Goodfood filed for creditor protection under the Companies’ Creditors Arrangement Act on Wednesday after its chief executive officer resigned, leaving the Montreal-based meal kit company unable to service millions of dollars in upcoming debt obligations, according to company filings and statements.
Goodfood Seeks Court Protection and Restructuring
The Quebec Superior Court approved an initial order granting the meal kit company creditor protection on Wednesday morning, according to Goodfood. Lead independent director Donald Olds stated in a release that the order provides the stability needed to advance a financial restructuring and implement a turnaround plan.
The company announced it would ask the court to approve a formal process to seek new investment or sell the business. Goodfood stated in court documents that it is suffering from cash shortages and insufficient revenue generation. According to those filings, excessive growth during the COVID-19 pandemic followed by a steep decline in sales created an untenable financial situation as operating costs failed to decrease alongside falling revenues.
Did you know? Goodfood counted nearly 250,000 subscribers in August 2021, but that subscriber base dropped to approximately 48,000, according to court filings.
Impending Debt Maturities and Liquidity Pressures
Goodfood stated it lacks the cash required to make a $950,000 interest payment due Thursday on nearly $12.7 million in debt. Provincial government-owned investor Investissement Québec holds $10 million of that debt, according to the application.
Furthermore, the company reported it will not have the cash to pay nearly $840,000 in interest on a separate debt exceeding $29 million due Sept. 30. That debt, held by creditors who purchased unsecured debentures in 2022, is scheduled to mature at the end of March. In its financial report released last month, Goodfood warned investors it cannot repay or refinance that obligation, which could force it out of business.
While debenture holders can convert their securities into common shares, Goodfood shares trade at roughly $0.03 each. The company noted that debenture holders would likely reject conversion and current shareholders would block it due to the massive issuance of new shares required.
Management Turnover and Executive Resignation
CEO Selim Bassoul resigned a day before the announcement, after holding the position for less than six months. Najib Maalouf, the company’s president and chief operating officer, will replace him.
Court filings highlight recent management turnover. Due to those departures and recent layoffs, Goodfood owes $970,000 in severance payments to 20 employees. Those payments are stayed during the CCAA proceedings, according to the application. The court appointed Raymond Chabot Inc. as monitor to independently oversee the restructuring process.
Broader Industry Pressures on Meal Kit Providers
Saibal Ray, James McGill professor of supply chain at McGill University, said the financial hurdles Goodfood faces aren’t unique to one company. According to Ray, almost all the meal kit companies are more or less having financial issues following a pandemic-era peak when homebound consumers cooked more frequently.
Ray pointed out that grocery stores have started offering services not unlike those meal kit companies provide: online recipes complete with “shop all ingredient” buttons, which can be delivered straight to the customer’s door. Additionally, he noted that customer acquisition costs have been very, very high for meal kit companies, driven by offering free boxes to new clients for varying periods of time who often cancel afterward.
Frequently Asked Questions
Why did Goodfood file for creditor protection?
Goodfood filed for creditor protection under the CCAA because it lacks the cash to make upcoming interest payments due Thursday and September, and faces negative working capital and rising net debt.
Who is leading Goodfood following the CEO’s resignation?
Chief Operating Officer and President Najib Maalouf replaced CEO Selim Bassoul, who resigned a day before the announcement.
What happens to Goodfood’s operations now?
The company is asking the Quebec Superior Court to approve formal process to sell the company or seek new investment while continuing to serve customers under the supervision of court-appointed monitor Raymond Chabot Inc.
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