Hi, everyone. I'm Brandon Fletcher, and we're pleased to have Albertsons with us today. Vivek Sankaran is going to go through, I think, a pretty powerful presentation to give us a sense of not only why the coming out party was well-received, but some of the great opportunities that have been provided for their customers and their associates in an extremely difficult time of the pandemic. After we go through that little bit of presentation, which should be coming up now, we'll do our normal fireside chat and questions and get into the nitty-gritty of the opportunity for investors as they think through Albertsons. Thank you. Go ahead, Viv ek. Hey, Brandon. Thank you so much. Brandon, I was told that there might be investors in this particular call who may not be familiar with us, so I thought I'd use a few pages to just give people context about our company. I was advised also to keep it to less than five minutes. I will do that. Cody, thanks for moving to this page. This presentation's also available to you, but I'll hit a few highlights here, the numbers on stores, et cetera. Two things to point out. One, we have 25 million registered loyalty members, identifiable customers. That number grew substantially. It was 21 million just about a few months before the pandemic. The other thing I'll point to on this page is $15 billion in own brands, which is 1,000 basis points higher margin than the national brands for us. It's a portfolio that's 25% penetration growing. If you go to our website, you'll see that it's a very wide portfolio, not just about opening price points, but a lot of other things too. Our geographic presence on the next page, you'll see. I put this page up because I want to emphasize two things here. One, that we do have a national presence. We may not be in many parts of this country, but we have substantial scale with the presence we have across different markets. More importantly, we've got significant local density. In the markets that we operate, we're pretty dense, right? That's great from a competitive and structural standpoint, but it's also really good when you have these locations in dense markets near where people live for e-commerce. Our e-commerce strategy is built around the store. It's important to just keep that in the background because that's why when you hear us talk about e-commerce, you'll see that it's built around these stores. We have assembled a good team that comes with very many different backgrounds. You can see all our bios if you wanted to, but I point to the mix of experience. You'll see a whole wide range of names that all of us have come from. You'll also see a mix of grocery experience and experiences from outside grocery. In the world that we live in with so many different changes and a transformation that we are going through and the industry is going through, this background and experience has helped us a lot. We are in the middle of a transformation. I would characterize it as maybe the second or third inning of a nine-inning transformation. This is what we're focused on as a company. We believe there's a lot of headroom with just this agenda, and executing this agenda will create value while giving us opportunities to explore other things that can take us further in this whole world of food. Number one is driving growth through in-store excellence. We've been maniacal about elevating operations in store. We've got a significant fresh portfolio. In fact, it's a bigger mix than most, and it was 300 basis points higher in Q4 than the rest of the store. I talked about own brands. We launched 1,200 own brands, and we're going to expand that fresh equity that we have into meals as we go forward. Omnichannel was a significant focus for us last year. We were behind, there's no question about it. The pandemic was an accelerant for us in omnichannel. We invested significantly. We went from about 400 DUG locations to 1,400. We're going to get to 2,000 by the end of this year, and we are investing in MFCs. We have two running. We're going to expand to seven more, and we think that that's going to be the unlock for us in terms of productivity when it comes to e-commerce. Speaking of productivity, we delivered 500 billion last year, and we raised our target for 2022 to $1.5 billion from $1 billion, and I'm happy to talk about that more as we get into this conversation. We continue to invest. We are so proud of our contributions to the community through the difficult period last year. As Brandon said, we believe we made a difference in many ways, including the $260 million contribution through food and cash donations to our communities. I'll touch on our ESG strategy. We do a lot in that space, and we're going to do more. All of this doesn't matter if we cannot do two things. One is grow our customer base and make a difference in the communities we operate in. We are pivoting the company to think about customers first and the relationship and the stickiness and the lifetime value we have with customers rather than thinking stores first. Last year, we added 11 million additional identified customers versus the prior year. It was a significant year, and these are people who we can identify, and that, as you can imagine, makes a difference to all of the things we can offer them. We can learn patterns about their shopping behaviors and so on. We also increased our omnichannel households by 3x. People who shop our stores and our e-commerce, they are a significant value to us. They spend 20% more with us. We've made significant progress on identifiable households. We believe deeply in this notion of building relationships with them, and we also believe deeply in the notion of making a difference in the communities we operate in. You'll see on this page things that we do towards energy, waste recycling. All of the different things we do for our communities. We have committed to science-based targets, and we are, as we speak, going through a materiality assessment, and we're focusing on four pillars. Climate change, waste reduction, and circularity, doubling down on our community impacts and DE&I. That's a quick synopsis of us. Brandon, with that, I'm going to turn it over back to you. Perfect. Great. Thank you very much. Appreciate that. As the slides come down, I want to remind everybody that questions will be entertained on Pigeonhole for audience questions. I'll be able to see those and flag them. If I can't get to every individual one, I can bundle some of those sentiments up to share. I've got a couple of things I wanted to start with. I want to go back to, I think, what was remarkable, which is, it was a little flat-footed, arguably, on where you guys were positioned for omnichannel, but a remarkable amount of effort by the team to get so many stores ready and running and doing exactly what customers need in a difficult time. I'd love to hear what are some of the things you guys did, almost feel like you had to do, that led to what you think of innovation opportunities. I always think about Southwest loading a plane on accident because they ran out of time with only three planes, and suddenly innovation was created. Would love some of that color. Yeah. Brandon, you're right. We were caught flat-footed in the pandemic. Our leader, Chris Rupp, had joined us in December last year, and we were just starting to craft the strategy, and the demand spiked. We found things like this. We found that our picking algorithms were way inadequate. They just could not keep up. We didn't have the right slotting capacity algorithms. We didn't have enough people. We hired 30,000 people. We hired people from hotels. We hired people from the food distributors, anybody. We reached out to different people to pull that in. The couple of important things, we rewrote the picking software, we rewrote the slotting software, we added people. We made double down on a commitment to it. We opened up these Hub stores. We always wanted to ensure we have quality, though, Brandon. It was a trial by fire and a lot of software and engineering work that helped us accomplish it. Right. That makes a lot of sense. One of the things that's always interesting whenever people think about a unionized shop, I think sometimes people forget that if you have good processes and systems when you work with your partners, those become the way things are done. We used to joke inside of Walmart that sometimes the union would execute better than we would because those rules actually construct the behavior. I feel like when you guys get your DNA right, it's a little bit stickier. Is that a fair characterization? Yes, because you get more specialization. That's a good point. You get specialization. With specialization, you get learning, and you also have less turnover. You add those up, right? You go up the learning curve, and as an institution, you stay there on the learning curve. That's a fair point, Brandon. Yeah. The one thing that we saw in the click and collect is that, kind of in the panic, and also just the practicality of having very narrow SKUs, I mean, everybody had to do that. That was okay because that's what people needed, right? I remember we were walking a Target store, frankly, before we realized how bad everything was, and anything that was natural was not bought. The only cleaning products were the one that were like, "Kills every last germ with toxic bombs," right? You didn't need all those other SKUs. Do you think as we come out of that, will that SKU range go back out? How do we think about that? Does that become long tail stuff you'll only click and collect and don't need to see in the stores? Love any color on that. Yeah, Brandon, I don't buy that at all. Here's why. Let's talk about why the SKU range went broad in the first place, okay? There are a couple of big drivers. One is the diversity of America. We are a very diverse country, diverse by locale, diverse by taste. Some people like lemon, some people like spicy. By definition, the customer need is quite diverse. I don't see that going away. I only see it becoming stronger. The second thing is, innovation is lifeblood for a CPG company. You have to create excitement for your category. You have to create excitement for your own portfolio. Therefore, I think you'll find that we want innovation to come back. We don't want anybody to throttle innovation, okay? I think you also find that there is rationale and there is a purpose for size changes, right? Some people, a large household, small households. Some people can pay $5 for an item, only $3 for an item. Size. It will come back. What you're seeing is a phenomenon of supply constraints, right? In a matter of time, people will pursue. At the end of the day, we're all going for that extra little surplus that's available in the marketplace. Makes sense. One of the things that we've seen when people have done exactly that, so they've seen this opportunity to think about layout, to think about a category range, to think about item modular level substitution to dynamically customize a market. It sparks people thinking about how remodels get done, right? Unfortunately, arguably in history, I lived through Project Impact at Walmart, which was just an abject disaster failure by almost every metric. In fact, I ran away and hid in Slovenia, I was so ashamed, for about three years. Yeah. Project Reset program, similarly, it's not the results people were looking for. How do you guys think about when you're deploying capital for remodels to kind of solve that intersection? Because I think it's a chance to do really well, and not a lot of folks have done it this way. You're touching on two topics, and I'll parse them out, Brandon. One is remodels, right? Which is the capital-intensive side of things that we do to stores. The second is assortment optimization, which actually, there's a history of, you're right, of many retailers getting it wrong. Let me talk about remodels. If you go back in history, we would all try to come up with that next new format, and boy, that's going to be the winner, and you roll it out. The remodels were big items, big-ticket items. I'm not a believer in that. I think the world changes too fast, and you can't do 1,000 remodels and then realize that the world's changed and then do 1,000. What we believe in is in a modular approach to remodels. We think of the world, we break a store down into small modules, and we try to be very contemporary with those modules, which can be executed quickly. The more sure we are of the return, the faster we execute those. We're never putting the whole store at risk at any one point in time. The second thing on assortment, the data matters. You talked about the 25 million identifiable households. When we optimize assortment, we always care about those households that might buy one particular item. They're coming in for fish oil. Okay. Yeah, you don't sell a whole bunch of it, but they come in and they spend a whole lot of stuff on other things. Keep that fish oil for that customer because you want to win the basket. Because we have identifiable households, we're able to do that. The assortment, I think you'll find if people have that data, the assortment optimization will get smarter as we go forward. Yeah. I think sometimes for folks who don't cover the sector or haven't worked in the space, they don't understand how much SKU variation there is geographically. Right? Yes. Even if it's a highly dense market and there's three major grocery competitors and a savvy company like a Publix and a Walmart and a Target, there's still really substantial SKU variation between those stores. Correct. I think that modular optimization is very, very clever. Do you think the analytics are there? I know you got the data. Is the analytics catching up? Absolutely. Came into it. Okay. No, the analytics is catching up. In fact, we've just developed a whole other, just launched a whole new platform on that that does the optimization of the assortment and then also creates the shelf. Then we're able to tailor it locally. Let me give you an example of what I mean by local. I'm here in Chicago today. I'm in Itasca. The stores around here are going to carry different assortment from downtown Chicago, guaranteed. You should, right? It's not the middle, it's not the 80%, it's the 20%. That's where the granularity of the data helps us. Yeah. I think that leads really well to the other notion that we hear a fair bit from investors sector-wise, which is, they understand defensibility based on service. They get a Wegmans or a high-end format. As you guys think about your kind of format variation and the means of customer retention and differentiation, what are other ways to think about differentiation that just isn't a butcher, baker, candlestick maker in every store? Yeah. We anchor everything we do around our fresh portfolio. Okay? When we say fresh, Brandon, you can walk into our stores and get a steak cut an inch and a half thick instead of an inch, and you can say, "Please give me the less marbled stuff." You can do that. We've invested in that. Our cut fruit is cut in our store. We've invested in that because it actually sells more, and you end up with less shrink. We want to make sure we anchor the differentiation around fresh. That fresh assortment, I'll give you, I was in Seattle, and I was visiting stores with the division president. We went into this one store, and it had a predominance of red onions. I walked up to the person working it, and I said, "Hey, why do you have so many red onions?" He said, "I don't know, but we sell a lot more red onions than white onions." By the way, it was different in the other store. I turned around and said, "Carl, what's going on here?" He said, "Well, this is Microsoft land, and there's a lot of Indian people who live here." A lot of Indian people eat red onions. It wasn't orchestrated from the center. It was derived locally. That's the beauty of having an approach where you can allow people to design things locally. You're providing the analytic support on top, but you still have that confirmation locally. Yeah. That makes a lot of sense. My experience, I lived in Chicago for a number of years, and it was a Jewel-Osco market, and I grew up in Texas, which is a Safeway market. They serve very different roles and very different components. Right. My just memory and experience of the stores growing up and in college. How do you want customers to think about the roles of banners? Do you think you need to occupy every niche? Is it essentially you want to be the best niche, quote, intersection of customer need demand in that geography? How do we think about the use of banners as deployment? The banners, the first thing banners serve for us is there's a legacy, a history. Shaw's stands for something in Boston and stands for nothing in Dallas. Tom Thumb stands for something in Dallas and nothing in Boston. I'm okay with that. Their generations have shopped it. Here's where the differences come. In Dallas, Tom Thumb can carry an assortment that goes more premium than an Albertsons store. If you go and look at the wine assortments, you'll see that. Pavilions in L.A. will go much higher on the assortment than a Vons in L.A., right? We are able to differentiate from an assortment standpoint, price standpoint, a premiumization standpoint, if you want to call it, across the banners. That serves us really well. The tailoring that's done locally is not so much banner-centric. It's more about who's shopping there. That's the capability. A lot of what we're doing behind the banners, Brandon Fletcher, is common. It's a common technology architecture. Even if it's the same app, the shell is different. Makes a lot of sense. The way we used to think about it, when I was at Walmart, we had 58 banners at the time. It's even more now. That they give you permission to do certain things, and then inside of that permission, there's customization inside of there, which can, in some cases, be modular specific to that store as long as your supply chain can handle that variation. That makes a lot of sense. One of the other things that comes up a fair bit is that the classic margin mix construct. A lot of people who don't know grocery very well think you lose money on food and you make money on other stuff. Right. For some stores, like a Target, they're not terribly great at food, but they make so much money in clothes, it doesn't matter. Even, some other groceries have much larger assortments. You guys just make money on food. That sounds crazy. How do you make money on food? You sound surprised. Yeah, I know, making money. It's an old-fashioned concept. Okay. Right. We like it. Let me think about that. One is, in our stores, yes, we carry GM and all that, but it's not the vast proportion of it. We do have a large fresh component. The fresh component, if you have a tight supply chain, you know how to manage shrink, and you can increase units, you can make money in fresh. Okay. Let me just talk about mix. Here's the thing, when you have labor in a store. Let's say we have chicken on sale, Brandon, okay. It is brilliant. Here's what the meat team will do. They'll put that chicken there, and right next to that chicken, they'll have hand-trimmed chicken breast. Okay. Because they had a premium relative to what's on sale. You know what we sell more of? The hand-trimmed chicken breast. Yeah. Okay. Say, a watermelon. You can sell the whole watermelon for $5, or you can cut it up and make it two bowls and sell it for $10. Guess what? It doesn't cost $5 to cut a watermelon up and put it in two bowls. Okay. That's mix management if you have the capability in fresh. You can make money, but to me, it requires tightness in operations. That big productivity agenda you saw there is driving more of that tightness in operations. Yeah. This is kind of related to that, too. Is the margin mix construct not hyper-local? You've got to have a pricing construct that's rational, to some degree. Is there a dynamic that one store or one set of stores may be able to get much higher margins on citrus because of the differences in local buys and geography? In another place, in Vermont, it's a premium. You're going to pay for that grapefruit because there's nothing close. That's exactly right. Exactly right. Think of us from a pricing standpoint, think of us as having 100 of pricing zones. We're going to optimize pricing for that particular zone. Okay? There are certain things that we buy nationally, and there are certain other things, especially when it comes to certain types of produce, you can buy it locally, or you can buy it kind of quasi-regionally or something like that. Right? You can get some scale there. Those things affect it. The margin does balance it. We expect our division leaders to manage the margin within the division, and then we step back from it and manage the margins across the divisions, if that makes sense. The portfolio works for us, right? You start granularly and build up the portfolio. Yeah, that makes a lot of sense. One of the other things that has come up a fair bit is whether or not in that construct, I should put it this way. There are so many mom-and-pops left in this space. A lot of times investors come to this and they go, "Well, I could see there being three or four grocers," yet the status quo is 20,000 mom-and-pop boxes. Right? Help us with this concept of how do those guys exist? I think it's a critical thing for investors to understand why the grocer opportunity remains so large and arduous. Yeah. All these guys, most of them are still alive pre-COVID, and COVID killed some coffers, but we'd love just that context of how do these guys still exist? Yeah. I think grocers are supposed to have died for 40 straight years now. Okay. A couple of thoughts. One is location matters. The physical location matters. If you have a good store, why would somebody drive past a good store to go to a marginally better store to pick up what you eat and consume every day? Okay? There's that. Now, I think location matters for e-commerce, too. The stores are simply a point of inventory. That's it. She happened to come and shop, now we've got to shop it and get it to her. It happens to be close to where you live, which is why everybody's pursuing great real estate for retail. I think there are some fundamentals that help them. Now, I think the challenge they'll have, and it'll never decline dramatically, it'll decline slowly, which you're seeing that consolidation happen, Brandon, slowly, and you're seeing it in certain markets. The challenge they're going to have is technology. Scale matters for technology. You want to have a great own brands program, bigger is better. Okay? You want to get more attention from a CPG, bigger is better. It's going to be a challenge over time for the smaller grocers. Yeah. It's a powerful message, I think. It's amazing to me, especially when I talk to people around the world, because obviously, global investor base, that the default assumption is grocery is highly consolidated. That's because in most of the world it is. In the U.S. Yeah. It's just unbelievably fragmented. Yeah. There was a time I was working at a law firm, there was an FTC review of two bankrupt retailers that were merging, the reviewer would not allow Walmart Supercenters to be considered a grocery store for market share definition. That's how tight this market has been regulated. I think people underestimate just how fragmented this space really is. I know you guys have done a little bit of M&A, I'm not a huge M&A guy, but I'd love any context of just as you think about industry structure long run, wearing your McKinsey hat, does it become 10 players at some point? Is 30 still a really consolidated industry from relative to where we are? Where's the ceiling on that kind of consolidation? I think it could. To me, even today, if you took a CPG point of view, I think there's 10 players who if you take a point of view and bet on growth, it'll come down to 10 names that you would prioritize and put on the top of that list. I think the consolidation will happen. You know what we like? We like these, like the Kings and Balducci's that we did. We like it because to my point on density, it increases our density in a particular market, and we're able to immediately leverage, because it's contiguous, we're able to leverage the distribution system and importantly, the leadership talent, right, immediate. You can add value very quickly to it. Those are the types of things I think you'll find all of us doing as we go forward. Certainly, we will. Yeah. That makes a lot of sense. I think this is a bit of an extension on just what you said that I think is fascinating, which is a lot of times people dismiss how real the talent is in terms of field capabilities. Oh my gosh, yes. I'm a stats guy by training, and we used to have to build in a dummy variable regression for really great store manager because we simply could not explain the variance any other way. Just love color on what you guys have found in that way. No question about it. No question about it. By the way, I have done that analysis many times in my lifetime, and it is one of the most important variables. Our store managers, we call them store directors, their turnover is very low, and we love that, right? To me, that's such a pivotal role. Our store directors, we think of them as business leaders. They are measured on growth and EBITDA, Brandon. They are bonused on EBITDA, okay? They can articulate for you how they're going to get at it. We want them to have that local freedom to do things in that store. We call it being locally great. Go for it. I want you to understand what's happening around your market. We also call it being nationally strong. I want to ask them, "Hey, what are you doing? How are you harnessing the rest of the company to give something better for this customer? We want to play that duality. The entrepreneurship exists. What we've done in some of the programs that you saw is trying to find ways to bring an ability to leverage scale. Makes sense. I always had this notion of distributed analytics, which is if you empower the store manager and you give them information, there's a decision that they can make that's better than you'd ever make from home office. There's also stuff in the store they can't possibly pay attention to, and you need the systems to give them guardrails to give both. That's right. That's a really powerful model. Again, I think from the base you started with, that creates a lot of upside opportunity, right? Those were managed and they're kind of isolated, but they were managed with an eye towards local, and you can improve that. As some of the scale comes in without reducing their freedom too much, it's a really interesting opportunity. Makes a lot of sense. From a cultural standpoint, Brandon, what at least I inherited when I came to the company was a company that had a deep sense of entrepreneurship and ownership down at the front line. That's really hard to build. Yeah. Lucky we had that. What I was able to bring is the more national or scale perspectives. Makes a lot of sense. I think that leads to kind of this broader out component. This is a strategy conference, so we get to not worry about micro quarters and those details. As you think about your opportunities and threats in that kind of broader three to five-year horizon, what are some of those bigger opportunities and what are some of those bigger threats? Then one of the things about that as you look at those is, you're a talented guy, there are a lot of cool things in your career. You had a lot of places to go, and I assume when you looked at that SWOT analysis, one of those things said, "This is a good place for me to go personally." I'd love to hear that subtlety. Yeah. Your two questions are connected. Listen, this sector, this industry is going through such a fantastic transformation. It's like if you want to be a leader, and you want an intellectual and management challenge, this is great. What a great place to be in. That's what attracted me and just the commitment of the board to invest behind that transformation, the foundation of the company that already existed. Now, let me tell you what's exciting us about the possibilities for the future. There's always this notion that formats are converging. You go into a convenience store, they're selling prepared food. You go into one of our stores, and we're selling you single-serve beverages, right? You can see that happening in many parts of the world. I think there's a bigger convergence happening, Brandon, which is that you can either think of us as operating in an $800 billion food and beverage retail market, or you can think of us as operating in a $1.6 trillion food and beverage market, which is meals. There's a convergence happening between the purchase of ingredients and the purchase of meals, right? I think we have a big opportunity to extend ourselves into that space, leveraging a lot of the fresh equities that we have. Okay, certainly, we are going to do that, and we are doing that. There is a second big opportunity, which is the way consumers are shopping. I firmly believe food will continue to be an omni-channel experience, right? The experience in a store when done right, is hedonistic. You love the colors, the smells, the tastes. You watch people on the right side of that store versus the left side of the store. It's slow and meandering, and people are smiling and stopping. Now, they're rushing to the left side of that store. That experience still matters. Whoever cracks the omni-channel experience in grocery, I think is going to do really well. Right? There are some of us who have the store base and are going left, and some of us who don't have the store base, but starting from the left and going right. Okay? It's going to converge on that front. Both those are tremendously exciting for us. The last piece I'll tell you is just the adoption of technology and data to underpin the decisions you talked about, which we did kind of manually or with Excel spreadsheets for a long time, promotions, as an example. Yeah. I sometimes didn't want anybody to know how decisions were made because there's a lot of upside, but at the same time, you're like, "I don't know that I want people to know how we used to price. I'm not sure I want to make that too transparent." The one thing that I will say, though, is that people do see threats, right? They kind of have this notion of what are the things that could go wrong or people miss or not get right. What are some of the threats that you guys kind of identify as you're doing work with the board and with the team to make sure you're not caught on something scary that we didn't think was going to be as big of a deal? If I was to take it to the very top, it's two buckets. One is that we are not keeping pace with how the consumer is changing behavior. Right? That could be around shopping behavior, expectations on product portfolio. Okay, let's take plant-based food. Okay? Where's that going? Are we keeping up? Et cetera. The assortment side of things. Are we removing friction fast enough for that customer? I think it's an important question for us in this sector. The second one is really old fashioned, but always comes down to execution. Can we execute this agenda? Because it's a more complicated agenda than in the past, right? It has disciplines in it that we as retailers did not have to worry about five years ago, 10 years ago. It's a new set of disciplines. Can we attract the right talent and execute against it? Those are really the two big ones. These dislocations will happen. I consider dislocations that happen as opportunities. The pandemic was terrible for all of us, a tragedy, for us as a big, broad society. It was an opportunity if you were a competitor in food, right? To move fast and do things that can get an advantage as we come out of this pandemic. I think it's interesting. Just a follow-up. The talent, I used to compete with tech talent, and I didn't have any trouble getting people to come out of Google because the impact of working for a retailer was so immediate as opposed to some of the other, like, "Oh, you slightly tweaked our Google Trends algorithm. Woohoo." Are you guys able to compete in tech? Have you had a hard time as you guys have kind of built that stack out? Were you able to get people to come and really say, "Wow, this is a great place to bring an analytical or technology skill set? We are, Brandon. Nobody wants to join a grocer, but a lot of people want to join a passion to change how people shop grocery, to change the industry, to transform it. You find a lot of people want to do that. We've not had any challenges getting great talent into the company. The other thing I'll tell you, this is, again, when you get great talent, they attract great talent. Yeah. That's self-propels. That's true. One of the things that's been helpful overall is that you guys and other grocers that have a high percentage union have had historically very good livable wages for all, not every class role, but for tons of roles inside of the store. People have been worried about kind of, "Oh, well, the living wage is coming." Well, that's not a problem for you guys. Do you think that actually helps you guys, that the competitors may finally have to be paying a fairer share, and that creates the stuff they haven't figured out how to solve, you already figured out through partnership and efficiencies a year ago? Yeah, probably does, because for us, in some ways, our labor rates are very predictable. You have a three-year contract or a five-year contract with the union. This is around wages, health benefits, pensions, and we work that whole package. It's predictable. For us, we have learned that our bigger opportunity to get efficiency is always about managing hours, right? It's making the hours most productive. All of the systems and capabilities we have is about directed towards that. To the extent companies have focused more on rate in the past and haven't had these capabilities. I'll give you an example. I talked to you about the cut fruit, Brandon. There is one way in our company to cut a watermelon, and if you cut it that way, you'll save 12 seconds, okay? I think that's the discipline we've had, and we're putting more of it in place. That helps on a relative basis. I've always had the vision that when you know retail, if you take a worker and you make them as productive as they can be on their shift, they absolutely can justify a $40,000 or $45,000 annual salary. It's not hard. Even cashier variation. Some cashiers, if they were paid their marginal productivity of labor, not to make a Marxist comment, but okay, if they were paid their marginal productivity of labor, they'd make $60,000 a year, no exaggeration, because they're the most efficient cashier in the entire chain. Yes. I think it's a misunderstood opportunity in terms of what I think you guys have. It's obviously the headline notion is other people have to raise wages and you don't, but it's richer than that because it enables productivity, which is a powerful idea. The other thing that's been happening is of all the things, grocery usually is a kind of a sleepy space. In most cases, usually the cool parts are about these productivity innovations or private label. Yeah, my kid had an allergic reaction yesterday to an old medicine, a reliable medicine he'd taken before. I was surprised, I was scared. Right. I couldn't sleep all night. I figure you have to feel that every week from some crazy food disruption in the supply chain, where you're surprised and scared and you can't sleep all night. How crazy is the food supply chain? Is it really as bad as the media makes it out, or you guys just have these little adjustments and you're okay? It's not as bad as the media makes it out, just because I think there's a lot of exaggeration there, okay? What I learned through this pandemic is that before the pandemic, America had two incredibly efficient food supply chains, one that comes to stores and another one that goes to restaurants, and the two could not talk. One couldn't migrate to the other. Okay? That took some time. The migration of the food from the restaurant supply chain, the away from home supply chain to the retail supply chain took time, but the demand was high. You saw those shock scenarios where you would walk in and find no protein in some stores. That was one. The second is. Remember, about this time last year, we were going through a period where people had to shut down factories that were producing meat and so on, right? You had all of those types of things that were other dislocations. Largely, all of that settled even through the second half of last year, certainly through the last quarter of last year. I think it's there, and you're going to find these disruptions every so often, but nobody in America should be worried that they're not going to get food. Okay? That's great. Yeah. That's helpful. I have a couple of questions that I have from audience that are similar to things I was going to get to. First is, if inflation is temporary, what forces prices back down? Does a competitor like Walmart have to lead with lower prices first? If costs just come down, does this just kind of automatically pass through in the normal course of operations? I think that the instinct of the retailer is to pass it through. I think you'll find that none of us is in a mode of saying, "Let's find a way to extract surplus that way from a customer." I think you'll find that the natural tendency of all of us is if the costs truly do come down, we'll pass it through. Now, we'll all find ways to add value and get the returns for that. I don't see the sector holding on to that way, Brandon. Yeah. Okay. The other one that is similarly to that notion is whenever you have a dynamic where you're starting to do more and more private label, which you guys have always been good at, but you're working on tiers and those components. As you add those tiers, sometimes there's a temptation to use tiers of private label to respond to inflation, to respond to pressure. At some point, does that diversity get difficult to manage? Or usually, you're going to see an opening price point in the store and the appropriate store brand for that geography, and you might have a different store brand in your portfolio, but it's not going to overlap very often with the geography. Help me with that context of managing what could be an overwhelming portfolio of private label, if not done the right way. Yeah. Our private label philosophy is that you've got a set of brands that are opening price point, and that same brand exists across the footprint. Then you've got a set of brands that are giving you, let me call it a lifestyle choice. It's O Organics. You can get a lot of things in our store with our O Organics brand and feel very comfortable. It's a great high-quality product that's organic. Open Nature, that's free from antibiotics, and you can do that, right? You can go to our seafood area and you'll get Waterfront Bistro, responsibly sourced seafood. I think if you segment these brands and these brands stand for a purpose, then you're okay, right? That's how we play it. We've got these brands segmented, and you'll find these same brands across the store if that store, we think can carry that brand and should carry that brand for the customers that brand is serving. There's a reason we've talked about 30% penetration, Brandon. One, we put a number there, and we are going to get to it. On the other hand, we're a house of brands. I want to be clear. You come into our store, you can finish your shop. You can get our Grade One brands, and you can get good A brands and B brands. Maybe some C brands, but over time, not D brands, okay? Yeah. That's the philosophy. Yeah. Makes a lot of sense. When you guys talk about, I'm going to bundle two questions from the audience. Yeah. One is that private label in Europe usually includes produce and fresh. Yeah. America usually talk about private label as something else. If you rolled that in there, would your private label number be already 35? No. I'm including it in there. I'm including it. Okay. I'm including it. Yeah, we have our own line of meat products. We have our own line of semi-prepared foods and all of that. I'm including all of it. Okay. Great. Perfect. Then the other one is this notion that some of the things that are coming out of Europe are on-site growing. They're these containers, and you can grow lettuce. Yes. All these kind of things inside of it. Just thinking about those other notions of how far. There's two ways to do private label. One is on-site, and the other is way further upstream. Costco essentially puts a line out on a dock and catches a fish and puts it on the shelf. Help us with that kind of notion of the ways you guys are going in private label range and depth. We do a lot that is of the other variety, which is going further back and working with the supply base and the agro to make sure that we can get the right products. On these things about growing it in store, we have those experiments going on. I think the challenge is how do you get to scale on all of that? It may take some time, Brandon, and I'm sure some of those will break through, but none of them is at a place where it's going to be substantial and material for a company our size yet. Yeah. No, it makes sense. It takes a while, but I think what I like about it is this notion of if you think about local buys as a differentiation, and then the appropriate product in the appropriate time and the appropriate use of all of your microdata may yield the ability to say, "We have this container, and we do these 15 things in this product at this store, same container, other store, different 15 products." That's sufficient for differentiation based on demand or whatever. That's what I think is reasonable in the future, but I'm with you. Yeah. It's a ways away before that's worth messing with. I usually like the strategy questions because it's the Strategic Decisions Conference, but I'll do a couple of the more boring ones. Although this one next is pretty important. We've seen a lot of retailers need more capital, and the bear case on the sector is that omnichannel takes fresh capital, but it'll have lower returns than the old way of selling grocery. Therefore, grocery is not a great place to put capital to work. What's your view on that kind of capital dynamic and this notion of relative returns omnichannel versus the old days? That surprises me because here's the thing. If you go back, you can go 40 years, and you can pick any industry you want. Automation and capital has always driven more productivity, right? Capital drives productivity, especially low cost of capital, okay, and high cost of labor. It's a great combination. At the end of the day, we are all experimenting with means of automation for e-commerce, okay? Again, it's not just what you see as MFCs. There's companies working on robots that can pick many different types of products. All of that, yes, it's capital, but this kind of automation drives productivity. I think in the long run, we'll all crack the code on this. We crack the code on it because the technology cost and the technology output will continue to improve, and at some point, it will become indifferent to the manual way of doing it. My corollary to that is if you were in Europe, U.K., with four grocers and a German invasion, Everybody has to put the capital in the ground and you chop each other up because there's no share. Okay, that's a problem. It's the U.S., there's 22% of share to go share among all the powerful competitors who figure it out. To me, that's the unlock. Am I close to how you can do this innovation and still end up with an okay economic return? Yeah. The evidence is that most of the people are still shopping the store, Brandon. Let's be clear about that, okay? The vast majority of people still want to go to the store and shop the store. While we saw this uptick in the pandemic, I think you're going to see a return to normal growth rates, okay? Even if it's with a bit of a step change through the pandemic. It's still majority store shoppers, and so I think we will transition it to a point. In fact, I'll tell you this. I want it to get to some scale. The sub-scale is the worst place to be because you really can't invest the capital, you can't optimize labor. We want it to get to some scale. Right. That makes a lot of sense. I think that's the whole point, right? What's credited to you guys is got enough scale in order for it to be a base to go forward, right? If you were sitting there and it's a small, little well-defended micro-market in two cities in Texas, you can't do it. It just doesn't matter what you can innovate. Yes. I think we answered that one. I'll throw to that. The other kind of straightforward one is just kind of, again, generalist audience, kind of a reminder of long-term margin targets and kind of where your allocation priorities go there. Presumably, those that help you get to those longer margin targets. Just any color you'd feel comfortable providing on that kind of notion of what should an investor expect you guys to do? Yeah. When you think about our business, we don't want to grow the business or the bottom line through gross margin expansion. The way we think of it is we want to have a number of what we call gross margin tailwinds, shrink management, mix management, et cetera, that get you gross margin tailwinds. We want to invest those gross margin tailwinds back into the business to drive units and volume through our stores. When you do that, you get a lot of leverage on all the lines below the gross margin line, all of our SG&A lines, and that's what you saw in the pandemic in our P&L. We had better flow-throughs than anybody else because of that nice virtuous cycle that we got going. That's our philosophy. We're going to continue to do that. We keep finding more and more and more gross margin tailwinds, put it back in. By the way, we're getting more productivity in the middle of that P&L, right? Because of some of the labor and productivity initiatives that I talked about. We continue to invest capital in growth. It's about in our stores, it's in digital, it's in continuing to evolve our own brands portfolio, finding ways to get into things like meals and such. That's great. Well, I want everybody to have time to get to their next set of meetings. We appreciate your time. Fascinating coverage of the sector. I think it's a very interesting story. Last thing I'll leave for you to kind of let us go out is, you mentioned some of the opportunities that are available and some of the productivity. That well's pretty deep in my perception, but you're up close to it. That's a long runway of productivity opportunity. Yeah? Never ends. Yeah. It never ends. Yes. Perfect. It's just newest curves. Well, thank you so much for the time. I greatly appreciate it. Thanks, Brandon. Thanks for everyone who dialed in and joined in. Anything we didn't get to, you can email me, and I'll make sure we get answers to the questions. Thanks for the time. Fabulous session. Cheers.