THE FUTURE OF LOBLAW
Grocer makes venture investments in digital and tech startups as blueprint for growth
When a Silicon Valley startup announced in November that Toronto area roads would soon host a fleet of driverless delivery trucks, it came with news of an investment from Wittington Ventures. Founded in 2019, the venture capital firm is affiliated with the holding company of Canada's billionaire Weston family, best known for its ownership of Loblaw, Canada's largest grocery retailer, and Shoppers Drug Mart, its largest pharmacy.
The bet on self-driving-vehicle company Gatik was Wittington's fifth investment, and its partners plan to add several more. Its $100-million venture fund puts money into tech startups in the spaces in which Loblaw operates, leaning on the chain's expertise to identify investment opportunities, while trying to find solutions to some of its needs.
And as Loblaw evolves from a traditional bricks-and-mortar retailer into a digital juggernaut, a look at Wittington's deals offers a glimpse of the retailer's future.
As a venture capital firm, Wittington offers a “unique value proposition” through its corporate connections, said partner Megh Gupta in an interview with The Logic.
Loblaw and other companies from the Weston family empire contributed tens of millions of dollars to Wittington Ventures' first fund: the $100-million Wittington Ventures Fund I. Jim Orlando, the venture firm's managing partner, told The Logic its lead investor is Wittington Investments, Limited, a private entity controlled by W. Galen Weston, a third-generation member of the Weston family. It's the parent company of George Weston Ltd., which owns Loblaw Companies Ltd., as well as Choice Properties Real Estate Investment Trust and bakery giant Weston Foods.
Financial reports for George Weston Ltd. from the second quarter of 2020 show it made a consolidated capital commitment to a venture fund of $66 million over 10 years, while Loblaw's financials from the same quarter show a commitment of $33 million. Neither company's reports explicitly name the fund, but both use identical language to say the fund's purpose is to “pursue venture capital investing in innovative businesses that are in technology-oriented companies at all stages of the startup life cycle that operate in commerce, health care and food sectors and are based in North America.” (Loblaw did not provide comment by the time of this story's publication.)
Wittington Ventures' affiliation with the George Weston group of companies creates “an opportunity there to add value to the investments that we have made, either by trying to help foster partnerships or knowledge-sharing or customer-supplier relationships, or whatever the case may be,” said Orlando, who previously served as managing partner at OMERS Ventures for about six years.
Some of the venture fund's investments so far have already gone on to have direct relationships with Loblaw, providing it with technology or other services. Even before Wittington Ventures raised its first fund, it made an initial 2018 investment in Toronto-based health-tech company League. In October, Loblaw and League announced a partnership, creating the PC Health app, which allows users to earn PC Optimum loyalty points for reaching health milestones.
The app further expanded Loblaw's loyalty program reach and telehealth presence. It also positioned it to compete against a then-soon-to-be relaunched Carrot Rewards.
Since its League investment, Wittington Ventures has made four investments using its fund — Foxtrot, Contentful, Nurx and Gatik. The average cheque size was about $4 million, said Orlando, and the firm anticipates putting about $10 million total into each company through various funding rounds. It plans to keep investing in two to three companies a year using the fund, until it holds 10 investments.
Last month, one of those existing investments resulted in another partnership with Loblaw. Gatik, the aforementioned Palo Alto, Calif.-based autonomous-vehicle startup, will help solve the so-called “middle-mile” logistics issue for the retailer, moving online grocery orders from an automated warehouse to stores.
It will provide five Ford Transit 350s equipped with its self-driving software for the job.
Interacting with people who work in the supply chain at Loblaw's affiliate companies helped Wittington learn about the middle mile, said Orlando, and how smaller trucks tend to be used to move goods with a high turnover to nearby stores. Wittington then identified Gatik as a possible good match for how Loblaw orchestrated its supply chain. “In this case, it just sort of happened to triangulate that we thought it would be a really good venture capital investment,” said Orlando, emphasizing that Wittington co-led the Us$25-million Series A round. “In parallel, Loblaw made a decision that they wanted to work with the company.”
Wittington's remaining three investments have yet to see such direct relationships, but in at least one case, the companies are learning from each other's experiences in a similar field.
San Francisco-based Nurx offers online ordering and delivery of prescriptions and home-testing kits for a number of women's sexual health issues in more than two dozen states. Wittington Ventures started investing in the telehealth service in August, according to Pitchbook, when it joined some new and existing investors in a Us$22.5-million Series C extension. At the beginning of the pandemic's spread in Canada, Wittington Ventures homed in on telehealth and digital pharmacy as opportunity areas that were somewhat crowded with participants, said Gupta. “There was a real value proposition that was being upheld by companies that were focusing on specific large niches,” he said, noting that's where Nurx entered the picture for Wittington, as it focused on the business opportunity of serving women's health needs.
Shoppers Drug Mart and Nurx could benefit from each other's expertise, Gupta explained. Shoppers has logistical and pharmaceutical operations down pat, he said, while Nurx understands the direct-to-consumer model from a digital and telehealth perspective, as well as knows how to build out the digital back end of an online pharmacy. “There's a lot of cross-learning opportunities,” he said.
Wittington's remaining two investments also fall within Loblaw's scope of work.
Chicago-based Foxtrot allows customers to shop for a “curated collection” of consumables online via an app for a flat-rate delivery fee. It also operates several convenience stores in the U.S. Wittington Ventures co-led a Us$17-million growth round in the company announced in February, and Orlando now has a seat on its board. Contentful, meanwhile, helps its clients, which include Spotify and Glossier, create content platforms for better digital experiences. Wittington Ventures invested in the Berlin startup, which announced a Us$80-million Series E in June. Orlando already knew the company well; while at OMERS Ventures, he spearheaded an investment as part of Contentful's 2018 Series D, serving as a board observer until he left the pension fund.
Grocers, including Loblaw, are morphing into technology companies behind the scenes, investing large chunks of the hundreds of millions they commit to capital expenditures each year on innovation and technology. Loblaw now has a division called Loblaw Digital, whose staff of data scientists, developers, engineers and others have been behind the company's online shopping experiences and other digital developments.
“Most definitely COVID-19 has accelerated the demand for this type of technology,” said Gupta, as customers want a touchless shopping experience. E-commerce sales soared for Loblaw, Empire and Metro in the early months of the pandemic's spread in Canada, and continued to more than double in their most recent quarters. It also helps that the cost of these technologies has come down over the years, he said, meaning they can drive operational efficiency for a typically low-margin business like grocery.
There's also “the Amazon effect,” he said. With Amazon's acquisition of Whole Foods marking its entry into the grocery game, grocers knew they needed to compete more effectively at e-commerce and augment in-store experiences to attract customers.
“I think we'll continue to see that type of innovation,” said Gupta.
“It took a while for the wheels to get turning for some more traditional retailers, but now that it's out of the gate, I think we'll start to see a lot of folks continuing to adopt it pretty quickly.”
It took a while for the wheels to get turning for some more traditional retailers, but now that it's out of the gate, I think we'll start to see a lot of folks continuing to adopt it pretty quickly.