Earnings Call: Q2 2021

Apr 7, 2021

Standing by. Welcome to the Good Food Second Quarter 20 21 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. Please note that questions will be taken from financial analysts only. I would like to remind everyone that this conference call is being recorded today, April 7, 2021, at 8 o'clock A. M. Eastern Time. Furthermore, I would like to remind you that today's presentation may contain forward looking statements about Good Food's current and future plans, expectations and intentions, results, level of activity, performance, Goals or achievements or other future events or developments. As such, please take a moment to read disclaimer on forward looking statements on Slide 2 of the presentation. I would now like to hand the conference over to your host for today's call, Jonathan Ferrari, Good Food's Chief Executive Officer. Mr. Ferrari, you may proceed. Thank you. Good morning, everyone, and welcome to this call for Good Food Market Corp, in which we will present our financial results for the Q2 of fiscal 2021 ended February 28, 2021. I'm pleased to be joined on the call today by Neil Caghi, Good Foods' President and Chief Operating Officer Rania Lowandy, Vice President and Interim Chief Financial Officer And Ross Awomir, Senior Director of Financial Planning and Investor Relations. Our press release Reporting our Q2 results was published earlier this morning. It can also be found on our website at makegoodfood. Ca and on SEDAR. Please be aware that we will refer to certain metrics and non IFRS measures. Where possible, these measures are identified and reconciled to the most are in Canadian dollars unless otherwise stated. Now turning to Slide 3, which outlines our key financial highlights for the Q2. Our results this quarter continue to demonstrate the strength of the acceleration in the adoption of online meal solutions and grocery shopping, as well as Good Food's long term strategy and leading position in these markets. Indeed, we've seen strong performances in key metrics that have driven record financial results this quarter. During the Q2, we continued to experience outstanding growth accomplishments while also managing significant business and human challenges. Our employees have worked hard to make our vision of putting good food In every kitchen, every day become a reality and responded to the essential meal planning needs of Canadians, while operating under enhanced safety protocols For believing in our vision and for your dedication to our members and our company. This important quarter, Marked by continued growth and solid performance in key metrics, highlighting the strength of our operational execution And the success of our strategy, we are pleased to report robust subscriber growth and even stronger revenue growth, While achieving positive earnings before interest taxes, depreciation and amortization, in addition to record levels And several key other metrics. First, we surpassed the CAD100 1,000,000 mark in revenues this quarter alone, A first in the history of the company with revenues totaling CAD100.7 million a growth of 71% compared to the same period last year. Our strategy to expand our product offering and accelerate delivery speed has led to larger basket sizes Our year over year growth in revenues also outpaced growth in subscribers by a factor of 2.4 to 1, Highlighting our members' appreciation for the quality of our products and convenience of our services. Good Food Now accounts for a larger share of our customers' grocery baskets than ever before. 2nd, our strong operational execution has further expanded our gross profit To reach the record CAD30.6 million or 72% more than in the Q2 of fiscal 2020. On the back of gross margin, which stood at 30.4% this quarter, a decrease in incentives as a percentage of revenues resulted From more targeted marketing campaigns, a reduction in delivery costs driven by our last mile delivery initiative An increased density and improved packaging unit costs as a result of economies of scale and same day deliveries, Which often reduce the need for additional packaging like boxes and ice packs drove this strong performance. Third, we are pleased to report a 4th consecutive quarter of positive EBITDA. This reflects not only growth in revenues and gross margin improvement, but also an efficient operating leverage driven by lower selling, general and administrative expenses As a percentage of revenues, adjusted EBITDA was CAD 0.5 million For the quarter, we were a margin of 0.5%, representing an improvement of 5.5 percentage points compared to the same period last year. Overall, our financial performance this quarter has been exceptional, driven by our strategy, solid execution the accelerated penetration of online grocery shopping. I will now turn to Slide 4 to share some key business highlights. First, we take great pride in the key milestones and records achieved this quarter. By building and positioning Good Foods, our respond to Canadian strong and sustained demand for online grocery and meal solutions, We have been able to not only increase active subscribers by 30% year over year, but also to provide customers with a varied offering that enabled them to purchase bigger baskets More often as evidenced by revenue growth, which has more than double the subscriber growth this quarter. Our trailing 12 month revenues have now surpassed the $350,000,000 milestone standing at $362,000,000 Moreover, our gross profit growth came in 2.5 times higher than our subscriber growth, demonstrating our ability to 2nd, this performance continues to be driven by our focus on increasing our value proposition to members. This quarter, we continued to execute on our strategy to consistently enhance our customers' experience by launching Good Food Wow, Our unlimited same day delivery service in the Greater Toronto area and expanding its availability in the Greater Montreal area. Our members have responded very favorably to our same day delivery with strong order frequency and basket sizes. Moreover, net promoter scores and brand awareness have demonstrated the great interest our members have for the service. We are very excited to be launching Good Food Wow! In more Canadian cities in the coming year. We have also continued to bolster our product offering, We are well on our way to reaching the 4000 SKU goal set as part of our long term strategy. This quarter, We ran a promotion offering up to 50% discount on the majority of our grocery products. While this highly popular promotion created demand driven challenges, It led to members purchasing over 1,100,000 good food grocery products this quarter, underscoring the market demand for e commerce groceries To include grocery products and ready meals, we also expanded our target addressable market significantly. The CAD130 billion Canadian food grocery market is shifting online rapidly with e commerce penetration increasing every month. As we continue to navigate this acceleration, we are ideally positioned to invest in and execute on our strategy To cement our leadership in the online grocery market, we have over CAD160 1,000,000 of cash on the balance sheet And expanded credit facilities that will allow us to strengthen our operations, build the optimal footprint of centralized production facilities and local fulfillment centers I will now turn to Slide 5 To further discuss our strategy, I'd like to highlight the key strategic components driving our everyday execution. We call this a good food flywheel, which is a great illustration of our strategy to grow long term shareholder value and to create a strong competitive advantage for Good Food in the online grocery business. We've been working hard to build on all of the different elements, which drive and accelerate our flywheel's pace And momentum. Our strategy is simple. We grow our customer base and gain market share by ensuring a world class experience for our customers, By increasing selection and flexibility and by investing in automation and growing subscriber density, we use leading edge technology as a powerful lever To improve our customer experience and operational capabilities, this allows us to maximize and optimize the customer experience And value proposition for our subscribers, while increasing our profitability per subscriber, which in turn allows us To continue to invest and enhance our value proposition and attract more customers. And so, Roll is a flywheel, Driving our passion to provide our members with the best possible good food experience, while creating the economic moat to maximize long term shareholder value. On that note, I'll now turn the call over to Neil to go over our financial performance in detail. Thank you, John. Good morning, everyone. Turning to Slide 6, which provides details on subscribers and revenues. The acceleration of delivered to home e commerce grocery and meal solutions adoption combined with Good Foods enhancements in delivery speed, product offering and customer loyalty have allowed us to achieve record results this quarter. Subscribers grew 30% year over year to reach 319,000 Revenues showed significantly higher year over year growth of 71% to hit record levels of $100,700,000 Up $41,900,000 compared to the same period last year. It is the first time in Good Food's history that we generate $100,000,000 of revenue In a quarter, a great milestone that we are very proud to have reached. The increase in revenues were primarily driven by sustained order rates and bigger basket sizes purchased by which were a result of an increased product offering as well as strong additions of new subscribers. In summary, more customers are buying bigger baskets Also, the stronger revenue growth compared to subscriber growth underscores the success of our strategy to broaden our grocery Product offering to fill a larger portion of customers' baskets. While we incur some volatility in subscriber additions And see uneven demand dynamics over the next two quarters as the warmer weather continues to kick in, the vaccination campaign gains momentum and The restrictions are lifted. We are confident that our strategy will help us build the key pillars for success in fiscal 2022 and beyond. Our top priorities will remain building the right selection of products for our customers and adding more flexibility and speed to our delivery capabilities, thereby enabling Good Food to succeed in the long term penetration of the online grocery market, a market still in its early days in Canada. Please now turn to Slide 7, which looks at our profitability levels. Our gross profit increased To $30,600,000 a record or a margin of 30.4%. Gross profit grew 72 It is important to note that the impact of The January grocery promotion week is felt most often on gross margin sorry, most felt on gross margin. Still, the increase in gross profit and gross margin resulted mainly from lower incentives as a percentage of revenues due to an efficient marketing strategy, But also from improved unit economics from packaging driven by scale and the use of less expensive packaging for attended deliveries as well as lower shipping costs explained by the favorable cost structure of our last mile delivery initiatives. Benefits from investments in automation have also driven operational efficiencies that enhance our cost structure. This was partially offset by $700,000 of COVID related costs such as personal protective equipment in addition to the grocery promotion we mentioned. We are also pleased to report a 4th consecutive quarter of positive adjusted EBITDA at $500,000 Our margin of 0.5 percent, this strong performance resulted primarily from higher revenues and gross profit, the efficiency of our marketing strategy As well as operating leverage as SG and A as a percentage of revenues continued to decrease year over year Despite significant investments in our people with several key additions in multiple departments and especially in technology. As we execute our strategy, we will continue to invest in technology and hiring key personnel over the coming quarters as we look to further develop A technological and data driven edge in our business model. Our net loss for the quarter increased to $4,000,000 or 0.06 dollars per share. Turning to Slide 8 for a review of cash flows and capital expenditures. We generated cash flows from operating activities of $5,400,000 for the Q2 of this fiscal year. This was enabled by our attractive negative working capital structure combined with the growing scale and a reduced net loss. This is also the first time we generated positive cash from operating activities We're 3.7 percent of Q2 revenue. They were mainly related to leasehold improvements for existing facilities and the build out The facility in the Greater Toronto Area, the continued investments in automation, equipment and technology. As we mentioned in previous quarter's earnings call, our CapEx plans may be delayed by various factors out of our control, including some construction delays and COVID-nineteen pandemic, among other things. As such, finalization of the build out of our second facility in the GTA will likely be delayed to the winter. We are confident we will be able to complete other investments, including other fulfillment centers in order to achieve our growth and profitability plan with no disruption as we have realigned our investment priorities to ensure our operational capabilities would not be affected by this unexpected delay. For fiscal 2021, we plan on investing in the $20,000,000 to $30,000,000 range in capital expenditures, Implementing the infrastructure for same day delivery of 4,000 SKUs across the country and further increasing our automation and technology. We expect our CapEx investments to be meaningfully higher in fiscal 2022 as we roll out same delivery same day delivery to more and more Canadians, Focusing on automation to reduce cost to serve customers and other initiatives as detailed in the Use of Proceeds section of our latest MD and A. We also ended the quarter in a solid financial position with cash and cash equivalents of $163,000,000 We have great flexibility to grow from current levels, withstand headwinds and execute on our strategy. Finally, we would like to turn to Slide 9 to provide some color on our outlook. E Commerce Grocery and Meal Solutions Shopping were already 2 of the fastest growing markets in the world before the current pandemic hit over a year ago. Since March of 2020, The strong growth was significantly accelerated and we have seen bigger movement to grocery shopping completed online. We have seen this shift Be sustained for over a year now and again this quarter. We expect the shift to continue over the coming years even if at a different or uneven pace as consumers adopt the convenience of having received grocery items ordered online and delivered directly to their home. We expect trips to physical grocery stores to continue to decline over the coming years. Our online platform and delivered to home fulfillment model have supported this trend And a strong growth in demand and we are now more than ever investing in operational capabilities, people and technology to continue supporting this shift. The pandemic has brought significant challenges and opportunities and precisely evaluating the full range of near, medium and long term impacts remains difficult. We anticipate that a significant portion of grocery and food consumption traditionally done in stores or restaurants has shifted and will continue to shift online. The trends we began to see in March April of last year continue to crystallize over time as evidenced by the strong demand seen this quarter. With the vaccination campaign accelerating, economies reopening, but also the 3rd wave currently impacting daily lives, we may see a Choppy short term subscriber and demand conditions, but we have strong confidence in the long term shift in consumer behaviors That have been accelerated in the past year and our belief in our strategy and thesis remains strong. Investing in our strategy to build the number one direct to consumer grocery technology company continues to be our main priority. With Good Foods footprint Purpose built fulfillment centers, investments, increased selection, customer flexibility, scale, density, Automation and Technology, we are in a great position to capitalize on these cementing behavioral shifts. We are thrilled that this strategy has had the intended effects of enhancing our profit per subscriber, which has in turn allowed us to continue growing. As we continue to invest in this strategy, we recognize that we are still in the early days of digitizing one of Canada's largest industries. We are making tremendous progress on building the economic moat around our business that will give Good Food an incredibly valuable long term competitive advantage, And this quarter's performance and financial results has been another great example of that progress. This concludes our financial highlights for the Q2 and our prepared remarks for today. We will now be pleased to answer any questions that you may have. Thank you. Your first question is from Martin Landry of Stifel. Good morning. Thank you. My first question is on your grocery You had a successful promotion in January. And I was wondering if you can share A little bit of more details, perhaps more on your uptake rates that you've reached this quarter with your grocery items. Absolutely. So we through the private label grocery 50% off promo, The timing of it was unfortunately during Additional lockdown measures and curfews that were being put in place in Montreal, for example. So The promo created some operational challenges that led us to Have some delivery delays and have some impacts on quality credits during that period. The flip side of it is we were very pleased with the amount of customer demand that we received. About half of the customers that were placing grocery orders with us were doing so for the first time. And then within the same quarter, we actually saw a significant amount of those customers come back To reorder within the same quarter, and we expect that the stickiness and the continued penetration That this promo created will continue to last into future quarters. So the takeaway from our perspective is There's a significant amount of demand within our customer base to try our grocery products for the first time. Once customers Are made aware of it and have an incentive to give it a try. The ratings of the products are very high. The reorder rates Are quite sticky. And so from an operational and execution perspective, if we were to do a similar initiative again in the future, I think we would try not to plan it during additional lockdown measures, 1. And 2, We have a much better sense of the type of demand to expect, which was far beyond our best expectations. Thank you. That's helpful. And maybe one more if I can. I'd like to get A little bit more details on the Good Food Wow customer. You've been offering this service for probably more than 8 months now in Montreal and you're starting to offer that service in Toronto. So I'm wondering if we can compare and contrast A good Food Wow customer versus a regular customer in terms of basket size, order frequency and profitability, Just high level, it would be super helpful. Sure, perfect. So we as you mentioned, we launched Wow! Our same day delivery service in Montreal in 2020 and then early Calendar 2021, we launched the same day delivery in Toronto. The comparison in terms of users and behaviors versus our meal kit subscription, I would say the basket sizes are a little bit smaller, but not To a point where the economics of the delivery are not attractive, of course, And the order frequency is higher. And so the behavior of the customers They're engaging more often on an on demand basis with same day delivery Versus our meal kit subscription. I think the other key difference is the Composition of the order, so there are the Meal kit subscription order will tend to be primarily meal kit products in the order with A few add ons of the extra assortment that we have in our prepared meals and grocery products, whereas the Wow customer Is engaging much more flexible with much more flexibility across our entire assortment. And then I think the other key point in terms of customer behavior differences is the weekly meal kit subscription Really appeals to the type of shopper that has like a solid weekly routine and cadence. So where the customer knows What they're going to be doing next week, how many meals they're going to be needing approximately next week, Works really well for families and for customers that have that weekly routine set. For customers that tend to be A little bit more just looking for on demand, right, like being a little bit more flexible in what they're going to eat when, not planning as much, Really looking for the convenience. That kind of customer is really fitting well into the Wow experience. And I think the other reason why the Wow! In the same day NPS Scores are so high is being able to eliminate that packaging. So through our refrigerated last mile, We're able to eliminate the refrigerated packaging and the ice packs, which is It's a great move for the environmental sustainability of our platform and it also reduces some costs The packaging and so creates a little bit more value for our customer. Okay. That's helpful. And Just to follow-up on that, where is the gross profit per subscriber For Good Food Well versus a regular customer, is it lower right now and moving up as you offer more items? Or where does it stand? Yes, I would say the gross profit per subscriber is at an attractive level today. As we build out the capabilities to more efficiently pick and pack grocery products In the investments that we're making in our fulfillment centers and our operational technology, We're going to see continued improvements in that gross profit, and we should be Able to kind of discuss some of those broader investments with you over the coming calendar year. Perfect. Thank you. Your next question is from Frederic Tremblay of Desjardins, your line is now open. Please go ahead. Thank you. Good morning. Good morning. It was mentioned obviously with the whole COVID situation and You guys now lapping a very strong Q3 last year that we may see some volatility in subscriber numbers or demand patterns In the near term, just wanted to maybe get your thoughts or your views on what you've seen in the month of March early April On those ones, if you have any additional color on that? Sure. Happy to share. So we've been Since the start of the pandemic, we've been basically saying, we can't predict What's going to happen next, right, in terms of either lockdown measures, progress in reopening vaccination rates. And so we've kind of taken an approach where we're remaining flexible as we run the business To be able to react to any short term changes, while at the same time keeping our eye on the prize And what we're building for the long term and investing in our strategy, I would say the progress of the vaccination Campaigns in Canada should have an impact, right, on the business in the short term. I think the from our perspective, the short term volatility that might be created by The success of the vaccination campaigns reopening is really We expect it to be a transient impact. We still believe that we're At about 7% or 8% penetration or adoption of online groceries and food in Canada. So it's a market that we expect to surpass 20% adoption rates in the medium term. And so the What we're really making sure of is to be ready to build out the leading Direct to consumer brand in Canada, make sure that we're making those investments for the long term, and we remain very confident about our strategy. Great. Thanks. That's helpful. Other question for me was on the GTA facility with The end of construction being scheduled for the winter now, any thoughts on how that May or may not impact the rollout of Good Food Wow! In the GTA and Ontario in general as well as your overall Ability to support growth in that market? Yes. Hey, Fred. Thanks for the question. I mean, like we said, Similar to John's answer to the last question, COVID is very difficult to predict anything. So changes in construction schedules Supply chain around the world, whether it's food or steel, it causes issues on a daily basis. So we're not kind of surprised by the delays. The good news is we've reallocated resources and brought forward other investment plans to make sure that growth are not going to be affected. The GTA right now has full service of Wow in all the FSAs that we want to service. And we're going to be launching other buildings in Ottawa, expanding our facility in Vancouver and expanding in Montreal as well to support growth across the country. And our current facilities in the GTA don't service 100% of that market. So the Ottawa market will Take some of the volume and Montreal will take some of the volume as well. So overall, it won't be it won't have any short term impacts on the plan. Great. Thanks very much and congrats on the strong quarter. Thanks, Fred. Next question is from Graeme Kreindler of 8 Capital. Please go ahead. Your line is now open. Hi, good morning and thank you for taking my questions. When looking at the average revenue per subscriber in this quarter, this was really the highest result Since that peak lockdown period seen around this time last year. So I was wondering if you could provide a bit of a discussion on Any seasonality impacts for revenue versus subscriber growth in this past quarter? I guess given general seasonality, but also what we saw with the haphazard lockdowns across the country, that would be appreciated. Thank you very much. Thanks very much. I would say the a few of the Key things that have had an impact on ARPU this quarter, certainly, some of the lockdown measures in January had an impact. We also have been really focused in the past 12 months On building out our selection of products and assortments. And so as we build out that selection And over 30% quarter over quarter growth in the selection. We're seeing great uptake rates on our new products. We've also received quantitative and qualitative feedback from our customers that as we're growing our selection, The each new product is another reason to stay subscribed to Good Food or said differently, right, not to churn From good food, but it's also a reason to start a basket. And so, you might start a basket thinking, that you're going to order Some of your favorite cold brew coffee and then once you're actually on our platform, you fill out the rest of your basket with Some meal kits, prepared foods and the larger assortment. So we're pleased to see that. The other thing That worked well for us this quarter was the seasonal mix of our Product offering in December. So we had for the first time ever some holiday meals that were ready to cook For 4 to 6 people, the seasonal offering, we weren't quite sure what to expect Given the lockdown measures that were in place, so we went for smaller serving sizes Then we might have done on a non COVID year, but kind of adapting the product to the seasonal need of our customers Helped us avoid some of the drop in order frequency that we typically see in the December period. And so those are some of the main factors that we've seen have a positive impact on ARPU. Understood. Thank you very much for the color there. Then just as a follow-up to that, you discussed the 30% quarter over quarter increase in the selection. And I believe the selection on grocery is currently at around 750 SKUs. If I recall correctly, the target was to hit about 1,000 SKUs By the end of this calendar year, but it seems like you could potentially be on pace to exceed that target. So I'm just wondering What if the company has any sort of hard targets by the end of the year where it wants to be on SKUs or the sort of grocery assortment there? Thank you very much. Yes, absolutely. So we're really focused on Growing that selection and trying to accelerate the speed of growth in how quickly we build the assortment. And the primary reason behind it is not only the ARPU discussions that we talked about and The positive impact on retention from growing the selection, but also it's really the number one thing that our Wow! And Same day customers are asking for, to be able to fully complete their grocery shopping and kind of create their full baskets With Good Food each week, I would say the pace of growth in selection He is outpacing our expectations. We have certainly built an engine at Good Food That is creating and launching really by far private label grocery products at the fastest pace That any grocer is moving across North America. And of course, that engine is if you kind of think about it, the engine of Building a private label brand includes the category managers that are thinking about how to build The right products within each category are buyers and business development managers that are working with suppliers to Identify the right products, the design team and marketing team and branding team that are preparing the packaging for each products, Regulatory Affairs and Food Safety that's enabling the really the regulatory framework around which We need to operate. And so, there was a significant amount of investment that we've put in upfront into building that engine. And we're really seeing the fruits of those investments come to life today. So we're quite pleased with that. Okay, understood. Thank you very much and congratulations on the strong results. Thanks so much. Next question is from Luke Hannon of Canaccord. Please go ahead. Yes, thanks. Good morning. And thanks for taking my questions. John, I just want to touch on you might have touched on this during your comments earlier About the difference for a typical Good Food Wow customer versus just your average sort of meal kit customer, Does the mix of customers that are, we'll say, younger versus older, I'll say, for older, like 60 and above, Yes, it's a great question. And so I would say, in the past 12 months, we've been Surprised by the evolution of the demographics of our customer base, both on our meal kit subscription And on our Wow! Same day offering, the Wow! Offering is a little bit skewed Right now in terms of demographics also because of the fact that we're only offering it within the major cities, so within Montreal and Toronto In the urban course, and so the demographics are skewing a little bit younger than our Weekly Meal Kit subscription, but that's also partially because of the location and then partially because of the impact that And so we'll have to see what that truly means in the longer term, but that's where we stand today. Understood. Thanks for that. And then one more, if I may. If we look at your the use Your limited time offers during the quarter, obviously, you saw a very strong uptake from that. You saw a lot more Of your customers ordering your grocery items, and there's benefits there for average order values and for order frequency. So I can appreciate all of that. When you think about the I guess why a customer chooses your product versus maybe Some of your brick and mortar incumbent peers, is it mostly convenience factor? Is it mostly a value factor? I know that Price obviously plays into things since your products are at a bit of a discount to the national brand equivalent. But is there anything else that we should be thinking about for why Your customers will opt to choose your products versus some of the brick and mortar peers. Absolutely. So in the research that we've done with our customers, The price which you've mentioned is something that comes up. So our customers are counting on Good Food to And so we're through cutting out some of the national brands and the margin that they would typically make On the products, we are actually able to offer quite compelling Pricing and value proposition to our customers delivered to home. And when you think about it also from A delivery to home perspective, it's important to think about some of the other grocery delivery alternatives such as Instacart, right, through the personal shopper model that will have a shopper drive to Loblaw's or drive to Walmart In order to pick up an order for the customer, because the cost structure of Instacart and the personal shopper It's built on top of the cost structure that exists in brick and mortar retail. We're seeing anywhere between 20% 30% of additional costs and pricing to the customer through the personal shopper model. So there's this attractive combination where because we're vertically integrated, we can offer Significantly more value to the customer by cutting out pieces of the cost structure and then by eliminating some of the national brands Margin, we're able to share that margin between Good Food and the customer. I would say We do have certain private label grocery product categories that are price insensitive. And An example would be our chocolate truffles, for example, which is intended to be a gourmet product, And which is a place where we can make great margin or some of our more food forward products like a chocolate hummus That is a product that might not be available in any traditional supermarkets. So some of the products are actually uniquely designed for good food, whether the recipe is It could be proprietary to us or it could also just be kind of a purpose built product for our customers. And so on those Products, there's a notion and concept of discovery that comes along with it. And We believe one of the most important things that's missing in other online grocery models It's that concept of discovery. So where in other models customers are more or less reordering the same products every single week. We believe that a core differentiator that we're creating is to have that discovery element, something that You might not have picked up on your own. And if you think about it, that discovery element is one of the main drivers Of how customers like to shop in store. So part of the shopping is done through a grocery list that you've pre planned For your shop and then part of the shopping experience in a brick and mortar store is just to walk the aisles And to pick up products that appeal to you on the way. And so we're really thinking about how do we recreate, we literally call it Walking the aisles, how do we recreate the walking the aisles experience for our online customer, so that they're Not just using the search function or the reorder function, that gets old and tired pretty quickly. The last point I'll make is, there are some products in national brands that are Strong enough for the customer to want to plan their weekly shop around getting those national brands. And so we will have a mix in the future that is primarily Good Food Related Products or sorry, primarily Good Food Branded Products With a few national brands that we think can help us win the weekly shop. Understood. Appreciate all the color. Thanks Next question is from George Doumet of Scotiabank. Your line is now open. Please go ahead. Good morning, gents. Congrats on a good quarter. I just want to talk a little bit about the gross margin. There's only 10 basis points of an improvement there Year over year, can you maybe quantify or call out or maybe give us some color on the impact of that 1 week, 50 off on the gross margin. Yes. Hey, George. Thanks for the question. Overall, we estimate the impact to be kind of between $3,000,000 to $5,000,000 Part of that is the discounts that we offered, part of it is Credits that we needed to give, I think as we mentioned, we had to cancel about 4% of orders for that specific week. So It's kind of in that range, the $3,000,000 to $5,000,000 that we would have been higher. There's also some seasonality in the gross margin for this quarter. There's a couple of stat holidays, Christmas and New Year's cost more money to fulfill orders Given that we're open and working, so we should continue to see progression over the kind of Next couple of years in gross margin above the levels that we're at as we invest in more and more automation. Like John was saying, the fulfillment centers are going to take a lot of capital over the coming years And bring our cost to service clients down pretty substantially. Okay. That's helpful. Thanks. And how should we think of incentives and credits? That line has been kind of coming down obviously in the last couple of quarters. But as we certainly always be going to Vaccinations and reopenings, can you maybe talk to that line, maybe how you would expect it to trend in the coming quarters? Yes, certainly. I think The way to think about it is there's part of the reduction in credits and incentives That is caused and enabled by the increasing adoption of So meal kits and grocery shopping across Canada. And so as that Awareness and adoption becomes higher and higher. The incentives that customers need In order to feel like there's a risk free way to try the good food experience can come down, I think as the reopening occurs, there's probably a middle ground of credits and incentives between kind of the lowest levels that we were in the pandemic and where we were before that. And I would say in terms of the strategy that we have On our highly targeted marketing campaigns, that remains true, right? So we're really trying to focus our credits and incentives Towards prospective customers that we think will be the most likely to be Long term good food customers and so the credits and incentives is it's really just one piece of how we think about our overall unit economics And we continuously AB test and work on what the right offer levels are to which customers In order to maximize both growth, but also the lifetime value of the customers that we're acquiring. And we've seen success on having multi basket offers, so discounts on more than one basket rather than A single basket upfront, we found that that creates more stickiness and repeat usage behavior. And so that's something that we've done over the past year that's been quite successful. And then the last piece on credits and incentives, of course, is They're directly related to how many customers, new customers we're actually bringing on board. And so Certainly, in the long term steady state, one in which The growth is normalized. I would say the credits and incentives should continue to improve. But hopefully, I've given you Some kind of short term, medium term, long term guidance on those credits and incentives and our strategies behind them. Yes, John, that was great. Thanks. Just one last one, if I may. We're sitting at about $160,000,000 plus of cash. We're operating cash flow neutral. I think our plans are to deploy $20,000,000 to $30,000,000 of CapEx This year, I know that number goes up in next year, but I mean, it's still quite a substantial amount of cash. So maybe outside of CapEx, Can you maybe talk to some areas maybe where we could actually deploy some of this capital? Yes, George, thanks for the question. I think the way we think about it, we have The $160,000,000 on the balance sheet and we have another kind of $30,000,000 to $40,000,000 of accessible debt financing that we've recently closed. So All in around $200,000,000 Obviously, there's a base amount of cash. I want to make sure we continue to have in the accounts to run the business and account for any working capital investments throughout the quarter. So as the business grows, we need to make sure that, that cash balance grows in a certain proportion, let's say. But as we mentioned, like we're building same day across the country. Amazon has invested billions and billions over the last couple of years in doing that. So We see investing a meaningful portion of the $160,000,000 plus $40,000,000 available in the next kind of 24 months in that Network, and we're really excited about bringing that to other cities, increasing the speed of delivery And heavily automating the facility. So as John mentioned, we have some exciting stuff that we'll look to share in the coming quarters. All right. Thank you. Good luck. Thanks. Next question is from Michael Blunt with Raymond James. Please go ahead. Hey, good morning. Just Is there a point when you look at the Wow versus Mail Kit business, is there a point where we can think about you breaking those apart in more detail, providing Maybe a separation on subscribers and revenue or other operating metrics. Hey, good morning. I think it's something that we would certainly consider doing. Part of the way that we're thinking about both our assortments and our customer base is Over time, we'd like to have really flexibility, right, in terms of how customers can engage with delivery speed And product assortment through the different models, right, and one being potentially an upsell to the other. And so, we'll have to see how the customer base evolves and look at kind of what the Overlap is and what percentage of our customers are actually signing up for both the same day delivery And the meal kit subscription and kind of think about what that means longer term for our customer base. But if there are Relevant segmentations that make sense to disclose, I think that's something that we can definitely do in the future. Okay. And just in terms we've been in the pandemic for over a year. How have you seen the competitive environment on that Good Food Wow business evolve over the timeframe? Have you seen Any significant step up in your peers to compete more readily in this type of offering? I think so we've heard certainly all of the research that we've done within competitors and within our customer base is that when customers are offered A faster delivery speed even at a premium price point, the customer will Kind of at an 80% plus rate, we'll choose the faster delivery. And so, we've seen the Instacart personal shopper model certainly have success with customers. The Sobeys Wella model is built around next day delivery. And so we'll be interested to see What they're able to do there in terms of delivery speeds. And I think over time There is both a combination of the growing market attracting more interest from competitors certainly. Certainly, all of the brick and mortar grocery players in Canada are seeing the evolution and adoption of online groceries Happen much quickly much more quickly than what they were expecting in their longer term plans. And so For those reasons, we are certainly expecting that existing brick and mortar grocers as well as new entrance into This space will continue competing for that share of wallet online. And it's our Objective here to make sure that our offering is differentiated. So making sure that we have Great value proposition for our customers through our Good Food Originals and through our Good Food branded products. And then really think about the key advantages that we have in terms of being vertically integrated versus the personal shopper model. We've had certainly done a lot of research in terms of how our customer experience can be superior to those other models. And ultimately, at the end of the day, we think that with a superior customer experience, we'll be able to attract and retain More customers longer term. And so I think we continue to see how that evolves, But certainly the Canadian shopper is loving our Good Food Wow! Model today. And just one quick one. Any can you give an update on the CFO search and any timing there? Yes, that's progressing really well. So we've assessed the internal and external candidates. We are in the late stages of the process right now. And so we've had Really a tremendous amount of interest. We've had some amazing candidates. And so we should be able to have an announcement in the short term. Okay. Thanks a lot. Thank you. There are no further questions at this I would like to hand the call over to our host, Mr. Ferrari. You may continue. All right. Thanks very much everybody 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. Thank you for participating. You may now disconnect.