Grocery Outlet Holding Corp. (GO) Earnings Call Transcript & Summary

Hi, everyone. It's Simeon Gutman, Morgan Stanley's hardline, broadline and food retail analyst. It is my pleasure to welcome Grocery Outlet, represented by Jason Potter, President and CEO. I want to point you to Grocery Outlet's 8-K for safe harbor language. I'm also going to read our Morgan Stanley disclosure 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.

Grocery Outlet is now a turnaround story in a way of reengineering growth value proposition engineered by Jason. I will start by asking maybe to level set, you put a press release out this morning to talk about the context of it, and then we will get into our discussion. Thank you.

Thanks, Simeon. Well, good morning, everyone -- I guess, good afternoon. Yes, we put out an 8-K this morning. One of the things that had transpired at the -- our last earnings call, I think it was first couple of days in November was obviously the disruption in SNAP benefits. SNAP is a significant part of our business, about 9% of our sales. And at the time, we really didn't know how to forecast what that might have meant for the quarter. And so what we had told all the folks we met with was, look, if this doesn't sort of unwind itself or kind of revert to a normative state in a few days, we'll likely put out an 8-K and clarify what happened with the business. And so for Grocery Outlet, I'm not sure anyone else has released any information yet, but we thought it was important at this stage of our turnaround to be as transparent of where we are in the business as possible. And so we thought it was appropriate to share that information with the market this morning. Kind of the details of that, what we experienced in November was about an 8% decline in SNAP sales. We saw also about 0.5 point decel in our non-SNAP sales. So that's the rationale for sending out that information. And then when looking at SNAP, clearly, a lot of our customers are under pressure. We service a lower income demographic and the value that the business provides is important for those families to stretch their budgets. And so the folks on SNAP, and I guess when we looked at the month that has been in November, traffic remained positive for us. So we continue to generate positive traffic. The business has had most of the year, units per transaction have been down year-on-year, but the month-to-month, month-on-month trend in November was basically about what it had been. So fairly stable. But what we did see was the AUR drop in a more significant way. And so our assumption or I guess, our assessment of it has been that with AUR down that much in November that the folks that -- as they -- those benefits came back, we could see it in the business. They're really trying to stretch their budget. And so they're trading down into lower-priced items or smaller sizes. And that obviously had an impact on the business in November for the quarter.

And pardon my ignorance if you've stated that in the press release, but have you had enough time post the resumption of benefits to see a normalized trend?

No, I think it's early in December. Typically, what happens with SNAP is when that money is received, it's usually spent within a 10-day period, something like that. Typically, what we would see in the business is first of the month, some kind of spike in SNAP sales and then it would decel as the month progressed. It doesn't mean we didn't get SNAP sales later in the month, but specifically in November, we saw very negative SNAP sales in the first half and very positive in the back half, all of that netting though to a reduction in our comps.

Okay. So backtracking first, thank you for being part of the conference.

Of course.

The 2025 has been an eventful year for food retail for the company and I think for you personally. Can you talk about what's been the biggest surprises, good, bad and different?

Yes. Nothing necessarily that was a surprise. I think if there's anything that -- kind of 2 things. We would have expected or I would have expected, given the positioning of the business to be more receptive to a more challenging consumer environment. We haven't sort of seen that in our comps, although we continue to have positive traffic as sort of a counterpoint, but that's probably been the biggest surprise. I think I had a very good opportunity with the Board to spend time with them and time with IOs and folks in the business before I began my time at Grocery Outlet in February. So nothing necessarily surprising, but I do think that, that might be one of the things that would have thought the business would be a little more responsive. Now where that kind of goes is really to a lot of the work we've done this year. And that's really trying to understand from the consumer being consumer-centric, what's maybe changed in the business, what do they care about, what's important to them. And really our refresh program, what we're doing is we're changing the experience in the stores. I don't know how many of you I've spoken with or if you've been on some of the calls, but we've got a group of pilot stores where we're really shifting and addressing the experience based on what the customers are telling us. And we talk to core customers. We talk to occasionals and obviously lapsed customers and some folks that are in target groups that we think are important. And there are several elements that came out of that work that we've implemented in our pilot group that we're getting very favorable results on. And so -- one is that this business, the unique sourcing model, we derive a very large value on a basket of goods against just about anybody. Something in the neighborhood of 15% to 20% against discount and 35% to 40% against conventional when we do a basket sort of comparison. The company spent time getting KVIs right over the last year. We feel we're in a good position there. But when it comes to the in-store experience, I felt and through the work we've done with consumer that we're not telling our story in a way that's, I guess, modern for the customer today. So we traditionally use some general terms, bargain bliss and typically use elsewhere pricing in our stores, but not anything very specific. And so we have a more explicit execution in these stores. So we're doing basket comparisons. We're calling out KVI pricing. We've done a lot of, I'll call it, value communication throughout the stores. And we think that, that's been a helpful -- a very helpful component of getting those store sales moving, and we're seeing perception pops in value in those locations. The other piece that the customer -- our customers have talked to us about is, look, I'm busy and I would really appreciate a store that's a little easier to navigate. Help me understand and predict where I can find things. And so not to bore everyone with the details, but we did change, and this is important in a retail selling environment, the merchandising in the stores, co-locating produce and meat, which probably doesn't sound like anything revolutionary to anyone here. But as the business evolved, things were added in the stores in ways that didn't necessarily create an intuitive navigation. And so some of those changes we made, we're seeing very nice pop in sales. We've also created a flow in the store that's more predictable and adding core items to make sure that we're addressing the basket needs that customers have. And so part of that navigation is also, look, you need to do a better job on in-stock. You're I can't trust you to be consistent, and I'm looking for certain items every single time I come to your store. And so we also implemented a series of tools, systems, procedures against the fresh departments and some in grocery that are helping our stores in those pilot groups execute at a much higher level, more consistently. And all of that is contributing to nice mid-single-digit increases in sales. And so that surprise of why isn't the business responding to the environment, I think, has a lot to do with our own execution. And frankly, the exciting thing for us as we go forward into next year is we intend on rolling that out in a big way across the business, something like north of 150 stores we'll touch next year. And I'm excited about the structural change that will bring for comps, obviously.

Stepping back for a second on health of consumer, which you've touched on and you gave some insight, you think that inflation is just catching up to the consumer's basket, not inside the grocery walls, and that could be part of the response? And is there a trade down? Can you trade down inside your store, too?

Well, we saw that in November. We saw some signs of trade down. That's the first time we've sort of been able to see something that would tell us that that's happening. And so when units per transaction are stable and AUR drops and we did a little bit of the underlying work, we can see some trade down. Not in a massive way, but enough to -- that it hurts. Beyond that, the health of the customer, clearly, the lower income folks are really -- have been under pressure for some time. And when you -- when I've talked to some of them and we can reflect on other experiences. I mean, I've had some discount experience elsewhere. People may also tend to consolidate purchases when they're under a lot of pressure. A lot of our customers come to the stores on public transit, they're taking the bus. If they have a car, they're really thinking about what the price of fuel might be. And so there is that kind of rub that although the market might be attractive for us at this point, a combination of getting the store conditions right, executing right and there are other considerations I think, are at play for us.

Yes. So you mentioned a couple of the changes the analyst community have been seeing what the flow looks like. Customer in some of your stores, you can tell it's better. Can you -- taking your temperature on ranking order like the things that are most important? Is it flow? Is it getting the right assortment? I know you've used some national data to reassort in some categories.

There are definitely -- like if you kind of chunk this out, there are components that we could do and we are rolling out across the entirety of the network probably a little earlier than -- there's a magic of doing things together. When you change something in a significant way in the stores, there's some disruption. And so you want to make sure you maximize the output of that. Clearly, we're getting a nice lift on the systems, tools and processes around fresh. We got a very nice lift on co-locating those departments. So I'll just give one example. The first day we moved -- so I don't know how much folks know about the stores, but at the front of our stores, typically, what you'll find is some refrigerated spot boxes, what are called, and you'll see a 4-foot spot box of seafood. And this is probably one of the clearest examples I can give. The first day we moved the seafood to the back of the store where the rest of the proteins are. So you think of beef, chicken, pork, deli, frozen meat, and we put the seafood back with the rest, the sales jumped 100%. And the location where the seafood is the most -- the highest traffic in the store, you have the most footsteps by it. But by co-locating those departments together, what the customers told us immediately was you have more selection. this is great. You've added selection into the store. In fact, we didn't, we had actually less SKUs, but their perception and the way that people shop was just much more convenient for them. And so as they were thinking about proteins, they do that as one thing. The way that the customer thinks about when they're purchasing, there's decisions about, well, what proteins am I going to build my meals around, they want to see that together. The example I was giving this morning to some of the other folks was, if you go to a car dealership and probably the best example I can give is the #1 selling truck in America is a Ford F-150. You go to any Ford dealership, they don't merchandise the trucks with the vans and the sedans. They sit separately on the lot. So you have your whole selection of F-150s together. You look at vans and sedans and Mustangs, they typically park those vehicles in one location, so people can -- someone that's buying a car, they have very specific needs. They're looking for those needs. They do that as one thing. And so maybe that's a bit of a stretch as an example, but that's basically what we did was, again, nothing revolutionary there. But as the business evolved, it wasn't ever necessarily considered. And so being a great buying organization and letting the IOs merchandise the stores, there's sort of an evolution that happened. But by stepping back and really looking at what does the customer want, what are they asking us to deliver and then putting that into one package together, we think that's powerful. But -- so to answer your question, getting the fresh inventory right, co-locating those really big bump, putting core items up and down the aisles, making sure those are in stock in the way that we merchandise them, big pop. And then as you go, there's other components we think are important. And some of the marketing changes are more difficult to tell from a sales standpoint. But when we measure perception, we're seeing an increase in value perception. And so we think that, that's more of a leading indicator than a lagging. We saw the immediate sales impact on things like seafood. But clearly, if you do a better job communicating who you are and what the value prop is, you're going to get -- that's future sales. One example of this and telling the story in a better way is I was talked about this this morning with some folks. I was in a store with an IO on the day before Thanksgiving. And one of his regulars, his name is Benny, came up to him and said, "Look -- she had a big smile on her face. She was like beaming. Look what I got for $50. I got all my Thanksgiving for $50." And she just wanted to tell him how much that meant to her and thank them. And it was regular course for him and she's a regular customer, but that's some of the work we need to do that's hard to tell early what that refresh is going to do for us. But what we're going to do is the fun part of what we've done is we didn't do any marketing around those changes. The lifts we're getting are really about the customer that's in the store. And so what we've seen so far is basket increase in those stores, now traffic in those stores, and then we'll be able to layer in marketing and stronger communication around what the offering is and what the value prop is. And we're going to use examples like that to help customers really understand what we're all about.

It started with 2 stores. I guess it started with 1, but is it still 2?

Yes, we've got more like 6 or 7 stores now complete. Last week was -- November was not the most fun we've had in a while. Comps were not so strong. But those stores definitely are punching far beyond what the rest of the business is. And even the early days of the next cohort of stores, we're seeing really good results. I was -- it's an exciting thing to see what happens when you really change something in a store. We'll have nearly 20 done by the end of the year. And then our intent is to continue to roll that out at a pace we think that the IO community can absorb. One of the pieces of learning we've had is because the way that the business worked, we brought something like 100,000 SKUs could change in a year. So stores would bring product in, comes in, it's out, it's in a different location. It's changing all the time. There didn't necessarily need to be a tremendous amount of discipline on how to put products where in a store. And so some of that learning has been -- and this is a conversation I was having with Benny, the IO in Petaluma, was, look, we had some bad habits. And it's been something I've had to work on, but Benny was very excited about going through that experience, learning what happened. And then for us, making sure that we're supporting our IOs in the right kinds of ways with training materials and support so that as we execute this, it's sticky. And so a little bit of story about where we are. But yes, some very good results early.

So the spread is holding above the average, even if November was a little slower. There shouldn't be any problem scaling. These stores are far enough from each other in different communities. There isn't a diminishing marginal return here from doing this.

No, not at all. This is scalable. We're not gated by demand. I think the IOs that we brought quite a number through the stores now, and we've had some of our IOs actually telling the story behind what has happened. I think on the last earnings call or maybe I can't remember which one it was, we maybe actually called out one of the stores that were part of this. And the IO there, her name is Chandra, just a wonderful person. She says we're getting phone calls every day for days and days from our IO saying, are those the numbers? Is that what's happening? And so part of what we're doing is celebrating those things, taking the learnings and letting our IOs tell the story behind what's happening to their businesses. And obviously, IOs get lots of feedback. When you're in a store, customers are telling you all day long how you're doing. Some of them will engage directly and they'll tell you those things and others don't. But the folks that are in those stores shopping today, tons of favorable feedback. And so people like Chandra telling the story about what the customers are saying, what the changes mean to her and her family and for the store success is pretty powerful.

You're slowing store growth and more focused on existing markets. How much of a debate is the growth in general? You seem like you're getting the internal parts of the business ironed out. How important is growing at the same time as getting the internal right?

For us, at this point, I think the most important thing is to get our core business working. It's -- the growth is going to be there. There's lots of space to grow. One of the things you do in a turnaround is make sure that you're as focused as you can be on the core, most important priorities. That also includes where you spend your CapEx. We think next year, we've already talked about this 30 to 35 net new. One of the important things, I think, within that is we've shifted the mix to more 2/3 infill versus 2/3 in new markets. We think that's important, especially as we focus on improving our returns on invested capital. Slowing the pace also doesn't mean we're going to stop, but we can be very discerning about the real estate that we execute. We're clustering. We're taking advantage of marketing in that way. We're -- it helps us with our people part of the business as well as distribution. And so we think that, that's definitely a no-regret move. Clearly, it's painful at the beginning when you do those kinds of things, but we want to be able to get the core business in a good place, focus on that. The amount of focus we have around operations and getting this 150-store piece up and running and supporting IOs is absolutely critical for us. And so we want to minimize as much of the distraction as we can. New stores are exciting, but they take extra effort. It takes more resources, more OpEx. There's the CapEx piece, and we intend on being free cash flow positive next year. We went through a year where we did some borrowing to build our stores. And so we think that having a prudent flowing there will help us focus and get the core business right.

On execution, especially marketing, there's been some learnings along the way. Can you talk about those and how do you adjust?

Yes. I think we've done a number of things there, turning different marketing up and down through the fourth quarter. We've got more dollars, I guess, being spent through the quarter than we did in Q3. The key, I think, for us in the marketing piece is, obviously, you want to have it in the right channels. There's 2 pieces of marketing that are really key. One is to get the in-store communication sharper, more explicit. And the second is on the external side, making sure that our message is also clear. So some of the things we've done have been very effective over a long period of time, but we want to make sure that people really understand that value prop. So you have more customers saying, look what I got for $50. So there's the savings part, but for a lot of people, it's what can I do with my life. And she was basically saying, look, I'm really happy I save this money, but I've got money to spend now because I've been able to save so much money with the store, and you got my needs taken care of. And so we'll be using a lot of those kind of proof points in our communication. We've started to do more targeting related to telling stories versus just item and price, which is important. The storytelling part of the marketing externally is going to be part of what we do.

Some of the operational changes that you've made in some perishable categories, we got to see some of the process of order planning tools that a business previously didn't have, right? So can you help us appreciate the improvement in the business?

Yes. So in retail, I learned this early. You -- to be a great retailer, you have to forecast -- I mean, margins are very tight. So you have to forecast well, order well, fulfill well. There's planning that goes in and schedule well. And so for many years, basically how ordering worked at Grocery Outlet in Fresh, and it's how work still in the vast majority of stores is more of an estimate of what I need. And so we tend to overservice the stores. A lot of our stores get 5-, 6-day delivery. And so there's a lot of service that goes on when you're not precise about what you need. And so by implementing some systems related to how much space an item needs at what price point with a forecast based on when my truck shows up in my sales, you end up matching supply and demand at a much higher level. The product is fresher, turns faster and it doesn't require as much labor and kind of the other supply chain-related costs that go with that. So we have a nice opportunity in front of us to really modernize some of how the business works as we've getting through these systems, challenges the business has had, we're getting to the tail end of that. And so a lot of what we're doing on that kind of fresh piece is helping educate our IOs on a process that helps them understand the business in a new way. And that learning in our initial groups of stores has been very positive. They're very excited about it. And as time goes on, we'll be able to automate more and more of it. And so this business has a lot of opportunity given what it's been through in the last couple of years on areas like shrink and sales. And so doing a nice job there, we're going to get benefit on both of those fronts.

Pricing, do you think the perception to the customer is as good as you advertise, meaning this 15% to 20% versus discounters, 35% to 40%?

No, I don't think it is. And even when I talk to some people working in the store, so the first thing you want to do is you want to make sure that the people that work there really understand it. This is a small subtle thing in retail. everyone that works in the store is having a conversation every minute of the day with the customer. And so whether you're selling quality or service or price or a combination thereof, people need to know what it is that they're doing and why that's important. And so some of the work we're doing is also educating the people that work in the stores. And by showing people very explicitly, here's what our pricing is on a basket of goods, either in the back room or at the front door with a cart, that's been ah, like you've got a few of those moments where people are going, wow, that's -- I knew it was good, but I didn't realize it was that good when you really show them. And so I think that there's lots of opportunity for us as this business develops in our marketing, both internally and externally with the customer for them to better understand the positioning. The regular in Petaluma, who was given Benny the thumbs up on the $50 Thanksgiving basket, clearly understands what she's getting and was very happy with that. We just have to find ways to make sure that, that's true across occasionals and some of our lapsed customers. We need to reinforce that. And some of that happens through the merchandising and the signage and also storytelling.

We spent some time in the catch-up aisle and the barbecue sauce. And you're going to bring some more everyday items, national brands to meet the customers' needs.

Right.

How does -- this will be the constant question is how does that alter or change price perception when you have to buy more every day?

Yes. I mean you have to be priced right on the things that people buy most often. That's just retail 101. So I think we -- like all the folks we've met with, we've used the same example, which is sort of a Heinz ketchup. So the folks at craft are probably happy we're using this, but we want our stores to carry that item every day. It's -- and you need to be priced at the market. And so there's a margin impact on that. But there's also a huge benefit in that what we see when people buy that item, they're also buying a much larger basket of goods, a dramatically larger basket. And so if you think of condiments as something that people have in their fridge, in their cupboard, it's a stock-up kind of thing, right? It's not something that you -- it's not an impulse item. People generally don't walk down the condiment aisle unless it's a different kind of sauce on things like that. So if you take Mayo mustard, ketchup, those are more or less on people's list, right? You might find a hot sauce is not, right? So that's more of an impulse. But those kinds of items you have to carry every day. And they tend to have a different margin profile, but they have a very attractive basket profile. And so one of the things our customers talk to us about where, look, you have a ketchup, but I don't want that one. This is the one I want, and I want you to have it consistently and make it easy for me to shop. And so by doing that, what we've seen is, first, larger baskets in those stores and now more traffic. And so as like all brands, trust is the most important thing to build. And so by being consistent, you build trust and you deliver day-to-day for me. And if you do, then I'm going to trust the brand, and I'm going to consolidate some of my basket with you as a result. And if you can't deliver that, that's great. I'll come to you for some of these other things, but maybe I don't spend as much with you.

Competitive positioning and the occasion, almost what you touched on, there doesn't seem to be a #2 going after the closeout off-price grocery space. But how does the customer shop your store? Is it small basket convenience? What percentage are doing the full shop?

It's interesting. Every retail business that I have been a part of and the biggest one is 1,500 stores, people shop in kind of missions. And so you'll typically find somewhere or I found somewhere between 40% and 50% of the baskets are actually $20 or less. There's actually a fair bit of -- if that's my store, you have around a very small radius, you get a lot of people coming in for quick lunches, drinks. There's a profile of items that fall into that basket. That's profitable, and that's good, but you also want to graduate people up, kind of get your fresh shop. So that's a bigger basket, but typically $40, $50, a high propensity of produce and meat. And then as you think about -- and this is true for the people in the room, if you do the grocery shopping, if I want to spend $150, it has all kinds of categories in it. And so this business is no different. It has a fairly large portion of convenience baskets. But part of what we're doing here is also trying to earn the fresh basket and the larger baskets with our customer. And so it's great to have those smaller ones, but there's a lot of profit to be made as you graduate up the trust sort of scale and people aggregate their purchase with you.

State of the IOs, any surprises first as you've come into the business? And when you were running a large chain, you've spent time with your store managers. Are you spending a different amount of time more or less having -- working with the IOs?

No, I think in all retail businesses, whether it's a store manager, the franchisee or the IO, the most important position in the company, the folks that are operating the stores. And so having a cadence of communication and engagement is essential. And so it's more than maybe what they're used to, but it's also important for us to engage. And so we're finding -- it's not necessarily different for me, but you don't want people to play fill in the blank. It's very important to be continually communicating the good news, the bad news, whatever it is, also updating people on what's happening. And so communication can be a big strength in the business. And so we're -- that's definitely something that's different. Clearly, when you have people that have their personal money at stake, their incomes, they want to understand what's happening in the business, and there's lots and lots of feedback, which is great. But I don't think that's necessarily different than any business that I've been involved in. When I was a kid, I grew up in a franchise business. And the franchise business that I grew up in, those folks own the building, they own the inventory. They really cared about the profitability, and they cared about return on their capital. And I don't see this as that different. It's -- people have a profit motive. They want to know what's happening and how you can help them grow their business and grow it profitably. And so whether it's a corporate chain or any other, it's a different flavor, and you have to take those flavors into account, but the communication piece is key.

The pipeline, does it get richer, meaning does it get enriched since you're going to open fewer? And then as far as standard of -- operating standard, how wide of a range of best practices do you see across the board?

Yes. I think there's -- we'll probably have more variability than I definitely would like to see. And so we're starting to work on measuring that variability for the customer and making sure that we're working on the right things and that you want to make sure that people are spending their time on standards that add value and eliminating the things that don't. So that's a piece of work that we have in front of us, if that answers your question.

Yes. And pipeline, I mean you've had a pipeline, I guess, it gets a little better now.

Yes. One of the things we probably oriented a little bit more to is, in my experience, having folks that have a track record and have retail experience, whether it's a franchisee store manager or now in this case, an IO, the quality of that individual is just so important. Having retail experience helps a lot. And so we've shifted a little bit in our pipeline profile of who we're trying to attract to the business. We've also shifted the way that we're compensating those people to attract them. And given the upside being in IO, again, there is a strong business case to make sure that you're bringing on the very best talent of that position that you can find. And one of the main points of an IO model is you should be able to disproportionately attract talent that maybe you don't even deserve given the opportunity. And so we're orienting the business in that regard.

Gross margin is a big topic, but coming from systems implementation, that triggered a lot of gross margin variability, lack of visibility on ordering. Then there were some pricing things to mitigate it. There were some other margin stuff to mitigate it, IOs payments, et cetera. We should be in the full workout phase from that and a new normal of stability?

Yes. Margins have been more stable this year, to be sure. We have lots of opportunity in shrink even today. So we're not back to a normative state there. So I'm excited about what -- some of the systems work we're completing now. One of the things that's been absent for the last 2 years is for our buying teams, they can't see what inventory we have in the store. So that's a pretty big disconnect in the business. You're trying to match supply chain and demand. And so we're almost ready to turn that on so that our buying group can see what's the inventory fully in the system. And so those kinds of opportunities help you navigate margin as it comes, what's coming, what the mix is, do you have the right things in the right stores and so on. So there's some nice upside as we go forward. There's always going to be the conversation about how much you invest or how variable things are. But it's been an uncomfortable struggle for the team for some time just given some of the lack of visibility and the connection parts of tools. We're now at the tail end of that. Earlier this year, I think systems-wise, we had something in the neighborhood of 350 fixes, either technical connections, process breakdowns, whatever they might be. We whittled that down now to something around 100 left. And so the business continues to improve its predictability and visibility.

And the return to operating leverage, normalized growth, it seems like the store fixes are the quickest path to get there. So what's holding back from turning the green light on and doing as many as quick as possible?

Yes. I think we had this debate internally. One of the things that's important to do is to make sure that we bring everyone with us as we make the changes. And so in the initial pilots, some of the feedback we had from IOs were don't go too fast. There's a big change. We need to have support. And that was some of the learning. And so what we're doing next year is we think we're going to be able to go faster as time goes on, but we want to make sure that we're building the operations support, the training, the development, all of that work around the changes at a pace that our IOs are comfortable with and can execute, so we have stickiness. Probably the worst thing that could happen is if we -- typically, in my past, we might have done all the stores in 1 year. You're able to -- sometimes in a corporate environment, you might have done something just a little bit different, but it's important to bring the people with us. And so we're pacing that in a way we think is appropriate given the situation. All of the missteps in the company, there's been trust lost, and we have a lot of trust to build with our IOs. And so we want to make sure whatever it is we're doing, we're delivering the mail and that it's sticky.

And have you shared how many is an appropriate number for the organization for year?

Yes. We talked about next year, we're fully planning to do north of 150 and intend to be done in the first 2 years. And as those rollouts happen and you dial it in, you typically you go faster anyhow. It takes about 5 weeks to do one. And then there's both training and that you're doing through that and some postwork after. So 6, 7 weeks in, you come out of the other side of the dip as you're tearing the store apart, and that's where you see the comp growth. It's a compelling offering for our IOs, the incomes that they're going to accrue are very significant and with a very short payback for them. So folks that have done this already are really excited about what it means for them and what it will mean for our Grocery Outlet.

Great. Well, I'll leave it on a positive note. I appreciate you being here. Thanks for the update. Good luck through the end of the fourth quarter and into '26. Thank you. Appreciate it. Thanks.

Thank you very much. Thanks for your attention.