The outrage

Updates. Some scary.

The Poloz Plop
Will the boss at the Bank of Canada chicken out of a rate increase next Wednesday, even after he read yesterday’s blog? Maybe. As Canada launches a big trade complaint against the States, the word out of Washington is that the Trumpster is about to spike NAFTA – something which has already been communicated to Mr. Socks.

That was enough to knock the loonie back under 80 cents US, and send Government of Canada bond prices skedaddling higher as yields fell and more money migrated into safe places where it could spoon and quiver. Of course, a dead NAFTA is bad news in a country where exports to the US make up 20% of the entire economy.

Well, just a day or two after all the banks came out and said, yeah, fer sure, absolutely, up she goes, American protectionism could change everything. Of course, no rate change would be cheered by a wobbling housing industry and 100,000 realtors. Until they see what happens to jobs.

What the 1%ers Know
So sales of high-end houses tanked in the second half of 2017 in the Big Smoke. Sotheby’s has just revealed a staggering 56% drop in deals worth between $1 and $2 million in the last six months of the year compared to the first six. The more the real estate was worth, the harder it was to move – with a 62% drubbing in the $2-4 million range.

The company somewhat blames a lack of inventory for the drop, but stats show the opposite – more homes $2 million+ hitting the market. So the problem is buyers, not sellers. While condo sales boomed in the GTA (as in Vancouver), detached sales wilted and 1%er houses were absolutely shunned, as that group abandoned real estate.

Does this tell us something? It better. More well-heeled people trying to sell. Fewer wanting to buy. And a lot more wealth going into financial assets. They didn’t get rich being stupid.

Nightmare on Tim Street
When they write the next book on corporate cockups, Timmies will be there. Quel mess this iconic brand has stepped in. Enraged moisters have been Tweeting, Facebooking, Snapchatting and texting their way into a frenzy over ‘greedy’ neighbourhood donut barons and the ‘exploited’ people they employ. As always in war, truth is murdered first.

The issue started with Ontario’s blunt law forcing every small business to jack the minimum wage from $11.60 to $14 now, then $15 next year. Proponents say people need more to live on and paying them any less is exploitation. Critics say government has no right to dictate wages, or raise them so arbitrarily without regard to business conditions and the move will bloat overhead leading to job losses, reduced hours and slashed benefits. Which is exactly what happened. Too bad the poster children for this came to be Ron Joyce Jr. and his Horton wife, family members of the dynasty which founded the donut empire.

They run two franchises in east-end GTA, are small business operators, and decidedly not billionaires. But lost in the social media outrage at their cutting employee benefits was the fact Timmies was sold by the family years ago and this is a story about entrepreneurs vs the government, not oligarchs vs workers.

Anyway, it’s lost. Nobody cares to know that franchisees take a big risk and work a long time to gain rewards without actually owning anything (they just rent a license). Instead it’s the story of a giant chain of profitable stores being too cheap to give its tens of thousands of employees a living wage. However the owner – Restaurant Brands International – does not employ any of those Timmie workers now in peril as their shops are texted to death. Instead, they all work for the people who ‘own’ that location.

So, regardless of which side of this debate you’re on, here are some facts:

To apply for a hard-to-get franchise requires $1.5 million in net worth and $500,000 in liquid assets. The franchise fee is $50,000 and in addition there’s a cash requirement of between $430,000 and $480,000, plus tax. Then you need another $50,000 in working capital.

Of gross sales, which average about $1.5 million a year for an established location, there’s a 4.5% weekly royalty fee, a monthly rental fee average 8.5% of sales (the real estate is owned by the company, not the franchisee) and a monthly marketing fee of 4%. In other words, about a fifth of all revenue goes to head office. Then you start paying regular operating expenses, including ingredients and supplies – which must be purchased from the franchisor at prices which it sets, controls and increases at will. Labour is a giant component, which is why the wage increase has caused an uproar.

The bottom line is that of $1.5 million in gross sales, the net is between $175,000 and $300,000, which is taxable income. To earn that, the franchisee invests a lot of money but doesn’t actually own anything, since the 10-year Tim’s license can be revoked or not renewed. Meanwhile, of course, he has to run a fast-food restaurant which is likely open 18 or 24 hours a day, make grumpy customers happy, clean the bathrooms and find enough employees to keep the doors open.

Glam, it ain’t. But Tim’s operators are the rich ones in an industry where 51% of all restaurant owners make less than $50,000 – sometimes employing wait staff earning more than that in tips.

Well, one thing looks likely. That Joyce kid can kiss any inheritance goodbye.