Q3 2020 Freshpet Inc Earnings Call
Greetings and welcome to Freshpets Inc. third quarter 2020, <unk> earnings conference call at.
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Now my pleasure to introduce your host Jeff sorry, what I see are like you. You may begin. Thank you good afternoon, and welcome to Freshpets third quarter 2020 earnings call and webcast on todays call are Billy Cyr, Chief Executive Officer, and other Pomerantz <unk>, Chief Financial Officer, Scott Morris Chief operating.
Officer will be available for acuity.
Before we begin please remember that during the course of this call management may make forward looking statements within the meaning of the federal Securities laws. These statements are based on management's current expectations and beliefs.
Risks and uncertainties that could cause actual results to differ materially from those described in these forward looking statements. Please refer to the Companys annual report on form 10-K filed with the Securities and Exchange Commission and the company's press release issued today for a detailed discussion of the risks that could cause actual results to differ materially.
From those expressed or implied in any forward looking statements made today.
Please note that on todays call management will refer to certain non-GAAP financial measures, such as EBITDA and adjusted EBITDA among others. While the company believes these non-GAAP financial measures provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial.
All information presented in accordance with GAAP. Please refer to todays press release for a reconciliation of the non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP.
Finally, the company has produced a presentation that contains many of the key metrics that will be discussed on this call.
Presentation can be found on the company's investor website management's commentary well not specifically walk through the presentation on the call rather it's a summary of the results that they will discuss today.
Now I'd like to turn the call over to Billy Cyr, Chief Executive Officer.
Thank you, Jeff and good afternoon, everyone I'm speaking with you from Bethlehem, Pennsylvania, and Scott and had our in office is in school I guess, we will do our best to not trip over each other on the call and as always please excuse any parking in the background and any other technical issue as we might encounter.
Let me start by saying that it feels really good to have kitchens, 2.0 up running and producing salable product because we need the capacity to catch up with the demand at all.
Also feels good because kids was 2.0, it's more than just incremental capacity. It is an indication of the capability of our manufacturing and engineering team completing such a large and complex project under some of the most difficult conditions, we've experienced in a long time.
Our team managed through shelter in place orders that block construction to a halt challenges getting fully staffed construction crews during the pandemic state mandated shutdowns had equipment suppliers across the country and the challenges are keeping workers safe from the Corona virus. In addition to the usual safety weather and technical challenge.
As a construction site.
Despite all that adversity, they completed and started up our biggest capital project to date, and we now have a longer runway to support our growth I.
I'm incredibly proud of what our team accomplished completing this project was no small feat and a major milestone for our organization.
This capacity is critical to the future growth of Freshpet.
During the third quarter, our Nielsen make a channel consumption growth driven by continuous media since may exceeded 40% and made it very difficult to keep up with demand, particularly on our premium fresh from the kitchen line I.
Our manufacturing team performed very well delivering record total output any strong adjusted gross margin, but that was not enough to keep up with the demand.
As a result, we do drew down trade inventories during the quarter and had much higher out of stocks and we our customers and our consumers would like.
Kitchens 2.0 up in running you're now able to start rebuilding that trade inventory I expect that we will be fully caught up within a few months.
Capacity challenges that we've faced all year and that many of you worried about are now behind us which feels really good.
We now have the capabilities and capacity to do what we love most convincing more pet parents to change the way they feed their pets forever.
I think it is also worth noting that we manage this complex capacity expansion, while delivering highly reliable topline performance solid and steady adjusted gross margin.
<unk> adjusted EBITDA growth rate it is well in excess of our top line growth rate, which demonstrates the operating leverage inherent in our operating model.
And we kept our teams safe with no evidence that anyone can track at the Corona virus in our facilities were transmitted it to anyone there after more than 500000 man hours of operation under the current cobot conditions that is probably the cheap and that means the most to us.
With the notable exception other COVID-19 issues, though these are the challenges and the kind of results that both you and we expect from a high growth company like fresh pack.
It's impressive as it is that we've added so much capacity and delivered strong top and bottom line results. We are prepared to demonstrate the sound execution over and over again on a larger and larger scale. Each time for many years to come in order to achieve our goals the.
The mountain, we just client has given us a clearer view of the next mountain ahead of us, which is taller, but not necessarily imposing.
Your rapid build rapidly building the capability to scale that next mountain nowhere is that clearer than in NSS, Texas, where we have broken ground on a next freshpet kitchen.
Almost 70 acres of land, we now have seven engineers in N.S. and a large array of construction and engineering partners, most of whom have been with us through multiple expansion projects.
That site and fully built will be almost double the size of our Bethlehem operations and had more than 700 million of capacity.
It will employ technologies and operating practices that represent third and fourth generation manufacturing know, how and Weve developed at Freshpet.
Well also be an incredibly environmentally friendly site employing steady our practice is designed to reduce our environmental footprint. We're very excited about what is happening in N.S. and look forward to opening that facility in mid 2022.
Now onto the results.
We feel very good about what we accomplished in the quarter, we shipped everything we could make delivering $84.2 million of net sales for 29% growth versus year ago. We.
Recall that a year ago quarter included about three points of trade inventory refill. So on an apples to apples basis, our growth was closer to 32% further.
Further we short shipped customers quite a bit in this quarter and will begin to catch up on that in Q4 and Q1 of 2021.
And an improvement in spoils accounts for the roughly eight point gap between our 40% Nielsen make a channel growth rate in the 32% apples to apples growth metric I just mentioned.
For reconciliation is in the accompanying presentation.
This growth was a result of the post cobot Tidbit, we made rescheduling our media to run continuously from May until October for the first time, taking advantage of higher viewership and lower media rates.
Planned work, even better than we had anticipated and drove Nielsen measured channel consumption growth about 40% by the end of July and it stayed there until out of stocks began to impact our growth in late September.
Our growth rate is still running in the high thirtys today, despite those out of stocks.
The consumption growth was incredibly broad based with grocery up 40% mass up 46% and big box pet specialty up an impressive 32%.
In each class of trade Freshpets growth was at least 35 points better than the category as a whole.
Driving this growth were the strongest velocity gains measured as dollars per million ACB, we've ever experienced up 29% versus year ago in the quarter. It.
Does that kind of performance that convinces our customers at Freshpet is a good investment a space inspires them to find ways to add more and bigger fridges to more stores.
By the end of the quarter seven of our top 10 customers had significant cash or expansions, a multi fridge sach underway.
Household penetration gains the major driver of our growth total household penetration was up 23% versus year ago.
Your dog household penetration was up even more at 27% growth.
Over the last 12 months, we've added 725000 incremental households.
This puts us slightly ahead of the pace, we expected on our quest to add 5 million more households by 2025.
It is our expectation that we will add households faster in the early years of our five by 2025 program and that the buying rate will come along faster in the later years as our installed base of users gets bigger.
We took a deeper look at who the new users were who joined the Freshpet franchise and the post cobot period and were encouraged to see that they were younger skewing towards millennials and Gen Z ethnic unmarried and urban.
This is very good for the longevity. The franchise, we are building and its also indicative of the wall Freshpet and pets play in our lives that's.
That's a highly valued for their companionship, particularly in times of stress in the highest quality food becomes even more important when you spend so much time for the pet you love that.
That is the perfect recipe for success at Freshpet.
Or buying rate was up 5%, which is strong growth. Despite the large number of new users we acquired.
As we've indicated before when we look at an undiluted cohort establish users, we typically see 6% to 7% buying rate gains that includes consumers who are moving from our lower price per pound items to our higher price per pound items, an increase usage on a daily basis.
Everything we are seeing in our data suggests that that is still happening, but they're being diluted by the large number of new users who are just beginning their freshpet journey.
As expected new store additions were modest reflecting retailers intense focus on keeping their stores clean and safe for employees and patrons as well as their need to manage labor I mean, the growth of their ecommerce options yeah.
We added 251 net new stores in the quarter and have now added 801 net new stores. So far this year.
We believe we are on track for the thousand net new stores, we projected for the year.
More importantly, though we upgraded 417 more stores to larger fridges and installed double fridges and 565 more stores in the quarter.
Year to date, we've upgraded 635 stores and have installed 1300 and 44 second fridges.
Both of which are in excess of our original guidance for the year and the revised guidance we issued in May.
Those placements are clearly playing paying dividends as our velocity in stores with upgrades typically increases by 25% to 35% and double fridges typically grow velocity by 35% to 45%.
Further upgrades and second fridges are increasingly becoming a significant enabler of our growth to their ability to carrier a wider assortment of products appealing to incremental consumer and pet demographics any broader range of needs.
If youd be growth reflects the same trends up 11% to 55.3%, reflecting retailers focus on protecting shoppers and employees versus making plant a gram changes.
Total distribution points Pdps are a bit more complicated because we experienced a very significant gain behind the large number of upgrades and second fridges, but tdps began to slip in late August we began to short ship customers.
That can be seen on the chart you accompanying presentation.
As a result, Tdps peaked at plus 21% versus year ago, and then drop still ending the quarter, 12%. It had a year ago, but well below the peak and a 17% average GDP growth in the quarter.
Once we re <unk> rebuild supply we expect to regain those TD piece.
Our E Commerce business was up 188% versus year ago, and now accounts for 5.1% of our business honestly.
On a sequential basis, our E commerce business realized a small increase versus Q2.
When consumers were under shelter in place orders and online ordering became a necessity for many people.
Within the overall trends, we're seeing particularly strong performance with Instacart and the curbside programs, including those in pet specialty.
And over 85% or ecommerce business went through our in store Fridge network.
Our manufacturing team performed very well in the quarter Heather.
Heather we'll give you more detail on the adjusted gross margin performance, but I want to comment comment on the overall level of productivity.
Definitely I'm kitchens produce almost 3% more dollar volume than they did in Q2, despite no incremental capacity or staffing coming online in the quarter kitchens.
Kitchen, South produced almost 11% more in Q3. They then they did in Q2. Thanks to the addition of a second shift in the middle of Q2.
By the end of the quarter kitchens, dallas's, producing almost 25% more per month than they were in June and still accelerating producing almost twice as many pounds in October as they did in June.
Absenteeism dropped from its peak of 50% in mid June to a steady state of around 5% to 6% today.
It is however, its still above our long term average of 2% and reflects continuing challenges all employees families are facing with young kids at home family members with underlying health conditions that make them more vulnerable to cope in 19, and the abundance of caution that we all employee and trying to keep the virus out of our facilities.
I will also add that despite the publicly reported national unemployment rate of 8%, we and most of our suppliers are facing a very tight labor market. The number of highly skilled workers looking for jobs isn't nearly as robust at that national rate would suggest.
In early August we announced the hiring of a new head of HR and the macabre, who is developing strategies for us to address those near term issues, but more importantly, developing a long term plan that will support our rapid growth, including staffing around its facility continue to expand our technical bench strength and rebid.
Adding the necessary data needed to support a larger and more complex business I'll stop still delivering the SGN a leverage we've committed to.
Finally, adjusted EBITDA was up 42% versus year ago at 17.0 million in the quarter and its now 113% ahead of year ago for the year to date.
Recall, we increased our media investment in Q3, moving a portion of it out of Q2 and into Q3, resulting in the advertising investment in the quarter being up 30% versus year ago.
We had planned for it to be even higher when the rapid growth began to exceed our capacity in August we push some of the advertising back to Q4 to better match our available capacity.
That advertising begins this week now the kitchens 2.0 is up and running we've also made in an incremental investment in UK media in Q4 to begin to recapture the growth that was obscured by the cobot crisis there.
That advertising ran in October and it produced exactly the results, we'd hope to see and positions us well for 2021.
As I look ahead to the yearend and into next year I want to make a few points.
For one we are well on track to deliver the revised guidance, we issued at the end of Q2 that.
That guidance called for greater than 320 million in net sales and greater than 46 million in adjusted EBITDA.
Both numbers are heavily dependent on our ability to produce meaningful quantities of salable product from kitchens 2.0 in Q4, and we believe we are on track to do just that in fact, we had a very good start to Q4 in October gross sales up more than 40% versus year ago for the month catching up on some of the trade inventory that we did.
Pleaded but there's still much more to go in November and December we will be lapping last year's unusually strong performance with the added capacity Youve kitchens, 2.0, and strong demand. We believe we are well on track to deliver the revised guidance.
To our capacity additions are on track and will position us very well to drive growth in 2021.
Our startup plan for kitchens, 2.0 began with staffing to run the new bag line, 50% of the time, while we iron out all the Kinks within new equipment.
We will take that to 100% staffing I 24, seven once we are comfortable that we are operating efficiently.
We are adding staffing for the roll line in Q4, and expect that to be producing saleable product by January we.
We don't need that line to running 24 seven schedule until later in the year. It may take advantage of its capacity and the greater efficiency and throughput as a new bag line did do some upgrades in our existing facility in early to mid 2021.
Further our and its Texas project is on track to come online in 2022.
If all goes as planned we will have all the capacity we need to drive strong growth in 2021 and have the ability to us is to sustain that growth into 2022 and beyond we will make the final assessment of the readiness or incremental capacity at the end of this year and use that ended in determining how much we will invest in media in 2021.
On.
That will dictate how fast we will grow.
Our marketing and sales teams are preparing a variety of scenarios. We are quite confident that we have the necessary marketing and innovation tools to support strong growth well into the future as.
As we've said many times our goal is to fill capacity when it is available as long as we can do it efficiently and with quality product. So our bias is to keep our foot on the gas in 2021.
We will provide more clarity on this when we issue our guidance for 2021 in late February.
Number three we believed that the long term trends that have been driving freshpets growth had been amplified and accelerated this year, giving us increased confidence in our long term goals. Despite.
Despite all the economic and social uncertainty this year ultra premium pet foods have accelerated the growth or the lower priced value oriented brands have struggled.
It is very consistent with what happened during the great recession, and it's one of the reasons why many view the pet category as relatively recession resistant.
There's also a lot of discussion about whether there have been increased pet adoptions that are driving the pet food category during the challenging circumstances, we've experienced this year.
We believe the data on that it's very murky as we've seen evidence both supporting that notion and evidence that suggests there was only a temporary increase in pet adoptions.
In the end, we are treating any increase in adoptions and they pull forward of demand for pets and believe that it doesn't really matter for brand is smalls freshpet, whether there are 63 million households, with a dog or 65 million were only in 3.8 million households, the untapped opportunity is enormous either way.
More importantly, we believe that consumers increased awareness of the Royal pets play in their lives and the benefits of feeding them. The best that they can provide scale forced tailwinds for fresh pad.
As we said at our Investor Day pets are replacing kids. Many families. It's now very clear that dogs are no longer just a member of the family they become our favorite child. My kids have jealously pointed that out to my wife me numerous times that.
That is very good for fresh pad as we provide the quality foods that a favorite child would merit.
Separately I want to thank our shareholders for their support of the five year governance transition plan you announced in August as part of our proxy at our shareholder meeting in September each of the initiatives on the proxy received overwhelming support. So we are moving into implementation on each of the steps that we committed to deliver.
Finally, before I turn it over to Heather I want to know one another milestone that we achieved in the quarter.
We don't need it or 10 millionth meal to shelters and rescues this year alone. We've donated 1.3 million meals and through a variety of other efforts under our pets people planet Montral, we saved 450 dogs and cats contributed 137002 shelters and distributed over 7000, plus fresh pack coupons.
To adoption and community outreach programs, we are proud of our team members, who volunteered their time to lead. These efforts and are thrilled to support them now let me turn it over to Heather who officially became our CFO on October one.
Thank you Billy and good afternoon, everyone. It is an honor to follow in this position and I look forward to helping drive stressed that you become a 1 billion dollar business like 2025.
I'm very appreciative of the mentoring Dick has provided me as I prepare for this role over the past and not and I feel ready pretty exciting challenge that lies ahead.
As we indicated Q2 net sales were 84.2 million up 29% versus a year ago period.
For the first nine months of 2020 net sales are up 30% versus year ago. As Billy also indicate it was short shipped quite a bit in the quarter. So our net sales don't fully reflect the amount of demand and consumer take away, we had in the quarter or year to date.
We believe that if we have the capacity to kept your guidance on <unk>, our net sales growth in the quarter would have been about 900 basis points higher and for the year to date. It would have been about 300 basis points higher which equates to about $7 million to $8 million of nets out.
We will catch up on that over the next two quarters.
Net sales growth in the quarter also reflect an improvement in oil of approximately 100 basis points versus year end out similar to what we experienced in Q2.
We believe that this is a natural function of increased scale and higher velocity and have baked that into our projections going forward. We see this as another example of the benefits of scale that we're acquiring and that will be difficult for any potential new entrants to match.
We had favorable mix in the quarter.
He is a capacity constraint on our back similar to what we experienced in Q1.
In fact, I was business grew 34% ahead of the line averaged a 29%.
Our fresh from the kitchen products only grew at 14%.
That product, having the most severe capacity constraints within our line up.
We shipped every case, we could make but just could not make enough.
We expect that growth to Reaccelerate beginning later in Q4 and really take off in Q1 as you bring on the new capacity. The total business will begin to shift back towards bad in Q4.
Product innovation continues to contribute to our top line growth.
One notable product innovation success has been our small dog line up.
We launched the bag version in 2018 and the old version earlier this year, the bad which is in its third year high consumption growth of 77% in Q3 versus year ago now when you add the roaster that combine small dog product consumption was up 119%.
Versus years out well.
Well small dogs don't you don't eat as much as larger dogs, our data shows that the small dog pet parent is much more likely to use fresh that as a full meal replacement and that drives strong buying rate.
In addition, almost 50% small dog owners have two awards.
Adjusted gross margin for the quarter was 49.3% down slightly from last year's 49.8% in part due to higher beef prices.
We have begun to see some softening of beef prices with improved product supply in the market, but the prices have not retreat is not yet so we expect a higher call to persist during Q4.
However, we are optimistic that our total protein costs and 2021 will be close to what we experienced earlier this year, but as many of you know we price our chicken for the year, which is the largest share of our protein purchasing in December. So we won't know for sure for a few more weeks.
Adjusted gross margin was also impacted by the increased production at kitchen style, which has a slightly lower margin than production, we do in Bethlehem.
Well, we continue to ramp up that production the margin related headwinds will be partially offset by increases in production in Bethlehem, resulting in only a modest impact to our adjusted gross margin over time.
All of that has been factored into our guidance of approximately 49% adjusted gross margin for the year.
Our Q3 media spending was 30% higher than your doubt.
In line with net sales growth.
We had planned to have even higher media spending in the quarter due to the media deferrals. We instituted following the post cold starts in April however by late August the growth had exceeded our expectation.
Bumping up against our capacity constraint.
So we deferred a portion of the media to Q4 and reallocated a portion to the UK in Q4.
That reduced the year to date media investment by about 90 basis points.
Those media investments will show up in Q4, and we believe they will position US you get 2021 off to a fast start.
Adjusted EBITDA in the quarter was 24.5 million or 29.1% of net sales an improvement of 230 basis point versus the year to year ago period, and on a year to date basis, we improved by 590 basis points versus year ago when.
When he was good media spending adjusted as DNA approved improved by 240 basis points versus year ago in Q3, and 250 basis point year to date, which keeps us on track to deliver a 2020 bolt.
That is also consistent with our long term feed the growth plan to grow into our scale and deliver S.G. and efficiencies to the bottom line.
We are targeting 1000 basis point of S. You named President from 2020, 2025, and we are off to a good start.
Adjusted EBITDA in the quarter was 17 million up 42% versus year end up.
And that resulted in a 20.2% adjusted EBITDA EBITDA margin.
We remain on track to deliver our guidance for the year, while simultaneously investing to get next year off to a good start.
We incurred approximately $600000 a colvin related costs in the quarter, such as enhanced employee compensation increased efforts to protect them and other related costs that we are adding that.
Year to date, we have spent a total of $2.4 million at this point barring a significant increase in KOVA cases, where supply interruption. It appears that likely that we will spend a little less than the $4 million. We originally estimated.
Given the success we experience in meeting our objective so far this year. We believe this was a very good investment.
As we look towards next year. It is hard to tell how long will be operating under the code red related conditions.
Are they get called our biggest cold it related call a supplemental pay we make to hourly team members in a variety of circumstances and weekly deep cleaning of our office space.
The supplemental compensation has ticked up this fall as we have answered the second wave, but it is still manageable further as Billy indicated we are operating in a very tight labor market for the supplemental pay has been essential to keep employees showing up for work when they perceived threat from the virus.
When unemployment compensation behaves as a deterrent.
Deep cleaning and increase pay will no longer be necessary want a reasonable percentage of the workforce is vaccinated.
All the other costs, we are incurring can be absorbed in our ordinary operating expenses going forward.
Our guidance is unchanged.
Calling for net sales greater than 320 million and adjusted EBITDA greater than 46 million.
Our guidance continues to assume that the external environment progressive as it has for the last few months.
And that there are no additional or significant disruption to the supply chain, our customers or our consumers.
Including any issues from an adverse macroeconomic environment and increased social unrest.
Given that it is already November the risk on each of those is now much smaller but this has been a crazy here. So one never knows what the last few months have in store for us.
Our liquidity remains very strong.
At quarter end, we had 94 million in cash cash equivalents or short term investments and we have not drawn on our $165 million senior secured line of credit.
So far this year, we have invested 77 million of capital against the kitchen to Dot Hill project and other projects designed to increase our capacity and our total spending on those projects to date is 124 million.
We also made a 26.6 million dollar investment for a minority position in a related business that is designed to enable and further accelerate our long term growth plan and it's very consistent with our strategy.
For a variety of reasons.
Including competitive and confidentiality issues, we are not able to disclose the specifics of that investment at this time.
It will flow into our piano as other income or loss using equity accounting.
Our net cash from operations was 13.2 million in the quarter and we continue to expect positive cash flows from operations for the year.
In closing, we are well positioned to finish this year strongly on lot of the gate quickly next year, we're thriving in the middle of an incredibly chaotic here and has successfully added capacity that will enable us to unleash our marketing and innovation expertise next year and have built significant Oregon.
An additional capability to help us achieve our long term goal.
We have a winning brand with a strong product and exceptional idea behind it.
Growing consumer interest in less processed more natural food and in treating our pets well a highly capable organization that has proven to be up to the challenge in front of us.
And a strong balance sheet.
I feel incredibly lucky to be part of the team that is changing the way people feed their Pat.
I'm passionate about our mission and proud of the way we approach it I am honored to work alongside my teammates and the highly entrepreneurial founders two meters with the skills to rapidly scale the business.
All of them as committed to what we do as I am backing.
That concludes our overview, we will now be glad to take your questions operator.
Thank you we will now be conducting a question and answer session. If you'd like to ask a question you May press star one on your telephone keypad a confirmation total indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the Q4 participants using speaker equipment. It may be necessary to pick up your handset before.
Pressing the star key are.
Our first question comes from the line of Peter Benedict with Robert W. Baird. Please proceed with your question.
Oh, Hey, Thanks, guys couple of questions. So.
I guess right out of the gate I guess, just on the on that $27 million equity investment it doesn't sound like.
You're gonna give much color on that just maybe I mean, you guys are spending a lot of money I'm on the capacity a lot of moving parts in the business right now.
Should we expect any others like this is just kind of a one time type situation or maybe just trying to think about it from that standpoint can you can you extend on that'll.
Yeah, Pete Pete Let me give you some thoughts on how that might add into that a little bit, but obviously, we made a decision to do something that we view as that's very very strategic very consistent with our plan. Our priority remains capacity additions and we will continue to invest and focus our energy on that.
If there were anything that would have fallen behind obviously, we would would share that but at this time I wouldn't envision anything in the near term.
Whether or not you any commentary on on how that impacts our cash cash management.
No I don't have much to add I mean, I think the only thing I would say that you know we're looking at this investment just like we look at all the other investments.
And ensuring that it has a very strong ROI. So Ah you know it. It's in line as you said believed in line with our growth strategy and it as a key enabler that we feel confident in the decision that it's a key enabler of our long term growth. So.
Okay. That's fair. Thank you I guess.
The Big box pet growth was really picked up in Threeq. Two just curious what what maybe attribute that to is that just could you know dynamics or do you think there's anything going on in terms of.
Customers may be migrating to that channel Ah.
The expenses mothers here or I mean, obviously every channel was strong so just curious what you're seeing at the big box pets.
Hey, Scott you want to take that.
Sure Hey, Peter So yeah, there's a couple of dynamics going on I think to start off if you told me in the beginning of the year that we were going to be seeing a you know mid thirtys, a pet superstore growth I I don't know if I I would have predicted that one.
But it's been treated for terrific to kind of see that develop worth.
I I the big there's a couple of dynamics first of all it looks like in the more recent period on there has been a little bit of a swing back where a couple of those guys. The petco petsmart and even have quite as paused in it and a lot of other of our partners have started to do well at the category level. We've seen now in addition.
And we were really fortunate this year to be able to put some double fridges and I'm a pretty good number of double bridges into petsmart and Petco, you see that mix script and in the numbers are we added over 1000, you know double fridges. So that's that's tremendous a good chunk of those were in a petsmart and petco.
And obviously, that's facilitating it now that the double leverage the great. What they really enable is our us to be able to put more innovation out there.
And you know from print to have product I'm glad to have you know the product supply piece, there is a little bit more challenging because of the way we get product to market. So that's been able to have better in stock a little bit wider assortment existing products and even some new innovation and all of them seem to be performing quite well.
Well, but overall just a really terrific response in a in with our pet specialty partners.
Okay. Thanks, Scott and then I get my last question, then I'll pass it on just with respect to the revenue growth. There maybe you mentioned, 40% October you're doing some catch up here.
Remember in December have tougher comparison I acknowledge this is a 2020 and you never know I'm just curious in terms of anything operationally and in terms of how you're ramping up that facility. The kitchen 2.0 that would.
Prevent you from continuing at that pace or you know if the demand were there. That's that's kind of my question over the balance of this year, we'll leave 2021 to another day.
Yeah, Let me I just got frame. It first of all you have to remember that as we head into the remaining two months of the year. There are more holidays, you lose a little bit of production. So where we had strong production in Q3, you start with a little bit less available days to produce a in Q4 than year, especially in November December or the second the second part of that is that.
We are as I said on the on the call.
Paired remarks, we are starting with one shift on the line, while we iron the Kinks out and in fact, we start with literally on the first day, we started with one batch or two batches and you move up from there and you keep increasing the production, leaving yourself ample time to keep learning fine tuning the equipment and so it.
As a wrap it is literally a ramp and then we also have to ramp in the training of the people. So we're very bullish about the capacity that we feel very good about it when you watch these lines Ron It it's really.
It's very impressive what what has been accomplished but we also are being very measured about the pace at which we bring it on and the roles line has not started up yet as I said in the call. The roles line will start start up in <unk> and <unk> in December.
With production coming off of it probably in the beginning or sometime mid mid part of January. So there is a ramp there's definitely a ramp that goes on here.
Okay. Thanks, Billy or good luck guys. Thank you.
Thank you thanks, Peter the care theater.
Our next question comes from the line of Ken Goldman with JP Morgan. Please proceed with your question.
Hi, Thank you.
I do appreciate what you were saying about the data on adoptions being murky right now you're sort of seeing evidence for a couple of different potential directions I was little surprised though that maybe at least in my interpretation you kind of played down whether that matters a lot right that you were sort of talking about the ultimate.
<unk> goal and help few pets, you still have as a percentage of the total doesn't matter a lot whether there are more adoptions in my view you really want to capture these you know.
These dogs that are the people that are I guess no pun intended early adopters here and you want to sort of change I would my marketing strategy, a little bit if they're suddenly.
Tens of thousands 100000 over many dogs that are coming into the market rather than potentially lose these customers over time. So I would think yeah, I guess I was a little just surprised by the.
Oh lack of urgency, but the sort of casual answer that you have for that so I guess kind of I'm not being critical it's probably coming out were critical that I'm. Just curious what your thoughts are on that let me let me frame. It does the map on it and Scott can kind of take it through this the strategy behind it but you know as we said we're at 3.8 million households, we were very successful since the end the cobot.
At adding younger households, which are likely to households that are doing that doing the adopting there and so if there was an increase in adoption can I think that we're probably capturing it using the activities. We had what I was mostly focused on was you know how how big is the size of the prize or what is the rate at which we acquire.
The the the new pet household the reality is with our with our advertising spending advertising investment we're acquiring met a very very rapid rate and if there are you know another you know a two or 3 million more dogs in the market that might make it a little bit easier, but were going after the mall anyway. So I I don't want to.
I think it's not like we're not being aggressive about it and that we're not benefiting in some way from younger skew of the of that audience. It's just not clear to me that we would do anything materially different and Scott I don't know if you will would add and any comments on that.
Yeah sure I'll I'll I'll share a couple of thoughts. So so first of all puppy and a dog adoption I'm, especially when they're younger it it really becomes part of your adult penetration strategy and what I mean by that is if you can just exactly what you're saying if you catch them when they're younger you establish a behavior pattern and then they do become important.
Part of your franchise, so I, what we know and what Billy was talking about was just touching on a couple of data points, where we know we're getting younger consumers and we have a younger dog mix of our overall portfolio. The average age of the dogs and our total portfolio is four years old which means they kind of skew younger than the average EBITDA dog is gonna.
Be over five years old right. So we know that skew younger ready so that being said I think the way weve been thinking about it is we got to keep on doing what were doing what were doing really works and to pivot and try and grab like a brief moment in time and grab a bunch a you know a whole bunch of other people may not be quite right for us.
Because what were doing seems to work and we know that we're getting great penetration growth in what we're what we've been doing and our marketing efforts et cetera, and in total I think what we're trying to express it in our total growth and our total opportunity. This is important we're probably not primary driver.
No that is that's very clear and very helpful. Thank you for that.
I'll, let it go there thanks, so much guys.
Thanks, Ken.
Our next question comes from the line of Bill Chappell with Travis. Please proceed with your question.
Thanks, Good afternoon.
Well there.
Just a first question just kind of a clarification on the quarter and the outperformance on EBITDA. So is that what.
What you're saying is majority of that is kind of the cut back or the postponement of advertising and then also kind of the mix I guess, because you have more out of stock of bags that are lower margin than the roles that the best way or was there some outperformance that's kinda sustainable on on the margin improvement.
So so if you think about it we spent 30% more in advertising in Q3 than we did in the same quarter a year ago. We just didn't spend as much as we had intended to spend because of the capacity limits remember we had moved Mediatek Q2 into Q3, we're now sliding some of that back into Q4.
Because of the capacity limits, we had in Q3, but the immediate spending was up 30% year on year in the quarter and yet there was a little bit of a mix help there, but if you think about it as if we had shipped everything that we had demand for and we spent every penny that we would have spent our our our margin would have been our EBITDA margin one bit.
Stronger and our our EBITDA performance would have been stronger so on all sort of all in every all the cards on the table, we would have had even stronger performance.
Oh, Okay, well, which leaves kind of my next question, which I've asked.
Several times over the years like.
Is this the right AD budget, you know or trend line I mean do you get.
More more acceleration.
Even when you add turned off for for this instance, when he didnt could support the shipments do you still need to spend as much in 2021 or 2022, and I know you have a lot there, but you know are you starting to see diminishing returns from that AD dollars that could be used elsewhere.
So I don't think we're seeing diminishing returns in fact, we're seeing improving returns or the you know the cost to acquire consumer is improving and then on top of that as you know we view. This as we said over and over again that this is a a land grab we think the market is moving towards fresh pet food and we want to be in as many households, a and b the pro.
Third brand before anybody else decides to enter this space at some point, which you know that will at some point happen and it off and so we we are very much focused on on trying to acquire those households, so as long as we have the available capacity, we want to lean into acquiring those households, you and using the media, we don't want to get ourselves.
Like we did this year well because of the erotic a market caused by co bid, where we had bumped up into capacity limits twice, a we think we're going to get ahead of the capacity thing in 2021 with the addition that could kitchens 2.0 with a facility that's coming online and the other projects that we've talked about so we don't we don't think wouldn't be bumping into.
Capacity again, we think this is the opportunity for us to put a hold on the gas and just keep filling that gap filling that capacity as fast as we can and getting the returns that we're getting from the investments we're making.
To build out you know Ted let me add on that just for one second so I think it's a really it's a it's a very fair question. It's important question and I think it's a choice right. It really is a it's a it's a choice.
On how much do you spend and when do you spend it and you know to believe there's a lot of the things that Billy was talking about he's basically laying out like we want to make sure that we're maximizing the potential of the organization, we're growing as fast as we can when we have the capacity and look if we're.
We you know the wind is filling our sales this year, there's a lot of kind of really kind of a macro trends that are being supportive of what we're doing and if we don't need to spend as much next year, we will will kinda back off if we can kind of make the growth and the numbers that we anticipate we have yeah.
We <unk>, we don't we just want to spend to spend obviously, so its really becomes a choice and it becomes how we want to think about strategically but I. It's a it's something we are constantly we have a conversation pretty much every quarter about how we want to invest.
Oh, no that's fair. Thanks for the go to one last question I.
That's it.
Phenomenal that you said seven out of your 10 largest retailers are testing multi fridge concepts.
I guess the question would be.
When do you think you'll have some idea.
Of when those might you know passed the test and go national in <unk> would you have enough capacity of all seven of them decide to go multi French.
Yeah. So yeah. So most have kind of already done some initial testing and I've kind of starting to lean towards a little bit of expansion, but believe it is fascinating you know weve you know weve worked together on and off for years, you've seen it it's almost never that anyway.
[laughter] and does like everything on a on a like a really really broad base is typically kind of its slow its methodical it as they're doing store you know store remodel, it's typically tied in with other initiatives. So I there's [noise].
More and more of them will continue to expand but it'll be and hundred and 205 hundred which is terrific and it's awesome and it really does give us a great platform to continue to expand and the good news is the majority of our growth comes from the investment in the media spending so we can kind of pull if we got.
A ton of fridges, we can actually pull the media back which would really deliver very different metrics and all that would help maybe facilitate more of the growth, though the vast majority about 70% of our growth comes from velocity improvements, which is really driven by the media. So we use that as kind of a lever back and forth in order to kinda not you know Matt.
What's the growth rate now that all being said the way we look at it next year is we're probably going to have a good year in fridges, but we're not going to have a great year in frigid. There's a lot of retailers that are looking at the tea leaves and thinking you know what the cobot still gonna be going on the beginning of the year is going to be really kind of interesting kind of period.
Let's get out of it let's get into spring I think we're going to lose some of the you know the massive fridge push early in the year, but I think coming into the end of the year and into 22, I think we're going to have really big numbers from a fridge expansion standpoint, and again I'm trying to read you know crystal ball, but that's the way we see it playing out.
I would just that.
But bill just to add on that is all the places where we seeing double fridges and for the most part we're seeing very positive result, they obviously vary one place to another but I don't think we've seen a place where people put in a second fridge and it hasnt delivered a positive outcome.
No that's great color. Thanks, so much.
Thank you Bill.
Our next question comes from the line of Mark <unk> with Stifel. Please proceed with your question.
Hey, all good afternoon.
So I wanted to ask you. The last question, maybe in a bit of a different way.
So I guess, maybe the question would be.
How do you think about your your relative position yet dynamics relative to other crush pet providers and it seems like some of these other companies are doing quite well and you're doing quite well and so it seems like the whole category is doing quite well, perhaps even sourcing share from kind of elsewhere how.
How do you think about the calculus as you kind of go into next year in terms of.
Budget capacity with the view on how do you retain your share against those that you're competing with but also more broadly against the whole pet food category. You know kind of what are the puts and takes in your mind.
Next year beyond you of course the obvious.
Supply and demand, but I mean, there seems to be a lot of demand there seems to be increasing supply. So how do you weigh all of that.
Got you I think a shot at that.
Yeah sure. So yeah, Mark we really we you know that the famous quote we use we've used it before probably but you kind of don't want to be where the puck is you want to be where the puck is going we feel like we're kinda now where the puck is going and we continue to pull out even further with some of the innovation the different things.
We're doing to create additional longer term opportunity, we really feel like in many ways like we've refined. This model. We worked hard we built this company into a position where we can take advantage of so much of the opportunity in front of US and you know the like look kitchens to always its you know monumental step forward for us.
Not only capacity, but in capability and safety and all the aspects that are important to our organization. So we think that that's putting us in a great position along with the really tightly refined business model et cetera from a you know it is interesting there are some folks mostly in the direct to consumer space that are tinkering around with them.
Fresh frozen foods, we think they're doing good work I, we have not seen anything that's leading us to believe that we're losing consumers in that direction in fact, everything showing us that we're picking up consumers. So I feel like there's a you know an opportunity in it in a trend to kind of you know, we're the leader and continue to kind of take that real.
Significant leadership position I actually believe that some of the work that they're doing you know you see some advertising from a few of them on TV I actually think that's been helping us because I think with a lot of them what you're going to see is there's a really strong proposition. There I think is a lot of consumers like it when people do experienced that food at home I think eventually they look at it in a way.
<unk>, Oh, I can I can actually get into the store and get delivered another way and you know there's a whole bunch of different options here that maybe more appealing to them lots of different products and I think that creates opportunity for us so as as the market grows I I do think all boats will rise and I think our boats the biggest.
And ahead of the market and Ah you know, we haven't seen any any indication whatsoever that that work is picking up consumers from fresh but [noise].
That's helpful. Thank you and just one quick follow up so you had alluded to increasing efficiencies on kitchen 1.0 can you maybe quantify what that means and how quickly you can get there.
[noise], Scott I'm, sorry, say that again.
Yes.
Saying that you alluded to effectively seeing increased efficiency in kitchens, one point out you know kind of playing with kitchens to go into production schedule and that's what you're what does that mean and how quickly can you can you improve on whatever the manufacturing capacity is.
Yeah. So basically what we're saying is there so there's a few things where we can take the line down and kitchens 1.0, because we have enough capacity in 2.0 that we can give ourselves a little breathing room, there's a little bit of automation that we think we can do back in kitchens 1.0, our engineering he's been doing some work on some things that can do it's not rocket science.
But it's stuff that they've done some pretty darn good work on and allow us to identify some efficiencies that we can get a they won't have any impact and certainly not in the first half of next year because the work will be done sort of more like mid year, but it will probably have an impact as we went into 2022.
Okay and can you quantify what the impact would be relative to current capacity in that facility.
It's not really it's it's it's not a.
It's a not an increase in throughput what it is it's a lower cost to produce meaning you need less labor per pound is what we're shooting for.
Got it okay. Thank you.
So.
Our next question comes from the line of Brian Holland from D.A. Davidson. Please proceed with your question.
So they still have to try and Hollywood.
Yeah. Thanks.
I think last quarter, you quantified revenue capacities being about seven and a half billion.
With that figure looks like in Q4, and maybe going out the one key 21.
So Brian we don't have a have a precise number because were in that ramp up on kitchens 2.0.
And so it depends on the on the pace with which we are able to increase the throughput or the productivity of that operation. Its certainly more than what we had in Q3, but remember they said earlier in the call are there some extra there's some holidays that were coming up against which are we lose.
Days of production and so you're starting at less than you had in Q3, and then you add.
Just 2.0 on top of that I would say, though that you know we have we left our guidance, where we did because we wanted to be cautious about the rate of throughput improvement that we are expecting we're also very clear that we think it will take into Q1 to refill the trade inventory pipeline. So I think from those pieces you can get a little bit.
Clearer idea of what we think the ramp up pace looks like but we don't have a specific number until we literally see how how the ramp up goes.
That's very helpful. And then on gross margin I think if I'm looking at the deck here. It suggests that gross margin will be slightly below adjusted gross margins look towards you know because of Q4, a lot other said something about that being in the context of the full year. So I just want to clarify that.
Yeah that would be slightly below 40 or not.
Okay.
Right, Brian that's the full year.
So the expectation is that the full year ends up just around that 49% mark or slightly on that.
Okay perfect.
Hi, my questions have been answered so I'll leave it there. Thank you.
Thanks, Brian <unk>. Our next question comes from the line of actually Hogans from Jefferies. Please proceed with your question.
Hey, good afternoon, most of my questions have been answered, but just some one on E. Com you guys had nice growth in the quarter can you update us on your various E com initiatives and then any update on your DTC even type of thing.
[noise] I'm sure.
Yeah, so as we kind of called out briefly our E com, where we consider E com, which is anyway, you can kind of sit down at a computer and order our product and then some we just delivered some ways. It's literally like picked up you would drive to store and pick it up from a click and collect its risen to about 5% of our sales.
It's done very very well and we're doing very well pre cove it and as you you know him it accelerate even faster in coven and from what we're seeing it looks to be very very kind of sticky and in place which is encouraging. The other thing that's kind of a really important there and I think that it's been encouraging to us is we haven't.
Yes did some small dollars testing around it and were getting incredibly good productivity out of the <unk> dollar is that we're investing I'm on on a you know on E. Commerce, So, we're making investments driving consumers to certain locations and we're getting great return on that which is which is terrific. Our DTC test it's been it was something that.
We really put in place almost to answer like an immediate need from a lot of our consumers. They were literally calling us up and we had some very high emotion consumers that were calling us up and saying I really can't get your food I'm afraid to go out et cetera, and we didn't know there there weren't certain ways that we could we could get them. The food we put that in place. We thought it was a great opportunity for us to do.
What test and kind of just see how it works. It works for our organization I think the team did a terrific job building. It out I think they did a great job testing it on evaluating its still very very small its something were continuing to tinker with and watch and look at and we know that there's a real strong appetite that for consumers to have products really.
Delivered to their home, it's not for everyone, but there is a really strong appetite for a big group of consumers to do that recognizing that and now having capacity. We think into next year. There will be a few different things that we can continue to press out and expand upon that will really kind of satisfy another group of consumers interest in convenience and have.
And you know delivery of a fresh pet food so.
And does that helpful. Yeah.
Yeah that was great. Thank you I'll pass stops someone else.
Our next question comes from the line of Jon Andersen with William Blair. Please proceed with your question.
Hey, good afternoon everybody.
Hello there.
So HCV that 55% or just north now my question is kind of on a if you look forward.
And anticipate growing HCV or distribution, if you talk a little bit about where to white spaces.
The biggest white spaces that.
Within specific channels I'm also curious if you could comment on kind of store demographics, if you're seeing.
Retailers willing to place fridges in.
I don't know tier B your tier C locations that they may be a little more reticent to do in the past given the strong performance of the brand.
John Let me make a comment and then Scott can give you some more color on it but Oh I would say first of all I think that over time, where you're going to start seeing a shift towards more of the focus from retailers and from us is going to be on upgraded bridges and second fridges than necessarily the pace in which we are adding new stuff.
Doors, because that's where we really get the full value of the innovation that we do the marketing the breadth of array the breadth of products that we can offer.
But within the the first stores. It is the stores that were not in yet if you just think about a couple of the key customers, where we have incomplete distribution. So we're only in a little over 3000, Wal Marts, Oh, we're in about or little more than half of the kroger's and.
You start looking at those and say boy if you just sell those out what would be what would be the opportunity. We're in 57 Costcos at this point, we'd love to fill in many more cost goes are you filling those boyd and that gets you a long way on any TV metric and that's probably going to be very sufficient to drive and deliver our growth plan.
And and we want to see a lot more second purchase come behind that doesn't mean, we wouldn't go after more stores. What it tells you is that that would get you really good really broad availability, but ask I can give you some more some more color on that.
Yeah, So I I I, we looked at this a lot. We've spent a lot of time kind of evaluating like where we can get to over time, so I'm going to touch on a bunch of stuff I'll go fairly quickly. So stop me or a you know yell at me afterwards on if you want more detail. So if you think about this so we believe that there is no real.
Reason why we can't be in 85 plus percent of stores out there with it with the right sized fridge. So there's a there's still a lot of room to continue to grow HCV.
That being said like and Billy was touching on this but being in the right location in the stores, we know what's kind of a multiplier for us. So there's some places where we literally move location and were seeing 20, and 40% increases in velocity out of a fridge. We also know that if we go from a small bridge to a large fridge there's opportunity.
Until we touched on that we know we go from one bridge to two fridges, there seems to be an increase in velocity and there's now places where we even go into a third fridge.
In addition to all of that there's now broader availability today from E com and even more E com coming in the future and I think it will change the dynamics around like what we have going on from an availability standpoint. In addition to all of that this is really important and critical because it gives us a platform. It gives our visibility at retail.
Places where people can buy our products.
Also where we can put innovation, but the other thing is that the vast majority of our growth comes from our advertising investment and it you know I think I mentioned earlier, it's about 70% of our total growth. So this is an important platform and we have tons of opportunity and ways to improve the entire fleet and the network that's out there but.
E com couldn't becoming critically important and then also you know the vast majority growth come from more velocity in same stores.
That's super helpful.
Just a couple of cleanup questions.
For the full year 2020.
Can you remind us.
What you expect the media rate to be on a full year basis.
What what percent of net sales 11 media yes.
Yeah.
I don't know.
Yes that out.
Yes, it's a it's about 10%.
[noise], Okay and.
I just want to make sure I understand the commentary around.
Cost and pricing for 2021.
You talked about beef costs being up.
But you do price chicken late in the year. So it is the working assumption right now that.
You expect to be able to offset.
Any dollar cost increases with pricing such that we're kind of net neutral.
Like I can take that one so the.
The first the first piece is that for 2021, we actually expect me to soften. So when we look at 21 against 20 weeks that needs to be more in line with the beginning of this year. So we're looking at it as more of a back half life due to Covance, which we don't expect to continue we're already seeing that start to soften.
Similarly, with chicken, which as as you know we price in December but the signs that we have right now because again is that it should be largely flat to plain funny.
So from a from a commodity perspective, there's really not a reason for pricing.
And yeah, there's a few other puts and takes in gross margin for next year, which you know you could you could see us as had been.
On the you know campaigns continued capacity ramp up we continue to utilize south which has a margin headwind as we look into each one of 'em. We also will have a mix headwind, but those wouldn't be things that we would price for and we'll just look to offset that another way.
Great. Thanks, Congrats on.
Getting 2.0 up and running it's been a busy year congratulations.
Yeah. The team did a great job yeah.
Our next question comes from the line of Rupesh Parikh with Oppenheimer. Please proceed with your question.
Good afternoon, Thanks for taking my question, but.
My first question was just on the second bridges when when you add that second or third French words that space typically coming from is it are you guys displacing other toughmet brands or is it coming from other parts of the retail store.
[noise] yeah for them there the the vast majority are really coming from.
There's a couple of different scenarios, sometimes it's just the tightening up of space of extra facings on some products.
Sometimes it is you know a handful of products being discontinued to make space.
But those are the majority I think the minority is the case, where that's getting a lot of extra space.
There are some scenarios, where we end up picking up an end cap, which has been used periodically for maybe for promotional purposes.
That that we pick up and that's kinda falls outside of those there's other scenarios I was just playing out.
Okay, Great and then my second question just on international So you provide some commentary on the UK I'm. Just curious you know overall, what youre seeing in Canada, and UK and then just how you're prioritizing international going forward just given some of the Cobra charges like you came in other markets.
Yeah, we're very we're very encouraged by what we're seeing as I mentioned in the prepared comments, we did put advertising back on air in October in the UK and it performed exactly as expected. The line went straight back up you could see that the if there's the engagement that we'd expect in that building a franchise and our business in Canada. This year.
Sure has done very very nicely with the media investment we made earlier in the year. Obviously, there was an interruption that we had with co that and so it kind of stalled a lot of things both from a retailer's perspective, as well as decisions to expand distribution, but we feel from that we feel that the model has been validated that you know every element.
The products are right. The packaging is right. The pricing is right. The distribution is right. The bridges work all that and the advertising works and now it's really a matter of continuing to execute against that game plan against the question about where it fits in our priorities clearly our number one priority is to develop the U.S. dog food business and build that out scale, but.
We have with the capacity we have online in 2021 and the resources that we have available to US you know strong balance sheet and the income statement is getting stronger we can certainly support continuing the next step in each of those markets and continuing to develop those markets at the rate that we've been talking about for quite some time you were doing it methodically, we're not going to jump in adult.
Money in the market, we do a very methodically, but we're going to continue to the next step on that journey in each of those countries.
Okay, great. Thank you.
Our next question comes from the line of Rob Moskow with Credit Suisse. Please proceed with your question.
Hi, This is ari along for US. Thanks for taking my question I just have a quick one on the media spending so I haven't run continuous media during the quarter can you talk about what's driving the strong ROI that you mentioned and maybe touch on some of the things you may be doing.
Led to the acceleration in consumption growth and then touching on Ken's question before have you revised your messaging in any way to typically target some of those new dog owners to get them into the Freshpet brand.
Or are you more focused focused on just staying the course and at this time.
[noise], yeah, so I'll I'll I'll take a swing at this and see hopefully I'll touch on the things in your you're asking about so from an ROI perspective, we typically we every single year, we look at kind of what our investment is and not only how many consumers, but also what the incur.
Everything in revenue is driven by the media investment and what we've been able to see this year is we had it budgeted a certain level and because of you were shifting a little bit higher and some advertising being slightly more cost effective in addition to consumers being a little bit more receptive to the method.
Actually gotten better returns on our media spend annually than we have seen honestly in several years. So it is the first year you know, it's a year, where we have spent more than ever there's some interesting dynamics within the year, but what we have seen over the past several years not just this one is we have actually seen improved ROI.
<unk> on our media spend which is not like conventional wisdom on conventional wisdom movie at some point, you're going to see diminishing returns and that's honestly the way we typically budgeted on we're seeing kind of improved returns. So that's that's terrific and kinda hats off to the marketing team the media planning and also the advertising agent.
See that helps Ah crap the message. So we did do some message that was really customized we were really one of the first ones out I like Super fast out of the box had a great add on.
We might have touched on it in the prior quarter right when coated hit and we saw that sort of thing everything going on we are they the agency move really quick got a great message out there and I think we were really on the front of it like we were kind of leading industry, leading even package goods industry, leading kind of getting something out there that I think was super relevant the consumer.
And we got good response from it really really good response from it so that was terrific.
Specifically modify the message to a younger pet owner, you can do that and that's more about placement than it is about your overall message I'm a lot of time with message you want to stay with the message that that's consistent that works that Oh asked consumers to reassess what the.
Right food might be for their pet and stick with that and maybe you'd modify your placement of it [noise].
You maybe had a little bit more on E. Commerce. So did we do some things yes. The majority of what we did was really kind of focused on staying the course, because it has been so successful and productive for us.
Okay. That's helpful. Thanks.
Our next question comes from the line of Ryan Bell with consumer Edge Research. Please proceed with your question.
Hi, Oh I'll try to be quick can can you talk about what you've heard with respect to any changes in demand for pet food in general with increased work from home and do you have any way to measure what the difference and pet ownership is among consumers with more flexible work range guidance I mean, I guess just said another way given means to determine some of that.
Central impacts from any incremental increases in long term work from home days.
You know, it's funny right, we had a conversation about this earlier today and it's got might have some commentary I don't think we have a whole lot of data on it but so many people are talking about the food away from food at home as the big driver and you're hitting on what I think is another really big driver is the work from home and we are talking about how that makes people appreciate there.
That's quite a bit more and it's certainly going to drive we think some increased consumption of the more premium pet foods and we have a a chart in the deck that shows how the demand for the most premium pet foods has gone up while the value oriented brands going down during this period.
But in the specifics of the demographics of people working at home versus people not I know Scott do you see anything in the data is any way to parse that out.
Yes. So a couple of things you know if you if you look at the like where we are a server of you know a very wide swath of consumers. The majority of our consumers are going to be.
A little bit above average right, so they're not going to be the people that it may be most impacted by you know some kids like some hourly jobs. So that's kind of one or the other thing that staffing is bill was mentioning it's actually page 16 of the deck the piece of the overall the pet food industry. That's really popped up really you know significantly is the old.
For premium it's kind of what they consider it just group mostly by price in this situation not by positioning as much but that's the piece that's been popping back and is actually ahead of a pre cove. It and this is in brick and mortar which is pretty fascinating I'm not talking about often talking about the whole grouping I'm, it's a pretty sizable group of brands.
It's you know the Blue Buffalo's in you know the purina ones et cetera of the world are in that group, they will pop back really nicely and they're they're looking like they're they're growing they are growing well we.
We believe that the idea of work from home.
And I think the demonstration of what happened during Cove. It has changed the dynamics of the marketplace in many many ways. One of them is that I think many many employers have realized that.
People can be productive working from home not everybody, but the majority of people can be productive. We think it's going to be best in class from from an employment standpoint to have additional flexibility. This.
This is going to change People's work habits, they're commuting et cetera, and then eventually would Billy was talking about where they're going to be spending more time with their pets at home and as that relationship is continues to broaden and they're spending time, they're becoming more food aware of what their with their feeding their pets, and we think again that that big.
It was a great opportunity for us and and you know many others that are kind of you know into this in this range of products.
So that's kind of how we're seeing it and you know there is some data that supporting it and some of it is you know, it's just kind of just kind of watching what's going on and I'm being kind of a student of consumer behavior.
[noise] I appreciate the color. Thanks, that's it for me.
Thanks Ryan.
There are no further questions in the queue I'd like to hand, the call back to Mr. sear for closing remarks.
Thank you everyone for your interest and your attention I want to leave you with Marty thought Nobel Prize, winning author or Hot Paul Mooney said dogs to speak but only to those who know how to listen to which I would add I'm pretty sure my dog only ever says I want more fresh Pat. Thank you very much have a good evening.
And stay safe.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.
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