Q2 2022 Goodfood Market Corp Earnings Call
Welcome to go good Foods' second quarter of fiscal year, 2022 financial results conference call.
At this time all participants are in a listen only mode.
Following the presentation, we will conduct a question and answer session.
As a courtesy to others, we ask that each participants limit themselves to one question and one follow up.
Instructions will be provided at that time for you to queue up for questions.
Please note that questions will be taking from financial analysts only.
They don't want or has any difficulties hearing the conference. Please press star followed by zero for operator assistance at any time.
I would like to remind everyone that this conference call is being recorded today April 14th 2022 at eight P M Eastern time.
Furthermore, I would like to remind you that today's presentation may contain forward looking statements about good foods current and future plans expectations and intentions results levels of activity performance goals or achievements or other future events or developments.
Such please take a moment to read the disclaimer on forward looking statements on slide two slide two of the presentation.
I would now like to turn the meeting over to your host for today's call. Jonathan February Good food Chief Executive Officer. Please go ahead.
Yes.
Thank you well go about Joseph good afternoon, I've been taught that I'll say about chicken food okay.
That's not the signal kemess it exerts its vendor closer segments.
Good morning, everyone and welcome to this call for good food market Corpus to present, our financial results for the second quarter of fiscal 'twenty, two which ended this march 5th.
I am pleased to be joined on the call today by Neal Peggy Good Foods', President and Chief operating officer.
And Jonathan Reiter, Chief Financial Officer.
Our press release reporting our second quarter results was published earlier. This morning. It can be found on our website I'd make it proved that CA and on SEDAR.
Please be aware that we will refer to certain metrics and non I FRS measures where possible. These measures are identified and reconciled with the most comparable I FRS measures in our MD&A.
Finally, let me remind you that all figures expressed on today's call are in Canadian dollars unless otherwise stated.
I will now turn to slide three which outlines the progress and developments relative to the three key value creating drivers of good food.
During our last call we outlined the three key strategic initiatives. Our execution is focused on and that will drive long term shareholder value.
One we are growing our on demand active customers.
Two we are expanding our on demand coverage by launching high return on invested capital micro fulfillment centers and three we are improving our profitability and cash flows.
Expanding on these priorities firstly, we continue to spin our flywheel through the growth of our on demand active customers.
I wonder about active customers more than doubled reaching 27000 this quarter from 13000 in the first quarter.
As we continue to rollout our marketing initiatives and build coverage. We aim to increase both the penetration of good foods on demand offering and the frequency of orders placed by our shoppers.
Our customers are absolutely loving the flexibility of our 30 minute on demand offering and with a cult like following of our exclusive good food products. We have found the recipe to capture a significant share of wallet.
Secondly to grow the number of on demand active customers we.
We'll expand our footprint of on demand and micro fulfillment centers or mfc's.
I had been spoke fulfillment model is well advanced particularly at the hub level.
Spokes or low Capex high return local mfc's have grown in count as we now have six operational facilities and we will continue to grow that number.
With the new facilities in Ottawa, Toronto, and Montreal now open we are both increasing the availability of our on demand delivery service to more Canadians.
That's increasing the density of our deliveries to further enhance their unit economics.
Thirdly.
We will continue to focus on improving our cash flow and profitability levels and look to achieve progressive improvements in margins and cash flow from operations.
Difficult operating conditions.
We were able to preserve our gross margin by offsetting input cost inflation and oil price impacts through operational improvements.
In addition.
We reduced our adjusted EBITDA loss through SG&A efficiencies.
And had a 5 million dollar improvement in cash flow from operating activities this quarter compared to the first quarter or a 10 million dollar improvement in cash flow from operating activities compared to the first to the fourth quarter of fiscal 2021.
As we will detail later on this call more improvements to adjusted EBIT, our plans and being implemented as our return to profitability is a key strategic value driver.
Overall, given the challenging operating environment. We are pleased with the progress made against our core strategic initiatives this quarter.
The exciting growth and developments in our on demand offering demonstrates that delivery time and exclusive assortment will be key catalysts to online grocery adoption and good food is uniquely positioned.
On that note over to Jonathan writer to review our financial performance in detail.
Thank you Jonathan and good morning, everyone.
I will now turn to slide four which provides details of our topline performance.
Quarterly active customers during the second quarter were stable at 249000.
A 3% decline compared to the fourth quarter of fiscal 2022.
Net sales were $73 million for the quarter, a 6% decline compared to last year.
The active customer count the net sales were the result of two key factors first the second quarter has four less days compared to the first quarter and second the seasonality of the holiday period, returning this year compared to last year.
Within two weeks around Christmas and new year's King lower lower order rate and active customer additions.
As our evolution into an on demand online grocer at meal solution provider continues we expect on demand active customers to be driven by the adoption of a quick commerce delivery of grocery in meal solutions and ultimately driving net sales growth.
This quarter, we reached 27000 on demand active customers and $34 million run rate sales before credits and samples from our on demand offering.
As current micro fulfillment centers ramp up over the coming quarters, and new ones continuing to be launched we expect our on demand strategy to progressively drive our topline growth over the coming quarters and years.
Please now turn to slide five which looks at our profitability levels.
Our profitability levels were stable this quarter with improvements achieve an adjusted EBITDA cementing our commitment to progressively profitably to progressive profitable improvement.
Gross margins were stable at 24% with operational efficiencies achieved by the team and labor costs offsetting increased input costs, driven by global inflation and increased delivery costs driven in part by rising oil prices.
While overall gross margins were stable or meal kit gross margins improved nearly 120 basis points since the first quarter.
Okay.
Turning to adjusted EBITDA, our loss position improved by $1 million.
Our SG&A costs by $2 million this quarter versus the previous quarter and $4 million since the fourth quarter of fiscal 2021 or $60 million on an annualized basis compared to that quarter.
Included in this number is $12 million annualized head count related savings hitting our previously announced multi quarter head count reduction effort expected to generate at the time, an incremental $11 million to $13 million of annualized savings.
I will now turn to slide six for a review of our cash flow and capital expenditures.
Cash flows used in operating activities towards totaled $14 million this quarter, a significant improvement compared to $19 million.
Use of cash from operating activities in the first quarter of fiscal 2022 and $24 million used in the fourth quarter of 2021.
Okay.
It is important to note that improve improving our cash flows can be achieved both through improvement in profitability and improvement in our management of the balance sheet.
As you can see here through better working capital management as well as improved gross margin and lower SG&A costs, we have reduced our cash outflows from operating activities by $10 million since the fourth quarter of 2021.
While we are pleased with the progress made to date, we will aim to continue improving our cash flow position in the coming quarters to ensure we have the financial flexibility to execute on our on demand growth strategy.
We also invested $15 million in capital expenditures this quarter.
The capital invested was mainly related to equipment deposits leasehold improvements to new and existing facilities and the build out of part of our technological platform.
A significant portion of these investments relate to footprint initiatives made in previous quarters with payments only going out this quarter.
These investments are acting as a cornerstone to build a physical and technological infrastructure to support the scaling of our on demand delivery network and Toronto Montreal.
As well as the recent launch of our Ondemand deliveries in Ottawa.
In addition investments to open our digital platform to non subscribers are also part of our Capex plan.
We are pleased to say that our platform is now open to non subscribers and our customers in Toronto Montreal can come to our website at placing an order with good food without having to subscribe.
This initiative unlock the significant new potential revenue stream for the business.
Lastly, we ended the quarter with cash and cash equivalents of $106 million. In addition to the revolver availability, which continues to provide significant balance sheet flexibility to execute our growth strategy.
I will now turn to slide seven to review our path to profitability.
Our path to profitability goes through our three key value drivers one.
Growing on demand active customers to growing our footprint of MFC and three improving cash flow and profitability.
First.
Profitability will be driven by building scale within our Ondemand grocery a meal solution network beginning.
Beginning with our quarterly active automatic customer base.
With less than six months of launch we have already reached over 27000 quarterly active on demand customers I believe that once we reach between 50070 5000 automat active customers you will see the scale in orders that will generate net sales required to breakeven on an adjusted EBITDA level.
Second.
To reach those levels of active customers and providing high level of quality and execution, we expect to acquire catheter 'twenty micro fulfillment centers.
The lower end of the range would support gaining significant coverage in order to track the order mandates.
Customers targeted particularly in the key cities of Toronto Montreal.
Higher end of the range would enable edging towards a higher number of deliveries per hour.
It would in turn support bolstering on demand unit economics.
Third and most importantly, our road to profitability currently requires approximately $45 million of annualized adjusted EBITDA improvements.
We aim to capture through a series of initiatives that we're calling project Blue Ocean.
The key drivers of our improved financial position. In addition to the revenue growth provided by active.
By growing our active on demand customer base will be one simple.
Simplifying our business by optimizing our footprint outsourcing the manufacturing of certain products and rationalizing our product offering in certain areas to optum.
Optimizing our pricing across all products meal kits ready ready to eat meals in grocery products.
And finally, three clean sheeting, our selling general and administrative.
Admin spend from the ground up to ensure alignment with our key strategic goals and our net sales base.
Today halfway through the third quarter I'm optimistic with the progress, we're making on the journey back to profitability.
In April we implemented an additional SG&A cost reductions totaling $12 million of annualized adjusted EBITDA improvements.
Over and above the previously just goes and completed $12 million a head count reduction.
In the second quarter.
Addition, we have also begun to take measures to further optimize our manufacturing footprint leverage lower cost manufacturers for some of our ready to eat meals and optimize our pricing positioning with the aim of improving our cost structure and make further important inroads towards a $45 million of annualized adjusted EBITDA improvements required to bring them.
<unk> back to positive adjusted EBITDA.
On that note I will turn it back to John Ferrari to provide an update on the ondemand strategy and our outlook.
Yes.
Thank you John I will now turn to slide eight.
We are excited with the developments that <unk>.
Highlighting the progress we've made in our strategy to build candidates first integrated on demand online grocery network.
The metrics, we have observed since the launch of our on demand grocery delivery, reaching customers in as little as 30 minutes remain ahead of our expectations across adoption retention rates as well as unit economics, and we look forward to building on that momentum.
We have now reached 27000 quarterly active customers in our on demand offering translating into $34 million and run rate sales before credits and incentives.
On that strong growth metrics driving unit economics continue to perform very well.
Our average order value before credits and incentives since launch has remained in the 60 to $70 range initially disclosed with a significant portion of the order value distribution in the three digits.
Our strong customer basket is key and ensuring we can drive expected profitability levels from our on demand initiative.
And our good food on demand customers had been placing sizeable orders since launch a testament to the quality of our offering and assortment.
Order retention rates have also continued to perform well with our cohorts ordering at an 80% plus rate of their initial order month.
The strong retention levels speak to the addictive nature of the on demand experience.
Similarly, the order rate of the cohorts at our initial Mfc's in Montreal, and Toronto increased to eight to nine times per quarter from seven to eight times last quarter.
As customers develop the habit of receiving a large assortment of groceries and meal solutions delivered to their door in as little as 30 minutes.
We are very pleased with the on demand developments this quarter that highlight the progress we've made in our strategy to build candidates first integrated on demand online grocery and meal solutions network.
Key unit economic metrics, we have observed since launch demonstrates the appeal of on demand delivery to Canadians and we look forward to building on that early momentum.
On that note I will turn it over to the operator for the Q&A portion of this call.
Yes.
Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Your first question comes from George <unk> with Scotiabank. Please go ahead.
Yes, good morning, guys.
On the last quarterly call you mentioned that you expect consolidated revenue growth.
In the summer or fall of this year is that still the target and maybe just give us your overall sense on when you expect that to happen.
Hey, good morning, George.
So I think the.
In terms of consolidated revenue growth.
The expectation is that in the fall of this year is when we'll see that growth coming back.
We're seeing.
Certainly our continued strength in the on demand orders and growth as we talked about it in the script.
On the weekly meal kit subscription side.
As we mentioned last quarter, we can see we continue to see limited growth in the market.
Four weekly deliveries.
Of meal kits subscriptions and so we'll be continuing to focus on growing the on demand piece of the business.
Within our on demand deliveries there continues to be.
About half of the basket, that's meal solutions and roughly half of the basket that is.
Grocery products. So we'll continue to see growth in absolute number of portions and meals that we're selling over the coming quarters and years, but it's unlikely to be through the subscription distribution channel and more likely to be through our on demand offering.
Okay. Thanks for that and just one more if I may can you talk a little bit about pricing.
I know you guys put in some price on the market side.
Does that put us in line with where we need to be in terms of food costs and maybe how our large competitor is tackling that are are they passing through price.
What level of price.
Are you contemplating vis vis them. Thanks.
Yes, definitely so as part of.
Project Blue Ocean that John Ritter mentioned in the scripted remarks.
There is.
The first phase of project Blue Ocean has three key pillars.
The first one is on simplifying the business.
Ensuring that our manufacturing foot print is optimized to the needs of the business. The second piece is optimizing our price our pricing. So we did take some price increases on the ready to Cook.
Meals over the past quarter.
And we see the potential there to continue.
Increasing prices and taking pricing.
On our ready to Cook products meal solutions as well as grocery products.
Going forward.
And then the last piece is based on our strategic objectives clean sheeting, the entire SG&A and ensuring that the organization from an SG&A perspective is built up to support our strategic objectives.
We.
Following the end of the quarter.
As John mentioned, we.
Executed, an additional $12 million $12 million of annualized.
G&A improvements.
And we'll be continuing on that path over the coming quarters.
Thank you.
Your next question comes from Ryan <unk> with National Bank Financial. Please go ahead.
Hey, Thanks for taking my question guys maybe.
Maybe just.
With regards to the meal kit business can you talk about the thought process.
Is it just a matter of not marketing as heavily in that area.
What are the kind of the long term.
Gives and takes on.
Neil Kit.
And the longer term versus on demand.
Yes.
That would be great.
Okay.
Good morning, Ryan Thanks for the question.
So on the four week lead me up here.
Print side, we continue to see.
Heavy promotion in the market definitely.
And so our.
Our take strategically.
Could be focusing in on.
Our on demand offering.
Brian I don't know if you're on mute that a little bit of background noise.
Sure Yeah.
I don't know issues.
So from a meal kit perspective, I think the best way for us to be differentiated in the market and avoid competing.
Purely incentives and price is to offer a differentiated offering right. So.
So the flexibility of focusing in on our on demand meal kits, creating more of a one stop shop for our customers to get a wider assortment of products that our competitors are offering on the meal kit side.
And lastly, offering that flexibility of not having to plan a week ahead being able to receive everything they need within 30 minutes is there really these are the key pillars.
On which we're looking to compete both on the <unk> side and on groceries.
And the last point that I would mention is within our.
Our on demand customers. The 27000 customers that we talked about as it relates to three sets of customers in there. So we have.
Weekly meal kit subscribers that choose to place additional orders in a given week on the on demand platform. We have customers who are brand new to good food and we're reaching them.
With a wider appeal of the offering through our on demand service. So there's a much larger target market there for us to capture than simply on the weekly meal kit subscription side and the last piece is reactivating canceled.
Good food weekly subscribers into on demand so any customers that.
Canceled their weekly subscription because they didn't want to manage the subscription that you have a predictable enough schedule for it.
Or simply didn't have time to Cook every every week at home.
On our meal kits.
There's really a rich pool of customers that we're able to reactivate within our on demand offering.
Okay. Thanks for that and maybe just one last one can you talk about the board change.
What should investors read into regarding any shifts in direction or strategy is there.
Is there any.
At this point.
Definitely so.
Hamlet through Edo capital ways.
One of good foods' first outside investors.
And he has been one of our largest shareholders since 2015.
From.
Having his perspective he is he's really focused on.
Investing in early stage busy.
Businesses and has added a tremendous amount of value to the business and.
And as a partner to good food.
His intent is to continue being one of <unk> largest shareholders.
We included in our press release a link.
To his letter.
Just an open letter you're talking about.
Why he was stepping down from the board and ultimately it came down to a personal decision.
So he's stepping down all of his board then taking <unk>.
Sabbatical over the next year.
So it's he intends to continue being a great supporter of good food and.
It looks forward to continuing to.
Curious on from the sidelines.
So we made the decision.
To replace cabinet seats with another large good food investor.
So.
John <unk> is finished.
<unk> capital's managing partner and founder.
Good foods' largest institutional investor today, and we look forward to.
We have been interacting closely with John over the over the past several quarters.
And we think based on his business acumen and experience in the capital markets.
We we think John is going to be able to add a lot of value to good food and and so we think avnet for all of his contributions and.
And just very excited to have John joining us.
Over.
Over the past board meeting and into the future. So John is really long term committed to investor and is really thinking in years and decades not in quarters and so it's really exciting to have him on the team.
Yes.
Great. Thanks, Jonathan.
And your next question comes from Sidney Ho with Deutsche Bank. Please go ahead.
Thanks, Good morning.
I just wanted to ask maybe on the on the product assortment.
Given that meal solutions are a differentiating factor for good food and the on demand space for some other.
Quick commerce players.
And contributing to App.
Higher average order values would it make sense for you guys in the future to increase your offering.
Solutions is that possible or is there anything else that you can have maybe your thoughts on.
On future product additions in general in terms of category than there.
Thanks.
Yes.
Provisions are part of that moving forward.
Yeah, Hey, Brad Thanks for the questions.
Hopefully it's.
Personally motivated as well as.
First start motivated.
But yes, definitely we see an opportunity to continue optimize collection on that side of the business.
We have.
Playing with different.
Types of offerings, we have the ability with our micro fulfillment center to offer.
Hot offerings as well.
So theres a lot of different things that we think we can play with in the future.
Right now we felt like the selection.
At least a critical mass where.
We're hitting that kind of half of the basket that John was mentioning in.
In the future once we feel like the rest of the selection.
No doubt around.
Grocery and nonfood items.
What kind of refocused the team's efforts on Onvia solution I think theres different meal kit offerings that we can adapt to the on demand.
Customer.
And definitely add day parts that we'll look to take advantage of.
As well as well as seasonality trends that we can take advantage of as well.
Great that's helpful and just maybe on.
Productivity within the MSP that you've opened so far can you maybe just provide a few comments on <unk>.
<unk> that youre looking at maybe.
Average time to assemble an order or waste or like anything that you're looking at within the <unk>.
Any color on how those are tracking versus your initial expectations and ultimate target for that.
Yeah.
One more thought that came to mind for the first question is what I like the <unk> for all of our basket.
Contained meal solutions, they're about 25% higher.
And then the peer grocery baskets. That's another reason that continued to focus on that selection.
As well as we see it being a basket builder someone comes her.
For a meal kit, our mirth solution product.
Rounding out.
80 to $90 basket so.
So obviously very attractive on that side.
To your <unk> question as you can imagine we capture a ton of data and we have multiple daily operational meetings that we're looking at so whether it's.
Time to fulfill the average time to order customer ratings.
All of the cohort analysis and data that John radio is talking about.
In the prepared remarks as well.
So were operationally very very focused on all of the.
The signals that we're receiving from our from.
From our teams on the ground and then from the customers.
What I can say around.
Early success is and you can see better growth we're happy with.
The volume that's coming through.
All of the <unk> and the feedback that we're getting from customers around.
Net promoter scores and retention rates, so that's really awesome.
Have three or four major tech initiatives that will help.
Improve.
<unk>.
The customer service levels as well as our profitability per order, which should start to deliver.
In the coming weeks and quarters, which are really excited about.
And then the last thing is.
As we have launched.
New facilities.
In the overlapping consensus concentric circles that we presented.
Last quarter, where we're starting to see our hypothesis around.
What are the major components around profitability of deliveries per hour come true.
Within the early days, where we're almost in the 3% to five range pretty consistently so.
We're excited about that.
Great. Thanks, one thing I can add on that front as well.
On the topic of deliveries per hour.
So we started a.
Pilot during the quarter.
To get more bikers and E bikes doing deliveries from our micro fulfillment centers.
And we were excited to see in that early pilot that we achieved above four deliveries per hour with.
With our bikers and E bikes and so we've talked about.
Our longer term target of being above five deliveries per hour and seeing about three deliveries per hour in our three kilometer radius around the micro fulfillment centers and so to be able to see the results with our bikers and E bikers.
Such a high number of deliveries per hour at this early stage, it's pretty exciting from a unit economics perspective.
In addition to being really an eco friendly way to get deliveries without any gas any fuel surcharges.
So our customers really love to see their baskets coming.
From bikers on E bikes in addition to being a really profitable way to get deliveries completed.
Great. Thank you.
Your next question comes from Martin Landry with Stifel GMP. Please go ahead.
Hi, good morning, guys.
My first question I was wondering if you can give us a bit more on the economy of your on demand grocery initiatives.
I'm wondering if you can discuss the <unk>.
Customer acquisition cost to acquire and on demand customer currently in.
What was the net revenue per user.
During the quarter for your.
On demand customers.
Yes.
Definitely good morning, MSA, so on customer acquisition.
We have three different ways right as I talked about in terms of how we're acquiring on demand customers.
The upsell from a weekly meal kit subscription.
Towards getting additional orders delivered on demand.
Seen that Thats a.
Really attractive way for us to acquire on demand orders with limited marketing expense.
On the.
Side of reactivating old or cancelled weekly subscribers what.
What we've also seen is that Thats another gold mine for us in terms of low customer acquisition cost reactivation into the on demand platform.
And then from a completely new to good food customer perspective.
That would be our higher customer acquisition cost channel in terms of on demand customers.
But we're happy to see from a blended perspective.
That are our customer acquisition cost is is coming in.
I would say really strong.
And.
Part of it is to you also.
The reduction of friction that exists when signing up to the on demand offering so there isn't a long term.
Weekly.
Subscription or a long term commitment to getting.
A number of meals delivered per week.
However, even without.
That commitment.
What's exciting to see is that we're actually getting twice the amount or three times the amount of orders per quarter from our on demand customers versus our weekly meal kit customers. So by removing the friction.
Moving customer acquisition costs.
Well not trading revenue per quarter and in fact, the revenue per quarter per customer is quite a bit higher.
And maybe I could add to that and I'll say, maybe I could add to that and I'll tell you asked about the lifetime value of a customer so.
We're seeing.
Catching right there.
To five times higher than our weekly prescription and so when you extrapolate that out we're still so much in the early stages right. We're six months into this.
But if you maintain those retention rates the lifetime value of these customers of Macquarie.
Are materially higher than those required on the on the subscription side.
And then I think on your second comment.
If you want to kind of triangulate towards the revenue per customer per quarter, it's eight to nine.
Orders per customer per quarter, and 60 to $70.
That kind of gives you a good sense of whether what the revenue per customer per quarter. It's.
Yes on a gross basis okay.
Maybe just last question on the on demand as well wondering if you can give us.
A bit of an idea of.
How many.
MFC days did you have this quarter, meaning how many mfc's did you have opened during the quarter and how many days, where these mfc's opened during the quarter versus last quarter just to get an idea of.
Your productivity on a on a per day operating basis versus Q1.
Hey, John .
John here Reuter.
Definitely an interesting way to seeing.
The metric and we can obviously get that.
I would think about the six that we have open we said on the last call that we would be fixed by the time, we spoke to you on the journey.
<unk>.
Bye bye by the end of this year, so we kind of hit that target and we continue to move forward.
Glad to have additional openings over the course of the coming weeks and months.
I would say in terms of the additional ones that were opened over the course of the quarter. I mean, I think you can kind of think.
We spoke mid January that was halfway through the quarter. So you knew the number there, which I think was around three.
And then ultimately we.
We progressively opened four five and six up to up to let's say last week through the quarter, but it's a but it's.
Interesting data and we can definitely get that.
Going forward.
Okay. Thank you.
Your next question comes from Luke Hannan with Canaccord Genuity. Please go ahead.
Yeah. Thanks, good morning, everyone.
This question is probably for Jonathan Ferrari, you've mentioned multiple times on this call and in past calls that offering a fulsome baskets.
One of the competitive advantages that you guys have over the other quick commerce players that are out there and thats something that the moat that you expect to be able to defend.
Going forward.
So my question is what underlies your conviction that that's a moat that's going to state going forward and why isn't that something that someone else may be one of the larger.
Brick and mortar groceries for example, why wouldn't they be able to replicate that same sort of selection and be able to eat away at that won't going forward.
Hey, good morning, Thanks for the question.
So I think the.
The first comment or the one that I made earlier on this call was specifically referring to other meal kit.
A weekly meal kit.
Subscription offerings.
So what we've seen is that our customers love the convenience of being able to buy meal kits prepared meals and a greater assortment of grocery products within a one stop shop and Thats, a real differentiator and we think it's going to position us to continue capturing meal kit market share in Canada.
When it comes to.
Other on demand players I think Pete.
Probably the biggest differentiator is around the.
The exclusivity of our assortment and so from a.
Prepared meals perspective meal kit perspective.
The strength of our private brands.
Which is about 80% of our grocery assortment today and what we intend to continue.
Kind of having that ratio going forward.
No other quick commerce.
Layer that we've seen globally.
Or even local brick and mortar grocery stores.
That's been.
That has demonstrated an ability to provide exclusive products like this to their customers and really having that.
Cult like following around some of our key products.
Is it a moat that we intend to continue.
Maintaining.
And we're pretty amazing is.
Not only having that assortment, if we think about our competition from a brick and mortar perspective.
We were really focusing on two key pillars to be differentiated in and.
To build the moat around the business. So the first one is.
The exclusive assortment that we just talked about and the second piece is our ability to deliver.
Within 30 minutes in a in a frictionless experience there is no other.
Competitor in Canada, that's able to.
Brick and mortar grocery competitor anyways, that's able to deliver in the <unk>.
Im frames that we're doing and so.
We believe that we're really uniquely positioned from that perspective and theirs.
A number of moats around that right like theirs.
MFC network that we talked about there is our core you're right. The good quarter your network that we're using to two.
Our delivery is both from an on demand perspective, and a weekly meal kit subscription perspective.
And ultimately the brand that brings it altogether.
So we think these are exciting differentiator is an exciting boats.
And ultimately we're quite happy to see the customer reaction in the NPS scores.
<unk> to be a really high and it is creating great momentum within our customer base.
Okay. Thanks, that's helpful.
Then my second question I guess, it's.
Kind of a two part question you had you had spoken before about those three different buckets.
You have your customers in the mid con demand grocery business where are they.
Sort of come from and to.
The first part of that question is the customers that are brand new to good food how much do they make up of those 27000.
And on top of that.
Well what are you finding for the brand loyalty for those customers that are brand new to good we've seen other competitors quick Congress competitors in the space that are being fairly incentive driven driven and promotional I guess not too different from what we saw from the meal kit players earlier on.
Well I would imagine that the average consumer would be looking to maybe jump around and take advantage of as many incentives as possible.
To I guess get the lowest cost for whatever their basket is just curious to know if you could share what youre seeing there.
Yeah definitely so.
I would say that the new two good food customers.
Represent.
Call it more than 50% of the 27000 quarterly active customers.
And.
The reason behind that is with limited capacity as we scale up we were interested to really.
<unk> opened up our target market and understand.
How new the good food users would be performing.
With our on demand offering.
For those users.
From a return.
Retention perspective.
I would say that they are key in driving the 80% plus retention rates that we've seen.
So from a stickiness perspective.
We loved the numbers that we're seeing there.
One of the key differences certainly between the Utica, good food customers and the existing customers or past customers that are reactivating into on demand.
Is.
Is that the basket size does take a little bit of time to build up so first orders unit. Good key customers tend to be a little bit <unk>.
Smaller and then as they experienced the good food selection on orders 234.
It starts growing larger.
And we're happy to see that they are still interacting with our our meal kits and our meal solutions and so it proves out our point that we will be able to.
Capture more market share and continue growing the number of meal kits sold across Canada with this more flexible offering.
And then from.
From a profitability perspective, we're still seeing.
Even the early basket sizes being large enough to.
To hit our profitability targets.
And as we've talked about.
The Neal mentioned, there's a number of metrics certainly from an operational perspective.
That we track towards.
But the biggest drivers of profitability for the.
Demand deliveries is the basket size that we've talked about and ultimately the deliveries per hour that we're able to do from an MFC.
And.
Within the next.
Five MFC is that we're going to be launching.
Our intent is to have most of those five <unk>.
Help us bring more density within the existing markets and further improve the economics.
And so that will really help us to continue to drive deliveries per hour within the markets that we're serving today.
That's great. Thank you very much.
Thank you. Your next question comes from Michael Glen with Raymond James. Please go ahead.
Hey, good morning.
Just on the SG&A.
Rebuilt that youre, describing can U S.
SG&A in Q2 was a little over $33 million or you with everything happening are you able to give an indication as to what.
Run rate annual run rate quarterly SG&A would look like going forward.
Hey, good morning, Michael.
John rotor here.
So I think from an SG&A perspective, I think just.
The number of that.
I mean, we're looking at is.
I guess.
Yesterday, thats, leading to adjusted EBITDA. So the number is closer to $31 million.
I think it was around 33 in Q1, so you see.
That steady decline decline of $2 million.
Since the first quarter.
And it was even higher than that in Q4 of 2021. So we continue to work.
Downwards on that number.
The first series of.
Cost reductions if you will we announced in December .
It took.
<unk> executed that over the course of the first quarter.
Evenly and so that $12 million was partly reflected in Q1 and then ultimately.
It gets fully reflected.
In the second quarter, the additional 12.
<unk> announced today.
Ultimately for the most part.
Our complete and that was in the.
We're halfway through the quarter right now so.
We will see the full benefit of that $12 million ultimately.
Ultimately it will be.
It would need to see that into Q3, we see the full benefit so there'll be a continuous decline.
As we continue to execute on these.
Initiatives that we laid out and we laid out the door.
Value of $12 million.
No.
That will be partly reflected in Q3, and then ultimately be fully reflected in Q4.
And then in the prepared remarks, we laid out how we're looking at.
Our manufacturing footprint.
Our logistical footprint.
What products are selling how do we selling that and so there is all ultimately more.
Cost reductions that come out.
Because we recognize and so there is a $45 million.
<unk>.
Shortfall, if you will between.
Where we are today of profitability.
And our objective is to work through.
Work through the three different levers, including revenue growth in the.
And the three levers that we laid out.
Is that a power project blue Ocean to ultimately close that gap.
<unk> $45 million.
Okay.
I guess the follow on question to that.
Good food isn't gross company.
Overall, there year on year.
Given the relatively.
New strategy in terms of these micro fulfillment centers.
I mean, the messaging is.
But at the same time.
Got it.
Approaching what appeared to be some.
Fairly significant cost reductions on the SG&A line I'm, just trying to balance the two together like how you are able to.
Accomplishments.
Yeah.
Yeah, I think the key message behind it is we did a lot of.
Heavy lifting over the past 18 to 24 months in terms of setting up.
The private label brand.
New digital experience that John <unk> mentioned in our prepared remarks that open up the platform to be able to purchase products on or off subscription.
So customers today are able to buy there.
On demand orders without any future commitments.
With a 299 delivery fee.
So opening up the platform.
Building out the hubs that we need for our grocery distribution center.
Building out.
The first set of MFC, which are of course, the hardest to get right as we iterate around the right formats and so as these major projects deliver.
We've been thinking about how to ensure that we are.
Taking out the costs that were associated with the with the heavy lifting.
As those projects deliver so I think that's kind of one key piece.
Other key pieces.
Certainly on.
On the meal kit pricing side.
And so we're able to see.
Through some of the previous price increases that we've put through in some of the future ones.
<unk>.
Customers have been receptive and understand.
The price in.
<unk> being passed through to them.
And and I would say.
From a simplifying our organization and ensuring that.
Our entire footprint is really designed to support.
Our strategic initiatives.
We also have some opportunities there to reduce the amount of assets that we have in certain parts of the country. So when you bring it altogether.
As John mentioned, we are executing on the first phase.
Of our Blue Ocean initiatives, but ultimately we do see a path to two.
$45 million plus of EBITDA improvements.
And the team is excited to be delivering on that while simultaneously growing our on demand offering.
Yeah.
And Michael just maybe some additional context.
So obviously coming out of Covid here like every other business around the world and we're coming from a high of five.
$825 million plus run rate of <unk> sales.
And building.
We are a growth driven organization and our team is very growth driven.
It's.
That's our that's our primary focus and trying to provide more value to customers, but thinking about coming off that investing for the future and construction projects take lots of timeframe and a good amount of people to do them well so.
We're just right sizing the organization for that.
Growth business $300 million versus $500 million right now.
But I hope to get back to that number in the not so distant future.
Okay. Thanks for taking my questions.
Your next question comes from Paul <unk> from RBC capital markets. Please go ahead.
Thanks, So much and good morning, just a high level question to start just under the $45 million EBITDA improvement Youre, calling out $12 million in further SG&A reduction the remaining should we think that remaining and a $30 million EBITDA increase is that stemming from driving our revenue.
And operating leverage to get you there.
Hey, good morning.
Very good question so.
I think it.
Let's just recap the levers so the first lever is revenue growth and ultimately.
We are transitioning the business from a purely a weekly subscription business to one where in Montreal and Toronto.
Starting to almost have.
We should have in the coming.
Coming quarters full coverage of the cities of on demand offering.
Growing our quarterly active onto that customers and growing that revenue base is an important lever.
The second lever is.
Ultimately what are the assets that we need to deliver on that promise and reviewing our footprint as well as what products, we're making in house versus those that we can buy.
And perhaps even rationalizing some underperforming product lines or product.
Again that that drives.
Yeah.
You'll see that on the margin side as well as some some SG&A.
The pricing mechanism is that we.
Sure.
Entered the market.
Demand with I think some.
Really attractive pricing.
We see that there is opportunity to.
Ensure that our pricing is in line with what our competitors are.
Our price of that product that both from the meal kit side as well as on the grocery side. So pricing is also an important lever for us back.
Ultimately, we think we still will be bring greater value both from.
From the pure price, but then also from a service oriented.
Nature of our business that were bringing the product within 30.
30 minutes, we think thats.
A third lever and then lastly.
While we've done.
Significant work on SG&A clean sheeting, the organization, what we need as the business further transition over the course of the coming.
Quarters.
That.
Weekly subscription business to one where more and more.
Postal codes and cities have and on demand offering we can continue to ensure that we have resources dedicated to where the growth of the business lines, which is the on demand side of the business and we service the we'd be subscription.
Side of the business with the with the right <unk>.
Count and infrastructure. So ultimately it's all four of those levers and pleased that we in April .
<unk> already started to make inroads very concretely with the $12 million that we've announced.
Okay and my second question just in regards to the on demand business and.
This is asked maybe one way, but I'll try it another way is how do you think about capacity utilization over the next.
Several quarters.
As you ramp up.
The capacity there are a number of fulfillment centers, how should we think about the trend and capacity utilization.
Where we are now where you started and where it would go.
Okay.
Yeah, Hey, Paul so.
A couple of different things I think.
You're referring to Martin's question around like days of MFC operations per per quarter.
So right now.
We've announced publicly is our micro fulfillment centers on average can do about $20 million of revenue.
Some facilities today.
About 50% capacity, but as.
John Ferrari was saying.
Some of the incremental launches that we'll be doing over the next.
90 to 180 days.
We will be.
<unk> focused on.
Incremental demand, but also.
Improving our profitability per order by having smaller delivery radiuses.
So that will help kind of balance the capacity that we're seeing in some of the early centers that we opened.
So ultimately in order to hit profitability, we think.
A minimum of 10 facilities across the three markets that we operate in today.
Required.
And then further from there we can continue to grow so.
Obviously, the $20 million of theoretical at this point based on what we're seeing so far in some of our early centers, we think that could that.
That can be exceeded.
But.
We feel pretty good on the capacity side.
We've got the relief.
Well functioning team.
Thats able to launch these new centers at increasingly low cost.
Since we first launched.
And.
I guess it was late Q1, our first facility we.
We probably brought the cost to launch down by <unk>.
60, or 70% and continue to look at ways to continue to bring that down so.
Hopefully that gives you a little more color, but that's how we're thinking about it.
Yeah. That's helpful. Thanks, I'll pass the line.
Your next question comes from Thai Colin with Hale Capital. Please go ahead.
Hey, Thanks, guys I know, we're tied on time here. So I'll keep it to one question I just wanted to follow up on a comment from earlier in the call that the SKU assortment is kind of sitting at a critical mass now is the company still targeting 4000 skus longer term it looks like you've been lingering around a thousand for a few quarters now and it seems like a lot here.
Quick commerce peers aimed for around 500 to 3000. So appreciate any update you could provide on the thinking there and maybe whether that's evolved at all since you started the rollout of on demand.
Yeah, absolutely. So right now we're actually sitting around 200 to 300 Skus include all the mail solution products as well.
We're continuing to add could be anywhere from five to 50 items, a week and depending on what the team is able to bring to market that could be national brands private label.
Some incremental mass solution product.
Kind of the current selection allows someone to do.
Our core customer to do their weekly grocery shop with us and that's what we're seeing from our numbers.
The long term target still remains 4000.
We think that.
The right mix to continue to expand.
For more and more baskets from our existing customers and then into other verticals.
But.
That's that's where we think.
We will end up we're not in a rush to get there I think we felt a good level of urgency to get to that critical mass that we're at today, but now feel like we have the right assortment that people can.
Can shop regularly with us.
So we're always we're always sunsetting products that we don't get the right margins on or don't have the right ratings on and bringing new ones to market. So you'll see quite a bit of movement.
Heavily focused on bringing alcohol the market, which we have in Toronto, which is going really really well soon to be launching that in our montreal facilities as well.
So yes.
Certainly we will continue to evolve, but we want to make sure we're.
At at.
At doing it.
In what way.
That's great color. Thank you very much.
And there are no further questions at this time I will turn the call back over to the presenters for closing remarks.
Thanks, everyone for joining us.
On this call and we look forward to speaking with you again on our next quarterly call have a great day.
This concludes today's conference call you may now disconnect.
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The host has ended this call goodbye.
A question.