Another one bites the dust: turnover and failure among the leading Canadian firms
(ASAC 2005 Conference Ryerson, Toronto)
The Wolfe family emigrated from Lithuania to Canada early in the twentieth-century. Max Wolfe bought a wagon and supplied produce to small grocers or sidewalk vendors in Toronto. With the aid of his brother, Maurice, he founded the Ontario Produce Company, a venture that expanded into the wholesale import, export, and exchange of fresh fruit and vegetables.
Most family members worked for the firm but by the early 1940s Ray Wolfe, Maurice’s son and a graduate of the University of Toronto, emerged as the heir apparent. Ray broadened the product range and network of clients by acquiring Oshawa Wholesale (re-titled the Oshawa Group), a distributor of grocers, confectionaries, and health and beauty aids.
Grocery chains were important clients for Ontario Produce but during the post-war era the systems began to integrate vertically, bypassing established wholesalers. Concurrently, independent grocers found it difficult to compete against the chains, which could achieve superior economies from joint operations and bulk purchasing.
Ray secured a Canadian franchise from the Chicago-based Independent Grocers Alliance (IGA), which gathered independent grocers under a single identity and marketing approach. Across three decades he built up a large clientele (peaking at 30 percent of the independent grocers in Canada) who adopted the IGA logo, bought supplies from the Oshawa Group and paid a royalty on sales.
Ray then expanded the firm in a diverse set of operations: Food City grocery stores, Towers department stores, Kent and Drug City pharmacies, health and beauty outlets, regional suppliers, and real estate.
The enterprise provided numerous employment opportunities for the prolific Wolfe family. Most never worked anywhere else but few Wolfes demonstrated executive talent. In addition, voting shares in the Oshawa Group were restricted to family members who were employees.
Other relations could only hold non-voting shares, a policy that divided the family into ‘ins’ and ‘outs.’ Ray Wolfe kept tight management control and forced out those who seemed less competent. He owned one-fifth of the voting shares and retained the proxies for the other voting blocs. When he suddenly died in 1991, he was replaced by Alistair Graham, a loyal lieutenant, with the expectation that Ray’s son, Jonathan, would succeed.
The changeover became problematic because the firm’s performance had been deteriorating for a decade. The Oshawa Group remained a wholesaler with strong regional divisions and a portfolio of quasi-related operations. Its responded slowly to competition and the inter-personal relations constructed with independent grocers deteriorated as the firm grew.
After the company sold several warehousing operations, franchisees complained about inconsistent treatment, poor delivery services, and deteriorating merchandise. Meanwhile, a leadership crisis unfolded. Jonathan Wolfe, erratic and changeable, questioned the caretaker management of Alistair Graham.
Many directors and managers though his sister, Elizabeth, or Ray’s niece, Rhoda, had more talent. The splits became so severe that the Boston Consulting Group was hired to mediate a new shareholders’ agreement in 1994. Jonathan was incensed by one term of the new pact, the creation of a ‘family council.’ Headed by Harold Wolfe, a long-time opponent of Ray, the council demanded that the Oshawa Group be operated as a public company with professional managers and independent directors.
With no clear leader to reconcile the parties, bickering characterized family council sessions. Other relations resented the loss in shareholder value across the previous two decades and the decreasing employment of family members in the business.
When Harold was injured in an accident during 1999, a cabal of Wolfes used his incapacitation to arrange a sell-out to Empire Co., the holding enterprise for the Sobey’s retail and real estate activities. The Wolfe families received about $250 million in the $1.5 billion takeover, a sizeable sum but a modest return on decades of investment and effort.
Rite-Way Department Store 1966
Bassin Food chain 1964
Tradition Market Fresh Food
Pharma Plus Drug Stores - acquired in 1988 from Boots Group and once owned by Loblaws; sold to Katz Group of Companies
Kent Drugs Limited 1968
Rockower of Canada Limited 1968
Food City and later as Food Town - converted by Oshawa Group to Price Chopper
Price Chopper discount supermarket chain, rebranded to FreshCo some time after Oshawa Group was purchased by Sobeys.
Towers Department Stores 1967 - acquired as Allied Towers Merchants Limited and ceased operations in 1990 with store locations sold to Zellers)
Consumers Distributing Company Limited - sold 50% stake in 1978
Coinamatic Laundry Equipment - sold 90% stake in 1978
Acquired Dominion Stores Limited's operations in Nova Scotia and Safeway's stores in Southern Ontario 1985
Acquired Canadian operations of Boots Drug Stores 1988 - changed to Pharma Plus banner
Field Fresh Farms (Dairy)
Dominion Mushroom Company 1963 - sold 1986
Oshawa Group also operated food services company SERCA Food Services Incorporated.
Marchland Holdings Limited 1971
Baxter Estates 1975 - owned and managed apartment in Winnipeg and shopping centre in Calgary; sold 1978
Systems Construction Limited - modular home builder
Codville Distributors Limited 1972
Decarie Square shopping mall in Montreal 1976 - sold 1986
Ray D. Wolfe
Source: International Directory of Company Histories, Vol. 2. St. James Press, 1990.
The Oshawa Group is one of Canada's largest suppliers of food, operating in both the wholesale and retail sectors. The company runs 102 supermarkets under a variety of banners, including Food City, IGA, and Dutch Boy. It is also the largest wholesale supplier to independently owned IGA stores in Canada. Oshawa is active in the general merchandise and pharmaceutical market as well, running 39 Towers department stores in Ontario, nine Bonimart stores in Quebec, and 156 drugstores under the Pharma Plus, Drug City, and Metro Drugs chains. The company also operates 25 pharmacy units throughout its department stores and supermarkets.
The Oshawa Group has experienced steady growth since it was established in 1957. It registered record sales and earnings for the 12 consecutive years preceding 1989--a remarkable feat considering the generally cyclical nature of its primary industry--and the company is well positioned to continue its progress.
The company was originally incorporated in Ontario on June 18, 1957 as Oshawa Wholesale Ltd., and operated as a distributor to grocery stores during its first few years. But as the company grew in the early 1960s, it quickly began to diversify.
In 1963 Oshawa purchased a controlling interest in the Dominion Mushroom Company, a large mushroom growing and packing concern. Earnings surpassed $1 million in 1963, and Oshawa soon invested heavily in supermarkets.
In September, 1964 the company acquired full control of the Independent Grocers Alliance (IGA) Distribution Company. Two months later it purchased the eight units of Bassins Food Chain located in Toronto and Ajax, Ontario, and transformed them into IGA stores. Throughout the rest of the decade the company built a formidable chain of supermarkets through acquisition.
Oshawa diversified into general merchandise retailing in January, 1966 when it purchased a 75% interest and took over management of the six-store Rite-Way Department Store chain, which operated throughout Ontario. A year later the company acquired the rest of Rite-Way's shares and purchased Allied Towers Merchants Ltd., another department store chain, combining the operations of the two under one management group.
Oshawa continued its diversification into other businesses and new geographical areas in the late 1960s. In July, 1968 the company purchased Kent Drugs Ltd. The acquisition added about $7 million to Oshawa's annual sales, and Oshawa President Ray D. Wolfe announced the company's plans to put Kent Drug store units in new Towers Department stores.
Also in 1968 Oshawa purchased Rockower of Canada Ltd., a firm which operated the men's and boys' departments in 26 of Oshawa's Towers stores. Oshawa's food distribution unit was greatly expanded late in the year by the purchase of Shop & Save Ltd., an IGA supplier in Quebec.
The company branched into Canada's maritime provinces when it acquired Bolands Ltd., which as supplier to 45 IGA stores in that region had accounted for about $27 million in sales the previous year. By the end of its shopping spree Oshawa was the supplier to 325 IGA stores in five provinces and had become well diversified in the general merchandise and drug store markets.
In the 1970s Oshawa became more involved in real estate dealings. In mid-1970 the company purchased an interest in Baxter Estates, a real estate partnership which owned an apartment building in Winnipeg and a shopping center in Calgary. (The company sold its interest in Baxter three years later for a nearly 100% profit).
In November, 1971, three months after it changed its name to The Oshawa Group Ltd. to reflect its diversity, the company purchased the rest of Marchland Holdings Ltd., a real estate developer it already half-owned. At the time of the acquisition Marchland owned four Towers-Food City shopping centers and a commercial complex in Sudbury, Ontario that included a shopping mall, hotel, office center, theater, and parking garage. Oshawa also purchased the remaining third of the modular home developer Systems Construction Ltd. of Ontario.
In early 1972 Oshawa moved into western Canada by acquiring Codville Distributors Ltd. Oshawa's bid was accepted over the competing bid of Westfair Foods Ltd., a subsidiary of George Weston Ltd., because Oshawa's offer was more attractive to Codville's minority stockholders.
In October, 1973, Harvey S. Wolfe succeeded his brother Raphael Wolfe as president of Oshawa; Raphael became chairman and CEO.
In 1976 Oshawa bought out its partners in the Decairie Square shopping mall in Montreal. In December, 1977, Norman S. Lipson, former president of Oshawa's Tower Department Stores unit, pleaded guilty to four counts of fraud which involved kickbacks of $411,000. Lipson had resigned from his position in late 1976. He was sentenced to two years' imprisonment and fined $30,000.
In the late 1970s the Wolfes began to slim Oshawa's operations a bit. The company shed its 50% interest in the Consumers Distributing Company, Ltd. in 1978. Consumers Distributing sold brand-name general merchandise at reduced prices in large, no-frills showrooms; Oshawa had entered into a joint venture with the limited-service retailer, providing capital for the chain's expansion eight years before. Oshawa also sold its 90% interest in Coinamatic Laundry Equipment in late 1978.
The early 1980s saw Oshawa emphasize its core businesses--food wholesaling and retailing. In 1983 group sales surpassed $2 billion. In 1985 the company strengthened its presence in the Atlantic provinces when it acquired nine supermarkets and a distribution center in Nova Scotia from Dominion Stores Ltd. and bought 22 Canada Safeway supermarkets in the Toronto-Hamilton area.
In 1986, as group sales passed the $3 billion mark, Oshawa divested its Dominion Mushroom farm due to both erratic earnings and the unit's need for a major capital reinvestment, and sold its Decairie real estate in Montreal and its Sudbury shopping center.
In the late 1980s Oshawa took bold steps to improve its food retailing business. Oshawa's corporate-owned Food City stores took on a new "streetscape" look. The store layout was intended to resemble an old-fashioned sidewalk merchant atmosphere, and at the same time appeal to young urban professionals as well as retirees. Oshawa targeted upscale consumers wherever possible with specialized services and fancy merchandising. For example, in 1987 the company's Thornhill, Ontario Food City superstore added a kosher deli, bakery, and meat department to appeal to the community's large Jewish population. By specializing wherever possible, Oshawa commanded beefier margins on premium products and services.
In 1988 Oshawa tripled its drug store chain by acquiring the 109 retail units of Boots Drug Stores for C$45 million. The stores were renamed Pharma-Plus Drugmarts and joined the 34 Kent Drugs and 12 Metro Drugs units in operation. The addition helped Oshawa sales to top $4 billion in 1989.
The Oshawa Group's aggressive management has produced excellent results for a number of years, and the company intends to concentrate on what it calls the mainstream of the market, rather than change store formats to superstores or specialty stores.
Although the trend in Europe and the United States has been toward increased size and cross-merchandising between food and nonfood retail stores, Oshawa does not anticipate similar trends in Canada. Instead the company plans to focus on retail presentation in its department stores and drug stores and broader product lines in its existing supermarkets.
Dutch Boy Food Markets
Elliot Marr and Company Ltd.
Fieldfresh Farms Inc.
Hudon et Deaudelin Ltee
The Ontario Produce Company
The White and Company
Hickeson-Langs Supply Company
Langs Cold Storage
Model Uniform Rental Services Ltd.
Kent Drugs Ltd.
Pharma Plus Drugmarts Ltd.
Towers Department Stores Inc.
For three generations, Oshawa Group was a grocery industry leader. Now, the family control lea I firm is a takeover target, the new CEO an outsider known for breaking up companies and insiders worry the founding Wolfe family 'doesn't seem to have the collective will to stop him!
The perishable grocery empire
by Rod McQueen
The Ontario Food Terminal was, once the heart of the produce business in Central Canada. Florida grapefruit, California broccoli, Chilean grapes and thousands of other more exotic products from the world's fields and orchards would roll in daily by rail or truck.
The items were then resold through permanent stalls on the site beside Lake Ontario in Toronto's west end then shuffled on to supermarkets and corner stores.
Today the distribution centre is seen by many in Canada's $50-billion grocery industry as little more than a public market. Yet Oshawa Group Ltd., the family controlled public company that was the focus of a takeover bid by Empire Co. Ltd. this week, still treats the terminal as it has for three generations.
Amid the stalls that open for business in the darkness before dawn is a company called Ontario Produce Co., the corporate moniker first used by Max Wolfe, who founded the Oshawa empire 85 years ago. Ontario Produce is both a revered symbol of the family's traditions as well as a wall that has prevented the firm from going forward.
In an era that demands just-in-time inventory management, Oshawa has remained mired in the past, moving goods through Ontario Produce to its stores that bear a bevy of banners such as IGA, Price Choppers and Knechtel.
"For a long time the family got along very well and worked as a team, but the results didn't come. They lost market share," says Bill Chisholm, a merchandising analyst at Deacon Capital Corp., of Toronto.
"That may have been caused by a structural change more than anything they did wrong because the movement was to the corporate-owned store. It was a gradual development as more money was spent by competitors and consumers accepted bigger supermarkets. Oshawa Group had the wrong vehicle for the market for the time."
Yesterday, that vehicle looked even more like a vintage automobile when Loblaw's Co. Ltd. announced a merger with Provigo Inc., Quebec's largest food retailer, in a "friendly" deal valued at about $1.45-billion.
Oshawa had been second to Loblaws across Canada measured by market share. Acquisition by Empire's Sobeys stores won't change that ranking but it would create two retailing giants -Loblaws-Provigo with $17-billion in sales and Oshawa-Sobeys at $10-billion.
Oshawa's past strength has been as retail food franchiser. The concept was introduced in 1951 by Ray Wolfe, son of Maurice, Max's brother.
For decades the idea - local store owners buying from a central supplier - prospered. But in the 1990s, that strength has become Oshawa's weakness. While total annual revenue has risen to $6.8-billion from $3.7-billion in 1989, net earnings have been flat - $56-million in 1989, $54-million for the 1998 fiscal year.
Share price during the same period also went sideways. The high in 1989 was $25.25; the high in the fiscal year that ended in January was $26.25. The surprise $1.4-billion bid from Empire, with its grocery stores under the Sobeys banner, which arrived by letter 10 days ago has pushed the price to $32.75.
There is suspicion and worry among the 16,000 Oshawa employees who work in two divisions: Agora Food Merchants, which accounts for 82 of revenue and Serca Foodservice, which caters to restaurants, hotels and health-care facilities. A change in ownership always means fewer jobs and new faces.
One family member was an early casualty. Jonathan Wolfe, chief operating officer, the third-generation family member who had appeared to be poised to run the company, was pushed out in June. The arrival two months later of John Lacey, an outsider with a reputation for breaking up or selling companies, offered a poignant grammar lesson: present imperfect, future tense.
"The family doesn't seem to have the collective will to unite and stop him," says a middle manager at Oshawa who demanded anonymity.
Let's call him Mr. Potato Head.
And like a lot of others at Oshawa he's worried about what Mr. Lacey has in mind even though the newly appointed CEO claimed to be surprised when the Financial Post told him it was in possession of the confidential missive from Empire.
"The letter was leaked to scare Sobeys off and embarrass the family," says Mr. Potato Head, who fears that management may have a different strategy in mind.
Everything changed for Oshawa in 1990 when Ray Wolfe died.
As one of Maurice's four sons, Ray had the street smarts and bearing to lead the second generation. This spring when the 62-year-old non-family CEO Al Graham decided to retire, the board concluded that Ray's son, Jonathan, did not possess the "royal jelly."
The abrupt departure was also driven by industry consolidation that was accelerating prior to the Loblaws-Provigo announcement.
In the last month alone, Kroger Co. announced its intention to buy Fred Myer of Portland, Wash.; Safeway bought Dominic's Supermarkets Inc., of Chicago; Albertson's Inc. of Boise, Idaho, bought American Stores of Salt Lake City.
"Companies are gearing up for what might be called 'the Wal-Mart threat.' Wal-Mart will become a major force in distributing and carrying food," says Leonard Kubas, of Toronto-based Kubas Consultants. "Supermarkets need critical mass. In Canada, Wal-Mart is experimenting with a limited number of grocery items in some of its Ontario stores."
Oshawa is represented in nine provinces but dominates none.
"It's always the No. 2, 3 or 4 player so it doesn't have the marketing muscle to maximize the banners that they have." There was also the belated realization at Oshawa that very few of the fine old family firms are surviving the 1990's.
Another grocery family, the Steinbergs, lost control. So did the jewellery Birks and the eyewear Hermants. Only 10 of family firms make it into the third generation; Oshawa did not arrive safely into that sacred circle. Those who have had recent dealings with the five Wolfe family members who control the firm describe relations as "frosty."
When they gather for board meetings there is said to be "very little" communication among them before and after the necessities of such occasions. "They used to get along better," says Mr. Potato Head.
When the Sobeys bid arrived, there was agreement on but one aspect. The family chose as their investment adviser Ira Harris, of Palm Beach, Fla. Harris, formerly a senior partner at Lazard Freres in New York, knew Ray Wolfe and helped take the company public. It was as if the current owners were turning to Ray for guidance.
"Ray was a true entrepreneur. He understood the business, the role an independent grocer could play. He had a talent to move people in one direction. IGA has become more a convenience location than a primary destination for the grocery shopper," Chisholm says.
In the past two years, Oshawa attempted to become a more modern organization by appointing four outside directors to the board. They include Stanley Hartt, chairman of Salomon Smith Barney Canada Inc.; Charles Winograd, CEO of RBC Dominion Securities Inc.; Larry Stevenson, president and CEO of Chapters Inc.; and Peter Maurice, vice-chairman of CT Financial Services Inc.
For all Oshawa's previous stolidity, institutional investors were not agitating for change. "Oshawa was not No. 1 on our screen as a problem," said Bob Krembil, chairman of Trimark Investment Management Inc., which holds an 18 stake in Oshawa through its mutual fund portfolios.
"Like any business, there were issues, but we bought it because we believed it offered good value." The Oshawa strategy seemed to be to sell off troubled divisions or simple rename them.
Food City, for example, became Price Choppers. Towers Department Stores Inc. was sold to Hudson's Bay Co.
Despite annual sales of $400-million at Pharma Plus Drugmarts, Oshawa couldn't make a profit and sold that as well.
Oshawa also earmarked $217-million this year to renovate stores and update the distribution system but it was the appointment of Mr. Lacey, who had been CEO at Scott's Hospitality Inc. and WIC Western International Communications Inc., that signalled upheaval.
"There are five family members with equal shares and no strong opinions, so a strong CEO can push things through," says Mr. Potato Head.
"Oshawa has been inhibited by the franchisees' inability to build a big store," says one industry observer.
As Dick Currie Loblaws president taught the world, you build a corporate store as big as you want wherever you want and you close it when you want. As a wholesaler, you've got to beg. That's the inherent weakness of Oshawa. "If I were Jonathan, I'd sell, too."
The Wolfe family has never seen the value of their company reflected in the share price. These families don't train, develop and anoint before they go. They think naively that the kids will work it out. What do they say? The second generation is born with a silver spoon in its mouth and the third generation is born choking on it."
Clipped from National Post, 31 Oct 1998
Jonathan Wolfe (left) and Allister Graham of the Oshawa Group ham it up in happier times at the company's annual meeting in 1994.
Silence of the Wolfes
Bonanza may arrive if they just keep quiet
National Post, October 31, 1998
The question put over the phone to Rose Wolfe asking how things are going within the family is greeted with a laugh. There is no sign of unease, no indication the dynasty suffers any dysfunctionality. Instead, hers is the knowing laugh of one who's well aware the world is watching.
But there's another element at work. The laugh is also like the bubbling sound of a stream that diverts attention away from the hard rocks hidden beneath the surface. Like the flinty fact that her son, Jonathan, resigned in June from his post as chief operating officer in Oshawa Group when the family-controlled board of directors decided to hire an outsider.
"It's a rather delicate time to be talking to you," says Mrs. Wolfe, widow of Ray Wolfe, the taciturn second-generation member of the family who single-handedly ran Oshawa for three decades before his death in 1990. Her smooth response about such a contentious matter as a takeover is not surprising. After all, she served as chancellor of the University of Toronto, a political institution if ever there was one.
Other members of the family are equally friendly and just as furtive. Jonathan, who is as shy as his father, begs off any tell-all interview, saying that the truth about his departure will have to wait. His sister Elizabeth, a lawyer who served in the past as the company's general counsel, is equally reticent.
Money in the offing will do that to a family. Keep quiet and the bonanza may arrive.
Until he was unceremoniously dumped, Jonathan certainly had his chance to convince the board of directors as well as his uncles and cousins that he had sufficient savvy to be the third-generation's leader. He was heir apparent for almost eight years. The job of CEO was his to lose and he lost it.
There were two patriarchs, Max and Maurice. Max had one son, Harold; Maurice had four, Leonard, Ray. Jack and Harvey. Leonard begat Myron. Jack begat Rick and Ray begat Jonathan.
The family's holdings were divided equally among the five men of the second generation, so a 20% portion of the 685,504 voting shares is held by each of Harold and Harvey (who are still alive) and the estates of Jack, Leonard and Ray.
Harvey — Now in his late 60s, he attended University of Toronto but spent as much time at Dufferin Raceway's half-mile track betting on the horses as attending classes. Married twice, no children. No office at headquarters.
Harold - Close to Al Graham whose announced retirement as CEO this spring jump-started management changes. This past week Harold was said to be "out of the country." Perhaps he was searching Spain for a new extra virgin olive oil.
Rick and Myron - Both are executives active in the company, Myron as a group vice-president, foodservice and produce, Rick as president of Winnipeg-based Agora Food Merchants, a grocery division.
Red McQuern, National Post, October 31, 1998