View from the C-Suite: Goodfood’s play for online grocery

How the company plans to bite into Canada's $124 billion grocery market.

Goodfood-Profile

Founded in 2014 under the “Culiniste” brand name, Montreal’s Goodfood Market has expanded its lines of business and posted impressive growth.

The company gained 30,000 net new subscribers in Q1, bringing its total subscriber base to 230,000 members. Revenue for the quarter reached more than $56 million, an increase of 90% over the prior year, and the company pegs its market share at around 40 to 45%.

Founder and CEO Jonathan Ferrari believes there’s a lot of room left to grow — despite industry uncertainty around the long-term potential of the meal kits category — and is eyeing Canada’s $124 billion grocery industry.

Over the last five years, his company has transformed itself from a pure-play provider of ready-to-cook meals delivered directly to consumers’ homes into an “online grocery company” with a growing line of private label products. For now, Goodfood products are available to existing members only, though the company says it’s currently testing options that would offer greater flexibility to members and non-subscribers, such as enabling them to mix and match meal kit recipes and grocery items.

Last year, the company expanded into the breakfast segment and began offering ready-to-eat meals. It also launched Yumm.ca, a value-based offering that targets price-conscious Canadians with a limited number of meal kits starting at $6.99 per serving.

But expanding means going against the country’s largest grocers and retailers hungry to grow their online businesses. While Goodfood’s efforts have resulted in significant growth for the company, they may also point to looming challenges facing subscription box companies that have pinned their hopes on meal kits alone.

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You first launched private label groceries under the Goodfood brand last summer, which has grown to around 100 SKUs today. How do you plan to grow that part of your business? 

The plan is to move to three types of grocery categories in order to build [the business to] approximately 4,000 SKUs.

There are three types of products we’re working on: one is the weekly essentials – fruits, vegetables, olive oil, stuff that’s really basic that will keep customers coming back from week-to-week. The second category is for products we call conversation starters, because you would leave them out on your kitchen table. It could be a finishing salt, for example, hot sauce or condiments, things that you would take out when you’re entertaining. The last category is for items that are exclusive to Goodfood, that has a little bit of a charm that you wouldn’t find [anywhere else]. For example, we’re getting ready to launch a chocolate hummus dip.

The average Canadian is grocery shopping 2.5 times per week. And oftentimes those 2.5 grocery trips are at different stores for different reasons, whether it be selection or pricing, or some other kind of convenience. So, being able to serve 80% of the grocery basket doesn’t mean that we would replace every single occasion in which someone would be grocery shopping. But we think that we can play a meaningful role in the weekly shopping routine of our customer base.

grab2Do you anticipate sticking to private label products? Have you considered, for example, partnering with national brands to expand your offering? 

Being able to limit the selection of products in a way that makes sense to the customer is really important in order to limit the complexity of the operations. Said differently, the fewer cues we need to fulfill 80% of the grocery basket, the more likely it is that we’re going to deliver an exceptional customer experience – so not having any stock-outs, which happens a lot with today’s grocery delivery alternatives, and making sure the order is perfect every time.

We would consider growing the selection of products outside of our private label products, but it [has to be] carefully done so that we’re not adding selection that is unnecessary for our customer. In fact, we’re seeing a lot of early adopters for online grocery shopping, [and they're] often millennials [who] tend to be less attached [than older generations] to a lot of the national brands. That creates a real opening for them to get excited about our private label brand. And we’re able to offer a comparable product at an average 15% discount to what you would pay for that national brand.

As you enter traditional online grocery in a more direct way, how will you compete against established grocers and other retailers? 

We focus more of our attention on traditional grocers, because in the context of the $124 billion grocery industry in Canada, less than 1% of that is being done online or within the meal kit category. So there’s a much bigger pie for us to go in by attacking that $124 billion market rather than focusing on our direct competition.

As a smaller player, we don’t have any legacy assets that we need to be working around. We don’t need to build a strategy around how we use our stores, or make sure our franchisees are happy. We [don’t have to worry about investing] to compete in brick-and-mortar groceries, which means that we can be much more focused in allocating resources into online groceries. Ultimately, the customer is going to be looking for which company can offer the very best experience, and we think that being 110% focused on online groceries is going to allow us to offer the best in class experience in Canada.

In a recent presentation to investors, your company noted a dip in sales and customer acquisitions during the summer months. How are you addressing that seasonality? 

We are counter-seasonal to the restaurant business. So during the summer months, where [people are] most likely to be out on a patio or spending less time at home, we tend to be less busy, while the winter months of January, February and March tend to be really good months for us.

There are two things that we do in order to take advantage of that seasonality. First, we make sure that we’re timing marketing initiatives and product launches for the stronger seasonal quarters. And in our merchandising strategy, we’re planning on having summer products. Think barbecue boxes and condiments, products that we haven’t been able to offer in the past through meal kits.

Jonathan Ferrari-reusable boxSustainability is a concern for many consumers in this category. What are you doing to make your business more environmentally friendly? 

We’ve done a few things over the past year. First, we’ve set up a reusable, insulated box and a reusable ice pack, that we drop off at our customers’ homes and then pick it up the week after when dropping off the next delivery.

That enables us to have a closed loop for packaging. We pick up the box, wash it – it can be reused over 100 times – and then we can break it down, melt it and repurpose it into a new reusable box.

We’re the only company in the industry that offers this kind of box today; we have a patent pending on it. It was launched in certain markets within the last six months, and we’re continuing to increase the reach of that box to our customers across the country. It’s approximately gross-margin neutral to use this reusable packaging. There’s a bit more cost involved in the logistics aspect, [but] we save on the packaging because it’s not a single-use.

The other thing that we are working on is reducing the amount of plastic [used for] meal kit packaging inside the box. We’ve committed to reducing that packaging by 50% [through the use of] biodegradable and compostable materials. The objective is to figure out a way to include more of those materials in our packaging without affecting the customer experience.

The last thing that we’ve been focused on in the past year is getting closer to our customer base. [Last week] we announced the opening of our first fulfillment centre in Vancouver, which allows us to service our B.C. clientele from Vancouver, instead of Calgary. That limits our carbon footprint. We’re planning on doing the same thing in eastern Canada with the launch of our new Toronto-based fulfillment centre.

Last year, Goodfood’s customer base grew by 111,000 subscribers compared to fiscal 2018, and you clearly have plans to continue down that trajectory. But Blue Apron in the U.S., an early leader in the category, has been struggling to retain customers since going public. How do you avoid that same challenge? 

One of the key differences between Goodfood and Blue Apron is the competitiveness of the market in which we operate. At one point, there were approximately 150 meal kit companies operating in the U.S., and there’s a variety of online grocers, such as Fresh Direct, Peapod, Walmart, Amazon Fresh.

In Canada, the competitive landscape is quite a bit different. The top two meal kit companies [HelloFresh, which owns Chef's Plate, and Goodfood] own about 80% of the market, so it’s quite consolidated. It’s created this situation where we’ve been able to grow the business in a less competitive environment. What we’ve seen is lower customer acquisition costs, better retention, and better margins in our business.

HelloFresh operates in 10 markets around the world, and it has become profitable across [all] those markets. So it’s important to look at what we can learn from Blue Apron, but it’s not an entire industry that can be reflected in a single company.

This interview is part of a series for Strategy C-Suite, a weekly email briefing on how Canada’s brand leaders are responding to market challenges and acting on new opportunities. Sign-up for the newsletter here to receive the latest stories directly to your inbox every Tuesday.

The interview has been edited for length and clarity.