Good morning and welcome to The Kroger Co. Second Quarter 2020 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Rebekah Manis, Director of Investor Relations. Please go ahead.

Thank you, Gary. Good morning and thank you for joining us. Before we begin, I want to remind you that today's discussion will include forward-looking statements. We want to caution you that such statements are predictions and actual events or results can differ materially. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis is contained in our SEC filings. The Kroger assumes no obligation to update that information. Our second quarter press release and our prepared remarks from this conference call will be available on our website at ir.kroger.com. This is obviously an unprecedented time, and we are taking the additional step of providing more details on current business trends this quarter, so our prepared remarks may run a little longer than normal. After our prepared remarks, we look forward to taking your questions. [Operator Instructions] Please mark October 27 on your calendar for a brief business update from Rodney McMullen and Gary Millerchip on our performance against Restock Kroger goals and how the pandemic is shaping our business model. Given the travel restrictions that are still in place, this meeting will be conducted virtually, and we plan to host a full Investor Day in spring 2021, hopefully in person, to share more on the business outlook and key drivers of our long-term growth model. Further details will be shared soon, and we hope you will join us. I will now turn the call over to Kroger's Chairman and Chief Executive Officer, Rodney McMullen.

Thank you, Rebekah. Good morning, everyone, and thank you for joining us. With me today to review Kroger's second quarter 2020 results is Chief Financial Officer, Gary Millerchip. Each day, I'm inspired by the work our incredible associates do to bring to life our purpose, to feed the human spirit. I am proud of our dedicated associates who are serving our customers when they need us most. Our top priority is to provide a safe environment for associates and customers, and as the pandemic continues, we know that Kroger will continue to rise to meet the challenge. Six months into the pandemic, while there is still much we cannot predict, we still -- we have a greater clarity in many areas across the business. Since March, we have invested more than $1 billion to both reward our associates and to safeguard them and our customers through implementation of dozens of safety measures. The company's total COVID-19 incident rate continues to track meaningfully below the rate in surrounding communities where we operate. We have learned and continue to learn a lot while keeping our stores and supply chain open and serving America during the pandemic. We continue to play a key role in addressing the critical need to expand COVID-19 testing. The Kroger Health team facilitated more than 150,000 COVID-19 tests at walk-up and drive-thru locations across the country. Recently, Kroger Health announced the expansion of COVID-19 testing offerings at more than [ 220 clinic ] locations. As the nation prepares to enter the flu season, testing will become even more critical to help diagnose COVID-19 amidst potential similar symptoms. We announced earlier this week a comprehensive flu shot program designed to help Americans get their recommended vaccines during the COVID-19 pandemic. Despite the pandemic-related challenges, we delivered extremely strong results…

Thanks, Rodney, and good morning, everyone. Before getting into our business results, I wanted to echo Rodney's comments from earlier and say how extremely proud I am of our associates for continuing to serve our customers and communities throughout the pandemic. We remain committed to investing to ensure a safe environment for our associates and customers, and we will also continue to use our customer insights to invest in delivering greater value for customers in ways that are most relevant today and that build future loyalty. Results for the second quarter were strong and reinforce the strategic investments we have made over the last several years as part of Restock Kroger. The quarter turned out much better than we previously expected. This was due to several factors, including stronger sales results and disciplined balance between cost savings and investments while also managing cost inflation volatility in key fresh categories. Additionally, fuel performed better than predicted, and we were very pleased with our alternative profit results, which rebounded from COVID-19 impacts more quickly than anticipated. Now I'd like to provide further detail on second quarter performance. We delivered an adjusted EPS of $0.73 per diluted share, up 66% compared to the same quarter last year. Kroger reported identical sales without fuel of 14.6% during the second quarter. Sales momentum continued from the first quarter with identical sales without fuel in June and July trending in the mid-teens. During our final period of the quarter, which runs from mid-July to mid-August, identical sales without fuel were 12.5% as we saw reduced government stimulus and SNAP funding and lower back-to-school activity. Digital sales grew 127% and contributing 4.4% to identical sales without fuel. New customer engagement and with our pickup and delivery services continued to grow and we continue to invest in the…

Thanks, Gary. We provided specific guidance to help you understand how we see the business today. While there are still a lot of uncertainties, we are confident in our team's ability to navigate through this. We are laser-focused on winning with the customer, and our true measure of success internally will be growing market share sustainably over time. As Rebekah said earlier, we have scheduled a call on October 27. We will provide a business update relative to our November 2019 business commitments as well as our overall ESG commitments. We value the impact of an in-person meeting with you and have made the decision to reschedule the timing of our traditional Investor Day to spring of 2021. We remain incredibly confident in both our business model and TSR model and believe that not only 2020 will be strong, but as Gary mentioned, 2021 will be even stronger than we previously anticipated. Now we look forward to your questions.

[Operator Instructions] Our first question comes from Greg Badishkanian with Wolfe Research.

This is actually Spencer Hanus on for Greg. My first question is just, can you talk about the comp trends that you guys are seeing quarter-to-date? And then we've seen ticket growth outpacing traffic growth as consumers combined trips. When do you think ticket and traffic trends get more normalized?

The -- in terms of where we are quarter-to-date, we would still be slightly ahead of double digits. And if you look at -- when traffic returns to normal, it's kind of fascinating. As you look at markets where COVID incident rates are lower or less severe, what we find are people start visiting the store more often but they don't spend as much. But if you look at overall, the trends are pretty similar. That's probably really the only insight that we have at this point. We do find everything that we can tell, people are enjoying cooking at home, enjoying eating as a family. And those are things that we believe will last past COVID. I don't know, Gary, anything you'd want to add to that?

No. I think you covered it well, Rodney. I think we are seeing some gradual sort of, I guess, this return to patterns that customers get comfortable with in a COVID environment as -- continue to see large basket sizes and fewer trips, but we've been encouraged certainly in the second quarter by, well, categories like deli, bakery would be significantly lower than the heightened levels of sales we'd have seen in the last quarter or so from categories like grocery and meat and produce. Deli, bakery is positive again, which I think shows that customers are starting to at least return to some of those behaviors and certainly in areas like specialty cheese and floral. It's really encouraging to see those categories turning to sort of low to mid-single-digit ID sales as well.

That's really helpful. And then in your prepared remarks, I think you mentioned that digital sales were profitable on an incremental basis. Can you provide some more color on that comment? And then how do you expect the launch of a marketplace with Kroger Ship to impact the profitability of the online business?

Yes. Thanks for the question. So the way we think about digital profitability is -- I know we've shared some of this color before, but essentially, we track very closely how a power customer behaves and when they engage digitally, and we see a significant level of incremental sales overall in the customer relationship. Obviously, you have to offset that against the incremental costs that we incur in filling the order for the customer. And in addition to that, then, of course, we're now seeing tremendous growth in digital media revenue that's generated off of a customer spending dollars with us digitally because we can then truly personalize the communication to the customer, and we can close the loop for a CPG partner in understanding whether that advertising led to a sale with the customer themselves. So when we look at the overall impact of the incremental sales, the cost to fill the order and the media revenue, we see a profitability pass-through, if you like, in terms of the transaction from a digital perspective. It's obviously at a much lower level than you would see in the store channel, but we are seeing that profitability flow through on an incremental basis. We believe that there's significant opportunities, as I mentioned in my prepared comments, to continue to improve that profitability. The first would be improving sales mix, and we believe there's a lot of opportunity using our personalization tools to do that. Marketplace would be a good example that -- well, also opportunity to do that as well. So that would be a part of that component where we think continuing to improve the basket size and the type of products the customer has in the basket is definitely going to be a driver of bridging any gap between store and digital profitability. Beyond that, we also believe there's significant opportunity to improve profitability by continuing to reduce the cost to fill an order through automation and process improvement and continuing to grow those digital media dollars. In the short term, we have plans on those areas today. And then, of course, as Rodney shared on the call earlier, Ocado would also be a significant accelerator of those drivers by further improving the customer experience to improve mix and continuing to take more cost out of the model through automation and AI.

Just to add a little bit, and everybody's heard me say this before, but when you look at digital overall, we've always viewed our first job is to make sure we don't lose the customer. And obviously, with our teams, they've done a fantastic job of supporting amazing growth, and that's our technology team, our digital team, our store teams and warehouse. We can now see a clear path to profitability of that. And one of the insights that Gary just shared in terms of the incremental is one piece of that path to profitability. Obviously, all the things that we're working on together, what we're expecting of ourselves is we will get to the point where we're indifferent if a customer connects with us digitally or a physical store. And everything that we can see, the customer actually will do both. And we made great progress on reducing cost to serve on a per customer basis. And then if you look at some of the other pieces of our digital offering like Home Chef, Home Chef had an incredible quarter, both sales growth and profitability as well.

Our next question is from Michael Lasser with UBS.

So Rodney, you mentioned you took share in fresh. How do you think your share in other categories trended? And can you give us more detail behind your decision to reengage in price investments during the period? I think that was something that -- or at least promotions were put on hold in the prior period. It sounds like the overall environment has gotten a bit more competitive in the most recent period. Is that fair?

No. I would say a little differently. We've promoted throughout the pandemic. Now we did change what we promoted because obviously, you want to promote what you have, so we would have not promoted paper towels and toilet paper and certain meat items and things like that because just the availability of supply. But we've had promotions throughout the pandemic and it's really on the things that matter. We continue to invest in price, and we think it's really important that we think customers will look at it reflectively that we've been there to support them throughout to help them stretch their budgets. So the -- as Gary mentioned, waiving the pickup fee, continuing to invest in promotions, continuing to invest in price, all of those are things that we believe will pay off. Our customers will reward us for what we're doing over time. On market share, I specifically talked about fresh, but we continue to gain share in the center store, fresh and all areas of the store, and our own brands continue to gain share as well.

Okay. And so you mentioned the final period of the quarter was -- IDs were up about 12%. It sounds like it slowed a little bit in the most recent period. Would you attribute that to some of the change in unemployment benefits in staff and continued pressure from back to school? And how does that back-to-school pressure manifest?

Yes. If you look at the back to school, there's a lot of moving parts and we think that's part of it. We also think if you look at the holidays, people celebrate holidays differently. If you look at some of the sporting events, people are celebrating those differently. So there's a lot of moving parts, so I think it's hard to say the specifics. I don't know, Gary, anything you'd want to add to that?

Yes. I think it's an interesting time right now, to Rodney's point, because we look at the trend in markets where we try and correlate results to higher levels of COVID cases, and it's become a lot more difficult to really track those trends. There's certainly a small level of correlation, it seems like, between the higher markets with COVID cases and the differentiation where you've got states and markets that have smaller levels of cases. But that being said, it seems like, to Rodney's point, I think more of the trends are being as customers are now adapting to some level of a new normal. And so as you mentioned, Michael, things like back to school certainly impacts for a period of time. I think the government's [ now followed ] in the market. We would say we saw a change there in the final period of the prior quarter and a little bit in this quarter. But then it's like what's the next trigger. So as now we're coming through the back-to-school campaign, what will happen in the final part of the year as maybe customers are less willing to eat out at restaurants in the cold and if capacity is still constrained in restaurants. I share that just because I think there's going to be almost different triggers that it's less, in some ways, what we're seeing in the trends around what's happening with COVID cases, but more about how our customers are adapting to what's the new theme and the new event that causes them to change shopping behavior. I think there's multiple different factors that are going on with the customer. And I think that the combination of all those of what led to, I think, the slightly different trajectory compared to the first 2 parts of quarter 2.

The next question is from Ken Goldman with JPMorgan.

Two for me. First, I wanted to see if you've seen any notable changes in your product sales mix since the stimulus checks have run out. At least in the scanner data that we can see, store brands are still losing a lot of share within the measured grocery channel. But I'm not sure if that sort of corresponds with exactly what you're seeing. I might have expected store brands to do a little bit better right now overall. But I'm just curious if maybe you're seeing anything that's changing in there more recently.

Ken, I wouldn't say that we're seeing anything that's massive type trends. If you look at during the quarter, we would have seen better sales growth in CPG brands than own brands. But if you look at own brands overall, they continue to gain share relative to the market. The -- you continue to see behavior changes based on what's going on in people's lives, but you still see people aggressively -- alcohol sales are very strong, beer and wine is very strong. If you look at big pack, sales are strong. If you look at premium products, sales are strong. So you continue to see people trading up in places where they want to. If you look at, as Gary mentioned, deli, bakery, continue to make progress. So it's -- I love the question, but I think it's still hard to give a specific answer.

No, I understand. And then my follow-up, your FIFO gross margin ex fuel in the first quarter was up, I think, 46 basis points year-on-year. It was up still this quarter, but to your point, it was up less, I think, 5 was the number. Gary, I think you were very clear highlighting price investments as one of the reasons for that deceleration. I just would love to get a sense of what you're looking at for that number going ahead, whether we should be sort of thinking about in our models something closer to the first quarter or something closer to the second in terms of year-on-year. And I know there's all sorts of puts and takes and that's a very difficult one to answer. I'm just trying to sort of poke around a bit and see what you might think about that.

Yes. I think -- thanks for the question, Ken. I think as we've shared kind of consistently, our goal is really to be balanced in the business model and continue to balance the investments we'll be making in supporting the customer, which is certainly our continued intent with the savings that we achieved through sourcing benefits and then, of course, alternative profit being accelerator of gross margin as well. In the quarter itself, where a lot of the focus for us was, as Rodney mentioned, the fee-free pickup is an important part of value for the customer. And we believe our digital sales relative to the more traditional grocery sector is pretty high. And so that's a bigger influence in our numbers, and we believe we gained market share in digital as well during the quarter. So that, I think, influences the level of investment, for one thing. I think the second part is fresh department's inflation was pretty volatile during the quarter, and we saw certainly a [ mean time ] inflation and in meat, produce and deli, bakery, cost inflation would have been higher than retail as we were investing in supporting the customer through the volatility in price and making sure we were building long-term loyalty. So I think we continue to be expecting to invest where it makes sense for the customer, but we feel very confident in our ability to balance those investments with cost savings through Restock Kroger, sourcing benefits and continuing to see leverage in things like shrink, warehouse and transportation and advertising. So I think the key message from us would be balanced and very consistent with the long-term growth model that we shared.

The next question is from Rupesh Parikh with Oppenheimer.

So I want to start off, I guess, with just your capacity on click-and-collect. I was just curious where you guys are today from meeting all the demand out there for click-and-collect. And then related to that, I was also curious whether you think the removal of the pickup -- or the temporary removal of pickup for you is contributing to some of the share gains you're seeing?

Yes. In terms of capacity, we're constantly adjusting the capacity during the day because as people get used to the new normal, the times they want pickup slots constantly change. It's one area where I've been super proud of our teams, both stores and our data and technology and operations team in that constant adjusting and incrementally hiring people. There are stores now where we're aggressively investing a little bit of capital to be able to expand what's available within that store, and when we do that, that will allow us to add slots as well. So I would say the constraints on slots would be a slight opportunity, but I think the teams have done a great job of continuing to expand. The removal of the fee for a pickup, the temporary removal, is we look at it more in terms of trying to help a customer stretch their budget and try to be helpful in this environment. Customers still tell us the reason they like our pickup experience is really the freshness of our products and the quality of that and the assortment that we offer. So it probably helps, but I think it's more driven by the experience in the fresh side than waiving the fee.

Great. And then I guess one quick follow-up for Gary. What's the right way to think about COVID expenses in the back half of the year?

Yes. I think we wouldn't get into specific numbers, but obviously, we did give you some color on the expense that we saw in Q2. Certainly, we would expect to be able to continue to optimize our operating plan, so we'd expect to provide continued efficiency in some of those plans that we execute on, and certainly, that was the case if you think about our investment in Q1 to Q2 as we're transitioning through the year and learning more and able to optimize our approach. That being said, one of the reasons that cost would have been probably a little bit higher than we originally thought in Q2 was that during the quarter, if you recall, many states, if not all the states we now operate in, are mandating masks, and we decided to adopt that proactively before it happened in many states to really reinforce the importance of safety in our stores and providing the inventory for masks to make sure that during that transition, all of our customers were able to have access to a mask as a new cost, if you like, that we incurred. So we're being very dynamic in the way we're managing those costs to make sure that we're, first and foremost, maintaining safety, and then secondly, obviously, being as efficient as we can be. But we feel very confident in our ability to manage and balance those costs with the incremental cost savings that we're achieving in our original model. And as I shared in the prepared comments, we've been -- the team has done a phenomenal job in really adapting and adjusting our cost saving plans in light of COVID. And whereas in Q1, we announced that we may have some headwinds on the original $1 billion. We feel confident now we can achieve those. So overall, there'll certainly be those ongoing investments, but we feel confident in our ability to be able to manage them.

The next question is from Karen Short with Barclays.

Just actually on the gross margin, I had one quick follow-up and then I had a bigger question. Can you just give a little color on selling gross margins? I know that's not a topic that we've -- you've talked about on a consistent basis, but I think it would just help from the context of -- you said it drives customer loyalty to continue to promote during this time period and a lot of your competitors are not promoting. So I was wondering if you could give a little color on selling gross margins this quarter versus the first quarter.

Well, certainly, Karen, thanks for the question. It would have been an investment. As you are aware from what we shared in the first quarter, we saw significant benefit in expensing gross sales leverage across warehouse and transportation, across shrink and also across advertising. And while sales obviously tapered in Q2 versus Q1, we would continue to have seen selling -- expecting growth, I'm sorry, leverage on our overall sales results. So to be at 5 percent -- basis point improvement overall on gross margin, that would reflect the fact we invested in our selling growth rate during the quarter. In the areas that I mentioned around continued acceleration of digital pickup, particularly in the fresh categories to make sure we're delivering value for our customers. And then there would also be, I think, an element that's important to mention, mix and the fact that with deli, bakery being a lower factor in the overall sales growth would also have brought down the selling growth rate somewhat as well.

Okay. And then I wanted to just shift gears to digital for a second. So it looks -- I mean you can kind of back into e-com being around the 7%-ish of sales range now. So first, is that accurate? And then I was wondering if you could provide a little bit of a split or a split between what pickup is and versus delivery within that. And then I was wondering if you could give a little more color in terms of basket on each of the different like in-store versus pickup versus delivery. And then last portion of that is just any color on the new customers that you're gaining with respect to digital.

If you look at -- our percent of sales would be a little bit higher than your estimate. If you look at mix between pickup and delivery, it's still predominantly pickup. And we find customers find pickup incredibly flexible on their schedule, much more so than delivery, and that's the reason why they continue to like pickup in a good way. If you look at basket size, basket size would be significantly bigger on pickup versus in-store and pickup and delivery would be pretty similar. On new customers, we're finding -- we're getting a lot of new customers, both in-store and digital both and probably the biggest change for both of those groups. We -- in the past, a new customer would have to earn their right to start getting loyal customer mailings and digital offers and things like that. During this, we've started treating customers as loyal shoppers immediately rather than waiting for them to engage with us for a period of time. And what we're finding is we're having success on retaining those customers and repeat purchases as well.

Maybe I can help you with that, Karen, on the comment about pickup and delivery. As Rodney mentioned, pickup is a significantly larger portion of the overall volume. I would say both of them are growing triple digits, so we are seeing very strong growth in both, but there isn't like a major change in the mix, if you like. Both have continued to grow significantly in the COVID period.

Your next question is from Robby Ohmes with Bank of America Global Research.

Rodney, I was hoping, as a follow-up to Karen's question, can you give us more color kind of on what you're doing with Ocado versus the original plan? And maybe a little more color on kind of signposts we should be looking for in the back half and into next year on Ocado? And then just a separate question. Can you guys just give us color on what happened Labor Day weekend for you guys and how that was or was not similar to last year, et cetera?

Yes. I'll answer Ocado, and Gary, I'll let you talk about the Labor Day weekend. When we have our investor meeting in March, we'll get into a lot more details on Ocado. If you look at, obviously, the first initial part of the 2 first sheds that we'll open in Monroe, Ohio and in Florida, we'll be just scaling it and the assortment that customers have a desire for in that offering versus some other offerings. Those are 2 key parts. We will get into specific signposts in terms of how to hold us accountable. We're using the learnings from Ocado in terms of what they have in the U.K., obviously in Canada and France. And it will be taking all of those learnings and then making sure we manage the cost of the start-up as well. So we're excited. We can't wait and we wish they would have opened a year ago.

And then Robby, on your second question, I would say, probably the broader comment I would make is Rodney shared, we're still trending in double-digit sales in the early part of the current quarter. It's a pretty difficult period to read, actually. It's probably the most important point, I would say, because the Labor Day weekend changed by a week, but we're also cycling weather from last year and then having some weather in this year. So it's been a really interesting, I would say, ride for the first 4 weeks of the new quarter and trying to interpret what's going on. If we look at the cycling and adjusting for the weeks, I wouldn't say we really saw anything materially unusual out of Labor Day, except for some of the weather events in certain markets adding some complexity to the data. But overall, as we're coming out the other side of that, as Rodney mentioned, trending in the low double digit early part of the quarter.

That's helpful. And then one quick just follow-up on digital in those markets where people are coming back into stores. Is it -- do you see a significant falloff in digital? And would it be coming more from delivery or more from pickup?

The mix between pickup and delivery is more driven by available slots. We do not -- the growth, it's still triple-digit growth but it would be a little bit slower growth, but it's still meaningful growth.

The next question is from Edward Kelly with Wells Fargo.

Good quarter, by the way. I feel for you guys on the gross margin, by the way, and I wanted to follow up on this because I think there's been some criticism in the market that your gross margin was not up as much as the sell side was modeling. But you're probably doing what you should with this windfall, right? You're investing in price, still delivered a large EPS beat. Others are not investing. So I'm kind of curious, what are you seeing from a price gap standpoint in the marketplace currently, both versus like bigger discount players like Walmart but also your conventional players who maybe seem to be taking advantage of the current environment.

Yes. Thanks for the question, Ed. I think you summarized it well. From our perspective, we believe it's very important that we continue to deliver value for customers and we're staying very true to that plan. And when we look at prices, as we've shared a couple of examples on the call, for us, it's not just about everyday low price but it's about the promotional plan, it's about the investment in digital. And we feel like we're on a very clear path to deliver value for the customer that will drive long-term loyalty. The way that our customers, when we talk to them and how we look at our data and measure value, we feel very good about the position that we're in, and our customers tell us we're delivering strong value to them. And we believe really kind of linked a little bit, I think to Rodney's comment, about how we think about setting up 2021 and making sure that we're winning long-term market share and growing our business so that the -- as things cycle through the pandemic, we end in a stronger position than we would have done prior to COVID-19 is really the journey that we believe we're on to make sure that we continue to connect more deeper with customers and drive value. We feel good about the journey and the results that we're achieving. We feel it's setting us up for the ability to be able to sustain that long-term growth in the future and as [ Rodney mentioned ].

Can I just follow up, Gary, by the way? When you look at the gross margin, we have heard from one of your peers that the end of May, June period was tougher because there was inflation in some of your categories, particularly protein. Was there anything about the cadence of the gross margin this quarter that was notable? Was it softer earlier on?

It certainly -- there's been a lot of dynamic changes in some of those fresh categories as I mentioned earlier ahead that we have to manage through. And I think the team did a phenomenal job in doing that and making sure that we help our customers navigate through that. So certainly, the -- we would just experience some of those same elements to manage during the early part of the quarter, which would have impacted at that point. But I think your initial question is the more important one of how we are thinking about balancing and investing in the business to make sure that we're delivering long-term growth. I wouldn't say that it affects how we think about how we're managing the business for the future.

To me, overall, Gary's last point is the critical one. We really are looking at everything in terms of what will connect us with the customer and position us best for sustainable growth over time and continue to gain market share. And we're -- and that's what we're doing. Obviously, we were able to continue to manage expenses very well as well, which gave us the capacity to invest as well.

And we have time for one last question.

And that question will come from Kelly Bania with BMO Capital Markets.

Was curious if we could talk a little bit about just price inflation mix and tonnage. I know there's been a lot of comments about traffic and basket. But I think the way that you guys tend to look at it is more tonnage. And so just curious if you can help us understand how that's played out in the quarter and what you're thinking about into the back half as you think about that kind of high single-digit ID outlook there between price inflation and tonnage.

We -- tonnage would continue to be strong. We have -- we're still continuing to -- if you look at our supply chain, our team has done a nice job of identifying other sources of capacity. And we are -- have access to warehouses both that we manage on a temporary basis and others that continue to support and manage the tonnage. For me, the thing I find exciting about the tonnage is it's across the whole store. So tonnage growth is strong in center store, it's strong in produce, it's strong in meat, in all areas. So -- and obviously, in terms of the guidance that Gary gave for the rest of the year, we would expect that to continue. We continue to expect cost inflation will be a little bit more than retail inflation. And those are categories where it's more driven by short-term things. If you look at meat, we would expect meat inflation to be more normalized, and as it more normalizes, then you would see our balance between the 2 very close.

Just maybe add to Rodney's comments on tonnage, it ties a little bit back to Rodney's comments on market share as well that we're certainly focused on, as Rodney mentioned, our most important measure of success on sales growth is obviously growing market share. And we look at that very closely through tonnage and units as much as we do through dollars because of the -- again, making sure that we're investing in the customer, and we're certainly pleased with our tonnage market share growth as well as the dollar market share growth during the quarter. And then, as Rodney mentioned, Kelly, we've -- I think you've heard us say this before, but we generally build our model off of the 0.5% to 1% inflation. We'd certainly be running a bit ahead of that when you think about cost inflation, as Rodney mentioned earlier, with meat in particular being high but grocery would be probably a little bit north of 2% as well right now based on some of the trends that we're seeing.

Okay, that's very helpful. And then if I can just ask 2 quick follow-up ones related to digital. I think I heard you mention regarding the pickup fee that, that was a temporary removal. And I guess I was just curious under what circumstances or time frame would you consider bringing that back? Or is that a market-by-market specific thought process? And also, maybe just thoughts on membership. Obviously, a lot of competitive developments with membership and in terms of digital, whether pickup or delivery. So just curious if you're in any way thinking of evolving into something like a membership program over time.

Yes. On the digital fee, it really -- at the moment, we put it in place just trying to help our customers and especially customers on a budget to help them stretch their weekly spending. And what we would do over time, we -- at this point, we really haven't decided, but it's part of the overall value equation that we're providing to customers. On membership, as you know, we continually and have been, for a while, testing various types of membership programs. And when we find a membership program that really works, you'll see us continuing to be more aggressive with it. As everybody on the call knows, we've had a membership program in terms of fuel rewards for years. Now customers don't have to pay for that, and they get the rewards incrementally for free, obviously, and that's something that's been very successful and very successful on sharing value with customers and creating additional customer loyalty, which is something that we've done for several years. So thanks, Kelly, for your questions, and thanks to everyone for your questions. Before we close today, I'd like to start with just a moment of silence and remembrance of the lives lost during the tragic events that occurred on September 11, 2001. Thank you. As you know, I usually take time before we end our call to share a few final comments directed toward our associates. The COVID-19 pandemic continues to challenge and change our country, not the least of which is the loss of lives in America and around the world. I appreciate our associates for doing their part to keep our customers and each other safe, especially for leading by example by consistently wearing masks. We are incredibly confident in terms of the future and the things that we do to take care of our associates and customers. And together, we will get through COVID-19. Thank you for your time today, and have a great weekend.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.