Photo: Courtesy of MEGA Brands

Toy Story – How MEGA Brands Turned Canada Into a Mega Capital for Toys

Photo: Courtesy of MEGA Brands

Photo: Courtesy of MEGA Brands

Montreal is well known for its vibrant and playful atmosphere. But not many realize it is also the playground for the biggest toy factory in North America and ninth largest toy company in the world.

Tucked away in an unassuming industrial park is MEGA Brands, a modern sprawling plant—decorated with candy colours and motifs in its signature interlocking blocks.

The blocks come in large size for toddlers—in which the company is a world leader—and medium and small sizes for older children and even adults.

The plant is buzzing with activity—some 150 artists, designers, engineers and other specialists are busy creating new themes, characters and technology to produce the company’s interlocking-block construction sets and collectible articulated figures.

3D printers output prototypes of new blocks and characters, while expert builders create toy-size and life-size models.

A trolley with visiting students—invited here to test new products—crosses the plant floor. They travel along a wide corridor of high-tech mould-injection machinery, which uses about 5,000 different plastic moulds every year.

The company also boasts the most advanced block-counting equipment on the market. This is a relatively new invention, adapted from the pharmaceutical industry for sorting pills. It enabled the company to repatriate much of this previously manual work from China.

“Over half of our MEGA BLOKS construction toys are now made in Canada, and all are designed here in Montreal,” says Bisma Ansari, marketing vice-president.

GLOBAL PLAYGROUND

Fun With NumbersThe company also owns an arts and stationery division, branded Rose Art®, as well as divisions that produce puzzles, presentation boards and writing instruments, all based in the United States. It also has offices in Europe, Mexico, Australia and Asia.

Some 50 per cent of MEGA Brands’ sales go to the U.S. and the rest globally, with strong market shares in the UK, Mexico, Australia and France.

The company also has licensing agreements with some of the top toy and gaming brands—such as Mattel’s Barbie, Activision’s Skylanders, and Microsoft’s Halo—mutually contributing to their popularity.

“Our products are now sold in more than 100 countries,” says Marc Bertrand, president and CEO of the company, who runs it along with his brother Vic, chief innovation officer.

“The idea that originated with our parents Rita and Victor (combined to form the original name RitVik) nearly 30 years ago gave birth to a global brand,” adds Bertrand with pride.

“The genius of my parents was to see the potential of construction play in child development practically from birth. They were the first to introduce big construction blocks. That was the genesis of MEGA BLOKS in 1985.

“In the preschool category, MEGA BLOKS is now the number one building toy in the world. And for the over-five-year-old set, we are a solid number two. We entered that category in the 1990s after the expiry of LEGO’s patents.”

SOME PARTS NOT FUN

Photo: Courtesy of MEGA Brands

Photo: Courtesy of MEGA Brands

As much fun as toys are, they make for a tough business.

Several years ago, MEGA Brands faced its most difficult challenge following the acquisition of a U.S. firm that owned a product line that was recalled and discontinued. Throw in the 2008–2009 recession and the company’s very survival was at stake.

In 2010, Mega Brands was able to restructure its corporate equity and debt with the help of several key investors and lenders, including EDC.

“Looking in the rearview mirror, the key lesson for us was the importance of brand. In the final analysis, the strength of our MEGA BLOKS brand convinced investors to back our restructuring plan and allowed the company to pull through,” says Bertrand.

In 2012, MEGA Brands saw its total revenues exceed $420 million, up 12 per cent over 2011. The company is aiming to reach a half-billion dollars in 2014, says Bertrand.

EDC has supported MEGA Brands with accounts receivable insurance for more than a decade, he adds, and participated in the financing for its successful acquisition of Rose Art in 2005.

“EDC continued to support us through our difficult years—covering problems with our U.S. and international accounts—and was very helpful getting us through our liquidity crisis in 2009, which culminated in our successful restructuring in 2010.”

INNOVATION, INNOVATION, INNOVATION

Innovation is to MEGA Brands what location is to real estate.

“We replace 40 to 50 per cent of our product line every year—adding new characters and themes,” says Bertrand. “We also invest up to four per cent of sales on R&D each year. That puts us in the top 100 companies in Canada in total dollars spent on R&D.”

The company maintains its leadership and export success in three other key ways, adds Ansari.

1. PRODUCT INNOVATION

“We integrate new play patterns in our construction products. For example, our new “MEGA BLOKS First Builders Billy Beats Dancing Piano” for toddlers combines construction with music and dance,” says Ansari.

“All our building toys have features that encourage developmental benefits and post-building play.” This includes buildable micro-action figures, with more details and articulation than any competitor’s, to drive the interests of collectors—from child to adult.

2. UNIQUE CONTENT

Through a portfolio of evergreen and trendy licensing partners, MEGA Brands products complement other activities, such as online games, videos and television shows.

3. SMART VALUE

“We also balance great quality with good value (in pricing), to offer consumers smart choices.”

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