George Weston Limited

1882–1939

George Weston Limited is a major Canadian food processor and distributor, with a number of operations in the United States as well. Weston Foods Inc., the wholly owned holding company for George Weston's processing operations, manufactures and distributes fresh and frozen bakery products, cookies, and dairy products and also farms and processes fish. George Weston also holds a controlling 63.1 percent stake in Loblaw Companies Limited , the number one operator of supermarkets in Canada with a 40 percent market share, twice the share of its biggest competitor. Among the many grocery chains owned by Loblaw are Atlantic Superstore, Fortinos, Loblaws, No Frills, Provigo, The Real Canadian Superstore, Valu-mart, Your Independent Grocer, and Zehrs. Galen Weston, company chairman and grandson of the founder, owns more than 60 percent of George Weston Limited.

Early History Under George Weston

George Weston, a baker's apprentice, started this family-run business in 1882 with two Toronto bread routes. His early success selling bread led to a rapid increase in the number of routes he managed, and soon encouraged him to establish a bread and cake bakery in Toronto, the Model Bakery, in 1896. The bakery expanded into the production of cookies in 1908, and by 1911 had 30 delivery wagons; its products were sold in more than 500 stores.

In 1910, however, Weston agreed to a merger with other major Toronto bakers to form the Canada Bread Company. As a condition of the deal, Weston had to stay out of the bread business for a ten-year period. Despite having pocketed C$1 million from the sale of his business, Weston continued to make cakes and cookies, establishing a new plant to do so. In 1921, with the ten-year noncompete period over, Weston reentered the bread business through the purchase of the H.C. Tomlin bread bakery, which was located across the street from the Canada Bread Company. At George Weston's death in 1924 his son Garfield Weston took over a business with a thriving biscuit operation and a less-well-developed bread operation. In 1928 he incorporated George Weston Limited and took it public.

Expanding Through Acquisitions Under Garfield Weston: 1930s--60s

Under Garfield's leadership, the firm built its bread and biscuit businesses in Canada and the United States. Weathering the Great Depression without major problems, the company was able to take advantage of its position as a low-cost producer to overtake other competitors in the baking industry. Its 1937 acquisition of McCormick's Limited and its 1938 purchase of Inter-City Western Bakeries, Ltd., for example, provided Weston with the facilities and resources to produce 370 varieties of candy and 100 types of biscuits, in addition to its breads and cakes. Also during the 1930s, the company established operations in the United Kingdom, where it made available the first low-cost, high-quality biscuits. These British bakeries were amalgamated in 1935 into a separate company, Allied Bakeries, which eventually became Associated British Foods PLC. Meanwhile, George Weston Limited also expanded into the United States through the 1939 purchase of the Associated Biscuit Company.

Despite having pocketed C$1 million from the sale of his business, Weston continued to make cakes and cookies, establishing a new plant to do so.

1851–1976

Despite World War II, expansion continued smoothly throughout the 1940s. The company diversified into the paper industry through the 1943 acquisition of E.B. Eddy, a firm dating back to the 1851 opening in Hull, Quebec, of a mill to make matches. In 1944 the company bought the Southern Biscuit Company, and the acquisition of Western Grocers marked the firm's initial entry into food distribution. This growth was strengthened by purchases of the Edmonton City Bakery in 1945 and Dietrich's Bakeries in 1946. In 1947 the company acquired William Neilson, a major Canadian producer of chocolate, cocoa, milk, and dairy specialty products.

During the 1940s and early 1950s, Weston began buying shares of Loblaw Groceterias, a food distributor, as part of a strategy designed to reach consumers directly with its products. By 1953, the firm had acquired a majority interest in Loblaw, a position that made possible Loblaw's subsequent acquisitions of other food distributors across Canada and the Midwestern United States, including National Grocers of Ontario in 1955; National Tea, a U.S.-based retailer, in 1956; Kelly, Douglas and Company, a British Columbia wholesaler, in 1958; the Maritime-based Atlantic Wholesalers in 1960; and the Zehrmart supermarket chain in 1963.

During the 1960s the company pursued further diversification in an attempt to improve its value to shareholders by expanding into fish processing. Weston bought B.C. Packers, a salmon processor, in 1962, and five years later, Connors Bros., the largest herring and sardine processor in Canada.

1970s: Retrenching Under Galen Weston

Growth was temporarily curtailed in the 1970s as management focused on reorganizing the company's activities and operations to achieve greater control and efficiency. W. Galen Weston, one of Garfield's sons, had become president in 1970, and the firm began to refocus on food as its primary area of emphasis. The various grocery operations were consolidated under Loblaw Companies Limited and new management was installed. Underperforming stores were closed and many others were remodeled.

The most troubled distribution operation was National Tea, which lost $36 million on $1.06 billion in sales in 1973. The decline of National Tea was traced to the company's continued reliance on small stores located at downtown sites while the clear industry trend was to larger stores located in the suburbs. After attempting to turn around the chain's fortunes through drastic cost-cutting and major repositioning efforts, Weston leadership determined that National Tea's competitors had been given too much of a head start. In 1976, therefore, National Tea sold off 75 percent of its supermarkets, including all of its Chicago operations; the company continued to operate the remaining stores, making limited attempts to improve their operations, with the idea of eventually divesting them.

1928–1987

Meantime, Galen Weston took over as chairman in 1974, four years before the death of Garfield Weston. Also in 1978, Loblaws joined the burgeoning market for private label grocery items by launching the No Name label. The new brand enjoyed immediate success based on its low prices, clean and simple packaging, and high quality. In 1984 Loblaws introduced a new premium private label called President's Choice, so named because the president of Loblaws at the time, David Nichol, chose the products. Offering premium value at low prices, President's Choice was able to compete directly with name-brand goods.

1980s: Returning to Acquisitions

In his initial years as chairman of the company, Galen Weston focused on improving financial results by bolstering management and making capital expenditures to enhance various systems. After posting a net loss in 1976, the changing fortunes of the company were evident by 1979, when record earnings of C$76.5 million on sales of C$5.9 billion were reported. With the outlook for the company looking brighter, Weston began seeking acquisitions once again. After being outbid by the Thomson family in a 1979 battle for control of Hudson's Bay Company, the oldest Canadian company and its leading department store chain, Weston acquired Stroehmann Brothers Company, a major baker of fresh bread based in Pennsylvania, in 1980. The acquired company was later renamed Stroehmann Bakeries Inc. In 1983 Galen Weston was the subject of a foiled kidnap attempt by the Irish Republican Army; following this incident, he and his family began maintaining very private lifestyles.

Also in the early 1980s, George Weston faced major labor problems involving the unionized employees of its Super Valu stores in Manitoba. These difficulties resulted from Weston's aggressive penetration of the Winnipeg retail food market. In order to convert its existing Loblaws stores in the area to larger-scale supermarkets and hire away experienced employees from other retailers, Weston offered to recognize the Manitoba Food and Commercial Workers Union and to match its current contract with Safeway Foods in return for a six-year, no-strike, no-lockout agreement that effectively eliminated the union's contract negotiation rights. Shortly after consummating this arrangement, Super Valu was accused by its employees of violating a number of contract provisions related to seniority, scheduling, and full-time employment, but a compromise was eventually worked out.

In 1986 the food processing operations of Weston were consolidated within an umbrella subsidiary called Weston Foods Ltd. At the time, its operations included baking and milling, biscuits, chocolate, dairy, and specialty products, providing food and ingredients both to intermediate processors and directly to consumers all over North America. Weston Bakeries stood as Canada's largest baker of fresh bread, buns, and cake products (distributed under a variety of brands and private labels). Stroehmann was one of the largest wholesale baked goods producers in the northeastern United States. Other members of the food processing group included Interbake Foods specialty biscuit division, which consisted of the cookie and cracker businesses acquired between 1928 and 1960, including the Southern Biscuit Company, the focus of operations in the United States; and the Canadian flour milling operations of Soo Line Mills and McCarthy Milling. The chocolate activities of William Neilson were bolstered in 1987 with the acquisition of the confectionery operations of Cadbury Schweppes Canada Inc., a unit of the U.K. firm Cadbury Schweppes PLC. The newly created Neilson Cadbury unit commanded a one-third share of the Canadian chocolate bar market and was Canada's largest chocolate manufacturer.

1990s: Tightening the Company Focus

1988–1999

The worldwide recession of the early 1990s coupled with the unfolding consequences of the North American Free Trade Agreement (NAFTA) of 1989 wreaked havoc on both the Canadian economy and George Weston Limited. Sales fell each year through 1993, dropping from US$9.35 billion in 1990 to US$9 billion in 1993. Net income fell during the same period from US$107.7 million to US$43 million. The operations of Weston Foods were hit the hardest, particularly as they increasingly had to compete with such U.S. food giants as RJR Nabisco Inc. and the Pillsbury Company. Anticipating the effects of the expected passage of NAFTA, Weston had in fact begun to overhaul its food processing operations as early as 1988, when it sold its Canadian biscuit operations for C$120 million. Then in early 1991 the company exited from the flour milling business, having determined that it no longer made economic sense to mill wheat in-house when it could instead seek out the best supplier of this raw material from anywhere in North America. The ice cream operations of William Neilson were also under competitive pressure from John Labatt Ltd., Beatrice Foods Inc., and the Pillsbury Company, so Weston decided to sell the operations to Labatt and concentrate on William Neilson's stronger businesses, fresh milk and yogurt. At the same that it was pruning its portfolio of underperforming units, Weston also launched capital improvement programs to bolster its remaining core. For example, the company spent C$55 million to build a new, state-of-the-art bakery in Montreal from which it began distributing fresh bread throughout Quebec and New England. In 1993 E.B. Eddy bought Island Paper Mills Co. Ltd., which operated a coated paper mill located on an island near Vancouver.

In the mid-1990s George Weston continued to unload unprofitable or noncore units. In 1995 Loblaw finally rid itself of its National Tea albatross, selling the company to St. Louis-based Schnuck Markets Inc. for US$368 million. This completed Loblaw's exit from the U.S. market. Another significant divestment occurred the following year when Weston sold Neilson Cadbury, the only domestically owned chocolate company left in Canada, back to Cadbury Schweppes for C$225 million. Weston continued to own dairy food processor William Neilson. Seeking to focus even more strongly on its core food operations, Weston next looked to offload E.B. Eddy. In September 1997 Weston announced that it planned to spin off the paper company through an initial public offering, but two months later shelved that plan because of turmoil in the stock market. It then began shopping E.B. Eddy around, leading to the July 1998 sale of E.B. Eddy to Montreal-based Domtar Inc. for C$803 million. These divestments reduced George Weston to its majority ownership of Loblaw and food processing businesses focusing on bakery products, cookies, milk, and fish.

With revenues and profits growing, a tighter assemblage of operations, and its cash reserves swelled from the divestments, George Weston began looking for acquisition opportunities to bolster its core areas. In 1998 one of the company's U.S. bakery units, Maplehurst Bakeries Inc., purchased the frozen bagel business of the Quaker Oats Company, which included the Arnie's Bagelicious and Petrofsky's brands. That same year, Stroehmann Bakeries acquired Maier's Bakery, a family owned Reading, Pennsylvania-based bakery that had sales of about US$100 million per year. Loblaw expanded as well, as supermarket consolidation spread from the United States to Canada. In November 1998 Loblaw acquired the 80-store Agora Foods, which had been the Atlantic Canada division of Oshawa Foods, for C$81 million. Then the following month, Loblaw spent C$890 million to acquire Provigo Inc. To this point Loblaw had only a minuscule presence in Quebec, where it operated four stores. With the addition of Provigo, it gained the number one supermarket chain in Quebec and for the first time had truly a Canada-wide retail network, not to mention a dominating 40 percent nationwide market share. Following completion of the acquisition, Loblaw retained the Provigo banner on the more than 250 stores it had acquired in Quebec; but of the 90 or so Provigo stores in Ontario, which were mainly operated under the Loeb name, about half were converted to Loblaws and half were sold off.

George Weston continued to fine-tune its operational portfolio in 1999. Early that year, the dairy operations were bolstered through the purchase of Fieldfresh Farms, the Ontario dairy operation of Oshawa Foods. The fisheries operations were scaled back through the sale of the branded tuna and wild salmon processing businesses of B.C. Packers. This divestment largely exited Weston from the volatile wild fish processing industry, allowing it to focus on its more stable canned sardine and farmed Atlantic salmon operations, which also had greater potential for growth. Weston also earmarked about C$800 million for capital expenditures in 1999, most of which was spent on expanding or remodeling grocery outlets in eastern Canada, particularly the Provigo stores. The addition of Provigo in particular led to a 41 percent jump in sales for George Weston in 1999 to C$20.85 billion. Looking to the future, Weston planned to spend an additional C$900 million to open, expand, and refurbish more than 100 of Loblaw's stores throughout Canada. Loblaw also began expanding the nonfood offerings of its stores, with plans for selling more general merchandise, such as children's clothes, and for marketing financial services, such as no-fee bank accounts.