Performance Food Group Company (PFGC) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for joining PFG's 2022 Investor Day. For those of you who have joined us in-person, we appreciate your willingness to travel to our beautiful Core-Mark campus. For those joining on the webcast, we have a great lineup of presentations and appreciate your support of PFG. Before we get started with the formal remarks, a few housekeeping items. Our presentations today will run for about 3 hours. You will hear from leaders across our organization. We've also saved plenty of time for questions following our prepared remarks. Those of you in the room will be able to ask your questions directly to management, and those on the webcast can enter your questions into the virtual platform, and I will moderate the Q&A. We will try to address as many questions as possible during the Q&A session before breaking for lunch immediately following the presentation. Speaking of lunch, I wanted to thank our team of chefs, who have been busy preparing the wonderful menu for all of you today. At the heart of our organization is food, and we are thrilled to be able to share some of our delicious offerings our company provides. And then finally, during our presentation today, we will discuss GAAP and non-GAAP measures adjusted for certain items. The reconciliation of these non-GAAP measures to their corresponding GAAP measures can be found at the back of the presentation materials. Our presentation will also contain forward-looking statements and projections of future results. Please review the cautionary forward-looking statements section in today's press release and presentation and our SEC filings for various factors that could cause our actual results to differ materially from our forward-looking projections and statements. With that, we'll watch a quick video, and then I'll turn it over to... [Presentation]

Hello, everyone, and thanks for joining us here at Core-Mark's headquarters. It's nice to be in-person. It is also very nice to see a lot of familiar faces. What we want to show today, first of all, we want to highlight our management, a lot of our people who will be presenters today or people that none of you have met in the past. And we also want to display the great confidence we have in our business. We're a very customer-centric company. I think that, that's something that most companies say. And I think for us, it's just part of our DNA. [ Technical Difficulty ] Okay. Thank you for your patience, and we are back. The next slide, we have up here just gives you an idea of kind of the breadth of our business. I think the most important part of it is that we are growing our people, we're growing our suppliers, and we're growing our number of products on a very consistent basis. We're very locally based decision-making company in our Performance Foodservice business, where our other businesses are more centralized. We feel that's very important. We have about 12,000 people that interact with customers. We do everything we can to keep those customer-facing decisions as close as possible to the customer. If you look at the pie graph there to give you an idea where our revenues and our EBITDA exist within our businesses. Foodservice, certainly our largest business. Vistar, we have our highest share. And we have varied EBITDA margins based from the business and the product mix, but we're confident in our ability to continue to grow our EBITDA margins in each one of those businesses. This here is a map of what we would call our broadline business. As you can see, we have a tremendous amount of white space as you get west of the Mississippi. And I think that bodes really well for our future. The map here adds our customized business, which we do primarily large, casual dining chains, and it adds our legacy businesses, which are primarily Pizza and Italian distributor businesses. Okay. This here is our Vistar business. As you can see, we have national coverage. We sell to virtually every ZIP code in the country. And then we also have 3 retail distribution centers, which are pick and pack automated facilities. One, you can see there is in Pennsylvania. One is outside of Memphis, Tennessee and Mississippi and one is in Reno, Nevada, and Patrick will be speaking to those in his presentation. And this is the map for Core-Mark. As you can see, national coverage, very similar to Vistar. We are in the English-speaking part of Canada. We also have 7 VEs which Scott will speak to in his presentation. And they have a company there, you can see that dot in Iowa, it's by the name of [indiscernible] and that's an interesting business to us and that they're large and convenience, and they're also very large in foodservice. And this is the map of all of our businesses. And you can see it just shows clearly that we have a tremendous amount of scale, and we have a tremendous amount of scope. Also, I want to speak to our marketplace, we have a very large addressable market, and we have a very large serviceable market. We're fortunate that we're a large company, but we're in very large industries, and we still have fairly low shares. I would say the Foodservice will be our key growth area, but we expect to see all 3 businesses grow. Foodservice, we can do that both organic and M&A. Vistar, we feel like a good bit of our growth will come from our e-commerce and from our pick and pack automated facilities. And in Convenience, the ability to do more foodservice, some of which will come out of our performance facility, Foodservice warehouses. And then we also hope to get more into the products that are currently serviced by DSD. Okay. This kind of shows where our sales and EBITDA have gone in the past. We've really had consistent growth. We've had very consistent independent growth. Also, we define independent in Foodservice as having less than 5 units, and we've had that same way of measuring that business throughout our existence. We've also, of late, our independent business has been growing very quickly in our Core-Mark EB organization. And if you look back over the entire time that we've existed, we've always had a good mix of M&A and organic growth. We feel like pre-COVID, we were really peaking, particularly our independent growth. And if you think about since then, we have got the Reinhart acquisition done, and Reinhart is doing exceptionally well. Great growth. We knew that when we purchased the company, we've been around it for a long time. We knew it was a very well-run company. We didn't also know that they struggled to grow, and that's the component that we've really been able to add to that business and it has really significantly outperformed what even our expectations were. And then with Core-Mark, we're early, and we're doing really well. We've been putting out great growth rates in that non-nicotine area, which Scott will speak to. And then there's synergies. So we've done a good job with both businesses as far as synergies go. Reinhart, we got a long way to go. We really have done nothing to address where we're both in the same marketplace. Much of that is because our SKU base is very different. And the biggest reason, though, is that we have filled their capacity with business so quickly. And so it's a good reason not to be able to move with those future synergies, but I think it's important that everyone know that they're out there and we will get to those. And then in Core-Mark, kind of the back of the house type of synergies that you get, the corporate office type synergies, we were able to get very quickly as we were with Reinhart. But I think that we'll get further along from a synergy standpoint there because the inventories are so similar, the businesses are so similar. So it's -- I think, in many ways, an overused word, synergy, but we've done a good job with it. I think that where we've backed up on it has been because of our success, not because of our inability or unwillingness to continue with it. So what I want to really emphasize is that we did feel that we were peaking, pre-COVID, we were doing exceptionally well. And we feel like we have another peak to come. We continue to gain share. We have a really robust pipeline of new business. And I needed a little cheat sheet here. I'm going to introduce our President and Chief Operating Officer, but we're putting through so many different positions. I needed to make sure I went through this. But Craig Hoskins has been with us for 32 years. He's been in the industry for 32 years. So this, of course, goes back to predecessor company from our acquisition of Multifoods Distribution Group. So Craig has been involved with procurement. In Vistar, he has run sales. In Vistar, overseeing OpCos in Vistar. He has run sales at Roma, at Performance Foodservice. He's been the President of Customized, the President of Performance Foodservice and now our President and Chief Operating Officer. With that, I'll turn it over to Craig.

Well, thank you, George. I appreciate it. Do you have my clicker? There you go. Thank you. First, thank you for coming to Dallas. We appreciate all of you being here. It's nice to be together again with people, post-COVID. Today, we're busy creating the country's best food away from home distribution company. Today, you'll meet many of our talented team members. I wish you could meet our entire senior management team. You'll meet some of them today during lunch and Q&A. But I also wish you could meet our field leaders. And in our business, especially in Foodservice, it's really where the rubber meets the road. It's a talented group of people. We're now 30,000 people strong. proud of what our team does every day to serve our customers. As a customer-centric organization, we believe that products and people matter. We are committed to meeting the customer where they want to be met, not where we want to meet them. I know you'll hear a bunch about that today, and we're excited about it. As you see here, we're showing a few of the early wins we've had as an organization. Rutter's was a Core-Mark customer, long-time customer, and we came together with them, and now we're serving their Foodservice business. With quick check, that's a long-time Performance Foodservice customer, and now we're doing the center of the store through Core-Mark, met with them last week with Scott. They're pleased with the progress that we've made, pleased with the service we're providing. And Gopuff is an interesting story. You'll hear a little bit more about it later. But Gopuff was a customer of Vistar and Core-Mark. It's growing rapidly. They needed solutions in Foodservice. We were brought into the fold and now we're doing their food service distribution for Gopuff. There's a lot of opportunities that are similar to that, and our teams are out executing against those today. We're already seeing wins. We're sharing best practices between companies. We've developed great brands over the years. You'll hear about that later, but we're also developing programs and programs designed to help operators succeed. So be it a chicken program or deli program or barbecue program, turnkey for our operators to go to market. One thing that's important for you to hear today, we have a diversified model. I'll talk a little bit about that here in a moment, but we can weather tough times like we have in the past. Here's an example of the number of times we and our customers can hit a consumer during a week. On Monday returning from a trip going through the airport, hitting the airport gift shop, hotel pantry, right? Perhaps dinner afterwards. On Tuesday, you're back in the office, grabbing a cup of coffee on the way to work, coffee service station at the office, a micro market. On Wednesday, it's movie night. So you go out. On the way, you might stop and get some candy or preferably you're getting that candy from the theater. Then maybe a dinner out afterwards. Next day, you go to see your kid at campus, right? You've got an opportunity to go to the college bookstore, pick up some snacks, have a nice dinner, perhaps order something in from somebody like a Gopuff. On Friday, you're gassing up, you're heading off to the big game. You have an opportunity to grab drinks and snacks on the way. You've got an opportunity to -- on Saturday, go to the big game, go to a catered event, have dinner after. Sunday, hitting the theme park, grabbing some pizza. So over the course of a week, there's so many opportunities for us to hit America's consumer through our operator customers. Some of you may be concerned about how we manage inflation. I'd encourage you to look at our past performance. We have so many different levers to help our customers manage inflation as well. Know that our customers are extremely creative and resilient. They've done a great job in navigating COVID and they continue to find ways to solve the issues that they face as operators and to continue to provide what Americans crave, which is the ability to go out, be with others. As a customer-centric organization, we're very focused on providing them solutions. Know that we have leading positions in very resilient channels. Those include pizza, convenience and many different grab and go concepts. As George mentioned, we have experience in delivering success against large acquisitions, large and small. Every time we do one of those, we're looking for cultural fit. Liz will talk about that in a moment. We're looking for creative people. We're looking for talented people to build our bench and to fold into our company. In addition to that, expanding talent pool, we still have synergies, as George mentioned, that are available through our acquisitions. So be it food inflation, we have ability to manage through food inflation as we have over the last several months, be it labor inflation, we have the relationships with our customers and the contracts and the clauses that allow us to manage through that inflation, or be it fuel, our ability to develop costless collars, the ability for us to pass through fuel increases in the form of surcharges and just our normal day-to-day course of business conduct where we're managing our fleet, we're managing our routes through route efficiency software. So looking forward, our deep team and our model will deliver solutions. Many of our markets are still recovering. So some examples of that would include in our Vistar channel, where our offices are still recovering. But again, our operators, very resilient, very creative. We're excited about what our team can do in the future. We've got an opportunity to continue to grow our share in the restaurant business. We still have synergies to capture through our acquisitions and we still have plans to grow in our targeted market share areas, such as independent restaurants. With that, I'll turn it back over to George. Thank you for your time.

Thanks, Craig. Okay. Our next presenter is going to be Steve Broad. He's an Executive Vice President of our Performance Foodservice Division. And Steve, like Craig has been 32 years in the business, 18 of those years have been with PFG. And Steve took a real, what I consider a conventional trip to what he's doing today. Steve was in sales. He was in sales management. He ran an OpCo. He oversaw several OpCos. And now he oversees what we call field operations, but basically, it's all of our people out in the distribution centers. Steve?

All right. Thank you, and good morning, everyone. I'm going to talk about why we win in Foodservice. It all starts with our customer-centric approach that's been talked about. This fuels our sales pursuit to develop high integrity relationships to serve our customers' business needs with top caliber associates, distinctive products and service excellence. To do so, we have to impress at the point of sale. We train our sales team on an integrated methodology, a set of proven tactics that enable us to best identify our customers' needs, then target our expertise on providing the right products, the right resources, the right ideas that enable their businesses to be successful. This approach gets us behind the veil, if you will, of what's your price on every item, to become more involved in their business and ultimately be that most valuable resource to their prosperity. We're very effective in this realm, okay? We have retained our sales force through all of the turbulence that's been experienced. We never wavered. We retained key relationships. And in many cases, we enhance those relationships because of our ability to help our customers navigate those challenging times. We're growing our sales team. We've continued to enhance our place in the market. We're now a top 50 direct sales force in the United States. So we're blessed with a lot of talent, we're blessed with a lot of tenure. We've got a lot of spirit in our organization to deliver on our customers' expectations and help them succeed. Sometimes that spirit questions, do we really need this training? We've weathered the storm, we're successful in the marketplace. We're gaining share. Well, I'll tell you this, whether you're brand new with our company or a seasoned veteran, we are going to invest in your effectiveness. We sum it up this way. There's not a chef out there that doesn't sharpen his or her knives on a regular basis. We are going to stay sharp in front of the customer. We're going to provide those resources necessary for their success and we're going to continue to be that most valuable resource to their prosperity. We've touched on our customer-centric approach, talked about our sales effectiveness. Here in a few minutes, Eric is going to talk about our incredible array of products that we have available to the marketplace. We're going to dial-in for a minute on the 12,000-plus associates that interact with our customers on a daily basis. Once we've set the table and impressed at the point of sale like we talked about, then we have to impress at the point of delivery. And we've got a very robust service excellence program that measures the key elements that literally deliver on customer satisfaction. This is what our associates do day in and day out. They're aligned with this philosophy and this approach. They are backed by some of the best technology in the business when it comes to warehouse and transportation. So we have a safe organization. We have a productive organization. We have an accurate organization that literally delivers on the needs of our customers and helps them in their prosperity. We never backed down from that. We've also enhanced our customers' digital experience. The development of our customers first digital ordering platform is well underway. And our design has been very complex, yet straightforward, right? We want to make it profitable, make it smart, make it easy. We know by doing so, we're going to have larger basket size, we're going to have additional users attracted to our format, we're going to reduce customer turnover and I'm really excited about the future pilot of the endless aisle, where customers will enjoy a single point of entry to access the vast array of product across our entire enterprise and have at their disposal and their ability to advance their prosperity, right? So Foodservice customers will be able to tap into Vistar. Vistar into Convenience, Convenience into whatever channel makes sense to help their customers prosper. I think it's a great thing, and there's more greatness to come in this area, and we're really excited about that development and enabling that capability very unique in our industry across our customer base. Are these things really points of differentiation? Well, our performance would say so. Our independent business has never been a greater portion of our overall mix. hey, that's something. But equal, if not more important, our customers realize our efforts. In the elements that are most important to customers in the engagement of their business from their Foodservice distributor, PFG ranks #1 in each one of those components. So we are out there impressing at the point of sale. We're impressing at the point of delivery. We've got a well-trained, educated, properly compensated and motivated sales force that's delivering on the customer's expectation of our service to their business. And I will tell you that there's nobody out there that's better positioned to take market share than we are. I'm excited about our future. I'm looking forward to getting out there and being more aggressive than we even are today and looking forward to the prosperity of our customers going forward. So I'm going to turn it back over to George. Thank you.

Thank you, Steve. All right. Our next presenter is Eric Shoemaker. And Eric is also Executive Vice President of Foodservice. The difference between their 2 responsibilities that Eric handles everything internally kind of the corporate functions of Performance Foodservice plus the overseas, our meat cutting and seafood cutting operations. And Eric has been with this industry for 40 years, and he's been 20 years with PFG. A couple of other things that I think are really interesting is going to really help Eric. In 2012, when we bought IFH which is -- 2 of them are in the Carolinas, we moved Eric as President of our company in Virginia to head that up. And the person that was doing it at the time was retiring from the organization. It was an extremely good acquisition where we more than doubled the sales, we more than doubled the earnings. So he's been through that experience of converting brands, really getting involved in what the right geography was. And we have that ahead of us still in Reinhart and that's going to be a big part of what he does. And in his previous role, just before this, where we sold OpCos, he was very involved with these Reinhart OpCos as well. So I'll turn it over to Eric.

Thank you, George. Welcome, everyone. So I have the pleasure of talking about our exclusive brands this morning. And within Performance Foodservice, quite frankly, people and products are our passion. And nowhere is that more evident than within our exclusive brands. They absolutely fuel our growth within Performance Foodservice. So those brands are made up of kind of 2 different types. First one being our umbrella brands. And that would be represented by Nature's Best, Roma, West Creek. These brands typically are tiered different quality levels to meet different applications that our customers are asking for. And then next, we have strategic brands. These brands tend to be more innovative, oftentimes first movers, represented by brands like Braveheart Black Angus Beef. I'm going to talk about that a little bit more here shortly. Coda Coffee, a recent brand that we actually are able to use now due to an acquisition a few years ago. And then also Bacio and Contigo on our Hispanic label. So why are these brands important? First of all, for our customers, they represent value. Oftentimes better quality or equal quality, better pricing. They also provide consistency and reliability. So our customers get what we benefit from on the purchase side with our supplier partners that often -- those relationships are decades long, okay? So we've seen, over the last 2.5 years, very, very turbulent supplier issues and supply chain issues. So what's been very evident is within our supplier partners deliver, quite frankly. So our AMs, our area managers, our sales team, how they benefit from our brands? It insulates them from our competition. It creates loyalty with our customers. And then on the company side, we use our leverage with our exclusive brands and that volume to drive great cost of goods through the organization and to our customers. So when we think about our brands, and we start thinking about, okay, let's develop a brand. Really, the work goes into keying in on especially those strategic brands and defining our key attributes. Nowhere is that more evident than with our Braveheart Black Angus. So here's a brand 14 years in the making that we control from start to finish. Rancher, farmer, feeder, processor. And along that way, we've defined attributes that make that product special, okay? And what I mean by special is, nobody else does this. So we do things like we have specifications that say U.S., Midwestern grain product only. And, by the way, that's toasted flakes or cattle or fed produces a richer product. We also determined that it was better for those animals to be closer to the processor. So no feeder that handles our Braveheart Black Angus cattle can be more than 150 miles from our processor. And so what that does is, creates, number 1, a smaller carbon footprint, less miles to travel; number 2, less stress on that animal. And what stress does to an animal, if it's allowed to releases adrenaline makes for a tougher eating steak, quite frankly. Another key attribute for that product is we've specified that we're only going to have smaller carcass weights for our Braveheart Black Angus product. And so what that does is it defines what the size of that strip lion is going to be, or that ribeye is going to be. It's going to create a thicker steak when it's on the plate, it allows our customers to give their customers a better eating experience. And then at the processor, we actually pay a premium to have our processors slow down their line speed. That enables them to have a tighter trim spec on the product, quarter-inch or less when the industry standard is 1 inch or less. So what does that do for us, whether it's our internal meat processing centers that we have or our customers in the back of their restaurants, cutting steaks, less labor, less trimming, less waste, better product. We think that's very important as we develop our brands. And then when you look forward and think about it, next step in the process is training our folks. Steve mentioned earlier, need to continue to sharpen our knives. And so when we have this great brand, we have to develop that rigorous training program to really set our sales team apart from the competition. That's done with our Performance Academy, where every area manager that comes into the company is required to either attend live or virtually, a 1-week session that is just an absolute deep dive on our exclusive brands. And then we also have a team of national sales specialists and local sales specialists. These are folks that are absolute expert in their field and have extremely high culinary IQ in areas like center of the plate, produce, Hispanic and Latina, Pizza and Italian, so on and so forth. So these folks, whether it's a national level or a local level are tasked with training our sales team on a weekly, daily basis, being in the cars with our sales folks, meeting the customers in the back of the restaurants, showing them our exclusive brands, features advantages and benefits that they're happy to receive to their restaurants. Then we also provide on an annual basis, 3 different thrive summits a year, that really are more of a train the trainer session for us. So our national sales specialists are in training our local sales specialists in areas like Pizza and Italian, which we just had about 2 months ago at Richmond, attended by over 200 of our folks out in the field, again, sharpening our knives. And then we want to back that up with a very robust digital branding strategy. So our digital branding assets go out to over 10,000 recipients on a very regular basis. Steve mentioned our customer satisfaction survey, which clearly showed that we are winning. And in key metrics that our brands touch, it shows that here as well. Things that are important like food quality, value, food safety and variety, again, we're winning and we're outperforming our customer -- or our competitive set, excuse me. I absolutely think this slide is huge, okay? This shows that the work is paying off for us, right? We've developed the right brands. We're training our people properly, they're connecting to our customers and our customers are responding. How they're responding is, they're ordering over 50% of the cases coming into the back door of that restaurant is in our exclusive brands. It's very important. It's a very powerful graph that we have there. And then you can also see where we had the Reinhart acquisition, from that point on, we've absolutely exploded with our exclusive brand sales, and we see no stop to that. So I want to shift gears here just a second and talk about investments and innovation. So we're going to continue to invest in our capacity to support the growth that is key to our success in Performance Foodservice. We're also going to invest in innovation, specifically in our warehouse. We're going to have auto scrubbers, we're going to have robo wrappers, we're going to have self-advancing pallet jacks, all in an effort to make us more efficient and more productive. We're also going to have a keen eye on safety. We've employed technology like kinetic, which is a wearable device that tracks the movements of our associates within the warehouse, make sure they're doing proper lifting methods, keeping them safe, keeping them healthy, keeping them involved in our business. We're also going to pilot and are piloting fit for work, where we have an on-site training coach, if you will, that interacts with our associates every day, helping them when they feel a strain or need some help stretching, if you will. So we're excited about the company that we have, our associates that are out there leading the way and the products that we're proud to sell. I want to -- just one more plug about our brands. For those of you that are fortunate enough to be here on our campus today, please make sure that you check out our Coda Coffee, Rugged, Braveheart Black Angus beef tender line at one of the carving stations, I guarantee you it will not disappoint. With that, I'll turn it back over to George -- actually, I'm sorry, we're going to go to a 10-minute break. Thank you so much. [Break]

Well, our next presenter is Scott Mcpherson from Core-Mark. And Core-Mark has been a great addition to our company, and Scott equally great addition. And the first time we formally met -- when I'm talking about formally when we were really talking about putting the companies together, it started out about like we did with our microphones today, we were meeting at a restaurant called Truluck's which is very close to here. And I had a car picking me up and taking me there. And I get in the car and immediately get a phone call. And it was a kind of a somewhat important phone call. So I'm lost in this phone call, and I get done, I'm like, we've been going a long way. He wouldn't make it this far away. So I said to the driver, could there be 2 Truluck's, he's like no, there's only 1 downtown, that makes sense. So then I, of course, went to trusted Google and put in Truluck's and it brought 2 up. So I called, I said, man, I'm really sorry, but I'm going to be quite late. So that's how we got off to a start, but we did have a great dinner. And we actually came to this building afterwards about 10:00 at night. Scott's got 35 years in the industry and his dad actually owned convenience stores. So he's run convenience stores before coming to Core-Mark. I think one of the great things about having Scott with us is he's run a public company before. So he knows what I deal with and what we deal with as a company. He has a tremendous amount of M&A experience. This last time he was on the other end, getting bought, but it was a great experience because we both had to fight really hard. I thought we overpaid, and he thought we didn't pay enough, and we had a couple of conversations that probably weren't the greatest. And from the minute we were done, we've never had a bad conversation and I'm sure we won't. He's also done a great job with the EB synergies. His company today, Core-Mark, is really a mix of both companies and a very good mix from a senior management standpoint, the good companies. Now I will turn it over to Scott.

Well, thank you, George. I really thought he was standing me up on our first meeting. So it was about 30 minutes of really precarious time there. So hopefully, everybody had a chance to visit the COE for Convenience this morning, enjoyed themselves, got an opportunity to really see how we approach the business. We're really proud of that center of excellence. It's done a great thing for us with our customers, creating an environment where they can really experience something different. And that's really how we approach the business. We're trying to create differentiation in our marketplace. So I'm honored to be here representing the Convenience segment of PFG. I'm going to jump right in and just kind of hit on our Convenience priorities. And I think anybody in here that knows George knows that he is maniacal about growth. And I think that's something that aligned with the way we think. And when I think about growth in the Convenience industry, it really starts with account penetration and that same-store sales growth for us. And that's something we're hyper focused on. And then when you think about how we add Foodservice into Convenience, that just accelerates, that really helps us with that same-store sales growth. The other thing it helps us do is gain market share. And when I think about market share, we're pretty balanced between chain and independent. And that's the other way we think about growth. The next thing I'd touch on is operational excellence. It's something that both on the Core-Mark and EB side, we really focus on, something that we're proud of. I can tell you the last couple of years, that's been challenging. Obviously, with the workforce issues, that brings challenge and that brings a challenge in being able to leverage the technology. And so we've really worked hard on that. I think that's a big part of our go-forward strategy is to regain that operational efficiency. And that's going to help us when we think about driving EBITDA and EBITDA margins, which I'm going to get to in a minute. The other thing is just leveraging the scale. And when I think about leveraging scale, I think about leveraging product selection, I think about leveraging cost. And we're just starting, I think, to scratch the surface of -- turning over some of those stones in the business. But I've definitely seen that scale come to bear. I think you heard about some of that in the COE this morning. The next thing I want to hit on, and I had growth in EBITDA and EBITDA margin is kind of at the top of my page for a reason. Obviously, that's something as a public company that we're very focused on, both just the dollar growth of EBITDA, but also the margins. And for us, when we think about what is the driver of that, the driver is clearly one thing, and that's growing non-nicotine sales. Without a doubt, that has been our focus in this business for a long time and will continue to be our focus. That's where we drive margin, that's where we drive profit. With that, and especially with the inflationary challenges that we faced, we worked really hard on how we approach the market from a pricing standpoint. And so from a strategic pricing standpoint, I think we've done a great job to help combat some of the inflationary pressure. And maybe lastly on driving EBITDA and EBITDA margin, it comes back to operations, right? We have to operate efficiently to be able to consistently drive that growth, and that's something we're very focused on. The last thing I touch on is any time you have a big acquisition, there's integration and synergy, are the 2 words that everybody talks about. This was a little different in the sense that there's 2 Convenience store companies that have been acquired over the last 2 years. So we spent a tremendous amount of time bringing Core-Mark and Eby-Brown together. And I would say that in the 9 months, I'm really proud of the steps that we've taken to bring it together as one Convenience. And that's really what I'm talking about today as one Convenience. I'm not talking about 2 separate companies. And that's been very powerful. And I think we're on a great path with that horizontal synergy and also the vertical synergy and integration into PFG. And that kind of comes back to that $40 million of synergy that was called out. I think we have a great runway there. So I want to take a step back and just talk about the Convenience industry, the whole industry as a whole. You think about Convenience stores across the U.S., there's 150,000 Convenience stores. You've got another 25,000 or so in the Canadian region that we service. But when you think about inside sales, and this is excluding fuel, you're talking about $278 billion in revenues. And I think when you -- we think about the thesis of why do you bring Foodservice and Convenience together? I think this next block really shows that. 23% of the sales and Convenience are in Foodservice and 67% of that is in basically what I call broadline foodservice or prepared foods. I think that's where the marriage really resonates to me. I wanted to touch on a couple of other things as far as industry landscape. When we think about our total addressable market, it's about $195 billion. So a very vast industry. Our serviceable market at about $127 billion. And then I think most importantly on that upper right-hand corner is really our non-nicotine serviceable market, which is about $48 billion. I think the other misconception about us is that we're just in Convenience. And we have a great partnership with Walmart and Mass. We do direct-to-consumer with DoorDash and Gopuff, as Craig mentioned earlier. We're in the drug channel with Rite Aid. But we also do what I'd call other convenience retail. We're in liquor stores. We're in airports, schools, casinos, hotels. So we serve a broad array of customers. And then maybe taking another step back and just looking at our Convenience snapshot. So the Convenience segment of PFG, we do about $23 billion in sales, about 50,000 customers with about 39,000 of those being Convenience stores. So Convenience clearly is our primary segment. We have 10,000 associates that service those customers over 50 distribution centers. And I'm going to drill down into that distribution center breakout. Before I do that, I did want to just touch on kind of our mix in Convenience. So this is kind of our mix. And the 1 thing that a lot of people will jump to is if you look at cigarettes and tobacco and that Convenience sales mix, it's about 70% of revenues. I think the more important thing to look at is the gross profit breakdown, it's about 39%. Nicotine is about 39% of our gross profit, leaving 61% in that non-nicotine space. So I think it answers the question, why are we so focused on non-nicotine to grow our EBITDA because that is the growing segment of Convenience. It's also the most profitable segment of Convenience. The last thing I'd touch on, I think I touched on a little bit is we're about 50-50 chain independent, which I think is a good place for us to be. It's good balance, and I think that's a good representation of our industry. So shifting gears, if you look at the Convenience network, we have 37 what I call traditional OpCos across the U.S. and Western Canada. And we have 4 Walmart OpCos. And those centers are basically in the parking lots of our traditional OpCos and service-only Walmart. We basically do checkstand candy, and then all the candy aisle in those Walmart locations. It's a great partnership. I think it's one that has the opportunity for growth. We also run 2 3PLs. Those are in Arizona and Texas, and that's for [indiscernible] and those are dedicated to their stores, and that's also a great model for us. I think maybe the most powerful thing that we have when it comes to distribution centers is redistribution. We've been in the redistribution space for a number of years. We have 7 redistribution centers. And really what that allows us to do is get products efficiently and cost effectively to every one of our OpCos across the U.S. and Canada. And when you think about, okay, we're going to have Foodservice SKUs or we're going to have additional items, fresh items, that allows us to get that across the network very quickly. And so that's, I think, a big differentiator when we think about our Convenience network versus the industry. So continuing on that theme of differentiation, think about the benefits of belonging, I made that phrase up that's what I think about when I think about blowing it to a bigger umbrella to PFG, and the first thing that comes out is obviously synergy. And we're on a great track from a synergy standpoint. We have captured in the first year annualized $15 million of synergies. Craig talked about earlier. We've also had great partnership alignment with Rutter's and Murphy USA. And I'll talk a little more about Rutter's in a second. And then you think about the bigger potential. What does that mean? It means $40 million in synergies. I think we're on a great path there. It means accelerating Foodservice growth and Convenience, which I think you've got a great taste of in the COE this morning. And it also means continuing down that path of differentiation. And I kind of broke that into the 3 buckets below, which is really one Convenience. So bringing Core-Mark and Eby-Brown together. In my mind, it brought together the best sales organization in the space. I think it clearly brought the best technologies, category management opportunities for our customers together in a space. I think it's very powerful. We are the largest Convenience store distributor in the U.S., and I think that's a powerful thing. And those 2 companies coming together, I think, provides us great leverage. Thinking about leveraging scale, I kind of touched on this. But to me, it's about item selection, it's about cost leverage. It's about human capital. We've already shared employees across segments, which is really powerful. And it's about trade spend and non-trade spend. I think it's just bringing that leverage to bear. And that last bucket, the PFG umbrella, I really think about that as food. I think about product development, the branding that Eric talked about, building out foodservice programs, new technologies, all of those things, I would say were core competencies of a stand-alone Convenience distributor. And the last thing I'd say is from an ESG standpoint, I think that PFG has done a great job of building out that platform. And that's really kind of helped us with a framework to move forward in Convenience as well. So if I move forward on expanding Foodservice, I kind of -- everybody thinks about Foodservice and Convenience and how does that all play out? And to me, it breaks into 4 buckets. The first one, and you saw this, this morning is we saw a couple of opportunities this morning, where we talked about bringing in new items into Convenience distribution centers. So if you were in the COE breakouts, we were kind of talking about that top 250 core items that we could bring into Convenience distributors. Those are -- a lot of those are branded items. I think those are going to be cost advantaged items. And that's something, as a stand-alone, I remember I used to go out and sell against the broad lines. And I'd be like, okay, I'm going to sell a chicken strip, and they would be selling their house brand at a much lower cost than I'd be selling a name brand Tyson. So I could never compete. And that's really the advantage of bringing this together. It gives us items and it gives us cost leverage. I think that's the low-hanging fruit of bringing Foodservice in. I think the second piece you saw clearly is the branded Foodservice programs. You saw the 5 programs, whether it be Pizza, Mexican. Those things are turnkey solutions that as a stand-alone, we had a really hard time building out, and we have 5 of those in our portfolio today. The other thing that I think maybe underestimated and I'll use Rutter's as the example, is there are Convenience stores out there, and you can think of some of the big name brands of Sheetz and Wawa they're essentially running a restaurant in a Convenience store. And in the near term, you won't see a traditional convenience distributor, even our OpCos out there servicing a restaurant quality supply in a Convenience store. And that's why we, in the Rutter's case, partnered with our PFS division, and we have PFS servicing the food side. We're servicing center store. It's a powerful combination. We're really sticky with the customer. And I think you'll see a lot of that across the industry. And it's something that only we can do today. And so I think that's a key point of differentiation. And the last one, as you saw with the chefs that are preparing food today is just that culinary expertise. That's something that a convenience store distributor does not have. And it's something that I think we have a really distinct point of differentiation over anybody in our space. Before I close up, I wanted to just touch on the core pieces of differentiation. Outside of Foodservice, we've worked really hard in Convenience to create points of differentiation. We have a fresh program that goes across every one of our distribution centers. We're the only one in the industry that can take fresh sandwiches, fresh salads, fresh cut fruit multiple times a week to every OpCo that we have. Nobody else in the space can do that. We use our redistribution center to do that. Now we can take that on to Vistar and other segments of the business. We have exclusivity in the space with Cuties and that's a orange product you have all seen them, but that's something that we try and do is to negotiate exclusivity on certain items. I think from a technology standpoint, there's nobody that has the technology suite that we have for our customers, whether it be loyalty, frictionless payment, we are partnered with the best players in the space, and I think we have a real key point of differentiation there. Category management. Hopefully, in the COE, you walked away today knowing that we are the frontrunner in category management, hands down in the Convenience space. And then lastly, I'll just on a couple of other things. You saw our kind of core Convenience. I think we have great turnkey solutions for core Convenience and also do a great job with product innovation. So I'll close up with this slide. And I just -- I want you to walk away with thinking about the rationale of bringing Foodservice and Convenience together. And really, I think it brings companies of growth together. George is hyper focused on growth. PFG, as a whole, is hyper focused on growth and us as a segment are aligned with that. I'd say the same thing about EBITDA and EBITDA margins. And operational excellence, that's going to be critical for our success. And obviously, that's been a big challenge in the last couple of years. I feel like there's a little bit of traction from a hiring standpoint, but we have a ways to go there, and that's going to be a hurdle, that's going to be critical to success. Obviously, leveraging PFG to grow foodservice. And the last thing is just continue on that path of integration, continue on that path of synergy capture. That's a long roadway. So with that, I'm excited to be leading the Convenience segment. We've got a great organization. I think we're best in class, and so look forward to spending more time with you all.

Thanks so much, Scott. All right. Our next speaker is Patrick Hatcher. And Patrick Hatcher has been with us for 12 years. He's been 12 years in the industry. We got him fortunately from MillerCoors when they were relocating. And Patrick was our CFO for quite a while within Vistar. Pat Hagerty came to me and said, I want to put Patrick Hatcher in charge of sales and well, I don't know, he's a finance guy, you got to go sell stuff. And he said, Well, I think he could be my replacement 1 day, and I think we should do that. And Pat's been the best really at our company developing people and particularly, even senior management people. So we went with it. He did a terrific job running sales, and he's got some great information for you today.

All right. Well, thank you, George, and good morning, everyone. I'm excited to share with you Vistar's future. And we go for the slide here. Okay. So in today's business update, you're going to observe 3 key themes on, they are the backbone to Vistar's success. The first one is we innovate; the second one is we focus on growth; and the third one is we think differently. And what I mean by that is we're constantly reinventing ourselves, but we stay true to our core strengths. So here's a snapshot of all the sales channels that we currently serve. And what you'll see is we focus on the consumer when they're at work, when they're play, when they're on the go, and even when they're at home. And we're focusing on serving them and providing them indulgent or healthy snacks, meals, meal replacements and beverages. Now I want to take you through a little bit of an evolution on Vistar in the different channels we've served. You can see that going back to 2000, we're a $1 billion distributor, but we're primarily focused on vending and office coffee. Now you jump to 2008, and we're $1.4 billion distributor. But you can see that we're adding new channels, and that's why I mean that we're constantly thinking differently, adding more theater and concessions, adding corrections, travel, hospitality. Now if you go to 2022, we're a $3.4 billion distributor. Again, we've continued to add channels like value office supply campus, and then this slide is just a summation of the previous 3 slides, but you can see that the pies continue to grow and the slices within each of the pies continue to grow. And the key point is there's not a single channel now that represents more than 42% of our sales. I'd like to take a few minutes and talk about some of the trends that are going on with some of our biggest channels, the first one being vending. And within vending is micro markets. So micro markets are nothing more than unattended retail space with a self-checkout kiosks. And you can see that they were born around 2009 with our vending operators, and you can see they had pretty good growth. And then 2014, they absolutely took off. And even during the pandemic and post-pandemic, they have continued to grow significantly, and they're growing at double digits. Now if you think about why micro market versus a vending machine. So when you walk up to a vending machine, it's highly transactional. You have a very limited assortment, very limited sizes, you have to purchase the item before you get it. You never get to touch it or look at it. In the micro market, you're going to have a cooler that has fresh sandwiches, fresh salads, cold drinks. You got freezer that has frozen foods, ice cream and then you're going to have all your candy, chips, HBA which is health and beauty aids, and then hot drinks. The consumer goes to these micro markets and they bundle their items where they want to create a meal or just have a click snack. So the market basket for the operator is much higher, the consumer experience that's shopping the market is much better. So they've seen that these markets are incredible in terms of what they can do for the consumer and for the operator. And the operator, the other benefit is because it's now a point-of-sale with these self-checkout kiosks, they get all the information of exactly what that consumer bought, when they bought it. And so when they have to replenish that market, they know exactly what to bring to that market on their route track. Now these markets continue to evolve. You'll see that micro markets really grew up in the office workspace. So whether it's blue collar, white collar, that's where micro markets began, mainly a private area. Now you're starting to get -- see these markets appear in public areas. So the smart coolers or coolers you can walk up to and unlock with your phone or a credit card, shop the cooler and they will charge you. So you start to see these in bus stations, you start to see them in train station, you start to see them in stadiums. And then micro cafes are really large micro markets, but they have lots of pre-prepared food in them. And while that's important is as employers are bringing their employees back into the office pre or -- post-pandemic, excuse me, they're trying to not have the cafeterias as much anymore, and this is a great way to bring those employees back in, have them have a great experience, be able to have meals, again, snacks, drinks as they need them. And then finally, just walk out stores. These are similar to an Amazon Go, but you check in with your phone, you shop the whole market, it's watching you with cameras and sensors. It knows exactly what you have and you just walked out. So we continue to see a lot of growth here and a lot of evolution. The other trend I want to talk to you about is our retail centers. During the pandemic, we consolidated our business for retail into 3 facilities. These are small parcel shipments. And what's important about these facilities, you can see in the picture here is they're highly automated. And so we've brought a lot of automation and a lot of technology into these centers to make the pick and the pack as efficient as possible. So in these centers, we are breaking open cases, pulling out boxes and shipping to our retail partners who want just the items that they're going to merchandise at that checkout counter. So we can get to 80 -- or 96% of the population in 1 to 2 days from these centers. And we do about 3 million parcels annually through these centers. Again, we're shipping these on FedEx and UPS, and we're using protective packaging to make sure that the products get to our customers in perfect condition. I'm going to talk about some other fulfillment opportunities that we have with these centers in a minute. So growth trends. Here are some areas where we think that we have a lot of upside to grow. And we're already in them, but we're seeing some trends that make them really attractive to us. So both military basis and gaming, they're seeing the same trends that we're seeing with micro markets, hospitality and travel, where they want these self-checkout kiosks, unattended areas, so people can go shop for a meal, a snack or a beverage. So we are, like I said, already in these spaces, but we continue to see a lot of upside in both of them. The other one, which I was just talking about is e-commerce and q-commerce. So for e-commerce, using those 3 facilities, they're highly suited for any type of e-commerce shipments, whether it's B2B or B2C, and in this case, we're working with our manufacturers and our customers who've built out great e-commerce platforms. But the hard thing about e-commerce is the actual shipping or fulfilling to that consumer's home because you're picking into a kit or each or maybe a box. And so we're providing that fulfillment service to our manufacturers and to our customers, whether they have a pure-play website themselves or they're using a third-party website, we're doing the fulfillment for them. And then the other piece is q-commerce. Q-commerce stands for quick commerce. It's for Gopuff, DoorDashes, [indiscernible] of the world. You've heard about a couple of times today. We've seen a really explosive growth with these guys. And so again, we're bringing in this case, our trucks to their micro fulfillment centers, and they're doing the last mile delivery for us. Now we've talked about understanding the customers and medium where they are. I wanted to just make a couple of final points on this. We have a fleet of trucks. We have 22 distribution centers across the country, so we're nationwide. And then we have the 3 small parcel fulfillment centers. Now between all of those, we can ship a truckload of product to a customer, we can ship pallets to a customer, we can ship boxes, through our fulfillment centers. So we can meet the customer and meet their needs, whatever they are. And in categories, Scott touched on this a second ago, fresh take. We're very excited about getting into fresh sandwiches, fresh salads and leveraging what Scott's doing at Core-Mark. But we've also created additional categories like Good to Go, where we focus on healthy snacks for you; or Grab and Go, which is, again, healthier refrigerated type items. So we continue to meet the consumer where they are. We continue to track what the new trends are and follow those and add categories as appropriate. So our innovation, our focus on growth, and are thinking differently has positioned Vistar as the right partner to help its customers with the ever-changing needs of the consumer. So thank you. I think we're now going on a 10-minute break. [Break]

Okay. Our next presenter is Liz Mountjoy. She asked me if I was going to tell you about all her years' experience in the business. She's been with us 2.5 years, but she's been here a long time in dog's years because we have put her through a lot in 2.5 years. So she heads up our M&A and strategy area. And for us as a company, we've been very successful in M&A, probably not in the best of ways. We basically bought people I knew and had long-term relationships. And Pat Hagerty went out and very successfully bought companies that got us into different channels within Vistar, and that's about what we could do. So what Liz has done in just a couple or 2.5 years' time, is put together a more professional view. It's great when you can look at something and hand it off to somebody who knows what they're doing. Her and Jim work real close, and work real well together. And I think you'll see from us a company that will continue to be as opportunistic as we've been. And also, we will look at a whole lot more acquisitions. I think that for us, most of what we look at, we tend to do. And that tells me that we're just not looking at enough. And with Liz on board, I see us looking at everything that can come across our desk. And I'll turn it over to Liz.

Good morning, everyone. I have a short and sweet little section for you. I'm going to talk about the framework we use for decision-making with M&A., a little bit about our track record of success and why I believe we've been so successful with M&A. And then a little bit around our future and where we're focused as we look forward. So let's see here. All right. So this framework should look familiar to some of you. I think we shared it at CAGNY 1 year. But this is really about the lenses through which we consider our M&A pipeline. And it's a balance of these 3 things, and I'll talk about each of them. But growth is a word you've heard a lot already today. And so we think about PFG has a really solid growth story. And as you all know, M&A has played a big role in that story. And so we're going to continue to look at our pipeline, look at opportunities and think about how and when we could use M&A to continue that growth story. The second lens up here at the top is about market dynamics. And it's really important for us to step back on a regular basis and think about what's going on in the broader environment in which we operate. So that means spending time as a team, talking about consumer trends and what's going on from a consumer perspective, where they're headed in the future. It's about thinking about our operators and some of the challenges that they're facing and how we can help address their needs. And then, of course, thinking about the broader macroeconomic environment. And thinking about these things helps make sure that we're making the right decisions with regard to M&A at the right time. It also ensures that we're thinking about where we're going down the road longer term and that any M&A decision we make today is setting us up for that success over the long term. Then looking more tactically on your bottom right-hand corner, it's about strategic fit, and that's really thinking about for each deal, does it make sense in fitting with our operational and financial targets. Obviously, we have to think about that for each deal. It's the balance of all 3 of these things that we consider. But in that strategic fit, we've talked about culture a little bit today, and I want to spend a little bit of time there. We are not a company that dictates culture from on high, yet it's a really important differentiator for PFG. And since we're not dictating what our culture needs to be, we have to obviously screen for that when we're doing M&A. So we spend a lot of time with our Board. They ask us always questions about any target we're looking at and what their culture is like. And we spend a lot of time with the leadership team, understanding the culture of each target and then obviously with the target itself. And it's really fun to be here in Core-Mark after all the conversations we had about the culture. And I think that culture is a big driver of why we've been so successful with M&A. Speaking of which, we have some of our recent acquisitions along the bottom of this page. And I think that we've been really successful largely because we've been so thoughtful about ensuring that there's a cultural match between PFG and these companies. But really, if I think back, my personal view of what's differentiated about PFG, why have we been so successful with M&A, and like George said, I've been here 2.5 years, so I kind of have an outsider's view, and I've gotten to step back and appreciate what's different here. And it boils down to me to 2 things. It's the experience of our organization and it's the people. And obviously, those 2 things are very interrelated. But from experience, I mean, when I think about the deals I've worked on so far and George has kept me busy, I think about the teams and we pull people from across our organization from the different functional areas. And without fail, there are folks on the team who have experience working on deals of a lot of different sizes, structure, scope, and they're bringing that experience to our process. So we talked a little bit about formalizing the M&A process, and we've been able to do that so successfully because we have folks who have been involved in a lot of deals in the past, whether that's with PFG or even before they came to PFG. And an example of where that's brought us success is in our integration work. And we've developed an integration playbook. It's scalable, it's repeatable. We used it with Reinhart very successfully. We're using it now with Core-Mark. And I think the experiences that we've had have all taught us best practices, been useful in informing that playbook and now we're delivering synergies ahead of schedule. So it's a really great story. Then I want to turn to people. So that was the second thing I thought was really differentiated about PFG, and we've talked a lot about our people. But my gosh, the years of experience that George introduce people with, that matters a lot. And it's not just the people in this room, it's the people in our field. The people in our field have so many great relationships across the industry, great reputations, and that makes my job really easy from a deal sourcing perspective. So people know PFG's reputation. They want to do a deal with PFG. They know we run a fair process, they know their business will be in good hands with us, and they know their people will be in good hands. And gosh, I think a couple of folks you heard this morning already came in through an acquisition. So that's just a testament, I think, to the fact that we bring people in, they become a part of the PFG family and ultimately lead to our success. So that's a little bit of bragging about our track record. As we look forward, there are a couple of focus areas that I want to highlight for you. So filling in white space. That means geographic white space. And we showed you all some maps earlier. We have some white space to fill in geographically, and we will continue to focus on that from a broad line Foodservice perspective. We also have some capacity opportunities, areas where we may be tight on capacity and could use M&A to help alleviate those constraints. So we'll always be looking at that as well. The second focus area is around our existing channels, and you've heard a lot about the channels we operate and our diversification and how important that is. But for all of our channels, we're looking at how can we use M&A to expand scale, and then, obviously, to drive more capabilities into those channels to make sure that we are winning in all of the channels we operate in. So with those being our focus areas as we look forward, and the framework that I outlined for you earlier, I think it's important for you all to understand that we have a great structure for making the right decisions for PFG and for our stakeholders, obviously including our investors. So that's all I have for you. Hopefully, that was nice and short. And I will pass the mic.

Thank you, Liz. Well, our next presenter is the one you've been waiting for the whole day, so that you can get numbers. But that is Jim hope. And Jim has been in this industry for 34 years, and he's been 8 years with PFG. But Jim and I have a history that goes back much more than 8 years we worked together at our predecessor company. And I got to have notes like I did with Craig for him. But Jim has started out as an analyst -- financial analyst in our industry. He's run audit. He's been in finance at corporate headquarters. He's been the CFO of an OpCo. He's been the President of an OpCo, really valuable experience with being able to relate to what our people deal with. He went through an IT transformation, and we all know how any -- how difficult anything is when it comes to IT and how much you learn. And just a wealth of experience, which has been great for us as a company. And I'll turn it over to Jim.

All right. Thanks, George. It's good to be with you here this morning, and thanks for coming in. I do have some good information to share with you. You heard from a large number of people, and you heard from folks that have a lot of food distribution experience have been in the business for quite a bit of time. And you also heard from a couple of folks that are new to the industry and they are a lot of fun to work with. They bring new ideas. They ask a lot of questions and make us think about how we do our business. So it's that balance of people and the blend of talent that helps the company become a great company. And that's what we have, and it's so fun to be a part of that. But we're all aligned at the end of the day, around 3 very important things. And those things you see here today that we're going to talk about are consistent organic sales growth, ongoing EBITDA margin expansion and paying down debt, and we want to do all 3 of those. In addition to everything else, good companies do, we're keeping an eye on those 3 things. Now we have a good track record of consistent organic sales growth, and we have our own playbook that helps us deliver that. And it's tested, it's proven. I'll show you some statistics about the past years that are very simple to see that substantiate why we believe and are confident in it. We have a great sales force you've heard about today, very talented, experienced, motivated sales force. We have really solid private brands that our customers like. And the reason we know they work for our customers is we spend time asking our customers what they want. We don't really spend a lot of time telling our customers what they want and that matters. And we have a very strong supply chain that's recovering through the pandemic, and we have a lot of opportunities to improve operational efficiencies within that supply chain just to get back to where we were pre-pandemic, but it's a good spot to be in. From a debt reduction standpoint, we have -- when you think about a few things that are really important to an acquisitive company, we have good, solid, powerful liquidity, and that's very important. We have really strong integration bandwidth in the Foodservice division and in the Vistar division. And that's really important. I don't want to go out and buy something if you can't integrate it because you're consumed with work. Now we need to pay down debt, deleverage, so that when that next big target becomes available, we can take advantage of it. I talked a little bit about our track record of consistent independent organic sales growth. And I wanted to show you several years of that number. And as you can see, aside from the 1 year in the pandemic, which we're all painfully aware of the impact that has on metrics, that's the 1 anomaly, steady independent case growth. It's been consistent year after year. Now it's a little bit high in the last 2 years. We know why we're building that history, it's recovering. But the first 3 years pre-pandemic, we're very strong in our industry. The other thing that's consistent is how we've defined an independent customer. We've never changed that definition, and we don't plan to change the definition, an operator who has 4 units or less is our definition. When it comes to disciplined use of capital, we are very disciplined in how we manage our capital. We put a lot of thought into it. We have plenty of good process and good governance about how we make those decisions. We're looking for the best return on invested capital that we can get, and we're making all those trade-off decisions on a regular basis. But our priorities are facility expansions and then strategic M&A and deleveraging. Probably not a surprise, it's all built around driving growth. It's fun to be a part of a company that knows how to grow and grows. And last here, very important, we don't do this often, and we thought it was important to do today to provide you with our 3-year financial outlook. We've got 2 stakes in the ground that tell you what our measure of success is. And in 2025, we are saying we're going to deliver $62 billion to $64 billion in fiscal 2025 revenue. And we're going to deliver $1.5 billion to $1.7 billion in adjusted EBITDA. When I think of the top end of that range, I think about at $1.7 billion, we're contemplating a strong economy moving forward. The midpoint considers a short-term slowdown, but nothing serious. And that low end of the range at $1.5 billion, that takes into account a mild recession. Those are the 3 ways I bracket in my mind that outlook. Last, the entire PFG organization is structured to deliver growth. We've talked to you a lot today about why we can deliver sales growth. We've shown you several years of consistent organic sales growth, and now we've given you a message around our 3-year outlook. I think that through the pandemic, it's clear that we not only managed ourselves well, and I hope you saw that through the pandemic, we positioned ourselves well by integrating Reinhart and we never stepped back from the integration work on Reinhart, we kept moving forward by acquiring Core-Mark to make sure that we increased not only our SAM, but our space and our ability to operate within Convenience store and provide all those synergies that Core-Mark and Eby-Brown bring to us. And now we're going to go out and continue to drive private brand product growth. We're going to continue to work with our sales force and train our sales force, and we're going to drive additional operating efficiencies and pay down debt. That's my message for today. And at this point, I'll turn it over to Bill Marshall for the Q&A.

Thank you, Jim. Actually, I'm going to invite George and Jim up on stage. We have plenty of time for questions. We'll take questions about [indiscernible]. I have a virtual portal here. But if you have any questions, please raise your hand. I would just ask that you wait for the microphone so that the folks on the webcast can hear you. You see Mr. Heinbockel on the end, we'll get you a microphone.

So maybe 2 quick ones or not so quick. But so for Jim, right, so 60 basis points of margin improvement between this fiscal year and '25. Is mix about half of that and other than mix, what would be the other big driver. And then on the C-stores, either for George or for Scott, if I think about non-nicotine growth, is it possible to grow that part of the business double digit. And if you do, when you think about either coming from existing locations or new ones, right, the 40,000 locations, what drives the bulk of that? And I understand it's chunky, but is it equally sized or is one much bigger than the other?

I think I'll take the first part of that with the EBITDA margin growth. We've always grown our EBITDA margins outside of M&A. And the only steps backwards and EBITDA margin were really good steps for us buying Eby and buying Core-Mark. And we had gone from just under 18 to 28 excluding those 2 acquisitions. So we're confident that we can continue to do that. I'm going to have Scott comment some on our growth. I will tell you that with inconvenience today, and we're well north of double digit when it comes to food growth. And it -- unlike our in-demand business in Foodservice it tend to come more in chunks. But we're real confident, but I want Scott to make some comments around that.

Yes. All right. I think like George said, obviously, recently, we've had significant growth driven by inflation, but we've also done a great job in gaining independent stores as well as just growing overall share inside our existing stores. I think historically, double digit is ambitious, but I wouldn't want to say much more than that because that would probably be -- Jim would probably give me in trouble for thinking about his forward-looking stuff. So I would say it's pretty balanced from a store count versus same-store sales growth standpoint. I mean we typically did have a little inflation in there, but pretty balanced between the two.

Kelly. I'll go to Kelly first and then [indiscernible].

Kelly Bania from BMO. I guess when we think about that margin expansion, which segments should we think about contributing to that the most? Or is that coming from all 3? Or just how do we think about mapping that out over the next couple of years? And then I had 1 follow-up.

Okay. I think it will come from all our businesses. I think we're -- if you take Vistar, where we have very high -- at least we consider to be very high EBITDA margins, we do portions of our business that have very high case cost averages. So that's probably a more difficult area to raise those if we see a lot of the growth in those high case cost. When you're talking case cost of over $100, you're running a 4.5, 5 EBITDA margin, it's not necessarily the most feasible. But I think across our business, we've seen some real great business improvement in our Foodservice and our mix continues to get better within that business. So we expect to see some good improvement there and Convenience, it's entirely what Scott said, it's continuing to grow that food business at a really good leverage.

Okay. Just follow-up on Convenience. Just what is considered in your 3-year plan in this guidance given noise on regulatory changes in tobacco and nicotine and that is 40% of the gross profit, I think there.

Yes. I think I'll kick that to Scott. He's certainly more knowledgeable than I am. And maybe Liz might want to make a comment because she's spent a lot of time at Altria and has a good understanding for the decline and the history of that and what they kind of consider to be the future in that.

In the 3 year, Kelly, I think that we look at cigarette decline kind of returning back to a more historical rate and then just consistent steady growth in both our store sales.

Liz, could you make a quick comment on the...

Sure. I, like George said, I came from Altria. I have brand strategy and business development there. And there is a long runway in tobacco. I think there's -- the price elasticity, they obviously understand quite well, and they're managing their pricing when and how they're taking pricing accordingly. I think from a regulatory perspective, they also believe they have a long path ahead before there's any substantial impact and there's a lot of switching behavior, obviously, in the tobacco industry. So I think that's where, to the extent there is an impact, it's just a matter of switching between forms or brands or types. So...

It's John Glass from Morgan Stanley. First, Jim and George, can you just give us a reminder on the history lesson of how this industry is performed during recessions, right? You weren't public, but you're around, obviously, as company. so as your -- one of your largest competitors, Cisco, why's case growth was negative and maybe that was a Cisco-specific issue. So can you just talk about the 3 channels you're in and how they responded maybe in the last recession? And what do you think is different this time, if anything?

And this is -- it could be different. But the previous ones have been very much alike, okay? So what we see, I think we're almost a precursor to it. We see it early as discretionary income, which were large parts of our business are dependent upon. We see that softness. And then as -- and typically before anybody announced this that there's a recession, everybody seems to want to announce that now and there isn't one yet, but we see it early. Then people change their habits and people may decide I'm going to go another year before I get that new car or I'm not going to do the addition. I was going to do with a remodel or depending on people's income level, they may say, well, I'm only going to do 1 vacation this year or maybe I'm not going to do the European one, I'm going to stay domestic, or maybe I'm going to a staycation, which is actually great for particularly our theater business. And we seem to come back pretty good as a company ourselves during the great recession. We never went through a period where we weren't growing. And that pattern I see -- I mean, I've been at this for 44 years. So I've seen the pattern many times, and it's just about always the same. I think since we all learned what the word COVID was, I don't think anything has been normal, right? So we'll see. I think there's a great deal of resiliency in Convenience. It isn't as dependent on discretionary income. And Vistar, I think that people in the workplace [indiscernible] deployment is good. Like I said, theater is an inexpensive form of discretionary expenditures so that tends to do better when the more expensive ones aren't an option for people. So I think we'll hold up well. And of course, we do a lot of Dollar Store business, and Dollar Store joined the -- great recession, did extremely well.

Two questions as well. The first one -- it's Jeff Bernstein from Barclays for the webcast. You mentioned that your industry is somewhat of a precursor of the recession. You gave 3-year guidance, but I'm just wondering, since you did reiterate the guidance for fiscal '22 that pretty much ends now, I guess. Are you seeing anything changing trends from a consumer standpoint that would lead you to believe that recession would be likely if you're going to see its presence. I'm just wondering maybe what your assumption is for the first of the 3 years along this path?

I'm somewhat hesitant to comment on that, but I'm going to give you a good reason, why, okay? It's a very volatile period of time. We had given guidance around our fiscal third quarter calendar first quarter. And as we were getting to the end of January, I tend not to panic, but I was pretty close to panic mode. It was really, really soft. And is it Omicron, is it economy, I mean, what's going on here. And we stayed [indiscernible] down and concentrated in our business. And then February was good and March was just incredible. And our competitor, our biggest competitor also had a good quarter, and I think probably unexpected early on in the quarter. And we have had some times where we've seen it softer, but it's -- I think a lot of that's got to do with the stimulus money. And so I guess this is the best answer because I think you never want to mislead. But if I go back, pre-COVID, and I look at the seasonal uptick of our business because our fiscal fourth quarter is always our best quarter, what we've experienced this year is real similar to what we've experienced in the past. The anomaly was last year, the ramp-up was much bigger. And I think we thought a lot of that was things coming down a little bit with COVID, after Omicron, maybe some pent-up demand because that period of time was so slow, and it may be just money gushing into the marketplace as well. So I'm not sure. So that's the best answer I can give you. And then the second thing I'll add to it is it's volatile week to week. I mentioned this to a couple of people earlier, but obvious because you're running 10% case built in independent. You have a 12% and you're a little bit giddy, this is great. You have an 8% [indiscernible] oh my gosh, what happened, right? Pretty narrow range. 15% growth, 3% growth, 18% growth, 1% growth. I mean, that's how it is. And if you all look at black box, you look at that you see, I mean, our independent business is different than that, but not hugely different than that, but very volatile.

And then just longer term, as you think about the -- having gone through COVID and thinking over the next couple of years, it would seem like the challenges we hear from our biggest players, such as yourself, there have been some serious challenges, and I would only imagine how difficult the challenges have been for everybody above or below the big 3 or so. So I'm just wondering, do you see significant market share opportunities over the next couple of years, where it could be outsized because there's just so much whether you're further penetrating existing or adding new accounts, that be smaller players have to be struggling a lot more than any of the big players might have been.

Well, we didn't have much in the way which was good. We're an interesting business industry where when business goes down, we're pretty capital intense in inventory and receivable standpoint. So a lot of cash comes in the door when your sales drop a good bit. I would leave it with this. I wouldn't want to be a small distributor in this industry today. I think it would be very difficult. And we were small at one time. As a matter of fact, we have a Board member here, Bill Dawson is, where is Bill -- he's over there. He's been with us since 2002. Yes, he was. He was a young guy then. A lot younger than me and he still is. But we went through some times when the economy wasn't great back then when we were small, and that was difficult. And we were acquisitive, so it was difficult. As a matter of fact, I remember Bill and I had, he'll remember this, we were at the Chicago airport in one of those meeting rooms with GE Capital just spilling our guts trying to raise $100 million, I think back to that, it's like unbelievable. But I wouldn't want to be small. And I just think there's just consolidation that's going to continue to happen. And we want to be a part of that consolidation as an acquisitor.

Two questions. Liz talked about acquisition. And it seems to me, but I'm really not sure that now in the Core-Mark business, that could be the most fragmented of the segments that you're in. And if so, it also seems like maybe no one else on the [indiscernible] side is really getting in that business for the obvious reasons [indiscernible]. So the question is, is that the case? Is Convenience [indiscernible]?

Well, once again, we're serious about the Convenience business. And Scott is a very experienced person in M&A and has a lot of contacts within the industry. So the right things were available would certainly look hard. Our main [indiscernible] is Foodservice. I mean, we're a Foodservice company. We're going to be a big Foodservice company within Convenience. It may take us a while, but we're going to be big. So that's probably not a great answer, but I would say that we're not out trying to buy convenience distributors today. But if the opportunity were there, we would certainly look hard at that to do. And we are trying not to be confusing because of the pay, we're pretty serious stuff paying down debt right now too. So we're going to be a company that doesn't miss opportunities. But that's not our process.

That's fair. And then a second question for Jim. And you talked about the 3 scenarios how you can bridge the gap to the guidance. I would wonder how that relates to debt repayment, right. So you could go in and do it now, but if things soften, you'd rather be fortressed with cash on the balance sheet. If you pay down debt and things go sideways, there could be awesome acquisitions that you have to re-lever to opportunistically take advantage of. So how do you just -- what are the puts and takes of when and how you do debt repayment under those scenarios?

Yes. Thanks for the question. So I think it starts with the fact that we're confident that we can generate cash and then we'll methodically use cash over each quarter to systematically pay down debt. We're blessed because we have a very large ABL, and we have plenty of availability on that ABL and that drives the largest portion of the liquidity, and we have a low cost of capital. So when I say pay down debt, I don't mean we're going to aggressively go make payments in advance to pay down debt. I mean, we're going to methodically and that's probably a great term for our organization, methodically, appropriately pay down debt over time.

Yes. I'll make a comment to that, too. We're in a -- everybody in this room knows we're on a heavy-duty inflationary period. And so we're running with more inventory than we would normally run with. And I think that when the odds are that when you buy something, again, it's going to cost you more and you buy more when you have the opportunity to get it. And also particularly in our Core-Mark and our Vistar business, we're having trouble getting the product. Our inbound fill rates are really bad. So I'm going to keep coming back to we're really serious about paying down debt, but not at the expense of doing the things is the right thing to do for the business.

This is Jake Bartlett from Truist Securities. I had a question about the profitability in terms of gross profit per case. And obviously, those have -- are historically elevated even in the Foodservice business separately from Core-Mark. So the question is how confident you are that, that will remain high. It is historically high. Your outlook, I believe, for 2025 kind of does imply that you build on the gains that you've had. But what is the risk that -- whether it's pricing competition or just other factors will kind of normalize that gross profit per case?

Well, I think most of our industry is running at much higher gross profit per case. And I think that happens when your expenses are much higher per case, and you kind of have to do that. So there's been a repricing in the national account type business. If you look at our growth, we have Foodservice absolutely not grown this year at all. We will next year, but we have not grown at all. Our focus was making sure that we have the right gross profit per case for the level of profitability that we need. And I think when you get to the independent part of it, I think companies are pretty well managed in our history. And you have to get to your people and say this is where our cost is running. And this is what we need. Now can they hold on to that? I don't think our -- we have a crystal ball that tells us yes, but I think we're confident. I would actually want to throw that to Craig to make a comment on it as well because he has been the real leader in getting our gross profit per case.

Thank you. Well, I think it really cuts across all of our businesses, and each of us have had grown up conversations with our customers over the last 1.5 years, 2 years to talk about what's the reason we're here together. Why are we doing business together. And to talk plainly about some of the challenges that are there, and we've been really blessed. We have a sales compensation structure in our Foodservice business that rewards people for building businesses and relationships with their customers and to be a bigger part of the pie at each of those independent customers. But we've been really lucky. We've been supportive. We've worked hard to serve our customers well through that period and continue to get feedback that we've been -- when we share platforms, if you will, with others that we just had a recent dinner, where you hate to look at it this way, but we're the least of the issues. And I feel confident that, that our teams will continue to do the same sort of things to add value and to work hard to hold that gross profit per case because, as George mentioned, we do have some increased expenses. So...

One of the other things that will not go away. Simple that we take what our -- what the inflation rate was for the period of time. And if you put that inflation rate on our average case sell price, our case sell price is still more than that because of the change in mix. And we have just really done well in center of the plate. And high case cost items is where we put out the highest level of growth. That isn't going to go away. So that part of it, we're very confident in. And Eric spoke to our top line beef program. We are just seeing such sales growth. And the average sale price is so high, so your gross profit per case is great.

Peter Saleh from BTIG. Just 2 questions. Could you just give us an update on the labor? [Technical Difficulty].

Okay. I'm going to take the second part because I think Jim would be better to the first part, and maybe get some help from Craig too. As far as -- our growth has really been more around increased penetration of existing business than it was in the past, as reasons for that, I think it's perfect sales force just gets more experienced and they're able to do that, and it is from a profitability standpoint for themselves. It's better to go get more business out of an existing customer than a new customer and our service capabilities weren't what they should be in many markets. We didn't really did not want new customers. But our services come back, still not what we want it to be, but it's come back and we understand that today, a lot of our growth is going to come from new customers. So it's [indiscernible] penetration, but I'm telling you it's going to be new business. And with the labor, I'm going to turn that over to Jim, Jim will get some help from Craig.

Yes. Thanks, George. And Craig, I'll set you up a little bit. I'll talk about what I call the cascading effect of the steady improvement in labor and where that improvement will come from, and we're counting on we're already starting to see it. I think Craig can talk a little bit about where we are in that progress. But we've talked with you many times about the fact that we're at the peak end and the standpoint of not only do we have challenges in the states and some inefficiencies in the supply chain for many different reasons. We have a lot of overtime being paid and we also have a lot of contractor tip workers in the supply chain. And every quarter, we started disclosing the premium we're paying for the contract workers over and above normal run rate. In every quarter, we talked about how that's starting to improve. But the way of we cascade is we'd see the contract worker premium start to fade away and then we'd be left with some pretty high over time, and then we'd see over time start to dissipate. And then as that dissipates, you start to see improvements in the warehouse as far as accuracy as well as drivers. So I want to share that answer with Craig.

I think you just gave me the answer. I think there's opportunities, this summer is much better than last summer. There's a difference between the 2. Last summer, there was a lot of money floating around. So applicant flow has improved. Coming from that then will be better applicants, more applicants. We've got an opportunity to work on retention and upgrading and making sure training is right. It's not just drivers, it's also a warehouse. And so we have many markets that are full employment, if you will, seeing over time, come down. We have some pockets here and there. I think most of our competitors do as well, pockets that are a little more difficult. It's not even across the country, but I can tell you we're in a better position. I feel good about where we are, certainly this summer than last summer.

[indiscernible] the conversation I had a question for [indiscernible] distribution network that comes with it and eventual legalization of cannabis nationwide. How are you guys thinking about that? And just [indiscernible] for us a little bit if you don't mind.

I'm not sure we're thinking about it too much. It seems like something it's a long way off. And of course, people have different opinions with it. But what communication we have received is that likely we would benefit from that tremendously because the tobacco guys would probably win out. They're going to be a lot more efficient. There is talk that there may be some states where it's -- the alcohol is controlled that it could go through that form of distribution. Once again, I'm going to put our 2.5-year-old here on the spot because she's still a good bit with this. But if you have some comments you'd like to make, Liz.

I don't know, Brent and I were talking about this earlier. I think our answer is that we're just going to follow the law and see what happens with the federal framework. And we do think that like George said, that there will be benefits to us regardless of which direction this ends up taking.

Brian Mullan, Deutsche Bank. You showed a 50% [Technical Difficulty] performance during penetration mix in [indiscernible] the slides. I think it's an all-time high. Can you just speak to the ability to continue to push that mix higher over the next 3-year plan period. Is there a natural ceiling on that mix that we should think about? Or maybe conversely, you're better at this than ever as an organization, maybe environment conducive to changes.

It's a very good question. Started out by saying, we're not opposed in any way to selling national brands who are going to get the customer what the customer wants. Now we want to influence that by having a better product and a better price value. One of the reasons that we had a clip up with Reinhart down initially and a lot of it is just our training and we'll pat ourselves on the back, I think we do a really good job. But we also have been able to get significantly bigger. And there are product areas where we didn't have enough volume, particularly back at that time where we're really heavily over-indexed in pizza and Italian and to a degree, it's back. And we just didn't have enough volume, where someone was interested in packing a product for us. Because we typically don't use their existing product with our brand if we come up with what we want for a specification. So that's part of it. We didn't expect to get to 50% as quick. We always expect it to get to 50%, but we didn't see that -- anticipate that kind of jump. So part of it is just better availability. And then we do have companies, OpCos that are 60%. So there's definitely upside. I think that the road from a 50% to 60% is a lot longer road than 40% to 50%. But I think it's something that we can aspire to.

Lauren Silberman from Credit Suisse. Two questions. One, what are you embedding for case growth in your sales expectations? I'm just thinking about independents historically had the 6% to 10% growth target. Is that still in play? And then my second question is just independent restaurants have been dealing with a lot of profitability challenges. Can you just give us an update on your view on the state of the independent restaurant to help there.

Yes. I don't know that we're ready to give guidance around that yet because it's so volatile, and we've been at a really high rate. We think that to some degree, that's probably artificially high. Although, we saw a drop-off in our independent case growth for pizza, and that was concerning until we saw the performance in that same quarter Domino's and Papa John's pizza. I think that was just a piece of fatigue. It sure enough when we got the type of share numbers we get, we actually grew our share faster with lower growth. We have a confidence level similar to what we had before. I think that we just need some time to spend with Steve and Eric and Craig and kind of figure out where we're going to go with that. We're continuing to add people. And of course, that helps. But we also have the other part of it, and this I'm probably getting a little confusing, but I mean our people are averaging almost 3x the volume that they did in 2012. And we were pretty consistent to grow our cases twice as fast as we grow our sales force. And that really dropped off. And we felt like we really needed to step up the hiring. And then once COVID settles down, it is better than ever. So we have a lot to figure. It's a confusing answer, I know, but we don't want to give bad guidance. We're not quite ready there yet.

I'd like to append to the answer, I add a little bit to it. So in our 3-year outlook and the modeling we've done, we work from the ground up. We spent a lot of time in the details. We have all the metrics that we need to make sure we can be confident in the outlook that we provided in the guidance we've provided. We're just not going to share today that detail. But I want you to know we've done a lot of work. The one comment I would share, which I think is fair and reasonable is, on the slide I showed about independent case growth, you saw the last 2 years were very high double-digit growth numbers. And I talked about those were exceptional years because we're going against a recovery history. It's probably a great way to call it. So if you thought of those as exceptional years, I would look at us going forward as reasonable growth.

I'll make a couple more comments. We surpassed 2018 case numbers a year ago -- over a year ago. So once again, we're confident. But if you look at all the things we gave guidance when we did this 3-year, which is not a character for us at Investor Day, I think we can do that. It's not like we want to bring these back one at a time. I think it's just nothing but confusing. We want to get back into our regular cadence around guidance. And we're looking for that period of time where things are somewhat normalized, and we can do that. But we are confident in the 3-year number that we gave.

We'll go to Josh, then back to Mark.

Joshua Long with Stephens. Curious if you could talk about the capital expenditures that you have planned. You have been very disciplined like you showed in your slides there, Jim, in terms of running in that range. It's ticked down over the last couple of years to the lower end of that range. But thinking about what's needed to support those targets you have over the coming years. Anything you could talk about prioritization or maybe ability to move within that range and how it might show up as those dollars are deployed?

Sure. Thanks for the question. Just a few reasons on why it's ticked down. It hasn't slipped due to lack of intent or committed. One is we've added back into the mix and the CapEx investment rate in tobacco-driven sales business is not the same. That leads down the number. The other one is today, as you know, in any construction environment, it's a little difficult to build. It takes longer to get things done and you can have the greatest intent of getting something finished, but a lot of people weigh into it. It's not always in your control. So I can assure you that we are investing back in the business appropriately. We certainly have the wherewithal. We appreciate the fact that we have the money we need to invest in our business and we'll continue to do that to make sure that we drive growth and we make our capacity big enough and the supply chain big enough to support the growth that we want to deliver.

Mark?

Mark Carden, UBS. How are you guys thinking about inflation in your 3-year outlook? And then how are you anticipating the split between food away from home and food at home to play out, particularly given that you're now pretty big players in those channels.

Yes. I'll take the first one. Could you repeat the second question again, real quick?

Just in terms of what you're thinking about the split between food away from home and food at home, and how that goes into your guidance? And just given your pretty big player now in those channels. So how do you see that playing out?

Great. Good question. So the first on inflation, we all know we're all seeing really high inflation, not seen that before. I'm really pleased with how the organization is managing that inflation and doing the best we can to take care of our customers at the same time, make sure we take care of our shareholders. So we're handling that. We don't, in our 3-year outlook, expect that rate of inflation to continue forever, of course. And we expect it to begin to abate back to a normal level of inflation, which I think would match with the 3 macroeconomic environments that we've talked about at the high end of the range, mid and the low point of the range.

Yes, I'm going to -- this is my opinion, I read it all the time. Obviously, we saw things swing heavily back towards food prepared at home. And I think we learned as COVID settled down, that people love to get out and they look to get out to eat some of its discretionary and some of the people just [indiscernible] that's what the that they don't want to prepare food. I just feel like the food prepared outside the home is going to get a bigger and bigger percentage. I think that there's a lot of people that didn't use takeout very often, didn't use delivery at all and have gone back to getting into restaurants, but not entirely. So I think we're going to have a net gain from that. And I just think we're in a great industry and it's where people want to do it, and get out and interact. And I should make one other comment. It's not real material, but we are doing more and more retail grocery business. We have no intentions of being a retail grocery distributor. A lot of it is within our Braveheart product. As a matter of fact, 9 of our 10 largest to our Braveheart customers are retail grocers, individual locations, they're retail grocers. And we have other products just to get along with that. I think that's going to be a growing part of our business. But I think that's similar to the reasons that people will go out is the product special, and they'll pay the money in its expenses, and it's a treat. And I think that's why it's doing well.

And then as a follow-up, just with some of your recent enhancements in e-commerce, is there any change in thought process and how you're positioning that to customers still to be largely reactive in nature? Or was some -- would you expect to maybe advertise a little bit more aggressively?

Where we're effective from an e-commerce standpoint is not so much of us going directly to the consumer. It's us going to the consumer for somebody else, maybe a manufacturer, maybe a customer. And that's where we've been more effective. So particularly in Patrick Hatcher's world, when we meet the suppliers, it's not about -- just about them as a supplier to us, it's what can we do as a supplier for you and that's going to be a good part of our future. It's slow, like a lot of things, but we've had some where they just shut down their own operational and turned it all over to us. We have some words of mix. We're doing some of it, they are doing some of it themselves, some that's actually come from another e-commerce providers because of our ability to handle chocolate particularly at the right temperature. So we like the business as ourselves, as somebody operating an e-commerce site. We do some business, but trust me, it's not material enough that you have a conversation about.

I'm actually going to take a couple from the virtual portal. I think that's So the first comes from [indiscernible], do your 3-year sales and adjusted EBITDA targets include M&A?

They include a small amount of M&A, but nothing significant, and we faced the small amount pro rata across each year.

I'll take 1 more. Why do you feel positive about adding more chain restaurant business going forward? And what are the contribution margin expectations versus historical rates?

Craig, I'm going to turn that to you.

I heard the question correctly, but we feel confident because of our funnel, the conversations we're having, right? And sort of the state of where those relationships are elsewhere. I feel good about how we're looking at the returns on those pieces of business. We have a great finance team that helps us work through the analytics on any particular account. And where we can meet the customers' expectation in terms of rates and our expectation in terms of return, I think that we'll have good returns on that accretive to our overall EBITDA. So -- but we're selective right now. We're selective. It's got to be the right relationship, the right culture, the right piece of business.

And had we had more business last year which we certainly had opportunities that just would have been more people, we disappointed. It was a very, very difficult year. And what we did want to do was tapped to break on our independent growth by having severe service issues.

I'm Jake Bartlett. My question was on fill rates. And where you stand now for both the Foodservice as well as Core-Mark. I believe in the [indiscernible] we kind of heard 80% fill rates kind of that zone. But how much of a cushion do you think that, that provides as staffing improves as the supply chain starts to ease. How much year, I guess, as you think about your outlook, is that kind of muting whatever could happen on the demand side.

I'm going to give you unfortunately, a pretty long answer because it's very different in our different businesses. When you get to our Foodservice business, we're getting at least knocking on the door of old inbound service level from our suppliers. It's really improved greatly. And we're in the mid-90s. We expect to go higher. But if you think about our Foodservice business, a lot of it is a product that's prepared from the state in which they get it. In other words, there's one ingredient. So packaging is the only issue beyond not having that ingredient, be it pork or beef or seafood item. Geez, we've done exceptional. We haven't really had any issues with that. So that's a big part of our business, and that continues to do real well. And we feel like we're pretty close to a normal state there. But when you get to Vistar and you get to Convenience, which are actually very similar to supplier base, some of these items will have 10 ingredients, 15 ingredients. So it's 10 or 15 times the likelihood of not being able to produce that product. So high 70s, low 80s is about as good as we've been able to get so far. Now there's another difference in that you have a menu, you can substitute maybe an item, but that's very difficult if it changes your recipe. It changes your end product. And usually, when 1 supplier is short, the other supplier is short, so you just can't get it at all. But when it comes to a convenience store, a vending machine, a theater, a micro market, if they don't have 1 product, they can put another product somewhat similar in that slot, be it a different snack or be it a different candy. So -- do we have 15%, 20% upside because when supply gets back? No, definitely not. The other thing, too, is that we have items that the customer continues to order on every order. They want that item. And many of the manufacturers have consolidated. So if they had 20 pop tarts flavors, maybe they've got 8 now, right? If you think about the candy guys, big time with this. If you think about your line and particularly with -- when grocery stores were gone crazy, everything you could produce, you sold everything. Why would you shut the line down the change of flavor, right? So how many of those items are going to come back? We don't know, but they continue to get ordered. So we don't have the understanding of our outbound fill rate like we should. Very long answer, but that's the reality. Yes.

Thanks for doing this, guys. So the market in the room are relatively distracted by perceptions on macro. But you guys have laid out a lot here today, and I'd hate for that to get lost. So if we just step back, you've laid out kind of a mid-single, call it, 6 top line CAGR over the next 3 years, you've laid out a margin profile that kind of seems to step up 20 bps a year. Obviously, that's not GDP. So when you step back, if we just kind of framed it not to put it in any specific period, but if we framed it is outgrowth, if we framed it as company-specific margin pieces, can you just talk through in an environment of X, we think that we have the pieces of the puzzle to outgrow by Y? And similarly, the margin framework here is X, Y, Z, is mix; X, Y, Z as private label, things that are kind of more tangible and less about simply leverage. I think those would be very helpful.

I like your question because obviously, you can see from today, we have a lot of different levers. The biggest thing that can contribute to our EBITDA margin, I think makes this important and growth is important. It's just getting labor back to similar to what it was before and the kind of progress we've made in other areas, which show up more. So that's probably the single biggest thing. I'm going to turn it to Jim because I think he's got the best field for kind of how this came together kind of bottoms up.

Yes. So there's a couple of things I'd tell you we won't do and then there's something I'll tell you that we're doing. One of the things you can count us not to do, at least in the near term, is put down a marker on a big operating expense reduction initiative. We're going to do our work, but we just may not share that part. That will be up to us, and we're going to deliver the results we need. The 3-year outlook and the margin improvement you're seeing is built on so many different things that are all going to go the right way and they're already going the right way as we talked about through our track record today. Continued momentum across every single division, not only in growth, but in profit margin improvement. And everyone is in the organization is committed to it and knows what they need to do to improve profit margin. And then the building blocks that come naturally to us are focusing on the most important customers and making sure that we stay on top of our customers as well as driving private brands growth and then operational efficiencies. So that answer is going to fall short of the very well thought out detailed question you asked. But our results won't.

Thanks again for laying out a very comprehensive presentation today. Just can you talk a little bit about the fact like, obviously, you guys are going to generate a ton of free cash flow. And if you guys hit your numbers, you're going to be very underlevered relative to history. So absent M&A, can you just talk about, one, how you're thinking about minimum leverage and potential excess returns to shareholders from a cash perspective?

Yes. So our target range for leverage and where we like to operate in the absence of significant M&A is 2.5 to 3.5x. And we've talked about that many years, and we haven't wavered on that. George and I are very comfortable with that number. We're in a spot coming out of 2 large acquisitions, where we're above that. So we're saying that we're going to work on delevering. As far as other things beyond that as far as return to shareholders, we are not in a spot to talk about that today because that would be subsequent to the focus on delevering. So I think that answers your question.

Just a quick one in the guidance left for synergy. Has anything changed there? And can you just remind me of what's left on the synergies you've already talked about?

I think I'll go ahead and take that. We've done a real good job with Reinhart, as I mentioned, and we've got a good ways to go. Now the good ways that we have to go will come at a cost. We have places where we have a legacy Reinhart distribution center and our legacy Performance Foodservice distribution center that are fairly close together. And we've kind of developed 2 issues as we go along with that. One is that neither one of the buildings can handle this because we've grown so much. And the second one is, you don't want to dislocate employees in a labor environment like this. So you don't want to build a new facility and then not be able to man it properly. So I think with Reinhart, they've performed so exceptionally well. And I don't want this to sound wrong, but I don't really care about more synergies as well as they're performing that overcomes everything. But there will be a day where we'll get more and more similar from an inventory standpoint. And there'll be a day where we can handle the geography part of it. I don't see it being in the real near future. And then I think with Core-Mark, we're doing a great job, and I think we'll continue to do a good job. And I don't know, Scott, if you want to comment beyond that. I think that our biggest synergies to come, and it takes a while with Core-Mark, our top line synergies, which no one really likes to get to but that was the #1 synergy with Reinhart was just sheer growth. And I think we can do that with Core-Mark.

Okay. I think with that, we will conclude our formal Q&A session. Thank you so much.

I'm going to do some real quick introductions during the lunch hour you want to talk to some of our other people. So first of all, we've got Pat Hagerty here, a lot of you heard with Vistar was created by him. He was the driving force of making that company that it is. We also have 3 new executive VPs that are here, and that's Erika Davis, who runs our HR area, put your hand up, Erika. Okay. We got Brent King, our General Counsel. Don Bulmer, who runs our IT. He just loves getting questions, sitting in. And Jeff Williamson. And Jeff is the charge of operations, so basically warehouse delivery, facility expansions, new facilities. And I should mention my assistant is here, Jill, because she has the hardest job of everybody, so I got to mention her. All right.

Great. Well, thank you all for joining. First of all, thank Core-Mark for hosting us at these fantastic facilities. Really appreciate it. I thank everybody who's...

I talked about, Bill, I should introduce. Where is Matt Flanigan? Over there. Matt is also on our board, and he's the Chair of our Audit Committee and does a fantastic job for us.

Thank you. I just want to thank everyone that helped with the production of today and thank all of you who travel down to Dallas to meet with us, we really appreciate it. We're going to break now for lunch, and that will conclude our day. So again, do enjoy some of the food that our chefs have prepared for you. Thank you, again.