How Canadians Get Their Food
As you probably know Canadians live in a high fee funhouse. Here is how you can profit off of those instore prices so perhaps the madness can end even if it just for you.
Seems simple enough. Invest in the grocery stores, right? But wait what is this? George Weston (TSE:WN) owns Loblaws (TSE:L) which owns Choice properties (TSE:CHP.UN)? Why is this? So that we can never control it. The Weston family owns the controlling stake (~50%) of George Weston which itself owns about half of the shares of Loblaws, the other half being spun off to the public such as its workers in a employee share program (like me a while ago though I never participated in the program. I did get to vote at a union meeting though), and here is the kicker the real estate of these grocery stores is itself spun off into a Real Estate Investment Trust called Choice Properties (as in President’s Choice) which is again half owned by Loblaws. The plebs can profit off these things, but the Weston family remains in control, even of Choice Properties despite effectively only owning 12.5% of it because they have a controlling stake in George Weston, which has a controlling stake in Loblaws, which has a controlling stake in the REIT.
What does George Weston even do? Well they are a food production company which the Loblaws stores will stock their brands like President’s Choice, No Name brand (clever girl), they also make that bread! (That they sell us in suspiciously coordinated pricing) They have lots of different “brands” too like Gadoua, Weston, D’Italiano, Country Harvest and the Canadian rights to Wonder Bread. Loblaws itself continues this whole illusion of choice by having tons of different store brands like Loblaws/Provigo, Independent (lol), No Frills/Maxi etc. They also used to own gas stations but they sold them off to Brookfield Business Partners (TSE:BBU.UN) and they were renamed Mobil.
As a trend companies like to spin off things to focus on their core business, in fact often the day to day operations of the store is owned by a “local independent grocer” (clever girl) who just pays them franchise fees, so in effect these are not grocery stores chains but rather Grocery Store Brands and distribution networks. Where these stores using the Grocery Store Brand are also required to stock certain food brands which are themselves sold to them by a different company, and these “independent grocers” will also need to pay rent to a third Real Estate Trust company. With the operations of the stores handled by some literal whos, the company itself focuses on technology stuff like the PC Optimum points and PC financial, which means it can get pretty esoteric in determining exactly what it is they actually do here, but trust me when they managed to take a cut on every step of the process (or sometimes certain steps they actually choose to lose money on in anticipation of gaining more at other parts of the process they control. So long as they can get you into their funhouse they can make money off you, and the fact that you keep coming back to their funhouse is why they can get “independent grocers” to pay their franchise fees).
The Weston’s real competition are companies like Metro (TSE:MRU) which also owns Food Basics and Jean Coutu since 2018 (which means they are in pharmacies alongside Loblaws Shoppers Drug Mart), and Empire (EMP.A) which owns Sobeyes, FreshCo, Farmboy etc including Lawton Drugs for their pharmacy.
Unlike with Canadian Telecommunications, there is no regulations that might prevent American companies from participating in the Canadian market. Therefore in addition to the Big 3 Canadian food retailers, we also have American department stores such as Walmart (NYSE:WMT) and Costco (NASDAQ:COST). Target (NYSE:TGT) attempted to get into the Canadian market through its purchase of Canadian retail chain Zellers from the Hudson’s Bay Company, but this expansion failed and they closed all their Canadian stores. However similar to Telecom with the Big 3 (Bell, Rogers, Telus) also having Shaw which operates out west, there there is also a fourth Canadian chain that mostly operates out of British Columbia called Overwaitea Food Group, which is privately owned by Jim Pattison, who is one of Canada’s richest people.
In addition there are things which are technically food sellers like Canadian Tire (TSE:CTC.A) which has limited selection so you can buy pasta while waiting in line for winter tires. Alimentation Couche Tard (TSE:ATD.B) also technically sells food as a convenience store, though their funhouse consists of getting at you when you need to fill up gas, like for instance at the King of New Brunswick’s Irving Oil stations, which are co-branded to appear together in certain locations so you always know you can support two Canadian Oligarchs at once!
There is also Dollarama (TSE:DOL) which is legit the best grocery store in Canada. They have the same bread brands as the Provigo down the street but its $0.75 cheaper as its $2 for a loaf while at Provigo it is 2 for $5.50. You can also invest in $0.25 $RAMEN packets.
I did actually work in one of their warehouses during the pandemic as they were offering $2/hour pandemic bonuses. The actual stores are franchised, so the warehouses treat the stores like customers and we would fulfill their orders by taking boxes from a pallet containing only one product, distributing them into piles in front of a loading area for a particular store based on orders, and then stacking up a bunch of carboard boxes on another pallet and then wrapping it up in tape to ship it off to the “customer” store. They cycle through people fairly regularly, and it was mostly just me and a whole lot of immigrants from every country you could imagine, so the hiring and paystub is actually done by Thomson Tremblay. They almost certainly could automate this, but corporations prefer to lobby for more immigration so they can continue to used 20th century techniques instead of entering the 21st century.
Now the above “grocery” chains’ strategies involve being horizontal behemoths in every conceivable market while spinning off any vertical component into its own horizontal behemoth and/or an “independent local franchisee” required to use their real estate and sell their products depending on the context. There is a grocer in Canada that takes the exact opposite approach and goes for a highly vertically integrated strategy in select markets. That grocer’s name? North West Company (TSE:NWC) and this is THE North West Company you know from the history class you slept through when we talked about the fur trade. They still actually operate in the fur business, but most of their business is getting supplies to remote communities. The North West Company was the French company that was eventually absorbed by the British Hudson’s Bay Company, but later on they spun it off back into an independent North West Company to handle the remote supplies business, while Hudson’s Bay kept doing department stores on the prime real estate that sprung up around them. North West Company became publicly traded, so now you too can pretend to be an 18th century Montreal businessman and invest in the North West Company as the Voyagers ply across a continent, except rather than use canoes, now they use planes. They also effectively have a monopoly over a select group of communities (including Canada’s north, but also Alaska, Hawaii, and many Caribbean and Pacific Islands) and this monopoly is difficult to break as the vertical integration of getting those supplies to the stores is required for the business to function. Not many remote charter/cargo airline companies are profitable enough to even be able to consider expanding by investing in their own grocery stores. This effective monopoly and high barrier to entry contributes to the high cost of food in remotes communities, though the actual costs involved in the transport is a considerable factor as well. The population growth rate of the territories is higher than most provinces, meaning its a small but quickly growing captive monopoly market in a essential consumer defensive industry with high barriers to entry. There is also the whole global warming thing so I imagine its markets will be getting more hospitable but no less remote, and it would be perfectly placed to take advantage of new opportunities for transport in the arctic as it thaws.
Also if you are lazy I guess you can just eat all three meals at Tim Hortons, Burger King and Popeyes Chicken. They are all part of Restaurant Brands International (TSE:QSR). Oddly though they are 1/3 owned by a Brazilian Investment Company called 3G Capital.
You can also collect royalties from Pizza Pizza (TSE:PZA). These chains are usually set up as franchise models so the royalties are collected for the name while the operations are handled locally. There is also A&W Canada (TSE: AW.UN), which has a separate royalty fund for Canada specifically. Canada also has all the usual franchises such as McDonald’s (NYSE:MCD) but they don’t have special Canadian spin-offs like A&W.
If you just want restaurants in general you can go with MTY Food Group (TSE:MTY) which owns franchises of pretty much everything. Basically a lot of restaurant owners pay them to use all sorts of different names covering literally anything you can imagine. Be creative in picking a lesser known specialty brand (or something you didn’t even know was a brand) and chances are they own it. Some of them include Thai Express, Country Style Donuts, Extreme Pita, Jugo Juice, Allô! Mon Coco, Mr. Sub, and Taco Time.
If you are slightly less lazy (but come on now still pretty darn lazy) you can have food delivered to your door weekly in the correct apportionments so you can feel less guilty by making your own meals through GoodFood (TSE:FOOD). I also worked in their prouction centers during the pandemic and it was much like Dollarama with entire floors of immigrants from all parts of the world putting food into tiny packets and then putting those packets into boxes in assembly line manner. Except unlike Dollarama, these floors are refrigerated to keep your immigrants (and me I guess) fresh. I didn’t invest in them because I couldn’t believe how this could be profitable after seeing all the people required to make this function (even though I should have since my investment would have tripled if I had done it when I started working for them). I think they are focusing on getting market share so I guess at some point they might find a way to become profitable, but seems like the entire thing is a house of cards that prolongs itself via hype of future profits much like delivery apps that can be taken down through Pizza Arbitrage.
All that we have covered though is the last step of the process (the shelf) before the food enters your kitchen/belly. All of that complexity and spinning off things is essentially just a bunch of brands that spin off anything else they can so they retain the most profitable sections of the business, while effectively being in control of the things they spin off by requiring them to integrate into the overall business model. The steps that go into putting items on the shelf to be viewed by your eyeballs are no less involved, though now the business model is much less about getting you into their funhouse and more about them getting into your mind. George Weston is a food processing company that also happens to own the Loblaws empire, but there are other food processing companies you can invest in that instead of owning the shelf will make deals with the store brand so that they can appear on that shelf. Oftentimes food brands might even pay for the privilege of being in someone else’s funhouse shelf. It is brands all the way down.
Your Kraft Dinner is actually owned by an American company called Kraft Heinz (NASDAQ:KHC , yes lol kraft dinner is part of the NASDAQ index $QQQ). The second largest food manufacturing brand in Canada is the infamous dairy cartel, Saputo (TSE:SAP). The third member of our daring dairy dominion is Agropur but they are a cooperative so no ticker. For meats you got Maple Leaf Foods (TSE:MFI), this was purchased by someone from McCain foods family who fell out with the other McCains and so decided to buy this meat company with the Ontario Teacher’s Pension Plan somehow. Pension Plans aren’t the most nosey business partners so when a business does this, it effectively means they are using the pension plan sort of like a multiplier to buy things they wouldn’t be able to afford on their own while being effectively in control of it since their partner is passive. Interestingly these McCains also worked for Irving Oil way back in the day.
Number 6 on the list is Cott Corporation (TSE:PRMW) they sell those big jugs of water and they are now called Primowater Corporation because they acquired that brand in March 2020. Seems like either the best time or the worst time to make a big acquisition lol. Wonder how it worked out for them and if they got to buy the dip. The deal was made in January so probably not. I have to assume that less office water coolers were necessary but at the same time people were likely panic buying jugs of water in stores.
Next is Premium Brands Holdings (TSE:PBH). I found this noteworthy given some news coming out of the Maritimes last year. Probably explains what was going on.
On November 9, 2020, Premium Brands acquired Clearwater Seafoods for $1 billion in partnership with a group of Miꞌkmaq First Nations. The purchase represented the “largest investment in the seafood industry by a Canadian Indigenous group”.
The market cap is only $4.5 billion so that deal represents a decent chunk of the company. Beyond that they previously had acquired SK foods in 2010 for $42.5 million which supplies breakfast sandwiches and wraps to Starbucks (NASDAQ:SBUX).
There is tons more that do all sorts of things but the most valuable appear to be meat and dairy based and also water jugs for some reason. Purely randomly I chose Lassonde (TSE:LAS.A) and Rogers Sugar (TSE:RSI). Lassonde makes fruit juice, but also fondue and soups and sauces, and imports wine and apple cider so they do liquids I guess. Rogers Sugar processes sugar, so they either import sugar cane on the coasts or they process sugar beets in the prairies. They also do maple syrup.
Okay so we have the shelfs, and we have the products on the shelf, but how do we get them to the shelf? See here is the thing, transport and logistics has as many steps and spin offs as the grocery stores, and so to fully cover it you are going to have to bear with me for some abstractions. A large truck company useful for the last leg of the journey to grocery shelf from the food processor or warehouse is TFI International (TSE:TFII). For getting stuff to the processors lets just think of bulk grains. Algoma Central Corporation (TSE:ALC) operates a fleet of bulk carriers in the great lakes, and overland you have your trusty railroads Canadian National (TSE:CNR) and Canadian Pacific (TSE:CP). You could also own a bulk terminal for import/export in Vancouver with Westshore Terminals (TSE:WTE). Brookfield Infrastructure Partners (TSE:BIPC) also has railways and port assets in Australia under Asciano Limited as well as short line railways in North America as well as Europe as part of Genesee and Wyoming. Short Line railways are exactly what that sounds like, short stretches of track connecting or carrying specific things on the middle of their journey such as producers and distributors, or between different long tracks, rather than the long lines that connect regions more broadly.
Okay so we are done? Hold on now you still got to grow the food! This has as many if not more components as distributing in stores and transporting it. Many food processing companies are vertically integrated and also own the farms or are at least affiliated with those that do, but in other cases such as our commodities like bulk grains, it is easier for a farmer to just sell to the Canada Wheat Board which then figures out a way to distribut- Wait what is this? The wheat board no longer exists? IT WAS SOLD TO THE SAUDIS. Couldn’t they have gotten a pension fund or something to go halfsies? Apparently 49.9% of the board is still owned “in trust” for the farmers, so its not even actually in whole privatized, they just handed off a controlling stake to Global Grain Group a joint venture with the Saudis and an American company called Bunge (NYSE:BG). WHY DIDN’T IT ALL JUST GET ACQUIRED BY BUNGE?
Anyway rant over. Continuing our abstraction as a prospective wheat farmer at the behest of the Saudis you will first of all need some farmland. Trying to find a Canadian Farmland REIT was difficult so I went with the American Gladstone Land REIT (NASDAQ:LAND) and Farmland Partners (NYSE:FPI). These REITS will rent out farmland, but a farmer could also take out a farm loan to purchase land and you can pick literally any bank, but the Canadian Imperial Bank of Commerce (TSE:CM) specializes in business loans. Aside from land you will also need equipment, which is specialized over many producers, but can be covered by a global farming etf (TSE:COW yes lol) which includes things like John Deere (NYSE:DE) and even our old friend Bunge. You also might need insurance, and the first thing that came up for farm insurance was Intact (TSE:IFC).
Finally for agricultural inputs we come to Nutrien (TSE:NTR). They do potash mining (largest producer in the world), fertilizers (third largest nitrogen fertilizer producer in the world), they also sell feed and seed as retailers so they are vertically integrated for all your farming needs. Now how about weed?
Village Farms International (TSE:VFF) produces electric power, cannabis, and greenhouse produce like tomatoes in Vancouver, so quite a diverse weed stock there. You can also go with the (TSE:WEED) for canopy growth corp if you just want the ticker.
Some more interesting tickers (TSE:SOY) for SunOpta for plant-based milks. You also got Ag Growth (TSE:AFN) which is Canadian farming equipment manufacturer. There is also FarmersEdge (TSE:FDGE) which is a farming technology company, rather than equipment they would specialized in how that equipment should be used.
At this point the specialization in the supply chain can be endless which is why the focus was placed on the bulk grains. The complexities of this system for just this one industries supply chain can be matched by the complexities in all the other industries. I sometimes wonder what it is that millions of people are even doing all day long, but when you actually think about it, the fact that we can get by with just millions is a modern marvel.
