NRGO Committee Meeting

STANDING COMMITTEE ON NATURAL RESOURCES AND GOVERNMENT OPERATIONS

COMITÉ PERMANENT DES RESSOURCES NATURELLES ET DES OPÉRATIONS GOUVERNEMENTALES

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, November 3, 1998

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[English]

The Chairman (Mr. Brent St. Denis (Algoma—Manitoulin, Lib.)): Good morning, all. I'd like to call to order this Tuesday, November 3, meeting of the Standing Committee on Natural Resources and Government Operations. Welcome to my colleagues. We have a quorum sufficient to hear witnesses.

I would like to welcome to our committee a delegation led by Jean-Paul Sirois, who is president of the Association of Canadian Postal Franchisees.

Mr. Sirois, as the clerk has probably indicated to you, we invite you to speak for ten or fifteen minutes if you'd like, but before you start I would ask you to introduce your fellow delegates to us. We thank you all for attending this session and giving us a chance to hear your side of the postal franchisee issue, which we've been looking at since last week.

Mr. Jean-Paul Sirois (President, Association of Canadian Postal Franchisees): Thank you very much, Mr. Chairman.

We're very pleased to have this forum through which we can finally speak publicly about Canada Post's efforts to dismantle their national franchise network.

I'm the elected spokesman for the association, and of course I've brought with me a number of franchise owners from the Ottawa area. I will speak about macro issues, and they will be in a better position to give you the day-to-day goings on. I will allow them to introduce themselves, if you don't mind.

Mr. George Ayoub (Canada Post Franchisee): I am George Ayoub.

Mr. Mukesh Gupta (Canada Post Franchisee): My name is Mukesh Gupta.

Mr. Rod Beatty (Canada Post Franchisee): I am Rod Beatty.

Mr. Jean-Paul Sirois: I'd like to keep my opening remarks brief so we can have a dialogue, rather than having you listen to us go on at length. I'd like to break this brief into three parts: a recent history going back to the spring of this year, specific impacts of the proposed changes, and some brief points to consider.

On the history, in early spring of this year franchise owners received a fax informing them of the pending implementation of changes to schedule C of their franchise agreements. This schedule prescribes a list of commissions, among them a 17.5% commission on the sale of stamps.

Under the new changes the commission would be eroded by some 72%. When protests of this unilateral act fell on deaf ears, franchise owners retained counsel and formed a not-for-profit national association under federal statute. Today the national association represents in excess of 1,000 franchise owners in virtually every province of this country.

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To learn and distil the views of the owners, we held forums in Vancouver, Edmonton, Calgary, Winnipeg, Hamilton, Toronto, Ottawa, Montreal, Halifax, Fredericton and Charlottetown. By early summer we found ourselves in a position to carry the views of the franchisees to Canada Post. Efforts to engage Canada Post were simply rebuffed. Regional Canada Post sales representatives informed franchisees they were not interested in dealing with the collective, preferring instead to deal with individuals, franchise by franchise.

We believe the association fills a void. Once upon a time, advisory boards were established by Canada Post. Franchise owners report that these sessions were utilized by Canada Post to disseminate information, but not for the purpose of dialogue. Canada Post developed the agenda pre-meeting, and post-meeting circulated minutes that were not necessarily reflective of the views of franchisees.

These boards quickly became dysfunctional and were disbanded, all with the exception of a lone remaining board in Toronto. Canada Post has advised the public through the CBC and others that these advisory boards were consulted on the proposed changed to schedule C, yet they don't exist, as I say, with the exception of the one in Toronto.

Having determined Canada Post's unwillingness to discuss these issues, association members spent the summer meeting with over 60 members of Parliament in an effort to be heard. We believe our requests to date have been simple and they have been twofold. We requested a moratorium on the erosion of revenues and the dismantling of the franchise network, and a dialogue between Canada Post and the franchise owners. While we are certainly thankful that the minister has granted us a moratorium, we are rather irked that Canada Post continues to deny any sort of dialogue. Rather, Canada Post has launched an effort to explain, franchise by franchise, the impacts of the new regime, as though the franchise owners sitting with me today couldn't understand the impacts on their own business.

Moving to the specific impacts, a survey of over 1,000 franchisees demonstrates that stamp sales represent between 85% and 87% of their revenue. Indeed, as illustrated by Ms. Parrish's question last Thursday, Canada Post has offered to increase certain commissions on the sale of products other than stamps, yet that means increasing commissions on only 13% of their gross volume. If you increase these commissions by 1,000%, it would still not begin to make up for the loss incurred by the cut to commissions on stamps.

Canada Post finds itself as both a franchisor and a direct competitor. Let me offer you two examples. Franchisees sell to what are known as stamp shops. These may take the form of tobacconists or stationery stores—outlets that offer the sale of stamps but not necessarily a full range of Canada Post products and services. Weeks ago, Canada Post announced their intention to commence the sale of stamps directly to these stamps shops. Franchise owners have built up this clientele, and Canada Post is taking it away. This is in the opposite direction of the decision of the government just two years ago on junk mail, where the government decided that Canada Post would not compete with private junk mail distributors.

The second example is that of the Canadian Imperial Bank of Commerce, which has begun retailing stamps through their automated teller machines on a pilot project basis. In this case, CIBC charges the customer a service charge directly. Changes to commission schedules erode revenues and the above two examples, we believe, are attempts to erode the franchise market.

As an aside, legal opinions obtained by this association indicate that CIBC is providing this service outside the parameters of the Bank Act. The Superintendent of Financial Institutions has been apprised, as has the minister responsible. Moreover, it appears as though this crown corporation is aiding, abetting and profiting from this breach of the act. This government is allowing banks to introduce service charges—unpopular though they may be—on a growing number of services.

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There are five brief points we wish you to consider. Canada Post has demonstrated a desire to erode both the revenues and the market of the franchisees. While they have offered to increase commissions on products other than stamps, it is folly to think the increases on such a small percentage of the overall business will keep the franchisees out of the red. Allow me to be repetitive. If you increase these commissions by 1,000% you would not begin to offset the losses created by the stamp commission slash.

On our third point, Canada Post has offered a subsidy to franchisees of either $6,000 or $25,000, depending on their sales volumes. At these levels, breaking even is not even imaginable. More importantly, this government terminated subsidies to western grain farmers. It is in the process of privatizing VIA Rail to stop the subsidies. It has slashed subsidies on ferry services in Atlantic Canada, all in the name of debt and deficit reduction. These are causes we support. Franchisees are entrepreneurs who ask for nothing more than to be a paid a fee for service. They do not wish to be subsidized by this government or its crown corporations.

On our fourth point, Canada Post has directed in a very heavy-handed manner the way in which franchises operate. They dictate the products that must be sold. They dictate which products are precluded from being sold. They set the margins franchisees will earn, where they will obtain their computer equipment, etc.

Ten years ago, Dominion Food Stores in Ontario established a chain of franchise operations known as Green Grocers. Dominion managed this franchise operation in the same heavy-handed and arbitrary fashion Canada Post does its franchise network. The courts in Ontario held that under this management style, Green Grocers was not a franchise but a network of Dominion employees. Legal opinions obtained by this association conclude that Canada Post franchise owners may also be considered employees. In this case we will cease discussion about commission levels and begin discussions about salary, vacation pay, worker's compensation, pension, maternity leave and the like.

As I've mentioned, these franchisees are entrepreneurs. They don't wish to be considered employees, but if their only protection is to be afforded by the Canada Labour Relations Board, that might be their only avenue of survival.

The final point to consider is this. The autocratic nature with which franchisees are dealt aside, if Canada Post wishes to dismantle their national network, which they're free to do, they're free to buy back the licences they have granted these franchise holders, in no different a fashion than this government did with the TAGS program through HRDC. A licence has been granted by an agent of the crown, and if you wish to buy it back you're free to do so.

In conclusion, we would first encourage this committee to hear from other representatives of blocks of franchisees, such as Shoppers Drug Mart and their 280-some franchises, and other Canadians who will be adversely impacted by these changes. The Canadian Federation of Independent Business, which actively supports our cause, the Consumers' Association of Canada, the Canadian Federation of Rural Municipalities and others should be heard.

Second, while your investigation is ongoing, we would encourage this committee to send a clear signal to Canada Post that the imposition of proposed changes would be unwelcome until this committee can conclude its findings.

Finally, Mr. Chairman, we reiterate our original and what we believe to be simple request for a dialogue with Canada Post, which we've been asking for since April.

I thank you for your time, and we'll be happy to entertain questions.

The Chairman: Thank you, Mr. Sirois. Your colleagues will speak throughout the meeting, then, at different times.

We'll proceed to questions. Mr. Schmidt, you may go first, and then Ms. Parrish.

Mr. Werner Schmidt (Kelowna, Ref.): Thank you very much, Mr. Chairman.

Thank you, Mr. Sirois and gentlemen, for appearing before us this morning and for your concise and brief presentation.

There are a couple of questions I have on the way in which the franchises were established in the first instance. I understand the franchise business has been in operation now for about 10 years, or has it been longer than that?

Mr. Mukesh Gupta: It has been approximately 10 years.

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Mr. Werner Schmidt: And what was the original intention of establishing these franchises and what was the contract and the provisions of those contracts at that time?

Mr. Mukesh Gupta: Canada Post wanted to get closer to the public, and individual entrepreneurs like us, who are small business operators, offer longer hours, and it appeared at the time that we could provide longer hours to serve the public. We could be closer to the people who needed the services of Canada Post, and the bottom line is that I think at that time they thought we could provide the service better, cheaper and more economically than what Canada Post were able to do themselves.

We signed a ten-year agreement, a contractual right to operate a Canada Post franchise within a territory that was very clearly marked on a map, and we were given an agreement to sell—that's considered a dealership agreement. And in return we also signed a second agreement to provide certain services, other than selling just the stamps, on behalf of Canada Post for a fee.

Some of those fee-related agreements were viewed by us as a partnership, whereby they do most of the work and we do some of the retail work. We'd entertain the people and provide the service, and we'd get a portion of that fee. In the original agreement we signed, it was a 20-80 split. They used to give us a 20% commission on the selling of the stamps, and similar services were at about the same percentage.

To give you an example, when I started this franchise business in 1991, the service fee when we issued a money order was $1.25, and my share of that $1.25 was 25¢. So Canada Post used to make $1 and I used to make 25¢; and when I sold $1 worth of stamps, I used to make 20¢ and they used to make 80¢ out of that.

So that was my understanding of how the commission would be structured. As time has gone by, we saw that we were doing far more work for the services we were providing. At that time, in 1991, for a money order—I keep on bringing you this as an example—the highest limit of a money order was $250, so when I handled $250 worth of cash, I made 25¢. Over the course of the last 10 years that $250 has now gone to $1,000; I have become almost a bank, and I still make the same 25¢, whereas Canada Post is making $2.25 while what they used to make was $1. As a trained accountant—and I have practised for years and have done the bookkeeping for a lot of businesses—I fail to understand where this partnership is today.

Mr. Werner Schmidt: I have two other questions. Number one, what do you consider consultation? Canada Post appeared before the commission and told us very clearly that they had consulted with you before this new fee schedule was put together, and we are told here now by you, Mr. Sirois, that indeed there was not consultation. There seems to be a difference of opinion here as to what is consultation, so how would you define consultation?

Mr. Jean-Paul Sirois: Let me give you the experience, Mr. Schmidt, of the franchise holders. That is of coming into your franchise in the early spring of this year and seeing a piece of paper on the fax machine, which tells you that as of a certain date your revenues will be eroded by 72%. The so-called consultation that has occurred since the moratorium was announced has simply been regional sales representatives, again explaining what they believe the impacts will be to you, on your business.

Mr. Werner Schmidt: That wasn't my question. My question is, what do you consider consultation to be? I know what happened. You told us that before, you told us again. I want to know what you believe consultation is. What should Canada Post do to consult with you?

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Mr. Jean-Paul Sirois: We would like to see a forum established through which the thousand franchisees we represent, and other blocks of franchisees as well, 7-Eleven, Jean Coutu, Shoppers Drug Mart, etc., can sit down with Canada Post and work through a reasonable solution to whatever the problem is that Canada Post seems to have identified.

Mr. Werner Schmidt: The other question I have is, are you, as franchisees, and Canada Post in the same business?

Mr. Mukesh Gupta: I was told we were supposed to be doing the same business, but my experience in the last nine years of working with Canada Post as a franchisee is that it is very intimidating. For instance, you just asked me about what I consider consultation. I'm afraid to ask a question, sir, because in my personal experience—and it may not be the politically correct word—they are the judge, and they are jury and they are the executioner. They make the decisions. That has been my personal experience, and I'm sure I'm not the only one across the country.

When I look at that agreement, it's a one-sided agreement. Until now we really have had no voice; we have had no forum whereby we could tell them something. And if I do complain any more than I'm supposed to, I will be taken care of. How do I get taken care of, sir? I get audited and I get nitpickers combing through my paperwork. They take away my paperwork and they take it to their office. Three months later, I don't get to see the paperwork but they say “You have short-paid us this much money. Are you going to pay or are we going to shut you down?”

With that kind of line of work, I'm afraid to ask questions, sir.

Mr. Werner Schmidt: The final question I have is the accusation by Canada Post, or the observation if you will, whereby they said a number of franchisees were acting outside of the provisions of the contract, specifically by the reselling of stamps in territories that were not really their territory. I think one of the provisions of the contract was that you were encouraged to set up stamp shops within your territory, but apparently there are franchisees who saw the lucrative opportunity of making a huge profit and so they went outside their territory and resold millions of dollars worth of stamps and they collected 17.5% on each of those. And so to stop this corrupt practice, Canada Post says we have to change the fee schedule so that it won't be so profitable.

Is this true? Did franchisees do this?

Mr. Jean-Paul Sirois: Let me say, before we turn this over to the franchisees, Mr. Schmidt, that in all the cities where we held focus groups with franchise owners this issue was not raised amongst them.

Having said that, I'd like to hear the experiences of the owners.

Mr. Mukesh Gupta: My personal experience, again—

Mr. Werner Schmidt: I wonder, Mr. Chairman, if we could ask maybe one of the other fellows to get in as well.

Mr. Rod Beatty: That was always a problem, reselling. However, it was a very small minority of franchise owners who would sell outside their territory.

Mr. Werner Schmidt: Do you know how many there are?

Mr. Rod Beatty: How would I have access to that information?

Mr. Werner Schmidt: I don't know.

Mr. Rod Beatty: Canada Post is unfortunately unable to keep track of franchisees who do this or they're unwilling to put a stop to this particular practice.

Mr. Werner Schmidt: This is interesting. On the one hand, they say this is happening and you say it's happening, and yet nobody knows whether it's happening or not. Where's the evidence? There has to be some proof somewhere.

Mr. Rod Beatty: I'm sure there is.

Mr. Werner Schmidt: Who has it?

Mr. Rod Beatty: Who knows? Who's going to admit they're selling outside their territory?

Mr. Mukesh Gupta: I don't know where any customer who comes over my counter is coming from, sir.

Mr. Werner Schmidt: No. But if you sell $500,000 worth of stamps, that's not an ordinary customer.

Mr. Mukesh Gupta: Canada Post has that information. They should take some action. I reported incidents in my own territory.

Mr. Werner Schmidt: That's fine. Are you telling me then, Mr. Gupta, that Canada Post has this information?

Mr. Mukesh Gupta: They should have this information. Regarding people who are selling stamps in an unauthorized way, like the vendors, I reported an incident back in 1991. There was a store selling stamps that was not buying from me, and the store happened to be in my territory. Canada Post, to date, has failed to protect the so-called territory they have given to me. They have given me a right to sell within my territory, but if they do nothing to protect that, how can they come today and make a claim that they are doing— They are destroying my life, because somebody else is selling in my territory.

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Mr. Rod Beatty: Mr. Schmidt, if I may, Canada Post does have ways to determine this. Canada Post knows how many stamps we're selling. I'm pretty sure that the business across the entire country is somewhat proportional in sales per customer.

My sales are maybe $4 per customer. That's my average purchase. I imagine that, give or take 10% or 15%, it's probably pretty much the same across the board. So if you see a franchisee who is selling $4 per customer who all of a sudden has sales that go up to $8 or $9, then obviously either he's had an extreme influx of business into his store or this particular person is going out to try to drum up extra business for himself.

I also believe that if you have a specific territory set up by Canada Post, then as a franchisee, it's my responsibility to make sure I know who's selling stamps within my territory. In a lot of cases, a franchisee will patrol and check out a store, as Mr. Gupta has done, and will find out that this particular person is not buying stamps. You report it to your retail representative, but they unfortunately overlook it or they'll procrastinate or they'll go in one time and say that they should be buying stamps from Mr. Gupta, but it's not enforced.

Mr. Jean-Paul Sirois: Mr. Schmidt, we fail to see how pushing franchise owners

[Editor's Note: Inaudible] will protect their territory.

Mr. Werner Schmidt: I don't know, Mr. Chairman, do I have time for more questions?

The Chairman: We're going to come back to you. I have Carolyn on my list.

Ms. Carolyn Parrish (Mississauga Centre, Lib.): To forewarn you, I'm considered a hostile questioner, so I would like you to behave by answering the questions in a way that's very short and sweet. I'll interrupt you if you don't.

Mr. Sirois, do you own a franchise?

Mr. Jean-Paul Sirois: No, I do not.

Ms. Carolyn Parrish: Then how do you function here as a representative of the franchisees? How were you elected or selected?

Mr. Jean-Paul Sirois: I'm the elected president of the not-for-profit national association. I represent the views of my clients in a fashion not dissimilar to that of a barrister before a court or a member of Parliament representing a constituency of the House.

Ms. Carolyn Parrish: So you're a professional lobbyist?

Mr. Jean-Paul Sirois: That's correct.

Ms. Carolyn Parrish: Thank you.

As for the three others, could we just run through this quickly? Could you tell me the volume you had last year?

Mr. Jean-Guy Raymond (Canada Post Franchisee): Last year, it was probably about—

Ms. Carolyn Parrish: You know what it is. All you guys know exactly what it is.

Mr. Jean-Guy Raymond: Yes, we do.

Ms. Carolyn Parrish: Could you tell me what it is?

Mr. Jean-Guy Raymond: Do I have to tell you this?

Ms. Carolyn Parrish: Yes, you do.

A voice: No, you do not.

The Chairman: I think that's a personal—

Ms. Carolyn Parrish: Give us a ballpark figure. Are you over $500,000?

Mr. Jean-Guy Raymond: Yes.

Ms. Carolyn Parrish: Are you over $1 million?

Mr. Jean-Guy Raymond: No.

Ms. Carolyn Parrish: So you're in between those two.

Mr. Jean-Guy Raymond: Yes.

Ms. Carolyn Parrish: Which one are you closer to?

Mr. Jean-Guy Raymond: I don't think I want to—

Ms. Carolyn Parrish: Mr. Gupta, are you over $500,000?

Mr. Mukesh Gupta: I'll tell you my exact volume because I'm not afraid to say this. My exact volume last year was $299,875.

Ms. Carolyn Parrish: Excellent, Mr. Gupta. You're the kind of guy I want to talk to.

Mr. Rod Beatty: In my franchise at the Rideau Centre, I make in excess of $1 million.

Ms. Carolyn Parrish: You make in excess of $1 million?

Mr. Rod Beatty: Yes.

Ms. Carolyn Parrish: When these were set up, Mr. Sirois, you realize that Canada Post set them up to do between $300,000 and $500,000 worth of business? That was the objective when they came up with a franchise area, yes or no?

Mr. Jean-Paul Sirois: We're very happy that we have exceeded Canada Post's business plan.

Ms. Carolyn Parrish: But is that the way the franchises were set up? You've seen the maps of the territories.

Mr. Jean-Paul Sirois: That may have been Canada Post's intention.

Ms. Carolyn Parrish: That was their intention ten years ago. I can tell you that.

Mr. Sirois, when did you register—

The Chairman: Carolyn, Mr. Beatty might want to speak.

Ms. Carolyn Parrish: Yes, Mr. Beatty.

Mr. Rod Beatty: When Canada Post set us up, we were supposed to exceed sales of $700,000.

Ms. Carolyn Parrish: So you're very good.

Mr. Rod Beatty: That was our business performance—

Ms. Carolyn Parrish: So with over $1 million, you're doing extremely well.

Mr. Rod Beatty: Yes.

Ms. Carolyn Parrish: Is that more than 15% of your total business in your shop, wherever you have it?

Mr. Rod Beatty: Are you talking about our host business?

Ms. Carolyn Parrish: Yes. Is that more than 15% of what you do? I have a young daughter I'd like to marry off and you look like a very successful young man.

Mr. Rod Beatty: I'm married, but thank you very much.

Ms. Carolyn Parrish: Is that $1 million more than 15% of your total revenue?

Mr. Rod Beatty: Are we talking about net income or gross sales?

Ms. Carolyn Parrish: I'm talking about gross sales.

Mr. Rod Beatty: You mean gross sales?

Ms. Carolyn Parrish: Yes.

Mr. Rod Beatty: Compared to our host business and our postal franchise, gross sales— It's comparing apples to oranges.

Ms. Carolyn Parrish: No, I'm asking you a very specific question: is that more than 15% of your gross sales?

Mr. Rod Beatty: It's about half.

Ms. Carolyn Parrish: It's about half.

Mr. Rod Beatty: Yes.

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Ms. Carolyn Parrish: You understand that when they were set up—this is even though you have a different set of rules such that you were told you could sell $700,000 worth. It's supposed to be 15% roughly, which is just to bring in walk-in customers.

Mr. Rod Beatty: It was supposed to be 15% of our host business?

Ms. Carolyn Parrish: Yes.

Mr. Rod Beatty: If that's what it is for our host business, that means I was only slated to do $150,000.

Ms. Carolyn Parrish: Well, it sounds to me as if you're doing extremely well at the expense of Canada Post—

Mr. Rod Beatty: No, that's not so. We replaced—

Ms. Carolyn Parrish: —or maybe some people close to you.

Mr. Rod Beatty: Canada Post had an outlet operating in the Rideau Centre for a number of years, as you are probably aware. They closed that down because it was too expensive for them to run. They had sales of over $700,000, so it would stand to reason that we would do the same amount of business.

Ms. Carolyn Parrish: I don't want to get into your particular case, but they did set out several franchises to cover for that. You weren't the only one, is that correct?

Mr. Rod Beatty: Excuse me?

Ms. Carolyn Parrish: To cover for the fact that they closed the postal outlet in the Rideau Centre, they set up several franchises. You weren't the only franchise.

Mr. Rod Beatty: You mean in the Rideau Centre?

Ms. Carolyn Parrish: No, I mean out in the surrounding territory.

Mr. Rod Beatty: Well, I—

Ms. Carolyn Parrish: You don't know.

Mr. Rod Beatty: Well, there are only two other franchises in the area.

Ms. Carolyn Parrish: Okay, can I go back to Mr. Sirois?

I was made Parliamentary Secretary to the Minister of Public Works and Government Services in the summer. I received material that had your signature on it several times in the late summer. When did you register as a lobbyist?

Mr. Jean-Paul Sirois: For this particular client?

Ms. Carolyn Parrish: Yes.

Mr. Jean-Paul Sirois: It was within ten days of making any representation to an elected official.

Ms. Carolyn Parrish: What was the date?

Mr. Jean-Paul Sirois: I don't know the date.

Ms. Carolyn Parrish: Well, I think I have the date. It was September 28. But I received material with your name on it well before that.

Mr. Jean-Paul Sirois: The first representation we made would have been a briefing note, which was circulated to the economic development caucus, which I believe was dated September 24.

Ms. Carolyn Parrish: All right. I have something else that was dated September 18. It was a letter to the franchisees.

Mr. Jean-Paul Sirois: That's correspondence between myself and my client.

Ms. Carolyn Parrish: All right.

How do you levy fees for your association? I understand that about 500 of the 1,700 don't want to participate or haven't signed up. How do you levy the fees? Do you do it based on volume or as a flat rate?

Mr. Jean-Paul Sirois: Every one of our roughly 1,030 members pays a flat fee.

Ms. Carolyn Parrish: How much is that?

Mr. Jean-Paul Sirois: I'm not at liberty to say.

Ms. Carolyn Parrish: Are you at liberty to tell us if your budget is based strictly on those fees, or is there other money coming in?

Mr. Jean-Paul Sirois: It's based strictly on those fees.

Ms. Carolyn Parrish: I find it strange that you don't want to tell us what the fee is. Why is that a big secret?

Mr. Jean-Paul Sirois: It is a not-for-profit, non-share capital corporation registered with Industry Canada. Every member buys a share of the corporation.

Ms. Carolyn Parrish: Okay. How many of your franchisees, particularly the ones who have concerns with the way Canada Post is changing their business, have higher percentages than 15% of their host business?

Mr. Jean-Paul Sirois: I wouldn't have any idea.

Ms. Carolyn Parrish: You have no idea.

As for the three gentlemen here, do all three of you do more than 15% of your gross volume on postage?

Mr. Mukesh Gupta: With all due respect—

Ms. Carolyn Parrish: Don't answer, Mr. Gupta.

Mr. Mukesh Gupta: Since you're asking very specific accounting questions, and if I'm allowed to clarify—

Ms. Carolyn Parrish: Quickly, Mr. Gupta.

Mr. Mukesh Gupta: How does Canada Post consider the volume? If they pay me a money order fee for 25¢, is it considered as part of this volume?

Ms. Carolyn Parrish: Yes.

Mr. Mukesh Gupta: Then I can tell you now that all of the outlets will do far more than 15% of their business—

Ms. Carolyn Parrish: Thank you.

Mr. Mukesh Gupta: There are days—

Ms. Carolyn Parrish: Thank you, you answered my question.

Mr. Sirois, are you telling your franchisees not to meet with Canada Post?

Mr. Jean-Paul Sirois: We are advising franchisees to advise their regional representatives that we would prefer a dialogue through the national association.

Ms. Carolyn Parrish: How about a short answer?

Mr. Jean-Paul Sirois: That was a short answer.

Ms. Carolyn Parrish: Well, the short answer is yes, you're telling them not to meet with Canada Post.

Mr. Jean-Paul Sirois: I believe I answered the question.

Ms. Carolyn Parrish: Thank you.

Mr. Jean-Paul Sirois: You're welcome.

Ms. Carolyn Parrish: Do you have any internal mechanisms as a non-profit association that's there for the good of all franchisees to police those who infringe on the territories of other franchisees?

Mr. Jean-Paul Sirois: No, we do not.

Ms. Carolyn Parrish: You don't have this. So as for the little guys who are getting nailed by the resellers, you're not helping them.

Mr. Jean-Paul Sirois: It's not an issue within our mandate.

Ms. Carolyn Parrish: Okay. What would you suggest we do? You don't like this situation. What would be a suggestion? You're very involved in this, so could you possibly give us a little bit of insight as to what we could do to stop that?

Mr. Jean-Paul Sirois: Do you mean the reselling?

Ms. Carolyn Parrish: Yes.

Mr. Jean-Paul Sirois: Canada Post should simply enforce the territories as they've outlined them.

Ms. Carolyn Parrish: Okay.

Now why have you not met with Canada Post or me? I was appointed in July.

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Mr. Jean-Paul Sirois: We attempted on several occasions to meet with Canada Post. I could give you a stack of correspondence from either myself, or indeed the franchise owners directly, that would be probably three inches thick. Most of this has gone unanswered or we simply received a form letter back advising—

Ms. Carolyn Parrish: Why have you not attempted to meet with me? I'm very accessible.

Mr. Jean-Paul Sirois: Are you?

Ms. Carolyn Parrish: Yes.

Mr. Jean-Paul Sirois: I'd love to meet with you.

Ms. Carolyn Parrish: All right. And I could probably arrange for you to meet with the officials of Canada Post. You just have to ask.

Mr. Jean-Paul Sirois: Wonderful. We would appreciate that.

Ms. Carolyn Parrish: In one little plaza in my area, they're going to open a new franchise. Right now, with the new fee structure, there are 15 applicants for one outlet. I called them all. I told them what the new fee schedules and rules were, yet all 15 still wanted the postal outlet. Now, at the end of the 10-year contracts, if you choose to drop those contracts, how many people in your immediate vicinity do you think would want to pick them up?

Mr. Jean-Paul Sirois: May I ask for a point of clarification? You said you called all 15 applicants.

Ms. Carolyn Parrish: Yes, I did.

Mr. Jean-Paul Sirois: Thank you.

Ms. Carolyn Parrish: I actually just went from store to store. At Rosedale plaza, I walked from store to store. I asked whether they applied for a postal outlet. They said they had, and they were very excited about it. They had all been tested and interviewed. All 15 of them were very keen. They don't know yet who's getting it. I don't think the decision has been made, but all 15 know what the fee schedules are and they're still keen. It's a brand new one.

Mr. Mukesh Gupta: Can I answer that?

Mr. Jean-Paul Sirois: Yes, please do.

Mr. Mukesh Gupta: I think I shared the same excitement. I remember the days of 1991. When I applied for it, there were six of us who wanted to get the franchise business. At the time you apply for it, you have no idea what you're getting into. You don't know what contract you're going to be signing or what kind of default notices or harassment letters you will be receiving. Yes, it's very fine when you look at it from the outside. It draws so many more people in.

For the last 10 years, we have been doing far more work, so we've been asking them to compensate us for that. They did, and I thank them for it, but in return, they made it conditional.

Ms. Carolyn Parrish: I have two more questions.

Mr. Gupta, I found it interesting when you said that Canada Post would come down on you hard. I was envisioning broken knees and a withdrawal of the postal franchise. But you said they audited you. How many times have you been audited by Canada Post in 10 years?

Mr. Mukesh Gupta: In one year alone, I was audited six times by one department or another. I was told by all the departments— Finally, after the end of the audits, my wife and I were called in and locked in a room. There were two of us with a security investigator. He showed me his badge.

Ms. Carolyn Parrish: Did he find any problems?

Mr. Mukesh Gupta: Yes, they found a shortfall of $600 over three years. There were deficiencies.

Ms. Carolyn Parrish: That doesn't sound too bad.

Mr. Mukesh Gupta: But I had to pay $11,000 because they arbitrarily declared that what I bought and what was processed—

If you allow a little bit of leniency, I'd like to explain to you how it works.

The Chairman: That might be helpful, yes.

Mr. Mukesh Gupta: All right.

We were building up a business. The thing we realized while building the business was that the biggest competitor was not Mail Boxes Etc. or any other franchise, it was Canada Post itself.

I developed a business in which a small business could buy prepaid products from me, like Priority Courier. If you buy it ahead of time and take it home, I'll give you a discount. The next thing I know, the Canada Post rep goes directly to the guy and beats my prices. He offers a price that's cheaper than my own cost. So why am I developing this business?

I developed many people in my territory who were buying from Canada Post directly, but Canada Post does not pick up their prepaid products. So this particular business will come to my outlet and ask me to process it free of cost as a service to Canada Post. I have not made any money by selling that product because Canada Post sold it directly. When that person came in, I did the service on behalf of Canada Post. They look at the label, see Canada Post, and expect the same kind of service. I did that.

Three years later, I get audited. Canada Post took out my inventory from their sheets. They said I bought 1,000 envelopes from them, but my outlet processed 1,600 of them, so I owed them for 600 envelopes. They charged me for those 600. It's documented; I have those letters. I paid $11,000, madam.

If I remember those incidents, I start to cry. And you're telling me my knees were not broken?

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I had no choice. I had two choices. If I did not pay the $11,000 and if I asked any more questions about showing me the bill so I could file a defence— There was no opportunity—

Ms. Carolyn Parrish: Mr. Gupta, I don't want to get into that particular case because it has obviously been investigated thoroughly. You're obviously a good businessman. Those people who came in and found that you processed that free of charge will come to buy their stamps from you and they'll do other services with you. Canada Post had no way of knowing where you got those envelopes. That's another issue.

The last question I wanted to pose is this. You said that when you sell stamps, Canada Post makes a profit of 80¢ while you make a 20¢ profit.

Mr. Mukesh Gupta: That's right.

Ms. Carolyn Parrish: Who do you think pays to deliver the mail?

Mr. Mukesh Gupta: That's why they make the 80¢ profit.

Ms. Carolyn Parrish: Don't call that a profit, sir. It costs them 80¢ probably to deliver mail within two days anywhere within your province.

Mr. Mukesh Gupta: I couldn't agree more. I wish they'd do better service—

Ms. Carolyn Parrish: I just wish you'd be careful and not call it 80¢ profit. Somebody is paying to deliver the mail, and it's not coming out of your 20¢.

Thank you.

The Chairman: I have Ghislain next.

[Translation]

Mr. Ghislain Lebel (Chambly, BQ): I'd like to take this opportunity to correct some of the statements that have just been made. If it did in fact cost Canada post 80 cents to deliver one letter, this corporation would surely not be earning the profits that it has been enjoying these past few years. There is certainly some profit in that 80 cents. Perhaps the witness was mistaken about this. Canada Post must certainly make a profit, otherwise it would no longer be in business.

Mr. Sirois, when you mentioned overall sales, you indicated that the commission on the sale of postage stamps was in the order of 17.5 per cent, and that this accounts for approximately 85 per cent of your overall revenues. During contract talks, the Canada Post Corporation proposed to drop the commission on stamps from 17.5 per cent to 5 per cent, in exchange for which the Corporation would agree to increase slightly the commission on the remaining 15 per cent. You noted that this move would likely send many businesses and franchises like yours into bankruptcy.

Earlier, because of the language barrier and time delay in translation, I didn't quite grasp your answer to Mrs. Parrish's question. She asked if you represented small franchise operators. Do you? Do you represent all franchise holders nationwide?

[English]

Mr. Jean-Paul Sirois: No, sir, we do not represent all franchise holders. There are roughly 17,000 of them across the country; we represent just over 1,000 of those. Other blocks of franchisees are represented by their owners. Again, it could be Jean Coutu, 7-Eleven, or Shoppers Drug Mart. We represent well in excess of a majority of what I would call independent franchise owners.

On another point of clarification, sir, you mentioned that during the negotiations, Canada Post proposed cutting the commission from 17.5% to 5%. Let us be clear, sir, that there have been no negotiations; it was a notice that was served by Canada Post.

[Translation]

Mr. Ghislain Lebel: Mr. Beatty indicated to us that his sales total slightly more than $1 million annually. Did I understand him correctly? A 15 per cent commission represents $150,000 or thereabouts, because you admitted that your sales were just over $1 million annually. Therefore, let's talk realistically about a $200,000 profit, although this is not a net profit because you have to pay employee salaries. How many employees do you require to operate your postal franchise?

I'd like you to clarify these issues for me because I'm concerned that some of my friends seated around this table will leave here with the impression that you are getting rich operating a franchise. Could you give us some idea of your actual sales figures so that we can put things into their proper perspective?

[English]

Mr. Rod Beatty: Thank you very much for actually allowing me to address that.

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I have two full-time staff and three part-time staff. I pay in excess of $100 per square foot at the Rideau Centre. My postal outlet occupies roughly 400 square feet.

Yes, our gross sales are over $1 million, but that's gross sales. Once you factor in our discount, less the royalty from Canada Post, I'm down to probably about $170,000 in gross profits.

My annual wages are approaching about $80,000 a year. I pay roughly $40,000 a year in rent, and other professional fees such as accounting and legal services. So I'm not really getting richer and richer. That's all.

[Translation]

Mr. Ghislain Lebel: You are under no obligation to answer my question, but an answer could shed some light on this subject. After taxes, what kind of income does this small business generate for you?

[English]

Mr. Rod Beatty: Not even. That's actually hard for me to discuss, but it's definitely not getting rich. It's pretty much paying for the initial investment.

[Translation]

Mr. Ghislain Lebel: You have a family to support. Is your income in the neighbourhood of $40,000 a year? Do you earn between $30,000 and $40,000, or is it more like something between $10,000 and $20,000?

[English]

Mr. Rod Beatty: My salary is roughly—

The Chairman: I just want to say you're not obligated to give away privileged information.

[Translation]

Mr. Ghislain Lebel: No, you are under no obligation to answer.

[English]

The Chairman: Ghislain, I just want to make sure Mr. Beatty knows he's not obligated to give away privileged information.

[Translation]

Mr. Ghislain Lebel: I understand.

[English]

Mr. Rod Beatty: I understand.

[Translation]

Mr. Ghislain Lebel: I put this question to our witness to give the committee some idea of the net income that a franchise operator like this can expect to earn and to clear up any misconception that many franchise operators are getting rich. At least that's the impression we were left with after the Canada Post Corporation testified before this committee last week, although I assume it was speaking in good faith.

Our witness operates a franchise like the ones Canada Post was referring to last week, a business with sales in excess of $1 million annually. However, people shouldn't be deluded into thinking that franchise operators are wealthy because they don't even pocket $50,000 in order to earn decent living, like any other small business operator. That's what I was trying to get the witness to admit. If he does not wish to answer my question, then I won't be offended.

[English]

Mr. Jean-Paul Sirois: Monsieur Lebel, I'd like to address that from a macro perspective, keeping in mind we are three franchise owners here today, but we're speaking on behalf of well over 1,000. We have always considered that to be proprietary information. For that reason, we have not developed a national average. Certainly in some rural areas you have very, very small franchises and then in urban areas some very, very large franchises.

Now from a micro perspective, I think Mr. Ayoub has something to answer to that.

Mr. George Ayoub: I wanted to point out—and I'm not embarrassed about it—last year we showed a loss of $13,000. Now, if they were to reduce this commission we'd have to declare bankruptcy.

[Translation]

Mr. Ghislain Lebel: That's all.

The Chairman: Thank you, Ghislain.

[English]

I have Roy, then it's John, Marlene, and Angela.

So, Roy, you're next.

Mr. Roy Cullen (Etobicoke North, Lib.): Thank you, Mr. Chairman and Mr. Sirois. Thank you, gentlemen.

As I understand it, the question of stamp discounting is partly behind Canada Post's decision to re-engineer the commission structure. I'd like to ask each licensee here, each franchisee, if you discount stamps. Now, you may or may not want to answer that.

Mr. Beatty.

Mr. Rod Beatty: Discounting stamps in what way? Do you mean going outside my territory?

Mr. Roy Cullen: Well, selling a 45¢-stamp for something less than 45¢.

Mr. Rod Beatty: I do. I have my stamp shop, so I give discounts too. I do have customers in the mall with whom I have accounts set up, and I give them a discount if they pay within a certain number of days.

Mr. Roy Cullen: So these are larger volumes, you're saying?

Mr. Rod Beatty: Well, yes, they're merchants in the mall. We do offer mall employees discounts, which is common practice within the Rideau Centre.

Mr. Roy Cullen: Now, do you ever get anyone coming into your Canada Post franchise saying they'd like to buy a large volume of stamps but they're not prepared to pay 45¢, and you don't know where they're from?

Mr. Mukesh Gupta: Yes, we do that.

Mr. Roy Cullen: I'm addressing this to Mr. Beatty, if you don't mind. Thank you.

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Mr. Rod Beatty: I get customers coming in wanting to buy a couple of hundred stamps here or there.

Mr. Roy Cullen: A couple of hundred?

Mr. Rod Beatty: Yes, but I don't get customers coming in saying they'd like to buy several thousand stamps.

Mr. Roy Cullen: You don't.

Mr. Rod Beatty: No. If I did— I don't know. I guess I'd have to see what my mood was that day, how many coffees I'd had, or what have you.

Mr. Roy Cullen: If that happened, would it occur to you to ask them what they want the stamps for and where they're planning to use them?

Mr. Rod Beatty: It all depends on what format they want the stamps in. If they're buying booklets of stamps, then I would question if they were reselling them. I have gotten calls from a number of customers who are actually outside of my territory, asking me if they can buy stamps to resell. I point them properly to the appropriate franchise in their territory.

Mr. Roy Cullen: You say your revenues are in excess of $1 million.

Mr. Rod Beatty: My gross sales.

Mr. Roy Cullen: Your gross sales. That's more than just stamps, right?

Mr. Rod Beatty: Yes, that's my total sales.

Mr. Roy Cullen: Well, I've just worked out some numbers. If you work those figures out, it's roughly about 8,000 stamps a day. How many stamps do you do per day?

Mr. Rod Beatty: Stamps per day? That's hard to say. I lump a lot of things together. There's a category that I call “postal values”. That includes stamps, Priority Courier envelopes, prepaid stationery, express envelopes. Those are all considered postal values as far as I'm concerned because the discount is the same for that particular product. But I do serve an average of 700 customers per day, so if each customer buys 10 stamps, that would be 7,000 stamps.

Mr. Roy Cullen: But you're obviously doing a lot of volume in stamps, right?

Mr. Rod Beatty: Last year I served 192,000 customers—and I have the statistics on that number.

Mr. Roy Cullen: To what do you attribute your success, if I may put it that way, in generating these huge revenue volumes?

Mr. Rod Beatty: It's nothing outrageous. Canada Post had an office up on the second level that was doing numbers very similar to that. However, I'm on the main level, on the first level, at the busiest entrance to the mall.

Mr. Roy Cullen: Are you in a Shoppers Drug Mart or—

Mr. Rod Beatty: No, Japan Camera.

Mr. Roy Cullen: Japan Camera?

Mr. Rod Beatty: The reason it's in a Japan Camera is that Canada Post couldn't get Shoppers or Pharma Plus to buy a franchise.

Mr. Roy Cullen: So how would you explain that the revenues your franchise is generating are way above the norm in relation to—

Mr. Rod Beatty: For a metropolitan centre, for a downtown—

Mr. Roy Cullen: I know it's difficult to look at an average type of franchise, but it seems to be well above the norm.

Mr. Rod Beatty: Since I'm in a downtown core area, I don't think it's outrageous at all. In downtown Toronto, there's a very small card shop that does a lot more business than I do. The Eaton Centre in downtown Toronto does a lot more business than I do. There's a franchise in downtown Vancouver that does more business than I do. So in terms of being downtown in a metropolitan area and serving almost 200,000 customers a year, I don't think those numbers are that high.

Mr. Roy Cullen: We'll have to follow up with Canada Post, because they're taking the position that revenues over something like $600,000, $700,000, or $800,000—I don't know what the magic number is—you're out of the box, you're doing something that doesn't seem to be in line with your franchise agreement.

Mr. Rod Beatty: I do stick to my agreement because I respect the other franchisees. I don't want them coming into my territory to sell stamps, my territory being only the Rideau Centre itself.

Mr. Roy Cullen: So you'd say what you're saying under oath if you had to: that you're not getting people walking into your franchise—

Mr. Rod Beatty: You see, that I don't know. I don't know that somebody coming into my store to buy five rolls of stamps—that's 500 stamps—isn't going back to their office to resell them or isn't going on the street to sell the stamps. I have no idea. But if somebody comes in to buy five rolls of stamps, that's not terribly uncommon.

Mr. Roy Cullen: No, I'm not talking about five rolls of stamps. I'm talking about someone who comes in and wants to buy a few thousand dollars' worth of stamps.

Mr. Rod Beatty: Well, I've never actually been in that position.

Mr. Roy Cullen: You've never had that happen.

Mr. Rod Beatty: I've never had that happen, unless it's a stamp shop of mine. I have a Shoppers Drug Mart that buys stamps from me. I have a Pharma Plus that buys stamps from me. I have a Davis Agency. They do order in the $1,000 range.

Mr. Roy Cullen: When you sell to them, do you sell at a discount?

Mr. Rod Beatty: Yes, I do.

Mr. Roy Cullen: That's part of your—

Mr. Rod Beatty: It's common practice.

Mr. Roy Cullen: That's common practice. Okay.

In my riding, there's a very small guy who just sells stamps and some packaging materials. He told me he probably would be cut off under these new schemes. Now Canada Post tells me they will deal with him directly. When Canada Post deals directly with these smaller players and also has some on-line product sales—you can access the Internet to buy product—is that something that worries you, or is it something that you just live with?

• 1155

Mr. Rod Beatty: It does concern me for sure, because I'm not allowed to go on the Internet to sell stamps. There was never a provision for that in our franchise agreement, technically. Obviously it wouldn't be cost-effective for me, because I cannot afford to ship all this stuff for free to a customer, whereas Canada Post can.

I was under the understanding that when Canada Post told us they were reducing our commissions on postage, they were also going to eliminate house accounts. House accounts were large-volume customers like 7-Eleven and the like, and those were not going to be in existence any more. They then informed us that they will be supplying stamps to stamp shops. So of course that concerns me, because I don't understand what they're trying to tell me. They're saying they're going to eliminate house accounts, yet they're opening them up again, so that's unclear to me. I haven't been able to get that question answered by Canada Post.

Mr. Roy Cullen: I'm not going to pry into your personal affairs, so you may want to answer part or none of this next one.

You have fixed costs—a counter, a staff, a certain cost structure—but as a business person looking at that $1 million plus in sales from a franchise in terms of return on investment and return on assets, you're doing pretty well, aren't you?

Mr. Rod Beatty: Yes. Our initial outlay was quite high, and we did make that money back within the time period that we allowed for; however, we're definitely not getting rich from this.

Mr. Roy Cullen: What you're saying is that you think you have done whatever it takes to be a successful franchisee. You're saying to this committee that you're not discounting out of the region.

Mr. Rod Beatty: No, I'm not going actively outside of my territories to sell stamps.

Mr. Roy Cullen: No, but you're not aware of people coming in and buying large volumes of stamps at discounts, other than certain stamp shops.

Mr. Rod Beatty: Other than my stamp shops.

Mr. Roy Cullen: And you said you had some commercial accounts, didn't you?

Mr. Rod Beatty: Yes, those are merchants in the mall who would buy stamps but who do not necessarily have $100 in their petty cash. We have to invoice those ones.

Mr. Roy Cullen: So you would see this new scheme from Canada Post as penalizing someone like you, someone you believe has been successful in running and operating a franchise?

Mr. Rod Beatty: Yes. I'm there 60 hours a week—and that's just me, that's not the total number of hours that we are opened. I do really bust my butt to offer good service to the customers. I get the queue to move very quickly, and we do serve in excess of 700 customers a day. These are actually people in the store; if you want to stand outside at the counter, you can see how many people are going through our store. So yes, I feel I am being penalized.

I really am busting my butt very hard, and I'm working a lot of hours. I had intended to have this franchise for ten years at this particular fee structure. At the end of the ten years, Canada Post would then ask me if I wanted to renew and would tell me what the new rules were.

Mr. Roy Cullen: When you originally saw the deal that Canada Post was offering, what were the commissions? Were they 17%?

Mr. Rod Beatty: The discount on product purchase is 20%, and then there is the royalty of 3%, of which 2% goes to Canada Post and 1% to advertising. So it works out to roughly 17.5%.

Mr. Roy Cullen: You must have looked at that and said, “Wow, that's pretty good.”

Mr. Rod Beatty: Yes, because based on what Canada Post presented to us, the performance for that particular outlet would be in excess of $700,000. Actually, it was closer to $800,000, because they didn't take into consideration that the Canada Post-run office was on the second level and did not have the same hours. They weren't open for extended hours on Saturday, and they weren't open at all on Sunday. They weren't open in the evenings. And that location on the second level did not nearly get the amount of walk-by traffic. It was very minimal compared to where I am right now.

Mr. Roy Cullen: So without putting words in your mouth, would your view be that Canada Post is making this change because the commission structure as it currently exists is really not working in their favour, so they're going to try to change the rules?

Mr. Rod Beatty: I don't know if it's working in their favour or not. They posted a profit last year, so obviously it must be. I would say they just want to get more money out of us.

Mr. Roy Cullen: Okay, thank you.

The Chairman: Thank you, Roy.

John, Marlene, Angela, and then Carmen.

Mr. John Duncan (Vancouver Island North, Ref.): I'll just follow up with you for a second, Mr. Beatty. How many years into your agreement are you now?

Mr. Rod Beatty: We're five and a half years in.

Mr. John Duncan: Five and a half. So even though they're ten-year agreements, the rates can change at any time if you're given thirty days' notice?

Mr. Rod Beatty: Sixty days' notice, actually.

• 1200

Mr. John Duncan: This next question is for your whole group: Is this the first time there has been any significant change since these franchise agreements came out?

Mr. Rod Beatty: To this degree?

Mr. John Duncan: Yes, is this the first really substantive change?

Mr. Mukesh Gupta: Am I allowed to answer that?

Mr. John Duncan: Sure.

Mr. Mukesh Gupta: It happened once about three years ago, that 20% was cut to 10%. That was on Priority Courier packages leaving the country. It was again a substantial drop, but it was done only on one isolated product.

Mr. John Duncan: Okay, thank you.

We haven't talked a lot about the new competition from ATM machines. Does anyone know what commission CIBC will receive on that?

Mr. Jean-Paul Sirois: Canada Post does not divulge that information.

Mr. John Duncan: Do any of you know the numbers? We believe it's 5%, but I'm not—

Mr. Rod Beatty: I only understand that CIBC is charging the consumer 75¢ per transaction.

Mr. Mukesh Gupta: That is over and above the value of the stamps.

Mr. Rod Beatty: Exactly.

Mr. John Duncan: Given that 5% is the number, and given what has occurred over time, it looks like Canada Post may be thinking the company made a very bad deal originally, and it wants to make some changes. They're therefore portraying this in a way that would suggest they are fully justified in doing it, but the actual fact, the real reason, is that they just think they made a bad deal.

Mr. Jean-Paul Sirois: When we talk to franchise owners across the country, they certainly don't believe Canada Post wishes to dismantle the existing franchise network.

Mr. John Duncan: In listening to earlier testimony, not just the testimony from your group, it seemed like Canada Post knows an awful lot about your business and wants to know everything. I'm wondering why that level of detail is necessary in any way, shape or form, when the bottom line should be whether or not the customer is satisfied with the service delivery at the retail level. Philosophically, I have great difficulty with how this whole thing is being organized.

Is the actual franchise holder agreement a complex document? How big a document are you talking about?

Mr. Jean-Paul Sirois: It depends on the franchise, sir. The agreement has evolved over the ten years, so there are many generations of it.

Mr. John Duncan: It's not a one-size-fits-all deal.

Mr. Jean-Paul Sirois: No, sir.

Mr. John Duncan: I guess that's it for my questions, except for one final one: Do you see any reason why customer satisfaction cannot be obtained if Canada Post removes itself from all aspects of how you run your business, other than to ask if the customer is receiving value for money at the other end?

Mr. Mukesh Gupta: I see myself as a soldier. With these kinds of acts, I feel wounded. If they are expecting me to provide a good service to the customers and they don't want to feed me properly, and if they don't want to do any act so that I can trust them— There is a whole question that is more than the money issue. It is the respect that we would like to have. We would like to be viewed as partners, which was the understanding given to us when we got into the game.

The very fact is that even with this change that they announced in June, they have changed their changes. When I originally went to the Westin Hotel for their presentation, they told us our business would significantly increase. The company planned to dismantle the house accounts and would direct the house accounts to our outlets so that we would have more business. Within a few months we saw them writing a statement that they would deal with this house account directly.

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So there is a credibility problem that I see as a franchise owner. The bottom line is that they say that whatever changes they do are subject to change again on sixty days' notice. If they expect me to invest another $30,000 into this game now, when will they change this again? I do not know that.

Mr. John Duncan: What about you, Mr. Beatty? Do you think there's any value in Canada Post concerning itself with whether you're selling $1 million or $700,000?

Mr. Rod Beatty: Canada Post knows very well what I'm selling. As I said—

Mr. John Duncan: I realize that, but what difference should it make to them philosophically as to whether you're too big or those kinds of questions? Really that's—

Mr. Rod Beatty: This is an issue that should have been brought up before we even opened. Whether we're going to be too big or too small or what have you, really, I don't think is any of their business. They're the ones who said they needed to have a franchise in the Rideau Centre. There was nobody else willing to take that franchise. That's the reason it's in Japan Camera; it's obviously kind of an odd place to have it. obviously. We decided it was a good idea to draw traffic into the store. It has not increased business significantly at all for the house business.

So yes, I'm doing not too badly where I am, and you're right, Canada Post shouldn't be overly concerned with what I'm actually doing there. I'd be the first one to say that I think I give top-rate service to my customer, second to none.

Mr. Mukesh Gupta: I have one last comment, sir.

The Chairman: Okay, a short comment.

Mr. Mukesh Gupta: Canada Post has so much information about all the postal outlets, as you have rightly suggested. In my estimate, I think maybe 4% to 5% of the people are doing the large volume such as what Mr. Beatty is doing. The majority of us are in my situation. I'm doing about $300,000. The irony of that is that I'm short $125 in my contract and I've been penalized again, even with this new change, by $19,000.

The Chairman: Thank you, Mr. Gupta. Thank you, John.

We have Marlene, Angela, Carmen and Gilles. Marlene.

Ms. Marlene Jennings (Notre-Dame-de-Grâce—Lachine, Lib.): Thank you. First of all, I'd like to thank you for being here to make your presentation. I do have a couple of clarifications and a couple of issues I'd like to raise with you.

First, in terms of clarification, when Canada Post came before us last week they made a point about the issue of selling outside of territory. In other words, violating contractual agreement was a real problem, and they had attempted to tackle this problem by collecting evidence, doing investigation and then taking the alleged culprits to court. And they had in fact won cases. But it was timely and costly, and notwithstanding that the judgments in those cases they did in fact pursue were favourable to Canada Post, it did not stop the problem. They felt that one of the reasons they needed to go to this new type of fee schedule was in an attempt to counter this problem.

They didn't really give us any firm statistics as to just how much of a problem it represented. From listening to you, I'm finding that there are cases where the volume appears to be perfectly normal. When I listened to you and Mr. Beatty, you explained that Canada Post had its own installation in this particular centre, and at that time, with the type of salaries they had to pay and with the hours they were actually open, they were doing business of approximately $750,000 to $800,000 gross sales a year.

Mr. Rod Beatty: That's what we were told.

Ms. Marlene Jennings: That's right. And since you've taken over as a franchisee you've moved to another level where there's a lot more walk-by traffic, and your hours are a lot more flexible so you're providing a lot more access to the public, so then it's not surprising the volume has gone up significantly. I think an approximately $250,000 increase in gross sales is a significant increase. It's about 20% to 25%.

• 1210

You say that Canada Post has access to all of your books, so they have access to the books of all of the other franchisees. They know exactly what kinds of sales are going on there, what the volume is annually, etc. That raises in my mind a question as to whether or not Canada Post has done a study to determine precisely that in certain areas one has to expect this kind of volume.

When Canada Post came before us, they said with the way they set up their territories they're expecting that it should be between $250,000 and $300,000 gross sales within the territory. That's what the norm should be. If it falls significantly below that, there should be a light going on saying there's a problem here. If it goes significantly above that, a light should be going on saying there's a problem here. If it's above, the problem may be that this particular franchisee is selling outside of their territory and in effect taking away business from another franchisee.

With your case, which I find really interesting, Mr. Beatty, it means the scenario that Canada Post gave us is not quite accurate.

Mr. Rod Beatty: I would agree with that.

Ms. Marlene Jennings: Perhaps Canada Post hasn't done as much of its homework as it should have done. Perhaps there should be certain areas and territories where the category is different and what should be presumed to be average sales is much higher than what they presented to us. That's one.

Secondly, you, Mr. Sirois, explained that you have about 1,030 franchisees as members of the association out of a total of, if I'm not mistaken, approximately 1,700 to 1,800 franchises across Canada. Is that figure correct?

Mr. Jean-Paul Sirois: That's correct.

Ms. Marlene Jennings: Canada Post comes and tells us that the issue of discounting when the franchisee is not allowed, according to the contract, to discount—in those cases where they're not allowed to discount—or selling outside of the territory is a real problem. You say that's not an issue for your association. Did I understand you correctly?

Mr. Jean-Paul Sirois: No.

Ms. Marlene Jennings: Then I'd like you to correct my misperception of what you said.

Mr. Jean-Paul Sirois: What I said was that in the focus groups we conducted with franchise owners in—I can run through the cities again if you like—essentially every major urban centre from Vancouver to Halifax—

Ms. Marlene Jennings: I understood that.

Mr. Jean-Paul Sirois: —it was not a prevalent issue that was raised by the franchisees.

Ms. Marlene Jennings: But as an association that represents such a significant portion of the franchisees across Canada— I really don't care if Canada Post likes the structure the franchisees have put into place to represent them or not; it's the franchisees who determine what structure they want. If they want a structure they buy into and it becomes a lobby group or whatever, or it's another kind of structure, that's the franchisees' business.

My view is that there's a real problem where you have one party, in this case Canada Post, that perceives this selling outside of territory as a real problem. On the other hand, your membership does not perceive it as a problem. I think this is something that needs to be discussed.

I do appreciate Ms. Parrish's offer not only to meet with you but to help set up the meeting you've been waiting for for so long with Canada Post. I think that's something your membership needs to look at it, because if it's one of the issues that's driving Canada Post, then you have an interest in looking at it seriously and determining whether or not Canada Post's perception that it is a problem is correct and seeing what your association can do to assist Canada Post in dealing with it and finding solutions that are positive for both parties and not just for one party.

Mr. Jean-Paul Sirois: If I may comment, I couldn't agree with you more. We very much welcome Ms. Parrish's offer to meet with her and Canada Post. The assertion was made that Canada Post holds the perception that reselling or selling outside of territories is a problem. I would counter this by suggesting that Canada Post has created that perception as leverage for introducing these changes. Canada Post raised—

• 1215

Ms. Marlene Jennings: May I interrupt you for a moment?

Mr. Jean-Paul Sirois: Certainly.

Ms. Marlene Jennings: The officials from Canada Post were quite clear that they had pursued these in the courts and had won, and that these were significant wins.

They did not provide us with the actual case studies, but when the officials came before us, Canada Post did in fact state that they had those definite case studies. We can ask them to provide them in order to see whether or not they were in fact significant. But as I said, they had actually sued in the courts, they had won, and it had not made a dent in the problem. I therefore think that's one of the issues you're going to have to discuss with them when you meet with them.

I'd like to come back to another point that you made. You said it's a dictatorial system. Canada Post dictates what will be sold, at what price, the type of software that has to be put into place, the square footage, etc. They basically dictate everything. I have family members who are franchisees—not with Canada Post but in the restaurant business—and there's basically a lot of dictating that goes on from the company that actually sells the franchises.

Normally when you have a franchise operation, one of the ways in which you're hoping to get business is by being able to claim that you provide basic, uniform service. If I go into a McDonald's in Pointe-au-Pic or in Miami, I'm expecting to have basically the same kind of menu, the same kind of equipment, the whole bit. I'm expecting that kind of standardization. So that doesn't surprise me.

What does interest me is the fact that you mentioned the court case, the judgment in Ontario against the Green Grocers. It determined that given the nature of the relationship between the Green Grocers and their so-called franchisees, the franchisees were not franchisees but were in fact employees. I'd like you to provide this committee with a copy of that judgment.

Mr. Jean-Paul Sirois: Certainly.

Ms. Marlene Jennings: Thank you, because that will help us to determine whether or not what Canada Post is proposing does in fact meet that kind of standard that was determined in the judgment.

The Chairman: Marlene, your time's running short. We can come back to you.

Ms. Marlene Jennings: Okay, then I'm just going to finish by saying that in terms of the riding that I represent, I had two franchisees in this past year who gave up their contracts. One, I was told, did so voluntarily. I contacted that particular franchisee, and it was one of those block ones, another franchise, a multiple— In the second case, it was not voluntary, and the types of scenarios or experiences that the three of you have described with your regional representative really rang a bell, because they matched exactly what my constituent said.

I really do urge you to try to work out an amicable agreement when you sit down with Canada Post, because you are small businesses. As everybody knows, small businesses are one of the lead modes of economic development here in Canada. I also think the whole issue of postal services is important for the Canadian public, so I hope that you will be able to sit down and work out a scenario. The scenario may be that there are several scenarios, because there isn't one size that fits all.

This is what I'm going to be urging to Canada Post as well: to provide more flexibility in order to ensure that the needs of the Canadian public are met in every part of the country. If they need to be flexible, then they'll have to do that, in my view. I just want to end with that.

The Chairman: Thank you, Marlene. We can give you a further opportunity if we have time at the end.

We're going to hear from Angela, and then Carmen and Gilles.

Mr. Jean-Paul Sirois: Mr. Chairman, may I just make a few very brief comments addressing the previous member's concerns?

The Chairman: Certainly.

Mr. Jean-Paul Sirois: I would like to ask the committee something. Case law aside, if Canada Post has appeared here and has said the reselling issue is a problem, I'm wondering if members are satisfied that Canada Post has explained to the committee how the new structure would stop such a problem, if indeed such a problem is endemic.

On the standardization that you mentioned through franchisees, certainly I expect a Big Mac to be the same in Miami as it is in Ottawa. But if I owned a McDonald's franchise, I would not expect to be penalized, as is happening with Mr. Beatty, for being successful at running my franchise.

• 1220

As a last comment, Mr. Chairman, I'd be happy to provide the Supreme Court of Ontario decision to the clerk.

The Chairman: Thank you.

Angela.

Ms. Angela Vautour (Beauséjour—Petitcodiac, NDP): First, I want to apologize for missing your presentation. I'm having one of these days where I have to be, again, somewhere else this noon. So I'm going to be very short and ask you to be very short with your answers or comments.

I'm a little concerned. When we heard Canada Post make a presentation, it seemed fraud was the big reason for bringing in the changes. I'm very new. This was my first meeting as the new critic for Canada Post, and I left thinking people are making millions of dollars and they're just going to try to stop that. You've presented something totally different, and I find it very upsetting that we can have Canada Post come here and say that not all of you but a lot— They were really saying that because of the fraud they have to bring these changes. At the same time, they were saying they could be profiting $8 million a year by making these changes. So I think we also have to look at that aspect. Canadians are not going to save anything by this because Canada Post is going to profit by the changes.

Since I am very short of time, I just want to make you aware that fraud was actually the reason being used to bring in the changes, and nobody mentioned whether service was good or not. Obviously, you're definitely giving good service.

I found it very unfortunate that as a lobbyist you're getting the questions you're getting. I believe there are all kinds of lobbyists the government deals with, and I find it really odd that all of a sudden one lobbyist gets questioned.

Also, I find it very unfortunate that you almost had to give your pennies and cents in revenue in order to try to explain what the government came and told us last week. I find it unacceptable. Yes, you were very good in wanting to give the amounts you're making, and profits and what not, but I don't think that should be the issue here. I find it very unfortunate that you had to go to this point in order to counter what was said here last week.

I'm very short of time, because I've had someone waiting for me for the last 20 minutes. If you have any comments on that, go right ahead.

Mr. Jean-Paul Sirois: I thank you for your comments.

On the lobbyist side I don't take it personally. It's what I do for a living; I represent my client. And I think most members would be interested to learn how many ministers actually retain lobbyists in this town for public affairs advice.

On the issue of fraud and the message coming out of Canada Post, it has been interesting to see that message, or those messages, evolve over time. Mr. Tremblay, appearing on CBC not too long ago, said that one of the overriding reasons for reducing the commission was that OC Transpo, for example, paid 1% commission if you as a tobacconist or a stationery store sold their tickets, and they felt that their commissions were out of line. And that now seems to have evolved into fraud. Just so you're aware, that message seems to have evolved.

Ms. Angela Vautour: Thank you.

Mr. Mukesh Gupta: I have one quick comment.

The Chairman: Yes, quickly, Mr. Gupta.

Mr. Mukesh Gupta: I feel that this reselling keeps on coming up. I recall Canada Post encouraging me to run ads selling stamps at a discount. Three years in a row, six weeks before Christmas—that's the busiest time of the year—I ran the “great Canadian stamp sale” in the newspaper. Obviously they supplemented me. They paid me the co-op money to run those ads. They knew I was going to sell the stamps at a discount. It was encouraged, and the paid portion of those advertisements was expensive.

Today they come back and ask me why am I selling at a discount. I'm really kind of puzzled.

The Chairman: Thank you, Mr. Gupta.

We'll go to Carmen, then Gilles, Werner and Carolyn.

Mr. Carmen Provenzano (Sault Ste. Marie, Lib.): Thank you, Mr. Chair.

In answer to some of the questions, something of a profile is emerging of the typical franchisee, because you, sir, mentioned that most franchisees would be in the position of someone like you, whose gross sales were under $300,000. I believe it would be very beneficial for the committee to have, in as much detail as is available, a typical profile of the franchisee members of your association. If you represent 1,000 out of 1,700, a typical profile, in as much detail as you can give this committee, would be beneficial. Also, in as much detail as is available to you, what impact will these fee changes have on the typical member of your association? If you could do that for us this morning, I would be grateful.

• 1225

Mr. Jean-Paul Sirois: As we pointed out earlier, we have not collected that information because we deemed it to be proprietary. We could certainly go back to the members and ask if they would hand that over on a confidential basis, which we would then aggregate. What you would get would be reasonably generic, but we could certainly do that for you.

Mr. Carmen Provenzano: If I might, I would suggest to you, and not in critical terms, that this is a deficiency in your presentation.

The Chairman: Okay, so we accept that if the membership can, and they are able to, they will do that.

Mr. Gupta, briefly.

Mr. Mukesh Gupta: I will be more than happy to discuss that, the whole mechanism, because as an accountant, I think I can work out— But the top information is available with Canada Post. They know all the franchisees, exactly how much the top volume is that we are making. If they are willing to provide not specific numbers, just say that 60% of us are making $300,000, I'll write this up. I'll be more than happy to give you the very detailed information, to the penny, as to that bottom line translated into the top line that Canada Post can provide.

We're not asking any confidential information. They are the ones who have access to all of our accounts. If they can tell you that 1,000 out of 1,700 of us are making $350,000 or $200,000, this seems to have made the presentation, saying that excess of a million dollars— Actually they have all this information. If they can provide us just the top information, I personally will assure the committee that I can give you all the detailed mechanics, because I have a considerable amount of experience as an accountant.

The Chairman: Mr. Beatty, quickly, then Carmen.

Mr. Carmen Provenzano: Just so that you understand, Canada Post doesn't know who your members are. So when we're asking for the typical profile of the members of your association, Canada Post can't give us that information.

Mr. Mukesh Gupta: Canada Post does know all the franchisees. And for that typical franchise, whether they are an association member or they are not, the profile will not change, sir. The numbers will remain the same.

The Chairman: Mr. Beatty.

Mr. Rod Beatty: I believe that back a couple of weeks ago some of the franchisees were asked whether they were association members or not; they were asked to send in a pro forma by fax to a member of Parliament. Obviously a lot of the personal information was blocked off, such as the outlet name and so on and so forth, but the revenues were there. This was through Canada Post; this was published by Canada Post. It was the pro forma for individual franchises. I believe there were some faxes sent out. I'm sure somewhere somebody has that information and you guys can have a look at it.

The Chairman: Carmen, are you finished?

Mr. Carmen Provenzano: That's fine. Thank you very much.

The Chairman: Thank you, Carmen.

Gilles, Werner, Carolyn.

Mr. Gilles Bernier (Tobique—Mactaquac, PC): Thank you, Mr. Chairman.

My question would be for one of the gentlemen who has a franchise. I will be very blunt with my question, so I would like to have a very blunt answer also, because time is running out.

What effect will these changes have on customer service at your retail outlet, if those changes pass December 1?

Mr. George Ayoub: I think it's going to hurt the service.

Mr. Gilles Bernier: In what way?

Mr. George Ayoub: The customer is not going to get the service they were getting before. For example, we put the stamp on a letter for a customer; we help direct them to the proper channels with Canada Post. We give customers the Canada Post customer service, they call it, and apparently, according to some customers, that number does not work all the time. They get told to call another number, and then they call another number and they still can't seem to get any service.

Mr. Gilles Bernier: Okay. Out of the three franchisees, can you say if these new changes will affect only urban areas, or both urban areas and rural areas of the country?

• 1230

Mr. Mukesh Gupta: I would suggest, sir, we as entrepreneurs are expecting to make a profit for services we provide. Earlier it was represented to us that if a customer comes in they will buy the stamp, they will buy something else—

Mr. Gilles Bernier: But my question is, if these changes come into effect December 1, will they affect all franchisees across this country, only franchisees in urban areas, or only franchisees in rural areas?

Mr. Mukesh Gupta: They will affect all of us, and not only all of us. If we are going to be receiving only a 5% discount and we have a number of stamp shops—and to put this into perspective, we have 1,700 of them—my estimate is there are 70,000 resellers of stamps who are providing stamps from a convenience point of view. This includes every corner store—mom and pop operations.

Mr. Gilles Bernier: But that's not my question. I'll ask my questions to Mr. Sirois now.

Will these changes affect all franchisees all across this country?

Mr. Jean-Paul Sirois: Let me answer it this way, Mr. Bernier. Our membership is comprised of both urban and rural franchises. Those concerns are held both within the city and outside the city.

Mr. Gilles Bernier: So if those changes come into effect December 1, the ones in the rural areas will be affected as much the ones in the urban areas.

Mr. Jean-Paul Sirois: That's correct, sir.

Mr. Gilles Bernier: How would you categorize a rural area? Would it go by population, and what would the population be, according to you?

Mr. Jean-Paul Sirois: I think that's rather subjective, but in my judgement it would be outside of an urban centre. For example, I would consider the Rideau Centre to be an urban centre. I would consider Hawkesbury, forty minutes down the road, to be a rural centre.

Mr. Gilles Bernier: Last week we met with Canada Post officials here, including the president of Canada Post, and were told it would not affect the rural areas, only urban areas. What's your answer to that?

Mr. Jean-Paul Sirois: If you're cutting across the board, you're cutting across the board. How would the urban versus rural differ, when 5% is 5%? The cut is the same.

Mr. Gilles Bernier: I had a franchisee—I have more than one—in my riding who was kind of tired of playing with Canada Post and didn't want these changes to occur. He closed his doors last weekend on October 31. I know the time is limited, but do you think if those changes come into effect December 1 there will be quite a few of those?

Maybe just a few operations in the urban areas have $1 million of sales, which is not a lot. To some people it might seem a lot, but it's not. You talk about $1 million of sales, but there are the expenses and the salaries, and what they net at the end of the line isn't really that much. But would you be willing to say a lot of those franchisees in rural areas would have to close shop to Canada Post on account of these changes?

Mr. Jean-Paul Sirois: I don't want to overstep the bounds, but from the focus groups we conducted over the course of April, May, June and July, I didn't discern any difference in the impact on urban versus rural. We have certainly been told that people will simply close their doors, be they in downtown Vancouver or rural New Brunswick.

Mr. Gilles Bernier: One last small question?

The Chairman: Yes.

Mr. Gilles Bernier: Would you agree with me that one of the main reasons Canada Post wants to cut your rate of profit, let's say from 17% or 17.5% to 5%, is because Canada Post is becoming too greedy and they want more money for themselves and less for you?

Mr. Jean-Paul Sirois: I'd be happy to provide you with a transcript from CBC Radio where Canada Post said they felt their commissions were out of line. They said “If OC Transpo gives 1% for selling bus tickets, why should we give anything more?”

The Chairman: Thank you very much.

Mr. Gilles Bernier: Thank you.

Mr. George Ayoub: If I may add to that, if you don't mind, Mr. Chairman—

The Chairman: Go ahead.

Mr. George Ayoub: —they did compare us with OC Transpo. They don't realize—though they should realize—we're actually making an investment in buying a franchise as a business, so how is that the same as being an agent for OC Transpo?

The Chairman: Thank you for that point.

Werner, then Carolyn.

Mr. Werner Schmidt: Thank you, Mr. Chairman. There are a couple of points I'd like to query.

• 1235

The first of these is that we seem to have Canada Post and Canada Post. There is Canada Post that is the franchisor and there is the Canada Post that is the franchisee. Canada Post appeared one week and you appear this week, and there seems to be a real diversion of opinion between the two of you. You are two different kinds of businesses in competition with each other, yet one of the conditions of the contract is to provide service to Canada Post customers. Mr. Gupta, you said they see the sign up there that says you represent Canada Post.

The very fact you couldn't appear together and we have had such a divergence of opinion suggests to me that somehow there can't have been a dialogue, or if there was a dialogue it broke down rather severely. How can we re-establish it? Ultimately, I think we have a common goal here, or at least we should have one. How can that goal be established? What is it you want? What do you see as a resolution to this problem?

Mr. Jean-Paul Sirois: Resolution aside, Mr. Schmidt, the parliamentary secretary has offered to establish a forum, and we think that's laudable. If we walk away with nothing else today we have achieved that, and it is something we haven't been able to achieve since April, when we became involved in this.

Mr. Werner Schmidt: So that's number one. You want to establish that forum. You're going to accept the parliamentary secretary's offer to sit down with Canada Post and enter into a discussion about the issues we've dealt with here today.

Mr. Jean-Paul Sirois: Post haste.

Mr. Werner Schmidt: On the other point, the deadline of December 1, 1998, is coming up. If this forum fails to resolve the issue, what happens to this deadline? Do you have any opinions about that?

Mr. Jean-Paul Sirois: In our presentation we concluded there are other groups this committee may wish to entertain. Having said that, we would like to see a signal being sent to Canada Post that the imposition of any changes while the work of the committee is ongoing would be unwelcome.

Mr. Werner Schmidt: Maybe that can come to a conclusion. I hope it does. But if it doesn't, you mentioned the Consumers' Association of Canada and the Canadian Federation of Independent Business both as two big groups here. They are all affected by what is happening here, either directly or indirectly.

Canada Post volunteered last week to reappear if there were unresolved issues and we needed to ask further questions about their testimony. Would you, as the president of the association, and perhaps other franchisees from other parts of Canada be prepared to reappear after Canada Post appears again? Hopefully it can be resolved at this forum, but if it isn't and this committee has to continue its work, what would you say to that?

Mr. Jean-Paul Sirois: We have appeared here on essentially two days' business notice, which is why I brought with me today local franchisees. I would like to bring a national board, where every province has a provincial representative, so you could get a flavour of what these people are going through from coast to coast. The short answer is we would be happy to come back.

Mr. Werner Schmidt: I wonder, Mr. Chairman, if perhaps three things might be advanced to Canada Post. One is that the parliamentary secretary has agreed to set up a meeting with the franchisees and Canada Post. Two, if it can't be resolved, there will be a reappearance of Canada Post as well as the franchisees and perhaps other witnesses. Three is that the purpose of this is to resolve this issue.

Carmen Provenzano asked about detailed information. Some of it is privileged, I understand that, but it's exactly what I have trouble with too. Then Canada Post doesn't come clean and you don't come clean. It seems as though there's some kind of business transaction going on here and nobody is prepared to tell the whole story on either side of this issue.

Here we are, supposedly providing an efficient postal service to Canadians, and we want to do it in a cost-effective way so the people who are doing it as entrepreneurs make a reasonable profit—not enough to run it as independent business, but as a part of a host business to generate traffic, and that's okay. But somehow there is this confrontation here. It doesn't make sense.

Are you in agreement with that, Mr. Chairman?

The Chairman: I will take the suggestions under advisement and certainly discuss them at a meeting of the committee—further work, should that be necessary.

We will try to keep our last questions brief. Werner, are you okay for now?

Mr. Werner Schmidt: Okay.

The Chairman: Okay. Carolyn, I'll give a couple of minutes to you, and then Gilles has a last very short question.

• 1240

Ms. Carolyn Parrish: I really want to address Werner's comments and Gilles' comments. First of all, Gilles, the rate of pay, the rate of profit and the markups do not change for the rural post office. You were getting round-the-mulberry-bush answers.

The honest answer is that the 17.5% discount for stamps in the rural areas stays. That's the real answer and that's the straight answer. You got that from Canada Post last week. We've done focus groups and we've talked to our folks and we're all interested—it's brotherhood and all for one and one for all. But the bottom line is that the rural post offices are not being affected because they're small; we need those franchises in those small places, and we want to encourage them to keep them there. They have to get a larger profit there or they're going to close down and then we'll have a problem selling stamps in rural areas. That's the real answer.

In answer to your question, Werner, we've been on industry together and we're good buds here, but you have a lobby group and you have the post office saying they set up contracts 10 years ago and they're paying too high profits. Forget the fact that they're reselling. Just look at the fact that they are making enormous profits that should be made by Canada Post.

You have a lobby group and a well-paid lobbyist coming in here to make a case for not lowering those profits. That's a very simple thing to understand. So you're not going to get straight answers out of these guys. I believe, as much as I harassed Canada Post last week, we got straight answers out of them. I'm looking forward to having them back again. You're going to ask some very specific questions based on their material. I think they should be in the room at the same time so they can sit and listen to Canada Post's answers.

I was chair of a large board in Peel, and 5% of the kids were in French immersion and they got 10% of our budget every year because they were effective lobbyists. That didn't make it right. Every kid should get the same amount of money spent on them. That's why Mr. Beatty says, depending on whether he's had a coffee and what mood he's in, if employees come in and want to buy 50 stamps at a discount, maybe he gives them a discount. Every Canadian in this country is supposed to pay the same amount for a stamp to stick on a letter, not counting what mood he's in or whether he's had decaffeinated coffee.

Mr. Werner Schmidt: Mr. Chairman, is this a fight between me and Carolyn?

Ms. Carolyn Parrish: No, but I'm trying to make a point.

Mr. Werner Schmidt: I don't quite understand what's going on here. This is ridiculous.

The Chairman: Werner, let Carolyn—

Ms. Carolyn Parrish: Everybody else has been making speeches, which I find fascinating. This is a speech forum, not a question forum.

Mr. Gupta, if these things are implemented on December 1 with no changes, the way Canada Post wants to do it, are you going to renew your franchise?

Mr. Mukesh Gupta: No.

Ms. Carolyn Parrish: Good.

Are you going to?

Mr. George Ayoub: No. I just mentioned—

Ms. Carolyn Parrish: Are you going to?

Mr. Rod Beatty: In five years—

Ms. Carolyn Parrish: So there are no changes for you until your contract is up, right?

Mr. Rod Beatty: No, I'll be affected by this.

Ms. Carolyn Parrish: But in five years, are you or are you not going to renew?

Mr. Rod Beatty: That's five years away from now.

Ms. Carolyn Parrish: All right. That's a non-answer.

You said you do about 50% of your business with the franchise. So you're selling or moving out $1 million worth of—

Mr. Rod Beatty: I have a problem with the way you're asking that question.

Ms. Carolyn Parrish: Well, then please clarify it.

Mr. Rod Beatty: Okay.

We're comparing photo finishing to selling stamps. It's like comparing manufacturing to selling stamps. If you compare the net income of the Japan Camera franchise versus the net income of the postal franchise, the postal franchise is 15%. If you're comparing gross sales to gross sales, it's more. At the end of the year, the camera shop is obviously making a lot more net income than the postal franchise.

I have a problem with the way you asked that question. You're saying gross sales to gross sales. You can't compare those things.

Ms. Carolyn Parrish: Mr. Beatty, to sell a camera your employees are going to spend quite a bit of time with a customer.

Mr. Rod Beatty: Definitely.

Ms. Carolyn Parrish: To sell a book of stamps or a roll of a hundred stamps takes how long?

Mr. Rod Beatty: About a minute, I guess. I don't know.

Ms. Carolyn Parrish: All right. So what Canada Post is trying to do is make the labour-intensive things you do—for example, packaging, postal money orders and so forth—more lucrative. They're trying to make the mechanical selling of a book of stamps less lucrative. Is that not a reasonable position?

Mr. Rod Beatty: Then why would they have the franchise agreement structured in such a way that when we signed on the dotted line they said, “You're going to get 17.5%”?

Ms. Carolyn Parrish: It's because when they started the franchises 10 years ago they had a million court cases. They had a lot of problems. They had nobody who wanted to take the franchises, so they had to make it lucrative.

• 1245

Mr. Werner Schmidt: I have a point of order, Mr. Chairman.

Canada Post has a paid executive, yet here we have a parliamentary secretary defending one side of this case. It seems to me the committee ought to be an impartial group that's supposed to examine the issues, but here we have one member of this committee taking one side instead of trying to find out where the issues lie. The member is coming straight out and saying these things. It was done at the last committee meeting, and now it's being done again.

The Chairman: Well, I'm not going to rule that a point of order, but your point is on the record.

Carolyn, we're trying to wind up, so come to your final point.

Ms. Carolyn Parrish: I'm done.

The Chairman: Gilles, we'll get a very short question from you, and then we'll adjourn.

Mr. Gilles Bernier: My question is to you, Mr. Gupta. In one of your answers, you said that if Canada Post supplied you with 1,000 envelopes and came back to audit, they would just have to look at how many envelopes you had left. If you had 600 left, you would have to pay for 400.

If somebody else went to a post office, bought an envelope there, and went to your place to process it, why should you pay for that? As far as Canada Post is concerned, you still have your envelopes there. You can prove you only sold 400. Why would Canada Post charge you for a service that you gave free of charge?

I've been a businessman for over 20 years ion New Brunswick. I deal with problems like that, not with Canada Post but with NB Power, NBTel, and all of those, and there's a law against that. They can't do that.

Why would you have to pay $9,000 or $11,000 for something you didn't sell? It's a free service you give to your customers. How do you react to that?

Mr. Mukesh Gupta: I did not get an answer. I wanted to get those—

Mr. Gilles Bernier: Why did you pay it?

Mr. Mukesh Gupta: I had no choice. They would have shut me down and asked the questions later.

Mr. Gilles Bernier: That's what I do with NB Power: Get out of here!

Mr. George Ayoub: That's part of the intimidation.

The Chairman: Let's deal with one franchise at a time.

Mr. Mukesh Gupta: My whole livelihood is depending on that $3,000 a month that I take home to feed my kids. If I tell them to shut it down, I'll be on the welfare roll, sir.

Mr. Gilles Bernier: Nine thousand dollars is almost welfare. It's a lot of money to dish out as a business. Nine thousand dollars?

Mr. Mukesh Gupta: They were kind enough to allow me to pay it in three instalments.

Mr. Gilles Bernier: That's all, Mr. Chairman.

The Chairman: Okay, Gilles.

I would like to thank the witnesses very much for assisting the committee's understanding of some of the issues of concern to members of your association. We've had a frank discussion, and I think we have a suggestion from Mr. Schmidt that we can discuss as a whole committee. But I think the most important thing is to see the discussions that hopefully can take place with the assistance of Ms. Parrish.

Thank you all. On Thursday we're changing subjects. We're going into mining regulations. We have rather a—

Mr. Roy Cullen: Yippee!

The Chairman: With that, we'll adjourn the meeting.