An employee inspects an order of GoodFood as orders are filled and readied for shipping in Montreal, on July 14, 2020.Christinne Muschi/The Globe and Mail
With people staying home over the past few months amid COVID-19 lockdowns, many e-commerce companies have seen explosive growth – and that includes Goodfood Market Corp.
The Quebec-based company produces and delivers fresh meal kits and groceries purchased on its website from its six production facilities located across the country.
This is turning out to be a record-breaking year for Goodfood, with multiple milestones reached. In late June, the company was added to the S&P/TSX SmallCap Index, and last week the company announced better-than-expected quarterly earnings results, driving the stock price to record highs. Management has been on a hiring spree in order to meet the soaring demand for its products. As of May 31, the company had 272,000 active subscribers, up 44 per cent year over year. Despite higher labour costs, higher expenses for personal protective equipment and higher food costs, the company delivered impressive earnings growth. For the first time in its history, Goodfood reported positive EBITDA and net income. (EBITDA stands for earnings before interest, taxes, depreciation and amortization.) Looking ahead, the Street is forecasting sales to grow to $276-million in fiscal 2020, up from $161-million reported in fiscal 2019, with sales anticipated to climb to $357-million in fiscal 2021.
Its share price has roughly doubled in value, year to date. But can the positive price action continue? Analysts believe so. The average 12-month target price is $7.71 with target prices ranging from a low of $7 to a high of $8.50. The stock closed Tuesday at $6.26.
But competition is heating up in this evolving market. For instance, Loblaw Cos. Ltd. recently launched its own meal-kit delivery business in the Greater Toronto Area, offering delivery in select areas between Wednesday and Saturday.
Last week, The Globe and Mail spoke with co-founder and chief executive officer Jonathan Ferrari. The 32-year-old entrepreneur sees a significant amount of growth ahead for the industry and company.
As consumer behaviour has shifted, with more people cooking at home and purchasing food online, your sales growth has accelerated. What would a normalized top line growth rate look like to you?
Our expectation is that the transition from offline grocery shopping and food sales into online grocery shopping and food sales will continue accelerating. What we are seeing in terms of forecasts is approximately a 20-per-cent compound annual growth rate over the next five years – that’s the average of analysts’ estimates for the online grocery industry. Over time, I would expect that Goodfood would follow those growth trends.
We are focusing our strategy around servicing the full grocery basket. We have a total of 300 products. About 100 are meal solutions – ready-to-cook recipes or plans and prepared meals you can heat in the oven or microwave. About 200 items are grocery products – cheeses, mustard, mayonnaise etc. That selection of 200 products will grow to 4,000 over the next couple of years.
How would you prioritize management’s main objectives?
No. 1 is growing our selection for our members. This is critical for us to grow engagement with our customers and grow our basket sizes. No. 2 is investing in capabilities, so we need the fulfillment centres up and running, the technology, all of the operations and processes to be able to continue improving our margins. Also, to unlock these same day/next day deliveries capabilities that our customers are looking forward to. No. 3 is continuing to increase our penetration across the country: Getting more Canadians to know about Goodfood and try our product offerings.
Who is your target audience?
Our largest target audience is millennials. We see them as 1) becoming the largest grocery-shopper age group as the boomers are getting older and millennials are taking up a larger part of spending across all retail categories; and 2) we also see them as being the earliest adopters to technology and to online shopping.
Currently, roughly 90 per cent of sales come from your ready-to-cook meal kits with the balance from three streams: Goodfood branded grocery items, breakfast menu items and ready-to-eat meals. What do you target that sales mix to be three years from now?
We anticipate that approximately half of the business will come from meal kits and the other half will be from grocery products and other meal solutions.
Would you ever consider expanding into other meal categories such as desserts or salads?
We’ve started experimenting with some salads, some appetizers, some desserts like ready-to-bake cookies, for example.
What is the process for approving new products?
That’s the fun part of my job! We have a team of 12 chefs who are developing recipes and leading the product development process. Once one of those products or recipes get to the point where the team feels comfortable that it is going to be a hit with customers, we have a final tasting panel, which I am part of, and we taste it and make sure the flavours are good, the packaging looks good, and the price point is delivering great value to our customers. Once that final seal of approval is complete, it gets put up onto our website. Over the past three months we’ve doubled our selection from 150 to 300 products.
How many new recipes are posted online every week?
On the ready-to-cook side, we have 33 new recipes every week and it’s a rotating menu that changes every week.
Meaning that if consumers liked one of your recipes, they couldn’t order it two weeks in a row?
Currently, that is correct. In the future, we’re planning [to add] a section of our greatest hits or member favourites where members will be able to reorder some recipes.
Of the five categories, which one is your most popular?
Our easy prep plan is the most popular. All of the ingredients are pre chopped so within 15 minutes you can get a homemade meal on the table.
Have you ever thought of having a loyalty program?
It’s in the works.
You used to work as an investment banker. Would you ever put those skills to use and make acquisitions or is your focus still organic growth?
Up until this point, acquisitions have not been a major focus of ours. In the future, it could be something that we focus on in a larger way. But right now, we are really focused on the organic growth.
What acquisition opportunities may interest you in the future?
Our priority right now is to continue building out our presence in the Canadian market. At some point, if we feel that we have built up a solid household brand in Canada, that we have continued to generate not only growth but profitability, the types of acquisitions that could make sense could be more vertical integration within the Canadian market, so going upstream into some of our suppliers or downstream into the delivery or logistics aspect.
Speaking of delivery time, is it still around four to five days or is it shorter in some regions with roughly one-third of orders now delivered through Goodcourier?
Goodcourier, our controlled delivery in a Goodfood refrigerated truck, will allow us in the future to do same day and next day deliveries in many major markets across the country, and our customers are asking for that. Today, it’s approximately five days, on average, from the time our member’s credit card is billed to the time the delivery gets to their door.
Is it fair to say that same-day or next day delivery is a key objective by management to achieve by the end of 2021?
It would be fair to say that. So the big elements that we needed to get in place for same day/next day delivery were No. 1, to have fulfillment centres in every major market, which we’ve completed now, and No. 2, to work on our supply chain and delivery network.
According to your estimates, Goodfood has captured between 40 per cent and 45 per cent of the Canadian ready-to-cook market. You have some large competitors in your space. Amazon may want to eventually enter the Canadian meal-kit market. HelloFresh is a leading international player in this space. Have you been approached by competitors?
We have had discussions with some of those parties. HelloFresh acquired a Canadian company called Chefs Plate and so they've demonstrated a lot of interest in the Canadian market.
Our focus is making sure that we are building out the best business that we can for the long-term – not how do we build something that could be attractive to be sold in the short-term. We need to be thinking about how to create the best experience for our customers and our employees.
This interview has been edited and condensed. An extended version is available online at tgam.ca/inside-the-market.