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(
TSX-V:OGFRA:9CW1
)

Organic Garage committed to offering its customers a wide selection of healthy and natural products

Snapshot

The organic grocer has started seeing significant incremental savings as a result of moving to a decentralized distribution model and phasing out its warehouse

Organic Garage -

Quick facts: Organic Garage

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TSX-V:OG

Price: 0.31 CAD

Market Cap: $18.43 m
  • Leading independent organic grocer offering wide selection of health and natural products
  • Stores in prime retail locations
  • Focused on expanding within the Greater Toronto Area

What Organic Garage does:

Organic Garage (TSXV: OG) (OTCQX:OGGFF) (FRA: 9CW1) is one of Canada’s leading independent organic grocers and is committed to offering its customers a wide selection of healthy and natural products at everyday affordable prices.

Founded in 2005 by a fourth-generation grocer the company’s stores are in prime retail locations designed to give customers an inclusive, unique and value-focused grocery shopping experience.

The company is focused on continuing to expand its retail footprint within the Greater Toronto Area.

How is it doing:

Organic Garage has had a busy first half in 2021 fueled by the growing appetite of Canadians for healthy and natural products. Growth hasn’t been all organic though; the company has also expanded through acquisitions.

On March 4, the company announced the acquisition of Future of Cheese (FoC), a plant-based cheese company which has already made significant progress.

In a June 9, 2021, business update, Organic Garage revealed it has established commercial production partnerships with industry-leading Flamaglo Foods Ltd. The company is also in the process of scaling up its research and development operations to accelerate advancements in its plant-based, dairy-comparable proteins. 

The company’s products and services are growing steadily. In April, Organic Garage expanded its Hand-Picked Partner program to initially include the placement of the Cali-Rolls’ sustainable sushi brand at the Organic Garage Junction location as well as introduce Tori’s Bakeshop plant-based baked goods across all four Organic Garage stores.

That was followed by a partnership with Toronto-based food emporium Cheese Boutique in May to sell a selection of house-aged cheeses, cured meats and branded dried goods at the boutique’s Toronto locations.

The plan is to continue to explore opportunities with recognized vendors to further expand the Hand-Picked Partner program in order to enhance the in-store shopping experience for its customers.  It will look to supplement its current ‘A to Z’ organic and natural products selection with specialty meats, specialty cheeses, specialty breads, prepared foods, as well as plants and flowers.

The partnership model aims to increase sales through a shared rent and revenue model. The concept allows select vendors to sell unique, ready-made and specialized foods to customers through small-footprint, in-store kiosks.

In April, Organic Garage also announced the move to a fully decentralized distribution model, noting that cost savings from the transition are anticipated to exceed $1 million annually.

It had originally adopted a hub-and-spoke model where the centralized distribution facility was to service its group of stores with the intent of being able to exercise greater control over its supply chain, albeit at substantial expense.  However, after analyzing the costs of continuing to run the centralized distribution model, it was determined that the savings were substantial enough to warrant a transition to a decentralized model.

Concurrently, the company said it was able to negotiate preferential pricing and rebate programs with its distributor network due to the significant increase in volumes that they will now see, particularly on brands that Organic Garage had previously been purchasing direct from the manufacturers. Thus, in addition to the operational savings from the switch in its distribution model, the company anticipates further benefits to gross margins as a result of its ability to leverage its distributors’ logistics at their cost.

Organic Garage also noted that the initial launch of online sales with Instacart has been well received by customers. The exclusive agreement the company signed with Instacart has significantly increased its online delivery service area and has shown consistent growth since its inception. 

The larger service area encompasses over 2.1 million households and allows Organic Garage to sell to customers in new markets such as Mississauga, Milton, Brampton, Newmarket, Scarborough and Pickering, among others.

In June’s business update, Organic Garage said it continued to evaluate expansion opportunities. Coronavirus (COVID-19) has resulted in a renewed focus on grocery as an essential service, and landlords and developers are actively looking for grocery tenants, particularly in the health and wellness space, to anchor new real estate properties or vacancies. 

Organic Garage said it has been sought out for these types of developments, which could lead to potential future brand expansion opportunities. 

Looking at the financials, the company posted fiscal first-quarter results on June 30, 2021, that marked another strong quarter. It also said it has started seeing significant incremental savings as a result of moving to a decentralized distribution model and phasing out its warehouse.

For the quarter ended April 30, 2021, it reported a 12.1% decline in sales to $7 million, down from $8 million a year earlier. Gross profit decreased by 16.6% to $2 million from $2.4 million and it swung to an adjusted net loss of $165,174 compared to adjusted net income of $197,614 in fiscal Q1 2021.

The company said the loss was primarily related to decreased sales, non-recurring professional fees related to its March 2021 acquisition of Future of Cheese, OTC application and DTC (Depository Trust Company) eligibility, bank charges and merchant fees, stock-based compensation, non-cash and non-recurring acquisition finder’s fees.

The additional expenses were offset by decreases in administrative wages and benefits and decreased operating expenses related to its phase-out of warehouse operations.

Organic Garage said its working capital and cash position continue to strengthen, aligning for continued success and allowing its to continue to focus on delivering value for shareholders. Following the end of its fiscal first quarter, it generated an additional $59,400 of cash through the exercise of warrants.

In March, the company qualified to trade on the OTCQX Best Market, upgrading from the OTC Pink market, an important step for companies seeking to provide transparent trading for their US investors.  Chief executive Matt Lurie said the shift will provide a large US investor base with the opportunity to participate directly in Organic Garage's ongoing growth. Trading on OTCQX will enhance its share liquidity and widen the reach and awareness of its products and services, Lurie added.

Inflection points:

  • Further growth through acquisitions and partnerships
  • Working capital and cash position continue to strengthen
  • Evaluating potential future brand expansion opportunities

What the boss says:

“We incurred some non-recurring and non-cash expenses during the quarter which affected our net loss, but we are confident these will have positive long-term impacts on the company’s future,” the company's CEO Matt Lurie said in the June 30, 2021, quarterly results announcement.

“Operations related to the Future of Cheese are progressing at a rapid pace and we are very excited about the upcoming launch of its products.

"The senior management team is focused on product development, building strategic relationships, strengthening our team, growth of the brand and most importantly, taking the product to market in the near future.”

Contact the author at stephen.gunnion@proactiveinvestors.com

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