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

Ladies and gentlemen, thank you for joining Kroger's 2021 Investor Day, Leading With Fresh, Accelerating with Digital. [Operator Instructions] Now we will begin today's presentation.

Hello, and thank you for joining us today. Before we begin, I would like to take a moment to acknowledge the devastating events of the last 2 weeks. On March 16, we lost 3 associates to violence in the Oconomowoc distribution center in Wisconsin. And then our world was again turned upside down by another senseless act of violence in our King Soopers store in Boulder, Colorado on March 22. This horrific event resulted in the death of 10 people, including 3 of our associates and a Boulder Police Department officer. And while our Kroger family is grieving, there is light and hope. We've also heard so many stories of how our associates selflessly helped one another and our customers to safety in these situations. I am so proud of our teams in Wisconsin and Colorado, who are leading with empathy and strength and are a model to us all. And to all of our associates across the organization who have reached out to offer help and support, I am so grateful that we have each other now more than ever. I also want to express our deep condolences to the families of those lost in these horrific events and our profound appreciation to the first responders who support and protect our associates and communities every day, including Officer Eric Talley, who heroically lost his life in service to others. Our community, our Kroger family has shown strength and resilience beyond measure. They are the heart and soul of our organization. And for that, I am forever grateful. Thank you, and now we'll begin today's meeting.

Good morning, and thank you for joining us. I'm Rebekah Manis, Director of Investor Relations, and I'd like to welcome you to Kroger's 2021 Spring Investor Day. We are so glad you could join. Our leadership team is excited to share with you Kroger's growth strategy and how we are winning with customers by Leading With Fresh and Accelerating With Digital. Within their presentations, you will hear additional details surrounding our digital strategy, alternative profits and the role of Ocado in our seamless ecosystem, which we know are important topics based on your feedback. Following the prepared presentations, we will take a 15-minute break before starting Q&A. All presentations and transcripts will be posted at our website at ir.kroger.com. Before we begin, I do have a few important disclosures. I want to remind you that today's discussions will include forward-looking statements. We want to caution you that such statements are predictions, and actual events or results can differ materially. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis is contained in our SEC filings. The Kroger Co. assumes no obligation to update that information. During this presentation, we may discuss certain non-GAAP financial measures. For a reconciliation of non-GAAP measures as well as other information regarding these measures, please refer to the Investor Relations section of our website. Now I'm pleased to turn the morning over to Kroger's Chairman and Chief Executive Officer, Rodney McMullen. [Presentation]

Thank you, Rebekah. Good morning, everyone, and thank you for joining us for our 2021 Virtual Investor Day. When the pandemic hit last year, our world changed dramatically. What remained constant was people's need for food. And we were there to meet that need through new channels and formats with a relentless focus on quality, value and convenience. We not only met our customers' immediate needs, but we also used this unique period to accelerate our own transformation. Thanks to our team's response. And by leading with our purpose and our values, we converted the crisis into a catalyst for sustainable growth. Our goal today is to give you a closer look at how we're positioning Kroger to win for the long term by Leading With Fresh and Accelerating With Digital. Throughout today's presentations, you'll hear 3 key themes. First, our fresh food leadership will enable us to win share. Second, digital is now a growth engine, and we have a clear path to digital profitability with retail media, economies of scale and technology and process improvements that will lower our cost to serve. And third, with the power of the Kroger platform, we are well positioned to compete and win in a post-COVID world. Our 4 competitive moats: Seamless, Personalization, Fresh and Our Brands, are stronger today than ever before, reinforcing our confidence in our ability to grow sales and market share. We are committed to delivering consistent and attractive total shareholder return of 8% to 11% per year, underpinned by a financial model that now includes a higher operating profit base and a clear path to deliver earnings growth of 3% to 5% and strong and growing free cash flow to invest in our growth initiatives. But before we look to the future, let's start with the past. Restock Kroger transformed us. Our primary business, food, never goes out of fashion. But in 2017, we were facing continuing challenges from low margins, new competition and changes in buying and consuming habits, especially the increasing demand for a seamless customer experience that we forecasted. We knew we had to build a war chest to remake ourselves in order to turn these headwinds into tailwinds. Through Restock Kroger, we took over $3 billion in costs out of the business, freeing up resources to invest in people, technology and price. We strengthened our competitive moats. We established a flywheel to monetize the traffic and data generated by our core business. We improved talent development at all levels of the business, placing the right people in the right roles. And we made a series of bold commitments to advance our Zero Hunger | Zero Waste vision at the center of our ESG portfolio. And while not everything went according to plan, we learned and adjusted throughout, transforming our business model and making changes that proved advantageous when COVID-19 hit in February of last year. COVID-19 changed us. When the pandemic arrived, we acted quickly to protect our associates and customers and deploy our expertise to make sure people's need for food and the need to obtain it in evolving ways were met reliably, safely and cost effectively. Indeed, we recognized that in the depths of the crisis, food had become not just a necessity but a core comfort, a reminder that life would go on and get better. So we built upon that powerful sentiment to deepen our connection with customers. The pandemic nearly doubled the amount of customers looking for a seamless shopping experience. We now have almost 50,000 associates dedicated for pickup, delivery or shipped. Because of our previous investments and innovations that were part of the Restock Kroger commitment, we were able to support this increase in pickup business in 2020. It's just a huge hats off to our team. Knowing that an ounce of prevention is worth a pound of cure, we also took immediate steps to safeguard our associates and make sure our customers could continue to rely on us to supply them despite rapidly changing buying patterns. Our investments in these areas continue to make a difference today for our associates and our customers. And you'll see that in the following video. [Presentation]

Kroger is in a position of strength today because of our transformation. We've deepened our connection with customers and associates. We accelerated digital sales and profitability by several years and identified new customer-centric innovations for tomorrow. As a result of this strong foundation we've built, we invested in our associates, communities, gained market share and delivered record-breaking sales above our TSR model in 2020. Leveraging Kroger's unique strengths in fresh food, combined with our increasingly profitable digital business, creates an unmatched combination that positions us better than anyone to continue to win share in a highly fragmented $1.4 trillion market. Today, we have a 10% share of food at home with #1 or #2 market share positions in the vast majority of the major markets in which we operate, which makes the opportunity for growth ahead of us incredibly exciting. As we think about the future of grocery in a post-COVID era, we see 3 major trends shaping the industry: e-commerce, cooking at home and prepared meals to go. It's true that the shift to spending more time at home and eating less at restaurants was a tailwind for our industry and that we will face tough comps as a result. But we also believe that those who are able to convert on this short-term boost into long-term competitive advantages will emerge as winners. And that's exactly what we've been doing. As society has leapt into a new digital era, so has Kroger. Our team mobilized quickly, taking what has been working well both prior to and during the pandemic to meet the needs of our communities and advanced and adapted our long-term strategy. Today, our digital sales are over $10 billion. That is a massive shift from where we were just a few years ago. But there's still a huge opportunity in front of us. So how will we drive total shareholder return today and in the future? By Leading With Fresh and Accelerating With Digital. We will grow our share of wallet by leading with fresh food. We will grow our profitability by accelerating with digital. And we will widen and deepen the competitive moats that support and enhance our food platform, including through alternative profit streams, positioning Kroger to compete and win in a post-COVID world. At Kroger, we have always believed that everyone deserves to have fresh, affordable food. We also know that customers make decisions about where to shop based on their perception of the freshness of that retailer's food. In this way, food is our core platform. Our fresh offering is both an important sales driver for Kroger and a competitive advantage because customers rank our fresh departments higher than that of all large national retailers. Digital is also a significant growth opportunity. By digital, we mean the Kroger seamless ecosystem we've built over the past few years to be able to deliver anything, anytime, anywhere regardless of channel, whether pick up, delivery or shipped. Today, we are seeing more and more new customers engaging in our seamless ecosystem. Since the pandemic, we have more than doubled our digital business in 2020. We will continue to build on this momentum, and we have a clear path to drive profitability. We have also been evolving our customer fulfillment network, leveraging our existing network of assets and strategic partnerships to meet heightened demand. As we expand and strengthen our distribution network, our selection of products increase, which leads to higher customer engagement and greater sales. You've heard us talk before about our competitive moats, which include our fresh offerings, our brands, data and personalization and our seamless ecosystem. Each of these are strategic differentiators, things we do differently or better than our competitors. Each one generates customer loyalty and sustainable growth momentum. And because of customer behavior changes during the pandemic, each advantage has become even more important and more essential. I spoke about Fresh earlier, but now let me spend a moment on Our Brands, which truly provide a unique reason to shop at Kroger. Simply put, customers tell us they love Our Brands and choose them over other leading competitor brands. Our Brands business, if it were a stand-alone company, would rank 8th on the Fortune 500 listing of CPGs. When it comes to the customer, a more personalized experience will continue to drive loyalty. We have a customer base with connections to over 60 million households that we are able to leverage into new growth opportunities. And the scale of our digital business has grown so rapidly that during 2020, we had over 1.3 billion customer interactions across digital, a 30% increase over last year. Our significant reach allows us to meaningfully personalize the customer experience. At the same time, our ecosystem monetizes the traffic and data insights generated by our enhanced customer experience. We are leveraging our assets in new ways through these fast-growing, asset-light and margin-rich businesses. This includes new businesses like our retail media business, Kroger Precision Marketing, and mature businesses like Kroger Personal Finance and our data analytics firm, 84.51°. All of these contribute to incremental operating profit growth and margin. At Kroger, we are fortunate that our core products and services are, simply put, essential to human health, happiness in life. They are essential to a thriving society, a thriving planet and thriving systems that support both. Our reliable provision of affordable and healthy food, vaccines and other health products and services are, in fact, fulfilling our purpose: To feed the human spirit. We also know that how we do what we do matters and increases our positive societal impacts while adding shareholder value, increasing community support and protecting our reputation. Before last year's social justice movement rightly focused the world's attention on diversity, equity and inclusion, our Board of Directors has been comprised of racially, ethnically and gender-diverse members. Our programs to increase sustainable packaging, eliminate waste, reduce energy and water use and decrease emissions are all part of the good for the planet, our investors and stakeholders. Our responsible sourcing programs and recruitment of women and minority-owned suppliers help protect the reliability of our supply chain as well as our acceptance in local communities. In fact, we have already invested more than $3.4 billion with diverse suppliers. And we plan to grow that to $10 billion in 10 years. And our focus on fresh, organic and better-for-you products is not only well placed to meet escalating demand for healthy food, but it also contributes to human health in our communities. We've always understood, to be part of our communities, we have to reflect our communities. We are proud that the diversity of our employee base mirrors that of the communities we serve. We are building a connected culture that embraces speed, agility and collaboration. That also means a more personalized associate experience. In addition to our continuing investment in wages and benefits, we are also applying technology to provide a personalized Kroger associate experience. We are often the company that provides an employee with their first job. We use that opportunity to build loyalty both from our associates and from our customers. We want to meet our associates where they are and provide them with tools and pathways to grow within our company because the jobs of the future will grow and evolve just like our business. And today's growth-minded associate will deliver tomorrow's solution for our customers. In summary, we have a tremendous opportunity ahead. Food is a necessity and a comfort, and we are positioned to win share with our leadership in fresh food. We also have tremendous growth opportunities in digital. And as we look at a post-COVID world, we are confident that our strategic moats will position us to compete and win. Today, you're going to hear from an outstanding team of leaders who represents thousands of people across our company. These leaders will outline how we will deliver consistent, profitable growth, which drives our commitment to an 8% to 11% total shareholder return. Yael Cosset, our Chief Information Officer, will discuss digital strategy and our plans to accelerate market share gains and increase profitability through seamless digital customer experience. Our digital strategy is directly linked to our powerful and best-in-class supply chain and manufacturing network. And you will hear from Gabriel Arreaga, our Chief Supply Chain Officer, to learn about our crucial role our distribution network plays in the customer experience and profitability. Then Cara Pratt, our leader of Kroger Precision Marketing, will discuss the significant contributions our retail media business is making to drive digital profitability. Next, we will focus on Fresh, beginning with Stuart Aitken, our Chief Merchant, who will outline why we are so confident about sales and market share growth by having the most fresh and unique assortment available to customers when and how they want it. Mandy Rassi, Vice President of Marketing, will then discuss how we are creating unique brand positioning and personalizing our marketing approaches to further deepen our customer connection and grow sales. To showcase how we're elevating the customer experience at Kroger both in-store and through pickup and delivery, we will hear from Mary Ellen Adcock, our Senior Vice President of Operations. Then our Chief Financial Officer, Gary Millerchip, will conclude with a discussion on how our proven value creation model will deliver sustained earnings growth and total shareholder return. I'd like to conclude by thanking our Kroger family of associates. Throughout the pandemic, our team has never lost sight of our goals and focused on serving our customers when they needed us the most. More than ever, our performance over this past year is owed to them. A huge, huge thank you. And now I'd like to turn it over to Yael Cosset. Yael?

Thank you very much, Rodney. Good morning, everyone. My name is Yael Cosset, and I lead our technology and digital teams and our alternative profits portfolio. 2020 was a year like no other, and there is no question that the pandemic created a massive shift in consumer behavior. While we saw more and more customers engage with us digitally before the pandemic, this past year was a catalyst to accelerate our digital growth for years to come, and I'm excited by the opportunity to share with you where we are headed. My goal today is to leave you with 3 key takeaways. First, I will share with you why we are confident in our digital strategy and how we will continue to win with our customers. Second, I will outline our strategic levers to increase market share and double our digital sales by the end of 2023. And third, I will share our road map to double our pass-through profitability rate by the end of 2023. After I share more color on our digital strategy, Gabriel will talk about our distribution network, including Ocado and how it will supercharge our strategy. He will be followed by Cara Pratt, who will share the critical role of our media platform in driving digital profitability. Starting with a look back on 2020. As we entered the pandemic and dynamics shifted rapidly, the investment we had made in building a seamless ecosystem enabled us to respond quickly, reinforcing our competitive advantage. In 2020, we were ready for our customers at a time when they needed us the most. And they rewarded us with their loyalty, driving our growth and share gains. Our Seamless ecosystem is what enabled and will continue to enable us to accelerate our growth trajectory. Our growth rate in 2020 was 5x our 2019 growth rate. And in 2020, we more than doubled digital sales to reach and exceed the $10 billion mark, growing e-commerce share by 50% and doubling the number of digital households within our network. The growth acceleration in 2020 was only possible because of the foundation we invested in as part of Restock Kroger. Our platform was ready, our associates were ready, and everyone embraced the challenge and showed agility to adapt to accelerated customer behavior changes. As we look ahead, our Seamless ecosystem will remain a competitive advantage, leveraging our moats, bringing the most relevant fresh food solution to our customers, we are providing what customers need and want, from fresh and ready-to-eat solutions to restaurant-quality meals, meal kits, quality ingredients and specialty items. Equally important, we are providing what customers need and want in a way that fits the context of their day, whether it's coming to our stores, picking it up, delivering to a convenient location or directly shipping to their homes. In short, we are providing the right assortment through these options, the modalities that fit our customers' lives. Lastly, as we shared in the past, we are providing these options to our customers with the added convenience of simplified shopping and access to value and offers with our Personalization platform to ensure the most relevant experiences. The comprehensive and connected nature of the experience continues to be a key differentiator. Our Seamless customers, which we define as customers who are engaging with us across more than one modality, shop with us more frequently, spend more than twice as much and are more loyal to Kroger. In fact, we see retention rates of our Seamless customers reached 98%, 98%, which shows how much the Seamless experience matter to them and how it will contribute to our long-term growth. Our Seamless ecosystem is a competitive advantage and continues to contribute to establishing Kroger as the fresh food destination for our customers. Looking ahead, Kroger is positioned for sustained digital growth and profitability. I'd like to share how we will capitalize on our momentum to both accelerate market share gains and increase digital profitability over the next few years. First, as it relates to accelerating our market share gains and our plan to double our e-commerce sales by the end of 2023, our strategic levers are leveraging our assets and increasing our customer reach; expanding our assortment and improving its relevance with our marketplace; and continually evolving our personalization platform to drive loyalty. Then we will share how we will continue to increase the profitability of our Digital business and our plan to double our pass-through profitability rate by the end of 2023. Our strategic levers to do so revolve around leveraging our stores and accelerating productivity improvements; expanding our supply chain and fulfillment network; and accelerating our retail media platform to drive overall digital profitability. Let me dive deeper into our plan to accelerate market share gains. First, we will accelerate share gains by increasing customer reach. As I mentioned earlier, we more than doubled our e-commerce business in 2020. This was made possible by the Seamless ecosystem we already had in place, which enabled us to immediately increase the capacity of our platform and meet the customer demand. We had weeks early in the pandemic where we 10x our delivery volume. Early on, we more than tripled the number of orders from our stores in a matter of days across all of our stores. This agility relied on our technology capabilities and our store teams, who were able to respond quickly to the increased demand, leveraging our Digital platform. Over the next few years, we plan to double our capacity just from our stores, making it ever more convenient for our customers to shop with us in store, for pickup and delivery, with the option in time that best fits their day. We also confirmed throughout 2020 that proximity continues to matter. As an example, we launched an initiative to support first responders, creating pickup locations in local hospital parking lots to make it easier for them to get their groceries where and when it was most convenient without compromising on the experience. We saw firsthand how much of a difference that made in their lives to give them that time back. We are taking these learnings, the capabilities we pull together and making our pickup service available to new geographies and customers who do not have the immediate access to one of our stores. This pilot we are calling Hometown Pickup brings the Kroger fresh food experience to new communities, with the potential to significantly increase customer reach and convenience. Lastly, with the opening of our second Ocado-powered facility later this spring, we are expanding customer reach by entering entirely new geographies with the launch of Kroger Delivery in Florida. And Gabriel will talk about these exciting launches later on this morning. To summarize, we have both existing and future opportunities to increase customer reach. Today, it's all about increasing convenience and availability for our customers, and we will do so with expanded capacity from our existing store network and as we roll out customer fulfillment centers in current markets. In the future, we have opportunities to increase availability, proximity and convenience for many communities in both existing and new geographies. The second strategic lever to accelerate our growth is the relevance and expansion of our assortment. Another huge proof point from 2020 was the importance of quality fresh food solution and how much it matters to our customers. As we look ahead, we will leverage the competitive moats we have around our brands and fresh food solutions, engaging our customers across our seamless ecosystem. First, we are doubling down on some key categories with huge upside potential. This range from adult beverage to our plant-based products, including Our Brands; but also some of our specialty categories such as Murray's Cheese, the #1 cheese platform in our markets; but also our meal kit subscription platform via Home Chef, which saw accelerated growth in 2020 and continues to show great momentum going into 2021. Second, we are accelerating the ramp-up of our third-party sellers' marketplace. We launched additional categories throughout 2020, and we'll see an uptick in the coverage and assortment in '21 and beyond with the addition of millions of items over the next few years. This continues to be a great growth opportunity as we leverage the increased traffic we saw last year and monetize our customers' engagement through e-commerce and media growth in an asset-light, margin-rich model. Lastly, we will expand our meal solutions assortment, building on our existing offering from ready-to-heat dinners to meal kits and also continuing on with our pilot we launched last year around ghost kitchen capabilities in order to accelerate our ready-to-heat and restaurant-quality meal solutions. Customers continue to turn to Kroger to satisfy their food needs. Our goal is that when they think of food, they think Kroger. Our continued investment in the assortment expansion, bringing quality fresh and value to our customers is our second focus area to drive market share growth for 2021 and beyond. Our third strategic lever, to accelerate digital share gain is our evolving Personalization platform. Our focus over the last few years in personalizing every touch point, leveraging terabytes of data being generated every single day and innovating in personalization science is a massive differentiator and contributes to our competitive advantage. To give you a sense of the impact of our Personalization already today, last year alone, we presented over 0.5 trillion personalized recommendations to our customers across our digital ecosystem, 0.5 trillion. And we apply it across the customer journey. While in store, using our app, at home, through e-mail, push notifications, shopping online or via our apps, relevance matters. And we continue to see industry-leading open rate and redemption rates at 4x the industry average, 4x. This is a critical unlock of how we continue to grow our digital customer engagement, their shopping trip frequency and overall retention. As I mentioned before, when a customer adds a digital channel to their engagement with Kroger, we see a retention rate of 98%. Personalization and relevance make a huge difference. Personalization is about simplifying the customer journey, making it more personal, making their lives easier, regardless of what matters most to them. It could be convenience, the items that are most relevant to me based on the day, the time of day, but also my shopping behaviors. It could be value, with offers most applicable to me as a shopper. Or it could be inspiration, presenting ideas, recipes or introducing new items that are relevant to me and make me more engaged. Our conversion rate last year more than doubled. People tend to focus heavily on traffic growth, and it is critical as growing traffic means you are a destination. But conversion is equally critical because it guarantees our customers come back and increase their loyalty. And Personalization is what drives conversion. It is a critical piece of the puzzle both for our top line growth, driving the repeat visits, the additional items, the additional meals; and also a critical component of our retail media platform, which supports bottom line growth. We will continue to drive personalized relevance through our loyalty and membership programs, applying it at every touch point across the customer journey. For some customers, it will be value. Others may over-index in our health care services, pharmacy, little clinic. Others may price the convenience of delivery or pickup, while some customers will rely on our fuel savings. We believe that bringing a personalized dimension to our membership model will differentiate our offering from competitors, and you will continue to see this in our programs as we expand our membership portfolio. To recap, these are the 3 strategic levers we will be focusing on in 2021 and beyond and double our e-commerce sales by 2023: increasing customer reach across the options relevant to them; expanding our relevant assortment; and evolving our Personalization platform. Let me now dive into the strategic levers we will focus on to double our digital profitability rate by the end of 2023. They are leveraging our stores and accelerating productivity improvements; expanding our supply chain and fulfillment network; and accelerating our retail media platform to drive overall digital profitability. I'll talk briefly about leveraging our stores, and then Gabriel and Cara will talk about our fulfillment network and the retail media business, respectively. Our #1 asset is our stores. They are our #1 asset due to their proximity to our customers and the uplifting customer experience that enable our associates to deliver. While we invested in the past few years to make pickup and delivery available across our stores, with close to 2,500 stores offering pickup or delivery in as little as 1 hour, we also have been investing in associate training and technology capabilities to improve the overall experience while enhancing productivity. In 2020 alone, we reduced the cost to serve from our stores by 14%. And we accomplished this through investment in our store associates, innovation in our business processes and technology enhancements and did this while improving the overall customer experience, which Mary Ellen will cover later and share some of the amazing achievements from our store teams across the U.S. Over the next few years, we will continue to invest in our associates and our technology platforms and expect to improve our cost to serve from our stores by more than 30%. This is a huge economic advantage. And as Gabriel will make clear, our stores are part of our overall e-commerce distribution network and supply chain strategy. To be able to improve the productivity of fulfillment from our store by so much in a short period of time is a huge boost to our overall digital profitability. And importantly, this is before the significant benefits we expect from the automation and scale of our dedicated fulfillment centers. We are extremely excited about the years ahead, where we have the opportunity to capitalize on our Seamless ecosystem investments and deliver accelerated market share gains and increased profitability, doubling both digital sales and our pass-through profitability rate by the end of 2023 and reinforcing our competitive advantage through all of it. With that, I will turn it over to Gabriel.

Thank you, Yael. My name is Gabriel Arreaga, and I oversee Kroger supply chain. As the newest member of the team, I joined Kroger in September after spending 20 years at 3 large consumer goods companies leading supply chain. Kroger supply chain is responsible for making sure that every item you buy from Kroger, whether it's in one of our stores or delivered to your door, is always fresh, nutritious and inspiring. This is the fundamental reason our customers shop at Kroger. They know our produce is fresher than our competitors, and they know that they can depend on the quality of our products to be consistently high. Our supply chain is a competitive advantage today, and I'm going to outline why that is true. We also believe the addition of Ocado-powered customer fulfillment centers will accelerate our business in the future. Yael talked about our commitment to double our pass-through profitability rate by the end of 2023, and I'll provide specifics on how supply chain is part of the plan to drive efficiency while providing a differentiated customer experience. Our goal is to continue that excellence and extend it across the entire Kroger ecosystem to create a gratifying and seamless customer experience. As you heard from Yael, we are expanding our supply chain and fulfillment network for the future to support Seamless and increase profitability. Let me begin by walking you through how our existing supply chain network is a competitive advantage. At Kroger, we differentiate ourselves from big-box or e-commerce pure-play competitors through our quality, freshness and efficiency. Our distribution model was built specifically to achieve these outcomes. Fewer touches, great quality controls, partnerships, in-sourcing and the use of science and automation all make a real difference to Kroger shoppers, a difference they can taste. One example of our current capability is how we source fresh products like strawberries from multiple suppliers in various regions. Every purchase is carried out based on quality and efficiency. When we purchase from the field, it takes as little as a day before our customer is enjoying it at their table. That level of speed, efficiency and customer centricity is a differentiator and difficult for our competitors to replicate. Over time, we have learned how to leverage our existing asset base to increase the agility and resilience of our supply chain. As a result of many years of fine-tuning, we built a distribution network that is a key growth driver in itself. Today, our e-commerce supports our in-store and e-commerce network to serve our customers across modalities. Whether a customer comes into our store, visits our app or Kroger.com to order groceries for delivery or choose a convenient time to pick them up from a local store, we are providing an experience that is full and fresh. And we're doing it fast and cost effectively. Next, I'd like to address one of the questions we often hear from our investors: What is the future of our supply chain strategy to meet the vision that Yael outlined? And how do we see our stores and customer fulfillment centers working together to deliver for the customer and drive profitable growth? Stores will always play a key role. Where the majority of our shoppers live within 2 miles of a store and 45% of the U.S. population is within reach, stores provide an efficient way to satisfy our customers' needs with immediacy via pickup or convenience store visits. At the same time, we're rolling out our new customer fulfillment centers, which will enable even more customers to access more products even faster and in more markets. Our customer fulfillment centers will create an opportunity to serve 75% of the U.S. population within a 90-mile radius. Where our strategy gets really exciting is the interplay between our stores and dedicated customer fulfillment centers working together to deliver for our customers regardless of their set of needs. When combined, our stores and customer fulfillment centers create an ecosystem where brick-and-mortar and distribution automation and AI can deliver to customers from the most efficient solution without sacrificing the customer experience or assortment. As we continue to expand our network, cost of delivery will continue to decline due to customer proximity and density. In my experience leading supply chains in different economies and geographies, reach matters in creating an ecosystem that captures rapid market share and lowers operational costs aggressively. And that is why we invest in CFCs that cover a vast population with one single building versus other competitors that invest in hundreds of facilities. We will scale faster. We've invested in Ocado because they will supercharge our Anything, Anytime, Anywhere strategy for even more growth and profitability in the future. In the countries where Ocado state-of-the-art automation and AI are being leveraged, the result is a consistently superior customer experience with 99% order accuracy and 95% of orders delivered on time, that customer experience is second to none. In Canada, the first North America location to go live, Sobeys assured that they have achieved an 87% Net Promoter Score, a market-leading NPS. As a reminder, each facility is fully automated through machine learning and robotics. Orders are optimally routed based on a number of proprietary factors and, depending on the customers' preference, grouped and placed on Kroger's temperature-controlled delivery vans to maintain optimal freshness and quality. Upon arrival, customers will be greeted by our team of highly trained drivers who will respond to feedback and ensure continued improvement on each subsequent visit. It is a return to the trusted neighborhood delivery person with the same friendly and responsive service that our customers find in our stores. To close the loop, each fulfillment site will be connected to Kroger's data insights to personalize the shopping experience for each returning customer. We believe that this optimized processing and transportation, coupled with an enhanced customer experience, will generate an increase in returning loyal customers and improve profitability over the long term. In fact, through a potent combination of automation, AI, optimized routing and reduced [ trip ], which together lower the cost to fulfill an order, we expect the overall profitability from our customer fulfillment centers to be at least as high, if not higher than our store profitability model. By year 3, we expect our customer fulfillment centers to achieve site profitability. And by year 4, we expect the centers will reach parity with the store operating profit rates. Over the long term, we expect the unit economics of these facilities to be lower than our stores. Over 2022 and 2023, we expect to open up to 6 more centralized fulfillment centers across the U.S. and further solidify our leading position in the market. The result of all this is the distribution network that enables us to deliver a truly seamless experience with the outstanding quality of products that Kroger is known for. Customers want convenience while still receiving the value and exceptional experience that they have come to expect from Kroger stores. We're leveraging our unique data to design a dynamic ecosystem across our stores and customer fulfillment centers that will meet all customer needs from immediacy to next day and do it profitably. We're leveraging our strong foundation, and we'll continue to reinvest in our powerful network to deliver the best experience for every customer. Thank you. I will now turn it over to Cara to tell you more about Kroger's retail media business and how it is also fueling our long-term profitability for the company. Cara?

Thank you, Gabriel. My name is Cara Pratt, and I oversee Kroger Precision Marketing, or KPM. As Yael mentioned, our retail media business will increase digital profitability. I'm excited to share how we are uniquely positioned as an industry leader within retail media and why we are so confident about the tremendous opportunities for growth in the future. First, here's a quick video to reintroduce you to KPM. [Presentation]

KPM is among an elite group that is creating a new and more effective advertising channel. We have the ability to create a connection between an audience and commerce and measure that end to end. This is a key driver of digital profitability. As content and commerce converge, CPGs and their respective agencies are accelerating their investments in media where they can get closest to their customers. Our category is projected to grow nearly 30% this year, well beyond the 16% for the rest of the media industry. As a result, it is expected that retail media's share of media investment will grow more than 80 basis points to 8.4% in 2021 and continue to climb to over 11% by 2024. We see the potential for a multibillion-dollar retail media business over the next few years. But where will this growth come from? In a Merkle survey of CPG marketers, 95% of respondents shared that their digital media spend with retailers is incremental to existing shopper or trade programs. Further, 85% of CPGs shared that they are planning to move more marketing dollars to retail media networks. The ad industry is realigning itself for the future. Marketers don't want to be constrained by old budget silos of brand advertising versus trade or promotion marketing. Instead, they want to spend dollars wherever they are more effective. And increasingly, that means more dollars are moving into retail media. The demand for retail media was accelerated by COVID-19, but there have been several long-term marketing trends already pushing the advertising industry in our direction. First, third-party cookies are going away. As a result, brands need first-party data to reach the right households. Second, consumers expect seamless commerce, so brands need to make more of their advertising shoppable. And finally, brands want to make data-driven advertising investment decisions. Therefore, they need ad partners with data they can trust. We've built Kroger Precision Marketing to solve these problems by being addressable, actionable and accountable. We're addressable. We identify the right shopper with our first-party data. Our relationship with shoppers is more important to brands than ever before. We're actionable. We have the right digital experience for grocery shoppers. We are helping brands meet the seamless shopping needs of consumers, connecting them directly into our commerce platform to buy online for pickup, delivery or direct ship to home. And we're accountable. We have the data, the tools and the expertise to measure business impact. Brands know that advertising with KPM will result in performance metrics they can trust to make data-driven advertising decisions. This is critically important in what has become increasingly an opaque industry with a complicated media supply chain particularly when it comes to evaluating media impact. The industry is too sophisticated to let vanity metrics like click-through rate and viewable impressions be the leading KPI on performance. It's time to elevate the dialogue. Kroger Precision Marketing offers a powerful media network for brands with touch points across the consumer's entire purchase decision journey. And advertisers are recognizing KPM for having best-in-class media capabilities among retailers. When we engage with CPGs directly, whether it's through their e-commerce team, brand marketing team, shopper marketing team or with their respective agencies, we speak to them about an ability to both leverage our audience's intelligence and our closed-loop measurement. The Path to Purchase Institute has surveyed CPG marketers on their perception of retail media networks over the last 3 years. In the most recent results released in January 2021, KPM has taken a leadership position, overtaking national retail and e-commerce players for the highest-ranking retail network in key categories like targeting effectiveness and measurement and at the front of the pack for delivering CPG sales growth. We are uniquely positioned to transform the media landscape. This affirms our advertisers recognize our ability to drive marketing results and media accountability more effectively than other retailers. The difference between Kroger Precision Marketing and other retail media networks is the strength of Kroger's customer relationships. Kroger's loyalty card program has created a trusted value exchange with consumers. For over 20 years, consumers have joined the program, allowing us to match purchase data on 96% of sales. In exchange, consumers earn fuel points, receive personalized offers and are inspired by relevant innovation. The result is a longitudinal view of purchase behavior, anchored in 10 petabytes of consumer behavior data, which is extremely valuable to CPG brands and sets the foundation for media activation opportunities. We use this longitudinal view of the customer to help brands make data-driven ad investments in 3 ways. First, we identify the best households. Our targeting science applies unparalleled purchase data to machine learning models with over 3,000 features that have been built by a robust team of data scientists. We're able to identify the most qualified audience for every campaign. Across our off-site channels, this precision has proven to deliver 3x the sales impact as compared to the average household. Second, we reduce wasted ad impressions. With audience fragmentation in media, advertisers tend to buy more and more ads to reach their intended audience. This creates wasted ad impressions and increased advertising costs. In a comparison against third-party targeting data, a campaign using KPM data science generated 10x the sales with half as many impressions. The end result is that brands can run fewer impressions to get the same or better results, making their advertising investment more efficient. Lastly, we optimize the media mix. Our planning tools help brands understand based on their goals which media channels they should be using across off-property media touch points like Facebook, Pinterest, Meredith and Roku; or our owned and operated highly performing media such as search, display, e-mails or targeted offers. Through our closed-loop measurement, we know that cross-channel campaigns outperform single-channel campaigns 70% of the time, which is why many brands engage across a mix of our assets. Kroger is in the business of connecting brand inspiration to commerce through shopping experiences. Brands are using retail media to help consumers discover products during moments that matter. The future of the digital ad ecosystem needs to be less about interrupting consumers and more about delighting them. Here's how it all comes together to make brand advertising more addressable, actionable and accountable. Kroger Precision Marketing is a strong media partner because we help companies like Kraft Heinz reach relevant consumers effectively. Thanks to our data-driven approach, we're able to serve up a variety of Kraft Heinz-branded consumer solutions on our platforms to millions of shoppers, which has led to an increase in new and repeat purchases for Kraft Heinz. Using Kroger Precision Marketing's transparent one-to-one measurement, we saw these activations have a 5x return on ad spend throughout 2020, resulting in Kraft Heinz further strengthening its position as Kroger's leading supplier in several areas including pickup and delivery sales last year. Our successful brands has also created success for Kroger. As a driver for Kroger's alternative revenue and digital profitability, Kroger Precision Marketing is delivering both new advertisers and new revenue. In fiscal '20, we experienced 135% revenue growth from over 1,300 brands engaged across our media portfolio, retaining 85% of the brands we worked with in 2019. And on average, those brands spent 200% more last year. We are on a mission to be a preferred media company for CPG advertisers. We're proud of the impact we've made to transform the media ecosystem, and we look forward to continued success as a leader in this dynamic industry and to contributing to Kroger's increasing digital profitability. I'll now turn it over to Stuart to outline how Kroger will continue to grow with food and lead with fresh, which obviously is the platform that generates the traffic that grows our retail media business.

Thank you, Cara. My name is Stuart Aitken. As Kroger's Chief Merchant and Marketing Officer, I'm responsible for our Fresh strategy, which, as you've heard from others today, is central to our ability to grow market share. Rodney spoke about our 4 competitive moats earlier, and Yael covered Seamless. Now we'll discuss the other 3: Fresh, Our Brands and Personalization, which are key accelerators of market share growth. I look forward to outlining why Fresh is where we lead all large national retailers and why Our Brands are truly differentiated. Then Mandy Rassi will share how we've transformed marketing and are taking Personalization to the next level to promote our Fresh and Our Brands products. Finally, we'll hear from Mary Ellen Adcock on how we are driving a differentiated full, fresh and friendly customer experience through operational excellence. Before I dive in, let me recap 2020. As difficult as it was, 2020 was truly an incredible year. We grew our sales by $14.4 billion. That's like adding 3 entire divisions to our platform. We also had a record identical sales without fuel of 14.1%. We had to pivot quickly, leveraging our data to ensure we understood the customer and what they needed from us. We learned quickly and made the necessary adjustments to achieve the trust we garnered from the customer. We are proud of these achievements. We know our customers' trust in us is what got us here. And our customers acknowledge what we were doing by choosing Kroger over other retailers. We are connecting with our customers. We grew market share, resulting in an incremental $2.1 billion in sales. Our fresh departments, including produce, meat, deli, bakery, all over-index on market share versus the total store. We know Fresh drives store choice. 70% of customers choose their grocery store based on quality of fresh categories. We'll leverage our position of strength, like being the #1 retailer in floral, in deli, in sushi, to drive even more shopping trips to our stores. We are going to build on our success and grow Fresh in 2021 and beyond. So how will we differentiate the Fresh experience at Kroger? Maximizing our strengths in supply chain, in technology, in operations, we look at the entire process, starting with sourcing, supply chain, all the way to the shelf and that every step along the way to make sure our customers are getting the freshest product. We're increasing days of freshness for the customer. We're doing this by optimizing assortment, reducing days of supply in our distribution centers and our stores, expediting transit time and strategically aligning with suppliers who share our vision for quality and freshness. One example is milk. We offer 10 days of shelf life. No one else does this, and we've guaranteed freshness for years. But produce is the #1 influencer on store choice. We're enhancing the customer experience through our efforts to improve fresh through our reimagined end-to-end process. Our focus is on the products that our customers say are most important: bananas, berries, tomatoes and bag salads. These 4 categories combine for more than 28% of sales in the produce department. When we deliver even higher quality and freshness in these areas, we'll earn even more customer loyalty and additional sales. Kroger significantly leads large national retailers in Fresh. When we compare ourselves with large national retailers in freshness, we lead the pack. The fresh equity score is our 360-degree view of how customers perceive us as well as where we rank with competition. We will use this measure to hold ourselves accountable and increase our competitive lead. This score will become stronger as we implement our Fresh strategy in 2021 and communicate our proof points or reasons to believe to our customers. And Mandy will share more on that shortly. A big part of our Fresh strategy is helping answer the daily dilemma of what's for dinner with simple, convenient and delicious meal solutions. Leveraging our brands, our prepared chicken strategy will feature Simple Truth and Home Chef. In the next 2 years, chicken will be a billion-dollar business for Kroger. We've also created a variety of ready-to-cook, ready-to-heat and ready-to-eat meal solutions through our Home Chef business. These meals are easy and meet the needs of many a discerning palate. Our Home Chef brand had an incredible year. Sales increased 118% in 2020. We've positioned the brand to capture even more value through culinary innovation and e-commerce growth in 2021. The Home Chef brand will be the next billion-dollar brand for Kroger. We are constantly innovating, testing and learning new partnerships that can provide unique offerings for our customers. We are currently partnering with innovative companies. ClusterTruck is a delivery and pickup solution to satisfy everyone's cravings with restaurant-quality offerings. We have a new pilot yet to be announced that is coming soon and offers meal solutions for the entire family. Saladworks gives customers premade or made-to-order healthy options. Innovation is the lifeblood in Fresh. We may fail with some, but when we do, we'll fail fast. That said, when we detect a home run, we'll scale it at pace that matters, that will move the needle for Kroger. Our commitment to Fresh uniquely positions us to grow exponentially in e-commerce. Freshness is our #1 priority, which is why we go to great lengths to make sure everything is delivered to the customer's car or home, it isn't just fresh, but it's fresher than fresh. And our commitment to Fresh makes the delivery and pickup experience truly unique. Our specially trained associates pick the freshest products, so customers get the same great quality delivered to their car or home that they would find in our stores. And customers are rewarding us for these high standards. We're earning strong approval ratings from our customers. We wish you could be here in person for a store tour of our fresh departments. Instead, let's have Dan, our Group Vice President of Fresh, take us through a virtual tour.

Unlocking Fresh is the key to driving growth. Fresh produce, meat and dairy are the primary influencers why our customers choose where to shop. At Kroger, we capture approximately 30% of fresh market share where we operate. Quality and freshness are the first part of the equation to building customer loyalty. Our end-to-end work is underway with intense focus on the most influential categories. Part 2 of improving Fresh is the customer experience. Whether customers choose to shop in-store or online, the experience must exceed their expectations. Through product innovation, capital investment in industry-leading science, we'll continue to generate points of differentiation. The second pillar of our fresh growth strategy is prepared meals and solving what's for dinner. Our opportunity to capture food away from home has never been greater. And COVID has accelerated an already changing business with consumers looking for convenient meal options, a clean, safe environment and more pickup and delivery options. The good news is we are well positioned, supported by some strong brands that include Murray's Cheese, Home Chef and Boar's Head. New on-trend assortment and innovative partnerships are in motion to seize our fair share of an $800 billion industry. The team has been busy in pivoting to meet consumer shifting needs. Innovation is expanding beyond products to include new venues and new business models, like ClusterTruck operated today in Fishers, Indiana and Columbus, Ohio; and Saladworks now at Anderson, Ohio. When it comes to pickup and delivery, freshness is our #1 priority. Our associates are especially trained to pick the freshest product, keeping cold items cold and hot items hot. And our customers are noticing. When customers are ordering online, they're more likely to add fresh produce to their basket versus when they shop in store. The online shopping experience is driving growth in our fresh departments. Our commitment to Fresh makes pickup and delivery a truly unique experience. It's not only fresh, it's fresher than fresh.

Speaking of Fresh, our brands is a pathway to deepen and widen our competitive moats. It's a $26 billion business that differentiates Kroger across the entire store and all modalities. Simple Truth alone hit $3 billion in sales last year. If the Simple Truth brand was a CPG, it would be the second largest brand in our stores. Our Brands is our not-so-secret weapon that we intend to scale and leverage with even greater focus. Our Brands is also a fresh differentiator through powerhouse brands such as Home Chef and Murray's Cheese. These brands are only available at Kroger and draw customers to shop with us. In center store, Our Brands is equally as strong. Our tiered strategy is anchored by mega brands such as Kroger, Private Selection and Simple Truth. These products appeal to a vast swath of customer needs such as natural, organic, epicurean and value. Customers love Our Brands, and they tell us in 3 main ways. First, with their purchasing behavior. It's a CPG tucked inside our business, but it's anything but small. It's a business that's 8x larger than the largest CPG company that sells products in our stores. Customers also tell us in Net Promoter Scores. Our NPS is 30% to 40% higher for Kroger, Simple Truth and Private Selection versus comparable competitive store brands. And finally, in product comparisons. 100% of our new Our Brands items in 2020 are rated as good or better than the leading CPGs. Our innovation team knows food. They performed more than 10,000 product validations last year and will continue to be a key lever in our innovation strategy well into the future. Innovation is a growth pool that is worth billions to Kroger. And with Our Brands and our national brand partners, we'll win here as well. This year, we'll launch more than 660 exciting new Our Brands items. Nearly 60% of these will be under the Simple Truth or Private Selection brands, the brands that provide us the highest margins. And it's not just innovating in Our Brands but with our national brand partners as well. We'll be working with them to bring innovative, first-to-market items that grow our collective businesses. Innovation is now, and innovation will continue to be our future. And speaking of innovation, I'd like to introduce you to Mandy Rassi, Kroger's Vice President of Marketing. Quite frankly, Mandy has reinvented marketing for Kroger over the last 18 months. And she'll be sharing the journey and the future of Kroger marketing with you. This next video will take you on our branding journey over the last 18 months. [Presentation]

Thanks, Stuart. Hello, everyone. My name is Mandy Rassi, and I'm proud to lead the talented team responsible for brand strategy, planning, performance, marketing and media. This video gives you a taste of the brand journey we've been on over the past 18 months. We launched our campaign Fresh for Everyone a little over a year ago and are thrilled with the performance to date. We have seen a 20% increase in ROI and an 80% increase in advertising effectiveness. The chart here shows third-party copy results from iSpot, which measures how customers engage with advertising in the market. While all brands see some variability from spot to spot, we are very pleased with the engagement that we have seen with some exceptionally strong spots under the new campaign. Kroger's prior average pre-campaign was 4.1. As we are cutting through the sea of sameness and differentiating our brand message, we are seeing our ads test significantly higher in terms of customer engagement, putting us on a new level. You heard both Yael and Cara talk about the power of Personalization. We are harnessing that in our marketing approaches, leveraging the industry-leading data and science that 84.51° brings to help us personalize even more of our plans. Cara talked about the difference this makes for our CPG partners, and the same is true for us. This approach allows us to reduce waste in our media plans, getting the right message to the right person in the right context. We will now go beyond our one-to-one channels like direct to mail, e-mail and mobile messaging to apply this data and science to paid media channels like social, display, streaming audio and video, doubling the amount of our media that is personalized by the end of 2021. This drives relevance for our customers and creates a better experience for them and also increases our ROI. For example, we've seen up to a 60% improvement in ROI as we shift from mass channels to their addressable counterparts. As we look at 2021, we'll be focused on 4 key priorities. First is Fresh. Stuart discussed our innovation and the lengths we go to, to ensure our fresh is fresher than fresh. We are so excited to tell these stories to our customers, showing them all the ways we make sure they get all the fresh they want, how they want it at Kroger. And we will do this in a fun, distinctive way via our animated campaign. Second, we know that value will continue to be critical to our customers in 2021. Last year, we launched our Lower Than Low message to communicate our value equation, and it has really resonated with our customers. We took a fun approach, and customers got in on it too, making their own YouTube videos and TikToks riffing on the ad. In fact, just since the start of this year, we've seen over 45 million earned impressions from these customer videos. We will continue this Lower Than Low messaging in new and creative ways in 2021, and you'll be able to see it at the break. Third is e-commerce. Marketing plays a critical role in fueling our e-commerce growth. This includes continuing to drive our pickup and delivery businesses in existing markets, introducing Our Brands to new geographies like Florida, as you heard from Gabriel, and fueling our rapidly growing ship business. And finally, we will deliver all of this through an increasingly personalized approach. We will meet each customer with the right message in the right context, at the right time based on their needs, driving continued growth in our ROI. And with that, I'd like to turn it over to Mary Ellen to talk about how we are elevating the customer experience.

Thank you, Mandy. I'm Mary Ellen Adcock, and I lead operations. I'm excited to showcase today how we are elevating the customer experience to drive sales, win market share and increase profitability across our Seamless ecosystem. At Kroger, the customer experience is central to everything we do. The best experiences consists of full, fresh and friendly behaviors, meaning products are consistently in stock, fresh products are high quality and associates are welcoming, knowledgeable and friendly. They are all directly linked and, combined together, yield powerful results and increased sales. Our ability to deliver on the Kroger promise on full, fresh and friendly for every customer, every time, no matter how they shop is how we define operational excellence. Building on our established track record of consistent execution and operational excellence, we are proud of our results here. Our rigorous focus on execution has delivered strong year-on-year improvements. The pandemic did present new challenges for the entire industry, particularly around in-stocks, creating a temporary dip. However, our associates responded to the pandemic with speed and agility, improving our in-stocks and implementing new processes that allowed us to serve customers and increase sales, ending the year with an all-time best results for both fresh and friendly. Looking forward, full, fresh and friendly remain fundamental and essential to the customer experience. On the other hand, the pandemic has changed customer behavior, and Kroger is meeting new customer expectations that emerge from pandemic trends. Importantly, we believe these new expectations will continue beyond the pandemic, establishing additional focus areas for the customer experience. The first is curbside pickup, with fast, contact free and convenient service. Second, customers want contact-free checkout options. Because we know how important the value of the loyalty card is to our customers, we have combined payments and loyalty into one easy-to-use feature on the Kroger app. And third, clean and safe stores will remain important. And customers shop with Kroger because of our commitment to their health and safety. Operational excellence underscores every aspect of our business. Kroger excels in Fresh. You have seen that customers rate Kroger higher than big-box retailers in fresh perception. Stuart has already walked you through how maintaining fresh leadership is essential for Kroger in terms of merchandising. It is also an advantage as it relates to store operations and curbside pickup. Our strategy is to lean into our leadership in this area because we know that Fresh is the leading category customers assess when choosing where to shop. In fact, 70% of our customers choose where to shop based on the quality of fresh products. Kroger is committed to taking Fresh to the next level in 2021 and strengthening our competitive moat with enhanced operational processes that continue to improve the Fresh experience across all channels for our customers. Pickup and delivery is increasingly important to the customer experience. Customers who have never shopped Kroger before and who are looking for fresh, high-quality products in a safe and convenient way are experiencing Kroger for the first time. In 2020, Kroger outpaced many other retailers and expanding capacity. We went out fast and early, adding over 240 new pickup locations to increase our footprint to over 2,200 locations. Also expanding capacity in existing locations increased orders per day by over 128%. As you heard from Yael, the store is a strong asset that we continue to leverage as part of our digital strategy. In addition to expanding capacity to capture sales, Kroger improved cost to serve by 14% to enhance profitability and contribute to the bottom line. Operational excellence extends to pickup and delivery by implementing process change and new technology to both increase efficiency and improve the customer experience. We are using the operational data and insights for additional efficiency efforts as part of our profit growth plan. And while improving the cost to serve, meaningful progress was also made in the customer experience. Customers value their time, and so do we. Technology such as on my way in our app and real-time data at a customer level enabled a 30% reduction in wait time. Our customers are recognizing a differentiated experience. Here are just a few examples of feedback from our customers. [Presentation]

Thank you. I'd now like to introduce my colleague, Gary Millerchip. Gary?

Thank you, Mary Ellen, and good morning, everyone. I hope you enjoyed the presentations this morning. As you have heard, we as a management team are energized by the opportunities ahead of us. My role is to share how our growth strategy will deliver strong and sustainable total shareholder return for our investors. There are 3 key messages I hope to leave you with today. First, Kroger has a strong value creation model. We are outperforming this model and expect to exceed our total shareholder return commitment of 8% to 11% over the 3-year period 2019 to 2021. Second, our team is laser-focused on delivering profitable growth beyond 2021. And finally, we will continue to be disciplined in our approach to capital allocation, which will be a key lever in enabling our future growth. Kroger's value creation model is underpinned by our leading position in food. We continue to invest in areas of the business that matter most to our customers and deepen our competitive moats to drive sales growth in our retail supermarket business, including fuel and pharmacy. This, in turn, generates the data and traffic that enables our fast-growing alternative profit streams. 18 months on from first sharing our value creation model, we are now even more confident in our ability to generate consistent net earnings growth of 3% to 5%. And our resilient free cash flow will allow us to continue to return cash to investors via a combination of share repurchases and dividends, resulting in total shareholder return of between 8% and 11%. Looking back at 2020 for a moment, the investments we made during Restock Kroger enabled us to capitalize on tailwinds related to the pandemic and dramatically accelerate our work in the shift to digital. As our customers place even greater emphasis on fresh, quality food and a seamless digital experience, we were there to meet that need and successfully grew market share in-store and online. Without question, 2020 was a unique year. And given our exceptionally strong results, comparisons between 2020 and 2021 will be less relevant. One of our goals today is to give you clear insights into how to measure and track the underlying momentum we have built, which will position us to compete and win in a post-COVID world. Our guidance for 2021, which we introduced on our fourth quarter call and are reconfirming today, highlights the strength in our business model. While there remains uncertainty surrounding trends in the food-at-home market in the coming year, we are confident in our ability to navigate these unknowns, and we'll continue to leverage the structural tailwinds and major trends shaping our industry that Rodney highlighted earlier. As we shared during our earnings call, we believe evaluating our performance using a 2-year period more accurately measures our underlying momentum. Looking at 2020 and 2021, we expect to deliver performance well above our TSR commitment. Specifically, we expect our 2-year stacked identical sales without fuel to be in the range of 9% to 11%. And adjusted FIFO operating profit is expected to grow at a compounded annual growth rate of between 5.4% and 8.5%. The midpoint of our 2021 net operating profit guidance is approximately $200 million, higher than the midpoint of the earnings growth contemplated when we originally shared our total shareholder return model back in 2019. I'd now like to go a little deeper into our value-creation model and share additional color on our plans to grow earnings through increased sales and margin expansion. As you have heard extensively from the team today, we expect to grow sales by leveraging our competitive moats in fresh, our brands, personalization and accelerating digital. You also heard that we are committed to continue investing in initiatives that widen our moats and deliver for our customers. The strength of our execution and confidence in our future plans has led us to raise our sales expectations in our growth algorithm from 2% to 3% to 2% to 4%. Turning now to operating margin expansion. We will achieve improvement through continued cost savings, acceleration of alternative profits and improved digital profitability, which will more than offset continued planned investments in our associates and customers. Cost saving has become a core competency for Kroger. Since 2018, our operations and sourcing teams have delivered over $1 billion annually in incremental cost savings. And we expect to deliver another $1 billion during 2021. These cost savings are focused on removing activities that don't add value for the customer and becoming more efficient by simplifying the associate experience. We see a long runway for further improvements in productivity as we continue to optimize sourcing practices and leverage our data and technology in new ways. Our second lever to drive margin expansion is alternative profit streams, which are built on the platform of our food business and the robust traffic and data this generates. We are experiencing tremendous growth in this part of our model. Building on the $250 million of incremental profit achieved over 2019 and 2020, we expect to deliver an additional $100 million to $150 million of incremental profit growth in 2021. That represents another year of double-digit growth in alternative profits, and we expect to achieve continued double-digit year-over-year growth for the foreseeable future. We have defined 4 key alternative profit pillars: Kroger personal finance, retail media, data insights and ventures. These 4 pillars represent the alternative profit streams that most meaningfully impact our results today, including our 2 largest businesses, retail media and personal finance. We continue to identify new ways to leverage our traffic and data, which will drive innovation and new revenue streams in the future. The value we create from alternative profit streams allows us to reinvest in the customer experience and drive traffic back into the Kroger ecosystem, creating a flywheel effect in our value-creation model. As Yael shared earlier, we have a clear road map to improve digital profitability. Under our current model, we typically see a pass-through profit rate north of 15% on a traditional brick-and-mortar sale and mid-single digits for a digital sale. Through our focus on cost efficiency, growing media revenue plus the economies of scale and mix improvements that come from accelerating digital sales, we expect digital pass-through profitability to double over the next 3 years. As we bring our new customer fulfillment centers powered by Ocado online, we see further opportunity to accelerate this momentum. While Ocado will be a headwind to operating profit in the early years as we ramp up volume in each CFC, by year 3, we would expect the CFC to achieve site profitability and by year 4 to be at least on par with the store operating profit rate. While we are taking action to improve our operating margin, we also remain committed to investing in the business to drive sales growth. One of the largest investments during the last several years has been in our most important resource, our associates. This includes wage investments, training and development and addressing the underfunding of multiemployer pension plans. In 2021, we plan to invest an incremental $350 million to increase the average hourly rate of our associates. Ongoing investments in associate hourly rates are fully contemplated within our growth model and will be funded by our future cost-saving initiatives. Turning now to financial strategy. Our overall approach to capital allocation remains unchanged. We continue to use our free cash flow to invest in the business to drive long-term sustainable earnings growth through the identification of high-return projects that support our strategy. At the same time, we are committed to maintaining our current investment-grade debt rating and returning cash to shareholders via share repurchase and dividends. We view capital allocation as a core element of our value-creation model. We continue to be disciplined in deploying capital towards projects that exceed our hurdle rate of return and prioritize the highest return opportunities supporting the plans discussed today to drive 3% to 5% earnings growth. As Stuart and Mary Ellen shared earlier, we continue to invest in our stores via remodels and merchandising initiatives to deepen our competitive moats, enhance the customer experience and ultimately drive identical sales. Compared to the prior 3 years, we are shifting more spend to accelerate digital and support our plans to expand capacity, broaden assortment and improve the customer experience. This includes our investment in customer fulfillment centers powered by Ocado. We will continue to be swift and agile in deploying capital in digital as necessitated by customer demand and opportunities to enhance profitability. We are also allocating more dollars in 2021 to drive margin expansion via technology investments that will lower costs, improve productivity and eliminate waste. As we committed to in 2019, our ROIC is improving as our Restock Kroger investments have gained traction. We expect ROIC to be higher in 2021 compared to 2019 and expect continued gradual improvement over time due to the strong business performance, which includes improved digital profitability and our disciplined approach to capital deployment. A key component of Kroger's financial model is the strength of our balance sheet and the consistency of our free cash flow. Looking at 2017 through 2021, we expect to generate over $11 billion in adjusted free cash flow and an average adjusted free cash flow yield of over 8%. Since 2017, we have returned $7.3 billion to shareholders through share repurchases and dividends. Our dividend has grown at a compounded annual growth rate of approximately 13% since reinstatement in 2006. We remain committed to returning cash to investors at a rate consistent with our TSR model, which will continue to be achieved through a combination of share repurchases and a growing dividend over time. During 2020, we reduced our net debt by $2 billion, creating significant financial flexibility in our model. Our current debt-to-EBITDA ratio is 1.75 compared to our target range of 2.3 to 2.5. Over the next 6 months, we will be aggressively evaluating how to best deploy excess cash with a focus on opportunities that accelerate profitable growth in food, digital and alternative profits. We will share more as we complete this work. Kroger has a combination of highly valuable assets that provide a tremendous platform for growth. These assets are built on data insights from 60 million households and include our fast-growing $10 billion digital business. As we look forward, we see significant opportunities to accelerate our growth model. These opportunities, many of which you've heard about today, build on our strengths and allow us to serve our customers in new and exciting ways. We will remain disciplined in our test-and-learn approach. Our expansion into new geographies with Kroger Hometown and Ocado in Florida are great examples. These initiatives expand the reach of our differentiated customer proposition without the need for significant investment in a store footprint. We will be monitoring early results closely to evaluate potential future new geographic expansion. In summary, the Kroger leadership team is focused on driving sustainable growth and delivering our total shareholder return commitment of 8% to 11%. The plans we have outlined today to grow food share and accelerate digital, combined with our cost savings and growth in alternative profit streams, will enable Kroger to achieve our 2021 guidance and deliver profitable growth beyond 2021. We believe this creates a compelling investment thesis, underpinned by a strong balance sheet, consistent free cash flow and a highly valuable asset base that creates exciting future growth opportunities. And as an organization, we are ready. [Presentation]

This concludes our prepared presentations. We look forward to taking your questions after a 15-minute break. Please feel free to begin submitting your questions now. Thank you. [Break]

Welcome back. We hope you enjoyed all the commercials. We know our customers certainly do, and there's sure a bit of smile on your face. We would now like to begin our Q&A session where we look forward to taking your questions over the next 60 minutes. [Operator Instructions] In addition to the speakers you have heard throughout the morning, it's my pleasure to welcome Tim Massa, Kroger's Senior Vice President, President of Human Relations; and Mike Donnelly, Kroger's Executive Vice President and Chief Operating Officer. Many of you know Mike. He's been instrumental to the Kroger family for the last 42 years. He's recently announced his retirement to enjoy more time with his family. Mike, you will be missed, and we're glad you could join for one last IR day. So with that, let's dive into our first question. It comes from Ken Goldman with JPMorgan. This question is for Rodney and Gary. I'm curious how you think about balancing the desire to invest in digital capabilities with the need to spend ongoing store renovations. Is there a risk that as your capital and attention shift toward the higher-growth part of your business, that you spend fewer resources than you typically would on improving the basic in-store experience of your brick-and-mortar shoppers? Would you ever consider raising capital so that you could spend more right now on both parts of the business without sacrificing one or the other?

Thanks, Rebekah, for the question, and Ken. It's a question that I think is outstanding, and I think about this one all the time. And when you look at some of the work we did at the beginning of Restock Kroger in terms of cost reductions, and as you know, over the last 3 years, we've been able to take over $3 billion of costs out, some of that, the objective of being able to do that is the very question that you asked. And if you look at 2021, we've committed to being able to take another $1 billion of costs out. And when you look at those resources, we freed up, we've reinvested a lot of those. And if you look at the fundamental customer experience on full, fresh and friendly, on full, obviously, we've made great progress. During the pandemic, there was a dip, but if you look at over the last several months, we've continued to make progress back on that and would expect by the end of this year to be where we were even before the pandemic. If you look at the experience in terms of the -- our associate experience, the friendliness of that, we've continued to make progress throughout the pandemic, and it's something I'm super proud of our team. And if you look at fresh, we were able to do the same. If you look at -- on the other side, from a capital standpoint, the business continues to generate great free cash flow, which is something that's obviously incredibly important to be able to fund both the physical store and making sure our physical stores stay up to date. And one of the things that we did several years ago was reduce the number of store openings and increase the amount of capital spending on technology and seamless. And we've continued to do those. So those parts, obviously, are incredibly important, and it's incredibly important having the strong free cash flow as well. So all of those things are something that we look at the overall ecosystem because what we find is a customer that becomes a digital shopper still physically comes into the store and they still expect a great experience on all modalities. And it's incredibly important. So it's a great question. It's something we worry about. We track in terms of how are we doing on a regular basis and its direct customer feedback in terms of how we use. So with that, Gary, I'll let you answer the other parts of that question.

Sure. Thanks, Rodney. And thanks for the question, Ken. Yes, I agree with Rodney's comments. Both of the channels, as you heard hopefully from all the presentations this morning, are hugely important to the ecosystem that we're building. And we continue to invest in stores and in the digital channel to make sure we're creating the right experience. I think you may have seen with some of the numbers that we've talked about with our guidance for 2021 that we are increasing capital somewhat as we accelerate digital. And as Rodney mentioned, we've been able to really pivot capital in stores to have less of a focus on new stores. So we're really focusing the new store spend in those high-growth markets. And we've been able to allocate more capital to digital without really impacting the dollars that we're spending on the in-store experience and continue to invest in our stores. I'd also be pleased to say that the investment that we're making in digital and in store, we do expect to generate a return. So we continue to stay focused on improving the experience, driving sales and making sure that we're achieving our hurdle rates on those investments. I think the only other thing I would add to Rodney's comment is that you probably sensed it through the theme of this morning that our goal is to continue to drive higher growth within our TSR model. So the more successful we can be at continuing to find those capital investments that drive higher sales growth and allow us to expand margin and profitability, we'll continue to look for those opportunities. And as we get more confident in that model, we'll certainly make sure that we're spending dollars where it can truly accelerate our overall growth in the business.

Raising capital?

Absolutely.

We really don't see the need for that.

No.

Okay.

Okay. Thank you. Our next question comes from Greg Badishkanian from Wolfe Research. This one's for you, Stuart. Can you talk about your quarter-to-date trends? And what is the mix of e-commerce trending at quarter-to-date?

Thank you, Rebekah. Good morning again. Our trends headed into 2021 were strong across the 3 metrics that matter the most for our business: sales, margin and market share. And as we've moved into 2021, those trends have continued. And it's largely because of some of the customer metrics we're looking at. Think about food away from home still being strong, customers loving to cook and enjoy that product. We're also seeing that trend of premiumization stay in place, which, for us, helps from a margin perspective as well. And our brands deliver on that and then some. We expect those trends to continue through the rest of the quarter and in line with the guidance Rodney and Gary have shared with you thus far. Mike, anything you would add to that?

No. I think you said it all correctly. We're excited about the momentum that we have. And I would tell you, we're looking forward to what's in front of us. So yes, good stuff.

From an e-commerce perspective, the trends we're seeing are just as strong. Again, customers enjoying that seamless experience that you heard from Yael earlier. And we're delivering and delighting customers and really looking forward to opening our first 2 sheds in the coming weeks.

Okay. Thanks. The next one comes from Ed Kelly with Wells Fargo. Another one your away, Stuart. It looks like we see elevated food price inflation at some point this year. What's your expectation for food price inflation this year? Are you optimistic the market will pass it through in a timely manner? And just remind us of the impact inflation has historically had on your business.

Well, inflation over the last few years have been relatively low. As we look out in 2021, as you've heard from Rodney and Gary in the past, we're expecting about a 1% to 2% inflation. We are expecting some volatility, of course. And you all remember what happened to the meat commodity in Q2 of last year. So we'll be lapping some deflation there. Right now, we are seeing some inflation in our produce area. And we're mitigating that as we transition to spring and summer selling. So think berries and stone fruit. The inflation we're seeing right now is largely weather-driven in the commodities like apples and citrus. Meat, middle meats, we're seeing some inflation, but post Easter, we expect that to moderate some as well. So that's how we're seeing inflation. And the guidance we've given remains the guidance we'll share now for the year, between 1% and 2%.

Okay. Thank you. The next question comes from Michael Montani at Evercore. Rodney and Gary, this is a modeling question. Can you aggregate the total EBITDA tailwinds this year, everything from fading COVID costs to normal cost-savings activities, the Walgreens JV, reduced dot com losses, private label expansion versus headwinds in things like shrink, price, investment, wages, transportation, freight? Is the $1 billion a year of gross cost savings sustainable moving forward?

Gary, I'll let you get started on that one, at least the hard part of it.

Thanks, Rodney. Yes. Thanks for the question, Michael. As you know, we talked about on our Q4 earnings call our guidance for 2021. And I think one of the big themes we want to make sure we're conveying is as we've really built out the ecosystem that we've created now, the value creation model, if you like, that I talked about earlier today, we feel very comfortable in our ability to flexibly manage through the uncertain times that we know we're currently facing as we look at 2021. So we don't need to think for a moment that we believe we have this perfect crystal ball around exactly how trends will play out. But we thought it was important as we've gained more confidence in our ability to navigate the changes that are happening in the market to really share how we see the year shaping up. I'll maybe take the question in 2 parts. I'll cover a little bit around the sort of the major moving parts in the plan for 2021 and how it shaped our guidance. And then we can talk a little bit more about the cost-saving strategy, and I'll bring Mary Ellen on that as well because she's done a tremendous amount of work for the company and building that into our culture and helping us see a clear path forward. But first of all, taking the model, you kind of covered quite a long list there. And I would agree with you, there's many moving parts in the model for 2021 as we cycle through what was an incredible year in 2020. As you think about the headwinds, first of all, obviously, as we start to see sales lap year-over-year, you start to see some deleverage in the model on things like expenses in gross, shrink, advertising as sales turn negative as we've guided that they will in 2021. In addition to that, of course, you start to see other deleverage activity in the model as well. So that's a fairly significant headwind in our model in '21. And we also see some gross margin downward pressure as well because of the change in mix. So if you think we would expect pharmacy to continue to have positive ID sales in 2021, but some of the fresh departments with higher margin may not, that's going to change the mix in gross margin as well. As you think beyond the sales side of the sort of the headwinds, fuel is going to be another area where we think we'll see very nice growth in fuel gallons as we cycle through the COVID pandemic in 2021. But on the other side of things, the fuel margin that we saw in 2020 was extremely high by any standard. And so we'd expect that to be a headwind to the model this year. In addition to those 2 kind of business headwinds, if you like, we will also continue to invest in the business, of course, to make sure that we're growing long-term momentum in our model, and that would include investments in the customer, whether it's personalization and pricing or fresh experience, as Stuart talked about earlier, but also in our associates and continuing to increase the average hourly rate to make sure that our most important asset in our business, our people, are motivated and trained and skilled and driving execution at the highest possible level, as Mary Ellen talked about earlier. So they're all the -- if you like, the headwinds that we'll face during the year. Of course, alongside that, we're going to see some significant tailwinds as well as we come out the other side of the COVID -- or cycle, I should say, the first year of the COVID pandemic. First of all, on some of the business trends, we would expect health and wellness to be a tailwind for us in 2021, partly as we are implementing the vaccination program and seeing over 30% of new customers to our pharmacy as part of that program, but also as customers start to return to more normal habits of picking up new scripts and using more of the services that are available in that part of the store. In addition to health and wellness, as we shared on our guidance and then more detail today, we expect alternative profits to be a continued tailwind, and our guidance is for $100 million to $150 million of incremental profit from alternative profit streams in 2021. And then the final part of your question around cost savings, and there's really, I would say, 3 major cost-saving buckets that will come into play in 2021. The first is while we'll expect to continue to see some COVID costs continue into '21 around cleaning, leave of absence or rewarding our associates, we would expect that to be significantly lower than it was in 2020 as we continue to fine-tune our practices and as we start to hopefully come through the other side of the pandemic. Secondly, our incentive plans, obviously, are perfectly aligned to the growth plans that we have for this year and driving long-term growth to make sure that the team is highly motivated by our current plan and future year plans. And so there'll be more of a normalization in terms of incentive costs. And then finally, obviously, the sort of final part of your question, we continue to identify new ways to take costs out of our business, whether that be through leveraging the learnings from COVID around reducing our administrative costs, also through applying technology to simplify our business model and also continuing to improve our sourcing practices to drive efficiency there as well, which an example would include the GPO that we have with Walgreens. So we feel very good about the puts and takes in the model and our overall confidence in our ability to manage the different pieces of that puzzle in 2021, hence, why we felt comfortable giving guidance to the market for this coming year. So that's really how we think about the overall puts and takes. I'll maybe let Mary Ellen comment a little bit more on how we think about cost savings going forward and how they're important to our model overall.

Right. Absolutely. So we definitely have had a strong track record of delivering the cost savings, and we do see that sustainable as we're going forward, at the same time, continuing to improve the customer experience. As Rodney mentioned, and we showed earlier, we've made great progress there, and we will continue that and have clear plans to do that. At the same time, we also have a pipeline of how we'll continue to take costs out in ways that are not relevant to the customer experience. So for example, simplifying additional processes for our associates, using robotics where we can replace tasks that are not relevant to the customer. And we also have identified process change that makes the selecting process even more efficient for our curbside pickup to take costs out there. So we see that sustainable in ways that are not relevant, while, at the same time, we will continue on the customer experience, both in-store and areas we know that matter: fresh, where we're leaning into even improving that further; as well as that curbside pickup and delivery. We've made great progress improving that customer experience, reducing wait time in areas that are important. And so we see that continuing, and we're committed to that taking costs out without sacrificing the customer experience.

It really ties to Mary Ellen and Gary's points both. But if you look at -- we really view that taking costs out the right way is something that's an advantage Kroger has now because we've made it a skill that we have. And we've partnered with a couple of outside companies. And Mike and the whole leadership team is something that everybody is leaning in. And we just view that it's something that we have great skills at, and we'll continue to focus to make sure we do it in places where the customer doesn't care about. And one of the things I really have been proud of is if you look at our technology team and how they partner with all aspects of the business, if you look at operations, seamless merchandising and then Ocado going forward, all of those things are things that we'll continue to leverage to take costs out. So I'm incredibly excited. As Mary Ellen said, it's a skill that we have, and it's a skill that we'll continue to use going forward.

Our next question is from Karen Short at Barclays. Can you provide color on how you think about e-com profitability and flow-through using the Ocado sheds? And can you parse this out, including and excluding any media dollar contribution? Secondly, can you provide an update on the cost per shed maybe on a square footage basis since the sheds have a wide range of square footage? Rodney, do you want to start this?

If you look at -- in terms of -- we think it's incredibly important to look at the overall ecosystem. So when you look at Kroger in total, it's -- we just look at all those pieces as just one additional piece of connecting with the customer. What we find is almost every customer that engages with us from a digital standpoint, they still come into the physical store. And when we're able to serve a customer that way, our retention rate is 98% with that customer. So we think it's incredibly important to have the overall -- the total seamless experience for that customer. And when you look at media, it's just one piece of the puzzle. And when you look at the profitability of an Ocado shed, as Gabriel said in his remarks earlier, is that we believe breakeven is in year 3. Year 4 is when that shed becomes basically the same as a store. And that's including the start-up period of that. So for us, it's just part of the overall system together that's really what's important to tie it together. And with that, I don't know, Gabriel, if you want to add a couple of comments, and then Yael and Gary, if anything else you'd like to add.

Sure. That's a great question. I think the ecosystem plays a huge part in making the whole logistics network and the pick accuracy and all -- everything that has to do with the efficiency of getting what the customer actually is ordering. The key takeaway here is basically the way that I would look at it, one shed is equal to 20 stores worth of sales. Each one of those shed only requires 60% of the capital, and they only require 60% of the labor as well. Most of that labor is actually in delivery trucks. Now those delivery trucks create this great customer experience that the customer actually expects on walking into the store and now will actually see at their homes. That, together with pickup and everything else, makes for a great ecosystem to actually create that profitability. The one thing that I would also add is when you look at year 4 plus, we also expect that profitability coming out of the sheds and the overall e-commerce to exceed the profitability that's coming out of a store as well.

Okay. Great. Thank you. Our next question comes from Brandon Fletcher at Bernstein. Many retailers share that the omnichannel customer is a better customer experience in terms of spend and loyalty. Are they just richer customers? Does the omnichannel focus a band on your lower-income customer? Yael, thoughts?

Good question, Brandon. We don't look at the digital customer as like better or richer. We look for -- to create an experience for our customers that allows them to engage with us in a relevant way that matters to them. So all digital customers across all of our customer segments are critical. And you look at the growth, especially accelerated in 2020, that has come from all of our customers, across all of our customer segments because the reach, the quality of the experience, the availability of that experience, the quality of the assortment, the importance of the personalization to create that convenience, that value access for the customer, it matters to everybody in certain different ways depending on the customers, but it's a relevant engagement point. When you look at the 5.2 million households that we added last year to our digital family, they are engaging with us more frequently, visiting our stores or digital properties 1.5x more frequently than our store-only customers. They are spending 2 -- more than twice as much across all of the channels. And as Rodney mentioned earlier, they also show a retention rate of 98%. And that comes from all of our customers and because the quality of the experience, the relevance of the experience is meeting their needs. When you look about -- look at our loyalty proposition and how we apply personalization to our loyalty and membership programs, that also is a good way of understanding how it comes to life for our customers. We -- our customers collected over 100 billion fuel points last year, and 10 million of these customers redeem these fuel points on a monthly basis. So for them, for that customer group, regardless of their loyalty segments, fuel points was an important part of the value proposition. For others, it's the digital offers that are personalized. As we mentioned earlier, over 0.5 trillion recommendation across our digital ecosystem and billions of offers personalized specifically for every household to deliver value that matters and is relevant to them. So we don't look at the digital customers as better or richer. They're just more engaged, more loyal, more committed to Kroger because they get more of that value, whether it's through the convenience, the access to offers, the values or a set of our services.

Thank you, Yael. The next question comes from Paul Lejuez from Citi. And Stuart, this one's for you. Can you please talk about how much you're thinking about pricing and how much you will take a proactive approach towards investing in price versus a more wait-and-see approach?

Thanks, Rebekah, and thanks, Paul. As we look at pricing heading into 2021, we're in a strong position. We're very happy with where we're at. If you look at the investments we made across price and promotion in 2020, they were strong. And it's a key part of our strategy. But for Kroger, it's much broader than just a pricing value proposition. It's a total value proposition. And that value proposition, yes, does come in pricing and promotion, but it also comes with our fuel points, which are a key differentiator for Kroger. It also comes with our differentiated customer experience. Mary Ellen spoke about it earlier, in-store, and Gabriel just talked about it from a digital perspective as well. And we will differentiate on that customer experience. Not to mention how we'll differentiate our experience around fresh and our brands across that portfolio of a total proposition is how we think about where our investments will be. That said, as we look at the environment right now, we really do see a rational environment, both from a national perspective as well as from a regional perspective. And we don't see that changing this quarter anyway. Mike, anything you would add to that?

No. Well said. I think you're exactly right on all counts, and we will follow our strategy as we have in the past. But like you said, I don't see the market any different today than it has been for the last 3 years. So we will press forward and adapt where needed.

Okay. Thank you. Our next question comes from Scott Mushkin with R5 Capital. It's a 2-part question, so I'll read the first question. It's directed toward Rodney and Gary. How does the company think about future M&A opportunities? Kroger historically has been a consolidator.

Scott, first of all, thanks for the question. And as you look at M&A, obviously, over the last few years, you've seen us do some mergers to create capabilities, when you think about Home Chef, some of the technology pieces that we've done. And we would continue to look at -- in both buckets. One would be we believe our industry will continue to consolidate and where the opportunities to merge with companies that bring capabilities either an area to us or strength to us that we don't have and further spread our footprint, too. And it will be important for those companies to be strong companies and viable on their own. And we really look at the best of both, and then what are the companies that bring capabilities that we just don't have. And we would continue to look at both of those, and we think that those are incredibly important and would have an interest accordingly. And I always tell people, if something comes on the market, you should assume that we'll take a look at it. I don't know, Gary, anything you want to add to that?

I'd agree. Thanks for the question, Scott. Completely agree with Rodney. The only maybe additional color that I would add, I think it ties a little bit to some of my comments earlier this morning around our growth strategy isn't dependent on M&A. We have a really clear plan for how we plan to grow the business, 3% to 5% earnings growth and generate strong free cash flow. That being said, we do think we're in a really interesting time, both from an industry perspective and from Kroger's position of strength as we look to continue to grow our momentum as we come through the pandemic. And we'll continue to evaluate with the free cash flow that we're generating where are the best ways to accelerate our model and how can we take advantage of the opportunities that Yael talked about in digital and Stuart talked around in food and Cara alluded to some of the components of alternative profit streams. And so our focus will be on what's the -- what are the best opportunities, the best investment opportunities, whether that be through building capability, partnering or if M&A, as Rodney mentioned some great examples, I think, in recent times like Home Chef, where it makes sense to accelerate our model using an M&A opportunity, then we'll evaluate all those options to make sure that they're creating additional growth in the company, if it makes sense.

Okay. The second part of the question is for you, Mary Ellen. How is the company addressing the checkout process to make it more seamless for their consumer? Many companies are offloading the checkout process to the customer as a mean to save labor costs. Others are attempting to make it more convenient, easier by having technology, making it seamless. How is Kroger going to make checkout and overall experience better for the customers?

Great. Thanks for the question. Our customers want a convenience and options in many areas of the experience, and checkout is no exception. And so we have a number of things available in various ranges, from test and learn to scale, from our self-checkout-only store that we opened recently, to contact-free pay, to Kroger Pay on the mobile app, to a smart car where the customer can check out at the cart, scan, bag and go, and of course, pickup and delivery. And so these are examples of how we continue to be change adaptive to meet the needs and the changing needs of our customers. And when you look at that, then also combined with the additional enhancements that we're making at curbside pickup and delivery overall in terms of additional technology to improve that checkout experience as well as the wait time and make that more seamless, it just shows how we're being change adaptive and combined make a really compelling offering and experience for our customers, no matter how they choose to shop with us. And I think that's part of the key is they want different options across different channels, and we're looking at it all across all the channels.

Okay. Thank you, Mary Ellen. Our next question comes from Simeon Gutman from Morgan Stanley. Rodney, Gary, this is for you. You've provided a helpful framework to think about the economics of online grocery, that it takes 3 to 4 years for the omnishopper to be as profitable as an in-store shopper. How does Ocado impact this math? Ocado -- is Ocado already factored into this? Or does it speed it up as a result? Similarly, how does Ocado change the incremental margin math, mid-single digits for the online versus mid-teens for the in-store purchases?

Short term, it's factored in the math. And obviously, as we're opening up the sheds, you have the start-up costs associated with that shed. Once we get at capacity but reasonable level of consistency, then the margins are similar to a store. And as Gabriel said earlier, at maturity, a facility actually has a higher margin than a store. So if you look at that, the overall ecosystem, we believe the ecosystem itself will create momentum, especially like on alternative profits. And if you think about the retail media channel that is growing aggressively and when you look at tying all the pieces together, we see an acceleration even in the retail media channel that will further bring profitability to all the pieces as well. So for us, our goal and our job always has been job one, don't lose the customer. Job two is to figure out how to deepen our loyalty with that customer, and we've done a great job at that. And then over time, as Mary Ellen mentioned, continuing with process changes to take costs out of the system. When you look at somebody that's doing store pickup, if you look at somebody that's getting served through an Ocado shed, the incremental profitability, that is very efficient. And then when you add retail media on top of it, all of that becomes an overall ecosystem that is a great experience for the customer, creates great loyalty for that customer, but it also creates a great margin for our shareholders as well. Gary, anything you want to add to that?

The only thing I would add, Rodney, thanks again for the question, Simeon, would be I think we tried to explain this morning that we see our current digital business on a very clear path to grow and improve profitability, and Ocado will accelerate that model. But it's not one or the other. They actually both are important parts of the strategy. The store continues to be an important part of the model, even for the digital customer and the digital experience. And as Yael shared earlier, we have clear plans to double the profitability, the pass-through rate when you look at all the costs associated with the digital transaction and then the incremental value we create through the higher sales through the media revenue and any fees that are involved in that transaction. So irrespective of the continued work and the excitement that we have for the Ocado solutions that will augment our overall approach to digital, we have a really clear path as to how we see continuing to grow and continuing to improve profitability. Really, Ocado creates that accelerator of the model, as Rodney mentioned, and gives us the ability to really achieve the same profitability as a store and potentially higher based on some of the data we've seen recently. So I just think it's important, as we try to convey this morning, to think about it as it's not one or the other. It's actually a strategy that combines the 2 where we think it creates the real value and the competitive advantage.

Our next question is from Michael Lasser at UBS. I think this one is for you, Yael. If the digital business is expected to double between now and 2023, what is assumed for in-store sales? Similarly, how much of the digital growth is expected to come from existing customers in existing markets versus new customers in existing customers -- and new customers in new markets like Florida? So I think in short, it's how much is coming from new versus existing markets.

No. Good question. Good question, Michael. I think at the macro level, when you look at the trends or the sales trends for 2021 and beyond, Stuart kind of shed some of that trajectory, and there's some volatility in the number. But when you zoom out, I think we see a definite continuation of the Transform 2020. We doubled our sales in 2020 and expect to double our sales through 2023, partly by maintaining and increasing our share of wallet in some markets, increasing our market share as we did in 2020 where we added 50% market share through our e-commerce customers. So this will continue to take place. And I think the second part of the question is new markets versus existing markets and new customers versus existing customers. Last year, we grew both through new customers. As we mentioned before, 5.2 million families joined our digital ecosystem in 2020. And we expect an intent to continue to grow that by continuing to build great, relevant experiences for our customers. So part of our growth is through new market share and new customer acquisition. The second part is to continue to build that relevant experience so that we increase that share of wallet from every customer who interacts with us digitally. And that is largely mostly reliant on our existing assets, our existing footprint, leveraging our stores, as Mary Ellen mentioned earlier, really driving the quality of experience, leveraging that proximity to the customer and the capacity that we have in our stores to continue to build and double our sales over the next few years. The second part on new markets or even going beyond our existing geographies, as we shared, we have started the pilot of reaching communities that are further away from our existing stores and giving them access to that digital experience, that Kroger experience, further away without necessarily having a direct access to a store. The continuation is through the Ocado launch in Florida, that is a brand-new market. So the way I would look at it is we would say the incrementality of a store or an existing customer, existing market still is in that 50-plus percent range, whereas when you go to a brand-new market, a new geography as we are doing in Florida, obviously, that is 100% incrementality and will continue to be a tailwind in years to come. But if you look at the next 2 or 3 years of doubling our existing e-commerce business, that continues to come largely from our existing footprint and a mix of existing and new customers.

Thank you, Yael. Rodney, we're getting a lot of incoming questions on Kroger's leadership role in the vaccine process. Can you speak a little bit about our position in that process and if that's leading to any sort of additional sales or traffic inside our stores?

Okay. Thanks, Rebekah, and thanks for the question. And Tim, I'll let you add to my comments as well. As everybody knows, health and wellness is an incredibly critical part of the overall Kroger service. And one of the things we find is when a customer is a health and wellness customer with us, they're more loyal to us. And if you look at one of the -- most trusted profession is the pharmacy profession itself, and that is incredibly important in terms of creating that loyalty with the shopper and creating services for the shopper. The other thing relative to vaccines, by having the ability to do vaccines, it also allows us to make sure that our associates are vaccinated as well. And we're approaching right at 100,000 of our associates now have been vaccinated, and about 2 million customers have received vaccines. So when you look at all of that, it's just part of the overall thing in terms of getting that customer connected with us and connected even in a deeper way. And I know I had a chance to be at a couple of the big events. And the customers are incredibly appreciative of, one, how -- they didn't have to wait in line very long; and two, the service they got. And obviously, the number one thing I heard is I'll soon get to be able to hug my grandkids or my grandparents were the 2 comments I heard most often. When you look at the people that are coming in for vaccines with us, about 1/3 of those people have not been engaged with us historically. And obviously, we're creating a positive relationship with that customer, and we will expect to be able to continue that positive relationship and continue deepening it over time with that customer by making things -- making them aware of what Kroger offers on a relevant basis. So with that, Tim, I'll let you fill in and talk a little bit about what we're -- how we're incentivizing our associates and other things as well.

Thanks, Rodney. Thank you very much, Rodney. As Rodney said, yesterday was quite a milestone. We did just go over the 2 million vaccines for customers and over 100,000 vaccines for our associates. We did announce an incentive of $100 for every associate once they complete the vaccine process, whether that's a 1-dose or a 2-dose method, and that's been very well received across our enterprise. We believe this offering, along with continued education to our associates on the benefits of taking the vaccine and driving health and safety for our associates as well as our customers, has been very well received, and we'll continue to do that. And as Rodney indicated, a big shout out to our Kroger Health team, along with technology and partnering together and providing a scheduler for both customers and associates to have a seamless experience in setting up their schedule. We're just so proud of our men and women that work in Kroger Health to make this vaccine available and also in our partnership with the health and human services federal pharmacy partnership. We're now in 34 states where associates are eligible to take the vaccine, and we're continuing to work with local, state and government officials to make the vaccine available to as many associates as fast as possible. We truly believe that the shot in the arm, the vaccine in the arm is the best next step to getting back to our new normal.

Our next question comes from Goldman Sachs, Kate McShane. This one's for you, Cara. Can you talk about why you expect media spend from CPG companies to be incremental versus just a shift from in-store? And what differentiates Kroger for providing these services versus other large peers?

Thanks for the question, Kate. I think it's really important to take a step back and recognize that there's 2 distinctively different yet incredibly important forces that are influencing the sustainability and strength of retail media now and importantly, for the future. The first is consumer-driven, and that's really anchored in e-commerce acceleration. Media mix investment follows consumer behavior. And e-commerce is in the early stages, particularly grocery and particularly in the United States. It's in the early stages of an upward trajectory. Brands want to get closer to influence purchase. Brand marketers are looking to do that, recognizing that more than ever, consumers are making decisions in a digitally constrained shelf. In our environment, we see that 85% of our top 500 keyword searches are unbranded search terms. That means our consumers are coming to us, and they're searching for cereal instead of searching for Cheerios or Frosted Flakes. It's an incredibly powerful performance opportunity for brands to inspire through food inspiration, and that works. Brands are recognizing that 1 out of every 2 searches on advertised placements are added to basket, and they're new customers to their portfolio. So consumer-driven force is one major factor. The second factor is market-driven. There is an incredible change happening in the media ad tech landscape and, frankly, the entire media supply chain. As appropriately, privacy regulations are continuing to evolve, brand marketers are looking at brand safety now more than ever and purpose-driven advertising placements. There's going to be a fracturing of this media supply chain as it relates to third-party data and the role of third-party data in influencing both targeting and audiences as well as ad attribution on the back end. Those are 2 powerful components in the market space. The Interactive Advertising Bureau, IAB, which is an incredibly important organization that sets brand standards and safety standards in digital media, they've identified that in 2020 alone, $12.3 billion was spent on third-party audiences. The value associated to those third-party audiences is going to diminish. Particularly as cookies are redacted, mobile identifiers are redacted, advertisers need to use different, more accessible, more performant ways to connect with customers in a meaningful way and drive advertising value. The media ecosystem is continuing to grow. The numbers that you saw earlier this morning with 30% year-over-year growth for retail media relative to 16% overall, that's going to continue to grow over time. The e-marketer is suggesting that from fiscal '21 to 2023 -- or 2024, excuse me, there's going to be a 26% growth in total media but 42% in digital. And a subset in digital is retail media, e-commerce. And that's going to drive 70% growth. So it's an incredible opportunity now more than ever, critically important, to leverage Kroger as the #1 digital grocery destination as measured by Comscore to allow brands to tap in, drive food inspiration and ultimately bring a more performant media supply chain to the future. Hopefully, that helps, Kate. Thank you so much for the question.

Okay. Our next question comes from John Heinbockel with Guggenheim. It's a 2-part question. Yael, Gary, this is directed your way. With respect to the digital opportunity, one, where does the incremental improvement in store productivity come from versus the 15%? And two, how do you believe the incremental $10 billion in annual digital sales will break down between click-and-collect, delivery from stores and delivery from CFCs?

Yes. Happy to start. Gary, you can jump in. I think on the productivity, as Mary Ellen touched on earlier, investments in our associates, wages and training, investment in evolving and optimizing the business processes, the picking process, for example, in our stores and also investment in technology capabilities that are enabling our associates to be more productive, more effective, that has a cost impact that is quite significant, and as mentioned, with an improvement of 14% in 2020 and a projected improvement of 30% over the next few years. That's not the only side of the improvement in productivity and, therefore, impact on profit. It's also the quality of the experience is driving larger orders size and larger baskets. And that is also contributing to making our infrastructure, our capabilities more efficient. The second point is on leveraging our existing assets to drive the growth. When the pandemic hit in March, April last year and we saw a massive shift of customer behavior, our store teams, our associates were able to triple the capacity from our stores in a matter of days. That is a testament to the quality of the process, the talent that is behind our service that we're offering for our customers. And the expected doubling of that capacity without compromising, in fact, improving the quality of the customer experience further leverages the investments we've made in our associates and technology and will drive the productivity you're asking about, John. The second part about the split between what is fulfilled from stores and fulfilled from a centralized facility in Ocado sheds, that is a little bit harder one to explain or answer. The shed, as Gabriel mentioned earlier, has a ramp-up time. You open the facility and you slowly ramp or quickly ramp the utilization of that capacity. So in isolation, if you just look at one facility over the next couple of years, that may not look as meaningful. But when you look at it and aggregate for our overall business, that is a massive tailwind and will continue to drive not only increased growth reach of our customers and have a significant impact long term on our overall digital profitability. But Gary, I don't know if you wanted to...

I think you said it well, Yael. The only maybe one additional point I would make is -- to John's second question is I do think that click-and-collect or pick up at store and delivery are both going to be critical to our plan. We see customers continue to gravitate to both of those modalities for different reasons. And from a loyalty perspective, some of the data that Yael's talked about, as you think about a customer that engages in our ecosystem, when they're using either or both of those channels, it creates a much more expanded relationship with the customer. And so for us, it's about making sure we're there for the customer through both those channels and then making sure we're optimizing the back end to deliver the best experience at the most efficient cost.

Yes. And maybe -- a good point, Gary, to add. We would not single out delivery as a modality or as an offering fulfill from one facility or another. We optimize the fulfillment of pickup and delivery across the entire network, whether it's leveraging a store or leveraging a centralized facility. And in fact, from a customer perspective, it will be completely transparent and visible. And it's really about leveraging the assets we have, leveraging the capabilities we have to deliver the best experience and the highest unit economic.

The next question comes from Oppenheimer, Rupesh Parikh. This is guidance related, so we'll start with you, Gary. Two questions. On the 2% to 4% ID sales growth, how do you think of ticket and traffic? Also, presumably, food at home could see bigger headwinds next year and beyond as consumer behavior starts to normalize. How have you contemplated this within the ID sales guidance?

Yes. Thanks, Rebekah, and thanks Rupesh for the question. I'm going to maybe let Stuart kick this off and talk a little bit about the sales plan and trajectory, and then I can maybe come back in around the longer-term guidance, too. So Stuart?

Perfect. Thank you, Gary. Thank you, Rupesh. As we've looked at sales for this year, we've incorporated an incredible amount of data, both internal data, and I'll get into a little bit of that in a moment. But also external data, CDC data, et cetera. And the fortunate thing Kroger has is to be in multiple markets around the country. And because of that, we can see what happens to customer behavior as markets open up and close down. And we've used the food away from home data as well to see the impact that, that's had. What encourages us enormously is something Rodney frequently talks about. And the fact that customers have learned to love to cook. And when you think about that from a generational perspective, the pandemic has driven many, many more people to learn to cook and love to cook. And so as we see markets open up, that food away from home number stays strong. What also stays strong is this premiumization and looking for natural, organic, healthy foods, all of which Kroger provides an abundance with brands that only customers can buy at Kroger. So as we've looked at sales and markets opening up, we feel very, very comfortable with the guidance we've provided thus far. Gary?

Yes. Thanks, Stuart. The only thing I would like to add, I think Stuart covered it all around how we think about the short term and the data that Stuart and the team are using, I think there's a part of the question, Rupesh, is around the sort of longer-term model as well here. So I think just to kind of share as much clarity as we can from what we're intending to convey when we share the guidance that we are and as we think about beyond 2021. And I think there are 3 things that we believe we see very clearly. One is that we believe COVID has been and will be a tailwind because of some of the consumer changes that Rodney alluded to earlier in the day. We believe COVID will be a tailwind to the food-at-home market, and we believe that we're exceptionally well positioned to be a leader in maximizing that opportunity and that change with the consumer because of all the investments that we've made and because of the competitive moats that we've created. We also believe that because of that, we wanted to be clear in our guidance that we expect that as of the end of 2021 we're holding ourselves accountable as a team, and we believe we have a plan to deliver on that we're creating a new baseline in our model to demonstrate that, where our operating profit will be $200 million higher than what the midpoint would have been prior to the pandemic when we launched the TSR commitment back in November 2019. So we're really clear in our mind that there's a consumer change that we're well positioned to take advantage of that and to continue to grow. And we see tremendous opportunity to continue to grow the business in the future. Hopefully, you heard many of those examples this morning, whether it's around some of the trends in food away from home. The digital commitments that Yael talked about earlier today and then the alternative profit streams that continue to build momentum. So when we shared all that, we wanted to make it clear how we think about the future growth. What we're not trying to do at this point is to give specific guidance around 2022. We're holding ourselves to an expectation that we'll grow from 2021. But we're not trying to convey what the numbers should look like specifically in 2022. We think it's too early to be trying to provide that kind of guidance, and there's obviously a lot more to unfold in the way that the pandemic will hopefully start to draw to an end as we go through 2021.

The next question comes from Joe Feldman with TAG. I know a couple of us are involved with Hometown. So maybe we'll start with you, Mary Ellen, on this one. Can you provide any more details about how hometown pickup works?

Great. Yes. Thank you. So certainly, the pandemic has brought a greater need for customers in terms of how they have different ways to use our seamless options. As we've talked about curbside pickup, delivery, Ocado, hometown is another way to enhance that overall strategy. So in terms of how it works to the customer on the front side, it's very similar. They go and do a pickup order just like they would at their location. It allows us to have locations in other areas and more of a pop-up, if you will, our flexible location. So it gives us more flexibility in terms of where we have that to expand our reach and flexibility to the customer. And as you saw from the video, we're getting really strong customer feedback because it's giving more options of what customers want of our great products, fresh products, more offering in places that they might not have access to before. Yael, do you want to add anything to that?

Yes, that's a good point. It's really one of the growth lever that will contribute to accelerating our digital growth over the next few years, leveraging our network, our assets, the capabilities we have and bringing that call it assortment, relevant assortment through a digital experience with the value that our customers like and appreciate to communities more broadly, again, leveraging our network. So it's a very promising and exciting program.

The next question comes from Kelly Bania with BMO Capital Markets. Rodney, Gary, this is on Ocado. Where is Kroger with respect to their original commitment for 20 sheds? There was a mention of opening 6 more sheds. What is the commitment today? And also, what is the pricing strategy for the Ocado offering? How will it compare to what you offer today via Instacart and through your own pickup services?

Thanks, Kelly, for the question, and I'll start with it and then like Gary and Gabriel finish with some of the details. Overall, if you look at Ocado in total, we're incredibly excited. And if you look at Ocado, continues to improve, and you will recall when we announced Ocado originally, one of the things that we were excited about Ocado is they continue to develop and continue to get better and continue to improve their offering and their NPS scores. And they've done all of those things. They've continued to make a couple of the acquisitions to even accelerate their technology and capabilities. So when you look at Ocado overall, we feel great about their offering and what they're doing. And we continue to work with Ocado on incrementally making commitments in terms of incremental sheds and getting those open. And we work together in terms of reducing the cost and accelerating the speed in which to get them open, but incredibly excited about the partnership overall and where it's headed. With that, Gary, I'll let you and Gabriel get into some more of the details.

Sure. Thanks, Rodney. The only thing I would maybe add before I'll hand it over to Gabriel is I think we've talked about this, and Gabriel alluded to it in his prepared remarks earlier as well that I completely agree with Rodney about what -- the excitement we have. And so thrilled now to have a facility that we can actually be live and start to continue to learn and grow and innovate together on. And as you heard earlier in the day, and Kelly called out, we've announced multiple facilities. In addition to that, of course, you heard Yael talk about the growth opportunity for digital. And so we think there's still tremendous opportunity for growth and to drive profitable growth by partnering with Ocado and continue to expand the opportunity for the network. I think part of that, that we work through together is what are the right size and types of facilities because, as you've also heard, it's a complex network and making sure that we're building the right size and the right shape of network to be able to support that exciting growth that we're committing to in the future is something that we continue to work through together to make sure that we're building the optimal platform for success. Gabriel, do you want to talk a little bit more specifically about plans?

Thank you, Gary, and that's a great question, Kelly. Let me answer in 2 parts. The first part, I want to address the fact that when we actually think about Ocado, and a lot of people think that we are starting here in the U.S.. There's a long history now in Canada, in France, in the U.K. on how Ocado has been successful. So when you think about what is the difference between those retailers in those regions and geographies and what's our advantage here in the U.S. is that we already have an existing e-commerce business. And everything that we do with Ocado is additive in nature. The one thing that is -- drives our decisions to continue to actually commit to more sheds and put more shovels on the ground is always is the market behavior and what we've learned advantageous enough to actually go into more and more markets. As of today, we have committed and we actually have 11 sheds that are in the process of being built, are actually ready to go live, like in the case of Florida and in the case of the one in Monroe, Ohio. And that would actually give us -- and remember, these are 20 stores' worth of sales. So it is a quite impactful top line driver when you think about 11 going live between this year and 2022. So we'll learn a lot this year. We have been able to actually bring costs down. We have been able to bring economics down from what we learned in other regions. But it is truly when you drop it into the Kroger ecosystem that things start to actually shape much better than what we've seen in different regions. Now the one takeaway, the customer experience, as we've seen in other regions, is one of the key drivers to actually make those sales absolutely relevant. So if we can be relevant in the market after those 11 sheds, and we continue to bring cost down and reduce the ramp-up curve, you'll see more and more of our releases saying that which markets we're going to go next. But as of now, it's 11 sheds and then we'll continue to grow as the market grows as well.

Okay. Thank you. Our last question is from Patricia Baker with Scotiabank. The 98% retention rate you referenced for your digital customers is impressive. How does that compare to retention rates from customers that are not engaging with you digitally or historically store-based customer retention rates. Yael?

Yes. Good question, Patricia. I would say the 98% of the omnichannel customer is meaningfully -- that retention rate is meaningfully larger than the store-only customer. But I think the important part is how we continue to expose our customers who may only be shopping with us or engaging with us in store. How do we expose them to that digital experience, even if they prefer to transact in our stores? We are not forcing them to go down the e-commerce path. So the more investments we're making in stores, and Mary Ellen mentioned some of them around the checkout experience, is to bring that digital experience even to the store customers, and that's how we're seeing improvement even in our store-only customer retention rate. So not quite as high as the 98% of our omnichannel customers, but definitely improving, and we expect at some point that they will come close to parity.

Thank you, Yael. With that, Rodney?

Thanks, Rebekah, and thanks to everyone. Really appreciate you joining us today. And you can hear from everybody's presentations how together, we're confident and comfortable we'll continue to generate a TSR of 8% to 11%. As you look forward, in terms of how we're going to do that, there's really 3 points that we want you to remember and walk away with. We are winning market share, leading with fresh. And the #1 reason that people decide where to shop is based on fresh. And we continue to widen our gap versus our competition, which is incredibly important and incredibly exciting. You heard throughout every presentation, the continued opportunity to grow in digital. The thing that's even more important, if you look at digital originally, as I said earlier, it was just to make sure we kept that customer with all the things in the overall ecosystem, we have a clear path to profitability and a clear path to where the profitability of that digital shopper is the same as in store, which is obviously incredibly exciting. When you look at the strategic moats that we have, we continue to gain ground on all of those strategic moats in terms of full fresh and friendly. And Stuart talked about it, but in -- one of the things that customers have learned because of COVID is learning how to cook. They are also learning that it's fun to cook and it's fun to cook as a family. Those are tailwinds that will support us going forward. And as we continue to improve on the digital seamless experience, and we continue to improve with our moats in terms of a full in-stock position, incredibly fresh product and friendliness you can't get anywhere else, that's the glue that brings it all together. So incredibly excited about the future. And hopefully, as you've met all the team, you can see our excitement in terms of the team working together and the team creating something that hasn't been done for the customer in the past and that we will in the future. So -- and we're really looking forward to being able to start meeting in person again as we get through COVID. Together, we are incredibly excited. Together, we're going to continue to win in this market and take care of our customers and our associates. And with that, thanks again for joining us today.