[1986] OLRB Rep. January 168
0603-85-R United Food & Commercial Workers, Local 206, Chartered by United Food & Commercial Workers International Union, Applicant, v. Super Tops Holdings Inc., Respondent
BEFORE: Paula Knopf, Vice-Chairman, and Board Members I. Wilson and R. Wilson.
APPEARANCES: Paul W. Timmins, D. V. MacDonald, Jim Andress, Frank Palmer, Jim Hastings and Claude D. Ianneville for the applicant; J. Paul Wearing, Rueben Rosenblatt and Joe Chetti for the respondent; Pasquale De Luca for a group of employees.
DECISION OF PAULA KNOFF, VICE-CHAIRMAN AND BOARD MEMBER J. WILSON; January 10, 1986
This is an application under section 63 of the Labour Relations Act. The applicant union seeks a declaration that there has been a sale of a business by Canada Safeway Limited to the respondent at premises known municipally as 801 Mohawk Road West in Hamilton, Ontario (hereinafter referred to as the Mohawk Road location).
On December 20, 1985 the Board issued a "bottom line" decision in which a majority of the panel dismissed the application with the reasons for dismissal and the dissent of R. Wilson to follow. The following constitutes the reasoning of the majority with the decision of R. Wilson appended thereto.
The dispute is over a retail grocery business that had been operated at the Mohawk Road location by Canada Safeway Limited (Safeway) in that location for a number of years. The evidence of James Egerton, the Safeway store manager in the last year of its operation, was that their marketing strategy was not to cater to any particular "ethnic" community, but instead to be broad-based and cater to a diverse clientele. Head office of the Safeway chain dictated marketing policies and whatever changes were madein the store. In fact, many cosmetic and policy changes were attempted in the last year of the operation at Mohawk Road. However, Raymond Teal, an employee from Safeway's controller's office, testified that the Mohawk Road store had not made money since 1979. Thus~ a decision was made by Safeway to close down the Mohawk Road location. The store closed on December 29, 1984. Prior to closing, signs were placed in the store's windows directing customers to Safeway's adjacent location in Stoney Creek.
Prior to the store closing, Safeway '5 real estate manager, Keith Aitkens, approached Mr. Joe Chetti, the president of the respondent company, towards the end of October or early November, 1984. The two men had had business dealings together in the past. The approach was after the decision to close the Safeway store had been made. Mr. Aitkens advised Mr. Chetti of the availability of the Mohawk Road location and solicited Mr. Chetti's interest in acquiring a sublease to that location.
The respondent company headed by Mr. Chetti is a family-owned business operating a number of retail grocery stores which are designed to cater to the Italian and/or the' 'ethnic" community. The business began in 1971 with one retail store. That store was sold after a few years. But in 1977 Mr. Chetti and his two brothers-in-law opened a store in Etobicoke with the object of serving the Italian community in that area. In 1981, a second store was opened in Brampton which served the Italian and Portuguese communities. A third store was opened in the Finch West Mall which serves a large Italian community in that area. All three of these stores continue to operate extremely successfully. In May, 1984, the respondent company made a corporate decision to expand the business but to confine the objectives of the business to serving the Italian or "ethnic" community. The principals of the respondent were interested in locating in the Hamilton area because they perceived a large Italian community which was not being adequately served by any "ethnic" grocery stores other than one by the name of "Fortino's".
Because of the approach from Mr. Aitkens and Super Tops' corporate desire to expand, Mr. Chetti commissioned a market research study of the Hamilton area through a professional research company, CCMD. Two reports were produced, dated January 1985 and February 7, 1985. After receiving and reviewing these studies, Mr. Chetti proceeded to complete negotiations with Mr. Aitkens in March, 1985 and a deal was entered into with Safeway on March 29, 1985. The respondent subleased the Mohawk Road location from Safeway and purchased $70,000 worth of fixtures and equipment as part of the package for the "deal". Some of the equipment was used at the Mohawk Road location and some was taken to be stored at the respondent's warehouse with the intention that it could be used in other locations
when and if it would later be needed. Much of the store's equipment and fixtures were not sold by Safeway, i.e. signs, buggies, checkout stands and registers. This equipment was absorbed by Safeway and relocated at another of its facilities.
Prior to opening as a Super Tops store on Mohawk Road, the respondent undertook extensive renovations to the location. A total of approximately $1,200,000 was spent on leasehold improvements, including redesigning the stores, displays and signs. The meat counter was expanded from 60 feet to 104 feet to enable Super Tops to have fresh cut meat and a deli counter. Specialty meats and cuts were then able to be provided such as lamb heads, rabbit, goat, veal, as well as sausages and pizza made on the premises. Little space is allowed for pre-packaged meat. Instead, customers are able to ask butchers for specific cuts and quantities. The new deli counter that was created stocks Italian meats, cheeses and olives.
An additional 60 feet of space was added to the produce department. The Super Tops designers called for renovations to include a canopy designed to cover the produce area to have it resemble an Italian piazza. Italian specialty fresh products are carried such as figs, snails, or lampone on a seasonal basis. In addition, unlike before, goods are sold in bulk, such as baskets of plums, tomatoes and grapes. The equipment for making tomato sauces, wines and pickling are sold with the produce.
Few changes were made to the aisles themselves. The changes that were made appear in the stocking of the shelves. Unlike Safeway, the Super Tops store has a wide variety of each of Italian products, such as forty different cuts of pasta from each of five different Italian companies, twelve different brands of Italian mineral waters, six fruit nectars, specialty Italian biscuits and cakes, and a very wide selection of olive oils and expresso coffees. In addition, the store carries all standard products such as milk, butter and laundry goods. But again, even with soaps, a special line of Italian soaps is imported and featured.
In terms of marketing, the respondent says it targets the Italian community. The respondent has retained the former N.H.L. star Phil Esposito and the anchor woman from M.T.V., Laura Albonese, for promotional work so that the store can be identified with the Italian image. Ads are carried in Italian, Portuguese and Greek on multilingual radio. Ads are also run in English on CHIN and Radio 790. Flyers are delivered on routes identified as Italian districts although they are printed in English. Ads are carried in local newspapers and the Toronto Sun. The Sun was chosen because of its high proportion of "ethnic" readership. Ads are also placed in the Italian Newspaper, Couriere Canadiense. The respondent's witnesses say that the ads are designed to attract the Italian shoppers in particular, and in addition, shoppers who desire Mediterranean foods. However, the ads do feature a large number of standard non-ethnic" products frequently as "loss" leaders. Mr. Chetti says that any shoppers are encouraged to come into the store. However, he expects that the "average Canadian" shopper would be uncomfortable with the strong aroma of cheezes and meat and the sight of fresh rabbits and whole lamb carcasses or lambs' heads in the store. Thus Mr. Chetti thought that the "average Canadian shopper" would not likely return to the store even though he/she could probably satisfy the basic needs of an average family at the Super Tops store.
Staff are hired who can speak Italian or Portuguese, as well as English. Cash registers carry signs indicating that the staff can speak Italian or Portuguese. The staff were recruited through ads on CHIN or Radio 790 or in Couriere Canadiense. The purpose of this kind of advertising was to attract people who could serve Italian customers. All the store's management is done by Mr. Chetti and his family. There is no evidence of any overlap of personnel from the original Safeway store.
Since the time of its opening at the Mohawk Road location at the end of May, 1975, Super Tops has made money and has become a very successful operation. Super Tops has more checkout counters than the original Safeway store had and there are often lineups at these cash registers.
The respondent company has a system of warehouses and transportation which serves its own stores. Thus, the Mohawk Road location is supplied through Super Tops' own system of warehouses and delivery.
There is no question that there have been some significant changes since Super Tops took over the Safeway location. Mr. Egerton described "dramatic changes" as he entered the store after Super Tops had opened. He described the store in detail in his evidence, explaining a number of changes. The most significant changes were the changes in the outside decor, the presence of "massive" end displays at the end of aisles and the variety of imported Italian items. Mr. Egerton said that the meat and deli department has "changed completely" in terms of size and type of products and type of service offered. His overall impression was that the store was "totally different" in merchandizing, technique and product lines. He saw no "old customers" and noticed predominantly Italian shoppers. Mr. Teal summed up the difference by saying, "It wasn't the same store we had put in there. The four walls were the same but nothing else was similar."
Mr. Frank Palmer testified for the union. His description of the changes was not nearly so dramatic or stark as those given by the witnesses on behalf of the respondent. However, Mr. Palmer's evidence was interesting in that he had been Safeway's produce manager till the year before the closing of the Mohawk Road location. He had continued to do his personal shopping at Mohawk Road until October, 1984 when he moved his residence. Thus, he had some familiarity with the store at the time of its closing. Mr. Palmer had also been in the store before and after Super Tops opened up. Mr. Palmer emphasized that a shopper could still continue to buy basic name brand products at Super Tops. However, Mr. Palmer did note that there was a significant expansion of produce lines and noticed "more" Italian lines than Safeway carried. It was an admitted fact that Safeway had only carried four feet of shelving space devoted to Italian goods. Mr. Palmer admits that the "atmosphere" of the store had changed in terms of decor, renovation and colours. But, as a "non-Italian" Mr. Palmer testified that he did not feel uncomfortable in the store nor did he consider the store as "an Italian store for me to go shopping in."
The other piece of relevant information is that Super Tops had acquired leases for two other Safeway locations in the Hamilton area within a few miles of the Mohawk Road location. The subleases and bills of sale for those locations were completed around the same time as the deal was made for the Mohawk Road location. The only evidence regarding this is that one of these stores is intended to be similar to the Mohawk Road location. Insofar as the other store is concerned, there has been no corporate decision by the respondent as to what kind of store will be opened in that location or even when or if that store will in fact be opened by Super Tops.
The argument of the respondent is based primarily upon reliance on the Board's previous decision in Keele- Wilson Supermarket Limited, [1985] OLRB Rep. March 425. That was a case between these same parties dealing with the opening of a Super Tops store after the acquisition of a sublease from Safeway. Counsel for the respondent argues that the facts in the previous case and the facts in the case before the Board at this time are so identical that there can be no justification for a different award in this situation. In the previous case, the Board felt that there had been no sale of a business within the meaning of section 63 of the Act. Counsel for the respondent further stressed that the facts of this case indicate that an independent family business has simply expanded by taking over the idle and abandoned assets of another store after it had decided to close. Again, it was said that this did not amount to the sale of a business. Counsel also relied on the decisions in Valencia Foods, [1984] OLRB Rep. May 773, Gilham Foods, [1984] OLRB Rep. Oct. 1423 and Queensway Food, [1984] OLRB Rep. Feb. 358.
The union argued that a sale of a business had taken place within the meaning of section 63 of the Act. Counsel for the union stressed reliance on the decision in Dutch Boy Foods, 56 CLLC 16,051 in which the importance of location for a retail food outlet is emphasized. In addition, counsel referred us to the case of More Groceteria, [1980] OLRB Rep. April 486 to submit that the five-month hiatus between the closing of the Safeway store and the opening of the Super Tops store would not be enough time for shoppers to lose the habit of continuing to shop in the same area. In addition, counsel submitted that the case before this panel of the Board must be distinguished from the previous case between the parties cited above because of two factors. The first difference is that in the case at hand, Safeway had approached Mr. Chetti and offered the lease to the respondent. Secondly, the fact that Super Tops has acquired subleases for two other Safeway stores in the same general vicinity was submitted as evidence that Super Tops is in fact acquiring the business of Safeway in the Hamilton area. Thus, the Board was urged to distinguish the facts before it from the facts before the Board in the previous case between the parties (hereinafter referred to as the McDowell decision).
The Decision
There is no question that the circumstances of this case are almost identical to those before the panel in the McDowell decision. The extensive evidence heard by both panels dealing with the remodeling of the store and the difference in the marketing techniques between Safeway and Super Tops appears to be almost identical. In fact, the recitation in facts in the McDowell decision could, with a few exceptions, be fitting or appropriate as the recitation of facts to deal with the case before this panel. Thus, it is impossible to deal further with the issues before this panel without referring to the previous decision and quoting the ratio of the decision in full:
The circumstances of this case are substantially similar to two recent "food store" cases where the Board had occasion to review in some detail the relevant legal principles (see Queensway Foods Ltd., [1984] OLRB Rep. Feb. 358, and Valencia Foods, [1984] OLRB Rep. May 773). we see little purpose in repeating that analysis here. It suffices to say that we adopt, as our own, the reasoning in paragraphs 4 and 5 of Queensway and 23 to 28 in Valencia. we would only point out the ultimate conclusion enunciated in Valencia:
The lesson of the cases is that while location and premises are important elements of a retail food business, they are not themselves the business; even location and premises can be or become mere "surplus assets" which alone, or even in combination with other assets, can lack the dynamic or organic quality which distinguishes a business from an idle collection of assets....
That single sentence highlights the issue here: has the company acquired part of Safeway's "business", or has it merely acquired the right to use certain premises, formerly used by Safeway?
We do not doubt the importance of location in the retail food industry -particularly since the habit of shopping locally can be an important element of good will and can be the key to business success even if good will is not expressly recognized in the transaction by which the location is acquired. There is no doubt in this case, there are indications which, when considered in the context of the retail food industry, do tend to point towards a sale of a business within the meaning of section 63. The company continues to carry on a food business from the same location as Safeway which has effectively withdrawn from that local market. The hiatus period between the closing of Safeway and the opening of Super Tops is relatively small (six weeks). The premises and general store layout are similar.
But there are also a number of factors which point in the other direction. Mr. Chetti had no intention of acquiring Safeway's business. Indeed, quite the contrary. He already operated two ethnically-oriented supermarkets in Metropolitan Toronto and was anxious to open a third. Safeway's business, as such, was unprofitable and not worth buying.
Mr. Chetti learned of the possibility of acquiring the Safeway premises from an independent real estate agent. The company did not acquire any managerial or other expertise from Safeway. The entrepreneurial initiative, managerial talent, and employee skills were all derived from Mr. Chetti's pre-existing operations or were assembled following the sale. A substantial sum was expended so that the new store would conform to Mr. Chetti's business concept rather than that of Safeway. Mr. Chetti knew that his success depended upon expanding, serving and developing his own market which was not being served by Safeway or the other local chain stores. He was able to do this with dramatic success because he was able to bring to bear his own business organization to attract customers whom Safeway never reached. That is why he was able to instantly triple the sales volume. He was not acquiring and reviving an ailing "part" of Safeway's business. He was expanding his own business from premises formerly occupied by Safeway.
We accept the union's submission that in the retail food business location is important, and the acquisition of physical premises will in many cases be sufficient to trigger a finding of "successorship"; moreover, when a "severed part" of the business has been transferred it would be an unusual purchaser who did not undertake any new initiatives, or try to put his own imprint upon his recent acquisition. On balance, however, we do not find a sale of a business in the facts of this case. In our view, the presence of Super Tops at Safeway's former location represents the expansion of an already well-established business in which some assets of Safeway came to be used. Those assets did not alone constitute a business or part of a business, and it cannot be said in this case that the company has expanded by purchasing a competitor's business and refurbishing it. It has merely purchased some idle and uneconomic assets which it has used to expand its own successful going concern. Section 63 has no application. This application is accordingly dismissed.
The only differences between the issue before this Board and that in the previous case between the same parties are the two factors mentioned by union counsel, i.e., the fact that the acquisition of the property was done through a direct contact by Safeway rather than an independent real estate agent and the fact that Super Tops also acquired two other Safeway stores at the same time. The question this panel must then ask itself is whether these two factors outweigh all the other considerations that led the previous panel to conclude that there had not been the sale of a business.
On the evidence before this panel, we cannot conclude that the acquisition of three subleases at the same time in the same area alone can compel us to determine that the respondent was acquiring Safeway's business. Instead, the evidence before this panel is simply that Safeway had decided to close its business and direct its customers to other active locations. What the respondent simply did was acquire the "idle assets" of Safeway and use those locations to open ethnically-oriented supermarkets targeted to a specific group of customers and a completely different type of marketing strategy.
While the direct approach from Safeway to Mr. Chetti may initially appear to be an indication that Safeway was selling its business, that factor alone cannot be conclusive. In fact, on the contrary, the evidence is that Safeway had decided to close down the locations. By the time the respondent corporation had commissioned, received and reviewed its marketing studies, the Mohawk Road location had already been shut down by Safeway. Indeed, Safeway had directed its old clientele to its other locations in Stoney Creek. It was four months after the closing date that the agreement was consummated between Super Tops and Safeway and another two months later before the Super Tops store opened. This hiatus in time together with the redirection of customers by Safeway does not indicate any intent or desire to acquire Safeway ' s business despite the fact of the direct approach from Safeway to Super Tops. Instead, it indicates that Safeway, from previous experience, was approaching a potential prospect.
We agree completely with the analysis and the reasoning in the previous decision between the parties. Given the incredible similarity in facts and the identity of the parties, we can see no reason to reach a different conclusion on the facts before this panel. Indeed, there are factors in the case heard by this panel which are even more indicative of the fact that a sale of business has not occurred within the meaning of section 63 of the Act. In particular, the hiatus period between the closing of the Safeway and the opening of the Super Tops in the case at hand was over five months as compared to the six weeks in the previous case. Further, the evidence before this panel with regard to marketing and advertising is more indicative of an attempt to attract an ethnic clientele. Finally, in the previous case the Board had concluded that Super Tops had expanded an already well established business into some of the assets which Safeway had decided it no longer needed. At the time of the case before this panel, Super Tops was an even more well established business which had made the corporate decision to expand even further. While it may have acquired some of Safeway '5 assets, Super Tops only acquired assets which were of no value any longer to Safeway as a going concern. To quote appropriately from the previous decision, "It has merely purchased some idle and uneconomic assets which it has used to expand its own successful going concern".
For all these reasons, we must conclude that section 63 has no application. This application is therefore dismissed.
DECISION OF BOARD MEMBER R. WILSON;
I regret I cannot agree with the majority's decision. I find the facts are not substantially in dispute.
In its decision the majority refers to the MacDowell decision stating that the facts are almost identical. There are however differences, those being:
Mr. Chetti was made aware of this location by Safeway employees in the Real Estate Division, while in the previous case a third party introduced the location to Super Tops.
The location in this case was not the only location involved. In fact three locations were subleased all in the Hamilton Mountain Area, while the MacDowell case involved one location.
I am also concerned about the excessive use of the term "ethnic" with regard to the supposed change in the store operation. There was no convincing evidence of a strategy to serve only the ethnic community. In fact, we heard evidence that anyone could meet their shopping needs at this store. Newspaper ads, placed as exhibits, clearly could have been ads for any retail grocery store. There was no obvious "ethnic" foods. Newspaper ads also included the picture of NHL star Phil Esposito. When Mr. Chetti was questioned, the Board was told he was used because of his ethnic heritage not because of his popularity as an NHL star. Frankly, I find this hard to believe. Flyers which were distributed and the signs posted in stores were all printed in English. In conclusion, I find the use of the term "ethnic" to be overused and not in keeping with the nature of the clientele the store serves, or may serve in the future.
While there are many factors which determine the sale of a business, the most important is location with respect to a retail grocery store. This is particularly important because, although one location is the subject of this case, two others were subleased at the same time, in the same neighbourhood. Safeway has in effect withdrawn from the market area, leaving it for Super Tops.
The location referred to in this case was introduced to Mr. Chetti of Super Tops by an employee of Safeway.
The sale of chattels and equipment further indicates the purchase of a business. It matters not that Mr. Chetti needed the equipment; the fact remains he purchased it.
For all these reasons I would have found that Super Tops not only acquired Safeway's assets but the retail grocery business as well, and therefore conclude section 63 applies, finding in favour of the applicant.