Okay. Thanks everybody. Sorry for the technical difficulties, but we're happy to get started. Paul Lejuez here from Citi Research, and with me is the CEO of Albertsons, Vivek Sankaran. Thank you, Vivek, for being here. We're going to do this meeting, we're going to conduct it as a fireside chat Q&A session where I'll be running the Q&A. Before we get into that, I want to turn it over to Vivek to just make a couple opening comments just to make sure everybody's on the same page with what's been going on in the world of Albertsons, and then I'll jump into the Q&A portion of the meeting. Hey, good morning, Paul. Thanks for the opportunity, and good morning, everyone. Glad to be here. I just wanted to take a couple of moments to reflect on 2020. We've been reviewing the business and reflecting on what went well, and we're so proud of the progress we've made in 2020 on so many facets of the business. What's remarkable is that our transformation accelerated even in these very difficult times. Now, we elevated our performance, especially relative performance, as you've seen both on our growth and our flow through in our profits. Growth, share, and flow through. There are a few things I just wanted to highlight because we are a stronger company today than before we went into the pandemic early last year. We've added customers. Our customers are shopping more with us, and what's very important to us is retention rates have been going up quarter-over-quarter. Paul, I always imagined in my mind that our business is about relationships, not transactions, and it's turning out to be just that way. The lifetime value of our customers is growing. Over the last couple of years, just about every important capability in our company is now data and technology enabled, whether it's a promotion engine, ordering, production, automation in DCs, et cetera. We have more to do, and we are putting a lot of energy into technology enabling the whole company. We've put a lot of money and energy into our digital transformation. We are excited. We're going to roll out a whole new suite of customer-facing applications in April. We've been working on it through the year. Our e-commerce business has grown tremendously. We now have 1,400 locations with Drive Up & Go. We'll get to 1,800 before this year is over, and we are aiming for two-hour deliveries in all our markets. That's how we see that business going. Our loyalty program, which has been an important part of our agenda to get stickiness, has got traction. More traction with customers now because they shop more with us. What's exciting is we're getting traction in new markets when we introduce it, so we feel good about that. We've talked about a productivity program, a billion-dollar program. It's on track. We're delivering what we promised. By the way, we think there's even more as we roll out the next wave of productivity. Our balance sheet's good. Our balance sheet has improved. I want to just close that with, we feel good about the fundamentals of the business, our fresh portfolio, our own brands program, the variety of offering that we have. Especially as people eat at home, we feel good about the strong foundation of the business. Like many of you, it's hard for us to predict exactly what happens in 2021, but we're prepared for many different scenarios, and we feel good about the underlying strength of the business. That's hopefully good context, Paul, I'll open it up to any questions you might have. Yeah. It's great context. Thank you. That kind of leads into my first question, which is, as you think about planning the business today following this big year that you had, some volatility for sure, supply chain pressures at times, in terms of stockouts. How do you plan for the year ahead? Do you instruct your team to kind of use 2020 as a base? Do you use 2019 as a base? Maybe if you could just talk about the process and how you're thinking about the upcoming year. Yeah. I think our fundamental belief is this, that coming out of this year, if you had a 2019 to 2021 trend without the pandemic and now with the pandemic, that our business would be re-baselined from a top-line standpoint without a question, and then re-baselined, we also think from a growth rate standpoint after that, right? An accelerated growth rate. That's the overarching way we think about the business. If you accept that, then you say, okay, how do you plan it and how do you manage it? We do look at trends on a relative to 2020 in terms of how far down it goes, right? We don't want to manage the business purely on how far down it goes because we don't want to create incent any behavior to just drive sales. What we'll do, we are maniacally focused on a two-year stack, right? Two-year stack on growth, two-year stack on share, two-year stack on every element of performance in the P&L so that we know that the business actually is re-baselining to a higher number. That's the way we're thinking about it, Paul. That's helpful. How about from a pricing perspective? Obviously, the past 12 months, promotions have been fairly muted. Maybe talk about your approach to 2021, the thought of maybe investing more in price to help retain customers if you think you need to do that, just maybe how you're thinking along those lines. Let me talk about pricing and retention because we can retain customers with other things besides pricing, too. On pricing, our approach to pricing, when we invest in pricing, it's extremely surgical. It's on a micro-market basis, and we do that all the time. We do that pre-pandemic, during pandemic, and we'll continue to do that. I've heard from many investors and analysts that the history of our sector has been that in situations like this, when we see negative comps, we all promote heavily. I think there are some governors that hold us back and will hold the sector back from doing that. The first is the fact that demand is still outstripping supply, right? It becomes unproductive to promote intensely in this type of environment. I think you'll continue to see the same level of promotions going through much of the first half of 2021, for sure. The second thing is that we certainly have gone digital in all our promotion, a lot of our promotions. More and more is shifting digital. In fact, if you went to our markets and you picked up a flyer, you'll see now that there are many of just four pages versus what might have been eight pages before, right? The mass promotions are dropping, more going digital, and that gives us the ability to be a lot more targeted and get a better return for the promotion. The other side of it is, and by the way, there's a lot of technology in promotions too, in what we are doing. We focus a lot on the quality of the promotion rather than quantity, using data and analytics to say where there's cannibalization. That's another governor on promotions. If you go to retention, there's many ways to do it, right? Because we have the loyalty card data, we can keep marketing certain products to you. We can certainly promote it to you. We can introduce you to own brands. We can give you different rewards, et cetera. There are other ways to give retention, and that's been a journey we've been on since quarter three. That makes sense. I guess, from a pricing perspective, you're not in a vacuum. Inflation is a hot topic. Yes On the cost side. Kind of curious to just to hear what you're seeing out there in the market in terms of inflation and how your approach will be in terms of passing certain costs on versus not. Sure. Just on the topic of inflation would be great. Yeah. I think if I saw the last month was 3%-4%. We've hovered around that, 3%-4% inflation in the marketplace. I suspect it'll get back down to 1%-2% in the second half of the year. I suspect it'll stay in the 3%-4% range in the first half of the year. 3%-4%, typically, you can pass it on, right? If it gets a lot higher than that, you get into the competitive dynamics and so on. The assumption we've made, Paul, we like to be conservative. We like to plan the business around a 1%-2% inflation and design the P&L behind that. If it turns out to be a little higher than that, it typically works in our favor when it's moderate like that. We haven't seen yet, we are not worried yet about hyperinflation in our marketplace. We're not seeing that anywhere in our categories. Got it. Do you think that this environment is any different than what you've seen in the past in terms of ability to pass along price increases? Yeah, I think it is. I'll tell you something I got really wrong. Around this time in 2019, sorry, 2020, I imagined that we will come out of this pandemic with absolute carnage with households really short of money and such. It's remarkable that it's almost the opposite, right? There's, what, $1.8 trillion in excess savings, a stimulus package coming. Over these last several months, I think people have, because they're eating at home, you'll see we're selling more premium wine than ever before. We're selling more shellfish than ever before. I think people have enjoyed higher quality food at home over the last several months. I think there'll be, my sense is, given people have money and have enjoyed higher quality product, there'll be the desire for that continued consumption of higher quality product, right? I don't see that behavior changing dramatically, unless there's massive amounts of inflation, and I'm not seeing that either, Paul, at this time. Got it. Can we maybe talk about the own brands portfolio a bit? You had some supply issues, I think, in 2020. Just talk about the outlook for 2021. Yeah ...really also just longer term, can you just remind us of kind of the plan for that piece of the business and what that can do for your margins? We've got a very powerful portfolio. Not just entry price points, but also brands that offer some specialness in O Organics and Open Nature. Those are our fastest-growing brands. We have so much more headroom there. What you saw early in the pandemic, there were two things happening that, by definition, reduced the total share of own brands. Number one was, there were supply constraints. Just like everybody else, the own brands too had supply constraints. The second thing is, there are categories where if in the past people bought a couple of national brands and the own brand and we had a broader assortment which sold less per foot. In a pandemic situation, people bought the whole shelf, right? By definition, your share dropped. It was more a phenomenon of how people were buying. What's changed is that towards the end of last quarter, our own brand penetration went back up to the 25%, which is what we went into 2020 with before the pandemic, and that's the rate we are starting to see week on week now because the supply is coming back, and the buying has stabilized. Our aspiration is that we will get to 30% penetration in our company. One, because the own brands provide a better margin, and second, the opportunity is just there. I believe we will always remain a house of brands, no question about that. There'll be A brands and B brands. I think in the United States, it's going to be harder and harder for C brands and D brands to continue to win, because we've all developed, and we certainly have developed, a pretty powerful own brand portfolio. We see that continuing to grow in new markets and in new categories. Got it. That's helpful. How does the digital penetration look in the own brand port-? versus Even better. Is it? Yeah? It's even better. You know why? When it's digital. The part of the challenge when you're shopping a store environment in own brands is, and you can go through this, the own brands are part of a category, right? Because of the design and the way people shop, you end up putting it as part of a category. When you go digital, we can say, "Do you want to have a look at our exclusive brands?" Boom. You go in there, and you can see the whole thing, right? We have pages for our own brands, so we can help people navigate into this. We get a lot higher penetration, in e-commerce actually, which is exciting for us. It tells you, too, that people are coming back and, because when they buy own brands, what we like about some of our own brands is it drives people back. Like our cauliflower pizza, you go back for it because you can't find it anywhere else. Makes sense. Those are a couple of items that maybe address the gross margin piece. You're right. P&L, right? Maybe let's talk a little bit about SG&A. Yeah A dynamic that everyone was facing this past year. How are you thinking about the future? How much of that can roll off? What's the right run rate that we should be thinking about? Yeah. Think of it in three broad buckets of COVID costs. One bucket is what we call appreciation pay when the economy was closed, when our stores were open at that time, we appreciated and recognized our frontline with extra pay. That was the biggest chunk. The next big chunk is, when somebody gets sick or when somebody is in contact with somebody who's sick, we quarantine them, and we take care of them. That's the second bucket, the smaller bucket. The third bucket is around cleaning costs. There was an initial surge, Paul, of putting in all of the plexiglass and all of that. That's behind us. Now there's the ongoing cleaning costs. The first bucket, as the pandemic subside, that goes away. The second bucket, first, we got so much better operationally. When we gotten a better practice on social distancing and contact tracing and so on and so forth, that got better. That too goes away, right, as the vaccine takes hold and less people are sick. The third bucket is an interesting one. The third bucket, what we have found is that customers today actually appreciate a clean store. I think that's going to linger a little longer and frankly could be a strategic issue, right? If people see people cleaning stores, and I don't know how long that goes, but we're treating that more as a strategic issue than a necessary cleaning point, necessary protocol. Yeah. No, it makes sense. A hot topic on the expense side of the equation is, are wages. Yes. Kind of curious just how you're thinking. We've heard a lot of competitors out there, a lot of other players are talking about wage rates moving a bit higher. How are you thinking about the next several quarters from that perspective, potential offsets in terms of maybe labor efficiencies and anything you could address? Yes ...on that topic? I'll go back a little bit and give you a little history here because, while the wage topic is higher in the industry, it's always been a topic we've worked on, okay? It's because more than two-thirds of our business is union. We have union associates there. They get higher wages and benefits. We pay them well. Part of our logic has always been, get the best associates, but also drive a lot of fundamental productivity in the business, which is It's about managing the hours and making the hours extremely useful rather than managing the wages itself. That said, here's how the wages work for us. We typically negotiate a contract that will be in place for three years to five years. We negotiate everything in it. There is wages, there's benefits, all the benefits in it, et cetera. That combination is kind of in place. The structure is in place for us. We worry less about the inflation. We work more on the productivity. There's a lot of things we are doing on productivity, Paul. It's about, you'll see it in our stores with automation, with better processes, better ordering technologies, better production scheduling technologies. You'll see it in our DCs again, with automation and lean practices and such. There's a lot we are doing on labor productivity. That's helpful. Very helpful. Another hot topic is digital, and digital fulfillment, certainly has kind of come to the forefront. Yeah ...past year. As you look back at 2020, what do you feel that you did well on the digital fulfillment side? What areas can you improve? Can you maybe talk about the hit rate in terms of kind of getting the order right? Things, everything digital right now is front and center for people. Yeah What you did well and areas of opportunity. I'm so proud of the team for doing two things. One is, our leadership team on digital have always held a point of view that quality matters. By that, I mean, are you picking a great assortment? Are you filling the assortment, and are you on time for the customer? They always held a high standard on quality. I have to tell you that we struggled with that in the early days of the pandemic. Now we feel we've made remarkable progress on on-time filling, on-time delivery. We're in the high 90s on that. It's remarkable. The team did two things. One is we expanded, of course. We kept adding Drive Up & Go across the footprint. While we expanded it, we continued to improve quality. The way we improved quality is we've rewritten all our picking algorithms. We've rewritten slotting algorithms. We've rewritten scheduling algorithms. All of that while expanding this business. Paul, if you recall, we've never dropped below 200% growth in e-commerce, okay, throughout this time frame. The team has kind of expanded it while rewiring the whole business. We feel really good about that. We lost a little bit of momentum early in the pandemic, again, on things like MFCs, we're back in the game there, testing it. We've learned so much about that, we're getting ready to expand that program as we go into the year. At the end of the day, we've got growth, we've now got a sizable business, we've got some interesting ways of developing it as we go forward. Got it. Can you talk about the MFCs? You are rolling out a few more this year. Just maybe talk about the economics of fulfilling from those centers versus Drive Up & Go options. Anything you can share with us along those lines? Sure. Before I get into the specific, let me tell you why the logic, why we are excited about the logic of the MFC. We believe in a couple of things important to us. One is that we want to give customers an assortment that we have curated in a local market over many years, right? We know, I'm sitting in downtown Dallas, and I know that the assortment here is going to be different if I went 20 miles to the west, okay? We've curated it. The second thing that we believe matters in e-commerce is having very small delivery radiuses, right? We want to get into a two-hour delivery, systematically, again and again. If you put those two together, then what matters is having automation that allows you to get the local assortment and allows you to have short radius delivery, which is why we're fundamentally excited about the MFCs, right? It allows that. You put it attached to a store, near a store, et cetera. Here's what it does. In the math of an e-commerce business, there's two things you worry about. One is, you worry about, and I'm talking about the cost side of it. One is you worry about the pick rate. The pick rate in a store hits limits of physics, and it also starts getting in the way of customers shopping it. The MFC takes that and makes a step change to the pick rate. The learning curve we've had, it's been fascinating because we've learned a lot about what to put in the MFC and what not to put in it, where to go out to the rest of the store when you need to, and how to optimize that whole thing, how to connect what's on the MFC software back into our systems, how to think about delivery to the store and the MFC. There's been a lot of learning there. We see a lot of promise in the ability of an MFC to get that cost down, so that the business is profitable and equivalent to what our core business is. That's the plan. We're excited about the technology. We're learning from it. We're going to roll out seven more this year to continue to expand it and then accelerate from there. Yeah. How many do you think would ultimately be part of the fleet from an MFC perspective? Think of an MFC typically serving about, say, six to 10 stores. It depends on the density of the marketplace itself. The MFCs help where you have more density, and they become less useful in more remote areas, as we go into. I can imagine there are markets where that formula won't necessarily work. We'll stay with a Drive Up & Go in a store, and we might have a slightly longer delivery radius. In all our dense markets, we see the value in an MFC. Yeah. Got it. Where do you see the digital world going in terms of grocery? It obviously just got a huge boost in 2020. Kind of curious about your views of where penetration might be a few years from now. How successful do you think you will be at getting the customer to do some of the work and actually drive up, picking it up at the store? Yeah. Let me start there. The fastest-growing piece of our business is Drive Up & Go. There's two things that help us. One is that we've got great locations. I think the history of our company, we've got some great real estate locations, you're probably driving past us often. I don't think we are the only ones seeing that Drive Up & Go growth. It's not just in our grocery sector. You can look at others in other sectors, they're also seeing a lot of growth in pickup. My hypothesis is that it is in drive Up & G o, the consumer is in 100% control of when she shows up, we run to the car, right? In a delivery, especially the longer the delivery, the more she's waiting. It's less control. I just feel, that's part of the psyche behind why people are enjoying Drive Up & Go, and we're growing it so much. I see that growing. To your question on penetration, I had imagined. No. Before the pandemic, I think the theory was that we would have 10% of the sector that's online. I think we're going to get there very soon, if we're not already there by the end of this year. If you look at an upper bound, Paul, I think Korea was at 21%, one of the most dense markets ever. I think we could get there. I don't know a timeframe, but I'm imagining a business where 20% of our business is online. I love it because you digitally engage better. I talked about my own brands as an example. We get potential there. Yep. Absolutely. Are there any technologies that are on the horizon that you're just excited about as it relates to, not just Albertsons, but the industry as a whole? ...the technology might change over the next couple of years? I think there's two that, in combination, become very powerful. On one end, think of automation, right? Automation is becoming cheaper and more capable on just about everything we do in life. That's going to dramatically change, in my opinion, the cost equation for companies, okay, as we go forward. On the front end, think personalization, right? If you have loyalty programs and you can start engaging customers on this, and you give them reasons to engage again and again, I think you create tremendous stickiness with customers when you do that. To me, I think those two things are going to be game changing, for not only us, but others in the sector. By the way, I've heard the grocery sector is going to disappear for 40 years in America. Okay. We always reinvent, and I think you're going to see this sector reinventing on those two dimensions. How about the timing on when those things can really start to matter? I think it has started now. I think you're starting to see the S-curve is just starting to inflect, in my opinion, right, on both those things. The pandemic, in an odd way, has accelerated it because people are a lot more digitally engaged on grocery now than ever before. The automation is starting to come to life in so many parts of the business. Not just the stores, so many parts of the business. Any changes on the horizon in terms of the checkout process? Oh, yeah. ...can really help that along over the next couple of years? Yeah. My vision of a checkout is one of two things, if you take a customer back point of view. One is they don't remember it at all because it was so smooth, okay? Or two, they remember it because someone was really awesome to them. Kind and courteous and special. Those are the only two cases that we want to get to. We will still have people. Paul, there are people who go to some of our stores because they want to check out with a person. I found it hard to believe, but I saw it, okay? We will never get rid of that. On the other hand, we have a checkout machine, the self-checkouts. Those are growing in popularity. We're seeing more and more customers going through that. We've just launched scan and go with your phone in a few of our California stores. We're excited about that technology, that we are experimenting with checkout carts where you just put it in and walk. I think that continues to improve. To me, the premium is always on making sure that the customer experience is terrific, right? They don't remember it. Well, that's what we're working towards. It's going to continue to improve. Makes sense. As you look back to 2020, what was the biggest surprise to you about how the year unfolded? Which day do you want me to pick? You could choose a couple. Okay. Let me talk about two things about our business and just one about just our country, right? One, it's amazing. About our business, you always hear and read in business school that culture matters and such, and I saw it in action. Paul, the only decisions that I spent time on during the first four months was anything related to the safety of our associates and our customers and capital deployment. That's it. All the other decisions were happening so close to where the action was, and we were incredibly fast, incredibly creative. It was a culture. I always think of us as a culture that is, we call it being locally great and nationally strong. That combination is hard to engineer, but we have it. That gives us speed and flexibility, and that worked in spades. The second thing you always think about and you theorize in calculations and you go, is this thing called P&L leverage true or not? Right? Turned out to be absolutely true. When we put more volume through our system, we wielded a lot more profit. What has surprised me is, from a broad macro standpoint, is the incredible resilience of this country. We've been through a lot, but man, to think that we're coming out here now and saying we've got a healthy consumer, think about that. Just think about it. I don't mean healthy, health, but I just mean financially healthy customer who consumer is going to come and spend. Wow. I never imagined that. I feel good about it, especially for a business like us. Yep. No, that's helpful. You get asked a lot of questions. You get asked questions from folks like me on the sell side, analysts. You get asked questions by investors and potential investors. What are the questions that come up most frequently where you kind of say, like, "We spend too much time talking about this"? What are the questions that you're kind of surprised that don't get asked, that you feel like people should be spending more time? Yeah. I don't think we spend enough time understanding the fundamental capabilities of our company. Those are the things that are long-lasting. The underlying capabilities and how we knit those together, that's what allows us to withstand changes in different scenarios in a business. I wish we would spend more time, and maybe we should use the chance to highlight it for you all. When we get past this pandemic, make that real, where people can see it in action. The question that I get asked a lot, is honestly, it's about predicting sales and stuff for this year. You know what, it's hard for me to be precise on that. We learn more as we go. I think it's just a natural instinct that people want to have clarity and want to be able to model it in a very difficult environment, Paul. Yeah. Makes sense. We're getting pretty close to noon, which is end time, I guess. I'm just kind of curious, maybe one last one if I could sneak it in. Anything about the competitive landscape and your position versus some of those that might be a little bit bigger and versus those that might be a little bit smaller and the opportunity to capture market share? Yeah. I think it's the basis of competition, right? The scale matters in many different areas. The scale matters because we all are able to put technologies and amortize that better. When you think about the types of energy suppliers put into companies, the scale matters. That's just the natural way the industry works. If you separate that, even within scale, we put a lot of energy. We differentiate by our fresh portfolio and the variety that we offer. There is a lot that goes into offering that fresh portfolio. It's not just, hey, we have apples and bananas. No, we also have labor that we put into it to maintain the product and to provide that customization that you need in the store and such. Our approach to this is to make sure that we offer consumers. We want to celebrate food and meals. That's who we are. That's what we're going to build our business around and put all of the other things on top of that. Makes sense. We're at time. I want to thank you for doing the chat with me today. Always helpful speaking with you and hearing about the Albertsons story. Vivek, thank you, and thanks everybody for joining. Thank you, Paul. Thanks everyone. Be safe.