The Kroger Co. (KR) Earnings Call Transcript & Summary

Good day, and welcome to the Kroger Co. Conference. Today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to Robert Ohmes. Please go ahead.

Good morning, everybody, and thanks for joining the BofA Consumer Teleconference 2020. This is Robby Ohmes, and I'm Managing Director in consumer equity research at BofA. Thanks again for joining us. It is my pleasure to introduce Kroger, the largest conventional grocery chain in the U.S., serving over 11 million customers daily. Joining us today, we have CFO, Gary Millerchip. And also with us is Yael Cosset, Chief Information Officer. And Rebekah Manis from IR on the line as well. I'm going to turn it over to Gary for some overview comments before we go into a question-and-answer session. With that, I'll turn it over to Gary.

Thanks, Robby, and good morning, everyone. As Robby mentioned, with me this morning in Cincinnati are Yael Cosset, Kroger's Senior Vice President and Chief Information Officer; and Rebekah Manis, Kroger's Director of Investor Relations. To set up the discussion this morning, I'd like to spend just a few minutes refreshing you on Kroger's strategy and how we believe we will deliver long-term value for our associates, for our customers and for our shareholders. As you know, we outlined a plan to transform the business back in 2017, which we framed as Restock Kroger. The 4 key focus areas of Restock Kroger are redefine the customer experience, partner to create value, develop talent and live our purpose. Building on the strategic framework at our Investor Day last year, we laid out the plans for how we intend to grow the business and deliver strong and attractive total shareholder returns. Our model starts with a strong and durable core, driven by our retail supermarkets, fuel, and health and wellness businesses. We expect to grow sales through an intensified focus on execution and by continuing to invest in areas of the business that are important to our customers. This includes ongoing investments in talent, price, digital and store experience with an even greater emphasis on our competitive moats, Fresh, Our Brands and personalization, plus the moat that we are in the process of building, our seamless ecosystem. We are also being very deliberate in balancing these investments with disciplined execution of cost savings that simplify our business. And the final part of our model is leveraging Kroger's unique assets to drive accelerated growth in our asset-light, margin-rich alternative profit streams. This includes Kroger Personal Finance, media, customer data insights and ventures. Last week, we shared our quarter 4 and full year results for 2019. It was pleasing to be able to show clear progress in all areas of our model. We delivered identical sales without fuel, FIFO operating profit and EPS growth, all within our target range, but even more importantly, we demonstrated proof points to support our long-term TSR model. Identical sales without fuel in the second half of the year, excluding January, which was impacted by SNAP, were ahead of our guidance for 2019. Operating profit grew by mid-single digits, which included $1 billion of cost savings and $100 million of incremental operating profit from alternative profit streams. We also generated strong free cash flow, allowing us to reduce debt by $1.1 billion and return $951 million to shareholders via share repurchase and dividends. On the earnings call last week, we confirmed our guidance for 2020, reinforcing our confidence in the momentum we are building with the model we shared at the Investor Day last November. Before I turn it back to Robby, I'd like to say a few words about the coronavirus. From a financial standpoint, it's too early to tell what the effect will be on our business, and it isn't included in our guidance for 2020. In terms of business preparedness, we have established an internal task force that has activated our pandemic preparedness plan with a focus on our customers, associates and supply chain. We generally believe that we have limited supply chain exposure in China as the majority of the product we source is domestic. We certainly feel for those in America and around the world who have been affected. The health and well-being of our associates, our customers and our communities is Kroger's top priority. Always being there for our communities is part of our heritage, especially in times of uncertainty. I'll now turn it back to Robby for opening up for questions and answers. Thanks, Robby.

Thanks, Gary, and thanks for the -- starting out with the coronavirus discussion. But the other area that was creating some volatility in the market yesterday was oil. And I was hoping you could remind us how big moves in the fuel market historically have impacted your gasoline business and just how we should think about that?

Yes, thanks, Robby. It's certainly an interesting time at the moment with the way fuel prices are obviously changing in the market. From our perspective, maybe I'll take a step back, first of all and pivot to my opening comments as well. But the way we think about our model is very much balancing that overall customer ecosystem between our grocery food business, our fuel business and our health and wellness business. And as you look at what we delivered in 2019, I think demonstrating that multifaceted business model and how we can manage across the different parts of the ecosystem to deliver sustainable growth, we think, is an advantage that we have with our model going forward, and we think it proved that was the case in 2019. As you know, we talked a lot about as the year progressed that health and wellness was a headwind in terms of gross margin pressure, but fuel really offset that and was a tailwind and the 2 really balanced out during the year. We very much look at fuel as something how -- obviously, our role and our goal is to make sure that we're delivering for our customers, both in terms of having competitive prices at the pump and also delivering hundreds of millions of dollars back in fuel rewards to our customers through the loyalty program that we offer. So from that perspective, fuel remains a very important part of our strategy. Short-term movements in price on fuel can certainly create short-term impacts on margin. But overall, we feel good about our approach to how we manage pricing and how we manage, at the pump that is, and how we continue to connect with customers through our loyalty program. It's an interesting dynamic on fuel prices and how they impact the customer because when fuel prices drop, on the one hand, you could argue, it's less emotional for the customer because the prices aren't as high. So getting savings might seem like it's less important because the price is lower. But actually, what we often see is that because the price is lower and then with the discounts that we offer, customers are very incentivized to try and get fuel pricing as low as they possibly can by earning more fuel rewards. So what we tend to focus on is really messaging to the customer that connects with where fuel prices are at any given time and how we can use that to really drive our loyalty strategy and reward programs to really connect more deeply with customers.

Another question I want to ask was just on pharmacy. I get a lot of questions on how Kroger is thinking about pharmacy profitability impact looking forward versus what you guys just reported for the last fiscal year. I think pharmacy pressure was -- in the fourth quarter, I think you guys said it was in line with kind of what you saw throughout 2019. Can you remind us how you're thinking about pharmacy pressures in 2020?

Sure. Yes, again, I probably want to, first of all, just emphasize that pharmacy is a really important part of our overall customer ecosystem. We shared, I think, at our Investor Day in November that a typical pharmacy customer spends 3x more with Kroger overall. So it's very much a customer from a loyalty perspective that we continue to value. We're also seeing strong growth in SCRIP camps and overall customer use of our pharmacies, which is a really encouraging sign because of the great work that our pharmacists and our stores do in delivering a great customer experience. Pharmacy has been certainly an interesting ride from a profitability point of view, actually going back to 2018, because of all the great work that our pharmacy teams have done around managing cost in the business, simplifying our processes, managing cost of goods where we can. Even with some of the structural headwinds around the PBM relationships, we continue to see improvements in profitability in '18. What we didn't contemplate was quite the pressure on gross margin that we saw in 2019 through the changes in the PBM structure. And that's certainly been a headwind throughout the year for us as we continue to manage through the year. And as I mentioned earlier, really, fuel was the offset to that and everything else, really, within our model performed in line with expectations. So net-net, we came out of the year in a good position overall. As we look to 2020, we do expect pharmacy will continue to be something of a headwind. We don't expect it to be as dramatic by any means as it was in 2019, and that's because of the continued work that our teams do to take cost out of the business and manage the areas of cost of goods that we can influence more directly. And when we think about the overall model, when you add to the headwind on pharmacy, probably some slight headwind on fuel there as well based on the continued growth in fuel profitability over recent years. The reason that we feel good about the guidance for the year is that we do expect to see continued identical sales momentum in the grocery and food part of the business. We continue to expect to generate $1 billion of cost savings in 2020 and, of course, our alternative profit streams are continuing to accelerate their growth with a target of $125 million to $150 million of incremental profit next year. So that's really what makes us feel comfortable around the overall guidance that we shared for the year with all those puts and takes in the model.

That's really helpful, Gary. Another question that I got from a lot of people after your conference call last week was on -- I think it was Rodney that made -- had some commentary on the Ocado partnership, and talking about not just large facilities, but other medium-sized and other sized facilities. I was hoping to see if you could talk more about, is this meaningful departure from the original plans for the Ocado sheds? Or what is leading to consideration of more or different sized formats? Kind of any more color you can give on that would be great.

Yes. Thanks, Robby. I'll bring Yael into the conversation here because Yael has been a leading light for us in really shaping the strategy of the company and talked a lot about this at the Investor Day. So, Yael.

Yes, Robby. Happy to comment on that and elaborate where appropriate. So we continue to design to a distribution network with a key focus on flexibility and balancing the right level of flexibility and proximity as well as aggregation, which is where you get some leverage on the unit economics. So back to your question about, is that a departure from the original announcement, if you will, of the strategic partnership with Ocado? Not really. The way we structured the relationship with Ocado was really focused on what is the total capacity that we want to go after in the United States. And let's use a proxy of the average size facility. But if you look at Ocado and their facilities in the U.K. or in Canada with Tobi or other countries with the other partners, they vary in size greatly from medium to very, very large facilities. So the intent is to optimize the design of that network using the data we have today, using the knowledge we have of our customers and how that demand distributes across our footprint and then also in new markets and build a portfolio of facilities that combine the unit economic leverage of very large aggregated demand type facility and also maximize proximity to the customer for some of the more immediate demand.

That's helpful. And maybe another for you, Yael, while we've got you talking about this. We -- one question would be, as you look at 2020, how should we think about digital growth for 2020 for Kroger? And what would you say are the key during 2020? And then maybe a little insight on how impact Ocado shed could be in 2021 on digital growth? Could it accelerate it? Or do we have to wait until there's more sheds open?

On 2020, as we shared at the IR conference back in November, we expect to see a continued strong growth and project strong growth for 2020 with a growth rate around 20% and continue to see 70 basis points contribution to our ID sales for the year with the appropriate caveats Gary shared already on the coronavirus and the impact long term on U.S. consumption, which is everybody's guess, and we'll continue to update as we progress in the year. We continue to focus on our seamless journey -- seamless ecosystem journey continuing to make it easier for customers to access our services across all modalities, pickup, delivery, and direct shipment to home. And as you look at 2021 and the impact of Ocado, as these facilities come online, they help us in several ways. They make it easier for us to give access to some of its services to more customers. And they also help with the overall economic model for that customer engagement.

And just maybe to build on that couple of comments that Yael made specific to the question around 2021 as well, Robby. It would be interesting learning for us in 2021. As you know, we've shared the first 2 sheds that will open in the first half of next year will -- one will be in Monroe, Ohio, which will service some of the major markets that Kroger operates in today, which would include Cincinnati, Columbus, Indianapolis, it's really central to all of those markets. And so we're going to get some really good learnings, I think, there around how we can accelerate the ecosystem in parts of Kroger where we have that strong customer connection today and how can this accelerate our capabilities around pickup today, how can it helps us improve the experience around delivery, how can it help us reach parts of the market that may be harder to get to today where you're using the store to be able to deliver to those locations. So I think we'll get some really interesting learnings in 2021 in a market where Kroger currently has a very strong footprint and a deep connection with customers. And on the opposite end of the scale, of course, we have the second facility opening in Groveland, Florida, which will be much more a test for us around how can you start to connect with customers with a digital ecosystem where we don't have current footprint today from a store perspective and how do we start to build out that connection with customers in new markets and understand how you build that relationship and how you can grow a business in a footprint where we don't have brick-and-mortar stores today. So I think we'll get a lot of learnings early in 2021. And we're very deliberate about picking those first 2 sites so we can maximize the learnings from the early facilities that we open.

That sounds great. I'm going to pause for a second. Operator, do we have any questions in the queue?

[Operator Instructions]

And while we're waiting for -- yes, as while we're waiting, I'll ask another question. When you -- this is hard to do, but if we exclude coronavirus, when you think about how you were planning for 2.25% ID sales for 2020. Outside of the world of coronavirus, what would you have said the biggest risks to achieving that 2.25% ID sales would have been?

Sure. Thanks, Robby. Well, I think we feel, as you know, as we shared on the quarterly call last week, we feel very good about the momentum that we take into 2020 on the plan. I mentioned in the prepared comments, when you look at the first half of the year versus the second half of the year in 2019, overall, we hit the guidance range we shared for the year, but we saw a 2% IDs for 2019. But we certainly feel more positive about the trend we saw in the second half of the year. And if you exclude the January period where we had SNAP that we were cycling and also weather was pretty mild as well. But look at Q3 and November and December, we certainly had in terms of underlying trends of the business into 2020, feeling good about the momentum that we have versus the guidance that we gave for 2020. I think we're seeing the progress that we made learning from 2018, all the change that we introduced as part of Restock Kroger, and how we now are executing at an even higher level in our store experience through in-stock, friendliness of our associates and freshness of the quality of our products, and then the seamless ecosystem continuing to build momentum. And of course, Rodney talks a lot about our competitive moats at the Investor Day on the call last week and our investments in personalization in Fresh, and again, in the seamless ecosystem and how we're building progress there. So I think we go into the year feeling like we have a very clear plan and are executing on that plan. The areas that, of course, there are always the unknowns in the past that are difficult to be able to predict, although we feel good about what we see right now in the market with the inflation, competition, and then you mentioned it, the hardest point is what happens to the customer as a result of the coronavirus. The positive thing, I think, for us, as we look at it is, as you look over a longer period of time, at Kroger and having managed through periods of different levels of inflation and different levels of competition, we feel like we're well placed to be able to be ready to manage those ups and downs as the year progresses. And we expect competition always to be an area that we have to focus on and continue to invest in our customer, both in price, in personalization and the experience. And obviously, we've shared before that our inflation assumption is anywhere between 0.5% and 1%. We tend to assume relatively conservatively and build our model based on that. And as we head into 2020, we're kind of towards the top end of that range right now in inflation.

Great. Operator, is -- are there any questions out there?

It appears there are no questions at this time.

Great. I will continue then. Maybe more on the ID question. Would -- how would you rank the biggest drivers to 2020?

Yes. I don't know that I would rank them, specifically. I think it's a combination of how we are connecting more strongly with our customers and how we're really focusing on Kroger strategy and how we believe we can create value. And as you know, that's something that over the years, we've really been very focused on our loyal customers and how do we make sure that we use our information that we have about those customers to their benefit and reward them by delivering personalized offers and personalized experience. We talk a lot, as you know, around the importance of freshness, and we believe that's a differentiator for us today in the marketplace. And we expect to continue to strengthen that part of our business because we know it's important to our customers and we know it's something that Kroger stands for today and can stand for in the future. And our rebranding has really been a strong point to the importance of that and how we expect to continue to deliver for our customers in that regard. I do think, as we've talked about, the learnings from Restock Kroger in the early year, where we introduced a lot of change into our business in 2018, and at the Investor Day, Rodney spent some time taking a step back and sharing some of the learnings that we've taken from that first year of just managing through such a huge agenda of change. I think the learnings that we got there that have helped us to support our stores and being able to manage through more of that change in simplifying the business and allowing them, our associates, to be able to execute at an even higher level around the key elements of the experience that we stand for, for our customers is certainly an important reason that we've seen momentum in 2019 and something that gives us confidence in why we believe we can deliver continued sales at the guidance or above in 2020.

Gary, that's actually really helpful. One of my favorite topics is alternative revenue streams. I think you guys said an incremental $125 million to $150 million for this fiscal year. Can you kind of remind us what businesses are expected to be most meaningful in driving that incremental growth? And is it different from what was driving it in the last few years?

Yes, of course. And I'll bring Yael on this one, too, because it's an area that Yael has tremendous expertise from his former role at Kroger in leading a big part of 84.51° and then also plays a partner in helping us think through strategically where the biggest opportunities are in our profit going forward. But to take you back to the first part of your question, I would say, overall, the plan is playing out largely as we've shared at our Investor Day in 2018, when we first really provided some more color around alternative profit streams. The biggest drivers today would be, first of all, Kroger Personal Finance would be the largest contributor. That's a business that we've had for well over 10 years now and has a track record of delivering double-digit growth over that time period. It continues to grow the connection with our customers. We still see significant opportunity to increase both the penetration of our loyal customers that use the products offered by Kroger Personal Finance, but also to increase the usage of customers that are using the products today at an even higher level of frequency. And that's really been a big part of the focus at KPF in really deepening the relationship with customers and growing the number of customers that use the likes of gift cards, credit cards, and our money services solutions in the store. The KPF team does continue to add services as well. And certainly, lottery would be an area in 2019, where we are focused and use the capabilities of the KPF team to really introduce some of the same practices we've been using in other parts of those services that I mentioned to help that lottery business strengthen in our stores and to connect better with the customer. So we continue to see a runway for KPF. And it's really about doing the same things that we've done before, but better and intensifying the focus with the customer. Media will be the second area of the alternative profit streams. That's an area that started out as smaller than KPF, but have seen tremendous growth in the last year or 2, and we continue to see significant opportunity for growth in that area. Yael, I'll maybe bring you in and you can talk a little bit about what you see in the media state, if that's okay. You can...

Yes, absolutely. I think, Robby, as kind of tying it back to the growth we see in our digital ecosystem and our engagements with the customer, we continue to drive stronger engagements with our customer, which is both traffic and conversion of that traffic. That is amplifying or accelerating the growth rate for our digital media business. We also -- as we're entering new markets, and Gary touched on that earlier, that we'll unlock some new potential pool of digital media or advertising dollars, which will also contribute to the long-term growth of our media business. Maybe kind of commenting on the other part of your question, which is how does the portfolio of alternative profit evolves over time, Robby. I think you can assume that you'll continue to see growth around new services and -- or additional services and offering for our customers. We have the benefit of having a strong relationship with our loyal customers, and they turn to us for additional services and convenience that we can offer through digital platforms as well, which will continue to drive some of that growth moving forward.

Thank you. Operator, anybody queued in?

There's still no questions at this time.

All right, I will keep going then. I was hoping I could get you guys to talk about your transition to digital overall, meaning same-day and next-day delivery. And can you walk us through your view of the competitive environment there and your strategy and where you guys are at versus where you're going to get to in both same-day and next-day?

Yes. What we continue to see, Robby, is that depending on the day of the week, depending on the context in that day or location for the customers, our customers don't necessarily concentrate 100% of their trips on one type of modality or one level of immediacy. So you're using same-day versus next day, another way to look at it is whether I favor pickup versus delivery and we see that our digitally engaged customers tend to straddle multiple modalities and also distribute their demand on different level of immediacy, which is why it's important, and we continue to invest in a flexible network that can fulfill that demand. So the growth continues to be strong across all of these "verticals", both modalities and immediacy. And as we look at our plan moving forward, we are not going to favor one or the other. We're going to continue to grow by capturing additional share of wallet, which is basically supported by new customers acquisition, increase in frequency as customers see the value in the seamless experience and also additional incrementality. So I don't know if that answers your question, Robby.

That's helpful. And on things like ClickList, how do you guys think about automation in-store versus using Ocado for automation? Can you give us any sense of how you're thinking about that?

Yes. So similar to some of what we shared at the Investors Conference in November, Robby, I think the key is to create a balanced network for the distribution and the fulfillment of that demand. And that includes large facilities where you can benefit from aggregating demand. By aggregating demand, you're creating some additional leverage from a unit economic perspective. But we're also looking, as you mentioned earlier, medium and small-sized facilities, including looking at facilities that would be in high proximity, if not directly connected, to our stores, and that's where you can start seeing some of the automation capabilities. And we already have automation capabilities in some of our stores where we -- where the density or the volume of demand justifies that investment. And that is as much a unit economic leverage as it is a quality of experience for our customers where we may have physical space constraints. Vertical staging, which is a way of leveraging automation, could be a leverage point for us. So you'll continue to see us leveraging automation and aggregation where appropriate, where we have density and volume of demand that support it and leverage proximity to the customer and our existing physical assets where we can as well. And that combination of asset is what creates the competitive advantage that we're further developing and building in 2020 and beyond, which is really leveraging that plurality, that flexibility of network to capture incremental share of wallet from our customers.

Got it. And then I'm going to shift gears into just marketing. And I want to see if I could get you to talk more about the Fresh for Everyone ad campaign. I think it launched in November, just any -- how -- did you see any specific significant improvements in metrics? Is that a campaign that you'll highlight even more as you move through 2020, maybe a little more color on that? Anything else on the marketing side that you -- that could be incremental this year?

Yes. Thanks, Robby. We've been very pleased with the campaign. Certainly, the way we think about it is more than just a campaign. It was very important. We thought we'd take a step back and say, when you think about what Kroger stands for and where we can -- or where we do today differentiate for our customers versus the marketplace and where we plan to continue to differentiate in the future. We thought it was important that we looked at how we communicate with customers and really more clearly articulate that difference. So a lot of work went into -- in advance of the relaunch looking at, first of all, how do you change the messaging and how do you change the way in which you represent what we stand for to really cut through with the media messages that we were executing on. And I think you probably heard Joe at the Investor Day talking about the sort of sea of sameness in the grocery space and wanting to make sure that we did something different. So it was very important that we looked at the creative and took a different approach, but it's also much more broad than that in terms of -- it's really, as we mentioned, Fresh for Everyone, is really a key part of the company strategy, not just a brand positioning and a brand refresh. And so you see a lot of continued focus in the company, and the initiatives that we launch are really being driven around how do we continue to approve fresh experience, how do we make sure that we're truly standing for things that our customers value. We were first and I think probably still one of very few retailers that have a 10-day guarantee on the freshness of milk as an example, an exact data point of how we're standing for certain elements of freshness that our customers really appreciate and would set us apart from most, if not all of the competition. The actual marketing campaign itself, we are really pleased with the launch in November. I think some of the things that we saw was, certainly, we accomplished our goal of cutting through that sea of sameness that I referenced earlier, where customers really resonated with what we were sharing, saw it as differentiated. It certainly seemed in the metrics that we look at to drive a higher level of marketing effectiveness in the way that it connected and resonated with our customers. Rodney, I think, shared on the earnings call that we're seeing it -- from the research that we do, the customers are telling us it's driving trips into the seamless ecosystem, both the store and online, because we have been integrating the messaging of not just fresh, but the fact that you can get fresh. Fresh for Everyone means not just in store, but actually through the Kroger ecosystem of pickup at store and delivery to home. So I think you certainly would expect us and should expect us to continue to really build on that, both from a marketing message perspective, but also from a strategy around how do we continue to stand out in the freshness of what we're offering to our customers.

That's really helpful. Operator, I just want to check one more time to see if there's any questions from the audience.

Yes. We'll take our next question.

Gary, just given the rapid decline in rates, and I guess, a better position for balance sheet leverage, is there any change in your thinking around using commercial paper quarter-to-quarter versus longer-term debt? Or maybe alternatively, with $3 billion maturing over the next couple of years, is there any consideration or anything you're thinking about in terms of redeeming -- tendering front-end bonds and opportunistically issuing longer-term debt just to take advantage of the move here in both rates and the position of your balance sheet?

Yes, thanks for the question. It's certainly something that we constantly reevaluate, especially in times like this. I think you've probably seen if you look back over Kroger's history as well, what we do tend to do is when we see certain changes in the market like we're experiencing right now is also taking advantage of interest rate hedging to make sure that we're capturing the opportunity and finding opportunities to lower our cost of debt, where we can. We always would certainly do the calculation, too, to say is there any benefit from a shareholder and a balance sheet structure perspective of bringing forward any of that maturity. So you should know that we constantly have that internal dialogue and discussion. One of the things, obviously, that we talked a lot about is that we do have a strong free cash flow model, and we are committed to being within our debt-to-EBITDA range. And at times like this, I think it's also important that we maintain significant flexibility in our balance sheet because it's hard to predict exactly how something like the coronavirus will impact, not just short term but long term. So I think it's always a delicate balance that we like to keep about ensuring that we're maintaining maximum flexibility at the same time as continuing to reduce our -- strengthen our balance sheet and reduce our cost structure. Commercial paper is interesting because we do have pretty wild fluctuations in the value of commercial paper. It can range anywhere from no borrowing to up to $1 billion. And so it really is a flexible way of borrowing for us, and there are times where we are literally not borrowing in the commercial paper market because of the strength of our free cash flow and the way our working capital cycle works as a company. So we do very much view commercial paper as a flexible tool when you're a business like ours where you can see there's wild well swings at any given time in our cash position.

Operator, is there any others in the queue?

There are no further questions at this time.

All right. Gary, I've got one more question for you and the team. This would be just on private label. Can you remind me where the penetration is at? Where do you see the most -- where are you seeing the most items coming in 2020 to keep the growth in private label? And maybe remind us where you are on vertical integration and how you think about vertical integration in private label? And I'm thinking of like what Costco's done with its chicken plant. And remind us where -- I think you guys are very big into that. Maybe remind us where you're out on that and anything you see moving forward this year.

Sure. Thanks, Robby. Yes. I mentioned in my opening comments, and we talk a lot about our own brands as we call them, our private label products, we think give us a really important competitive advantage that we have with our customers. It's obviously a product that's only uniquely available at The Kroger. We have our Kroger brand, which is the largest component of that, but Simple Truth is the largest natural and organic brand at over $2.5 billion of annual sales. And we were delighted to be able to announce on the Q4 earnings that in 2019, Private Selection, which is our premium brand, broke through the $2 billion barrier as well. So we continue to see market share growth for our brands. And we continue to innovate with new products anywhere between 700 and 1,000 new products at any given time that we're launching in the market to continue to innovate and deliver on food trends for our customers. From a unit perspective, it's in that sort of 30%-or-so range in terms of market share, and as mentioned, continues an upward trajectory there. So we feel very good about the momentum that we see in our brands and believe it will continue to be a differentiation point. We have a blend in terms of your question around what do we manufacture ourselves, where do we use outsourcing through third parties to manufacture those products. And we have a very disciplined approach to that to determine whether we believe it's a more economically viable model for us and a strong return on capital for us to be manufacturing and producing those products ourselves. So dairy would be an example where we do have strength in internal facilities there because we believe it's an important part of the ecosystem and an important part of driving strength in our overall model. And then there are other areas where we look at the economics and decide that as long as we can find strong third-party partners that can deliver on our quality expectations that we use third-party partners to be able to manufacture those products for us. So we really do use a case-by-case basis to determine, based on the overall strategy for the company, the growth in those areas and whether we believe Kroger having capability in that area is a competitive advantage and drives a strong return as to whether we would actually manufacture in those spaces or not.

That sounds great. I want to thank you guys for a terrific session. And thanks, everybody, for joining.

Yes. You bet. Thanks, Robby.

And this concludes today's call. Thank you for your participation. You may now disconnect.