Flowers Foods Inc (FLO) Q4 2020 Earnings Call Transcript

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Flowers Foods Inc (FLO 0.08%)
Q4 2020 Earnings Call
Feb 12, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. And welcome to the Flowers Foods Fourth Quarter and Full Year 2020 Results Conference Call. [Operator Instructions] After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]

Please be advised that today's conference is being recorded. [Operator Instructions]

I would now like to hand the conference over to your speaker today, J.T. Rick, SVP of Finance and Investor Relations. Thank you. Please go ahead, sir.

J.T. Rieck -- Senior Vice President of Finance and Investor Relations

Thank you, operator and good morning. I hope everyone had the opportunity to review our earnings release and presentation and also listened to our prepared remarks, all of which are available on our Investor Relations website. Following the conclusion of today's Q&A session, we will also post an audio replay of this call.

Please note that in this Q&A session, we may make forward-looking statements about the Company's performance. Although we believe these statements to be reasonable, they are subject to risks and uncertainties that could cause actual results to differ materially. And in addition to what you hear in these remarks, important factors relating to Flowers Foods business are fully detailed in our SEC filings. We also provide non-GAAP financial measures for which disclosure and reconciliations are provided in the earnings release and at the end of the slide presentation on our website.

Joining me today are Ryals McMullian, President and CEO; and Steve Kinsey, our CFO. Cindy, we're ready to start the Q&A, please.

Questions and Answers:

Operator

[Operator Instructions] And your first question comes from Bill Chappell with Truist Securities.

Bill Chappell -- Truist Securities -- Analyst

Thanks, good morning.

A. Ryals McMullian -- President and Chief Executive Officer

Good morning, Bill.

Bill Chappell -- Truist Securities -- Analyst

I was kind of struck by in the prepared remarks, the commentary of the growth on Wonder Bread, I mean almost as fast as Dave's Killer Bread for the year. And so, just trying to understand, I guess, a little more color around that because I would think that I guess, one, that growing faster than Nature's Own would be a negative hit to price mix, but obviously, you had very good price mix first in the quarter and the year. So, is that just taking share from private label and your store brand sales and so that's really driving it?

Is there anything else going on other than kind of a consumer migration up to a branded product -- met more similar price points and how sustainable is kind of the Wonder strength as we go into 2021?

A. Ryals McMullian -- President and Chief Executive Officer

Sure, Bill. Actually, we're very pleased with the Wonder growth. Most of that is going to be on the bun and roll side, not as much on the bread side, which is exactly what we want to accomplish. I mean, as we've talked about before, we were somewhat behind on our -- our branded bun and roll growth because traditionally, we had kind of a smattering of regional brands, the Sunbeams of the world, things like that.

We needed to get aligned behind a national brand to run national programs with national retailers and that's what we've migrated to over the last few years. So, as some of the regional businesses has fallen off intentionally, we've been able to grow Wonder quite nicely. So again, most of it's going to be on the bun and roll side and that's quite intentional.

Bill Chappell -- Truist Securities -- Analyst

Okay, that's -- that's helpful. And then are you seeing though, I mean in terms of general with the store brands continuing to be weak. Do you expect this migration up to more branded products to remain? Are you seeing any pulling back of that of consumers kind of going back to their traditional buying habits?

A. Ryals McMullian -- President and Chief Executive Officer

Not yet, not yet. And of course, that's one of the big questions for the year, right. It kind of goes back to the -- to looking at -- at potential mix reversion in total, but the private label trends that we saw in Q4, actually if you exclude the 53rd week, private label was actually a little bit worse sequentially in Q4 than it was in Q3. So, there's been no change in the trend yet, could see some of that later in the year, but obviously our focus is on branded growth, so putting support -- additional support behind brands like Wonder and Nature's Own, Canyon, Dave's, the rest of them is a key strategic priority for us.

Bill Chappell -- Truist Securities -- Analyst

Got it. And then one last one, Steve, I think we're all familiar that when you hear major ERP implementation with packaged food company, it's not always a recipe for success. So, I mean, can you just help us understand where the systems are or that process as part of the transformation office and -- and what kind of what you kind of expect to see coming out of that once it's done?

R. Steve Kinsey -- Chief Financial Officer and Chief Accounting Officer

Sure. Yeah, I guess, historically, I guess when you hear ERP initiative or upgrade, investors get a little bit spooked, but the reality is, I think over the past decade or so you've seen most of these to be very successful. We implemented SAP back in '20 -- back in 2000. So, it's been about 20 years and we haven't had or seen any major or significant upgrades within our system. Currently, we are on track to keep SAP as our overarching ERP system and they are in the midst of an upgrade with S/4HANA. So basically, we will be falling in line with that.

And so we're in the middle of selecting an implementation partner and after that point, we'll decide, which modules move into a true upgrade. But overall, we feel like with the transformation office and the plan we have laid out, we'll be very mindful and cautious with the approach. So, it's not like we're changing our ERP platform, it's really an upgrade of what we currently have.

A. Ryals McMullian -- President and Chief Executive Officer

And Bill, just to add to that, we -- we are pretty early in the process. I mean, we're, as Steve said, we're just, just getting the SI selected. So, it's early days, but it's also important, you saw in the prepared remarks to remember that this is not solely an IT project. This is, but a part of a broader digital strategy and the best way that I think you should think about it is that, particularly the ERP upgrade and the rest of the digital strategy are really going to be key enablers to the execution of our broader strategic plan, whether that's brand support or network optimization or plant upgrades.

To be quite frank, from an overall digital standpoint, Flowers is behind its peer group and frankly, its competitor. So, this is something that we've needed to do for quite a while. Obviously coming off of a very strong year, great cash flows, very strong earnings, this was a great time to make the investment.

Bill Chappell -- Truist Securities -- Analyst

No, I get it. And would we see the benefits this year or that's more next year in terms of some of these efforts?

A. Ryals McMullian -- President and Chief Executive Officer

Yeah, very little, but immaterial benefit this year. The investments will come this year, the benefits will follow in '22 and beyond and we will be more specific about that later in the year as the business case comes into clear focus.

Bill Chappell -- Truist Securities -- Analyst

Great, thanks so much.

A. Ryals McMullian -- President and Chief Executive Officer

Sure.

Operator

Your next question comes from Brian Holland from D.A. Davidson.

A. Ryals McMullian -- President and Chief Executive Officer

Good morning, Brian.

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

Yeah, thanks. Good morning, everyone. Good morning. So, I wanted to ask about the guide for 2021. I think Ryals, in your prepared remarks, you make reference that the guidance is in line with the targets -- with your long-term targets if you use 2019 as the base. So, I guess, I would think that this backdrop would be net favorable. Obviously, it was hugely favorable in 2020. Obviously mean reversion coming in 2021, but you still have a quarter of -- or at least two months here of what should be a more or less what we've seen in the past several months. And then even if we start to revert back, we still are going to have this mix of more work from home, it will be a progression toward herd immunity, etc.

So, kind of with that as backdrop, I mean, is it as simple as the commodity inflation and the investment in digital are going to be the offsets that keep us in line with algorithm as opposed to maybe saying above algorithm for another year, or if we're going to use the '19 to '21 trajectory, or is there something else we should be thinking about here in the way that you're forecasting out the year?

A. Ryals McMullian -- President and Chief Executive Officer

No, no, I think you're pretty much spot on. The only thing I would say is maybe a slight correction is the very bottom end of the guidance would be slightly below algorithm balance. Also remember, yeah, you've got an estimated nickel of digital investment that we're making this year that does -- that does burn that. We're not adjusting for that, but it is a factor to be considered. But that -- that $1.07 on the bottom end would be slightly below, but again, making the investments to enable us to be within or above algorithm over the longer term and so I'll say that first.

I think that the -- the factors for the year, I think, you've got all of those right. Not sure that I would put commodities at the top of that list. I think top of mind for me are two things. When and -- when does the mix reversion happen and to what extent does it happen, right. How deep is that mix reversion back toward, let's call it 2019 levels. I personally don't think it will go all the way back, but I do think that there will be some and the timing of that would impact ultimately where you fall in the range. That's number one.

Number two would be the promotional environment. Right now in the fourth quarter, things remain stable. I would say the same after five weeks into the -- into the new year, but as we move through the year and things revert back to normal to what extent does the category start to promote more to retain the gains of 2020.

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

I appreciate the color Ryals and if I could just follow-up on that last point. So historically, when I think about this category and I think about the backdrop for Flowers Foods, intuitively, the logic has been inflation is, is a net positive for Flowers because you compete against a disproportionate number of independent bakers who maybe don't use as much forward buying, don't have a sophisticated -- sophisticated hedging practice. So, maybe have to be responsive to higher wheat cost right away, which gives you either the flexibility to take price in kind and realize the higher spread or maybe kind of continue to manage given your hedging that maybe you're going to see that inflation a little bit later. You could be a little bit more promotional and you would take more share.

So, either way you sort of are in a favorable position. I guess, the inverse would be a little bit, would be true as well when we start to see deflation. But, so I guess maybe two things. One, is that an outdated logic as it pertains to the set up, and then two, if it's not, if it's still relevant then how do you think about managing that over the next 12 months? Is the focus on volume or is the focus on getting the price through and flowing that through to margins?

A. Ryals McMullian -- President and Chief Executive Officer

Yeah, let me start, I may ask Steve to weigh in here too. No, I don't think it's outdated logic. But I also think it's perhaps not quite as meaningful as it once was given the industry consolidation. I mean, there's just not as many independents as there used to be. Right. So, their influence is not quite as great, though it is still there and I think everything you said was accurate. I just don't think it's perhaps as impactful as it was a decade ago.

What I would also say is that and we've seen this throughout 2020 in particular that where we've been able to promote at a higher base price, we're getting more dollar lift from our promotions and I attribute a great deal of that to the capabilities that we built from a price promotion standpoint that we did not have before. In short, we're just a lot smarter about how we promote, where we promote, when we promote and we're able to get a better return on that. And I also think that the overall branded strategy really helps there too. I mean, we're working with really strong brands as you know and I think that goes a long way as well.

Steve, anything you want to add to that?

R. Steve Kinsey -- Chief Financial Officer and Chief Accounting Officer

No, I mean, Brian, we stayed pretty true to our philosophy and strategy that's worked I would say, fairly well for us for throughout most of my career. So, to Ryals point, we've -- we take coverage in that six to nine-month timeframe and obviously, some years that works well for us, some years as you say, be deflationary and we may recall it, but for the most part for 2021, we feel bit about the coverage we have on and off, we'll see inflation start to ramp somewhat in the late in the second quarter, but then it really picks up in the back half and that's really dependent on how the crops come out. So, there -- while we expect pretty significant inflation back half there may still be few opportunities there.

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

Understood. And again in your -- appreciate in your prepared remarks from last evening of the way in which you organized a lot of the initiatives and clearly you have a number going on. Some may take a little bit longer, some may flow through quicker. One that stands out to me, I don't know if it's my Philadelphia roots or maybe just some conversations I've had with you all offline, but really curious about the Navy Yard and the underperforming Snack Cake segment for you. If we could just kind of walk through, how quickly we think we can enhance the performance there with the new leadership and maybe a tighter focus on that and kind of what the mechanics are?

A. Ryals McMullian -- President and Chief Executive Officer

Sure, happy to do it. Well, I'm pleased to report that we're already making good progress. I mean, the changes that we've made, putting David up there to oversee these efforts, particularly at the Navy Yard, and frankly, the team that we have there at Navy Yard, they've really done -- they've really done a great job getting the operation on its way to turning around. We're not there yet, but we're really starting to see some nice progress, we saw it toward the end of the year and that's continued into this year. We have pretty significant target set for them this year, that if they are able to achieve and I have no reason to think they will not. As I've said before, that will be material benefit to the company as a whole, not just Navy Yard.

I think we've mentioned before, we've upgraded some equipment in that plant, put some capital dollars into it, automated some of the lines, particularly on the -- on the packaging and installed some robotics. That has helped a lot to bring the scrap rates down, which was a major issue there and a large source of the financial difficulties they were having. So, we're definitely on the roll in the path to recovery. We're not there yet, but we expect to see significant improvement there this year.

I'd also mention that we're not just doing things from an operational standpoint talking specifically about Navy Yard and Tasty now, but we're also doing thing all things on the commercial side. Simplifying the operations, we are doing skew there. We're focusing on price and promotion to make sure we have all that right. We're getting the required return. So, it's, yeah, it's a combination of -- a combination effort of both operational improvements and commercial improvements.

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

Appreciate all the color. Thank you.

A. Ryals McMullian -- President and Chief Executive Officer

Sure.

Operator

Your next question comes from Rob Dickerson with Jefferies.

A. Ryals McMullian -- President and Chief Executive Officer

Morning, Rob.

Rob Dickerson -- Jefferies -- Analyst

All right, great, thanks. Good morning. Thank you. Yeah, so just kind of question on M&A thoughts from here you know obviously, it sounds like you have a few moving pieces occurring this year and going through a larger optimization plan and few strategy, capex is up, but like you said Ryals, you ended the year in a great cash position, I think the best ever. Leverage seems to be fairly well contained. And then also your EPS target, I think long-run relative to sales and EBITDA target does include some M&A, right.

So, would you say, hey, given this, do you deem it kind of more of a transition year and kind of where the focus is internally that you may not be in a spot right now to be aggressively pursuing a healthy pipeline of acquisitions or at the same time, could you potentially as an organization, still be active with acquisitions while you're implementing the other pieces of the strategy? That's just the first question. Thanks.

A. Ryals McMullian -- President and Chief Executive Officer

Sure, Rob, and short answer, I absolutely think we can still be active there. I mean, I think that -- particularly not only have the transformation office setup and with the government -- governance protocols that we have in place to oversee all these strategic initiatives that we're in a better position to be able to flex. So, even if we have to pause something for a moment in order to I mean, M&A opportunities come and you've got to kind of strike while the iron is hot, right. The timing is not necessarily always at your choosing.

But I think we would have -- I think we would have plenty of flexibility to turn our attention to an M&A opportunity should that arise. I'm actually pretty excited about this year from an M&A standpoint. I mean, we are starting to see things begin to heat up again, sort of post -- post-crisis, if you will. A lot of things coming to market, a lot of rumblings about things to come down the road. So, the pipeline remains good. We will remain pretty disciplined about how we approach this, but the opportunities seem like they are -- they are starting to pick back up again.

Rob Dickerson -- Jefferies -- Analyst

Okay, great. And then just quickly and pardon me, if somebody else had asked, I unfortunately hopped on late. In the prepared remarks from yesterday, right, there is a line in there that states kind of, there are optimization savings of $30 million to $40 million. It seems like that's kind of more front-half loaded in the year. So, maybe if you could just -- this is probably for you, Steve, just kind of walk through why there wouldn't be incremental optimization savings in the back half of the year. That's one. And then two is, can there be upside from those optimization savings to hopefully potentially partially offset some of the promotional and just overall cost inflation risk later in the year? Thanks.

A. Ryals McMullian -- President and Chief Executive Officer

Sure. There are some benefits to the back half. It's just that the majority of them are coming in the first half. And Rob, this is basically a continuation of the portfolio optimization savings we got in the back half of last year. It's all the same initiatives on overhead and procurement and all those things we talked about last year. We just start to lap them in the second half of the year, which is why the benefit is not as great.

Rob Dickerson -- Jefferies -- Analyst

Sorry, if I could just slide in real one quick last one. It's just on kind of where you've seen the mix of the business go throughout the past whatever 10 months. Were there any kind of broad learnings that kind of would make you rethink where you want to play? Like that I am assuming you still want to have the capacity come back on some of that foodservice business and some of the private label business. But if it all didn't come back, would that necessarily be a bad thing for Flowers, just given what we've seen has happened with price and mix and margins?

A. Ryals McMullian -- President and Chief Executive Officer

Not necessarily, no. Look, as we've said, there are certainly pieces of our foodservice business that we really like and then there are some parts that are underperforming and we're working to get those up to snuff. But I think the key learning from 2020 is the power of mix and Rob, as we've talked about this was our strategy going into 2020, focusing on -- focusing on brands and trying to get a higher -- a higher mix of branded products in the portfolio, both organically and in future M&A deals.

2020 just really exaggerated that in a very meaningful way. But I think for us, the most powerful thing it did throughout the organization was demonstrate that power of mix to everybody, for me, all the way down to the organization because we are an older company, we've got a lot of long-tenured employees, there was a certain way of thinking here that kind of emphasized volume over value instead of the other way around. This really proved to everybody again, for me, to the distributor partners, to the folks at plants that mix matters and you don't need all that volume if your -- if your mix is positive.

Rob Dickerson -- Jefferies -- Analyst

Okay, perfect. Thank you.

Operator

Your next question comes from Faiza Alwy with Deutsche Bank.

A. Ryals McMullian -- President and Chief Executive Officer

Morning, Faiza.

Faiza Alwy -- Deutsche Bank -- Analyst

Hi, good morning. Thank you. So, I was wondering, I guess, a little bit of a follow-up to the last question on, but specifically on DKB and Canyon. It strikes me that those are sort of more longer-term growth drivers and I was wondering, how you were thinking about those two brands relative to the rest of the branded portfolio? Like is there a scenario where maybe this year those two brands can continue to grow, while you do see mix reversion on the rest of the portfolio? So, just more color around how you were thinking about the various pieces of the branded portfolio this year?

A. Ryals McMullian -- President and Chief Executive Officer

Sure, Faiza. Well, I mean, it shouldn't come as a surprise that both DKB and Canyon are obviously big -- big beneficiaries of our focus. They do continue to grow at a rapid rate. Obviously, Canyon is a lot smaller, being in a smaller category. I'm happy to report DKB is now over an $800 million branded retail and we just bought them back in 2015. So, the growth has just been -- has been extraordinary. But I'll say again DKB's household penetration is half of Nature's Own's still. So, there is a tremendous amount of room to continue to grow that awareness and as we grow that awareness, not only do we grow the DKB brand with the product portfolio we have today, but it also gives us a right to expand that product portfolio into potentially even adjacent categories.

So, I think the runway for growth for Dave's is tremendous. I similarly think that of Canyon, though it is a smaller piece of the pie. I think Canyon was around $120 million at retail, JT, this year, so great growth from them too but just on a smaller scale. But I think there is -- there is plenty of opportunity to continue to grow in the gluten-free category as well. Canyon has basically doubled its share of the gluten-free bread category to around 34 a share I think at last look, and of course, DKB has a 68 share of the organic bread category. So, we are in a significant position of strength. So, it's incumbent upon us to capitalize on that.

Faiza Alwy -- Deutsche Bank -- Analyst

Yeah. And I guess, as it relates to M&A focus, has anything, you seem pretty excited about the potential opportunities. Can you talk about what would get you most excited? I know at one point you laid out certain categories that you would want to be in. Is it sort of brands that are maybe sort of similar to the DKB, Canyon, sort of what type of opportunities would you be most excited about?

A. Ryals McMullian -- President and Chief Executive Officer

Sure. I mean, I can't -- obviously we can't comment specifically on brands. But what I will say is, we would be looking for things that look one, it fit strategically and it fit culturally. I mean. we're always bearing that in mind and obviously, the numbers have to work. So, you have to -- it has to fit financially. But beyond that, we are looking for -- for brands that are growing. We are looking for brands that can be complementary to our existing portfolio and help us grow the overall business and obviously, we're looking for assets that can be margin accretive, even if they're not at the outset, can they be and is there a good plan for them to be in the long term as they scale up and grow.

We have the ability to distribute both DSD and Warehouse. So, we're not just limited to DSD even though that is the bulk of our business. Warehouse models are certainly -- certainly no issue for us, it's really about, does it fit financially, does it fit operationally, does it fit culturally and does it complement the branded portfolio.

Faiza Alwy -- Deutsche Bank -- Analyst

Great. And then just last question for Steve. I know we've talked a little bit about cost inflation, is there a way to quantify, so how you're thinking about the inflation in the back half, sort of what's embedded in your guidance? And are there sort of any offsets that you are embedding beyond the portfolio optimization savings?

R. Steve Kinsey -- Chief Financial Officer and Chief Accounting Officer

I mean, we would not give specifics, but when you look at kind of what's happening within the wheat market, which primarily impacts Flower, which obviously is our largest input cost. That's where we're seeing the most inflation and historically, when you've had inflation with commodities, you've seen some pricing power. So we would -- we would hope to be able to mitigate -- if it continues to on the trajectory we are seeing now, we would hope to be able to mitigate some of that through pricing. But then also, as Ryals mentioned, we still have optimization efforts going on, we're looking at mitigation maybe in other offsets with input costs. But the reality is it looks right now that like most of that inflation has been on hold in the back half.

Faiza Alwy -- Deutsche Bank -- Analyst

Okay, thank you so much.

A. Ryals McMullian -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from Tim Perz with Stephens.

A. Ryals McMullian -- President and Chief Executive Officer

Morning, Tim.

Tim Perz -- Stephens -- Analyst

Two question, guys. Good morning. So, I just wanted to touch on guidance first, just how are you thinking about the cadence of the return to normal? How should we think about that impact on sales trends? And then, how should we think about the contribution of volume and price mix to your top line sales guidance?

A. Ryals McMullian -- President and Chief Executive Officer

Sure. Let me start with the cadence and I'll let Steve talk to talk to the mix. Look, it's a hard thing to forecast as we all know. But generally speaking, what we've seen so far in the year has been fairly similar to what we saw in the fourth quarter. There have not been any major changes yet. However, as you start to approach around week 11 or so, for us, that's when the difficult comps start against the initial surge in demand.

I think the real question is at what point do you get really broad vaccination rollout. I think, one thing that's come out in the last week is, Johnson & Johnson getting the emergency order for their doses, which would take it up I think to around 600 million doses, which would pretty much do it, right. But how fast is that -- how fast does that get rolled out and at what point do you kind of reach that herd immunity.

The latest things that I'm reading, suggest a Q3, Q4, you know herd immunity when you reach that but between now and then how quickly do things go back to normal and then the follow-up question is what is normal. What does the new normal look like. Is it a full reversion or is it something less than a full reversion. So, we think that things should trend around the same for the first quarter or so and then start to -- start to taper back in the three quarters that follow. So, that's -- that's pretty much what we've built into our -- into our guidance model. But obviously, that's an educated -- educated forecast and not set in stone. We'll just have to -- we'll have to see how it shakes out. I wish I knew, for sure, but frankly, none of us do.

So Steve, you want to talk to the mix?

R. Steve Kinsey -- Chief Financial Officer and Chief Accounting Officer

Yeah, I mean, basically, as Ryals said, from a reversion and mix perspective, mix has been a strong contributor in 2020. So, as that starts to wane somewhat, as we return to more normalcy that that will drive an impact overall margin. And the way, the kind of the cadence of the guidance is, as Ryals said, that really begins to happen in Q2 and then moving into back half, but this, it's kind of a jump ball. If -- if we continue to see a lot of in-home feeding continue that will be very, very favorable to the mix but you see a lot of confidence in consumer to start moving about again and dining out and obviously, that will drive the mix reversion back to something pre-2020.

A. Ryals McMullian -- President and Chief Executive Officer

Yeah, just to add one more thing to that, Tim, I mean, the midpoint of our -- the midpoint of our guidance is above algorithm and as we said, even that midpoint is burdened by our digital investment that we're making this year. So obviously, we're pretty confident in the plans that we have for the year. The bottom end of the guidance, that wouldn't be just a mix reversion. We're being a little bit perhaps cautious coming out of the gate just because of the lack of visibility, but what would get you to the bottom end of the guidance would be sort of all these factors, company get a much higher promotional environment, commodities are a pretty deep, mix reversion, but yeah, the mid to the top of the guidance obviously, reflects our continuing confidence in the strategy of business.

Tim Perz -- Stephens -- Analyst

Okay, that's helpful. And I just wanted to touch on a bigger picture question here. What were the biggest lessons that you've learned over the past year and do you think there is anything structural that you think might make Flowers a stronger company coming out of the COVID environment?

A. Ryals McMullian -- President and Chief Executive Officer

Yeah, I do. It's an interesting question. And I think we've already done a lot of it. I mean, we've, as you know, we've reorganized, we've created the Chief Brand Officer position, we've got a new innovation function, we have the transformation office now, we've hired a new Supply Chain Officer. Steve has hired a new Procurement Officer. So, I think we've done a lot of the organizational structure things that we need to do and I feel really good about the team that we have in place. As I say all the time, I think we've got the best team in the industry and I think with the changes that we've made we are even stronger.

As I mentioned earlier, I do think that this demonstration of the power of mix in our business is one of the most powerful things that's happened to the company over the last several years. It's been a learning opportunity for the company. It's allowed us to change the mindset of our -- the -- not only the management team, but the broader organization that focusing on brands and following our portfolio strategy is the right way to go for the long term and I think we can continue to build on that.

Tim Perz -- Stephens -- Analyst

All right, thanks guys. I'll pass it along.

Operator

Your next question comes from Mitch Pinheiro with Sturdivant.

A. Ryals McMullian -- President and Chief Executive Officer

Morning, Mitch.

Mitch Pinheiro -- Sturdivant -- Analyst

Hi. One question, just or two questions perhaps. The store brands, does this reverse in '21? Are we going to see store brands take share or have retailers sort of learned a good lesson during the pandemic that private label just devalues the category?

A. Ryals McMullian -- President and Chief Executive Officer

Yeah. You know, it will be interesting to watch how that unfolds. What I would say Mitch is that private label was in our category at least was in decline prior to the pandemic. Now the pandemic did accelerate that. But we were kind of seeing these trends even prior to 2020. The retailers -- if I were the CEO of a retailer, I would want to give the consumer what they want and consumers are obviously looking for brands.

They are looking forward on the shelf, the physical shelf, they are looking forward on the digital shelf and that's where our focus is. So again, I can't speak to what the retailers might be thinking, but if I was running one of them, I would want to give the consumers what they're asking for.

Mitch Pinheiro -- Sturdivant -- Analyst

Okay. And the second question is, just sort of -- you call out the higher promotional or the potential for higher promotional environment in the back half, you're not seeing it now. You haven't seen it. Why would it be a risk? I mean, what would be the and especially in light of maybe higher commodity costs, why would -- is there something that you are anticipating, or is it just calling out, you know, a typical risk for any packaged foods company?

A. Ryals McMullian -- President and Chief Executive Officer

Yeah, I think it's more of the latter. And certainly, we've heard of the food companies talk about it, some even talk about how they plan to be more promotional this year to keep the share they have gained through the pandemic. So, I think, it's just a watch out. You're right, we haven't seen it yet, but it's just a risk that we have to take into account. Should things very quickly revert back to normal, how much more promotional does the category overall get to retain that share and to what extent do we have to participate in that.

Mitch Pinheiro -- Sturdivant -- Analyst

Okay, that's all I have. Thank you.

A. Ryals McMullian -- President and Chief Executive Officer

Thank you, Mitch.

Operator

Your next question comes from Ryan Bell with Consumer Edge Research.

A. Ryals McMullian -- President and Chief Executive Officer

Good morning, Ryan.

Ryan Bell -- Consumer Edge Research -- Analyst

Good morning, everyone. Probably not the core focus right now, but could you talk about the foodservice business and your expectation for the recovery over the course of the year?

A. Ryals McMullian -- President and Chief Executive Officer

Sure. I think the foodservice recovery largely follows the question around what normalization looks like. What extent our restaurants opened back up. New York -- New York starting to slowly open back up but at a very low occupancy level. It really depends on what that trajectory looks like. Ryan, the fast food side of the business has performed pretty well actually. I mean, it's been -- it's been up a little bit, it's really still that broadline, sit down fast casual type business that remains under pressure.

If you look at the fourth quarter, again, excluding the 53rd week, foodservice non-retail and other for us, but that includes the foodservice business primarily was slightly better, but no meaningful recovery yet. So, I think, if you were to pin me down, I would say you probably start to see some -- some maybe more meaningful recovery in the foodservice business toward the back half of the year as supposed, I think the front half will tend to be more of the same.

Ryan Bell -- Consumer Edge Research -- Analyst

Thanks, that's helpful. And on the innovation front, is there anything that you would have in mind to help retain some consumers? I mean, if you're spending more time at home, it's easier say to justify having a whole loaf of bread versus if you're going to be having more time at the office. What that would mean? So, I mean, maybe innovations such as like half of loaf? Any emphasis behind that or anything else that may be you learned, you might want to focus on more coming out of pandemic?

A. Ryals McMullian -- President and Chief Executive Officer

Yeah, it's a great question. I don't want to be too specific for obvious reasons, but suffice it to say that we have a pretty significant amount of innovation coming this year. Our innovation last year, contributed some $60 million to the top line. So, we've been very pleased with those efforts. I think, the way that we've restructured in the resources, we put behind innovation, will continue to deliver it and hopefully at a faster rate going forward.

Ryan Bell -- Consumer Edge Research -- Analyst

Okay, that's helpful. And I think the last one for me. Could you talk about your expectation for the labor market and workforce cost in 2021? There's been some of the frontline costs that you've had associated with COVID. Is that -- does that just go away once you have the majority of the workforce vaccinated? How should we think about that?

A. Ryals McMullian -- President and Chief Executive Officer

I'm not sure that some of the cost and safety protocols are going to go away from a long time -- for a long time. I mean, despite everyone being vaccinated, you've got these other variants that are going around, there is probably going to be more of them as we get down the -- as we go down the road side. I personally think that we're going to be living with this in one way or another for quite a long time. What will help though for us is -- let me frame it this way. The biggest issue for us from a labor standpoint in 2020 was the number of people that were out, either because they had contracted COVID or because they had come in close contact and we were following our safety protocols and obviously, that, that disrupts our operations and your efficiencies are lower.

I mean, despite our performance in 2020, had the plants been able to operate at the efficiency levels they were capable of it would have been a lot -- it would be -- it would have been even better, significantly better. But you just had, you had so many people out. So, I am looking forward to that calming down. As a matter of fact, we've already seen it calm down. Our experience at Flowers kind of follows the national trends. The case counts are coming down everything. So, things are already beginning to normalize. We haven't really seen like pure wage inflation. But it's been more of the resulting inefficiencies from folks being out.

Ryan Bell -- Consumer Edge Research -- Analyst

Perfect, thank you. Have a good day.

A. Ryals McMullian -- President and Chief Executive Officer

Thank you. You too.

Operator

I'm showing no further questions at this time. I would now like to turn the conference back to Ryals McMullian for closing remarks.

A. Ryals McMullian -- President and Chief Executive Officer

Thank you very much, Cindy. Just wanted to thank everybody for their interest in Flowers and we look forward to speaking with you again next quarter. Take care.

Operator

[Operator Closing Remarks]

Duration: 40 minutes

Call participants:

J.T. Rieck -- Senior Vice President of Finance and Investor Relations

A. Ryals McMullian -- President and Chief Executive Officer

R. Steve Kinsey -- Chief Financial Officer and Chief Accounting Officer

Bill Chappell -- Truist Securities -- Analyst

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

Rob Dickerson -- Jefferies -- Analyst

Faiza Alwy -- Deutsche Bank -- Analyst

Tim Perz -- Stephens -- Analyst

Mitch Pinheiro -- Sturdivant -- Analyst

Ryan Bell -- Consumer Edge Research -- Analyst

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