Okay, great. Thanks so much everybody for joining us. My name is Michael Montani. I'm the lead analyst on food retailing here at Evercore ISI, and it's my pleasure to introduce Vivek Sankaran, President and CEO of Albertsons Companies and one of the largest grocers in the United States. Certainly an interesting time in the industry. What I wanted to do was to kind of let Vivek say a few words about how they're positioning what they're seeing in the market, and then we have some questions to run through from there. With that, I turn it over to Vivek. Thank you, Mike. Good to see you again, Mike, and I appreciate you giving me a couple of minutes to just give you a little context to tune you all into where we are. Mike, when you met with us in December of 2018 in Boise, I emphasized a few things on our strategy. Number one was growth that was based on better in-store execution, focus on fresh, focus on our own brands, rapid expansion of our e-commerce business, doubling down on investment in our loyalty program so that we can continue to make the customer sticky. We want to just refocus the company on unit growth, customer growth, and top-line growth that comes with that. Our second big priority for us was the investment in technology. We have, over the last couple of years, enabled just about every core process in the company with technology. We've invested significantly in elevating the technology our customers see and use, that interface, and the technology that our associates see and use. We've also, over time, by the end of this year, we would've moved just about all our applications to the cloud to give us so much more flexibility and all the data that comes with it, especially the customer data that comes with it. The third pillar I talked about was productivity. You recently saw us increase our productivity goals to $1.5 billion from $1 billion, which we shared with you back then, because of not only the progress we've made, but also the upside and potential we see in other areas, which I'll get into later. The last area we put a lot of energy into is elevating talent, both from within the company and from outside, so that we can pursue all of these new areas with fresh thinking and insight. We've also put a lot of energy into changing the culture, so we appreciate not just the nimbleness we get locally, but the scale we have as a national retailer. I will tell you that we have come out of the pandemic stronger than we went into it. Our strategy is resonating. I look at our numbers every week. We're gaining market share, both in food on a one-year basis and food and non-food on a two-year basis, both on dollars and units. I feel very good that we've got not only the momentum in the business, but also a lot of potential, with not just what we're doing, but where we're going with the business. I'll stop with that and take questions from you, Mike. That's great. Thank you, Vivek. First what I would do is maybe dissect a little bit the comp. Such strong growth, obviously last year, healthy double digits. Maybe just talk a little bit about what you saw in terms of traffic and trip consolidation vis-à-vis basket growth. Then if you think about this year, how do you see the dynamic evolving between those two obviously critical components of same-store sales? Yeah. Mike, you're right that we saw tremendous consolidation and of traffic. With the pattern that All of us saw different patterns on weekend versus weekday and all of that. The pattern we found interesting was a lot of steadiness and frequency on the fresh shop, which I think anchored people's trips. Now, because there's only so much room in your refrigerator and your freezer, and you were betting on quality, especially when you were eating at home. Anchored in the fresh shop, less frequency on the remaining part of the store, but a lot of consolidation. In the early days of the pandemic, a lot of traffic upside, and then the traffic overall shifted down, went negative in the later days of the pandemic, with bigger baskets. Right? To me, there's two things that we're observing now. We expected some degree of deconsolidation of trips, if we can call it that, but it's moderate. Mike, we do a pulse on our customers month-to-month, and we also ask them their desire to consolidate trips or deconsolidate trips. That has not changed much. The numbers are panning out for us that the deconsolidation is not what I imagined at all. Now, we are lapping a very difficult time in that everything, every number in the company was up in our first quarter. If you remember, our first period was 47% growth, I think, or 46% growth. We're lapping those. I expect that we will start seeing positive traffic as we go through the year, and the baskets will come down as people get more comfortable coming to the store. I close out with this, that people are coming to the store. A lot more people who are shopping online are coming back to the store, which is just interesting to see. I think there's just a pent-up demand to get out there and enjoy the ambiance of a store again. That's great. Thank you for that context. The hot button topic that we're getting, and I'm sure you are as well, is around inflation at the moment. In the past, Albertsons and some of your peers have discussed kind of 3%-4% inflation to start the year. We're seeing some of the CPI data moderating a little bit for food at home since then. I guess the question I had for you is kind of what's the ideal level of inflation for a grocer, both in terms of input and then to consumers? If you look at the visibility that you've got into the chain, how do you see potentially the back half of the year shaping up on the inflation front? Yeah. A couple of contextual things, Mike, that I don't think we've all seen often. Number one is that the consumer is very strong. Great balance sheets, plenty of cash in the bank. Notwithstanding, there is a segment of consumers are hurting, no question. Mortgage delinquency is up, too. In general, you're finding the consumer, and therefore, demand is high. We're also seeing supply shortages. The question really is, how much of the supply shortage that we're seeing, whether it's in proteins or now if you go down the drink aisle, you'll see holes just about in every store. How long will that last? To me, that's what's driving a lot more of this inflation because people are having to pay more for transportation and pay more for resin, so on and so forth. The question is, how transitory is that? Will, because people will find a way to supply it and solve that challenge, or is this going to be long-lasting? Here's how we think about it. If you look at last month, I think it was 70 basis points of inflation in food at home. You do a two-year stack, you'll find it was like seven and change, seven and a half or something. The prior month was five and a half-ish, I think 5.3 or something. In that range. We're still in the three to four range of inflation on a year-over-year basis. Mike, I think that in today's environment is eminently manageable because, I mean, very manageable, given that the consumer is strong. Frankly, the food away from home inflation is even higher than that. I think that is very manageable. The question is really what happens if it gets higher than that, which would be dramatic. If you get to 7%-8%, that'd be a dramatic increase in pricing. I mean, that stuff we've never seen. I think at some point there, a consumer is going to look at it and say, they will stop trading down. My sense is they'll stop trading down. What we have to do as retailers is to be prepared for that trade-down. What we have, I'll speak for us, is we have, number one, the ability to do that smartly because we do have labor in our stores. If you need to put more hamburger out there and less prime beef, we can do that in a jiffy in our stores. There's that whole management approach. The second thing we have is a very robust productivity program that's yielding it. To the extent there is a squeeze between the cost and the price, we have ways we can offset it. At least certainly for several months as we look forward. That's how we're thinking about managing it, Mike. Frankly, none of us knows where this goes. That's great. One way to think about this too is in a historical context, Vivek. If you look in past inflationary cycles, at different times, I would say the competitive intensity was maybe a little bit greater or sometimes a little bit less. You mentioned the consumer's in a strong point. Can you just talk about kind of what's the overall attitude in the marketplace that you're seeing? Is it more rational? Is it a little bit more competitive going back old school? How would you kind of describe that dynamic? Still very rational, Mike. I think the real issue is that, one, you have supply constraints if you want to truly want to compete on pricing, because when you price it down, you need volumes to go up for it to pay for itself. You want strong elasticities there. I don't think you'll see it in today's marketplace. Even if you see it, you're going to run out of stuff soon, and you won't have the numbers to make it up. I think you're going to see that as a constraint in pricing. The second thing, I think all of us have become smarter in that we have learned that we have more data and we have more insight and we have more technology, digital capabilities so that we know which promotions work, and so we don't waste it. We're also able to target promotions in a much more precision and deliberate fashion. That makes a difference, too. When we're able to price and if we choose as an industry to price, I think you'll find a lot more discipline than we ever have in the past. Great. What I did want to hit on the top-line front, obviously some of the initiatives that you all have in place. One of those I think would be DUG, if you wanted to discuss a little bit where we're at with that. Then there's a few more from there. I'll let you start with that. Yeah. Let me start, though, with our philosophy on e-commerce. Because our strategy is built around principles we believe in. Number one principle is that we believe that a customer is going to expect very short windows for delivery and/or DUG. Drive up, whichever way you put it. Click to deliver. From the time she clicks it to the time she receives it. I think in our market, people want speed because that gives you control. Speed gives you control as a customer. The second principle is we do not want you to have to compromise any of the personalization you can get today in our store. A steak cut the way you want, a flower arrangement made the way you want, a cake baked the way you want, so on and so forth. We don't want to compromise that. The third is we don't want you to lose the curation that we've done for you in our stores. We've done that over many years. Our stores carry the assortment that matters to that catchment area. I don't mean the 80%, I mean the 20%, but the 20% matters, Mike. If you take those principles, then our philosophy is the e-commerce business should be built around our stores because they're close to where you live. It solves the speed problem. It's got the capabilities for personalization, and it's got the curation. That's our philosophy. When you think about DUG and delivery, the back-end process is the same. It's the same picking algorithms. You pick it in a store, you get all of those cuts of meat and so on in the store, and then you either have the customer come and pick it up in the store, which by the way, is the fastest-growing. We find that not only in our sector, but you can look into others, and you'll see the same thing. In America, the fastest-growing seems to be the desire to go to a store and pick it up because you're 100% in control when you do that, when you want to show up. We're focused a lot on making sure that we're efficient in the pick in the store, and then we either deliver it for you for a charge or you pick it up in our store for no charge. That's the principle and the approach we're taking. That helps. Yeah. Just to dig into that a little bit further on the e-com front, two fascinating things to me. One of them is just for you, loyalty and personalization on the marketing front. I'd love to kind of get the latest update. The other one was the new partnership with Google, relatively new that you all had disclosed. If you could just talk about how that helps to build the multi-channel ecosystem. Yeah. Now first, let me talk about the Google partnership itself. It's all about finding ways to drive traffic, Mike, and who better than them to think to access traffic? It's about finding ways to remove the cognitive load from people when they want to make decisions. It's smoothed out now. Now you can walk in somewhere and get a vaccination, but a couple of months ago, three months ago, that was a complicated process. Anything we could do to reduce friction so that you can get vaccinated, those types of things. The partnership is all about reducing friction for the customer in finding what they need and the capability. To me, that never ends. We continue to find ways to do that, working with them and other partners, but in particular with them around the early part of the traffic coming to our sites and their sites. What's the other question you had? Just go back to that one, please. Yeah, it was just kind of you all are in this great position with the loyalty- Yes. I can talk about it. Yeah. 25.4 million members as we finished quarter four. Mike, that's a 20% increase from the same time last year. Okay? Loyalty is like airlines. When you don't travel at all, you don't care about it. When you travel a lot, you really care about it, right? When you shopped a lot, you really cared about it. I think so we're seeing both enrollment and engagement going up significantly in our loyalty program. It's a targeted effort. In markets like if you go to the Northeast where we don't have a high level of enrollment, in fact, our enrollment is growing the fastest, so we have programs to drive that. If you go more to the western half of the country, you'll see more engagement. What we're doing now is we are going past engagement simply being rewards, like a fuel reward or a price discount on a product. We're also engaging some of our loyalty members with experiences. It could be a cooking lesson, it could be wine tastings, and so on. we think that has so much more potential. Now, you can imagine what this does, Mike. for these 25.4 million households, we now understand what they buy, what they care about. We have a holistic point of view. We understand their e-commerce behavior, their in-store behavior. We're able to target ads. We're able to target experiences. The whole notion of this is to create more and more stickiness with these customers, right? it gives us digital engagement, which is invaluable as you can imagine. we are very excited about it. You'll see more and more coming out on the loyalty program over the next three to four months. This is a great point, Vivek, which is you all have gained new customers during the pandemic. You've seen some incremental opportunities to grow wallet share with them. I guess the question I'd ask you is a little bit more from an industry perspective then, which is really if you think about post-pandemic, could we potentially see faster, quote-unquote, "normal and sustainable growth" for the industry? Pre-pandemic, I always thought kind of 2.5% was kind of an industry norm. Now if you assume some of these behaviors are a bit stickier in terms of food at home consumption, could we be looking at something 50 basis points, 100 basis points better than that? Yeah. To me, we haven't come out with a new algorithm, and I'm sure we'll come out with that as we finish this year and get through this noise. Let's talk about a few forces at play, right, Mike? Number one, I don't know if you're seeing it, but the tenor of working at home is going up dramatically. People choosing jobs because they can work at home. You just need to eat one breakfast and one lunch at home, and that is 20%, almost 10% of the total occasions in a week. Okay? That's a substantial number when you think about it, of what gets consumed at home. I think there's that one structural change. The second structural change I think you're going to see is that when it comes down to investing in technologies, in own brands, all of the things I talked about, building a robust e-commerce business, having a robust loyalty program and investing behind it, scale starts mattering, right? I think the second structural thing is you're going to see coming out of this pandemic that scale matters even more than going into this pandemic, in my opinion. You put those two things together, there is a tailwind on just raw consumption happening at home, and therefore a tailwind for retailers like us. The second is a better share gain. Actually I'll tell you, I am pleasantly surprised to see that we're gaining food share year on year. Think about that, right after what we saw last year. I think you're starting to see the effects of what we are doing and what the large players can do in this market right now. Great. Let me switch gears a little bit. I think we've hit on the top line a bit, but just in terms of the cost front, Vivek, we'd love to get your thoughts around some of the pressures that so many have called out. Whether it be labor and some wage inflation, transportation costs, vis-à-vis trucking and/or shipping. Can you just discuss a little bit kind of what the pressures are that maybe Albertsons has seen? The follow-up becomes the 1.5 billion of productivity. What is it that's in Albertsons' power to do to offset that and control it and manage it? Sure. Let's take the cost piece, and I'll break it down into a few things. Of course, the cost of goods, we've talked about the inflation already. We'll see where that goes, and we'll all know more in the next few months. Now, if you take other components of cost, wages. Wages, recognize that more than two-thirds of our associates are part of a union, and so those are contracted wages, with benefits, good wages, good benefit package that includes health and pensions contributions. Those are contracted three years out, five years out. We're not seeing the wage pressure that some others might be seeing, especially if you're in the restaurant or a service industry, like hospitality or something. The second thing to note there, on the cost front, is transportation costs. By the way, I'll just go back to the wages. I think the challenge is not so much wages at this time, but like many others, we are experiencing in certain pockets. It's maybe certain distribution centers and certain markets, a higher turnover and ability to get. Let me put it this way, it's not a problem I'm spending a lot of time on. We are okay on that front. The second thing is transportation. Most of the transportation we do is with our own fleet. It's a very small portion that we use external support for. We're not seeing it. I think you're hearing a lot more challenges on inbound freight to our DCs from certain suppliers, right? There's a shortage there. Interestingly, it's resulting in more out of stocks and shortages than it is in pricing at this point. that's why I don't know, Mike, how all that plays out over the next few months, and whether that's transitory or not. Okay? Now, on the productivity. When we first talked about productivity and the billion dollars, we talked about things we're doing with promotion excellence. The technology we're putting in there, indirect sourcing, so sourcing of our grocery bags and computers and everything else that we buy that are not for resale. We had productivity in store labor with a lot of automation that we're putting in there, a lot of best practices that we're putting in there, lean practices and so on. those were the nature of the buckets that we were driving for productivity, some G&A productivity. The two added buckets that we have now are both in the spirit of leveraging our national scale. If you take our cost of goods, there are many categories. Most categories, we have been buying as 13 separate divisions. We are going to leverage our scale on those categories. It's buying better, consolidating the buying, giving the suppliers greater opportunities to participate in our franchise. The second area of opportunity there is likewise in the supply chain. We've run the business with 13 independent supply chains and DCs that go vertically. Now we're thinking about how to think about this network more nationally, how to transfer best practices across the supply chain so we get better labor costs in it. We get a better utilization of our transport trucks, et cetera. What I'll tell you, and what all of you should know is that, these initiatives we have are new to our company, but they're not new to the world of retail, which gives us higher confidence in generating the dollars as we did. In the last year, we generated $500 million. You've mentioned obviously some headwinds and then tailwinds as well here. If you think about longer term, Vivek, so not this year, but kind of 2022 and beyond. Is there a certain comp you need to lever? Presumably, you need some sort of positive growth to lever overhead. Yeah. I think, to me, the old algorithm holds because the way I think of it. Now, let me put it this way. The old algorithm, which we were around 2%, Mike, that's enough to leverage the cost structure that we had and generate the EPS commitments that we made. Now, obviously, there's more productivity within that P&L. Honestly, we are choosing to invest that for growth. We want to invest that for growth. Actually, to me, the better formula is to invest it to increase the comp. Because one thing we learned in the pandemic is that in our model, when the comp goes up, the flow-through in our EBITDA is fantastic. We just had some fantastic flow-through through the pandemic, probably some of the best in the industry. Our philosophy is always to drive more units and growth. I don't want to get hung up yet on the 2% comp. I want to see how we come out of the pandemic and rethink and calibrate that. Okay. The other two related topics, Vivek, was, one, private label. Can we just talk about where we are on that journey? Yeah. Second is automation. The second is what? Automation. Sorry. Automation. Oh, yeah. Good. Okay, private label. I know there was concern early in the pandemic, Michael Montani, that, boy, are people just going to brands. Right. I can see why people felt that because the numbers were showing that. I think the real phenomenon of what was happening there is that there were many, many categories which were getting wiped out. In a normal course of business, you'll have an A brand selling, a B brand selling, and a private label selling. The mix turns out, let's say, whatever, 25%, 75% of the brands. When people shop the entire thing, by definition, your market share of private label drops dramatically, when people are picking up everything on the shelf. I think you saw that. You saw some early supply issues. What I can tell you is that starting towards the end of last quarter, our private label penetration went right back to pre-pandemic, 25% north and change. We're right back into that cadence of delivering innovation, delivering product on private label. our strategy is very simply think of it as two broad plays. One is an opening price point with a compelling product. Okay? We'll always have that. the second, which is bringing excitement to the customer, and it's on some benefit they care for, organic, Open Nature, which is free from antibiotics and so on, but responsible seafood like our Waterfront Bistro. we play both those on both ends of that spectrum to provide value to customers. Now, I still think there's plenty of headroom. we've got a stake in the ground that we're going to get to 30% penetration. I think we can go north of that, but we are going to be a house of brands, Michael Montani. I want to be very clear. We believe that we should give consumers choice and give them an ability to complete the basket with us. That's the role private label plays for us. It's a thousand basis points more margin, so the more growth we get, the better for the bottom line too. Got it. just on the automation front, Vivek- Yes Whether it's the self-checkout or even the MFCs, just a couple points. Yeah. Automation, in my mind, Mike, has to be pervasive. Just has to be an incredible quest to automate anything and everything in our business. You can think about self-checkouts, and we continue to roll that. What's remarkable is the uptake we're seeing with customers. There's a segment of customers who just love it. We continue to roll that. We have automation in our stores in other ways. All of the ordering now is automated, so people are not having to walk around and spend time doing that. There are things behind the deli that we're automating. I'll get to this warehouse automation that we're doing, which is de-palletizing and palletizing and storing all of that without being touched by a human. We're pursuing automation on every front. The automation that we're also excited about is the micro-fulfillment center, which is an important component in the store. If you think of store-based e-commerce, I think a micro-fulfillment center gives you a step change in labor productivity. We have two of them running now. No, we have three now. We just added a third one in April. We're going to add six more this year. What we're doing is we're experimenting with different modes of it, different configurations of it, so that coming out of this year, we'll have a template on maybe two or three configurations that really work. We're going to optimize the model, the system itself. We feel promise there in that automation, which will make a big difference in e-commerce. Right. Okay, well, we have a few minutes left, so I just wanted to hit on maybe one or two things, and then- Of course. If there's any Q&A. just one kind of lightning round here would be, a couple of years now past the Safeway merger, there's been obviously debt paydown and strengthening of the balance sheet. Are we at a point now, Vivek, where we could start to see organic growth again in the stores? is it more about smart acquisitions, either from a geographic or capability perspective with the excess capital? Yeah, Michael Montani, with the store expansion, we're going to be very opportunistic on it. We typically add 10 new stores a year, but these are in markets where we see a lot of population growth. To me, that'll be the new store addition. We'll always look for opportunistic tuck-ins, like we did with Kings and Balducci's. Anything in a contiguous market or in-market that can increase density for us. When you think of an acquisition, you have to think about the digital and the technology capabilities we're able to bring on top of it to create even better accretion, right? That's why we feel even more confident about doing those tuck-ins. We will continue to invest in digital. To me, the magic with digital is the stickiness you get with customers. You engage them. Once you get customers to engage on this phone, whether they are in store, frankly, or whether they're ordering online, and you just continue to increase that level of engagement in digital, you get a high degree of stickiness because you get data. When you get that data and you can start using that with some precision, you're giving them more and more of what they value. We'll continue to invest in digital. We'll continue to invest in making sure our fleet is contemporary, right? We have a meals program rolling out, Mike. To me, that's one way of starting to capture more and more of meal occasions versus just selling ingredients. Doing that with the convenience and freshness that we can deliver in our stores. We'll continue to do those types of things. Okay. just talk about the portfolio at a high level at this point, Vivek. Are you all pleased basically overall, and where would you maybe look to make investments in the future, just topically? Oh, you mean from a geographic standpoint, Mike? Yeah, I would say, whether it be brands, geographic or just capabilities. Yeah, we feel very good about where we are from a geographic and banner standpoint. What we like, if you look at our map of our stores, Mike, you'll see two things. One is, yeah, we're not national in the sense we don't have a strong presence in the Southeast or Michigan and those areas, but we've got enough national coverage. Where we are, we have high density, and that matters a lot, right? That matters a lot for local market strength. It matters a lot for e-commerce. We have a lot of high density where we operate. Our first philosophy will always be to keep increasing density in the market. From a portfolio standpoint, opportunities that continue to increase density, we will pursue. We are always looking for things that would drive more capability, right? Capability in the business. That'll be some use of capital if the right opportunities came along, but the capabilities will always be towards driving more digital engagement with our customers. Think of it that way, from a portfolio standpoint. Just the last one from me, Vivek, was, if you think about some of the behaviors during the pandemic and now as we hopefully reopen and get back to normal, maybe talk about what it is that would've surprised you and/or if you think about the future, what do you think is going to be sticky in terms of any shifts in behaviors that you see in your consumer? One is certainly more online purchasing, Mike. It's going to be sticky. I don't think it's going to grow at the rate that it grew in the pandemic. My belief is that we had a certain growth rate. It took a step up, and now I don't think that comes back down. From there, it gets back to a more normalized growth rate. That is sticky, and we like it because our best customers are the ones who are both shopping online and shopping in the store. They spend 20% more with us, okay, than they did before, which is fantastic. We like that part of it. The second trend that I believe will stick is more meals at home, a few more meals at home, and therefore more cooking at home, right? I think that's going to stick only because people are going to spend more time at home when you're not going out, when you're not commuting to work as much as you did. By the way, there are some ingrained behaviors, and we're seeing that. We're seeing that in our business today, right? That will continue to stick. My sense is, I think just if I separate out e-commerce, just more digital engagement every day around a retailer like us is going to stick. We like that because it could be, "Hey, I've got a wine-tasting experience coming up, and I enjoy that." It's nothing to do with shopping. Which is also a positive sign for us. Those are two, three areas, Mike, that my belief will stick. Yeah, I was going to suggest perhaps you start some cooking lessons, Vivek, with the team because I could certainly use the help. I think my family would appreciate it. We do, Michael Montani. We actually do. We do. For our top-tier loyal customers, we offer all that. Step ahead. Great. Well, thank you so much, Vivek, for joining us. I think we've had a great discussion today, and we look forward to seeing where everything will take us with the consumer. Thank you, Mike. Look forward to seeing you again in one of our stores. Okay, take care.