All right. Thanks so much for everybody being here today. We'll go ahead and get started. I'm Ben Bienvenu with Stephens. I cover the grocery, convenience store, and food and agribusiness sector for the firm. We've got with us today Murphy USA, one of the largest convenience stores in the country, and I'm pleased to have with us from the company, Andrew Clyde, CEO, who'll take our questions and talk a little bit about the business today. I'll kick off the Q&A session, but I'll check in periodically for questions. And if you wanna interject with questions, feel free to raise your hand, and we'll make it a lively discussion. Andrew, thanks for being here.
I think maybe a good place to start would just be reflecting on what we saw in the second quarter, which, you know, when we look at it, it was a fairly unremarkable fuel price backdrop, yet you had another period of strong fuel margins relative to kinda the expectations we had set coming into the year.
Mm-hmm.
You were lapping pretty stout comparisons from the year prior. You held on to a lot of the share that you gained when we saw some of the kinda underlying demand data maybe a little bit weaker, so maybe talk about why you think Murphy is performing well right now, how you think the business is positioned in this operating backdrop, and kinda how you feel about the business prospectively.
Great. Well, thanks, Ben. It's great to be here in Nashville with Stephens. Look, we knew Q3 was gonna be a difficult comp. Last year, Q3 was the absolute perfect environment for our business. Prices had been running up, but the prices had been running up in an unusual way. With the Ukraine volatility, the marginal retailers were getting price movements up faster than we'd ever seen. And we got back above that $4 mark, and we got above the $4.50 mark. And, you know, it was kinda reminiscent of the 2008 period where consumers just got ultra price sensitive. And then prices came crashing down on the commodity side, and the street price lags on the way. And that's our opportunity to lag, to be more aggressive on the way down and take share.
We had a 9% same-store gallon growth last year as we hit that peak without really losing volume on the way up, and we just kept taking share on the way down at exceptional margins. I think we attributed about 3% of our full-year margin of $0.34 just to the extraordinary earnings there in Q3. It's different this year in Q3. You know, prices were going up in the first part of the quarter, which again, generally, isn't good for our business, and they certainly weren't going up with the same kinda volatility that we'd seen in the past. I think the memories, the pain, the lessons from the marginal retailers, seeing prices going up, we're just seeing a more responsive price movement on the way up that helps us.
And it helps us not shed volume on the way up that you know we used to see going back pre-2019. Prices certainly aren't as high today as they were a year ago and in Q3. And so we gave back some of the volume. We were down 4.7%, but on a two-year comp up 4.3%. That's right in the ballpark that we said would represent a really good quarter because we know when prices are extremely high we gain from all customer segments as they trade down, even those that usually don't go out of their way for low prices. And so in a lower-price environment we know some of those customers will go back to maybe a more locational convenient location.
You know, we held on to share gains, you know, plus 4.3% on a two-year stack. I think looks really good compared to the other public peers, the broader industry, data, etc. We did that at very healthy margins, and I think part of that is the result of, you know, prices moving up, and our ability to, you know, maintain margin and volume on the way up. That is probably the biggest change, you know, since, you know, 2021.
Okay. Maybe if we could kind of in the same vein, talk a little bit about how your customer's faring. Notwithstanding the data we got today on inflation, consumers are still grappling with higher prices. You are a low-price destination. What are you seeing from consumer behavior? Are there any notable trend changes? And what are you all doing to be proactive around, you know, delivering a message that resonates with consumers?
Yeah. Our core customer is behaving pretty much the same that they've been behaving with us. We have a panel of 100,000 that have shopped with us every month since 2019, and so even in the peak pricing of last year, their fuel demand was just off less than 5%. You know, they view fuel as non-discretionary to get to work. They view tobacco and other expenses really as non-discretionary. It's one of the, you know, few things they wanna buy, and they'll continue, you know, to buy from us, but what we saw last year was more customers that look like our core customers join us, right, as more and more folks are seeking value.
We work with a firm that provides data on the American consumer, their spending over the month, the amount of credit card debt they have, financing charges.
You know, they've updated their numbers, and it used to be about 50-something% of Americans live paycheck to paycheck. Now it's 61%. So our core customer is behaving the same way. They view our products and our stores as kinda non-discretionary purchases. There's just more and more consumers who look like that, unfortunately, in today's economic times. For them, they have an opportunity to trade down to the Murphy USA store, whether it's their fuel, whether it's their premium tobacco products, etc. That's allowed us to, you know, grow share in those core categories, you know, while others are losing share.
One of those categories, tobacco, which you touched on, obviously non-discretionary for your consumer. Your results have been incredibly strong there. I think we had another quarter this quarter where, your percentage merchandise margins were lower than we expected because tobacco just continues to grow. So it's great for gross profit dollars. How are you sustaining share there? Is there anything different that you all are doing around pricing or promotions, and how are the vendors responding to kinda the share you continue to gain?
Sure. So again, on two-year stack, we're up 5%. The industry was down 8% two years in a row, so down 16%. So a 21% delta versus the industry. Couple of things there. I mean, at some point, it becomes a self-fulfilling prophecy for other retailers who say, "Oh, tobacco's a dying category." I mean, it's been in structural decline for 40 years. But in every one of those years, the retailers, the distributors, and the manufacturers are generating more contribution dollars, which at the end of the day, what matters? So it's still a very important category for us. We over-index about five times to the industry average, on the core products.
We also, because of our promotional upselling ability, have four times the promotional effectiveness as our competitors, meaning if one of the manufacturers wants to introduce a noncombustible nicotine pouch and have a special promotion on that, we'll get about an 80% conversion rate. You know, the typical retailer who has that same opportunity has about a 20% conversion rate. So five times the volume, four times the conversion rate, 20 times the promotional effectiveness. So at 1,500 stores, that's like 30,000 industry-average stores promoting those items.
And so you ask the question, how do the manufacturers think about it? It's like, well, I can go through 1,500 Murphy stores and through Core-Mark, and we know they're gonna be in stock and, you know, deliver on this important noncombustible risk, lower-risk product for them. Or I can go through 30,000 industry-average stores.
And so we continue to just think of it as an important category for our adult customers. We're gonna be the most responsible retailer selling those products. We're not selling the illicit vapor products that so many out there are. And I think it just, you know, establishes goodwill with both the manufacturers, the distributors, and the consumers.
And what about the non-tobacco category? Are you guys gaining share in those categories? What are some of the things you're doing to continue to drive margins there and gross profit dollars? And similarly, are vendors responding to momentum that you have?
Absolutely. So if we're growing share in tobacco and fuel, a lot of the center-of-the-store items are those impulse items that come along with that. So that's really good opportunities. You know, there's a big private label trend out there. And, you know, for our highly-distributed rural format, where we go through Core-Mark and DSD, we don't have the concentration that some retailers have who have their own commissaries. What does that mean? Well, that means we're gonna stick with the best national brands and have the best value on that. And so we have a different conversation with the big national brands. We're not going private label. And, you know, therefore, let's think about creative ways to promote those items. Energy drinks are a real advantage for Murphy.
I think it's one of the things we kinda declared a major in early on, and it. You definitely see that in our cooler sets. You see it in the sales, the comps, the innovation, the opportunities there. You know, one of the things that we're doing effectively as part of our digital transformation work is getting smarter about pricing the center of the store. As you know, we've gotten really sharp about fuel pricing, tobacco pricing. We're now doing a better job segmenting our stores across the network to see, you know, where could we take a little bit more price and earn a little bit more margin for certain types of stores? Where might we be a little bit more aggressive and leverage the elasticity on certain products?
The same from a promotional effectiveness standpoint, targeting customers based on how they wanna be promoted, through Murphy Drive Rewards. So a lot of opportunities in the center of the store, and that continues to be an area of growth. And I think with our larger stores, the 2,800s at Murphy, the raze and rebuild 1,400 sq ft stores, that's an opportunity. Also, at QuickChek, their loyalty program was really focused on their food and beverage, and it really didn't consider the whole box. And so as you think about building the basket, leveraging third-party spending, etc., there's a lot more opportunities at QuickChek as well, to leverage the center of the store.
I don't wanna say it's been kinda the forgotten space, but given the food and beverage major there, the food, the fuel and tobacco major at Murphy, I think we have the same sort of optimization, promotional pricing upside in the center of the store, that you've seen so far on fuel and tobacco and then food and beverage at QuickChek.
Touching on QuickChek, maybe talk a little bit about how that's fared relative to your initial expectations in terms of the strategic enhancements it's brought to you, the same that you could bring to them, the financial performance of it, and then what opportunities are left to continue to cross-pollinate and continue to make each brand better.
Sure. Well, you know, just to remind folks, this was kind of a, you know, to use someone's term, kind of a unicorn acquisition. You know, we wanted to buy a food and beverage capability because we knew it would be so difficult to build one. I mean, we had case studies of others in the industry who are fuel-focused models that spent 15 years, and they've crossed the first chasm to be a kind of a hybrid model, but they're really not a pure QSR food-led convenience store like QuickChek and some of the best private competitors, Wawa and Sheetz, being a couple with that same dairy background.
You know, at 160 stores, it was of the right size. But as a smaller chain, they really didn't have the scale. They hadn't made all the investments that one would think.
We thought it was gonna be a great opportunity to learn from them, but similarly for them to learn from us. There have been a lot of learnings, you know, both ways. You know, I think some of the biggest innovation on the QuickChek side has been in their energy drinks. If you leverage our Red Bull relationships, we're one of the fastest-growing accounts. They now have a Red Bull infused drink, but they're the only retailer in the entire country that's selling a frozen Red Bull made-to-order slushy. Leveraging that, then we go to Prime, the fastest-growing social media-influenced energy drink out there with a special sugar-free frozen promotional special with them. A lot of innovation, you know, on that side.
On the same side, we're learning from them to say, "Okay, well, how do we leverage national brand slushies at our stores?" And we can't do self-serve energy, but leveraging Sour Patch Kids, Jolly Ranchers, flavors we all know and love and our kids know and love, you know, we're able to introduce those. You know, on food and beverage, Murphy's never gonna be made-to-order. We're not even gonna be private label made-to-stock like those with the commissaries, but we do have a large grab-and-go cooler area that we've optimized in our remodeled stores, which we're gonna do 50 more next year and for the next few years as we re-envision that space in our 2,800 sq ft stores.
We've got a self-serve coffee fountain slushy area that we can do a much better job on, and so a lot of the lessons learned there are transferring over.
In terms of the other direction, you know, Murphy was really good in the early years optimizing the business we had. You know, we generated, you know, this three-and-a-half-cent improvement on our break-even, which was worth over $130 million dollars at EBITDA on a base EBITDA when we spun off of $280 million, right? And we're applying that same optimization mindset to QuickChek. So if you think about their food and beverage business, we started by getting really good at demand forecasting, right, using all the big data machine learning capabilities that we've built.
We now have that built into our production planning for all their made-to-stock items. And we're finding that profits are up 15%, even though spoilage is up 8%, because we're putting out the right amount of items, you know, throughout the day, and generating a lot more sales and margin as a result of that.
That same demand forecasting's gonna flow into the store labor modeling, which they haven't updated in a really long time. So kind of the sophistication of our analytical modeling optimization capabilities are, being leveraged there. You know, in terms of overall financial performance, you know, I'd say a couple of things. One, the Northeast market, hasn't recovered to the same extent as the, Murphy markets. You've seen more minimum wage increases in New Jersey and, you know, the regulations that you see up there. The good news is the fuel margin adjusts for those things 'cause it impacts all the players up there, as a result. Tobacco has probably been more of a headwind, than we thought.
But as we think about going forward, leveraging the entire reach of Murphy's 25 states and how we get funding on, say, smokeless tobacco products where we can do promotional activity in New York and New Jersey, we can leverage that in a, you know, more thoughtful, precise way, to gain back share there. We talked about center-of-the-store, promotional activity, loyalty. They launched a loyalty program kinda in the middle of COVID. It was kind of off-the-shelf, expensive, not really, as precise in the calculus and the value, generation from that. So a lot of opportunities to continue to improve, around that.
Great. Maybe I'll check and see if there are questions from the audience before we move on to the next topic. Okay. Fuel margins. You know, I think back to this time last year at the conference, and it was a much more contentious subject matter.
When hasn't it been contentious?
It feels contentious at $0.16.
That's true. It feels like there's as much kinda market consensus around a new normal and equilibrium being meaningfully higher, and the durability of that kinda structural change being highly durable.
Mm-hmm.
than I've seen in the time covering the stock. Maybe if you reflect on what you've seen this year over the last several years, what are all the variables we talk a lot about the break-even, but also, other components around the competitive environment and otherwise that result in what we've seen in this fuel margin backdrop.
Yeah.
We are so fortunate being a retailer at the end of a value chain, right, versus being a distributor or a refiner in the middle of the value chain because ultimately, you know, we're the ones setting the price, you know, for the consumers. You know, this notion of the industry cost structure has been around for a long time. We just had a relatively flatter supply curve where the differences in cost and performance wasn't as markedly different as it is today.
I think with COVID, when we saw a 50% drop in industry-wide volume, you know, which followed, you know, the Saudi-Russian, you know, crude production that led to this falloff in price and these really high margins, I think everyone saw, "Oh, you know, half the volume, your unit costs double." All of a sudden, these differences got magnified significantly.
And then we saw, with very few geographical exceptions, rational behavior. Well, if my unit costs double and I'm the marginal player, I've got to earn more margin. Well, thankfully, you know, we had high margins before the unit costs doubled. The volume fell in half. And so you saw rational behavior. And I think that started opening people's eyes, but, you know, there was still probably 90% skeptics at that point. So what happened? Well, volume started coming back a little bit. It came back a lot for us. Ours didn't fall as much, but their tobacco market share didn't come back.
Their in-store traffic didn't come back. Now their costs started going up. You know, they started having supply chain issues and inflation and labor shortages. And all of a sudden, these cost differences started magnifying, and especially on a unit cost basis.
Then last year, you had really high fuel prices. So that meant payment fees, you know, almost doubled versus, you know, you know, five, six years ago. Well, that all got passed through. And now you're seeing higher interest rates. So, you know, most of these single operators don't own their stores. They're paying rent or escalators, etc. And so you just keep building up this cost structure, and you realize, "Wow, their costs now are quite a bit high. This supply curve's gotten really steep." And then as every year goes by, they realize, "Well, I can just pass through a little bit more in price."
And it starts that vicious cycle we talked about, right? I pass it up a little in price, maintain my profitability, but I'll lose a little gallons, and I'll lose a little in-store traffic.
Meanwhile, you know, inflation's still affecting me in some ways, and maybe it's getting a little bit better, but it's still not 2%, and by the way, whatever take-home profit I have, it's not going as far, so I gotta price up more for that, and so you've got this vicious cycle that just continues, and where we took the approach since the spin, you know, it is all about your cost structure. We got our break-even down to zero.
We have lower payment fees because of our scale, our ability to do smart routing, smart gateways, our credit card mix. We own most of our stores. We have a conservative balance sheet. We have a low-interest balance sheet. We have newer stores, and so we're not immune to some of those cost challenges. It's just ours are just so much lower.
With that price umbrella getting steeper, there's just more profit for us to enjoy. Then we can continue to be aggressive, passing that on to customers to grow shares. We're reinvesting it back in the customer. We're reinvesting it back into razing rebuilds, reinvesting in new stores, and we're reinvesting it into share buybacks and dividends. It's a very sustainable model for us. You know, I think as we talked about our range of margins, we kinda said, "Hey, that $0.26 was likely a floor. $0.30 was kind of a walk down from the high of $0.34." You know, we'll be thoughtful next February when we set a range that sets expectations for the following year.
But I don't think this is a structural trend that's gonna shift or go back unless you just saw 25% of the stores out there just disappear.
Yeah. You touched on the fuel margin range that you provided to start this year. I think you've built a framework that was thoughtful in how you got there. You kinda validated or fortified your view with a pretty thoughtful analysis. Will you go through that same analysis this year and update it? Or how do you think about, you know, refreshing that as we go into next year?
Yeah. So, I mean, the one thing we do is the analysis we give to all of you is the same analysis we give to our board and we give to ourselves that we set our plans on as well. So, you know, when we think about what that range looks like, I mean, $0.26-$0.30 versus $0.16 in 2019 is quite a stark difference, right? So you've gotta have a perspective on why it's that range versus something else. And we'll do the same. I think one of the things that frankly surprised us this year, we didn't expect the same level of volatility with the Ukraine situation, you know, somewhat abated versus when it first erupted.
But the surprise was the fact that, you know, retailers behaved more consistently in moving prices up despite not having that same level of volatility 'cause they recognize there could be another surprise around the corner. The marginal costs have gone up for that player. So we'll come back with a, you know, a range for next year. It won't be guidance, but it'll be something you can all model.
Yep. Perfect. On one of those points, you know, we've had maybe less volatility than we saw last year, but we're still at pretty high absolute prices. And you talk about retailers. When the cost curve steepens or the supply curve steepens, you know, if you get 3% price move one day up and then down and then back up at a higher cents per gallon price and a higher cost to run their business, they're probably more aware of their pricing and more agile than they would've been previously. Does that change if we go back to a low-price market? Or how do you think about that? 'Cause we get asked that question a lot. Do you make higher margins in higher-priced markets versus lower-priced?
Yeah. That's a good question. I mean, what I'd say is there are kinda three things that really support our advantage. One, the supply curve's gotten very steep. So you got this marginal player. You got the low-cost player, and we capture that margin. The second thing is the volatility. So if you got a steep supply curve, you got a marginal player, and you got high prices, the volatility, they've gotta get the price up because that small move can really matter. And then you've got the rational competitor behavior that we've seen. You know, at low prices, they're still going to have the same cost structure.
The payment fees will come down, but they will have come down for everybody. And so that's just a pass-through. You know, will the absolute level of volatility be as high? You know, probably, you know, not.
A $0.40 price movement is a $0.40 price movement, whether it started at $2 or whether it started at $3 or you know $4. I think the factor that would impact us negatively the most is at $2, you're just not gonna have as many customers who are gonna go out of their way for the absolute lowest price.
Mm-hmm.
There's some consumers, maybe a few in this room, that will always shop for the lowest price. There'll be some when prices are really high and their pocketbooks are stretched, they're gonna go out of their way. But there'll be some that, "Hey, when I'm a little bit more flush, you know, maybe I go to, you know, one trip or two or three that, it's just gonna be more convenient. I'll have to drive all the way to the Murphy in front of the Walmart or wherever the Murphy is." So the low-price environment, like we saw in 2015, 2016, 2017, absolute low prices probably hurts us the most because you just don't have as many sort of value-starved customers, unless it's coupled with, like, a major recession.
Yeah.
Right? So if you had a recession coupled with a low-price environment, then you'd probably still have those customers on the margin even with low prices.
Okay. Great. Panning out a little bit and thinking longer term, earlier this year, you all provided a long-term EBITDA growth target and some of the key variables to get there. Why was this the right time to do that? You're well on your way to that already. I think that assumed a margin level that's, you know, looking pretty conservative relative to what we're seeing today.
Yeah.
How do you continue thinking about that sort of target you set for yourself and provide to your investors, over the long term?
Yeah. Look, I think we can always improve investor communication, and certainly given folks' view beyond one-year guidance, kinda five years out, you know, "Where are you going?" is helpful, right? Everyone in this room or those reading or listening, you know, you build a model. You wanna know what to put in the model, right? And so I think just being clear about some of our commitments that you should set as your expectations is really helpful. So, you know, how did you grow from the notional $900 million- $1.2 billion of EBITDA on a sustainable basis? It's about building new stores at a certain rate. It's about an incremental cents per gallon fuel margin creeping up.
And it's about all the continuous improvement initiatives that we've talked about, you know, both at QuickChek and at Murphy USA. And that bridges that gap.
And like I said, we may get there more quickly because of fuel margins. And, you know, part of that story around the new store builds is a little bit slower because of some of the delays. But, you know, it kinda sets an expectation. It also sets an expectation when you say, "Hey, you're gonna buy back a million shares a year," right? Because you guys can go model that, right? You know, "Okay. If you're gonna generate this amount of free cash flow, here's how much goes into growth. Here's how much goes into share buybacks and dividends," right? When we make that commitment, that's an expectation that, you can go model, right? So five years from now, you can say, "Okay. Well, they're at least five million shares lower.
You know, they're at least $300 million at EBITDA higher, you know, unless we do something with the balance sheet, the leverage is gonna go from 1.7 to, you know, a lot lower, and at some point, the multiple may or may not change, right? I mean, I think part of the multiple gap is a function of, you know, perhaps expectations around fuel and tobacco versus food. I would argue that some of the food-focused retailers, because of the higher costs associated with that, are actually more dependent on fuel margin to cover their returns on investments and break-evens, than we are because of our high-velocity, lower-cost, you know, stores, some of it might be around growth, right? We've chosen an organic growth path with high returns, and we're pretty transparent about the returns, you know, versus M&A.
You know, at some point, there's some great retailers like AutoZone out there that trade at two turns lower than, say, O'Reilly. Some of it's due to a customer mix difference. And at the end of the day, if our EBITDA per store is higher, if our absolute EBITDA in fewer stores is higher, and our EBITDA growth is higher, I mean, at some point, you know, you just become less bothered about, you know, the multiple. And, you know, usually the, stock price catches up.
There's two threads I wanna pull on in the answer you just gave. One is, the buyback, and the other is the new stores. So first, on the buyback, we get asked a lot from new folks looking at Murphy USA, "How is the company so good at buying back their stock over time?" And I think part of it helps to have a good business that grows. It makes you look like a better buyer for your stock than perhaps, you know, others. How much, describe to us the mechanisms that are set up to buy back the stock in the short term, and then how that long-term view informs what you think is a fair value for your stock, over the long term.
Yeah. Look, this is part art, part science. I think it all starts with conviction, and that's kinda the five-year view, right? And, you know, it's almost because of those questions to say, "Well, are you gonna keep buying back stock?" And it's like, "Well, look, if you look five years out and, you know, the EBITDA is, you know, you know, a third higher and the share count is, you know, 20%, you know, lower, the share price is gonna be higher." So even if you're paying $360, $370, $380 today, that's still cheaper than it's gonna be five years from now. And that's a pretty good return, and that kinda balances, you know, returns from growth.
This 50/50 capital allocation, given the returns we have, especially given the low multiple, right, which kinda sets a lower hurdle rate for the returns you need, right, you know, provides, you know, I think, a nice equilibrium there. So we've just got conviction that allocating 50%, you know, over a period of time to share repurchases makes sense. You know, in the short run, each quarter, we just do 10b5-1s. You know, we, you know, try to look at, you know, what type of quarter are we in? How has the stock reacted over the quarter? How did it react on the day? There's a few typical archetypes that, you know, we've seen. You know, if you look at, you know, our goal as a buyer of shares, it would be just like anyone else's.
What's your volume-weighted average price, you know, for the quarter relative to if you just, you know, the VWAP out there? I wanna beat that, right? We're competitive, right? So we just think about algorithms that are designed based on the statistics. How do you beat, you know, just buying the same amount every single day? And so, you know, there are just little simple things like, "Look, we're gonna buy, we're gonna fill a market basket that over the course of the year gets us to the million shares.
But if we buy more when it's below a certain price and if there's I mean, we can buy, you know, given our, 25% of our moving average, we can buy a lot in a single day." So there are certain trigger points where, you know, we could fill an entire $100 million authorization in, like, five days, right? So there'll be triggers along the way that says, "Look, if it dips, we're gonna be super aggressive, you know, on those days." And so, you know, people always talk about finding a good entry point. You know, we know what those entry points look like statistically.
And if we can be a standard deviation below the closing price on earnings day, you know, we're just gonna buy more on those kinda days, just like I would expect anyone in this room to do if they wanted to get in.
Yeah. Very good. The new stores. I'd say that's maybe been the one.
Yeah.
Component of the business that's underperformed this year. It's not unique to you all. How do you take back control of your own destiny there? You've talked about razing rebuilds. Maybe help us think about what your ability to deliver against those goals look like a year from now or two years from now. What's the runway or path to get back onto delivering against the goals you've given?
Yeah. So we had when we set our expectations for kinda 40-50 stores, you know, initially it was based on, you know, a view of the environment that, you know, reflected the great progress we'd made with our general contractors. We'd taken six months out of the kind of contract to completion cycle. And it was through carrots and sticks, right? We gave them incentives for finishing stores on time or early, and they would do things like work weekends, pay overtime, expedite materials to make that happen.
Probably starting, you know, maybe late 2021, 2022, they just lost their ability to control their upside on the carrot side, meaning there could always be something else, no matter how much overtime or weekend they worked or how much expediting did. There was always gonna be something that would prevent them from earning the carrot.
And when you give someone a set of incentives that they can't meet, they're just not gonna do it, right? So we lost that six months. And what that effectively has done is just pushed out start times versus what we expected. So if you think about what we do this year plus what we'll in the year in progress and do in Q1, it's probably more consistent with our annual target. And so you just keep pushing that out. At some point, you just have to start more in a current year so that that expected value actually flows through.
And so I don't think we'll achieve that in 2024. Our goal is to achieve that in 2025. So you say, "Well, what do you do in the meantime?" It's like, "Well, we don't run into an issue with utilities on razing rebuilds 'cause the utility's already there.
The permitting is much simpler. The modular building firm is the same. And so we can keep them load leveled by just doing more razing rebuilds, and honestly, it's our highest return if you think about, "Hey, that's a store at the end of its life. Now I'm gonna decide whether to rebuild it or not, renew the lease or not, or we're the landlord. So we're gonna renew the lease in front of Walmart." I mean, those returns are better than anything else we do, maybe except for the share repurchase. So we'll just do more of those.
With the remodels on the 2,800, we did our nine pilots. We've learned from those. We're gonna do 50 remodels next year. But I mean, those are done in a weekend and over the course of a week. So, you know, it's not gonna consume that much more capital.
The other thing we're gonna invest capital in is our capabilities around the digital transformation work. And if you think back to Murphy Drive Reward, you know, we probably invested $25 million in that program. You know, our conservative estimates, based on the market share gains we've had in tobacco, the incremental contribution from that, the way we've been able to promote and price, we've probably generated a 10-to-1 payback on that $25 million investment in five years or less. And so those capability-building investments are something that don't often get as much attention as M&A or new stores, but they are often the highest, returning investments one can make.
And so we'll continue to make the investments we've made on the SG&A side, into next year as well on digital transformation. And we're already seeing returns above our expectations on that.
I think one of the things that is appealing to many about Murphy USA is just the consistency of the shareholder value creation strategy, but also kinda married with this relentless dissatisfaction from the team that just continues to kind of accrete over time. When you think about continuing to do what you've done but making it better heading into next year or the next several years, what's the slate of things that you're really focused on, to continue to make Murphy better and create returns for shareholders?
Yeah. So one, I think we know our customer so well. And part of it is 'cause they tell us so much about themselves. We do these surveys, whether it's around their vehicle, whether it's about their fuel share wallet, whether it's about their tobacco share wallet, whether it's how they take care of their vehicle. We get three, four, 500,000 responses from them, right? And so when 1.1% says there's some interest in battery electric vehicles, you know, that's probably even an overstatement. They tell us so much about their preferences, their needs, etc. And I'd like to say we're growing with the largest and fastest growing customer segment in the country. It's people who can't afford to make ends meet. And we've just totally embraced that.
So as an everyday low-price retailer, you know, the challenge we've set for ourselves is how can we create even more value for that growing customer segment? We're winning because we're growing with the fastest growing customer segment, right? I mean, that's a great position to be in. So how do you defend that? Well, you know, loyalty is one way, and most loyalty programs are based on price discrimination. And so many of them, like Shell's program or others, it's high- low pricing. I price up to everybody, and then I discount to my loyal members. You can't do that as an everyday low-price retailer, right? You'd run them off, and then you might not get the chance to get them back. So you gotta stay everyday low price, but then you gotta price discriminate.
And that's where our, you know, business intelligence, you know, big data, machine learning, all the algorithms we're creating around promotional effectiveness, understanding different customer DNA strands. You know, if someone has, you know, five fills a month and we're only getting two of them, I mean, that's a huge share of wallet opportunity. If someone's got four fills a month and we're getting all of them, but we're not seeing them going into the store, that's a huge in-store conversion opportunity, right? If someone has four fills are going inside the store and they're a great customer, that's a great just, "Thank you, VIP customer. Here's something free on us." By the way, it's really not free on us.
It's free on Red Bull or Monster or somebody who has some promotional, you know, thing they're trying to drive them to because we're probably even gonna give them something they're not already buying. And so because we know so much about our customer, we have all this longitudinal data. We can append it to all this survey information about them. We can price discriminate, offer, promote discriminate to them in ways that drives behaviors we think they're going to enlist in, that we can use to drive higher sales for ourselves and our CPG manufacturers using their money to do that. And so that's one of the things that I think we're most excited about. But it just starts with this, you know, deep, passionate understanding of who our customer is.
And then on the flip side of that is knowing that our associates are the ones who are serving them. They look and represent our customers. And how do we take care of them? How do we optimize our labor? How do we avoid, undo complexity in the store that makes life difficult, you know, for them? How do we keep up with a total value proposition that keeps them engaged, etc.? So I think it's really balancing those two things and never losing sight of those.
I think that's a good place to leave the discussion. Andrew, thanks for your time.
Thank you. Thanks, everyone.