Future of groceries has arrived

Food processing is expected to rival retailing as a source of income for George Weston Ltd. within a matter of years, Currie recently told analysts. No small feat, given that Loblaws currently generates 87 per cent of Weston's sales and 77 per cent of its profits.

The Toronto Star
February 23, 2002

Future of groceries has arrived
Loblaws market in Markham sells wine and children's clothes
Dana Flavelle

If you want to glimpse the future of grocery retailing in Canada, go visit the new Loblaws mega-store in Markham.

At 150,000 square feet, McCowan Market is the largest Loblaws in Ontario, so far, and carries the most non-food items — both critical pieces in the company's strategy for remaining the market leader by a wide margin.

With its full-service cosmetics counter, pharmacy, fitness centre, children's clothing, pet supplies, wine shop, dry cleaners, banking service, flower shop and more, the Markham store's mandate is to fulfil customers' everyday needs, says John Lederer, the company's new president.

And that's only part of the story. The decision last year to hire Joseph Minram, of Alfred Sung/Club Monaco fame, signalled the company's desire to move its hugely successful private label, Presidents' Choice, into the non-food category, Lederersaid in a company meeting with analysts in November.

"If we can develop the ultimate shower curtain, or the ultimate glassware, or the ultimate jute carpet that looks like (higher-priced) sisal but sells for $44.95 … we can make a lot of money," he said.

Lederer, 46, was hand-picked a year ago to succeed Richard Currie as president of Loblaws at a critical juncture in the company's history.

Currie, 64, had been with Loblaw Companies Ltd. since 1972, brought in by owner Galen Weston, along with another college chum, Dave Nichol, to help rescue the financially troubled firm from oblivion.

The trio not only rebuilt the business but also reinvented grocery retailing in Canada. Over a 30-year period, Loblaws went from nowhere to Number 1. The company, which operates more than 600 stores under 18 banners, including Nofrills, Zehrs, Real Canadian Superstores, Fortinos, Valu-Mart and Provigo, enjoys a market dominance even U.S. rivals envy. With $21.5 billion in sales last year and 114,000 employees, it's one of the biggest companies in the country.

Its share price trades at a premium compared with competitors as nervous investors seek refuge from accounting fiascos, dot-com failures and a generally weak economy in a traditionally defensive sector. Everyone has to eat and Loblaws serves up steady sales and earnings growth better than anyone else.

Its success has helped make Galen Weston the second- wealthiest business owner in Canada with a personal fortune estimated at $8.6 billion.

Nichol, the marketing whiz who helped make President's Choice a household name, left on rocky terms four years ago. Currie's gradual retirement will be completed in May when he leaves the job of president and director of the parent company, George Weston Ltd. That leaves Galen Weston, 62 this year, the only remaining member of the original triumvirate, and poses the question: Where does Loblaws go from here?

Speculation on Bay Street last week centred on the possible sale by George Weston Ltd. of its 61 per cent stake in Loblaws to one of two international giants with sufficient financial clout to make an offer. Both Wal-Mart Stores Inc., the leading American mass merchandiser, and Royal Ahold NV, the Dutch-based global food-retailing giant, are known to have their eye on Canada's multibillion-dollar grocery market.

However, apart from a 10 per cent jump in Loblaw's share price last week, no firm evidence emerged to support the rumours.

The fact that Weston sold off 4.2 million Loblaw shares last year to help finance its $2.8 billion purchase of Bestfoods Bakeries Co. Inc., a U.S.-based food business specializing in baked goods, has raised some eyebrows, said Kate Warne, a market strategist at investment firm Edward Jones.

"A lot of people took that as a sign they might be willing to sell more," she said. Last year's sale of shares, however, reduced Weston's position by only two percentage points, she noted.

Nevertheless, the food-processing division is clearly becoming a more critical piece of Weston's business and another reason some observers believe the company may eventually sell Loblaw to finance future growth in that market.

Food processing is expected to rival retailing as a source of income for George Weston Ltd. within a matter of years, Currie recently told analysts. No small feat, given that Loblaws currently generates 87 per cent of Weston's sales and 77 per cent of its profits.

Bestfoods has given Weston a foothold in a market of 170 million in a triangle bordered by Chicago, Miami and Boston, and a range of bakery offerings that spans the day, from morning muffins to late night pizza, the division's operating chief, Gary Prince, said. And there's plenty of room for growth, he said.

Can Loblaw keep up the momentum? Industry observers seem to think so.


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