Freshpet's Media Strategy Drives Household Penetration and Consumer Growth
2023-08-10
Freshpet, Inc. held its second-quarter 2023 earnings call, where the company's CEO, CFO, and COO discussed the financial results and future prospects. The meeting focused on the company's media strategy and its impact on driving household penetration and consumer growth. Notably, Freshpet made changes to its media spend allocation, shifting more budget towards the latter half of the year. This adjustment was prompted by an inflection point in late February and early March, resulting in improved performance in terms of dollars per consumer.
The management attributed the improved performance to several factors, including consistently being back in stock, media efforts, innovation, and a smoother supply chain. The media's role in driving household penetration was highlighted, with progress made in terms of pounds and units sold, setting Freshpet apart in the category and across consumer packaged goods (CPG).
Freshpet's marketing team and partners have been continuously evolving their media mix to ensure productivity as they expand into their total addressable market. They have also found success in testing sports as a channel. Analyzing the company's media strategy would involve examining the specific channels used, their effectiveness in driving sales and household penetration, and the impact of timing media spend allocation. Additionally, comparing the company's competitors' media strategies and performance in terms of household penetration and sales would provide valuable insights.
The market outlook for Freshpet appears positive, as the company has shown confidence in its future performance by allocating more budget towards the latter half of the year. The media plan and timing have effectively driven household penetration, with a noticeable increase in late February and early March. Efficiency improvements have been achieved through consistent stock availability, media efforts, and innovation. Freshpet has experienced progress in terms of both revenue and unit growth, distinguishing itself in the category and the consumer packaged goods industry. The marketing team's successful evolution of the media mix has expanded the company's reach into a broader addressable market. Freshpet is also exploring new digital and e-commerce channels, aiming to be media agnostic and conducting rigorous testing to determine the most productive allocation of resources. The company sees the long-term value of increasing consumer groups, particularly high-profit pet-owning households. Overall, Freshpet's market outlook is positive, and strategic steps are being taken to drive growth and expand its reach.
The key drivers discussed during the meeting were consumer demand, the return to the business model, media advertising, and media spending. Consumer demand has been accelerating, indicating increased interest in Freshpet's products. The return to the business model suggests that operational challenges have been resolved, leading to more efficient operations. Media advertising has played a crucial role in driving consumer awareness and demand, while media spending is heavier in the first half of the year compared to the second half.
Regarding product and service plans, Freshpet aims to increase its total capacity, implement more efficient manufacturing technologies, and find ways to produce its flagship product, Freshpet, more efficiently. Expansion commitments will only be made when demand justifies them, with each capital investment expected to deliver a mid-teens return on invested capital.
The most important key performance indicators (KPIs) discussed in the meeting were household penetration, dollars per consumer, media mix, and cohort analysis. Freshpet was pleased to observe the correlation between its media plan and the increase in household penetration. Late February and early March marked an inflection point, resulting in progress in terms of pounds and units sold. The company mentioned being slightly above its historical dollars per consumer, indicating a slight increase in the cost of acquiring consumers year to date. Freshpet celebrated the efforts of its marketing team and partners in evolving the media mix, testing sports, and exploring new digital and e-commerce channels. The company aims to be media agnostic and invest in what proves to be productive. Unfortunately, specific details about the cohort analysis were not provided.
Freshpet's outlook for the quarter and year remains positive. After a slow start in the first two months, the company experienced reacceleration and is back on track. Recent weeks have been particularly strong, and Freshpet is returning to its historical growth algorithm. The Chief Financial Officer confirmed that there is no change in the full-year outlook, with the company holding to the $750 million level. While the reacceleration occurred slightly later than anticipated, Freshpet feels confident as it enters Q3. The company is optimistic and determined to achieve its full-year guidance.
In terms of capital spending plans, Freshpet will commit to part of Ennis Phase 2, which will increase its total capacity to nearly $1.5 billion. However, no commitments have been made for Ennis Phase 3 or additional lines at Kitchens South, as these will only be pursued when demand justifies them. Freshpet aims to stay up-to-date with manufacturing technology, implementing more efficient technologies as they become available. Each capital investment is expected to deliver a mid-teens after-tax Return on Invested Capital (ROIC), and the company's financial projections support these targets. Freshpet is confident in its ability to meet long-term growth expectations with its current financial resources.
During the meeting, notable participants included Billy Cyr (CEO), Todd Cunfer (CFO), and Scott Morris (COO), along with several analysts from financial institutions.
In conclusion, Freshpet's earnings call highlighted the company's anticipation of significant volume growth in the coming years. The meeting emphasized board changes and efforts to strengthen the company's human capital. Charlie, who played a significant role in Freshpet's growth, announced his retirement, and Walt was appointed as the new chairman. Walt's experience in the pet industry, particularly at Hill's Science Diet, makes him well-suited to contribute to building a successful pet food brand. The meeting also underscored Freshpet's efforts to fill important roles and reported a 26% increase in net sales in Q2 compared to the previous year. This strong performance led to an increase in adjusted EBITDA guidance, further reinforcing the company's positive trajectory.