Freshpet, Inc. (FRPT) Earnings Call Transcript & Summary

All right. Good afternoon, everyone. I'm Bryan Spillane, the consumer staples analyst here at Bank of America Security. And I want to thank you for spending some time with us this afternoon. We are really excited to have a presentation here from the executive team from Freshpet. With us is CEO, Billy Cyr; CFO, Heather Pomerantz. It's a really exciting and dynamic time at Freshpet, household penetration growing faster than expected. We just had a recent upgrade of the medium-term financial targets, revenue targets, and at the same time, the company is basically selling everything it can make and acting with urgency to ramp up capacity to drive service levels. So a lot to talk about here, and we're going to start with the presentation. And then hopefully, we'll have some time at the end to field a few questions. So Billy, Heather, I'm going to turn it over to you.

Great. Thank you, Bryan. And also thank you to the broader Bank of America team for your support in our recent equity offering, which was very well received by the market. So I want to get started with getting into our presentation. And take you through what is we're thinking -- how we're seeing things. So has the presentation up? I don't see it yet. So there we go. Obviously, we have a forward-looking statement, the safe harbor statement that covers us. And so I hope that everybody's seen one of those before and treat all the fine print. So I'm going to take you through quite a bit in a relatively short period of time, but all this is posted on our Investor Relations section of our website and you can reference it there, and we'd be glad to answer questions as a follow-up. I always like to start with who my boss is and who I work for, and this is who I work for, and her name is Appa. And Appa is the -- Appa is my 2-year-old Samoyed. She's the fourth Samoyed that my wife and I've had since we got married, and she absolutely loves Freshpet. And so I think about everything in the context of what makes Appa happy. So I want to cover -- these are the objectives for today. I want to give those of you who are not familiar with the Freshpet story, a brief introduction of Freshpet, then I'm going to take you through our 2025 goals that we just announced with our earnings release back at the end of February and some of our plans to achieve them. But I want to provide specific focus on how Freshpet is ideally positioned for the coming generational shift that's happening in pet food. Then I also want to give you an update on Q1 production and consumption. Since we are running significant out of stocks in Q4 and into Q1, when people know how we're doing it satisfying those customers and consumers and the progress we made there. And then finally, as Bryan alluded to, we are adding capacity at a very rapid rate. And I want to talk to you about our progress there. So without further ado, our mission as a company is to awaken the world to a better way of feeding pets. If you think about the way the pet world operates, it hasn't had much of an upgrade in quite some time. But it's not just what we're trying to do it's how we do it. We operate very differently. We operate in a way that is good for pets, people and the planet. And we think about every decision that we make in how it can help the pets, people and planet that we serve. If you think about the pet industry, it's really a $30 billion industry that's stuck in 1950 with dehydrated or canned foods predominating, which is what we grew up on. I grew up in the 60s. That's the kind of food that I had in the 60s. It certainly doesn't look like the kind of food we eat today. Back then, dogs had a very different place in the families. The dog was most likely to be living in a doghouse in the backyard, possibly had a chain around its neck or a chain link fence around it. That's very different than the relationship that we have with our dogs today. Dogs today are part of our family, and they don't only sleep in our house, they sleep in our beds. It's very, very different. But if you think about what that means, what has happened is people have discovered the benefits that you get from having a pet in your household. And we call it Zooeyia. Zooeyia is the positive benefits to human health from interacting with animals. Everything from psychosocial development, to immune system development, to catalyzing social interactions or to motivating regular exercise or providing support when you're need of support. That's what pets do for us and people come to recognize those benefits. And as a result, a pet is now more than just a pet. A pet is a member of our family. But the food that we feed them has not kept up with that changing relationship that we have with them. So kibble has been around since 1956, kind of antiquated. This is what Freshpet looked like when it first came on to market in 2006. It's considerably different and improved appetite appeal and quality of product. The even more stark contrast is the canned dog food has been around since 1922, and this is fresh from the kitchen. Our product has been around since 2015. As you can see, the food is now beginning to match the relationship we have with the pet and the role that pet has in our lives. So this is what our lineup looks like today. We sell a combination of rolls and bags. We also sell some patties that we've added in the last year, but these are a broad range of products that are sold today, and we continue to innovate and add to the lineup. The products have exceptional palatability. They are taste test winners for the dog. It's -- obviously, it starts with what's in it for the dog. But we have palatability advantages versus virtually every dog food gets out there. But it goes beyond that, too, yes, your dog will love it. You'll notice that your dog loves it, and your dog will appreciate you for loving it. But you will also notice some physiological differences in your dog. And the range of differences that you get is more energy to shinier cote to clearer eyes or brighter eyes. You'll notice all kinds of differences in your dog after you've been feeding Freshpet for a period of time. And that's sort of the confirmation that Freshpet is doing what you would hope we're doing and providing a healthier life for your dog. We have a range of products that are available at accessible price points. I don't want anybody to be misleaded. This chart does not include products that are at the value end of the pricing spectrum. These are all sort of premium and super premium dog foods. But we have a range of products that have price points in a cost of fee to dog per day. So we used it an average of a 30-pound dog. Everything from $1.61 to price points that are $3.2 a day kind of range. And it depends on -- the comparison depends on the brand you're comparing them to the specific version within the brand, the channel you're buying it in and the size you buy. But we have -- our products are comparably priced in many of the other super premium brands that are out there. Our products are available in more than 22,700 stores that don't have Freshpet fridges today, some of those refrigerant stores have more than 1 fridge. There are 2,500 stores about -- approximately 2,500 stores that have at least 2 fridges, sometimes 3 fridges. We own, maintain and operate those fridges. We have over $110 million investment in our fridges. We also sell via e-commerce. Our definition of e-commerce is any time you order it on your phone or on a laptop. But it may be picked up by you at curbside or maybe delivered to your door via Instacart or an e-commerce retailer like AmazonFresh. That business is growing rapidly, as you might imagine, it was 6.1% of our sales in Q4. And for the year, we're up 173%. I can tell you that we also have, while not being specific, we will have a significant expansion in our e-commerce offerings later on this year. Our model that we've been operating against since 2017 is what we call Feed the Growth. And it's this fundamental idea that there's a productivity look where if we invest in advertising, the advertising and innovation that we can do behind it will create expanded distribution -- expanded household penetration, and that will drive velocity gains that will cause retailers to put us in more stores. And once we do that, we'll need to add capacity, it gives us added leverage in COGS and SG&A, allow us to drive efficiencies and then reinvest in advertising again. And we just keep going round and round in this track, picking up speed every time we go. So the initial investment in advertising is enabling increasing these investments as we go along and the brand gets bigger and our growth rate gets faster. Since we launched this program, we've seen an accelerating rate of growth. And you can see we finished our most recent year with our fourth consecutive year of accelerating growth, and we grew 30% last year, and we've committed to growing even faster this year. That growth has been driven by strong and sustained growth in household penetration. With our most recent year being up 24%, but you can see we've done that for each of last 2 years. The buying rate has been growing as well. Despite all the dilution from new buyers, we've been able to grow the buying rate of our brand fairly consistently over time although I will say it does get diluted when we add a lot of new users in a period, you can see that the buying rate won't grow as quickly. But we do feel fairly confident that the underlying buying rate, and I'll show you more on that in a little bit. The benefits of scale are starting to flow through to the bottom line. We ended with our third consecutive year of accelerating EBITDA, adjusted EBITDA margin and growth in adjusted EBITDA growth rate at $46.9 million. We are going to reinvest further in 2021. So we won't see the accelerating margin, but the growth rate in EBITDA will be very significant. We've built 2 forms of barriers to entry. The first is built on an exceptional consumer experience, where the products palatability then drives noticeable physical differences that I described that creates incredibly high satisfaction, which drives a very strong value rating, as you can see in this chart, that turns into -- that we also have very broadly available product because retailers put us in more stores and a bigger presence in more stores. And that ultimately turns into a very loyal consumer franchise. So ultimately, our biggest barrier to entry as the first mover is going to be a highly loyal consumer franchise, and consumers are hesitant to change their dog food. But we also have significant scale and mastery advantages that we've built over time and we'll continue to build that are also part of what drives the creation of a loyal franchise. And it starts with mastery of the product technology. We're the only ones who really know how to make a fresh pet food and have it go through a refrigerated supply chain and provide an exceptional consumer experience at the end within a reasonable trade life -- shelf life. We have broad scale distribution, as I said before, over $110 million worth of fridges that we own and maintain, and I think people underestimate how important the maintaining is. We have scale in manufacturing and distribution, over $500 million, we've been invested in our manufacturing assets by the end of this year and distribution scale that is growing as we grow very rapidly. We have very broad awareness behind the advertising investments that we've made and we pretty much stand for the category. We continually expand our lineup to be able to manufacture a wider range of product forms so as anybody comes along behind us, they're going to have to be able to manage not just a single product form, they have to produce multiple forms and master multiple technologies. And all that leads to a very loyal consumer franchise that is very difficult to disrupt. So we laid out new goals at our earnings release, and these are literally only 1 year after we had laid out the 5-year plan in February 2020 and the reason we did this, and we updated our goals was because we are already 1 year ahead of our projected progress. So we updated the goals to reflect the learnings we had for the last year. And we revised our target, and we call the Freshpet Feed the Growth 11 million households by 2025. We have been targeting 8 million households, and we upped that target to 11 million based on the rate of growth that we are seeing in household penetration. That will lead us to a business that will have $1.25 billion in sales in the fiscal year 2025. And that our adjusted EBITDA margin will be 25%, and it will take us up to over $300 million in adjusted EBITDA in 2025. That is both those growth rates are consistent with the rate of growth that we've seen over the last year on both the adjusted EBITDA and the net sales growth. And we will also be growing our household penetration and buying rate at the same rate that we've moved them in 2020. So we're projecting our ability to replicate that going forward. It's interesting and important to note that we were able to deliver this household penetration gains and the buying rate gains, basically with 2 hands tied behind our back. We couldn't advertise at the rate that we wanted to because the -- we are capacity constrained in the year, in part due to our own capacity constraints, but also in delays in being able to add capacity because of the delays in construction on our new plant and also because of some limitations in our capacity due to having employees out for testing and quarantine related to COVID during -- particularly during the November-December window. So we were able to get these very rapid increases in penetration buying rate despite those limitations. We also expect that between now and 2025, we'll get pick up another 1,000 basis points of adjusted SG&A, excluding media leverage. We delivered 780 basis points between the end of 2016 and the end of 2020. We think we have the ability to stay on that same trajectory going out to 2025, and that's the primary basis for the increased adjusted EBITDA margin. We'll also be generating strong free cash flow by 2023, and the equity raise that we recently completed is enough to enable us to off of our balance sheet, the cash we raised, the balance sheet and the credit line that we just announced will have enough cash to be able to fund the construction of $2 billion in capacity and don't need another equity raise to meet those needs. So I want to talk a little bit about how we get that rapid growth in the top line and particularly the household penetration that drives it. I want to go deep on a generational shift. A generational shift that I want to talk about is the prime prospects that our key part of our audience. We talked at our earnings release and in our Investor Day a year ago about our definition of prime prospects. And in 2016, we laid out this model that's said they were 7.5 million people out there who look just like the users that we already had and that we were going to pursue those. In 2019, we ran the same study to identify how many more of those users where there who looked just like the users that we have today that now fit in the definition of a Freshpet prime prospect. And the query we determined of prime prospect is we ask the series of 11 questions and if they answer 8 of the 11 questions in the same way that an existing Freshpet user would answer, they are considered a prime prospect. Now they have to already be in purchasing a dog foods that's a qualifier to get in. But once they're in that category, if they answer 8 of the 11 between 2016 and the end of 2019 that number grew from 7.5 million to 20 million, very significant. I'm here to tell you that I think by the time we get to 2025, the number will be even more significant. I'm going to explain to you why. But if you think about the values that are in the prime prospects, the things that they care about that are demonstrated in a box that you see on your screen, what you'll find is that those values are most common in Millennials and Gen Z. And that's really where I want to focus my attention. Millennials today are driving the pet food industry. They are the lion share of the category. They are in that household formation stage. They're getting dogs, they have dogs, they also have kids, they have been the news. And if you look at the data for the category today, Millennials are the largest share of the dog food category today. They have households that have dogs, 34% of them are Millennials households and it's 30 million dogs that are in 22 million households. So they are the biggest driver of the category today. And they seek brands like Freshpet as you can see, they are looking for human ingredients, so looking for non-GMO foods, they're looking for locally sourced products more so than in the generations that preceded on. That's in essence the underpinnings of the Freshpet proposition. But the share Millennials households though with a pet is going to plateau in the next few years. And Gen Z will be on the rapid rise for the next decade. This is the chart I picked up where I see U.S. Housing Survey and it's dated 2017. But I've adjusted the aging if the Millennials and Gen Z on the chart to reflect where they are today. And what you can see on that blue line, it reflects what percentage of households actually have a dog in the household. And you can see as most of the Millennials are going to get a dog, not all of them, but most of them have gotten a dog already. There may be some who are still moving up that curve and they will peak as they get out just beyond the age range where they exist today but it's not as rapid of growth. But then you look to the left between those 2 dotted lines. you will see what the Gen Z look like. Gen Z is between the ages of 18 and 24 will go from basically having no households and thus no dogs, other than dog that was their parents. So having 50% of them will have a dog by the time they get to 24. And so there are for the next decade, there are 4 million Gen Zers who will becoming of household formation age and they will be getting dogs at a very rapid rate. And so if you take a look at that progression, you will have more dogs and less kids. Everybody knows they are delaying getting kids and they seemed to be putting all that love and attention in to the dogs that they are going to have. So 4 million Gen Zers per year will be entering into the household formation stage and looking for that dog. And think about it as 4 million of them, 2 million or half of them will end up in a household that has a dog. And so even if they end up marrying or partnering up within that -- their own generation, that's now a million new households every year who are getting a dog. And on average, they will probably get 1.5 dogs. So we're talking about in total, you're going to end up seeing about 15 million new dogs in the households of Gen Z over the next 5 years. That's a very, very significant number of new dogs. And frankly, when you look at it, that's what showing up in the data that on the people who got a new pet due to COVID, it's showing up it's much more in the Gen Z category. The good news for us is though they love fresh pet. They love who we are as a company, the value that we have, the product proposition, the way it treats their pets and the way it reflects their values. And so they are adopting fresh pet at a rate that is significantly in excess of what their peers are in other age groups. And their digs are obviously younger. So they're going to be around with us for a long time. And interestingly, they skew towards medium size dogs, little bit more than the other dog food buyers. It's not small dogs, it's not giant dogs, it's medium size dogs. But given that our franchise skews a little bit more towards the smaller dogs or medium size dogs, here comes yet another opportunity for us. Now I'm going to talk a little bit about our business model and why is this such a proven business model for us has worked so well. And this is one of the points that investors might have missed over the last couple of years. Everybody knew that we were going to invest more in advertising and they thought okay, they spend more, they get more users. Got it. What they missed, what a lot of people missed is the synergy that we get between the advertising investment, the increased retail placements and the product innovation we do. Think of it as we ramp up the advertising, it causes -- it creates that higher velocity. It gives the retailer the incentive to put in a bigger fridge or a second fridge which now amplifies the visibility of the brand. So when the ad runs, now the consumer is more likely to run into a fridge and see it, it go, "Oh, yes, that's the thing I saw on television." And the simplest way I can describe it is imagine a scenario where if we were going to spend $50 million in advertising. But in one set of circumstances, we had a half height bridge in the middle of the pet food aisle and about 50% ACV. We get a certain kind of return for that advertising investment. But if we spent $50 million in advertising, and we had a full-size fridge on the end cap in that same 50% ACV or even a double fridge in there, the return I get on the advertising investment is dramatically higher than I would have gotten in the first set of circumstances. That's the amplification we're talking about. Now take that one step further, we put in a larger fridge. It allowed us to include a larger assortment, meaning we can have products tailored to more user occasions. And now the advertising that we're running is now relevant to a broader range of people than it ever was before. And so we get an even bigger return for the advertising investment. It's that amplification of using advertising to get bigger fridges and more fridges that allows us to have more products, which makes our ads more relevant, which then lets us to run more advertising, that whole synergistic model gets better and better as we scale and drives our customer acquisition cost down pretty consistently. We've got a demonstrated track record, as you can see, this is data going back to 2016 of how that advertising is actually driving increases in household penetration. And you probably don't see our squares of 0.983 very often. And that basically says the model works. We don't do any discounting, no promotion. It's all driven by advertising. The retailers are responding, and you can see this is the chart over time of how much ACV we've been getting, obviously, it plateaued during COVID because of retail restrictions. But the reality is retailers have responded to the accelerating velocity and the expanding household penetration created by the advertising. We're also putting in more fridges. This chart shows you how over time, the number of our fridges that are large fridges or second fridges has greatly increased to the point where we're putting in almost no more small fridges. Almost all of our fridges are large or second fridges. We now have of our top 10 customers, 8 of our top 10 customers have a second fridge in at least 40 of their stores each. And that gives you a sense for the amount of testing and experimentation some of these retailers have them in virtually all of their stores. We also have the innovation program I talked about that is enabled by the Fridge program. And what you can see is how the adding the innovation has expanded the number of households we're in, the household penetration in essence, and how well we retain those users, while we bring them in. So again, part of that synergistic effect. And now new items launched in the last 5 years account for 30% of our total current volume. So this year, we have an innovation program that is going to continue to expand the relevance impact of the brand. We are launching some pretty interesting renovations and improvements as well as some completely new items, all that are very consistent with the audience that we talked about. I'll talk a little bit more about that in a second, particularly these 2 which is if you think about the values of the Gen Z or so what it is that they care about, what's on these slides, and again, it's in the deck and we can't see it. There are a lot of elements here. But these are 2 innovations that we've launched. The one in last spring in Sprout is a plant-based pet food. The protein -- bulk of the protein or significant part of the protein comes from egg, and it's a great way to capture those who are concerned about feeding one pet or one animal by killing another one, and they don't feel very good about that. They prefer not eat meat themselves. This becomes a way in which they can satisfy that value they have. The second one is we have the product that is our Nature's Fresh, which is a carbon-neutral product. It's the first carbon neutral pet food, and that's available in Whole Foods. We talked about buying rate and how the buying rate grows. We have very significant data we gathered earlier and announced earlier this year that shows how the product innovation that we've launched has enabled each cohort that enters the business each year to come in at a higher level of buying than their previous cohort because they were brought in by buying a new premium innovation. But once they were brought into the franchise, they then bought more each year as they progressed through their multiyear life with the brand. And so in the second year, they bought twice as much as they did in the first year. And by the time they got the year 4, it's more than 3x they had in the first year. So what is our progress year-to-date? As I've said, we had some issues. I want to reaffirm our guidance that we gave for the year, up 35% on net sales and adjusted EBITDA up 30%. No change from what we mentioned when we did the earnings release a couple of weeks ago. We are making the steady increases in capacity that we talked about. Since we last talked on February 22, we've checked the first box, which is we've got the rolls line in Kitchens 2.0 up running and producing saleable product. It's a major milestone for us. And it was the first step in building the capacity and gives us confidence that we'll be able to deliver on the revenue targets that we've laid out for this year. I can tell you, if you look at this target, and you try to figure out how much capacity do we have in Q1. I'll show you in a second a little bit about what our production has looked like. But suffice it to say that for Q1, we will have an accelerating growth rate versus Q4. We will also have a growth rate -- a sequential increase in the net sales versus Q4. And our growth rate will be bigger than what our growth rate was for last year. But we also -- we'll sell everything that we can make, and I'll show you how much we can make in a minute. This chart goes into a little bit more detail. But suffice it to say, that for this year, you should expect that we will have an improving gross margin through the year. We'll have an improving growth rate as we go through the year and our advertising be more backloaded than normal, mostly because of the supply constraints that we have in the first half of the year. The key takeaways we want you to have is we've had strong production performance that's going to enable us to refill trade inventory by the end of April. Our capacity additions are on track. Our advertising program, while it's on are now at levels that are kind of comparable to a year ago. It really kicks in, in full force in about the third week of April. Our year-on-year Nielsen consumption comparisons will be really screwed up between now and call it June. So you're better off looking at data on a sequential basis between now and then COVID surge and trough last year, we make those comparisons somewhat irrelevant. I'll show you that in a minute. And the gross margin progress will improve as we increase throughput. Year-to-date, you can see we've been stuck in this band while we are capacity constrained. This is on a consumption basis. You can see that quarter-to-date, we're up about 28%. I expect that to moderate by the end of the quarter because most recent weeks are a little bit softer due to the out of stocks. Basically, there's been a bubble of out of stock that's been floating through the supply chain. That bubble pass through, I think, basically, by the end of last week, and conditions will improve from there. But you'll expect to see the Nielsen that will be a little soft and then they'll also be comparing to a strong year ago, but we remain very comfortable that the trajectory is heading in the right direction. This is tells you why the Nielsen comparisons versus a year ago kind of irrelevant shows you what the category looked like over the last 18 months. And obviously, there's a lot of distortion. Our capacity constraints limit our growth, but we have had very strong growth and particularly including in pet specialty, big box pet has done incredibly well for us. Our velocity gains are making up for the out of stock. So while we have out of stocks, you're seeing the items that are there are turning very quickly. We do know that the vast majority of users are likely to remain with a franchise despite the out of stocks. This is a survey done by a third-party last week of February, asking them how much trouble they were having finding the product. And then there are those who are having trouble finding it, how likely they are to stick with the brand. And the bottom line is you would conclude that about 3% of the consumers are at risk. Because they're really pissed off, they couldn't find the brand. We've been doing everything we can to manage that, and we've been posting on social media about our progress of how we're doing it, refilling the trade inventory, but it is the one thing we are watching. This is the video. We -- I'm going to tell you in a second about how snowstorms impact our capacity, but you saw my dog at the beginning. This is where I'm telling you there is snow, there was snow. This is a sled dog. I have a sled dog. This is on day 1.5 of a 3-day blizzard at the beginning of February. And this is my dog in my front yard in Bethlehem, Pennsylvania. And let me tell you, the snow is over her shoulders by the time it stops snowing. So suffice it to say, when I say there was snow, there was snow. This is how we've been producing. The good news is since January 1, other than the data that snowstorm that you see in the middle there, we've been producing at a very, very strong rate. And the -- we're catching up to where we said we would be. So we feel very good about our progress. We've been producing in excess of Nielsen-measured consumption since January 1 with the exception of that week of the snowstorm. So the yellow line in this chart shows you what our production was, and the green line shows you what the Nielsen-measured consumption is. So we've been able to produce in excess of that, and our production is accelerating with the bringing on the new rolls line and some incremental shifts that we're putting on later this month. Household penetration despite the out of stocks grew, it's up 28% year-on-year for the last 52 weeks through February 20. So that's pretty encouraging. And we also saw that the buying rate moderated a little bit because, obviously, you couldn't find as much product, so it wasn't up as strongly as it was before. It's also a little bit diluted by all the new users. Our Canadian business continues to accelerate behind the advertising program we launched there last year. It's working. And the same thing is happening in the U.K., our business model is working. Finally, I would just want to talk about accelerating increasing our capacity. Last year, we accomplished quite a bit. Despite COVID constraints, we are able to complete the construction and start-up of our Kitchens 2.0, our biggest project to date. We also validated at the higher speed, higher throughput equipment really worked. And that enabled us to raise our capacity estimates for our facility that we're building in Ennis, Texas. We also started up a line in our partnership at Kitchens South and got that going. We also broke ground on the facility in Ennis, Texas. And we did some work on innovating new technologies that we won't describe today, but we will tell you it will begin having an impact on our business as soon as the end of '21. Actually, sorry, in the beginning of '22. Our facility Kitchens 2.0. I'm in Bethlehem, and this is the building next door. That proved that we could run higher speed for automated equipment as expected, and that's what allowed us to drive our expectations for capacity up. And the facility in Ennis, Texas is well underway. We did lose a week of construction time when they had the power outage and the snowstorm in Texas about 2 weeks ago, but this project is well on track for delivering what we expected it to deliver. This is a new way to frame what we're doing. But the way to think about this is we have 3 streams of capacity expansions. The first is the Bethlehem stream with our Bethlehem team. And they pretty much have gotten their job done. They've started up Kitchens 2.0, started up both the lines and all they're doing is adding shifts. The Ennis engineering team that we hired and trained here in Bethlehem and now have relocated to Ennis, Texas. They're under construction on Ennis Phase 1, and that's their entire focus right now. We are deliberately spacing out Phase 1 and Phase 2, so they don't have to start Phase 2 until they fully started up Phase 1. Kitchens South is our partner. Our partner has a very, very deep engineering bench. They've already started up Line 1. Line 2 is under construction. Line 3 is also under construction, and that will be our first chance to pilot the new technology that we're talking about that has a potential to lower our capital costs and increase our throughput. That will then apply in multiple places, including in a second building, we will construct at Kitchens South and ultimately in Ennis Phase 2. So we're building $2 billion in net sales production capacity by 2025 and we're on track for delivering that. So in summary, we have multiple ways to win, increasing the awareness, adding more households going from 4 million households to 11 million households against a 65 million household dog population. Increasing the buying rate from currently $120 to much closer to $630 is how many dollars you would spend if you're feeding a 30-pound dog Freshpet exclusively for the year. And expanding our distribution from our current 55.7 to something north of that. And in the process of doing that, we will have built a very fortified business model with a diverse product line that's difficult to match, 11 million households of consumer loyal households will be in -- will have 40,000 fridges, will be in 75% to 80% ACV, significant scale on distribution, about $2 billion in capacity. So we're very excited about the prospects of Freshpet's Feed the Growth program in 11 million households by 2025. And I know I breezed through that very fast, but you can follow the -- take a look at the slides, and we'd be glad to do any follow-up that comes from that. So thank you very much. I'll turn it back to you, Bryan.

All right. Thanks, Billy. That was fast and comprehensive. So I guess, a question related to reaching Gen Z, right? Like you've had great success with television advertising, converting consumers, household penetration. So Gen Z, not necessarily known for watching a lot of television. So as you reach out to those consumers, will you have to change at all your marketing, not so much the levels of spend, but marketing mix or advertising mix? Like what do you have to do differently to recruit Gen Z versus maybe millennial and boomers?

Well, good question. First of all, you have to know that 30% of our media today is in digital and social already. And secondly, you have to know that Gen Z does watch television. They may not watch as much or they may watch different stuff, but they do watch broadcast television. You should also know that 2 years ago, everybody told us that millennials buy differently and whatnot. So we developed a test media plan against millennials and began running a portion of our media program against millennials. And that worked incredibly well. The paybacks we got for that were very, very strong. And so our expectation is, as this audience becomes more a higher level of focus that our experimentation against that audience will help kind of fine-tune how you get there. But our expectation is that the tools that we're using maybe slightly differently and slightly different degrees will still accomplish the same objective.

And then maybe tied to that, you referenced earlier in your presentation, what pet food used to look like, what it looks like today. Are there any biases that people will have kind of use the pet food that they grew up with or their parents used they grow up with? Like is that a -- is there a stickiness there intergenerational with pet food? And if so, again, how do you break that sort of intergenerational bias?

Yes. I mean, there's obviously some of that, that happens all the time. It doesn't matter whether you're talking human food or pet food. There's some element of that. But I will also tell you that this is a generation that sort of places their own trail and has their own values. And so when they leave the house, I mean, it's interesting that 60% of the Gen Zers live in a house, 11 to 17 live in a house that has a dog today. But they don't take the dog with them. They get their own dog. And I think when they get their own dog, they do -- they feed it the way they want to feed it. In a way that's consistent with their values. I wouldn't be surprised if there ends up being some pushback going the other way that they adopt Freshpet and then they gilt their parents in defeating their dog Freshpet. I do agree there is some generational phenomenon, but I think that's true in almost every CPG category and many, many brands use that first household formation stage as a basis for establishing a new habit and works quite well.

Okay. And then maybe if we could shift a little bit to cooler placements. Again, the last 12 months, there's been various factors that have slowed, I guess, the placement of coolers. But as we're thinking about building towards your 2025 target. At what point will -- it will be like more products, more velocity, more products through each cooler versus the cooler placements themselves driving the incremental household penetration. So I guess what I'm trying to get at, at what point do we get to the point where we don't really need to install that many more new coolers, and it's now just a matter of just velocity over those coolers.

So our coolers today are already driving significant gains in velocity. Every fridge we have out there is selling more this year than it did last year. And so there's a huge velocity gain that retailers are seeing. When they add a second fridge, some of them add it to add holding power, and some of them add it to increase the assortment they can carry. And so depending on what your particular strategy as a retailer, the reason to upsize or add second fridge can be different, but they're all seeing huge gains on the velocity of the existing fridges. Think of it like the gains are in the high teens same-store sales in most places. In some places, they're higher than that. And when they put a second fridge in, that same-store goes up another 20 to 40 points of growth on top of that. So the retailers, we're not getting our growth from just getting more doors. It's not a white space kind of thing. We're getting our growth from bringing in more users and having them buy more and then the retailers are responding to that by putting in more fridges to get -- to get a higher share of our business.

Right. So it's more of a same-store sales growth versus unit growth type of thing.

Yes. I mean, our same-store sales are in at least the mid-teens, if not higher at most retailers.

Understood. Okay. We are at the time. So Billy, Heather, I want to thank you both for spending time with us this afternoon. Again, really a dynamic story. And I've got a dog here that actually wants to be let out. So we're going to go. Thanks again, everybody.

Thanks. Thank you.

Thank you.