Greetings, and welcome to the Saputo Inc. Fiscal twenty twenty one First Quarter Results. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. As a reminder, today's call is being recorded Thursday, 08/06/2020.
Now I would like to turn the conference over to Lino Saputo, Jr. Please go right ahead.
Thank you very much, Tommy.
Good afternoon, everyone, and thank you for joining us. Taking part in our call today are Lino Saputo, Jr, Maxine Serie and Kai Bachman. Before answering questions from our analysts, Lino will begin by providing an overview of our fiscal twenty twenty one first quarter results. Before we begin, I will remind you this call is being recorded and will be posted on our website. Please also be reminded that some of the statements provided during this call are forward looking.
Such statements are based on assumptions that are subject to risks and uncertainties. We refer to our cautionary statements regarding forward looking information in our annual report, press releases and filings. Please treat any forward looking information with caution as our actual results could differ materially. We do not accept any obligation to update this information except as required under securities legislation. I'll now hand the call over to Lino.
Thank you, Sandy, and good afternoon to you all. I hope everyone is keeping safe. Our thoughts are with those affected by the pandemic. Our fiscal twenty twenty one first quarter results were released this morning, and I am delighted with our performance. However, there's simply no getting around it.
COVID-nineteen has impacted our business. Compared to the corresponding quarter last fiscal year, consolidated revenues decreased 7.6%. Net earnings, however, were up 16.6%, while adjusted net earnings were down by 2.4%, and our adjusted EBITDA increased by 2.4%. The quarter began during one of the lowest points of the pandemic, which directly impacted global economic conditions, supply chains and business productivity. As things progressed, we saw economic indicators start to improve as governments began easing restrictions.
As such, we've continued to experience fluctuating shift in consumer demand impacting all our sectors to varying degrees. During the quarter, we witnessed strong volatility. Sales volumes in the foodservice and industrial market segments remained at low levels, while retail market sales volumes increased. More specifically, the Canada sector benefited from higher sales volumes mainly in the fluid milk category. In The U.
S. Sector, lower sales volumes dampened efficiencies and the absorption of fixed costs. On the positive side, U. S. Market factors and the fluctuation of U.
S. And Canadian currencies helped to offset this decrease. We're happy to announce today that our two U. S. Divisions have merged into a combined and more agile Dairy Division USA.
This milestone marks an important step towards procuring further synergies in all aspects of our U. S. Business. This will allow the two divisions to benefit from a streamlined organizational structure and a solid, solid leadership team with Karl Calise at the helm of operations. We firmly believe this will make the entire platform stronger, allowing our employees to work collectively and to serve our markets even better.
In the international sector, increased milk availability in Australia lifted our results as did contributions from the Lion Dairy and Drink Specialty Cheese business acquisition. In our Europe sector, we experienced a surge in the retail segment as our sales volumes increased mainly as a result of the pandemic. Building on the success of its well loved Cathedral City brand, we recently introduced our fellow Canadians to Britain's most favored cheddar by importing it across the pond. During the quarter, despite the many challenges of the pandemic, we did not waver in our corporate responsibility commitments. We continue to do the right thing with a long term perspective on the future of our business.
Our priorities remained intact. We focused on progressing in each of our seven pillars. When it comes to our business ethics, we reinforced our stance to combat racism. As this important topic sparked conversations around the globe, we were proud to be one of the companies who signed the Business Council of Canada's statement announcing racism. We strongly believe we all share in the responsibility to eliminate racism in all its forms.
Standing firmly behind this, we recently confirmed we will retire the Coon Cheese brand name from our Australian portfolio. We are now working to develop a new name that will honor the brand affinity felt by our valued consumers while aligning with current attitudes and perspectives. We also celebrated the fifth anniversary of our animal welfare policy in June. Therefore, we took the opportunity to enhance it, to broaden its scope and to reinforce our vow to bring stakeholders together to make positive contributions on this topic. We also advanced in our environmental pledge to make sustainable progress regarding our climate, water and waste performance.
Various projects aimed at reducing our annual energy consumption, CO2 emissions and water usage globally have now been identified. In terms of our community pillar, from the onset of COVID-nineteen, we've committed to helping the communities where we operate, focusing on food security for the most vulnerable through donations to local food banks. With numerous initiatives undertaken globally, product and financial donations amounted to over $5,000,000 to date. This action complements our assurance to our people. No layoffs as a result of the COVID-nineteen pandemic until further notice.
In these unprecedented times, we are writing a pivotal chapter in our history. It is one filled with challenges and uncertainty, but also one which is open to possibilities and opportunities. Until this pandemic is behind us, we remain focused on managing through its effects, and we will keep safeguarding the health and safety of our employees while adapting to consumer demand. All results reflect our strength and resilience as an organization. And we have our employees to thank once again for our continued success.
Their camaraderie and their commitment to our business reinforce the vitality of our culture every single day. And for this, I am so proud of our remarkable team. On that note, I thank you for joining our call, and we will now proceed to answer your questions. Tommy?
Thank you very much. And we'll get to our first question on the line from Peter Starr with BMO. Go right ahead.
Thank you. You're seeing a problematic area for Saputo has been the fluid milk business in Canada for quite a period of time now, but you're calling it out as a bright spot. Is that just demand in the retail channel as people are staying home and consuming more fluid milk at home? Or is there another dynamic at play?
So Peter, if you listen to the comments that Max made at the AGM, we're talking about growing in our profitable categories. We did, in the past, walk away from some business because the prices that were being offered in the market, we felt were unrealistic and not sustainable. To find that our competitors were not able to service those markets effectively, and some of that volume came back. They came back under better terms and better conditions. And so for us, fluid milk has been a bright spot in this last quarter, specifically because we got back some volume that we had once lost, but also because we got it back at better pricing and also it became a comfort food for consumers as the pandemic started to take shape.
So for all those counts, fluid milk in this quarter has been a benefit to the Canadian platform.
And Lino, has that changed your view long term of how you feel about the category? I know at times, you've been quite frustrated about the performance of the categories. That changed your mind, you think this is just a temporary thing?
Absolutely not. It is a temporary thing. There's a lot of trends and a lot of patterns that we're seeing through COVID that, quite frankly, I don't think are going to be sustainable. So if you're asking, would we invest in fluid assets through acquisitions, I will tell you the answer is no. Our CapEx allocation, however, for the Port Coquitlam plant still continues because we do have a solid business here in Canada even though the market isn't growing.
But beyond the Port Co investment, we are not considering further development in the fluid category. I think that this is more of a blip than it is a trend.
Okay. And the other positive development or one of the other positive developments you called out was Australia, what's been problematic to you has been the shrink in the milk supply, but you called out that there was more milk availability. So is there more milk coming out of the farms? Or are you capturing a bigger share of the milk versus your competitors?
So there's slightly more milk coming out of the farms. So I think that the erosion at the farm level has stopped. In fact, it's actually turned around. But a very positive thing happened to us through COVID nineteen as well in Australia is that some of our competitors were not able to process their milk because they were mostly food service or industrially oriented. We had the capacity.
We had the ability to service customers domestically and internationally, and we gladly took on that milk. And I think that that has secured a lot of farmers in Australia that we are the right home for their milk. And so a good portion of that milk, I think, is going to stick with us. And so I'm I'm still optimistic about our outlook for the production capacity that we laid out through our three year plan. We're not far from that number now.
And I think that that is a very, very positive sign and a testament to the quality of the team we have in Australia that represents us every single day.
Okay. And then just lastly, could you explain maybe in a little more depth why you decided to merge The U. S. Divisions? From a product standpoint, you know, one, you know, one is cheese and the other one, you know, our cream products, you know, things like cream and, you know, ice cream mix.
And, you know, I kind of it just seems to me those are two completely different channel that
Yeah.
Go through the thing. Yeah.
Peter, it's not that different from when we first acquired Dairyland back in 02/2001. We operated the fluid milk separate from the cheese until such time that we got comfortable with both of those divisions and thought that there were some great synergies to bring them together. The same thing could be said for The US. But I'm gonna ask Kai to go into a bit more detail. I think we've got a great leadership group out there, and Kai's got some real great ideas and plans for that division with Karl Filipe.
But I'm gonna ask Kai go into more detail with that, please.
Sure. Thank you, Lino. So, you know, essentially, what we need to do in the marketplace is we need to have one voice with our customers. We don't wanna have our customers having to deal with multiple sales representatives to to get the the solutions that they're looking for for their business. So one voice with those key customers is critical.
We there are a lot of strengths within the SDS platform in terms of the go to market strategy, their insights work. They're very strong. In fact, they don't have a lot of brands. So they're all about providing solutions to customers and consumers. SCOOSA is very strong operationally, and we feel that bringing the two divisions together will be able to leverage the strengths of each of the divisions to benefit on overall the overall newly created Saputo USA.
And we also believe that there's gonna be a lot of synergies that we'll be able to garner from the business, whether it's on the manufacturing side, raw material procurement, supply chain, and so on. And if you look at the makeup of the team, it's a it's a very experienced group. We're taking the best of the two divisions to create a senior leadership team for the One USA. Combined amongst the 10 members, you're looking at over two centuries of dairy experience and over over a hundred and twenty five years of Sekura experience. So a very seasoned group, and we're very confident that we're gonna be able to take that business to the next level, creating a bigger, better, stronger USA.
And the gentleman who runs SDF, I believe his name is Paul. Is he staying?
Paul Corney has retired. And if you recall, Karl Kalica took over that position in a as an interim role. And I believe the last conference that we had with the analysts, had asked the question if we're having trouble finding a leader for SDF. The reality is is that Carl, once he got involved in running the North American platform, had in the back of his mind potentially unifying SDF and SCUSA, and he wanted to know more about the division prior to pulling the trigger on that. Carl has understood that platform extremely well.
He spent most of his time there. And with Paul's retirement, we didn't think it was prudent to hire anyone, especially if those two divisions will come together. But Terry Brockman still stays with the platform in a different capacity, but still very valuable to The US developing its network, its business and its infrastructure. Okay. Thank you.
Thank you very much. We'll get to our next question on the line. It's from Irene Nattel from RBC Capital Markets. Please go ahead.
Thanks and good afternoon. Just following up on The U. S. Please, if you don't mind. So would you be willing to quantify for us what types of synergies or benefits you expect to get in The US or how many positions might be eliminated or anything you could say on that subject?
This is Kai. We're gonna have the leadership group is gonna be tasked with identifying opportunities. Again, we're trying to leverage the strengths strengths of each of the divisions. But, what we're looking to do is create enablers to fuel future investments. So this isn't a cost cutting exercise.
This isn't this isn't a business that's in trouble. It's a business that's performed quite well for us, especially SDF. So we're looking to continue to fuel future growth with the synergies that we uncovered.
With respect to your question on positions eliminated, at this stage, we don't see any positions eliminated. In fact, since we've got into COVID-nineteen, we had a halt on any new free any new hirings in any one of our platforms. We want to guarantee that there will be no layoffs and all of our employees were paid, but we were not filling any positions. Right now, we have at various levels close to 300 to 400 positions that are open. So our hope is that we can redeploy the personnel there.
But the real value is going to find some of those synergies and bringing the units together servicing our clientele in the market.
That's very helpful. Thank you. The second question that I had on The U. S. Segment really comes down to this.
In light of all the challenges that you were facing in terms of your mix and what was going on in the market, your financial performance was nothing short of heroic. So wondering, essentially, how did you do it? I mean, what changes did you make? What did you focus on? How did you manage to how'd you do it?
Mean, it's
lack of sense.
Management, of course, but, you know, more more granularly.
As you recall, Irene, in the past quarters, we had some incremental spending with regards to warehousing, delivery, logistics. And we we we said at one time that, you know, we have to go to market and try to recoup some of those costs.
And those costs, when you try to recoup those, don't
don't come back, you know, to price initiative immediately or the next quarter. It takes some time. So during the quarter, we definitely benefited from pricing action to mitigate the incremental cost of warehousing and logistics. Obviously, from the volume affected us in The U. S, our efficiencies overall are definitely not the same level as last quarter.
But to the extent we could, reducing our spending, whether it's on the SG and A front and all other elements of the spend helped to drive some some positive. That's on top of the the market factor that would that were all directed positively for us during the quarter.
That's great. Thank you. And then you'd be very disappointed, Mino, if I didn't ask about all of this. Can you just spend a couple of minutes talking about your current thinking around M and A, what you're seeing in the marketplace in the different geographies and where you might be seeing the most interesting opportunities?
Yes. So we definitely do have a focus on acquisitions. We've got a pipeline that is actually quite full. I would say that legitimate files, we would probably be upwards five, six, seven legitimate files. Although there is a lot of underperforming assets or what I would deem as junk on the market that we certainly don't want to be part of the processes.
And we've signaled to the sellers that we are not going to be part of those kinds of processes. And we have signaled to the sellers of high valued assets that we do want to be part of a process. So I will tell you that given our financial flexibility, our deleveraging initiatives, the talent that we have that is eager to do more, we're definitely looking at acquisitions. We're active in files despite the fact that there is COVID. We still have the opportunity to perform due diligence.
That would be through the virtual rooms as well as we have deployed some of our teams into different facilities to perform a physical inspection of some assets. So that is still ongoing. However, it's not the same teams that are being deployed because of travel restrictions, but it's given an opportunity to some of our talent to perhaps do things that they wouldn't normally do. So the wheel continues to turn on acquisitions. I'm optimistic that we will materialize one or perhaps multiple acquisitions over the course of this next fiscal year.
But again, we do that with a lot of prudence. We do that with a lot of discipline. And just like we can walk away from some business that is not profitable, we're happy to walk away from some acquisitions where we think that either the conditions aren't right or the price is not in our sweet spot. But I'm still quite optimistic that despite COVID and some of the limitations there, that we can get something done over the course of this fiscal year.
That's great. Thank you.
Thank you very much. We'll get to our next question on the line from the line of Michael Van Aelst with TD Securities.
I just want to follow-up a little bit. I think on some of Irene's questions. But your last outlook painted a pretty tough picture for the near term financials given all the changes in the channel and channels and the challenges in adjusting production levels. So were you able to do anything differently than you that you didn't think you were going to be able to do heading into Q1? And do you still expect earnings to be lower year over year in fiscal twenty one?
So, Michael, if you recall, the last call we had, there was a lot of uncertainty and a lot of volatility in the market. And so it was it's very difficult. Even now, it's very difficult to predict what the future is going to look like. However, I would say that based on the experience we had coming in through March, April, May, June, we feel like we're in a good position to be able to navigate well or perhaps better moving forward than we did getting into it. As Max alluded to, there were certain things that we tried to do to mitigate some of the inefficiencies in terms of overall volume.
Spend deferrals, that was something that our teams focused on. Trade promotion, travel spends, cost containment, changing shifts within our facilities, adding machinery where we needed to add machinery to be able to deliver the volumes that were being called for. These are all things that now we have under our belt. We feel quite comfortable that our team has responded well and that they can respond well moving forward. But that uncertainty and that volatility still exists.
If there's going to be a second wave, how that's going to impact us, we don't know, depending on how severe the governments are gonna be at shutting down economies. So there still is a lot of uncertainty, but I feel very, very good about the spot that we're in. I feel good that we've got the right foundations. Our balance sheet is clean. Our employees are engaged.
Even in the hotspots where we some communities had some massive outbreaks, where we had to close down some plans for a week or two, send people out for testing. As soon as our employees got their tests back that were negative, they were ready to come back to work. And so the energy really is amazing, and perhaps that might be why our outlook is a little bit more positive than it may have been going into the COVID-nineteen. So that's a general tone that I'm saying we have in the organization. I'm going to ask Max to speak to a bit more specifically in terms of maybe some financials and numbers that he's thinking.
Well, just Mike, in terms of the sector per se, the items that we called out, whether it's in Canada relative to the additional fluid milk volume helping to lift our results. This is there to stay. We don't see this going back. Same thing with regards to the milk availability in Australia. So we feel that this milk that we've been able to attract is going to be sustainable.
And from a Europe perspective, yes, definitely there are no signs to tell us that the performance would start to decline whatsoever. So it leaves us with The U. S. And when we talked last time, and you recall early on in April or so, probably the EUR23 million market factor favorable for the quarter was looking more into maybe a negative €23,000,000 So there's a continuous improvement in the market condition that allowed us to ended up the quarter positively. And that would be the wildcard for us to say, are we going to be whether better than last year or lower than last year and so on and so forth.
At this time, for this Q1, all the way up to June, We were unsure that these market conditions would be favorable to us. There was unprecedented volatility. So we're still calling it in The U. S. To be volatile.
And as you saw the block the last few days, significant decline. So we'll see how this all turns out over this particular quarter. So hopefully, that's helpful for you. I would add, Max,
it's not just domestic market,
but it's also if you look at the international markets, the GDP this week has dropped significantly for some of the commodity products. So volatility is gonna be a continued theme for for this quarter.
Okay. That that's all very helpful. And I was just I was also trying to understand in those market factor comments for The US. I think in your press release, you you pointed out that the ingredient price increase had a positive effect, but the cheese price fluctuations had a negative impact on realization of inventories. Why why was that the case when we saw a big big run up for the most part of
the quarter? I know
it went down initially, but the cheese price ran up for most of the quarter and hit record highs.
The the the inventory realization for the quarter was positive, so was the spread for the quarter. So, you know, the the combined of the all those elements were was favorable. At early on in the quarter, it was negative. At some point, we reached a point of, you know, midpoint or a point more and then ended up being positive. So as we're looking into this quarter coming to us with blocks going down, so the realization of our inventory will be stressed.
And although we had a very good start in Q2, we'll see how this all plays out.
That's helpful. Thank you. Yep. And just just finally, on the competitive activity, you pointed it out, in the past several times in both Canada, for milk and, The US for mozzarella. It seems like milk is not so much an issue anymore in in Canada.
But what what's the status of the the competitive environment in in The US?
So right now, it's pretty well balanced. We don't see any irresponsible behavior on the market, and that is a very good thing. There is, however, an oversupply of mozzarella in The U. S, and that still does exist, and that's putting pressure on prices, not because our competitors are getting irrational, but because there's an oversupply and people are trying to lock in some business at favorable rates, which is common when you have an oversupply situation. But I would say for the large part, I would say that there's peace in the valley right now.
We're hoping that, that will be sustained for some time to come.
Alright. Thank you, Lena.
Thank you, Michael.
And we'll get to our next question on the line from the line of Mark Petrie with CIBC. Go right ahead.
Hey, good afternoon. Thank you. Just a follow-up again. Could you just be a bit more specific with regards to the dairy ingredients that were favorable for you in The U. S?
Because like I know the whey price was pretty stable, all things considered. So just wondering if you can be a bit more specific. Was it some of the higher grade whey that you guys do good volume in?
Well, yeah, that definitely refers to high protein powders, namely
WPC80 product. However, we're seeing
Okay.
As we're moving into the next quarters, there is pressure on the higher proteins, but we are seeing favorable a more favorable outlook when it comes to the lower protein commodities.
Yeah. Okay. Okay. Thank you. Just and and then coming back to Canada as well, with regards to the comments around volume and and then and then, you know, fluid milk being the key driver there, separating some of that fluid milk volume that that came back to you with with return of contracts and then also the spike in retail demand.
Can you talk about the volume performance in Canada separating that fluid milk component out?
Yeah. So I'll just give you general shifts of what we saw, and then Kai will fill in the blanks with some more specificity. But retail volume was actually quite strong. There was a boost of about 20% in overall volume at the retail level. And that and I'm talking besides the fluid milk, we're looking at the cheese categories and cheese products.
So that was very favorable for us. We saw a drop in the foodservice early on in the pandemic, drop in foodservice and industrial business by a rate of maybe 30% or 40%. And then since came back, probably 10% or 15% to below its normal levels. So that's what we saw in the Canadian platform. Kai, you wanna give a bit more color there?
Sure. What we're seeing on the horizon from a food service perspective is continued recovery on the food service side. Retail is kind of stabilizing, so looking at flat relative to last year. We are running full out and seeing very strong demand, especially on the mozz and cheddar sides.
Okay. Thanks. Yeah. That's very helpful. Can you give sort of a similar commentary for The US?
Is that possible?
Yeah. So in terms of overall channel sales, we've seen very much the same kinds of patterns of decline in Foodservice and Ingredients, rise in Retail. However, I will say this that our Retail business is not as robust or in terms of percentage impact in The U. S. As it is in Canada.
And so what we found ourselves in, in some areas with the capacity surplus in most of our plants and capacity limitations in other plants. So in a sense, we had some plants were really busy and other plants were idle. And that was the nature of the makeup of our US platform. Business started to take off when we saw the opening up of the economies. And then maybe Kai can give you a little bit of a perspective on the outlook there.
Sure. So foodservice wise for The U. S, we're looking at sort of 70% to 80% of normal levels. Retail is leveling off. And just to add on the food service component, Matt, that we're we're seeing some weakening in national accounts in the QSR segment.
Again, those that are well set up for takeout delivery are performing well, and those that aren't adapting to the new normal are obviously not doing so well. You've you know, chapter 11, California Pizza Kitchen. There's a lot of examples of casual diners that have gone out of business. And then on the industrial side, it's a bit of a mixed bag for us. In in Scusa, our industrial volumes go to retail processors, and that's faring quite well because of the pickup in retail.
But on the flip side for SDF, a lot of our industrial volumes go to more of food service type items, like the coffee creamers as an example, and that's that's been down quite a
bit over the last year. Okay. Thanks. And then I guess on that sort of topic, I mean, guys have, you know, invested and put a lot of effort and invested fair bit of capital in terms of adding brands into your business, you know, across across a number of geographies. Could you just sort of run down, you know, the extent to which, you know, those brands are kind of, you know, number one or number two in their respective categories?
And then, you know, or or you know? And then the component of of of your brand portfolio where, you know, maybe they're more like number three or number four.
Yeah. Kai? Sure. I'll I'll go around the horn. So we'll start with The UK because that's an easy one.
Market leading retail cheddar brand Cathedral City performing phenomenally well. In fact, we're ahead of plans in terms of our expansion operations in that part of the world, so doing very well. I would also call out Fry Lite. It's a smaller part of the business, but we never talk about it, and that's doing extremely well. It's the market leading frying oil spray for the retail segment.
If we move over to Argentina, we have a variety of brands. La Paulina is our predominant brand and is a market leader in a variety of cheese categories. And in Australia, our Coon brand, which will be renamed next year, is the market leading brand from an everyday cheese perspective, and we have solid brands in the the other spaces. We do have market leading positions in our specialty cheese business with that we recently acquired from Lyon. And if we move over to Canada, we have a lot of market leading brands at retail as well as food service, mozzarella, a lot of the Italian specialty products.
If you look at our fluid milk brands, Dairyland is number one out West. Nielsen is number one in Ontario. Neutral lake, not so strong, probably number three, number four player. Armstrong is moving up the ranks to performing very well, especially in light of the fact that the recent new product launches. So that's kind of a high level sort of our market position around the geographies.
Okay. Thanks. I'll pass the line. Thank you.
Thank you very much. We'll go to our next question on the line from Chris Lee from Desjardins.
I just wanted to maybe first to get your thoughts on Canada's decision to allocate a lot of the dairy import licenses to the dairy processors. I know that's something that the industry has been allocating for and now you guys have it. Just want to get your thoughts on that and maybe the impact on Saputo going Yes.
Thank you very much, Chris. So the free trade agreement the last two free trade agreements have been favorable for the dairy industry with respect to the allocation of those import licenses, so if you think about the CPTPP and the USMCA, 85% of the allocation have gone to dairy industry players, stakeholders of the industry. And so I had gone to Ottawa a number of times to petition and lobby for on behalf of the dairy industry as well as on behalf of Saputo that this is the best thing to maintain value in the space. Our objective as an industry, our objective as an organization is to import value added products and not to bring in commodity products that are going to take value out of the space and out of the category. And now it's up to us to live up to the commitments that we made to governments of using 100% of those licenses that were allocated.
So I feel very good about the resolution of these trade agreements and how dairy stakeholders can now control their own destiny. So I feel very, very good about where we are.
That's great. And I guess, am I correct that's one of the reasons you started importing the cathedral from The UK into Canada?
That's absolutely correct. So we have the ability through licenses to bring value category products into this country that are gonna be selling for higher than what the domestic product is. And so, again, this is one of the commitments we made to government. And shortly thereafter, we've lived up to that commitment. So Cathedral City, highly valued brand, now is in this country for consumers to consume, of course, at a higher price than domestic product.
And do you see that as a big opportunity going forward to grow that brand in Canada? Or maybe some numbers would be helpful.
Well, maybe not that brand specifically because I think there is sort of an elasticity in terms of overall consumption of value add cheddar. But perhaps we could do the same thing with other products that we're manufacturing. I'll give you another example. We've got Treasure Cave blue cheese in The U. S.
Now with the USMCA, why not bring that Blue Cheese high valued product into Canada and broaden our portfolio of products that we can bring to market. So there are other examples. So we don't always have to go to the same well to get the water. There's a bunch of different wells that we can use to get a wider range of value added products into Canada and on store shelves.
Okay. That's very helpful. And maybe just one question on one more on Canada. As you know, I mean, it's been reported that Walmart is looking to increase the supplier fees to help cover some of their store renovations and online initiatives. From a support perspective, is that going to be a meaningful headwind to you guys, or do you have initiatives to to offset some of those cost increases?
Well, you have to understand that we're also incurring additional costs in relation to dealing with this COVID crisis, whether it's protecting our employees, whether it's additional labor. So we will be, you know, in discussions with our retailer partners in terms of what is the right thing moving forward.
So more to come more to come on that front front. I don't think the the story has ended right there.
Yes. No. For sure not. And maybe in The US, you mentioned food services at about 70 to 80% of normal sales. I just wanted just to confirm, was that during the quarter or is it exited exited in the quarter?
That is currently in the month that we're in. When we were entering COVID crisis, we were looking at 50%, and that's recovered to, depending on the geography, between 7080%.
And have you seen that improvement kinda stall recently as some of the states start to shut down again?
There could be an actual retraction, but what we're seeing is it stabilized to that 70 to 80% of normal levels. But if there is a wider shutdown, specifically in The United States, we would expect to see contractions in those food service numbers.
Okay. And and, sir, you mentioned earlier in The US, your retail channel is starting to kind of stabilize a little bit or less growth in Canada. What is the difference about The U. S. Versus Canada that causes that difference in the retail channel?
Yes. My reference there, Chris, was is that the portion of our retail business in The U. S. Relative to the total business is smaller than that of Canada. So even though retail is growing in The U.
S, we don't have the same lift in percentage as we might have found in Canada. So I apologize if there was some confusion there.
Oh, no. No. Thanks for the clarification. And just a couple of more quick ones. Lina, you mentioned with the merger of the two U.
S. Divisions, is there going to be an opportunity to perhaps repurpose some of the foodservice facilities to maybe retail as the demand continue to shift to retail longer term?
We are not going to move away from our foodservice customers or industrial customers. If there are opportunities on the retail side, definitely, we'll look at CapEx allocation to increase capacity there, but it will not be at the expense of foodservice or industrial. We believe that those markets are going to come back to levels that they were once were. It's just a matter of time, and we'll be patient that way.
Perfect. And my last question, just on M and A. You mentioned you have six or seven legitimate files you're looking at. Can you give us a sense of the size from like the range, how small to how big and maybe what geographies or product areas?
Yes. So there are a number of different and you could appreciate this through COVID-nineteen. Perhaps some companies are in a more difficult situation than others. Some have had some strategic orientation changes away from either cheese or dairy. And so typically, there are files available, we're one of the first companies to be approached.
And so those files would range anywhere from $200,000,000 in sales to $2,000,000,000 in sales. The range is it really is that wide.
Got you. Thanks so much for the answers, and enjoy the rest of the summer.
Thank you very much, Chris. That's very nice of you.
Thank you very much. We'll get to our next question on the line. From Vishal Sreedhar from National Bank Financial. This
is Ryan Lee in for Vishal. Maybe just want to start off with regards to the direct to consumer website that was online. What how did this come about? What are the plans for this business going forward? Is there is it more of a short term play?
Or is there any longer term strategic implications here?
Yes. Well, I'm glad that you brought that up. The e commerce play is something that we had been contemplating for quite some time. And I've said this to our team here. COVID is giving us a license to change, to consider things that we never would have considered before.
And so with this license, we need to take advantage of the opportunities that are presented to us. Going back in time, there was a home service business that we inherited through the Dairyland acquisition where we were going door to door to consumers' houses selling them milk. While this is, you know, still selling to consumers direct, but through a different platform, We had a problem of too much inventory in some cases in some categories of product, and those products were being requested by consumers. And so we put the two things together and developed the Saputo fridge, which is an e commerce business where consumers can buy products that is close to the end of shelf life, but at discounted prices and delivered directly to home. It's something that we toyed with, one, to understand consumer behavior, but two, also to perfect our e commerce type business that we could either do direct to consumers or perhaps leverage with some of the retailers that were going down that way.
It it it, to me, was a was a great experience despite the fact that, you know, some journalists couldn't understand our strategy. I can get that. Journalists are not typically entrepreneurs. We are entrepreneurs. And so we found that this has been a great little niche that we can tap into, and we're going to be expanding that ecommerce business.
I'd like Kai to speak to a little bit, you know, some of the other initiatives that we have ongoing that are creating quite a bit of energy within the organization in terms of just thinking outside the box.
You know, at Saputo, we're committed to a robust ecommerce strategy. It's not going away through the insights work that our teams have done. Consumers are going to be increasing their ecommerce, their online purchasing of of grocery items. And when we look at some of the opportunities for Sufuna moving forward, we've got to look at ways to develop solutions to make home meals more convenient, more interesting. So as an example with our, Le Frigo, we launched pizza kits.
So it's an opportunity for people to, because we already supply all the main ingredients to, pizza operators, we thought we would provide the the whole meal solution for our So it's a it's a it's a way of trying out new innovative ideas in a platform that we know is gonna be it's gonna continue to grow and and be important for us.
But, you know, I I I'll be very honest with you, Ryan. If we stand still, we're not gonna progress. And so we've gotta try different things. And some things are going to stick and other things won't. But, you know, that's that's that's what being an entrepreneur is all about.
And I I'm I'm so delighted. I'm so excited about the ideas that our teams are coming up with, and we're providing them that latitude to really spread their wings and try out different things.
Thank you. That sounds like a very interesting opportunity. Thanks for the color on that. And then my last question, it's a two parter. You mentioned during the quarter that there were some obviously, activity was limited, which kind of mitigated some of the pressures.
How has that shaped out now that we're into July into Q2? And then the second part is somewhat related. There's been media reports that some Canadian grocery retailers are looking to reduce costs and looking to suppliers to do that. And can you comment on that?
Sorry, can you repeat
the second part? Start with the first half and then you'll get to
the second half. Sure. So in terms of we talked about retail volumes sort of normalizing. And as these volumes get back down to earth, we are not looking to reintroduce some of our trade spend to to introduce promotions and get back to the levels where we were. So we will have to to push that as we move into the next couple of quarters.
The second question, I'm sorry. I didn't I didn't quite catch what you were asking.
So Ryan, if you can just repeat the second question, Yep.
Yeah. The second question relates to there's been some media reports about some Canadian grocery retailers looking to reduce some of their costs, and and and they're looking at suppliers to do that in terms of increasing some of the fees, ecommerce fees. Has that has that impacted you guys? Has has there been any of that kind of action in some of your markets?
Well, I I talked to that point earlier in that, you know, in this COVID crisis, we have incurred additional costs in terms of servicing our customers and achieving the fill rates that we have. So we will be having these strategic discussions with our retailers to find a suitable and fair outcome.
And if I can add on that, Ryan, when we talk about competitive market environment, well, that pressure fits right into it.
Okay. Okay. Thank you so much.
Thank you. And our next question on the line is from another follow-up question from the line of Mark Petrie from CIBC. Go ahead.
Yes, thanks. I wanted to ask one of the themes that's sort of been consistently covered through the most difficult parts of the pandemic and with the strain on supply chains. Many food manufacturers narrowed production on to focus on their higher volume SKUs. I'm just wondering if that's something that you did and sort of coming out of the most volatile or challenging part of the pandemic, does it does it affect how you think about your portfolio or present certain opportunities or challenges over the course of the next, you know, six to eighteen months?
Absolutely. Again, through our insights work, yeah, there's a you know, we've got some highly capable groups that are working together. We found that on the food service side especially, more is less. So it's it's about making every SKU work harder and and finding equilibrium between assortment profitability and efficiency. So we are revisiting that.
We can't offer, you know, all the hundreds of SKUs that we have in the past. We have to streamline our operations, especially in our food service dedicated facilities that are not running at the same level as they were in the past. So we're gonna have to become more efficient, and that
means less SKUs. And what we found too early on in the pandemic is that a lot of the retailers and also foodservice distributors were very accommodating to the types of runs that we can have in our plants. And they were working with us to minimize the number of SKUs so we can get the maximum amount of volume out. So we have had a very good collaborative approach with our customers and a good healthy discussion, and I suspect that that will continue.
And did you experience that in the retail channel as well? Or was it more mostly prevalent in foodservice?
No. We saw it was also in the retail channel. And and and I think everyone put on their solution oriented hat to try to see how we can best service consumers, first and foremost. That was everybody's priority.
Okay. Thanks a lot. Best of luck.
Thanks, Mark.
Thank you very much. And, mister Spudeau, there are no further questions at this time. I'll turn it back to you.
Thank you very much, Tommy.
We thank you for taking part in this conference call. We hope you'll join us for the presentation of our fiscal twenty twenty one second quarter results on November 5. Stay safe.
Thank you very much. And that does conclude the conference call for today. We thank you for your participation and ask for your disconnect your lines. Have a good day, everyone.