City of Sault Ste. Marie Public Hearing Testimony

Who knows? Franchisors and franchisees may develop a healthy and a profitable relationship rather than one that seems to be built, from everything we read, on anxiety and fear.

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Legislative Assembly of Ontario
March 7, 2000

Public Hearing Testimony
Sault Ste. Marie, Ontario, Canada
Mr. Stephen Butland, Mayor

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

CITY OF SAULT STE. MARIE

The Acting Chair (Mr Ted Chudleigh): Our first guest is Stephen Butland, mayor of the city of Sault Ste Marie. Your Worship, would you come forward, please. We have 20 minutes to spend together. You may use as much of that time in your presentation as you wish, and we will fill the remaining time with questions. Thank you very much for coming forward.

Mr Stephen Butland: I don't believe I will take my allotment of 20 minutes' time. I hope you don't ask me difficult questions, because I don't think I'll have the right answers.

The Acting Chair: Did you study last night?

Mr Butland: Yes I did. Actually I was at this at 7 o'clock this morning.

First of all, it's appropriate to welcome the committee to Sault Ste Marie. I think I have met all the faces before in Sault Ste Marie. Thanks for coming. Please come more often. We're far away and we're quite expensive to get to. I think you're all aware of that. Gas prices are outrageous and airfares are more outrageous. It probably cost you over $800 return per person to get here, and that's difficult. But we're not here to talk about the price of fuel; we're here to talk about Bill 33.

I would like to acknowledge the government for this franchise legislation. I need to acknowledge Tony Martin's efforts. He has renewed the efforts of a revered former MPP from Sault Ste Marie, and a member of the Conservative Party at that time and Ontario's Attorney General. He capsulized his rationale as: Legislation was needed to deal with the evils of franchising. Then MPP Jim Wiseman also brought legislation forward and it died on the order paper. I believe this legislation's time has now come. Its intent is to offer a level playing field. That may be a euphemism for the real issue at hand, that is, to protect the little person against the big person.

The dictionary meaning of "franchise" suggests that it's a right or a privilege to hold a franchise. It makes no reference to franchisor or franchisee. So I suggest it's a right and a privilege for both. It connotes working together in the interests of both parties. But also, more significantly, one would hope it works to the benefit of the consumer, who should be paramount in your discussions.

I offer little expertise in this area. I have not done a great deal of research into this. So I'm sure I will not say anything you have not already heard or read about. Nevertheless, I would like to proffer some opinion.

I know that legislation such as that tabled can, if implemented, impact tens of thousands of lives in our great province. There are volumes of anecdotal tragedies and it hits home on all fronts. Locally, I make reference to some large grocery chains. We lost three franchisees in our community in the last five years. It may be a personal opinion, but it's shared by many, that really they were driven from the grocery retail business. Two of those three people no longer live in our community.

In a previous political life I was involved with some of these franchisees at the federal level and quickly found out that there was no protection at any level of government. These people were scurrying at that time, right across Ontario, to come together and attempt to speak as one voice. That was nigh on impossible for them to do, and the only recourse they had was to hire legal counsel at great expense. So I have seen it at the federal level, you people are dealing with the provincial level, and there has been impact in the municipalities.

The people we lost were really good corporate citizens, and it was a loss to our community. I suspect that Mr Martin and others have recounted some of the very harsh realities as to why they left our community.

I don't want to be completely parochial, but it was, if nothing else, coincidental but also fortuitous that just last month, on February 10, we read, "Franchisor Leaves Travel Agents Stranded." I'm not here to implicate any of the major grocery chains, but in this one a couple of individuals opened a travel counter in a grocery outlet. The hierarchy is grocery chain, franchisor, franchisee. The chain did not pick the appropriate franchisor. The franchisor went bankrupt. The people in the travel agency at the grocery outlet were left in limbo. Each of them lost a $60,000 investment.

It goes on: "The 'corporate solution,' however, turned out to be an agreement with another franchisor … ," and I'm not going to name names here, "which immediately demanded a new round of franchise payments and higher royalty fees from the tapped out … " previous "franchisees."

The individual had a record of less than sound financial wherewithal. The only obvious victims of the failure were the franchisees.

"'It is not our job to monitor franchise agreements,'" says head office. "'People should go into such deals knowing that if the franchisor messes up, the subordinate franchisees automatically suffer.'" So it's almost a matter of fact. "If this happens, it's too bad. You're fresh out of luck," said the franchisee. "My mistake was to believe" blank "would be careful in its choice of franchisor and would not write us off." But indeed, they were written off.

"Franchisees should recognize that most franchise agreements give them 'no say whatsoever' in the main aspects of the business." Again, I don't want to be completely parochial. It's at the provincial level and I'm sure you're well aware of these stories.

The bill itself-and I need to thank Susan Swift for providing this individual at least, and I suspect others, a comparison chart that's very easily read and understandable. I just want to highlight a few of the items I want to note.

I think the concept of incorporating minimum standards is good. I suspect that Mr Martin's bill is more restrictive, more onerous, if you will, and I read into it, for the most part, that it's good. One thing I really endorse is this dispute settlement mechanism. I would encourage you to support that—I guess in the way of an amendment, would it be, Tony? OK. I would hope the franchisor and the franchisee could go to mediation first before they go to court, because that's a very costly exercise. I suspect it would be complex, but again I remember very well under the free trade agreement and NAFTA that there is a much-ballyhooed dispute settlement mechanism. So if something as complex as those agreements could have a dispute mechanism, I suspect this kind of legislation could as well.

I'm looking at the government bill and, as I say, I would endorse this and I think Mr Martin has gone on just a little bit more and added-is it flexibility or is it onerous restrictions? That's for you to decide. They don't seem that onerous to me, but then I'm not involved.

Under fair dealings and standards of conduct, it sets out minimum standards of conduct: good-faith dealing, enforcing only reasonable performance standards, exercising rights in a commercially reasonable manner, non-encroachment on territory, and it goes on. I suspect this should be described as flexible as opposed to restrictive.

The right to associate: I go back to the franchisees in Sault Ste Marie and right across the province at that time. They had no association. It was difficult to assemble them. There was no designated leadership and there was no unified front. I think Mr Martin is looking to deal with that in a more formal manner.

The bottom line is that the legislation, I believe, should be looked on as a positive piece of legislation. Who knows? Franchisors and franchisees may develop a healthy and a profitable relationship rather than one that seems to be built, from everything we read, on anxiety and fear.

I certainly thank you for the opportunity to make this presentation to you.

The Acting Chair: Thank you very much. That leaves us with about eight minutes of questions, and we'll start the first round with the Liberal caucus.

Questions

Mr Brown: Thank you, Mr Chair, and thank you, Your Worship. Some of us have looked at this legislation and wondered how we could make the golden rule work a little better, ie, he who's got the gold makes the rules.

It appears that this is a good step. Back in the 1990-95 Parliament, my former colleague Mr Mahoney, who has strong links to Sault Ste Marie, also offered franchise legislation. He is now in the federal Parliament, as you might know. But this is a problem here.

In Sault Ste Marie, of course, one of the interesting topics of great conversation is in terms of access to shelf space in independent groceries, for example. For the committee members who aren't from here, we have two competing dairies, which is a good thing, both attempting to have their product offered for sale in various retail outlets. I wonder if you could indicate, from the city's point of view, how that is impacting on the consumer. When it all comes down to it, this is really about consumers, at the end of the day.

Mr Butland: Thanks for that question, and please give my regards to Mr Mahoney. I wasn't aware that he also had tabled legislation on franchising.

The dairy issue in our community has met with some concern from some individuals that we are promoting one dairy over another, and we are not doing that whatsoever. We are just looking for that level playing field. If shelf space is available to one, the other, or the three or four of them, should have an equitable share of that shelf space and not be restricted.

The specific example is that the totally local dairy had, I think, about 10% of shelf space and was selling a full 40% to 50% of the dairy product off that limited shelf space. That is probably good from the operator's perspective, but the store operator was saying, "We have to fill the shelves every half hour, and it has to be delivered to the store on a regular basis." So it's a major inconvenience to the operator, to the grocery retailer and to the consumer who is going into the store saying, "I want to buy this product." Yes, the consumer is of primary concern. Again, we are not looking to pit one against the other, but just to make it a level playing field.

Mr Tony Martin (Sault Ste Marie): Thank you for coming today, Steve. It's certainly good that another voice tells the Sault Ste Marie story for this concern. That is where I started to be concerned about franchising and regulating that industry. You make the point about three franchisees. We had three very dramatically public debacles as far as franchisees are concerned. I would guess there were probably hundreds of others in that five or six years who have struggled in one way or another. Some are gone; some struggle on. And who knows their stories as they try to do business, as they try to be good business people and good corporate citizens in this community? I am told that 75% of new franchisors die as the system evolves, and with them their franchisees, because one is tied to the other-you talked about the story in the paper.

What I want to get to today is an issue that I think will be a bit of a theme, which Mike has already introduced, which is the question of sourcing, of franchisees' ability to not be tied to buying from the parent company but to source product where they can get it at a competitive price and in that way help themselves in terms of their profitability and success and also help out local economies. In the north, local economies are getting killed at the moment, and I think part of the problem is that most of the deals are cut someplace else and most of the supply comes from someplace else, and that doesn't leave much room for our small local producers to get their materials on the shelves.

I have a number of articles-I was doing this all day yesterday-some more research that Susan Swift has done for me on just that issue. There is quite a bit of information out there. One is an article by Joseph Thompson on sourcing and pricing, "Anti-Trust Developments in Franchising." I'll give everybody a copy. Another is a summary of an article on purchasing supplies by franchisees, with some interesting commentary as well, most of them raising the same issue: Why can't the local franchisee source-supply where he can get it at a competitive price and help out local economies, because if a local economy is healthy, chances are they'll be more successful?

I've got about three or four different pieces of information here that I will give to the committee and leave on the table over here for anybody else who wants copies. But maybe you could talk a little bit, Steve, to us today. We'll have three dairies in particular coming before us. I'm not sure if you know the story about My-T-Fresh Eggs, but they no longer exist. Maybe you could share with the committee that story and how it impacts the local economy here, because you were the MP when Beatrice left town.

The Acting Chair: We're coming rapidly to the end of our time. A brief comment, please.

Mr Butland: The corporate giants in the dairy field we've all read about recently, one perhaps controlling 50% of the world's distribution in dairy products. The bigger they get, the more difficult it is for the local to survive in that marketplace. I guess what Mr Martin is getting to is the theme that if we can't support our own local industry-because we in northern Ontario are very much interdependent and look to support one another. It's not much of a comment, Tony, but thank you.

Mr John O'Toole (Durham): Thank you, Your Worship. It's wonderful to be in your great community and good weather.

I suspect that the important thing for us is to, in a general sense as people looking after the welfare of your citizens-and I think it's the same responsibility of this government, and I think that's the intent. I respect the fact that, whether it was Mr Mahoney or Wiseman or Martin, there have been attempts by previous governments to examine this rather faulty area for doing business. Are you convinced, just with a quick look at Bill 33, that the three fundamental goals or objectives of disclosure, fair dealing and the right to associate are a very good first step to ensure some sort of fairness in the marketplace for new people in business? Disclosure is an important part of the whole thing, and the right to associate, the experience of others who are more **experienced, can avoid a lot of pitfalls, I think.

Mr Butland: The answer is yes.

The Acting Chair: I appreciate that. I think a background as a federal MP I appreciate even more. Did you have a very brief comment or question?

Mr Raminder Gill (Bramalea-Gore-Malton-Springdale): No. My question has been covered by Mr O'Toole.

The Acting Chair: Your Worship, thank you very much for joining us this morning. We certainly look forward to spending the day in your marvellous community.

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#P28_3177

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


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Risks: Ontario Public Hearings, Canada, 2000, Anti-trust violations, Tony Martin, Local suppliers with no shelf space, Tony Martin, David and Goliath story, Fear, Canada, 20000307 SSM Mayor

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