Q4 2021 Zevia Pbc Earnings Call
Hello, and welcome to today's <unk> Q4, 2021 earnings call. My name is Elliott and I'll be coordinating your call today, if you would like to register your questions. During the presentation. You may do so by pressing star followed by one on your telephone keypad now.
Like to hand over to our host Reed Anderson. Please go ahead. Thank you and welcome to <unk> fourth quarter and full year 2021 earnings conference call and webcast.
Today's call are Pat expense Chair, and Chief Executive Officer, Amy Taylor, President <unk>, Chief Financial Officer.
Now everyone should have access to the company's fourth quarter and full year earnings press release and Investor presentation filed this morning.
Information is available on the Investor Relations section of <unk> website at investors <unk> com.
Before we begin please note that all the financial information presented on today's call is unaudited.
Certain comments made on this call include forward looking statements, which are subject to the safe Harbor provisions of the private Securities Litigation Reform Act of <unk> 95.
Forward looking statements are based on management's current expectations and beliefs concerning future events and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in these forward looking statements. Please refer today's press release and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially.
And those expressed or implied in any forward looking statements made today during the call. We'll use some non-GAAP financial measures as we describe business performance the SEC filings as well as the earnings press release presentation slides that accompany today's comments reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial.
Measures are all available on our website at investors <unk> Com now I'd like to turn the call over to Pat expense Chair and Chief Executive Officer.
Thanks, Reed good morning, and welcome to the fourth quarter and full year fiscal 2021 earnings call for DVA PBC.
I'd like to begin by discussing our performance in the fourth quarter of 2021 as well as full year 2021 in light of the extraordinary year, we had completing our IPO and operating amidst the ongoing challenges of the COVID-19 pandemic.
<unk> markets, great tasting zero sugar zero calorie beverages with simple plant based ingredients.
We are focused on reducing global sugar consumption by offering our products and sustainable packaging at an affordable price.
In the fourth quarter of 2021, we continued to transform our organization, adding key executives expanding our distribution into new channels introducing value added new additions to the Zigbee alliance and removing cost from our supply chain as we scale.
Management's priority is executing our long term strategic plan and later on today's call are President Amy Taylor will provide additional detail on our long term initiatives.
The <unk> brand continues to grow rapidly and in 2021, we added 1 million new households to our consumer base. According to consumer panel data from numerator.
Tumor metrics show continued progress in attracting new consumers retaining existing consumers and increasing per household spending all key indicators of our brand's health.
At the same time, the <unk> management team is focused on enhancing unit economics as we are experiencing inflationary pressures on input costs like many consumer package goods companies.
Through a combination of pricing actions mix shifts scale benefits and cost optimization programs. We are confident in our ability to mitigate the impact of these cost headwinds.
In the fourth quarter of 2021, ZB continue the double digit net sales growth we've achieved for the past decade, we delivered net sales of $34 2 million, representing 23% growth versus the fourth quarter of 2020.
This was a combination of 22% volume growth and 1% growth in price mix.
The pricing actions, we announced to the trade in the fourth quarter of 2021, which were 6% for soda and 6% to 8% for our innovation product lines were not reflected in these figures.
Perscopate continued price realization through 2022, and believe that we have the ability to implement further pricing actions should conditions merit.
Regarding the components of our 30% long term growth algorithm breakout Cvs performance in the fourth quarter of 2021.
Of our 23% net sales growth velocity drove 6% shortfall of four percentage points versus our 10% goal.
Incremental distribution in core food drug mass and natural channels accounted for 4% growth versus our target of 5%.
And regarding distribution in new channels, we grew approximately 13% versus our 15% target.
In terms of gross profit, we achieved $13 8 million for the fourth quarter, representing a 43% gross margin.
The reduction from last year's 42, 1% margin can be mainly explained by a cost of goods per equivalent case increase of three 5%.
We believe we have effectively managed the cost headwinds that many of our beverage peers are facing.
Adjusted EBITDA loss for the fourth quarter of 2021 was $5 $3 million.
For full year 2021, zebra achieved net sales of $138 2 million an increase of 26% versus 2020 gross margin was 44, 3% versus 45.0 in 2020, and adjusted EBITDA loss was $8 7 million.
<unk> net sales momentum is continuing as we begin fiscal 2022, and we anticipate that the combination of velocity initiatives, new retail distribution and price realization will accelerate our growth through the course of 2022.
As such we expect net sales of $36 million to $38 million in the first quarter of 2022, which would reflect growth of 17% to 24% versus the first quarter of 2021.
On a full year basis, we anticipate net sales of 177% to $182 million or 28% to 32% growth versus 2021.
Our growth in the fourth quarter of 2021 was fueled by continued expansion in consumer purchasing metrics numerator consumer panel data for the 52 weeks ending 12 $31 21 indicates the GBA grew our household penetration four 7% in the year ago period to five.
Five 4% a 15% increase this was driven by a combination of strong retention of existing DVA brand purchasers as well as growth in new households, purchasing the brand.
During this period buying rate for households, purchasing <unk> also grew from $30 35 to $32 44, a 7% increase the.
The buying rate among zeevi as retained brand buyers in 2021 was even stronger at $63 67.
Highlighting how we are intensifying purchasing with buyers who remain with the brand year over year.
<unk> strong focus on execution gives us conviction regarding the brand's ongoing runway for growth.
We believe that channel expansion, and innovation, which expand accessibility and consumption of the brand two key levers for continued growth and our progress in the fourth quarter on these metrics was significant in.
In the fourth quarter, we also made gains across a number of key ESG or social impact metrics.
<unk> primary mission is to reduce global sugar consumption and then the fourth quarter of 2021, we estimate that we eliminated nearly 3000 metric tons of sugar from our consumers diets by replacing legacy sugary Sodas and then our history, we estimate that we've eliminated over 74.
Allison metric tonnes of sugar.
Replacing single use plastic beverage packaging is another key area of focus and then the fourth quarter of 2021, we estimate that we eliminated over 40 million plastic bottles from littering, our roadways, our waterways in our communities by selling beverages exclusively in aluminum cans.
Lastly, affordability is a key priority for the <unk> brand in the fourth quarter of 2021, Cvs products were priced at an average retail cost per ounce of seven.
Representing the 36 percentile within all know non alcoholic ready to drink beverages, excluding dairy and non dairy protein.
<unk> is less expensive than 64% of non alcoholic beverage options and affordable for a broad range of income levels.
Now I'd like to turn the call over to Amy Taylor, our president to share <unk> continued progress on key strategic initiatives.
Thanks Patty.
We focus on implementing our long term strategic plan crafted at the end of last year as a newly public company.
The plan was framed it continues to be built by a combination of veterans and new key talent in senior roles in critical functions, who have been and will be key to our expansion continued growth and margin realization.
One fundamental focus area is unit economics.
We have implemented a price increase across packages categories and channels and average of 6% across our soda line in retail and e-commerce in the U S and Canada.
8% increase in energy during 2014 again, a cross channel.
Price realization will begin at the end of Q1, we believe we have additional pricing headroom based on a relative affordability versus peers retailer acceptance of recent pricing actions upcoming product and package launches and the strength of consumer loyalty to the brand.
Does it price again, let me speak about innovation.
Unit economics going forward will be further supported by cost and supply chain savings realized in collaborations with co pack partners freight efficiencies and continued improvement in efficiency with variety of attacking.
New initiatives include number one increasing the number of locations, where we produce 10 pack.
Hi.
<unk> and our kids line as we grow distributions as items optimizing freight Ralph and number two additional repackage and distribution centers further reducing freight SaaS quality E Commerce and club business.
There are a number of other scale benefits, we will continue to realize the growth, including Canadian freight efficiencies increased full truck utilization and reduced inventory levels.
The second area of focus and strategic planning.
Innovation and marketing with a focus on expanding the media consumer base.
Late December through February while the total brand media live your best campaign, which supported new distribution and increased in store presence with increasing promotional spend. In addition, we improved overall campaign efficiency greater reach I think a fewer dollars versus prior year, a good indicator for future marketing investment.
We launched two new energy great flavors in the market Strawberry Kiwi and Pineapple Paradise.
Distribution in approximately 3000 outlets and rolling into market now, our three new and improved flavor profiles, and our citrus flavor Orange Lemon lime twist and mountain media across existing and new customers and natural food and mass.
Summer in club.
In the second quarter, we will begin selling the PBS.
<unk> for the first time in a 12 ounce sleek format available coal at several grocery retailers in the deli grab and go and open air perimeter coolers to reach new shoppers.
<unk> supported by efficient low spend trial driving initiatives in the form of retail marketing in store activation digital sampling selective local grassroots marketing in our backyard in social media activation as two of many Tactical example, we will execute broad sampling initiatives and warehouse club channel.
Alright, and we will place approximately 1000, new pieces of equipment racks and coolers for example in stores starting in March and April .
And then the final focus in the strategic plan with immediate impact that I can highlight is our channel strategy we.
We are focusing on top accounts and expanding our presence with national retailers, leading with top soda flavors, and then bringing in adjacent categories, which drive interest in the brand and bring new shoppers to the franchise mixers our channel strategy outlook is as follows.
Soon we are expanding presence and leveraging new items and new pack formats to reach your question Jonathan.
We'll take our core soda line into the perimeter of the store.
Our new 12 ounce sleek can setup will be available.
And our scale pallet display program featuring a variety of six pack flavors will increase our presence on shelf and a number of regional natural and conventional grocery Kim.
Over 2000 retailers will also features <unk> two summer LTE, a six pack and front of store display from Memorial day through July <unk>.
<unk> 300, new stores will be selling maybe a kid.
We set in March and April and finally, we are introducing 12 packs into the market already and one major regional closure, adding two more in Q2 with future scaling nationally.
All of these developments drive presence and velocity.
To support our growth algorithm.
And now we are focused on driving distribution developing the right pack mix and on expanding beyond setup building 13000, new points of distribution in April .
Moving from five flavors to a brand block two flavors and moving six packs to a cardboard WAF APAC CSD aisle one of the two major players nationwide.
We increased space with that customer by 50%. We've also achieved significant distribution gains with our kids line, which is now nationally distributed in both major mashed teen warehouse club where folk.
Just on building out distribution and driving trial twin New household PVA gained national distribution at Sam's club in the fourth quarter activate selected locations in Costco U S and now in Q1, a nationwide placement at Costco, Canada incrementally we discussed during our third quarter conference call has increased and now 65.
Percent about purchases and warehouse club channel are now new to the DVA Brad.
The club story is quite compelling for the retailers as well media is bringing new consumers to the CSD category as more than 75% of media buyers in the warehouse club channel are making the first soft drink purchase at the store.
These figures demonstrate the role <unk> can play in continuing to add incremental dollars as well as value added shoppers to CSD category sales. In addition to introducing new households to a broad range of media flavors. We believe our variety pack purchases will result in increased sell through of the individual flavored multi packs and other.
Channel.
And Claude.
We've added a new customer and rite aid with 500 stores selling <unk> in Q4, broadening our presence in that channel.
Our 2022 outlook reinforces our confidence and our 30% net sales growth algorithm.
New items, an increase in input president Brian velocity.
Seen in food in math.
New package formats and expansion beyond soda when new stores.
As demonstrated in the mass channel.
And new channel distribution drive volume and <unk>.
Warehouse club.
We are introducing high margin premium priced zero sugar naturally seen a single trial package offering consumers a chance to try so UBS soda flavors for less than $2 with.
We're simultaneously expanding our multipack offerings, creating a price quote with packaging format for every level of media consumption. We have clear plans to further improve unit economics to take pricing actions as conditions Merit.
Strengthen our price level to trade loyal consumers up to larger pack sizes.
With that I'd like to turn the call over to building our CFO for a review of our financial results.
Thanks, Jamie.
We continued our strong topline growth in the fourth quarter of 2021 with net sales of $34 $2 million, an increase of 23% over the fourth quarter of 2020.
Our two year growth rate from Q4, 2019, Q4, and 2021 was 52% and on a full year 2021 basis net sales were up 26% over prior year.
Our net sales growth was primarily from the unit volume, which increased 42% in Q4 and 45% on a full year basis.
We announced pricing actions in the fourth quarter and will begin achieving price realization from these actions at the end of the first quarter of 2022.
Cost of goods sold per equivalent case in the fourth quarter of 2021 increased by three 5% versus the same period last year and increased 2% on a full year basis versus 2021.
We believe this reflects lower exposure to inflationary headwinds on commodity ingredients.
As a brand that uses simple plant based ingredients.
<unk> for most of our inputs and as such is less subject to price swings for commodity costs.
One area of our cost of goods sold but has been impacted by a combination of inflationary headwinds and supply tightness as aluminum cans and we remain confident in our opportunity to continue to mitigate these headwinds.
Fourth quarter gross margin was 43% compared with 42, 1% in the fourth quarter of 2020.
Reflecting mix and inflation factors.
On a full year basis gross margin was 44, 3% in 2021 compared with 45 zero percent in 2020.
Turning to operating costs, selling and marketing expenses in the quarter was $3 $2 million higher than prior year.
We experienced $1 4 million of increased transportation costs due to overall net sales growth and higher freight rates and the challenging transportation market in the U S and Canada.
Marketing expense increased by $1 1 million, reflecting our increased investment in growing the <unk> brand.
General and administrative expenses in the quarter were $3 $2 million higher than prior year, primarily from costs associated with being a public company and to support our growth.
These costs include increases in D&O insurance premiums annual audit and tax expenses staffing and support services.
On a GAAP basis consolidated net loss was $37 4 million in the fourth quarter in 2021, and $87 $7 million for full year 2021.
The losses in the fourth quarter and the full year were primarily driven by non cash equity based compensation.
We recognized noncash equity based compensation of $31 9 million in the fourth quarter of 2021 and $77 $7 million for the full year of 2021 largely related to restricted stock unit Awards.
And on the stock Awards generally does as a result of the expiration of the initial public offering lockup period in January 2022.
Adjusted EBITDA loss in the fourth quarter 2021, with $5 3 million compared with an adjusted EBITDA loss of $1 million in Q4 of 2020.
On a full year basis, adjusted EBITDA loss was $8 7 million compared to adjusted EBITDA income of $3 3 million in the prior year.
Turning to the balance sheet.
<unk> has $73 1 million of cash and short term investments at the end of the fourth quarter.
Inventory at $31 5 million represents a <unk> of 140 days higher than historical levels. As we continue to hold elevated levels of inventory to ensure high service levels in the midst of a north American aluminum 10 shortage.
On the liability side, we had no debt.
<unk> recently closed on a $20 million asset based line of credit with Bank of America expandable to $30 million.
To add to our available liquidity.
Looking to the future we are reaffirming our long term guidance of 30% net sales growth.
For 2022, we anticipate net sales of $177 million to $182 million.
Representing 28% to 32% growth over 2021.
For the first quarter.
Quarter of 2022 net sales are expected to be in the range of $36 million to $38 million, an increase of 17% to 24% compared to the first quarter of 2021.
With that we will conclude our prepared remarks and open the lines for questions.
Thank you for our Q&A, if you'd like to ask a question. Please press star followed by one on your telephone keypad now if you change your mind. Please press thoughtful a budgeted one for Frank to ask your question. Please ensure you're on mute locally.
No question.
From Spain.
Yeah.
Hey, Thanks, good morning, everyone.
Yes.
You're at the club channel and you talked about the <unk>.
Introduction of picking up a lot of new households, can you talk a little about the behavior you are seeing with respect to repurchase rate.
Overall spending levels the buy rate.
And what you think that portends for.
Continued expansion in that channel and then the read through kind of Halo effect to other channels.
Absolutely and I think it's.
It's a great question, when we think about the club channel ban.
Channel expansion that is fueling not only profitable transactions, but actually trial activity and new shoppers for the DVA brands. So.
Club channel over 65% of our purchasers are new to the <unk> brands. So it's highly incremental for US as you know, we're selling variety packs in that channel and as we've seen an ecommerce variety pack purchases them generate single flavor purchases multi packs, both in brick and mortar and e-commerce .
The E Commerce channel literally 50% of our purchasers online also purchase our brand in brick and mortar they spend an average of three times with a brick and mortar buyer spends so it's still early days in the club channel, having just entered there, but we're seeing as I mentioned very strong incremental <unk> in terms of the <unk> brand was 65.
Of those 65% of those consumers new to the brand and then on the flip side, what's really fascinating about this merchandising is that we're actually bringing new shoppers to soft drinks and warehouse clubs, so literally greater than 75% of the purchasers in the club channel are making their first soft drink purchase in that club outlet.
So it's fantastic for our brand in terms of incremental <unk> again early days, but we think that it's going to lead to single flavor purchases across other brick and mortar channels.
And then it's also highly incremental for those club retailers as we're bringing new shoppers with a value added brand and simple plant based ingredients. So hope that's helpful.
Yes. It is thank you and then Amy I was intrigued by your commentary of placement of product of <unk>.
<unk> serve immediate purchase rather than go format, how leveraged bowl is.
You implement and monitor the progress of that sort of occasion.
<unk> is that as an insight as you'd look to apply that both to other channels thinking specifically at convenience stores as you try to market that product to perhaps distribute distributors to immediate consumption channels and.
Can you just talk a little bit about the.
The rationale and thought process behind making that move.
Yes. Thanks for the question I think the answer in short is quite leverage at bolt and you're reading the tea leaves in terms of our rationale so.
Previously shopper had to pay let's call it $5 to enter into the <unk> World.
Soda alright, and now a shopper can try a flavor for $2 and therefore part with the $6 are left to try three flavors and so we have the opportunity not only to get in the perimeter of the store to show up cold with single serve plant based zero sugar soda for the <unk>.
First time in an attractive package.
But also to do so with multiple flavors.
An easy trial package.
So in doing that we can test out merchandising pricing and availability and natural channel and in food.
Coal and take those learnings both in terms of pricing merchandising marketing and get some some shopper data.
All leverages all to go into immediate consumption more traditional immediate consumption channels, including convenience that's exactly the idea. So we see this as a win for us with immediately in terms of velocity shopper insight and volume.
With our heaviest shopper and natural and where we have proof points in food and then it's very leverage level for our expansion plans into convenience and beyond does that answer your question.
It does it does thanks and just one quick one for me on the aluminum cost.
How impactful do you expect that to be obviously, if we look at the commodity markets, they're exceptionally inflationary even more so today with kind of geopolitical conflicts escalating.
So to the extent you could talk about the sensitivity to that dynamic.
That would be helpful. Thank you.
Yes, absolutely I can speak to that then I think.
Clearly, we're seeing continued turbulence in the can market.
I would say we are seeing a loosening in terms of availability and so if you think back over the last 18 months.
Availability was a real challenge and so <unk> as well as many of our peers, we're sourcing cans from around the world.
And with pretty significant freight costs associated with bringing those cans to the U S market.
So we are.
Seeing a loosening there we're able to source U S manufactured cans without freight so notwithstanding the elevated aluminum market, we're seeing some tailwind from a cost perspective.
We do continue to hold empty can inventory because availability and safety stock is really key.
So then as we start to burn down that inventory through the course of this year, we will see some tailwind from reduced inventory levels. So we're continuing to monitor inflation and commodity cost relative to aluminum.
Noted.
We did announce pricing actions in Q4, and we're going to see that realization and we are confident that we have the ability to continue to take prices conditions Merit. So we'll continue to monitor aluminum, but I think we're feeling good certainly from an availability standpoint, and we're seeing some tail future tailwind in terms of costs.
Okay. Thanks, so much best of luck.
Absolutely. Thank you.
Our next question comes from Alton Stump from loop capital Your line is open.
Great. Thanks, good morning.
Thats on the results. So I just wanted to ask about.
I apologize for that.
I had to hop on late here, but as Mr pricing actions in the fourth quarter any kind of read through yet.
A pushback or to your point is there just a lot more customer willingness to pay higher prices given the costs are obviously going up for pretty much everybody right now.
Yes, so we have communicated so the only pricing action that is in the market in the fourth quarter was around about 10 pack and we did not have any pushback on that neither from retailer nor from consumer and so that supported our price slope as we continue to trade consumers up.
With advantageous pricing with larger packages and then in the fourth quarter, we communicated pricing action, that's forthcoming and going into the market really now at the end of the first quarter and.
Again, great receptivity from the retailer as of course competition continues to margin up and take price call around that so we're able to maintain our affordability.
Which we mentioned earlier is in that 36 percentile among all non alcoholic beverages, and then continue to improve profitability.
As the market moves and so youll see pricing on a consumer level will gain insights on the results of those actions in the second quarter and beyond and we do believe there is headroom for further pricing action through the year, so great receptivity from a retailer standpoint, and not surprised there because the pricing action we're taking.
<unk> is consistent with the market and consistent with I think consumer expectations from our premium brand as well.
Makes sense and then just one follow up and then ill hop back in the queue here, but just update.
Update on your online platform, because you guys talked in the past about Amazon.
<unk> be the best selling.
So a drinking that market any update there.
Growth potential.
Moving over the rest of 2022 and beyond.
Sure. Yes, we remained the number one covenant soft drink on Amazon not just in the zero calorie space, but across the board.
We continue to grow there and introduced new packs there.
Amazon was the first to take our two new energy drink flavors, and we continue to experiment with different combinations on variety packs and Patti mentioned earlier the performance.
That that Amazon offers as a trial driver for us as they see the trial on Amazon translates into increased purchases not only on that farm, but platform and from brick and mortar as well another big opportunity for us and growth is on the second biggest.
Dot com player wishes, Walmart Dot com, and then brick and mortar dotcom as well, so the brick and click and pick up business for us without traditional retailers as we grow more sophisticated that selling organization. We can unlock a lot of growth by taking our Amazon and Walmart dot com learnings and applying them across other traditional retailers and their dot com business.
So fast growth still in E. Commerce, we anticipate it continues to hold its portion of our mix if not greater.
And Theres a lot of organic growth to be had there as we learn about the right pack mix and pricing in those spaces.
Great. Thanks, so much.
Our next question comes from Chris Carey from Wells Fargo. Please go ahead.
Chris Your line is now open.
We move on to surround ore from <unk>. Please go ahead.
Okay.
Good morning, guys.
Barry lots of initiatives going into 'twenty two.
A lot of things going on so my question is when you look at your traditional algorithm, which is 10% below 35% distribution, 15% new right.
<unk> based opportunity how does all of this in this year.
In your algorithm does it change the composition of algorithm.
22, compared to 21 or your broader outlook.
Sure.
Yes happy to happy to share how we think about that and we are.
It is clear for US do we think about velocity, we expect velocity to accelerate with enhanced merchandising in 2022 and by enhanced merchandising. We're talking about the expansion in store presence new products, new packages and new parts of the store and then the placement of about 1000 pieces of point of sale, so racks and coolers across especially natural and <unk>.
With channels and then velocity is also supported by low cost grassroots marketing efforts like the brand level campaign that we have coming this summer it's similar to in terms of tactics. The campaign that we ran at the start of the year called live your best and this summer campaign, well timed with our first time limited time offer.
Summer flavor six packs.
Is all around enhanced merchandising and increased presence in store.
Sure.
So that supports the top of the of the algorithm, we talked about 10% going into that 5% that we look to come from new distribution with existing customers, we think about increasing our space.
By 50% with one of the top two mass retailers. That's a great example of what we mean, when we say gaining expansion or new distribution within existing customers and so one of the two major mass retailers. We've moved from five flavors to 12 flavors and we moved from six pack to APAC and then in the other mass operator, we're introducing our kids lives.
Into an entirely new portion of the store and it almost 2000 stores. So those are just great. Examples of what we mean by fill in distribution or expansion and then finally just to speak to an example of the 15% when we talk about new channel distribution. This is this is sort of a final piece of the puzzle that supports velocity and we expect strong results to continue to come from club.
This is this is business, we talked about Sam's going national right at the end of Q4. So we'll realize those results as we build that out and the velocity and tremendous incrementally stands as I spoke to earlier, there's more opportunity within drug Theres opportunity ahead in the value channel and then at the right time as we discussed earlier.
Consumption channels, both regionally and then eventually nationally so that's just a way of how we think about breaking down the 10% from velocity the 5% from what we call still in distribution with existing customers and then the 15% from expansion with new distribution in new channels.
That's great. Thank you. Thank you so much.
I'll ask one question on the gross margin outlook in 2022.
I mean, I would low below what is the wildcard and guiding to it seems like theres a lot of initiatives to help price actions mix shift to energy or some of the largest tech initiatives that you mentioned.
It'll be the offset or I don't know.
Aluminum can deal with in the back half versus the headwind in the fluids stuff, but can you help us frame, how we should think about the gross margin outlook in 2022.
Or what is the wildcard and Gwyneth ran into as it relates to gross margin.
Yes, absolutely. So as we noted in the prepared remarks, we're going to see price realization take hold starting in early Q2.
And we took a 6% increase on <unk>, 8% on energy and T. <unk>.
And we certainly feel we have the flexibility for additional pricing actions as conditions Merit, so youre going to see those pricing price realization take hold through the course of the year in Qs two three and four.
And then simultaneously we continue to receive both scale and cost optimization optimization benefits through the course of the year. So.
That's full truck utilization for many of our customers as we scale with customers. We can start selling full trucks versus partial trucks materially reducing our freight cost and then we're really focused not on rates. So much because we can't control freight rates, what we can control, though is how many miles were trucking product.
Establishing incremental repack as well as production locations gets us closer to our customers remove freight miles from our system and thus costs from our supply chain. So similarly, those cost optimization efforts are taking hold through the course of the year as we add repack and manufacturing locations and so youre going to see that margin progression through that <unk>.
Combination of pricing realization cost optimization through the course of the year I Hope that's helpful Directionally.
That's great. Thank you so much.
Our next question comes from Chris <unk> from Wells Fargo. Please go ahead.
Hi, good morning, and apologies about the technical issues.
No problem good morning, Chris I just wanted to.
Good morning, I, just wanted to follow up on that line around margin progression.
Yes, so a couple of questions around that.
I guess first.
How is the pricing being received that you've talked about potential incremental pricing. What gives you confidence in the ability for the portfolio to do that the second thing is just this dynamic between.
Pricing and scale benefits into the back half of the year.
How do you see the relative contribution how important is the scale benefits to you.
Your budget into the back half of the year on margin and then just connected to all of that.
Why not provide.
<unk> outlook and only focus on revenue is that.
The volatility in the environment or is this.
More standard practice, thanks, so much.
Absolutely so why don't I start with the second part of your question first which is <unk>.
Around profitability in guidance or the lack thereof there.
I think Chris we're focused on growth.
Having said that we're starting with a very strong gross margin profile. So.
Combination of pricing actions and cost optimization.
Is continuing to enhance unit economics.
We believe that sets the stage for strong profitability and future, but in 2022, we believe we're going to really drive value by continuing to scale. This brand and drive growth. So kind of that's answering your question hopefully around kind of profitability and how we think about that.
In terms of the price increases and pricing action.
We've received as Amy noted.
Receptivity, we're not seeing pushback and I think in part it starts with our affordable affordability profile. We are at 36 percentile of all nonalcoholic for liquid refreshment beverages was 64% of products, including bulk Stillwater.
That product set are more expensive than <unk>. In addition, what we found is that the category leaders have continued to take price over a multiyear period and so we've narrowed that price gap materially what were finding today in the consumer environment is consumers are looking for value added products at a reasonable price and so simple plant.
<unk> ingredients with zero sugar and zero calories is really compelling the consumer is willing to pay a slight premium for that and.
As category leaders have taken price that premium for zebra has reduced to what I would call slight today. So we believe in an inflationary environment, we're focused on cost optimization absent inflation and I think in.
The inflationary environment is what's causing us to monitor future pricing actions and we believe we can stay ahead of inflation with additional pricing actions should conditions merit through the course of 2022.
Hope that answers your question happy to take any follow ups.
No.
That's helpful I'll jump back in the queue. Thanks Paddy.
Excellent Thanks, Chris.
Our next question comes from Andrew Charles <unk> from BMO capital markets. Please go ahead.
Hi, Thanks for taking my question. This is Daniel <unk> on for Andrew.
Ah.
<unk> IRI data has been somewhat weaker in the energy drink category can you discuss how you see your positioning there and if you have a new strategies improved performance.
Sure. So we're fairly new in the energy game and I think there is tremendous opportunity our energy business on a relative basis is quite small.
And what we what we have the opportunity to do is getting really clear on our position and so the consumer that no Xavier loves the dv energy drink, but we need to do here is build a marketing story and drive awareness and trial and so where are we thrive is in the natural channel and where we have the opportunity to introduce ourselves into conventional with some marketing.
And trial and sampling activity and so that's our plan looking into 2022 and going forward is to take what is a really excellent flavor profile and to get that into the hands of consumers and thats both through retail programming as.
As well as out of the market where consumers want more complex.
And then in the future and I've mentioned this in past calls we have the opportunity to do an end to end DVA rebrand for the full portfolio and.
And we think this will really support our energy portfolio as well when we bring a new look and feel from a design perspective to the full portfolio energy category within our business will really benefit from this as well because we take the strength of the mother brand and parlay that into our energy category.
Beacon is the energy of the media brand will bring the Cvs shopper to the energy category, even if that product sits in a different part of the store. So there's a lot of both tactical and strategic opportunities to better support our energy business to build a better price for it in the marketplace and then to drive trial and put cans and hands on the right usage occasions out in the Mark.
Places.
Massively under leveraged part of our portfolio and it's obviously, one I'm very passionate about and a big opportunity and I think most of all and this is a competitive advantage relative to our numbers.
Competitors, we have a tremendous taste profile in that in that category. So I would encourage everybody to try the product. So thanks for the question.
There are no additional questions. So this concludes today's call. Thank you for joining you may now disconnect.
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