Organic Garage Ltd. (CVE:OG) (FRA:9CW1) (OTCQX:OGGFF) said it has finalized the closing of its distribution and warehouse facility and has moved to a fully decentralized distribution model, noting that cost savings from the transition are anticipated to exceed $1 million annually.
The company said 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.
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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.
Simplification and flexibility were also factors of consideration for Organic Garage prior to making the decision for the transition. The company has removed additional layers of complexity with respect to their operations and now has the option of reviewing expansion opportunities outside of the downtown or Greater Toronto Area, independent of the logistical considerations associated with a centralized distribution model.
Organic Garage CEO Matt Lurie further discussed the rationale for the move to a decentralized distribution model in a recent interview with Proactive Investors.
“The significant savings and ultimate benefit to our bottom line as a result of the change are simply too great to ignore,” Lurie explained. “Our ability to pivot our entire distribution and supply chain model in the midst of significant sales increases and the ongoing pandemic with minimal disruption to our business is a huge accomplishment and speaks to the strength of the team we have in place at Organic Garage and the nature of the relationships that we have with our distributors and suppliers.”
Organic Garage 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. The company’s stores are in prime retail locations designed to give customers an inclusive, unique and value-focused grocery shopping experience.
Founded in 2005 by a fourth-generation grocer, Organic Garage is headquartered in Toronto and is focused on continuing to expand its retail footprint within the Greater Toronto Area.
Contact the author at jon.hopkins@proactiveinvestors.com