Business Review Canada - October 2017

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October 2017

TOP

10

HIGHE$T PAID CEO$

Jack Ma’s Alibaba

Targeting Canada SMOKE SIGNALS - the future of tobacco

Logistics Conference 2017 Canada’s annual thought leadership conference for all supply chain logistics professionals

Montreal, QC • October 25-27, 2017

FOREWORD HELLO AND WELCOME to October edition of Business Review Canada.

Our cover feature this month looks into the tobacco industry and it is continually looking to transform. Peter Luongo, Managing Director of Rothmans, Benson & Hedges, discusses how the company has transformed in recent times, especially regarding its smoke free product range.

Another transformative trend occurring in Canada is the advent of Alibaba, the Chinese ecommerce giant which is looking to take on

businessreviewcanada.ca

Amazon in the country. Our top 10 also goes big, this time charting the highest-paid bosses in Canada.

Further exclusive insights come from the worlds of construction and food, starting with real estate expert Colliers International.

Yum! Brands Canada completes the line-up as we take an in-depth look at the fortunes of KFC, Pizza Hut and Taco Bell in the country. How are these well-respected franchises shaping up in Canada, and what investments are being made to ensure they grow their current market shares?

Enjoy the read!

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CONTENTS

F E AT U R E S INSIGHT

06 Peter Luongo, Rothmans, Benson & Hedges Managing Director TECHNOLOGY

16 Alibaba targeting Canada TOP 10 LIST

Headline for 24 00 the article Top 10 highest paid CEOs

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Colliers International

46

YUM! Brands Canada

INSIGHT

SMOKE SIGNALS – the future of tobacco

Rothmans, Benson & Hedges are working with Philip Morris International to reduce the harm traditional cigarettes can cause with a range of innovative smoke-free nicotine products. We spoke with Business Director Peter Luongo about the launch of IQOS (I Quit Ordinary Smoking) and the company’s goal to reduce smoking in Canada by more than the government target of 5% by 2035 Writ ten by: DAN BRIGHTMORE

INSIGHT

IN MUCH THE same way car manufacturers have been evolving motoring technology to create alternatives to fossil fuels in a bid to protect our environment and make cars cleaner, the tobacco industry is set to realise the potential of 20 years of research in its bid to reduce the harm caused by traditional smoking with a range of innovative ‘heat not burn’ and ‘e-cigarette’ products.

PMI (Philip Morris International) is leading this innovation and has entered the market with what it believes will be a game changer for smokers: IQOS. The letters stand for I Quit Ordinary Smoking, which clearly spells out where the company sees the tobacco industry heading. Rothmans, Benson & Hedges (owned by PMI since 2008) launched IQOS in Canada this year; one of 20 test markets worldwide.

Business Director Peter Luongo says the real challenge lies in letting smokers know there is an alternative.

While not risk free, it’s one he believes is a better choice than continuing to smoke traditional cigarettes. “What we’re able to do in each market is based on the local regulations,” he 8

October 2017

concedes. “We launched in the UK earlier this year but, like Canada, it’s a relatively restrictive environment.

You don’t have a display of tobacco products in stores so consumers may continue to ask for their pack of cigarettes because they don’t know what the alternatives are.”

Smoking: the future “In all markets we want to have a discussion with the governments and regulators about understanding the continuum of risk for these products and that they should have fewer restrictions on them than they should for cigarettes,” Luongo continues.

“Validation from the FDA (America’s Food and Drug Administration) helps in those discussions. It can give people comfort; yes these products are less risky, yes it makes sense for us to encourage people to switch.

Therefore, we should look at all the restrictions on selling and promotion and try to have regulations that are more tailored to the risk of the product rather than a one-size-fits-all approach where you lump all tobacco products into the same category.”

So, what exactly is IQOS and how

Employees at PMI designing a smoke-free future

“Here in Canada we’ve got four million smokers (one in 10 Canadians) and feel it’s the right thing to do to offer them an alternative” – Peter Luongo, Business Director

does it work? PMI’s Chief Medical Advisor Mikael Franzon has worked in the pharma industry for over 25 years developing medicinal nicotine products for the likes of Pharmacia and Pfizer. Guiding the company’s scientific substantiation program, he believes there is compelling evidence for why smokers should switch to IQOS. He maintains the heightened health risks with regular cigarettes come from combustion 9

INSIGHT at high temperatures which releases harmful components in smoke.

“This re-usable electronic device uses heated tobacco,” explains Franzon. “But unlike a normal cigarette where the heat reaches 900 degrees Celsius when you take a puff, we are reducing it down to 350 degrees Celsius. By doing that, the tobacco is heated but not burned so there’s no ashes and no smoke.”

The IQOS HeatControl system is a significant step forward from previous modified tobacco products, insists Franzon: “You can have the

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October 2017

perfect technology solutions, but if no one wants to use them then there’s no impact on public health.

There’s a balance to strike. After 20 years of innovation and development we’ve arrived at a product which seems to do both: IQOS.” Luongo echoes that sentiment and, from a commercial standpoint, is keen to balance the needs of providing what PMI calls a ‘healthier form of smoking’ with a product that is still satisfying to adult smokers who want to continue smoking.

SMOKE SIGNALS – THE FUTURE OF TOBACCO

Smoke signals PMI has spent many years working on product development at its Innovation Cube in Lausanne where the IQOS HeatControl system was realised.

Its new products are set to be available across four platforms.

Alongside IQOS, P2 is set to launch in selective markets later this year.

It also uses the ‘heat not burn’ prinicipal, but offers a more traditional approach for smokers with its carbon-heated tip. It’s a disposable product which looks exactly like a cigarette but works just like IQOS.

PMI’s third and fourth platforms are nicotine delivery systems e-cigarettes and inhalers, where e-liquids are heated up to deliver nicotine vapour without tobacco. “The issue with older types of e-cigarettes was that they couldn’t keep the heat,” explains Franzon. “Some would increase dramatically. Ours have a standardised chip that keeps the heat at a certain temperature, but if it goes up it shuts down and it doesn’t keep going if the canister is empty of liquid so it’s safer and you don’t get any dry puffs.”

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INSIGHT With the products now coming online, Luongo says that PMI is targeting selective geographies globally and plans to be in around 35 markets by the end of the year. So where has it been most successful with uptake so far?

“Japan had the product on the market first,” he notes. “PMI started testing the product there in late 2014 - it’s one of the few markets

We’re at the forefront of developing less harmful alternatives to cigarettes.

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October 2017

where the product is available nationally. In Japan, we’re seeing dramatic decreases in cigarette sales because of the fact that people are switching to IQOS – Japanese cigarette consumption for the first half of this year was down 9-10%.

A driving factor there is that the environment for communicating around tobacco is much less restrictive than it is in most of Europe.”

SMOKE SIGNALS – THE FUTURE OF TOBACCO

“Unlike a normal cigarette where the heat reaches 900 degrees Celsius when you take a puff, we are reducing it down to 350 degrees Celsius” – Peter Luongo, Business Director How does PMI plan to overcome the challenge of gaining acceptance for the idea of a ‘healthier form of smoking’? “There’s more and more acceptance of the concept,” maintains Luongo. “There’s a big misconception that nicotine is the main cause of harm in a cigarette. It’s not true. Yes, nicotine is addictive and it’s not risk free, but really the main cause of harm with a cigarette is the fact that it’s burning and you’re inhaling the byproducts of that burning; that’s what’s causing the real harm, combustion. In the UK there was a report by Public Health England acknowledging e-cigarettes contain 95% less toxicants than traditional cigarettes. Studies in Canada also point to the fact vaping products are potentially less harmful and something that should be part of public policy to drive people towards these alternatives.” He appreciates it will take a while for public understanding and public policy to catch up with the science,

and says that when you’re talking about new technology with a range of stakeholders it requires independent verification, which is a slow process.

So, how is this impacting on PMI’s business model? “It’s a better business model,” argues Luongo. “Because we think there’s an opportunity to capture share from our competitors with better products. There are over a billion smokers worldwide and, even with declines in incidents, you still see a very stable number of smokers over time as a result of the fact that populations, on a global basis, are growing. All of the things that have been tried to date from a public policy perspective really haven’t moved the needle enough… which is why it makes sense to have people switch to these alternatives as quickly as possible. Here in Canada we’ve got four million smokers (one in 10 Canadians) and feel it’s the right thing to do to offer them an alternative.”

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INSIGHT

New outlets planned The immediate goal for Rothmans, Benson & Hedges in Canada is to meet and exceed the government’s target of reducing smoking by 5% by 2035. “We think we can get there faster by switching people to products like IQOS,” says Luongo, who is planning the opening of more IQOS stores and looking at the potential for partnerships in the vaping space.

“It’s pretty clear that’s a long time to get to that target and we think we can make more progress if we can communicate with people about it.”

Luongo claims the ultimate goal is “to eventually eliminate cigarette usage, eliminate smoking”, and is hopeful that governments can help the industry get there. “In the car industry with the move away from fossil fuels there are a number of things that many governments do: tax rebates and consumer incentives with electrical vehicles to help people take these steps. In a similar way, they could be incentivising people to switch to less harmful tobacco products. For now, we’ll focus on helping people make the switch, one smoker at a time.”

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SMOKE SIGNALS – THE FUTURE OF TOBACCO

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TECHNOLOGY

Battlefield Canada: W r i t t e n b y : LY N L E Y O R A M

VS

AMAZON VS ALIBABA

Canada has not been the typical marketplace for e-commerce. Its vast unpopulated areas render some aspects of the supply chain difficult, but that is all about to change as two tech giants start to make significant in-roads…

GLOBALLY, THE ECOMMERCE battle is between Amazon and Alibaba right now and these two giants are set to square up to each other - in Canada. Amazon is extending its grocery and streaming services into the country, while Chinese ecommerce giant Alibaba is making a direct play for Canadian business.

Let’s see what the two digital powerhouses are up to over here…

The ecommerce landscape in Canada is a blank page waiting to be written. Unlike other developed countries, shopping online hasn’t quite had the same traction here, until now. There are expansion plans from Amazon, and Alibaba’s iconic chief Jack Ma is paying a visit to Canada later this year specifically to talk to Canadian leaders about how businesses here can use its platform

to reach the lucrative Chinese market.

Robin Shrek, Vice President Retail and Digital Insights for consulting firm Kantar Retail, has seen a shift in the last three to four years as Canadians move from buying through Amazon. com to Amazon.ca. “The population in Canada is very digitally connected, and comfortable interacting online.

But, historically, the ecommerce formula of convenience and price just hasn’t been there. Now that is starting to change. The typical shopper profile is someone who wants a good deal, the best price for the highest quality.”

Despite being just the other side of the border from the US, and Amazon’s home town of Seattle, the retailer has been slower to make an impact in Canada compared to its presence elsewhere. According to Paul Brigg, Senior Analyst Canada for eMarketer.

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TECHNOLOGY

Jack Ma: E-Commerce and the China Opportunity

“There are expansion plans from Amazon, and Alibaba’s iconic chief Jack Ma is paying a visit to Canada later this year specifically to talk to Canadian leaders” 18

October 2017

Jack Ma, Alibaba CEO

com, “ecommerce sales in general in Canada have lagged behind countries like the US and the UK by a few percentage points. It really comes down to the supply chain aspect of fulfilling online orders – that has been the biggest obstacle because of the logistical challenges involved in servicing the wide geography that is Canada and the way the population is dispersed. The supply chain channels

AMAZON VS ALIBABA

Jeff Bezos On Why It’s Always Day 1 at Amazon

Jeff Bezos, Amazon CEO

are larger, shipping fees are attached, so pricing isn’t as attractive. The other thing we have seen is that traditional retailers have been slower to invest in the technological infrastructure for doing effective B2C ecommerce.”

As well as acquiring more distribution centres across the country and improving logistics this last year, Amazon launched its streaming video service Amazon Prime and expanded

its cloud computing platform Amazon Web Services in both Vancouver and Toronto. Its purchase this year of the grocery chain Whole Foods for $13.7bn may well transform the way we shop for groceries. Within days of buying the upmarket stores, Amazon had reduced prices in both the US and Canada, bringing it more into line with the way the multinational runs its online business.

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TECHNOLOGY It was back in 1995 that Amazon began selling books online, beginning a process that has completely transformed how the world shops.

It’s almost impossible to remember a time when it wasn’t possible to buy almost anything, from anywhere – online – and have it delivered.

Amazon, founded by Jeff Bezos in 1994, reported net revenues of US$135.99bn in the last year.

That was an increase of just over a billion on its revenues in 2015. It is the world’s largest online retailer, directly competes with Netflix in video

Prime Day Deliveries

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October 2017

streaming, and sells a tablet that is in the number four spot globally.

Bezos has always been adamant that Amazon is not a retail company, but a technology company. It earns $10bn in sales from its Amazon Web Services, a cloud computing platform, which has an operating income of $2bn.

Alibaba is also one of the biggest ecommerce companies in the world.

Established in 1999, it also has a charismatic founder with a vision.

Jack Ma is China’s richest man with a fortune of around $25bn. However,

AMAZON VS ALIBABA

there is a good chance you have never heard of the company. The Alibaba Group’s customer base of around 500mn, more than the combined populations of the US and Canada, is almost entirely in China. This is a sizable market. For the year ending in March 2017, Alibaba’s revenue was $23bn, an increase of 56% on the previous year. The value of the transactions carried out on its online sites last year was more than Amazon and eBay combined. Alibaba has three main platforms – Taobao, Tmall and Alibaba.com – and like

Amazon it sees itself as a technology company rather than a retailer.

Alibaba’s special brand of ecommerce magic arrived this September as Jack Ma featured at a business summit (Gateway 17) in Toronto with Canadian Prime Minister Justin Trudeau. Where Amazon is targeting consumers, Alibaba is looking to get Canadian businesses to use its platform to sell to the newly emergent and financially well-off middle classes in China.

Jennifer Kuperman, Alibaba’s Head of International Corporate

Alibaba.com Success Stories: Daniel Thomson

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TECHNOLOGY

“The Alibaba group’s customer base is around 500 million, more than the combined populations of the US and Canada” 22

October 2017

AMAZON VS ALIBABA

Affairs explains that for the company, expansion into Canada isn’t about the consumers, but about Canadian businesses. “We want to provide access to the Chinese consumer. The landscape in China has changed from an export economy to a consumer economy. Its growing middle class wants to upgrade their lifestyles. As Jack Ma says, Alibaba was born in China but created for the world.”

The company provides sellers with the marketing tools to appeal to

“eCommerce sales in general in Canada have lagged behind countries like the US and the UK by a few percentage points.

It really comes down to the supply chain aspect of fulfilling online orders”

Chinese buyers, consumer insights to know what Chinese consumers are looking to buy, while it takes care of the whole supply chain process.

The logistics of selling to China can be complicated, and Alibaba uses a partner to help sellers navigate bonded warehouses, taxes and tariffs. Bigger brands can create a shopfront in the Canadian portal in TMall, which is fully branded.

Sales flow in the other direction as well. Its AliExpress.com site sells items such as cosmetics, apparel and electronic goods from Chinese retailers to Canadian consumers.

However, Alibaba has not announced any plans to expand this part of its business, and it is not a part of the Gateway17 summit. Briggs gives the impression that this is a very small part of the Alibaba equation.

“Alibaba’s business is selling into China. That’s its main focus.”

At the moment, the company has no plans to use its platforms so that Canadian businesses can sell to Canadian consumers, but this is almost certainly a part of Jack Ma’s vision for the future.

When that day comes, the two tech giants will directly clash.

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TOP 10

HIGHEST PAID CEOS IN CANADA

From Thomson Reuters to Canadian Pacific Railway, the CEOs of Canada’s top companies boast some enormous pay packets – but who takes the most home each year?

Edited by: OLIVIA MINNOCK

9 DONALD GULOIEN, CEO of

Manulife Financial Corp.

10 DARREN ENTWISTLE, CEO of TELUS

As CEO of one of Canada’s largest telecommunications firms, Darren Entwistle brought home more than $2.1mn total compensation in 2016.

This figure includes almost $1.4mn in base salary, a bonus of approximately $675,000 and other compensation of just under $90,000. Entwistle’s large pay packet in 2016 isn’t surprising given his track record as CEO of TELUS since 2000; under his incumbency, the telecommunication company has more than doubled its annual revenue (from $5.7bn to $12.5bn) by following Entwistle’s aggressive data and wireless growth strategy.

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Donald Guloien, president and CEO of Canada’s largest insurance company, received a total compensation package of over $3.5mn in 2016, including a base salary of about $1.8mn, a bonus of nearly $1.6mn and approximately $100,000 in other compensation. Despite these significant figures, Guloien received 26% less in 2016 than he did the previous year. Since joining Manulife in 1981, Guloien has worked in a number of roles within the company, from research analyst to Chief Investment Officer, before being promoted to president and CEO in 2009. However, 2016 may be the last year Guloien is on this list; the CEO announced in May 2017 that he will be retiring this September.

7 DOUG SUTTLES, CEO of Encana Corp.

8 GEOFFREY MARTIN, CEO of CCL Industries Inc.

As head of this Canadian specialty packaging company, Geoffrey Martin earned a staggering $4.0mn in 2016: this impressive total includes $1.3mn in base compensation and a bonus of over $2.6mn. After joining CCL Industries in 2001 as president of their largest business segment, Martin advanced to the role of president and COO in 2005 before becoming CEO in 2008. Under Martin’s tenure, CCL Industries has continued to grow and expand its operations worldwide, and has made some key strategic acquisitions, including Avery, Checkpoint Systems and Innovia Films.

Doug Suttles, CEO of one of Canada’s largest energy producers, saw his overall compensation grow an incredible 65% in 2016 to almost $5mn. This figure includes almost $1.4mn in base salary, a bonus of $3.3mn and over $300,000 in other compensation. Following over three decades of experience with a variety of companies in the oil and gas industries, Suttles joined Encana in June 2013, taking on the roles of president and CEO. Since becoming CEO, Suttles has overseen some key deals for Encana, including a $3.1bn acquisition of shale-rich land and asset sales of over $4bn.

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5 RONALD J. MITTELSTAEDT, CEO of Waste Connections Inc.

6 JAMES SMITH,

CEO of Thomson Reuters Corp.

As CEO of Thomson Reuters Corp., James Smith brought home almost $5.7mn dollars last year, including a base salary of $2.1mn, a bonus of over $3.5mn and other compensation of approximately $42,000. Though currently the head of this multinational mass media and information giant, Smith began his career as a journalist.

Since becoming CEO and president of Thomson Reuters in 2012, Smith has spearheaded several years of strong expansion and key M&A activity with over 17 deals completed under his tenure.

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Serving as both CEO and chairman of Waste Connections, Ronald J. Mittelstaedt earned over $13.1mn in 2016. This compensation number includes almost $1.3mn in base salary, a $4.5mn bonus and $7.3mn in other compensation. Mittelstaedt has served as CEO since Waste Connections’ founding in 1997, and he has helped grow the waste services firm into a leading company in its industry with an annual revenue of $3.4bn.

E. Hunter Harrison, CEO of Canadian Pacific Railway/CSX Corporation,

received a bonus of

$10.1mn in 2016.

4 E. HUNTER HARRISON, CEO of Canadian Pacific Railway/CSX Corporation E. Hunter Harrison, CEO of Canadian Pacific Railway, made the list of top paid Canadian CEOs thanks to his outsized 2016 bonus.

Harrison’s total compensation of over $13.8mn includes an amazing bonus of $10.1mn in addition to his $2.9mn base salary and over $800,000 in other compensation. Since stepping into the CEO role at the Canadian railway company in 2012, Harrison oversaw several merger attempts with other large railways including CSX and Norfolk Southern. However, Harrison is no longer CEO of Canadian Pacific Railway following his unexpected and abrupt resignation in January 2017; within a few months, he had made the transition to CEO of CSX Corporation, an American competitor.

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TOP 10

3

30

DONALD WALKER, CEO of Magna International Inc.

Heading up this global automotive supplier, Donald Walker took in over $15mn in compensation in 2016, thanks largely to a generous bonus. The CEO earned just $430,000 in base salary and $160,000 in other compensation, but more than made up for these figures with his bonus of almost $14.5mn. Walker’s history with Magna International has been long and storied. He served as CEO from 1994 until 2001, when he moved to the CEO position of one of Magna’s subsidiaries. Walker then returned as co-CEO of Magna in 2005 before becoming its sole CEO in 2010.

October 2017

T O P 1 0 H I G H E S T PA I D C E O S I N C A N A D A

2

GUY LAURENCE, CEO OF ROGERS COMMUNICATIONS INC.

Guy Laurence, former CEO of Rogers Communications, earned his place on this list thanks to his exit package. With almost $13.5mn in separation payments and an additional $1.0mn in base salary and $1.2mn in bonus, Laurence took home almost $15.9mn in 2016. However, this impressive overall compensation came at the cost of his job; the Rogers family ousted Laurence in October 2016 after only three years as CEO.

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TOP 10

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T O P 1 0 H I G H E S T PA I D C E O S I N C A N A D A

1

JOSEPH C. PAPA, CEO

OF VALEANT PHARMACEUTICALS INTERNATIONAL INC. Despite being new, Joseph C. Papa – chairman and CEO of Valeant Pharmaceuticals – takes the highest spot on the list of top earning Canadian CEOs with a total compensation package of more $62.7mn. This incredible figure includes a $8mn signing bonus, $10mn in stock options, $42mn in stock awards and an almost $1mn base salary - all for just 8 months of work and despite lacklustre financial performance by the company.

However, Papa’s figure remains overshadowed by his predecessor Michael Pearson’s 2015 compensation package of more than $141mn.

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Making space for

CANADA’S

enterprise

Colliers International is the biggest player in the Canadian commercial real estate space. Its success depends on an active market, something that all parts of the country, including Quebec, are enjoying

Written by: John O’Hanlon

C O L L I E R S I N T E R N AT I O N A L

C

anada’s commercial real estate sector looks to be performing strongly. Indeed, according to Colliers Internationals’ Canadian Office and Industrial Markets Q1 2017 report, Vancouver in particular appears to be a commercial hub gathering momentum. The British Columbia heartland has the most office construction underway out of any Canadian city.

The report also points towards solid demand for industrial space, with 1.2mn square feet (sq ft) of space absorption in the first quarter of this year. The signs are positive, and points towards Canada as a stable place to do business.

According to Jean-Marc Dubé, SIOR Senior Vice-President at Colliers International, based in Montreal, one should look back at the way Canada weathered the global financial crisis. “Canada came through better than most partly because we are systemically conservative! Our banking system is set up in such a way that is harder for individuals and businesses to over-leverage and our regulatory

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October 2017

framework did not allow a subprime bubble to develop.” It is hardly surprising that the Bank of England looked to a Canadian banker when looking for a governor to steer it though troubled times.

Economic ups and downs

Perhaps the biggest challenge for the economy in general has been the drop in oil prices and the manufacturing downturn, Dubé suggests. “That impacted our business significantly in the west of the country. At $120 a barrel, all of our offices were strong, especially in Alberta. We were seeing unprecedented office deals done in Calgary and Edmonton. Then when the oil price crashed and interest rates fell back, these were the areas where business slowed the most.”

That is all in the past, and Alberta is now doing well. The major office markets in Canada, Vancouver, Calgary, Edmonton, Toronto, Ottawa, and Montreal, equate to 476mn sq ft of inventory – 89% of the entire country. In the past, Montreal, just 500 km from Toronto,

CONSTRUCTION

tended to be less attractive to investors, something Dubé admits has something to do with its different market and business culture.

“We have not in the past had the same level of Chinese investment, so to date Montreal has not exploded quite like the other cities.” Ironically, it’s this very fact that is giving Montreal a huge impetus right now.

Frankly, the business hegira to Toronto, which has become one of the world’s ‘alpha’ cities on a par with the likes of London, San Francisco,

“Historically known as being the manufacturing centre for Canada, Montreal is moving towards being the hightech centre. Many larger companies don’t want long-term leases and have a corporate strategy of not signing them.”

– Jean-Marc Dubé, SIOR Senior VicePresident at Colliers International

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C O L L I E R S I N T E R N AT I O N A L

Singapore or Dubai, has made it almost unaffordable. Montreal is seen as a place business can still locate with all the advantages but at a more affordable price, and activity is ramping up rapidly, including foreign investment.

Colliers’ business model depends on the volume of transactions it is involved in, whether over property acquisition, brokerage, tenancy and leasehold agreements or consultancy. The company is an essential partner

for real estate investment trusts (REITs), major corporations, government departments, local authorities and investment agencies – anyone, in fact, with an interest in developing land.

This is why Montreal is such an exciting place to be in today.

What attracts an investor is the capitalization rate, the ratio of net operating income (NOI) to property asset value. “The higher the cap rate, the more attractive it is to the investor. We have been seeing 6.5%

Colliers cooks lunch for the Ronald McDonald house as a community service effort 38

October 2017

CONSTRUCTION

to 7% in Montreal but a lot less in Toronto, where an 800,000-squarefoot building just sold for less than a 4% cap rate. An investor can secure excellent premises in Montreal and still make a much bigger return,” Dubé explains.

Speculative buildings and repurposing

One of the things that has been hurting Montreal is a shortage of inventory. There are very few buildings for sale, Dubé comments.

There has been very little speculative building there as opposed to the greater Toronto area (GTA), where recently some 9mn sq ft of space was under construction without pre-agreed tenancy. “Spec building is riskier,” he explains. “If you don’t get a tenant you are going to be on the hook for all the expenses as well as the financing costs of the property. The fear in Montreal was that the big corporations looking at taking up to a million square feet were all focused on the GTA.”

Jean-Marc Dubé SIOR- Senior Vice-President Jean-Marc Dubé is a senior member of the industrial division of the Montreal Colliers International team and an accomplished executive with a proven ability to develop and implement strategies that support his customers’ business and financial objectives. His expertise includes tenant/purchaser representation, property listings (sale and lease), sale-leasebacks, built-to-suits and land development.

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INSPIRED BY PEOPLE INSPIRING THE INDUSTRY AGILITY . CREATIVITY . ENGAGEMENT

As a leading Canadian real estate investment trust, Cominar stands out for its personalized approach, flexible solutions and innovative projects.

COMMERCIAL REAL ESTATE OWNER AND MANAGER OFFICE . RETAIL . INDUSTRIAL

CONSTRUCTION

“Our banking system is set up in such a way that is harder for individuals and businesses to over-leverage.”

– Jean-Marc Dubé, SIOR Senior Vice-President at Colliers International

Now Montreal is beginning to see developers breaking ground on speculative projects. The city is also growing in importance as a technology hub, and this is driving an exciting new development involving the repurposing of former industrial buildings. A good example is the former Johnson Wireworks building now called Lofts Wireworks located at St-Henri in the Sud-Ouest of Montreal. This old factory is in an area that is being redeveloped with multiple cafés, bars and restaurants only minutes from the new Montreal Super Hospital and Place St-Henri Metro. Yet, it offers offices between 1,680 and 29,845 sq ft for a lot less than what you would pay in Toronto. Dubé has seen the project through from the early stages of negotiation with the developer: “I helped the client

acquire the building, go through the process of repurposing the building and brought it back to the market as flex loft office space. Now I am working on locating the tenants and negotiating the transaction.”

Now this single tenant building will lease approximately 25 businesses.

Some will be high technology businesses, some startups - there will be co-working space, as well as Montreal’s first makers’ space called Espace Fabrique, where earlystage companies can take their first steps from concept to prototype.

“Historically known as being the manufacturing centre for Canada, Montreal is moving towards being

9Triple8 Jasper reactivates Downtown Edmonton with market-defying sale

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Colliers participating kids Montreal fundraiser

the high-tech centre of the country,” Dubé says. Montreal, Dubé adds, is becoming one of the top cities in the world for the gaming industry.

Many of the city’s old textile factories are being completely restructured to meet this new type of demand.

New trends

On the industrial side, large spaces are still needed and given the lack of inventory of buildings 300,000 sq ft and over, it’s better to build new.

Newer constructions might go up

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to 32 ft of clear height, but a new distribution centre being put up

by Broccolini Construction on the outskirts of Montreal is 120 ft from floor to deck. Clearly, robots will have to do all the picking, as the building will be completely automated. This represents a transformation of the real estate market, specifically concerning employment.

In addition to brokerage, the firm has large property management teams as well as one of the largest project management groups in

CONSTRUCTION

Colliers participating in the pedal for kids Montreal fundraiser

Canada – a team that can oversee the construction of any large asset like a hospital, for example. Colliers also has a robust IT department that has developed a proprietary countrywide platform, as Dubé explains: “CRM+ allows us to communicate and understand what our colleagues are doing – for example, I can see if a colleague in Mississauga is working with a certain company. It helps our clients too by ensuring a truly joined-up interaction with them.”

Seamless communication across vast distances serves the Canadian real estate industry’s new realities.

In the past, 10-year leases were common but in the fast-moving tech environment mentioned above, that is too long. Clients are looking for flexibility, short-term leases of five or even three years suit fast growing companies better. Larger companies are also reviewing longterm leases, which, under new accounting rules, are treated as capital assets affecting the balance

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Andrew Maravita Managing Director, Quebec With over 20 years of experience in the real estate industry, Andrew Maravita has become a wellknown expert among his colleagues and peers.

Prior to joining Colliers, he held various executive leadership positions with large publicly traded companies and managed national real estate finance and equity platforms in Canada. He spent nine years at GE Capital as Vice President and Managing Director of Business Property Canada.

John Arnoldi Executive Managing Director, Eastern Canada John Arnoldi began his career in commercial real estate in 1986 as a commercial officeleasing agent when he joined The Arnoldi Group. He continually produced results for his team and began leading the department early on. He joined Colliers in 1992 as a downtown office leasing sales representative and was a consistent top producer for the firm.

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October 2017

CONSTRUCTION

sheet. “Many larger companies don’t want long-term leases and will have a corporate strategy of signing shorter terms,” Dubé adds.

Quicker turnover properties mean a greater volume of transactions and Dubé and his team are confident that growth in the Canadian commercial and industrial property markets will continue for some years, and that Montreal will take up much of the slack. His early career was in teaching so it’s no surprise he has a passion for training the new

generation of young advisers and brokers. “I believe no time is wasted when you are learning something new. This is a people business: I sell knowledge and relationships!”

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and the

Brands

CHANGING TASTES OF

CANADA

Written by: Nell Walker Produced by: Aquarius Rougely

Yum! Brands is making its mark on

Canada with extensive expansion of its KFC, Pizza Hut and Taco Bell chains. In three exclusive interviews with these brands, we find out how this enormous success has been achieved

T

he US-based fast food powerhouse that is Yum! Brands is taking the industry by storm as it aggressively expands across the globe.

A Fortune 500 company, Yum! owns KFC, Pizza Hut, and Taco Bell, currently operating 43,500 restaurants in 135 nations. The business opens an astonishing six new restaurants per day worldwide; the growth Yum! enjoys is extraordinary, with 50% of its profits earned from outside the US as of 2016, ensuring that the three food brands and their umbrella company are establishing a firm global footprint in every location.

One nation Yum! has its sights set firmly on is Canada, where the fast food industry is booming and millennials are demanding more and more choice. Yum! strives towards a culture of not only swift expansion but a fun and energetic environment for workers and customers alike, knowing that its reputation as a vast and dynamic business is a large element of what allows it to grow at its current rate.

We spoke exclusively to members of the Canadian KFC, Pizza Hut, and Taco Bell teams to find out how and why these brands are penetrating Canada so successfully.

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October 2017

Yum! Brands Restaurant Support Center

FOOD AND DRINK

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YUM! BRANDS

FOOD AND DRINK

KFC

KFC fits into Yum! Brands’ global vision by focusing extensively on growth and expansion. Nazia Millwala, Director of Development for KFC Canada, has been with the business for 11 years in various roles, many of them in the Middle East and North Africa. She joined the Canadian arm of the business three years ago, and is in charge of franchising, restaurant design, and spearheads the ambitious expansion plans KFC has.

“My team has been focused on three core areas,” Millwala explains. “One is franchising. We’ve put a lot of high value on having great franchisees, and it’s

Nazia Millwala Director of Development, KFC Canada

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FOOD AND DRINK

critical for us to have some very committed and energized partners to join us on this journey. So as we move to revitalize our brand, we have injected new franchise partners who share our vision.

“The second area is our revitalization and bold restaurant growth agenda. Like any business in Canada, we’ve spent a lot of time analyzing and understanding our current estate to the point where we have great success stories and know where more work is needed. We have a very ambitious goal to grow to 800 stores, and we truly believe we can do it because there’s enough demand for our brand – so how do we find the right opportunities

to make sure that happens?

“The third area is design. As we upgrade, relocate, and bring in new stores, it’s critical we have design that does a good job of representing our brand. Our recently launched design package includes signature elements like the red and white candy stripe, as well as wooden accents to represent our hand-crafted values – these show what the brand stands for.”

These key focus areas were the result of looking hard at the 650 restaurants KFC already has in Canada. Using that data, competitor and industry information and leveraging sophisticated tools, the business devised the best

“Canadians have the appetite for our fingerlicking good chicken, so it’s about how we grow aggressively and expand in the right places” – Nazia Millwala, Director of Development, KFC Canada

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YUM! BRANDS

strategies and began the process of implementing the findings.

“We thought, ‘how do we inject freshness back into the brand and bring it alive?’,” explains Millwala. “Nothing was lacking, but we needed to take things to the next level; upgrade stores, improve locations, and ultimately deliver a better experience to the guests. We truly believe we can achieve 800 restaurants in Canada, but the question is

how quickly can we do this?”

Guest experience is vital to KFC, as it is the customer that dictates the brand’s direction. The brand is using its connection to consumers to decide where it opens new restaurants, how the seating is arranged to be optimally social, and expanding sales channels such as delivery that enable Canadians to enjoy KFC in their own homes.

“Our customers are asking, and we’re making sure we find

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Inside KFC

opportunities to deliver the best experience in any way we can,” says Millwala. “The responses we’re getting have been very encouraging, and of course that is reflected in our growing sales numbers. Our employees and franchisees are energized and responding positively as well, which gives us confidence that we’re on the right track.”

KFC’s expansion goals align perfectly with those of Yum! Brands, with its ambitious plans to grow and expand the footprint, “and

that’s very exciting for our brand in and out of Canada,” says Millwala.

“Canadians have the appetite for our finger-licking good chicken, so it’s about how we grow aggressively and expand in the right places. If we could grow to 800 stores tomorrow, we would find a way to do it.”

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55

YUM! BRANDS

Pizza Hut

Pizza Hut truly owns the world’s fast food pizza market, but has experienced particular buzz in Canada in recent years, having reached over 400 locations already.

Tatiana Carrascal, General Manager of Pizza Hut Canada, has two decades of marketing experience behind her and is on the front line of the incredible demand the brand is currently enjoying.

Carrascal attributes part of the accelerated growth to Pizza

Hut’s delco model – the delivery/ carry-out restaurant footprint – which proves very cost-effective because as well as having a smaller restaurant footprint, franchisees are offered a lower bill and a higher return on investment.

“It makes us very attractive partners,” she explains. “The delco model allows us to build in convenient locations and in more places around the country, so that we can serve our customers better. We have high growth

FOOD AND DRINK

Tatiana Carrascal General Manager, Pizza Hut Canada

expectations and growth incentives for this model, and we expect to build between 100 and 200 in the next three to five years.”

Pizza Hut seeks out strategic mergers and acquisitions in order to expand too, which is a swift way of acquiring real estate that already exists and morphing it into a new restaurant, but it is the products themselves which are driving innovation in order to fuel Pizza

“Canadians are looking for affordable dining options, and we know that offering good value for money is driving growth in this market” – Tatiana Carrascal, General Manager, Pizza Hut Canada

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YUM! BRANDS Supreme Lover

Hut’s increasing footprint.

“All the products we offer are based on consumer research,” says Carrascal, highlighting the brand’s reliance on the customer to grow in the right direction. “Our philosophy is that we listen to them first. Special items like WingStreet wings and Stuffed Crust pizza drive significant sales for us, and we pride ourselves on defining the pizza industry especially through our unique pan pizza.

We like to be the original creators of different food offerings.

We’re known for and have a legacy of product innovation.”

In order to acquire this information, Pizza Hut works hard to communicate with its consumers via feedback acquired through customer surveys, and it analysis that data every single week: “There are incentives for them to fill out the surveys,

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October 2017

FOOD AND DRINK

Follow us!

PizzaHut TripleTreat Box

and they know we are actually utilizing their feedback. Then we use those extensive answers to fill our pipeline of innovation and strategy.”

Pizza Hut keeps its appeal relevant and exciting in Canada by maintaining the legacy it has already worked to achieve alongside adjusting it to meet the evolving industry needs and consumer market. Pizza is everevolving and becoming more digitally-driven, so Pizza Hut is focused on value-driven initiatives to cements its appeal.

“Canadians are looking for affordable and convenient eating options, and we know that offering good value for money is driving growth in this market,” says Carrascal. “We pay close attention to our online platform, as more and more consumers are accessing it, and this provides new growth opportunities for us.”

Canada is particularly special to Pizza Hut with good reason: “They

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YUM! BRANDS

Canadian

Chicken Caesar

Veggie Lovers

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October 2017

love our unique food offerings,” Carrascal explains, “and we’re very appreciative of the response we continue to get from our customers.

In Canada we do see tremendous opportunity to accelerate the growth we’ve already seen, we’re just making it bigger and faster through mergers and acquisitions alongside organic franchisee growth.”

In these ways, Pizza Hut’s vision aligns perfectly with Yum!’s desire to expand aggressively in Canada, and Carrascal is thrilled to be a part of the tight-knit umbrella brand: “We’re very excited to be part of this family of brands with leveraged opportunities,” she states. “It definitely provides us a bigger spectrum to grow. The role that we as Pizza Hut play in the broader spectrum is primarily driving growth and restaurant openings in new markets, and we have a larger opportunity alongside KFC and Taco Bell.”

FOOD AND DRINK

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YUM! BRANDS

Taco Bell

Taco Bell, which has the smallest footprint of Yum!’s brands, is growing at a rapid level and holds a firm belief in a big dream: to make Taco Bell a 700-strong restaurant brand in Canada. Veronica Castillo, Director of Marketing and R&D for Taco Bell Canada, has been with the company for four years. Her role is focused on strategy within Canada, working on food innovation, communication strategies, development, and design to bring Taco Bell’s best concepts to life. She explains how Taco Bell is able to hold such high hopes for its own expansion.

“The Taco Bell brand is on fire today. It’s been growing for the past six years both in sales and transactions. In 2017, we have achieved record sales with double digit growth. It’s amazing, and part of that success is attributed to our innovation that highly resonates with our target.”

Castillo continues: “The innovation we bring to Canada is unique. For example, we have the Double Layer taco, the Naked Chicken Chalupa,

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October 2017

and most recently the Cheetos Crunchwrap Sliders – unique innovation that help set us apart from our competitors. We select the best innovation for Canada based on in-depth consumer insights, so we make sure that when we launch new products, we create campaigns that truly resonate with our fans.”

Exploration is in Taco Bell’s DNA; it isn’t afraid to take risks with its innovation and campaigns. To insert itself into the cultural conversations that consumers value, it uses some

FOOD AND DRINK

Follow us! extraordinary methods, such as offering an Airbnb ‘SteakCation’ in Ontario last year to celebrate the launch of the Steak Doubledilla – a campaign which generated 422mn impressions.

“We’ve found fans truly understand the brand which help us validate new concepts, ideas, strategies, and products,” says Castillo.

“We launched Mas Nation, an advisory board comprised of Taco Bell Fans, and it acts as a great forum to gauge anything we bring to life, with fans

Veronica Castillo

Director of Marketing and R&D, Taco Bell Canada

“Mexican food is trending in Canada, because millennials love it, and this is adding to our ability to strongly drive growth” – Veronica Castillo, Director of Marketing and R&D, Taco Bell Canada

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YUM! BRANDS

truly championing and supporting our brand. We’re also reaching a lot to social channels, and we really engage in conversations with fans to understand what they want.”

Consumers are rewarded not only with the innovative meal options they request, but a focus on the social aspect of food. “We want to bring people together,” Castillo says. “We want to create assets that are really inviting, to drive conversations and

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make people happy to stay longer in our restaurants. We’re truly evolving.”

It is this wealth of offerings that has given Taco Bell Canada the confidence to aspire to such massive expansion across the country. With a solid foundation, Taco Bell already boasts nearly 200 locations. By 2022, the goal is that Canada will house 100 new stores.

“We have pretty much reset the business focusing on building

FOOD AND DRINK

strong foundation over the past five years,” explains Castillo. “It’s a growing business with a strong financial model, strong menu, improved operations, and amazing restaurant concepts, and a driving force now is expanding the Taco Bell standalones across Canada.

We just recently opened our first standalone in 2017 in Saskatoon, so we feel we have the foundation to continue growing. We have a brand that our fans love, and a lifestyle brand that no-one else can offer.”

Taco Bell is now in 29 countries, recently launching in China, India, and Brazil. These nations are now priorities alongside Canada, and Canada is considered to currently be at a critical stage of rapid expansion.

“In the last six years, we’ve grown the brand 40%, so that tells you the potential we have,” says Castillo. “Everything that we’ve done resonates so well with our target, and we track that against Yum!’s goals. Mexican food is trending in Canada, because millennials love it, and this is adding to our ability

to strongly drive growth. We have what it takes, and we are at this point engaging investors to really help us with our growth strategy.”

A world with more Yum!

Yum!’s slogan – a world with more Yum! – is more appropriate than ever as the business spreads across the globe. It enhances its attractiveness to millennials by focusing on corporate responsibility alongside allowing its consumers to be a part of the business by listening to them and adjusting accordingly. All three of Yum!’s brands fit naturally into its vision and work hard not only to maintain it but develop it, and Canada is set to benefit from the care and passion KFC, Pizza Hut, and Taco Bell have for pleasing their audience.

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