Q3 2024 Zevia PBC Earnings Call
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Speaker Change: Greetings and welcome to the ZVF PVC Q3 2024 earnings call.
Speaker Change: At this time, all participants are in listen only mode.
Speaker Change: The question and answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance during the conference, please press star then zero when you telephone keypad.
Speaker Change: As a reminder, this conference is being recorded.
Speaker Change: I would now like to tell the conference over to your host, Reed Anderson from ICR. Please go ahead, so.
Reed Anderson: Thank you, and welcome to Zegas 3rd Quarter 2020 for earnings conference call and webcast.
Reed Anderson: on today's call or any Taylor president achieved executive officer and Girish Satya Chief Financial Officer.
Reed Anderson: By now, everyone should have access to the company's third quarter 2021 earnings press release in the Vester presentation made available this morning. This information is available on the Investor Relations section of DBS website at investors.zv.com
Before we begin, please note that all the financial information presented on today's call is unordinated.
Speaker Change: and some of the comments made on this call include full-looking statements which are subject to the safe, hard-leaf provisions of the private securities litigation reform act of 1995.
Speaker Change: These former looking statements are based on management's current expectations and beliefs concerning future events and our subject to a number of risks and uncertainties that could cause action results to differ materially and those described in these former looking statements.
Speaker Change: 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 different materialy. Those expressed or implied in any full-reliance statements made today. During the call, we will use some non-gap financial measures as we describe business performance.
Speaker Change: The SEC filings as well as the Irmiss Press release, presentation slides, the company that is comments and reconciliation of the non-gap financial measures to the most directly comparable gap financial measures are available on our website at investors.zv.com. And now I'd like to turn the call over to Amy Taylor.
Amy Taylor: Thank you for joining us to the quarter conference call, particularly on the morning after the highly anticipated election.
Speaker Change: We are pleased with the vast improvement we deliver in 2003, Dr. David, and we'll say a strong execution of our productivity.
Speaker Change: While Q3 Net sales was slightly below our expectations, we anticipate a return to drugs in the fourth quarter, largely due to the NBR's spanking in the 43-1 March storm nationwide.
Speaker Change: We're excited about the rollout in Walmart and we were in confident in our long-term potential.
Speaker Change: We believe that we are unique in positions to capitalize on the growing demand for healthier alternatives to traditional soda. We offer a distinct blend of great taste, zero sugar, clean label products, and exceptional values.
Speaker Change: is a deceased self-acrending who will execute a little bus for a marketing strategy.
Speaker Change: Expand our distribution and drive unparalleled product innovation.
Speaker Change: Additionally, our Congress and cost savings initiatives will enable us to reinvest in our growth while enhancing long-term prosperity.
Speaker Change: Before it's provided us a date on our strategic plan, I'll share some highlights in the third corner.
Speaker Change: As I mentioned, we've made significant rise in our productivity initiatives, including our deficit even a loss to $1.5 million. Down from $9.1 million in the third quarter of last year.
Speaker Change: is also marked with substantial incism in the first half of 2024. We achieved this through enhanced efficiencies, cost savings, and better product costing, which allowed us to deliver a record growth margin of 49 percent.
Speaker Change: As a result of a progress, we now expect annual cost added into $15 million and increase for our previous estimates of 12 million.
Speaker Change: with respect to net sales in the third quarter. He came in slightly below our expectations at 36.4 million.
Speaker Change: The 15% net fail to find were just two three of last year, largely a function of the expected reduction in club distribution.
Speaker Change: and at one of our math customers and to a lesser degree, our strategic decision to exit the kids and mixers category to focus on set us. As we look forward, we plan to expand distribution in a very intentional way.
Speaker Change: Our confidence is underpinned by the strong stealth-release-off and sees the key to channels during the third quarter.
Speaker Change: for the third quarter, scan data in the grocery channel, indicate a dollar's worth of tape to set.
Speaker Change: and Unit Ghost of 9% for the full week ending October 6th, in that a show dollar vote that's celebrating the 14% and Unit Ghost at 17% was blessing the positive impact of our adapted emotional schedule.
Speaker Change: We are also making strong progress in our direct store delivery or DSD initiative focused in the Pacific Northwest.
Speaker Change: Grocery store scan data reflected stronger performance in the Pac-North West market versus our other markets, which we attribute to increased service levels and enhanced merchandising.
Speaker Change: We are also underway in building our presence in the convenience channel, where we have begun distribution in a number of independent outlets and set the stage to expand into convenience chains with upcoming spring news sets.
Speaker Change: Thank you for watching!
Speaker Change: From a brand perspective, the tested new marketing campaign was reflecting a sharpened brand character through the select metros through the summer and into the fall. These elevated campaigns reinforced our differentiated position as a great tasting, zero sugar, clean labeled soda in a world awash with fake and artificial.
Speaker Change: We were pleased to see our message resonating with consumers. The 10 key markets where we ran the campaign yielded growth an average of 5 percentage points higher than that of the whole market across 20 weeks.
Speaker Change: In 2025, we will leverage these insights, along with our recent breakthroughs in taste and flavor innovation, to continue building our brand.
Speaker Change: So with that, let's turn our attention to the product portfolio.
Speaker Change: We are pleased to see that each new ZEVIA flavor continues to outperform the last, with the success of Creamy Root Beer and Vanilla Cola, followed by our Summer 2024 innovation, Cran Raspberry, which has become the top ZEVIA contributor to growth in the natural channel.
Speaker Change: Most recently, we saw a very strong response to our limited-time e-commerce exclusive salted caramel flavor, which is tracking the sellout well ahead of expectations.
Speaker Change: Thank you for watching!
Speaker Change: Looking ahead, we are optimistic on the path forward. There's a growing movement in better-free soda, a category which is expected to go three times faster than CSB over the next five years, and we are at the forefront of that movement.
Speaker Change: Through amplified marketing, focused distribution expansion, and product innovation, we believe we are well positioned to be the long-run leader in natural soda.
Speaker Change: We are building a clear path to both reaccelerate growth and deliver significant improvement in adjusted EBITDA. I will speak to our top line strategies, while Girish will speak to margin expansion initiatives.
Speaker Change: Thank you for watching!
Speaker Change: The evolution of our growth strategy is underpinned in building our brand marketing muscle. We have shifted our focus to a more compelling, emotionally driven storytelling.
Speaker Change: Our relatable content inspires grand trust and love with media consumers by owning the real in a never-ending battle against the fake.
Speaker Change: We're building relationships with relevant TikTokers, YouTubers, and podcasters to build reach and relevance. The overhaul of our social content contributed to a 55% sequential increase in engagement versus the second quarter, and a more than 500% increase in Oriented Views.
Speaker Change: We also plan to focus our marketing investments on broad-reaching campaigns spanning digital and out-of-home to drive awareness. Our sharp new creative can be seen across Los Angeles in the company's largest out-of-home campaign yet.
Speaker Change: Zevia Shopper's brand spend is 57% higher than that of all other Better For You Soda brand spends. And Zevia holds repeat rates at 40%.
Speaker Change: While we anticipate it will take time for brand building investments to support pull-through, qualitative and quantitative indicators give us confidence that we are on the right path.
Speaker Change: Our marketing efforts are also expected to help fuel distribution expansion across channels, but we know again it'll take time to build that momentum.
Speaker Change: This week marks an important step forward in strategic distribution gains for the brand.
Speaker Change: We are rolling out Xebia to over 4,300 Walmart locations this month thanks to the strong sell-through we experienced in our initial 800 stores.
Speaker Change: We believe our presence in Walmart will be instrumental in increasing brand awareness nationwide, especially in under-penetrated regions, such as the southeast, where we are seeing the fastest growth.
Speaker Change: Additionally, Xevious Symbols at the value channel retailer Aldi performs well, and 2025 will feature new distribution of Xevious six-pack at several hundred stores.
Speaker Change: We are well on our way to better penetrating shoppers at all income levels, who have been significantly underserved in better-for-you affordable zero-stripper beverage options.
Speaker Change: Thank you for watching!
Speaker Change: With respect to our DSD or direct store delivery strategy, we are still in the early stages of execution.
Speaker Change: We are focused on magnifying our presence in the grocery channel through better placements and it's working based on improved grocery velocity and BSE footprint.
Speaker Change: and the help of our brand building.
Speaker Change: We are expanding our DSC footprint into the southwest with Crescent Brown and Arizona on board, and will pursue adjacent geographies in the coming months.
Speaker Change: Touching on product, we've made strides in product development, innovation, and taste evolution.
Speaker Change: We are creating a more sugar-like taste experience, and this will be evident in the exciting new flavors we are rolling out in Spring 2025.
Speaker Change: In addition to the creamy and indulgent flavors we've become famous for, including root beer, and more recently the salted caramel,
Speaker Change: We have an accelerated cola business, from straight cola to caffeine-free cola, to cherry cola, and most recently vanilla cola, a top growth driver. And now, we will be able to expand the zero-sugar, clean-label grape paint into new major flavor segments.
Speaker Change: Thank you for watching!
Speaker Change: In addition to introducing new flavors, we're also introducing an 8-can variety pack at Walmart this month and, for the first time, a 12-can variety pack across retail in 2025, with a focus on driving trial.
Speaker Change: Thank you for watching!
Speaker Change: Before I turn the call over to Girish, I want to briefly address our near-term revenue expectations.
Speaker Change: As we have stated in the past, the emerging natural soda business is dynamic, and we have faced channel-specific distribution challenges that have impacted our sales performance.
Speaker Change: With that recognition, we realigned our strategy with a focus on marketing, on portfolio strength, and on quality sustainable distribution, highly encouraging early signs.
Speaker Change: We expect that our growth path will be gradual at first, as we build sustainable momentum and pave the path to strong profitability.
Girish Satya: With that, I will turn the call over to Girish.
Girish Satya: Thank you, Amy. Good morning, everyone, and thanks for joining our call today.
Girish Satya: As Amy discussed, we are excited about the meaningful progress we've made on our productivity initiative.
Girish Satya: By realigning our costs across the P&L, we are able to reinvest in growth while strengthening our balance sheet.
Girish Satya: Zevia is uniquely positioned to win within the fast-growing natural soda category with a great taste, zero sugar, and clean label product at price points significantly below that of other brands.
Speaker Change: We are confident that the foundational work we are doing now sets us up to capitalize on this tremendous opportunity and deliver long-term profitable growth.
Speaker Change: As a reminder, our productivity initiative encompasses three pillars, brand maximization, margin enhancement, and improved operational discipline.
Speaker Change: Since we commenced this initiative in the second quarter of 2024, we have made meaningful progress against our targets.
Speaker Change: Thank you for watching!
Speaker Change: With a focus on driving substantial and sustainable improvements in unit economics, we continue to find significant opportunities to reduce our product costs while maintaining or even enhancing our product quality.
Speaker Change: We have also implemented cost savings via warehouse consolidation and network optimization.
Speaker Change: Lastly, we've made progress on eliminating unproductive SG&A spend.
Speaker Change: From a margin enhancement standpoint, these efforts yielded a 370 basis point improvement in gross margin to 49.1%, as well as reduced selling and warehousing expenses as a percentage of sales.
Speaker Change: We have also seen cash flow improvements from the prior quarter as a result of the changes we've implemented.
Speaker Change: Thank you for watching!
Speaker Change: Their progress we have made enabled us to increase our expected annual cost savings target to $15 million from the $12 million we previously provided.
Speaker Change: We begin to see these cost savings in Q2, but expect these savings to be more fully realized through year-end 2025.
Speaker Change: Lastly, we continue to employ a philosophy that emphasizes returns across growth initiatives and discipline around working capital.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you for watching!
Speaker Change: We delivered net sales of $36.4 million, just shy of the low end of our guidance.
Speaker Change: versus prior year, net grails were down 15.6 percent, reflecting a decrease in volume of 12 percent associated with the impact of the aforementioned loss of distribution of clubs and one mass customer as well as the exit of our kids and make sure it's not in there.
Speaker Change: On an equivalized case basis, our net ASP declined 3.9%, reflecting our efforts to liquidate excess and obsolete inventory, which is transitory and expected to be completed by the end of 2024.
Speaker Change: Thank you for watching!
Speaker Change: The slight miss to net sales was attributable to lower-than-expected response to one of our promotional tests, as well as shipping challenges related to the hurricanes in the Southeast.
Speaker Change: Thank you for watching!
Speaker Change: Gross margin was 49.1%, an increase of 370 basis points versus the third quarter of last year.
Speaker Change: This improvement reflects the impact of our productivity initiative previously discussed as well as the shift in channel mix and lower inventory losses versus prior year as we lack the transition to our turnkey manufacturing model.
Speaker Change: This was partially offset by investments in enhanced graphics to improve on-shelf visibility and increased promotional activities, which reflect a return to historical levels.
Speaker Change: In addition to the temporary increase in promotional spend to liquidate excess and obsolete inventory, we have also been testing a variety of new promotional strategies over the last several quarters.
Speaker Change: We've seen encouraging Pfizer effectiveness of this new approach, with a 15 percentage point increase in lift versus prior year in select grocery customer tests.
Speaker Change: We will continue to refine our promotional strategies and are encouraged by the returns we are beginning to see in our new approach.
Speaker Change: Thank you for watching!
Speaker Change: Selling and marketing expenses were $12 million, or 32.9% of net sales in the third quarter of 2024, compared to $20.5 million, or 47.5% of net sales in the third quarter of 2023.
Speaker Change: The decrease was primarily due to a decline in freight transfers as a result of the impact of supply chain logistics challenges in the prior year.
Speaker Change: Lower repacking costs due to automation.
Speaker Change: a decrease in freight costs due to optimization of freight lanes and favorable spot rates.
Speaker Change: and a reduction in warehousing costs due to the consolidation of warehouses and reduction in inventory levels.
Speaker Change: Thank you for watching!
Speaker Change: These decreases were partially upset by investments made in marketing to drive brand awareness.
Speaker Change: Thank you for watching!
Speaker Change: General and administrative expenses were $7.4 million, or 20.3% of net sales in the third quarter of 2024, compared to $8.3 million, or 19.1% of net sales in the third quarter of 2023. The decrease was primarily driven by a decline in cost as a result of our productivity initiative.
Speaker Change: Thank you for watching!
Speaker Change: Net loss of $2.8 million compared to a net loss of $11.2 million last year, an improvement of $8.4 million.
Speaker Change: Adjusted EBITDA loss was $1.5 million compared to an adjusted EBITDA loss of $9.1 million in the prior year period.
Speaker Change: This improvement was primarily driven by the lapping of a number of expenses related to the supply chain transition from last year, as well as the impact of our productivity initiative.
Speaker Change: We anticipate that we will continue to achieve improvement in quarterly losses as we balance business reinvestment and bolstering profitability.
Speaker Change: Thank you for watching!
Speaker Change: Turning to our balance sheet.
Speaker Change: We ended the quarter with approximately $32 million in cash and cash equivalents and have an undrawn revolving credit line of $20 million.
Speaker Change: Thank you for watching!
Speaker Change: Turning to guidance, our revised 2024 Net Sales Outlook largely reflects the slight miss in our third quarter performance. In addition, going forward we will be providing adjusted EBITDA guidance, giving greater visibility into our business.
Speaker Change: For the fourth quarter we expect to have sales of between 38 million to 40 million reflecting approximately 3% growth at the midpoint of the range as compared to the fourth quarter last year.
Speaker Change: This reflects the impact of the Walmart pipeline fail, as well as more effective promotional programming at our key grocery customers.
Speaker Change: We expect Q4 adjusted EBITDA to be in the range of negative 1.8 million to negative 2.2 million, reflective of a shift in marketing spend from Q3 to Q4.
Speaker Change: This compares to adjusted EBITDA of negative $6.2 million in the fourth quarter of 2023.
Speaker Change: Thank you for watching!
Speaker Change: Thank you for watching!
Speaker Change: While we do not provide formal guidance on gross margins, as mentioned previously, we expect to remain in the mid to upper 40s over the next several quarters as we realize the benefits of the improvements we've made to our cost structure.
Speaker Change: We expect that Girish margins will also fluctuate based on our DSD mix.
Speaker Change: Looking beyond this year, we expect modest growth in 2025 as we focus on building brand momentum and expanding distribution across channels, which we recognize will take time.
Speaker Change: We will continue to balance investing and growth with our goal of achieving positive adjusted EBITDA in 2026.
Speaker Change: Thank you for watching!
Speaker Change: In closing, we believe that the work that we are doing positions us to deliver long-term sustainable, profitable growth as we capitalize on the enormous opportunity within natural soda.
Speaker Change: Thank you for watching!
Speaker Change: I will now turn it over to the operator to begin Q&A.
Speaker Change: operator.
Speaker Change: Thank you for watching!
Speaker Change: Thank you, sir. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star and then 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and then 2 if you would like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Speaker Change: Again, if you would like to ask a question, please press star and then 1 now.
Speaker Change: The first question that we have comes from Bonnie Hazzock of Goldman Sachs. Please go ahead.
Bonnie Hazzock: All right. Thank you. Good morning, everyone.
Bonnie Hazzock: I was hoping for a little more color this morning on I guess the loss distribution you called out in your club channel and then the one customer in your math channel. I was wondering if you could you know give us a sense of maybe the impact.
Speaker Change: from the soft distribution on your top and maybe bottom line, and then, you know, the expanded distribution that you highlighted, you know, expanded distribution to Walmart, that is.
Speaker Change: You mentioned you're expanding this month, so I guess I'm trying to reconcile that with, you know, your outlook for, I guess, modest 1 to 6 percent sales growth this quarter. Thanks.
Speaker Change: I think, Bonnie, let me let me talk a little bit about the retail side.
Speaker Change: And then when it comes to the impact on top and bottom line and the outlook, I'm going to turn that over to Girish to make a few comments.
Girish Satya: you know the softness in the quarter really came down to the volume impact of reduced store selling in club and a few promotional timing variances and I'll just note that velocity remains strong that's across channels and most especially in key channels like grocery.
Speaker Change: and Accelerated in the last four weeks, which is consistent with our growth expectations and the return to growth for Q4. Specific to Club, as we've mentioned in the past, and especially for emerging brands, it can be a region-by-region or rotation-by-rotation business.
Speaker Change: And so we remain engaged with both national club operators, and we're optimistic that we'll make progress in sustainable club distribution for 2025. But in the meantime, as you mentioned,
Speaker Change: Throughout the month of November, we'll be rolling into 4,300 Walmart stores, and that will include a Variety Pack. Variety Pack is what's sold at Club.
Girish Satya: And we're also seeing strong growth in e-commerce. So we're targeting the shopper and making sure that a variety pack is available to continue to drive trial when new consumers receive it across channels.
Speaker Change: So again, I'll just remind us that velocity is the metric that tells us how demand is faring. And so we expect a return to growth based on our velocity performance in Q4.
Speaker Change: and I'll turn it over to Girish to talk a little bit about the top line and bottom line impact when we think about club and distribution and then the outlook.
Girish Satya: Yeah, so I would just add, you know, as Amy mentioned, most of the change in the outlet was really driven by distribution, primarily at the club club level, and it's noted that
Speaker Change: lost distribution at the one incremental math customer. From a bottom line perspective,
Speaker Change: You know, really the change in EBITDA is really driven by incremental investments in marketing as we look to drive, trial, and support the launch at Walmart. So, you know, it continues our approach to really balancing.
Speaker Change: for long-term growth, long-term sustainable growth by mixing, you know, dropping savings to the bottom line as well as reinvesting into the business.
Speaker Change: All right, thank you for that and then maybe just a second question if I may because...
Speaker Change: You know, as you talk through that, you know, I did also have a question on your marketing spend. So, hoping you could give us a sense of what this will be as a percentage of sales over the next few years.
Speaker Change: and I guess I'm asking that in the context of profitability. I mean, this has been a key focus for you and I know you've implemented a lot of different initiatives and I recognize you're not gonna provide guidance next year but could you maybe help us understand how realistic it might be for you to generate profitability in the next couple of years given all of the efforts that you've kind of laid out for us? Thank you. Yeah.
Speaker Change: Yeah, of course, and appreciate the question.
Speaker Change: As noted, we're really focused on building a sustainable, profitable, and consistent grower for the future. And we are really bullish about the long-term growth opportunities ahead.
Speaker Change: And so I think from our standpoint, we're continued to be focused on driving profitability in 2026 as really as we invest in marketing and brand building to really drive future sales growth.
Speaker Change: you know, I think from our perspective, we're really...
Speaker Change: going to continue to balance.
Speaker Change: the, you know,
Speaker Change: dropping savings to the bottom line, but with more of a focus on reinvesting so that we can drive future sales and future distribution gains, which will in turn drive higher profit. So, you know, I think as we alluded to, you know, we're really focused on
Speaker Change: hitting that sort of profitability marker in 2026. But continuing to balance until then between continued reduction and losses as well as investment in building this business.
Speaker Change: All right, thank you.
Speaker Change: Bonnie, I would just say in closing on marketing.
Speaker Change: Critical to our ability to invest in marketing is our productivity initiative where we take costs out of operating expenses and put it into marketing. There is room for us to invest more in brand building. We have very strong repeat rates and we have very high brand spend once consumers enter the funnel.
Speaker Change: and we must invest in brand and drive awareness to continue that virtuous circle. So, that's our expectation and the productivity initiative gives us a lot of confidence in our ability to execute that accordingly.
Speaker Change: Alright, thanks again. I'll pass it on. Thanks.
Speaker Change: Thank you for watching!
Speaker Change: Thank you. The next question we have comes from Andrew Strelzik of BMO Capital Markets. Please go ahead.
Andrew Strelzik: Hey, good morning. Thanks for taking the questions. I wanted to ask about the gross margins, which were much stronger than we and I believe you anticipated as well. Was there anything, you know, kind of one-time or non-recurring in there? And maybe what was the biggest deviation relative to kind of what you had thought for the quarter? And I guess as we kind of zoom out,
Andrew Strelzik: I know you talked about some variability based on DSD and those types of things, but is there any change kind of the way that you're thinking about the margin potential of the business given some of the structural improvements you've made?
Speaker Change: Thank you for watching.
Speaker Change: Yeah, thanks for the question.
Speaker Change: Bye.
Speaker Change: You know, we've made a lot of progress on, you know, renegotiating core input costs.
Speaker Change: rationalizing and productive skews. And so going forward, we do believe we've kind of reset the bar here at a higher clip from a gross margin perspective in that sort of mid to upper 40s and noted.
Speaker Change: There will be some variability depending on, you know, how quickly we add new DSD partners and and you know, I think there's continues to be opportunity to enhance gross margin. I think, you know, similarly, we've balanced.
Speaker Change: driving gross margin with also incremental DNA spend which you know we've returned a historical levels inclusive of
Speaker Change: driving higher margins. So again we're balanced we're creating this balancing act across the P&L to really really with a focus on how do we drive you know how do we drive velocity and how do we drive value.
Speaker Change: Okay, that's helpful. And then I wanted to revisit the promotional activity, promotional strategies discussion that you referenced in the press release and then in some of the prepared remarks. Can you talk about exactly what you've been testing, what's been working?
Speaker Change: and kind of what the timing is to which you might settle on kind of how that's going to look and what that means for trade spend over time on a go-forward basis. Thanks.
Speaker Change: Yeah, absolutely. So, you know, I think we, we, you know,
Speaker Change: historically or over the last several years the company had reduced DNA spend pretty dramatically and so we've really been testing a variety of new strategies really around frequency, depth
Speaker Change: and Breath of Promotion. And so, as we've continued to sort of hone and refine these tests over the last several quarters, I think what we've really...
Speaker Change: dialed in is, you know, the highest ROI has been, and that mix of depth and frequency. And so, you know, I think we will be really settling in, I'd say,
Speaker Change: in the first quarter of 2025, particularly as we learn with the nationwide Wal-Mart launch and testing a few new promotional strategies as well that we have yet to
Speaker Change: that we haven't tried in the past. And so we'll...
Speaker Change: We believe we've kind of settled from a dollar perspective on the appropriate amount. And I think we'll be able to really dial that in by the first quarter of next year.
Speaker Change: And Andrew, just note that we saw, as mentioned, in prepared remarks.
Speaker Change: a 15 percentage point increase in Lyft across all of grocery.
Speaker Change: for the period.
Speaker Change: and we did that concurrently with significant improvements in margin. So it builds our confidence and the efficacy of our promotional strategies based on what we're learning and what Girish just described is driving hand-in-hand with improving the path to profitability.
Speaker Change: It makes sense. Thank you very much for the call. I appreciate it.
Speaker Change: Thanks.
Speaker Change: Thank you. Just a reminder, if you would like to ask a question today, please press star and then 1 now.
Speaker Change: The next question we have comes from Jim Salera of Stevens Inc. Please go ahead.
Speaker Change: Thank you for watching!
Jim Salera: Hi guys, good morning. Thanks for taking our questions.
Jim Salera: I'm going to start on the salted caramel LTO.
Speaker Change: And just see, do you guys have any insight if that's driving frequency among existing customers or trial with new customers? And if I can maybe make that a two-part question, just in this new world of advertising that's
Speaker Change: more and more digital. Just any learnings that you guys have from from engagement on some of the digital ad spend and how that converts to whether it's frequency or trial.
Speaker Change: Thanks, James. To directly answer your question, it is too early for us to sort of disaggregate the excitement around salted caramel and tell you exactly whether that's coming from our existing base or from new consumers. But directionally, we could tell you both.
Speaker Change: because what we're seeing is that the reach that we have been able to extend
Speaker Change: through our
Speaker Change: scaled now influencer network on third-party channels. So now we're speaking to people that are not on Zivia channels, have been very effective and very engaging, far more so than the past. So we see our marketing initiatives outperforming marketing initiatives of the past, and I think Seltzer Caramel is just an example of exactly that.
Speaker Change: but it's also in driving engagement within our existing base. So our expectation is that Salted Caramel and other brand buzz-building initiatives does both things for us, continues to engage our highly engaged base and reaches new consumers. To your point on digital,
Speaker Change: Our distinctive brand identity can be seen and heard across really an overhauled social media channels, through new brand ambassadors at scale that I mentioned, through supported events and partnerships, and then most recently through some of our new out-of-home advertising, complementing the digital campaigns that we piloted in several cities.
Speaker Change: reminder that the digital campaigns we piloted across a 20-week period drove a five percentage point increase in sales in those markets relative to the rest of markets. So these, our brand marketing spends have been insufficient.
Speaker Change: to support this brand.
Speaker Change: And why are we confident that we're going to be able to do that? Because our productivity initiative is there to be able to fund it in a self-sufficient way.
Speaker Change: So, I would mark Salted Caramel Campaign as an example of what good looks like for Xevia in both engaging our base as well as reaching new consumers and driving trial.
Speaker Change: That's great. And then maybe as a follow-up to that.
Speaker Change: Can you give us an update on the DSD network in Pacific Northwest and I would imagine...
Speaker Change: There's probably kind of a similar visibility dynamic with some of the installation or activation. If you guys can give any updates on like branded cooler placements. But really what I'm curious about is if you've seen any noticeable difference.
Speaker Change: in those markets relative to kind of the broader footprint.
Speaker Change: Yes, that's a very important consideration, Jim. Thank you. So we're pleased with the impact of DSD, so direct store delivery, the service levels have had an impact on velocity in our base business in the footprint where DSD is activated, so the Pacific Northwest, and specifically grocery.
Speaker Change: across all chains in that footprint outperforms the rest of market in the period of time where DSD has been active. So grocery outperforming rest of market thanks to DSD.
Speaker Change: DSD partners have also started to penetrate independent convenience outlets, and I outline independent because, of course, chains are reset next spring. So we're partnering with DSD operators to be ready for that kind of next big moment in convenience rollout, which will be this spring.
Speaker Change: So that's sort of an early take on the impact of DSD in the Northwest.
Speaker Change: And then, as mentioned in prepared remarks, our next target being the Southwest. We've signed with Crescent Crown in Arizona, and adjacent geographies should follow in the coming months, and we expect a similar result. Again, increased velocities in core channels.
Speaker Change: and then being enabled to start to drive distribution for convenience, which drives against our most important initiative, which is single trial to expand the base hand-in-hand with our brand building.
Speaker Change: and many more. And if you're interested in learning more about the art of painting, you can find the link in the description below. Thank you for watching. I hope you enjoyed this video. If you did, please give it a thumbs up. And if you're new to my channel, please subscribe. I post weekly. And I'll see you in the next video. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye.
Speaker Change: Great. Appreciate all the thoughts, Amy. I'll hop back in to you.
Amy Taylor: Thank you.
Speaker Change: Thank you. Ladies and gentlemen, that concludes the question and answer session of the call. I will now turn it back to Amy Taylor for closing remarks. Please go ahead.
Amy Taylor: Yes, thank you. We appreciate everyone joining the call today and as you can hear we're confident that Xebia is well positioned within the growing natural soda category and our productivity initiative, which we've mentioned several times, sets us up well to capitalize on this opportunity.
Amy Taylor: while putting us on what we see as a very clear path to profitability.
Speaker Change: So we look forward to providing you an update on our progress on the fourth quarter call. Thank you very much everyone
Speaker Change: Thank you. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.