Advantage Solutions Inc. (ADV) Earnings Call Transcript & Summary

Good afternoon and welcome to Advantage Solutions Clients Spotlight Call with L Catterton. As a reminder, today's call is being recorded and we have allocated one hour for prepared remarks and company moderated Q&A. Questions may be submitted through the webcast participant portal at the link found at ir.advantagesolutions.net. At this time, I'd like to turn the conference over to Dan Riff, Chief Investor Relations and Strategy Officer for Advantage. Thank you. You may begin.

Thank you, operator. Good afternoon, everyone. I'm Dan Riff, Chief Investor Relations and Strategy Officer at Advantage and the moderator for today's Client Spotlight Call. We appreciate everyone joining us. Over the next hour, we plan to bring our essential sales and marketing solutions to life by discussing the work and L Catterton and Advantage Solutions sit together on Cholula. We'll also dig into the biggest themes in the base center sector and take your questions. With us are Matt Leeds, a Partner in the Flagship Fund at L Catterton, and Tanya Domier, the CEO of Advantage Solutions. Matt has been with L Catterton since 2014 and represented the firm on the Board of Directors of Cholula, Kodiak, Everly and Inspired Pet Nutrition, among others. Prior to joining L Catterton, Matt worked at Irving Place Capital in New York City and at Lake capital in Chicago. He also worked in brand management at Procter and Gamble and began his career as an investment banker at JPMorgan. Matt was an Omidyar Scholar at Tufts University, where he graduated magna cum laude with a triple major in maths, quantitative economics and psychology. And he received an MBA with Honors from The Wharton School of the University of Pennsylvania. Excited to have Matt here and share his insights today. And from the Advantage Solutions side, couldn't ask for broader and deeper perspective than Tanya Domier's. Tanya has been with Advantage since 1990, leading in sales, marketing and operations roles; forming our award-winning marketing division in 2000; joining the Board in 2006; becoming President and COO in 2010; and assuming the CEO role in 2013. As CEO of Advantage, Tanya has reinforced the nimble performance-driven culture and invested aggressively in digital solutions to help clients face challenges in an omnichannel world.

With that, let's dive in and hear some wisdom and insight from our 2 guests. Matt, I'll start with you. It's great to have you on to help bring the L Catterton-Advantage partnership to life by diving into work on Cholula together. Maybe to start, can you share a bit about L Catterton and your role there?

Of course. Thank you, Dan. Appreciate the introduction. And hello, everyone. So, as Dan had mentioned, I'm a Partner in our Flagship Fund at L Catterton. And L Catterton is the largest consumer-focused private equity investor in the world. We today manage a bit north of $30 billion of capital spread around 17 offices globally. We have invested in over 250 businesses over the course of our 33-year history. And our job and our mission, really our reason for being, is to partner with exceptional consumer brands and to help those brands, which in nearly all cases are fast growing consumer brands, help them build their foundation, grow the businesses faster and in a more strategic way than what was at play before our involvement and allow these brands to take share in their categories and grow around the world by bringing more consumers into the fold. So that's a bit about us in a nutshell. We are an affiliate and a partner of LVMH, which is represented by L in front of the L Catterton. And we have the pleasure of partnering with amazing brands, which bring us 2 incredible partners such as Advantage and Tanya, which we can talk more about today.

That's great. Thank you, Matt. Incredible platform and excited to dig into this. Tanya, maybe for those a bit newer to our space, could you explain who Advantage is and how we create value?

Absolutely. Thanks, Dan and Matt. Really excited to have this conversation with you today. I'll start, as Dan asked for, telling everybody a little bit about Advantage. Advantage is the leading provider of outsourced sales and marketing solutions to consumer goods companies and retailers. And we have a very strong platform of competitively advantaged services, everything from headquarter sales, retail merchandising, in-store sampling, digital commerce and shopper marketing. And we do our work for brands and for retailers of all sizes. Our job is to help them get the right products on the shelf, whether it's physical or digital and into the hands of consumers however they shop. We always say our job is to turn shoppers into buyers. And creating value on this platform is simple, but it certainly isn't easy. And at the most fundamental level, we sit at the nexus of CPG companies and retailers and we're really a trusted partner and problem solver for both. And I think you'll hear about how Matt and I and our collective companies jumped in as partners and problem solvers to build and grow. And that's what we seek to do every single day. And we work to help our clients sell more while spending less. We make them more effective and we also make them more efficient. We like to say we do it better, we do it cheaper and we do it faster. And importantly, we win with winners by providing best-in-class service every single day. You'll hear us talk about winning together. And those are not just words to us, we really mean it and we innovate on a nimble platform. We operate efficiently providing fuel for reinvestment and growth and you'll see we redeploy capital at attractive returns through tuck-in acquisitions and also importantly through organic reinvestment. And as we deliver to clients by being, as I said, better and cheaper and faster, our platform compounds over time and we've grown profits at more than 2.5 times the pace of the S&P.

That's great. Okay. So we've got some good context there. Love to dig into my favorite hot sauce now, Cholula. I'll start back with Matt. Matt, can you share just a bit about the history of the transaction, how you came to own it and what the business looked like when you took ownership?

Of course. Cholula as it is your favorite hot sauce mine as well. Our job -- as I think before, our job is to partner with exceptional brands. And Cholula was -- when I was looking out at various categories that were exciting within the food and beverage world and a brand specifically within those categories, they were exciting Cholula had always risen to the top of my list. The hot sauce category in which it sits is advantaged in many ways by really long-lasting secular trends around adventurous eating flavor being kind of an advantaged global category, a lot of the health and wellness trends where hot sauce is kind of well aligned with, generally speaking, no fat, no calories, no carbohydrates. So, there are a number of reasons why the category was really sitting in a great spot and had been for many years. But then, Cholula in particular to me had always been a gem of an asset. And it was a business that I had proactively gone after to try to acquire the company for many, many years. It was a business that had been family-owned, incredible heritage, 3-generations-old family recipe, crafted in Mexico with Mexican peppers and distributed through -- initially through kind of the most authentic and most small batch versions of [ Taquerias ] in California and Texas when it started and really growing into a household name. Over the years -- over multiple years and many conversations with the family that controls Jose Cuervo, which is a publicly listed business in which Cholula was a subsidiary, over time we had built a good relationship and they ultimately chose to sell the business to us. No auction process, fully proprietary transaction, very much a partnership in all respects. I think they knew that we had a lot of passion for the business and we had good vision for what it could turn into. And for them, it was non-core; for Jose Cuervo, very powerful business selling spirits on a global basis. Cholula was a little bit of an afterthought for them. It's a small food business and it doesn't really fit with their strategy. So, quite rational and strategic of them to dispose off the asset. I think it was a perfect opportunity for us, for L Catterton, to take a brand that was on trend and growing and really bring more life and more vigor into it, even then what was already there. So when we acquired the business, good solid growth, very stable track record of that good solid growth, but not quite living up to its potential in terms of how big the brand could be and how many consumers that it could touch. So, our strategy was to carve the business out of Jose Cuervo, stand up a team to run the company on a standalone basis and then give it the resources and ambition and talent to really reach its potential. And that's exactly what we did. So when we bought the business, there was -- I can talk for a long time about Cholula. But most relevant to this conversation, there was a very interesting network of broker relationships that the company had. It was actually 49 different brokers who were representing the brand in different retailers. And any individual, one of those broker relationships, local firms, talented firms doing a nice job in their markets, but our view for the business was that it would benefit from the scale and benefit from a single voice and a single story and a single pitch being given to retailers more broadly to make sure that we could hone that pitch, refine that pitch, bring great fact-based selling to Cholula, but have one voice speaking to the entire broad market. So that was the -- that was kind of the basis for our work together with Advantage. And Dan, you're probably taking us down another path to answer more questions. So I'll just pause there, unless there's anything else you'd like me to cover.

Yes, it's great history and color. Great to learn that sort of behind-the-scenes picture. And you touched on some of the needs that you face to sort of carving this out without maybe a full infrastructure to start and then with a route to market that was a bit diffused in terms of those 49 brokers. What drew you, I guess, to Advantage and sort of how did you evaluate the landscape of partners that would be able to help you solve some of those problems?

Sure. The reputation -- so I had always understood Advantage to be a great firm and a great business for larger scale companies. And as we are starting to consider who we would consolidate -- with whom we've consolidate our brokers, Advantage is kind of the -- if you were to run top of mind awareness, I'm sure Advantage is the first when it comes to that question. But I do think there was -- at least in the back of my mind, there was always this thought of Advantage is great for $500 million, $1 billion, $2 billion businesses, but will they be able to drive the results for a smaller brand? Cholula is powerful business, but not a huge company from a revenue standpoint. So we kind of evaluated the full landscape of there are 3 or 4 traditional folks that you would think to talk with and we started to have those conversations. When it begin, actually a good component of this came from Tanya herself. And Tanya, if it's okay to tell a little bit of the story, Tanya reached out, in particular, to us and had heard about the business and heard about the deal and had a lot of, also similar to me, heart for the brand itself. And she and her team made it very clear that from the beginning, if we were to partner with Advantage that the amount of touch and love and effort that would go into that relationship would be significant and would give us a high degree of confidence in many ways that we'd be able to deliver on our growth targets. So from that standpoint, the consistency, the execution, I'm a big believer in this idea of promises made and promises kept, and I think that was an important component too. But ultimately there wasn't a whole lot of -- it was not a very difficult decision once we've been through the process, met the different players and had the ability to understand what Tanya and the team would be able to bring to the business.

Matt, I still remember that call like late yesterday. We were talking about our favorite flavors. And a couple days later, you sent the chilli garlic. And I remember I appreciated your transparency so much because Matt actually told me, I know you're great, I know you're the leader, I've heard a lot of wonderful things about how you execute, but I'm really afraid that we're going to get lost in your portfolio. And we talked about all of the ways and all of the processes that we have in the business to make sure that, that wouldn't happen. And we said to Matt, not only will we do a great job, we'll use this as a case study to really be able to prove out that you don't have to be a large brand for our process and our tools and our talent to work. So, I was very grateful to Matt for giving us the opportunity to really prove that and to prove that he can have the best of all the leader in the market and the attention that a brand of his size needed at the time to really get that really important work done. So, I remember that day, Matt, and I remember we've talked to a bit and I'm really glad it was successful.

Love this. So, one question I get a lot directly in engaging investors around Advantage is, what exactly do you do for clients? Really explain the sort of services and solutions because even as a consumer investor myself, it wasn't until we came public, visible to folks, not a value chain or supply chain that folks thought a lot about. So, maybe Tanya first and then over to Matt, can you talk about some of the key services and solutions that Advantage worked on without Catterton here?

Yes, absolutely. It started before that. We really had to think about how do we partner and drive immediate impact and results. And as Matt positioned his new management team, we knew we had to work really fast to help them win. And we started to work even before all of the programs were in place to share insights and we did a full opportunity assessment to really figure out exactly how we would drive sales once we took over the business. And we knew and believed that we needed to optimize sales and marketing operations. We need to enhance their consumer presence. So, the way that we really looked at this was as if it were almost a new brand launch. And that's how we as a team decided that we would approach this. So, Matt talked about the fact that they had a very large agency network. So, the first thing was, we had help work and partner to rapidly consolidate with very ambitious agenda. So, we worked fast and we made sure that we have all of the tools that we needed to really be able to go up and downstreams with customer touch points from distributors all the way through plans to drive growth at every single retailer. We knew that it was really important to have the whole organization laser-focused on driving growth and return on investment. And the first thing that we did was, we developed an opportunity assessment. And this assessment detail all the opportunities across all of the accounts and all of the segments across the top 7 Cholula SKUs. And as a result, we grew the business year-over-year by 147% on those plans. And we did it in a few key ways. One really important way was to engage the Advantage syndicated retail team in addition to the headquarter team to service all the stores, to verify distribution and it was pretty amazing because I said, we looked it like a new launch. We closed 1,300 voids in 60 days. So you can imagine how much sales that represents. We had top to top meetings at every key customer in the first 60 days with a very fast start program. We introduced display for impulse sales against major consumption events that we set up holiday entertaining and Super Bowl and March Madness and Cinco de Mayo. And then, we went to work on identifying distribution gaps to help drive the category growth. And one of the things that the team was really proud of was impacting about 6,000 stores in grocery and over 1,500 Walmarts for Super Bowl event blitz coverage. So we've really deployed all of the assets from both headquarter teams and category management teams, all the way out to be on the Street. And we grew the category, we grew displays by all of the metrics which we're pretty aggressively set by Matt and the Catterton team. We let them and we did it with a lot of passion. It was a lot of fun and all the way working to make sure that we really facilitated a very fast part so that Matt and the team could accomplish their objectives.

Yes. And Dan, what I would add to that, in particular -- so when I was evaluating this idea from the outside of the switch and our group and our management team as well, what really struck me about the Advantage model was, if I actually literally went back to my notes and was trying to understand some of the decision factors here, Advantage and Tanya and Dennis and the team, very strategic, very holistic and very fast. And I think those 3 components together are a pretty powerful model because being strategic about understanding where the business has been and therefore being able to assess the likely gaps from the outside is not easily done. But, I think having good pattern recognition from many other good situations that are similar in the past helps with that strategic nature. I think the holistic side of things in terms of everything from, as Tanya was saying, verifying distribution is really surprising to us about all of the distribution voids that are out there that we were able to quickly get after. Coming up with a little bit more forward thinking, elements of the brand strategy and of the distribution and promotional strategy around special events and shippers and end caps and the like, there is a really holistic approach that the team brought to table, which was different than where we were before. And then, speed is not to be lost in all this. We're going through a carve out. Momentum is everything in these situations. And we had -- I remember our full team, the Advantage team was up and running 14 days out from when we had signed our contract. And moved very quickly in that consolidation process. No time to waste in these transitions and handovers. And as Tanya said, the key customers -- getting to all of the key customers in the first 2 months was very important for us. So, I think, in terms of the specifics of the relationship and how it worked from -- really from the very beginning portion, there was a lot there. And then there is a piece which Tanya did not mention, which was, it's not the most exciting part of the whole game, but it is quite valuable to us. It's kind of the back-end side of the world. Whether this is about deductions, accounting and the like, that's important to us as we're standing up a brand because we didn't have a full-fledged team as we were moving through all this and the ability for Advantage to take on some of those relationships and some of those responsibilities, it meant that we didn't have to hire for those roles. And we could, in effect, outsource a number of those back-office functions that sit better candidly with Advantage anyway as we're trying to build the lean organization. So, I think that was another important part that I would kind of only thing, I would add to what Tanya went with this, but hopefully that's a good view of really all the different -- various skills that Advantage brought to the table.

Matt, that's an interesting point because that's something that we've talked about even as you're evaluating other deals and other private equity companies or evaluating deals. It makes it so much easier to sell something. I know that it's in good stable hands, when many of these functions that aren't core to the brand are outsourced. So, I'm glad you brought that up because I think that is a really important component part of our services. And I think the scale that provides not just the efficiency because it really isn't about just being less expensive, it's actually much more effective than you could do on your own. So, thanks for highlighting that.

Yes, of course. And I think it goes back to -- there is a question about what is each party's highest and best use. And as we're building a team and taking the brand and trying to really take a fire that's burning well, but there are a lot of logs on for that fire, that was our job and that was where we had an incredible leadership team at Cholula led by Maura Mottolese, who is our CEO and with a whole group of other incredible talents around them. Honestly for them, running the carve-out, repositioning the brand, understanding where the product portfolio needs to go, that's a great use of their time. And the fact that we had the ability to offload some of the more blocking and tackling side of the business, it just gives us the team more opportunity to focus on what they really should be highest and best used focusing on.

When something is unfolding this quickly, I love the emphasis on speed here. You sort of learn things along the way with their key moment to sort of aha or breakthrough that you discovered together that sort of guided the course?

Matt, you would like to take that one or you want me to?

Well, I think, one of the -- I'm happy to start and you'll have very different ones, I think, than I will. One of my big aha moments was when you think about -- again, I was a relative novice to understanding Advantage. And I understood a very important but very specific slice of what the business is. There are other components of the Advantage business which proved to be incredible for us honestly. There is a piece of the business called CSSI, which is a culinary -- almost culinary consulting business. And for a brand like Cholula which matters in retail, but it also is very importantly relies on the food service channel, having a partner like CSSI as we're going off and building limited time offers with fast casual chains and quick-serve chains, having a business that's -- kind of a team that's connected into the core of Advantage but brings a very consumer insights-driven, marketing-driven forward leaning kind of a viewpoint. To me that was something that I just didn't -- kind of I just didn't understand that about Advantage on the way in. So that was one surprising moment to me, surprising in a positive way. And then the other is that, and sorry Tanya for going too far down the road here, but I think that Advantage is willing to sign up to really big targets and put their money where their mouth was. I think it goes back to the confidence probably in their team. But I was surprised that someone who is willing to say, you will grow X, otherwise our economics will be disadvantaged. And obviously we overdelivered against that. But I think there is a lot of confidence in that. That was also, in a positive way, surprising to me.

Yes. We were very confident because we don't just look at a business and make up how we think it can grow. We look at all of the data and we have 3,000 clients that we hope to grow. And our job is to figure out how to help them grow every single day. So when we sign up for those ambitious growth targets, it's because we're very confident, understand the opportunity and do our homework in advance. And I remember, one of the things you asked about some of the aha moments for one of the places that we knew there was opportunity was the [ West ] to move ahead and start. But when we looked at the data and the analysis, we saw there was stagnation there. And seeing that made us with deeper SOI and we delivered a laser-focused plan to help strengthen the [ West ] and grow the rest of the US. And we know and knew that Cholula is an amazing brand and a great growth space. And the way that we looked at it was, we have the opportunity to outgrow up promising end-market and we set our goals at the very beginning like how do we take that brand, which was #5 at the time to the #2 slot behind Frank's. And I remember, Matt, when we first talked, we said we're going to surpass Tabasco and we did. We used the organizational resources we had to go against somebody who was to replace higher than us in ranking and we did it handily. And it was extra fun with us because Tabasco is and was with one of our major competitors. So, again, just building case studies to show the difference between as you take that data and get laser-focused on where the issues are and how you build the business is actually quite fun.

It's is always fun when you go from #5 to #2, yes.

Definitely true. Maybe Matt, back to you, sort of advancing the story a bit, which will have a lot of success very quickly with the brand and then engaging a top tier new owner in McCormick very committed to the category of great success since. Can you discuss just a bit more about that chapter with L Catterton and Advantage working to deliver to McCormick?

Of course. McCormick in an amazing business. And what Laurence and what the team have done and what they've continued to do, there is a reason why they trade at a premium multiple that they do. So we had -- as we had bought the business, I had always assumed in many ways that McCormick would be the ultimate owner of the company down the road. The brand -- the Cholula brand fits so well with what they do. It's also very interesting when you get into the data. You can see that the brands that the Frank's brand, which is what McCormick had acquired back in '17, I think, and the Cholula brand. When one promote, it doesn't really attack the other. So they're very complementary. They play in different price points. They play in different need states. They play in different -- there is kind of a condiment versus an ingredient approach, Cholula versus Frank's respectively. So it just felt like a really natural fit that McCormick would be the owner of the business. And we built a great relationship with Steve Moore, who is their head of M&A and Chris Wirth who is number 2 over -- really since the very beginning, since I think the first month that we had owned the business, that relationship had been growing and being nurtured. So, great to see the brands in their hands and succeeding. And from everything that I can tell from now unfortunately watching from the outside, it looks like the brand is continuing to perform and do quite well for them. But I think that McCormick, what they've done with Frank's, how they've been able to transition that brand from really a liquid business to a seasoning business to a food business as they're with frozen wings and the rest, I'm excited to see what they can do with Cholula and where they can take the brand.

Indeed. Tanya, anything from your end on the transition? Obviously Advantage continues to partner with McCormick as well. Can you comment on that?

Yes, absolutely will. As you said, transitions never go perfectly. I think that it goes back to what Matt said about speed. How do you course correct and obviously in a major consolidation, it requires over communication and yet to quickly dive into the details by account and assess as we talked about all the opportunities granularly. But as I think about the transition, the reason that it's been so smooth and the second transition is, Catterton was very buttoned up, really had everything in order, brought in a strong lean team to manage the brand and we resourced intensively throughout, as Matt talked about supplementing. And in preparation for sale, our merchandising group, our marketing group, our brand knowledge helped to release move the hand over. And as you can imagine, we were thrilled that a really important partner in the Advantage family, McCormick, and a team that we were very closely with and have a ton of respect for became the owner. And when Cholula joined the family, we were thrilled because we knew we would have the opportunity to continue to help drive growth at Cholula on behalf of McCormick. So, the transition went very, very well. It was a very well run machine by the time that Catterton filled the business. And the second transition to McCormick was much easier than the first transition where we essentially approached, it is a brand new launch with Matt and did all of the hard work to really prepare it for an amazing sale. So, it was really gratifying on a lot of levels and had a great outcome. And again, just so happy that it's still in the family, so we can still work on the business.

Definitely. Looking ahead, this obviously -- whole brand partnership, are there opportunities for L Catterton and Advantage to work together more often from here? How does each of you think about that?

Tanya, would you like to go or would like me to go?

You know what, I'll follow.

Okay. Yes, I think it's an easy question, Dan, having the relationship. It's always nice when your first experience together is as positive as this one was. So, from my perspective, I think that the Advantage model, both kind of core traditional advantage but also a lot of the other agencies and components of the business that are around the core, from my perspective, it's very easy. I think we will definitely work together again. I think, there are certain models that are better suited and others that are less suited. But over time, I would imagine that this will be one of many partnerships that L Catterton and Advantage do together.

Yes, I would agree. And I think it really just opened your aperture to what can our companies do together. And we've talked about even early on new acquisitions. They talked about the fact that, look, how are we so sure that we could meet the aggressive growth targets. But we were sure because we have the data and the analytics and the team and the insight and the experience to look at a brand even before it's bought to tell a partner like Catterton from our experience how successful that brand will be in the market. And we're used in that way many times a year from a variety of partners and when somebody like Catterton invite the business and we get very excited because we know they've got managerial courage. They know what levers needs to be pushed. They know they're buying brands that are on trend. And from our perspective, hopefully before announcements, but you can bet anytime we see an announcement where Matt or anyone from Catterton buys a business, will be on the phone, very quickly trying to figure out how we can add value because we're very confident we can do it and they really are great partners.

Thanks. And you probably won't be reading about it in the press. You'll hear it first from us anyway.

Thanks, Matt.

That's excellent. So, quite a large cohort of investors on with us today and love to sort of zoom out a bit. L Catterton and Advantage both have uniquely broad and deep perspectives on fast-moving consumer brand landscape. Start with Matt and then go over to Tanya just on some of the sort of themes and debates that are unfolding in the marketplace, I guess, FirstNet ad merchandise, not really fair to call it a house view, but maybe how are you personally thinking about the post-COVID landscape in the spaces that you're looking at, particularly sort of large versus small brands. Coming into COVID, small brands were driving more than 100% of industry growth, but then because of COVID and supply chains, large brands sort of took over again briefly. So how are we thinking about that? How we think about the return of innovation and the sustainability of a much more omnichannel mix and what that means for you?

Of course. From a -- I'll go kind of inside out on your question. I think, the -- in the heart of it all, there is a shift, an important generational shift that's happening with consumer brands. And as you look across categories from pasta sauce to fluid milk to ice cream to hot sauce and really almost every category out there, there is a very consistent trend in the breakfast and pancake category where we play that with Kodiak. There is a very clear trend where the brands that won in the '60s, '70s, '80s and '90s are less and less the brands that are winning going forward. And I think, in COVID, where supply chain and ability to deliver on time and in full was such an important driver of brands. A lot of the up and comer growth brands, some of whom self manufacturer, some of them co-man, they weren't able to be on shelf. And as you look at the way that the market and the categories evolved over COVID, you had a lot of these big brands who -- their strength and their skill set is really around fulfilling at scale and they did that job very well. And so, it's not surprising that you had smaller brands, growth of your brands who either were not quite as confident to put both feet down on the pedal or we're going through their own source of supply chain challenges, that share would have moved back for a 6, 12, 18-month period towards the larger names. I think if you hover up and you look at what's happening over the longer-term, health and wellness, this is not new news to anybody, but I think health and wellness is such an important long-lasting trend. And many of the -- kind of the heritage brands just aren't -- no fault of their own, they're just not equipped to win in those categories. And it's very tough to evolve a brand that hasn't stood for health and wellness into a brand that does so. So, I continue to believe that the challenger brands, the up and comers, the disruptors will go after systematically category by category. And this is my view and our collective view that those brands, the up and coming challenger brands, will continue to be taking share in the long-term. So I think that's a very important part of this, which we continue to invest behind. From a channel perspective, I -- again, this is -- you look at what happened to the e-commerce penetration within the grocery channel in particular. Late 2019, e-comm penetration in North America was around 4% to 5% of sales. So we're still -- it was an important channel, but small except for in certain very young niche urban segments. And then you fast forward to today and that 4% to 5% of sales through e-comm has reached north of 15% and coming approaching 20% of revenue that's moving through those channels. And you go back to China, which is another 10 full percentage points ahead of us, the world has made a permanent shift towards digital. And consumers have become very accustomed to building a basket on Instacart, building a basket on FreshDirect, ordering through Amazon, ordering through brand websites. And so, I think, the brands that are able to capitalize on that at scale and economically to be able to win through e-comm and win through digital commerce, I think those are brands that are advantaged in the long run as just fewer trips are going through grocery stores and more of those trips are happening online. And there is a whole, which we can get into if we have the time, but there is a whole crop of brands and of products and of categories that are even better suited to e-comm and digital commerce, and there are others that are less suited. But I think for us to be investing behind those brands, products and categories that are suited towards digital commerce, it's a huge opportunity that we're excited about going forward.

Interesting. Lots of open-ended opportunity in this change. Maybe over to you, Tanya. Different set of hard button topics, bit more on the front lines of kind of immediate headlines, maybe Advantage's perspective on inflation, pricing and supply chain, really things that a lot of our clients -- we're helping a lot of our clients navigate day-to-day.

Just a few little topics, right. Those are the hard button topics. I think you hit the mall and we do have a pretty solid real-time take on these turbulent dynamics across all consumer categories and sizes and retailers in every channel as we're really seeing it all. I think, maybe on the setback, there are a few highlights from our latest soon-to-be-released quarterly survey that shed some more light on consumer demand trends and what we're seeing. And it's just validating what we believe about pricing and e-commerce trends, supply chains and innovation. So, first, retailers and manufacturers now expect 2 more quarters of year-on-year growth in at-home demand, which is up quite a bit from last quarter's survey. Price hikes are happening with multiple rounds of list pricing bounce with average hikes from about 6% to 10% and pricing alone is offsetting commodities at only half of our clients today. 75% the respondents of our survey expect to change their approach to trade promotion post-COVID, that's I think an important trend. Old ways of working just aren't working. So I think everybody can expect more to come on that. I know you're passionate about our investment and our partnership with Eversight and we believe that's an interesting way to really get under that and maybe ask some questions on that later. Also, e-commerce gains from COVID are being sustained and we're not seeing them as cannibalistic to bricks and mortar demand and certainly not what we thought before. Supply chain challenges just won't be a surprise to anybody continue in-sourcing and manufacturing and transportation. And I think everybody can just expect more catch-up investment to add flexibility from here. And then finally, there is little change expected in how innovation is tackled. We're not sure that's the right answer. I think I mentioned that before. Fewer bigger innovation seem like the best platform here. We've had about a year-and-a-half of limited product news and innovation in sector M&A, so I believe the industry is hungry for it and I think speed wins here. We're seeing signs of that returning, but it's still slow and selective and it feels like rifle shots rather than shotgun blasts. Drilling down just a little bit into the real-time state of play on pricing, which I know is very interesting to investors. We get a lot of questions around that. There is truly record-high pricing intend to out there and record-high pricing need given the unprecedented commodity-driven inflation. I'd say, the one yellow flag out there and we've talked about this before, is there is relatively low pricing experience among revenue management teams out there. They just haven't been through cycle where they've had to take price so that muscle memory of taking price isn't a well honed skill just across the landscape. So, teams that are really good at that and pursue that with speed and experience I think really stand out. And I think it's a very similar to investors that haven't seen a whole market cycle. Everybody is navigating new territory. In order to get to bright, I think we'll need to see brave rounds of additional pricing that are informed by strong analytics and support. And tying back to promotion, we expect more surgical promotions as smarter and sharper promotions will align better with still fragile supply chain and product availability and it will create some funding to support nascent retail media network. And we've also taken price in a majority of our own business most impacted by labor inflation with average increases of mid-to-high single digits and that's just the new reality in the world.

Bumpy times, for sure.

It's not so for sure.

Exactly. But as we've often pointed out, I think times have changed for opportunities to create win-wins that ideally we can help with. I've got a couple of questions from investors. I want to make sure we allocate time to that. First, I think, goes over to Matt. In describing the investment approach of Catterton, this investor suspects you didn't quite reveal the secret sauce and I don't expect you to. But, I guess, the point that they're making is lots of folks can identify attractive categories, channels, and geographies. It doesn't necessarily yield an actual outcome. It really comes down to sort of how you own an asset and how you execute. So, could you say a bit more about how you've become the leading investor in brands by buying in what are arguably contested growth spaces so successfully?

I can reveal a portion of it, but it's actually it's funny because it's very simple. We invest in powerful brands in advantaged categories and we recruit incredible talent into those businesses. That really is the story of Cholula in a nutshell, right. Beautiful brand, beloved product, incredible category and we were able to bring in really the kind of the cream of the crop when it comes to our CEO, Maura; our CFO, who is Mike Nathenson; our CMO -- Mike Nathenson was the CFO of Blue Buffalo; our CMO, Miguel Leal, who is the CMO of KIND; our Head of Sales was Terry Bigham, who is the Head of Sales for Tate's Cookies -- Tate's Bake Shop. We have the ability to bring incredible talent, partially because of the brand and partially because of the reputation that I think I'll cater to and enjoys which is trust and partnership and vision and ambition in a lot of those things. So, it sounds perhaps overly simplified, but powerful brands, beloved product, Advantage categories with great talent. It's a great recipe for us and it's one that will -- that we've continued to win with over time and we will, I believe, win with going forward.

Got it. Makes sense. So, one, over to Tanya. Tanya, you make kick about to me just for a little context, but we did get a question about in addition to pricing the need to get sharper about trade promotions. The question is sort of framed as, is it finally going to happen now? Obviously this has been speculated about needed for decades, speculated about for at least 7 years. Is post-COVID the time to unlock more discipline in science and in this space?

I certainly love the way the question has been asked. And I do think the time is now and I think that you can really make case. This is a unique time, very different as you're coming out of COVID where the people again share with the people that we're in stock. And you look at the long-term implications of that for brands. And again, it's almost a new day to look at how do I invest against what grew, how do I invest against what didn't grow and how do I target competitors who either grew more than their fair share or get rid of ones that really weren't in stock and did poorly. So, I think in laser-focused promotion in a different way. Now is the time and I think -- Dan, I know you're passionate about this, so if you could just share a little bit more about how we're engaging in the case for change, that would be fantastic.

Sure. So, as some folks on the phone may know, we have a fairly novel partnership with what we think of as best in planet technology in the space company called Eversight out of Silicon Valley. We've made an equity investment and part in unlimited seat license to use on behalf of our 3,000 client base, to try to pioneer a new way of offer innovation which the software that Eversight has developed provides and a new way of after implementation, which the Advantage army enables. So, this is a solution that's been in place in the market evolving for about 8 years. A great time right now given COVID with a period of very low promotions, very little history to rely on. And the present has inflation in pricing and promotion needs that are somewhat unprecedented. So, we've got a solution that allows us to test real offers in real-time with real consumers in the digital space and then with a super-high correlation put those on shelf for lift. And just as a preview of stuff, we'll be sharing more with investors as we go. For our pilot clients, the average revenue lift from the best performing digital offer is 15% to 20% revenue lift against the previous best performing offer the company had found. So, quite meaningful, 5 to 10 times category growth in some cases from the solution and the team in Advantage that does present every winning offer to the field and already know sort of retailer promotional guidelines in advance, essentially a cheat sheet to make sure these land on shelves and create win-win solutions for CPGs and retailers. So, we do think it's exciting stuff. My answer to that I guess would be, yes, it may be now for this $200 billion of unoptimized spend in between gross and net and we do think the unlock is a combination of a technology solution and the heavy lifting that someone at our scale can uniquely provide. I'll go back into question mode now. A quick one -- another one maybe for Matt. This is -- you may not have a crystal ball to answer this, but love your perspective. So, we saw a shift during COVID kind of upper price tier, private label to value, value to maintain premium. And, because we're stuck at home, we want to treat ourselves a little better. We're not doing as much away from home, which is much more expensive than any of those tiers. The question folks have is, I guess, does that sustain? Is there a reason to believe that we've got some sort of nesting instinct and sort of purchasing behavior that will persist at a more premium price level from here in many categories?

It's a great question. And obviously absent some sort of a crystal ball, I think there are a couple of reasons to believe underneath it -- underneath some of these trends, which would support bit more long-lasting continuation of them. Ultimately, it all comes back to the work-from-home model and the hybrid work model. And when you think about the number of days per week that anybody would be working from the office versus from home, think about the large companies like Microsoft and Spotify and Adobe and Apple and others who are allowing their employees to work from home, I think you end up with a lot of occasions whether they're restaurant occasions or drinking occasions or coffee occasions that will be consuming from the home and you a have long-term trend of premiumization that is at play, right. Prego turns to Rayos, and ships to Hawaii turns to tapes, and Folgers becomes [ Wakin' up Club ]. And so, you have this kind of long-term trading up whereas consumers have raised their expectations for a product. Now they're trapped in their home more, they're able to experience the idea that everyone is a foodie and the like. They're having more of those experiences in their home and I think that provides great support and lasting support for the premiumization of a number of these categories over time. So, long-term, I do believe that there are a number of different consumer segments and different brands. Whether it's private label or entry level brands or premium brands, they each have a reason to exist. But I think the long-term march, the way that price has grown, the way that consumer sophistication has grown, a lot of those are supportive of really nice sustained growth in the premium and kind of moving up among those segments over time. So I'm a believer in it personally.

I tend to agree with you. Does something like rouse suggested it is likely to take place in a smaller and mid-size firm disruptively, maybe eventually acquired by a large firm rather than premiumized or created from the large guys?

I think, a great question. I think the model -- to me, a relevant model for this is what's happened in pharmaceuticals. The large pharma businesses over time have decreased their percent of spend on R&D pretty significantly. And for them, it makes more sense to not to grow the new medications and brands and trials themselves, but to go out and acquire after these products have proven kind of a product market fit. I think you're seeing a lot of the same ideas happening in the consumer space as well where food companies and beverage companies, they are more set up to operate scaled brands. And their teams aren't resourced to launch venture-ish investments because -- in early-stage companies because it's just too small to move the needle for them at those stages. So, I think that the idea for larger CPG to be continually acquiring small to mid-sized brands, high growth to small-to-mid sized brands, to me that's a very clear path forward. Just when you think about the skill sets and where Pepsi is great versus where health warrior is great, as an example. It's a good fit because Pepsi didn't create that brand, but they are a great home for it over time. So yes, I'm a believer that the large CPG will continue to tuck-in and make these kinds of acquisitions because it enables them to not worry about the risk of starting something from scratch, but have the ability to plug a nice high-growth brand into their system and get more out of it.

Leveraging their strengths, understood. Okay. One more from investors and then maybe time for closing comments. Just one for Tanya. So, we lost a key part of the marketing mix during COVID, sampling and demonstration, late dormant as an in-person activity. Then somewhat slow to return, how are we confident that consumers aren't going to be happy without it?

Yes, that's a great question. Well, we're very confident because it's an essential part of the mix for retailers and for CPG brands and importantly for consumers who really still expect and want to see those products. Especially, you know the core format where customers almost demand that if you come across an isle in certain retailers and you don't see a sample and a person there behind the cart, that's actually very concerning to shoppers and retailers know this. I think one of my favorite quotes early in the pandemic was, you can take my husband, but don't take away my samples. And that was in relation to their experience inside a Costco when they went in and sampling wasn't there. So we had all kinds of funny cartoons about that. But on a serious note, demo is a critically important tactic for trial, an important part of the marketing mix. And I think we talked about innovation. There is a pent-up demand for innovation and trial and demo supports that across all channels. So, if you think about where we are today in demo, the constraint is not demand. Labor supply and product availability, those are the issues. And yes, those are real issues that we are dealing with in real time, but the most important thing is the demand is there, brands need it, consumers want it, retailers want to provide it as part of the in-store experience and then maybe equally important to all of those things is the return on investment is there on the tactic of sampling, which is very key.

Yes. And Tanya, just add-on to that. I think there is -- you kind of mentioned the consumer that the brand and the retailers, the constituents here. When you think about the consumer demand for, there is no question that's there. I think about from a brand standpoint, you have brands out there, whether they're carotene backed or backed by others or entrepreneurially owned, whatever it is. Those brands have ambition and they have products that they believe are groundbreaking and innovative and desirable. And so, the instinct of those brands, the upstart brands of the world, is to get their products into people's hands, to get them into people's mouths, to get them in the people's shopping carts. It's very difficult -- when you look at a piece of jewelry, when you look at something in the apparel world, footwear, you can understand what that product is like, having never experienced it, just by seeing it on the screen. And food is different. There is a call about Cholula. So, for those of you that haven't tried Cholula, I can do everything in my power and our incredible -- the best marketers in the world can do everything in their power, but until you experience or until you taste it, you can't possibly understand what it is. And so, I think that there is always going to be -- for as long as there is innovation and as long as there are brands that are pushing the envelope and creating new exciting innovative products, I think the sampling side of the world is incredibly important lever that probably absent public health restrictions that cause it to not work is an important part of the mix in perpetuity. I think it's really important.

Absolutely. And we all need to taste and try it, so an experiential world and I think that's really important for sharing that.

That's great perspective. Okay. We're just about up against the hour. Covered a lot of ground. As always, folks, investors, please reach out with questions about the ecosystem that we're also looking at and serving together or investing in together and also about Advantage. Any closing comments from you, Matt, or you, Tanya?

I just want to say, Matt, as always it's really great and lots of time to chat with you about the industry and the business. We're not used to doing it in front of 50 or so people, but I really enjoyed the time together. And I hope just hearing the inside perspective was helpful to our investors and anyone else on the line, but I really enjoyed our time together as always and really thank you for that.

My pleasure. And enjoyed as I always do catching up with you. And also, on behalf of the Cholula management team and really on behalf of L Catterton, thank you to you, Tanya, to Dennis, to the rest of the team who helped drive this forward because it was a great outcome for us and we owe a lot of it to you.

Thanks so much. Well, thank you, everybody. Have a great rest of the day and take care.

Thank you. Bye-bye.