Goodfood & Canadian Online Grocery

Goodfood is a Canadian online meal kit subscription service evolving into an online version of Aldi or Trader Joe’s. In 2025, the Canadian total grocery market is expected to grow to 130bn CAD. The pre-pandemic online grocery penetration was 3-4% which quickly jumped to 7-8% in 2020. If we assume online grocery penetration is 20% in 2025, the online market will be worth around 30bn CAD. This is a great opportunity for a cash breakeven DTC meal kit service to leverage existing infrastructure to enter the huge grocery market.

Goodfood runs a vertically integrated ecommerce model. Just as Carvana sources cars from auction, reconditions the vehicles in IRC’s, and ships them to vending machines or directly to customers, Goodfood has a similar strategy for groceries. The company sources fresh produce directly from farmers, stores products in refrigerated warehouses, and picks and packs the ingredients to ship directly to consumers. However, the big difference is that Goodfood requires just-in time sourcing and just-in-time delivery. Perishable inventory needs to be sourced, stored, and packed at the optimal time and temperature to ensure the customer receives the meal kit as expected. The time between sourcing produce and packing and shipping to customers is possibly the shortest in any business we’ve ever come across which makes this a huge execution challenge.

Goodfood has 320,000 meal kit subscribers and aims to offer 4,000 private label grocery SKU’s for same-day delivery. This is a fully vertically integrated private label grocer built on a base of recurring meal-kit subscription revenue. Goodfood already has the supply chain to source products and is building new facilities and a delivery fleet to reduce the picking and delivery cost per unit. As the business scales, all of these cost savings can be passed on to the customer.  There are clear parallels between Goodfood, Carvana, and Naked Wines in that they all operate vertically integrated models online. Owning the full end-to-end customer process can build the foundation for a superior customer experience which drives volume and scale through the system. At scale, the best businesses pass the savings back to customers which creates a sustainable cost advantage in the market.

We interviewed the founder of MissFresh, an online meal kit subscriptions service that competes with Goodfood, to explore the operational challenges of selling perishable goods online directly to consumers. Given the evolution of Goodfood toward, the big questions we are exploring are:

  • What synergies are there between a meal kit and online grocery online supply chain?
  • How can Goodfood use the warehousing infrastructure for both meal kits and grocery and what level of picking automation is optimal for both?
  • How does order frequency and AoV change when adding on grocery SKU’s to meal kit subscriptions?
  • How can incumbent grocers and HelloFresh compete with Goodfood’s vertically-integrated model?

If you have any thoughts then please reach out as we are studying online grocery very carefully and have some interesting interviews lined up for June!

Gruppo MutuiOnline

Gruppo MutuiOnline is run by two Italian founders that own ~33% of the equity and have compounded FCF at over 40% for the last 17 years. In 1999, two former Italian strategy consultants founded Gruppo MutuiOnline to distribute mortgages and other consumer credit products online through price comparison websites.

The founders started with for mortgages before launching or acquiring additional price comparison sites for insurance, ecommerce, and energy products in italy. In 2002, the founders opened a BPO operation to run the mortgage and loan operations for lenders. Today, Gruppo MOL is a collection of leading price comparison websites and BPO businesses for credit products in Italy. We will be exploring MOL through a series of 3 interviews covering both business units to understand what has driven such great returns over the last two decades.

Our first interview this week focused on the operational processes within the mortgage and loan BPO units. MOL hires hundreds of people in Italy and Romania to process mortgage and consumer loan applications for banks. The banks outsource operations to save time, money, and the complexity of running the operation internally.

BPO providers are seens as boring, slow-moving businesses although most B2B companies are in some way or another a BPO business. For example, Gruppo Mutuionline processes mortgages, AWS runs cloud infrastructure, Accenture or Cognizant manages applications, and Chr Hansen processes enzymes for your favourite chocolate brand. Each business runs an operation for a customer to save them time and money. However, clearly some are far better businesses than others.

The best type of BPO business runs ‘low-cost, high benefit’ operations for customers. These are core processes that are a small part of the total cost of the customer’s operation or product charged to the end customer. These ‘low-cost, high benefit’ operations usually require scale or deep expertise by the BPO provider. Chr Hansen has expertise in processing enzymes that is hard to replicate and AWS and Azure would have both huge scale and technical expertise to run cloud infrastructure.

Gruppo MOL’s credit processing business comfortably earns 15% EBIT margins and 18% return on assets which suggests far more expertise is required than it may seem. MOL runs the credit analysis part of the loan origination and underwriting process for banks. The company trains and hires hundreds of employees to run credit analysis according to the bank’s risk framework. Given a bank’s sole purpose is to underwrite loans, outsourcing the credit analysis process is arguably ‘low cost and high benefit’.

MOL invests in R&D to integrate with the bank’s systems which creates a stickier, long-term relationship. Banks can run this process internally but MOL has the scale and expertise to run it cheaper and more efficiently than the bank itself. The only differences between MOL and the likes of Cognizant or Chr Hansen would be that MOL is exposed to a cyclical end market and has a more concentrated group of customers. However, this is somewhat mitigated by the fact Comdata seems to be the only scaled competitor to MOL.

It’s still not entirely clear to us what synergies exist between running price comparison and BPO under one roof. Maybe there are revenue synergies by building trust with the customer but there don’t seem to be any operational synergies that make MOL more competitive in both businesses. One comment from our interview also highlighted the potential lack of synergies between the two divisions: is a website but it is more on the commercial side of GruppoMutuiOnline. There is no connection between the BPO processes and the commercial processes. Generally, when I left the company, there were no connections because they were very separate businesses. The BPO took activities directly from banks and the commercial part of GruppoMutuiOnline, tried to sell the loan according to the bank; it is different. Usually, there were no connections between the two.

Maybe MOL could carve out the BPO business and leave the collection of higher margin price comparison sites standalone? Or the founders are perfectly happy running a BPO business that earns well over 15% ROE in an oligopoly? Either way, if the BPO unit is this solid then we’re excited to see what the price comparison unit has to offer!