As meal-kit companies such as Blue Apron struggle in the U.S., Goodfood Market Corp. is betting that the nascent Canadian market offers better growth prospects with less potential threat from e-commerce giants such as Amazon.
“The idea that we are in the early days of that gigantic industry building is absolutely true,” Jonathan Ferrari, chief executive officer of Montreal-based Goodfood, said in a phone interview.
Canadians have been much slower than Americans to adopt meal kits, subscription services that offer the fresh ingredients and recipes needed to make meals at home. GMP Securities analyst Martin Landry estimates the Canadian industry lags its American counterpart by two to four years, with household penetration of 0.5 percent compared with 1.5 percent in the U.S.
“In our view, with higher expected growth rates, a less competitive and more consolidated market, Canada is more attractive than the U.S.,” Landry wrote in a recent note initiating coverage of Goodfood, which is the largest meal-kit provider in Canada.
Ferrari estimates that 3-year-old Goodfood currently has 30 to 40 percent of the Canadian market even though it’s not yet available in the western half of the country. The company’s active subscriber base hit 31,000 in the quarter ended Aug. 31, up 35 percent from the prior quarter and up 840 percent from a year earlier.
To meet demand, Goodfood is building a new Montreal processing facility and plans to expand into Western Canada in the next six to 12 months, allowing for “pretty significant gross margin improvement” through scale and automation, Ferrari said.
“The Goodfood story is attractive and different than Blue Apron for several reasons,” including a lower cost structure, less intense competition, higher average revenue per user, better customer retention and lower customer acquisition costs, Landry said.
Ferrari isn’t worried about Amazon, which is reportedly planning to offer its grocery delivery service in Canada later this year.