Written by: Jay Yi, MBA; Edited by: Chris Thompson, CFA, MBA, P.Eng
eResearch | Organic Garage Ltd. (TSX: OG), an independent grocery chain, focused on providing affordable organic and natural foods, continues to grow the number of stores in an effort to position itself as one of Canada’s largest and value-centered natural foods grocers.
Organic Garage is a family business that was started by a descendant of the first person to provide refrigerated products and run a “one-stop-shop” grocery store in Canada. This allowed customers to buy everything from produce to dairy in one location rather than visiting several specialty chains which were popular in the early 1900’s.
Last week, in an effort to improve cash flow and repay a loan due in November, Organic Garage announced a debt restructuring through the issuance of C$3 million of convertible debentures at 9.5% interest. The funds are earmarked to repay the Company’s BDC Capital loan as well as for general working capital. The debentures have a maturity of 36 months, which will convert at a price of C$0.11 per one unit, consisting of one common share and one-half of a warrant with an exercise price of C$0.18. With the convertible debt, Organic Garage has cash flow flexibility as any accrued interest can be converted into common shares of the Company.
Growth Strategy
Organic Garage has a focused plan to grow its business through opening one to two stores per year, supported by its centralized distribution facility which allows the Company to scale efficiently and sustainably.
Four locations are currently operational within the Greater Toronto Area, in high population density spots. Its most recently launched location is in Liberty Village, a community which has become popular with young professionals and start-ups.
Since opening Organic Garage’s Liberty Village store this year, the Company has been piloting the “Handpicked Partner Program”, which allows select vendors to set up small-footprint kiosks in the store, where they can offer ready-made food to customers. Organic Garage now plans to expand this successful program to the rest of its stores in 2020.
New Store in Leaside in 2020
The Company expects construction on its fifth store, located in Leaside (central-east Toronto), to begin in Q2/2020. Due to construction delays on the project in which the store is to be situated, the company was able to obtain concessions from the developer as compensation for the delays. Previous plans for a sixth store, which was to be located on Toronto’s waterfront, was cancelled with resources allocated to other opportunities.
Sales Increase 9.6% Year-over-Year
In FQ2/2019, Organic Garage reported sales of C$6.2 million, a 9.6% increase year-over-year attributed to its addition of a fourth grocery store. Net losses increased to C$1 million, a 66% increase year-over-year, due to debt obligations and accumulating amounts of depreciation from newly constructed stores.
Next year, Organic Garage plans to continue scaling its business while it focuses on targeting positive cash flows with higher margins and developing partnerships with vendors for innovative programs.
To reach profitability, the Company is expected to work with its supply chain to create partnerships with vendors through a preferred vendor agreement, which would allow for discounted purchases and higher margins. In addition, Organic Garage will make an effort to increase productivity and sales through technological improvements, such as the automated replenishment system.
With the planned launch of its Leaside store in 2020, Organic Garage will remain focused on corporate expansion and building its brand by providing high-quality organic products at affordable prices.
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Organic Garage (TSXV:OG)
- organicgarage.com
- Headquartered in Toronto, Canada, Organic Garage is an independent grocer that owns and operates stores selling natural and organic products to consumers in Canada, focusing on affordable product pricing. Organic Garage offers a wide selection of healthy and natural products including bakery, bulk, dairy, meat, frozen and prepared foods, and a variety of produce. Founded in 2005, Organic Garage operates four stores in the Greater Toronto Area and a fifth store is scheduled to open in 2020.
- Organic Garage is currently trading at C$0.17 per share with a market capitalization of C$6.1 million.
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