Ladies and gentlemen, welcome to the Albertsons Companies Second Quarter 2020 Conference Call, and thank you for standing by. [Operator Instructions] This call is being recorded. [Operator Instructions] I would like to turn the call over to Melissa Plaisance, GVP of Treasury and Investor Relations. Thank you. You may now begin.

Good morning, and thank you for joining us for the Albertsons Companies' Second Quarter 2020 Earnings Conference Call. With me today from the company are Vivek Sankaran, our President and CEO; and Bob Dimond, our CFO. Today, Vivek will start with some opening remarks, share insight into our strong results and outline recent progress against our strategic priorities. Bob will then provide the financial details of our second quarter and full year outlook before handing it back over to Vivek for some closing remarks. After management comments, we will conduct a question-and-answer session. I'd like to remind you that management may make statements during this call that include forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are not limited to historical facts but contain information about future operating or financial performance. Forward-looking statements are based on our current expectations and assumptions and involve risks and uncertainties that could cause actual results or events to be materially different from those anticipated. These risks and uncertainties include those related to COVID-19 pandemic, about which there are still many unknowns, including the duration of the pandemic and the extent of its impact. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements are and will be contained from time to time in our SEC filings including on Form 10-Q, 10-K, 8-K and our Rule 424 prospectus dated June 25, 2020. Any forward-looking statements we make today are only as of today's date, and we undertake no obligation to update or revise any such statements as a result of new information, future events or otherwise. Please keep in mind that included in the financial statements and management's prepared remarks are certain non-GAAP measures, and the historical financial information includes a reconciliation of net income to adjusted net income and adjusted EBITDA. And with that, I'll hand the call over to Vivek.

Okay. Thanks, Melissa, and good morning, everyone. Thanks for joining us. Across the Albertsons Companies, we are focused on winning, which starts with executing consistently against our strategic priorities. I am pleased to say that our strategy is working as demonstrated by our results this quarter that, by all measures, were outstanding. Our identical sales came in at 13.8% with adjusted EPS growth of 253% versus the prior year. Adjusted EBITDA increased 67% to $948 million, with robust flow-through of approximately 20%, excluding fuel. Our digital sales also grew 243% year-over-year. And importantly, we continue to gain significant market share versus both food and MULO in both dollars and units. Our team remains focused on our customers, working hard to deliver an excellent shopping experience, whether they're new to Albertsons or have been shopping with us for years. To our associates, thank you, thank you for working through the daily challenges and striving to give our customers an easy, exciting, friendly and safe experience. Many customers have shifted their shopping habits during the pandemic, and we have adapted quickly. In general, we are seeing customers continue to come to our stores less often but are buying much larger baskets, including new categories, as we fill their one-stop shopping needs. And many have chosen to use our eCommerce offerings, both home delivery and Drive Up & Go, and overall have increased their household spending with us. This enduring secular shift in shopping habits is confirmed daily despite the economy opening in most parts of the country. Importantly, all income segments have increased their spend with us. We watch the impact of the recession closely, and we are increasing our traction even with lower-income shoppers who generally come a bit more often and spend less per trip. We're able to provide high-quality,…

Thanks, Vivek, and hello, everyone. We again, delivered strong performance as we continue to successfully execute against a rapidly evolving COVID-19 backdrop. First and foremost, I, too, want to thank our frontline workers for their hard work and dedication. They continue to raise the bar. Now for some color on the quarter. Total sales were $15.8 billion during the second quarter compared to $14.2 billion during the second quarter last year. Our increase in sales was primarily driven by our 13.8% increase in identical sales. Our gross profit margin increased to 29% during Q2 of 2020 compared to 27.8% in Q2 of 2019. Excluding the impact of fuel, our gross profit margin increased 85 basis points. The increase in gross profit margin was primarily driven by continued improvements in shrink expense and sales leverage on advertising and supply chain costs, which together drove about 65 basis points of benefit in the quarter. Gross profit margin also benefited from sales mix shifts. Turning to selling and administrative expenses. We saw significant sales leverage throughout the second quarter as our sales and administrative expense rate decreased to 25.6% of sales compared to 26.8% of sales for the second quarter of fiscal 2019. Excluding the impact of fuel, selling and administrative expenses as a percentage of sales were 175 basis points lower than the prior year. Overall, the improved sales leverage, including the benefits of strong cost control, more than offset the incremental COVID-19 cost totaling approximately $120 million during the second quarter as we optimized our procedures and procurement of PPE and cleaning supplies. We expect to continue to optimize these costs moving forward and as I just mentioned, we are seeing continued strong ID sales growth and believe that these expenses will continue to be more than offset by higher revenue.…

Thanks, Bob. As we look ahead, I could not be more excited about the future of our business. The Albertsons coming out of this pandemic is much stronger than the Albertsons you knew before the pandemic. We're gaining market share. Our value proposition, anchored in fresh and our breadth of product assortment, is more appealing as people eat more at home. We've improved our execution, and we've accomplished in months what would have taken us years in building new capabilities in eCommerce, loyalty and our technology backbone. As you heard today, we're investing to innovate and go even faster. In addition, our productivity initiatives are firmly anchored into the fabric of the company and are gaining traction. Yet we're only in the early stages of our transformation, and we are extremely well positioned to drive further market share gains and retain and grow spend from our customers. As the dynamics in the marketplace shift, we will execute and be agile, and we are confident in our ability to continue to win. There are multiple factors at play that give us confidence we will significantly beat the $3.2 billion EBITDA consensus estimate for fiscal year 2021, and we will grow from a new baseline when things return to whatever might be the new normal. I would like to close with a few themes that define our business today. One, the lines between food at home and food away from home have blurred. As such, we see ourselves competing in a much larger, approximately $1.6 trillion landscape of food and beverage. Building on our fresh equity and great locations to offer and deliver convenient, delicious and lifestyle-centric meals is central to our strategy. For example, in our United division in Texas, we have launched a [ true ] meals destination in 60…

[Operator Instructions] And our first question comes from the line of Kate McShane with Goldman Sachs.

My question is centered on the gross margins. I wondered if you could comment at all about the promotional environment during the quarter, how it compared to the end of Q1. And within the guidance that you've given for the rest of the year, what does that imply for gross margins in the second half?

Bob?

Yes. I would say the promotional environment has really become pretty rational as we've proceeded through the year. There are certainly a few categories within the store where we may have limited supply, where we're -- everyone's having to have to pare back a little bit on promotions. But that's not affecting the overall -- our ability to be a promotional player. So I would say, as I indicated on our growth of our year-over-year mix of gross margin, the lion's share of that was really driven by some of our productivity measures. It was lower shrink, it was improvements in advertising and supply chain costs. And as we look forward and Vivek indicated, we would intend to invest some of that back in to drive the top line.

The next question is from the line of Robby Ohmes with Bank of America Merrill Lynch.

Vivek, I wanted to ask a little bit about how you're thinking about next year. With the productivity initiatives that you're accelerating, which sound great, are they -- is the hope that these could raise the adjusted EBITDA margin in a return to a normalized environment? Should we think that you're doing things that could result in Albertsons having a higher adjusted EBITDA margin if we go back to a normalized environment than you would normally have? Or is this more an offset to kind of the accelerated rollout of pickup and maybe delivery? Maybe just thoughts on that. And also with pickup, maybe remind us what kind of pressure that puts on gross margin and EBITDA margin.

Yes. So Robby, the answer is yes. It is that -- there's 2 things we should think about here, one is our own confidence in the business, right? The different top line activities that we're driving is working for us, and the productivity initiatives are working for us. So our confidence in the strategy that we've got going is improving with every quarter. So that's one factor that's driving us to say in this new normalized environment, we will come out better than we went in, right? And so that's one. The second thing is, I think we should ask ourselves what this new normalized environment is. There's a narrative that we are going to turn the switch and everything is going to go back to 2019. I don't believe that. I believe that we're going to go through this phase and come out of it with different behaviors, right? We're 8 months into this pandemic and I think that part of that different behavior is going to be eating more at home. And when you eat more at home, I think there is fundamentally a bigger market for us to pursue. So it's that combination that gives us confidence that, that 2021 number, that the 32 -- $3.2 billion that we gave, we should be able to beat because we have 2 things going for us. I don't know if that helps, Robby.

Yes. No, that does help. And then just on accelerating the rollout of pickup and delivery, I'm just curious how the profitability of that looks to you guys.

Yes. So that's a good question, Robby. So we think of it as 3 platforms, right? We have our -- first of all, you should know that our first-party business, which is our pickup, but then delivery -- and delivery business is a substantial part of our overall business. And it's the fastest-growing part of our overall business. And if you think about the profitability, the Drive Up & Go is the more profitable piece than the delivery piece. And in fact, there are times when we see it -- when we see that, even on a transaction basis, it is profitable, right? That's what's exciting us. Then you put the MFCs in there, and we -- when I talk about our line of sight to profitably, we know we see a cost curve. And we see that cost curve coming down over the next several months in the MFC as we optimize it and the scale, the sales per MFC, starts going up. And so that's why we're excited that we think we have line of sight to a profitable Drive Up & Go business, and that's why we're investing faster in it.

Terrific. Congrats.

Thank you.

Your next question is from the line of Ken Goldman with JPMorgan Chase.

It's actually Tom Palmer on for Ken. I just wanted to ask on the EBITDA guidance. So in the first half, EBITDA, up about $1.2 billion. Guidance for the second half implies it's going to increase between $120 million and $220 million. Beyond, I guess, potentially decelerating sales growth and lapping the extra week, are there any meaningful items that you expect to limit EBITDA growth in the second half of the year? For instance, have you seen any meaningful change in the quarter-to-date comp or margin structure of the company?

Yes. Good question, Tom. No, we are continuing to see a continuation of strong sales in the first part of Q3 in the low kind of double-digit range. And we're optimistic that this is going to continue on through the rest of the year. And as a result, that's what drives that greater than 15.5% ID, which kind of infers a 9.5% to 10% ID for the second half.

And just on the margin flow-through, any item to call out that could limit that? It just...

Yes. Well, the number that we quoted was year-over-year EBITDA growth. So second half last year to second half this year, an 18% increase in EBITDA growth, which is very, very solid, as you know. And that excludes our 53rd week in that calculation that was in 2019 so that it's comparable.

The next question is from the line of Edward Kelly with Wells Fargo.

Nice quarter, by the way. I wanted to ask you, Vivek, about 2021. You made the comment about there are some behaviors that are likely to continue here. I think if I read that correctly, it sounds like you expect a much stronger 2-year stack on your ID next year than what you would have expected pre-COVID. And what I'm curious about is how we should think about the incremental margin on that. I mean obviously, incremental margin now is great, right? It was, I think, on EBIT, probably 21% or 22% this quarter. But how should we think about -- if we look at sort of like the incremental sales on '21 versus sort of '19, what the incremental margin on that may look like? Because even your back-half guidance seems to imply, I don't know, something like low to mid-teens there, and if you start doing that math, you're looking at EBITDA in '21 that is -- could be significantly higher than where the consensus is right now. So I'm just kind of curious as to how we should be thinking about the incremental flow-through as we get into next year?

Here's -- so Ed, here's how I think about it. Our philosophy is that I separate it into gross margin and then everything below the gross margin line. We've got a number of tailwinds that are supporting us on gross margin. What are they? The promotional effectiveness, our shrink management, supply chain improvements, better buying, mix management, 5 things we focus on. These are all we think of as tailwinds on gross margin. Mix would be including some of the meals programs I talked about, pretty good gross margins on that. Now our intent would be never to get carried away with just delivering the bottom line through gross margin. So we'll be prudent about investing some of those gains back in so that we can remain competitive with the customer, okay? Now what we're finding in our P&L is that -- and what you're seeing again and again, is that when we drive volume through our stores, our business, you get fabulous flow-through, right, which is why we feel confident about our EBITDA, about our EBITDA being much stronger in 2021 than we imagined because we -- if there's even a little bit more volume than we thought in 2019, rolling it forward to '21, a lot of that gets flown through our P&L. So that's how I think about it, Ed. And I'm at a place -- I'm going -- with 8 months in the pandemic, we're sitting here, it's October, our new fiscal begins in March, April, and you start going at some point in March and we're going to really see some level of demand going into the first half of next year that's going to be higher than what we imagined. That's how I'm, at least, I've framed it in my mind. I don't know if that helps you.

Is it unreasonable to think that your incremental margin, if I look at $21 versus $19, that the incremental margin on that could be in the mid-teens?

That's not unheard of...

[ That's not in our ] assumptions, right?

We have not completed our analysis fully for 2021 yet. We'll give you guidance on that in a future quarter. But that's currently where we're running.

That's correct.

That's consistent with what, as you said...

Within the incremental flow-through margins. Yes, that's right, Ed. I mean, that's the nature of the business because we're driving -- think about it this way, all our growth is coming without adding square footage. When you don't add square footage, you don't add a lot of cost.

So -- and I asked that question because it just gets me into one follow-up, which is there is some concern that on the other side of COVID, right, everybody's going to have a negative ID. Probably less negative maybe than what you would have thought if the 2-year stack was just normal. But there's concern that maybe companies will promote around that to try to keep share. And basically, I think what you're saying is that you'll be happy to look at a strong 2-year stack to evaluate the business and not necessarily just an absolute decline in the ID in terms of how you think about trying to defend share.

Yes. Think about it as dollars. But I want to be clear, I mean, if the environment gets there, we have the wherewithal to compete, right? And the wherewithal is from the -- both the gross margin initiatives I talked about and the productivity initiatives that we've talked about. And so we have the wherewithal to compete. And I don't know -- I can't predict what happens on that front in the next 18 months.

The next question is from the line of John Heinbockel with Guggenheim.

Let me start with -- you guys have talked about your natural maturation of loyal customers. How has COVID changed that, right, in terms of progressing up the scale of loyalty, particularly with the new ones, the new people you've picked up? Has it accelerated it much? And are they engaging with more loyalty programs quicker than they had before?

They are, John. This is like airline miles: if you don't fly, you don't care. If you fly a lot, you care a lot more about the airline miles. And that's exactly the phenomenon we're seeing. We're seeing more people getting in and more people accelerating up the ladder. And what that gives us -- so let me tie that now to customer retention. What's beautiful about that is because we know that these people are highly engaged and we have their data, and now they're engaging in a broader set of categories than they did in the past with us or they're new and they're just -- now we know what they're buying, we can start targeting, and we're targeting in an extremely personalized fashion incentive so we retain them. So that's the approach we're taking. So we're seeing incrementality from loyalty, and we're also seeing that incrementality come through from eCommerce.

Okay. And then maybe as a follow-up, when you think about -- as you parse out maybe by category or customer, right, dive into the particulars, when you think about the share you've picked up, is there any way to divide that, right, share from food away from home versus share against other retailers? The point being, right, if it's share from food away from home, if that's the bulk of it, if that's a lot of it, that you probably don't have to react promotionally to that, right, you and other retailers, if that's the bulk of the share gain as opposed to you've taken it from other retailers in the food and home space? Can you parse that out? Is it 75% is from food away from home, higher, lower? Do you have any way to do that?

John, the only -- we track -- we have different customer segments. And one of our customer segments is, we call them, they are -- they like cooking from scratch. And that customer segment, I think, is up about 48%, okay? And what's fascinating there is we break them up into those who are quality seeking and those who are value seeking, both of them are up from a cooking-at-home standpoint. So for those -- and we're seeing that phenomenon broadly. If you flip it around and look at categories that are selling well, those are also cooking-at-home categories, right? And so we don't have -- I can't tell you how much we're pulling from restaurants, but you're right, though. One thing I'll leave you with is -- I try to think about how much of our total growth is coming from just the tailwinds that all of our -- all retailers are having versus how much of it is coming from market share. And I would -- our belief is that at least, in my calculation, at least 40% of our growth is clearly coming from market share gains, which we hope to -- we will retain as we go forward.

The next question is coming from the line of Scott Mushkin with R5 Capital.

I wanted to start off -- unless we've hit on the short term yet, I want to do that, and then I'll ask a strategic question. So we got some big holidays coming up, and I was wondering how you guys are thinking about that as we get COVID moving higher and how you're planning for that.

Yes, Scott, the surveys we have done, it's clear to us that from our customers, there's going to be more home gatherings but smaller home gatherings, right? And then we also believe that customers are going to shop a little earlier. So we are preparing for that. And so while we would have typically done and started building up our supply to meet what -- the demand gets concentrated, as you know, for Thanksgiving and Christmas. As we -- so -- but we're just buying a little more of it because we know that there's going to be more demand than in the past for the holiday. So that's how -- and what I don't know, Scott, is we are, from an associate standpoint and a customer standpoint, incredibly well prepared if the second wave became more severe from a safety standpoint. I'm just hopeful that we won't see a big run on demand like we did in March, April, that people will be a little more steady state, which is the kind of behavior we're seeing today.

And you guys prepared for an acceleration though if it were to take place.

We are. We are prepared for that acceleration, both from a supply standpoint and from a labor standpoint.

Terrific. And my second question is really much more strategic. Obviously, we all saw you guys make a small acquisition a couple of days ago. And this goes into kind of being more offensive stance. I think, Vivek, you talked about what a better position the company is in. And so I was wondering if you can maybe talk a little bit more about M&A as a growth factor. Would you ever consider some larger transactions? And if you were, will you be looking for them to be accretive right away? And how are you guys just framing that?

Yes. So let me give you an exact -- so Kings and Balducci's, why were we excited about that? First, it's a market area where we are absolutely crushing it. And so this business allows us -- Kings and Balducci's allows us to extend our presence in that market area, okay? Second, at the price at which we got it, it is accretive on day 1. And third, we think there's a lot more synergies there, especially in the back end of that. So we like those, Scott. And as those come up, we'll do it. And -- but our first priority is to continue to build, get more growth and more productivity about the existing asset base that we have. And then we look for these types of acquisitions. And you know that you never want acquisitions to become a distraction. So we'd like these tuck-ins that help us quickly assimilate them and deliver value.

The next question is from the line of Karen Short with Barclays.

Just actually following up on that. I'm actually wondering, could you give a little color on what the actual EBITDA multiple, if they even generated an EBITDA multiple, was of Kings and Balducci's? And then you just made a comment regarding synergies. Wondering if you could quantify that in any way in terms of what you saw of the synergy that was...

So Karen, what I can tell you is that the multiple we paid for that is well below the multiple we were trading at, okay? That's why it's so accretive from day 1. Yes, they were generating EBITDA, but we got it for a terrific multiple. That's what I think about it. Second, recall, in the Mid-Atlantic division, we just had closed one of our DCs. We went to -- consolidated to a DC. We've consolidated 2 divisions there. What used to be Acme and what used to be...

Eastern.

Eastern. Yes, Acme and Eastern are now called the Mid-Atlantic. And so a lot of the volume -- we can also see a chunk of the volume there for Kings and Balducci's going to our existing DC, right? Our intent would be -- remember, those are -- Kings and Balducci's is like -- for us, it's like Haggen. It's like Pavilions. And we love these premium banners that give us a nice niche, and we're starting to get some degree of scale in that. So we can start thinking about how we can get merchandising synergies across the country in these premium banners and then the back-end synergies with the local market and the distribution centers and the management teams we have there. That's the idea behind it.

Okay. That's helpful. And then on your CapEx, obviously, you called out some things that you are accelerating, and you called out that $300 million increase. Maybe can you just give a little color on how much of that may have been related to the MFCs? And maybe just some color on actual cost per MFC, time line for when those 4 will actually open and then when the 6 for next year would open. And then can you maybe give a little more color on what you think they can do from a volume perspective and also a stem mile perspective?

Yes. So Karen, the reason -- I'll start with, first, the additional capital that we just talked about. The MFC plan was already in the capital. So this additional capital is not related to the acceleration of the MFCs. The MFCs, we had a plan that we just wanted to make sure that we are getting to a place where we can see line of sight to the labor cost that we want in an MFC location. Now we have that, so we are starting to expand it. And so this capital was primarily deployed on the DUG acceleration, all technologies related to eCommerce, remodels and productivity, right? All of which -- many of which, which are pulling forward. Now let me get to the MFCs. The reason we like the MFCs, it does a few things for us. First of all, we find that not only does it reduce the labor cost but it improves the accuracy of the order and it improves the fill rate of the order, the customer's order, right, because you have a lot more of instant inventory, and you don't make a mistake the human makes by walking around a store. We like that. The second thing it gives for us is it allows us to now start saying we can take a catchment area around MFC and dramatically reduce the delivery time. So we think that matters a lot. We think reducing the delivery time from click to delivery matters a lot. And an MFC allows us to do that because we can plop these in different geographies and different markets and so develop a catchment area around it. So that's the plan we're going with. These next 4 MFCs are going to open within this fiscal year and get going. I don't know the exact opening dates, but our intent is to move forward with these. And then in the next tranche that I talked about, we're also exploring different formats that -- so that this MFC may not necessarily have to be tied to a particular store. So we're going to experiment with some of those things, too.

And sorry, any color you could give on what volume they can actually do? And what the stem miles might be?

I don't want to get into the stem miles because that, we think, it helps us think about different solutions, and I don't want to go into that. But you should think of an MFC as doing the volume of a store. That's how we think about an MFC -- about the volume of a store to half a store over a year.

The next question is from the line of Kelly Bania with BMO Capital.

Wondering if you could just give a little bit of a breakdown of IDs, maybe over the past couple of months and as you look out to the back half, just between price, mix, basket and volume, and just how that has progressed and what your expectations are going forward.

Sure, Kelly. We have not necessarily broken things out by customer count and basket size. But similar to what others have indicated, our customer count, just because of the way the customer has evolved, is shopping less frequently but buying a lot more. So you can infer in that, that our customer count's down slightly, but our -- it's more than offset by larger basket size. The key thing that we look at day in and day out is our market share. Is our market share growing, both -- not only in dollars but, most importantly, in units. And we're growing in both of those cases, both against just food retailers and against MULO. So that's how we know if we're winning.

The dominant driver though is unit growth in our business. That's -- and it's the -- the unit growth is what's giving us the leverage, Kelly, in the middle of that P&L. But the dominant driver in our 13.8% is unit growth.

Yes. Hey, and just one other point. Obviously, some of us and our competitors have different fiscal quarter end dates. One thing I would point you to is that if you were to recalculate our IDs on any of our main competitors' quarter end dates, for example, if you were to back it up a period, you would find where our IDs are clearly in excess of each of the competitors. And we think we're leading the market from that perspective.

And I guess, just any more commentary just on inflation and how promotions are impacting that and expecting to impact that in the back half?

Yes. As far as inflation, I'll start a little bit. What we're seeing most recently, we've seen it actually continue to tick down a little bit across the quarter. The most recent period, we were seeing cost inflation of about 3.9%, and that's largely centered on a couple of areas. Meat, poultry and eggs is our largest or highest cost inflation-type department. Actually, eggs are relatively flat year-over-year, but it's the fresh meat categories that are up, but they're off of their highs from earlier this year. So things are kind of coming back into a better place there. On the dairy side, butter is -- has actually come down from the highs earlier in the year, but cheese and milk are now up. So we're seeing some volatility primarily in those areas. In beverages, it's really driven by canned beverages. And that's more of a demand -- a supply-demand thing where there's some restrictions on aluminum supply that's driving that up a little bit there. But that's right at about the average, the 3.9% average. So hopefully, that gives you a little color as to what we're seeing as far as promotions and whatever. We think that, that is rational.

And we will continue to double down on personalized promotions, Kelly.

Perfect. That's very helpful. And maybe just to follow up. As you look at your gross margin, and shrink is clearly a meaningful factor there, is there any efforts or quantification you can talk about in your initiative to kind of keep some of those shrink benefits longer term into the next year or 2?

Yes. So I think it's -- you're right, maybe in your question, you're saying, hey, guys, maybe you're getting the shrink benefit because you're driving more volume through it. Yes, that's part of it. But also recognize we've got a lot of initiatives. I talked to you about VisionPro, I talked to you about FaR. So what VisionPro does very simply is -- we do a lot of production in our store, Kelly, and we may cut the fruit and so on and so forth. And so it gets us to a much tighter production schedule and production quantities, and that reduces shrink. You go into our ordering program, the ordering program makes sure that we are ordering the right amounts on frozen, dairy, et cetera, and that helps us with shrink. So there are technology initiatives that are behind it that are driving these reductions. So they're operational, not just volume-based.

The next question is from the line of Simeon Gutman with Morgan Stanley.

Vivek or Bob, I don't know if you could talk about the 14% ID in the context of what your core customers spent to drive that up versus new customers. I don't know if there's a -- Vivek, you mentioned something about 60% sort of, I think, market share growth. I don't think that's relatable to that, but if there's a ratio that you can think about in that 14%.

Yes. Yes. So yes. So there's 2 types of growth that we are enjoying, right? One is -- I'll tell you the places that I get most excited about, Simeon, is existing customers who are now dual-channel customers, shopping both eCommerce and our store. And there, we see a lot of growth from them. We also have a pool of customers who have come in, who are also just shopping only eCommerce, so we're excited about that. That's the most incremental set we are seeing. Of course, we're also seeing growth in our customers or in our existing stores, driving more growth for us, right? So that's how I'd characterize it. And the incrementality is primarily coming from those who engage on -- the biggest incrementality is coming from those who engage on eCommerce with us.

And has there been any change since the pandemic has started? And again, I'm just -- I'm making these numbers up, but let's say, the ratio that you've suggested is right, 60% versus 40%, is that number changing as the pandemic is evolving?

No, but I want to be clear about what I said. When I do the math, and I try to relate as -- relate how much of our growth is coming from the underlying increase in consumption in our sector versus market share, our market share gains have been steady, have been really steady over the last several months. And that -- those market share gains, in my opinion, depending on the math you do, are in the range of about 40% of our overall growth, right, which is why I come back to -- it gives me confidence that we can -- we should be able to hold on to and sustain that incremental revenue we're getting from market share gains. So that's how I think about it.

Got it. And then just to follow up. On the digital growth, it's largely holding quarter-to-quarter. And can you talk about the progress during the quarter? Was there a dip in it as the economy reopened and then a reacceleration? And then can you talk about the difference in growth through your own fulfillment versus the use of third parties?

Yes. Our own fulfillment growth is faster than the third parties, okay? So -- and the fastest of them being Drive Up & Go. And you can see we said 1,000%. That's a faster growth rate than even the rate at which we're opening up stores. So we're seeing a lot of same-store growth in that. What was the first part of your question again, Ed, sorry -- or Simeon, sorry.

The fact that it's holding up -- it's okay. The fact that it's holding up, are you surprised by it? And did you see any dip and then reacceleration?

Yes. What's interesting, Simeon, is that it's -- you find periods of -- just in the overall business, that you find a week or 2 where the overall market seems to -- so business seems to slow down, then it picks back up pretty significantly. But when I say slowdown, we might see weeks when it's 10% and weeks where it's 13%, that kind of difference in the overall business. And it goes with that, it flows with that rather than one being separate from the other, eCommerce versus store growth.

The next question comes from the line of Paul Trussell with Deutsche Bank.

And congrats on a strong quarter.

Thank you.

So a lot going on from a cash usage standpoint. Maybe let's just take a minute to dig into the priorities and overall capital allocation strategy with the dividend, the new buyback program, just how to think about CapEx maybe even over a longer time period as well as deleverage versus kind of ability to lower interest expense.

Yes, Paul, great question. First, we are in a fortunate position that we are generating a lot of cash. And I will reiterate what we've always emphasized that the first and most important use of cash is to strengthen the business. And you've seen us spend money. Bob talked about the $300 million. That $300 million, if you add it up, it's actually $400 million, you add Kings and Balducci's, it's close to $500 million that we have put into the business above what we thought we'd put into this business coming into this year. And those are all around accelerating eCommerce, accelerating our market position, accelerating our technology investments, accelerating productivity. So those are good, high IRR projects that are in the uses of cash. The second priority on that has been to manage -- to make sure we pay the dividend, which we did, right? The third priority is to continue to manage the debt, either refinancing the debt and paying down the debt. As you know, it's part of our algorithm, and we will continue to do that. And then we see an opportunity in the marketplace, at where we are trading today, to be active in the market so that we can purchase shares and return money to shareholders that way. So that's the intent. That's the approach. But the priority will always be to begin with investing -- to start by investing in strengthening the business. And I hope you're seeing that.

That's helpful. Just a follow-up on gross margins, although we've touched on it on this call already. You've had very strong performance in the first half of the year. I just want to make sure, as we think about that line item ex fuel, what's the opportunity to see further strength from lower shrink and the supply chain gains, leveraging advertising, et cetera?

Paul, there's opportunity there. There's opportunity in our supply chain, there's opportunity in better buying, there's even more opportunity in shrink management. We're rolling out lean best practices in how people do things in store. That drives better shrink management, et cetera. But I want to make sure I register with all of you that our intent is not to keep expanding gross margin, right? Our intent -- we want to get -- we want to expand -- we want to get gross margin upside and tailwinds the healthy way. And we want to always make sure that we are being competitive in the marketplace by investing for the customer. So that's why I'd like to -- we have a healthy gross margin. We'll keep that healthy gross margin, but our real opportunity is to drive more volume through our stores so we can deliver more earnings at the bottom line. That's what I'm trying to convey, Paul. And so we -- yes, we had an 80 bps expansion this quarter. And we'll strive to do that, but we'll always also strive to make sure we're competitive in the marketplace.

Our final question comes from the line of Chuck Cerankosky with Northcoast Research.

You talked about mix management as a big part of what's going on in gross margin, and also, you've got the customer behavior changed by the pandemic. What are you doing to get ahead of where the customer -- where you think the customer is heading, especially in fresh foods and your Own Brands?

Yes. So let me talk about -- let me take this notion of eating at home, Chuck, right? So -- and I'll give you many ways in which we're coming at eating at home. So if you take our Own Brands program, a lot of our Own Brands team, they've pivoted to providing solutions and products that are conducive to eating at home. So we've increased our presence in various categories, flour, et cetera, where people are eating more at home, right? So that's one. But then we're thinking about different things in the store. I'll give you an example. I mentioned our seafood sales have gone up so much, right? And people are eating at home, not going to a restaurant where you might typically get seafood, and our seafood sales are up 40% this last quarter. So that's -- then the third type of thing we're doing looking forward is saying, if people are going to eat more at home, they are going to want things that are easy and exciting, thus, the meals program. So if you go to our United banners, some of these stores are just doing fantastic. You'll find a variety of choices for you, ready-to-eat, heat or cook that you can pick up, go home and you have a meal in minutes. And so we're expanding that notion across 4 more divisions, and we'll keep doing that. And so we think this notion of meals and eating at home is a central part of our strategy, and we'll continue to evolve that. And we are doing many other things that we hope to talk about as we go into the next few quarters.

What banners will get the United program over the second half?

No. You guys will see it as soon as it comes out, Chuck.

Okay. Well, thank you, everyone, for participating in this call this morning. We -- Cody and I will be available for any follow-ups over the balance of the day. And we thank you for joining us and for your interest in Albertsons Companies. Have a great day.

Thank you all.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.