The daily commute from Westmount to Metro Inc.'s headquarters on the northeastern most tip of Montreal Island should take most drivers, even in a city notorious for its pedal to the metal moxie, a solid hour.
Pierre Lessard, chief executive officer of Canada's newly nearly No. 2 grocery chain, never takes more than 40 minutes.
His secret: A counterintuitive route that takes him through the city's southern bowels, past the oil refineries of the depressed east end, then due north. The distance is likely longer, but it gets the tenacious tactician to his destination faster.
In a similar way, Mr. Lessard, 63, knew he would also have to quit the beaten track if Metro were to emerge victorious in the heated bidding for the long-coveted Canadian operations of Great Atlantic & Pacific Tea Co. Competing suitor Sobeys Inc. had seemingly unbeatable advantages -- an already established Ontario presence, apparent board approval to offer more cash, and a CEO who, as a former A&P Canada executive, had an intimate knowledge of the operations and culture.
To compensate, Metro devised a strategy that involved Mr. Lessard personally courting A&P CEO Christian Haub. It was anything but a no-brainer. The often austere Mr. Lessard had built Metro into a formidable food force in his home province with a bare bones, hands-on approach that involved personally monitoring the results of every store. He had neither the time, nor the disposition, for schmoozing.
Yet, in a testament to his deep yearning to see Metro finally become a national player, Mr. Lessard made the trek to Greenwich, Conn., late last year to meet Mr. Haub and set in motion the deal that assures him a spot among the country's grocery greats.
Bagging A&P Canada, as he did this week for $1.7-billion in cash and stock, is a personal triumph, if not sweet revenge, for Mr. Lessard. He was president and heir apparent to become CEO at Provigo Inc. in 1985 when king maker Caisse de dépôt et placement du Québec, under CEO Jean Campeau, crowned Montreal Exchange then head Pierre Lortie instead. Mr. Lessard, who earned a Harvard MBA in 1967, soon quit and eventually took the top job at the then-beleaguered Metro chain in 1990.
At Provigo, Mr. Lessard executed the purchases of all 87 Dominion stores in Quebec -- from Conrad Black's Argus Corp. -- and A&P's stores in the province. He can also claim to have bought Ottawa's Loeb chain twice -- once for Provigo, then from Provigo, after its 1998 takeover by Loblaw Cos. Ltd.
In the past 15 years, Metro's stock performance has outdone those of Loblaw and Sobeys, rising 4,340 per cent since Oct. 31, 1990 -- the day before Mr. Lessard's arrival as CEO. And the A&P Canada purchase is surely the crowning achievement of a career marked by many successes. But while the deal might for some be a triumphant swan song, it only seems to have whetted Mr. Lessard's appetite.
"We'd like that," he said, when asked whether Metro might one day own stores across Canada. "I like what I do. I like building things, high-performance things."
With A&P, Metro now holds about a quarter of the Ontario market, and about a third of Quebec's. Together, the two provinces account for about 60 per cent of Canadian grocery sales. For Metro, Western Canada is the obvious next destination. Either Canada Safeway Ltd., a unit of California-based Safeway Inc., or Jim Pattison's Overwaitea Foods could be next on Mr. Lessard's grocery list.
Unless of course, Mr. Lessard, whose current contract expires in 2007, leaves it to his heir apparent -- executive vice-president and chief operating officer Éric Richer La Flèche -- to get the groceries next time around.
"Mr. Lessard continually said during the A&P negotiations that we have to make sure the young people -- Éric, [procurement head]Alain Brisebois and [retail operations head]Robert Sawyer -- want to do this deal, because they will be responsible making it a success in the long term," said Luc Bachand, the Montreal-based executive managing director of BMO Nesbitt Burns, Metro's lead adviser on the deal.
The strategy that allowed the dark horse to win the race for A&P Canada began several months ago with the launch of a highly secret wooing that the Quebec-based grocery retailer's investment bankers would code name -- fittingly, it turned out -- Project Mustang.
"In the past year, it had become increasingly clear that A&P's U.S. operations were not in a good situation and that something was going to happen with the Canadian business," Mr. Bachand said. "In that context, we encouraged Mr. Lessard to establish a personal relationship -- CEO to CEO -- with the head of A&P."
In late 2004, Mr. Lessard met Mr. Haub alone at a restaurant near the A&P CEO's Greenwich home.
The meal was a crucial first step in building the trust that led to the deal that will see Metro acquire A&P Canada's 236 Ontario stores and become Canada's almost-second-biggest grocery chain with annual sales approaching $11-billion.
For Mr. Lessard, winning A&P Canada -- which Metro's executives and investment bankers code named Apple Pie during the negotiations -- is also a reason to breathe a sigh of relief. Had things gone the other way, Metro -- Quebec-bound, except for 50 eastern Ontario outlets, and sandwiched between Loblaw and Sobeys, with four times and twice its buying power, respectively -- might eventually have wound up in the clearance aisle.
"We considered all the alternatives," including turning Metro into an income trust, Mr. Lessard conceded during an interview in his unpretentious office far from the gleaming towers of downtown Montreal. "Let's just say, none was as exciting as [buying]A&P."
The talks that ultimately led to a deal late Monday ended as they began: between the two CEOs, Mr. Lessard, this time in Montreal, and Mr. Haub, on the phone from A&P's headquarters in Montvale, N.J.
But the groundwork to Monday night's deal had been meticulously laid by Mr. Bachand's team in the preceding weeks, especially after A&P officially solicited offers for its Canadian operations on May 10. Metro knew that it would not only have to counter Sobeys' strength, but also defend its bid against others -- which, according to a source, even included a joint offer from sometime Metro ally Alimentation Couche-Tard Inc. (in which Metro holds a 10.6-per-cent stake) and the Ontario Teachers Pension Plan. Private equity specialist Kohlberg Kravis Roberts & Co. was also rumoured to be in the bidding.
"We knew [Sobeys CEO and ex-A&P executive]Bill McEwan had all sorts of information that we didn't have. The kind of information that you don't get from a due diligence -- such as the culture of the business -- that allows you to better evaluate the costs you can avoid and the savings you can realize," lawyer and Metro director Bernard Roy noted. "Mr. Lessard luckily was able to establish a good chemistry with [A&P]management. The management felt less threatened by a 'friendly' offer from Metro, whereas Sobeys was already present in Ontario and could have replaced management."
Still, conquering Mr. Haub, 40, a fifth-generation member of the billionaire German family that owns 56 per cent of A&P through the giant Tengelmann Warenhandelsgesellschaft KG retailing empire, was the battle that won the war.
Metro, sensing the Haubs were reluctant to abandon Canada completely and knowing the Sobey family would be unwilling to cede a large chunk of their controlling stock, proposed a cash-share deal.
"We knew that A&P didn't need more than $1-billion [to pay off its debt] so anything above that would have been excess cash," Mr. Bachand said.
"I told Christian Haub that Metro's shares would be good for him," Mr. Lessard added. ". . . It was the best outcome for both of us. He's already made more than $50-million."
Indeed, Metro's stock price rose faster than a Duncan Hines cake mix following the announcement of Tuesday's deal. Yesterday, Metro's subordinated voting shares closed at $30.70 on the Toronto Stock Exchange, up $3.20 since Monday.
A&P's decision to take 18 million Metro shares (valued at $27.66 Canadian in the deal) gives Mr. Haub -- who declined to be interviewed but who is expected to assume one of the two board seats A&P gets out of the deal -- a direct stake in making sure the melding of Metro's operations with those of A&P Canada goes smoothly. The U.S. unit will even provide computer services to Metro during the integration.
Mr. Lessard personally inspected "about 30" A&P stores in the Toronto region recently, while his negotiating team visited the rest. Stores were ranked fastidiously, allowing Mr. Lessard to arrive at his objective of carving out $60-million in annual costs from the merged operation at the end of two years, perhaps half of it on the procurement side. Metro and A&P together spend about $1-billion annually on private label brands, and Mr. Lessard expects to realize some of the savings there.
He also wants to increase the proportion of A&P Canada stores (which operate principally under the A&P, Dominion and Food Basics banners) that are "up to par" -- in appearance, volume and profitability -- to 80 per cent from about 60 per cent within two years.
It will not, however, be by imitating Loblaw and offering a wide array of general merchandise. A&P Canada and Metro will continue their current strategy of focusing on offering more higher-margin fresh and prepared foods.
"There is a strong compatibility between our organizations," Mr. Lessard said. "We both have the same vision -- to remain food retailers."
A&P store managers take note: Don't be surprised if the new boss shows up unexpectedly. Mr. Lessard has a reputation for popping in unannounced at Metro outlets across Quebec, checking out the price of pork and the variety of vegetables.
"He's a hands-on kind of guy," veteran grocery consultant George Condon said. "In that way, he's quite different from [ex-Loblaw CEO]Richard Currie, who was a visionary. Richard Currie didn't spend a lot of time looking at individual store numbers. But if you ask Pierre Lessard what his best store was last week, he could tell you off the top of his head."
"Is he a micromanager? Yes," Metro director Mr. Roy added. "[But]once his managers earn his confidence, he gives them a lot of leeway."
A hint of the secret to Mr. Lessard's stamina sits outside his office door -- an always full, giant thermos of Metro's Irrésistible private label coffee. Soon to be joined, no doubt, by a carafe of A&P's famous Eight O'Clock brew.
2004 Revenues MAJOR FOOD RETAILERS IN CANADA, $ MILLION
LOBLAWS: $26,209
Sobeys: 12,189
Metro / A&P Canada: 10,554
Costco Canada: 8,045
Safeway Canada: 5.892
Growth of a grocer
The dark horse that won the race for A&P Canada has been thinking big since it started 58 years ago.
1947 -- Faced with fierce competition from corporate chains, a group of 19 Montreal grocers unite to create a new food retailing organization: Magasins Lasalle Stores Ltée.
1952 -- The newly named Les Épiceries Lasalle Groceteria Ltée comprises 43 members. The concept of the self-service grocery store is catching on, resulting in the introduction of the shopping cart.
1954 -- The group's first joint advertising featured turkeys at 39 cents a pound in time for the Christmas season.
1956 -- The Metro banner is created for members wanting to participate in joint advertising. (Montreal Mayor Jean Drapeau had been promoting his metro project, and "metro" became a buzzword of the time.) Les Épiciers Maisonneuve joins the group.
1961 -- Group members started distributing Gold Star stamps, which customers could collect and use to buy certain items. The stamps figure prominently in Michel Tremblay's acclaimed 1965 play, Les belles-soeurs.
1963 -- The popularity of the Metro banner leads the group to adopt the name: Les Marchés d'Aliments Metro-Lasalle Ltée.
1967 -- The group and Épiceries Richelieu Ltée form an alliance to create a jointly managed meat distribution company. They will follow up in 1975 with a fruit and vegetable joint operation.
1972 -- The company becomes Les Marchés d'Aliments Metro Ltée, and the following year counts 300 affiliated members and sales of nearly $132-million.
1976 -- The alliance merges to create Metro-Richelieu Inc.
1979 -- The renamed Groupe Metro-Richelieu Inc. enters the convenience store business under the Dépanneur 7 Jours banner. That year, the company also introduces optical scanners in some stores.
1981 -- Metro-Richelieu and Épiciers-Unis Inc. announce a merger to create Groupe des Épiciers Unis Metro-Richelieu Inc.
1986 -- The company, now named Metro Richelieu Inc., goes public on the Montreal Exchange. Acquisitions this year and in 1987 include McMahon Distributeur Pharmaceutique Inc., Pêcheries Atlantiques and La Ferme Carnaval Inc.
1990 -- Eyeing a turnaround strategy, the board of directors hires Pierre Lessard as president and chief executive officer. The following year, the company returns to profitability.
1992 -- The company buys leases and rights to 48 Steinberg grocery stores.
1993 -- Metro-Richelieu joins the Toronto Stock Exchange.
1994 -- The company becomes the first in Quebec to launch its own private beer label, Norois.
1996 -- Metro-Richelieu acquires wholesaler Gestion J.L. Duval Ltée.
2000 -- The company adopts a new name: Metro Inc.
2002 -- Metro acquires the assets of distributor Grossiste Sue Shang Inc.
2005 -- Metro wins the bidding for A&P Canada, agreeing to pay $1.7-billion in cash and stock.
SOURCE : COMPANY PROFILES
Konrad Yakabuski