All righty. It's 12:40 P.M. We are going to get started with our next presentation here at Farm to Market. I'm Kelly Bania, the retail analyst. I'm really thrilled to have this opportunity to speak with Albertsons. It's great to have you at Farm to Market. Great to have you back in the public markets. We're thrilled to have Vivek Sankaran, I hope I'm saying that right, President and CEO of Albertsons Companies, Inc. Just a reminder, I have a lot of questions prepared for Vivek, but you can also submit them to me on the app. Before we do that, we're going to show just a quick slide, I believe, from Albertsons with some disclosures. If we could flip to that real quick. There's a picture. It looks like a picture of the store in Boise that we maybe visited. Yes, that's correct. Why don't we just go back to the discussion? Okay. I thought that was the disclaimer slide. Kelly, thanks for having us. Delighted to be here. If I could take two minutes, do you mind if I just talk a little bit about 2020 and then open it up? That sounds great. Awesome. As I reflect on 2020, I always tell people there was no lucky side to the business, but there were only busy sides, and we happened to be on the busy side. The challenge we went through honestly helped us accelerate the strategy. I'm really proud of what we accomplished, especially on the transformation agenda that we had. It's reflected in the capabilities we built in the company and importantly in the results. I hope all of you saw the performance both in the top line and the bottom line through the year. It's come from, in my opinion, a focus on a few important things. Starting with customer growth. We put a real emphasis starting in 2019 on customer growth and unit growth and achieved that, both those through 2020, and gained share in all of our four quarters. As you know, we added 11 million new customers, as I said in my last earnings call, through the year in 2020. We focus on customers and in building relationships with customers, and we're focused now on not just the transactions, but how we retain those customers and extend what we do with them. A lot of what we've done that it's not obvious from the outside, is the investments that we made in technology. Just about every capability in our company now is technology enabled. Promotion engines, all of the ordering, all of the production, a lot of automation we do in our DCs, and of course, the entire digital and e-commerce platform. The e-commerce digital has been at the forefront of a lot of our growth in 2020, grew 258%. We've changed a lot of what our customer-facing capabilities and applications there, and also a lot of what our internal capabilities were in e-commerce. We expanded DriveUp & Go to 1,400 locations. We'll get to 22,000 locations this year. We are driving for two-hour deliveries in just about all our markets. What we find when we get to two hours, we're growing sales. It's all underpinned by our fresh offerings, our own brands offerings, and continued excellence in store operations. We firmly believe that the stores are the fulcrum of our operation, both for e-commerce and for everyday shopping that customers do. We give them a lot of choice. A lot of that is also driven to loyalty. Just For U program accelerated 20% year-over-year, each quarter last year. We ended up with 25 million members last year with a 93% retention rate. Now, all of this growth is enabled by productivity. We've taken our productivity target up by another $500 million, with a $1.5 billion target by the end of 2020. I'm happy to talk about some of those new avenues of productivity. We continue to reinvest that in growth. We continue to improve our balance sheet. We ended the year with our net debt to adjusted EBITDA at a ratio of 1.5 on an LTM basis. That's been a significant improvement from the past. I'll just close by saying that our strategy, we feel very comfortable with our strategy and what we're doing. It's working. It's working with our customers and working to improve our P&L and balance sheet. With that, I'll turn it over back to you, Kelly, for any questions you might have. No, that's a very helpful backdrop. I guess, first question, we were just chatting about just the year and how volatile it's been. It's been a modeling exercise from my seat. Just curious, as you look back at the year, you talked about that volume growth and the focus there. As you think about those comps, 17%, how much should we think was volume driven? Because there's a lot of noise between the impact of volume, retail inflation, lack of promotions, and how that impacted inflation and mix. Just trying to understand, it seems like we see the CPI kind of in the 3%-4% range. Where did Albertsons kind of net out with volume and retail price inflation as we look back, and then we can talk about maybe going forward? The far majority of that growth came from volume growth, right? We started in the beginning of 2019, a focus on unit growth and customer count growth. To me, you manage your pricing and your mix so that you continue to drive those. That philosophy helped us set us up to accelerate through the pandemic. The large majority of that growth was from volume growth, and that's what we continue to see as a pattern. Right. We try to do that. Part of that is the way we merchandise. Part of that is getting pricing right. Part of that is driving more e-commerce opportunities for our customers. Part of that is getting that loyalty engine right. All of those are oriented towards driving customer and volume growth, Kelly. Would you say, when you think about retail inflation, would you say you guys were in line with kind of the broader market of 3%-4% above or below? Generally in line with the broader market. No question about that. Okay. When you think about us versus the broader market, also think about we have a bigger proportion of fresh, so you tend to see the extent to have to account for those types of differences, but in line with the broader market. Right. No, that's very helpful. I guess just a lot of questions from investors, just with Walmart talking about widening price gaps, relative to the market. It seems like there's a lot of different management of how price ended up last year or over the last 12 months. Just I guess on that point, how do you feel about your price gaps as we head into the back half of 2021? We manage pricing on an extremely micro level. It's price zones that we have. If you went to any one of our markets, we'll have multiple price zones. In those price zones, we identify who we need to be priced against as competitors in that particular market. Our analysis tells us that in many of our markets, we've actually improved price gaps through the pandemic. Okay. Okay. To me, I look for evidence. The evidence that I look for is whether we are gaining market share both on dollars and units. Yeah. We gained substantial market share in dollars and units in both food and MULO in 2020. As of now, we continue to gain market share on dollars and units in food on a year-on-year basis. We're not losing a whole lot on MULO. We're certainly ahead on a two-year stack on MULO. To me, I look for the evidence, Kelly, and continue to tune the levers that we have so that we gain market share. I hear the general din on pricing, but I don't see that in our business. Okay. Were those comments through your Q1 or where-? Yes. How should we see that? Yeah. Including my Q1, when I talked about. Right Most recent numbers. Yes. Perfect. The big question across the space and many industries, I guess, but for grocery in particular, is inflation. We see some of the commodity charts, we see some of what the CPGs are announcing. Yeah. I think about this expectation for returns and promotions to come back, which means kind of lower net prices, but inflation coming back at the same time, demand, maybe, not what it was, and maybe decelerating on a unit basis from where it was over the last 12 months. How do you manage that? Yeah. Let me separate two things. One is the whole discussion on inflation, and the second is a discussion on promotions. Okay. Let's start with the promotions. I think you're going to find, one, a natural throttle on promotions for several more months. The natural throttle is that the demand is much greater than supply still in many categories that tend to be highly promoted. When that happens, it makes no sense for any of us to promote more because you won't be able to supply the added volume that you're expecting to get. There's a natural throttle there. Now, I think a more sustained secular change in promotions is that we certainly have gone digital, more and more digital. Kelly, I'm in Dallas today, and in our Dallas market, there are sections within Dallas market where we've gone to a two-page ad. Used to be 16, eight, four. Now it's a two-page ad. More of our promotions are going to digital, which is also very personalized. It's not only not transparent, but also very targeted and effective as a result of that. I think you're going to find because of that, promotions not necessarily becoming visible, creating price wars and such, as we go forward. The second piece, let me talk about inflation. Our inflation that we're seeing today continues to be along the lines of what we saw over the last several months. That's in the range of, like you said, the 3%-4%, et cetera. That range is actually healthy for a hi-lo player like us. We can make it work. We are able to gain from that kind of inflation. None of us has been in a scenario before where recently, the recent past several years, inflation has gone up to high single digits, let's say. Also, we have a healthy consumer who's demanding a lot. You're seeing that happening in many other industries, cars or whatever, where people are still willing to spend and driving up inflation. I don't know what that ceiling is. Is it 6%? Seven? I don't know what that ceiling is where we're not able to pass it through. Since we cannot predict it, what we're doing is we're preparing for it. By that I mean, we have a bigger productivity agenda. We're generating more from within the business. To the extent we cannot pass through that inflation, there are other ways of reinforcing the P&L and making sure we deliver the commitments we have told you on earnings and cash. Frankly, maybe even using that to support pricing if we need to. That's how we are managing this business. It's interesting, this comment that you made about just this personalization and the digital aspect of promotions maybe not needing to price wars. Do you think that that's, I guess, a more sustainable outcome of what we've gone through over the last 12 months in terms of just the ability of different retailers to be more effective with those promotions instead of blanket price wars? Yeah. I think it's one that since we've all pulled back, now what we're thinking about is what to reintroduce. It's a different logic, right? When in pre-pandemic, if you had asked me to pull back all these promotions, I'd have said, "You're crazy." Okay? It happened. Now we're in a different place. We're saying, how do we add it back smartly? That's one piece of it. The second piece of it is that the digital agenda, the consumers are more digitally engaged. They just are more digitally engaged and have been even more so through this pandemic. We have that platform. If you have that platform, it gives you an immediate avenue. I do believe strongly that it is a lasting outcome of the pandemic that we see a different type of promotion cadence, and approach, right, as we go through the year and beyond. Just so interesting from your seat coming from large CPG, what's that conversation? How does that work in terms of that conversation between retailer and CPG and managing those dollars most effectively? The biggest challenge we had as CPG companies, when I was there, I think CPG companies in general have, is I think we all know it. The CPG company knows it, the retailer knows it, that in a world of promotions, there's a lot of ineffective promotions that we roll out. Okay. The combination of technology to manage the whole suite of promotions we do and the ability to now target and see the return on a particularly targeted promotion to an individual gives both of us tremendous transparency, right? A net effect of it should be that we are promoting with quality, not quantity. I think that's the type of conversation you'll see emerging more and more in the world of hi-lo with CPG companies. It's a net benefit to everybody. What about CPG investing in direct to consumer? Do you see them maybe reallocating some of those funds there? Yeah. I think it's a whole different thing to go buy shoes, which you might buy once every so many months and it's a big-ticket item and going direct to buy what you consume every day and buy three, shop three times a week, maybe. I think it's very difficult for a CPG brand to build the level of traffic they need to sustain a full business. I can also imagine a scenario where CPGs and retailers are collaborating to make the supply chain from, let me say, the field to the factory to the home, a lot more efficient. I think it's a huge opportunity for us collectively to do that. Think about a very different architecture of assets to remove all the waste that we have in that chain today. Right. No, that's an interesting point. I guess going back to, you mentioned the productivity savings. I would like to dive deeper in that. You raised that to a billion and a half. It was a billion. Your guidance for EBITDA is up $600 million-$700 million from 2019 levels. I guess, one way to think about it is about half of that is kind of falling through to the bottom line. I don't know if that's fair, but maybe you can just help us think about that math and then where are you finding these incremental productivity gains? Yeah. Let me start with where I'm finding it, and I will come back to the math of the business itself. The productivity, when we articulated the first $1 billion in productivity, it was largely centered around a lot of this promotion effectiveness technologies and tools we were deploying, improving labor productivity in our stores and our distribution centers, all the technology we are putting in it to do that, buying our indirect goods better, grocery bags and things we don't sell. There was a tranche of productivity that we wanted to go at first, because those are easier to access. The two pools of productivity we are going at now, a part of the specialists of our company is that we have this incredible independence and speed in our local markets. We learned a lot from that in the pandemic. We have learned what to preserve in that. Part of the opportunity in the company is that we have these different markets that are doing their own buying on certain categories. One part of it is saying, "Hey, let's be smarter about how we buy the goods we resell and get the best leverage on it and get the best support from our suppliers on it." That's one tranche of the productivity. It's the same mindset on our supply chain. We operated as independent markets in our supply chain, and now we're starting to harness best practices across optimizing transportation, thinking about different networks, et cetera. That's the second tranche of productivity that we added to that $1 billion. This is in some ways now saying, let's leverage our scale in a different way, but preserve what that speed that we get locally. Let me talk about the math of that productivity. Mechanically, it doesn't necessarily work that way, Kelly, where we just take it to the bottom line. What we prefer doing is find these monies, invest it back in growth. You drive more customers and units to our store network and our online sales. That leverages more of our costs and delivers better EBITDA. Okay. Think of it as the flow-through in the business that's really coming from the top-line growth. That's what you saw happening through the pandemic, where we consistently delivered really strong flow-through in our EBITDA. That's how we want to use that productivity. Right. Okay. That's very helpful. I guess, as I think about the last year and the quarters, obviously a lot of benefits from shrink with 17% comparable. How do you dissect and think about what is the sustainable shrink from your own efforts versus what was pandemic-driven? Yeah. There was both. There clearly was both, right? It's almost impossible to avoid that. I'll give you an example. We have, over the last year, we do production in our stores. We believe in our cut fruit program, where the fruit is cut in the store. It provides for fresher product, and it actually reduces shrink. We put in a program there now where, it's called VisionPro, where our cut fruit, the number of fruit to cut, et cetera, is predicted based on the demand for that day and at the time of demand for that day, right? That program not only increases sales because you're in stock on the right items, but reduces shrink because you're not making 20 watermelon bowls, you're making 12 for this morning. Those types of programs we had introduced across our store. We knew that those were having impact. Then, of course, the rest of the shrink was coming from sales. I just feel now that we're lapping it, I'm actually feeling even more confident that those programs are working based on what we're seeing in the business. To me, in the past, I had to analyze it and separate it. Now I'm lapping it. Right. What drives those predictions? Is that humans that say, because in this environment, it seems like things are changing very fast. Correct. It is more about what's happening in most recent sales. The prediction is from POS data, it's sales data, and the intelligence that's applied to the sales data. It becomes even more powerful because we can catch most recent trends. It used to be, "Hey, last year. Right On Thursday, we produced this." Well, last year doesn't matter. Okay. That's reassuring. Just a couple of questions on-- There's just so many moving parts. Curious what you're seeing in terms of premiumization and trade up and still a lot of noise in the pandemic there and just how that's impacting profitability. Another sort of similar question, just in terms of basket size, which obviously has been bigger across the board, just any specific metrics you can share about that and how that impacts profitability, which I think would be a positive, but would love to hear your thoughts. The trade-up, we saw trade-up across our store, wines, the meats, the shellfish, et cetera. Interestingly, I had this theory, and so far it's holding out to be true. My theory is that if you've eaten a better steak and you've had a better wine and so on and so forth. You don't say, "Oh, the pandemic's over. I'm just going to go back to bad wine or a bad cut of meat." I think we're still seeing people staying with the quality of product, produce, meats, wines, et cetera. The other indicator for me about the consumer's health is discretionary stuff. We're selling boatloads of flowers. People are spending discretionary monies in our store. I'm not seeing any indication of consumers starting to trade down, even as economies open and so on and so forth. Now, the basket size, it's true. The people who had fewer trips and a larger baskets back then, interestingly, they kept coming more frequently to the store for fresh, and they would come less frequently to the store to fill up their full basket, whether they came to store or whether it's a drive up or I'm just saying in general, the occasion. We're seeing more trips and smaller baskets. At the end of the day, actually, I don't mind you engaged more if I'm selling the same number, I'm still driving units. We're indifferent, maybe a little more partial to more frequent trips because that drives more opportunities for us to drive more engagement with you, right? As long as we're moving units to our network, we are good. Okay. No, that's a good point. Question on this trip consolidation. It's pretty clear, you guys gained a lot of share, traditional grocery, I think, gained a lot of share, trip consolidation, convenience, one-stop shop, I think really all played into your favor maybe, and others over the last year. A lot of other retailers, we were just speaking with one specialty, they're working to get their customers back, right? What can you do? You mentioned some of the 25 million Just For U members, 11 million in households. What can you do to personalize to keep them? What's the opportunity there? Number one, I find digital engagement is sticky. When people are engaged with us on this, and we are starting to feed them specific ideas on, okay, the Kelly Bania household did not engage in laundry there now. We're going to focus on Kelly, make sure she gets offers and ideas to keep her engaged in laundry. The more we can do that with digital engagement, we find that to be incredibly sticky. The other aspect is that it's convenience, right? The convenience of delivery at home, the convenience of pickup in-store, those tend to be sticky too. To me, those are the types of things, Kelly, that we're focused on. We know that we won't retain 100%, but I'd rather be in the seat of giving up something than having to be in the other seat of getting it. This is the very targeted approach that we're taking with the customers who have engaged more in our franchise and are new to our franchise. Right. Obviously a lot of investor questions and focus on digital. I want to go back to a comment you made in the beginning about that two-hour focus. It sounds like you're focused on speed. What are you seeing from consumers and their expectations and speed? Yes that order pickup or delivery, and just how important is that? We'll start with that. Yeah. I think consumers want control. Full stop. I'm willing to wait half a day for a refrigerator to be delivered because I buy a refrigerator once every 10 years, and I want it to be installed right. I'm not sure I want to wait half a day for groceries to be delivered. I want more control. Control comes in two ways. One is you shrink the window for her. You click it, and within two hours we'll be at you to go to deliver something. That gives you more control. The other thing that gives you ultimate control is if you said, "I'm going to show up in the parking lot when I want to show up, and you're going to be in my car within three to five minutes to put it in my trunk, and I want to drive off." That's the other side of control, which is not a surprise, and which is why I think you're seeing speed and delivery and DriveUp & Go. We're not the only retailer. Even outside of food, you're seeing a big emphasis on people picking up in the store. I think it fundamentally comes down to control. That's why we're doubling down on it. Now, you cannot do that, in my opinion, if you don't have proximity to where she is, and the proximity to where she is stores. We have great real estate in great markets close to where you live, and so that proximity gets you speed. Our e-commerce business is built around our stores. We're putting a lot of energy into making the picking more effective in our store, and we like the MFCs, the technology that we're learning about, and we're expanding this year. That's why we like speed. It's not speed, it's more control. That's helpful. For DriveUp & Go, you mentioned just how many stores. I mean, it's been an incredible rollout, an incredible tool for consumers. In terms of profitability, I guess, one, can that be profitable? Is it dependent on getting those MFCs really up and running? Can you just remind us the fee that you charge for DriveUp & Go, if there is a fee at all? No, there's no fee for DriveUp & Go, Kelly. We eliminated that, I think, in the early days of the pandemic. Think of two things that drive up the economics, that improve the economics of DriveUp & Go. First is scale per store, right? We're getting to that window now where we're starting to get to good scale per store. As you get more picks in a store, you leverage more of the fixed cost that you have to put in to get DriveUp & Go going, even the fixed labor component. As you get more orders per store, that cost per order starts dropping quickly. Now, that levels off because you run into the physics of what you can do in a store. The MFC takes that and drops it a whole other notch in terms of labor cost per order. That's the two-step strategy that we are pursuing. DriveUp & Go for us is profitable, but it's not like what the average business is. I do believe that with this two-step strategy, we'll get to a place where we'd be indifferent. We're not there, but we're starting to see the technology helping us, and we're going to continue to experiment with MFCs this year to see how to crack that code. Yeah. Can you update us on just how that test is going? I think I've seen estimates about some of the margins with Takeoff, which is who I believe you're working with, that are pretty high. Is the goal really to just get it back to an in-store margin, or could it be higher? Well, I don't know if in the grocery business we can ever get to I think there's a natural throttle on margins, okay? Let's be real about that. I think our margins are healthy, and we'll keep those healthy margins as we go forward. There's a lot of learning to be done, and it's not one of those things where you put the machine and voila, you get it. There's a lot of learning about what to carry in that particular MFC in that particular market. What happens and how do things change through the season, and so on and so forth. What happens when there's an out of stock? How do you combine the ordering philosophy for that versus the store? There's a lot of learning that we've been through over the last year. It's still going. There's a learning curve to it. We're going to expand that now. We're going to add six to seven more MFCs this year. We're trying different configurations of it, different approaches to it, so we can continue the learning. All because we see the promise. We see the promise in the technology. How long do you think till that really starts to scale and move the needle? I can see us starting to scale it in 2022 and beyond. The natural throttle will be how much can we construct and get done, and how do we fit it in the stores? What's the real estate strategy and all of that. I see 2021 as a continued year of learning and then 2022 and beyond as starting to scale that technology. Okay. That's very helpful. Oh, I guess one last one I had on digital. I know you don't necessarily disclose your digital penetration as much as maybe some investors would like, but is it rough ballpark, kind of like a low to mid-single-digit percent of sales? Is that the way to think about it? Yeah. It's behind our competitors, no question about it. We've accelerated it tremendously. I've been unambiguously clear that we were behind, we've accelerated, we are still behind. The good news I feel is that, one, we are taking an approach where we're emphasizing quality, we're being creative about it, we're expanding it. Our overall business is good, and we're seeing a lot of our customers, getting new customers and switching our customers to it. This game is still early in its innings. The whole e-commerce game is still early in its innings. Question on retail media. Some of your competitors are maybe taking a little bit of a different route in doing this more in-house, and just would love to hear philosophically how you are approaching retail media, what you see as the possibilities in terms of this alternative revenue stream helping digital profitability. I think it's a very important avenue of value creation for us and for our supplier partners, okay? The reason being that I think it's one of those things that provides a fabulous closed loop for them that becomes more and more difficult in other areas they can spend money. We have a retail media business, as you said. In the early days, it was outsourced. We're building our business. We're building our technology stack to be able to do that. We'll be incredibly relevant in the markets that we operate in. There are markets where it'll be difficult for a supplier to win without winning with us in many of our markets. Later in the year, you'll hear us talking more about what we are going to do in that space and how we see that continuing to support the business. The key to all of this is, I'll go back to what I emphasized earlier, which is it's got to be more and more digital engagement. The more we can get people to engage. By the way, digital engagement is not just on e-commerce. You can be digitally engaged even when you're not buying something with us, right? That's what we're driving towards. Am I hearing, are you making more investments in-house for this, or are you continuing? Yes. Okay. Yes. Do you think, maybe just one question to wrap it up, do you think there's just too much investor concern about grocery and the margins as we go deeper into digital? Yes. I think we've been saying grocery is going to disappear for about 40 years now, I think. I think the sector is incredibly resilient. Because we are close to where people live. We do offer great options. We are great at fresh. I'm talking about the sector more broadly. We are a very good player in that particular sector. This is not the first time we've seen inflation and so on. I do think, but that said, we've not been through a pandemic. None of us has left a pandemic. I know Shaw's was there during the last pandemic, but nobody working at Shaw's was there during the last pandemic. I think there are concerns, and I think some people just have to wait and see how this lap plays out. Fair enough. We'll take any modeling guidance you can provide on that. I think we are out of time, and we have to wrap it up. Thank you so much for taking the time and joining us from Dallas. I thought you were in Boise, but whoops. Good to see you out on the road, and thank you for taking the time again. Thank you all. Thank you. All the best.