OK Canada – let’s take a collective deep breath. The start of 2018 has been dramatic, with all sorts of fallout — predictable and not — from the Ontario government’s increase of minimum wage. And, with the recent release of quarterly financial results from Tim Horton’s parent company, we’ve been reminded of the public backlash against one of Canada’s most iconic brands.
That backlash resulted last month in scores of Canadians protesting Tim Horton’s stores, a development I found deeply unsettling and wildly misguided.
This is a complicated issue with no easy answers and no clear scapegoats, so Canadians seeking to ascribe blame to one single party may need to consider the larger picture. Let’s take a look at the parties involved. It may help to explain the sales decline at Tim Horton’s stores.
The decision by the Ontario Liberals to increase the minimum wage by more than 20 per cent was always going to be controversial. The abrupt spike in minimum wage hits hardest those small businesses with already thin or non-existent profit margins and whose workforce is paid almost entirely at this salary level – in particular, restaurants.
So restaurant owners are faced with some unappealing choices – reduce the workforce and risk operations and guest services suffering, increase menu prices and risk customer aggravation, or absorb the increased expenses and take even less than the razor-thin salary they were paying themselves.
Deciding on which of these uncomfortable options to pursue would be a challenge for any restaurant owner, but that difficulty is compounded for franchised businesses. They are often prohibited from making certain changes (such as increasing menu prices) without obtaining the consent of their franchisors. After all, the hallmark of the franchise business format is uniformity based on established rules, standards, procedures and protocol, which provide for a consistent customer experience throughout the chain.
Accordingly, franchisees (especially restaurant franchisees) often lack the ability to make pricing decisions unilaterally. Menu prices across the franchise system are chosen for many reasons, being supplier charges, customer appeal, target markets, competition and, of course, profitability. And, it must be said, there is nothing nefarious about a franchisor trying to structure a business to make a profit.
In the case of Tim Horton’s, some of the franchisees opted instead to take certain measures that resulted in a loss of employee wages and benefits for workers. It is possible that none of these steps would have generated headlines if not for the fact that the first such franchise operator exposed happened to be the wealthy children of the founders of Tim Horton’s. A handful of other franchisees were revealed to have similarly followed suit.
Are the franchisees at fault? No doubt, the decision by the founders’ children was a poor one – any publicist could have told them that. But setting aside their identity, we have a group of small businesses whose costs skyrocketed overnight, operating in an industry in which profit margins are slim and who had neither the authority nor the discretion to increase menu prices. Some will argue that Tim Horton’s franchises are typically quite profitable, so surely these franchisees could have withstood the hiked wages without taking it out on the employees. But since when is being profitable an offence?
So is parent Restaurant Brands International Inc. at fault? Perhaps permitting province-wide menu price increases would have been the appropriate and obvious step for them to have made. But that is not an easy decision. And would the public backlash have been any more or less muted when loyal customers found that the price of a coffee had crept upwards? And if customers voted with their wallets and sought out more economical options, how pleased would the franchisees be with the new mandated higher prices?
Certainly some chains operating in Ontario are being confronted with this difficult decision with far less fanfare and, in my view, some price increases seem inevitable.