Albertsons Companies, Inc. (ACI) Earnings Call Transcript & Summary

Good day, everyone. I'm Simeon Gutman, Morgan Stanley's hardline, broadline and food retail analyst. It is my pleasure to welcome you to -- this is day 3 of Morgan Stanley's Global Consumer and Retail Conference. As you can tell, I'm on the streets of New York, we wish, at our headquarters. It's my pleasure to host this fireside -- this virtual fireside chat with Albertsons Inc. And I'm -- it's my pleasure to be with President and CEO, Vivek Sankaran. I'm going to read a quick disclaimer, and then I'm going to turn it over to Vivek for some introductory overview remarks before we get into back and forth. Please know that there is a side-by-side webcast, which I have on screen 2 for your good questions. I see actually a couple of questions have already come in. So feel free to bring them on, and then I will insert them into the conversation where and when appropriate. The disclaimer. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. That's it. Thank you, and turn it over to you, Vivek.

Thanks, Simeon, and everybody, good afternoon. Thank you so much for sparing the time for me here. I just wanted to start and provide a little bit of context on our transformation, remind you of some of the themes that we have. I am excited, we are incredibly excited, about the future at the Albertsons Companies. As I've mentioned before, we're gaining market share. We're adding and retaining customers. It is clear to us that they're consolidating spend with us. They're engaging more online and engaging in our loyalty program, all of which drives stickiness from every metric that we've seen. You've seen our performance over the last few quarters. It's been robust. And it just gives me confidence that our transformation itself is working. And that transformation is along 4 themes. First and foremost is about running great stores. We know that, that's the core of the business. It's what generates the cash in the business. And that's about being safe and well-stocked; great emphasis on fresh, which is matter -- which matters even more today as people eat more at home; the expansion of our own brand portfolio; very targeted remodels that give us a return every time we do it; and expansion into things like meals as we know people are going to remain and eat more meals at home, in our opinion, as we go forward. Second is accelerating our eCommerce agenda. It was something that we were behind on. If you go back into early 2019, in the pandemic, we have done in a few months what would have taken years to do. It is expanding rapidly. And we're adding a lot of customers with it, but we still have headroom, where as of quarter 2, we were only 950 stores with Drive Up & Go. We can get to -- we'll get to 1,400 by this fiscal and 1,800 soon after. So we're excited about what we are doing there and excited about the micro fulfillment centers that we have in a couple of our locations. The third priority of the transformation is driving productivity. And I want to reiterate for you that while a lot of these productivity initiatives are new to us, it's not new to the world or the industry. And we're doing a lot of things there. The productivity agenda is going well. We feel concentrated about delivering that $1 billion. And it's central to our strategy of finding this money and reinvesting it back into growth. And the fourth pillar is about our talent and culture. It's the culture that is nimble and fast. It celebrates being extremely local yet, at the same time, harnessing scale where we need to, in how we buy, in leveraging technology, launching things like eCommerce and a loyalty program. We've added a lot of talent to the company in critical places, moved talent within the company into critical roles. And part of our cultural transformation is to continue to do what we do with our communities. I'll just close with this, that you've seen us do various things with capital. Our capital allocation strategy is pretty straightforward. First, and always into growth and productivity to generate more performance in the business. Second is to continue to make sure we live up to our dividend commitments, paying down debt as part of our algorithm and returning cash to shareholders like you saw with the buyback. And I just want to close with this, that we are excited about the transformation. I look forward to discussing this and many more things with you, Simeon.

Thanks for that intro. You preempted a couple of topics that we're going to touch on.

So my first question, you've suggested, and I think you said it in the intro, that food at home will likely continue to take share from food away from home. I know you don't have a crystal ball, but you probably have a planning process or a thought process for how long could this occur. Is there an internal view when these 2 get back into, I guess, pre-pandemic levels?

Yes. So Simeon, I'll -- look, I don't have a crystal ball, but we can look at history, right? And I look at the 2010 to 2020 era of this shift from at home to away from home. And it shifted, depending on what literature you read, between 8 and 10 points of market share. So that's 80 bps to 100 bps a year of shift from home to away from home. I'll remind you though, it was in one of the best economic expansions we've had. And when I was in the CPG world, we -- all we talked about was this on-the-go. Everything was on-the-go. Let's flip it and look at what's going on now. I think the forces are different. One, we are in a recession. And we can all debate how long it will last, but it's a couple of years to 4 years, 5 years, but it could last. Second, instead of on-the-go, we -- now the chatter is there about work from home. right? So you have 2 different forces on consumption. And what I remind people is not a whole lot has to shift. If 2 lunches shift, that's 2 out of 21 units of meals that shift into the home. That's substantial. It's a $1.6 trillion market. That's a very substantial shift, which is why I feel this is going to last. And I could be wrong. Maybe we'll all rush out and eat at restaurants immediately, but those changes tend to be more gradual than in the past.

Yes, that's fair. I mean, thinking about it practically, there is probably some pent-up desire for people to go out. And on some of the webcasts we were on yesterday, with -- I think it was some home furnishing companies who are also benefiting from the current period. They talked about these vacations and other things that people aren't wanting to go out. So I think -- look, I think it's analytical the way you've broken it down. I don't think anybody truly knows, and I think there's got to be some stickiness. So I think that's fair. Can I ask you what, if any, positive changes has this COVID backdrop brought to Albertsons? And then what, if anything, has been delayed?

Yes, man, it's tough putting the word positive in COVID. COVID sucks, right? I mean, it just sucks. Period. Full stop. And we all want to get back to something different. If I reflect on what's different with us, though, is I think we're seeing more customers coming to our franchise. But the more exciting thing there is that customers who were with us are engaged in more of our franchise. By that, I mean in more categories. They're shopping the whole store, which is good, right? It is ratified -- I always believe that we have a strength in fresh, and it's not just the quality of fresh, but it's the variety and depth in fresh, that you can finish everything you want in fresh in our store, and then you can get everything else. I think it's ratified that. Our fresh share gains are higher than our average, which is a big deal, right? It's helped us create this, been a catalyst for a step-change in omnichannel. It's amazing how much we can get done when you are under pressure and you're forced to do it. And it's been a fantastic catalyst for us. And it's also we are a culture that's very local but also at scale. And it's allowed for us to adapt very locally. I still think some of the gains in market share we've got now are because of our ability to remain supplied. And our ability to remain supplied is about our ability to solve things locally, and that's helping. So it's helped us on a number of those dimensions. The last thing I'll leave you with is you always do the theoretical calculation on: If you got more volume, will you get -- will it flow through and will you leverage your P&L? That's a theory. We saw it in reality. And the volumes have come through, and we've leveraged that P&L gives us tremendous leverage in the Albertsons P&L.

Yes. I think you and your business, I mean, has been put through the ultimate stress test. So I think that's...

That's right

And you passed. So you mentioned share gain in the prior answer, and you've taken a lot of share versus the industry and even it looks like against conventional peers. You gave some thought on what you attributed -- that would have been my question, what do you attribute it to? And then how do you dissect your positioning? And from the structural advantage that you have as sort of a one-stop shop, conveniently located grocer.

I think that -- I think the 2 things you said, the one-stop shop, conveniently located, matters a lot. But it's -- you have to look at that in concert with the fresh portfolio that we offer and the completeness of the fresh portfolio we offer. So here's how I imagine it, Simeon. If you have a conveniently located store which is really good at fresh, and you can complete your basket when you don't want to go very often, and why wouldn't you just shop there? So I think it's that combination of things that are happening. I'll give you -- we just ran through some numbers recently, and these people are cooking at home and eating more at home, and they're also buying better-quality stuff. For example, we have our prime cuts of beef are selling significantly more, right? Wines over $100 is up 90%. We're selling more crustaceans, lobster and such. So I think you're finding people staying at home looking for that stuff that they might typically get at a restaurant, and we provide that variety.

So one of the, I think, most pervasive themes among retailers, and I can tell at this conference, has been share retention or customer stickiness. And I have this written out. I'm not going to need to, but I think you know where I'm going. And the question is, a lot of companies think they're going to be able to retain and they're going to do what they can at all costs to make -- not at all costs, but to retain as much as possible. Is that possible? Everyone is going to be going after. And then what are the KPIs you look at that give you confidence? And I don't know what assumptions you can build around or you can share with us on how you think about retaining the customers you picked up this year.

Yes. So the good news is that we can identify the households. And so we are tracking households. We know the households that have expanded. We know the households that are retrenching. And so we can track them. And what we do, and we've started those programs already. I told you one of the most exciting things is that we have households that have expanded into other categories. So you're engaged in laundry now and you were not engaged in laundry before. Our challenge is to keep you engaged in laundry so that we can target these promotions, innovations, et cetera, so that we keep you engaged in laundry. That's the approach that we are taking. And we track all of those metrics, right, in our loyalty program by market, by category. And it's not clear to me. I think -- it's not clear to me that people would return to the old habit. I don't think 2019 is anything magical. I think people are going to adopt and have some new habits. And I believe that, if you believe that some more eating at home sticks, then you also have to believe that people are going to be buying more of the fresh portfolio, meal solutions and such so they can eat better at home, and that will give us an advantage.

Great. Maybe switching gears. I'm going to open the door to eCommerce. And then as a sort of a preface also, I'm going to slowly ease into talking about margins. But first, let's talk about eCommerce. The capabilities that you wish you had or that you had better built coming into this year? Which capability have you been most thankful during this COVID period? And looking ahead, has your e-commerce strategy changed at all?

Yes. I wish we had, had more capacity coming into this pandemic, I mean, bottom line, we were nowhere where we needed to be to accommodate the amount of volume we had. And so there's upside in our business from a capacity standpoint. And the capacity is not just about people, the capacity is about more sophisticated picking algorithms and so on and so forth, the infrastructure that we needed for Drive Up & Go and all of that. So that's the -- but what happened, happened. And we have massively expanded that capacity. Let me frame for you our eCommerce strategy, right? I -- first thing is that our strategy is centered around the stores, Simeon. It is the -- our stores, our banners have been around for a long time. So we've got fantastic locations close to where people live. So if you have a location close to where people live, you've got a better last mile problem -- the smaller last mile problem to solve, whether the customer is coming or you're going, right? The second thing is our stores curate assortment, and we don't want to compromise that curated assortment for the customers who shop in that neighborhood. And we spend a lot of time curating assortment, so we want our e-commerce strategy to leverage that curated assortment. And so that's the principle. And 2 things that we see growing fast for us. One is Drive Up & Go, tremendous growth in Drive Up & Go. And the other side of the coin, we think, will last in eCommerce is shorter delivery cycle. So we are experimenting both our first-party and third-party. Third-party already provides shorter delivery cycles. We're also developing short delivery cycles in the first party. Because in both Drive Up & Go and in short delivery cycles, the customer's in a better control. So if it's store-based curation, Drive Up & Go and shorter delivery cycles, then what's the magic to get more productivity? We like MFCs. The MFC doesn't compromise curation. It doesn't compromise short delivery windows, and that gives you the productivity. So that's how we have engineered our model on the and the strategy. And we'll continue to evolve it because we want to bring to customers all the customization we can do in our stores today.

I'm going to touch on the MFC in a second. I want to ask you this. And I know you've been in the CPG world for a long time. I've covered the supermarket since the very early 2000s. And back then, the change factor was the Walmart Supercenter. Then we've had some other change factors in between, a lot of it on pricing, but not really fulfillment and the way the supply chain seems to be changing. There was a little bit of Aldi, Lidl hype. And now into I think this arrow of eCommerce. And it feels like the next 3 to 5 years, we're going to see maybe more change than we've seen in the prior. So I'm curious if we can look forward a few years. Do you think the business will look profoundly different in terms of supply chain and capabilities? And then how? In what ways?

Yes. I do think eCommerce penetration will be higher. So I think it's pulled up a couple of years, 2 to 3 years, the penetration itself. So that's number one. I think because of that, I think all of us, we are going to find a way to optimize the full supply chain, from the CPG to the customer. I think you'll find all of us in the next 5 years thinking about different ways to solve that problem, right? And it doesn't always have to be destination-to-store and store-to-customer, et cetera. So I think you'll find more innovation on the supply chain. I think you'll find us -- I think we'll adapt differently. Some of us with a much bigger fresh portfolio. Probably, we'll get into the meals business -- we will. We are going to get into the meals business and such so that we can have alternative solutions for the customer, right? So that -- because I think the -- I think you'll see more of the restaurant business and the supermarket business converging, frankly, because when you order a meal delivered at home, you don't know where it's coming from, you don't care where it's coming from. And so those are types of changes I see coming up, Simeon, that would alter it, but at the same time, still leverage what supermarkets have as some of the equities in fresh.

And at that point, I mean, you think you'll still be using third-party fulfillers, people picking in the store? I mean, will drones be part of your last mile? Some of those things. I don't know if we'll be quite at autonomous yet, but what are some of those other, more radical things? And just to preface, the next question will be about MFC. So thinking more about fulfillment drivers.

Yes. We haven't got to the drones part of it yet, Simeon, but I can tell you that we believe in having a strong first-party business. When I say first-party business, we pick, we put it in the car, we deliver, et cetera. And we're committed to building it. And then we're going to have partners because the -- I think you will find the third parties adding value and being part of the ecosystem. And so we're going to end up with both, okay, without a question. And we will try different things. For example, today, we have a delivery system that I think is -- it's good, but it's a refrigerated truck that does a longer distance, et cetera. We're going to try different things, smaller models for something that's more rapid. I think you'll find a lot of experimentation on the last mile. But my personal belief is that the last mile will -- there will be plenty of options available to solve for the last mile from those providers who consolidate and are getting economies of scale in the last mile beyond grocery. They could be delivering meals. They could be giving people rides. They could be picking up groceries.

Great. Okay. And so this is a transition maybe into the MFCs. I guess there's a lot of excitement, and you've been, I'd say, more vocal and public about speaking about them than others. At what point do you think they could be a needle-mover for the P&L? And I'm curious what the experience has been. I know -- I think it's just a couple at this point, but what's the experience? Are they -- in theory, they should drive the marginal cost of picking to very little, to almost 0. Are they -- are the sort of the proof or the use case playing out thus far?

Yes. So we track -- there's 2 things that you track in an MFC. One is you track the picking cost and the picking productivity of the machine itself. And so you have to visually imagine there's that machine. Then there is the products that you arrange in the periphery of that same area, a frozen product, some perishables that won't fit well in an MFC and so on. And then there's the tail that you go into the store for. So first, you optimize the machine. What do you put in it so you get the max productivity? Second, you think about what assortment to put here so that you're, again, maximizing pick productivity per order. And then how do you batch what you put into the store and pick from the store? And that's -- we've been at it for a year. So we've come down the cost curve, not only of the optimized machine, but of the optimized order, and that's coming down nicely. I'm thinking that by this time next year, we have got to a point in that cost curve where we're like, "Great. You want to -- want an eCommerce order in the MFC? Fine. You want to come shop the store? Fine," right? So -- because once you think about that, then you don't have the check lane and you're not worrying about the check lane manager. You're not handling product 3 times like we do with [ Doug ]. Those are the economies of -- the trade-offs that you end up making with an MFC, which is why we're excited about it.

And can an individual MFC, is it a certain amount of volume threshold? Or is it a radius of consumers and the speed at which the product can get there? And the reason I'm asking is still a relatively new topic, but thinking about whether you need either like a mega-MFC, which is an oxymoron, but whether you need a few of these large-scale centers that could feed into small ones? Or the beauty of these MFCs are that they are close, and therefore, it's about speed.

Yes. So the answer to that is both. So the way you think of the current configuration, so I'll get into your -- you're asking a very interesting question. It goes back to how do you think about the overall supply chain from CPG or farm to customer. But in the more -- in the near future, what you're looking at is you put an MFC that covers, say, half a dozen stores. The better the density, the better the coverage, right? So the MFC model doesn't work in widespread -- it won't work in Montana, okay? Works in San Francisco. And so that's the constraint. Now the bigger MFCs, et cetera, we're thinking of those ideas. Right now, our priority is to roll these out and try a different configuration. So one is right next to a store. Another one we are going to try is putting it -- when one is in the store, another one, we're going to put it next to a store. And the technology is changing, Simeon. The nice thing about MFC is it's extremely modular. The MFC that we're going to put in this year is significantly advanced from the one we talked about and installed last year. The one 2 years from now will be even more advanced. In what ways? Software, robot technology and the physical configuration that you can adapt and the ability to put frozen in it. It's all changing. So the sixth, seventh, eighth will get new adaptations of it, which is why we'll be able to play with other models.

Perfect. Transitioning out of eCommerce and fulfillment, I want to talk about promotional strategy. We do have a question from the webcast that's similar. I'll read the webcast question, I'll just tie anything else in. But the outlook for the promotional environment in '21, what would move it up and down, and the impact to gross margin? And maybe as a corollary to that, I was going to ask if you could walk us through some of the strategy around promotions in 2020. And where do you sort of think, assess where your level of promotionality is today versus where you were at the early part of the year?

Yes. Yes. So I'm going to start with how we were thinking about promotions even before coming into the pandemic. If you track some of the things that you'll see in our divisions, you will see that we went from -- in many divisions, we went from maybe an 8-page flyer to a 4-page flyer, right? I mean, that's just the physical manifestation of what we are doing. And that was all part of the journey to become sharper at our promotions with the use of data and with technology, that the merchants can use in our divisions and say, "Hey, that promotion is not a good idea. Don't do it. Double down on this one," so on and so forth. So we were in that journey. Through the pandemic, we have -- we had to pull back anyway because of supply/demand imbalances. And you just couldn't promote the way we were doing in the past. So you've seen that pull back. But during this pandemic, we've also rolled out this capability very widely, this ability to be very smart about the promotion. The other thing we're doing is more of our promotions keep going digitally. So in a banner like Shaw's, you'll see us now that you'll find a really deep promotion on an item. The only way you get that promotion is if you engage in Just for U. And once you engage in Just for U, you get promotions that are tailored just for you. And so it's a nice way of being extremely targeted. And the more you engage in it, the more we understand what you're looking for. So I -- from our standpoint, we will see the promotions becoming smarter. It's not about scale, it's about being smart and targeted as we go forward. The truth is, I think many large retailers have that same capability. My prediction is that's the way you're going to see promotions coming into the market as you come out of the pandemic.

And as a follow-up to that, you've sat on both sides, on the CPG side, now on the retail side. You have -- you've seen how, let's say, lower markdowns have -- or lower promotionality has helped the gross margin on your side. I guess, is there -- does that give you some confidence around what can be retained? And do you think, and I'll put it broadly as an industry, the food retail industry can see an overall healthier level of gross margin more sustainably as a result of some of the lessons that are learned this year?

Simeon, the entire industry for years has always known that we waste a lot of dollars with inefficient promotions. Full stop. Period. Right? We've never had the technology and the ability to manage the data at that scale and make it user-friendly for day to week to week decisions to optimize it. But we're there. That's there. So to me, I think you'll find for this, we're getting into an era where promotions will be better managed across the value chain. And I know we all need it. We should take that and invest it in innovation. We should be taking that and giving it to customers with more variety, whatever. But there are other ways to spend that money for the benefit of the customers and the companies. That's what I imagine happening.

Right. And I think this year, right, and I'm making this up. But in household chemicals, for example, you weren't going to run a buy 3, get 1 free, I mean, if you can get those -- all those products in stock and you wouldn't want to create a rush on those items. I guess those type of things may not return for a while or it will be smarter in the way CPG manages it to you and that the way that the retailer manages whatever discounting or markdown process that there is.

That would be a good outcome for the entire industry if we go forward and still give value to our customer.

Is it realistic?

I think it's possible. I really think it's possible. I can't speak for our overall industry behavior, but we've all got the ingredients to -- with the technology to do it right.

Great. Okay. Maybe transitioning to the financial model. And then there's a couple of questions around capital allocation in the webcast which we'll get to. First, so the key piece to the Albertsons investment thesis is ability to generate productivity savings which can drive margin expansion, at least on the operating income line. How are you tracking to your goal so far? And what would you say to those who say that there's too much competition and expense pressure for this food retailer to grow its margins?

Yes. So let's take the pieces separately. First, if we talk about productivity, I come from a background from very efficient companies where productivity never ended, okay? So I just believe that the productivity bucket is limitless, number one. The productivity agenda that we have is a productivity agenda that is -- that's doing things that others have already done, right? So we are consolidating buys. We are buying grocery bags together. We are putting ordering systems in that we didn't have, many others have that. So I feel very good about the first wave of productivity that we have talked about, the $1 billion, and things are going just fine. Now there was a little bit of a gap during the first early days of COVID on anything that required physical contact for training and such, but it's going just fine. So we'll continue to do that. The other piece of what drives our bottom line margin is that -- is the volume we're putting through the system, right? So -- and I told you about the leverage that it gives us. We've learned now that we can leverage that P&L incredibly well. And so the higher the volume going through the system without -- because we're not adding a lot of square footage and the costs are not going up linearly, that drives higher EBITDA margins. So will we stay where we are at the current number? I don't know. But what -- are we going to be kind of where we were before, pre-pandemic? I don't think so because we're going to get more volume to the system and the productivity agenda still remains. I don't know if that helps you think about the triangulation there.

Yes, it does. And maybe can you expand a little bit on the productivity agenda? And are these blocking, tackling? Things that are low-hanging as you invest in, let's say, technology, maybe shared services? So as you put it, as the business accrues volume, it's able to drop that volume at just -- at a better incremental rate? Or is it, hey, process reengineering that are somewhat challenging, potentially expensive and they have risk as you create these sleeves of savings or productivity?

Yes. So I'll give you examples of the types of productivity. The first one is think of sourcing everything we don't resell. It's grocery bags, it's equipment, it's telecom, et cetera, et cetera, all of these things that we don't resell. Now we have -- we had not put a concerted effort on bringing our scale to work on that front. So that's one. The second thing, think about labor scheduling in our store, right? So labor scheduling for the front-end check lane. If you don't get that right, you typically end up wasting more labor. So it's things like that. It's labor scheduling in the rest of the store. A third is about -- and so there's a whole bunch of things around labor, right? There's also automation, elimination of labor, adding more self-checkout machines, adding an automatic slicer. Those are elimination of labor. There's a productivity in that. There's productivity in our G&A, right, using robotic automation. All the things we're doing in the IT back office, there's productivity there. So none of the things I'm talking to you should surprise you, Simeon. These are things that are -- that have been around. We are getting to it, right? That's why it's not new to the industry.

And an inference from this, and it's going to be my next question, is that it sounds like you believe the business can operate at a higher or a structurally higher EBITDA margin going forward. And I respect that we won't -- maybe we won't retain 2020 levels, which is not unreasonable assumption. But I think as an analyst studying this industry, it seems like margins have slowly crept down, competition, now we're dealing with eCommerce. And So there's a little bit of this challenge of, hey, margins can come up versus the history of it's come down. But I think have we reached some point of -- I don't know if it's oligopoly, where the margin can stay higher over time.

Interesting question. I think it's -- the question is how long? But I can tell you that we, as a company, are not near the efficient frontier, right? And that's what's giving us the ammo to do it. We will get closer to the efficient frontier where others are in time. It will happen. But we are going to drive this efficiency for the foreseeable future. And by the way, that's true on multiple lines of that P&L.

I'm going to maybe just talk about your growth algorithm for a second. And hopefully, these are the right tenets of your growth. 2% to 2.5% or so of ID sales growth, stable-ish gross margins, you get leverage on the expense line, and that generates mid- to high single-ish digit EBITDA growth. If that's fair, and again, maybe looking from the lens of 2019, right, 2020 notwithstanding, where do you see the most upside from that growth algorithm? And what would drive it? And alternatively, what are the key -- I guess, the Achilles heel to that growth algorithm?

Yes. I think it's -- the growth, if I -- I'll go back, I had to put my mind in the 2019, and now we have the benefit of 2020. I think the -- I'm surprised by how much eCommerce contributes to growth, incremental growth. And so the further we -- the better we get at that, the better or the growth algorithm -- the stronger the growth algorithm will be. The longer the fresh continues to play a role while people eat at home, the stronger the growth algorithm will be. Our loyalty program, as people engage more, they're -- people shop more, they engage more in our loyalty programs. That's been an interesting insight. Always had the theory, proving it again. That will be a tailwind for the growth algorithm. So those are 3 things I'll point to in addition to what I think of as the sustainable things we do, remodels and so on. If there was a risk to the growth, it would be if there is a macro issue, and we are going into a deep recession and some of the price and promotion things that you talk about change behavior in the industry, that would put pressure on the top, right, on the growth algorithm. And to the extent -- yes, that would be the primary one. And then, of course, it's all the execution risk we carry in the business every day, which as managers, we should be dealing with.

Yes. So there's 2 questions in the webcast regarding capital allocation. I'll ask them, and then I'll put them into a broader question. Can you talk about your dividend policy? First. And second, what is your target leverage ratio? My question would have been, can you talk about capital allocation broadly? What are some of the priorities? And then thinking about the marginal dollar of cash generated, where that should go?

Yes. The capital allocation approach is, first, it's all about putting our investments into growth into the business. So there are growth-driving activities. There are great productivity-driving activities. The second is to make sure that we pay the dividend. Our dividend is at about 2.5% -- where we were. It's -- we paid $0.10 the last quarter. So it's up about 2.5%. The third is debt paydown. The way I think about it is let's go pre-pandemic. We were at about 2.9x EBITDA. We had tranches we were going to pay down to get to 2.5x EBITDA. But we're well below that now. We're well below. We're at sub-2 at this point, but we're still going to continue to pay down some of those tranches. In fact, we paid down a tranche yesterday, a couple of hundred million bucks. And we'll do that because that's part of our algorithm to deliver EPS. And so that would -- that's how I would think about the overall. And then we allocated some money to buy back shares because we were trading in the $13, $14s, and we thought it would be a good value to buy back some of those shares when we were back in that position. But that's how I would think about the capital allocation overall.

I want to -- maybe switching topics. I wanted to ask about the portfolio of brands and chains that you operate. Can you talk about the range of performance? I assume a lot of it is probably tied to market shares or market share. I'm curious if you have certain chains or regions that are not as performing as highly as others. Is it reasonable or realistic that, that performance gap narrows? Or is it -- I mean, obviously, it's dictated to some degree by market share. Or are these businesses or chains or regions that have just structurally been at these levels for a while, and it's not realistic that there's low-hanging fruit to improve from?

Yes. It's -- so we think of it less as banners. Because you'll find, if you go to Seattle, we're operating multiple banners. You go to Dallas, we've got a couple of banners. So you think of it more as divisions and then the markets within those divisions. What's surprising to me, Simeon, is that we had markets that were underperformers pre-pandemic that have just become hyper-performers post pandemic, okay? It's winning on supply. It's the things that I've talked about. And so I used to think it's structural. And then I'm going, "Wait a minute. There's maybe so much underlying performance in some of these markets that we have, and that's what this has proven out." The portfolio is always going to have the range. I mean, that's the beauty of having a portfolio. You're always going to have that high end and the low end, and you're -- and these things are always changing. What I can tell you is that we don't have -- we're not looking at the landscape and saying, "Hey, that's a market I want to get out of." But we do have markets where we're saying, "Hey, that's a market where we may need to put more juice into it because there's more potential." Okay? But that's how we think about it.

Great. We have about 4 minutes left. Maybe this would be the last question, 3 minutes now, unless the webcast pops up with 1 more question. Something we've talked about before, I've asked you, and I think I've heard you answer others not long ago, pricing. And there's a lot of attention on it. And I think I understand why people looking at price gaps, curious about is our own philosophical reason or viewpoint around EDLP versus high-low. Do you have banners or regions that execute high-low better than others? Or is that not a big difference? But just pricing in general broadly. And I don't know if there are misperceptions around pricing. But anyway, I'll leave that as a broad topic.

Yes, there are misperceptions about pricing, Simeon. To me, I've been trained to look at market share growth and dollar share growth and unit share growth and gross margins. If you can find a way to deliver healthy gross margins and grow unit share and dollar share, you are doing something right for that customer. Full stop. Period. Right? So that's how we think about the business overall. That said, pricing is extremely important. It is extremely important in this industry as it is in every other. And so we look at that in a very local way. And so every quarter, there is a marketplace where we are adjusting the everyday price, the entry price. It will be in some category. We adjust it and then move on. And we take another market, adjust it, and move on. And then there is, of course, the promotional lever that we have, right? And on the promotional lever, we're becoming smarter. And then as I said, we're going to move more to the digital side of it. So you put all that together, our pricing is more competitive than people typically get in a simple study.

Great. Well, I think we're about at time. I really enjoyed chatting with you. I appreciated your candor, and it was fun having a good conversation around the industry. I want to thank Albertsons and you, Vivek and team, for being with us at this event. I also want to say thank you to your organization and your company for being the heroes of the last 9 months for a lot of Americans. So thank you. We wish you luck in the rest of the fourth quarter and beyond.

Thank you, Simeon, and everybody, be safe. Wish you a great holiday and a safe holiday. Take care.

Thanks.