Good afternoon, and thanks for inviting me to be part of your presentation. Thanks for coming to the north as well.
As the head of Canada's largest and oldest northern enterprise, and as someone born and raised in the north, I am keenly interested in development issues affecting the region.
By way of background, as you may know already, we're a Canadian-owned retailer based in Winnipeg. We're publicly traded. Our units are held on the TSX. We're owned by thousands of individual investors, over 600 employees, and several investment funds, including a few aboriginal capital funds.
Today we operate 227 stores across northern Canada, Alaska, western Canada, the Caribbean, and the South Pacific. In Canada, our stores trade under the names Northern, Northmart, and Giant Tiger. Internationally, they trade under the names AC Value Center and Cost U Less. Our annual sales are approximately $1.5 billion, and we have 7,000 valued associates.
About 75% of our business is derived from food sales and related everyday products. The remainder is spread across a very wide range of general merchandise, from housewares to hardware, sporting goods, outdoor gear, appliances, and electronics.
We also offer financial services and health care services, from pharmacies to doctor recruitment.
North West is a significant investor in the Canadian north. We are the largest private sector employer of aboriginal people in Canada. Our total capital employed in the north is approaching $300 million, and our employment base in the north is 3,400 people. In addition to this direct local investment and local employment, we spend approximately $75 million a year on local services, including local freight.
While size has its advantages, for us, the success of our enterprise depends on community partnerships. We're a partner with over 40 commercial enterprises in the north, mostly aboriginal entities. We've entered into similar arrangements in Alaska and in the south. The most common agreements are store leases, but we also have non-retail partnerships. The most notable might be our shipping joint venture with three regional Inuit corporations serving the eastern and central Arctic.
Our approach to retailing is community-based in other ways. Our newest stores feature innovative green technology—one in particular in Labrador has been recognized as a leader in cold weather construction technology as well as managing efficient operating costs.
Our sponsorship of healthy living initiatives has raised over $1 million in the past eight years, and we spearheaded northern marathon teams. The idea here is that we have teams of up to 25 runners that come from the north and enter international marathons. They're part of Team Diabetes Canada. Most of these runners and walkers return to their home communities and are ongoing role models of healthy, active lifestyles.
Turning to northern development as a whole and our own direct investments specifically, we consider three elements as being critical when we consider where we're going to spend our capital and how to expand our business. Those are capacity, infrastructure, and business climate.
By capacity, I refer to knowledge and skills of the local workforce. Our industry, like the broader service sector, is people-intensive, with increasing enablement by technology and new work processes. We don't mine for minerals; for us, people are diamonds, and finding the best ones is all about our ability to grow and sustain our business.
Recently, we analyzed the correlation between the stability and capability of our local store teams and our sales in these different communities. We found, maybe not surprisingly, that the more stable and qualified our staff, the larger the store, the more local sales, and the higher the value of the wages and employment that was being generated by that store, the greater the capture of dollars that would otherwise leak into the south.
I use this example as a proxy for the entire service centre in Canada's north, which in general is severely underdeveloped. With more capacity, we envision a myriad of import substitution services that are otherwise more expensive or inconvenient to source from the south. Some possibilities are environmental services; expanded financial services, including insurance lending and income tax preparation; and facilities services, including equipment maintenance and repair. Just as a side note on that, the cost for us to repair equipment in a place like Pond Inlet would range between $5,000 and $10,000. At one of our Giant Tiger stores in Winnipeg, it would be under $500 for the same repair. So there is a gap there that you could fill with local talent if the capacity existed.
Local prescription drug dispensing through technicians is another opportunity. There is legislation in B.C. that enables this. We don't have it in the north right now.
Nurse practitioners and other sub full-position, qualified but still approved, health delivery models are also a possibility.
When we look at infrastructure, as you can imagine, we're talking about transportation, water, power, roads, broadband, schools, and health facilities. The challenges, as you've heard already and you know, relate to cost, reliability, quantity, and quality. We understand as much as anyone that in this environment it's complex, it's remote, and the climate can be harsh. But too often we think that's an excuse to justify mediocre performance—and I'm talking about our own organization. We believe northern infrastructure has to be benchmarked against the world, not only against other remote areas of the world. As well, the region's high costs, whether measured by productivity or cost of living gaps, need to be continually highlighted for attention and not misconstrued as a way of life.
All-weather roads, improved seaports, airports, more frequent and reliable air access, and technology that enables more housing stock per dollar of investment, as well as greener living practices, are all practices that would have a direct impact on the cost and quality of life and on the capacity of the region to compete.
The business climate, lastly, refers to other policies that affect direct local investment. I'm going to highlight a couple of them here and then wrap up.
In general, we find it to be a hit-and-miss proposition in the north. As one example, in Nunavut Territory we have an investment on the ground of $100 million and we employ 900 people, but when it comes to bidding for government contracts, we are considered a southern company with practically the same status as having invested nothing. So you can imagine that's not a policy that encourages a company like ours, or any other non-Inuit-owned service provider, to invest more in the north. In fact, it's a decision that helps, we believe, non-investment in the north because you can compete from the south just as easily as we have in the north.
The second area that's under review now that I'll highlight briefly is the food mail system. We've entered into an alliance with the other two large retailers in the north—Arctic Co-operatives Limited and La Fédération des coopératives du Nouveau-Québec, or FCNQ—and proposed different rules that would help in terms of streamlining.
We've identified up to 20¢ a pound inefficiency by the product running through the post office system at select entry points instead of having us manage the freight efficiently. There is a lot of waste and spoilage, as you can imagine. A 40-pound case of bananas can cost up to $4 a pound. The case alone is $4 and the shrink wrap alone could be another $5, and you have to wrap it, etc. When you turn it over to the post office and leave it there for a few days, it's not the best system.
I just point that out because we'd like to see a good outcome. We're not sure what the best answer is, but we've proposed that we be compensated based on the weight that we ship, and there can be an audit procedure. What we're proposing, really, is simplification and letting the businesses run it as efficiently as possible.
I don't want to end my remarks talking about barriers to development. I would say with confidence that these challenges still open us up for much potential for growth in the northern economy. You'll hear a lot from the natural resource industry, but looking at the service sector specifically, our company itself is a business that started in the north many hundreds of years ago, but more recently in the past 20 years we've grown internationally.
We've taken and leveraged our skill and knowledge of community retailing, cultural adaptiveness, and our remote market logistics to grow around the world. The key, we believe, has been the capacity of the people, putting people first, and then sizing up the gaps in a global context, whether measured by education, infrastructure, or the fairness of the business climate.
That's the end of my presentation. I'd be happy to answer any questions.
