Dave Nichol, President, Dave Nichol & Associates
CANADA--THIS IS YOUR WAKE-UP CALL
Chairman: Dr. Frederic L. R. Jackman President, The Empire Club of Canada
Head Table Guests
Robert Dechert, Partner, Gowling, Strathy & Henderson and a Director, The Empire Club of Canada; Darren MacDonald, grade 12 student, Danforth Technical and Collegiate Institute; Edmund O'Keefe, Director of Strategy, Loblaw Brands Limited; The Rev. Canon Harold Roberts, Rector, St. Timothy's Church, Agincourt, and a Past President, The Empire Club of Canada; Marion Kane, Food Editor, Toronto Star; Gerald Pencer, Chairman, Cott Corporation; Maureen Cappon-Javey, Senior Consultant, Hill & Knowlton and a Director, The Empire Club of Canada; The Rev. Mark Aitchison, Minister, Islington United Church; Daniel Silver, M.D., Danver Consultants Inc.; Galen Weston, Chairman and President, George Weston Ltd.
Introduction by Dr. Jackman
To introduce today's speaker, David Nichol, as a grocery retailer would be a little like introducing Wayne Gretsky as a hockey player. It might be accurate but it would utterly fail to reflect the impact they have had in their fields. For Dave Nichol has done more to uplift our food-buying experience than any other retailer in North America.
Dave Nichol was born in Chatham, Ontario. As his father was a railroad station agent, his family moved a great deal. He called no fewer than 13 towns "home" before finding himself at the University of Western Ontario. Here, he studied for a degree in business and where fate, in one of her more fortuitous turns, provided young David Nichol with a room-mate by the name of Galen Weston.
Dave Nichol went on to earn a law degree at the University of British Columbia and a masters in law from Harvard before joining McKinsey & Company's Toronto management consulting office. It was while at McKinsey in 1972 that former room-mate Galen Weston sought Dave Nichol's help for the family's ailing supermarket chain--Loblaws.
The rest, of course, is supermarket history.
Dave Nichol joined the Loblaw group of companies in 1972 as Executive Vice-President of Loblaw Companies Limited and became its president in 1976. Early in 1985 he became President of Loblaw International Merchants, the product development arm of Loblaws Companies.
David Nichol has been called a product genius and his products have been called category killers. The "No Name" line of products he introduced in the 1970s did more than just help turn around Loblaw's flagging image. It gave birth to what is now the world renowned "President's Choice" family of products.
Without question, Dave Nichol is this country's highest profile supermarket retailer. "No Name" and "President's Choice" products account for 32 per cent of Loblaw's retail business. His Insiders Report is snapped up three times a year by customers excited to read of our guest speaker's latest travels and to savour the next "Memories of" product. The Dave Nichol cookbook sold out 100,000 copies at Christmas.
Dave Nichol has even gone global. Reversing the typical WalMart scenario, a selection of Dave Nichol's products are being sold in over 1900 Wal-Mart stores under the Sam's American Choice label.
In December 1993, Dave Nichol announced his departure from Loblaw International Merchants to work as an independent consultant and pursue his interest in marketing the "President's Choice" concept worldwide.
At home, Dave Nichol shares the spotlight and the kitchen with his wife Terri.
Ladies and gentlemen, please welcome "the classic, the ultimate, the decadent, the too good to be true, the person whom everyone votes for as their President's Choice"--Dave Nichol.
The views expressed today are strictly my own and the questions I intend to raise do not reflect the view of any of the people or companies I have worked with in the past, present or future.
Let me first tell you what happens when The Empire Club asks you to address this august body. Months ahead they demand that you give them the subject that you intend to speak on. Unfortunately though, I don't write these speeches until the night before I give them. So I told them Innovate or Die because it sounded good.
However, after I had sent in my speech title, I read the results of the annual Yankolovich's opinion poll and I decided to change the title of today's speech to Canada This Is Your Wake-Up Call because Yankolovich's number one finding of the trends that will shape our future was that there is a generalized sense in the minds of North Americans that nothing works anymore.
Let me quote directly from Yankolovich's poll: "There's a growing perception that the economy, our democracy and our public affairs are being led by incompetent people to irrelevant objectives." Does that strike a fundamental chord with you? I know it did with me.
Intuitively both you and I know that as Canadians we're in deep trouble. So I spent some time thinking about why we feel this way. I even looked at some facts, which is a strange experience for me because I don't believe in things like market research. Here are some of the things I found.
For every one dollar of new taxes the Canadian government takes in, it spends $1.75.
Combined federal-provincial debt will be $700 billion by the end of 1994 or 98 per cent of Gross Domestic Product and in two years economists predict that the government debt to Gross Domestic Product ratio will rise to 105 per cent.
In the simplest terms possible, what this means is that in another two to three years economists are predicting that Canada will be technically bankrupt and will be faced with the type of fiscal crisis suffered by Sweden in 1992 and New Zealand in 1984.
It's impossible to forecast exactly when Canada's ability to borrow will vanish, but we know from Sweden and New Zealand that when the financial crisis hits, the country's ability to borrow tends to vanish abruptly and then the I.M.F. steps in, forcing the government to retrench on an unprecedented scale and perhaps we'll even see a 50cent dollar.
These are serious problems. Yet I'm willing to admit that, like all Canadians I have a biologically implanted mute switch that is activated every time a Canadian politician opens his mouth to talk about these critical economic problems. However, after thinking about it, I'm convinced that it is absolutely essential that we abolish a number of myths that are preventing us from making the fundamental changes that are necessary to pull Canada back from the abyss.
You may be asking yourself what qualifies Dave Nichol to speak on this subject. The real answer is probably "not much." However, I do realize that what we're essentially facing here is not just a financial or political challenge. First and foremost it's an enormous marketing challenge. How do you market the hard-to-accept facts to Canadians so that they will accept the inevitable reduction in their standard of living? And how do you get them to accept the painful reforms that are essential to turn Canada around? Without this fundamental change in Canadian attitudes it's impossible to implement any of the substantive changes necessary.
I may know next to nothing about economics or politics but I think you're acquainted about my marketing track record. And since I have absolutely no political ambitions, I can afford to tell you the truth. So here we go with Dave's Top Ten Canadian Myths that must be abolished if our country is going to survive--and maybe even prosper. Now, if you want to get the right answers, first you have to ask the right questions. I'm just going to raise what I consider to be the pertinent questions. The answers are up to you.
Myth #1: The myth of Canadian entitlement.
Why is it that Canadians deep down still believe that their country deserves to be rich and that government therefore is a remote Olympian entity that can afford almost anything?
Why is it that your family would never consider spending $1.75 for every dollar you take in and yet you consider that it is totally natural for the Canadian family to do it year after year?
Why do we feel that we can go on mortgaging our cozy little Canadian cocoon year after year and never worry about the mortgage being called?
Myth #2: Government is capable of curing Canada's fiscal disease?
Is Richard Needham correct when he states that "Canadians are weird; they look to Ottawa for the cure when Ottawa is, in fact, the disease"?
Let's be perfectly blunt. It is simply unrealistic to expect current Canadian politicians to deal with the fundamental restructuring that must occur in Canada because you've encouraged them to become incurably hooked on the heroin of buying your votes by mortgaging your children's future. The basic flaw in a politician's character is that they want to be re-elected. Perhaps we need a new crop of politicians who have no interest in being re-elected.
Is Canada's biggest problem simply the fact that it doesn't have any management?
Professor Bornbush, Professor of Economics at M.I.T. makes an interesting analogy about Canada. He points out that when you fly into Kennedy airport you can't take your luggage cart past customs. You have to take a porter. In other words, the airport is there for the porters not tourists. In a similar manner he thinks that Canada should be run for its shareholders (i.e. its taxpayers) yet unfortunately, in his opinion, it's being run for its employees.
Can Canada's current leadership be expected to adopt a different course? Is it true that great leaders appear at times of great peril? In Canada we're about to find out.
Myth #3: The growing U.S. economy will save us.
Is the highly touted U.S. economic recovery just a short-term phenomenon? The performance of the Dow stock market over the past few days makes this a reasonable question to ask.
Are you not concerned about the following projection from Richard Russell's highly respected "Dow Theory Letter"? He forecasts that by the year 2000, interest on the U.S. federal debt will eat up 100 per cent of what every American currently pays in all forms of taxes!
Shouldn't we give up all this talk about "when the U.S. economy recovers?" Let's give up placing our hopes on a sinking ship and have the courage to come to grips with our own country's fundamental problems.
Myth #4: Canadian's basic feelings of incompetence (particularly relative to the U.S.).
This is one of Canada's most cherished myths. It is also one of the most dangerous. It's the one we use to explain away our lack of performance compared to our neighbours south of the border.
Could it be that we're just conning ourselves to cover the real reason for our lack of performance? Is there any possibility that we're just lazier than our American brothers, because of Canada's security cocoon--which incidentally we can't afford?
Deep down isn't it true that we really feel superior to Americans? Do you know of anything that justifies this sense of superiority?
Myth #5: Canadians are "sticks in the mud" who could never tolerate the changes necessary to avert disaster. According to Fortune magazine, Coca Cola is the most valuable brand in the world. Yet last year in Canada, Coke lost $143 million and closed half of its production plants. Why? Because retailers across Canada offered Canadians a comparable or better product at significant savings. They eliminated the soft drink Brand Tax and the Canadian consumer jumped at it.
Why did the President's Choice and No Name retailer brand revolution that is sweeping North American and Australia start in Canada? Why is the entire world coming to Canada to see the retail revolution that you, the Canadian consumer, started? It's because of you. You've finally realized in your heart of hearts the inescapable truth that because you allowed your future to be mortgaged, your standard of living will inevitably go down substantially and over the next few years you'll be in a desperate fight to try and salvage as much as possible of your current standard of living.
Today, loyalty for the Canadian consumer is nothing more than the absence of a better-value alternative. Today Canadians are more willing to change than ever before and all they're waiting for is someone to point the way. This is an enormous opportunity for businessmen as well as politicians.
In the past I've been written up as having a certain instinct that helps me determine what the consumer will want in the future. So let me ask myself a couple of questions. "Could Canadians respond to a politician who tells it like it really is and promises little more for the foreseeable future than toil, tears and further cutbacks? Is the Canadian electorate willing to lower its currently unrealistic expectations?" My marketing antenna gives me a clear Yes on both of these critical questions.
Myth #6: Canada has an incurable case of the "English Disease."
The English Disease perpetrates the myth that there is a thin layer of society that has all the answers--they feel they're a natural ruling class and that the rest of us should just stay out of it.
Why is the most important question to a person afflicted with the English Disease? "Where did you come from?" Instead of the first question an American asks you, "Where are you going?"
Many years ago when Dick Currie, the president of Loblaw Companies first appointed me president of the Loblaws stores in Ontario, I suffered from a case of the English Disease--I thought I knew everything.
What Loblaws needed then was a sales boost so I asked my people what would be the item that would get everyone shopping at Loblaws for the Labour Day weekend. "Ninety-nine cent blade steaks" they said. "O.K." I said let's go with it, I didn't need any more advice.
Well, it turned out that before Labour Day, we had to kill every cow between here and Moose Jaw. Nobody bothered to tell me that the meat department simply couldn't cope with it and if they had, I probably wouldn't have listened to it anyway. I actually saw customers in fist fights as they lunged for the blade steaks coming out of the meat room.
Ninety-nine cent blade steaks cured me of the English Disease forever. At that point I wised up, got into my car and drove across Ontario and talked to every store manager and asked them what we needed to turn Loblaws' Ontario stores around. They told me, I did it and you know the rest of the story.
Maybe one of the most important things we need right now is a leader who can inspire, challenge and catch the imagination of Canadians at the grass-roots level so that more Canadians can get excited about participating in the political process. And then all the politicians will have to do, is just listen to them.
Myth #7: Canadians have an incurable case of the "Tall Poppy Syndrome."
Do you know what the "Tall Poppy Syndrome" is? In Canada, if you are too successful and pop your head up too high above the crowd--you'll get it chopped off.
Is this a distinct Canadian ailment or is it just a symptom of the English Disease? I don't know. Maybe it's just a result of the often-heard criticism that the Canadian media has always suffered from a terminal case of the English Disease.
Can we ever make any progress in this country until the English Disease and the Tall Poppy Syndrome are exterminated from Canadian culture?
Myth #8: Radical change in Canada is impossible because radical change must happen in small incremental steps.
Jack Welch, the Chairman of the General Electric Company is recognized as one of the world's leading thinkers when it comes to problem-solving skills.
In this year's annual report "Chairman Jack" talks about how G.E. uses "Bullet-Train Thinking." The example he gives is that if you want a ten-mile per-hour increase in train speed you tinker with the horsepower, but if you want to double the train's speed, you have to break out of conventional thinking and conventional performance expectations.
For example, at G.E. every time it achieves one extra inventory turn it produces $1 billion in cash to reinvest for tomorrow. Traditionally, G.E. set yearly objectives to move inventory turns from say 4.73 to 4.91 turns. Then G.E. applied "Bullet-Train Thinking" and changed the goal to 10 turns. In their current annual report, Mr. Welch assures shareholders they're going to make it, which means they'll free up an extra $5 billion in cash.
Doesn't Canada desperately need some leaders with the ability to inspire Canadians to become unconventional "Bullet-Train" thinkers?
What are some of the "stretch objectives" we should be thinking about? Well Canada has a record of being one of the lowest-performing developed countries when it comes to innovation. Why can't we set the "stretch goal" of being recognized as the most innovative country in the world before the year 2000? And while we're looking at "Bullet-Train Thinking" why by the turn of the century can't we move from 11th to #1 in the ranking of education performance amongst developed countries?
Myth #9: "The fear of flying myth."--i.e. We don't know enough yet so let's set up yet another royal commission and then we won't have to actually do anything.
Jack Welch says "Bullet-Train Thinking" is essentially using dreams to set goals--with no real idea how to get there? He says that if you do know how to get there, it's not a stretch target.
Years ago I travelled the world and in a number of countries I saw a number of environmentally friendly products. I came back to Toronto and right after Christmas I put the product developers, product sourcers and quality-control team into a room and told them I didn't know how we were going to do it, but I was determined to launch 100 GREEN environmentally friendly products six months later in the summer Insider's Report.
Do you know how long it takes a branded food company to develop a single product? Years. Well because of Bullet-Train Thinking, we launched 100 G.R.E.E.N. items in six months.
Why don't we set some stretch goals to eliminate some of the lunacy that's holding this country back? For example, how can we ever grasp the enormous benefits of free trade with the U.S. and Mexico when we're unwilling to
attack and eliminate the crazy trade barriers that exist between our own provinces? Why are Canadians willing to pay up to twice as much for a chicken or milk as someone in Buffalo? Does this country really need social security even for our chickens and cows? It's mind boggling.
Myth #10: The myth that to be a creative thinker--a true innovator--you have to experience a blinding and original flash of inspiration.
Finally I'm talking to you about a subject that I actually know something about. Innovation--a skill that is desperately needed in Canada.
Anne Kingston has spent the last two years writing a book about innovators that's going to be published after Labour Day. Anne has interviewed hundreds of people and almost inevitably when the subject of my innovations comes up, they ask her if they could speak to her in private and then they whisper to her things like: "You know Dave didn't really invent the Insider's Report. He stole it from a guy called Trader Joe in California."
You are listening to a person whose reputation is that of the great innovator. You are also listening to a man who many claim has never had an original thought in his life. No Name was appropriated from a French Hypermarket. The Insider's Report came from Trader Joe. G.R.E.E.N products came from a series of European supermarkets. And President's Choice was inspired by Marks & Spencer.
My great friend Brian Davidson used to tell me that "Genius is the art of associating the hitherto unassociated." (I believe Brian stole that from Aristotle.) Why don't we send our politicians out into the world to steal some ideas that we already know will work?
They should look at New Zealand where the governor of the central bank has been put on an incentive basis where his pay is inversely co-related to the inflation rate--not surprisingly inflation in New Zealand has come down to zero.
They should look at the standard cost-cutting techniques used by consulting companies like McKinsey. For example, McKinsey would have the heads of all the departments of government draw up a prioritized list of which variable expenses they would cut if they had to eliminate 33 per cent of their variable cost budget next year.
Things like the fact that the Canadian government is Canada's largest advertiser with a $113 million budget would pop right up for everyone to see. What does the government have to advertise? Would you and I miss it if the government spent nothing on advertising next year?
In closing, I'd like to thank The Empire Club for their invitation to speak because it forced me to think about Canada and Canadians; something that I'm sure very few of us do on a regular basis because unfortunately thinking is a painful process.
But once I got into it I thoroughly enjoyed it and I came away with the conclusion that saving our country's future, although it's a daunting task, is doable, if we get our priorities right, market them properly to our fellow Canadians, and have the courage to attack the critical issues right now.
Last year the Sun papers across Canada ran a cartoon of a gentleman watching TV and he was saying: "Why can't they just let Quebec be distinct, dump the Senate, lower the G.S.T., end the recession and let Dave Nichol run the country?" If any of you are silly enough to take that cartoon seriously, then my advice to you is forget it, because I'm going to stick to Chocolate Chip Cookies.
The appreciation of the meeting was expressed by The Rev. Canon Harold Roberts, Rector, St. Timothy's Church, Agincourt and a Past President, The Empire Club of Canada.