Business

A big cheese gets bigger

Saputo Inc., now Canada’s dairy power, looks to global expansion

Brenda Branswell March 12 2001
Business

A big cheese gets bigger

Saputo Inc., now Canada’s dairy power, looks to global expansion

Brenda Branswell March 12 2001

A big cheese gets bigger

Business

Brenda Branswell

Saputo Inc., now Canada’s dairy power, looks to global expansion

Lino Saputo, Canada's undisputed mozzarella maven, still weighs in on what he knows best. Most days during lunch at the Montreal headquarters of Saputo Inc., he nibbles on cheese churned in the adjacent factory. “I’m the big critic of Saputo products,” says the stocky 63-year-old chief executive with a glint in his eyes. After 47 years in the business, Saputo knows that mozzarella should never taste rubbery, “especially on pizza.”

He readily shares his opinions with staff. “I hate having lunch with him,” laughs company president Camillo Lisio. That attention to detail, though, is the company’s modus operandi. Before buying Burnaby, B.C.-based Dairyworld Foods in December, Saputo zipped across the country in his private plane with Lisio, scoping out 24 plants in under a week. The $4 07-million deal has transformed Saputo into a $3.4-billion business. It also means, says Lisio, “that we are going to be the biggest player in the dairy industry in Canada.”

Saputo’s rise up the food chain has much to do with managerial savvy. Smooth acquisitions, low operating costs and expansion into the United States have helped seal its reputation among analysts as a well-run Canadian company.

It began as a tough slog. In 1954, the 17-year-old Saputo co-founded the tiny Montreal cheese business with his parents after they emigrated from Italy. As the company grew, innuendo clouded their success. The Sicilian family was haunted for years by a deal they struck in 1964 to sell a piece of their business to New York mobster Joseph Bonanno. The family claimed ignorance about Bonanno, and Saputo steadfastly insisted that his family immediately backed out of the deal when they learned about their prospective associate. Nonetheless, the allegations hampered Saputo’s expansion into the United States. In 1972, Montreal police, some armed with submachineguns, raided the Saputo factory, but all that resulted was $350 in sanitation fines. “I can tell you,” says Saputo mildly, “I’ve worked honesdy all my life.”

The company now basks in more flattering attention. Its

initial public offering in 1997 was one of the most successful that year. And in 2000, the company reported annual profits of $ 100 million, up 27 per cent. A 10-year low in U.S. cheese prices curbed Saputo’s results for the third quarter ending Dec. 31 : revenue dipped to $490 million from $497 million the year before. But analysts praise the company’s track record. “They continue making acquisitions on a regular basis to sustain a very healthy growth level,” says Eve Dalphond of National Bank Financial Inc. The stock, which closed at $35 last week, typically trades in the $30 to $40 range.

Saputo dominates the mozzarella market in Canada, where pizza consumption has fuelled growth. It also produces several other cheeses, such as goafs milk and ricotta. The Dairyworld deal adds fluid milk to the mix and gives Saputo a 25per-cent slice of the domestic cheddar market. It is the latest in a series of acquisitions since the company went public. In 1997, Saputo bought U.S.-based Stella Foods Inc. and tripled in size. Two years later, it snapped up Culinar Inc., the maker of Quebec’s legendary Vachon snack cakes, for $282 million. Lisio disputes suggestions that the provincial agency the Société générale de financement du Québec lined up Saputo as a suitor to keep Culinar in Quebec hands before pouring $ 100 million into the cheese company. The agency’s decision

to invest in Saputo was “not a condition of the transaction,” he says firmly. “The day that we start making decisions for political reasons or for reasons other than enhancing shareholder value, I think we should be fired.”

Saputo is touted as a potential suitor for William Neilson Ltd., the dairy business that Toronto-based George Weston Ltd. recendy announced it plans to sell. Lisio professes a wait-and-see approach until it becomes available. With increasing consolidation in the Canadian dairy industry, Lisio sees future growth south of the border, where Saputo invoiced $1.2 billion last year. Why has it succeeded in entering the United States where some other Canadian companies have failed? “Because we got involved in the operations,” Lisio says matter-of-facdy. “We don’t manage from the boardroom. We manage from the floor.” He believes Saputo is well-insulated if Canada is forced to open up its dairy industry to American competition—-something he expects. The Americans have long contested Canada’s dairy system, which guarantees Canadian producers virtually the entire domestic market. “A strong presence in Canada, a significant presence in the United States, gives us a helluva good combination,” says Lisio. “There’s nobody else that’s really positioned that way in terms of production capacity in North America.” According to Pierre Nadeau, a vice-president at the National Dairy Council of Canada, Saputo is seen as an excellent operator. “They think five or more years ahead,” says Nadeau. “They constantly try to anticipate trends and act accordingly.”

Saputo has stepped back from the daily operations, although Lino Jr., one of his three children, is executive vicepresident of operations. The slower pace appears to agree with Saputo, who sports a tan and looks relaxed in a grey pin-striped suit. One of Quebec’s richest businessmen, he likes to indulge his passion for vintage model cars. He owns 85, including Ferraris and Cadillacs. Saputo concedes the company’s success “has gready surpassed my hopes. ” With the company also eyeing expansion in Europe and South America, Saputo’s reach, like its cheese, looks destined to spread. E3