Franchisees want to give Canada Post a licking

Martin also wants a mandatory dispute-resolution mechanism put into the legislation so franchise disputes do not invariably have to go to court. By the time a case proceeds to court, franchisees seldom have the financial resources to pursue claims, critics say.

The Toronto Star
October 11, 1999

Franchisees want to give Canada Post a licking
Some not sticking around after margins on stamps trimmed
Donna Green

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CANCELING: Carol Watson looks up a postal code in her local IDA pharmacy in Hamilton. An outlet in a sister store was closed by owner Mac Sparrow, who saysw razor-thin margins are making such neighbourhood operations unviable. Simon Wilson for the Toronto Star

Reluctantly and not without a fight, Jim Snowdon has closed his postal counter for good. For more than 55 years, Snowdon Pharmacy on Bloor St. W. has sold stamps and mailed parcels as a service to customers.

Now Snowdon says he can no longer afford to keep the postal outlet open and he thinks a lot of other franchised postal outlets across the country are not far behind him.

“I’m just a little more up on my accounting,” says the 53-year-old pharmacist, whose store has been in his family for three generations.

Last December Canada Post reduced the commission paid on stamps from 17.5 per cent to 5 per cent, in effect cutting retailers’ margins by 70 per cent.

This change, according to many postal-outlet owners, has made their independently run operations unprofitable, and in some cases has even put them into a loss position. For Snowdon, the commission changes resulted in his pharmacy having to subsidize his postal operation by $3,300 a month.

Canada has a total of 2,231 franchised postal outlets, most of them in independent small businesses such as pharmacies, card shops and convenience stores.

“We had an understanding for quite a few years, and Canada Post changed the game plan without thought to our side,” maintains Snowdon.

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His is a common complaint in Canada’s relatively unregulated franchise industry, where companies can unilaterally change the fundamental terms of the franchise contract and franchisees who have invested considerable time an money in building their businesses have to like it or lump it.

On Sept. 30, Snowdon closed his counter and laid off two long-standing employees who worked at the postal outlet. A third clerk is working full-time in the drug store, but only temporarily.

Months ago Snowdon appealed to Tony Ianno, the Liberal MP for Trinity-Spadina, the federal riding where Snowdon’s pharmacy is located.

“We put as much pressure as we possibly could on Canada Post for outlets, not just in my riding, but across the country,” says Ianno.

“Canada Post made some changes, but unfortunately not enough for everyone.”

Ianno says he is concerned that postal-outlet closings will make it harder for people, especially seniors, to access services.

Canada Post, which as a crown corporation now operates at arm’s length from the government, says the dealers got generous advance warning about the commission change.

The postal outlets are not closing in great numbers, says Canada Post spokesperson, John Caines, who maintains the corporation had to reduce the commission on stamps to put an end to black-market sales.
“Many (dealers) were going outside their area, basically opening up a suitcase full of stamps and selling them at discount prices to other businesses,” he says. “It was costing Canada Post (millions) and it was illegal.”

Critics say it is hard to understand how these sales affect Canada Post’s profits when it receives the same revenue from black-market sales as from sales by legitimate dealers. Nevertheless, such practices do hurt the sales of outlet owners.

Canada Post maintains it had to reduce profit margins to stamp out black-market sales

Still, many franchisees would agree with Clive Barrett, who owns a gas and convenience store in Fredericton, N.B., and is a postal franchisee: “To cut everybody’s throat just to get some grey-market seller is very drastic.”

Canada Post did recognize that the change would cause hardship for many of the franchisees. As a result, the corporation is giving outlets sliding-scale cash subsidies to a maximum of $25,000 a year and has increased the margins on other, less-popular services such as filling postage meters.

Yet Mac Sparrow, president of Dell Pharmacies, a chain of 14 stores in the Hamilton area, says those subsidies are not enough for small operators and amount to a pittance for big operators.

Sparrow had four postal outlets. In March he closed his lowest-grossing unit, which was doing a relatively modest $150,000 in sales annually.

“Canada Post is trying to maintain their revenue by taking it out of my pocket,” he says.

Among other retailers that have given up Canada Post franchises is Canada Safeway Ltd., which this year closed all 12 of the postal outlets the Western Canada grocery chain had been operating.

Calls requesting comment from the federal minister responsible for Canada Post, Public Works and Government Services Minister Alfonso Gagliano, were referred back to Canada Post.

Canada Post is the country’s 50th-largest corporation and Canada’s largest franchise operation. The agency began franchising its outlets in 1988. In the 1998-99 fiscal year, the corporation posted a profit of $50 million on $5.3 billion in revenue. That was the fourth consecutive year of profits for the corporation, which has made money in seven of the last 10 fiscal years.

In an expression of “core values” on the agency’s Web site (www.canadapost.ca), Canada Post says: “As a Federal Crown Corporation, we must be fair, transparent and accountable in all our dealings with our customers, employees, unions, governments, suppliers, contractors and competitors.”

That list of stakeholders does not mention franchisees, however.

Postal-outlet owners have organized the Association of Postal Franchisees, which at one point claimed to represent as many as 1,200 franchisees. The aim of the association was to lobby Canada Post and Ottawa to forestall the commission change, but the association says it had little success.

Canada Post’s response in general has been “to meet with individual owners rather than the (franchisee) association,” says Eda Irwin, the corporation’s manager of communications.

“We held extensive consultations across the country and offered to meet with all our partners.”

But franchisees complain there was never an opportunity for input.

“It’s their way or the highway,” says one franchisee, who asked not to be named.

Postal franchisees in British Columbia picketed government offices in January, protesting the new commission structure.

Problems faced by Canada Post franchisees reflect broader dissatisfaction within the franchising field that prompted the Ontario government to introduce legislation. Last year, the province tabled a bill that would protect the rights of franchise owners to form associations without fear of reprisals from the franchisors.

But the proposed rules, which also set out key, basic information about a franchise operation that must be given to a franchisee, did not proceed to a vote before the session closed.

Some critics of the bill said it was not sufficient. Tony Martin, MPP for Sault Ste. Marie and critic for small business in the New Democratic Party caucus, says the proposed requirement for financial disclosure doesn’t go far enough.

When you sign a franchise agreement, “you’re taking on a partner. You need full financial disclosure,” he says.

A common complaint among franchisees is that important information, such as how other franchises are doing, is withheld from prospective franchisees, who must then gamble that they’re being told the whole truth when they sign franchising agreements.

Martin also wants a mandatory dispute-resolution mechanism put into the legislation so franchise disputes do not invariably have to go to court. By the time a case proceeds to court, franchisees seldom have the financial resources to pursue claims, critics say.

Frequently, acrimonious disputes are settled out of court only on the condition that the terms of the settlements are kept completely confidential. In practice this may silence the most credible critics of the franchisor and permits unscrupulous franchisors to continue without public scrutiny, critics say.

According to Francon (Canada), a Toronto-based franchise-research company, Canada is the most heavily franchised country in the world. But unlike the United States, Australia and many other countries, Canada does not have widespread franchise legislation. To date only Alberta has enacted such legislation.

Fifty-six per cent of companies that sell franchises are based in Ontario. But even Ontario’s proposed franchise legislation as drafted specifically exempts crown corporations.

Meanwhile, at the empty postal counter Snowdon has a sign inviting his disappointed customers to call their MPs.


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