We're standing by. Welcome to the Goodfood second quarter 2021 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 participant limit themselves to one question, and if necessary, one follow-up question.
Instructions will be provided at the time for you to queue up for questions. Please note that questions will be taken from financial analysts only. If anyone 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 7th, 2021, at 8:00 A.M. Eastern Time.
Furthermore, I would like to remind you that today's presentation may contain forward-looking statements about Goodfood'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 two of the presentation. I would now like to hand the conference over to your host for today's call, Jonathan Ferrari, Goodfood Chief Executive Officer. Mr. Ferrari, you may proceed.
Thank you. Good morning, everyone, and welcome to this call for Goodfood Market Corp., in which we will present our financial results for the second quarter of fiscal 2021, ended February 28th, 2021. I'm pleased to be joined on the call today by Neil Cuggy, Goodfood's President and Chief Operating Officer, Rania Lawandi, Vice President and Interim Chief Financial Officer, and Roslane Aouameur, Senior Director of Financial Planning and Investor Relations.
Our press release reporting our second quarter 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 comparable IFRS 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.
Now turning to slide three, which outlines our key financial highlights for the second quarter. 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 Goodfood'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 second quarter, we continued to experience outstanding growth and 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 to keep everyone safe.
We, as a management team, are grateful to all Goodfood employees 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 EBITDA, in addition to record levels in several key other metrics. First, we surpassed the CAD 100 million mark in revenues this quarter alone, a first in the history of the company, with revenues totaling CAD 100.7 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 and more frequent orders, which, combined with strong subscriber additions, helped us achieve this record performance.
Our year-over-year growth in revenues also outpaced growth in subscribers by a factor of 2.4 to one, highlighting our members' appreciation for the quality of our products and convenience of our services.
Goodfood now accounts for a larger share of our customers' grocery baskets than ever before. Second, our strong operational execution has further expanded our gross profit to reach the record CAD 30.6 million, or 72% more than in the second quarter of fiscal 2020, on the back of gross margin, which stood at 30.4% this quarter.
A decrease in incentives as a % of revenues resulted from more targeted marketing campaigns, a reduction in delivery costs driven by our last mile delivery initiative, and increased density and improved packaging unit costs as a result of economies of scale and same-day deliveries, which often reduced the need for additional packaging like boxes and ice packs, drove this strong performance.
Third, we are pleased to report a fourth 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 % of revenues. Adjusted EBITDA was CAD 0.5 million for the quarter, or 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, and the accelerated penetration of online grocery shopping. I will now turn to slide four to share some key business highlights. First, we take great pride in the key milestones and records achieved this quarter.
By building and positioning Goodfood to respond to Canadians' 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 CAD 350 million milestone, standing at CAD 362 million.
Moreover, our gross profit growth came in two and a half times higher than our subscriber growth, demonstrating our ability to continuously execute strongly on operational initiatives, providing industry-leading gross margin levels. Second, 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 customer's experience by launching Goodfood 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 Goodfood WOW in more Canadian cities in the coming year.
We have also continued to bolster our product offering, which now counts 750 products, up 36% quarter-over-quarter. We are well on our way to reaching the 4,000 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 1.1 million Goodfood grocery products this quarter, underscoring the market demand for e-commerce groceries and meal solutions delivered to homes.
Finally, we want to highlight that by expanding our offering to include grocery products and ready meals, we also expanded our target addressable market significantly. The CAD 130 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 CAD 160 million 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, and invest in increased automation, technology, and robotics.
I will now turn to slide five to further discuss our strategy. I'd like to highlight the key strategic components driving our everyday execution. We call this the Goodfood flywheel, which is a great illustration of our strategy to grow long-term shareholder value and to create a strong competitive advantage for Goodfood 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.
Rolls the flywheel, driving our passion to provide our members with the best possible Goodfood 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, Jon. Good morning, everyone. Turning to slide six, which provides details on subscribers and revenues. The acceleration of delivered-to-home e-commerce grocery and meal solutions adoption, combined with Goodfood's 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, and revenues showed significantly higher year-over-year growth of 71% to hit record levels of CAD 100.7 million, up CAD 41.9 million compared to the same period last year.
It is the first time in Goodfood's history that we generate CAD 100 million 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 subscribers, 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 more often. 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 Goodfood 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 seven, which looks at our profitability levels. Our gross profit increased to CAD 30.6 million, a record, or a margin of 30.4%. Gross profit grew 72% year-over-year, and gross margin grew 0.1%. It is important to note that the impact of the January grocery promotion week was 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 CAD 0.7 million of COVID related costs, such as personal protective equipment, in addition to the grocery promotion week mentioned. We are also pleased to report a fourth consecutive quarter of positive Adjusted EBITDA at CAD 0.5 million, or a margin of 0.5%.
This strong performance resulted primarily from higher revenues and gross profit, the efficiency of our marketing strategy, as well as operating leverage as SG&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 CAD 4.0 million, or CAD 0.06 per share.
Turning to slide eight for a review of cash flows and capital expenditures. We generated cash flows from operating activities of CAD 5.4 million for the 2nd quarter of this fiscal year. This was enabled by our attractive negative working capital structure, combined with a growing scale and a reduced net loss.
This was also the first time we generated positive cash from operating activities in the 2nd quarter of a fiscal year. CapEx for Q2 was CAD 3.7 million, or 3.7% of Q2 revenue. They were mainly related to leasehold improvements for existing facilities and the build-out of the facility in the Greater Toronto Area, the continued investments in automation equipment and technology.
As we mentioned in previous quarters' earnings call, our CapEx plans may be delayed by various factors out of our control, including some construction delays and COVID-19 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 CAD 20 million-CAD 30 million 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-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&A.
We also ended the quarter in a solid financial position with cash and cash equivalents of CAD 163 million. We have great flexibility to grow from current levels withstand headwinds and execute on our strategy. We would like to turn to slide nine to provide some color on our outlook.
E-commerce grocery and meal solution shopping were already two of the fastest growing markets in the world before the current pandemic hit over a year ago. Since March of 2020, this strong growth was significantly accelerated. 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 deliver-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 restaurant has shifted and will continue to shift online.
The trends we began to see in March and 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 third 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 remain strong.
Investing in our strategy to build the number one direct-to-consumer grocery technology company continues to be our main priority. With Goodfood's footprint of purpose-built fulfillment centers, investments in 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 an economic moat around our business that will give Goodfood an incredibly valuable long-term competitive advantage, and this quarter's performance and financial results have been another great example of that progress. This concludes our financial highlights for the second quarter and our prepared remarks for today. We will now be pleased to answer any questions that you may have. Thank you.
As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. Your first question is from Martin Landry of Stifel. Your line is now open. Please go ahead.
Hi, good morning, everyone, and congratulations on your results.
Good morning. Thank you.
My first question is on your grocery promotion. You had a successful promotion in January. 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. 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.
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. Within the same quarter, we actually saw a significant amount of those customers come back to reorder within the same quarter. We expect that the stickiness and the continued penetration that this promo created will continue to last into future quarters.
The takeaway from our perspective is there is 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.
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, one. Two, 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. Maybe one more if I can. I'd like to get a little bit more details on the Goodfood WOW customer. You've been offering this service for probably more than eight months now in Montreal, and you're starting to offer that service in Toronto. I'm wondering if we can compare and contrast a Goodfood 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. 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. The order frequency is higher. The behavior of the customers is 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. 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 with much more flexibility across our entire assortment.
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 a solid weekly routine and cadence. 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? 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. I think the other reason why the WOW and the same-day NPS scores are so high is being able to eliminate that packaging.
Through our refrigerated last mile, we're able to eliminate the refrigerated packaging and the ice packs, which is a great move for the environmental sustainability of our platform, and it also reduces some costs of the packaging, and so creates a little bit more value for our customer.
Okay, that's helpful. Just to follow up on that, where is the gross profit per subscriber for a Goodfood WOW versus a regular customer? Is it lower right now and moving up as you offer more items, or where does it stand?
Yeah, 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. 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 and early April on those fronts, if you have any additional color on that.
Sure, happy to share. 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.
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 on 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 from our perspective, the short-term volatility that might be created by the success of the vaccination campaigns reopening is really expected 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. It's a market that we expect to surpass 20% adoption rates in the medium term.
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 from 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 Goodfood WOW in the GTA and in Ontario in general, as well as your overall ability to support growth in that market?
Yeah. Hey, Fred. Thanks for the question. Like we said, similar to Jon's answer to the last question, COVID, it's very difficult to predict anything. Changes in construction schedules and supply chain around the world, whether it's food or steel, causes issues on a daily basis. We're not surprised by the delays.
The good news is we've reallocated resources and brought forward other investment plans to make sure that growth and profitability are not going to be affected. The GTA right now has full service of WOW in all the FSAs that we want to service.
We're going to be launching other buildings in Ottawa, and expanding our facility in Vancouver, and expanding in Montreal as well to support growth across the country. Our current facilities in the GTA don't service 100% of that market. The Ottawa market will take some of the volume, and Montreal will take some of the volume as well. Overall, 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 Graham Golder of Eight 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. 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 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.
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, each new product is another reason to stay subscribed to Goodfood, or said differently, not to churn from Goodfood, but it's also a reason to start a basket.
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.
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. We had, for the first time ever, some holiday meals that were ready to cook for four to six 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 than we might have done on a non-COVID year.
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. 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. 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. I'm just wondering 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. We're really focused on growing that selection and trying to accelerate the speed of growth in how quickly we build the assortment. 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 create their full baskets with Goodfood each week.
I would say the pace of growth in selection is outpacing our expectations. We have certainly built an engine at Goodfood that is creating and launching, really by far, private label grocery products at the fastest pace that any grocer is moving across North America.
Of course, if you 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, our 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 product, regulatory affairs and food safety that's enabling really the regulatory framework around which we need to operate.
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. We're quite pleased with that.
Okay, understood. Thank you very much. Congratulations on the strong result.
Thanks so much.
Next question is from Will Cannon of Canaccord. Please go ahead.
Yeah. Thanks. Good morning, and thanks for taking my questions. Jon, I just want to touch on, you might have touched on this during your comments earlier, about the difference for a typical Goodfood WOW customer versus just your average 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, is there a material difference there between your Goodfood WOW offering versus a meal kit offering?
Yeah, it's a great question. 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 cores. The demographics are skewing a little bit younger than our weekly meal kit subscription.
That's also partially because of the location and then partially because of the impact that over the past 12 months, we've seen significant uptake in the 50-year-old plus category on our meal kit subscription. We'll have to see what that truly means in the longer term, but that's where we stand today.
Understood. Thanks for that. Then one more, if I may. If we look at the use of your limited time offers during the quarter, obviously you saw 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. I can appreciate all of that.
When you think about, I guess, why a customer chooses your product versus maybe some of your brick-and-mortar incumbent peers, is it mostly a 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. In the research that we've done with our customers, the price which you've mentioned is something that comes up. Our customers are counting on Goodfood to curate and select the best quality product at the most attractive price possible.
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 a quite compelling pricing and value proposition to our customers delivered to home.
When you think about it also from a delivered to home perspective, it's important to think about some of the other grocery delivery alternatives, such as Instacart, through the personal shopper model that will have a shopper drive to Loblaws or drive to Walmart in order to pick up an order for the customer.
Because the cost structure of Instacart and the personal shopper is built on top of the cost structure that exists in brick-and-mortar retail, we're seeing anywhere between 20% and 30% of additional costs and pricing to the customer through the personal shopper model.
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 Goodfood and the customer.
I would say we do have certain private label grocery product categories that are price insensitive. 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 a great margin. Some of our more food-forward products, like a chocolate hummus, that is a product that might not be available in any traditional supermarkets.
Some of the products are actually uniquely designed for Goodfood, whether the recipe could be proprietary to us, or it could also just be a purpose-built product for our customers. On those products, there's a notion and concept of discovery that comes along with it. We believe one of the most important things that's missing in other online grocery models is that concept of discovery.
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. If you think about it, that discovery element is one of the main drivers of how customers like to shop in store.
Part of the shopping is done through a grocery list that you've pre-planned for your shop. 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. 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 and national brands that are strong enough for the customer to want to plan their weekly shop around getting those national brands. We will have a mix in the future that is primarily Goodfood-branded products with a few national brands that we think can help us win the weekly shop.
Understood. Appreciate all the color, thanks, and congrats on the great results.
Thanks so much.
Next question is from George Doumet of Scotiabank. Your line is now open. Please go ahead.
Yeah. 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 one week 50 off on that gross margin?
Yeah. Hey, George. Thanks for the question. Overall, we estimate the impact to be kind of between CAD 3 million-CAD 5 million. 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. It's kind of in that range of CAD 3 million-CAD 5 million 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.
We should continue to see progression over the next couple of years in gross margin above the levels that we're at as we invest in more and more automation. Like Jon 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.
That's helpful. Thanks. How should we think of incentives and credits? That line's been kind of coming down, obviously, in the last couple of quarters. As we go into vaccinations and reopenings, can you maybe talk to that line, maybe how you would expect it to trend in the coming quarters?
Yeah, 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 meal kits and grocery shopping across Canada. 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 Goodfood experience can come down.
I think as the reopening occurs, there's probably a middle ground of credits and incentives between the lowest levels that we were in the pandemic and where we were before that. I would say in terms of the strategy that we have on our highly targeted marketing campaigns, that remains true, right? 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 Goodfood customers.
The credits and incentives is really just one piece of how we think about our overall unit economics, and we continuously A/B 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.
We've seen success on having multi-basket offers, so discounts on more than one basket rather than a single basket up front. We found that that creates more stickiness and repeat usage behavior.
That's something that we've done over the past year that's been quite successful. The last piece on credits and incentives, of course, is they're directly related to how many new customers we're actually bringing on board.
Certainly in a long-term steady state one in which the growth is normalized, I would say the credits and incentives should continue to improve. 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.
Yeah, Jon, that was great. Thanks. Just one last one, if I may. We're sitting at about CAD 160 million+ of cash. We're operating cash flow neutral. I think our plans are to deploy CAD 20 million-CAD 30 million of CapEx this year.
I know that that number goes up in next year, it's still quite a substantial amount of cash. Maybe outside of CapEx, can you maybe talk to some areas maybe where we could actually deploy some of this capital?
Yeah, George, thanks for the question. I think the way we think about it, we have the CAD 160 on the balance sheet, we have another kind of CAD 30-CAD 40 of accessible debt financing that we've recently closed.
All in around CAD 200. Obviously, there's a base amount of cash that we 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.
As the business grows, we need to make sure that that cash balance grows in a certain proportion, let's say. As we mentioned, we're building same-day across the country. Amazon has invested billions and billions over the last couple of years in doing that.
We see investing a meaningful portion of the CAD 160-plus CAD 40 available in the next 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. As Jon 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 Glen is Raymond James. Please go ahead.
Hey, good morning. Is there a point when you look at the Wow versus Meal 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 assortment 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?
One being potentially an upsell to the other. We'll have to see how the customer base evolves and look at what the overlap is and what % of our customers are actually signing up for both the same-day delivery and the meal kit subscription, and think about what that means longer term for our customer base. If there are relevant segmentations that make sense to disclose, I think that's something that we can definitely do in the future.
Okay. Just in terms, we've been in the pandemic for over a year. How have you seen the competitive environment on that Goodfood WOW business evolve over the time frame? Have you seen any significant step up in your peers to compete more readily in this type of offering?
We've heard certainly all of the research that we've done, both 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, at an 80% plus rate, choose the faster delivery. We've seen the Instacart personal shopper model certainly have success with customers.
The Voilà by Sobeys model is built around next-day delivery. We'll be interested to see what they're able to do there in terms of delivery speeds. I think over time, that there's 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 more quickly than what they were expecting in their longer-term plans.
For those reasons, we are certainly expecting that existing brick-and-mortar grocers as well as new entrants into the space will continue competing for that share of wallet online. 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 Goodfood Originals and through our Goodfood branded products.
Really think about the key advantages that we have in terms of being vertically integrated versus the personal shopper model. We've certainly done a lot of research in terms of how our customer experience can be superior to those other models.
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. I think we continue to see how that evolves. Certainly the Canadian shopper is loving our Goodfood WOW model today.
Just one quick one. Can you give an update on the CFO search and any timing there?
Yeah, that's progressing really well. We've assessed the internal and external candidates. We are in the late stages of the process right now. We've had really a tremendous amount of interest. We've had some amazing candidates. 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 time. 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. 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.