Good afternoon, good evening. I'd be surprised if it were morning for many of you, but if it is, good morning. My name is Dean Rosenblum. I am Bernstein's Hardlines and Broadlines U.S. Retail Analyst, and I am very, very pleased to be leading a fireside chat with two members of Kroger's leadership team today, Stuart Aitken, and also Juan De Paoli. And we're gonna be talking about Kroger's owned brand portfolio. I'm gonna give it just another moment or so to let the participants fully join the conversation. Just another moment or two, and then we'll kick it off. So stand by. Okay, seems like we have quorum. So again, thank you for joining us. Just a couple of quick housekeeping items about our session today. So today's session is very much focused on one topic, one topic that is actually really important in U.S. grocery, broadly, top of mind for many investors, which is owned brands, or as Kroger calls it, their Our Brands portfolio. I just want to acknowledge there's lots of topics that investors have on their minds with respect to Kroger, particularly the merger, internet fulfillment, e-com, retail media. There's lots of stuff that we've been writing about that we know you guys are concerned about. I wanna just explicitly state we're not gonna be on those topics today. If you have topics, like that, that you wanna cover on, please get in touch with myself or Sophie Lopatkin on my team, and we can connect with you on that and, you know, field questions to the management team as well. Today is gonna be very much focused on the Our Brands portfolio. We do have a Pigeonhole, which is the the platform that you can submit questions real time during the conversation. The link to the Pigeonhole would have been in the invitation for the event, so just go ahead and click there, and it should open right up. We'll be monitoring that throughout, throughout the conversation. So with that being said, let me officially welcome Stuart and Juan, and let me begin by asking each of you, maybe starting with Stuart, if you could just introduce yourself. Tell, tell our, investors who you are and, and what you bring to the topic for right now. Okay. Thank you for having us, Dean. My name is, Stuart Aitken. I look after, merchandising and marketing for the Kroger Company. Been with Kroger, for 14 years, if you count my dunnhumby time and my 84.51° time. Ran alternative profits for the company, and, today, look after, merchandising, fuel, Our Brands, with Juan, and, the portfolio is roughly $130 billion, $30 billion of which is Our Brands, and, looking forward to having that discussion today. Juan? Good afternoon. Juan De Paoli. I work in the Our Brands department, leading that team, and I've been with the Kroger enterprise for two years. It's been two fantastic years, and I work very close, obviously, and learn every day from Stuart. Juan, you want to share a little bit of your background before? Absolutely. So my career began with a little bit of a, perhaps you hear, a little, tiny, almost imperceptible accent. I was born in Venezuela, and my career started with P&G in Venezuela, Mexico. Then, after that, with H-E-B, where I spent the better part of 13 years, and then Ahold Delhaize USA, prior to joining the Kroger enterprise. Very good, and doing brand management and Our Brands development or? Yes. With P&G, I was in brand management, CPG, and then with both Kroger and Ahold Delhaize USA, always in the own brands, private label arena. Very good. And for those investors, I actually spent six years at the Pepsi Bottling Group, so worked extensively with the Pepsi Beverages brand teams, selling into companies like Walmart and Kroger, et cetera. So very familiar with those landscapes and be interesting to talk about the Our Brands and how it fits in. So let's start with just context setting. Our Brands, you know, Stuart, you mentioned $30 billion, which is a bit above 20% of sales, ex-fuel. How do you define Our Brands? What is the $30 billion? Does it include what are really non-branded categories, like produce, meat, seafood, dairy, potentially? What's in there? So, the 20% number is significantly more at Kroger, because if you take out fuel, that's how we get to more like a 27-28% number. We'll likely get into a discussion around how big could it be, should it be, et cetera. But the portfolio itself, to your point, around it being a $30 billion business. For too many years now, retailers have not treated this asset as a true strategic advantage, and what I will tell you is that's exactly what we're looking to do and have been doing over the last couple of years, and we'll get into some of the financials in a moment. But Our Brands, and we've deliberately labeled it as such, because they are Our Brands, and we need to nurture them and grow them much the same way as a CPG would. And if you actually think about that context of a $30 billion brand-... in the context of being a CPG, that puts us probably the ninth largest CPG in the U.S. Now, the ninth largest CPG might, you know, be awarded a slightly different multiple than what Kroger's looking at today, which is why we've taken a huge step back, and did this 2-3 years ago, and looked at the portfolio, created a brand architecture that makes sense, and I'll get... I'll share some examples of that in a moment. But a brand architecture that makes sense to the consumer, especially right now, makes sense in terms of differentiation, products customers can't get anywhere else. Best example of that we have is the likes of Simple Truth, a phenomenal and the largest natural and organic brand in the U.S. A brand for those of you in New York, I believe some of you are signing in from New York, like Murray's Cheese, which is a phenomenal our brand product. True differentiator for ourselves. But now we are creating billion-dollar brands focused on it, similar to how P&G or PepsiCo, to your point, Dean, might talk about their brands. We're talking about billion-dollar brands, and Juan will share some more about our billion-dollar brands in a moment. But that brand architecture and creating a space for our products to grow and develop has been critical. I want to spend a moment on what that means. Sorry, Stuart, if I may, I just want to- Yes, please. Sorry, can you hear me? I don't know. Can you guys see me? Yes. You're on? Okay, cool. That's all I see, is you, Dean. That's not good. Let me just ask, before we dive in, let me just clarify, 'cause one of the questions we get all the time is sandbox, right? So we know definitively that in grocery, full-line grocery, we have produce, meat. Those are probably the two big cold proteins, meat, poultry, et cetera, and to a lesser extent, seafood, bakery, floral, that are essentially non-branded, but not trivial, like, important parts of the store. When you think of sales of produce, meat, seafood, fresh bakery, floral, are those in the $30 billion of own brand, or are those completely separate? Aspects of it are in Our Brands. Not all of it, but we have where we brand it, we clearly brand it. For example, we've just come out with a multicultural Hispanic brand, known as Mercado, and that brand will have thin-sliced meats specifically for that multicultural customer. Yes. So we do have branded meats. Bloom Haus is our floral brand, our brand, so we do have those branded products around the perimeter as well, but it is not- Right. -all products. Cool. And in terms of the composition of the brands within the portfolio, Kroger, Private Selection important, and then there's, you know, you mentioned Simple Truth. My understanding is Kroger is sort of the biggest brand in the Our Brands portfolio. Maybe you can help us understand how big Kroger is in terms of the overall Our Brands portfolio and the categories that the Kroger brand plays in. Sure. So Kroger brand is half the business, so a significant portion of the business, and the role that Kroger brand plays is national brand equivalent. Juan will not release a product that does not cut as good or better than the national brand equivalent. So I'll pick on pasta for a moment, and walk through that architecture for you, because it does matter, and the same principles apply to every single category Juan goes into. So that national brand equivalent, we will cut our pasta to Barilla. And if it doesn't cut as good or better than the national brand, Barilla, we will not release it. In the past, we would take that same cut and put it in a OPP brand. So think, Sorry, for those on the call, opening price point. Sorry. Okay. Thank you. Yeah, I'm full of acronyms, so I appreciate that. Me, I'm a total TLA guy. Three-letter acronyms, totally. TLAs, baby. Uh, so- Sorry. OPP. No, no. What we would do, would take that same Kroger pasta and put it in, what we called a fantasy brand, Zia Italia. It meant nothing to the consumer, and we had these cute, fancy brands, across all our categories. So in sugar, it was Smidge and Spoon, in bread, it was Good to Dough, et cetera, et cetera. What we did, or what Juan did, was created Smart Way, a true OPP brand that allows the, Kroger brand to play where it needs to, but he also specced that brand to our biggest competitors as well. That then allows for margin expansion in 2 ways: 1, from an OPP standpoint, when the spec matches the price point you need to sell it at, you change your margin gain, and then you allow the Kroger brand to play where it needs to play, which is the national brand equivalent, and holding brands accountable to pricing accordingly and appropriately. And then our Private Selection is cut to a higher quality product. So for us, that tiering system matters significantly, and then if you want a natural organic, we have Smart Way. So hopefully that's helpful, Dean. ... Simple Truth, on the- Simple. Simple Truth. Simple Truth. Okay, cool. So for those on the call, what we're talking about here is the ladders, the value pricing ladders. So nationally branded is typically sort of better, right smack in the middle. Opening Price Point is typically thought of as good, typically less expensive. And then, the Private Selection is playing above the national branded, more of a premium offering, somewhat differentiated there, and managing the specs of the products to the, the position in the value ladders. So let's talk just about- That, that's a great point, Dean. Just, on the Private Selection, that product for us is made in Italy. And part of becoming a CPG, that product was cut, made in Italy and shipped to the U.S. We told the customer on the back of the package, it was made in Italy. What were we doing? Now we put an Italian flag on the front of it, made in Italy, steel cut, phenomenal, phenomenal product that will cut against any pasta. And that's what we've set up, and obviously, with that comes margin enhancement as well. So- That is correct. Just... Sorry, just for price context. So if a Barilla pasta in the bright blue box, right, a 1, a 16-ounce penne sells for $2.99, give or take. Where is the Kroger branded penne that cuts against the Barilla in, on price point? Is it 5% less expensive? Is it 30% less expensive? On average, will be between 10 and 20, 10 and 30% lower than national brand equivalent. That's our goal. Is that true across the ladders? Yes. Yes. Got it. For natural and organic, where there's maybe not an equivalent, for many, many of our categories, Simple Truth exists by itself. We will price compared to natural and organic brands in our competition. So that's where natural and organic would, and then obviously 10%-30% less than national brand. And then our Smart Way brand, our opening price point brand, we will price, depending upon the category, with the toughest pricer in the market. Got it. And, are you particularly strong in any of the categories across the store? You know, I'm thinking center store, I think breakfast cereal, salty snacks, you know, food ingredients, dried beans, beverages, confections. Where do you see particular strengths? So, Dean, that's a very good question. Actually, our portfolio, and it's truly a portfolio that plays across the store in many categories. One of the aspects where we're very, very strong would be in the fresh categories, to the point that Stuart was making before, whether it's the thin-sliced meats or any of the products that we expressly brand under any of Our Brands in the portfolio, in the fresh. Another category where we have a very, very strong presence and are leading the industry in innovation is our dairy. We have an incredible assortment. We guarantee 10 days of freshness in our milk, the white and chocolate milk and flavored milk, which is fairly unique. We have an amazing offering with Kroger CarbM aster, which is a great product that delivers the same amount of caloric content with less fat and a phenomenal organoleptic experience for the customers. So those would be two examples, and they actually fulfill that promise of full, fresh, and friendly on the fresh aspect. The penetration you should be thinking about, on average, about 30%, from a unit and movement standpoint. That would be a good ballpark across the store. That is correct. Cool. So let me shift a bit to how private brands have behaved and evolved really over, like, the last six quarters, for context. Investors talk a lot about the phenomenon of trade down, thinking about a whole bunch of different levers there. One of the trade downs is moving from the branded product to an own brand, or as it's often referred to, a private brand, which I'm not sure exactly how those are different. Maybe you can elaborate. But so looking back over this period of really seeing inflation, how has the our brand portfolio evolved, in terms of mix of sales, and where do you see particular sort of overperformance? So I'll start and let Juan give more context. Early last year, so about six quarters ago, we saw massive shift to Our Brands. Customers looking for value. That, our customers are still looking for that value. And your point was spot on, Dean. It's not always going to the opening price point, and in fact, oftentimes that opening price point shows a price that is so strong, and you see the customer then buying the Kroger brand, which is a huge opportunity for us. So that OPP allows for the trade-up to Kroger brand because it's still 10%-30% lower than the national brand equivalent. You will see customers either trading from national brands-... or trading from retailers, and we've seen retailers come to Kroger, from, you know, think the Whole Foods, Sprouts, et cetera, et cetera, Fresh Market. We've seen a huge influx and great increases in penetration on our Simple Truth type brands. So huge increases over the last year, and more of a steady increase 'cause we saw so much of it last year. More of a steady maintenance, if you like, this year. What we have seen is Smart Way truly resonating with the customer. And in fact, I think Progressive Grocer called us out as the fastest growing opening price point brand or any private label brand in America, which is great to see because it's truly resonating with the consumer. That is correct, and that's the beauty, Stuart. That's the beauty, and Dean, that's the beauty of having a portfolio of brands, because to Stuart's point earlier, when we say we got to validate the quality of our products, we actually take that a step above that, which is we take it to blind consumer tasting, and if we don't get the thumbs up from our customers, validating the product without any kind of bias, we don't put it on the shelf. So what ends up happening is that trade-up, because the quality of the Kroger product totally delivers, and then they get a little more tempted to try this unique product, that is really... That has an incredible claim of authenticity or incredible claim of performance in the Private Selection brand, or an incredible claim of free from in the Simple Truth brand. That's the beauty of having that portfolio and how we're trading those customers up and becoming more and more engaged, if you will, with the entire portfolio, and not just with one of the brands. If you think about the current economic environment and last year, the lack of supply, we manufacture about a third of Our Brands. Mm-hmm. Which meant we could control getting product to ourselves. When many others were struggling, that was a massive competitive advantage for Kroger. It means we can control the quality as well of what lands up- Yeah ... on the tables of our customers. And so, having this portfolio that we control in terms of manufacturing, is a big competitive advantage for Kroger. Yeah, and Stuart, if I may add, our ability to innovate with our own manufacturing, which is part of the DNA of many of Our Brands, including Kroger, Private Selection, Simple Truth, I mean, we are constantly looking for innovation. We indeed launch upwards of 800-900 items, new, brand-new, net new items in the marketplace every year, and a good portion of those are innovative, unique or distinctive, which again, is what makes us very special. Put that in context for me. One, how many, how many SKUs are there in an average full-size Kroger store? Not a, not a Kroger Marketplace, but a full-like, a full-size grocery store, give or take? Give or take, 80,000. 60, 70? So I was gonna say 60-80,000. Yeah. Yeah. Yeah. Okay. So, We have some big stores there, Dean. I know. I've been to a couple, actually. You got a big giant... A couple of big, giant new Fry's, right, right around here in Phoenix. Thank you for coming to us. So just to sum up, I just want to sum up, though. In the last 6 quarters, right, we saw this huge spike in inflation. Consumer behavior changed. It's changed in a couple of ways. You're seeing an influx of shoppers from other retailers, which I'm going to come back to in a second, but you're also seeing behavior change within the store of people moving from a national brand to the Kroger brand, people engaging with Smart Way, which is the opening price point brand. So short answer, it's resonated quite a lot. Can you tell us how much bigger the own brand portfolio is today as a% of total sales or in dollars than it was, say, 6 or 8 quarters ago, or 6 quarters ago, give or take? Yeah, give or take. Call it an improvement of 50 - 100 basis points, and it's variable by category, by brand as well. So we're seeing those sorts of changes. If we go back 3-4 years, the notion of creating a CPG within our organization, I cannot let go without sharing the improvements we are making. The improvement in margin in our portfolio, while we've launched this fast-growing Smart Way brand as well, went from what was, call it, 500 basis points of margin above national brand- Mm-hmm ... to now 700-800 basis points above the national brand. Every single one of our categories, we are going through what we call an Our Brands acceleration, which is a focus on every category, who we compete with, the items we're competing with, blind taste testing, and then ensuring the spec is matched at every level of the portfolio.... We've gone through a third of our categories thus far and moved from 500 basis points to 700-800 basis points above national brand. So you can see the opportunity, and this has been done over the last 2 years. So you can see the opportunity we have for margin expansion as time goes on. So help me understand the levers here, Stuart, right? Because there's a couple of ways you can tackle that, and one as well, obviously, right? You can you can optimize supply chain, optimize the cost bar of each of the items. You can improve the quality so that you can potentially at least improve the pricing power, which gets you to potentially, you know, a higher realized price or better gross margin. How are you, how, what is it that's driving the sort of 500 basis point margin advantage to national brand to now, you know, 700 or 800? How has that evolved? What's caused that to evolve? So, think about that Zia Italia example I gave you earlier, where we would take the Kroger spec item and put it in a OPP, opening price point, packaging. We've changed that, to where we'll spec the item versus the lowest priced retailer in the market. That spec change is margin enhancement. That then frees up our largest brand, Kroger, which is more than half our portfolio, to play against the national brand equivalent, versus in many cases, when we didn't have a fantasy brand, Zia Italia, to play OPP as well. So it's freed up the portfolio to play across that. So let me make sure I'm understanding, right? So you're talking about in the old world, you had a spec for the Kroger brand, which was pegged to the national brand, but you were placing that in an OPP place in the ladder with a sort of national branded spec, and you're saying, "I've taken those specs and separated them out. Now I have an OPP called Smart Way," that's, you know, in tech, we'd call it defeatured, whatever, right? Maybe it's not durum or semolina, maybe it's just straight flour or what have you. Mm-hmm. That's what we're talking about here, right? Exactly right. Exactly. Tailoring the spec, the cost, manufacturing to the role that it plays in the portfolio and creating pricing envelope to be able to charge what the Kroger spec, that compared to national brand Barilla, is able to command in the marketplace. So you've just articulated the strategy completely. So think about the fact that we've only done a third of our categories now, and the opportunity we have to do that across the portfolio, rationalize down packaging. The other thing that Juan's done is hired an incredible engineer, packaging engineer, to fundamentally change our packaging, too. You think about CPGs having incredible talent around engineering, packaging. Packaging is something that is completely lost on consumers, on retailers, and we want to innovate in that space. Mm-hmm. So think about our Home Chef brand, which is the brand we acquired. It's a meal kit company. It is now our fresh food destination brand. We're just about to launch a double-breaded chicken, phenomenal-tasting product, but in new packaging. And here's why packaging matters so much. That customer would take that product home, the condensation in that packaging makes the flour and the crust on that chicken soft, right? Mm-hmm. The packaging now vents and allows for that product to come home, taste so much greater. It costs us more money, but the experience you have as a consumer means they're coming back, buying more, et cetera, et cetera. We're doing that across the portfolio, too. So I did want to ask you about Home Chef. So there's, you know, the sort of I get the ingredients, and I cook it myself kind of a thing. That's not Home Chef. Tell us what Home Chef actually is, because I don't know that it's well understood. It actually is both. There's a component of Home Chef, which is the classic kit that is mailed to your home with a number of components to prepare a given meal. They're measured to the specific recipe, so there's no waste. That is one component of Home Chef. That is also the brand that we deploy in what we call ready to heat and eat or convenience meals, if you will, which are now meals that are already cooked, namely lasagna, meat lasagna, and it's cold, it's refrigerated, but it's ready, it's completely finished. All you need to do is put it in the microwave for actually 30 seconds, and voila, it's ready. There's all the components inside of the store that may be ready to prepare. It is both, but it is the brand, the positioning of the brand is the convenience meal solutions, ready to eat, ready to heat, or ready to cook. All three. The Home Chef brand is now our latest billion-dollar brand. Just to clarify, it's all three, right? Ready to prepare, which is I have the ingredients and then I cook dinner. The second is ready to heat, right? And then ready to eat is I go into the store, it's hot, I buy it, I take it home, and I put it on the table. Correct. Got it. All three, all three stages are covered by that brand. That's why we call it a convenience meal solution brand. And just out of curiosity, right? This is one of the categories that we think there is potential to grow pretty significantly, right? We're capturing meal occasion week.... I, I, I'm not in the business. You, the industry, is capturing meals from other sort of takeaway prepared food solutions. What's the margin structure on this look like? And I wanna be specific, right? There's the product, straight product margin structure, but it's also there's a lot of preparation, production of it involved, and if you don't sell it, there's a lot of waste. It's a very sort of tight consumption, fresh product. What does the gross margin look like on a Home Chef portfolio relative to, you know, the Kroger brand? Okay, there's a lot to unpack there. I'm gonna start with your first point, which is a critical point and one that I think is lost, but you hit on it, Dean. We are in the food business. We aim to be the company you think of when you think of food. So whether that's a kit that you cook at home, whether that's ready to heat, oven, microwave, or ready to eat hot, just as you articulated in store, we want to be that. Now, think about DoorDash. Think about Uber Eats. We are now on those apps. Kroger is the largest sushi seller in America. Well, when you're picking up that sushi, why wouldn't you want those 5 tenders for $5, nominal value, under the Home Chef brand? That brand plays across a broad portfolio and allows us to compete in places we haven't competed with in the past. If you look at the restaurant space or food away from home, the fastest growing space is QSR, quick serve restaurants, right? We can play there. We have a right to play there. With sushi being so big, think about chicken now being a massive place to play within Home Chef. So that's one aspect of what you touched on there, where we can now broaden that share of stomach, if you like, to food away from home. So that's one place. Your margin structure piece across the store. Within the store itself, you might imagine ready to heat or ready to eat, both of those are significantly greater margin businesses than the rest of the store. And just orders of magnitude, think double the average store. So under that Home Chef brand, ready to heat, ready to eat, almost double the margin. Then from a kit perspective, and why we merged with Home Chef was the fact that they are making money on kits. The fact that their loyalty is so significant and their annual renewal rates are incredible because of their renewal or upgrades of recipes, of kits, what they are and what they offer to consumers. And in fact, we're just getting ready now to ship not just kits, but also ready to heat items in those same kits. And that margin structure, because of the shipping, is less. However, it's still helpful to the total business. If you control for also having to prepare all of these things, running essentially the operating costs against COGS, there's still, you know, tens of points above the center store or overall store average. After cost, that's in line, Dean. Got it. Okay. Okay. After those additional labor costs, et cetera, it's in line. Got it. Super. That's helpful. So, we do have one question from the audience I just wanna throw in here. How has your approach to frozen changed over time? And so my sense is the question is like, okay, so now we have Home Chef ready to prepare, ready to heat, ready to eat, potentially taking share from the sort of frozen prepared foods category, ready to eat pizza, ready to eat, you know, or ready to heat, you know, frozen dinners, et cetera. How has that frozen aspect changed now that Home Chef is playing obviously a much fresher role in that, in a similar space? So I'll take the macro look and let Juan tackle what we're doing with Our Brands. So frozen's actually creating. If you look at the industry, there's a bit of a renaissance happening around frozen. Customers are perceiving it as actually what they should, a fresher product than what they thought of it in the past. So we are seeing a shift to frozen, and in fact, in many of our remodels, we are adding additional frozen doors to our stores. The beauty of frozen, there's less shrink in frozen departments, obviously, and from a product standpoint, customers are seeing much greater value in there as well. A great example is, think about chopped fruit. For us, chopped fruit's a phenomenal competitive advantage, especially if you do it in store, and we've got over 1,000 stores now of fresh cut fruit. But frozen fruit now is a massive category and growing incredibly well for us. So how we doing then, OB? Actually, I would add to what you said, Stuart, which is they are both coexisting extremely well. Eat now or eat later, that's the positioning, right? Your fresh offering, refrigerated, has a shorter shelf life, so I have to plan to eat that pizza within three, four, five days. I can have the pizza in my freezer waiting for the day that I wasn't planning on getting a fresh product, and again, cook it and get a product. So eat now, eat later, they coexist very, very well. Some of what we're doing to add value and talk about that premiumization and adding more value and bringing more customers and ultimately improving the profitability of the categories, we're bringing in more value-added frozen products into the mix, whether it's entrees, meals, instead of your commodity veg or in addition, I should say, in addition to your commodity veg, is the sauced product. Is the product with a component that is free from under the Simple Truth brand, or a very complex and culinary recipe, of veggies with sauces, under the Private Selection. So, they both coexist extremely well, and what we're doing is, to grow the category, to answer the, the need of the customer and to improve the profitability of the category, ultimately, is to bring more value added to it, which is, by the way, ultimately what the customers are looking for. Juan and I were- That's great. in Anuga, a couple of weeks ago, which is the largest food show in the world. Almost 80,000 people in Germany, and some of the innovation that's happening from a frozen food perspective is incredible. So, nothing but opportunity in that space for customers coming. So, frozen is not a future former? Nope. All right. Hey, Juan, I wanna dig in a little bit. You run this business for Kroger, right? And, like, I'm a strategy guy, and I had on my wall every place I've ever worked, we can do anything. We just can't do everything, right? And, like, when I think about all the choices that you have in front of you of what you could do in Our Brands, it's kind of baffling. So can you help us understand how you think about what to prioritize and what to actually invest time in? Yeah. What's your process there? And as investors, what should we be thinking about keeping an eye on in order to interpret from our side what's going on in your world? Well, absolutely, that's a great question. And yes, we would, we would love to do a heck of a lot more than we already do, but we do a heck of a lot. So but having said that, we, we are very data-driven, and that data is driven and is generated, the genesis of that data is our customers, ultimately, as well as the trends. So we have a team, the Innovation Center of Excellence, inside... Like Stuart was alluding to, the Our Brands team at Kroger, which is absolutely, in my opinion, best in class, has multiple centers of excellence. One of them would be the one that is looking after innovation, and what they are doing, besides developing products, proprietary and unique products, is looking at the trends happening, whether it's in the restaurant industry, whether it's around the world, whether it's what customers are wishing to get. So we're constantly evaluating those. Indeed, we publish some of the trends that we have encountered, and we have published them over the last few years, multiple times. So we focus a lot, to be honest, to answer your question, in those trends and addressing those trends in a proactive fashion, in addition to ensuring that we're covering the basis of what our customers need. So when we were developing the trend, for example, of plant-based, Simple Truth was the first brand to have a full-blown portfolio of plant-based under one single brand. We did not forget that we also needed to address the value cost, the customer that needs that entry-level price product or opening price product and have Smart Way available to them. A little bit of everything ultimately, but we focus and prioritize based on those trends and data-driven from our customers. From a data-driven standpoint... Sorry, Dean, just, No, go ahead, Stuart. From a data-driven standpoint, you think about, Juan does this acceleration work by category, and then, you know, think about Porter's Five Forces. So what's happening from a competitor standpoint, economic standpoint, blah, blah, blah. He takes that lens on it, uses either Circana or Nielsen data to look for voids in the portfolio up and down, the range, and then actually lays out what every competitor is doing. Mm-hmm. So we can see very quickly where the gaps are and the opportunity before us. The other key when you do that is sizes, and we see big differences in sizes and opportunities in sizes. Absolutely. It's an incredible exercise that gives us an ability to do what Stuart just alluded to, but also to look ahead and see where we need to go based on the unmet needs or desires of customers. Sometimes they don't even know what they're missing until they find it, and that's our job, to develop and stay ahead of that and give them the answer to what they didn't know they needed, but now they cannot live without. ... So thank you for that. The innovation process to me is just baffling as to how complex it could be in picking a lane, so thank you for the color there. I want to move to a question that we get a lot from investors, and I just want to call time check. We have about 16 or 17 minutes left, so I want to get to at least 2 or 3 more topics. This is the first of those. How does the role of your owned brands, your Our Brands portfolio, how does it affect your interaction, the negotiation, the power leverage, the sort of dynamics between you and your CPG suppliers, and HPC, potentially? Yeah. It's been priceless for us, especially as commodity prices increased through COVID. We, you know, we were all faced with unbelievable price increases and price pressures. But when you're creating spreads that are so significant between national brand and Kroger, for example, you're forcing the customer to make that trade. You are forcing them to do so, and we're okay with that. We just show the data to our national brand players that we will take this cost increase because we understand there's pressures, but the commodity cost increase, you're over committing to the increases. We believe it should be here. That spread is gonna create too big a spread for the consumer, and the consumer is gonna trade to our product. We're fine doing that if you're comfortable doing that, and honestly, those are some of the best conversations to have. It's data-driven, it's commodity-driven, and, and, and from a taste test equivalent standpoint, that's not good for CPGs, but great for Kroger. So you're using it in two ways then, if I'm hearing you correctly. One is to say: Look, if you guys want to push this much through, we'll take it on shelf, but then the gap to our brand is gonna be even bigger, and you're gonna lose unit volume share. Or secondarily, maybe it's pushing back, saying: Look, we have the cost bar, too. What you're saying your% increase is, that's not what we're seeing, so stick to your guns if you want, but doesn't seem accurate to us. Is that fair? Yeah, that's very fair, Dean, and it works both ways, as the commodity's going up, but also as the commodities are going down right now. And those are examples of what we're using today to say, "Well, we're lowering Our Brands. You need to be thinking about yours because the spread's gonna become such that the consumer's gonna jump." And you just have to look at the elasticity, right, of the category to very quickly say what sort of unit movement we're gonna see move to Our Brands, and that moves the CPG, too. Mm-hmm. So Stuart, you just opened a door that I wasn't ready to walk into, but I'm gonna ask it quickly and say maybe we come back to it in another call. There's a lot of concern about deflation in retail grocery right now. Historically, we look back on it, we see disinflation, but rarely do we see actual food inflation go negative. Yet, what you just alluded to suggests that, you know, there is potentially downward pricing movement on the, on the table in some categories. How should investors think about the, the risk or the exposure for deflation overall? And how does the Our Brands, portfolio contribute to that or protect against it? Happy to come back to that another time, but, from a high-level standpoint, you've got to remember, we talked about 80,000 SKUs, right? That's a lot of commodities. And various commodities are moving in various directions. I don't see us getting to deflation, but let me, let me give you some examples. Egg. Do you remember the memes last year when you were paying $5.50 for a dozen eggs? Today, you're spending $1.50 on eggs. Now, eggs is a key ingredient in many items, think mayonnaise, think bakery, think you name it. So within those commodities, we see that coming down. Beef, on the other hand, a massive commodity for us, inflation's up, herds are down, so you're, you're having these offsetting, big, big commodities across the business right now. Do I see us going deflationary? No. Good. I mean, and look, just for the folks on the call, actual raw ingredients, particularly in center store, comprise a relatively modest portion of the total cost bar when you consider packaging, manufacturing costs, transport, et cetera. That's right. So there's... Even if you see sort of explicit commodity deflation in the market, it doesn't necessarily translate to price on shelf- Right in my experience. No, you're exactly right. Think about diesel right now. You know, we got crude, I know it dropped, I think, $2 today, but crude trading in the $86-$88 a barrel. But if you look at diesel, which is how we move product, either shipping or transportation, diesel is significantly up, and that's a big proportion of those costs as well, Dean, so you're spot on. Cool. So, I want to, I wanted to ask about, the... Hang on one second. I just made myself a note, and then I lost it. Hold on. You didn't want to walk through that door. I can tell. You see, you took me to the price thing, and then I got all flustered. Oh, here it is! So I live in Phoenix, Arizona. Your local banner here is Fry's, which isn't a particularly big banner in your portfolio. Many people probably haven't even heard of it, but it's a pretty important banner here in the Phoenix market. And when I see a Kroger-branded product on shelf, it makes me scratch my head 'cause I'm in Phoenix, and honestly, I've never lived in a place that had a Kroger banner. So with Kroger as your center plate own brand compared to national brand, half of the own brand portfolio, our brand portfolio, how do you see the Kroger brand playing in stores that are branded Kroger versus the myriad other banners that you have in your portfolio? How do you communicate to people, "No, no, no, this is a thing and something you actually want to buy? We test that all the time. Mm-hmm. And we talk to customers in Fry's and Ralphs in Southern California, Smith's in Utah, Fred Meyer in the Northwest. We talk to customers all the time, and they understand that Kroger actually owns the banner itself, and are very comfortable buying Kroger product in all of those banners. From an efficiency and cost standpoint, for our brand product, it's so much more efficient as you might expect. Absolutely, that is the case, and with the support of our marketing team, and enterprise marketing team, led by Tom Duncan, and we have been able to build that equity in the customer mind, where they're able to connect the logo outside and the card with the Kroger logo in our products. And there's a ton of equity. However, in some of our banners, the ones that do not have the Kroger logo on the marquee in the front of the store, we do deploy in some categories... For example, in Fry's, you keep referring to Fry's. We do deploy the Fry's brand in some very specific categories based, again, on consumer feedback and consumer input, where they wanna see it, whether it's a dairy product or it may be the bottled water, because there's a public relations aspect that goes involved with those bottled waters that show up, perhaps during, you know, times of crisis, et cetera. But again, it's all data-driven, and I am very, very happy to tell you that our customers do see the connection, make the connection, and find the equity inside of the Kroger brand, regardless of what banner they're buying that day from. So Kroger, the brand, the product brand, is not widely more heavily penetrated in, say, Cincinnati, than it is in Southern California or- Let me give you a great example, Dean. Yeah. As you know, we opened up a shed in Florida. We did. We only have one store in Florida, and it's in Jacksonville, and it's a Harris Teeter. But in the state of Florida, we really don't have much of a brick-and-mortar presence. Our Brands and our sheds have a higher penetration than what Our Brands' penetration is in our headquarters, big city of Cincinnati. So, when people try our product, they love it. Repeat purchase rate is fantastic, and our sheds are just a great example of that, which helps the profitability of that, modality as well. That is super interesting. There's more to unpack there, but not for today. We have about seven minutes, we have about seven minutes left. I wanna get to two more things really quick. One is, and I think this is a question for you, Juan, and then Stuart, obviously, please, add more what you think. What's next? Like, if I look at the Our Brands portfolio today, and I'm a strategy guy, I think, where does this go? Where does this need to be three years from now and four years from now, and how do we get there? What's the point out in the distance? Describe the vision. Where is this going, and what should investors be watching for, for signs of progress? Well, Stuart referred to it at the beginning of the call. We are not developing private label. This is not what we do. We are a CPG team building brands and brands that will resonate and will be a destination driver for the Kroger banners across the U.S., whether they say Kroger or Fry's or Ralphs or even in the state of Florida. So what you can look for is truly the solidification, if you will, cementing that strategy of building brands that have tremendous equity, that bring, that connect the customer and develop an emotional connection with that customer that is even more powerful, one would argue, than any other brand available throughout multiple categories. You can expect to see more and more innovation and unique and differentiated products in key categories that our customers are looking for. You can expect more value-added offering. That goes in line, perhaps with the innovation, but more value-added offering for our customer, and again, staying ahead of all these trends, whether they are innovative or not innovative, but staying ahead of the trends and keeping up and maintaining Our Brands. One thing that some retailers have been known for is perhaps to not keep up and keeping the brands up to date as often as a national brand or a CPG company would do. You will not expect, I can assure you, you cannot expect that to be the case for the Kroger team. We will update Our Brands and keep them relevant, modern, and appropriate, regardless of, as time continues to go. So that's the big difference. How high is high? That's the question you're asking me. Well, I'm 6, I'm 6 3, so the wrong guy to ask. That's pretty high. That's pretty high. I want you to think about Murray's and specialty cheese and the penetration we own in that space. It is significant, and there's very few national brands who come close to competing with us. And for a category, we own it. Yeah. Why can't we do that in more places across the store? Own the category, own it, because the brand truly does matter. We've got that with Murray's Cheese, we've got that with Simple Truth, and they're only expanding that further. Think about Private Selection in the context of, let's say, Finest in Europe or Marks & Spencer in the UK. Huge opportunity to own the space because the brand matters. That's what Juan means when he says, a CPG within a retailer. Yep, that makes sense to me. I have one question from the attendees, and then one final question to end. We have three minutes, just to be respectful of everybody's time. I think I know the answer to this. Let me do it quick. You mentioned eggs, and if eggs deflate, eggs are in a lot of things, including mayonnaise. So if the price of eggs goes down, we're gonna see deflation in mayonnaise. There's like one egg yolk to a pint of oil in mayonnaise. It's not a major ingredient. I presume if eggs deflate, eggs might go down on, like, actual cartons of eggs, but not necessarily mayonnaise. You answered it perfectly. There you go. And then my favorite, my favorite, my favorite ending question of all is: what did we not ask you that you can't believe we just didn't even think of asking you, that if we left without knowing it, we'd be missing something? Maybe start with Juan. I would say a little bit of, our five, our billion-dollar brands, and how, how did we get them to be, to, to be at that level? Could be one question, and the answer to that would be, 'cause the team have developed truly items that resonate with our customers in a very powerful way, looking, preserving the quality, and not compromising in any way, shape, or form on the quality side. And perhaps that could be another question, which is: How much or why do we put so much emphasis on the quality of our product and the satisfaction? And I would say the other part would be the, our efforts on the sustainability side. Sustainability is a major priority for us as a retailer and as a corporate citizen, if you will, and part of what our packaging engineer is doing is figuring out ways to develop more sustainable packaging that is reusable, recyclable, or compostable, to help the environment. So I would say sustainability would be perhaps a question that I'm surprised we didn't get to. And then I'll just add to Juan's first point, and bring the margin component of it, which is, okay, so if you're at, call it 27-28% today, how high is high? What proportion of your margin is coming from Our Brands, and how high is high on that as well? The potential we see is enormous, especially if we manage this business like a CPG does, focused on the big brands, focused on growth, focused on owning categories. How high is high? Maybe a little higher than 63, Dean. So am I over extrapolating here to suggest that we, as investors, might expect expanding gross margin and operating profit over time? On Our Brands? On Our Brands, yes, and if you've looked at the last three years of our performance, where does it come from? Our Brands. All right. Well, gentlemen, we are now at the half hour. I wanna thank you both for taking the time to join us here today. Appreciate the conversation. Lots more to talk about. Thank you, all investors, for dialing in. As always, we appreciate your engagement, we appreciate your time, and of course, we appreciate your business. Good luck out there, and we're here to help any way we can. Stuart, Juan, thank you so much, and take good care. We'll talk soon. Thank you, Dean. Likewise.