Provigo Inc. Business Information, Profile, and History

History of Provigo Inc.

Provigo was founded in Montreal when Bernard and Jacques Couvrette and Roland, Ernest, and René Provost decided to link their family businesses. The new wholesale grocer was incorporated in 1961 as Couvrette & Provost Ltd., dealing mainly in dry goods, tobacco, candy, and toiletries.

Couvrette & Provost's first president, Bernard Couvrette, established a precedent for aggressive acquisition, and over the next eight years the company integrated ten food wholesalers in an effort to diversify its food lines with dairy products, meats, vegetables, and health and beauty aids.

As a wholesaler and distributor, the company depended on independent grocers for its business. At the beginning of the 1960s, a supermarket chain boom consumed much of the smaller grocers' market share, but by 1964, in Quebec at least, these independents had won back most of what had been lost and held 70% of the market. Couvrette & Provost was supplying about 800 grocery stores, 300 of them affiliated with the company under various names. The small grocers' success was largely due to their growth in rural Quebec areas, but in some provinces the chains still dominated.

Couvrette & Provost was also diversifying into new areas of the food-service industry. Its subsidiary, Provost & Provost, served restaurants, hotels, schools, and other institutions, and another subsidiary, Les Epiceries Presto Limitée, operated eight cash-and-carry stores. Couvrette & Provost also organized Primes Régal Incorporated, a trading stamp system for retailers to offer their customers. The stamps were redeemable for prizes the shopper could choose from an illustrated catalogue, and the promotion was successful in bringing some of the supermarket glitz to smaller groceries.

In 1965, the company acquired Magasins Régal Stores, a cooperative of several Quebec food retailers that worked through pooled purchases to allow the group to run its own warehouse to keep prices lower. Also that year, Conrad Lajoie Limitée, a small distributor, was acquired as a subsidiary. The company also underwent a five-for-one stock split in 1965, feeling that its C$30 to C$35 unit price was too high for ordinary investors and that the company would benefit from more shareholders and shares outstanding to increase its leverage on the stock market.

During the mid-1960s, profits continued to increase by as much as 29% a year, and in 1967, Couvrette & Provost made a change in capital structure. Previously, the company had used the two-class structure of A and B shares that was common for newly incorporated Quebec companies. Only the B shares, which were held by the Couvrette and Provost families, had voting rights. Under the new plan, both classes of shares were converted into no-par-value common shares.

In August, 1967 Bernard Couvrette became chairman of the board and René Provost was named president. During the next two years, the company became a leader in the Quebec market. It acquired P. D'Aoust Limited, a family-owned wholesale grocery business, and then merged with Lamontagne Limited and Denault Limited through an exchange of shares. This was the first merger of its kind in the province, and it expanded the company into new territories--Saguenay, Quebec City, Sherbrooke, and the Eastern Townships. One of the main results of the merger was an overall reduction of operating costs through the integration of management, distribution, advertising, and purchasing, which helped sales to increase at a rapid rate over the next 20 years. The Financial Post called the firm's progress in nine years "most impressive," saying, "management appears to be very aggressive and forward looking and has shown sound judgment in the recent mergers."

In 1969, Antoine Turmel became CEO, while René Provost remained president and general manager. In September of the next year, Couvrette & Provost changed its name to Provigo Inc.

As rural citizens of Quebec began to move to the cities in larger numbers in the early 1970s, their lifestyle changes included patronizing independent grocers less and chain supermarkets more. The chains used modern merchandising techniques and muscular ad campaigns to attract more consumers to their strategically placed sites in shopping centers and suburbs. Because of the volume of their sales and the strength of their purchasing power, the supermarkets could afford to offer lower prices, and soon had launched price wars.

In food distribution, often called the "penny business," profit margins are tiny and must be compensated for with a large sales volume. To counteract the supermarket price war, wholesalers began to band together and distributors forged closer links with their independent grocers by affiliating retailers and franchising convenience stores. In 1970, Provigo merged ProviFruit Inc., and over the next five years, Provigo concentrated on developing its retail sector by establishing a network of 50 supermarkets and 800 affiliated or franchised stores. The company had opened its first warehouse market in 1969; by 1972, it had a dozen warehouse operations. Because of this wise planning during the price wars, Provigo was the only publicly owned food distributor in Canada whose earnings did not decline at all but, in fact, increased.

In 1974, Provigo implemented a new approach to retailing and developed a chain of franchised convenience stores under the name Provi-Soir. In 1975, Provigo purchased Jato, a company operating nine supermarkets. In November, 1976 the company moved into the meat sector and created its own subsidiary, Provi-Viande.

Provigo made an audacious move in 1977 when it acquired M. Loeb Limited, a company with larger sales and territories than its own, more than doubling Provigo's size. The company's sales rose from C$500 million to C$2 billion in the next two years. The acquisition was not only shrewd but well timed, since price competition in food retailing lessened during 1977 and sales growth was outrunning inflation. Along with M. Loeb, Provigo acquired Loeb's subsidiaries in Washington, D.C. and northern California, thus gaining a foothold in America. Provigo also acquired National Drug Limited, a pharmaceutical distributor.

Provigo's dominance in the food industry so far was mainly due to its wholesale activities, which still earned about 75% of the company's sales. In Quebec, the market for independent grocers was growing again as more women were working, families were smaller, and fewer people were shopping in large supermarkets.

Provigo decided to expand its retail operations, extending its Jovi, Provibec, and Provigo stores into all areas of Quebec City. In November, 1980, it bought all the shares of Abbatoir St.-Valerien Inc., which operated a large slaughterhouse. And in January, 1981, the company acquired Sports Experts Inc. In February, Provigo bought 87 of Dominion Stores' Quebec operations and distributing facilities. Pierre Lessard, who had become president and general manager in 1976, told The Wall Street Journal that "getting a larger presence in Montreal was the key to the transaction."

From the beginning, the Dominion stores had trouble. The managers responsible for integrating the new stores did not always agree with the managers of other Provigo supermarkets, and because of their differences, the stores had to be transformed one by one, taking six months longer than expected. As operational losses grew, the acquisition put several other projects on the shelf and cost the company a great deal of money and work. By 1984, Richard Constantineau, who had managed the Dominion stores, had resigned. Several of the Dominion stores were sold to affiliates and about 30 were closed. Others continued to do business until 1986, when the last were closed.

Provigo was involved in another price war in 1983, this time as a retailer. It began when Provigo's competitor, Steinberg Inc., started giving its customers coupons worth 5% of their total purchase, redeemable at the next purchase, a plan that won over shoppers immediately. Two days later, Provigo retaliated by offering a 6% discount on most products, which could be applied immediately to the purchase, as well as accepting discount coupons issued by Steinberg. When asked what it would take to end the price war, Turmel told The Globe and Mail, "I think it will be over when our competitor sees our results. They'll see we can withstand it better than they can . . . . We don't like it, but we can stand it." Provigo's colorful advertisements drew more customers during the war, and attracted wide press coverage.

In October, the company suffered another crisis when 45 of its Montreal-based Provigo stores were shut down by a strike, following a one-week strike at Steinberg. About 2,200 workers asked for increased job security and wages. After four weeks, Provigo offered a contract that matched Steinberg's contract with its workers, and the Provigo labor force accepted.

In 1984, Provigo extended its reach in the fast-food area by becoming a majority owner of Restaurants Les Pres Limitée, which operated four restaurants and was set to open eight more. Provigo also planned to focus on the convenience-store industry, which was blossoming in Quebec. And the company began installing automatic banking machines in its major stores. In July, company stores also announced price cuts on many items with a campaign called Permaprix. Between 1980 and 1985, Provigo more than doubled its profits.

In April, 1985, Antoine Turmel retired, and the president of the Montreal stock exchange, Pierre Lortie, resigned that post to take control of Provigo as CEO. Later in the year, Pierre Lessard, who many had believed would take Turmel's place, stepped down from his position as president.

That year was also full of new ventures. Capitalizing on the many young couples who were buying and repairing old houses, Provigo went into the home-renovation business in February, becoming partners with a building supply firm, Val Royal LaSalle, to open a large home-renovation center in Montreal. That month the company also joined with Collegiate-Arlington Sports Inc. in Toronto, merging its Sports Experts division to form a new national business called Sports Experts Inc. In August, Provigo purchased a majority stake in Consumers Distributing Company, a catalogue showroom firm in Ontario. And the company decided to broaden its presence in eastern Quebec by purchasing Alphonse Allard Inc. and Approvisionnement Atlantique, both food wholesalers.

In an effort to increase profits as well as geographical growth, Provigo divided its businesses into five groups: food distribution (still comprising about two-thirds of its business), pharmaceuticals, convenience stores, nonfood distribution, and Provigo U.S.A. Lortie believed this restructuring would enhance Provigo's national presence and help block competition from other firms. Provigo's American subsidiaries had merged under the new restructuring, and sales increased to account for about 14% of the annual total.

In 1986, Provigo acquired Pharmacom Systems Limited, a supplier of computer systems to pharmacies. The Sports Experts subsidiary opened five stores, the National Drug subsidiary opened a new distribution center, and several new food-distribution centers and cash-and-carry warehouses were also opened. Provigo undertook a joint venture with McKesson Corporation in San Francisco to distribute health supplies and equipment in Canada. In the supermarket division, the company expanded its fresh-foods and specialty departments.

By 1987, the pharmaceuticals operation was Provigo's fastest-growing business, and in February, the company consolidated its C$1 billion operation into one company called Medis Health and Pharmaceuticals Services Inc. The move was viewed by many as a guard against Steinberg, Provigo's fiercest competitor; analysts had predicted that Steinberg would enter the drug-distribution market soon. Provigo also planned to spend C$18 million building drug-distribution warehouses in Montreal and Toronto. In November, the company bought the remaining shares of Consumers Distributing Company.

In 1988, Unigesco Inc., a holding company, and Empire Company, a supermarket concern, raised their joint stake in Provigo stock from about 41% to 51%, and the president of Unigesco, Bertin Nadeau, who had been a director at Provigo since 1985, gained control of the company as the head of this 51% consortium.

Steinberg had been seeking bids for its supermarkets due to a quarrel in the Steinberg family, and in April, 1988 Provigo and Metro-Richelieu Inc., another food wholesaler, made a joint bid for its Quebec stores, planning to convert them into their own. Provigo and Metro-Richelieu were very competitive, and the joint bid insured that a bidding war would not occur between them. In the end however, with a new labor agreement, Steinberg opted not to sell its supermarkets after all.

In June, 1988, Provigo began to act on its plans for expansion in the United States, purchasing the Petrini's upscale supermarket chain in San Francisco, ten Alpha Beta stores, and five Lucky Supermarkets throughout northern California. The company is also positioning to establish itself in Europe and Japan by organizing Provigo International to increase exports.

Provigo's foundation is in wholesaling. Instead of focusing on vertical expansion into food manufacturing like many similar companies, it chose to test its retail and distribution skills in businesses other than groceries. In a country as large and diverse as Canada, Provigo faces the task of predicting the social, economic, and regional trends that influence shoppers' desires. Provigo's future, therefore, will depend largely on its local retailers' sensitivity to the people who walk through their stores.

Principal Subsidiaries: Loeb Inc.; Horne & Pitfield Foods Ltd.; Provigo Distribution Inc.; Sports Experts Inc.; Provigo Corp.; Dellixo Inc.; Medis Health and Pharmaceutical Services Inc.; C Corp. Inc.; Consumers Distributing Co., Ltd.