Zevia PBC (ZVIA) Q4 2021 Earnings Call Transcript

Zevia PBC (ZVIA -2.39%)
Q4 2021 Earnings Call
Feb 24, 2022, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Hello, and welcome to today's Zevia's Q4 2021 earnings call. My name is Elliot, and I will be coordinating your calls today. [Operator instructions] I would now like to hand over to our host, Reed Anderson. Please go ahead.

Reed Anderson -- Investor Relations

Thank you. And welcome to Zevia's fourth quarter and full year 2021 earnings conference call and webcast. On today's call are Paddy Spence, chair and chief executive officer; Amy Taylor, president; and Bill Beech, chief financial officer. By now, everyone should have access to the company's fourth quarter and full-year earnings press release and investor presentation filed this morning.

Information is available on the Investor Relations section of Zevia's website at investors.zevia.com. Before we begin, please note that all the financial information presented on today's call is unaudited. Certain comments made on this call include forward-looking statements which are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subject to a number of risks and uncertainties that could cause actual results to differ materially in those described in these forward-looking statements.

Please refer to today's press release and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. During the call, we will use some non-GAAP financial measures as we describe business performance. The SEC filings, as well as the earnings press release presentation slides that accompany today's comments and reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures are all available on our website at investors.zevia.com. And now I'd like to turn the call over to Padraic Spence, chair and chief executive officer.

Paddy Spence -- Chairman and Chief Executive Officer

Thanks, Reed. Good morning. And welcome to the fourth quarter and full year FY 2021 earnings call for Zevia PBC. I'd like to begin by discussing our performance in the fourth quarter of 2021 as well as full year 2021, in light of the extraordinary year we had completing our IPO and operating amid the ongoing challenges of the COVID-19 pandemic.

Zevia market's great-tasting, zero-sugar, zero-calorie beverages with simple, plant-based ingredients. We are focused on reducing global sugar consumption by offering our products in sustainable packaging at an affordable price. In the fourth quarter of 2021, we continue to transform our organization, adding key executives, expanding our distribution into new channels, introducing value-added new additions to the Zevia line, and removing costs from our supply chain as we scale. Management's priority is executing our long-term strategic plan, and later on today's call, our president, Amy Taylor, will provide additional detail on our long-term initiative.

The Zevia brand continues to grow rapidly, and in 2021 we added $1 million new households to our consumer base, according to consumer panel data from Numerator. Our consumer metrics show continued progress in attracting new consumers, retaining existing Zevia consumers, and increasing per household spending. All key indicators of our brand's health. At the same time, the Zevia management team is focused on enhancing unit economics.

As we are experiencing inflationary pressures on input costs, like many consumer packaged goods companies, through a combination of pricing actions, mix shifts, scale benefits, and cost optimization programs, we're confident in our ability to mitigate the impact of these cost headwinds. In the fourth quarter of 2021, Zevia continued to double-digit net sales growth we've achieved for the past decade. We delivered net sales of $34.2 million, representing 23% growth versus the fourth quarter of 2020. This was a combination of 22% volume growth and 1% growth in price mix.

The pricing actions we announced to the trade in the fourth quarter of 2021, which were 6% for soda and 6% to 8% for our innovation product lines were not reflected in these figures. We anticipate continued price realization through 2022, and believe that we have the ability to implement further pricing actions should conditions merit. Regarding the components of our 30% long-term growth algorithm, I'll breakout Zevia's performance in the fourth quarter of 2021. Of our 23% net sales growth, velocity drove 6%, a shortfall of four percentage points versus our 10% goal.

Incremental distribution in core food drug mass and natural channels accounted for 4% growth versus our target of 5%. And regarding distribution in new channels, we grew approximately 13% versus our 15% target. In terms of gross profit, we achieved $13.8 million for the fourth quarter, representing a 40.3% gross margin. The reduction from last year's 42.1% margin can be mainly explained by a cost of goods per equivalized case increase of 3.5%.

We believe we have effectively managed the cost headwinds that many of our beverage peers are facing. Adjusted EBITDA loss for the fourth quarter of 2021 was $5.3 million. For full year 2021, Zevia achieved net sales of $138.2 million, an increase of 26% versus 2020. Gross margin was 44.3% versus 45% in 2020 and adjusted EBITDA loss was $8.7 million.

Zevia's net sales momentum is continuing as we begin fiscal 2022 and we anticipate that the combination of velocity initiatives, new retail distribution, and price realization, will accelerate our growth through the course of 2022. As such, we expect net sales of $36 million to $38 million in the first quarter of 2022, which would reflect growth of 17% to 24% versus the first quarter of 2021. On a full-year basis, we anticipate net sales of a $177 million to $182 million or 28% to 32% growth versus 2021. Our growth in the fourth quarter of 2021 was fueled by continued expansion in consumer purchasing metrics.

Numerator consumer panel data for the 52 weeks ending 12/31/21 indicates that Zevia grew our household penetration 4.7% in the year-ago period to 5.4%, a 15% increase. This was driven by a combination of strong retention of existing Zevia brand purchasers, as well as growth in new households purchasing the brand. During this period, buying rate for household purchasing Zevia also grew from $30.35 to $32.44, a 7% increase. The buying rate among Zevia's retained brand buyers in 2021 was even stronger at $63.67, highlighting how we are intensifying purchasing with buyers who remain with the brand year over year.

Zevia's strong focus on execution gives us conviction regarding the brand's ongoing runway for growth. We believe that channel expansion and innovation, which expand accessibility and consumption of the brands, are two key levers for continued growth and our progress in the fourth quarter on these metrics was significant. In the fourth quarter, we also made gains across a number of key ESG or social impact metrics. Zevia's primary mission is to reduce global sugar consumption, in the fourth quarter of 2021, we estimate that we eliminated nearly 3,000 metric tonnes of sugar for our consumers' diet by replacing legacy sugary sodas.

And in our history, we estimate that we eliminated over 74,000 metric tonnes of sugar. Replacing single-use plastic beverage packaging is another key area of focus. And in the fourth quarter of 2021, we estimate that we eliminated over 40 million plastic bottles from littering our roadways or waterways in our communities by selling beverages exclusively in aluminum cans. Lastly, affordability is a key priority for the Zevia brand.

In the fourth quarter of 2021, Zevia's products were priced at an average retail cost per ounce of $0.07, representing the 36 percentile within all non-alcoholic ready-to-drink beverages, excluding dairy and non-dairy protein. Zevia is less expensive in 64% of non-alcoholic beverage options and affordable for a broad range of income levels. Now, I'd like to turn the call over to Amy Taylor, our president, to share Zevia's continued progress on key strategic initiatives.

Amy Taylor -- President

Thanks, Paddy. We focused on implementing our long-term strategic plan crafted at the end of last year as a newly public company. The plan was framed and continued to be built by a combination of veterans and new key talent in senior roles and critical functions who have been and will be key to our expansion, continued growth, and margin realization. One fundamental focus area is unit economics.

We've implemented a price increase across packages, categories, and channels, an average of 6% across our soda lines in retail and e-commerce in the U.S. and Canada, and an 8% increase in energy drinks and tea, again, across channels. Price realization will begin at the end of Q1. We believe we have additional pricing headroom based on our relative affordability versus peers, retailer acceptance of recent pricing actions, upcoming product, and package launches, and the strength of consumer loyalty to the Zevia brand.

I'll revisit price again when we speak about innovation in a moment. Unit economics going forward will be further supported by comps and supply chain savings realized through collaboration with co-pack partners, freight efficiencies, and continued improvement in efficiency with variety of repacking. New initiatives included, number one, increasing the number of locations where we produced 10-pack soda on our key lines and our kids' lines as we grow distribution of those items, optimizing freight route; two, additional repacking and distribution centers show the reducing freight for fast-growing e-commerce and club business. There are a number of other scale benefits we will continue to realize as we grow, including Canadian freight efficiencies increased full truck utilization, and reduced inventory levels.

The second area of focus in strategic planning is product innovation and marketing with a focus on expanding the Zevia consumer base. In late December through February, saw the total brand Zevia, Live Your Best campaign, which supported new distribution and increased in-store presence without increasing promotional spend. In addition, we improved overall campaign efficiency, greater reach, fewer dollars versus prior year. A good indicator for future marketing investments.

We launched two new energy drink flavors in the market, Strawberry Kiwi and Pineapple Paradise, with distribution in approximately 3,000 outlets. And rolling into market now are three new and improved flavor profiles in our citrus flavor, orange, lemon lime twist, and mountain Zevia, across existing and new customers in natural food and mass, and this summer in club. In the second quarter, we will begin selling Zevia soda in single cans for the first time in a 12-ounce fleet format available cold at several grocery retailers in the deli grab and go and open-air perimeter coolers to reach new shoppers. Launches are supported by efficient, low spend trial driving initiatives in the form of retail marketing, in-store activations, digital sampling, selective local grassroots marketing, and investor in social media activations.

As two of many tactical examples, we will execute broad sampling initiatives in Warehouse Club channel in February and we will place approximately 1,000 new pieces of equipment, racks and coolers, for example, in stores starting in March and April. And then the final focus in the strategic plan with immediate impact that I can highlight is our channel strategy. We are focusing on top accounts and expanding our presence with national retailers, leading with top soda flavors, and then bringing in adjacent categories which drive interest in the brand and bring new shoppers to the franchise, Kidz, mixers, tea, and energy. Our channel strategy outlook is as follows.

Soon we are expanding presence and leveraging new items and new path formats to reach new core through shoppers. We will take our core soda line into the perimeter of the store as our new 12-ounce sleek can sellers will be available cold, in a scaled pallet display program featuring a variety of six pack of the flavors will increase our presence off-shelf at a number of regional, natural, and conventional grocery chain. Over 2,000 retailers will also feature summer LTO six packs in front of store displays from Memorial Day through July. Over 300 new stores will be selling Zevia's kids as shelf reset in March and April.

And finally, we are introducing 12 packs into the market. Already one major regional grosser, adding two more in Q2 for future scaling nationally. All of these developments drive presence and velocity in food to support our growth algorithms. In mass, we are focused on driving distribution, developing the right pack mix, and on expanding beyond soda.

We will gain 13,000 new points of distribution in April, driven largely by moving from five flavors to a brand block 12 flavors, and moving from six packs to a cardboard-wrapped eight pack in the CSD aisle in one of the two major players nationwide. With this, we increased space with that customer by 50%. We've also achieved significant distribution gains with our kids' line, which is now nationally distributed in both major mass chain. In Warehouse Club, we're focused on building out distribution and driving trial to a new household.

Zevia gained national distribution at Sam's Club in the fourth quarter, activate selected rotations in Costco, U.S., and now in Q1, a nationwide placement at Costco Canada. The incrementality we discussed during our third-quarter conference call has increased and now 65% of our purchases in Warehouse Club channel are now the new Zevia brand. The club story is quite a compelling one for the retail as well. Media is bringing new consumers to the CSD category, as more than 75% of the Zevia buyers in the Warehouse Club channel are making this first soft treat purchase at the store.

These figures demonstrate the role that Zevia can play in continuing to add incremental dollars as well as value-added shoppers to CSD category sales. In addition to introducing new households to a broad range of Zevia flavors, we believe our variety pack purchases will result in increased sell-through of individual flavored, multi-packs, and other channels. In drugs, we've added a new customer in Rite Aid with 500 stores selling Zevia in Q4, broadening our presence in that channel. Our 2022 outlook reinforces our confidence in our 30% net sales growth algorithms.

New items, an increase in in-floor presence drives velocity as seen in food and math, new package formats, and expansion beyond soda win new stores, as demonstrated in the mass channel, and new channel distribution guards volume and incrementality, as with Warehouse Clubs. We're introducing high-margin premium pricing zero sugar, naturally sweetened soda singles. As a trial package, offering consumers a chance to try Zevia soda flavors for less than $2. We're simultaneously expanding our multi-pack offerings, creating a price load with packaging formats for every level of Zevia consumption.

We have clear plans to further improve unit economics, to take pricing actions as conditioned merit, and to strengthen our price loads, and to trade moral consumers up to larger pack sizes. And with that, I'd like to turn the call over to Bill Beech, our CFO, for a review of our financial results.

Bill Beech -- Chief Financial Officer

Thanks, Amy. We continued our strong top-line growth in the fourth quarter of 2021 with net sales of $34.2 million, an increase of 23% over the fourth quarter of 2020. Our two-year growth rate from Q4 2019 to Q4 2021 was 52%. And on a full year 2021 basis, net sales were up 26% over prior year.

Our net sales growth was primarily for the unit volume which increased 22% in Q4 and 25% on a full-year basis. We announced pricing actions in the fourth quarter, and we'll begin achieving price realization from these actions at the end of the first quarter of 2022. Cost of goods sold per equivalent case in the fourth quarter of 2021 increased by 3.5% versus the same period last year, and increased 2% on a full-year basis versus 2021. We believe this reflects a lower exposure to inflationary headwinds on commodity ingredients.

Zevia, as a brand that uses simple plant-based ingredients, contracts for most of our inputs, and as such, is less subject to price swings for commodity costs. One area of our cost of goods sold that has been impacted by a combination of inflationary headwinds and supply tightness is aluminum cans. And we remain confident in our opportunity to continue to mitigate these headwinds. Fourth-quarter gross margin was 40.3%, compared with 42.1% in the fourth quarter of 2020, reflecting mixed spend inflation factors.

On a full-year basis, gross margin was 44.3% in 2021, compared with 45% in 2020. Turning to operating costs, selling, and marketing expenses in the quarter were $3.2 million higher than in prior year. Zevia experience $1.4 million of increased transportation costs due to overall net sales growth and higher freight rates, and the challenging transportation market in the U.S. and Canada.

Marketing expense increased by 1.1 million, reflecting our increased investment in growing the Zevia brand. General and administrative expenses in the quarter were $3.2 million higher than prior year, primarily from costs associated with being a public company and to support our growth. These costs include increases in D&O insurance premiums, annual audit and tax expenses, staffing, and support services. On a GAAP basis, consolidated net loss was $37.4 million in the fourth quarter of 2021, and $87.7 million for the full year 2021.

The losses in the fourth quarter and the full year were primarily driven by non-cash equity-based compensation. We recognized non-cash equity-based compensation of $31.9 million in the fourth quarter of 2021, and $77.7 million for the full year 2021, largely related to Restricted Stock Unit awards and Phantom Stock awards that generally vest as a result of the expiration of the initial public offering lockup period in January 2022. Adjusted EBITDA loss in the fourth quarter 2021 with $5.3 million, compared with an adjusted EBITDA loss of $1 million in Q4 of 2020. On a full-year basis, adjusted EBITDA loss was $8.7 million, compared to adjusted EBITDA income of $3.3 million in the prior year.

Turning to the balance sheet, Zevia had $73.1 million of cash in short-term investments at the end of the fourth quarter. Inventory at $31.5 million represents a DIO of 140 days higher than historical levels as we continue to hold elevated levels of inventory to ensure high service levels in the midst of the North American aluminum can shortage. On the liability side, we had no debt. CPO recently closed on a $20 million asset-based line of credit with Bank of America expandable as of $30 million to answer our available liquidity.

Looking to the future, we are reaffirming our long-term guidance of 30% net sales growth. For 2022, we anticipate net sales of $177 million to $182 million, representing 28% to 32% growth over 2021. For the first quarter of 2022, net sales are expected to be in a range of $36 million to $38 million, an increase of 17% to 24% compared to the first quarter of 2021. With that, we will conclude our prepared remarks and open the line for questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question today comes from Ben Bienvenu from Stephens. Please go ahead.

Ben Bienvenu -- Stephens Inc. -- Analyst

Hey. Thanks. Good morning, everyone.

Paddy Spence -- Chairman and Chief Executive Officer

Good morning, Ben. Thanks for joining.

Ben Bienvenu -- Stephens Inc. -- Analyst

So I want to ask about the rollout of your products at club channel and you talked about the introduction of picking up a lot of new households. Can you talk a little about the behaviors you're seeing with respect to repurchase rates, overall spending levels, the buy rate? And what do you think that pertains for continued expansion in that channel and then the read-through kind of halo effect to other channels?

Paddy Spence -- Chairman and Chief Executive Officer

Absolutely. And I think -- it's a great question. When we think about the club channel ban, it's channel expansion that is fueling not only profitable transactions, but actually trial activity in new shoppers for the Zevia brand. So, in the club channel, over 65% of our purchasers are new to the Zevia brand, so it's highly incremental for us.

As you know, we're selling variety packs in that channel and as we've seen in e-commerce, variety pack purchases then generate single flavor purchases in multi-packs, both in brick and mortar and in e-commerce. In the e-commerce channel, literally 50% of our purchasers online also purchase our brand in brick and mortar. They spend an average of three times what a brick-and-mortar buyer spends. So it's still early days in the club channel, having just entered there, but we're seeing as I mentioned, very strong incrementality in terms of the Zevia brand where 65% of those consumers is new to the brand.

And then on the flip side, what's really fascinating about this merchandising is that we're actually bringing new shoppers to soft drinks in Warehouse Club. So literally, greater than 75% of the purchasers in the club channel are making their first soft drink purchase in that club outlet. So, it's fantastic for our brand in terms of incrementality. Again, early days, but we think that it's going to lead to single-flavor purchases across other brick-and-mortar channels.

And then it's also highly incremental for those club retailers as we're bringing new shoppers with a value-added brand and simple plant-based ingredients. So hope that's helpful?

Ben Bienvenu -- Stephens Inc. -- Analyst

Yeah. It is. Thank you. And then, Amy, I was intrigued by your commentary of placement of product of kind of single-served immediate purchase, grab-and-go format.

How leverageable as you implement and monitor the progress of that sort of occasion, how leverageable is that as an insight as you look to apply that both to other channels, thinking specifically convenient stores as you try to market that product to perhaps distributors to immediate consumption channels. And can you talk a little bit about the rationale thought process behind making that move?

Amy Taylor -- President

Yeah. Thanks for the question. I think the answer in short is quite leverageable and you're reading the tea leaves in terms of our rationale. So previously, a shopper had to pay let's call it $5 to enter the Zevia world for a soda, right? And now a shopper can try a flavor for $2 and therefore part with $6 or less to try three flavors.

And so we're -- we have the opportunity not only to get in the perimeter of the store to show up cold with single-serve, plant-based, zero-sugar soda for the first time in an attractive package but also to do so with multiple flavors with an easy trial package. And so in doing that, we can test out merchandising, pricing, and availability in the natural channel and in food, cold, and take those learning both in terms of pricing, merchandising, marketing and get some shopper data, that's all leverageable to go into immediate consumption more traditional media consumption channels, including convenience, that's exactly the idea. So we see this as a win for us immediately in terms of velocity, shopper insight, and volume with our heaviest shopper and natural and where we have proof points in food. And then it's very leverageable for our expansion plans into convenience and beyond.

Does that answer your question?

Ben Bienvenu -- Stephens Inc. -- Analyst

It does. It does. Thanks. And just one quick one for me on the aluminum cost.

How impactful do you expect that to be? Obviously, if we look at the commodity markets, they're exceptionally inflationary even more so today with energy a political conflict escalating. So to the extent you could talk about the sensitivity to that dynamic would be helpful. Thank you.

Paddy Spence -- Chairman and Chief Executive Officer

Yeah. Absolutely. I can speak to that, Ben. I think clearly we're seeing continued turbulence in the can market.

I would say we are seeing a loosening in terms of availability. And so if you think back over the last 18 months, availability was a real challenge. And so Zevia as well as many of our peers were sourcing cans from around the world and with pretty significant freight costs associated with bringing those cans to the U.S. market.

So we are seeing a loosening there, we're able to source U.S. manufactured cans without freight. So notwithstanding the elevated aluminum market, we're seeing some tailwinds from a cost perspective. We do continue to hold empty can inventory because availability and safety stock is really key.

And so then as we start to burn down that inventory through the course of this year, we will see some tailwinds from reduced inventory levels. So we're continuing to monitor inflation and commodity costs relative to aluminum. As noted, we did announce pricing actions in Q4, we're going to see that realization and we're confident that we have the ability to continue to take price as conditions merit. So we'll continue to monitor aluminum, but I think we're feeling good, certainly from an availability standpoint and we're seeing some future tailwinds in terms of costs.

Ben Bienvenu -- Stephens Inc. -- Analyst

OK. Thanks so much. Best of luck.

Paddy Spence -- Chairman and Chief Executive Officer

Absolutely. Thank you.

Operator

Our next question comes from Alton Stump from Loop Capital. Your line is open.

Alton Stump -- Loop Capital Markets -- Analyst

Good morning. Congrats on the results. I just want to ask and I do apologize, I had to hop on maybe late here. But as mentioned pricing action in the fourth quarter, any kind of rethrough yet at if you're seeing any push back or if your point is there just a lot more customer willingness to pay higher prices given that cost is absolutely going up for pretty much everybody right now.

Amy Taylor -- President

Yeah, Alton. So we have communicated -- so the only pricing action that is in the market in the fourth quarter was around our 10 pack and we did not have any push back on that neither from retailer nor from the consumer. And so that supported our price slope as we continue to trade consumers up with advantageous pricing with larger packages. And then in the fourth quarter, we communicated pricing action that's forthcoming and going into the market really now at the end of this first quarter.

And again great receptivity from the retailer as, of course, competition continues to margin up and take price all around us. So we're able to maintain our affordability, which we mentioned earlier is in the 36 percentile among all non-alcoholic beverages and then continue to improve profitability as the market moves. And so you'll see pricing on a consumer level, we'll gain insights on the results of those actions in the second quarter and beyond and we do believe there's headroom for further pricing action through the year. So great receptivity from a retailer standpoint and not surprised there because the pricing action we're taking is consistent with the market and consistent with I think consumer expectations from a premium brand as well.

Alton Stump -- Loop Capital Markets -- Analyst

Great. Makes sense. And then just one follow-up, and then I'll hop back in the queue here. But just update on your online platform which you guys talked about in past about Amazon, you being the best-selling sort of drink in that market.

Any update there on the kind of growth potential moving over the rest of 2022 and beyond?

Amy Taylor -- President

Sure. Yeah, we remain the No. 1 carbonated soft drink on Amazon, not just in zero-calorie space, but across the board. And we continue to grow there and introduce new packs there.

Amazon was the first to take our two new energy drink flavors and we continue to experiment with different combinations on variety packs, and Paddy mentioned earlier the performance that Amazon offers as a trial driver for us as we see the trial on Amazon translates into increased purchases not only on that form but a platform in brick and mortar as well. Another big opportunity for us in growth is on the second biggest dot-com player, which is Walmart.com, and then brick-and-mortar dot-com as well. So the brick and click pickup business for us with our traditional retailers, as we grow more sophisticated as a selling organization, we can unlock a lot of growth by taking our Amazon and Walmart.com learnings and applying those across other traditional retailers in their dot-com business. So fast growth still in e-commerce.

We anticipate it continues to hold its portion of our mix if not greater. And there's a lot of organic growth to be had there as we learn about the right pack mix and pricing in those spaces.

Alton Stump -- Loop Capital Markets -- Analyst

Great. Thanks so much.

Operator

Our next question comes from Chris Carey from Wells Fargo. Please go ahead. Chris, your line is now open. We move on to Sarang Vora from Telsey.

Please go ahead.

Sarang Vora -- Telsey Advisory Group -- Analyst

Hi. Good morning, guys. Very lots of initiatives going into 2022, a lot of things going on. So my question is when you look at your traditional algorithm with just 10% velocity, 5% distribution, 15% new white space opportunity.

How does all these initiatives fit in your algorithm? Does it [Inaudible] the composition of the algorithm in '22 compared to, you know, '21 or your broader outlook?

Amy Taylor -- President

Yeah. Happy to share how we think about that and we're -- it's clear for us when we think about velocity, we expect velocity to accelerate with enhanced merchandising in 2022. And by enhanced merchandising, we're talking about the expansion of an in-store presence, new products, new packages, and new parts of the store. And then the placement of about a thousand pieces of point of sale, so racks and coolers across especially natural and food channels.

And then velocity is also supported by low-cost grassroots marketing efforts like the brand-level campaign that we have coming this summer, it's similar to in terms of tactics, the campaign that we ran at the start of the year called, Live Your Best and this summer campaign well-timed with our first-time, limited-time offer summer flavor six packs is all around enhanced merchandising and increased presence in-store. And so that that supports the top of the algorithm, we talk about 10%. Going into that 5% that we look to come from new distribution and with existing customers, we think about increasing our space at fit by 50% with one of the top two mass retailers that's a great example of what we mean when we say gaining expansion or new distribution within existing customers. And so at one of the two major mass retailers, we've moved from five flavors to 12 flavors and we've moved from six pack to eight pack.

And then in the other math operator, we're introducing our kids' line into an entirely new portion of the store in almost 2000 stores. So those are great examples of what we mean by fill-in distribution or expansion. And then finally just to speak to an example of the 15%, we talk about new channel distribution. This is sort of the final piece of the puzzle that supports velocity and we expect strong results to continue to come from club.

This is business, we talked about Sam's going national right at the end of Q4. So we realize those results as we build that out and build velocity and tremendous incrementality. As Sam's just spoke to earlier, there's more opportunity within drug. There's opportunity ahead in the value channel.

And then at the right time, as we discussed earlier, the immediate consumption channel or regionally and then eventually nationally. So that's just a way of how we think about breaking down the 10% from velocity, the 5% from what we call still-in-distribution with existing customers, and then the 15% from expansion with new distribution and new channel.

Sarang Vora -- Telsey Advisory Group -- Analyst

That's great. Thank you so much. And I'll ask one question on the gross margin outlook in 2022. I mean, I would love to know what is the wild card in going to it.

Seems like there's a lot of initiatives to help price action mix shift to energy or some of the logistic initiatives that you mentioned and probably the offset or I don't know, the aluminum can deal win in the backup versus the headwind in the fall stuff. So can you help us frame, how we should think about the gross margin outlook in 2022 or what is the wild card in 2022 as it relates to gross margin?

Paddy Spence -- Chairman and Chief Executive Officer

Yes. Absolutely. So as we noted in the prepared remarks, we're going to see price realization take hold starting in early Q2. And we took a 6% increase on soda, 8% on energy and tea.

And we certainly feel we have the flexibility for additional pricing actions as conditions merit. So you're going to see those pricing -- price realization take hold through the course of the year in Q2, Q3, and Q4. And then simultaneously, we continue to receive both scale and cost optimization benefit through the course of the year. So that's full truck utilization for many of our customers as we scale with customers, we can start selling full trucks versus partial trucks, materially reducing our freight cost.

And then we're really focused not on rate so much because we can't control freight rates, what we can control though is how many miles we're trucking product. And so establishing incremental repack as well as production locations gets us closer to our customers, remove freight miles from the system, and thus costs from the supply chain. So similarly, you know, those cost optimization efforts are taking hold through the course of the year as we add repack and manufacturing locations. And so you're going to see that margin progression through that combination of pricing realization, cost optimization through the course of the year, I hope that's helpful directionally?

Sarang Vora -- Telsey Advisory Group -- Analyst

That's great. Thank you so much.

Operator

Our next question comes from Chris Carey from Wells Fargo. Please go ahead.

Chris Carey -- Wells Fargo Securities -- Analyst

Hi. Good morning, and apologies with the technical issues.

Paddy Spence -- Chairman and Chief Executive Officer

No problem. Good morning, Chris.

Chris Carey -- Wells Fargo Securities -- Analyst

I just wanted to -- good morning. I just wanted to follow up on that line around margin progression. So a couple of questions around that, I guess first, how is the pricing being received -- you talked about potential taking incremental pricing what gives you confidence in the ability for the portfolio to do that? The second thing is just this dynamic between pricing and scale benefits into the back half of the year. How do you see the relative contribution and how important is the scale benefits to your budget into the back half of the year on margin? And then just connected to all that, why not provide a profit outlook and only focus on revenue? Is that, you know, because, as you know, the volatility in the environment? Or is this more standard practice? Thanks so much.

Paddy Spence -- Chairman and Chief Executive Officer

Absolutely. So why don't I start with the second part of your question first which is around profitability and guidance or the lack thereof there? I think Chris, we're focused on growth. And having said that, we're starting with a very strong gross margin profile. So the combination of pricing actions and cost optimization is continuing to enhance unit economics.

And we believe that sets the stage for strong profitability in the future. But in 2022, we believe we are going to really drive value by continuing to scale this brand and drive growth. So kind of that's answering your question hopefully around kind of profitability and how we think about that. In terms of the price increases and pricing action, we've received, as Amy noted, strong receptivity.

We're not seeing pushback and I think in part, it starts with our affordability profile. We are at the 36 percentile of all non-alcoholic liquid refreshment beverages, so 64% of products including bulk Stillwater in that product set are more expensive than Zevia. In addition, what we found is that the category leaders have continued to take price over a multi-year period. And so we've narrowed that price gap materially.

What we're finding today in the consumer environment is consumers are looking for value-added products at a reasonable price. And so simple plant-based ingredients with zero sugar and zero calories is really compelling. The consumer is willing to pay a slight premium for that. And as category leaders have taken price, that premium for Zevia has reduced to what I would call slight today.

So we believe in an inflationary environment, you know, we're focused on cost optimization, absent inflation and I think the inflationary environment is what's causing us to monitor future pricing actions and we believe we can stay ahead of inflation with additional pricing actions should condition merit through the course of 2022. So hope that answers your question? Happy to take any follow-ups.

Chris Carey -- Wells Fargo Securities -- Analyst

No. That's helpful. I'll jump back in the queue. Thanks, Paddy.

Paddy Spence -- Chairman and Chief Executive Officer

Excellent. Thanks, Chris.

Operator

Our next question comes from Andrew Strelzik from BMO Capital Markets. Please go ahead.

Daniel Gold -- BMO Capital Markets -- Analyst

Hi. Thanks for taking the question. This is Daniel Gold on for Andrew Strelzik. Zevia IRI data has been somewhat weaker in the energy drink category.

Can you discuss how you see your positioning there? And if you have any new strategies to improve performance?

Amy Taylor -- President

Sure. So we're fairly new in the energy game and I think there is tremendous opportunity, our energy business on a relative basis is quite small. And what we have the opportunity to do is get really clear on our positioning. And for the consumer that knows Zevia loves the Zevia energy drink.

What we need to do here is build a marketing story and drive awareness in the trial. And so where we thrive is in the natural channel and where we have the opportunity to introduce ourselves into conventional wisdom, marketing, and trial and sampling activity. And so that's our plan looking into 2022 and going forward is to take what is a really excellent flavor profile and to get that into the hands of consumers and that's both through retail programming, as well as out of the market where consumers live, work, and play. And then in the future and I've mentioned this on past calls, we have the opportunity to do an end-to-end Zevia rebrand for the full portfolio.

And we think this will really support our energy portfolio as well when we bring a new look and feel from a design perspective to the full portfolio. The energy category within our business will really benefit from this as well. And if we take the strength of the mother brand and parlay that into our energy category so that that beacon of the energy of the Zevia brand will bring the Zevia shopper to the energy category even if that product sits in a different part of the store. So there's a lot of both tactical and strategic opportunities to better support our energy business to build a better presence for it in the marketplace and then to drive trial and put cans in hands and the right usage occasions out in the marketplace.

It's a massively underleveraged part of our portfolio, and it's obviously one I'm very passionate about and a big opportunity. And I think -- most of all and this is a competitive advantage relative to a number of competitors. We had a tremendous taste profile in that category. So I encourage everyone to try the product.

So thanks for the question.

Operator

[Operator signoff]

Duration: 45 minutes

Call participants:

Reed Anderson -- Investor Relations

Paddy Spence -- Chairman and Chief Executive Officer

Amy Taylor -- President

Bill Beech -- Chief Financial Officer

Ben Bienvenu -- Stephens Inc. -- Analyst

Alton Stump -- Loop Capital Markets -- Analyst

Sarang Vora -- Telsey Advisory Group -- Analyst

Chris Carey -- Wells Fargo Securities -- Analyst

Daniel Gold -- BMO Capital Markets -- Analyst

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