At the top of the food chain
Galen G. Weston on the power of family, the future of Loblaw, the 'clear and present danger' to the grocery business – and the hardest thing about swallowing Shoppers Drug Mart
The son also rises. In January, shortly after his 44th birthday, Galen G. Weston took over as chief executive officer of George Weston Ltd., the public company that controls the biggest pieces of Canada's second-largest family fortune.
It was the final step in a decade-long succession plan that makes him the key decision-maker for a collection of businesses and brands that touch millions of people every week: Loblaws, Shoppers Drug Mart, No Frills, Provigo, President's Choice, Fortinos, Real Canadian Superstore and more. The group owns Weston Foods, a large bakery operation; a chartered bank with $3-billion in assets; a majority stake in a $5.5-billion real-estate investment trust; the Joe Fresh clothing line. Chances are, it also owns a share of your shopping bill.
Mr. Weston's ascent to the very top of the Weston food chain has been a long time coming. So, too, was the turnaround at Loblaw Cos. Ltd., where he remains chairman and CEO. When he was named executive chairman of the supermarket chain in 2006, it was suffering from the hangover of an attempt to beat back Wal-Mart, which was expanding its food selection in Canada. Loblaw had built massive new stores and went deeper into selling home goods, seasonal merchandise and other non-food items. At the same time, it was also trying to clean up the mishmash of technology that ruled its supply chain. Some stores were habitually understocked.
It was a mess.
"The business had been following a very successful strategy for the previous 20 years. And it really stopped working," said Mr. Weston. "Prices were too high, execution was inconsistent. I think we had overbuilt certain types of stores which weren't performing at the level we expected when we put the capital in." Consumers noticed and so did investors. The shares plunged from about $76 in 2005 to near $26 a few years later.
The climb back was slow. One catalyst was the decision in late 2012 to put the company's billions of dollars in real estate (including more than 500 retail locations) into a new public company, Choice Properties Real Estate Investment Trust. That bit of financial engineering lifted Loblaw's share price instantly and raised hundreds of millions of dollars for the ultimate megadeal: the $12.4-billion takeover of Shoppers Drug Mart, announced in the summer of 2013 and completed the following year after a lengthy review by the federal competition regulator.
The dealmaking has recharged the company. Last year, Loblaw earned $1.4-billion before tax, up from $853-million in 2003, and the shares are now at $71. But as the job has grown, Mr. Weston's public visibility has shrunk. For years he had a huge profile as the advertising voice of President's Choice, appearing on your television screen beside babies in high chairs or strolling on a farm in jeans to promote organic food. That is changing.
"Right from the beginning I made a commitment to myself that when my children started school I would stop putting myself in front of the camera," he said. His two boys are now 6 and 7. "And so over the past few years we have been scaling down my role and challenging the marketing and brand teams to carve a new path for representing the brand in a different way."
Less noticeably, he has become a spokesman for a longer-term approach to running a business. Last year he wrote a chapter in Reimagining Capitalism, a book edited by McKinsey & Co.'s Dominic Barton and two others. In it, Mr. Weston argues that family-controlled companies can exploit numerous advantages over widely held firms, including a greater ability to manage risk and to invest with long-range trends in mind, regardless of the pressures of shareholders.
"You can't change your strategy every six months, in my view. You have to give people time to execute against their strategies, adjust strategies, in order for it to have any hope of success," he said. Our interview was in late March at the company's headquarters in Brampton, Ont.
What's the key thing you hope somebody will walk away with, reading this chapter in the book?
I think that there's a role for family business – and there's a really important need for businesses to reframe their thinking from quarterly results to longer-term results. If large businesses – and small and medium-sized businesses – can effectively follow some of those principles, they'll build better businesses, both for themselves and for the communities those businesses operate in.
You describe the Shoppers Drug Mart deal as taking a half-decade to complete. Can you walk us through how that went down?
When I took over as chairman of Loblaw [in 2006], it was at a period where the business had reached the end of part of its journey, and it needed some transformational change to get it ready for the next part of the journey. It was a little bit early, I would say, in terms of the development of my career, but the time was right and necessary for the business itself.
We spent a lot of time trying to re-engineer the Loblaw organization, almost from the ground up. The next thing was to say, "All right … where do we want to be invested?" And here, this idea of thinking for the long term played a really important role. What are the things that we see in 10, 15, 20 years that are going to be important to us?
Health and nutrition has been something I've believed in for a long time, not only as an important part of where the community needed to go but also where consumers were headed. You've got millennials who are thinking differently about food than they ever have before. They think about it more as a lifestyle experience than just about getting calories into their stomachs. Then you have baby boomers who are aging who are also thinking differently about food.
And then there was another demographic [trend]. You saw this incredible growth in the major urban centres of Canada. How do you invest in retail to take advantage of and build on those trends? And it was clear early on that a pharmacy with a really compelling retail proposition was a core idea, something that made a lot of sense.
We developed our own concept [pharmacy]. We came very, very close to opening it. We looked at other, smaller, easier-to-bite-off drugstore chains to potentially add to the portfolio. And ultimately we decided that it would take us 30 years to do what Shoppers Drug Mart has already done.
And then all kinds of things had to happen. We had to get ourselves into a position where we had the financial capacity to do the Shoppers acquisition. We had to start to build relationships with people in Shoppers. We actually entered into discussions with them as early as 2011, and for a number of reasons the timing wasn't right for us to do a deal.
What was particular about that timing?
You mean when we actually did it? Stable leadership, stability on both sides. When we approached them the first time, they didn't have a CEO and we were in the middle of a CEO transition. Two years later they had a CEO who had stabilized the business, made it stronger. We had stabilized the Loblaw business, made it stronger.
What's been the hardest part about the merger?
I think it continues to be a challenge to get the cultural blend right.
We bought Shoppers because it was different. We didn't buy it because we wanted to make it the same. And that's always a tough thing to do – to try to preserve the magic of what makes an acquisition special but also to get the financial synergies that make the math work.
We took a very deliberate approach – it was going to be slower. The synergy aspiration was perhaps not going to be quite as ambitious. And we were going to build trust … and convince people that we meant what we said when we said we wanted Shoppers to continue to operate as a standalone business.
And so they're still different! And yet in lots of ways, to fill the long-term strategic vision of bringing the two companies together, people have to work together. We want people from Shoppers who are really good at certain things to come to Loblaw and teach us how to do things better, and vice versa.
Then you're dealing with people, you're dealing with emotions, you're dealing with worry, and that's hard work.
What's been the biggest surprise for you?
There were a lot more positive surprises than negative surprises. The success of President's Choice going into Shoppers wildly overdelivered our collective expectations. We didn't realize at all how meaningful that would be.
When you're trying to make a business better, really intimately understanding something that used to be on the outside and now is on the inside and seeing how they do things differently – it creates a catalyst for change that is incredibly powerful.
Give us an example.
Shoppers has clearly one of the best loyalty programs, in Shoppers Optimum, of anyone in Canada – we might say in the world. The way they integrate loyalty programs, promotions, rewards and also customer insights to enhance the decisions that they make with products in the store is more integrated and simpler and more impactful than, up until this point, what we had been able to do at Loblaw.
What's your own process, as CEO, to learn about something that's large and outside?
How do you get a sense of what you think is right is right? I learned this from my father [W. Galen Weston, his predecessor at the helm of the business]. You have to talk to people, and you have to listen to what they have to say. And that's clearly your immediate set of advisers – the management team, board of directors – but it's also talking to people in stores, finding out what's bothering them. What they think the opportunities are.
I do a series of "let's talk" sessions with multiple levels in the organization, just to hear what's on their minds. Typically what I ask them is, "Tell me, when you wake up in the morning and you just do not want to get out of bed, you do not want to go to work, because you're so frustrated by something, what is that thing that frustrates you? And when you bounce out of bed and you say, I love my job and this is the thing I really want to do, I can't wait to get stuck into this when I get to the office today – what is that thing?"
It's amazing what you hear. If you hear the same things enough times, then you know there's something to dig into.
You said your thesis on health is, if anything, stronger now that it was because of things that have happened in the past two to three years. What do you mean by that?
There's a transformation happening in health care that is driven by two things. The first is … the ever-escalating cost of health care. It's driven by a national health-care system that is run by the provinces, [and] the stress is amplified by this aging population. And it's being met by this extraordinary digital enablement that is happening.
In the U.K., for example, 95 or 96 per cent of all prescriptions are sent from a doctor to a pharmacy digitally. In Canada, it's 3 per cent. We're still walking in with paper prescriptions.
But imagine a universe where instead of all of your health-care records being stored in pieces – the hospital has something here, your GP has something here, the local medical clinic has something here, the pharmacy has it here – imagine a world where all of that stuff can be digitized and put into one place that is the property of the patient. Imagine what that enables, if the patient is the hub and all of their health-care providers can instantly access that information when they're thinking about treating them.
Going and getting your blood pressure taken once a year during your annual medical has value. But checking your blood pressure regularly at a Shoppers Drug Mart if you're a sufferer of hypertension – and having that reading uploaded automatically to the pharmacist and to the doctor – then you're starting to talk about leveraging the access to all of this information.
Now plug in your nutritionist, and use a digital record of your nutritional profile. We have, at Loblaw, a digital database of nutritional information for every product that we sell in the stores.
So now connect that into this personal patient record which all of the various health-care professionals have access to. And then connect that to an incentive system like Optimum or PC Plus, where if you choose to eat products that have more appropriate nutritional characteristics for your particular condition, you earn points. For hitting your 10,000 steps with your Fitbit on any given day, you earn points.
We've got 5,000 people inside Loblaw connected using their cellphone in exactly the way I described.
Wait – so these 5,000 employees, what's happening with them?
It's fascinating. I'll give you an example. We have an executive challenge and all members of the management team are signed up to the same challenge. And it's 365 days – who is going to deliver the most steps. Connected to your Fitbit. Every night you can upload your results and see how you're doing on the leaderboard.
A couple of executives – one is working on weight management, and the other is working on his blood pressure – are right off the charts in terms of where they sit on the leaderboard. And both credit knowledge, understanding and being able to directly measure how they're doing on a daily basis.
In the natural-foods departments in our stores, you see continued, relentless, skyrocketing growth. This is more than just a bunch of rich people who can afford to spend a little bit more. It's about people making a choice because they believe and they have information and data that says it's going to lead to a healthier life.
Where does this view on health and nutrition take you strategically? Does it lead you to other acquisitions, other lines of business?
Maybe. One way of thinking about it is if you start to change the way people make decisions about the products they buy. And in a world that has been massively price-focused, with food prices being one of the principal drivers of how customers make shopping decisions, we can start to shift that a little bit so that people are buying products for a different reason.
It also opens the strategic lens to other areas of business. We acquired QHR, which is one of the largest doctors' medical records software companies out there. Why is that? Because if you have the pharmacy record, you have the nutritional record and then you have the system that connects to 20,000 medical doctors, you start to see how you can digitally connect that personal health record in a really compelling way.
Does that lead to other services and other opportunities that are more directly tied to the provision of health-care services? Maybe. Maybe.
How does your life change now that you are in charge of not just Loblaw, but George Weston too?
I would say that this recent change, which has me taking on the incremental role at George Weston, is part of the succession plan. It's a transition. Sarah Davis has stepped into the role of president at Loblaw. She's responsible for running the day-to-day operations of the business. That allows me to focus more specifically on the medium and long-term strategic mission for Loblaw, but also creates the space for me to effectively take on the CEO of Weston job.
Can the grocery business be Amazoned?
Amazon, for any retailer, in any category, in any part of the world, has to be acknowledged as someone to watch very closely.
Right now we feel really good about where we sit. We have a terrific e-commerce platform for our apparel business. We have the leading e-commerce platform for our grocery business with click and collect. [The program allows customers to buy groceries online, then pick them up at a store.] We've recently launched the first stage of our pharmacy offer for customers. And we're going to continue to do that.
Having said that, if you look around the world and you see where the disruption to grocers in particular is really coming from, it's not coming from e-commerce yet. Where it's coming from is the notorious German discounters, Lidl and Aldi. They have been wreaking havoc in Europe for years, they have been disrupting the U.K. market for the last five or six years, to devastating effect. And both Lidl and Aldi are on aggressive growth trajectories in the United States.
So in terms of the clear and present danger, as opposed to the future danger, we certainly see the discounters as the ones that we can really, really understand the impact they're going to have.
Do you see the Germans coming into this market in the near future?
I don't have any insight to say that they will come. But from a planning perspective, our expectation is that at some stage they will come to Canada. I always say in three years, but I've been saying three years for a while.
How is the Joe Fresh business doing? You guys don't disclose very much on it.
The Joe Fresh business is doing great. Really strong.
It's been widely reported that we retrenched from our standalone investment in the U.S. So what were we doing there? We did a lot of research … it made a lot of sense to take a controlled, staged chance on whether or not that business could be successful in another country.
We made that investment, it didn't work, and we had a predetermined threshold around how much we were going to invest. Once we hit that threshold and we didn't see that it was going to move to the next stage, we retrenched and got on with life.
Our principal focus is on the Canadian business and it continues to perform really well. In fact, the last two years that we've been restructuring that business, post [Joe Fresh founder] Joe Mimran's departure, was probably in my experience one of the most significant positive transformations in one of our lines of business that I've seen.
At one point you had a billion-dollar sales target on that business. Are you close?
So I'm never going to make a statement like that again! Look, we're really happy with the business and continue to feel it's a really important part of our customer proposition here.
The Rana Plaza disaster was four years ago. [In April, 2013, a garment factory in Bangladesh collapsed, killing more than 1,100 people. Joe Fresh products were made at the factory, and two years later the company was served with a proposed class-action suit seeking $2-billion in damages. The company is defending itself.] How did that event change how you approach that business and your thinking around that business?
You know, this was a horrific thing. And even though we did everything we were supposed to do from an inspections point of view, meeting all of the appropriate international standards at that time, there was still this monstrous tragedy that had our products directly involved.
My grandfather – family values – we really believe that business, and big business, has an important responsibility and a positive role to play in the community. And if you're a big, big business like we are, then you have a positive role to play and you have to think about the impact that you have on the country as a whole. And if you are sourcing products internationally, it's not an unrealistic expectation that you should also be thinking proactively about those areas of influence that you have.
My statement following Rana Plaza was far less about wanting to … [acknowledge] a legal accountability for what happened and much more about saying, "Hey, something terrible happened in this industry, let's stand up and face into it." When bad things happen – and they do happen, they happen in big businesses, no matter what your control systems are – part of what you have to expect of yourself and of your organization is that you'll stand up and take accountability for it in the right way.
In this case, it was drawing a spotlight on the issue and saying we have a responsibility as an industry to figure out ways to make a more positive impact. And that's happened – not exclusively because of us, because of NGOs, because of union engagement and Bangladesh working hard in its own right to make changes. The addition of building structural inspections across all factories in Bangladesh and a number of other countries … is a direct outcome, a positive outcome, from a very terrible circumstance.
Can you feel confident that in that business, you won't have this issue come up again with one of your suppliers?
Well, listen. I can feel confident that we are delivering on the standards and expectations that are set by the international accord that we are participants in. But for me to say that, based on that, nothing terrible will ever happen again would be inappropriate. Certainly we are evolving the standards and we are continuing to invest to meet those standards. We have boots on the ground, which I think is a big and important step.
How big is the potential business opportunity around medical marijuana for Loblaw and Shoppers Drug Mart?
I'm not going to comment on how big it is. But we see it as an opportunity. We are a drugstore and we see a lot of emerging research around the potential for different delivery models for cannabis to help with pain management, if you think about things like the opiate crisis across Canada and the U.S.
We do think that distribution of medical marijuana should be enabled through a pharmacy distribution model as opposed to simply through the mail. And we do think it represents a meaningful business opportunity for us. But you're not seeing us as an organization pile into the cowboy chaos of the producers that is happening at the moment. We're focused on working with particular producers who can effectively supply … in the event the legislation changes and pharmacy ends up being a big part of the distribution system.
So you're only interested in the medical side [of pot], not the recreational side?
One has to be super-careful to say what we will and won't ever do. But our principal focus has and will continue to be for the moment medical.
You've got two young boys. You've written quite passionately about this being a family business, and it's fairly rare that a business runs this long under family control. What are your thoughts about their future involvement?
I think this is important. What I aspire to is, I aspire to raise with my wife Alexandra two boys who have a strong sense of values, a sense of responsibility that comes with opportunity or privilege, and some ambition that they want to do something meaningful with that opportunity and privilege. If they grow up with those things, there will be an opportunity for them in the business, if they feel that connection.
People often ask me, what's it like growing up as a Weston? They ask me, what about this incredible pressure you feel to be part of the business? I think I was incredibly fortunate – I love the business. I spent time in it when I was young, summer jobs and so on.
So I get up every day – mostly every day – feeling charged up about what is going on in the business and ultimately what we can do. That you have to have, to be a compelling and effective family leader. To push somebody into it when they don't have those things is a recipe for disaster, or at least for suboptimal performance. Ask me in 20 years and we'll see where either of those boys end up.
This interview has been condensed and edited.