George Weston shakes up Loblaw management, looks to offload bakery division

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Loblaw Cos. Ltd., Canada’s most dominant supermarket chain, announced a major leadership change on Tuesday, with Galen G. Weston reclaiming the reins of the biggest asset in his family’s empire following a tumultuous year that dented the company’s reputation.

George Weston Ltd. (GWL), Loblaw’s parent company and one of the most powerful entities in the Canadian food chain, said the leadership change was part of a broader strategic shift throughout the sprawling food business that will see the company sell off its bakery operation and focus entirely on its grocery and real estate divisions.

GWL said it decided to sell Weston Foods — the bakery business that sprouted the Weston family empire in the late 19th century — because it hasn’t been able to boost sales enough to make the division a meaningful part of the company’s revenue base.

Freed from managing the bakery operations, GWL executives, including Weston, who serves as chairman and chief executive, will be able take on more prominent roles at Loblaw, which last year accounted for $52.7 billion of GWL’s $54.7 billion in total revenue.

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One analyst said the replacement of Loblaw’s top executives with the GWL team was “pretty dramatic,” while others suggested the move hinted at displeasure with how the supermarket and pharmacy chain has been operating.

Weston will add president of Loblaw to his list of duties, taking over from Sarah Davis, who has held the post since 2017. Weston, who served as Loblaw’s CEO until 2017, in a release said he and Davis “agreed that now is the right time for her to pursue her plans for an early retirement, which she first shared with me upon becoming president in 2017.”

As part of the management change, GWL president and chief financial officer Richard Dufresne will replace Loblaw’s CFO Darren Myers, and former Rona chief executive Robert Sawyer is being brought in as chief operating officer.

During Tuesday’s conference call with GWL executives, BMO analyst Peter Sklar noted the leadership shuffle was a “pretty dramatic” move and seemed to indicate some level of disappointment with the business.

But Weston said the new leadership isn’t coming in to make major changes.

“Business performance at Loblaw continues to improve,” he said. “Loblaw’s strengths are extremely compelling … We don’t anticipate a major shift in strategy.”

Scotiabank analyst Patricia Baker, however, said the work to be done at Loblaw “is likely sizable, and perhaps that is why the COO role” has been reinstated for Sawyer, who also sits on GWL’s board and formerly worked as an executive at Metro Inc.

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“One of the unanswered questions we have with respect to the transition is whether it is an interim move, while (Loblaw) conducts a search for the right executives, or whether this move is more permanent in nature,” Baker said. “At the end of the day, what we are looking for is more consistent day-to-day execution. The new team will have to work hard to deliver that, and if they do so, (Loblaw) shares will be viewed in a new light.”

The management change, though framed as a side effect of the Weston Foods sale, was “the bigger piece” of Tuesday’s announcements, according to RBC analyst Irene Nattel. She said in a note that the shakeup was a sign Weston is looking to improve Loblaw’s “operational efficiency and productivity, which has been somewhat lacking.”

Despite record sales gains in the past year, Loblaw has suffered a series of blows to its reputation during the pandemic. Late last spring, Loblaw and its competitors simultaneously cut bonuses for frontline staff — a move that prompted federal legislators to reexamine competition rules.

Months later, Loblaw further stoked already growing concerns about the consolidated grocery sector by unilaterally charging farmers and food processors extra fees to sell products in the chain’s network of stores.

Weston Foods was also swept up in a scandal in 2017, when GWL and Loblaw admitted to participating in what they called an “industry-wide” arrangement to fix the price of bread between 2001 and 2015.

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GWL and Loblaw said they reported the “anti-competitive behaviour” to the Competition Bureau in 2015. The bureau’s investigation is still ongoing, a bureau spokesperson confirmed on Tuesday.

“As the bureau indicated in its February 2018 statement, criminal investigations can be a lengthy process as the bureau gathers evidence to build a case that can be proven in court beyond a reasonable doubt,” bureau Marcus Callaghan said in an email. “There is no conclusion of wrongdoing at this time.”

Asked whether the ongoing investigation was related to the sale, GWL spokesperson Tara Speers said the company is “entering a process to sell Weston Foods as it believes it is the best opportunity to create value for shareholders” and that it is “an important step in unlocking value in both names.”

GWL on Tuesday said it currently does not have any offers, since the plan was to announce the intention to sell Weston Foods first. The company said it will likely return the proceeds of the eventual sale to its shareholders through share repurchases over time.

Weston Foods, with 6,000 employees across 33 commercial bakeries in North America, controls major consumer brands such as Wonder in Canada, and owns the D’Italiano, Ace and Country Harvest brands. But it is less than 10 per cent of GWL’s overall business, a spokesperson said.

Weston said his team spent the past year exploring ways to scale up the bakery business, but it became clear a sale was the best option.

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“We know Weston Foods has ample room to grow, but it’s best-positioned to do so in other hands,” he told investors on a conference call.

The bakery division struggled through the pandemic in 2020, with added safety costs, decreased sales in the incapacitated food-service sector and dampened demand for “celebratory” baked goods, such as cakes, cupcakes and doughnuts.

Revenues at Weston Foods dropped by 4.3 per cent to $2.06 billion in 2020 compared to the previous year. In 2019, sales were up 1.6 per cent compared to 2018.

In its fourth quarter last year, Weston Foods sold a portfolio of six industrial properties to GWL’s real estate wing, Choice Properties REIT, at an aggregate price of $79 million, according to the company’s annual report. Weston Foods received Choice Properties shares in exchange for the bakeries.