The Very Good Food Company has given an explicit warning the Canadian plant-based business could cease to operate unless it raises cash.
Founded by Mitchell Scott and James Davison, The Very Good Food Company has been unprofitable since its inception in 2016, despite dual listings in the US and Canada. Scott’s role as CEO was terminated in April, followed by the resignation and departure of Davison. Ana Silva, president and interim finance chief, also quit shortly after.
Before Scott’s demise, he outlined The Very Good Butchers and Very Good Cheese Co. brand owner – the latter acquired through acquisition – had faced a cash-burn as the company sought to ramp-up production. He pledged to focus on making The Very Good Food Company profitable rather than concentrating on top-line growth.
Former Nestlé executive Matthew Hall has since been brought in as interim CEO, commencing that role on 2 May. His warning about the continuing viability of the firm came in its first-quarter calendar results issued on Monday (16 May), alongside, on a more positive note, a narrowing in the company’s losses, both from the preceding three months and a year earlier.
“The company has incurred losses since inception and expects to incur further losses in the development of its business. Whether the company can generate sufficient operating cash flows to pay for its expenditures and settle its obligations as they fall due is uncertain,” The Very Good Food Company noted in its results commentary.
More critically, it added: “The company’s ability to continue as a going concern is dependent on its ability to manage costs, raise additional equity or debt on reasonable terms and/or commence profitable operations in the future. While the company has been successful in the past in obtaining debt and equity financings, there is no assurance that the company will be able to do so going forward. The existence of these conditions indicates that there are material uncertainties which may cast significant doubt on the company’s ability to continue as a going concern.”
As if that was not enough, there have been signs across the plant-based meat arena that consumer demand is slowing, with previous lofty perceptions about future growth perhaps now in doubt. Achieving price parity with animal meat is also being made all the more difficult in an inflationary environment, along with post-pandemic supply-chain constraints and the war in Ukraine.
Beyond Meat reported its largest quarterly loss last week since the California-based alternative-meat supplier went public in 2019. Canada’s Maple Leaf Foods is still in the process of reviewing its meat-free business after a string of quarterly sales declines.
The Very Good Food Company is also consolidating production at one of its Canadian factories – its Rupert facility in Vancouver, British Columbia – and ceasing operations at the site in Mount Pleasant, Victoria, along with the US plant in Patterson, California.
The Very Good Butchers retail store in Victoria will also close in the fiscal second quarter, which began on 1 April, while a plan to open another outlet in Mount Pleasant has been shelved.
“The company made these decisions in an effort to create production efficiencies and reduce overheads. The company is evaluating a few strategies as to how it can utilise these facilities going forward,” The Very Good Food Company said.
Just Food approached The Very Good Food Company interim CEO Hall to discuss the future business strategy and whether it will seek a buyer or external financier but the request was declined due to the short time he has been in the role.
The Very Good Food Company said it “will need” to seek additional financing in the next 30 days “in order to fulfil its outstanding obligations and fund ongoing operations and will likely need to obtain subsequent financings in future periods”.
The company’s cash balance is currently about CAD3.3m (US$2.5m) to “settle current accounts payable and accrued liabilities of approximately CAD6.7m”.
It added: “The company is evaluating other alternatives of generating cash in the short term such as disposing of non-core equipment and certain raw material inventory to extend the current cash runway.”
As of the quarter end on 31 March, The Very Good Food Company had cash and cash equivalents of CAD6.3m, a reduction of CAD15.5m from the end of last year due to a “greater-than-expected cash-burn”.
Revenues for the three months fell 24% to CAD2.01m from the first quarter last year and were down 53% from the final quarter of 2021. The adjusted EBITDA loss widened to CAD8.4m from CAD5.3m a year earlier.
Sales revenues rose 164% last year to CAD12.3m mainly driven by e-commerce, where sales were up 174% at CAD9.2m.
However, despite the outperformance, The Very Good Food Company plans to limit e-commerce sales “due to high digital marketing costs to acquire new customers, lowered production throughput and headcount at some locations to manage inventory levels, implemented initiatives such as pausing non-critical capital expenditures and lowering general and administrative expenses”.
The company will focus on the wholesale and foodservice channels, especially in the US, a market The Very Good Food Company said is “critical to realising its vision to scale the company”.
Hall was able to trim first-quarter net losses to CAD8.3m from CAD15m. Last year, The Very Good Food Company was in the red to the tune of CAD54.6m, up from a loss of CAD13.9m in the previous 12 months.
“During the very short period of time that I have been with the company, I have made great strides in identifying the problem areas and have developed a strategy to put the company back on the right track,” Hall said.
“My strategy focuses on stabilising, right-sizing, and optimising the business. While it will take some time for the financial results to catch up with the progress we are making, I am confident that we will start to see great improvements in future quarters.”