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

All right. Good morning. I'm Kelly Bania, food retail analyst at BMO Capital, and excited to kick off our 16th Annual Farm to Market Conference with Kroger. Gary Millerchip is joining us, SVP and CFO of Kroger. Gary, thank you so much for joining us. Before I hand it over to you for a couple of prepared remarks, I just want to remind everybody, you can submit questions to me via the conference app or the website. Hopefully, you have that in your e-mails from BMO. We have about 35 minutes, and I have tons of questions for Gary. So feel free to submit to me. And then Gary, I'll just hand it over to you for some prepared remarks.

Great. Thanks, Kelly Good morning, everyone. Hopefully, you had a chance to join our IR Day a month or so back, and found that helpful and informative about our strategy. The one thing I wanted to do before we jump into the Q&A, as Kelly mentioned, is just maybe reinforce a few of the key points that we felt the most important takeaways from that event. We sent out to you -- hopefully, all of you on the conference today, have a copy of the 2 slides that we put together. And I think they do a really nice job of capturing what we felt were the most important takeaways for investors from our IR Day. Maybe just to quickly talk you through those and kind of bring it all together for you. We believe that, as we shared on the first slide, I'm just going to show this up. I'm not going to hold it up there for too long, but hopefully, you have a copy of that slide in front of you. But we very much believe that as we launched our journey to delivering sustainable and attractive TSR back in 2019, that we have a really clear path in our value-creation model to deliver 8% to 11% consistent TSR as we look forward in our business. And we -- as you heard us say at the Investor Day, we feel, as a result of the strength of our execution and some of the trends that we're seeing in the food-at-home market more structurally, that we believe that over the period 2019 to 2021, we will expect to exceed that TSR range when you look over the 3 years, including the guidance that we shared for the current year. We think of our model as actually pretty simple when you look at our value creation model. Everything that we do starts with food. That's our platform. We'll continue to invest in our customers in food, and we'll continue to invest in our associates to deliver a great experience in food. And we believe through leading with fresh and accelerating with digital, we have a great platform through our food business to continue to grow the company overall. We also believe that the traffic and the customer base that our food business provides creates a platform to be able to build this flywheel effect by building alternative profit streams and using our data to be able to create more value for customers through personalization, but also tap into those high-margin, low capital-intensive profit pools that ultimately fuel the growth in the ecosystem. We expect all of that to deliver 3% to 5% earnings growth over time and also, obviously, strong free cash flow, which combined with the earnings, will deliver the 8% to 11%. So we think of it as a very clear ecosystem, and feel over the last couple of years since we launched the learnings, pre-COVID and then through COVID, have really given us greater confidence. Hence, why we shared what we did at the Investor Day. And then secondly, I think just to really maybe recap our overall investment thesis. We shared the second slide, which again was a slide that we provided at the Investor Day. We do believe that we provide a very distinct proposition, holding high market share, #1 and #2 in the majority of markets in which we operate. Our data, we believe, is a true competitive advantage. We don't believe that anybody in the U.S. market in our space has the same level of granularity and quality of data to be able to react and proactively drive value for our customers and create value for our shareholders. Our brands business is a huge asset at $26 billion. And our fast-growing digital business has now exceeded $10 billion, in addition to our core operating model, which generates strong free cash flow. And then I think I've covered the proven value creation model on that slide. I think the final point I would make is that we do have a very strong balance sheet and, of course, we're in an exceptionally strong cash position now through the strong results and improved working capital that we've driven over the last 18 months or so. Hopefully, that was clear. Again at the Investor Day, I just want to spend a couple of minutes just making sure that we reinforce those points. And with that, Kelly, I'll hand it back over to you for Q&A.

Perfect. Thanks for that intro, Gary. I guess the first question, just kind of stepping back and starting with the basics. As we look back at 2020, incredible strong IDs, 14%. Can you help us just unpack that in terms of volume, retail price inflation, mix? And those components just from Kroger's perspective, how those played out?

Sure. I think it's probably worth taking a step back and just thinking how the year played out, too, to kind of your broader question there, Kelly, as well in that if you think back to what happened at the beginning of the pandemic, we saw a lot of customers making choices on where to shop. In our mind, what we saw in the data was really on 2 simple factors: Finding brands that they trusted and convenience. And convenience, meaning both what's local to me, given that restrictions were starting to be put in place around travel. But also, I think, the idea that where do I believe I can get everything on my list. So to minimize the number of places that I shop. And then I think what we saw is you kind of saw that initial spike in that behavior around March, April time, customers started to move to more of a sort of a regular cadence pattern. I would say maybe getting more towards June actually with that, but really focusing then on sort of how's my behavior changing overall? And moving towards -- digital obviously became very important because that became a way to achieve that convenience as well, not just through the store. And so we saw a significant acceleration in digital sales. But also the quality of freshness became important because customers started to really, I think, focus on recognizing, this is something that I may have to change my overall behavior for some time, health and wellness became important. Eating more meals at home, having control over ingredients became important. And so we saw customers shift more of their focus as well to not just that convenience and brands I trust, but very much digital as part of the store experience combined, and freshness being really important. So when we look at our sales results for the year, it's really about all that comes together in consolidated trips. So we saw customers consolidate their baskets into less visits to the store and of course moving more to online. The average basket size in digital is typically close to 3x what a basket would be in the store. And even with the higher volume, we didn't see a drastic change in that basket size on digital. So it stayed up there at sort of 3x the store level, even -- well, I'd say 3x the historical store level, store increase, so it may have reduced the gap. But we didn't see a drop in average basket size in a material way in a digital transaction. So all that to say, I'd say the biggest part of our growth in 2020 was really around units coming from bigger consolidation of baskets into fewer trips as a combination of both. Less times visiting the store and more of a migration to digital. From an inflationary point of view. As we shared, I think, in our Q4 earnings, we would kind of originally typically budget about 1% on inflation. Last year, I would say when we look at it, it definitely adds some volatility by quarter and also by different categories, especially in the fresh categories at certain times. Meat was particularly inflationary sometimes during the year. But overall, actually, when you net it all out, it came in around a 2% inflation, give or take, for the year from what we saw. I think the final part of your question was really around sort of pricing -- or sorry, inflation and related to maybe investments in the business. And as you know, I think Kroger was really committed throughout the year to figuring out how do we continue to invest in the customer? And the reason that we did that is that it doesn't really show up in the short-term results. But when we've looked at the business over a longer period of time, if you kind of move off of strategy around value and what you stand for, and we use examples like when we have natural disasters in our business, I think of like a hurricane or a tornado. When you see situations where it appears that retailers are maybe taking advantage of the situation because supply is short, because you can, and the margins can be higher, it doesn't impact at the time because there's only certain places you can get the products you're looking for, but it does impact over the longer term, the perception of the brand and long-term loyalty. And so while we have to maybe pivot some of our promotions to different categories because certain products weren't available, and we didn't want to be forcing out-of-stock positions or offering promotions where the product wouldn't be there, we did deliberately figure out how to continue to invest to really stand by our brand promise of value for the customer.

So follow-up there -- a couple of follow-ups. So 2% inflation. So just want to be clear, is that retail inflation? And does that include just the impact of less promotional activity? Is that baked into that equation of retail inflation?

Yes. We always define our inflation number including all of the impacts that you would think about of what's the price that the customer pays, if you like, from a retail perspective. So the answer is yes on both points. It would be retail inflation around that level, and it would include ultimately all of the different elements of that value. It wouldn't include things like fuel rewards and discounts there that aren't price related, but it would include everything that was promotional on the customer price of the product.

Okay. So I guess, next question. So as promotions come back, I guess, what is your expectation on when timing -- what are the circumstances when you think manufacturers and suppliers will start to promote again? And how will this work? Because there's a lot of questions about inflation kind of driving up and then promotions coming back at the same time. How are you going to manage this? We haven't, as my experience, seen this kind of environment. So what -- how do you -- how does Kroger plan to manage that dynamic?

Yes. I think it's, for sure, going to be unique this year in different elements. But I do think we've had times in the past where we've had to manage these different components in different ways. So we tend to have a, as you might imagine, a pretty disciplined approach to how we look at those different components. We would expect this year to see more promotions coming back into the market. And as you might imagine, we work very closely with our CPG partners to plan out for the year, where does it make the most sense based on how Kroger goes to market, what the CPG's goals are, and how we can combine those goals together to drive value for the customer and drive growth for Kroger and the CPG partner. From an inflation perspective and increased costs, I think one of the advantages that Kroger has is that we do have our own manufacturing facilities, and we have a pretty good understanding of the cost of product, and we also have a talented sourcing team that are dedicated to working on managing and looking at the data. So combining those 2, we -- our first goal is to make sure we truly understand where are the cost increases. And sometimes inflation can be different. If it's like a short-term blip in prices, which has happened a couple of times in the last 12 months on meat, for example, and you manage those a bit differently if you know that in a couple of months they're likely to subside and come back. Whereas are there structural cost increases that are more fundamental cost in the business that are, over time, there's an imbalance, say, between supply and demand or an increase in costs in the structure of the product. And so where those are very much genuine, we certainly work with the CPG partner to make sure that we understand the impact of that and manage it through. I would say we're also very focused on making sure that if some of those costs are maybe -- there may not be short term like a month or 2, but if in 6 or 12 months' time, the expectation is that some of those structural headwinds may become tailwinds or reverse, that we're very close to that data from our own manufacturing product. So we're equally back on the phone or in the room talking about, "Well, now the costs have come down. How do we make sure that we're actually capturing that savings?" So some of these aren't even necessarily long term. There can be puts and takes over a year or 2. But then, of course, once we've aligned on where those costs are, then certainly, our goal in general is to be proactive in making sure that we're passing on those changes to the customer where it makes sense. But obviously, making sure that we're not doing anything to impact our competitive position overall and using personalization and promotions to manage the balance there of those cost increases. And generally speaking, I would say at this point, the market is acting fairly rationally. And I think that, to your point earlier, the difference there is that I think in times where you've [ got ] negative sales, typically, you're not coming off of a year of, for us, 14%-plus IDs; you're coming off, maybe a good year, is 3% to 5% ID. So when you look at the 2-year view of this, we expect the market overall of food at home, but also Kroger in particular, to come out stronger than we would have done, and our model is going to be in a stronger place. So I think most of us realize that there aren't enough levers you can pull that are going to change that outcome in this environment in a way that actually makes sense. And so it's about executing on what the customers tell us are really important, which is certainly continuing to deliver value and being true to our brand, but executing on fresh, executing on seamless and digital, using our personalization to create value. And when we look at the relationship with the customer, we believe strongly that the combination of those competitive moats that we've created and can continue to execute on give us the ability to be able to manage through that equation.

So a couple of questions there in regards to inflation. So you mentioned maybe manage it different if you see it as temporary. What do you think about this inflation cycle that we seem to be heading into now? It looks like some of the charts and commodity prices we track are at 10-year highs. You have CPG talking about kind of mid- to high single-digit increases, which is normally -- that's pretty high compared to historical low single-digit. So what -- do you treat this as temporary now? Do you think your 1% to 2% forecast for the year could be conservative? Just help us understand how you're thinking about it right now.

Yes. I think we view every piece of the jigsaw on its own merits, I would say. So as you mentioned, our original guidance for the year, as we thought that inflation would be in the 1% to 2% range. And of course, I wouldn't say that, yet, we're seeing anything massively different flowing through. But of course, there is a time lag on some of the pressures that you mentioned, Kelly. So I do think we would expect that as we continue to work through the discussions with CPGs on cost structure and looking at the different costs in the model, we would absolutely be applying the approach that I talked about earlier. And I do think there are, as you mentioned, some areas that are -- we would be seeing higher potential cost increases than we would have thought when we started the year. And so I think there's -- I would say it's too early to call exactly how that plays out. And I don't think you can necessarily draw the correlation that, on the supply side, a 8% increase in cost translates into retail into that same level of increase. I think there's obviously a lot of other factors that go into the retail price at the shelf. And so -- but I do think there are a number of specific drivers that potentially create higher inflation as we look further out this year. And our goal will be to manage it, as I mentioned earlier, through the processes that we use. And I do think that typically, some inflation for the food retail business is a good thing. If you can be in that -- anything around 3% is generally a nice place to be for the food retail industry. But at the end of the day, I think we've managed through periods that have been higher than that and of course in recent times lower than that. And we feel good about our ability to be able to manage those situations based on the experience that we had and the way in which we believe we can manage it from both the supply side and also then the relationship with passing it on to the customer.

So I'm just going to throw this one out there. So Walmart was out there saying yesterday that their price gaps have widened relative to the market. Do you think Kroger is the exception to the rule there?

Yes. I think we would feel that we have -- if we look at where we ended 2020 in particular, and the fact that we maintained our investment in our programs, as I think you know, we tend to look at value for Kroger in a very specific way, using the years of data that we've created over time around what our customers and our loyal customers ultimately define as value. And so we look at it from the point of view of from an everyday low price perspective, how do we maintain a certain level of gap that our customers tell us is rational and makes sense? And then layering on the personalization, the rewards, the promotions, the different ways in which you engage in the Kroger ecosystem, if you like, as a customer. And that's why we get the 97% data capture because it's about all those equations coming together. When we look at the overall equation, when we look at our position versus EDLP, we felt like, in 2020, all of our data shows that we essentially maintained our position there. And then when we look at the rest of the market, we felt like we created separation from the traditional retailers because we did continue investing in 2020. And as I mentioned earlier, that was more not because necessarily we expected it to significantly show up in sales in the year, but we do believe, over the long term, it will be important to driving sustained loyalty and maintaining market share. And of course, actually, I think one of the things it does, as we've talked about before, is that it actually makes it easier for us to lap those, like this year as well. So those dollars we invested were promotional largely in nature. So we get to reinvest them again this year, if the market -- where we need to do that. And that allows us to be confident in the -- when we shared the guidance as we did at the Investor Day for 2021.

So going back to the basket sizes. So it sounds like you said digital, 3x what a typical in-store basket used to be. It sounds like the in-store basket maybe is what was higher throughout this, if that makes sense, as people consolidated trips. But how does that impact profitability, those larger baskets?

Yes. It's a complicated equation, as you might imagine, because it also depends on the mix and all the other kind of components of how customers are shopping and digital versus the store channel make a difference on that, too. But specific to the store, I would say that it would certainly be cheaper for us to operate the store because you kind of have -- the higher basket means you've got less labor -- or higher productivity, maybe the way to say it, in the store because you've got some more efficiency, if you like, with less traffic through the store. That being said, what you also miss though is, because a lot of the smaller trips would be, if you think about it, would also be customers coming in for breakfast or lunch and not doing those trips because they were consolidating trips. And typically areas like Deli Bakery, which would have, for the first quarter, last year, being negative; for the second, third and fourth quarter, it would have been marginally positive versus the overall trend. And so that does impact the margin as well in that, your mix, you can lose some of those higher-margin products in the mix overall. So I think there's a number of puts and takes in there. I would say that our expectation in our model is that we will see -- I think it will be a gradual return. I think customers are going to maintain some of the behaviors that they've adopted during COVID because it's been something that they've been applying for so long. And I think some of the pieces, that they actually are telling us anyway, that it's causing them to like some of the things that have changed as well in their routine. So I think we will see some of that, but we do expect in our modeling that, gradually, the basket size in the store are going to reduce, and we'll see -- and we are seeing a slow return to more traffic in the store. I think that will be over a period of time, not just sort of a light switch. And we've kind of fully factored that, as you might imagine, into our modeling around how we think about the 2021 results. And as we shared, I think we -- overall, big picture anyway, we expect gross margin to be somewhat of a headwind in '21 as you cycle everything, but OG&A to be a benefit for the year.

Right. And then -- so going back to promotions. So there's this expectation that promotions will come back as things maybe start to normalize. Do you think that, that money that CPG spends on promotions, is that a good -- do they get a good return on that? And do you think there's any consideration of where they should maybe reallocate some of those funds?

We have a very deep, as you might imagine, collaboration with most of our CPG partners. We go into a short-term, and in most cases, also a sort of a longer-range view with them. So I think over the years, we feel like we, by building the relationships and looking at how we can use our data to build plans collaboratively, we would feel good about the way in which we work with the CPG partners to allocate dollars together to how you create win-wins and growth for the relationship. So of course, there's -- I would say there's an ongoing sort of reallocation because we're dynamically looking at the data and saying how are customers changing behavior? Where are the opportunities? One of the things that Stuart talked about at our Investor Day is really innovating, and a push to say we want to make sure the customer is getting the best food experience at Kroger. Part of that can be by innovating with our own brands, but part of it is also really working collaboratively with the CPG partners to innovate. And how do you then put more of the investment dollars behind some of that promoting and communicating new products and really kind of creating traction? I think that's where you can get really significant new win-wins for both Kroger as a leader, in being recognized by the consumer as a place to get new products when they're available, but also -- and using our data to help the CPG scale adoption and repeat use of those products. And from our perspective, it's a great way to bring food to life in the store as well. So I think that's an example of how we continue to evolve. And I would see that as a continuous journey, Kelly.

Right. I don't see any questions on the app here, so I'm just going to keep going here. I wanted to touch on alternative profits and digital. Hopefully, we can fit all that in, in the last 11 minutes here. So alternative profit. So you guys were one of the early ones really talking about this. The plan is $100 million to $150 million of EBIT, I think, from alternative profits in 2021. Can you help us think about what kind of percentage growth that is? Just trying to understand what the base is here at this point. We'll start with that one.

Sure. We haven't provided a specific base. As you know. I would say that it's significantly north of double-digit growth. So we are expecting the business to grow again double digits this year. And I think I shared at the Investor Day that actually our belief is that we'd expect that double-digit growth to continue for the foreseeable future within our model because we do believe now we've created that flywheel effect of how we can use our data to drive more value in the customer ecosystem. I would say that the one thing, I know we've had a question before about, why is it not growing faster than we shared in 2020? I think the 2 -- in dollar amount, I mean. The 2 big factors to bear in mind there, Kelly, would be is that a big part of the growth in 2020, as you know, was digital media because we were accelerating digital sales north of 100%. That creates a bigger platform to grow digital media, of course. So digital traffic drives digital media revenue. This year, obviously, we won't be expecting such a high level of digital growth as we cycle COVID. So while digital media will still be growing very strongly, obviously, the $100 million to $150 million is on top of the growth that we achieved in 2020. So the baseline is already higher. And because the growth in digital will be lower, it means that digital media, on a percentage basis, grows at a lower rate. The other thing would be is I would say that there was a little bit of question around how quickly Kroger Personal Finance would rebound on some of more of the travel and entertainment and spend on credit cards and things. So we kind of had some discussion with our financial services partners and felt like there's some unknowns there. So that was the other reason that we went with a wide range and it wasn't a higher number than 2020.

Okay. That makes sense. And when you talk about these alternative profits, and you've also made comments about digital profitability and the incremental margin improvement there. Is this alternative profit contributing to that incremental margin improvement? Or are these separate?

That's a great question. So the only piece of alternative profit streams that will contribute to digital profitability is digital media. So if you think of alternative profit as ventures, Kroger Personal Finance, media more broadly, so media that we earn through our store channels and through, if we're advertising in our parking lots, and then digital media. So where we think about the digital ecosystem. The way we think about it is we would not have a digital media business if we didn't have a digital e-commerce business. And so when we think about how do we build a profit model for the digital business that can be on a par with the store channel over time, which is obviously a goal that we've talked about before. The headwind is that you can probably never avoid, you're going to have some additional cost in a digital business because you've got to either use labor in the store to pick the product. Or even with Ocado, which is going to be a really automated and very efficient solution, you've still got some extra cost of adding a level of processing to the order. Where we believe we have the advantage in digital over the store channel is really in that ability to personalize and be able to drive digital media revenue. So we do include that in the profitability analysis. And when we talk about digital -- doubling, I'm sorry, the digital profit in the next 2 to 3 years, that would include a combination of removing costs, so building more efficiency to drive digital profitability. It would include improving the mix. So if you think about things like marketplace and getting more product flowing through at a higher, more consistent rate, without the cost associated with that because we're not handling the product. And then the third piece would be digital media and continuing to grow the revenue from digital media. And those 3 would all be important components of that journey to double digital profitability.

Okay. So it is a little bit maybe of a double-counting there because we're talking about digital media helping alternative profit, but it's also part of this conversation in digital in totality, right?

Yes, that's right. I mean, I think that's probably the big part about our value creation model, is we try to provide data to help provide visibility into how we're managing the different pieces and where we're creating value. Ultimately, we look at it as that overall value creation model. When you combine the food platform in the store, the digital business, the data it generates to drive alt profit, overall, do we believe that creates a profitable customer that we can grow, and can we therefore grow sustained earnings. And ultimately, for us, we share the color more because we're trying to help explain some of the pieces. But candidly, our goal is to make sure the ecosystem works effectively to drive value. So we worry about digital profitability because we think it's important. But ultimately, It's about the overall customer relationship and making sure that we're driving overall value with that customer and the ecosystem together works effectively.

Right. So I guess time's flying by, as usual. Wanted to ask just a couple of questions about Ocado. And I see a question coming in, so I'll try to look at that next here. But in terms of Ocado. So I guess, one, how's it going? It just started. I know it's still very early days. But I guess any thoughts on how that's started out, out of Monroe? And then, two, how will Ocado be priced? In terms of relative to what you already offer with Instacart, price the same as in store? Are you pursuing a membership type model over time? Just anything you can share on that now that it's really kind of starting to get going.

Sure. Yes. So we're pleased with how Ocado is going so far. I would say it's too early to really be quantifying that into metrics because, literally, we launched with customers in the last week in Cincinnati. And as you might imagine, it's very much a targeted approach in the early days with customers to build momentum. But when I say pleased, everything has been on track around the timing of when we expect it to be going live. We've -- we're very happy with how the facilities have come together. And when we talked to Ocado as a partner and look at their experiences in new markets that they've been to, everything that we see together is set up in the way we would expect. And now we're in that really important phase, if you like, of building the momentum with the customer and starting to gain traction with the experience and driving volume. So too early to kind of share anything that would be helpful from a metric point of view because it's literally a week in. But certainly, so far, everything is going in the way we would have expected in our heads, if you like, as we started to launch the plan. And we recognize, of course, it's going to be important to share more color as we now start to get into real time with the proposition for the customer. On pricing, I think I'd have 2 different answers for you, Kelly. Strategically, we continue to evaluate how we go to market. As you've heard Yael talk about, it's really a seamless ecosystem that we think we're building as a strategy to win the customer. So think about it as pickup, delivery, ship to home, the store experience, how overall do we create a compelling proposition for the customer? And how do we use the assets, between Ocado, the store and maybe even some smaller facilities in between, that ultimately, together, create that ecosystem that means we can deliver on the short-term, immediate demand from the customer. So I need it in the next hour, where the store is probably always going to play a role, because you have to have that immediacy; all the way through to the large facilities that -- which are really kind of on demand for anything over 4 hours, where the order can be placed and there's more lead time, if you like, to that order. But the efficiency is significantly greater for those orders. So at the moment, if you looked at what we're doing in Monroe, in supporting Cincinnati, it's really integrated into the customer value proposition. So think of Ocado more as what we believe will be for customers that are looking for great on-time delivery, great in-stock performance, a great sort of door delivery that feels like my local delivery person who I get to know is kind of consistently and routinely around the neighborhood. That's kind of embedding that experience in for that Cincinnati customer. And it's getting to new parts of the market that we maybe can't serve today because Ocado is able to get into some of those places where the customer would today define as not being convenient for them to shop at Kroger. In Florida, it's obviously a new go-to-market strategy. So we're pricing that based on what we think makes sense in that market because all of those customers would be new to Kroger. Over time, we'll be evaluating what's the -- as we always do, using the data, personalizing. I think we've shared before that we're constantly testing membership and those kind of services. One of the challenges for us is that we're very good at what we do around personalizing. And so most of our customers tell us I get the benefits of membership without paying a fee today because I get fuel discounts, I get free pickup, I can use your Scan, Bag, Pay and Go where it's available if I'm a loyalty card member. And so for us, it's identifying, is there a loyalty program where it's a membership strategy that would truly drive greater value and long-term loyalty for the customer and also makes sense economically? So we are continuing to test different solutions there. And if we find something that we think makes sense, particularly in the context of Ocado, then we certainly move forward with that. But we'll make sure the data and the customer is really what drives the decision there.

And will you use Ocado for any of your pickup business from your stores? Or will that be...

Yes. We likely will. Yes. Yes, we'll test that too and use that where it makes sense as well, because again, it can be a more efficient model for picking orders versus the store. And what it could also do is create capacity in the store because, as you know, one of the things that's happened during COVID is you've got a lot of people moving around the stores but aren't shopping as a customer, they're shopping as a picker. And there's some data in other markets that suggest that when you relieve that capacity from the store, you actually see an improvement in the store sales, too. So that's one of the things that we're interested to test is, as you help the capacity in the store, can you not only make the process more efficient, but could you also drive higher sales across the store and the digital experience combined?

Perfect. Well, we're already running out of time. I didn't even get through half of my questions, but thank you so much, Gary. I appreciate you taking the time, and wish everybody well at Kroger.

Thank you, Kelly. It was great to talk to you.

All right. Take care.

Bye.