Good morning, everyone. Welcome to US Foods 2024 Investor Day. I'm Mike Neese, and I head up Investor Relations. Before we begin, as a reminder, today's discussions will contain non-GAAP measures. A reconciliation of the non-GAAP measures to the corresponding GAAP measures are contained at the end of the presentation slides in the appendix. All right, let's move to the agenda. We've got a great lineup in store for you today. Today's presentation will last about 3.5 hours. We'll have 2 Q&A sessions, and yes, we are gonna have a break. So where do we go? All right. So from 3.5 hours will take us to about 12:30 P.M. From there, we'll have our immersion event. The immersion event and lunch will take place from 12:30 P.M. - 2:30 P.M.
For those of you in the room, you can ask questions to the presenters, and those on the virtual Q&A, you can enter a question in the platform, and Adam Dabrowski will be monitoring the Q&A session. From the immersion event, the immersion event and lunch will take place from 12:30 P.M.- 2:30 P.M. We will leave promptly from the main entrance. The shuttle bus will take everyone back to the airport promptly at 2:45 P.M. A couple of housekeeping notes: You saw the restroom signs. Restrooms are to the right and to the back. Please silence all cell phones, computers. Just a quick safety check. In case of emergency, we'll head out of this room, turn left, go out the door, follow the sidewalk to the left, and our meeting spot will be at Evenhouse Avenue.
I'd love to thank everyone who put on this great production. Our entire culinary team, our food fanatic chefs, have done a great job and are gonna deliver an incredible food experience for you today. So with that, I'd like to turn it over to Dave.
Thanks, Mike. Good morning, everyone. We are thrilled to be hosting our Investor Day here from our headquarters in Rosemont, Illinois. I'd like to offer a warm welcome to those of you in the room, and a special welcome to those of you who have joined us online virtually through our webcast. We have an exciting day planned for you today. You're gonna hear from many speakers on my leadership team. But before we get started, as many of you may be aware, two weeks ago today, we lost a trusted leader, a dear colleague, a mentor, and most of all, a friend, when our board chairman, Bob Dutkowsky, unexpectedly passed away. As a result of that, the management team and I have decided to dedicate today in memory and honor of Bob.
He was fully supportive of the journey ahead and deeply involved in the preparation for today. With that, let's get started. There are five key messages you will hear today, not only from me, but more importantly, from the rest of my team. First, we are transforming this great company with a seasoned leadership team, customer-first solutions, operational excellence, and strong execution. We're doing exactly what we say we're gonna do. We're a leader in a highly fragmented but yet resilient industry with national scale, targeted customer growth, and digital innovation. Third, through a very simple strategy that we deployed about a year ago, we are driving great balance through our P&L on both top line and bottom line growth, and those are trends that you should expect to continue. Four, we are the leader in digital innovation in our space, and we aim to keep that leadership position.
And finally, we're executing and excited to announce our new long-term financial targets today, underpinned by strong and accelerating free cash flow, and we believe that will create shareholder value for a long time to come. So let's get started. When I joined this company back in January of 2023, I was really excited to be part of the team. Now, as I stand here before you 18 months later, I'm even more excited about the journey we've charted ahead as our team works very, very hard every day to unlock the true potential of US Foods. Let's take a quick look at where we're headed. I don't know about you, but I get really excited every time I see that video, and maybe just a little bit hungry. So let's talk about us as an organization. We are now a company of 30,000 strong....
What you may not be aware of is we can trace our roots back 170 years to Reid Murdoch selling provisions to those dreamers chasing the California Gold Rush back in the 1850s. Since then, we've built a large, nationally scaled company, and as you can see here, we have access to most major MSAs across the country. Importantly, we have relatively minor market share at 10%, and we believe we have a long runway of growth ahead of us. We have great balance in our customer portfolio. As you see on this slide, 56% of our revenue comes from the restaurant industry, and well over half of that comes from the more profitable independent restaurant space. 26% now of our revenue comes from the combination of healthcare and hospitality, and all are fast-growing.
Importantly, you can see that we have a great broad portfolio of products, and the all-important center of the plate category now represents more than a third of everything that we sell. So I can sum this slide up by saying one thing: we are the only pure-play, U.S.-based, broadline foodservice distributor with national scale. Let me say that one more time, just to make sure you get it. We are the only pure-play, U.S.-based, broadline foodservice distributor with national scale. So what have we been doing for the last year and a half? We're on a transformation journey in this company, and it started shortly after I joined, when I took deliberate steps to bring the voice of the field onto my leadership team and added the four regional presidents. In addition to that, we have been on a journey to decentralize the organization.
I'm a firm believer in putting the right resources as close as possible to the customer and driving accountability for results. In addition, we've been driving strong collaboration, particularly between sales and operations inside the company. As I mentioned, last year, we unveiled a very simple four-pillar strategy that we're working hard to execute. That's focused on our culture, on improving service, on driving growth, and accelerating profitability. Importantly, this year, we're focused on accelerating our key competitive advantages. You'll hear a lot about our team-based selling approach, the innovation leadership that we have, both in digital innovation as well as food innovation, and very importantly, we have been supporting our growth with a strong, disciplined capital allocation deployment. And as our free cash flow accelerates in the years ahead, that becomes increasingly important.
Okay, so with those five key points as background, we are also benefiting from a long-term consumer trend that you see on this slide, charted for the last 10 years, that shows food away from home growing much faster than food at home. Although I'm showing this slide plotted only over the last decade, this is actually a trend that's persisted since 1970, for more than 50 years. So when it comes to thinking about a meal, Americans are increasingly eating out and are looking for great food and a fantastic dining experience. Importantly, also over the last decade, the food service industry has grown at a CAGR of approximately 4% and now is nearly $360 billion in size.
It's important to note that the top three distributors in the space, US Foods being one of those, have grown much faster than the industry and have taken about 5 percentage points of market share over that same period. However, the industry still remains highly fragmented. Today, there are more than 15,000 food service distributors in the country, 85% of which are still family-owned businesses. And at 10% market share, we believe we have a long track record of profitable growth ahead of us. Not only has the industry grown historically, but it's projected to grow by another 20% over the next three years to $430 billion in size. We have done quite well in independent restaurants, healthcare, and hospitality, which are fast-growing and also some of the most profitable segments of the industry.
You can see on the right-hand portion of this slide that we still have a relatively minor market share in each one of those. It is extremely important to understand that we have confidence that we will outpace the growth of those targeted customer segments by 1.5x-2.5x through 2027. Here's what gives me great confidence to make that statement: Not only are we a market leader, but we have significant sustainable advantages, and let me just walk you through those. We're a national leader and a one-stop shop with a broad array of products. It might be a good time for me to point out that we are the only pure-play, U.S.-based, broadline foodservice distributor with national scale. Second, we've been at team-based selling for a very, very long time, more than a decade.
You're gonna hear a lot about how that is a sustainable competitive advantage today. We're the industry leader in both digital and food innovation, and we continue to put a lot of resource and energy and effort into maintaining that as a competitive advantage. We are driving all of these results with sustainability in mind, with the three Ps of people, planet, and product, and you'll hear more about that throughout the course of the day. And finally, and perhaps most importantly, we have a deep leadership bench, seasoned leaders in this company, driving strong execution and results and helping us transform not just this company, but also the industry. And you're gonna hear from many of them throughout the course of the day. So with that industry backdrop and our competitive advantages, why do customers buy from us versus our competition? What is our customer value proposition?
It's highlighted in these four key areas. I've talked about our national scale. We also have a broad array of exclusive branded products that we wrap around innovation and continue to bring on-trend new products to the market on a continuous basis. More quality. Secondly is more support. We help our customers succeed through our innovation and our team-based selling model, how we go to market. We wrap that with digital innovation and increasingly, data analytics, to help our customers understand their customer and put the right products in front of them at the right time. More tools. We are the industry leader in digital innovation. That's wrapped in proprietary technology that we continue to invest in, and you will hear about that as the day goes on. And finally, more deliveries. At the core of any distributor's success is the strength of its supply chain.
Basically, getting customers what they want on time, every time. We're fully committed to that. You couple that with the convenience and flexibility of Pronto, and whether it's tight deliveries in urban areas or just simply more frequent deliveries of fresh product, Pronto is the solution for our customers today. And that leads us to our targeted customer types and where we focus across the industry: independent restaurants, healthcare, and hospitality. It'd be important to point out also that these three targeted customer segments represent a disproportionate amount of the industry's profitability. So with independent restaurants, we've continued to gain market share now for 12 consecutive quarters, driven in large part by those differentiations, points that I mentioned earlier. You'll hear a lot more about that throughout the course of the day. Secondly is healthcare.
You may not be aware that we are the industry leader in healthcare, and we've maintained that leadership position for a long time. It starts with digital innovation and our VITALS platform, but also we have a deep staff of dieticians and healthcare professionals that we've deployed to help our customers succeed every day. Finally, hospitality. We bring the strength and the breadth of our organization to bear on hospitality, and also leverage long-term standing national and GPO relationships to our good. How will we win in these segments? So today, we're excited to introduce our strategy-driven operating model. At the heart of that is helping our customers and our associates make it every day. Everything we do in this company is aimed at our customers and our associates, and we will stay true to that value proposition going forward.
It starts with embracing our culture, maintaining a safe work environment, keeping our people safe every day. A supportive environment. We want everyone to have a career path inside our company, regardless of their background. Third is being responsible stewards of the planet, and you'll hear more about that through the course of the day. Delivering service excellence. Being reliable for our customers, but also doing that in the most efficient way possible, and wrapping that around being easy to use and easy to do business with, aimed squarely at our digital innovation and the strength of our platform. Driving growth in those three targeted customer types that I talked about, maintaining our differentiation through the breadth of our product and our innovation there, and also our, our go-to-market, team-based selling approach. And finally, increasing profit. Driving margin improvement through our cost of goods sold initiatives.
You'll hear a lot about that today. Importantly, driving continuous improvement and productivity in everything we do. You've heard me talk about our 3%-5% long-term productivity target. We're gonna talk about that today. Then this theme of continuous improvement and optimization of everything we do in the company every single day. And as we execute that, that leads us to our ambition. Our ambition is not to be the biggest, but it is to be the best. For us, that means being the safest, the fastest growing, the most profitable, leading with digital, and ultimately, we wanna be the very best place to work anywhere in our industry. So how did we do last year relative to executing that operating model? I won't read this slide to you. I'll, I'll point out a few highlights.
In the area of culture, we improved our safety performance by 23% last year. While being responsible stewards of the planet, we had delivery of nearly 100 alternative fuel and electric vehicles. In the service area, the lowlights of COVID are well behind us, and our service levels are now approaching all-time highs inside the company, driven by the productivity work that we have going on, not only in routing, but productivity across all of our supply chain operations. Importantly, we reached record levels of digital penetration for the entire company last year. We took market share in the growth area in all three of our targeted customer types last year, while importantly investing in future growth by adding 6% to our seller headcount in 2023.
Finally, in profit, we achieved record Adjusted EBITDA of $1.56 billion, while expanding our Adjusted EBITDA margins by 53 basis points, driven in large part by that productivity work that you'll hear a lot about today, and the optimization work going on, where we delivered $110 million in cost of goods sold work. So those results are just indicative of what you can expect going forward, and we are doing that in a sustainable way through driving excellence in three key areas of our business. It starts with sales excellence. We have a proven playbook in how we go to market, and it is working, and we will continue to reinforce and invest in that playbook going forward. You'll hear from both Steve and Randy about how we're bringing that to life. Secondly is operational excellence.
Bill will talk you through the prioritized supply chain work that is making a difference for our customers, and how we're increasingly using data and technology to drive not only productivity for ourselves, but higher levels of service for our customer base... And finally, we'll spend a lot of time talking about our digital leadership and how we intend to invest in the future to maintain that leadership position from JT. And we're delivering all these results with an eye towards sustainability. Martha will talk you through in detail the work that we've got going on, but let me just hit a couple of highlights. Under people, 51% of our new or open leadership positions last year were diverse candidates, and now fully 57% of all the associates inside our company are women or people of color.
In the planet, we delivered a 2% improvement in fuel intensity while reducing energy intensity by 5%, despite a 5% increase in our volumes last year. And finally, under product, under our Hungry for Better portfolio, we brought out great-tasting and sustainable products under our Serve Good and Serve U lines. Okay, and finally, accretive tuck-in M&A is playing an important and increasingly important role in our growth strategy, and you saw us complete three tuck-ins in the last 12 months. It's important to note, and I say this all the time: we don't have to do any of these deals, and there's two things that I mean by that. One is we will remain financially disciplined in our approach to tuck-in M&A, and what I mean by that is we're not gonna overpay for any deal 'cause we don't have to do it.
Secondly, we will maintain our discipline in terms of our investment criteria, and you see those listed here on this page. Improving the density in our local markets and adding capacity. Targeting companies that are viewed externally as very strong and have very strong management teams that wanna stick with the business. Third, the right attractive customer mix with a strong bent towards independent restaurants. Fourth is the right cultural fit. My experience, and I've been around a long time doing deals, if you don't match the cultures of the two organizations, that's an equation for failure. We're very disciplined in that. And ultimately, having a, accretive EBITDA margins, post-deal synergies, and having solid financial returns, and you've seen us fund all of those deals out of our cash flow, and that is our intent going forward.
You heard me talk about how fragmented the industry remains earlier, and to point that out, we have right now in our pipeline more than 100 targets, potential targets, at $15 billion in potential revenue. Okay, before we talk about where we're going, I think it's very important that we ground ourselves in the great work that this team has done over time to grow both the top line and the bottom line of the company, and these graphs go back to the IPO of US Foods in 2016. It's important to note that the slopes of both of those lines have increased dramatically in the last two-three years, and you can expect those trends to continue.
It's also worthy to note, as you see on the right-hand portion, the bottom part of that slide, we have been compounding EPS growth at a much stronger rate than EBITDA growth, and you can expect that trend to continue as well. I've been asked, since I've been here, a lot about the CHEF'STORE business and how I think about that. Honestly, it took me a while to do a fulsome assessment of the business, driven in large part by the ERP and technology challenges that we had when I joined the company. I have reached the conclusion that we are not the appropriate owner for that business, and there's three key reasons why. First, at the time of the acquisition batch, back in March of 2020, there was a certain assumption around the amount of synergies that would be achieved with the Broadline business.
That simply has not happened to the extent it was planned for. I don't believe that it will ever happen to a much greater extent. So having said that, the business model is very strong, 96 locations in 14 states. I believe the business would benefit from focused, targeted retail ownership that's willing to invest purely in that business going forward. And finally, CHEF'STORE represents a very small portion of our growth and our EBITDA. As you see here, less than 5%. I believe that will always be the case. However, it has the potential to distract us from our core Broadline business, given the human resource and financial capital deployed towards it. And so for those reasons, we have begun to explore strategic alternatives for the business.
Now, it's important to note, while we're going through that process, we remain fully committed to the CHEF'STORE business, to our customers, and to our associates, and we will continue to work aggressively and keep you updated as we work through that process. It's also important to note that should we ultimately consummate a deal and sell the business, we would likely deploy the majority of those proceeds towards share repurchase. Okay, with that backdrop on the business and the company and what I just had to say about CHEF'STORE, we are really excited to announce to you today our financial algorithm for the years 2025 through 2027, and it starts with the top line growing at a 5% CAGR.
Through all the self-help and the hard work that you'll hear about today, we're gonna leverage that to a 10% bottom line adjusted EBITDA CAGR over that same period. Importantly, we will expand EBITDA margins through that time period by at least 20 basis points per year, while growing our adjusted diluted EPS by about 20%. And that will all be underpinned by that acceleration in free cash flow, and we expect to deploy through that period more than $4 billion of capital. Very excited about that future, and we're gonna talk to you today about how all that is not just gonna happen, but all the hard work that's involved to get us there.
Given the confidence that we have in our future, and you just heard me talk about, I'm excited to announce today that our board has authorized a $1 billion share repurchase, that we will believe will be extremely accretive to shareholder value creation at our current stock price levels. Okay, let me finish this portion of the engagement by underpinning to you what gives me great confidence in what I just outlined, and that is the strength and experience of this leadership team. You will hear throughout the course of the day from the leaders that are shown here on the first line, and also the remainder of our strong team is shown on the bottom line. This team is battle-tested, and I would put them up against any leadership team in any industry, anywhere.
Okay, if you're gonna be a great food service distributor, you better have great food. At the core of that are great brands, sourced competitively, wrapped in innovation. I'd like to invite Dave Poe to the stage now, our Chief Merchant, to talk to you about the work that he and his team are doing to help us achieve those long-term financial targets. Dave?
Thank you, sir. Morning, everybody. How we doing?
Great.
Good. Good. So my name's Dave Poe, and, I have responsibility for the merchandising function here at US Foods. And I've been with the company for about 26 years, so, you know, almost all my professional life. I did leave the company about 10 years ago, and I went to work for one of our largest customers. And that was a great experience for me, but I knew pretty early on into that part of my journey that I missed the distribution business, and I missed this company. So I was able to make my way back here, a couple of years after leaving. So I've been in this role for about 8 months, and part of the merchandising leadership team for a number of years.
And I know, and my team knows, that part of being a merchandiser is to set your sellers up for success by ensuring that they have the right assortment at a competitive price. So we can go out with a strong value proposition to our customers. And I am really excited about the path that we're on, to build on the momentum that we've already had in these areas and deliver on the ambition that we're laying out. So I'm gonna hit on three key components of our merchandising strategy today, that revolve around driving cases and increasing profit. And it really all starts with ensuring that we have the right cost of goods from our suppliers. Right, this enables us to enhance our margins, drive profit, and it also allows our sellers to go out and compete with confidence.
Then the second thing I'll cover today is that we can be really competitive when we sell our private label products. You know, our brands provide an equal to or better quality product at a better price than a national brand alternative. And when we sell our brands, we earn about two times the margin versus that national brand alternative. So it creates this win-win scenario with us and our customers. And then the third thing that I'll touch on today is how we leverage innovation to differentiate ourselves by developing unique items that elevate our customers' menus and ultimately help them make it. So let's dive in. And the first thing I wanna focus on is cost of goods sold and our strategic vendor management process, which has been the highly successful process that we have leveraged to drive cost of goods improvements.
Now, it's made up of several strategic actions to help us leverage our scale, and two of those are strategic negotiations and a robust RFP process. Now, I know those may sound a little basic, but they have been a real catalyst in us driving our cost of goods down with our existing suppliers because of the processes that we use. And they've also enabled us to bring on new suppliers into our portfolio that have helped us enhance our customer value proposition. Then the other thing that I mentioned here that is part of strategic vendor management, we work with our suppliers to create a win-win environment. Right, we wanna collaborate with our suppliers to identify profitable growth opportunities, and they may come from data sharing, or a new marketing program, or enhanced access to our customers and our sellers.
But we know when we collaborate in this way, we can ultimately get to our best cost. So it's tactics like this, driven by a highly talented and collaborative sourcing team, that have enabled the success that we've had over the past couple of years. So we're projecting to deliver north of $220 million of cost of goods savings, 2022, through the end of this year. And I'm happy to share that we have some new levers that we're adding into the process to help us continue this momentum into our next three-year cycle. So I'm gonna hit you with the punchline first, and that is, we are projecting to deliver another $260 million of cost of goods savings over the next three years.
One of the new levers that we're adding in to help us get there is an evolution from strategic vendor management to strategic category management. So this means in some of our core categories, we're gonna have an even more robust RFP process that dives deeper into things like component-based pricing, and that's gonna allow us to unlock a new level of cost of goods savings. So we've already started to implement this in a number of our more recent RFPs, and the early results are very compelling. The next lever I'd call out is that we're getting more aggressive against our tail spend. So you've heard us talk a lot about the COGS work that we've done in recent years, and much of that focus has been on our national and larger suppliers.
Now we have a team of dedicated folks that are working on those tail spend suppliers to outline our value proposition and align our costs more appropriately. We've already started that work, too, and again, those early results are very, very promising. Then the third thing that I'd call out is that we have an opportunity to tighten our assortment around our slower-moving items. We have an initiative to substantially reduce the number of our slow-moving items in our buildings, which will help us consolidate our scale, and again, leading to better cost, and it'll also help us improve our service to our customers. It's these new levers, combined with our proven strategic vendor management processes, that give us a lot of confidence in our ability to continue this cost of goods momentum into our next three years.
All right, on to private label, which has a fantastic value proposition for our customers and for our sellers. They love selling our brands because our customers can't get them anywhere else. We have a broad portfolio of 22 private label brands or exclusive brands, it's what we call them, roughly 9,500 SKUs that are spread out across a tiered selection of good, better, best products that enable us to meet the needs of all of our customers. From rich history brands like Monarch, that have been battling against big national brands for 150 years, to our Chef's Line brand that's newer to the portfolio and is designated for chefs who insist on the best. It's these kinds of brands that have given us the breadth and depth in our portfolio to help our customers make it in any scenario.
Our customers have grown to trust our brand so much, in part, because of our commitment to quality. We have a robust quality process driven by our product development process. It helps us ensure that any product that makes its way into our portfolio is gonna consistently deliver on that quality and brand promise that we have for our customers. You guys are gonna get a chance to see that in action today at our immersion breakout, where you'll see our process, and you'll get to see and taste some of our products. 34% of every case we sell is private label today. That's 34% of the time that our customers get that value proposition of equal or better quality at a better price, and we get that benefit of two times the margin versus that national brand alternative.
And we know, as Dave said, we're not at our ceiling here. There is a lot more opportunity for us to bring this value proposition to our customers. And the independent restaurant segment is a great example of this. You know, where today, about 52% of what we sell, cases that we sell in that segment, are private label, and it's continuing to grow. There is still a lot of momentum here, and we're projecting by the end of 2027 that we'll be north of 54%. And we have a couple new levers that are gonna help us get there. So one, we're leveraging data to tell us where we have opportunities to stock our private label items more effectively.
So that means an expansion of our core assortment on private label across our network, and that will result in greater availability of our private label for all of our sellers and our customers, and that will help to drive new penetration. And then we're also leveraging data to identify categories that aren't performing as well as we think they should be. So for those categories, we're gonna do a refresh, and that means pulling apart things like branding, tiering, product voids, pricing, supply base, all those things to make the necessary adjustments and then couple it with comprehensive seller training to relaunch the category to the field. And not only will this enhance the value proposition of that category for our, our customers, but it will simplify it for our sellers.
So it's levers like this, combined with our seller compensation program, that has an enhanced focus on driving our brands, that give us a lot of confidence in continuing to drive this momentum through the next three years. Okay, so there's one more lever that helps us drive private label penetration, and that's innovation, which has been a cornerstone of how we differentiate for a number of years. So the roots of our innovation strategy were born from our Scoop program that launched about 12 years ago and Scoop is our program that develops unique and innovative items to bring them to the market in a comprehensive launch program. Now, our customers have come to love our Scoop program because of the value that it brings to them.
You know, whether it's helping them to elevate their menus, or differentiate their menus, or save them money in the back of the house through labor and risk mitigation, Scoop items have become a real difference-maker for our customers. We have launched about 700 items through the Scoop program over this 12-year period, and here's a cool fact: about 75% of those items are still in the portfolio. That's a pretty amazing stick rate for any innovation program. For us, Scoop items are more profitable, they drive bigger baskets, and they help with customer retention. You can imagine, our sellers can't wait until the next Scoop launch is coming out. We're pretty proud of our innovation program, and recently, Fortune Magazine named US Foods as one of the most innovative companies in 2023, which is pretty cool.
So again, you'll get a chance to get a glimpse of our innovation process at the immersion breakouts this afternoon. Okay, so that brings me to my goals, and I've already talked a lot about these through the presentation, but to summarize quick. So for COGS, we have our Strategic Vendor Management process that is proven, and we're adding in new levers that will help us continue this momentum that we have, and we have a high level of confidence of driving that additional $260 million of cost of goods savings over the next three years. And similarly, on private label, we already have a lot of momentum.
Adding in new levers, continued focus on innovation, and a seller compensation program to support it all, gives us a lot of confidence in our ability to deliver this 150 basis points of new private label penetration over the next three years. So that's the merchandising story, right? So COGS improvement, private label penetration, continued focus on the value of innovation will help us drive cases and increase profit from a merchandising perspective. We talked about strategic vendor management and the role that that's played, and the new, new levers we're adding in, and that will help us accelerate our COGS improvements through the next three years. We talked about the momentum we have in private label today, with new levers being added around a broader stocking and refreshed categories, seller compensation to support it all the way. A lot of confidence in our continued momentum there.
Innovation will continue to be a huge value to our customers, helping them to elevate their menus and save money. So you'll hear a little more from Randy and Steve about how some of these merchandising elements fit into our commercial strategy. But I just wanna say thank you, guys, for giving me the opportunity to share some of our merchandising strategy, and I'm gonna turn it over to Bill Hancock, our Chief Supply Chain Officer. Thanks, guys.
All right, thanks, Dave. I'm Bill Hancock, and I've been Chief Supply Chain Officer at US Foods for the last three and a half years. For over 20 years, I've been driving supply chain excellence across three different organizations, including leading supply chain at American Tire for three years, and then 15 years in supply chain at Target. My time at Target was split. About half my time was focused in the field, leading operations, and the other half of my time was spent at Target headquarters, leading strategic initiatives, doing automation design and implementation, and different types of field support functions. Today, I'm excited to talk to you about how we're accelerating supply chain excellence at US Foods on our journey to become the undisputed best.
The dominant theme you're gonna hear from me today is about how we are continuously improving by focusing on the fundamentals of our business, how we're applying the right type of operational rigor to consistently hit the goals that we've set every single day of the year. I'm gonna showcase how the things we're doing in supply chain directly align with that strategy-driven operating model that Dave spoke to. I'll highlight some technology we're using that will improve that customer experience, drive productivity, and ultimately, capture more share of wallet that we're looking for from our customers. Then last, I'm gonna give you a view into the future on the many benefits that come with investments in semi-automation.
Supply chain at US Foods encompasses everything from the safety of our team, through really good, effective demand planning and associated buying behavior inside of a replenishment function, to effective inbound transportation of goods from both our vendors into our distribution facilities, all the way through the last mile delivery into our customers' kitchens. Our network of 75 DCs offers very real competitive advantage. We can meet customer needs across all of our national geographic footprint. On top of those 75 distribution centers, we've got support from an additional 400 remote domicile locations. Those remote domiciles fill in some of the blank space you see between our distribution network, gets us closer to the customer, and helps reduce some of that day-to-day volatility that you would otherwise see in a network of our size.
That 5% improvement we've driven in cases per mile performance, that helps make sure we get the best possible utilization out of our fleet of 6,500 trucks... Let's take a look at what we accomplished in 2023. We measure success in supply chain by focusing on three key results: safety, service, and profitability, and we've been making progress on all three of those key results. With safety, we've reduced injuries 23% year-over-year, with a focus on process standardization and key investments into training for both our frontline associates and our frontline leaders. Later on this afternoon, in our immersion event, you're gonna get a chance to see some of the new equipment we're investing in and some of the new technology we're testing to further improve safety, which is so important to us as an organization.
In 2023, we introduced our US Foods Market Operating System, or UMAS for short. UMAS is a continuous improvement-based platform that standardizes your daily, weekly, and monthly planning for both how we staff the business all the way through to production. When you look at the benefits that UMAS has provided, along with that focus on the fundamentals, those two things have driven the 5% year-over-year improvement we've seen in both warehouse and delivery operations. In direct response to feedback from our associates, we deployed flexible scheduling in 2023. Flexible scheduling offers our frontline team the option between a three, four, or five day schedule. As we finish up the deployment of flexible scheduling later on this year, we expect to continue to build on the already 30% reduction in turnover on our frontline workforce.
In just a few minutes, I'll highlight the work we're doing to modernize our replenishment function. As you look to the future, our productivity improvement will not plateau. We have created a proven path that will consistently deliver 3%-5% annualized productivity gains. While I can't fully exhaust the list on the right of all the initiatives we're going after, I do wanna highlight three individual use cases that bring to life how that work shows up both on our P&L and for our customer experience. The first use case I wanna highlight is how we're modernizing our replenishment function. This work kicked off about 18 months ago. It focused on enhancing and standardizing the processes that team uses every day, and it also helps modernize our technology platform.
Within that technology platform, we use this as an early opportunity to use process automation and early insights from artificial intelligence to further improve the results that we see. We realigned our team as part of this work. Today, a vast majority of that replenishment organization sits out in the market, directly serving the customers that they're closest to. When you get that replenishment function out in the field, in front of the customer, in front of the sellers, they can proactively engage and meet the customer needs every single day. We reached a major milestone in April of this year with this optimization effort. We've locked in $15 million of operational benefit specific to the replenishment function, and we've reduced working capital by $120 million.
We did both of those things while improving delivered as ordered NPS results by seven points. This work will continue through 2027, and we're confident that we will deliver $100 million plus of additional working capital removal. The second use case I wanna highlight showcases how we're supporting the impressive market share gains that Steve and Randy are gonna speak to later on this morning. It's critical that our key markets have the physical capacity they need to support this growth. We've created a replicable playbook to make sure that when we have a market that needs additional capacity, there are clear steps to follow to meet that growth need. I wanna highlight one of our very key markets as an example.
In this key market, we've grown independent customer market share 200 basis points from 2021 to 2023, and we expect to grow an additional 500 basis points of market share with that independent customer group by the close of 2027. This is where that, that playbook comes into action. The first step we took in this market was to deploy UMAS, to make sure we're getting the absolute best performance and capabilities out of our existing operation. The next thing we did was implement flexible scheduling, and by adding a three, four, and five day schedule option to our frontline associates, we were also able to open up delivery and warehouse operations seven days a week. That added capacity you get by operating a full seven days a week comes with almost zero capital investment.
For most of our markets, following these three steps, that will support the growth that we're experiencing. In this key market, it's still not enough, which is why we're investing into a 100,000 sq ft expansion with the benefits of semi-automation to create the strongest return on invested capital possible. Behind that strong ROIC, there's some very impressive operational benefits, like a 50% reduction in defects, a 40% improvement in warehouse productivity, and a 40% improvement in throughput per sq ft inside of that facility. That's capped off with a 15% improvement in delivery productivity through machine-built and better sequenced pallets. Obviously, very exciting. Let's take a deeper look at what that semi-automated future looks like with a couple of really quick videos.
This first video highlights our current manual selection process, which is the industry standard across food service. Our selectors operate powered industrial trucks, they navigate our aisles, they individually select cases, and they manually build out those pallets. Those pallets are then transported to the loading dock on the DC, where they're shrink-wrapped, labeled, and then ready to be put on one of our delivery trucks or delivery trailers. You can see in that example, how dependent we are on a highly skilled frontline workforce to consistently hit safety, service, and profitability metrics. Which brings us to the future. Our semi-automated solution will be an automated storage and retrieval system, leveraging a shuttle technology. These shuttles will take individual cases and place them into a reserve location.
When those individual cases are needed for selection, those shuttles will select that case in the appropriate sequence to be delivered into an automated palletization module. That pallet will then be automatically shrink-wrapped, labeled, and ready for immediate loading onto a delivery truck or delivery trailer. This is a game changer in terms of what the experience looks like, both in the warehouse and for delivery. Those purpose-built pallets aren't just unique to the route, they are unique to the individual customer location, and that greatly reduces the amount of time our drivers spend sorting cases on the back of their truck. Now, it's important to note that in this semi-automated solution, both receiving operations and pallet storage will continue to be a manual function on top of the 3%-5% of volume that is not compatible with automation.
But we're also looking at additional types of automation to make sure that we identify opportunities that may scale to more markets in the future. All right. My third and final use case highlights our Knoxville, Tennessee, market, and how they've delivered a 14% improvement in cases per mile performance since 2021. And they've done that while improving on-time delivery by 8%-10%. At the core of that improvement stands our proven market-led routing process that is alive and in action across our entire network. That market-led routing process brings together our commercial leaders and our operational leaders every week to identify and eliminate miles that are not adding value to that customer experience. Knoxville is also the market where we first piloted our new routing technology with Descartes.
When you combine that operational rigor that comes with market-led routing with a best-in-class technology like Descartes, you can be confident that the results we're seeing inside of our Knoxville market will scale to the rest of the network as we deploy that through 2025. Now, with use cases like the one I just discussed, both in action and underneath our belts, that is the proven path I'm talking about. We will absolutely deliver our 2027 goals. We will provide a best-in-class customer experience, both with on-time delivery and the fill rates our customers need to service their customers. We will deliver 3%-5% annualized productivity gains consistently through 2027, and we'll pull out an additional $100 million of working capital. Now, as I close, I wanna, I wanna reinforce my key points.
The dominant theme I shared with you today is how we are continuously improving by focusing on the fundamentals of our business. That is the core of the improvement we've seen over the last year. Applying the right rigor, the right accountability, to consistently execute for our customers every single day. We're clearly very well aligned in supply chain with what the total organization needs through our strategy-driven operating model. I highlighted some key technologies we're pursuing to improve the customer experience, drive productivity, and improve that share of wallet we're looking for from our customers. Finally, I gave you a sneak peek into the future of the many benefits that will come with semi-automation to help further step change our performance. I appreciate your time today. I'm now gonna turn it over to JT Thomison, to talk to us about digital innovation.
Thanks, Bill. And, Bill laid out for us there, a couple of threads about, technology elevating the supply chain in very meaningful ways. And I'm gonna, weave those back in a little later just to explain where that sits amongst our overall digital transformation strategy and the application of, of, AI. Indeed, I'm JT. I am the technologist, the head geek of the business. I joined, US Foods coming up here on, three years ago. I came out of the tech industry. I came out of, Tech Data, now TD SYNNEX, the world's largest technology distributor.
And important because I was also able to bring a couple of very, very powerful, inspiring leaders out of that space who to set a trend and explain where we're going, lead at an enterprise level, our big data, our enterprise data force, and our digital commerce force. So, as we go through this, I'm gonna set up here, remind you of something I believe from dinner last night, many of you already believe and know, which is US Foods holds a leadership position in digital commerce and modernization in this space.
I want to show you how that has been further solidified in recent months as we've brought online new application, new product, a new figurehead, digital commerce presence in that space. I then want to explain and set up and show you the trajectory for where we take that leadership position and what we do with the force we've created, the software capability, software development capability we've developed, as well as delivering this great product. Then finally, I'm gonna talk about something that we probably don't talk enough about or haven't spoken enough to you about yet, which is where those same forces, investments, focus and innovation and application of artificial intelligence is also bringing to life our back office and our supply chain.
Unapologetically on the way through, I will not be able to help but mention a lot MOXē. Partly, because I'm wildly proud of it and the team that's put it together, partly 'cause it's such an important, powerful, valuable tool for our restaurant and operators to use. Before I use the term a lot, I want to get us level set on what that means. So let's take a quick look at MOXē. That's MOXē. We built it from the ground up. We understood that we had options and could have gone and put our products in a marketplace product, but, we understood that that's gonna be catalog and shopping.
What we've done is built a business management app, a tool for operators and restaurateurs to run and rely on the supply chain, way beyond just catalog and carting. We built it from the ground up. We brought it into market at the back end of 2022, and it is already winning in market. Objectively, Technomic readout and report that US Foods and our digital ecosystem is the preferred digital platform of restaurant operators. In the Technomic spread, we have a 17-point advantage over competition. In Net Promoter, we have a 5% advantage over competition.
Already, with MOXē at the core of our digital commerce suite and the tools wrapped around it, we have 84% of our business already running through this platform. And that is healthful and productive for our customers and for ourselves. Where our customers are operating with us and operating with sales teams that are deeply integrated with MOXē, the sales teams themselves have a 30% reduction in their workload because MOXē is doing the day-to-day fulfillment work and the tracking work and the alerting and the exception management work for them. That allows those sellers, as you'll see Randy set up later, refocus and double down on consultative selling and growth selling.
Our customers that work with us in this way are more loyal to us. We have a reduction in churn. We have a 5% advantage on churn because the customers are getting more value from the application than merely buying and ordering and delivering. And really, very, very powerfully, our influence is most effective through this platform and with customers working with us in this way. We are able, through digital merchandising, to enrich the shopping carts on average by a case and a half per order. That's powerful. That's an economic driving force, and that's happening because we're reminding of things they may have forgotten. We're suggesting things that are often associated with a menu type or with a product.
We are cross-selling and uplifting and elevating our EB brand as an alternate to other buying choices. And generally bringing insight-driven, personalized opportunities to a customer through the digital tool who we are persistent with. We're offering them all the time, opportunities to uplift the cart, and it's working. 1.5 additional cases per order. And on the right there, you see, I think, probably fairly self-evident, that when our customers are working with us in this way, when this tool is in their hands, we are interacting with them far more frequently than any human coverage could do so, because it's many times a day.
Every time we do that, we learn something more about them, which helps us refine our recommendations, our suggestions. So that's how MOXē's doing in market. What's it doing? MOXē, quite simply, and you saw a snapshot there, and I'm gonna invite you to touch it and interact with it later in the immersion event, where a district sales manager and one of our specialists will walk you through in a way that you'll get and understand by the end, how you yourself could run a restaurant, how simple it is, and how vital it is to have that kind of command control in your hand. But what it's doing for our restaurateur and our operator is giving them speed, confidence, and control.
The speed is, they start their activity, they start their day with the task list of things they might need to do on a Tuesday or on a Thursday, based on their normal ordering patterns. That's. They go to there, and they're making actions and decisions, they're seeing alternates if they need them, and they're getting instant gratification. They know that they've got the product, they're able to verify it, they're able to inspect it, they're able to get back to running their kitchen. They then are. They have tremendous confidence because we're going to tell them if anything is not gonna turn up and perform as they would expect. We'll give them the notifications. You saw them there in the video.
You're gonna give them notifications if something is changing, if needs their attention, and we'll give them the options to act on those changes, too. And it puts them in control, because, again, not just a shopping app. This tool is giving them control over their finances. It's giving them predictability. It's giving them market insights, comparable insights, and it's even giving them the tools to manage their stocking and their inventory in their own kitchens or in their own back-of-house.
So whereas I started the story by saying they might go in and say, "What is it I usually order on Tuesdays?" They could also set up to instead just go into their kitchen, have a more junior member of staff go through the kitchen, say what they have in stock, and with the rules they've pre-set up as their minimums, the orders can be automatically generated and fired through to us with the same speed, confidence, and control. This is a one-stop-shop application, business application for running the supply chain of a kitchen. Not fragmented apps, not different places to go for different product lines or ways of delivery, all in one place, including all the financial and relationship management pieces. That's what we say about it. Through the day, you're gonna hear what maybe more important voices say about it.
When you come to the immersion event, you're gonna hear sellers talk about what it means to them and their customers. As Steve and Randy speak, you're gonna hear about how MOXē turns up at the core of the team-based selling model for our IND, and then provides IND customers absolutely specialized capabilities in the strategic healthcare and hospitality markets. So a lot of other voices will talk about MOXē, but for the moment, maybe the most important one, let's hear from the customer themselves.
My name is Sam. I'm the corporate chef for Dynamic Hospitality.
I'm Patrice Meyer. I work at Blackberry Market. I'm the Culinary Director here.
Having an app like MOXē, you're actually a little bit more organized and get a little more streamlined very quickly.
The real-time inventory, for sure, is one of my favorites. If there are several pictures, it is helpful to see it in a context where it's being used.
It allows you to kinda really answer a question. Utilizing the actual reviews kinda gives you a chance to see, like, what people are buying.
The description of the product is really key for me. If it has what I'm looking for in the title, that's what I want.
It's great to just kinda be able to kinda look back and see what else you ordered. Like, let's say you ordered a one-time thing, be able to kinda look back at invoices.
I find it extremely simple to scroll through and just add something, and now you don't even have to hit Enter. You just go right on to the other thing, and it's just like, it's instant into your cart. The MOXē app, there's nothing like it. Just the navigation of everything is so simple. Your ordering takes half the time than it normally would if you were using a different platform.
This is an elegant, industrial-strength business application specialized for restaurateurs and operators. It's providing all of that speed, confidence, and control to all of our customer types. But certain customer types need a little more, need much more. You'll see us through the day mention some of those deep specializations, but we wrap around MOXē some additional digital commerce tools to meet those needs. Through the VITALS portfolio, you see a series of additional digital capabilities provided to our healthcare and hospitality space.
With Blueprint 360, TrendView 360, Café Essentials, you'll see a combination of tools that provide, for example, an assisted care facility with actually the point of consumption, the tool that a resident would pick their menu item, and behind that, all the nutritional work has been set up and defined, and the ordering has been set up in that way. Retail profitability management, cost management, labor planning and management, and even in the Check Tool suite, which independent operators also get great value from, tools that will do menu production itself, you know, the graphic, the visualization.
All brought together in the Digital Commerce Suite and recognizing that some kinds of customers actually, as amazing as you'll see for yourself, as MOXē is in your hand for command and control, some of the largest institutional customers won't want to be putting a tool in the hand of their operators. They want to control that more centrally, and they want those attributes to speak confidence and control in their own systems. And our extensive suite of API and web services make all of that capability available to those customers, too. Same value, but appearing in the tools that they choose.
As well as building all of this, though, you'll see we've built, we've built an amazing product here, but we've built along the way is an amazing capability, an amazing velocity, a trajectory, and a, and a, and a tremendous team. This is industrial software, and maybe most interesting for you is where do we go next with that? Well, we're gonna- we're gonna take that mission forward, that team talent forward. We're now running two-week sprints, so very, very high velocity. If anybody's kinda keeping track, that means we can actually get about one and a half new feature functions produced each week and releasing every second week. So over the next quarters and over the duration of this plan, we will drive additional further MOXē penetration.
We're gonna do that by maybe knocking down any additional barriers for to certain segments of customers. You will see us using AI to do translation of content. We've already translated the product, but you'll see us using it to translate content as well. With 400,000 products, that's heavy lifting and but very, very, very achievable in this new age. You'll see us build and deliver additional tools and value to customers for insights and foresight, coming to them exclusively through this tool, so that there are more and more reasons for them to have the product, the platform, and the trust in their hand. And most of that's gonna come to life through work coming out of our AI lab today.
I've seen some of these pieces, very attractive, very, very impressive, particularly in delivery tracking, for example. This is also a seller tool, although the numbers we show you have not been about seller use of the tool. This is also a tremendous lifting platform, power tool for our sellers, and we're gonna further deepen its capability to give the sellers insights to their customer usage, to trending, to things that may be going on with the customer's behavior, which we glean through the app, to bring the sellers in at the point that they can do the growth work and the consultative selling. We're gonna double down, we're gonna triple down on the digital merchandising, on the pricing.
We've recently brought to life, piloting as of this past weekend in nine of our 75 markets, a new, AI-based digital, pricing engine. And, that is already delivering. It's much faster reaction to market dynamics, and it's delivering a price advantage while pricing in a far more reactive, responsive, and credible way to our customers. And we'll double down on the digital marketing. I told you about the one and a half additional cases per order. That's when we're doing recommendations and suggestions about 60% of the time. AI will take us deeper into providing more menu-segmented recommendations, more personalized recommendations, and filling in the space that we don't make recommendations today because we know this mousetrap works, we know this engine works.
And then finally, we'll make sure that any of our specialty lines of businesses, the products they have and the means of delivery and, and collection are equally available to all of our customers. You'll hear about another example of that a little later with Randy with Recovery Express. All of that builds to extending the digital leadership that you know that we already have. And why that matters is because for our customers, it puts them in command control of their supply chain, in the same way they're in command control of their kitchen and the back of the house. Speed, confidence, and control. For our sellers, MOXē's their best friend. MOXē's is extending the reach of our sellers.
Our most successful sellers are carrying a route size that's significantly higher because they're able to put the day-to-day mechanical tasks in control of MOXē, which will tell them when they need to get involved. So they have larger book of business, and they are earning more. It's at the core of our team-based selling model that you're gonna see Randy speak to a little later. And for ourselves, for our business, and for our operational excellence, this is just our better business. It is better margin business, it is stickier business, and we develop more understanding of the customer through the insights we get through these platforms.
But we're not just using these innovations and this motion, this velocity, for our customer-facing tools, and maybe this is a little less known to you. I mentioned the pricing engine a little earlier, of AI coming to life, revolutionizing the way that we manage pricing. You'll also see in your bags or on your table, you'll see a first publication, Food Fanatics, with AI-generated content and imagery, written and image content. And we have significant work underway in the same kind of modernization in our supply chain, our mid and our back office. In forecasting, you heard Bill mention that, that we've brought online an AI-based forecasting model that has unlocked working capital, unlocked SG&A, and increased our service levels.
That is an AI engine at the core of it. It's already doing frozen and dry, and we will extend it into some of the more specialty spaces like produce going forward. In warehousing, we will, by the end of this year, bring online our first new warehouse management system. That again, big AI driver at the core of it, optimizing labor, optimizing space, optimizing the construction of the pallet for most efficient delivery. We'll get that up at the end of this year in our first market. It will be the substance and the core and the software that will then drive the semi-automation that Bill spoke to. And then over the plan years, we take that through the rest of the markets.
And then Bill, once again, did mention the routing and delivery modernization, the engine, the Descartes engine that's sitting in the middle of that, already driving case per mile improvements in a very, very meaningful way. And that's rolled out to four markets right now through the plan. Plan years, we take that through the rest of the 75 markets to unlock super efficiency, reduce miles, improve service times in that last mile. Where does all of that lead? It leads to us driving even deeper penetration and integration of customers into our digital tools. You saw me start here with an 84% penetration of use of the tools. We'll drive this over this plan period to 95%. And what does that do?
It unlocks $1.5 billion of incremental digital-only sales. Again, $1.5 billion of incremental digital sales. Remember that one. So, taking us back, I've anchored it in the knowledge and belief that we have a leading position, partner of choice in the digital space, why that is, and shown you where we're gonna take that, how we're gonna use the software factory that we've created to drive us to new heights, new value, and EBITDA results and impact. And I've also shown you under the covers, an insight of how that all that same energy and modernization is actually also going on in our own engine, in our mid-office, our back office, in our supply chain.
Excited to show you this in the immersion event, but for the moment, I'm gonna pass you back to Dave.
Thanks, JT. Don't leave. We've been a lot of places already this morning, and I promised you at the beginning that we would not just talk with you about where we're headed, but how we're gonna get there. And hopefully, you're getting a great feel for that. Before we take a short break, we thought now would be a great time through the first half to just sit back and take any questions. So I'd like to invite the speakers from the first half back to the stage, along with Dirk, and we'll take whatever questions are on your mind. Here in the front row, Kelly?
Hi, good morning. Thanks for taking our questions. I had just two. One, is there any downside to pushing too far with the vendors? You talked about the $260 million in cost savings over the period. And I guess as particularly as you move towards working with the smaller suppliers, how do you balance kind of that collaboration between that savings? And then on the semi-automation plans, just wondering if you can elaborate more on the timing of that. I believe maybe some players have done some things here with some mixed results. Just how are you going to manage execution of that and rolling that forward?
Dave, you want to take the first one?
Yeah. Is my mic on? Yeah, there we go. Yeah, I think there is a little bit of risk in that, Kelly, but, but I would say based on the performance of our business, like, our suppliers want to invest here, and the way that we collaborate supports that. So I, I'm, I'm not concerned about it. If the business environment was different for us, I think it would be a risk.
Bill?
Specific to semi-automation. So I mentioned in my presentation, this is really about supporting the growth that we're seeing as an organization. Most of our markets will be able to support the growth we're seeing through those first three steps in our, call it, capacity playbook, and we've identified the key markets that are going to need additional capacity past that. To make sure we execute very clean on these investments, we've brought in a best-in-class team. Everyone within that organization has been there, has done it, has worked for integrators and retailers that have installed this type of technology before. So we're confident we've got the right team and processes in place to deliver clean.
Yeah, I think, Kelly, Bill had on there, or Bill had on there that the first one comes online middle of 2025, and the other ones will be later on in the LRP.
Thank you. Good morning, Jeff Bernstein from Barclays.
Morning.
Two questions as well. The first one, just on the long-term algorithm. You know, it's a guess, 10% type EBITDA growth. I'm just wondering how you think about the components of that growth between revenues, EBITDA, EPS. Is that pretty stable through the next three years, or is there a ramp to that? And it seems like the EPS is double the rate of growth of EBITDA. I'm just wondering, you know, that's a big step function, primarily due to the share purchase authorization, or are there other components that give you that confidence? And I-
I'll let Dirk comment in a minute, but as I said in my comments, you know, we've got great balance today through our P&L and leveraging that top-line growth to the bottom line, and we believe that will continue to accelerate through the initiatives that you've heard so far today. And then we'll have a fairly consistent approach to that EBITDA target through the course of time. Dirk, any color you want to add there?
Beyond that, I'm not going to add a whole lot 'cause then I take away all the hype from a little bit later this morning.
There you go.
But I will go into that in more detail.
Yeah. My follow-up is just on the private label, which wouldn't be stealing any of your hype, 'cause I know we talked about it this morning. But the 53%, I think you said, of independent cases being private label, going to 54.5% in three years. I mean, I'm guessing that is a monumental task. It seems small from our seat, but what caps you? I mean, it's double the margin. It just seems like it's a very attractive opportunity, especially in a slowing macro. Like, what would stop that from going to 55 or 60? Or maybe I'm just underappreciated.
I don't see any near-term ceiling in our ability to penetrate the market with our Exclusive Brands. Our team's fully wedded to it. Some of the compensation tweaks that we made in January to our sales compensation incentive are sales first to further embrace those brands with our customers. It just takes time. You know, the customer's got to get confident with the product. Oftentimes, they're switching from one product to ours. It just takes a little time to work through that process, but no near-term limit. Here.
Thanks. Jake Bartlett from Truist Securities. My question was the margin expansion, or the EBITDA, growth target. It seems like about half of it is coming from the vendor negotiations, leaving the rest about the same margin, just the rough math, you know, as you had in 2024, as you're expecting in 2024. But you're getting improvements in productivity and in some others. So the question is, are there offsets, from where the business is now? Are there headwinds to EBITDA or to margins that your measures are offsetting?
No, no near-term headwinds, and I would just defer that question, Jake, if you don't mind, until Dirk goes through that algorithm and how we're going to get there in detail on the back half. He'll answer all those questions. John, here in the front row.
So I guess, two for Bill, right? So number one, if you think about, you talked about capacity, right? So how much excess capacity do you think you have today, right? And, you know, I, I don't know how much the, semi-automation is going to do for that, but capacity today, what do you need to do in terms of buildings, right, to, to drive capacity? And then secondly, the UMAS, right? I think that drove a 6%-7% increase in productivity. So maybe talk about that. Is that just best practice sharing? And, and I don't know if that was across-- I don't think that was across every, facility, right?
Yeah.
Where can that go to from that 6%-7%?
Yeah, I'll take your first question there around capacity. So capacity varies across the country, but we're confident we've got the capacity we need, especially with the playbook we've got ready to deploy to support all the growth we're seeing. Like I mentioned earlier with semi-automation, we've identified those key markets where we will need additional capacity, and those plans are in action to make sure we get that taken care of. Specific with UMAS. So UMAS is more than just a planning and execution tool. It standardizes all of your processes inside of your building. It creates standard work for your frontline associates and your leaders to follow. It standardizes the KPIs that we use to track the health of our business.
... in markets that have deployed UMAS, kind of that early wave, those markets saw 6%-7% improvement in productivity in that first year. And it's gonna take a few more quarters to fully deploy UMAS, but that's a big piece of that ongoing 3%-5% productivity on an annualized basis.
Thanks. Peter Saleh, BTIG. Just a couple of questions on MOXē. I think you mentioned 1.5 extra cases per order from customers. Is that consistent with the 10% more number that you guys had previously indicated on MOXē? I guess that's the first question. And then in terms of helping to drive the private label, I think you guys mentioned digital penetration going up. You'll see a $1.5 billion of incremental sales. Does that really help drive the private label? I mean, the—going from 53%- 54.5%, I would've thought it would've been a little bit higher as you roll out MOXē, and more of your customers start ordering through that platform. Thank you.
So the 1.5 additional cases, I will say that's to date, and that's been in the trajectory and the reporting out that we've been doing. So it is... very specifically, it is of an average order size for customers working through that platform, an extra 1.5 cases that we can trace back to being related to merchandising. In terms of the trajectory, like, $1.5 billion certainly had a plus on it.
That math is derived from addition—the additional penetration, so knowing that we can attract further customers in our own customer group and customers—other digital-native customers who will recognize and value that command and control of their own business through the app is the way to work. So it's derived from bringing in customers and into a digital workflow on the kind of economics that we're already enjoying with the penetration we've got. And it's from the doubling down of the merchandising engine, which we know is working so well. But we know how to color in the gaps with AI and make more broader recommendations. I think there are other benefits that will derive automatically.
I think you can find your own way to understanding the expectation of what being the leading digital platform will mean. But, confident in those numbers, those are how they're built so far.
Ed, here in the front.
Hi. Ed Kelly, Wells Fargo. Dave, I wanted to ask you about the guidance. Obviously, you know, very compelling targets when you think about the earnings growth. Could you just maybe talk about what you're assuming for the environment? How much is it within your control, related to, you know, related to that? And then as we think about MOXē, if you look at penetration of independent accounts, I think that number's been, like, 30%-40%. A lot of accounts use more than one distributor. Is MOXē the unlock to growing that penetration over time? And I think as you've been seeing growth in independent restaurants to date, a lot of that has been new units as opposed to, you know, sales per unit. Do we see a better balance of that over time?
Yeah. On your first question, Ed, we're assuming a relatively normal operating environment. But as I say all the time, and as I tell our team, the macro ebbs and flows. We actually don't think about that. So I'm 100% confident in the targets that we put forward and our ability to execute that, given any macro. If things slow down, our ability to continue to drive our playbook and take market share and all the great work that you've heard from the team, gives me great confidence in not just the top line, but our ability to leverage that to the bottom line. KT, you wanna take the second part of that?
Yeah, and for penetration, I&D penetration, MOXē for sure sits at the core of the team-based selling model. But Randy's going to show how that fits in later and why it's a winning combination, or the evidence to be, and we can grow from there significantly. But our institutional customers, our national customers, are not left out either. The very rich specialization that comes through a suite, digital suite like VITALS in healthcare and hospitality is as compelling a penetration opportunity there. But MOXē probably, as the tool that brings value to everyone, is probably the most impactful piece in the technology side on the I&D space, for sure. Great confidence.
Yeah. Thanks. Hi, guys. Brian Harbour from Morgan Stanley. I wanted to ask about digital, too. Is there any kind of, like, structural reason that certain customers, that 16% of customers that don't use MOXē, wouldn't? Or are there people that might use it, but not frequently? And then some of those additional tools that you offer, is there good uptake of that today? Is it pretty small? And I, I don't know if, like, do you charge separately for that? Is that sort of, you know, part of it as well?
Yeah, so for the uptake, I'll go to the second first and just say for the additional specialized tools, I'll ask you to wait for Steve later to explain the impact and how that comes to life and powers his business for sure. In MOXē, in its core... Yeah, I believe I shouldn't have started at the end of the question. Remind me again. Sorry, the start of the first.
The first part of the question?
Yes.
Is any structural reason?
Yes, sorry. I do, I apologize. Yeah. So, we've knocked down a number of structural reasons to drive the penetration over the last year. There are still ones ahead of us. I think language is where back-of-the-kitchen might have secondary language dominance, then I think we probably, at this point, are not as penetrated successfully. And we have a route, as I laid out there, to multi-language capabilities through AI translating content, for sure. And I think generally, other than that, it's not structural impediment. It is a familiarity. It's our sellers themselves becoming more confident, and integrating and seeing their own success in the business.
But we'll get there by driving more value, more, more signals, more insights into the tool that make it absolutely compelling. It's, it's gonna be a tool that they, they, they can't live without because they'll get more information and more, foresight from, from the platform.
... Thank you. John Ivanko with J.P. Morgan. It's interesting, you know, on a 10-year basis, the top three market share has grown from 30- 35, even with COVID, which one would have imagined an acceleration. And, you know, I think a lot of that 5 points, if not even more than that 5 points, would have been acquired business, you know, of distributors, you know, that were obviously outside of the top three. So, you know, can you talk about, you know, the stickiness of business, maybe outside of the top three? I mean, whether you want to talk about regionals or locals.
You know, specifically when you talk to customers, why they still maintain, you know, such a high percentage of their overall food service distribution business from that channel, considering they don't have the scale, they don't have the merchandising, they don't have the technology. You know, what specific advantages, you know, that the regional or local are giving customers that, you know, maybe are part of the bigger prize, you know, that you can do better and make yourself more attractive to that business that remains to them?
Yeah, I would just simply say that a lot of the competition has been local, and they've existed for a long time. As I said, you know, 15,000 food service distributors, the overwhelming majority are local and family-owned businesses that have developed relationships with customers through the years. So to a large extent, it's a comfort level, and just they've always worked with them. But as you've seen us take now market share over the last three years with independent restaurants and our ability to continue to scale that with the breadth of our offering, all the things that you've talked-- we've talked about here this morning, we're, we're highly confident that we will continue to accelerate our market share gains through the course of time. Okay, one last question, then we'll take a quick break here.
Thanks. Andrew Wolf at CL King. JT, and this is probably an overlap with Randy and maybe Dave, but just in terms of customer acquisition, winning new customers, could you discuss broadly how your plans for AI in that regard and/or MOXē? You know, in the past, I mean, you've talked a lot about MOXē. It's been a sticky-
Yes.
you know, lowering churn. It's been doing that for a long time, its predecessor business, increasing penetration. But can MOXē itself be part of a, you know, sales pitch to new customers and, you know, turn that lever on? And AI separately, although the two obviously combine.
Yes, absolutely, for attracting a customer, there is no question, and when you come to the immersion event, you're gonna hear a senior seller explain exactly how her and her team are winning business because of the tool. For digital natives, those that are familiar with controlling their lives in other ways, in that kind of immediacy and transparency, they are absolutely drawn to us and you see that come through the Technomic winning positions. And we believe this is absolutely a winning play. AI is already coming to life in MOXē in a fairly meaningful way, the merchandising we do today is AI and engine driven.
But in that roadmap I laid out, what's next is improvements around the insights and the tracking based on AI, which we're seeing are more effective in our lab, and seriously coloring in the digital merchandising white space, which I expect us to drive into far more, menu segmented focus and personalization using AI. Probably our most extensive use so far is in MOXē, but you saw through the rest of the enterprise coming to life, too.
Okay, thank you. Appreciate your engagement here. We're gonna take a break until 10:45 Central Time, and we'll be back with an exciting second half. Hello. Good morning.
Morning. I'm Randy Taylor, Executive Vice President of Field Operations and Local Sales. I've been with US Foods for almost 20 years, starting my career in the field. Along that way, I had the honor of leading our Southern New England division as division president, as well as leading our largest region, the Southeast region, as the region president. Now in my current role, I'm responsible for the execution of our strategies through our field organization. That includes our region presidents, our area presidents, all of our broadline facilities, as well as their Stock Yards operations. Included in that is delivering against our customer value proposition through our local sales execution, and that's what I'll talk to you about today.
But before I get to that, I wanted to share a sneak peek of our upcoming marketing campaign that we're launching here in Q3, that we call More. It highlights our customer-first approach to, "We help you make it," and it's centered around our customer value proposition that you've been hearing about today. More quality, more tools, more support, and more deliveries. This campaign is going to be shown across multiple streaming platforms and have heavy digital placement, and it's going to target foodservice decision makers. And we expect to have 50 million impressions in Q3 alone. So without further ado, let's see More.
What's it take to run my kitchen? Come check this out.
Hey, what's up, chef?
Hey, what's going on? We good?
Yes, chef.
All right, let's go! Bring it in.
Yes, chef.
Food's huge for sure, but-
Long ground beef, chef.
Order. I got you. You got to make it that easy to order, too. I want beauties like that every single time.
That's what I'm talking about.
One sucks, we all suck.
I don't suck.
Oh, man, I love you, man. Orders in! two chicken, two rib eye, one mid, one well.
Yes, chef.
Behind. Behind.
Yeah, yeah, I got you. Menu check, chef.
On the left. Oh, my left.
I got it.
Ah, if it isn't my favorite sales rep.
Hey, chef.
Yeah, I see your pretty face right now. What's up, Pete? We got everything?
Yes, chef. Got everything right here.
On time, as usual.
Absolutely.
All right.
See you next time, Sully.
What's it take to run my kitchen? US Foods. We good?
Yes, chef.
All right, let's go!
Okay, clearly, we're really excited about this campaign. Hopefully, it brings a little bit of energy to you guys as well. So I got four key messages that I want to make sure that I land with you guys today. First, service is the foundation of the customer experience. You've already heard a little bit from Bill around what we're doing to enhance more flexibility and more convenience for our customers. I'm going to unpack that a bit more and show you what that does, creating a foundation for our sellers to grow.... Second, our team-based selling model is our DNA. We've been at this for over 10 years, and we're equipping our sellers better now, more than ever, with data analytics, proven playbooks, we're incentivizing them to grow, and we're also adding to that team. Third, you've heard a lot about our brands already.
I'm gonna connect some dots on what that means for our customers and our sellers, as well as the industry-leading tool, MOXē, and how that not only benefits our customers, but also our sellers. Lastly, I'm gonna show you how all this comes together in a marketplace and how it generates outpaced independent case growth, market share gains, as well as exclusive brands penetration. Let's jump into what delivering excellence at the local level means at US Foods. When I talk about local business at US Foods, what I really mean is independent restaurants. That is our target, and that is our focus. We have 150,000 local customers, with the majority of them being independent restaurants. I want you to just think about independent restaurants. I'm talking bar and grills, Mexican, and family style.
Those are some of the largest customer menu types inside of independent restaurants. Our customer value proposition is an ideal fit for the needs of these customers. They value our high-touch sales coverage sales model, they utilize more of our exclusive brands, and they value the digital tools that we bring to the marketplace. We are strategically focused on the right market, with the right products and the right tools. Let's look at the significant opportunity we have to gain greater share, both share wallet and case growth with independents. This industry, or this segment, is a large part of our industry. It's $79 billion in 2023, and we expect that to expand to $90 billion by 2027. As you've heard Dave mention, we have a relative share of around 18% with independents.
We expect those market, that market to grow about 2% on a relative case basis, but our goal is 5%-8% growth. I mentioned that we target the larger, more profitable customer menu types inside of independents, and I want to just highlight bar and grill for a second. Why do we target those? We target those because they're more profitable. Bar and grill, as an example, typically order larger orders. They're typically more penetrated with exclusive brands. They love our coverage model and our tools. And from that, as an example, we have 200 basis points more share in the bar and grill customer menu type than we do in total. So why does that matter? We're focused on the most profitable customer menu types inside of the independent restaurant space, and we're winning. And that's evidenced by 12 consecutive quarters of market share growth.
Let's talk about the team that delivers that growth, and this is our team-based selling model. You can see that our sellers are at the center of this model. They are the single point of contact for our customers, but they are surrounded by product and knowledge specialists to meet and support our customers' every need. So think about our customers. Whether it's product knowledge they're looking at, menu inspiration, or just business consultation, we've got a specialist that supports every need. And I mentioned that we're equipping these sellers better than ever. I want to tell you what I mean by that. We're focused on fundamentals and sales, just like Bill is focused on fundamentals and operations. What does that look like? Our sellers focus on pipeline management, at-risk account mitigation, as well as penetration opportunities with their existing customers on a daily and weekly basis.
We're supporting that with rigorous sales training, as well as we've got aligned accountabilities. You heard Dave mention this. Our local sales team and our field locations report to our area presidents. They are the P&L owners in our organization. Those P&L owners report to our region presidents, and they report directly to me. So we've got straight-line accountability for the results of our sales team all the way through our organization. We use a proven market share playbook. This is an internally generated playbook that uses Circana data, that focuses our sellers on the right customer menu types in their specific geographies that align with the assortments that's in our buildings. We've utilized this now for years and proven that it works. All this data and insights are provided directly to our sellers through our Salesforce tool in a moment's notice. So why is this important?
When we talk about more support in our customer value proposition, this is the team that brings that, and we're enabling customer success with the right resources, tools, and products. Okay, JT covered MOXē, and the one thing I'd say from a sales lens, we love this tool. It is great. I just wanted to highlight a couple of things that he didn't cover in total. He mentioned, or the video mentioned, the Did You Forget feature that's inside of MOXē. It's a simple feature that when a customer places their order, at the end of their order, it reminds them what they may have forgotten from previous orders that they should have ordered in this time. Get this: in 2023, there were 7 million instances where a customer added to their order from those prompts.
Now, while you might be thinking, "Well, that's great, you saved some sales that you would've maybe not got otherwise," here's why it really matters. MOXē got it right the first time for our customers. Because if they would've forgotten to order that, then guess what happens? A fire drill now exists in their world, and a fire drill in their world creates a fire drill in their seller's world. So MOXē not only is easy and convenient for our customers, it saves their sellers a ton of time. Lastly, and JT mentioned this briefly, the 30% reduction in non-value-added seller activities. This is all our customers using the tool, and it's so easy to use, that they don't really need to rely on our sellers for some of these non-value-added activities that we were doing in the past.
The reason that's important is because it frees up our sellers. I know we like to talk about adding headcount, which we are; we are also expanding the productivity of our existing sales team. That's really important. MOXē allows us to do that because they can now focus on new account acquisition or penetrating their existing customer base. It saves their customers time, and it improves their seller productivity. All right, our brands, Dave covered this well, Dave Poe. There's a couple of things I do wanna call out. Our exclusive brands, we mentioned this briefly. In an environment with rising food costs, does that sound familiar to anyone? Our exclusive brands create a lot of value for our customers. We're at 52% penetrated with independents, and we know we can grow that.
But here's the thing: I think Dave referred to it as a win-win. It's a win for us because it's more profitable. It's a win for our customers because it creates more value. I like to add another win to that. It's really a win-win-win, because when our sellers sell Exclusive Brands, it benefits them in their compensation. So our sellers are incentivized to sell Exclusive Brands, which in turn benefits their paycheck, which in turn benefits us from a profitability, which in turn creates value for our customers. Scoop. Scoop is all about innovation, but the one thing that is really critical is the labor-saving products that we've introduced. Labor costs are one of the biggest things, biggest challenges that our independent operators face today, and our Scoop products give them an opportunity to save that all-important cost to their P&L.
Lastly, I'll just talk a little bit about leading and fresh. We've really focused on produce for the last couple of years, and we've basically reengineered all of our processes and how we execute our produce program through our broad line operations. So hear what I said: we've basically built a specialty produce company inside of a broad line operation, and that's evidenced by 11% produce growth in 2023. We know we've got the same opportunity to continue to improve on proteins, and I'm gonna highlight Stock Yards next, which is a brand that will bring some of that to life. So just to wrap up our products, we've got an industry-leading portfolio.
They meet our customers' needs from a food cost standpoint, as well as a labor savings, and we're focused on the categories that really drive the customer's purchase decisions, that being the fresh categories. Not only does it drive their decisions on where to buy, but how frequently they buy. Let's talk about Stock Yards. Stock Yards is not only a brand, it's also our specialty manufacturing operations. Stock Yards dates itself back to 1893, when the first cut shop actually opened here in Chicago. And through those years, it's grown, and we are continuing to enhance our Stock Yards network, adding more cut shop facilities and four regional super centers. This gives us more control over our production, and more control over production means we can control our quality, and we can control our cost.
We know we can drive those same benefits in the protein categories, like I just showed in the produce category. Now, let me talk about this slide, and this is one of my favorites, and this is what really gets me excited from being in the field. We are meeting our customers' needs from a service standpoint, and we're doing it through three delivery channels. First, our traditional broad line channel. You guys know that by our big trucks, right? They're our big trucks you see on the road. When Bill talked about flex scheduling, what he didn't mention was by increasing the schedules of our productive workers, we've actually expanded the number of delivery days that we can deliver with our traditional broad line trucks. This increases the flexibility for our customers.
Not only do they have more delivery days that they can get a traditional broad line delivery, but they also have more time windows in which they can select from. When I talk about a traditional broad line delivery, think about a customer that gets two-three deliveries a week on that big truck. So we're enhancing the flexibility for those customers. Now let's talk about Pronto. You guys have heard about our Pronto service. It's for the dense urban environments, kinda hard to reach with those big broad line trucks. All of our Pronto sales to date have been from new customers that we've not done business with before, traditionally on the broad line side. The annual run rate of the sales of our Pronto service is gonna exceed $600 million in 2024.
Here's a point you may not have known: 33% of the independent restaurant growth in deployed markets is coming from new Pronto customers. Think about what that says. That says customers love the convenience and the frequency that Pronto Delivery offers them, coupled with broadline assortment. That is a compelling combination. But here's the new part, and something you guys should know. We are expanding Pronto service to our existing customer base. So I heard one of the questions earlier about, you know, how do you gain share of wallet? Well, in between those two-three deliveries on our broadline trucks, customers usually fill in with a jobber or a specialty guy somewhere in between. Now, with Pronto, we can maintain that share of wallet, filling in those non-routed days from broadline with Pronto service.
This gives us a chance to win those cases that would normally go to a smaller supplier. When I say Pronto, think about more frequency of delivery. But lastly, this is the one I'm most excited about, and this is all gonna be new: Recovery Express. When I talk about Recovery Express, think about same-day service in broadline foodservice, something that no one really does. And why would we do this? Think about a customer who has an unplanned event get scheduled at the last minute. How do they recover from that? Right now, that just creates a huge fire drill in their world. Recovery Express allows us to meet that customer's needs, be super responsive to them. Think about meeting your customer's needs in their most critical moments. You think that would build brand loyalty? I know we sure do.
Think about a kitchen manager who might be on vacation and forgot to tell the purchasing manager that they need to order a specific product for their night service. I bet you the chef at that restaurant would really appreciate their broadline distributor being able to deliver that product. That's what Recovery Express is meant to do. So when I talk about Recovery Express, think responsiveness. If you couple together the responsiveness of Recovery Express, the frequency of Pronto, and the flexibility we're adding to broadline distribution, we are building best-in-class delivery service for our customers. Now you can understand why the sales guy is excited. Let's talk about how all that comes together in a market. I could share how our customer value proposition shows up for our individual customer.
I think it's much more compelling when you see it in real life in an entire marketplace. I'm gonna highlight our South Florida market, and Pat O'Neill, who's the Area President, you will actually meet in the immersion experience today. Think about South Florida. It's a pretty fast-growing area, right? But did you know the diversity of the food scene in South Florida is one of the most diverse in the country? So what did we do to bring our customer value proposition to life in a fast-growing market with a diverse food scene? We did what our customer value proposition says: we added more support. We added specific, dedicated seller headcount into key geographies inside of South Florida. Think Miami, think Fort Lauderdale. We added more quality. We aligned our assortment to the customer menu types that our market share playbook pointed us to go after in that marketplace.
We added more tools. They're here on the right. Double-digit independent case growth. And you might say, "Well, okay, that sounds good, but that was a growing market." It delivered 130 basis points of market share gains in 2023. Our Pronto service is up to $1 million in sales per week in South Florida. That represents a 29% increase over 2022. And from the aligned assortment and targeting those most profitable customer menu types inside of independents, we grew our profitability in South Florida 16%. Now, you might say, "Okay, anybody can get, hit a home run for one year at a time." What's not on this slide, and you should know this, 2022 was a record year in South Florida. These results are on top of a record year.
That's what gives me a ton of confidence when I talk about our goals and what we can deliver in our long-range plan. 5%-8% independent case growth, that translates into 300 basis points of market share gains and 150 basis points of increased exclusive brand penetration. So I'll just recover where I started. Service really matters in this business. I know this from living it from the field. We're giving our sellers the platform to sell and win with a best-in-class delivery experience for our customers. Our team-based selling model works and wins. It's proven. They've got data-driven insights, they've got proven playbooks, we're incentivizing them to grow, and we're adding to their headcount. We've talked about our products. They're an ideal solution for the independent restaurant customer. And MOXē, that tool has been a game changer for our sellers and our customers.
And lastly, the story about Boca and the compelling story of growth that we can create when we deploy our customer value proposition with focused fundamentals on sales execution, we know that we can deliver higher independent case growth, market share gains, and exclusive brand penetration. I thank you for your time, and up next is Steve Guberman.
All right , Randy. Well, hello, everyone. It's great to be here with you today. I'm Steve Guberman, and I oversee our nationally managed business. I've been with US Foods for 33 years. I started the first 21 years in the field as a territory manager and had a variety of roles, including being a president over two of our distribution centers prior to joining our corporate team and leading the merchandising function. I've been in my current role since 2016. I am extremely excited to share four key messages with you today. First, how we're gonna outpace market growth with attractive customer types through our unmatched capabilities while maximizing our chain restaurant portfolio. How we are poised to continue to win share based on our differentiated selling model, our expertise, and long-term partnerships with group purchasing organizations, which I'll refer to as GPOs going forward.
Third, how our products, our data and technology, our digital capabilities, help our customers solve their greatest challenges. And fourth, how our clearly defined strategy is gonna drive significant case growth and market share gains in healthcare and hospitality, as well as continue to improve upon our exclusive brand penetration. So let's get into it, and I'm gonna just go a little bit deeper into those attractive customer types that we're gonna be focused on. Within healthcare, we'll be focused on acute care and senior living. Acute care, think hospitals and large health systems. In hospitality, we'll be focused on both lodging and non-lodging customers. Non-lodging, think about recreation and entertainment, where there's really pent-up demand for experiences. And then we'll be strategic in adding new chains. I'm gonna talk more about that in a little bit.
These attractive customer types deliver really nice economics, large drop sizes, and they value greatly... They benefit greatly from our value proposition. So let me get into it and talk about how we're gonna strengthen our leadership position in healthcare, with an emphasis on increasing our market share in the quick-growing senior living segment. Today, our market share in a matter of differentiation with our business solutions that no one else can offer, our expertise and our selling model. I will tell you that these large institutions need our help today more than ever, based on the margin pressures that they're faced with. I'm very excited about some recent enhancements we've made in our VITALS portfolio that unlocks the opportunity to drive significant share gains within the senior living segment, which is rapidly growing, as I mentioned. What's driving that growth? Well, the population is aging.
I don't think that's a surprise. In fact, the U.S. Census Bureau says that between 2022 and 2050, the number of Americans aged 65 or older is going to increase by nearly 50%. But what you probably don't know is that the number of skilled professionals to serve that increase in demand is actually shrinking. This is putting incredible pressures on senior living operators, and that's where we come in. Our enhanced VITALS portfolio solves that unique challenge, and to capitalize on that opportunity, we have doubled the size of our business development team and have already built an extremely robust pipeline with lots of momentum. The combination of our differentiation, our robust pipeline, and our added business developers will drive significant case growth as part of our long-range plan in healthcare.
The good news is we have a similar opportunity and approach for hospitality. Today, our hospitality business is weighted towards lodging, and we've earned that share based on our GPO partnerships, our differentiation, and our selling model. We are now accelerating the emphasis on growing in those non-lodging segments, like recreation and entertainment, as I mentioned. You know, you heard Randy talk about the team-based selling model and all the benefits it has for our independent restaurateurs. The same is true for our hospitality customers.
Just to put it in perspective, amidst all the staffing challenges our industry was faced with, two very large hotel brands took full advantage of our culinary expertise, our resources, and our product portfolio, and they designed specific menus and recipes that enabled them to open up and run their operations with less staff and open up sooner, which is just one of the many ways that we help our customers make it. We have a pipeline at historically high levels based on this focus. Between the current pipeline, very strong momentum that we are already seeing, early wins that we're in the process of onboarding, and our expanded business development team, we expect to drive significant case growth within the hospitality segment as well.
So now let's talk about strategic chains and how we are maximizing our chain portfolio to improve our profitability and reduce complexity. I think everyone is aware, building capacity and resources is a premium for all distributors. So making sure that you are onboarding and going after the right customers, with the right return on investment, is critically important to any distributor's success. You're likely aware that we've been on this journey for a number of years. It's something that's actually just part of our DNA. It's the way we operate, and we do it in two ways. First, we go after those customers that can really benefit from our value proposition and have the right return on investment. And second, we strategically renew our agreements to ensure they're a good fit and they're generating the right return.
You can see that we've been very successful. We've added a number of high-value chains, and we have renewed a majority of our customer portfolio at better economics. The combination of the two, the new business that we've brought on board, the renewed agreements that we have, is generating three times the profitability of those agreements that we did not renew. Pretty impactful numbers, and something that we expect to continue. Now that I've talked about our growth strategy, let's talk about the value proposition that's fueling that growth, and how by offering more, more quality, more tools, and more support, it's enabling our right to win. Starting with our quality products. I'm not gonna go into a lot of detail here, because what you heard from Randy and Dave Poe absolutely apply to our national customers.
These are important products that help them be successful, and we're committed to continuing to drive brand penetration with our national customers going forward. Let's talk about tools, starting with analytics. Analytics is extremely important in our business, and it benefits both our customers as well as us. Here's how. Baseline offers decades of robust analytics that help point to our healthcare operators where they have the biggest opportunity to improve their P&L. Then they team up with our team of experts, and we work with them to solve that and to take care of those areas where they have an opportunity to improve. Profit modeling, we've spoken about briefly already. This helps us understand exactly where we have the need and where we can improve the economics within our current customers or potential customers. And then predictive analytics we use in a number of ways.
I'll highlight one here that points to areas where we might be at risk with a current customer that gives us the opportunity to engage sooner, so that we can retain that business, which also helps fuel growth. Technology, you heard about MOXē and VITALS. I will tell you that what you heard from JT and Randy absolutely apply to our national customers, but there's even more that we do for them that makes MOXē so important. I'll talk about that on the next page. Let's talk about team for a minute, and more support. I mean, this is about getting more, not just internal resources for our customers to help them make it, it's also about external resources, and that shows up through our partnerships with our GPOs.
We have the opportunity to bring both selling organizations together to go out, win new customers and drive share gains with existing customers. And then our unique selling model addresses the needs of both our corporate contacts, as well as our contacts in the markets that we serve. This enables a very timely and consistent execution of strategies across the entire network, whether it is a strategy that's within US Foods to deploy or one of our customer strategies. And this is all enabled from an empowered single point of contact. So now let's dive deeper into technology, MOXē and VITALS. Nearly all of our national customers operate through our e-commerce platform, and we have almost 80% of them now on MOXē, with the rest of them gonna be on, on MOXē by the end of the year.
There are three unique and distinct capabilities that make MOXē so important for our national customers. The first one is centralized control and contract compliance. Now, while other competitors might talk about this and make it available through a third party for a fee, it's fully integrated in our all-in-one MOXē platform. It makes it easy for our customers to drive high contract compliance. In fact, what we find is those customers on our platform will generally create a 30%-50% higher contract compliance than before, which is critically important because that's where they can drive down cost of goods. So they see tremendous benefit there. The other is business analytics.
This is KPIs at their fingertips, along with real-time information, and this is available whether it's for one of their many locations. They want to take a look at it from a market perspective or across the entire network. The real-time data feeds enables them to run a theoretical food cost, which is also critical to large customers' success. Then there's inventory management tools, which helps ensure they're buying right and they're maintaining the optimal amount of inventory in their business. Now, let's talk about how we offer even more to our healthcare customers through our Vitals portfolio. This is something we're extremely excited about. These are tools that have been used and improved year over year to where we've now relaunched this platform as Vitals with the enhancements that I mentioned before.
VITALS helps solve our customers', our healthcare customers', four biggest challenges: the need to improve patient and resident satisfaction. This is what drives their reimbursements. It's critical to their success. They're feeling the margin pressures. They need to find ways to take costs out. They need to improve their labor and staffing results, and they need to improve their retail performance. We find that when customers take full advantage of our VITALS portfolio and they engage with our business and menu solutions experts, they save on average 5% of their total costs. Think about that for a minute. You know the margins in this business. In fact, over the last few years alone, we've saved our healthcare customers over $200 million. And with the enhancements to VITALS, we're seeing engagements increase very rapidly. We did 4,700 last year alone.
Our tools and our technology are easy to use, and when you combine them with our selling model, it is a winning combination. We know that the more frequently you engage with customers, it drives growth. Not a surprise. Our customers benefit from multiple touch points from a cross-functional team of experts, shown on the left, which includes the specialists that Randy had mentioned as well. While team-based selling is not a new concept for us, it's something we've been at for a while, as Randy mentioned, we meaningfully enhanced it and transformed our field selling organization last year. Here's what we did: We organized all of our customers based on their need, what types of engagements they were looking for, and what frequency of those engagements.
Through that work, we stood up an inside sales team to take care of those customers that did not require a seller to see them in person. We standardized all the support functions for our account executives, and we centralized a tremendous amount of administrative work. This freed up time, significantly improved their productivity, improved the customer experience, and is delivering better outcomes. Just to put it in perspective, when we engage with customers with the right frequency and the right way, we see 2x the growth rate prior to these changes that we are making. So with that said, I've covered a lot. I've talked about our value proposition, I talked about our growth strategy. I thought it'd be nice to pivot for a minute and hear from one of our largest customers and strategic partner, Joan Ralph, with Premier.
Now, Premier is a group purchasing organization, but they're really much more than that. They're a company that is driven towards making the healthcare industry better, and we've been partners with them since the 1990s. Joan has played a very important role. She has personally helped shape our differentiation strategy in healthcare. So let's hear from Joan.
We are true partners from the standpoint that we evaluate what is going on in the industry and what opportunities exist for creating new and innovative ideas and products to bring the greatest success to customers. What is important in today's world for growth, both for Premier and US Foods, is to provide differentiation in the marketplace. And so the ability to have a total solutions program that is really driven towards making operations, food operations successful, is absolutely critical to growth in today's market. The US Foods exclusive brand portfolio receives a high degree of evaluation by our members, and as a result, we have awarded numerous contracts to US Foods for their private label because of the outstanding performance of the items.
The team from US Foods, and that is a very broad team, and one of the benefits of having this team is that they've worked with us for so long, and they understand the unique value proposition that our two companies bring together to the end customer. The needs of the members on components and capabilities that would help them make better purchasing decisions and improve their operations have been incorporated into their technology. US Foods is a company that values integrity above anything else, so when they make a promise or they make a commitment, they keep it.
All right, Joan, thank you very much for your partnership. I think you might be listening out there and also thanks for taking the time to make that video for us. We really appreciate it. All right, so what does this mean for our business? It means that we're going to drive 3%-5% case growth each year within the healthcare and hospitality space. We're gonna generate 300 basis points of market share improvement, and we're gonna improve our exclusive brand penetration by 150 basis points. So let me finish with where I started. We will outpace market growth in attractive segments through our unmatched capabilities, and we'll continue to maximize our chain restaurant portfolio. We have everything we need to continue to win share through our expertise, our selling model, and our partnerships.
Our brands and our digital capabilities help our customers make it, and this strategy is going to drive significant case growth in healthcare and hospitality, continue to drive market share gains, as well as improve our brand penetration. So with that, I thank you for your time. I look forward to answering any questions you have in a little bit. And now I'm gonna turn it over to Martha to talk about how we help you make it responsibly. Martha?
Thank you, Steve. Good morning, everyone. Thank you for coming to our Investor Day. I am delighted to be here. Before I start, I just wanna say I am the general counsel and the sustainability lead for the company. I joined US Foods about eight months ago from Medtronic, where I was the sustainability lead there for seven years, and my team and I built their sustainability program from the ground up. So let's take a look at US Foods' sustainability strategy. We think about our sustainability strategy as part and parcel of our corporate strategy. It's embedded in our operating model. You heard Dave talk about that earlier. It's embedded in the core element of culture. Our sustainability strategy revolves around three pillars: people, planet, and products. To that end, our focus is clear.
We wanna foster a safe, supportive workplace that attracts, develops, and retains top talent. We wanna preserve the planet by controlling the things that we can control, such as our fleet and our facility emissions. And finally, as a food service company, we delight in the fact that we can develop sustainable, innovative, and profitable products through our exclusive brand product portfolio. The takeaway here is that our sustainability initiatives help achieve our goals and deliver value to all of our stakeholders. So let's take a look at our sustainability journey to date. I know this slide starts in 2018, but our journey actually started over a decade earlier, in 2007, when we started to collect our greenhouse gas emission data. In 2016, we launched our Serve Good product portfolio, which I'll talk about in a little bit.
In 2018, we launched our Serve Local product program, where we try and source products locally in our communities where it makes sense. In 2018, we also published our very first sustainability report. It was called Corporate Social Responsibility at a Glance, and it was four pages long. In 2019, we completed our very first CDP Climate questionnaire. Fast-forward five years later, in 2024, our disclosure and transparency has increased exponentially. We now report against multiple disclosure frameworks: TCFD, SASB, and GRI, just to name a few. We also continue to complete annually the CDP Climate questionnaire, and we've added on responses to the CDP Biodiversity and Forest questionnaires.
We've implemented annual sustainability outreach with our shareholders in the fall of every year, primarily to talk about our sustainability program, our goals, our objectives, and our progress against them. We also have established Science Based Targets initiative-approved greenhouse gas emissions targets, and we've evolved our sustainability working group into a sustainability steering committee. Looking into the future, we're gonna continue to focus on transparency and our quantitative disclosures. For those of you who've had an opportunity to look at our 2023 sustainability report, just released a couple weeks ago, I hope you've noticed we've actually increased our disclosures around diversity and inclusion, greenhouse gas emissions, and also our SASB disclosures. We'll also stay focused on our goals for our Scope 1 and Scope 2 greenhouse gas emissions reduction, and we'll always continue to evolve our governance practices. Now, let's look at some of the highlights from last year.
In terms of people, you heard Dave talk about this, we filled over 50% of our new or open leadership positions with diverse candidates. That exceeds our 40% goal. We also surveyed our associates twice last year on their feelings of inclusion, which grew 300 basis points throughout the year. In both surveys, it exceeded our external benchmark. In terms of planet, we saw a 2% decrease in fuel intensity, that's gallons of fuel used per case delivered, despite a 5% increase in total cases delivered. We also completed delivery of nearly 100 alternative fuel vehicles, and our electric vehicles drove over 250,000 miles last year. In terms of products, our Serve You product portfolio is now over 3,300 products. In Serve Good, we actually added a new category of products called Climate Conscious.
Those are products that are manufactured and produced specifically with greenhouse gas emissions in mind. So while we've made some progress to date, we still consider ourselves in the early innings of our sustainability journey, and we know that there's more work to be done. Now let's talk about our people pillar. I wanna underscore the importance of our associates. Our associates are the backbone of our company. When we think about being the employer of choice, it's really all about getting talent attraction, talent development, and talent retention right. How do we do that? Again, it's embedded in our operating model, in our core element of culture. What's our culture here at US Foods? Our culture is one of safety, support, and responsibility. Lying at the heart of it is our cultural belief called You Matter. You Matter exemplifies our commitment to diversity and inclusion.
You Matter exemplifies our commitment to providing a place where all associates can come and bring their whole selves to work, and that's what attracts top talent... In order to further the education and awareness of our culture here, we offer culture activation sessions, conscious inclusion bias training, and mentorship programs, just to name a few. When we think about development, we have a suite of development programs and opportunities available to all associates, at all levels and at all stages of their career. Some of our development programs are offered broadly to all associates, and some of those programs are tailored to specific roles.
Some examples are our LEAD program, which is developed for our operations associates, our STEPS program, which is available to our sellers, and our Aspire to Lead and Aspire to Grow programs, which are available to our high-performing managers, directors, and vice presidents to accelerate their leadership readiness. In terms of talent retention, we know that the key to talent retention is understanding what's most important to our associates, what are we doing right, and quite frankly, what we can be doing better. How do we know? We ask them. We ask them formally, and we ask them informally. Formally, we ask them through surveys, like our inclusion survey, our engagement survey. Informally, we ask them through listening sessions, town halls, one-on-ones, mentoring sessions, and through our ERGs, our employee resource groups. We have 10 employee resource groups here at US Foods, with 3,400 members.
That's an increase of over 50% membership over 2022. Our ERGs are volunteer, employee-led organizations that serve as a resource to its members, as well as to US Foods. It's a place where members can build a sense of community and continue with their personal and professional development. It should come as no surprise to you that associates who are members of our ERGs categorically score higher in terms of their feelings of engagement and inclusion than associates who are not members. Looking now at our planet pillar, many of you know that our publicly stated environmental commitment is to reduce our absolute Scope 1 and Scope 2 greenhouse gas emissions by 32.5% by the year 2032. How are we doing so far?
We set those targets in 2022, and in less than two years, we've reduced our Scope 1 and Scope 2 emissions by 6% versus 2019 base year. The underlying theme for us, though, is to deliver cases more and more efficiently, and in doing so, we also like to look at our intensity metrics. How are we doing there? We've reduced our fuel intensity, again, that's gallons of fuel used per case delivered, by 6% versus 2019. We've also made progress in reducing our emissions intensity and our energy intensity versus 2019. We've reduced total miles driven, 2023 versus 2020, 2019, by 7%. And as I mentioned earlier, we did complete nearly a hundred delivery of a hundred alternative fuel vehicles to our fleet.
Let's take a moment now to pause and take a look at one of our electric vehicles.
Once the drivers get in the vehicle, they don't want to get out. It's truly a better driving experience. It's better for our drivers. I know it's better for our customers. They prefer it.
I love that video. It makes me want to get behind the wheel and drive it, although everybody would have to get off the streets then. That video actually just underscores for us the point that things that are good for the environment also are good for our associates and, quite frankly, our business as well. Moving on to the product pillar. When we think about products and sustainability here at US Foods, we know that sustainability is actually a key differentiator when it comes to winning business and delivering our key results. How is sustainability a key differentiator when it comes to food? Meet Serve Good, Serve You, and Serve Local. These are all part of our Hungry for Better portfolio. Our Serve Good product portfolio is our award-winning portfolio that carries third-party sustainability certifications.
Our Serve You product portfolio, that grew over 94% over 2022, is our award-winning product portfolio that addresses diverse diet and lifestyle preferences. Think on-trend, plant-forward, or products with simple ingredients and clean labels. And as I mentioned earlier, our Serve Local product program is where we try and source products locally in our community. The takeaway is that differentiation really is all about innovation. You heard Dave Poe talk about our award-winning Scoop product platform, and that we just had our spring launch this year of 24 new products. Differentiation also means holding ourselves accountable with responsible sourcing standards and diversifying our supplier base. And finally, differentiation means staying on trend with the diverse diet and lifestyle preferences of our diners and our customers. Moving on to governance. So I'm smiling because I'm gonna compete with JT for the biggest geek award.
As the General Counsel and the Sustainability Lead, you can imagine how governance is near and dear to me. So I won't talk all day about this, but the takeaway here is that we've strengthened our sustainability program by advancing our governance structure. How have we done that? We've evolved our sustainability working group into a sustainability steering committee, comprised of executive-level management and leaders of our key functional areas and subject matter experts. That said, we've retained the fundamental core building blocks of our program. We've retained horizontal alignment in terms of our focus areas, whether it's Board, committee, sustainability steering committee, or centralized management, all are aligned around our key focus areas of people, planet, and product.
On the other hand, we've maintained vertical alignment in terms of oversight structure, with our board of directors having ultimate oversight over the sustainability strategy and visibility into our goals and our progress against them. Our sustainability steering committee, in partnership with our sustainability action teams, give oversight and direction to our people, planet, and product working groups. This advanced governance structure helps us stay, focused and on track in terms of our commitments, whether they are our greenhouse gas emissions, whether it's to enhance our transparency and our quantitative disclosures, or improve our governance and increase our diverse leaderships. It helps us stay on track. So to wrap up, I actually want to borrow Steve's phrase, which is, "I'd like to end where I began," and that is that here at US Foods, our sustainability strategy is part and parcel of our corporate strategy.
It's embedded in our operating model, in the core element of culture. We have thoughtfully and intentionally selected our goals, objectives, and priorities with three things in mind. First, what's the right thing to do for our associates? Second, what's the right thing to do for our planet? And finally, how by developing sustainable, innovative, and profitable products, do we do right by our diners, our customers, and our stakeholders? When we think about sustainability here at US Foods, we think about a sustainable strategy and not just a sustainability strategy. Thank you for your time. And now, I want to turn it over to someone who needs no introduction, our Chief Financial Officer, Dirk Locascio.
Thank you. Wow, I don't get that very often. Well, thanks. I'm excited to be here and talk to you about our financial performance and our business drivers, as well as our outlook. US Foods has delivered strong financial performance based on our customer-focused strategy, greater operational rigor throughout the business, and an intense focus on execution. We've driven that financial performance through a blend of margin expansion, productivity, and market share gains in the three customer types you've heard today: independents, healthcare, and hospitality. We've also leveraged those earnings into strong and growing cash flow that we've applied to support our strategic initiatives and our four capital allocation priorities. Today, as Dave talked about earlier, we're introducing our new 2025-2027 financial targets, and I'll talk through more of the detail on the how, as well as the outcomes for 2027.
US Foods has a long runway of growth ahead for shareholder value creation and strong performance. First, though, I'd like to briefly touch on our status against our current long-range plan, which ends in 2024, and that we introduced back at the beginning of 2022. We've made significant progress, and we are on track for our $1.7 billion target. We definitely didn't get there in the way we originally planned, which I think really demonstrates our agility and our team's focus on the controllables. We significantly outperformed our original plan on gross profit per case gains, and although we made a lot of progress, we were a little light in the other areas. Over this period, what we saw was the macro didn't recover as quickly or as fully as we originally expected.
We in the industry faced significant supply chain wage inflation and turnover. During that time, what we did is we accelerated our work in other areas around share gains, cost of goods improvement, addressing pricing to make sure the pricing with customers manage the environment we're operating in, and more effectively managing our inbound logistics. Last year in 2023, as we saw wage inflation return closer to historical levels, and the actions we put in place to improve turnover began to take heed, we drove accelerated productivity. And so in 2023, you saw our OpEx per case increase was much more in line with historical levels. So again, we definitely didn't get there the way we originally planned, but we are on track.
During this time, what we've done is we've simplified our focus, we've elevated, elevated our capability in a number of areas, and we've combined that with greater focus in execution. That really sets us up for strong results this year and to come. In 2022 and 2023, we drove meaningful top-line growth. We've significantly increased our Adjusted Diluted EPS and our Adjusted ROIC, with strong growth metrics in each, and as Dave mentioned earlier, an acceleration from historical levels. Our guidance and expectation is to continue that in 2024. We talk a lot about being prudent stewards of capital and optimizing our customer mix, and you see that show up in our return on invested capital improvements, and we expect that to continue. That significant increase in Adjusted EPS that I talked about, that's driven by our Adjusted EBITDA growth.
In addition to driving EPS, that adjusted EBITDA, plus effective management of working capital, has led to strong and growing operating and free cash flow. We've generated a free cash flow to adjusted net income conversion rate of approximately 100%, which we expect to continue. That adjusted EBITDA growth has been a blend of the profitable volume growth that you've heard, as well as our EBITDA margin expansion. You see here the significant increase in EBITDA per case. That's been the result of a lot of hard work, which you heard the others talk about today, across gross profit and operating expense. You heard Dave talk about strategic vendor management and the work we've done there. It helps us, but also helps our vendors with our above-market growth. Customer mix improvement. As we grow faster than the market, other more profitable customer types.
Pricing optimization, again, making sure that our pricing properly reflected the inflationary environment we're operating in, and inbound freight management. OpEx productivity has been a combination of supply chain and admin. Supply chain, which is over half of our cost base, some of the things Bill talked about. It's been around routing, flexible scheduling, and turnover. Admin includes the $55 million of actions we've taken this year that we've talked about already. And that $55 million includes the $15 million of replenishment savings that Bill referenced earlier today. And finally, with our indirect spend, we're ramping that work up, and we expect that savings to continue to accelerate this year and beyond. In addition to strengthening our P&L, we've been intensely focused on our leverage and our capital structure. We've reduced our leverage through the combination of debt paydown and earnings growth.
At the end of the first quarter, our leverage was at a very healthy 2.8 x, well within our current leverage target of 2.5x-3 x. We've also been proactive in managing our debt maturities, and later this year or early next year, we'll do the same with the one maturity that we have in 2026. We've also been thoughtful in the laddering of our maturities, as well as moving more debt from secured to unsecured. Our capital structure is strong, and I expect it to only further strengthen in the coming years. I talked earlier about our strong cash flow. That strong and growing cash flow through 2024 is expected to generate $2.6-$2.7 billion of deployable capital.
Investing in our business is key, and we have and will continue to do that with about a third of it deployed to cash CapEx. Earlier in our long-range plan, we focused more of it on paying down debt. In 2023, we shifted to more of a balance between that and beginning to repurchase shares, since our leverage was well on track to achieve our target range. We also, in the last, second half of last year, began to pursue tuck-in acquisitions with 2 transactions. We completed another one in April of this year. For the balance of this year, I expect the bulk of our deployable capital, beyond cash CapEx, to be applied to increased share repurchases. I think this really demonstrates our financial strength and our view that our shares remain undervalued. Specific to M&A, as I referenced, we've completed three transactions in the last year.
And as Dave talked about earlier, the characteristics that we focus on are well-run businesses that over-index to independents, and they can help us increase local density and take miles out of the system, all with solid financial returns. Renzi and IWC, they check all the boxes, and those look more like the transactions you'd expect us to do going forward. Saladino's had more chain business than we would typically want. However, it worked in that particular geography, as we have several chain-focused distribution centers that can take on that business and allow us to accelerate our growth with more presence closer to the customer in Central California. And the lower multiple, 5x-6x we paid for that, reflects the difference in the business. As Dave talked about earlier, we have been and we will continue to be opportunistic in pursuing our tuck-in M&A.
Now, let's look ahead to what you really want to talk about: our new financial targets. The earnings and cash flow is expected to generate more than $4 billion in deployable capital. We will continue to invest in our business for organic growth, with about a third of it deployed there. We'll also continue to opportunistically pursue tuck-in M&A. We've assumed here approximately $250 million a year for spend on tuck-in M&A. What you see is the significant increase in expected share repurchases. As we announced today, and Dave talked about, we're announcing a new $1 billion share repurchase authorization. In addition to these three areas, we will remain intensely focused on the strength of our balance sheet.
Today, we're also updating our target leverage range from our prior 2.5x-3 x to a new 2x-3 x leverage range, and we expect to be at the lower end of that range by 2027. Our cash flow and deployable capital demonstrate the resiliency of our business. Hopefully, you see here is that we can combine accretive capital deployment to create shareholder value with strong P&L results. So for the P&L targets for 2025-2027, we expect net sales to grow at an approximate 5% CAGR, reaching $43 billion-$45 billion in 2027. We expect adjusted EBITDA to grow at approximately 10% CAGR, reaching $2.2 billion-$2.3 billion.
That's through a combination of volume growth and 20+ basis points of margin expansion each year, with margin reaching an estimated 5.2%-5.4%. And finally, we expect adjusted diluted EPS to grow at approximately 20% CAGR, reaching $5.20-$5.70. Let's click down now into these metrics. For net sales, which, as I mentioned, we expect to grow approximately 5%, we expect most of that growth to come from case growth. We have included 1%-2% of inflation assumption in there. Since none of us know exactly how inflation's gonna play out, we've kept our assumption pretty conservative. We expect that case growth to be a combination of share gains, as well as some market growth and the M&A.
Within the case growth, which we estimate and expect at 3%-5%, we expect that to come from above-market case growth in the target customer types that you've heard Randy and Steve talk about, with independents at an estimated 5%-8%, healthcare and hospitality at 3%-5%. We expect that above-market growth to come from the differentiation that you heard JT, Steve, and Randy talk about. We have a long runway of growth in each of those customer types, combined with the M&A. Moving now to Adjusted EBITDA, which we expect to grow at an approximate 10% CAGR. We expect that to be a combination of volume growth and margin expansion. I just talked about the volume component, so on this page I'm gonna focus on the margin expansion.
We expect our gross profit dollars to grow at 100-150 basis points faster than our OpEx dollars. We expect that to come from a combination of gross margin initiatives and OpEx. Gross margin will be a lot of what you've heard about today. Further improvement that Dave talked about on cost of goods, the next-generation pricing, which targets improvement on lower-margin items and customers, our Stock Yards capability acceleration, driving growth and margin expansion, and further penetration with our exclusive brands. OpEx productivity to be a combination of supply chain and admin. Supply chain, from the things Bill talked about around standardization, UMAS, routing from which is both process augmented by the Descartes rollout, as well as flexible scheduling. Indirect spend, we're ramping up our work, as I mentioned earlier there.
This is a more than $1 billion dollar bucket of spend, and we're expecting to reach more than $60 million of annual savings by 2027 through improvements in policy, aggregation of spend, and managing our demand. And finally, admin savings through better use, and further use of technology, managed services, and continuous improvement. And finally, we expect M&A to contribute, albeit less than the organic drivers of volume, margin expansion and OpEx. So on to EPS. So EPS, which we expect to grow at approximately 20% CAGR, or twice the rate of growth from EBITDA. We expect most of that growth to come from the EBITDA growth, followed by the accretive impact of the significant planned increase in share repurchases.
And then we expect interest and depreciation are largely offset, plus the impact of the benefit of the M&A, reaching $5.20-$5.70. Our industry-leading performance and improved execution last year build upon our progress from 2022 and set US Foods up for strong results through 2027. At the same time, we believe our valuation makes USFD a compelling investment. Strong capital structure, strong earnings growth, and accretive capital deployment: it's a pretty powerful combination. You've heard us talk today about our plan and our expectation for continued strong results with our strategy, operational rigor, and even further expectations for improvements in execution. We'll continue to do that through the combination of margin expansion, accelerating our productivity, and market share gains.
We'll also leverage those earnings into strong and growing cash flow that we'll deploy against our four capital allocation priorities, with an increased deployment towards share repurchases. US Foods' future is bright, and our opportunity and expectation for a long runway of shareholder value creation and strong financial results are there. Thank you. With that, I'll turn back to Dave for his closing comments and then our second Q&A session.
Thank you, Dirk. I hope you've enjoyed this morning as much as I know our team is presenting, enjoyed presenting the details of our business and how we plan to continue to win in this large, resilient industry. I'll start where I, finish where I started. I shared with you this morning that there were gonna be five key messages throughout this day. Let me just recap what you've heard. We are transforming this company with a seasoned leadership team, customer-first solutions, operational excellence, and we will continue to do exactly what we commit to you that we will achieve.... Second, we are a leader in this highly fragmented but yet resilient industry, with large national scale, targeted customer growth. You've heard great detail about that today.
We're driving the best balance in the P&L of anybody in our industry, from top line growth and leveraging that to the bottom line. We are the industry leader in digital innovation, and you heard from JT, the investments that we continue to make and how we will maintain that leadership for a long time to come. Finally, we're executing to achieve this new long-range plan. We're excited about that, all underpinned by the accelerating free cash flow that you just heard Dirk talk about. Importantly, we are continuing to work on helping our customers and our associates make it, and we're wrapping that with our strategy-driven and operating model. We know exactly how we're going to achieve those targets.
As a final reminder, those targets are 5% on the top line CAGR, 10% on the bottom line, at least 20 basis points per year of annual EBITDA margin expansion, and an adjusted EBITDA or EPS growth of 20% per year, all underpinned by at least $4 billion of deployable capital in the years 2025 through 2027. We would welcome your investment in US Foods. We're excited about our future and appreciate everyone attending today. With that, I'd like to invite our second-round speakers back to the stage, and we'll handle one more round of Q&A before we let you go. Thank you. Maybe we answered all the questions earlier. Let's see what we got. Oh, hands are going up all over the room. You got a microphone here?
Yeah. Right there. So, the 5%-8% independent case growth, so how do you, how do you, break that down? New accounts, existing accounts, right? And then, then you think about, average market share, right? Which I guess some people think it's 30% or ... So maybe talk about that as well and the opportunity to take from specialty distributors, 'cause obviously, drop size is the most profitable-
Sure.
but new accounts are critical to growth, too.
I'll let Randy take a swing at that one.
Sure. So obviously, a lot of our case growth comes from our new account acquisition, and that's something we focus on heavily. We're also focused on that share wallet expansion and things like I talked about with Pronto penetration or our focus fundamentals with our existing base. So I think it's gonna be a balanced combination of both new and penetrating our existing business further.
Hi, I'm Kelly Bania from BMO again. I guess, a lot of investor questions about the sales force and the growth there. You guys have been very consistent over the years. But just remind us how that plays into the 5%-8% growth outlook, and also, if you could tie in just how the compensation structure changes have gone recently. Are you pleased with the response of that? Any further tweaks that we should be aware of or any competitive response to note?
Yeah, let me just start, and then, Randy, you can add any color. So to your point, Kelly, we have been adding to our sales force at a historical level, right? We've been doing this for a long time. It's part of our growth algorithm, and that is embedded in the 5%-8% case growth. And we've said consistently, we will continue to add low to mid-single digit headcount in our sales force.
Yeah, and just on the comp model, as you guys know, we launched the new model in January, first of the year, and it's performing exactly the way that we would expect it to. You know, we're seeing growth from our sellers and those sellers that are growing and achieving their targets. And again, just a reminder, that's based on case growth and our exclusive brand growth. When they're hitting their targets, they're making more money.
Remember, we variabilized an increased amount of our sales compensation. I want all of our salespeople to be hungry and looking for that next increment of growth, and I think that made total sense.
Hi there, Jeff Bernstein again from Barclays. Two questions. The first one, just on the EBITDA margin. Dave, you mentioned a few times, at least 20 basis points per year. So it seems like there's potential for upside. I'm just wondering if you could talk about, you know, the greatest buckets, or maybe Dirk could talk about just the greatest buckets of opportunity, whether it's sales leverage upside or whether it's from a cost-saving perspective. Just trying to get a feel for how we capture that 20+ basis points and what the potential upside is. And then I have one follow-up.
I'll just start, and then I'll flip it to Dirk for all the detail and the color. I just want to emphasize again, Jeff, this point of leveraging our top line growth to the bottom line and all the work that you've heard about today, from the cost of goods sold work to improving our profitability at the customer level through enhanced gross margin and pricing optimization, in addition to the accelerating work we have going on around productivity in all aspects of the business. So it's gonna be a balanced view on how we get there, and to your point, we're confident we're gonna achieve at least those 20 basis points per year. Dirk, what would you add?
Right, and our goal and our target and the way we set this up is to offset all productivity or also all of inflation with productivity from OpEx. So therefore, our gross margin expansion that Dave and others talked about flows through to the bottom line. So that's kind of the way to think about it is getting much more leverage out of that gross margin by driving OpEx productivity.
Got it. And just my follow-up, Dave, you sound quite confident, which is encouraging to hear, and I know you said we're going to achieve these targets in any macro,
If you worked with this great team, wouldn't you be confident too, Jeff? 100%.
... But achieving it in any macro seems tough. I know Dirk mentioned earlier you achieved your last three-year targets, but boy, you didn't get there the way you anticipated. So I'm just wondering, you know, what if you don't achieve that 5% sales growth over the next few years, I'm just wondering, you know, how will you—what do you think will be the other offsetting factors that would get you there? I'm just wondering, obviously, in the macro we're in right now, there's a lot of uncertainty, especially from the top line. So I'm just wondering your confidence on the top line relative to the bottom, and how you might ultimately achieve that if the sales didn't come through.
Yeah, I, I think, you know, normal operations, everything else being equal, the macro ebbs and flows, I'm confident in the top line. Should the world have a big challenging event like we did four years ago? All bets are off on the top line, of course. But short of that, the compelling business case that we put forward today and our ability to self-help, through taking market share and continuing to drive these three targeted customer types that we've got differentiated models for, give me great confidence that we're going to achieve that top line.
And that's really why that looking ahead and why I even made the comment about it, that it didn't work out in the same way, 'cause we know in this plan, not everything's going to work out in the way we contemplate. But, you know, when we talk about control the controllables, that's the way this entire team thinks about it. And we know that things aren't going to play out exactly. So that's why it's so much drive and push on the things that are within our four walls that we can control.
Thanks. Peter Saleh, BTIG. Just, I guess two quick ones. On the Chef's Store, is that included in these numbers, or is it excluded? How do we think about the guidance going forward and the baseline on, on Chef's Store? And then, you said $60 million of annualized savings, by 2027, indirect costs. Can you just give us an, a sense of how you're ramping to that, and will you be done by 2027 in terms of the indirect cost cuts?
Sure. So, with the indirect spend, we will ramp up, so you'll see that continue to increase. There's not a big hockey stick or anything there. It increases. I'd say, just like Dave Poe is never done on cost of goods, I doubt that we'll be done, but we will get pretty far along. So as far as the Chef's Store, we have not pulled those numbers out of here, but what I would tell you is we are confident in the algorithm we laid out today, with or without Chef's Store, and we're confident in the end targets. And well, as Dave said, we'll give an update on that process, as it proceeds.
Thanks. I'm wondering how we should think about the details of cash CapEx, and in particular, the split between the spend you got to, make to realize productivity versus capacity. And then regarding the latter, if there's an upside scenario to play out, how are you thinking about the capacity in the system to meet the demand? Thanks.
Sure. So our cash CapEx is, it's always contemplating a blend of, I'll call it maintenance CapEx versus whether it's expansion and/or IT. The facilities that Bill talked about today, those are all contemplated in our outlook here. When we're looking at capacity, we're always looking at multi years out, well beyond these three years, because we know that facilities take a couple of years to build. So that's contemplated. I think the other thing on capacity, as Bill referenced, is the thing that we don't rush to is, okay, it looks like it's getting full, we need to build a new building. I use the example of our one of our California buildings.
It was quote, unquote, "full" when I got here in 2009, and we just opened one four or five years ago there because the team did an excellent job, and they still grew top line and EBITDA. But why we pull all those levers of growing with the right customers, optimizing the product assortment, et cetera. So I think to reach an upside on a sales, it's not, it doesn't need more capacity through here.
Okay, then if I could just follow up on a question about Pronto, sort of related. How is the system set up to meet demand that is, you know, in densely populated urban areas, if it's what, a 15- or 20-mile radius, just in terms of getting the product to the customer?
Was the question specifically about Pronto?
Yeah, specifically about Pronto.
Yeah. So yeah, the Pronto model is designed around those dense urban markets. So since we've been doing this now for several years, we're just further widening that circle, that geography that we cover inside those markets. So it's designed for those dense urban markets. So we use smaller trucks to get into those tighter spaces.
Some of those may be near, some may be a little further from the DC, if that's where you're going. It's so they may drive a little further, but because they're so dense, once they get there, the trucks don't drive very far. And so the way that this works is, it's a little higher cost for us to serve in that case, but for the convenience, in that case, we typically get paid a little higher. So overall, they're just as profitable as our overall independent base.
Thanks very much.
Thanks, Jake Bartlett from Truist Securities. Just to follow up to that last question, you mentioned bringing Pronto and making it available to your existing customers. I just want to make sure I understand what that means. I think Pronto is in the urban market, so I just want to make sure, just to understand what that means. And then, Dirk, in the build-up to the margins, where does pricing, you know, fit in? Because you've talked about kind of offsetting your operating cost inflation with productivity improvements. Don't you have just an underlying kind of increase in price that you're charging your customers that would offset some of your inflationary pressures? Just trying to see where that fits in.
Maybe, you know, it's based on the idea that we're not—you're not going to be able to pass very many costs on to the customers in the next few years, just given where we're with the starting point now.
Sure. I'll take that, and you can talk about Pronto then after that. So yes, we do have escalators with some customers that have contracts, so that's a portion. That would be a piece of what we have included in our gross margin increases over time... but you know, a big piece of it still in the business is we have to drive a lot of OpEx productivity to offset the cost inflation that we're incurring there on a regular basis.
Let me just add a little color. If I was a customer of US Foods, the first question I would ask you when you came to me with a price increase is: What are you doing to get more efficient and offset those costs yourself before you come to me for that price increase? That's why we're working so hard to drive that productivity, and we're taking a portion of those savings and reinvesting that into all the things you heard today to drive future growth.
Yeah, and on the Pronto penetration, right now, we're in 39 markets with Pronto. And inside of those markets, we focus on just the dense geographies inside of each one of those markets. For the Pronto penetration, we're gonna start slow and open that up and expand that to our existing customer base in those geographies, and just grow from there. So we'll start small inside of a, you know, a geography around our distribution centers and then continue to expand.
That's the key point, Jake. We're in 39 markets today, but we have not yet taken the offering to our existing customers. We've already proven the model in all those markets.
Thank you. Andrew Wolf, CL King. A couple of follow-ups, first for Dirk. Do you assume a higher kind of general increase in cost, labor, and other costs, in this period, out to 2027 than previously? And is that part of the exigent - you know, the need for the greater productivity improvements, just as the model works?
We do assume a little higher wage inflation in this one versus what we've been at historical levels. And that's all reflected in the outlook here.
The other follow-up is on merchandising. Sorry, I should have asked this earlier, but if I understood it right, it looks like there's a big opportunity in Center of the Plate, that's kind of could create the same kind of halo effect and just increase customer satisfaction that happened with produce. So maybe Randy or Dave could speak to that, 'cause I think it sounded like a pretty important process improvement.
Yeah. So for Center of the Plate and produce. What we call the fresh categories, they, as I mentioned, they drive the customer purchase decision largely, and not just where to buy, but how frequently to buy. So with the process improvements we did in produce, you saw that in the case growth that we got. We think the enhancements that we're gonna make to our Stock Yards brand and to our manufacturing process, will further drive those same types of increases in the protein categories.
Thank you. John Ivanko, J.P. Morgan. If we go back in history and think about the previous periods of price investment to drive traffic, you know, to drive case volume, what drove that decision across the industry? I mean, just to, you know, kind of give us some context. You know, should we expect a continued disconnect between, you know, what a retail consumer might see from, like, a Walmart or Target or other, you know, kind of grocers of, you know, really trying to lean in on, you know, pricing, you know, for them, you know, to, you know, to gain visitation? I mean, do you think, you know, the food service distribution industry will continue to remain rational as we understand it to be today?
Yeah, I think it will remain rational. It's been very rational historically through ebbs and flows, as you described, John. And I think it will remain so. You know, I say this all the time, this has always been a very competitive industry. When you've got tens of thousands of competitors, there's always someone looking to, you know, undercut your price and do all that. That's why the strength of our model is so important here. The breadth of the offering, the technology, the investments that we do and continue to make in the business to drive that growth and differentiate ourselves, is what brings us to the upper tier.
Hey, guys, Brian Harbour. I had a GPO question, actually. Is there a big push for them right now to kind of add additional customers? And I guess, as it pertains to you, is there a good amount of organic growth with GPOs kind of assumed in some of your targets?
Yeah, the answer to your question, both questions is yes. They continue to drive growth, and they have selling organizations to do that, and there is organic growth built into our assumptions. And in fact, in many cases, we team up with them to set their targets.
Okay, maybe just a quick sustainability one, too. Will your targets for 2032—is that electrifying most of the truck fleet? Is that an important push for you guys?
That's a great question. What we're doing is we're actually taking a holistic approach to sustainability and our ultimate goal to try and reduce emissions in terms of how we deliver cases. We are actually looking at all different kinds of alternatives. Electrification of our vehicles is one avenue, but that can't be the sole avenue. We're also looking at different technologies and equipment, monitoring equipment, low-hanging fruit like LED lighting and motion sensors for lights. We have solar array installations as well, and also, as Bill talked about, is our routing initiative. So we're trying to find the right balance in terms of investment and return on the investment to see how we can actually be the most efficient in terms of our operations. I hope that answers your question.
Our next question actually comes from a webcast attendee, and there was a point of clarification regarding CHEF'STOREs. Is that included or excluded in our 2027 algorithm?
Sure. I'll take that one. As I mentioned earlier today, earlier, it's not explicitly pulled out of our guidance. However, we are confident that our algorithm will hold with or without it, and we're also confident in our end-state numbers.
Thanks. It's Brian Mullan, Piper Sandler. Just a question on the share repurchase plans, the new target leverage range of 2-3 turns. I think you said you expect to be towards the lower end at the end of 2027. So my question is just if you could talk about the approach or the path from here to there, how opportunistic versus programmatic do you plan to be? Is there any flexibility maybe operating at the upper end of the leverage if you continue to deem the stock as undervalued like you do right now? Just any thoughts on the approach over the next couple of years?
It's a good question. We'll be thoughtful. I would expect us to continue to repurchase shares on a pretty regular basis and accelerate that, especially again, given where our multiple trades relative to the outcomes that we're producing. What we will do though is I don't know that we'll leverage to the higher end of it, but you know, we may be thoughtful as we go through it of you know, the right tuck-in M&A, or the right opportunities for repurchases come along. But maintaining a strong leverage is very important to us.
What's supporting all of that is the strength of the accelerating cash flow that we've talked so much about here today. Okay, any other questions?
We have an additional question from a webcast attendee. So for US Foods projected case growth of 1.5x-2.5 x the market growth by 2027, what's contemplated or what would need to be achieved to hit the upper end of that range?
So the higher end of that range assumes it's really a combination of just outcomes on our share gains as well as the overall macro. Again, since we don't know exactly how it's going to play out, that really both of those contribute to the range. But we are confident in our ability to drive that outcome of 3%-5%. And as I mentioned, based on the things that JT, Randy, and Steve all talked about, that differentiation we expect to be a key contributor to that.
Hey, guys. Thanks for taking the question.
Sure.
Zach Kent, Davidson Kempner. I wanted to ask about automation or, or semi-automation in the supply chain. Maybe this would have been a better question for earlier, but can you just talk about whether any of that is contemplated in the guidance you're putting forward today? And I think we have maybe, you said one DC coming on in 2025 that will have some of those capabilities. Can you talk about the extent to which that might be factored to the guidance, the extent to which that could become material in terms of product cost and, and cost to serve over the next, you know-
Sure.
three years, and when we have another investor day in three years, is that going to be kind of a bigger, a bigger theme for you guys?
Well, you know, I think I'll start with just we're excited to begin to move forward with some of these. As Bill mentioned, the first one comes on board in Aurora, here in Illinois, in the middle of 2025. The other two will be later in this long-range plan. Therefore, I don't expect them to have a whole lot of impact in this plan. But the thing that it does is it helps us learn. So these are very well-established technologies. They're in wide use in a lot of industry.
And so, but it allows us to really put them to use in our own environment, and as Bill made reference to earlier, the thing is, as you put it in, it drives quality, it drives efficiency, it makes the job easier for our associates, and you can produce a lot more capacity out of the same square footage. So we're just excited to move forward with them, with the first one next year.