00:02 Welcome to the Goodfood Fourth Quarter and Fiscal-Year twenty twenty one 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. Instructions will be provided at that time for you to queue up for questions. Please note that questions will be taken from financial analysts only. [Operator Instructions]. 00:43 I would like to remind everyone this conference call is being recorded today, November 17, twenty twenty one at 8.00 AM 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 the disclaimer on forward-looking statements on slide two of the presentation. 01:20 I would like to turn the meeting over to your host for today's call, Jonathan Ferrari, Goodfood's Chief Executive Officer. Please go ahead, sir.

01:32 Thank you. [Foreign Language] 01:45 Good morning, everyone, and welcome to this call for Goodfood Market Corp. to present our financial results for the fourth quarter and fiscal year twenty twenty one ended this August thirty one. I'm pleased to be joined on the call today by Neil Cuggy, Goodfood’s President and Chief Operating Officer; and Jonathan Roiter, Chief Financial Officer. 02:07 Our press release reporting our fiscal year and fourth quarter results was published earlier this morning. It could be found on our website at makegoodfood.ca and on SEDAR. 2:17 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. 02:37 Now turning to slide three, which outlines our key highlights for the year and fourth quarter. Our results this year demonstrate our continued strength of Goodfood’s penetration and value proposition. The clear convenience and differentiation of our ready-to-cook products combined with our growing grocery selection and fast delivery capabilities drove strong basket sizes and order rates translating into record revenues of three seventy nine million dollars for the year. Our gross profit and gross margin also hit new records of one hundred and sixteen million dollars and thirty point six percent. 03:15 As communicated during our last earnings call, our fourth quarter results have been impacted by the return of summer seasonality further amplified by the reopening of economies across the country. The volume decline, particularly in the months of July and August, impacted our top line with net sales reaching seventy nine million dollars and gross margin standing at twenty three percent. We view the five percent year-over-year decline in net sales as a sign of resilience in the business as fourth quarter net sales remained well ahead of pre-pandemic levels despite unprecedented pent-up demand for outside of home activities. 03:58 Our gross margin was impacted by the volume decline, creating operating deleverage in our cost of goods sold, seasonality leading to higher packaging costs, as well as inflation, particularly in labor as a result of current labor shortage conditions. 04:15 Lastly, our investments in on demand grocery and meal solution fulfillment also grew creating material startup costs in our cost of goods sold. After a strong fiscal twenty twenty one and a seasonally weak fourth quarter, we are now looking forward to fiscal twenty twenty two and the growth potential of our on-demand grocery and meal solution strategy, the key driver of our next phase of growth. 04:42 We have now surpassed the one thousand product mark, providing a compelling selection of grocery and meal solutions to our customers available in under one hour in most Toronto neighborhoods and within the next few weeks in Montreal. Offering an alternative to traditional grocery, that takes less time to arrive at our customers doors than it takes to go shop in a store is truly unique in terms of value proposition and it will drive online grocery penetration and position Goodfood to be the Canadian leader in the field. 05:15 In addition, we are already seeing early signs that on-demand delivery will fuel demand for our meal kits and ready to eat products as our merchandising for one hour or less delivery includes all three product lines we offer. 05:30 On that note, I'll turn it over to Jonathan Roiter to review our financial performance in detail.

05:38 Good morning, everyone. Thank you, Jonathan. I will now turn to slide four, which provides details of our top line performance. The acceleration of deliver to home e-commerce grocery and meal solution adoption combined with Goodfood’s enhancement in delivery speed and product offering allowed us to achieve record results this year. 05:58 Net sales reached three seventy nine million dollars for the year, a thirty three percent growth compared to fiscal twenty twenty. For the fourth quarter, net sales stood at seventy nine million dollars, a five percent decline compared to the same period last year. The result was driven by expected seasonality, amplified by the reopening of economies across the country. Which in turn led to lower active customer count and order rate. 06:24 These trends were particularly strong in July and August, and we have since observed a rebound in volume from the July and August troughs. Though the returns in normality for Canadians is likely to continue creating choppiness and demand conditions in the coming months. 06:40 As our transition to an on-demand online grocery and meal solution provider continues, we expect the future growth of our three product lines, meal kits, ready to eat meals and grocery to be driven in large part by our on demand platform. 06:55 Now please turn to slide five, which look at our profitability levels. Our record gross profit this year increased to one hundred and sixteen million dollars translating into a gross margin of thirty point six percent. Gross profit grew thirty four percent year over year and gross margin grew thirty basis points. The increase in gross profit and gross margin for the year resulted mainly from fixed cost leverage in the first three quarters of the year, provided by higher volume and average order values and lower levels of credit incentives as a percentage of revenues. 07:31 For the fourth quarter, our gross profit and gross margins fell to eighty million dollars and twenty three percent, respectively. This level of gross margin was a result of four non-structural key drivers. First, labor cost and shipping costs were impacted by operating deleverage resulting from lower volume as fixed labor cost remained while sales were lower and lower density impacted shipping efficiencies, particularly in the month of July and August. 07:59 Second, inflation in the labor market, driven by unprecedented tight labor market led to a labor shortage requiring wage increases over time and incentive bonuses, all at the same time as volume was impacted by seasonality. 08:15 Third, our packaging costs were impacted by seasonality as they are every year with more [indiscernible] liners used to protect against the warm weather, which lasted well into October this year. As well as the increase in the sales of grocery products requiring additional packaging. 08:32 Lastly, startup costs to support our on-demand initiatives had a material impact as new facilities were opened and inventory was built, particularly in grocery. As we look forward past Q1 and over the next few quarters, we see progressive path to return to a gross margin in line with our long term objectives. As we expect revenue growth to return in the second quarter and cool weather to help drive some of these cost out, while labor productivity and access to more labor will help ease the impact of inflation. 09:03 Moreover, we have taken several initiatives to improve gross margin, such as simplifying our manufacturing processes, launching good carrier in more markets, and reducing packaging used. As we continue transitioning to an on-demand grocery and meal solution delivered within an hour. Although startup cost will continue to have an impact on gross margin as we build our network, we expect that are importance to decline as more of our micro fulfillment centers come online and our revenue base grows. 09:34 Turning to adjusted EBITDA, our investment in people and technology to build our on demand delivery platform continue this year, increasing our general and admin expenses and leading to an adjusted EBITDA loss of four percent or fifteen million dollars for fiscal twenty twenty one. 09:52 Over the course of the year, we have expanded our team and technology capabilities to build a structure to enable the orchestration orders delivered in about thirty minutes. These investments are required to support a significantly larger revenue base that we expect to materialize as we roll out our one hour or less meal solutions and grocery offering to more and more Canadians. 10:13 In the fourth quarter they translate to an adjusted EBITDA loss of eighty million dollars or twenty two point four percent. Of note, an accounting methodology change regarding cloud computing capitalization, driven by the International Financial Reporting Interpretations Committee agenda decision in the summer of twenty twenty one had a negative impact of one point six million dollars on adjusted EBITDA for twenty twenty one. The combination of these factors led to a net loss of thirty two million dollars this year and twenty two million dollars this quarter. 10:46 Overall, although we were disappointed with our fourth quarter results, we are confident that in the near term gross margin improvements, combined with reduction in SG&A as a percentage of sales, in addition to growth of the revenue base, driven in part by unlocking a twenty five billion dollars plus targeted addressable market to our on demand platform will improve profitability in the coming quarters and enable us to execute on our long term strategy of bringing on demand groceries and meal solutions to the majority of Canadians, while generating industry leading profitability at scale. 11:18 Now turning to slide six for a review of cash flows and capital expenditures. Cash flows using in operating activities totaled sixteen million dollars this fiscal year compared to a generation of cash flows from operating activities of seven million dollars last year. This was a result of higher net loss and offset for the most part by the increase in depreciation and authorization. 11:39 We invested nineteen million dollars in capital expenditure for the year or five percent of our net sales. The capital invested was mainly related to equipment deposits, leasehold improvements to new and existing facilities and the build out of parts of our technology platform. These key investments helped support the launch of sub-one hour delivery in Toronto and soon in Montreal, as well as the launch of our on demand deliveries in Ottawa in the coming months. 12:06 In the coming year, we will continue invest capital in building the on demand grocery network and infrastructure that will enable a superior customer experience and solidify Goodfood’s position as Canada's leading vertically integrated on demand grocery and meal solution provider. 12:21 Lastly, we ended the year with cash and cash equivalents of one hundred and twenty six million dollars which continues to provide significant balance sheet flexibility to execute on our growth strategy. 12:32 Finally, we would like to turn to slide seven to provide a conclusion on our financial performance. We are pleased with the record net sales and gross profit achieved this year and doing so despite the headwinds faced in the fourth quarter. 12:45 Our profitability was impacted by rapid volume deleverage and the investments made this year to support our platform for future growth. Investments will continue to make as our cash balance provided the financial flexibility we needed. Without these investments, our profitability would have been in a high single digit percentage adjusted EBITDA this year as our addition to technology to management and to all the supporting admin functions that have been made to capture the on demand grocery and meal solution market. 13:14 As we see these investments generate sizable compound annual growth and net sales for years to come we expect these costs over time to be absorbed by our new on demand growth platform. 13:25 And now, on that note, I'll turn it back to Jon Ferrari to review our on demand strategy.

13:33 Thank you, Jon. We are also pleased with the key developments that highlight the progress we made in our evolution to building Canada's first integrated on demand online grocery network. 13:45 As we set our sights on fiscal twenty twenty two and beyond, the speed, footprint, selection and technology developments achieved in this year have us well positioned to benefit from the value proposition we're building to further entice Canadians in choosing us as their online grocer. 14:03 The Canadian grocery market continues to gain scale and its digitization has strong momentum, but remains in its very early stages. And very little of the estimated one hundred and forty two billion dollars market has shifted online. The very large TAM is therefore the taking, and we are positioning ourselves through our on demand offering to capture a significant portion of it. 14:28 E-commerce for grocery is quickly evolving everywhere around the globe. The advent of third wave e-commerce called quick commerce has changed how customers interact with online grocery and it is the future of grocery logistics infrastructure. We believe and have observed that providing an experience to customers that rivals in speed and selection, physically going to a grocery is key in driving the next leg of adoption post pandemic. 15:01 In fact, eighty five percent of Canadians see value and attribute importance to having online grocery delivery within two hours, while sixty one percent of them are willing to switch to a new grocery retailer with two hours or less on demand delivery. 15:19 Brick and mortar grocery trips currently take over sixty minutes to complete, while online grocery options in Canada provide limited same day options and can take multiple days to be delivered. Our on demand delivery network aims to respond directly to the needs of Canadian households by providing the right merchandising to answer most, if not all food grocery needs within one hour or less. 15:45 Our selection has surpassed one thousand products, and will continue to grow. Our merchandising includes staples and unique grocery products, combined with meal solutions that can provide a healthy, delicious option to any meal occasion at competitive prices. 16:02 Overall, we are pioneering quick commerce, online grocery in Canada as the first and only vertically integrated player with our own grocery products and value added meal solutions sent to customers through our purpose built fulfillment network and our position to be the market leader as we roll out our network from coast to coast. 16:25 In its early stages, our on demand offering in Toronto has provided very exciting and promising results without any marketing. First, the net promoter score we have achieved is best in class standing currently at eighty eight percent, demonstrating customers appreciation for a fast delivery of a wide variety of meal kits grocery products and ready to eat items. 16:52 Second, the average order values we have achieved are also at the high end of what fast grocery shop tends to be, standing between sixty five dollars and seventy dollars so far. 17:06 Third, leveraging our strong brand, superior merchandising and existing shipping routes has allowed us to build our on demand offering, on the back of uniquely strong unit economics. Basket sizes in on demand are significant, while sourcing benefits from our existing subscription platform scale to provide better procurement costs. 17:32 Finally and most importantly, leveraging the delivery roots of our subscription orders, known days in advance, our shipping costs have been ahead of our expectations standing below ten dollars per order and will continue to improve as on demand volume scale. 17:50 During our launch, over the past two weeks, our average order to delivery speed has been thirty five point five minutes, providing a truly amazing experience to customers. Based on the current demand levels and before the benefits of our dedicated marketing efforts, we see a clear path for a single, highly replicable micro fulfillment center to reach twenty million dollars of annual revenue run rate. 18:21 Our unique and superior merchandising combined with the technology, infrastructure, brand and order volume, we have already built help provide very attractive unit economics to go along with a truly disruptive value proposition. Furthermore, our micro fulfillment centers strategically located within minutes of our customers’ homes require less than one million dollars of startup cost in order to be launched and provide a payback period of less than six months, given our ability to leverage our existing brand, procurement and shipping. We currently have a line of sight to five additional micro fulfillment centers, while our teams have the capacity to roll out as many as twenty per year. 19:09 Overall, over the past two years, we have delayed the profitability of our existing ready to cook subscription business, which it could have provided in order to invest in the three key pillars, speed, selection and technology and to build the value proposition to capture the online grocery opportunity. Starting this year, we are launching this value proposition to customers and are excited by their response. 19:38 As we continue our evolution to an on demand grocery and meal solutions provider, our strong execution has allowed us to make significant progress on the three key pillars required to build Canada's leading on demand online grocery network and ultimately drive our next phase of growth. 19:56 On that note, I will turn it over to the operator for the Q&A portion of this call.

20:02 Thank you. [Operator Instructions] Your first question comes from Martin Landry from Stifel GMP. Please go ahead.

20:22 Hi, good morning. In your opening remarks, you mentioned that past Q1 you expect revenue growth to return in Q2. I'm not sure if I understood correctly, but does that mean that you expect your revenues to decline on a year over year basis in Q1?

20:47 I think the way to look at it is that, the next big growth driver of the business, which is the on demand quick e-commerce delivery of our grocery and meal kits really launched late Q1. And as a result, when we look sequentially, while there's definitely significant growth that we saw from the lows of July and August, the seasonal lows. Ultimately, revenue -- the next revenue growth driver will really be seen in the second quarter.

21:25 Okay. So if I hear you, you don't expect much revenue growth in Q1. So what's going on? Is it still a softness in ARPU because of nice weather or is it your subscriber counts that are not moving up?

21:53 Hi, Martin. So I would say, as we were in Q4 the combination of the return of the summer seasonality in addition to the reopen across country, that was really leading to volatility in both order rates and demand from new subscribers. From the July and August lows, we've seen significant growth from there. And it's hard to predict exactly what's going to happen within the future quarters. 22:27 But as Jon mentioned, we're expecting that towards the end of Q1. We'll start seeing some more contribution from our on demand strategy and that includes sales of meal kits grocery products as well as our prepared meals. As we look at Q1 of this year versus Q1 of last year. It's important to remember that in Q1 of last year, we were still in basically a full lockdown. So the comparable number from last year is still a pandemic number versus a mostly open number this year. And we also experienced some warmer weather in September and October of this year in Q1. 23:16 So, overall, the -- what we're seeing is an improvement certainly in the unit economics of the meal kit subscription business. We've seen some improvements in the customer acquisition costs in Q1 as well. And some improvements in the order rate as well. And I think we just need to be mindful that as we work through this reopening, it'll be hard to forecast exactly what demand is going to look like. 23:42 But looking forward past Q1 and into the rest of fiscal twenty twenty two we believe that this on demand strategy which is essentially opening us up to a completely new TAM, right, really being able to access the full on demand grocery market across Canada. This is a growth vector that's new to us. It's a – the on demand grocery remarks is evolving quickly everywhere around the world. It's expected to be over twenty five billion dollars just in the U.S. this year. And in Canada, the on demand grocery portion of that market is essentially inexistent. 24:26 And so looking at some of the global trends looking at where growth is happening in food delivery and gross delivery as we exit this pandemic. We think we're incredibly well positioned with our on demand offering to be able to continue growing our sales of meal kits, grocery products and prepared foods.

24:46 Okay. And just my last question, You're seeing a lot of inflation in labor, in freight, in food. I know you've increased prices last spring, but just wondering what's your ability to increase prices given the competitive dynamic that you see and what's your view on future price increases?

25:14 Yes. Hey, Martin. It’s Neil. Yes, as you mentioned we did do a small price increase and then some price adjustments actually up and down in different markets across the country in Q3 and Q4 as well. So we're constantly adjusting pricing and fighting with different markets to try to maximize value to customers and margins. We think we're able to pass along the inflation cost or at least a large part of the inflation cost to consumers in various ways, pricing is one of the levers we have, and we're continuing to have adjust menus on designs accordingly. 25:55 And as you're aware, we're investing heavily in technology and process to try to take out as much cost as we can as well. So a combination of factors that we think put us in good shape for the rest of fiscal twenty twenty two.

26:14 Okay. Thank you.

26:18 Your next question comes from Graeme Kreindler from Eight Capital. Please go ahead.

26:25 Hi, good morning and thank you for taking my questions here. You discussed the customer resilience in the prepared remarks and looking at the movement in active customers, which is defined as someone who placed an order in the last three months. That was down ten percent from the prior year. So, I'm curious if you can please discuss what the path for growth in the active customer count looks like moving forward. Is it going to be new customers who have never engaged with the platform or is there a lot of ground to gain on reengaging customers that have been on the platform prior with the enhanced service level? How does the company look at that mix moving forward? Thank you.

27:03 Thanks very much for the question. So in terms of the growth in our active shopper base, looking at pre pandemic numbers, we've always seen this reduction in order rates throughout the summer months which translates into a reduction in active shoppers during Q4. 27:25 Going forward, the ways in which we're growing the active customer base. The first one is certainly reengaging existing customers to ensure that they're placing an order. And so we have customer relationship management tools that we're using and strategies in order to reengage customers during the fall and in the winter. 27:47 The second piece is certainly continuing to grow the customer base and increase the penetration of new to good food customers. And one of the key levers there is opening up our digital store for customers who are looking to engage with Goodfood in a way that provides significantly more flexibility so customers will be able to order meal kits, they'll be able to order grocery products, ready to eat products with or without subscriptions. 28:21 And as we mentioned delivered quickly to their homes. What we believe that will lead to is an increase in penetration and market share across all of those categories, and that's what we're really focused on throughout fiscal twenty twenty two.

28:38 Okay. Thank you. Then just as a quick follow-up to that, you mentioned that on demand had been launched with virtually no marketing efforts. Was that just in the period that was seen in Q1 or has that changed or are there plans to ramp up those efforts in the near term?

28:55 Are you referring to the marketing efforts ramping up?

28:58 Yes, in relation to the on demand service.

29:02 Yes, absolutely. So the first few weeks of our one hour or less on demand launch in Toronto, we're launched without marketing just in order to ramp up our operational capabilities and logistics drivers and our ability to do those deliveries quickly. As we turn to the coming weeks, we are launching our marketing initiatives, we're starting and focusing on the greater Toronto area first, that's where our first on demand micro fulfillment center is. So, we expect that that will have a few impacts. One is bringing on new on demand customers to our platform. 29:47 And the second piece is ensuring that our existing and previously canceled customers on the meal kit subscription are aware of this new offering. And really this ability to offer sub one hour delivery of a wide assortment of Goodfood products provides the flexibility that's required for new types of customers to engage with Goodfood, right? So it's a much larger breadth of customer personas that are interested in this offering as we've seen through our current data and through customer experiences around the world. 30:26 It's important to understand that on demand grocery deliveries in less than one hour is one of the fastest growing e-commerce categories everywhere around the world. So we hear about softness in -- even Amazon's e-commerce numbers in Q4. The reality is, one of the only and extremely quickly growing on demand – sorry, e-commerce offerings around the world is quick commerce grocery delivery, and we're positioning ourselves to be a leader in that space. We're also uniquely positioned because we have our existing merchandising. 31:09 So if you look at our basket sizes that we talked about somewhere between sixty five dollars and seventy dollars per order, the leaders in on demand grocery delivery around the world have significantly smaller basket sizes. And so we're uniquely positioned in the sense that our existing merchandising allows us to have higher margins and much larger basket sizes, we're also utilizing uniquely positioned with the team and the technology that we've been building for the past two years, as well as our existing brand and the awareness that we have around it. 31:43 And so that's allowing us also to combine our meal kit subscription delivery orders with our on demand orders that are coming in and that allows us to have significantly lower delivery costs than any of the other on demand players globally. So it's a very large and growing untapped addressable market in Canada. We're really uniquely positioned to be able to capture an outsized share of that market and the economics of the business are extremely attractive. So, we're able to launch our micro fulfillment centers for less than one million dollars per micro fulfillment center strategically located close to our customers’ homes, and we're able to get a payback as we mentioned in less than twelve months on those micro fulfillment centers. So the economics are also excellent. 32:36 So, we're really excited about this new phase of growth post pandemic and this should provide years of compound annual growth in active shoppers and revenue for years to come and ultimately the cost structure that we have today is -- will be amortized both from a gross margin perspective and from an SG&A perspective, it will be amortized over this growing revenue base that's led by on demand strategy.

33:09 Your next question comes from Michael Glen from Raymond James. Please go ahead.

33:15 Hey, good morning. So just coming back on the fulfillment center. So, Jon I think -- can you maybe speak to like how many households would one of these micro fulfillment centers be expected to serve? How does it fit exactly with the larger facilities that you already have in the markets? Is this like a hub and spoke type models? Like what type of radius can one of these facilities ultimately serve.

33:47 Hey Michael. Thanks for the question. The way we look at it obviously is in terms of population, so I don't have the number of exact households and we're testing the postal codes as we speak to say what can be done in a time effective and profitable manner. But right now, our GTA micro fulfillment center is servicing well over one million potential shoppers. And that number is going to slowly increase over the next three or four months as we roll out a couple of these other stores that we have in the backlog. 34:21 So that's ten to twenty times what a normal grocery store is able to service, which is why Jon made in the prepared remarks comments around ramping up to twenty million dollars of ARR in the near future. So, we're pretty confident that the TAM of each location is large. The service that we're offering is unique as evidenced by our NPS score of – in the mid-eighties. And ultimately we can be highly profitable in this model by launching more and more stores as we have more and more customer data. 35:01 So that was the first part of your question. If you can just repeat the second part, Michael, so I get that right?

35:06 How does this fit with the existing -- you have the larger fulfillment centers in Israel, so how do the fulfillment fit with the larger fulfillments?

35:15 Yes, exactly. So you mentioned hub and spoke, I think that's a good way to think about it. We also have two businesses that are complementary, but unique, right? Like customers that are outside of the metropolitan areas will continue to receive meal kits and add-ons in their orders, which has helped drive -- over the past couple of years and has been a big success. And those fulfillment centers, those larger footprint fulfillment centers, which we have in DC, Calgary – Vancouver, Calgary, Toronto and Montreal will continue to service those customers. 35:51 And then future investments in fulfillment and technology will continue to be over indexed towards the on demand strategy. Part of those will be replenish by some of these fulfillment centers and we have a distribution center that we also opened in Q4 and over Q1 to service those micro fulfillment centers as well. So complementary, and allow us to move much faster.

36:19 Okay. And then just for myself in listening, can you describe the strategy? It does feel -- it feels like a strategic shift when I'm listening to it. So how long has this been in the works and is this -- was this decision to move in this direction viewed internally as a significant strategic shift?

36:41 Yes, I would say we've been working on our micro fulfillment center strategy for eighteen to twenty four months now. The first version of that was really testing out the customer economics and really understanding the operating that's in both of the business through our Goodfood Wow same day service that we launched in Toronto and Montreal. 37:11 The intent was always to use that as a test to understand customer behavior and also the capabilities that we needed to build in order to be quick commerce leader. And then bring down the delivery times within the cities to sub one hour. 37:29 I think the overall strategy from a merchandising perspective that we've talked about for over twelve months now in terms of the one thousand plus SKUs today growing to four thousand SKUs remains the same as well. We're looking at the same strategy around opening up our platform from a technology perspective to have our customers be able to interact with Goodfood with more flexibility with and without subscriptions. So we've been talking about that for a little while. 38:01 And so, I think the real exciting piece today is from those twenty four months of investments, we're finally at a place today where we're starting to deliver real on demand orders. And we have customers that are absolutely loving it. And really quick commerce is the direct answer to what customers everywhere around the world want. And so one of the key barriers to online grocery adoption has been the use of delivery windows that provide for later today or next day delivery where the customer actually needs to do a lot of preplanning, they need to make sure they're available during the delivery window or other faster delivery methods which are not vertically integrated and which provide a poor customer experience in terms of missing items, huge markups on the price of the products and delivery. 39:05 And so, we're really in a position here where we're set up for our next phase of growth. There is a really a huge amount of online grocery dollars that will be coming from the brick and mortar space and transitioning into this quick commerce grocery delivery, and we're extremely well positioned to capture that market.

39:32 Your next question comes from Frederic Tremblay from Desjardins. Please go ahead.

39:39 Thank you. Good morning. First question for me. I was wondering if you've noticed any major differences in the product mix between you're on demand delivery -- one hour or less versus next day deliveries there? Is there more impulse buying there for on demand that would provide higher margins?

40:03 Hi, good morning. So, we are seeing a higher proportion of grocery products, Goodfood branded grocery products within our on demand less than one hour delivery. It's also an experience that has significantly less friction for the customer. And so what we're expecting to see is customers that are placing more than one orders per week, which is something that we haven't seen in any significant way in the past. And so the intent is really to create a service offering that is just addictive to our customers. And to have them coming back time and time again multiple times within the week to place their orders. Now that still means our basket size is in the sixty five -- sixty dollars to seventy dollars range. Those basket sizes are still quite large and healthy and allow us to have great economics on the fulfillment and delivery of those items, but we would like to and we expect to see customers engaging much more frequently with us.

41:18 Great. And then just given the potential opening of further micro fulfillment centers and investments in automation technology, what are your expectations for CapEx in fiscal twenty two?

41:33 Hey, Fred, it's Neil here. And just to add on to what Jon was saying about the previous question. We are able to hit bay parts a lot quicker too. So there's a spike in order at eleven to noon before the lunch rush and on the way home from dinner so things like that. In terms of CapEx, we're still working through the full fiscal twenty twenty two plan. We are opportunistic as real estate comes available, these micro fulfillment centers in terms of locations are extremely unique. We have a team looking twenty four seven around the clock, literally driving up and down streets to find well positioned locations, because it can make a massive difference if you're one or two streets over. And depending on how economics continue to come in, if we see what we expect to see and what we're currently seeing, we'll probably continue to ramp up. And we have some carryover CapEx on projects that we've been investing in over the last six to twelve months as well. 42:44 So our BC facility is ninety percent complete. We have the Ottawa facility which Jon mentioned in the prepared remarks as well, which is ninety plus percent complete and then we have five or six other opportunities in the pipeline that we're very excited about. And obviously with every incremental micro fulfillment center that we're launching, the cost is coming down quite a bit. That we mentioned sub one million dollars, but we think we can cut that pretty aggressively as well.

43:14 Your next question comes from Ryan Li from National Bank Financial. Please go ahead.

43:20 Hey. Thanks for taking my call guys. The first question maybe just more along the on demand launch. You mentioned five -- line of site to five more locations. Are you able to share kind of where those would be? Is it more in the Toronto, Montreal areas or beyond that?

43:42 Hey, good morning, Ryan. So our intent really is to focus in on dominating specific large urban centers. So the intent is for the next set of micro fulfillment centers to be located first within the GTA and the Greater Montreal area. So those are the two main markets that we're going to be building out the density of our both on demand deliveries and our micro fulfillment centers. 44:17 Certainly what we see is, we're expecting that the addition of each new micro fulfillment center within the same city is going to allow us to service customers more quickly at capacity, we'll be able to ramp up the utilization of each of those micro fulfillment centers much more quickly as well than if they were in a different city and ultimately improve the economics even further. So being closer to customers in different parts of the same metropolitan area allows us to reduce the cost of deliveries and really to be extremely competitive with brick and mortar grocery shopping. So we'll be focusing in those two metropolitan areas. And then we'll continue expanding across the country after that.

45:12 Okay. Thank you. And then in terms of timing of the on demand launch, was it more about reaching some sort of penetration rate within the cities in terms online grocery or is it giving large enough SKU count? Can you talk a bit more about the rationale around there?

45:32 Yeah. Hey, Ryan, thanks for the question. Yes, timing is just a matter of the pieces coming together, right? We've been investing in technology, people process and buildings over the last several quarters. So -- and selection, as you know. So we think there's a minimum viable selection to be able to offer the grocery strategy in an on demand fashion, which we believe we've surpassed now with over one thousand SKUs and growing. The technology platform being able to efficiently and effectively fulfill capture and offer sub one hour delivery is obviously something that needs tweaking from a traditional meal kit business where you have visibility and demand and highly planned operations and routes. 46:20 And then the real estate, like I was saying in the past question, real estate market across the country is quite competitive. These locations are uniquely positioned. We think there's a certain first mover advantage in the country as well around getting some of these core locations. And those things need to come together for the kind of the trifecta of on demand grocery.

46:48 And Neil, maybe I could add as well. I mean, if you look -- as Jon was saying, we have been in the process of working -- building this over the last eighteen to twenty four months. And in our prepared remarks, we talked about ultimately in the meal kit business is high single digit EBITDA business when you strip out the costs related to this initiative. There was a significant amount of cost we have in our system. I mean, the math would be around forty million dollars fifty million dollars, ultimately that we've been building on an annual basis, but it's been building over the last couple of years as we've been preparing for this launch that Jon laid out, that’s been part of the overall long term strategy of the company.

47:29 Your next question comes from George Doumet from Scotiabank. Please go ahead.

47:35 Good morning, guys. I'm just trying to understand a little bit the gross margin impact of ramping up beyond on demand grocery. I think if you spoke to some mix impacts that could be dilutive at first, just wondering longer term, like when would you expect this to, I guess, be accretive to gross margins from a timing standpoint? I mean, if you can talk about it would appreciate.

47:56 Sure. Thanks. Good question. So, I mean I think we have to start with just where are we in Q4, right? And in the fourth quarter, when we look at the component parts of the drop in gross margin, none of these are structural, right? Ultimately, the majority of these items that we work through, whether it be seasonality, whether it be decline in volume that we saw in July and August, all things that we're doing, all elements that we can address and we have been addressing either through growth coming out of July and August. Taking cost of our system becoming more efficient, etcetera or how Neil talk about how we're having inflation. 48:35 Overall, when you look at our business, we believe kind of the historical if you will, meal kit business, isn't that thirty percent to thirty five percent gross margin range. And then the grocery is ultimately -- the on demand groceries will be in the twenty five to thirty. And when we look at the baskets that we're seeing that they're coming in right now, the soft launch, if you will of out on demand delivery in Toronto, which is delivering within thirty five minutes essentially. 49:05 The basket is coming in very similar to our wow, which is really that fifty-fifty mix that that we've been alluding to in previous calls. And so ultimately when you put the two margins together, we still see a thirty percent gross margin business that comes together.

49:20 Okay. Thanks for that. By when do you think we can get the twenty five percent to thirty percent I guess margin for the online kind of on the demand piece. Is that much more scale when you get there?

49:34 Look, I mean, I think each of these fulfillment centers in the beginning, obviously have an impact on our margin. The reality is, it'll be driven by the adoption rate. And the number of orders that we're seeing through each of these fulfillment centers are ultimately the AOV, which each -- those metrics I would say they're coming in ahead of our expectations. So, when we -- the ultimate time when we'll be able to get the e-commerce scale that we're seeing will really be driven by AOV and the number of orders that flow through.

50:13 Your next question --

50:13 George, maybe -- sorry, if I could just add to that George, maybe the other thing to think about is really the ramp, like the ramp can be quite fast the – Jon and I was talking about quick commerce being the fastest -- the only and fastest growing e-commerce sector in the world and the reason why it is, is because of NPS scores. So with an NPS score of eighty five, that means you're going to refer people. That means that people are going to love it and refer people. So in terms of growth, it's the early days [indiscernible] industry where everybody that tries it refers a tremendous amount of people. So the ramp of the stores is important for gross margin, but we think it'd be quite effective because of the focus on the customer experience.

51:05 Your next question comes from Paul Treiber from RBC Capital Markets. Please go ahead.

51:11 Thanks very much and good morning. Just wanted to focus on capacity, so just on the existing facilities what's the total capacity -- annual capacity in terms of either revenue run rate or orders at the moment? And then when you look out to next -- the end of next fiscal year with the new facilities you're developing, where do you see the annual capacity getting to?

51:39 Yes. Hey, Paul. So, I think in terms of capacity, we have -- we're building definitely enough capacity to see the growth that we are expecting and that ultimately what our investors are expecting as well. would say, for one of these stores to generate in the twenty million dollars ARR range and we can go about that as well. 52:04 I think the way you'll see it play out is, we're not going to hit capacity before launching a store that's complementary in terms of -- in terms of cost to that store. So bringing down the cost of servicing certain postal codes relating to the volume, but what we will have reached the critical mass the George's question on gross margin before doing so. 52:28 So, I think with, let's say, high level twenty million and five stores -- six stores in the pipeline you can easily see one hundred million dollars plus of value. Our Ottawa building itself is a fully automated version of these micro fulfillment centers which we've been talking about for several quarters now. That itself has a much higher capacity as well and will service a good portion of the Ottawa area. So, overall, I would say hundreds of millions in the pipeline for capacity.

53:02 That's helpful. Very helpful to understand the smaller stores or facilities. Just the larger ones, can you just remind us again how much additional capacity to the larger ones you are developing? How much would that add?

53:19 Yes. Like, our Ottawa stores is roughly three times to four times the capacity at this moment.

53:30 Okay. Thank you. I'll pass the line.

53:34 [Operator Instructions] Your next question comes from Luke Hannan from Canaccord Genuity. Please go ahead.

53:47 Yeah, thanks. Good morning, guys. I wanted to dig in a little bit on the competitive environment, specifically for on demand grocery, just I guess trying to shape that up. Clearly, it's an area that's relatively new for you, but I'm curious to know, I guess what the size of the incumbents and space maybe you can share that just in terms of order sizes or a percentage of the market that they have currently? And I guess where you see yourself being in that market longer term? And I guess -- sorry, it was a follow-up to that as well, is the assumption that the total four thousand SKUs that you plan to get long term that you'll be able to carry those in the smaller MFCs and as a result of national brands as well?

54:31 Hey, good morning, Luke. So in terms of vertically integrated on demand players, we're the only one that's operating in Canada today. So it's really -- we have a pretty amazing head through our current -- our existing brand technology, the infrastructure that we've built as well as the line of sight that we have on our upcoming micro fulfillment center launches. If you look globally, there's about four or five players that have significant scale either in the U.S. or in Europe. 55:09 And as we talked about in the U.S. it's already expected to be about a twenty billion dollars market there. And so, as we think about the addressable market for our quick commerce deliveries in Canada from the one hundred and forty billion dollars of total grocery space, we're planning for a shift of twenty percent of that total addressable market to go into the quick commerce space. And we're working towards having an outsized share of that market. 55:46 And again, the reason why customers are shifting towards quick commerce deliveries and the grocery space is because -- and the reason why the NPS is so high is because it's actually faster to place an order with good food and have it delivered in less than an hour. It's faster to do that than to get in your car, drive to the store, pick up what you need, come back home. There's no pre planning, it’s a completely flexible model. And we're selling our products at grocery store prices. And so that's the other key item that gets unlocked from being a vertically integrated player. 56:27 So we're really excited about that. Can you remind me of your second question Luke?

56:35 Well, actually, I can give it to another question I'm thinking of right now, the low CapEx that you have for these facilities, does that include any investment as it relates to automation? Or like how should we be thinking about that from just the production margin or production cost that will be involved with this particular on demand grocery line. Like is the view long term that you will invest in automation in these longer term to get better margins or like how should we be thinking about that?

57:07 Yeah. The answer definitely is, yes. Longer term we think automation was a key component of any e-commerce player. Right now the focus of the automation in these micro fulfillment centers in the GTA and in GMA are on the technology side. So where can we use tech to make our employees more effective and efficient? And our logistics more densely rooted. So those are the two events that we have. In terms of structural advantages, as we said our merchandising strategy is a big differentiator that allows us to have higher average order values and also higher margin. If you look at the [indiscernible] Financials, thirty percent to thirty five percent of what they're selling is food cost. And at a grocery store, the average product is closer to sixty percent to seventy percent. So it’s a big delta there in terms of margin that we can generate by including meal kits and prepared meals in our basket. 58:13 And then the structural advantage of our weekly subscription deliveries. And ten to thousands of deliveries a week in Montreal and Toronto allow to piggyback in Montreal even in an on demand fashion with those orders. The facility in Ottawa as we mentioned, we talked about in the past is going to be fully automated off the bat. And will be a good comparison versus the more manual operations that we have today, but we have a clear path to taking pieces of the operation and streamlining or automating those. So it'll be a little bit less of a holistic approach and more kind of operation by operation approach, but we are excited to kind of block and tackle over the coming years. This will be a longer journey for sure because this piece of technology or technology for these size of store in this speed is very new.

59:14 And there are no further questions at this time. I will turn the call back over to the presenters for closing remarks.

59:23 Thanks very much. So for any of you that are living in Toronto, we're currently servicing eighteen neighborhoods in Toronto with our less than one hour on demand delivery. So, we encourage you guys to give it a try. See if you're within those on demand zones and try out the customer experience. Let us know what you think. And for those of you who are outside of those zones, we're expanding shortly within Toronto. And as we mentioned in a few weeks, Montreal and then Ottawa thereafter. So whichever markets you're located in, please give the customer experience a try. It's an absolutely magical experience that our customers are raving about. And as we talked about, we are uniquely positioned in the market to capture an outsized share of this fast growing industry. And ultimately the economics and the payback periods that we're seeing are really exceptional. 60:25 So on that note, thanks very much for joining us on this call. We look forward to speaking with you again at our next quarter call.

60:32 This concludes today's conference call. You may now disconnect.