Montreal-based meal kit company Goodfood was granted protection from its creditors on Wednesday, a day after its CEO resigned. <\/p>\n
The company announced it would be asking the Quebec Superior Court to approve formal process to sell the company or seek new investment Wednesday morning, as the company says it won\u2019t have the cash to make interest payments on millions of dollars in debt due later this week and in September. <\/p>\n
An initial order granting the company creditor protection was approved Wednesday, the company said. <\/p>\n
\u201cThe initial order provides the stability and flexibility needed to continue implementing our turnaround plan and advance our financial restructuring,\u201d Goodfood lead independent director Donald Olds said in a statement. \u201cWe remain focused on executing our restructuring process while continuing to serve our customers.\u201d<\/p>\n
Court documents related to the initial application show the company is considering the closure or partial cessation of unprofitable plants or facilities and the termination of associated leases and contracts; the rationalization of its workforce; the renegotiation or discharge of onerous obligations, and the implementation of a sale and investment solicitation process.<\/p>\n
The document specifies the company is \u201csuffering from cash shortages and insufficient revenue generation.\u201d<\/p>\n
\u201cThese challenges, coupled with excessive growth during the COVID-19 pandemic followed by a steep decline in sales in the following years, caused the current financial situation of Goodfood,\u201d it said. \u201cIndeed, the decrease in revenue without a corresponding reduction in operating costs has become untenable.\u201d <\/p>\n
According to the document, Goodfood counted nearly 250,000 subscribers in August 2021, compared with approximately 48,000 today.<\/p>\n
\u201cAlthough the average order value of Goodfood customers has increased over time, this increase is not sufficient to offset the declining customer base,\u201d it said.<\/p>\n
The company said that it doesn\u2019t have the cash to make $950,000 in interest payments due Thursday on nearly $12.7 million debt. Of that debt, $10 million is held by Investissement Qu\u00e9bec, an investor owned by the provincial government. <\/p>\n
The company also says it won\u2019t have the cash to pay nearly $840,000 in interest on another debt \u2014 of over $29 million \u2014 which is due on Sept. 30, according to the application.<\/p>\n
That debt, held by creditors who bought unsecured debentures that were issued in 2022, is supposed to be repaired at the end of March, but in its most recent financial report, released last month, the company issued a warning to investors that it will not be able to repay or refinance that debt, something it says could force it out of business.<\/p>\n
Debenture holders can convert those securities into common shares in the company, but Goodfood shares are currently trading at around $0.03 each. The company warns that debenture holders would probably not accept that option, nor would current shareholders approve it, because it would require issuing a large number of new shares. <\/p>\n
The company, which has laid off 122 employees since March, said it\u2019s implementing a plan that has \u201cimproved operating performance,\u201d but that it \u201ccontinues to face significant near-term liquidity constraints, including upcoming debt maturities and scheduled interest payments.\u201d<\/p>\n
In its most recent financial report, the company said it has negative working capital, and over the past year its net debt has risen from $12.3 million to $35.85 million. Revenue during its most recent quarter, which ended June 6, was $21.46 million, down from $30.68 million the year before.<\/p>\n
Two days after that report, Goodfood said it was seeking \u201cstrategic alternatives\u201d due to the uncertainty about meeting its financial obligations, but now says a restructuring under the Companies\u2019 Creditors Arrangement Act (CCAA) \u201coffers the best opportunity to preserve value, maintain business continuity and continue implementing its operational turnaround plan.\u201d<\/p>\n
\u201cWe have made important progress in strengthening our business, but our near-term liquidity pressures require a more comprehensive solution,\u201d Olds said.<\/p>\n
Goodfood CEO Selim Bassoul resigned a day before the announcement. He held the position for less than six months, and will be replaced by the company\u2019s president and chief operating officer, Najib Maalouf.<\/p>\n
The application notes Goodfood\u2019s management \u201chas been subject to recent turnover.\u201d For that reason and because of recent layoffs, the company owes $970,000 in severance payments to 20 employees, which will be stayed during the CCAA proceedings.<\/p>\n
Saibal Ray, James McGill professor of supply chain at McGill University, said the challenges Goodfood is facing aren\u2019t unique to one company.<\/p>\n
\u201cAlmost all the meal kit companies are more or less having \u2026 problems, financial issues,\u201d he said.<\/p>\n
The meal kit concept peaked in popularity during the COVID-19 pandemic, when people were largely stuck at home with a lot of time on their hands, Ray said.<\/p>\n
\u201cThey were doing a lot of cooking themselves,\u201d he said. \u201cIt made sense.\u201d<\/p>\n
More recently, grocery stores have started offering services not unlike those meal kit companies provide: online recipes complete with \u201cshop all ingredient\u201d buttons, which can be delivered straight to the customer\u2019s door, Ray pointed out.<\/p>\n
He added that customer acquisition has been costly for meal kit companies, which tend to offer free boxes to new clients for varying periods of time.<\/p>\n
\u201cThis is a model where they wanted to build a market, and they thought \u2018people don\u2019t know about it, that\u2019s why people are not doing it,\u2019\u201d but many customers take the freebies and then cancel, Ray said.<\/p>\n
\u201cThis customer acquisition cost? It was very, very high.\u201d <\/p>\n
Asked about the likelihood of a successful turnaround for Goodfood, Ray repeated his original point that the problem isn\u2019t specific to one company.<\/p>\n
\u201cI\u2019m not sure that there is a big market for this,\u201d he said.<\/p>\n
On Wednesday, the court appointed Raymond Chabot Inc. as monitor in the CCAA proceedings, meaning it will independently oversee the restructuring process and assist the court and stakeholders. RCI noted it\u2019s not possible to estimate the length of such proceedings.<\/p>\n
Goodfood said it employs 230 people across Canada and that while it doesn\u2019t expect layoffs as a direct result of the bankruptcy protection process, there may be job losses as it continues to restructure.<\/p>\n","protected":false},"excerpt":{"rendered":"Montreal-based meal kit company Goodfood was granted protection from its creditors on Wednesday, a day after its CEO…\n","protected":false},"author":2,"featured_media":847949,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[45,49,48],"class_list":["post-847948","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","tag-business","tag-ca","tag-canada"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/847948","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=847948"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/847948\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/847949"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=847948"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=847948"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=847948"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}