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Freshpet Inc (NASDAQ:FRPT)
Q4 2019 Earnings Call
Feb 25, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

William B. Cyr -- Chief Executive Officer

Thanks everyone for coming this morning. We appreciate you taking the time to come and hear a little bit more about Freshpet. I want to cover -- the material that we're going to cover today, there's two pieces, one is the earnings for 2019, the final earnings that we released. I'm going to give you a really, really quick run through on those in a minute. And then we're going to flip over and go into the Investor Day presentation that we'd like you all to hear about.

I will give you a little bit of a warning in advance. The warning in advance is that we are going to go very deep on Freshpet today. And part of the reason we're going really deep is because we have an incredibly passionate group of people who are really expert in their area and as a result, it's very hard to constrain them, but the reality is, there's a lot of really good stuff that they want to share.

The second reason that we're going to go very deep is because as a company, we are keenly aware that our stock trades at a very, very high multiple. And the high multiple is justified by three reasons. Number one, investors believe that the long term opportunity for Freshpet is enormous. Second, you believe in our ability to execute against that long term plan. And three, the competitive modes that are built around this business are very significant. Those are what supports the stock price multiple that we have today.

Our hope is that by the end of today's session, that you feel like the opportunity is as big as we think it is or bigger, that you are very comfortable with the capability of the organization to execute against that plan, and that you see that the competitive modes that we've built get only stronger as we scale this business.

So let me start with a housekeeping part. I will -- the earnings slides that I have today, I'm only going to cover a few of the earnings slides. The entire deck is available on our website. So you can see all the details that we normally provide you, so household penetration, store growth and what not. We have released much of the information that's in this deck previously. So back in -- at ICR in January and at our CAGNY presentation last week we covered some of this information, but I do want to highlight it. We will do questions about this at the end of the entire day.

Of course, we have our usual Safe Harbor statement. It's a two-pager now. So our fourth quarter came in with growth of 27%. So we ended up with slightly ahead of where we had set the guidance for the year. So $65.8 million in net sales in the fourth quarter and the EBITDA -- adjusted EBITDA in the quarter was $13.2 million, up 43% versus year ago. So this message of an accelerating rate of bottom-line growth on top of a very strong top-line growth is very consistent.

For the year, our guidance had been to have net sales in excess of $244 million, we came in at $245.9 million, up 27% for the year. And the adjusted EBITDA, our guidance had been to be up 29% versus the -- up 44% -- up over $29 million at $29.2 million is where we came in, was up 44% versus the year ago. So again a bottom-line that's growing at a faster rate than the top-line. I'm going to skip past all the consumption data because this has been shared, it's been fairly public, but the most impressive part is our two-year stacked continues to grow and we're up 64% on a two-year stack basis is pretty incredible.

There we go, it doesn't matter what channel we're in, we're growing very quickly. The rate of growth on ACV is very strong. The penetration growth which we shared last week at the CAGNY presentation is incredibly strong. The buying rate remains at a very high level, only diluted by the strong top -- penetration growth. We released the store growth back at ICR and it was in very impressive performance for the year.

Adjusted gross margin has historically been a place where we've had our biggest issues. I would describe our gross margin as stable, not making the progress that we had wanted to make. I think at this moment is where I wanted Shiloh to come around across the stage and everybody can know about the Puppy. But the reality is that we had a few hiccups that occurred along the way, but over in the grand scheme of things, the fourth quarter adjusted gross margin is about stable with where we were for the year or throughout the year and for the year, we ended up at 49.4%. There is a little bit of a mix effect that is occurring in here and we're going to spend for the first time, some time in today's presentation, talking about the impact that mix has on both the capacity that we need, as well as on the margins that we produce. It's good from a bottom line perspective in terms of total dollars, but it doesn't make the percentage margin look good.

We continue to make significant gains on the SG&A leverage that we've been talking about since 2017, where in the fourth quarter, you can see, we picked up a few more points of progress on SG&A leverage, excluding media. And for the year, we made a very significant gain, 290 basis points of SG&A leverage toward the 700 basis points that we had talked about. This remains a significant opportunity for us going forward. We have just really started scratching the surface of SG&A leverage and Heather will talk more about that later on.

So at this point, we feel like we are well on path toward the goals that we laid out in 2017. And in fact, you'll see that we think we are ahead of the revenue target that we had laid out of $300 million, because to get to that revenue target, we'd actually have to slow our rate of growth from the 27% we've done in the last two years to 22%.

The model that we laid out in 2017 is working. The Feed the Growth program, and I talked about this virtuous cycle of investing in media where we made significant increases in our media investment to drive velocity, to increase our distribution, to get leverage in manufacturing and in our SG&A and then reinvest that back in the business. That fundamental model has worked for us and has got us to where we are today. I won't bore you with the rest of the stuff that you can all find on our website and in our 10-K that was filed this morning, as well as our earnings press release. So that's the part I want to cover related to the earnings.

If you could pull up the next presentation, and before we do that, we do want to take a moment to do one acknowledgment. All of you probably saw that in December, we announced that as effective October 1 this year, Dick Kassar, our CFO will become our Vice Chairman and Heather Pomerantz, whom we hired as EVP of Finance will become our CFO. And so this final 2019 is the final full fiscal year that Dick will be signing off on the financials. And this will probably be his last Investor Day. So we thought it would be appropriate for all of us to have a chance to recognize Dick briefly. So Scott, take it away.

Scott Morris -- President, Chief Operating Officer & Co-Founder

I'm actually going to ask Cathal Walsh, who is one of the other founders who doesn't get to kind of get in front of you guys quite as much. I Wanted to ask him to come up. So Cathal actually now works with us in Europe. If you guys don't know him, he is a force of nature. And I mean that in every aspect of the word, and he's been an incredible partner. And the reality is we won't be standing here today if he didn't contribute along the way.

But we do want to recognize -- we do want to recognize Dick for all his contribution. So Dick and I have actually worked together for 18 years, which is pretty amazing, across two different companies. And when you work with someone that long, you get to know that person really well and when there are challenges and difficult and tough times, you really, really get to find out what someone is made of. And they don't make people any better than Dick. And I worked with him for the 18 years and we look forward to working together for many, many more years, so, obviously be involved in Freshpet and who knows what else in the future he'll be involved in, and pursuing.

But along the way, quite honestly, Cathal and myself created many, many challenges and some time some difficult situations for Dick, potentially and Dick was always there to be supportive and helpful and he always kind of helped clean up quite a bit for us. So we thought maybe it was appropriate to have a one of a kind, Golden Pooper Scooper. And as you can see -- you may not be able to see in the back, but it does say "place large pile here". So once again, Dick, I mean the contributions that he has given, made to the organization, unquestionably, we really won't be here today if Dick wasn't a part of the organization for as long as he has been. And again, he will play a critical role going forward and be involved with the organization and we really look forward to working with him further and his counsel and his wisdom and his partnership and his friendship, most importantly. So thank you again, Dick.

Questions and Answers:

William B. Cyr -- Chief Executive Officer

At this point. I guess we will take questions from the room, is that right? Okay. All right. Jason, there is a microphone right there. Oh, you want to use this? All right. Jason, do you like my dog? Is that working? There we go.

Jason English -- Goldman Sachs -- Analyst

Okay. That was the trick. Thank you so much for the detail. I guess where I'm left with some unanswered questions is really about the cash cost to get there to 2025. Because if I do the quick math on finishing 2025 like around 3 times net leverage, at $750 million, you should generate at least $500 million of cash from ops, kind of implies you may burn through north of 1.2, 1.25 on capex to get there, which is way more than I was expecting. Is that right? Or maybe we'd just get right to the heart of it. What are you expecting to spend on capex and what's the cadence?

William B. Cyr -- Chief Executive Officer

So we aren't laying out the specific cost because we're early in the planning phase. We've given you the cost of Kitchens 2.0. We've already paid for the Kitchen South, that's already been floated through the balance sheet. We're working on refining exactly what the costs are going to be for the facility and as we kind of scope out the size, we're doing a lot of work, we got some rough numbers on it, but I don't want to make it sound like it's going to be small, because that facility, when we build it, we have to put in all the basic infrastructure, the systems and parking lots and all the basic stuff for the first three lines that go in there. We will pay for that out of our, both the cash that we have available from operations as well as on our balance sheet and we would consider equity if we needed equity to fill it.

Jason English -- Goldman Sachs -- Analyst

Okay. So there is [Technical Issueas] I'm going to try to pin you down on this. Yeah, it sounds like that's not too high of a number for us to be using.

William B. Cyr -- Chief Executive Officer

For you -- I'd have to go through and look at the components then I'll think if you have a point of view on that. Better come over here because the mic -- they need to hear you on the phone.

Richard Kassar -- Chief Financial Officer

[Technical Issues] the number, the 10-K of $300 million for the first three lines and we are now kind of evaluating where to go next.

William B. Cyr -- Chief Executive Officer

Rupesh.

Rupesh Parikh -- Oppenheimer & Company -- Analyst

Thanks. So first, going back to a longer-term addressable market. I just want to get a sense of how you guys factored in the competition and how you factor in the economic conditions as well -- the economic environment.

William B. Cyr -- Chief Executive Officer

Yeah. So competition, when you create a market size, you assess what is the potential market that's out there. Theoretically somebody else can come along and be participating in that. If you look at the history of these things, you will get a competitor at some point. There will be undoubtedly be a competitor and normally the market ends up being, the guy who came first, if he executes well, he ends up with 80% of the market. The next guy comes along picks up 20% of the market, again generalizations. But if you think about the way we thought about the addressable market, even at a $1 billion, we're selling at 40% of the total addressable market. So there is room for a lot of expansion on top of that.

In terms of change in the economic environment, the economic environment we assume -- you have to assume it's somewhat static. There'll be periods that are good and there'll be periods that are bad as you go along. But we did look at how the category performs in a bad economic environment. In fact category is very resilient. It's incredibly resilient to economic swings because as people cut things out, the pet food is one of the last things they cut out. I don't know if you have anything to add to that.

Scott Morris -- President, Chief Operating Officer & Co-Founder

No, I totally agree. I mean, it's in the cycles. I mean, you can kind of look at the growth of pet food and I shared like a 4% CAGR. It is pretty amazing how resilient it has been during some of these kind of upsetting or down kind of economic times. People will cut out kind of more luxuries, and you guys have probably heard me talk about this before, but the idea, I'm going to cut out like newer clothes or jewelry or trips etc, but to cut out food for my child, right? As we talked about, I think that's really one of the last places that people will turn to. Could our growth slow slightly? Yes. There is a potential that it could slow slightly by a couple of points. But over time it will catch up.

Rupesh Parikh -- Oppenheimer & Company -- Analyst

And what...

William B. Cyr -- Chief Executive Officer

Go ahead.

Rupesh Parikh -- Oppenheimer & Company -- Analyst

Yeah. Just -- just one follow-up question. So on the gross margin line. So obviously in Q4, they came below your expectations. So as you look at your forecast for this year, is there anything you did differently, building more conservatism or just your confidence in achieving gross margin guidance out there?

William B. Cyr -- Chief Executive Officer

Well, I'd say, first of all, from an operating perspective, one of the things that we've now reflected in the going forward is a change in the process that was designed to make us less volatile. I won't go into the details of it. But to suffice it to say that part of the volatility we had this year was as the system -- we probably could have spent a little bit more to make it a little bit more static. But we are now spending and the way we're spending on it is, think of it in terms of amount of time you spend doing sanitation and the amount of extra processing that you do. But it gets us to the point where you take some of the ups and the downs out of the system.

And so once you build that cost in, your risk or your variability is greatly reduced, and we did that. I'd also say that as Ivan described it incredibly well and I don't think we properly introduced Ivan. Ivan is our VP of Finance, very talented guy, been here since prior to the IPO. But we asked him to take a look at -- as you think about the work that we're doing with Kitchen South, make sure that we plan conservatively for what those costs are going to be, because as he said it very well. It's a new facility in a new place with new people, there is a lot of newness that has to be perfected and I think we've captured it. We'll see.

I think the thing is, most surprising on the gross margins is we were very -- we're disappointed about the lack of progress that we've made there. But when we actually sat there and looking at the chart, it's like a pretty tight range over time and most people looked at that and called that stable. We were disappointed but it's a fairly stable gross margin, and that's sort of what we're projecting going forward.

Richard Kassar -- Chief Financial Officer

We gave up production for quality and that's the most important thing. Our reputation is the most important thing. So normally we would have sanitation for X hours a day and we've decided to up that.

William B. Cyr -- Chief Executive Officer

Bill.

Bill Chappell -- SunTrust Robinson Humphrey -- Analyst

Yeah. Two questions, first just the goal of 25% EBITDA margins getting scale when you had $1 billion in sales. I mean, few years ago we were kind of talking about those margins at $300 million or $400 million in sales, so is there a reason why you can't hit 25% at $900 million? And as we get past $1 billion in sales, is there a reason why 25% is the ceiling?

William B. Cyr -- Chief Executive Officer

Yeah. So first of all, the margins that we talked about for $300 million or $400 million of sales, was on the gross margin line and all the pickup that we've gotten has been out of SG&A. And what we're showing from 2020 to 2025 is almost entirely on the SG&A side. It's showing relatively static on the margin side. There is a lot of good stuff happening on the gross margin side, but we have the headwinds on mix that was described in some of the outsourced part of the manufacturing process. Could you get there at $900 million? A lot of it is scale dependent. I think that's what Heather showed you as a lot of that SG&A absorption is scale dependent.

But we also, as you might imagine, planned a little bit conservatively around that as well. We have a pretty tight operating mentality on SG&A of -- you had this much for wage inflation, organization expansion year in and year out of this much and sales is at a significantly higher level and the chart shows, we've delivered that pretty consistently for last several years and we're projecting that out through 2025. So I feel pretty good about it. Does that mean there's more beyond $1 billion? Probably. But you're starting to get till your'e pretty well operating at scale. And one of the things that we have to start thinking about is, we have a very tightly focused business in the U.S., I mean it's a single brand, the classes of trade that we're in, while they're diverse, it's -- we don't have a complicated selling system. We don't have a lot of people doing trade promotion management, and a lot of back-office that's related to that.

The minute, our business has a significant skew out of sight of the U.S., we have to put a new organization infrastructure. You'll have an increase in the SG&A that's associated with that. So we have to balance all those factors.

Bill Chappell -- SunTrust Robinson Humphrey -- Analyst

And then just follow up on the new products. I mean if you look at every other pet product on the shelf, they have a specific product for puppies and then regular dogs and then for weight management and for elderly dogs, but you don't. And a lot of [Indecipherable] and the vet channel have [Technical Issue] for arthritis or stuff like that, priced stuff. Now, you seem to kind of have a one size fits all, which could be the nature of the product, but I mean is there a plan to try to migrate consumers up or to bring more consumers for need-based in there or is it really just, we're just trying to build households right now that's two, three years, fours years down the road?

Scott Morris -- President, Chief Operating Officer & Co-Founder

Over time, we -- the first goal is to basically cement the idea of fresh refrigerated food for as many people as possible, especially when you're dealing with a single cooler. The most productive SKUs aren't those ones that have unique need states. Over time, you saw an example, we do have puppy and the most likely SKU and a lot of the second coolers, is the puppy SKU or the sensitive stomach SKU. So there is more and more of those SKUs that are going to be going into our second and third coolers. That is not just an opportunity for us to look for space. This is an opportunity for us to kind of innovate and give a broader portfolio to individuals. And we will sell out all of those kind of unique need states for different consumers over time, but we also want to make sure that we're using our space as productively as possible.

So we're being trying to be really thoughtful around that and the work that the team is doing -- it's not -- we're not just sitting around kind of doing the numbers. We're asking the team every single person on the team in every single-function you saw today. We're asking them to create what does your business -- what does your area of responsibility look like over the next five years. So we shared kind of snippets of different things, but everyone's thinking through what does the portfolio look like, what is the -- what does our overall business look like in five years from now and you'll definitely see more of those types of products coming.

William B. Cyr -- Chief Executive Officer

Ben.

Ben -- Analyst

Thank you for all the details on 2025. One thing that I didn't pick up on was and, maybe it wasn't mentioned, was competition. What do you have baked in there? What are your assumptions for what some of the larger pet food manufacturers that are not currently in fresh are going to do to sort of -- I mean it's such an incredible category, you compare yourself at the beginning to some of the most successful companies in the history of the world. That's going to...

William B. Cyr -- Chief Executive Officer

That's us.

Ben -- Analyst

Yeah. Yes, that obviously will attract some other people into the business.

Scott Morris -- President, Chief Operating Officer & Co-Founder

So I -- the thing that's interesting is, when we did our work or like when we've done all the modeling and all the work around the consumer and what the potential is, that's based on us investing in the category. We actually could see a potential where this cat and I'm still showing you kind of 8%,10%, 12% of households. There is a real chance that in the future, if there is a second or potentially even a third player, this literally could expand the penetration of the growth of Freshpet food significantly over kind of our anticipated growth rate. So we could see the category getting much, much bigger.

I definitely -- I mean, think about it today, just back up, forget about us for a second. There could be a world where 25% to 30% of the pet foods sold in the U.S. is a fresh or refrigerated type of food and in that scenario, as Billy mentioned, when those incremental investments come in and the pet category really does take the shift, yes, it will kind of change our operating dynamics and we've been trying to be thoughtful of that and take those into consideration in our business planning, but we've -- we recognize that it will be a bigger piece of the pie. And we think that we're positioned to kind of take the biggest piece of it potentially over time.

William B. Cyr -- Chief Executive Officer

The other thing I would add to that, which is the one of the things that I've seen is, I've said it before, when you have a category like this that's defined by somebody new and somebody else comes in along the way, the market splits, as I said earlier, ends up looking like it's an 80-20 split. You also see the market grows faster. The added competition you invest in, as Scott said, you end up with a much more rapid rate of category growth. So, the guy who is the category creator actually ends up with a bigger business than he otherwise would have ended up with, but it's a 80 share of the category.

The thing you have to see is then what are the practices of that person that comes in. If that person comes in with a low priced alternative and turns it into a price game, they skim off a different kind of consumer and you have to figure out how to respond to that. If they come in with a super premium priced product to try to take off the top-end, you'll react very differently to that. We did a very exhaustive look with our Board last summer at who are all the potential competitors, what are the assets that they would bring, how might be approach this category and the conclusions you would reach would be very different depending on who that competitor was.

So in terms of developing our modeling, we had to do it based on what we would do and what the market was and leave ourselves room, so that we knew that even if somebody else is in there, sharing some part of the market in some way, that there is still plenty of room for us to hit our numbers.

Scott Morris -- President, Chief Operating Officer & Co-Founder

So one other example, so over the past three years, there was a competitor that came into the business, they -- we competed head to head with them in HEB, I've shared a little bit of the story. They came in at a lower price anywhere between 10%, all the way to 40% lower price on a kind of per pound or per feeding basis, it was a fresh refrigerated food. They are now gone. They've been eliminated from HEB. I think that there could be other opportunities for someone to come into the category, but one of the things that we've done is not only from a branding standpoint and a positioning standpoint and a pricing standpoint, like I've shown in that pricing chart, we've actually covered a fair array of the category and the different positioning that consumers are interested in and that potentially people would compete in.

And so I think we've kind of stayed to good territory from a branding and positioning standpoint and, look, it's definitely -- does it make you invincible? Absolutely not. But I think we're in a very kind of envious position at this point to compete with, if someone does show up. The real reality of this is not easy. Not easy at all. It took us -- I've showed you the phases of growth. It took us many, many years and hundreds of millions of dollars in order to get here.

If I was going to show up at a major organization and say, hey, I want to launch a Freshpet food business and this is going to be an interesting opportunity for us and I need about $300 million or $400 million in order to do this, they'd say, oh! it's interesting, what are your year one revenues? Ought to be at least $25 million. And I've done many, many launches in the pet food category, $25 million or $40 million is a out-of-the-ballpark success when you do a year one launch. What's your year two revenues? Maybe $45 million, $50 million. What are your year three revenues? Maybe $75 million or $100 million. So now, they've invested that amount of money and the first case that they have to make, think about the cost of that first case and the scale benefits that we get as we grow.

So there's no perfect answer here. I will say that we think we are -- again, we are kind of well-positioned and we're looking forward to kind of growing the business as fast as we possibly can, because we want to be as -- has much of a head start as we can, if someone does come into the category.

Richard Kassar -- Chief Financial Officer

In Australia, we talked about it as 25% of the market and the guys who first came in, in Australia they'll own 80% of that 25%.

William B. Cyr -- Chief Executive Officer

Mark.

Mark Astrachan -- Stifel Nicolaus -- Analyst

Thanks. Wanted to go back to Jason's question in part. So when you show your chart of capacity and demand, it still seems like going up to 2025, it really wasn't as with as much cushion as I think you probably would want. I guess the question on a going forward basis is, how do you think about that once we even get to 2025? I mean I appreciate that it's five years from now, but if you get where you want to get, you're still going to have that same problem and it's going to be this expectation that have more spend so, can it get more efficient than how you're thinking about Kitchen South, that's obviously more of a co-packer relationship, why can't you do that more with the existing businesses? What do you hope you all potentially can learn from what you're doing in Texas, you don't have to do this going forward?

Scott Morris -- President, Chief Operating Officer & Co-Founder

Let me just start with the start of the beginning of the premise of your question. In that chart, we end up in 2025 with $1.3 billion in capacity on a $1 billion business, and so there is a fairly significant amount of cushion, assuming we fully built out the Ennis side, as we've -- as we've mapped it out. And that's the first piece, there is the room. Second is, you have to remember, unlike many other people in the CPG industry where you need to have capacity in excess of demand because you have a lot of variation in your demand, our demand is incredibly consistent because people feed their dogs the same amount every day. And once we acquire a consumer, they remain fairly loyal and we don't do any price promoting. So we can run up closer to the capacity line, more so, than almost any other CPG business an just because of the dynamics of the space that we're in and the way in which we operate this business.

But in terms of getting out ahead of this, the way that curve is working is, it gets us about a year ahead on capacity. But because we have a bigger facility in Texas that we can add the lines in, it gives you the ability to accelerate that rate if you need to accelerate as opposed to where we now are, we had the greenfield Kitchens 2.0, it's a greenfield the Kitchen -- the next Kitchen. But one of the things that -- when you're talking about, are there things you can do whether it's like Kitchen South where you could be a little bit more efficient, we're going to learn a lot from that. We've literally just started that up last month, or I guess this month -- literally just started up. We have conversations going with a partner that we were doing that and we really like what's going on there, but we have to see how that unfolds and there could be another avenue, another option for us. I clearly mapped that we put a second line on this schedule and that's certainly one of the options.

The other piece is, I wouldn't downplay the opportunity we have to reinvent the way we make Freshpet food. We mentioned several times today that we hired somebody to go work on that, Haroldo [Phonetic] and Lynn Bingham, who we hired have been doing some really cool experiments and the simplest way I can describe one of the things is, if you lay out Freshpet line out today, it's about 405 feet long from front end to back end. That's a big line with lots of unit operations in it. But the value add part of that operation is probably only like 100, 105 feet or something. It's not a lot of the operation.

So they're looking at ways in which we can completely shrink that down and become a lot more efficient, produce a higher quality product at a lower cost and probably end up having less capex that goes with it. That's part of why we're building Ennis in phases, as we want to leave the room open that if by the time these guys finish piloting that work, they can come back and say, you know what, we want to put in completely different lines that are completely different than what we've done before. So the next phase of that facility gets built out differently.

Richard Kassar -- Chief Financial Officer

And that is not budgeted.

Scott Morris -- President, Chief Operating Officer & Co-Founder

Yeah.

Richard Kassar -- Chief Financial Officer

That's on the budget. So if we have any of those breakthroughs, those things will be accretive.

William B. Cyr -- Chief Executive Officer

Bob?

Robert Moskow -- Credit Suisse -- Analyst

Hi, thanks. Two questions, I just want to make sure I want to check Jason's math also. It's a dangerous thing to do, but you did say that...

William B. Cyr -- Chief Executive Officer

That's only 27 pages.

Robert Moskow -- Credit Suisse -- Analyst

Yeah. But the leverage limit you said was 3 times. Is that right?

William B. Cyr -- Chief Executive Officer

Yes.

Robert Moskow -- Credit Suisse -- Analyst

So if you have a 25% margin on a $1 billion, that's $250 million of EBITDA. So does that mean that the most that you would want is $750 million, is that a fair number? So, was that -- in terms of cash cost if Ennis is only $300 million, how do we get like above $1 billion in cash costs on top of that as just the ongoing cash flow being negative for the next few years, is that how we get there?

Richard Kassar -- Chief Financial Officer

Well, the capital that we need to spend based on this lay out from now is around $400 million.

Robert Moskow -- Credit Suisse -- Analyst

I'm sorry, how much?

Richard Kassar -- Chief Financial Officer

Around $400 million.

Scott Morris -- President, Chief Operating Officer & Co-Founder

Going forward.

Richard Kassar -- Chief Financial Officer

Going forward. So we're talking -- we have an estimate of $300 million for Ennis. We spent about $55 million already on 2.0. So we got about $50 million to go. And then the Kitchen South cost us, as we said $15 million. So this is non-chiller capital. So that's about $365 million between now and 2025.

Robert Moskow -- Credit Suisse -- Analyst

Okay, so I'll just have it with Jason later on his $1 billion...

Richard Kassar -- Chief Financial Officer

Jason is very accurate, we've experienced his stuff for many years.

Robert Moskow -- Credit Suisse -- Analyst

Oh, he's very accurate. Well then I'll just use his number. But the next question was on platforms. You mentioned three platforms and I just want to make sure I get the nomenclature right, you have roasted meals, fresh from Kitchen and then the rolls. Is that the -- is that it for platforms or is that new item that you showed us what looked like a TV dinner[Phonetic], is that -- is that another platform on top of that or...

Scott Morris -- President, Chief Operating Officer & Co-Founder

We would consider that and some others as potentially other platforms over time. And we also want to make sure that when we do Ennis, that will obviously have kind of what our kind of core businesses. Right? The rolls and the bags and there are some different forms that are within the bags, but also opportunity that if there are other forms that are really kind of taking off, we have opportunity to bring those up to significant scale.

Robert Moskow -- Credit Suisse -- Analyst

Okay, so is the idea that in order to get to a $1 billion, you do need new platforms to get to a $1 billion or do you think that these three will get you there?

Scott Morris -- President, Chief Operating Officer & Co-Founder

I think that they assist us and make us more efficient along the way. One of the reasons that our advertising and actually our consumer acquisition costs has actually been going down is because our innovation has been so good. So I think that's a multiplier honestly.

William B. Cyr -- Chief Executive Officer

The existing platforms and the existing distribution could be a dramatically bigger business but it gets there a lot faster if we do really relevant product innovation.

Robert Moskow -- Credit Suisse -- Analyst

All right, thanks.

William B. Cyr -- Chief Executive Officer

Thanks. Peter?

Peter Benedict -- Robert W. Baird -- Analyst

Thanks, guys. You mentioned that you're going to make it, I think you said, drastically easier to buy Freshpet online in 2020. Can you expand on that and when will we -- what would do that much easier to buy online?

Scott Morris -- President, Chief Operating Officer & Co-Founder

Yeah, so, at this point, I can't tell you specifically the action steps. But we do have them in the plan, and they will be announced within the next 120 days. You'll see kind of a clear different ability to buy from an e-commerce standpoint. And we are pretty enthusiastic. We also know that this is going to improve, like, when we have out-of-stock issues, it's going to improve that. There's also frequency challenges that some people face, not being able to get to certain stores in a timely period. I think it's going help with that and really significantly expand our buying rate. So can't expand on at this point, but I would say that, we wouldn't put Jake leading this up if there wasn't anything to do.

Peter Benedict -- Robert W. Baird -- Analyst

I guess the next question, how do you weigh the benefits of the increased capacity from the Kitchen South with the risk of kind of the process is now stepping a little bit out of in-house? And do you think about that? Is that a risk or not really?

William B. Cyr -- Chief Executive Officer

Yeah. And it's -- you know, it's interesting, we've done a lot of work and I didn't put it in the slides because we had a lot of slides. But one of the things that we've done is we have -- the way we've been able to build this business is not just the internal competencies but we've actually found partners all along the way that have been close partners for many, many, many years. And I think someone mentioned the term co-pack. We don't think of Kitchen South as co-pack whatsoever. It is -- it's our line, it's our equipment, it's our room. No one else can even come into that room without it being basically a Freshpet batch. So it's really our space. And we think that that's kind of the right model. We've also taken technology that we think is the least proprietary, in all honesty, at least proprietary, and brought it there versus some of the most complex things that we do.

So we feel good about that, but it all goes back to, it's literally the partners that we've had in place for many, many years that we trust, that we feel good about can keep a secret and take care of our business and trust it just the way they would take care of their own.

Scott Morris -- President, Chief Operating Officer & Co-Founder

I would add to that, though that there is another piece besides, what do you have to protect, but it's also what do you want to get, and it's not just capacity. The people we pick and our knowledge and our expectation is the combination of their knowledge and our knowledge is going to teach us how to do that particular product line at the small size, small bag-sized products more efficiently than the way we do them today. And so our hope is that, by the time this operation is fully going, that we'll be better than where we were before, not just another place to make Freshpet but a better way to make Freshpet and that would probably inform us as we look at Ennis Phase one or Phase two about what we might want to do differently there.

Peter Benedict -- Robert W. Baird -- Analyst

And then just last question, I apologize if I missed it, but as part of the $1 billion target, where is international figured in that? I mean, I think you said it was 4% of sales today and is 10% too high. Do you need -- at what point do you need a facility over in Europe?

William B. Cyr -- Chief Executive Officer

So we've assumed in developing to the $1 billion that it was proportional to the business as the business grew within and expand its opportunity. The opportunity is clearly there and, Cathal is sitting over there and so I have to be careful because my expectations for him are higher than what I'm going to tell you. But the reality is that we think there is a huge opportunity to take the model that we perfected in the U.S., apply it in the U.K. and grow much, much more rapidly and then prospecting on the continent, but we didn't want to build our forecast on that basis. So our forecasts are almost entirely based on a U.S.-based dog food business.

Now if you also -- if you think about where we are, we will be making investments going forward in order to enable that. We had to do it in a prudent manner, kind of late in as you get learning and say it's worth going to the next step and we won't do that unless we see the size of the prize being fairly big. But that's sort of the way we're thinking about it. Nate?[Phonetic]

Nate -- Analyst

Thanks. Just two questions related to, I guess the gross to net on revenues and gross margins. One is, I think if I heard it right there is no -- you're not really expecting to be promoting going forward. And so I guess as you think about the life cycle of the product in household penetration, why would that not be the case because at some point price becomes a barrier to get into household and we've seen it in some of these other categories that you mentioned at the beginning, that's the first question. I have a follow-up. Yeah.

Scott Morris -- President, Chief Operating Officer & Co-Founder

So it's -- I think what we've demonstrated is we can be highly successful with the model today and continue to grow very, very aggressively with the model the way it is. There is always going to be a group of consumers -- if you have a group of consumers that are not -- is not saying that your pricing is too high, you're probably priced too low in all honesty. We've done it where we've tried to make it as widely as accessible to as many people. We think that when you do pricing, what you do is -- and I've studied this in many, many packaged goods businesses, you typically lower the loyalty over time and I think it's disruptive to especially a fresh business model. We think that there is a long runway in front of us the way we operate and there is always going to be people that are asking for a lower price. The reality is, there is a great value here and there's an incredible consumer market opportunity in front of us. I think we need to kind of stick with that model.

William B. Cyr -- Chief Executive Officer

I would also just add to that, which is that the opportunity for pricing is to move somebody from a comparable good over to your good and that makes a lot of sense if you're all just selling bags of cable or cans of dog food, but there is nobody who's selling something like ours. So the ease of switching from one to another is not very great. So I don't know -- it doesn't make a lot of sense for us to discount to pull people over and only in essence, pull them over on the basis of price. We'd rather track them based on the proposition because once they get there, the hesitancy to change your dog food is really high. You just don't want to have digestive upset. So once we get them, we want to hold them. But we don't want price to be the thing that holds them.

Nate -- Analyst

The second question is just the leverage on the coolers and I think if I understood, Heather has build -- as the volume -- as the coolers get bigger and there is more volume going through the coolers, the cost to serve, essentially comes down. I guess my question related to that is what we've seen in like the soft drink industry as Coke and Pepsi is focused more on adding coolers and the complexity of the coolers have changed. There is more variety, more products, different velocity products. They've actually had to go back and add resource, so smaller outside -- actually more feet on the street servicing those coolers. So I'm trying to understand if it becomes more complex, why wouldn't you move to have more resources there to make those coolers...

William B. Cyr -- Chief Executive Officer

Well, let me just make sure because there is a -- having been in the business, part of theirs is not addressing the coolers but it's supplying them and what not and they have a lot of infrastructure that's built around that. We shipped through warehouse system into the fridges. So we're only talking about the maintenance cost of the fridges and the maintenance cost that we apply to the fridges is through a third party. And so the more we can get density, in essence, route density around those fridges, the more efficient it gets. So if they show up at a store and there's two fridges, one that's had an issue and second one that needs preventive maintenance, they can do -- they can do that on the same stop, as opposed to in a less concentrated market, where they go to this store and the next one is 10 miles away or there is not a second fridge in the store. It gets to be a much, much more expensive service operation. So it's a little bit of a different model than what you see in the beverage business.

Nate -- Analyst

Thank you.

Scott Morris -- President, Chief Operating Officer & Co-Founder

So one other thing, Nate, I think may be helpful and interesting. We actually have had the reverse. So we actually -- we had all different sized coolers, height wise, we had all different scenarios, we tried out anybody who had a cooler, we tried out their models. And the reality is we still have a lot of those over time, we're consolidating down and we're actually trying to get down to manufacturers for the most part and a simplified offering of fridges in almost every aspect, because I don't necessarily want to be Southwest Airlines, but there is definitely a model there from an efficiency standpoint in every aspect of how we run our business, how we think about it, planogram it, whole parts, service, etc.

William B. Cyr -- Chief Executive Officer

Brian over there, and I will come back over here.

Brian Holland -- D.A. Davidson -- Analyst

Quick question, excuse me, about the sales per household to buy rate that you have built in going forward. Studying similar adoption models, you see that the early adopters or the earliest adopters seem to be the most loyal. You have a pretty mark to ramp. I'm just curious what the construct of your buy rate looks like, how much of that is comprised of just continuing loyalty or building loyalty whatever you're seeing with each subsequent wave of adopters or is it more large dog in the mix and you are planning to attack those opportunities.

Scott Morris -- President, Chief Operating Officer & Co-Founder

So what we've done is, we've looked at historical groups of consumers, how they've come in and how they've grown. We understand in each year, what the kind of number of consumers that we have coming into the franchise and the reality is, as we grow further and further out, there is a larger and larger pool of consumers that are sticking with us and that are buying more and more of our products. We also see people kind of graduating from some lower-priced items to actually not only more in total but actually higher-priced items and additional kind of products with different features and benefits, addition of treats it might be, etc. So overall, we're looking at that buying rate historically and kind of it going forward consistently increasing at a fairly set rate is how we've thought about it.

We've also, when we looked at it, the consumers that look to come in, in the future, actually have many aspects that are -- demonstrate high loyalty and actually higher buying rate, you mentioned large dogs, it will definitely be a component of it. If you have two Golden Retrievers and two Chihuahuas, think of the amount of the consumption. Even if those people on the Golden Retriever end are mixers, we're still going to get more dollars for that household over time. So there's several different factors we try to look at and kind of anticipate and model going forward.

William B. Cyr -- Chief Executive Officer

Part of the work that we did do, as you can think about, Brian, if we have to grow from where our guidances for 2020 to 2025, you have to grow 27% kind of CAGR to get there. You're going to get some part of it on penetration and some part of it is going to be based on the buying rate and as we've shown over the last two years, the more rapidly you have the penetration go up, it causes the buying rate to go flat, but when we had periods where we were flatter on -- or not as aggressive a growth on the penetration, we saw the buying rate going up in 10%, 11% range.

And so the simplest way, it's not exactly mathematically right, but the simplest way is, the sum of the two growth rates has got to get you to 27%. Right now, we're running at a growth rate on the core dog business, which is increasing share of our business over 90% of our business is running at 30%. So you can actually have a negative buying rate between now and then if you continue to grow the household penetration at that rate, negative increases in the buying rate over time and still get to the $1 billion number. Yeah, Jon?

Jon Andersen -- William Blair & Co. -- Analyst

Could you talk a little bit about your in-store merchandising conditions? I'm curious how the technology you described earlier going into the fridges could help reduce out-of-stocks, what your expectations are in terms of timing and kind of the benefit that, that can provide. Thanks.

Scott Morris -- President, Chief Operating Officer & Co-Founder

So those are going into test right now. It's a scalable technology. We've worked with the people that really kind of invented this and help or helping them to really kind of scale this out. I think we're adding like -- I think with many of our partners, I think we're adding kind of new ways for them to think about how to utilize it. We don't know the exact improvements. But I think that it's fair to say that if we know that there is a fridge with consistent issues because we're seeing that those pictures, we can really kind of focus our efforts where today, it's a very, very kind of difficult model out there to understand what's going on.

And we will actually have the potential to have better visibility of what's going on in that fridge than the retailer will in that store, because we'll have kind of eyes, kind of, we're calling it the Eagle Eye Project. We'll literally be able to have eyes on that fridge every single night, if we want to look at what it is. So we'll take that those pictures and once we deploy specific people and I use the term like Uber, right. So basically supply and demand. So we'll send the resources or the people that can help fix retail to that specific store and hopefully remedy the core problem that's causing those out-of-stocks over time.

Also, the other thing that's very interesting is, as you continue to increase the dollars per store, which we had every single year for the past probably 10 years, the dollars per store, when you all of a sudden have a store that swing $500, $700 or $1000, it allows you to think very differently about the resource you'd apply to a store doing a $1,000 a week versus a store doing $150 a week. And think about, if you did a small improvement in the store doing a $1,000 a week, it's pretty interesting how those resources pay back quite quickly. So that's kind of, as we gain scale and as we have increasing sales to those fridges, it really changes our thinking on how we kind of service those fridges and think about them.

Jon Andersen -- William Blair & Co. -- Analyst

One quick one, it kind of comes back to -- we've talked about it a couple of times already. But if you look at the consumption growth over the past several quarters, then the absolute growth has been terrific and the level has been consistent as well, but the mix velocity versus maybe ACV or distribution growth has changed with more moderating velocity growth and an increase in ACV. Can you talk a little bit more about what's driving that and would you expect that to change going forward as some of the newer stores that you've acquired, newer households but mature into the brand?

William B. Cyr -- Chief Executive Officer

First of all, I want to be -- make sure we have the definitions right. That number that we share in the charts that you're referring to, it's not a pure velocity measure, it is a velocity measure in the sense that it's down $1 million per million ACV. But that's not the same as same-store sales, which is what most people are thinking about it. If you're a retailer, who is selling Freshpet today, and you're looking at your same-store sales growth, you're still seeing very, very healthy numbers on the same-store sales basis. But when we add a lot of new distribution late in the period and you divide the net sales across that new distribution, the millions of dollars per million ACV drops, so you don't have the same rate of growth, but if you're one of the retailers looking at us today, you're not worried about your same-store sales. You're feeling pretty good about the same-store sales.

We are going to see peaks and valleys along that. The fourth quarter of 2019 was a blockbuster for us on new distribution and it's not just the quantity that went in, it's frankly, also the fact that retailers did it in the fourth quarter. In the fourth quarter, they usually don't want to touch their stores at all. So the fact that they went in and did it says that they saw a big opportunity. What we modeled for 2020 was much more in line with our historical performance. We could be surprised, somebody could come and say, I really want to go all in now and there are some places where that could happen but we modeled at a much more traditional level. And if we had that traditional level going forward, you'd expect to see us having the reported $1 million per million ACV that looks like it look like at the end of '18 and the beginning of '19.

Scott Morris -- President, Chief Operating Officer & Co-Founder

The quality of the ACV we added has been...

William B. Cyr -- Chief Executive Officer

Phenomenal.

Scott Morris -- President, Chief Operating Officer & Co-Founder

Very, very strong. Over time, we don't expect -- I mean, we know ACV is going to increase. But this is truly a consumer penetration based model that's really kind of the focus on how we're thinking about it and how we're building it out over time. Will we continue to pick up ACV? Yes. The more important factor actually over time will be kind of the what idea of visibility. So it's not just a, I have a fridge in a store. It's, what type of fridge? Is it a bigger fridge or is it a second fridge? And those will be kind of significant contributing factors over time so yeah.

William B. Cyr -- Chief Executive Officer

We have a question over here.

Unidentified Participant

I was curious, as ownership of small dogs has grown faster within like the pet category, has that benefited Freshpet and if so, how much -- can you quantify how much of your growth has benefited and what you see as the trend going forward?

William B. Cyr -- Chief Executive Officer

So I do think that, that trend -- if you think about the relationship with a small dog and a larger dog, it is a slightly different relationship. And so I know we talked about dogs in general today, but there is a little bit more of a doubting behavior in small dogs. The trend we see over time, is there will be more and more smaller dogs. When I say -- I'm not talking about tiny, tiny dogs, but overall, smaller dogs and less really large dogs. That's another potential win behind our back over time. I talked about pet population in general, but that's another kind of benefit that we can see over time. I don't think we can specifically attribute the growth that we've gained to the exact change in the pet population. But we do know that, that is helpful to us over time.

Unidentified Participant

And I have another question. Could you share with us what your share of voice is in the media, your media spend within?

William B. Cyr -- Chief Executive Officer

I have not looked at that lately. And we're very, very proud of our advertising levels of $24 million, $27 million, $30 million a year, but it is a tiny -- we are tiny, tiny amount of what's going on in the category. There's almost $1 billion is a number I have often heard in pet food advertising over the course of the year. So we have a very, very small share of voice, but the thing, I think it's important is, the dollars that we spent have been able to be incredibly productive and predictable over time and we know what the exact -- I've mentioned the CAC cost, the consumer acquisition costs. We know exactly what we get for the media spend and I think John tried to illustrate a slide. We're not thinking about media today and just playing it forward. We're testing things 12 to 18 months out to put us in a position where we know that the performance will maintain and stay very, very strong. In addition, we're testing things well outside of media to make sure that if at an early point, media does change dramatically, that there is other opportunities for us to continue to build our business and gain more and more consumers into the franchise.

Some initial testing has demonstrated that we've been able to take -- completely eliminate media and on, like specific stores in a couple of markets, we've been able to grow share and dollars and get a great return off of some of these alternative tactics. So it gives us comfort that have -- literally typical traditional TV does somewhat go away that we have other means to gain consumers into the franchise.

Unidentified Participant

And then just one follow-up on that. So I think one of the takeaways from CAGNY was that the other large CPG companies that have animal divisions want to increase the branding efforts and more marketing going forward. so, I guess, how would you protect your ROI in face of that?

William B. Cyr -- Chief Executive Officer

It is pretty interesting, probably over -- and Blue Buffalo has really been extraordinary in the amount that they have increased. So when we kind of take a step back and look at it, there has been a massive increase in television advertising and kind of mass advertising over the past five to seven years. We've been able to kind of keep pace and keep our growth rates going in light of that. I think that those major investments, I don't think you'll see quite the extraordinary ramp up that you've seen from some of the players like a Blue Buffalo over the past five to seven years. I don't think you'll see quite that ramp up and I think we'll be able to maintain and actually grow our share of voice, which just to your prior question, with the investments that we planned out over time. Just because of our growth rates, it gives us the ability. It's one of those benefits of scale that Heather has touched on a little bit.

Richard Kassar -- Chief Financial Officer

A question in the back of the room over here.

Unidentified Participant

Hi guys, just a quick one from me. Just on your forecast, GM kind of being flat going forward, if you look at the industry, it's kind of grown like on a value basis, it's growing like 3% to 4%. If you assume 1% of that as a mix benefit coming through and kind of work your way down just back of the envelope, you've got kind of 150 basis points of benefit at the GM line coming through from Kitchen 2.0. Could you just kind of help me work through like the balance of what's offsetting it? You've talked to bringing on capacity like a year forward and then also the bags being a headwind, but can you kind of quantify that for me?

Richard Kassar -- Chief Financial Officer

Yeah, I can handle it. You know when Heather showed our chart basically, she said, you know [Technical Issues] opportunities stuff happens. We do have the Fresh From the Kitchen line where we're going to go from 50,000 pounds, 55,000 pounds a day to the new line in 2.0 and go over 90,000 pounds a day, which would pick up about 600 basis points about on 20% of our product line. But we've experienced and you can see it during the year, further processing, more cleaning stuff that kind of hit you and it hits you and as, basically Billy said, yeah, we're in the 49% to 50% range [Technical Issues] those buckets. When we laid out the five-year plan, we kind of just said, all right, let's just keep it at 51%. There's a lot of stuff going on. We're going to be doing a lot of hiring, we're going to be doing a lot of training as new people come on.

The new line doesn't come on -- every line does about $100 million in sales. So we're not going to be at $100 million of sales, day one. So you're not going to be perfectly efficient on labor and overhead until you get to add to those scales. So, we laid out 51%. We know we have stuff coming that could probably enhance that, but we have experienced that other stuff occurs, that kind of takes that down. And we just felt that, let's not push the envelope.

Unidentified Participant

Okay. I guess just a follow-up to that. So what you're saying is, and then in a steady state you'd expect that to be a couple of basis points hold out, once you stop, not that you necessarily would, once you stop putting on still and putting on more stuff...

Richard Kassar -- Chief Financial Officer

Absolutely. I mean, we said we would be $300 million and $60 million and we could do that at 1.0, OK? But we're not doing 1.0 now, now we're going to 2.0. So we've got investments to make with more media to spend, we would have spent a lot less media in 2020, if we were just trying to hit $300 million.

Unidentified Participant

Thank you.

William B. Cyr -- Chief Executive Officer

Any other questions? So at this point, we'd say thank you very much. Katie, are there boxes or anything out there? Box, box?

Katie Turner -- Investor Relations

Yes, Billy. There's also totes.

William B. Cyr -- Chief Executive Officer

Oh, yes. So we have gifts -- parting gift for everybody and box lunches. I guess the box lunches are over there. Where are the totes? Over that way. So you get your lunch and then you get your tote on the way out. But thank you for coming. We very much appreciate it. Take Care.

Scott Morris -- President, Chief Operating Officer & Co-Founder

Yeah, thanks everyone for your time. Really appreciate it.

Duration: 253 minutes

Call participants:

William B. Cyr -- Chief Executive Officer

Scott Morris -- President, Chief Operating Officer & Co-Founder

Richard Kassar -- Chief Financial Officer

Katie Turner -- Investor Relations

Jason English -- Goldman Sachs -- Analyst

Rupesh Parikh -- Oppenheimer & Company -- Analyst

Bill Chappell -- SunTrust Robinson Humphrey -- Analyst

Ben -- Analyst

Mark Astrachan -- Stifel Nicolaus -- Analyst

Robert Moskow -- Credit Suisse -- Analyst

Peter Benedict -- Robert W. Baird -- Analyst

Nate -- Analyst

Brian Holland -- D.A. Davidson -- Analyst

Jon Andersen -- William Blair & Co. -- Analyst

Unidentified Participant

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