Q3 2022 Zevia PBC Earnings Call
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Ladies and gentlemen, if you could please remain online the call will begin shortly.
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Ladies and gentlemen, if you could please remain online cocoa begin shortly.
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Greetings and welcome to E V. A P. B C Q3, 2022 earnings call.
At this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the call. Please signal for an operator by pressing Star then zero on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce Reed Anderson with ICR. Thank you and you May proceed.
Thank you and welcome to <unk> third quarter 2022 earnings conference call and webcast.
Today's call are Amy Taylor, President and Chief Executive Officer, and Denise battles, Chief Financial Officer by now everyone should have access to the company's third quarter 2022 earnings press release and Investor presentation filed. This morning. This information is available on the Investor Relations section of <unk> website at Www Dot <unk>.
<unk> Dot CBS dot com.
Before we begin please note that all 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 1095. These forward looking statements are based on management's current expectations or 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 to 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 from those expressed or implied in any forward looking statements made today during the call. We will use some non-GAAP financial measures as we describe business performance the SEC filings as well as the earnings press release presentation slides that occur.
Company today's comments and reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are all available on our website at www dot investors that CBS Dot com now I would like to turn the call over to Ann Taylor.
Thanks, Reed and good morning, everyone. Welcome to the Q3 2022 earnings call for D var PVC.
We have continued to experience strong category, leading consumer demand, adding well over a million new households, growing consumption and delivering dollar and volume growth well ahead of the category even in the midst of a challenging macroeconomic environment.
We are realizing price in the market and materially reducing costs in our business.
Noting in recovery of gross margin.
Further we see positive contribution to profitability and our mixed shift reallocation of promotional spend.
And our initial supply chain adjustments and finally, our company wide cost reduction.
We continue to realize this vision mission with a focus on global health for people and planet, removing another three and a half thousand metric tonnes of sugar from the diets of our communities.
And we're placing 52 million plastic bottles in a market in a quarter.
In Q3, we delivered net sales of just over $44 million.
14% over prior year and revenue growth and two 3% in volume growth.
This fell short of our guidance as we've experienced short term headwinds in shipments as retailers and e-commerce operators manage inventory down we.
We saw a divergence between shipments and scan sales in the quarter and sales or sell through to the consumer remained very strong and ahead of category growth as is true in recent October reads as well I will speak to the drivers of this so the channel detail in a moment.
Gross margins are returning to historical levels, and we are paving a path to profitability with a strong run rate of improvement on the EBITDA one.
Cost control.
Promotional approach and a strong price increase implementation shows new precedent set with a focus on quality growth will go into more detail now with a focus on consumer based evolution.
Our learning some syndicated data.
Biggest household penetration for the 12 months ending Q3 grew again on a sequential basis from six 3% from six 1% for the 12 months ending Q2 'twenty two at.
One 3 million more households to the brand versus last year.
Spend per household also increased in the last 12 months by 10% versus last year driven by increases in dollars per trip and consistent purchase frequency rates.
Total media grew 19, 8% in measured scan dollar sales for the water <unk>.
Continuing to outpace total non alcoholic beverage growing at 12%.
In total carbonated soft drinks or 14%.
Maybe Q volume, 14% and scan data in a period, where non alcoholic a carbonated soft drinks are declining 2% and 3% respectively.
It is Brian is very healthy and same store sales remain robust driven by volume and price are scanned data demonstrates.
The Zumiez shopper is a highly desirable shopper less price sensitive at all income levels and demonstrates resilience in a fluctuating economy.
We remain at home stocking brand, which continues to fare well from a consumer and brand health perspective, winning new consumers and sustaining household spending levels.
Shoppers with 31% more and may 24% more frequent trips for total beverages than the average U S. Total category shopper in the quarter.
Consumer retail spending in Q3 was driven by a mix of organic velocity growth and continued increases in new store new item distribution growth here.
Paired with the accelerating consumer household base expansion.
Velocity was the primary driver retail sales growth was split between 67% from velocity and 33% from new distribution and new items.
New packages are driving growth in large part from new distribution.
The warehouse club channel drove growth in the quarter and continued to deliver incremental households to the brand and incremental shoppers to the channel doesn't.
70% of buyers of movie club over the last 12 months reduced media brands.
Additionally, 68% for new to purchasing the carbonated soft drinks category at warehouse club.
And grocery 12 pack drove much of the growth. The first time, new item on top of six packs and some change and replacing 10 pack and others.
Greater profitability and continued consumer trade up.
Our kids product continues to perform a new outlets, including grocery and mass channel and.
And our single can further sales have started to drive incremental present contributed growth and drive trial.
Your kids buyers spent 52% more and mid 17% more trips versus the average brand buyer in the last 12 months the role for kids is clear and driving distribution will be the key.
And our new single canned soda gained 2400, new stores in the quarter and is driving impressive units per store per week doubled when merchandise cold. This will be a key strategic initiative to drive trial going forward single cancer in a sleek can has strong potential for the business.
Single digits in terms of percentages of unit soldiers Evs at this stage.
So moving onto velocity the consumer shift to larger packages continues as do improve lift for more efficient promotional execution, but retail Cynthia.
Dollar sold on promotion or five points lower than a year ago in the latest three yes.
List and promotions with six point higher driving both velocity.
And profitability.
Backup options are driving growth category wise and also for U S.
Apacs and larger now account for more than 50% of our business in measured channels.
We discussed the impact of the warehouse club channel pack, but apacs in the mass channel and 12 packs in grocery are also contributing to velocity growth as consumers trade up to six pack and as retailers switched from the 10 packs were more profitable than standard 12 pack, we've experienced short term disruption and volume moving from 10 pack 12 pack.
With one major retailer a transitory impact on volume in favor of quality growth.
And the most recent scan data as of October 4th.
Media dollars grew at an impressive 19% versus year ago on a four week read consistent with growth through the summer.
Volume in this period shifted from 15% to 10% on a four week read versus prior year slowing by five points month to month. This remains strong following a 10% price increase which went into effect at the end of Q3 and in comparison, the flat volume growth for the category.
<unk> remains an outlier with double digit volume growth at the register in retail.
And similarly in E Commerce, we saw record sell through <unk> in the quarter.
Shipment show, however, but we're not entirely immune to the current economic climate, a few customers managed inventory down in the quarter.
Only a transitory impact on our net sales we expect this to continue for the balance of the year.
I'll wrap at the Big picture and turn it over to Denise our CFO now since may.
Our new leadership team, establishing several fundamentals to drive profitable sustainable growth is.
The right packs and the right channel.
Longer pricing to support our model and our premium but accessible positioning.
And better cost controls organization wide consumer health metrics and our strong scan across channels demonstrate we're on the right track. We are further evolving strategic channel management with recent changes under our new Chief commercial officer.
Further to drive costs down through a full supply chain network optimization to be implemented in the coming months.
These changes are disruptive, especially to the topline in the midst of economic headwinds, but they are right for the brand long term.
In advance of the 2023 brand refresh.
While we will not be providing guidance on profitability.
Note that our return towards historical gross margins and sequential improvement in EBITDA are an indication of our improved outlook and our path to profitability.
2022 is a transitional year for us in.
In 2023 will be a critical one as we refreshed the brand.
Built on a foundation of quality growth and reap the benefits of increased organizational capability.
Turn it over to Dennis to walk us through our financial results and speak to our Q4 outlook.
Thank you Amy and good morning, everyone I will begin with an overview of our third quarter financial results and then speak to guidance for the year. We will then open the call for your questions.
In the third quarter of 2022, we delivered net sales of $44 $2 million growing 13, 6% versus prior year same time.
Volume growth was up two 3% on an equivalence case basis to $3 6 million in the period and we also benefited from higher price realization.
You may recall that our price increase of 10% on average was taken across the soda category effective August one 2022.
Our price increase contributed $2 $2 million. So our net sales growth in the quarter. Our gross margin continued to show sequential improvement in the year with our strongest margins yet this year at 43, 3% for the third quarter, our first return to margins above the 40% Mark.
Gross margins of 43, 3% was down from 45, 6% a year earlier, primarily due to the impact of inflation on manufacturing costs, partially offset by pricing.
On a sequential basis, our gross margin continued to improve and its strongest yet this year up to 158 basis points.
90 basis points versus Q1, and Q2 2022, respectively.
Note, we have reclassified our third party logistics costs from cost of goods sold to selling and marketing expenses to better align with standard industry practice.
Our margin before the reclassification of third party logistics, we're packing cost to selling expenses was 48% for the third quarter as compared to 43, 6% same time last year.
Gross profit delivered in the period was $19 2 million up one 4 million or seven 9% first is year ago, reflecting growth in net sales, partially offset by higher cost of goods sold.
Selling and marketing expenses decreased 5% to $12 9 million, reflecting lower freight and warehousing costs of $200000 driven by pricing inefficiencies and the reduction of non working marketing costs of $500000.
G&A expense was $8 3 million or 18, 8% of net sales in the third quarter of 2022 compared to $7 7 million or 19, 8% of net sales in the third quarter of 2021.
One point improvement as a percent of net sales.
The year on year dollar increase was attributable to higher employee head count costs to support our growth, partially offset by decreases in public company costs due to expense optimization initiatives.
Stock based compensation, a non cash expense was $6 8 million in the third quarter of 2022 of which $3 8 million represents accelerated restricted stock unit awards related to the retirement of a legacy senior management employees.
Net loss was $9 2 million compared to a net loss of $49 8 million in the third quarter of 2021, and a net loss of $14 8 million in the second quarter of 2022.
This is an improvement of $40 6 million or <unk> 81, 5% as compared to the third quarter of last year, and a sequential improvement of $5 6 million or 37, 8% as compared to the second quarter of 2022.
Loss per share was <unk> 17 per diluted share of <unk> class, a common stockholders compared to loss per share of 75.
Third quarter of 2021.
Adjusted EBITDA loss was $2 1 million.
Compared to an adjusted EBITDA loss of $3 5 million in the third quarter of 2021, a year on year improvement of $1 5 million or 41, 7% showing progress managing towards profitability.
On a sequential basis, adjusted EBITDA improved by $6 2 million or 75, 2% and $4 3 million or 67, 7% compared to the first and second quarter of this year respectively.
Our balance sheet remained strong with $49 2 million in cash and cash equivalents and no outstanding debt as well as an unused credit line of $20 million.
We effectively managed our cash burn rate in the period, so facing topline headwinds maintaining a healthy working capital for the period of $75 1 million.
Our cash flow from operating activities for the nine months ended September 32022 was a use of cash of $19 $3 million compared to $13 1 million.
Same time last year.
During the third quarter of 2022 cash provided by operating activities was $200000 compared to cash used in operating activity of $8 2 million and $11 4 million in the second and first quarter of 2022, respectively, representing sequential improve.
<unk>.
Turning to guidance.
First on our results outlook and the current macroeconomic trends we are taking this opportunity to re forecast our business and as an outcome are resetting expectations for the year.
We are lowering our 2020 to annual net sales guidance to the range of $1 58 million to $116 million an increase of 14, two to 15, 7% over 2021, including net sales expectation for Q4 in the range of 13 million.
To $32 million.
We are resetting expectations amid macroeconomic uncertainty offset by excitement around continued strong brand pool as shown in scan data and as we realign our business strategy and launched our brand's refresh for continued success in 2023.
This concludes our prepared remarks, we will now open up the call for your questions.
Operator.
Thank you very much.
We will now begin the question and answer session.
He would like to ask a question. Please press star and then one on your telephone keypad.
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You May press Star then two if you would like to remove your question from the queue.
Full participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star keys.
Movement piece, while we poll for questions.
Our first question comes from Bonnie Herzog from Goldman Sachs. Please proceed with your question Bonnie.
Thanks.
Amy I guess I was hoping you could give us a sense of maybe how many customers are managing their inventory definitely are what percentage of your of your business is impacted and maybe a little more color on the channel or channels. This is impacting you called out.
Calm so maybe remind us of what percentage of your sales E. Com represents and then I guess I want to understand how confident you are that this really will be transitory or is there something else going on with possibly the underlying health or demand for your brands I mean.
Is there a possibility that some of these retailers are reducing their their shelf space allocation for you for instance, as we kind of look into next year.
Yeah.
Yeah.
Hello.
Operator, I think we lost the management teams.
Hello, Hello, Hello, Hi, Anthony.
<unk>.
It is on the line and he's on the line.
And he's on the line.
Amy you May proceed.
[laughter] Hi, <unk> good morning, everyone apologies for that Bonnie. Thanks for your question I will take the latter part of it first and then walk through the details and I. Appreciate that so first of all consumer demand is clear and so I just want to be.
Really clear that at the register as sort of where the truth is told we have really strong pull through and that's true in e-commerce as well as in retail it's important to remember that scan data demonstrates super healthy growth.
20% essentially through the quarter and even in the October Reed continues at a 20% growth clip in double digit in volume as well and that leads the category both.
<unk> dollar growth as well as in volume, where the category is either flat to declining and.
And we see that across the board, but also at each channel level and the vast majority customer level, so from a customer from a consumer pull through.
We have no issues and a very healthy brand and a very healthy outlook.
And so one of the things that I want to kind of break down through us we have robust sales at our same store level and historical channel with <unk>.
Just now cracking into the mass channel the club channel the drug channel and value all of which have very healthy sales from our reps themselves Register perspective, and all of which are expanding space with us and literally all of them.
And so shipments have fallen short in large part because of a few key customers that have been managing inventory down as they leverage for cash in the midst of a pressure from an economic perspective, and this has had an outsized impact on our growth brand and it's exacerbated by our route to market as a warehouse brand shipping directly to customer warehouses and so I'll just.
Give you a quick example.
For one customer with a target.
<unk> of eight weeks.
<unk> been currently literally inventory down to two to four weeks at any given time, while scan data shows accelerated growth.
And while they actually increased their video assortment and space a lot more going forward and so this is not something we had planned for in our fast growth environment in Q3, or even the Q4 outlook.
And this dynamic is even more pronounced specifically as you mentioned in E Commerce we.
We saw as much as a 20% to 25 point swing in E Commerce.
From scans or from sales to the consumer versus shipment to the customer.
E Commerce during the period and E Commerce of course, not showing up in scan data.
And this is an environment, where we are the leading brand. So the long term the consumer's boss the shipments catch up.
With the consumer shifting with a consumer purchase behaviors and this will be reflected in our net sales in the mid term, but in the short term, we're definitely metering our expectations based on this dynamic.
Okay. That's helpful Oh, sorry, Peter.
No I think I think more people are buying as you see in our household data.
<unk> scan and consumer metrics more people are buying is easier than ever.
They're buying more of it and they're paying higher prices for it and do the ingredients for a healthy brand and business. So for US we're managing a short term impact of the current dynamics of both our route to market in the micro macroeconomic environment.
Okay see you do just to confirm Amy General based on all of that and what we're seeing in the scanner data do you do you have pretty good visibility then on shelf space or cooler space allocation next year when retailers reset.
In the spring.
Okay. We do it's a seasonal business of course and with that comes seasonal resets the biggest opportunity for resets.
Beverage, including year of courses in the spring and then again in the fall we look forward to the spring reset is where anticipate some space gains that will be concurrent with a brand refresh which gives us an opportunity to show up to new shoppers and big way.
And then the other thing that's been a win for US as I mentioned in prepared remarks is expanding into new parts of the store with our first time ever single serve soda offerings now has us penetrating open air coolers in the Deli section and then two customers front end merchandising, which for US is a small growth spread is a really big win so listen these are.
Points for a profitable trial driving package and a really bright indicator for us to be able to expand our route to market allow into single serve an impulse business that can really bolster our.
Our reach.
And to be clear on that point, you've already started shipping some of these single serve packages, we would've seen that yes Q3, okay.
Single serve is it still just single digits in terms of mix for us and that has had.
A dynamic and previous business were six pack sales were being broken down by the retailer.
And.
Presented as a singles, which is of course under Mike margins as opposed to the single question, but.
Now what we have is less than 10%, but single digit still within our mix, but growing fast and on a same store sales basis, very impressive and when so cold it doubled.
Great story for us to take to retailers as we continue to expand that business.
Alright, especially the C store channel, which I think is a huge priority still for you.
My final question, and then I'll get out and pass it on but I just as it relates to all of this.
You touched on your brand refresh I just wanted to confirm.
That I think it's still expected to begin in January of next year, and just maybe an update on that and then just thinking about that in the context of these retailers and.
Are they going to be selling down their existing inventory with as you kind of rollout. This brand refresh is it going to be a phased rollout et cetera, how do we think about that.
Yes, yes, so we have our eye on the P&L and our eye on sustainability principles and with that we're looking to minimize any write offs such destruction. So we want to do a rolling launch that allows for product to show up at the market believed to bright by the summertime, which is of course peek beverage.
So we'll start shipping in Q1 and.
And we imagine that the summertime is the peak opportunity for us to build a consumer excitement around the new brand refresh.
That allows for.
Full distribution into our key customers with the new brand look and feel by the summer and that allows for expansion into new channels into the fall with the single serve business being the key opportunity.
Alright, Thank you I'll pass it on.
Thanks Bonnie.
Thank you. The next question comes from Ben <unk> from Stephens, Inc. Please proceed with your question Ben.
Hey, Thanks, good morning.
Okay.
So im wondering Ben.
With respect to the inventory reset that you highlighted you highlighted a couple of.
Customers channels, I'm curious as to help pervasive across your customer portfolio.
And if you think about kind of two part question here one of those that have.
These inventory decision changes kind of what the duration do you think that is on the impact to your business and then kind of secondarily.
Those that haven't made that decision, but that potentially could.
What the probability in your view of kind of knock on impacts like this albeit.
Transitory.
Sure Ben Thanks for the question I want to kind of manage the perception of the impact that this is just a few customers.
But for us with your customers can be significant.
And the decision is not necessarily to manage down inventory.
So the top down direction companywide as you can see this in the press for a couple of retailers in key E. Commerce, operator is to reduce inventory full stop and we are then impacted by that we're aware house brand, we're not a direct store delivery, so DSD, operator, but we ship to the retailer's warehouse.
And so it's more difficult for us than a DSD brands to influence, let's say order cycle and in store decision, making.
So as a retailer in order to leverage cash takes on less inventory for a short term period of time. They can continue to sell through strong sales at the register which is demonstrated in our scan sales will bleed down inventory and thus leverage cash. So we're talking about an impact of weak two months weeks to months.
A transitory, meaning sort of towards the end of the year impact to a limited number of customers.
Very much a short term impact.
And at the end of the day as I've said, the consumer is boss the demand remains and the very same customers and I mean this in quite a literal sense.
The very same customers, who have reduced inventory in the back of the store have increased their media space in the front of the store looking into 2023.
We expect and plan for inventory levels to return as we look ahead.
Got it very good very helpful. Thank you. My second question is related to margins and profitability you talked about.
Management, there improvement there can you talk a little bit as well about kind of what youre seeing from an input cost perspective are you seeing.
Pressures abate there how optimistic are you as you move forward and then maybe they are known in the last couple of years have been quite volatile and difficult to predict with respect to this.
How would you compare kind of your level of visibility into costs today versus that of a year ago.
Hi, Ben This is Denise I'm, hoping you can hear me.
Hi, Ken I was unclear.
Good morning.
I'll take the question on margin.
So as you've seen we've returned to the $40 range. We expect that to continue we do have visibility into our cost construct.
<unk>.
With regards to cost of goods sold and we do see improvements in some areas. When we look at that makeup.
We expect to see continued improvement through the end of the year of course as you know there are some unknowns because of inflation, but we expect to see our margins continue in the <unk> range.
Through the rest of the year.
Hopefully that answered your question.
Okay. Thanks, so much.
Welcome.
Yeah.
Thank you. The next question comes from Bryan Spillane from Bank of America. Please proceed with your questions Brian . Thanks.
Thanks, operator, good morning, Amy Denise.
Hey, Brian .
Just a few questions. Good morning, So two questions just two follow ups I guess one is.
I guess, what we're observing in some of the other product categories are categories. We follow that theres been a slowdown and just e-commerce sales in general.
And maybe some of this is just related to.
You need people.
Not being home as much in changing purchasing pattern.
Could you talk a little bit about just how has that effect that have you seen that in your business and I guess as you think about channels going forward.
Would there maybe be a little bit less of an emphasis on e-commerce.
And more in traditional retail.
If that's if that's the trend and then I have a follow up.
Yes, Brian it's Super strategic question. Thank you.
<unk> not seen a slowdown.
In consumer purchase behavior and ecommerce Rajeev, yes, we have not however, we have seen some strategic changes from.
From a customer and how they're managing products, specifically in beverage and is probably a longer conversation, but the highest level they seem to have and especially our largest e-commerce operators seems to have.
Let's say some shifting objectives and thus the way they manage let's say pricing versus competition in the market may fluctuate.
We have obviously not no control over that.
But we seek to partner with our key e-commerce.
Partner in order to set the right Matt.
Matter of competing with retail and we'll continue to.
Think about the right packages for e-commerce.
Unique offering to the e-commerce shopper versus that at retail.
But our attitude towards e-commerce is not to seek to grow or shrink its mix.
We're a retail brand that continues to be very focused on growing our retail presence.
Carbonated soft drinks are ubiquitous in the world.
Outside for media is massive we are focused on growing our retail distribution. Our same store sales are super healthy our opportunity and our success rate so far in growing in store presence in our existing customers has been tremendous and we need to keep that clip and then stay very focused on for example, bill.
Now the gap in 2500 mass Chan.
Channel stores, where we're not yet sold for zigbee or filling out the third of the three drug operators that don't yet so maybe you or addressing foodservice and convenience that don't yet sell video they need to sell maybe at the right time at the right price with the right route to market. These are our focus.
And then in the meantime, e-commerce and filling the gaps and be available to the consumer that continues to have beverages shipped to their home or to their to their workplace and so does the attitude that we have to use e-commerce, because we don't seek to grow or shrink the mix we have.
E Commerce is available to fill the gaps where retailer doesn't serve the need of that either business or individual shopper I hope that answers your question, but yes, yes.
No. It does it does it actually kind of Tees up the second question, which is.
Given.
Working through.
Retailers in managing their own inventory.
The retail expansion aspirations.
What point do we start thinking about signing on with the DSD partners in order to.
Sort of service.
Service the retailers the way they are accustomed to.
In carbonated soft drinks.
Yeah. Thanks, Brian we are being really thoughtful.
About gaining new distribution and you Didnt ask me Hey, how fast are you going to expand it.
Yes.
Right.
I'll tell you is that we're being very thoughtful about the relationship between our brand refresh.
And the moment at which we show up in new channels, where the shopper has never seen before and in related news that will likely require an evolution of our current route to market.
That's probably as much as I can say about that right. Now we are really happy with our current distribution model for where were sold today.
We've learned a lot I'll remind all of US here today that this leadership team has been a leadership team for one quarter.
I've been in my role for one quarter.
And we've had tremendous change and we've learned a lot and we're focused on healthy unit economics on cutting costs. We're managing these transitory issues that we're speaking about where by the way cycling the full pipeline fill to club.
And we're pacing our distribution growth with a focus on quality and that includes our route to market. So I may have answered more than you asked but I think these are all interrelated topics as we think about sustainable profitable growth.
Yes, that's very very helpful. Thanks, Amy.
Yeah.
Thanks, Brian Thank you.
Thank you. The next question comes from Andrew <unk> from BMO. Please proceed with your question Andrew.
Great. Good morning, Thanks for taking my questions. My first one I just wanted to revisit kind of the confidence that you have in the timeline of weeks or months that you spoke about is there anything in your conversations thats kind of giving you that.
Confidence or.
Backers uncertainty et cetera, So I guess im just curious if you could provide any color around that.
The number one thing Andrew that gives me confidence that the inventory issue will subside.
Going into let's call it next year with consumer demand and retailers.
Lack of stomach.
Stay in lost sales and lost share.
We have built a laser focused small scrappy insights department that is quite astute as showing retailer when they're losing dollars to competition.
And we are not yet at that point as you can see in scan sales that retailers are actually losing money by drawing down inventory.
But we're very close excuse me, so as retailers expand media space, meaning increasing their assortment for anemia, increasing their in store space for <unk>, we're going to have to maintain stock levels to address out of stocks that are teetering at risk now.
And so I can share with you anecdotally with individual exchanges with customers, where we're starting to review SKU level.
<unk> levels.
We are building plans collaboratively to get through this choppy period of time and unexpected economic downturn.
We're not the biggest player as you can imagine in beverage. So we don't always have the attention of buyer to the degree of category leaders, but I'm quite confident as I review anecdotally. These handful of customers that are driving this dynamic are partnering with us to round. This corner I do think it is wise to assume it will come.
Through the end of the year, but.
But I'm confident that we're not going to continue on a trajectory that causes loss sales at the register.
Got it Okay. That's helpful and then.
I wanted to ask a question on <unk>.
I guess pricing, but just overall spend levels and how you think about.
That moving forward in presenting to.
So to consumers and I recognize that I'm asking this.
Gross margins are sequentially improving.
<unk>.
That's kind of the backdrop, but just given the receptivity I guess that you've seen on the pricing.
Does it change the way Youre thinking about your and the value is obviously very important as it changed it all the way you're thinking about your price points, we're approaching pack sizes or anything along those lines and I guess just.
No more directly kind of in the medium term any thoughts around her willingness around pricing.
Moving forward as you work through some of the other inventory issues. Thanks.
Sure, let me share some initial thoughts and I'd love to turn it over to Denise as well.
The data would suggest that we've had very strong consumer acceptance of our pricing and pricing has been a driver of our growth not the only driver, but a driver.
So we're growing in units and dollars and we seem to have elasticity. It's early to say, but close to that of a category leader and so coupled that with consumers continuing to trade up in pack size and the introduction of a brand refresh next year and I think we have really strong pricing power going forward. So let me just turn it.
Over to Denise Nancy if she'd like to add any further color.
Yeah. Thank you Amy and I I think we continue to have strong pricing power, we have seen strong acceptance not only by the consumer but first by our customers.
And taking the price increase and strong implementation across the board.
And expect to continue to see acceptance at both levels, both with our customers and with the consumer.
So for US it's positive upside based on the strength of the brand and the health of the brand.
And so pricing for us we believe our pricing power is still hold as Amy mentioned, our elasticity. So.
Showing.
Very very low compared to especially to the bigger guys in the category.
But we're certainly seeing really positive upside from taking price.
Hopefully I answered your question.
Yes, those great. Thank you very much.
Thanks, Andrew.
Thank you. The next question comes from Chris Carey from Wells Fargo Securities. Please proceed with your question Chris.
Yeah.
Hi, good morning.
Hey, Chris.
Good morning, Chris So.
Good morning.
Thanks, just connected to.
Brian question around.
DSD.
Obviously that could be a good.
Good development from a distribution standpoint.
But I suppose it also has margin implications.
Just wonder how you're thinking about balancing.
The top line versus.
Gross margins going forward certainly in light of.
Better margin delivery this quarter and it's not lost on me.
It's still <unk>.
Regarding this outlook based on revenues, but not profit.
I was just wondering how this all plays out go forward as you evolve your distribution mix.
And then how you think about that thanks.
Yeah, Thanks, Chris Astute question and I'll tie it to Andrew's question around pricing as well.
I wouldn't underestimate our pricing power and upside I think there.
One of the most important topics for us as we talk all day about profitable growth and we route the discussion in our opportunity around unit economics, and what I mean by that is building a strong brand, which has the opportunity to continue to take.
Responsible cliff a regular price increases, which is consistent with hella category behaves.
And then the second thing is to think about.
Our supply chain and we haven't talked a lot about that on this call, but we have a legacy supply chain sort of grown up with an entrepreneurial company.
And we have an opportunity to do a true reset there.
Where we optimize the entire network end to end with work that begins now the academic work has been done in the past with the new leadership team now in place and the implementation begins now and the impact of that as a material reduction going forward in cost.
So that on sort of the top and the bottom of unit economics means reduce cost.
And stronger pricing.
And with that are the margins to support changes to route to market as appropriate either by package by category by channel or by geography, and I know I'm not being very specific yet.
Because the plan hasnt been minted entirely.
But we're very thoughtful about growing in areas like convenience and foodservice et cetera, and making sure that we craft the right route to market and the right pricing before going there and I think often beverage brands of our size may go too quickly at pricing that doesn't support the right route to market to sustain.
The sustained success and a channel like convenience, where you must have the right route to market to compete and ensure the right merchandising.
So your question is a student it ties back to the pricing and unit economics questions as well. So I think 2023 will be an important and exciting year for us in all tie together, our brand refresh which indicates pricing power our price pack architecture, the right pricing the right channel.
And then finally, our route to market.
In order to set the stage for profitable growth and sustainable growth.
Thanks, Amy good luck.
Thanks, Chris.
Thank you ladies and gentlemen, just another reminder, if you'd like to ask a question Keith Scott and then button.
The next question comes from Joe Feldman from Telsey Advisory Group. Please proceed with your question Joe.
Great Hi, good morning, guys.
Hey, Joe.
The club channel can you remind us when you started to roll that out in an hour. So we will annualize that rollout.
And how much of an impact maybe that had on the volume as well.
And I also wanted to ask it.
Club customer has done what you've hoped where that trial has become more sticky.
As they've continued to shrink yes.
Very important question I'll take the second one first thank you Joe.
Yes. The club we are able to trace the data the club shopper.
So as 70% of that business is incremental we can also watch as that shopper spends more on a higher margin pack in grocery once they come on board with the <unk> brand. So the discover their favorite flavor through a variety pack in club and then by that straight flavor 12 pack.
In grocery so it's been a highly incremental and sticky channel for us and well worth the investment is not just a volume play it's a strategic marketing play we're very pleased with that business.
However, your first question, we launched that business with a pipeline fill in the fourth quarter of 2021, and so media is a seasonal business, we have a very strong summer.
Where the data is a bit muddy is in 2021, where that seasonality was less pronounced because of the pipeline fill in the fourth quarter for club and we are starting to lap that now most significantly in the fourth quarter. It did have a material impact in shipments in the fourth quarter and it is a part of the story of our outlook for the fourth.
Which is a one time effect looks.
Looking ahead.
Helpful. Thank you and then kind of had a similar question.
And I know, it's still early with the single serve.
Beverages at convenience, but same kind of question are you seeing.
Alright, I don't know if you can track the read that customers closely isn't a club, but are you seeing that repeat or.
That same customer maybe comes in and buys a six pack. The next time instead of just the single.
Hard to say, we don't have singles inconvenience, yet we do have them in grocery.
And so it's early days to say, whether or not that's a new shopper.
But we in the fourth quarter and then in the in the early part of 2023 will expand to a number of front end merchandisers, meaning we will have cold singles UBS soda energy drinks and team.
In coolers right at the register and at that point, we'll really be able to gather more data about who is buying single serve and how often meaning we'll be able to get a sense of trial, driving there and whether or not they're repeating back to multi packs. So let's revisit that question over the next six months there'll be a really important one.
Great. Thanks, and good luck with the fourth quarter. Thank you guys.
Thanks, Joe.
Okay. Thank you.
No further questions at this time. This does conclude today's teleconference. You may disconnect. Your lines at this time and thank you very much for your participation.
Thank you.
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