Okay, thank you. Welcome back, everybody, and welcome to our next session. I'm thrilled to welcome back Freshpet to the stage, leader in fresh pet food in the United States, consistently growing double digits, and tracking to over $1 billion in fiscal 2025 revenue. With us today are Billy Cyr, Chief Executive Officer, newly appointed Chief Operating Officer, Nicki Baty, and Chief Financial Officer, Todd Cunfer. Thanks to all three of you for joining us.
Glad to be here.
All right. We're going to use the entire session for Q&A. And Billy, I'm going to start with you. I don't—not—we were just talking about it—not unique to Freshpet, but the year has started out on a more challenging foot than you'd originally anticipated, that I think a lot of companies had originally anticipated. I guess two questions. You know, how do you assess the state of play today? You know, are things stable? Are they improving? Are they still further deteriorating? And has anything—number two—has anything that you've seen recently altered your views on long-term tailwinds behind fresh pet food?
Yeah, yeah, let me start with the second part, which is our view of the long-term tailwinds has not changed. We still think consumers want to get dogs, they want to feed themselves better, and they want to feed their pets better as a result. The long-term tailwinds are still there. The category has a history of having moments along the way where consumers might take a pause in the decision to get a dog or to replace a dog that's passed away or to move up in their dog food. Over the long term, through many different cycles, the category has continued to go up and to the right, fairly consistently. We still think that's the case. All the data we have today says that that hasn't changed.
If you ask people why they aren't getting a dog, why they're not doing something now, it's, "I need to move into a bigger house, and I, you know, or a house with a yard, and I'm just not ready to do that," or, "Houses are too expensive or interest rates are too high. If I'm ready, can I get a dog while I need to get out of my apartment, but I can't get out of my apartment because my landlord won't let me have a dog?" All those kinds of economic things are holding people back. History has shown over and over again that this is just pent-up demand, that at the moment when those things break, the consumer does what they've always wanted to do, which is get a dog, and then they treat that dog like it's one of their children. We see that.
Now, where are we on the more near term? Where we are on the more near term is, you're right, the first quarter was very, very uneven. We don't describe it as an economic problem as much as it's uncertainty, because the uncertainty is the consumer is just not sure they're going to have a job. They're not sure what things are going to cost. As a result of that, they don't make those decisions that you would normally lean into, the things that keep the economy moving: get an appliance, get a dog, get a car, buy a bigger house, or whatnot. We saw that happen in the first quarter. As we've gotten into the second quarter, we've kind of seen our growth rate is every season the Nielsen's every Monday. The growth rate had slowed.
Right now, you know, quarter to date, the Nielsen's are showing in our version of the Nielsen, which is as much all-encompassing as we can get, it's about 13%, you know, quarter to date. Our business has a small amount that's in the unmeasured, which might be a half a point to a point on top of that. That's about what we're seeing in the quarter to date. It's steady. It's not that the growth rate is slowing. The growth rate is very steady at this point. We feel like that sets us up very well for the back half of the year, where we have a series of initiatives, and Nicki can give you more detail on what those initiatives are, a series of initiatives that we think will get us back on our front foot again.
Okay. Nicki, do you want to jump in on those initiatives? You want to hold those for later?
Take it away.
Great. Thanks, Billy. I think that we've got a lot of runway still for growth. That's probably where I would start at Freshpet. To date, we've got 14 million households that are buying into our brand. We're still growing with every demographic and all income groups, which I think is terrific news, but we have seen that slowdown coming through. What we've started to have a look at, especially over the last six months, is really deepening our insights into who is the consumer target that we believe we can really start to go after. We've gone very deep in understanding their attitudes to the brand. We've really looked at where they're getting their media, where they're most likely to sort of learn a bit about us, and then where they're shopping.
We have gone deep into these areas and then really started to think about how do we need to adjust our plan for the year to go after them. We talked, I think Billy and Scott certainly talked at Cagney about MVPs, which is these most valuable pet parents. This is the group that we have decided we are really going to go after, so certainly super serve them in everything that we do. You might be asking, how many of this group is out there? There have definitely been questions about our TAM, our total addressable market. To date, we have 2 million of these MVPs. We believe there are over 7 million MVPs for us to go after. These are the ones that have raised a high degree of interest in purchasing our brand in the future.
Might not be tomorrow, but it's definitely the TAM that we can grow into. Some of the initiatives we're looking at really are involved media. Have we got the right creative to serve these MVPs? It's around media targeting. What do we need to do differently with where we are investing our media in the year to go? It's also super serving them in terms of the distribution points. What are some of those distribution opportunities that we can really tackle? Everything strategically that we're looking to do in the year to go is about super serving them. I can touch on any of those areas at a later point.
Awesome. Fantastic. For many people, that might have been an introduction to Nicki. So Nicki, why don't we take us kind of step backwards and just give us a little bit more context about what brought you to Freshpet and what maybe has most surprised you or most excited you since you've, you know, taken on the role?
Great. I joined in September, I think it was, Billy, last year. I had worked in the pet industry for about five years before then. Freshpet was a company that came onto my radar a few years ago. That was just this terrific terror of growth really coming through in a disruptive way, I think, of going to market and really doing business. What I really liked about Freshpet, and I still do really like about Freshpet, was the pioneering nature of the brand. As someone who does believe in trying to do their best with my own healthy food choices and what I put or try to put in front of my kids each day, I really do believe in the fresh proposition that we offer out there.
That is not just because it is the healthiest, but you see the enjoyment that every dog and even my two cats get from eating fresh pet food. I am a strong believer in the brand. I met Scott a few years ago and really believed in the purpose, the mission of the company, and felt that this was a really good cultural fit for me. Coming in at this time feels a really exciting time because it is a great opportunity to scale the business. Already a billion in revenue, but I do believe terrific headroom still for very significant growth. With my background a little bit more in established consumer goods, I just felt I could bring some skills and experience that would really help scale the business.
Good.
Yeah. I would just add to that, you know, as we've talked for the last couple of years, we really wanted to build bench strength for our company, and we got behind in talent. This was a huge opportunity for us to get an A-plus player who understood the space, but also brought the skills of a much larger enterprise into very much of an entrepreneurial organization. It is part of our growing up phase is bringing Nicki into play that role. It has been a good thing to have her on our team.
Good. Billy, if you kind of pan out within pet food, it's a competitive space. Within fresh pet food, it's becoming increasingly competitive. What do you think sets Freshpet apart the most? To what extent do you believe that the points of difference you have today are structural and sustainable?
Yeah. I mean, obviously, it has to start with a product that is demonstrably different from anything else that people can get, and that drives a level of preference and satisfaction that can't be delivered by the competitive alternatives. We've built an entire business system that is designed to deliver that experience in an incredibly strong and competitive and efficient way. It goes everything from the products that we create, the technology to create them, the know-how how to make a fresh product that can go through a refrigerated supply chain to a retail outlet, deliver that exceptional quality at retail and in the consumer's fridge and in the dog's bowl, but do that consistently over time. That means we have to have manufacturing expertise. There's manufacturing scale that's critically important.
Manufacturing scale in fresh delivers the opportunity to have much broader variety and much fresher product for the consumer. Distribution scale, and that's not just the, you know, the cost or the system of delivering it from manufacturing to the retail outlet. It's also owning those fridges in the store and the expertise to know how to place the fridges, service the fridges, get the optimal assortment in the fridges. All that is critically important, and those are the advantages we've built over a long period of time. The next horizon of that is manufacturing technology. We've been working on finding new ways to make an exceptional product incredibly efficiently for the last five years. We think we've got some breakthroughs in that area, and we'll be demonstrating that in the fourth quarter of this year.
It'll be just another one of the legs in this stool that supports a very durable consumer franchise, preferred product, you know, preferred retail presentation and control of that presentation, the manufacturing expertise, the manufacturing scale, all that adds up to a very durable business.
Okay. I'm sorry if I missed it. The fourth quarter, the illusion of the fourth quarter?
Yeah. So we are, we've been talking about, we've developed a new technology that we're very excited about. We've run it at pilot plant level and bench level for a long time. We now are building a production scale line of a new technology to make our bagged products in a way that is more economically advantageous to us. In other words, higher throughputs, higher yields, much better consistent quality, and also some product flexibility. It will give us the opportunity to produce a wider array of products than we produce today. That technology will start up in the fourth quarter, and we'll be shipping off that line sometime in November, December. We're very excited by it.
Okay. Great. Todd, you know, I guess maybe you can kind of chime in here on the steps the company has taken year to date, the pivots that have been made from a financial perspective to adjust to the lower volume expectations and yet fund some of the proactive course corrections that Nicki and Billy had kind of alluded to earlier.
Yeah. Obviously, after the first quarter's slower start than anticipated, we brought the net sales target down to 15%-18% and adjusted EBITDA guidance from $190 million to $210 million. We feel very comfortable despite the lower sales. We can hit that EBITDA target. We are looking at every expense very closely, making sure that we're very tight, especially from a G&A perspective. We're trying to manage the plant costs as tight as possible without doing anything that long-term disadvantages us. We're making a modest increased investment in media. The returns are still very positive, not as positive as they were probably a year ago, but they're still generating a nice return. Nicki and I meet on it literally every week and discuss it. If those returns aren't as robust as we'd like them to be, we'll pull back a little bit. We'll be smart about it.
We still will get some nice leverage, especially in the G&A piece of our business throughout the year.
Okay. Nicki, you talked about sort of the emphasis on MVPs and the relative sustainability and the opportunity around MVPs. Is that the focus? Is that where the dollars are going? And/or how do you make sure that the kind of the more casual, not yet committed Freshpet consumer doesn't miss that opportunity? What is the balance of focus in this tougher environment? Are you leaning just further into MVPs, or what are you doing with the more casual consumer?
Yeah, that's a great question. I think strategically, we've really weighed up that balance between total households and then the mix of growth in households and growth in buy rates. Maybe the first thing I'd say is an MVP for us has an average annual buy rate spend of around $500. Our average household in the Freshpet franchise is $110. There's a really big difference between those two elements. Obviously, the more MVPs we get into the brand, and currently 70% of our revenue is driven from these MVPs, is really going to be able to deliver significant revenue and also profit growth. Also, the other characteristic of an MVP is once you've got them in, their retention rates are obviously very high as well.
You might end up paying slightly more to bring them into the franchise, but you've got a much higher lifetime value that's coming through from those consumers too. The key question is, by super serving our MVPs, do we still believe we can continue to get light or occasional households into the brand, which is still part of that TAM for the long term? Our answer is yes, we believe we can do. They're not mutually exclusive. What we will be doing is making sure that our creative, we will be testing for MVPs, but we will also be testing against the general population of households too. We've got to make sure that our creative works very, very well for those MVPs. Part of that is that insight that I was talking a little bit about, about what makes an MVP different.
It really is that healthy lifestyle, that healthy attitude to food. They're looking for more reasons to believe that not just fresh is good, but that fresh gives you the healthiest and the best proposition for your dog. You will start to see us as a brand move a little bit more into that territory. Maybe as a typical household, you might be used to seeing our advertising, certainly heavy in sports, certainly sort of heavy in cable TV. You might start to see us now moving a bit more into streaming, and you might see us showing up a bit more in social and in other digital marketing platforms as well. It is just a better mix, really, of marketing spend that we'll be putting through in the year to go.
Okay. I want to come back to marketing in a bit. What was going on in my mind was distribution because I think, you know, increased distribution has been, you know, it's kind of synonymous with Freshpet, but it's not just more, but I would argue that there's opportunities for better quality. How do you think about the march towards more distribution in this environment, particularly in 2025? Are there ways to accelerate that push to kind of counter some of the demand headwinds?
Yeah, let me frame it and Nicki give you some specifics on it. Obviously, as a brand that is not broad full distribution, we have extensive distribution today, but we're not everywhere that people buy pet food today. There's always going to be some white space opportunity, and that's what we've been filling on a very consistent, steady basis over time. What's happening more episodically and is frankly becoming much more strategic for our customers is those really big bets that a customer will make that they want to either get into this category for the first time, as Costco did over the last couple of years, as we have a test underway at Sam's right now and see how that goes.
Also the big bets they make to say, "I'm going to make fresh the centerpiece of my category because this is where I can win in pet food relative to the online players." When that happens, those are big decisions. They happen more episodically. They happen at a higher level to retailer, but when they happen, they become a big thing, and they just do not come in on a steady basis. We have been working on those for many years. We have had some of those happen. We have some of those in the future. Nicki can give you a little bit more view on that.
Yeah. One of my learnings is we get terrific engagement with retailers right now. We are the driver of growth. There's not many brands that are growing within pet right now. Despite the slowdown, we are still head and shoulders the growth driver for the overall category. I think the challenge for us is when you're going in looking for space, you're looking for an extra 4 ft. You're not going in with one product, two products, switching things around on a shelf. You need an extra 4 ft to put that chiller in. The kind of initiatives that Billy's talking about could well be looking at space that's outside of the pet category, or it might be incremental space, whether it's end caps or other display space that we would be looking to take over. Those kind of conversations take us a little bit of time.
What I'm really pleased about is the level of engagement we're getting on the long-term vision of the role that fresh can play in, certainly in a grocery store, in a mass store that sells a lot of fresh fruit, vegetables. We play that key anchor role for the category. We are haloing with the fresh credentials that they're building within human food as well. We think we've got a really unique opportunity to play in that space. The other part I'd highlight with distribution is it's not just retail distribution that's an opportunity for us. It's also selling to the omni-shopper through e-commerce. We're really looking to take advantage of that 28,000 distribution points we've got. They're like micro fulfillment centers spread across the US.
We're really looking to take advantage of all those distribution points and really try and drive a much higher rate of click and collect and really try and make sure that we are servicing that online shopper through those distribution points in a different way. That's an area that I think is untapped for us at Freshpet. You saw in Q1, we grew our e-commerce sales by over 40%. I think that that is still for us a really big opportunity. You need more chillers, more distribution to be able to service the capacity for online as well. When we're talking to retailers at the moment, we're really talking about the omni-shopper, not just that in-store shopper coming in.
Do you think the conversation with retailers is, I mean, in some ways, it's more difficult because the category is slower. The retailers are generally in survival mode in a lot of different respects. Thinking bigger and strategically is harder. On the other hand, the need is greater. Is that an impediment to these conversations, or is that an opportunity and enabler?
Nothing happens as fast as we'd like. Yeah, I think that's the piece as an entrepreneurial company is you're looking for decisions we can move typically quicker than a retailer can move in the current environment. I think it really does depend on the retailer. Certain retailers think about the long game and are really prepared to work with you, looking at really where your estimates, your forecasts are, and building capacity for the long term. Others are a little bit more opportunistic. It's our job really to flex, I think, into those different spaces as we go and make sure that we're an attractive partner for long-term growth. I think what's different versus a few years ago is they're looking for us to shape what that category vision looks like versus coming in and selling just under the Freshpet banner.
Yeah. I would add to that that the best decisions are made when somebody's making it not in reaction to the current environment, but it is part of their long-term strategic plan that they want to attract the person who is a pet household. They might be buying their pet food somewhere else. They want to get them to come in the store. They want them to shop all the departments of that store. They view us as a strategic part of that plan to build out their retail presence. If that's what the retailer is looking at, that's the way they're thinking, that's going to be a really good long-term decision for us and for them.
Okay. Okay. We'll come now to advertising. Told you we'd come back to advertising. I have a question for each of you on advertising. Let me get them all out there, and then we can decide how you want to parse it out. The first one is for you, Billy. In the past, we've talked a lot about the tight correlation between A&P and future sales for Freshpet. That correlation seems to have at least temporarily broken down the first part of this year.
Wobbled a little bit.
Wobbled, yeah. Better word. What is your root cause diagnosis as to why? How do you think about it going forward? Todd, maybe for you, how does that relate to your thinking around ROI of future spend? And then Nicki, we talk about kind of where we're targeting future spend. Let's start with the root cause diagnosis.
Yeah. I mean, the root cause is that you have to, when you put advertising on the air and expect to get some response from the consumer, the consumer has to be ready to make some form of a change. They have to have a need that's expressed by their pet or by themselves, or they have to be getting a pet. There has to be some need that's expressed. If there's a reduced amount of that need in the market, you are going to get less of a return for the advertising. We're seeing that. We saw that, and we measure it very ruthlessly. We measure our CAC on a monthly, quarterly, annual basis to see where we are. We clearly have seen the CAC go up. It's still at investment grade, but we've seen the CAC go up.
If we couldn't look at the economic data, meaning the response by income group or the response by age or any of those things and not see a pattern in there, we'd worry about it. The reality is we're seeing what you would see as a very classic example of consumers under stress. The lowest income consumers and the middle income consumers are hit hardest. The higher income consumers are hit the least. It's a very common pattern. It doesn't give us pause. It basically tells us you're in an environment where you should expect less effectiveness, but all things will return.
Okay.
Yeah. Look, we're in a good position. We're very fortunate that operationally we're performing very well. The plants, all three of our facilities are doing a really nice job right now. Ennis has really turned the corner for us in the last couple of months. Last year was our least profitable facility. It will likely end the year, our most profitable facility from a margin perspective as the business scales up. That gives us some financial flexibility to invest a little bit more money in media if the returns are there. Again, we're looking at it constantly. We've given a little bit more in our latest outlook, a nominal amount to continue to drive the business because we're here for the long term.
Again, if we're sitting here two or three months from now and the returns are not where we want to be, we'll pull back a little bit because it's just not smart to invest. Fortunately, we're way ahead in the last couple of years from a margin perspective. The plants are running really well, and that gives us some confidence to invest.
Okay. Nicki, maybe do more color on the marketing that you are putting into market today, how it's maybe nuanced a little bit different than the past and any green shoots you're seeing from it.
Yeah. I would say that we are actually running, and there is huge amounts of love for our campaign. Every week we get consumers writing in, calling, telling us how much they love. They love our campaign. When you take a step back, we've actually been running the same platform campaign now for the last two years. If you think about our growth curve, I would say we're in what is sort of the early majority stage of our development as a brand. It's now time for us to tell a slightly different story. Where we're at, I think overall is we are getting very, very strong sort of awareness and responsiveness, but slightly less impact now, certainly with our MVPs than we have had historically. I think that really does link to some of the places where we're choosing to invest our media.
We've been pretty heavy on linear at the moment, which drives very high awareness. We've not been very targeted, and we still have a huge headroom to grow into with streaming. That will become a bigger amount of our spend. What social and lower funnel activity allows you to do is it allows you to tell slightly different creatives and different parts of the Freshpet story that may appeal to different users on the brand. We know that there are some small dog households, for example, that really want to see creative showing up with small dogs and why Freshpet really benefits small dogs. Senior dogs, another really big opportunity space, et cetera, for us. By being sort of more targeted and more focused in our advertising, we believe we can actually tell more layers of that story.
That's some of the learnings that we've got really in the year to date, that there's a little bit less effectiveness coming through in linear TV. There's more effectiveness coming through in some of the other tactics.
Does the organization have the capability to be more focused, or is that a learning curve at the same time it is a learning itself?
I think we are learning together. I think that that would probably be the best way to describe it. We've got some terrific agency partners. I'm really impressed with the level of data we're able to get from our media agency partners. As Todd says, every week we're sitting here, we get the ROI back from our advertising. We're able to make adjustments really within the plan accordingly, which I think is absolutely terrific. If I had to say where do we need to build capabilities over the coming years, it will be a bit more in that performance marketing part of the business, especially as we start to put some more significant spend into digital. As we grow, for example, our e-commerce business, that will also require some different marketing skills and capabilities that fall under that remit.
Okay. Todd, I guess as you kind of grapple with the demand volatility and think through the different investment spending options, I guess just maybe level set for us a bit on how you're thinking about year-to-go performance financially for the company. I mean, just base case expectations in terms of cadence of results from here within the guidance range you've already provided.
Yeah. I mean, we do not typically give quarterly numbers, but let me give you some things to think about. Billy mentioned we are kind of tracking all in from a growth perspective in that 13%-14% range. That is probably where we are going to be plus or minus for Q2. We are not anticipating any significant change probably into Q3, probably somewhere in that arena. We do feel we will accelerate the business as we end the year. We have a new campaign that we are really excited about. We think it is coming in Q3, which we think will have a positive impact. We are starting to lapse some easier comps as we get into the second half of the year. Nicki and her team are doing an amazing job from a customer activation perspective.
We think some of these things will hit in the back part of the year as well and accelerate growth as we end the year. Not exactly where we wanted to be, obviously, as we started the year, but we feel like we're going to end in a good place. We will invest a fair amount of media in Q2. If you remember, if you look at last year, we had very nominal media growth in Q2. We're lapping that. We'll have a significant impact this quarter. Gross margins will probably be similar to what they were in Q1, and they should accelerate a bit in the second half as well.
Okay. I mean, at the same time, we're kind of thinking through the uncertainties in 2025. You've remained committed to the financial targets that you'd set out beyond 2025, looking out to 2026, 2027 objectives. I guess what preserves sort of confidence in your ability to attain those goals? Why are those still the right goals?
Yeah. So I break down in two pieces. The margin piece that we laid out, the 48% adjusted gross margin and 22% EBITDA, we feel great about. Again, as I mentioned earlier, the plants are operating very well. We have levers in the P&L. Even if the business is below what we kind of set out from a net sales target, we have levers in the P&L and upside to hit that 48% in 2022. The wild card is obviously the net sales. We are not going to change the target right out of the gate that we set at the end of February. We want to see how this is—is this a blip, and we are going to re-accelerate, or is it going to extend for a longer period of time?
If we're sitting here a couple of quarters from now and it has not accelerated, we'll obviously have to address the $1.8 billion. Still, even if that $1.8 billion has to come down at some point, we still have a tremendous, the TAM's enormous. We still have a ton of upside in this business. Again, the margins and the cash flow, we feel great about.
Yeah. We talk about the margins and the levers that you have to kind of preserve those margins and cash flow. You talked about kind of pushing CapEx out into the right. There's probably a toggle between how much is just sort of new build-out at Ennis versus kind of retrofitting existing capacity. Just talk us through the puts and takes there and just the, A, the kind of a little more description about what those levers are, and then just your confidence level that you'll be able to kind of identify the need and pull them in time.
Sure. The good news is we are sitting on installed capacity of more than $1.5 billion today. That does not mean they are fully staffed. That does not mean those lines are operating at the highest level that they eventually will be at. Fully staffed, operating at a high level, we have more than $1.5 billion of capacity installed today. That gives us some financial flexibility to decide when to add more and how much to add over the next several quarters. We literally meet on this every month. We go through a deep dive on what we think the demand is. We do a deep dive of what capacity is coming online, the timing of the projects, whether we are retrofitting a line, whether new technology, when that is coming in place.
We do a deep dive every month to assess how much capital we need to spend and do we have the ability to move things out and increase free cash flow or not. Because of that, I'm very confident under any reasonable scenario of top-line growth that we will be free cash flow positive in 2026. I think we have a good system in place. Like I said earlier, the plants are operating very, very well. The slowdown has had a nice side effect of us getting our legs underneath us and being able to test a number of things and getting Ennis online. I feel very good about where we are.
Yeah. Okay. Great. I want to hit a couple of topics in the time we have left. The first one, I know it's relatively small, but the DTC initiative that you've talked about, you talked more about it at Cagney and then you confirmed the expansion of it on the last earnings call in terms of the Freshpet Custom Meals business. I guess just talk a little bit more about what you're doing there, why now is the time to kind of push in that direction, how it's differentiated, how it supports the base retail business, and just sort of how it fits into the long-term story.
Nicki and I will tag team this one as well. I mean, first of all, we want to be wherever the consumer wants to shop for a product like ours, a Freshpet food product. We have a great retail presence. As Nicki described, we're building out the e-commerce platform quite nicely. By that, we describe it as Instacart, the curbside pickup, Walmart.com, whatever the retailer systems are. We use our fridges as the remote vehicles. There is a reasonable number of consumers who are buying fresh or, in most cases, frozen pet food via DTC. We want to make sure that consumers who prefer to buy that way had an alternative. We did a lot of experimentation and came up with a model that today, it's very small. It's not a big part of our business.
For those consumers who want to buy that way, it's a viable alternative. That gives us a fairly full suite of alternatives for people's ability to buy our product. You want to describe a little bit more about how we do that?
Yeah. I think that's great, Billy. I think the one thing I'd say is we've talked a lot about the TAM and the MVP numbers today. DTC has a little bit of a role in helping us to move into that TAM. The vast majority of the TAM and the MVP opportunity we've got is not dependent at all on DTC. I want to make that very clear because I think there's definitely been a little bit of questions around that as well. When we take a little bit of a look at DTC, why do I think it's valuable? It drives subscriptions. I go back to that buy rate again on that MVP at $500.
Now, we're very nascent with our DTC business, but we're very encouraged by the last couple of months that we've seen that the retention rates are really in a very good spot. The average buy rate that it delivers, if we keep those cohorts engaged, we could be delivering over $1,000 of pet food out there to those low households. Do we see this as a big household play? I think in transparency, we don't see this as a big household play, but we do think it plays a valuable part in building the brand. There is definitely a subset of consumers out there that are only looking for that home delivery, and they're looking for something that's really customized, that really fits around their specific dog needs.
I think for us, it's important that we have a play in there, but it's not a play that in any way detracts from what the core business is, which is very much our retail model and the e-commerce that we believe we can deliver through the fridge network.
Does the fact that you're selling at retail price points make kind of self-fund the business from the start and make it economically creative, even though it's small, or is there a level of scale that you need to achieve to make it viable?
You need scale. There is a marketing investment that has to be made to attract the consumers.
Okay. So small, but it needs to be a little bit bigger.
Yeah. Yes.
Okay. Got it. Todd, the other topic I want to talk about in our closing minutes here is around SKU assortment. Because right now, to my mind, it's a relatively simple assortment, which has benefits, but there seems to be also opportunities to unlock growth if you can customize formulations, pack sizes, pack formats, etc. How much opportunity do you, how important is that to unlocking the opportunity set from a revenue perspective long-term? On the flip side, how much complexity is too complex, and how do you balance that?
Yeah. We've actually reduced the number of SKUs in the last couple of years, which has actually helped our operating nicely. Look, there's no perfect answer to this question. I would say we tend to like innovation as a nice piece of our growth. It's not the main driver. It adds a couple of points of growth every year. So there's probably three or four SKUs that we add on an annual basis. What we tend to do is we bring three or four in. We tend to cut off three or four that are not performing. In a perfect world, I'd like to keep it pretty stable to where it is today. That helps the plants get a lot more efficient because what we do is very hard.
Doubling the number of SKUs would just add complexity and run time and impair our ability to grow margins over time. The reality is we need to have innovation. We need to broaden the appeal to more and more consumers, but we'll do it in a manageable way.
Okay. If you end up trending below the 1.8 trajectory and you're pulling the levers to toggle away from new capacity build-outs, so there's less CapEx investment, does that limit your ability to diversify, or those are independent?
No. Independent.
Okay. Very good. All right. We've got a couple of minutes left. I guess I'm going to take you beyond your '27 objectives, force you to look out to 2030. Billy, if you were to look back, what do you want to be able to say were the company's biggest accomplishments over the next five years?
I'll start very close to home and personal. I have a six-year-old Samoyed who has been fed Freshpet her entire life. She'll be 11 then. She's in our investor presentation. She's the big white fluffy dog you see in our investor presentations. She'll have been fed her entire life, and I hope at that point she's healthy, vital, and like a puppy. That's a very personal part of it. I think that you have to start with we are a very mission-driven company. If we're in the business of changing the way people feed their pets and doing that for the better, I'd love us to be looking in 2030, looking back and seeing how we have changed this category. We have a chart out there that shows how fresh pet food will pass the canned dog food in the grocery channel.
It's passing it this year as we speak. That's part of that trend. I mean, canned dog food is the oldest form of commercial dog food. We'll surpass that. We'll be heading towards surpassing dry dog food at some point further out in the future. If we change this category for the better and have done all the work to build the infrastructure to support it, created the products that meet the consumer's needs, have done an incredible job of building brand equity, and have made it attractive for all the stakeholders who are involved, our shareholders, our employees, the pet parents who buy the product, the pets themselves, that would be a really big thing because it's not often in your career you get a chance to participate in a category-changing opportunity like this.
What attracted Nicki, it's what attracted me to this business, is the opportunity to change an industry and change it for the better. That would be, I mean, if you're in 2030 looking back and you look and say, "If somebody says to me, 'I can't believe we ever fed our dogs dry dog food,' I'd feel like we won.
Great. On that note, we'll wrap it up. Billy, Nicki, Todd, thank you very much. Thank you all for joining.
Great. Thank you. Thank you very much.
Thank you.