The man who wrote the book on Tim Hortons has weighed in on the controversy brewing at Restaurant Brands International Inc. (TSX:QSR)(NYSE:QSR) and its handling of the Ontario minimum wage hike.
If you’re a small business owner in Ontario, I feel your pain.
However, running a business based on low wages is a recipe for disaster. Companies that play this game ultimately lose regardless of whether a minimum wage is imposed by the government.
Pay peanuts, get monkeys, goes the saying.
Author Douglas Hunter, who wrote Double Double: How Tim Hortons Became a Canadian Way of Life, One Cup at a Time, appeared January 4 on CBC Radio’s As It Happens.
Hunter had some interesting observations.
“Canadians have kind of gotten a bit addicted to a low-wage economy. We like our cheap coffee. We like our cheap donuts,” Hunter said. “And the reality is we’ve allowed a sector of our economy to be run on this sort of precarious basis on the workers’ side. And I would like to see that change. I think most Canadians would like to see that change.”
What the Tim Hortons franchisees are doing to their employees is entirely offside; I said as much in my January 4 article on the subject.
Why?
Raising prices is the best option
A decent business would merely increase prices by a dime or 20 cents. That’s what Starbucks Corporation (NASDAQ:SBUX) does. Unfortunately, Restaurant Brands International (RBI) isn’t following suit, opting to force franchisees to cough up the money and in the process putting employees in a worse financial position than they were before the wage hike.
Starbucks prides itself on providing a living wage to its employees, whether in Canada or the U.S. Howard Schultz, its former CEO and catalyst for growing its business, has always been sensitive to this subject.
“Every day, I strive to build the kind of company that my father never had a chance to work for, one that not only cares for its people, but gives them opportunities to be their best selves,” Schultz wrote in an employee letter in July 2016.
RBI is the complete antithesis of Starbucks, which is a big reason why I don’t frequent its stores. 3G Capital, its ultimate owner, has and always will be on the bottom line — and damn the frontline workers who keep the money rolling in.
Another good point by Hunter
A more significant problem for Tim Hortons is the possibility of losing the support of average Canadians not only in Ontario, but also across Canada, which would be devastating to the company.
“The moment Canadians stop identifying themselves with Tim Hortons, you know, as who they are, then the brand has a problem,” said Hunter in his radio appearance. “Because really, McDonald’s makes a pretty good cup of coffee. Lots of places make pretty good cups of coffee.”
Starbucks included.
Three stocks that will benefit from the minimum wage hike
Although my statement seems like an oxymoron, some businesses won’t be hurt all that much by the minimum wage hike, namely, those businesses that don’t participate in the low margin end of the pool.
Who are they?
Well, Starbucks for one. Yes, margins might be hurt a little, but between increasing prices and generating additional revenue streams, it will do just fine in a higher wage business environment.
One Canadian company (and a retailer, at that) that shouldn’t have a problem digesting the additional wage costs is Lululemon Athletica Inc. (NASDAQ:LULU). I’ve recommended it on several occasions; its price point allows it to pay higher wages without getting squeezed on the margins.
Last but not least is Costco Wholesale Corporation (NASDAQ:COST). It won’t have a hard time adapting to the wage hike for two reasons, the first being that it already pays employees more than its competitors, and the second being that its business model thrives on low margins, generating the bulk of its profits from memberships.
None of these three businesses depend on low wages to succeed. These are definitely stocks you want to own over the long term — not penny pinchers like Restaurant Brands International.
