CHEF (2020 - Q4)

Greetings, and welcome to The Chefs' Warehouse Fourth Quarter 2020 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Alex Aldous, General Counsel, Corporate Secretary, and Chief Government Relations Officer. Please go ahead sir. Alex Ald

Thank you, operator. Good morning, everyone. With me on today's call are Chris Pappas, Founder, Chairman and CEO; and Jim Leddy, CFO. By now, you should have access to our fourth quarter 2020 earnings press release. It can also be found at www.chefswarehouse.com, under the Investor Relations section. Throughout this conference call, we will be presenting non-GAAP financial measures, including, among others, historical and estimated EBITDA and adjusted EBITDA, as well as both historical and estimated adjusted net income and adjusted earnings per share. These measurements are not calculated in accordance with GAAP, and may be calculated differently in similarly titled non-GAAP financial measures used by other companies. Quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures, appear in today's press release. Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements, including statements regarding our estimated financial performance. Such forward-looking statements are not guarantees of future performance. And therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Some of these risks are mentioned in today's release. Others are discussed in our Annual Report on Form 10-K and quarterly reports on Form 10-Q, which are available on the SEC website. Today, we are going to provide a business update and go over our fourth quarter results in detail. Then we will open up the call for questions. With that I will turn the call over to Chris Pappas. Chris?

Thank you, Alex, and thank you all for joining our fourth quarter 2020 earnings call. October, November business trends remained relatively stable at approximately 70% of prior year revenue. On a fiscal comparison basis, sequential growth in certain markets was offset by declining outdoor dining in colder weather markets, such as the Northeast and Midwest. The surge in COVID related shutdowns in late November, and the absence of holiday-related events and gatherings, drove volume lower towards year-end. Despite the increased restrictions, December revenue remained above 60% of prior year, and we continued to see the number of total active customers increase sequentially versus the third quarter of 2020. Similar to our previous reporting, I will compare sales and gross margin results of the current quarter sequentially to the third quarter of 2020. Jim will provide the comparison to prior year in his comments later in the call. During the quarter, net sales were 10.9% higher versus the third quarter of 2020. Specialty sales were up 3.3% organically, which was driven by an increase in unique customers of approximately 5.4%, higher placements of approximately 2.8%, and an increase in specialty cases of 3.6%. Organic pounds in center-of-the-plate were approximately 8.2% higher than in the quarter - third quarter of 2020. Gross profit margins decreased approximately 297 basis points compared to the third quarter. Gross margin and specialty category decreased 460 basis points as compared to the third quarter of 2020, primarily due to COVID related inventory adjustments that Jim will describe later, while gross margin in the center-of-the-plate category, decreased 90 basis points. As mentioned in our recent press release, during the fourth quarter, we are shifting our Northern California center-of-the-plate brand strategy, to leverage our Allen Brothers Great Steakhouse Steaks & World's Finest Seafood brand. We are extremely excited to bring this premier brand and product line, recognized for best-in-class master butchering and aging methods, to our customers, and we look forward to introducing the incredible suite of Allen Brothers products to the entire West Coast culinary community. In conjunction with this, we will discontinue sales under the Del Monte Port Seafood and Bassian Farms trade names. Now to move on to an update on recent business activity. Sales in January were trending at approximately 62% of prior year, despite the worst of winter limiting outdoor dining demand, even in moderate climate markets. Very recently, we see some loosening of restrictions in both indoor and outdoor dining, including major markets like New York, Chicago, and California, and are beginning to see early impacts of that increased capacity. 2020 was by far the most challenging year in our company's 35-year history. No industry was impacted more by the COVID crisis than the hundreds of thousands of independent restaurants and hospitality establishments across our nation. The impact to families, careers and business owners, has been on a scale that is both devastating and immeasurable. Since March 16, 2020, the day the nationwide shutdown of indoor dining was mandated, our primary focus has been on working with our customers to help them continue operating and pivot to new business models, providing flexibility on credit and maintaining the high touch service and high quality product model that they have come to depend on us. supporting our customers, our teams, supplier partners, and the broader industry through coordinated lobbying efforts, and delivering our fine dining experience product lines to people's homes, donating food totaling approximately $8 million to charitable organizations and food banks across the country, and rightsizing the company and strengthening the balance sheet in order to manage through the volatility and unknown timing and nature of the COVID crisis. Our goal is to emerge from this challenging period in a strong financial and strategic position, enabling us to invest in growth and take advantage of business development opportunities over the next few years. While we paused certain projects during 2020, we continued to invest in both sales and operations talent, enhanced our technology infrastructure and digital platform, and expanded category growth in seafood and produce. We will continue our path of investing in growth markets. And to that end, have restarted the process of building our new LA facility, and expect to complete our Florida expansion in the first half of 2022. I would like to thank the entire Chefs’ Warehouse team, along with our customers and supplier partners for their dedication and hard work throughout 2020. Our industry is filled with amazing people of every gender and ethnicity who all love the culinary world. The level of innovation and agility displayed during this period, has been inspiring to all of us. At Chefs’ Warehouse, we look forward to building our industry back together and stronger than ever. With that, I'll turn it over to Jim to discuss more detailed financial information for the quarter, and an update on our liquidity. Jim?

Thank you, Chris. And good morning, everyone. I’ll now provide a comparison of our current quarter operating results versus the prior year quarter, and provide an update on our balance sheet and liquidity. Our net sales for the quarter ended December 25, 2020, decreased approximately 34% to $281.7 million, from $426.5 million in the fourth quarter of 2019. The decrease in net sales was the result of a decline in organic sales of approximately 41.7%, as well as the contribution of sales from acquisitions, which added approximately 7.7% to sales growth for the quarter. Net inflation was 0.5% in the fourth quarter, consisting of 0.4% deflation in our specialty category, and inflation of 1.6% in our center-of-the-plate category versus the prior year quarter. Gross profit decreased 42.5% to 58.9 million for the fourth quarter of 2020, versus 102.4 million for the fourth quarter of 2019. Gross profit margins decreased approximately 311 basis points to 20.9%. Gross profit dollars and margin were significantly impacted by additional reserve adjustments for inventory valuation loss of approximately 4.8 million due to the extended - expected extended impact of COVID-19 on certain market segments and customer openings through the first half of 2021. Excluding the impact of the reserve adjustments, gross profit margins declined 140 basis points versus the prior year quarter. The primary driver of net specialty deflation was significant price decreases in dairy and bakery categories, partially offset by inflation in cheese and chocolate categories. Inflation in the center-of-the-plate category was driven by higher pricing across most beef categories, as well as product mix changes attributed to strong growth in our Allen Brothers direct-to-consumer business. Total operating expense increased approximately 27.5% to $107.1 million for the fourth quarter of 2020, from $84 million for the fourth quarter of 2019. The non-cash impairment charge of $24.2 million related to the discontinuance of the Del Monte and Bassian Farms trademarks, was the driver of higher total operating expense. On an adjusted basis, operating expense decreased 6.5% year-over-year. And excluding the impact of acquisitions, adjusted operating expenses decreased approximately 20.3% versus the prior year quarter. As a percentage of net sales, adjusted operating expenses were 24.6% for the fourth quarter of 2020, compared to 17.4% for the fourth quarter of 2019. Operating loss for the fourth quarter of 2020 was $48.3 million, compared to operating income of $18.4 million for the fourth quarter of 2019. The decrease in operating income was driven primarily by lower gross profit and increased operating expenses, inclusive of the $24.2 million impairment charge in the quarter. Income tax benefit was $16.6 million for the fourth quarter of 2020, compared to expense of $3.2 million for the fourth quarter of 2019. Our GAAP net loss was $37.1 million or $1.02 loss per diluted share for the fourth quarter of 2020, compared to net income of $10.9 million or $0.36 per diluted share for the fourth quarter of 2019. On a non-GAAP basis, we had negative adjusted EBITDA of $10.5 million for the fourth quarter of 2020, compared to positive adjusted EBITDA of $28.2 million for the prior year fourth quarter. Adjusted net loss was $19 million or $0.52 per diluted share for the fourth quarter of 2020, compared to adjusted net income of $12.1 million or $0.39 per diluted share for the prior year fourth quarter. Turning to the balance sheet and an update on our liquidity. As of February 5, 2021, we had total liquidity of $232.2 million, comprised of $193.6 million in cash, and $38.6 million of availability under our ABL facility. Net debt as of February 5, 2021 was approximately $210.2 million, inclusive of all cash and cash equivalents. At this time, due to the continued uncertainty regarding both the pace of broader economic recovery, and the lifting of in-room dining restrictions across our key markets, we will not be providing guidance for 2021. We hope to provide more color as we gain more clarity on the length of the economic downturn and the pace of reopenings. Thank you. And at this point, we will open it up to questions. Operator?

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question today is coming from Alex Slagle from Jefferies. Your line is now live.

Thanks. Good morning. On the Allen Brothers, if you could talk about the successes you're seeing with that business and how you think that could evolve over time.

So are you referring to our B2B or B2C, Alex?

Yes. The B2C, but just kind of broader thoughts on that brand and the actions you're taking.

Right. Sure. So when we bought Allen Brothers, I think it was five, six years ago, it was one of really the only brands in food service that had a national presence, was really what drove - I've always been in love with the brand. It stood for super quality. You see it on menus and always had a catalog for the B2C world. It was really unique that it brought B2C and B2B together. And we've been slowly investing in the brand, and we really got the payback during COVID where really the sales on the B2C side exploded, and thousands of new customers discovered that they could get steakhouse quality steaks and other products delivered right to their door. So we're really excited about the discovery process of, I call it our regular customers’ customers. And as we started to open up more protein processing facilities around the country through acquisition or greenfield, we acquired many brands over the past five, six years. And we just took the first big step in rebranding our West Coast operation, which is a pretty big protein business under many different flags. We’ve purchased multiple companies, and we thought it was the right time now that we had the team and the quality and the ability to deliver and protect the brand, the image of being the best. And we've now opened up Allen Brothers Steak and Seafood in Northern California. And we think that that will continue. We think that New York will probably be an Allen Brothers Steak and Seafood, and probably New England will be a Allen Brothers Steak and Seafood. And we'll just keep building on the brand. We have such a great following now, with so many different - between consumers, steakhouses, and our 50,000 independent restaurants, that we could say, it’s a differentiator, and it will just continue to grow.

Great. Thanks. And then it looked like the November activity held up pretty well with the help of outdoor dining in some of the off-premise business. And I imagine, with all the pent-up demand and weather hopefully starting to warm up in coming weeks heading into spring, imagine there's some more optimism and excitement you're hearing from customers in the Northeast and Mid-Atlantic. And just wonder if you can kind of talk about the role of outdoor dining in your business and how much this could offset the indoor dining restrictions, which probably continued for a bit here.

Sure. Well, obviously we're very excited to finally see New York and Chicago and California start taking the first steps towards indoor dining. But we really are excited about what we saw with the explosion of outdoor dining and kind of reinventing the dining experience in so many cities and suburbs around North America. And optimistically going forward, I think that will become part of dining. I always say, when you go to Paris or some of the European cities, you see so much outdoor dining and gardens and tables. And I think the restrictions were so strict in many of our big cities on outdoor dining, and with the relaxation of a lot of other restrictions, our customers were able to build quite incredible settings to accommodate customers who want to be outside obviously during the pandemic especially, but we think that will continue, and we think that's going to be a real addition to our customers’ business going forward after the pandemic. So we are really optimistic about 2022. We think ’21, again is a rebuilding year. I always say - I've been saying this for the past several months. Living in a cold environment and traveling back and forth to warmer climates, when you come to Florida, you kind of see the future, indoor and outdoor. People are a lot more comfortable for many reasons, and you just see the pent up demand and restaurants that are full. And we could just feel the momentum building, and that's very optimistic.

That's great. Thanks.

Thank you. Our next question today is coming from Peter Saleh from BTIG. Your line is now live.

Great. Thank you. Chris, I know there’s a lot of discussion and theories out there that post pandemic, some of the larger chains will be taking some share. I recognize that the majority of your customer base, 80, 85%, are the independents. Do you anticipate any mix change going forward post pandemic? Do you think you'll garner some more change business? And can you just give us an update on where you stand today with some of the - some chains?

Sure. Well, I think the word chain can sometimes be misleading. We service - so many of our customers have turned into what I call groups. I would say the predominant of the larger customers, they're all part of some sort of group, whether it's five restaurants, 10 restaurants, 20 restaurants. I think one of our biggest, best customers is 52 restaurants. And we have a large customer who has got 600, 700 restaurants, but we'll maybe service 100 them that fit into The Chef model. So I do think that they are grabbing some pretty good real estate during the pandemic. So, we will benefit with their acquisitions, again, obviously the lower end and massive chains. We’re not a Taco Bell distributor, but I always do a latency test. I go back to, where do I want to eat when this over, right? I mean, I've been eating out every night during COVID. So I've been out canvassing our markets and talking to customers. And really the overall sentiment is, people really want to support the underdog, the - I call it the little guy, the restaurant, 100 seat, chef, family-owned type of operation. So I saw it happen after 9/11 and I think it's going to happen again. I think, yes, some of the bigger operators are expanding and taking advantage of their balance sheets. I don't think any really good operator independent is giving up a prime space. I think they're hanging in there. they've negotiated their lease. They've gotten PPP money. I think the PPP has been incredible help this last push. I'm hearing from customers getting great amounts of money which is lifesaving. So we're really excited to hear that the money is flowing, but don't discard the little guy. I think the sentiment of the American and Canadian consumer in the markets that we serve, really wants to support the independent restaurants, and I think they're going to come roaring back.

Great. And Jim, can you just - in light of the cash position and the reopening now of - in the next couple of days, of New York and most recently, California, how are you guys thinking about inventory planning? And should we expect you to start drawing down on the cash position to fund future demand in the first quarter?

Well, we expected, as we were coming through - before the recent shutdowns post-Thanksgiving, we expected to see some level of cash burn as the business kind of steadied around 70% coming out of September and into October and November, and then kind of started to drop as COVID started to surge post-Thanksgiving. We expected, if we were on that path, we'd start to invest more in AR and inventory, and you'd see some level of investment in working capital. We still expect that to happen, but we built a pretty decent sized cash cushion, and we've kept debt pretty much level to where it was, given some moving parts pre-pandemic and then post-pandemic. So - but as our - that'll be a good problem to have. We’ll be generating free cash flow at that point, investing in working capital, and we expect to continue to have a strong liquidity position coming out of this, giving us some dry powder to add some pieces that could really help us going forward.

All right. Thank you very much.

Thank you. Our next question today is coming from Kelly Bania from BMO Capital Markets. Your line is now live.

Hi, good morning. Thanks for taking our questions. Chris, I was wondering if you could just talk a little bit more about the customer acquisition trends that you highlighted, and just expand a little bit more on what type of customer, under what circumstances, categories, regions. Just help us understand what's happening there.

Sure. I don't think it's a one-size-fits-all, Kelly. I mean, we saw massive amounts of new credit applications coming in during the pandemic. We typically do have. Obviously, we're in an industry where there is turnover in restaurants. Our attrition rate was always anywhere from 7% to 15%. So, obviously it was higher than that during the pandemic. But I think, as the crystal ball said that there were many, many clients of ours that did have balance sheet to say you know what, I always love that space and it's coming available. Or we got a great opportunity. The infrastructure is already built. The hood systems are in. Instead of spending $3 million, $4 million, that's $700,000 renovation, and we can have a prime piece of real estate to open. And even lots of little places anywhere from Wynwood in say Miami, or parts of Brooklyn and in New York, where the opportunities are there. It's almost like you're starting a new company, and you're going to open up in 12 months, and it's a 12-month buildup to build out, say you’re going to open up 1,000 restaurants in a year. It's kind of the atmosphere we felt. Obviously, it hasn't been so - it hasn’t been brutal for many, many of our clients, but there is a very large customer sector that is looking at it almost like a startup, and that's what I think we saw. I was just reading early this morning, another one of our very popular customers, has signed a new lease to build a multi-million dollar restaurant in a great space. And it just goes on and on and on. So as much as there've been a lot of carnage in many parts of the industry, there are many, many customers taking advantage and - of either real estate opportunities, reduced rents, and properties that are pretty much built out. And I think that's what you'll start to see going into 2022.

Okay. That's helpful. And I guess just another question in terms of being prepared for the recovery in the next several quarters, just how do you feel about, number one, salespeople and their - where you're at with the sales force and their ability to go after these new customers as they're rebuilding? And then also warehouse employees and drivers, and just what capacity you have or what you expect to invest in over the next couple of quarters there?

Sure. Well, so I think I've said in the last earnings call, and maybe at some of the conferences in the last few months, that you had two choices during this pandemic. One was to cut all your costs and put up a few more pennies to earnings, if you had earnings. Or really look and say, we want to be prepared and we want to be aggressive and we want to grab market share. And we chose door number two. So yes, we did cut back. We found that we could operate leaner and we plan on operating leaner going forward. So if anything positive, that's a positive, but we kept a lot of routes. I mean, we did consolidate routes, but we're really running an operation right now that is geared for the recovery. So we have tons of trucks on the road that are half empty. So, as business comes back, those trucks have drivers and they're on the routes and they're just waiting for their business. And it’s the same with the sales force. We actually grabbed a lot of talent that was looking for a new home for various reasons. So I call it, it was a once in a lifetime talent grab. And we think that those investments, obviously those salespeople with books aren't delivering the kind of numbers that they were pre-pandemic. But as we’re already starting to see signs of that recovery in parts of the US and Canada. And salespeople are hungry. They’ve had a really bad long year, and they've been putting that time into canvassing new customers and new category sales, and developing different avenues in retail and everything from meat trucks. So, necessity was the mother of invention, and that's what salespeople do. They need to go out and find new customers to sell. So we're really excited about the talent and the ability with the team that we have, to really accelerate as business starts to come back. And again, of course, once we get to the level where it's too much to handle, we'll start to add - continue to add. But I think right now, we're really set up to take on a tremendous amount of new business and the infrastructure that we have.

Thank you. Our next question is coming from Todd Brooks from C.L. King & Associates. Your line is now live.

Hey, good morning, gentlemen. Hope you're well. If we can talk about, you've kind of given us phases for what the recovery looks like, and kind of getting through this winter phase is what you both and the company has been focused on. As we're emerging from this winter period and getting back towards outdoor and spring and markets are reopening, you've talked about the strength of your balance sheet and that you want to look at some strategic M&A opportunities coming out of the backside of the pandemic. Can you maybe touch on both priorities and focus areas for initial strategic M&A and maybe what the funnel or pipeline of potential deals looks like, Chris?

Sure. So the pipeline was extremely frothy pre-COVID. And I would say the pipeline is more frothy. We’re still in - unfortunately we're still in COVID, but we've been really disciplined. we're not going to chase volume and very low margin that we don't want to - we have such a good culture and we have such a great platform that has so much room to run, that I think the most important part of our being disciplined was to make sure that as we - I call it pumping up the balloon again, we're taking on customers and businesses that fit into who we are so we could remain a high margin, high touch superior product company, a differentiator from the other national companies that are out there. So I think Cassandra's crystal ball says that it's going to be the Wild West in M&A. I mean, it was already happening. The industry was consolidating. I think, again, if there's a few positive things coming out of such a incredibly tough year, was that it opened our eyes that the brand had a lot more legs in many other ways and customers that could be part of Chefs’ and would buy from Chefs’. And I think we were able to look into new categories and grab expertise, and I think that's going to pay tremendous dividends as we start to get back to some sort of normal socializing life and restaurants and hotels continue to open. So I would say the crystal ball is right. I think that you'll see us - the wish list is first to do - to grab - continue to grab talent. Two is to grab companies that fit into Chefs’ in the areas that we have capacities, because that's the most accretive acquisitions we can make. So, Southern California, we're going to have a brand new large warehouse at the end of this year. Hopefully it will be completed. Same with Southern Florida. We’re extremely bullish on Florida. During COVID, we did open up a seafood business and made a small acquisition in Northern Florida, and we think that'll continue. As those warehouses come online, it'll allow us to do fold-ins and allow us to acquire a new categories. And we've been setting up New York and Chicago and Texas, really gearing those divisions up because where they have capacity, we want to fill it. And I think that's really how we get back to where we were in the ‘19 and exceeded, is a methodical, almost surgical approach to M&A. of course, tomorrow the phone could ring and there could be something unbelievable that's transformational, but really the way we've gone about the last 10 months is continuing to speak to the people that we wanted to join ship before COVID, and we think many of those deals will get done, plus so many other people that have pick up the phone and said, hey, you know what, we think we're better with you. So, we are disciplined on our approach and what we're willing to pay. And obviously right now, the forecast is - making forecasts is really tough. So we're all looking at really ‘22, what we think it's going to be like. And I think we're going to come out of this - I've said this a few times. I think ‘22, ‘23 and ‘24 could most likely be even better than what they would have been pre-COVID, just because of the opportunities and all the talent that it brings together.

That's super helpful. Thanks. And then my last question is, you talked about just the evidence of pent up consumer demand that you're seeing in warmer weather markets, Florida, Texas. I'm wondering, as you talk to your hotel, your country club customers, are you getting a sense of pent up demand for events as you look to the back half of fiscal ’21, and maybe how the event-based business comes back? If that's also going to be kind of a roaring recovery, or what your thoughts are there, based on what you're seeing with booking trends and hearing from customers.

Yes, sure. So I think everyone's being kind of careful on the dates. You don't want to book and cancel. But my trips to Florida, I'm already seeing weddings. It was - I think my wife made the comments like, wow, look at that. They’re semi-socially distance, but there’s 150 people on the beach at a wedding. We're starting to hear more and more of that. I think it's different. I think places like Vegas and maybe in the cities, I think that people are being a little more cautious to start to book from now. But I think definitely these outdoor venues are starting to book. We're hearing from our caterers. We’re hearing from many of our clients. Even now, they've already started to have some small events 20, 50, 75 people. I don't know if there's - there are limits still from State to State, but the pent up demand we're hearing from the wedding planners and caterers, people that have delayed the events, I think it's just going to be a massive explosion of catering and parties that were put off and people - especially wedding. People really have put up weddings. And what we're hearing is they're - even if they got married during the pandemic, they're going to have a real wedding celebration as soon as they're comfortable. And obviously we're seeing - even from the Super Bowl, you're seeing people that either were vaccinated and have some sort of bracelet or can show a negative. I think it starts that way. And then slowly, slowly, I think hopefully we get back to some sort of normality, but even before that, I think you'll start to see many more events with kind of limitations and some sort of testing involved.

Okay, great. That's helpful. Thanks, Chris.

Thank you. Our next question today is coming from Ben Klieve from National Securities Corporation. Your line is now live.

All right. Thanks for taking my questions. Already most of my questions have been answered, but just one for me this morning. It’s encouraging to hear your comments on investments that were more or less put on hold amid COVID. And so, I'm wondering, when you look at your plans across Los Angeles, Texas, Florida, are the plans that you have today, still of the same scale as they were pre-pandemic? Or have there been any material change in the level of investment you're looking to put into these markets in light of everything over the last few quarters?

Jim, you want to take that?

Yes. It's more of a delay. So we - for obvious reasons, we delayed the LA buildout, which we expected to finish really this year and start last year, and then finish this year. Florida was already in - was in the early stages last year, and is still in the construction phase. So a lot of that capital will be spent later in the year where we anticipate more of a build back. So I would characterize it more as a delay in the CapEx investment, versus a scale-back. What we have done, and we've talked about this before is, taking the opportunity to consolidate facilities, to reduce our cost structure in a number of markets, including Texas, New England, and the West Coast. That will help fund some of that. But I would say that especially where we're currently investing, which as Chris mentioned earlier, Southern California, Florida, and then in Texas, we're going to continue to invest in those markets. We see them as key growth markets going forward. And so, we we're going to continue on that path.

Okay, perfect. Thanks, Jim. That's helpful. That does it for me. I appreciate you taking my question. Best of luck here navigating hopefully a reopening in coming months, and I'll jump back in queue.

Thank you. [Operator instructions] Our next question is coming from Nicole Miller from Piper Sandler. Your line is now live.

Good morning. Thank you. My first question was the dialogue around independents, which was super helpful. It doesn't mean it's just one guy, one restaurant. So, two parts. Number one, on the topline, I get the sense that of course somebody has closed, but for those that are open, they're recovering at the same pace of let's say a larger chain or a chain at scale. So what would you say about that? And then the second part, I really hear you about like that occasion transfer where you're saying, hey, that guest wants to come back. And I'm just wondering, how do you inform that outside of our own opinion? Because, I mean, I want to do the same thing. That's where I want to eat. So if the independent restaurant was closed, where do you think that guest went? Did they stay home and eat grocery? Did they go to try a national chain that is not exactly the same experience? Where do they come back from? Thanks.

Sure, Nicole. Maybe I'll start from the last one and work my way backwards. So, again, I mean, we have to remember that, I mean, New York City was closed. You know what I mean? Nobody was open. The same in Chicago and many parts of California. So, it's obviously a very unusual year. So I think customers - again, where takeout was available, they did a lot of takeout. So they did get to try maybe restaurants that they never went to. But when I talk about - a perfect example is, you're not going to go from eating at Le Bernardin in Midtown Manhattan, considered maybe the finest seafood restaurant in the country, and you're going to go to an Olive Garden, and you're never going to go back to Le Bernardin. So I think at different price points, I think we have different situations. The independents, especially in the big cities like New York, people closed. I mean, the higher ends just closed. They did other things. They launched either hamburger concepts or catering services. And we've heard all sorts of different entrepreneurship, but some just did not pay obviously to even think about doing catering. Their overhead is too high. Their specs are too - it was just too difficult. So they basically, what I heard was, we'll see you in the spring. So, I think when you look at little independents, when you go into suburbs and towns, I think the independents actually did fine. Yes, obviously the volumes were lower, but they cut their overhead and they did takeout. And I know from my experiences in our little towns that I eat in, they were doing 50, 60 outgoing catering orders a night, versus what they did pre-COVID, which was about five. Obviously, it didn't make up 100% for their lack of people coming in when they closed indoor dining, but as they went to 25% and 50%, you started seeing customers come back. So I don't think it's - you can say it covers every city and state, but what we're seeing and what we're hearing, and we're starting to see orders, are from the independents. And I think that not everyone's going to make it, but there's going to be a tremendous surge in new openings and new concepts. And we're seeing that the cities that are open and where we're going, 25% and 50%, that the demand is there. I think the big guys did do better overall. They had the balance sheets and the marketing and infrastructure, especially in promoting some sort of takeout. We saw even super high end steakhouses have takeout packages, and they were selling their wine. I don't see that continue. I think - I don't see that - once everybody is open, you can go to a wine store, unless there's tremendous value in selling their cellars. But I do think that the big balance sheets are taking advantage of the situation and grabbing some real estate that they've always wanted to, but I still stand by, don't underestimate the little guy. People love 100-seat restaurants. I do. I do like the big event restaurants and the big joyous social environment, but to me always, the food is great. I love seeing the chef in the kitchen. I love seeing the family who owns the restaurant in the restaurant. They know your name. It's special and I think Americans and Canadians really love that relationship with their independents. So, we'd like to see everybody come back, of course, but I still think - don't think the independent is gone.

And then could you speak a little bit, last question about the deflation. Jim, I think you said the couple of categories that may be the drivers behind dairy and there was one other. And then just also address, the industry really hasn't seen inflation for a long time. So what is maybe your longer term point of view? And then remind us, if it were to come back, how you pass that along to the customer. Thanks.

Yes, sure. So the best way to characterize really the quarter, as well as the entire year, is a lot of volatility driven by - mainly by product mix for us and for the producers, and driven by the demand environment. So the reopenings and closings and the different demand environments and weather environments across regions, really drove the product - demand side of the product, as well as a lot of volatility around the producing side. So I talked about dairy and bakery being deflationary. And what we've seen is, within the categories, more deflationary or more inflationary, so just more volatility in it. And then recently, definitely on the center-of-the-plate side that started in the fourth quarter and has been continuing into the first part of the first quarter. Now, our pricing model allows us to pass on the bulk of that, because we don't have a lot of fixed price contracts with - like Chris talked about, with the large chains, et cetera. We're pricing at market, and we're able to generally pass most of that on. Now, when it's extremely volatile and hockey stick-like type of inflation, you can't pass all of it on, and you generally work with your customers to then keep some of it on the way down. So there's dynamics like that. in general, I think there is an expectation out there that as restaurants open and you've got retail still pretty strong, that a lot of the commodities you will see inflationary environment - more of inflationary environment in the food space than we had in prior years. But generally, if it's low single digits, that's a really good environment for us where we can capture some of that volatility and actually pass it on. So I wouldn't say we're overly concerned about inflation. We have pricing teams that monitor it and work with our salespeople and suppliers on a daily basis to handle inflation and take advantage of inflation or deflation. So it's - what I would describe it as just a lot more volatile than we've seen in the last few years.

Thanks again for the update. Appreciate it.

Thank you. We’ve reached the end of our question-and-answer session. I’d like to turn the floor back over to management for any further or closing comments.

Listen, I'm really happy everybody could join our call today. Obviously, 2020 was a extremely challenging year, but we're grateful that we can come out of this. The team is more engaged and work together than ever. And we're really excited to see the openings and to get back to normality a little bit at a time. And America loves their restaurants and loves the social aspect, and we're really excited of what we're seeing. And hopefully the vaccinations can really accelerate and let our industry get back to where it was pre-pandemic. So thank you for joining today and stay healthy, and look forward to our next call. Thank you very much.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.