Peter Gass Public Hearing Testimony

…franchises should grant franchisees more flexibility in purchasing agreements so that each franchisee could be sensitive to local consumer demands. If pricing and quality prove to be competitive, it is reasonable to assume that consumers would prefer to support their local employment base by welcoming these products into their area supermarkets.

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Legislative Assembly of Ontario
March 7, 2000

Public Hearing Testimony
Sault Ste. Marie, Canada
Mr. Peter Gass, Mrs. Jersey’s Dairy

Standing Committee on Regulations and Private Bills
1st session, 37th Parliament

FRANCHISE DISCLOSURE ACT, 1999
Consideration of Bill 33, An Act to require fair dealing between parties to franchise agreements, to ensure that franchisees have the right to associate and to impose disclosure obligations on franchisors

MRS. JERSEY'S DAIRY

The Acting Chair (Mr Ted Chudleigh): Our final witness is Peter Gass, from Mrs Jersey's Dairy. Welcome to the committee.

Mr Peter Gass: Mr Chairman, ladies and gentlemen, thank you for taking this first step in addressing some of the problems that exist in the food-processing sector here in northern Ontario.

We're a sort of unique situation. We are probably the smallest dairy in Ontario. Before we opened our doors about a year and a half ago, we realized that it was going to be very difficult to even hope to gain any access to supermarkets. What we did with our dairy is that we have an attached retail section in the front of it. We have a full line of products we make as well as other products, usually from smaller, unknown dairies or from other suppliers that have difficulty getting their products into the supermarkets. We really try hard to have locally produced food in our store.

Mrs Jersey's Dairy, located in North Bay, Ontario, has been in operation since August 1998. We receive cow's milk and a small amount of goat's milk from local area dairy farms, and process both types of milk separately at our plant. We have an adjoining retail store. We are a very small operation, less than a million litres of milk per year, as opposed to some of our larger multinational competitors such as Parmalat, processing 100 million litres or more per year.

Like our competitors, we recognize that our profits are in milk by-products such as yogourt, sour cream and ice cream. Our slogan is, "Taste the local freshness." It reflects our belief that the milk produced on dairy farms in the near north, with the availability of the fresh air, grass and water of our region, and processed locally by qualified dairy plant personnel, provides both a top-quality dairy product for the consumer and employment for the people of our region.

We market 80% of our fluid milk, yogourt, sour cream, butter, buttermilk, whipping cream, coffee cream, ice cream and novelties to the public through our own retail outlet. The remaining 20% is distributed through wholesale outlets in and around the immediate area. These small stores come to us directly and pick up their milk themselves. We don't even own a milk delivery truck.

While this arrangement suits us at the present time, we wish to voice our concerns regarding the legislation under review with the Franchise Disclosure Act, since it has been referred to a standing committee. After visiting with the management of each of the eight supermarkets in the city of North Bay, with our population of 57,000, we have a clear understanding of how corporations pay big money in exchange for exclusive rights to supply their products to grocery shelves. Management of these individual franchises told us that these exclusive contracts result in money back on large orders which then can be passed on to the consumer. With consumer demand for lower prices, these large contracts make sense for all concerned.

We do not support increased government regulation of supermarkets. In our opinion, franchises should grant franchisees more flexibility in purchasing agreements so that each franchisee could be sensitive to local consumer demands. If pricing and quality prove to be competitive, it is reasonable to assume that consumers would prefer to support their local employment base by welcoming these products into their area supermarkets. In the North Bay area, all eight supermarkets carry fluid milk and a range of other dairy products that have been shipped in from hundreds and hundreds of kilometres away. Our processing plant receives milk from 30 kilometres away and can have it processed and on the shelves the next day. It just makes common sense that for both health and employment reasons, this is a great deal for the local consumer. It is our hope that marketing locally produced goods will be an option made available to supermarket franchisees in the near future.

One of the nice things about owning a small business is that you get to do all of the jobs. Yesterday I was in the plant processing milk and two weeks ago I was able to go out and visit all of the supermarkets. I would like to just briefly review each of the comments that was made to us as we visited the various supermarkets. I won't mention any names - we weren't thrown out of any supermarkets - but I'd just like to summarize some of the comments.

The first supermarket: If his competitors carried our products, perhaps his head office would consider allowing some space on the shelf for us. Corporations pay big money to have exclusive rights and this is how this particular supermarket operates. I won't mention the brands that they carry. These were comments that were made to us and we recorded them, hopefully in an unbiased fashion.

We visited another supermarket. He called head office right away concerning carrying our yogourt and sour cream, and was told first of all to get a price list from us. Then we asked him what he thought our chances were of getting into their shelves, and his reply was "fair." You don't know until you go through the procedure. We haven't got back yet with the price list; we just wanted to get an idea of what the climate is out there.

We have a particular franchisee who, in his first year of operations, was bound with his contract. He said he'd have more freedom in August 2000. He's happy with the franchise arrangement. Exclusive contracts result in money back on large orders which he can pass on to the consumer.

Another store here: locked into a franchise agreement and no chance of even getting into the door. For this store, controlled by a large supermarket chain in Ontario, the sale of milk is a particularly sensitive issue. There is little if any profit in fluid milk. The profit is in other dairy products. They sell a large volume of yoghurt. Most of their ice cream sales come from an independent ice cream manufacturer. If they had great customer demand for our products, they would approach head office but it would require a great deal of local demand. He felt it was highly unlikely that one of their dairy products suppliers in the store family would agree to giving up any part of its market share to a small, locally owned dairy.

This particular supermarket mentioned that the two suppliers give financial favours in exchange for exclusive carrying privileges. These corporations make their dollars in products other than fluid milk. He doubts that these players would be open to the idea that this store would carry another brand of yoghurt or sour cream. We could make a presentation, submit it to him and he would present it to head office. He did not want to get our hopes up high; he thought our chances were very slim because of deals done in high places.

This particular supermarket, a quick response: "I can't. I'm locked into a franchise agreement, a purchasing agreement with our supplier."

Those are some of the comments just directly talking to managers or assistant managers. This is what the climate is like out there. As you can see from these comments, price or quality have very little do with whether you can get your products into the supermarkets. Deep pockets and connections to supermarket corporate head offices have everything to do with getting your products on to the supermarket shelves.

In conclusion, I would like to address these closing comments to any supermarket representatives who might be here today. If you're not from northern Ontario, you're probably quite amazed at the tremendous space that we have between our communities. You also should be aware that most northern Ontario communities are struggling just to maintain current population levels. Our jobless rate is high. Each day, our brightest and youngest people are leaving for better opportunities in the south.

If you look ahead just five years down the road, I ask you, where will your future customers be coming from? Our small dairy in North Bay has been able to create seven jobs since we opened our doors. Seven families now have income and purchasing power and are remaining in the city of North Bay. They all buy their non-dairy products from our local supermarkets. If we could just get into one supermarket, we probably would hire two more full-time people and there would be two more families shopping at our local supermarkets. I believe without a doubt that it just makes good business sense for our local supermarkets to try to support northern Ontario food processors and allow their products on our supermarket shelves. Thank you.

The Acting Chair: Thank you very much, Mr Gass. That leaves us about three minutes per caucus and we start with the NDP this time.

Questions

Mr Martin: I want to thank you for coming. I know from your presentation how difficult it must be for you to get away for a full day like this, given all the jobs that you have to do and the effort that you are obviously putting into making a success of your business. We appreciate that.

You're one of the people who is going to make the economy of northern Ontario work. In my view, if we can help you as a government by creating level playing fields so that you can get into the market, consumers can have a choice and you can make some money and hire some people and do all those things that you've described in the ending of your presentation.

The economy of northern Ontario is quite self-contained and interconnected. Each of us depends on the other. We almost exchange services with each other. Where some outside entity changes that or takes too much of the money out, we're affected in a very serious way. I've suggested already today that this issue is key to any economy we're going to have in northern Ontario. The member from Algoma-Manitoulin correctly says that it's not just franchise stores; it's big corporate stores too, because the same policies are in place. So even though the provision that I'm suggesting in Bill 35, which I have tabled, will be tabled as an amendment to this bill or some variation thereof so that we can solve this problem and will go a ways, there's a lot more that needs to be done.

I commend my colleague Carmen Provenzano at the federal level for taking this to the federal Competition Bureau, because he's absolutely right there. We need to do that.

Have you had a chance to look at all at section 5 of Bill 35 and to consider it?

Mr Gass: You'll have to forgive me. I haven't really had a lot of time to review that. I'm sort of an anti-government-type person.

Mr Brown: So are we.

Mr O'Toole: A lot of us are.

Mr Gass: I believe that if you were to bring the corporate heads of the supermarkets here with our northern food processors, within a day or two we could have this problem corrected. We could do it much more quickly than this committee, probably much more inexpensively. I don't think they're really aware of the problems. I don't think they are aware of the geography that we have up here. We're not their enemies. I sometimes think that food processors are considered to be an enemy of the supermarket, and I don't know why. But we can work together with the supermarket. Instead of saying, "Let me see you undercut Beatrice," why don't they say: "This is what we're paying now. Can you meet this price or can you do better?" Let's work our way backwards, because we can create 10 or 12 jobs in our community. That's what's going to solve the problem, and they don't seem to understand that; I'm not quite sure. But I believe if they were here and aware of the situation, that would be the way of getting this corrected.

The Acting Chair: I spent 35 years in the food business and, believe me, they understand.

Mr Gass: You might need a large stick.

Mr Martin: I'd like to go on the record here this afternoon as being a person who believes in government and believes that government has a role to play, and a very important role to play, in regulating markets and making sure that fairness exists in a marketplace and in communities.

We're here today because the big guys have been beating up on the little guys in the franchising sector of business. We have a couple of books here of stories that have shown up over the last five years in major news outlets across this province, some 4,600 families who have been damaged because the big guys will not play fair ball with the little guys.

I suggest to you, and I say this with all respect, it might be naive to think that you could bring the big guys to the table and convince them they should be doing something different. We're trying that right now in the gasoline industry and it's not working. Even Mr Harris can't get them to the table, and I think he's their friend. So that's an issue.

This is an opportunity now for us to do something, to do the right thing. With your encouragement, having had your presentation, and Mr Gill has suggested he's willing to look at it, we might look at that section of Bill 35 or the recommendation that was made by Mr Buchanan earlier that maybe there's something else we might do. But we need to do something on this issue, or else the economy of northern Ontario is going to be hurt and families who are now doing business will find themselves not able to do it any more.

The Acting Chair: For the government, Mr O'Toole.

Mr O'Toole: I can hardly hold myself back from responding to your being sort of anti-government. I suspect we would all have some response to that, although it's not particularly on topic.

But I do think the agricultural sector, which in my riding of Durham is an important sector as well, are gifted with being entrepreneurial and inventive. We've seen that with many of the presenters here today, much like yourself, from the dairy and egg industries. So I understand that. You don't want government; you want government to get out of the way. I think if you were talking to the Premier, he'd say: "We're not government. We're here to change government."

There's more to it than just that, and that's why this bill, after three successive governments, is actually here being discussed. You will not have it all one way or the other, and we all collectively, including Mr Martin, are trying to find a balance. Many presenters would say that balance is there. I know as a member of this government we will entertain improvements. That's why we're here. So your input is very important. It is a slow process to change the rules of the marketplace.

That's more of a statement in respect to your taking the time today to come and put a face to small business. We've heard a couple of things where I would encourage you, through the Ontario Milk Marketing Board and others, collectively, with the weight of your organization, to engage the supermarkets in dialogues within the regions of this province. The government can't do it on its own.

We've struck out to achieve three things: disclosure, which is bigger than you think. There again, there's due diligence required in that piece, on both parts. I think the right to associate and disclosure together - that is, all of you together, talking to the associations that now have a legal ability to exist, the IGAs or whatever it is, and talk about their common problems of supply - together with the fair dealing provisions which will be strengthened over time is a framework to improve something that we heard from a previous presenter has been around historically from the time of the former member here, who was the founder of the Grange report. It really goes back to the 1970s, talking about reforming the Franchise Act. So here we are. We're going to do it. It's Bill 33. We're listening. We are prepared to make amendments, and your input and that of the others who appeared here today could be germane to dealing with the one issue of the supply aspects of franchise operations.

Thank you. If you want to respond, feel free.

Mr Gass: I believe this is certainly the first step. As I said, I believe we could accomplish a lot with having all parties here today. We could move this along more quickly, I believe. At the end of the day, you have to have a very practical, workable solution to the problem. If you legislate supermarkets to do something, how is it going to work? Is it going to work, or are they going to follow the letter right to the T? At the end of the day, are we going to create a mass of bureaucracy that might take six months to solve a little problem? I'm afraid of that part of it.

Mr Brown: How long ago did you found this business?

Mr Gass: About two years.

Mr Brown: You've made remarkable progress. We're talking about milk distribution, but if we were dealing with breweries, you would probably be able to get your product onto the shelves of the local Brewers Retail, I would guess, even though that's owned by the large beer corporations. You would be, I guess, a brew pub or something in that sort of scheme of things. What you need is, and we've heard it from the other dairies, the assistance of just having a level playing field. I can't help but in my own mind come to the conclusion that the other commercial considerations that are being put forward here, buying shelf space etc, can't be quantified in terms of price per litre, and that you have every opportunity to be just as competitive as the others. I'm not going to make a speech, unlike my other two colleagues.

Applause.

Mr Brown: That was my own people applauding.

Mrs Boyer: I thank everybody for your comments. I think you sort of wrapped up what I've heard today from about everybody who came in to talk. I can see the northern region is different because of the geography and everything. I think we'll have to look into putting something in this bill that gives the ability and the possibility for buying local products from the people.

Another thing that was common to all presentations was the guarantee of shelf space. That seems to be fair, and that came out of everything. So you're wrapping up with your comments what we've heard today. I'm really anxious to see if you're going to get answers from those head offices of the supermarkets that you've visited. So good luck.

Mr Gass: Thank you.

The Acting Chair: We appreciate, Mr Gass, your coming in to make your presentation. It's a very appropriate one.

This document is a verbatim copy of this witness’ oral testimony. To review the original transcript: http://www.ontla.on.ca/web/committee-proceedings/committee_transcripts_details.do?locale=en&Date=2000-03-07&ParlCommID=1&BillID=&Business=Bill+33%2C+Franchise+Disclosure+Act%2C+1999&DocumentID=19726#P604_217937

Copyright (c) 2000
Office of the Legislative Assembly of Ontario
Toronto, Ontario, Canada


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