Provigo Inc. Business Information, Profile, and History

Company Perspectives:

Provigo strives to provide high-quality products at the lowest possible price and to provide a healthy work environment where everyone has access to personal growth opportunities through such activities as training programs. We also promote honest business practices, respect free competition, and constantly work towards providing a high return for our shareholders.

History of Provigo Inc.

Provigo Inc. is Quebec's largest grocery retailer with over 250 supermarket and discount stores operating under the Loblaws, Provigo, Maxi, and Maxi & Cie names. Along with traditional grocery products, the firm's stores offer over 7,000 items under the President's Choice and "no name" private label brands. Through its wholesale division, Provigo operates 26 Presto cash-and-carry outlets and supplies a network of affiliated outlets under the L'Intermarché, Axep, Proprio, and Atout Prix banners. Provigo was purchased by Loblaw Companies Ltd.--Canada's largest grocery distributor--in 1998.

Operating as Couvrette & Provost: 1960s

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. and dealt 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 percent 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 percent 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," stating that "management appears to be very aggressive and forward looking and has shown sound judgment in the recent mergers."

Supermarket Price Wars: 1970s

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, which soon led to 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 increased rather than declined.

In 1974, Provigo implemented a new approach to retailing by developing 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 the United States. 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 percent 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.

Retail Expansion: Early 1980s

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. In January 1981, the company acquired Sports Experts Inc. and in February 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 percent of their total purchase that were redeemable at the next purchase, a plan that won over shoppers immediately. Two days later, Provigo retaliated by offering a 6 percent 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, which followed 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. That year, the Maxi discount stores were launched. The company also began installing automatic banking machines in its major stores. In July, company stores 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.

Diversification: Mid-1980s

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. The company also 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 in the United States increased to account for about 14 percent of the company's 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 percent to 51 percent, 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 percent 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 was also positioning to establish itself in Europe and Japan by organizing Provigo International to increase exports.

By the late 1980s, Provigo's foundation was 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 faced the task of predicting the social, economic, and regional trends that influence shoppers' desires. Provigo's future, therefore, depended largely on its local retailers' sensitivity to the people who walked through their stores.

Focus on Retail and Distribution: 1990s

During the 1990s, Provigo narrowed its focus on two main business groups: Retail and Distribution. In 1992, competitor Steinberg finally conceded, selling 25 of its stores to Provigo. In 1995, 42 Heritage stores were converted into Maxi discount outlets. One year later, the first Maxi & Cie discount outlet store made its debut.

As competition in the industry intensified, customer satisfaction remained a crucial point in Provigo's strategy. In 1997, the company launched a US$144 million campaign that added a new arsenal of prepared foods and fresh products to Provigo store offerings. The move was made in an attempt to attract busy consumers looking for quick and fresh meals. Stores were converted so that 50 percent of floor space was dedicated to fresh products, while hot and cold cooked and prepared foods were placed in the front of each store.

Provigo also began to eye Ontario as a key area for growth. At the time, Loblaw Companies Ltd. was the only major grocery concern in the region, and Provigo believed that with aggressive expansion the firm could boost its 10 percent market share in the area. In 1997, Provigo's net income reached record levels, climbing to US$59.9 million.

Provigo Becomes a Loblaw Company: 1999

By the late 1990s, the Canadian grocery industry was ripe for consolidation. A December 1998 Canadian Business article explained that "the mathematics of the grocery business argue strongly for consolidation. If grocers can spread their costs over more stores, they can squeeze out tiny economies of scale that in total add up to millions of dollars of extra profit." Provigo's financial performance had caught the eye of Toronto-based Loblaw, Canada's largest grocer, whose sales had grown at a compounded rate of 6.5 percent per year since 1990. Gaining the leading position in Quebec appealed to the giant, and in 1999 Provigo became a Loblaw subsidiary. The C$1.7 billion deal was met with opposition from some Quebec nationalists; however, a stipulation that Loblaw and Provigo purchase an equal amount of goods and services from Quebec companies over the next seven years satisfied those concerned.

Provigo entered the new century on solid ground. With a powerful parent company in its corner, the firm had the resources to update and expand its stores. The first Loblaw store--this chain was added to Provigo's arsenal after the merger--had opened in Montreal and was quickly followed by six additional locations. Provigo's stores also began carrying the President's Choice and "no name" brand of products. Even as U.S.-based competitors, including Wal-Mart Stores Inc., entered the Canadian grocery scene, Provigo and Loblaw stood well positioned to maintain their leadership in both the Quebec and Canadian markets for years to come.

Principal Competitors: Empire Company Ltd.; Metro Inc.

Chronology

• Key Dates:
• 1961: Couvrette & Provost Ltd. is incorporated as a wholesale grocer.
• 1970: The company changes its name to Provigo Inc.
• 1977: M. Loeb Ltd. is acquired.
• 1984: The Maxi discount supermarket stores are launched.
• 1991: The company restructures into retail and distribution divisions.
• 1996: The first Maxi & Cie store opens.
• 1999: Loblaw Companies Ltd. acquires Provigo.