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Welcome to the Goodfood First Quarter 2021 Financial Results Conference Call. [Operator Instructions] I'd like to remind everyone that this conference call is being recorded today, January 13, 2021, at 8 a.m. 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 the forward-looking statements on Slide 2 of the presentation. I'd now like to turn the meeting over to your host for today's call, Jonathan Ferrari, Goodfood Chief Executive Officer. Mr. Ferrari, you may proceed.
[Foreign Language] Good morning, everyone, and welcome to this call for Goodfood Market Corp., in which we'll present our financial results for the first quarter of fiscal 2021, ended on November 30, 2020. I'm pleased to be joined on the call today by Neil Cuggy, Goodfood's President and Chief Operating Officer; and Philippe Adam, Chief Financial Officer. Our press release reporting our first quarter results was published earlier this morning. It can be found on our website at makegoodfood.ca, and on SEDAR. Please be aware that we'll 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. Now turning to Slide 3, which outlines our key financial highlights for the first quarter. Our exceptional results this quarter demonstrate the crystallization of strong secular trends, accelerating the adoption of online meal solutions and grocery shopping as well as Goodfood's long-term business strategy and leading position in these markets. During this quarter, we continued to experience outstanding growth and accomplishments, while also managing significant business and human challenges. Our employees have consistently worked tremendously hard to respond to the essential grocery and meal planning needs of Canadians, all the while operating under enhanced safety protocols to keep our workforce and customers safe. To all Goodfood employees, I want to say thank you again for believing in our vision, but most of all, for your hard work and dedication to our members and our company. This important quarter was marked by continued strong growth in key metrics, highlighting the strength of our operational execution and success of our business strategy. We are pleased to report strong subscriber growth and even stronger revenue growth, while achieving positive earnings before interest, taxes, depreciation and amortization in addition to record levels on several key metrics. First, our active subscriber count passed the 300,000 milestone, standing at 306,000 active subscribers. The convenience of our service, unique customer experience and quality of our products continue to drive Goodfood penetration from coast-to-coast and across demographics. Our year-over-year growth in revenue outpaced our growth in subscribers by a factor of 2, as our strategy to expand our product offering and provide a larger share of our customers' grocery basket translated, again, into larger basket sizes and more frequent orders. As such, our revenues for the quarter reached a record $91.4 million, a 62% year-over-year increase. Second, our strong operational execution has further expanded our gross margin, which stood at 32.3% this quarter, a 3.5 percentage point year-over-year improvement. A decrease in incentives and credits, improvement in delivery costs driven by Goodcourier year initiative and increased density, improved packaging unit costs and automation investments contributed to the gross margin increase. Third, we are pleased to report a third consecutive quarter of positive EBITDA. This reflects not only growth in revenue and gross margin improvements, but also an efficient operating leverage, driven by a higher revenue base. Adjusted EBITDA reached $1.4 million for the quarter, or a margin of 1.5%, representing an improvement of 8 percentage points compared to the same period last year. Overall, our financial performance this quarter has been exceptional, driven by the accelerated penetration of online grocery shopping. I'll now turn to Slide 4 to share some key business highlights. First, we continue to deliver strong growth, the keystone of our overall business, and record financial performance. By building and positioning Goodfood to respond to Canadian's strong and sustained demand for online grocery and meal Solutions shopping, we have been able to not only increase active subscribers by 33% year-over-year, but also provide customers with an offering that allowed them to purchase bigger baskets, as evidenced by the revenue growth being nearly double the subscriber growth this quarter. Our trailing 12-month revenue have now surpassed the $300 million milestone, standing at $321 million. Moreover, our gross profit growth came in 2.5x higher than our subscriber growth, demonstrating our ability to continuously execute strongly on operational initiatives, providing better profitability. Second, this strong performance has been and continues to be enabled by our obsession with member happiness. This quarter, we continued to execute on our strategy to consistently enhance our members' experience by launching and increasing the availability of Goodfood WOW, our unlimited same-day delivery service in the Greater Montreal area. Our members are absolutely loving our same-day delivery and are excited -- and we are excited to launch it soon in the Greater Toronto area. By the end of this calendar year, it will be available to many more Canadians coast to coast. We have also continued to bolster our product offering, which now counts nearly 550 products, up to 37% quarter-over-quarter. We are well on our way to reaching the 4,000 SKU goal set as part of our long-term strategy. Our members are showing their appreciation for the quality and value of our new rates and what we like to call a cult-like following. Third, our team continues to execute at a very high level on all fronts to drive operational excellence from product sourcing all the way to customers' doors. We have increased the penetration of the Goodcourier fleet, which now delivers well over half of our volume. This has been made possible by the use of last mile hubs, and our customers love the new refrigerated band used by Goodcourier, which helped reduce packaging in our deliveries, thereby, creating cost savings and reducing our environmental footprint. Combined with lower packaging costs and investments in technology and automation, which continue to drive more efficient operations, our gross margin now stands at 32.3% for the quarter, a grocery industry-leading level in Canada. Fourth, our strong growth, continuously improving value proposition to customers, and world-class operational execution, have all led to impressive product offering uptick, margin and loyalty momentum. This quarter alone, we have delivered almost 0.5 million Goodfood branded grocery products to our customers, 13x more than the same period last year, and 65% more than in Q4 of fiscal 2020. Thus, the progress we have made in growing selection, delivery speed and use of automation and technology has enabled us to reach a record gross profit per subscriber of over $100, highlighting the success of our investments to date with considerably more room to grow. Finally, 94% of our revenues have come from loyal subscribers who have ordered 3 or more times, further establishing that our strategic flywheel has robust momentum and strong unit economics. Finally, this exceptional performance on all fronts has driven strong shareholder returns as our share price is currently approximately 4x its level at the beginning of calendar 2020, with our market cap now surpassing the $800 million mark. On that note, I will now turn the call to Philippe to go over our financial performance.
Thank you, Jonathan. Good morning, everyone. Turning to Slide 5, which provides details in subscribers and revenues. The acceleration of online grocery and meal solutions adoption, combined with Goodfood increase in product offering and customer loyalty, has allowed us to achieve record results this quarter. Subscriber grew 33% year-over-year to surpass the 300,000 milestone, and revenues showed significantly higher year-over-year growth of 62% to at the record level of $91.4 million, up $35.1 million compared to the same period last year. The increase in revenues was primarily driven by sustained order rates and bigger basket sizes from our current subscribers, driven by an increased product offering as well as strong additions of new subscribers. In summary, our customers are ordering more frequently and are buying more products from us. The stronger revenue growth compared to subscriber growth underscores the success of our strategy to broaden our grocery product offering to fill a larger portion of customers' basket. Also, as we pointed out, the vast majority of our revenues came from customers who have placed 3 orders or more. A trend that was mostly sustained this quarter and that is highlighting our subscriber based loyalty, the stickiness of our customers and/or decreasing churn rate. Please now turn to Slide 6, which looks at our profitability levels. Our gross profit increased to $29.6 million, a record, or a margin of 32.3%, an increase of 3.5 percentage points year-over-year. The increase in gross margin resulted mainly from lower credit and incentives as a percentage of revenues due to an efficient marketing strategy and record low level of quality issues, but also to improved unit economics or packaging driven by scale and the use of less expensive packaging for certain deliveries as well as lower shipping costs explained by a favorable cost structure of Goodcourier and by higher density among the delivery sales. Benefits from investments in automation have also driven operational efficiencies that have enhanced our cost structure. This was partially offset by $0.9 million of COVID-19 related costs, such as personal protection equipment and agency premiums for additional production employees. We're also pleased to report another quarter of positive adjusted EBITDA at $1.4 million, or a margin of 1.5%. This strong performance resulted primarily from higher revenues and gross profit, the efficiency of our marketing strategy as well as operating leverage as SG&A expenses as a percentage of revenues continue to decrease year-over-year despite significant investment in our people with several key additions in multiple departments. We will continue to invest in technology and hiring key personnel over the coming quarters as we look to further develop a technological and data-driven edge in our business model. Our net loan this quarter decreased by 48% to $2.7 million or $0.04 per share.Turning to Slide 7 for cash flow and capital expenditures. We generated cash flow from operating activities of $2.1 million for the first quarter of this fiscal year. This was enabled by our attractive negative working capital structure, combined with a growing scale and a reduced net loss. Capital expenditures for Q1 were $2.9 million, or only 3% of our Q1 revenue. They were mainly related to the build-out of the flagship facility in the GTA, the continued investment in automation equipment and technology as well as investments in infrastructure in various facilities across the country. Note that while our CapEx plans may be slightly delayed by the COVID-19 pandemic, we are still confident we'll be able to complete our investments and achieve our plan with minimal delays. For fiscal 2021, we now plan on investing at least $30 million in capital expenditures to build out our flagship facility in Toronto, implement the infrastructure for same-day delivery across the country and further increase our automation and technology. We ended the quarter in a solid financial position with cash and cash equivalents of $104 million. We have great flexibility to grow from current levels, withstand headwinds and execute on our strategy. Finally, I would like to turn to Slide 8 to provide some color on our outlook. E-commerce grocery and meal solutions shopping were already 2 of the fastest-growing industries in the world before the current pandemic hit nearly 10 months ago. Since March of 2020, this strong growth was significantly accelerated and we have seen a bigger movement to grocery shopping completed online. We have seen this shift be sustained over 10 months now and expect it to continue accelerating over the coming years as consumers add up the convenience of receiving grocery items purchased online delivered directly to their home. We expect trips to physical grocery stores to continue to decline over the coming years. Our online platform and deliver to home fulfillment model have supported this trend and the strong growth in demand, and we are now more than ever investing in operational capabilities, people and technology to continue supporting this shift. The pandemic has got about significant challenges and opportunities and precisely evaluating the full range of medium and long-term impacts remains difficult. We anticipate that a significant portion of grocery and food consumption traditionally done in stores, or restaurants have shifted and will continue to shift online. The trends we began to see in March and April this year have now crystallized over time as evidenced by the strong demand seen in the past 3 quarters. Investing in our strategy to build the #1 direct-to-consumer grocery technology company continues to be our main priority. With Goodfood's footprint of purpose-built fulfillment centers, investments in increased selection, customer flexibility, scale, density, automation and technology, we are in a great position to capitalize on these cemented behavioral shifts. We are thrilled that this strategy has had the intended effects of enhancing our profit per subscriber, which has, in turn, allowed us to continue focusing on growth. As we continue to invest, we recognize that we are still in the early days of digitizing one of Canada's largest industries. We are making great progress each quarter on building the economic moat around a business that will give Goodfood an incredibly valuable long-term competitive advantage. This concludes our financial highlights for the first quarter and our prepared remarks for today. We'll now be pleased to answer any questions you may have. Thank you.
[Operator Instructions] Martin Landry with Stifel.
Congratulations on your good results. My first question is on your same-day delivery opportunity in the Greater Toronto area. I was wondering if you could talk to us a little bit about what's left to prepare -- or what's left to build out before you're able to offer these services, the same-day delivery service in the GT area?
Martin, it's Neil. Thanks for the question. In terms of left, we have the 1 facility up and running. So it's a matter of just getting the SKUs in the facility, so that's been ramping up well. And then making clients aware that the service is available. So we're starting to market in Q2 and Q3 for same-day, and we'll continue to kind of build awareness in that market in the next quarters and years. So in terms of what's left, there's not a tremendous amount of work left other than transferring SKUs and making people aware that it's available.
Is it -- is the service available on a pilot mode before an official launch right now?
Are you speaking with GTA specifically?
Yes, yes.
Right now, it's not available same-day service, but it will be available in the coming months.
Okay. Okay. And then…
And we'll do a progressive -- we'll definitely do a progressive rollout that we've done with many other things. We don't want to do a big bang launch and have any operational issues kind of hit us in the face. So we'll turn it on and ramp it up progressively.
The other thing I would add to that is, other than the operational considerations of going into kind of a second more important lockdown in Montreal and in the GTA, we wanted to ensure the stability of the overall operations, right, to make sure that we could fulfill on the customer experience and promise before accelerating delivery times in the GTA. So that's progressing well. And then the other thing is, we were looking at ensuring that we were happy with all of the metrics and the economics of WOW and same-day delivery in the Greater Montreal area. So the NPS scores are really exciting to see on WOW in Montreal. The basket sizes are similar to our weekly subscription, but the order frequency is higher. And then just, overall, the qualitative feedback from our members is -- it's a magic moment for them, right? When they've been used to receiving their deliveries in 5 days after placing the order of the cutoff. It's just a magic moment to receive it on a same-day basis. So we were gathering all of this information, making sure that we were happy with the gross margins as well. And so that's all coming together really nicely, and we'll be ready to scale up progressively, as Neil mentioned, in the GTA and launch our same-day delivery service there.
Luke Hannan with Canaccord Genuity.
I wanted to dig in a little bit more on the incentives and credits. There was a very significant year-over-year decrease as a percentage of revenues. And I believe in the press release, you call out an efficient marketing strategy and low level of quality issues. So I just wanted to learn a little bit more about that marketing strategy? And what exactly that entails? And is that something that you guys can sort of repeat for the balance of the fiscal year?
Yes. Thanks very much for the question. On the marketing side, we've been successful in both marketing our ready-to-cook offering efficiently across Canada. So that entails some brand-new creatives and market positioning around ensuring the customer is aware of Goodfood and understands that Goodfood is a -- what we're calling eating evolve, right? It's the most interesting newest way in which customers can do their grocery shopping, meal planning for the week and just a matter of minutes, conveniently, receive the products at home. And our customers are really understanding that every other way to do grocery shopping or meal planning is really becoming outdated compared to the offering that Goodfood is proposing to them. So I would say it's partly the efficiency of our positioning and new creatives. I would say, when we think about some of the other aspects of the marketing efficiency, we're also including increases in customer retention and customer lifetime value that are coming through bigger basket sizes and higher order rates or more order frequency. We believe that we still have a lot of growth available, both in basket size and order frequency compared to broader, let's say, global online grocery KPIs on those metrics. So we still think that we have room to grow, but we're including that in our marketing efficiency. And so because we're growing selection, because we're growing delivery speed, we're making a payback on our marketing spend more quickly than in the past. And so our intent is to continue growing that selection, rolling out progressively our same-day delivery service across the country, and we expect that, that should continue to enable us to generate superior returns on our marketing spend.
Understood. And then, Neil, I wanted to go back to something you said. I think you had mentioned that marketing spend for Goodfood WOW and the GTA. When you guys eventually roll it out, you expect that marketing spend to increase in Q2 and Q3. I did notice that was something else that was mentioned is that marketing spend as a whole for Q1, I think, was decreased. It was a controlled decrease. So should we expect Q2, Q3 and maybe the balance of the year, should that be more of a normal marketing spend? Like should we expect it to ramp back up to what you guys would have done historically? Or how should we think about that?
Yes. Jon, maybe you want to take that one, too?
Yes, I'm happy to take it. December -- so maybe to clarify Q1 marketing spend was certainly increased quarter-over-quarter versus Q4, which is a slower seasonal period for us. December is also typically a slower seasonal period for us. We were happy with some of the results that we saw with our new product offerings. So, for example, our holiday dinners. We had some turkey dinner, kind of a really nice turkey dinner for 6 people with all of the sides, the trimming, the turkey. And so our holiday meals did really well, I would say, in the last couple of weeks of December, but still a seasonally slower period for us. And so as we look to the kind of the remaining months in our fiscal year, January and February are typically months where we continue to see strong uptick in our service and market to customers. And then the summer months will typically be when we'll pull back on our marketing spend. It's just a slower seasonal period for us. And then we'll gear up for back-to-school.
And just to add to that, Luke, a decrease as a percentage of sales, not necessarily in dollar. And also like to your credit and incentive question, just to add to that as well, like they were basically cut in half, and yes, due to the marketing, but also to the record low level of quality issues due to the quality of our products. There is almost no stuck out and the high-efficiency of our shipping and logistics.
Got it. Great. Last 1 for me, and then I'll pass the line. Just on the the incremental COVID costs that you guys called out almost $1 million. Is that -- should we -- just, I guess, a clarification, is that all in the cost of sales line? Or is that -- is it most of that in cost of sales and then some of that in SG&A?
It's mostly in cost of sales. And yes, I mean, with the current curfew that we are seeing in Montreal and Toronto and the rest of Canada, I think we still expect to see the costs in the short term, but it should gradually reduce over time to zero. And Luke, just on that, I mean, this is the cost that we are accounting in our COGS, but definitely, that doesn't include all the time that the management spend on it and all the time that is indirect. So definitely conservative representation of the investment that Goodfood is making.
Michael Glen with Raymond James.
Jonathan, during your opening comments, you talked about 500,000 SKUs and 65% growth in that figure from 4Q '20. Can you just clarify exactly what you were referring to there?
Yes. Good morning. So I was referring to our private label grocery SKUs. So excluding our ready-to-cook meals and our other meal solutions, we delivered almost 0.5 million individual grocery, like Goodfood branded grocery items. So the intent was to give a little bit of a sense of traction on the number of units that we're currently delivering just on the private label grocery side. So we're quite impressed with the traction. We're happy with the uptick rates and increased penetration of grocery products within our base, but there continues to be huge room to grow, both in terms of uptick rate and launching additional grocery SKUs as well. So we'll give you some periodic update in terms of traction on that front.
And as you add SKUs, you see that as leading to benefit in terms of the growth in that overall figure as well?
That's correct. The -- as we add SKUs, we're seeing both increase in order frequency. So there's more reasons to come shop with Goodfood in any given week, but also continued growth in basket size. And we're certainly seeing -- let's say, over the past quarter, we've seen some record basket sizes as well. I think, both in terms of order rates and in terms of basket sizes, there's certainly part of the increase that's related to COVID and stay-at-home orders and part of the increase that's related to our strategy of growing SKUs. So it's hard to distinguish between the 2. But what we do know is, more established online grocery companies will typically have a basket size of around $120. So we're still pretty far from that. And then the average shopper in a brick-and-mortar retail store is visiting a grocery store about 2.5x per week. So we're still very far from those penetration levels. And those are kind of our long-term targets or long-term objectives to close that gap.
Okay. That's really interesting. And then just to come into the meal-kit market. So your primary competitor in the market has been out, publicly stating that they're gaining market share in Canada. I'm just wondering if you can comment on that dynamic? And how you see the competitive dynamic in the Canadian market right now?
Yes. We're seeing the entire market, both in terms of meal-kits and meal solutions and groceries, growing nicely across Canada. I think, depending on the sources of data that you look at, I'm not sure what sources of data they're looking at and we don't have access to any of their actual financials. so it's hard to comment on their specific market share claims. I would say, longer term, we're really building out a differentiated strategy. So we're interested in following these different competitors. But we think, long term, we're in a really good position to have more of a one-stop shop. So having our differentiated meal solutions and meal-kits, which our customers love. But being able to offer more of a complete grocery shop, we think, is going to significantly differentiate us from any specific meal-kit competitor. And I think if you also look at the website visits, we have about 1.6 million, and we had about 1.6 million website visits in December, which is the largest amount of the website visits of any meal-kit business in Canada and compares very favorably to website visits of -- I think, we're above Instacart as well. And so it's not a direct proxy, but we do look at website is to think about our market share as well.
Federic Tremblay with Desjardin Capital Markets.
Congrats on the continued strong performance. First question is on your comment on 94% of revenue coming from subscribers with 3 or more orders. I was wondering if that's consistent across the cohorts, meaning those that joined during COVID and those that were here before COVID, if you can maybe comment on order frequencies for those 2 cohorts?
Thanks, Fred. I mean, what we've seen in 2020, that's an increase of the loyalty of our customers. So definitely, I think we're showing a number of like a 91% of our customer with 2 orders or more in 2019. And then 2020, that number jumped to 94% for 3 orders or more, which is a significant jump. And it's -- I mean, COVID-19 impacted our fiscal 2020, but definitely the acceleration was done much before COVID-19 at -- and what we're seeing broadly is just an acceleration of the loyalty of our customers and a reduction of our churn. So people are staying longer with us and ordering more frequently with bigger basket sizes. So overall, maybe the unit economics was a bit accelerated by the COVID-19, but acceleration was done way before.
And maybe a question on cost inflation. Are you seeing any meaningful inflation for ingredients or order costs? And what sort of initiatives can you take to offset that?
Yes, Fred, it's Neil. Thanks for the question. I mean, I think we had similar -- similar questions about that in past quarters, and the answer remains kind of consistent, like we're seeing the same inflation on the food side that all the grocers you're seeing and customers are seeing, we're able to mitigate part of that by intelligent menu design or working with different suppliers, but always face that same headwind. And then on the labor side, as Phil mentioned, like there's about $1 million of cost this quarter, mostly related to PP&E, but what you don't see in that COVID-related cost is the additional wages or the unemployment rate coming down in the warehouse labor market, making it more challenging to find people. So it's not stuff that we haven't faced in the past. We added about 2,000 employees over the last 12 months. So we're still able to bring high-quality talent onboard. But I would say, similar to all the grocers and Amazon and other companies in the e-commerce space, we see those 2 as headwinds that we're dealing with.
Ryan Li with National Bank Financial.
Congrats on another good quarter. I just wanted to talk about early Q2 trends, particularly as some lockdowns more restricted measures took place across several provinces in the country. First of all, is there any impact on your scheduling on your shifts that you're able to do with some of the curfews in Québec? And secondly, like I think the general view in the grocery space is that any potential spikes won't be as big as what was experienced in the spring? Is that kind of your expectation as well as we go into the current lockdowns?
Thanks very much for the question. So our -- I would say the biggest difference with this lockdown versus the last one, certainly in Montreal, is the addition of a curfew between 8 p.m. and 5 a.m. Our main concern there was ensuring that our night shift employees. So we do have -- we do operate our fulfillment centers 24 hours a day. And so the main concern was for the night shift employees to be able to get to work safely and attend their shifts. If you recall, back in the spring, we did have high levels of absenteeism during the lockdown on our shifts because employees were scared to leave their homes and come to work. So we proactively did a lot of work this time around to make sure that communication to our employees were clear, that they had access to essential worker letters in case they were stopped on the street for any reason, particularly coming to their night shift. And so this has been in place only since Saturday. So it's still early days, but we're happy to see that our employees are comfortable coming to work. There are some added cost, of course, right, of management time and dealing with this lockdown and the curfew. But we are able to focus more on our operations this time around. So the first time around, we were still trying to figure out how to social distance, how to separate employees in the cafeteria, how to set up barriers and flexiglass and that kind of protective equipment. So this time around there's certainly a lot of the groundwork that was already set up and in place, which is really helpful. And then in terms of trends, I think we're continuing to see strong uptake of new subscribers, solid order rates, continued growth in our basket sizes. So we're happy with all of the economics that we're seeing right now.
George Doumet with Scotiabank.
Congratulations on a strong quarter. And maybe I'm going to ask this question in a different way, but can you talk a little bit about how the first half of the quarter evolved versus the second half of the quarter? Obviously, there is more COVID-related restrictions, maybe in terms of the metrics you guys provided. Can you maybe help us delineate the start versus maybe the exit?
Yes, happy to do so . So I would say the start of the quarter, so -- certainly in September, we were gearing up for a back-to-school season that was going to be a little bit different than previous back-to-school seasons. We did see high level of activity in the market. So certainly, competitors were marketing as usual again in September. In October and November, I would say we had a very -- or particularly in November, we had a great Black Friday season and promotion, which led to, I would say, a good part of the customer adds for the quarter happened in kind of the back half of Q1. I think that's pretty much the commentary that I can add. I would say we are -- we were marketing out, I would say, in an efficient manner across the country, focusing primarily on ready-to-cook solutions in Western Canada and Eastern Canada, both ready-to-cook, but growing the awareness of our expanded product offering. And so that's partly what led to the increase in basket sizes in November.
Okay. I would add to that, George, that the extension of our product offering throughout the quarter made a difference in the second half and definitely impacted our basket size and order rates.
Okay. And maybe on that topic, guys, as we ramp up the 550 SKU counts to 4,000, are there any specific categories within grocery that you feel that you may be underrepresented today? Or is it going to be just the same categories, but more products?
I would say the -- one of the most underrepresented categories right now is kind of on the stand-alone fruit and vegetable side. So we focused, certainly, the first 500 SKUs on items that are high-margin and with extended shelf lives. We do have the capabilities internally, right, to deal with fresh and perishable products because of our experience in the base meal-kit business. And we'll be launching , let's say, a small or restricted or curated assortment of fruits and vegetables in the coming quarters. And the intent is, it's really -- no, the fresh part of our business is is really one of the most important differentiators. And when customers are thinking about doing their online grocery shopping for the very first time, there's 3 components that are really interesting. So they think about, of course, pricing; they think about the assortment; and they're also thinking about, is the quality of the fresh product going to be the same or better than what I would have picked out in the store on my own.And we think we have a real opportunity to differentiate from the personal shopper model, like a new breeds or an Instacart walking into a grocery store and shopping for your grocery basket because we're able to manage our supply chain in a more vertically integrated way than they are. So we expect that we will be able to offer better quality, better pricing and really differentiate on the fresh side, and that's coming in calendar 2021.
Okay. And just only a last one, if I may? Obviously, your business model has benefited quite a bit from the negative working capital with the meal-kits. But as we ramp up those SKUs, and as we invest in the GTA, just to what extent do you think our free cash flow conversion may not be as strong given the need for more and more inventory in that part of the business?
I can take this one. So far, like if you look at our Q1 and even our Q4, we've opened new facilities. We've launched hundreds of SKUs, and we're able to mitigate the inventory impact. Like as Jon was mentioning, like we became expert at dealing with perishable products and high inventory turnover. So definitely it's a challenge to continue to excel and maintain a low inventory turnover. But as we invest in our technology, and as we get more efficient, operationally speaking, we are definitely able to manage tightly our inventory. We saw a very small impact in Q1 and no impact in Q4 at all, like I said, despite the new facility openings. And if you look -- if you look at our Q1, like our cash flow generation was above $2 million in terms of cash flow from ops. And we're able to do 3 years in a row of free cash flow. So we hope to continue to do so. And sorry, Jon, you're going to say something or Neil?
Yes. No, sorry, George, I was just going to add that the large grocers are also negative working cap business model. So it's not like a business model that's going into a different type of working capital structure. So we anticipate benefiting from it on both sides of the business.
Our final question is a follow-up from Martin Landry with Stifel.
I wanted to just have some color on the geographic -- try to find -- try to see how customer, new customer counts are coming in terms of -- if there's any variation in any of your geographies in terms of new additions for your subscribers?
So yes, I mean, definitely, we saw some great things in the couple of last quarters. I mean our customers evolve in many ways. And we're happy to report that we had as many customers in their 20s as in their 60s now. So we're seeing them, like, yes, the early adapters were young professionals, but it was like 5 years ago. So now we have older customers that they're ordering frequently with large basket size, and you love to see that. And I think, with the current pandemic, I think we even have like customers that are in their -- like 86, 87, 88 years old. So I think people are seeing our business model as a way to keep their family safe and receive their food at their door without going to brick-and-mortar stores. So definitely benefits of our business model, and we're happy to see our customers evolving in that sense as well.
Okay. Are you seeing more customers coming in from Québec versus Western Canada? I'm just trying to get a sense of where your new customers are coming from?
I would say it's -- it continues to be representative of the population across the country. So we are trying to balance demand within our fulfillment center network. So for that reason, we try and make sure that we're building out capacity and density evenly and representative of the population across the country. And certainly, the GTA has been a huge growth area for us over the past 12 months. We've been -- we were always more penetrated in Québec given that it was our first market, and our head office was -- is based in Québec. And so yes, I would say Ontario is leading the growth in terms of numbers, and D.C. is leading in terms of percentage growth, I would say, as of Q1.
There are no further questions at this time. I would now like to turn it back over to Mr. Ferrari for final remarks.
Thanks again for joining us on this call. We look forward to speaking with you on our next quarterly call. Have a great day.
This concludes the Goodfood call. We thank you for your participation. You may now disconnect.