in absolute dollars. And that's the second chart that's included in that deck, that shows how much our dollar absolute dollar growth is relative to the rest of the brands in the category. We are growing in absolute dollars faster than everybody else is.
Ladies
and gentlemen, we have reached the end of the question and answer session. And I would like to turn the call back to Mr. Billy Cyr for closing remarks.
Thank you, everyone, for your attention. I want to just leave you with one thought. This is from Aldo Huxley. To his dog, every man is Napoleon, hence the constant popularity of dogs. To which I would add, if you feed him Freshpet, in your dog's eyes, you deserve to be called Emperor Napoleon.
Thank you for your interest in Freshpet, and we look forward to talking to
you again at the end of
the next quarter. Thank you.
This concludes today's conference. You may disconnect your lines at this time. Thank you all for your participation.