Companies divided on raising prices or slashing benefits to handle wage hike

Some Tim Hortons franchises have faced significant backlash after cutting paid breaks and forcing workers to cover some of their dental and health benefits to compensate for the minimum wage jump from $11.60 and hour to $14 an hour last week. (Shutterstock)

TORONTO—Signs announcing price increases and letters to employees slashing benefits have grown rampant in Ontario, revealing two very different approaches businesses have gravitated toward in the wake of province’s minimum wage hike.

Some Tim Hortons franchises have faced significant backlash after cutting paid breaks and forcing workers to cover some of their dental and health benefits to compensate for the minimum wage jump from $11.60 and hour to $14 an hour last week, while chains such as Pizza Nova say they will be upping prices instead.

But how some companies settle on the route to take might have come down to a factor as simple as timing, said Sylvain Charlebois, the dean of Dalhousie University’s faculty of management.

He said there is little to no evidence that Restaurant Brands International Inc., the parent company of Tim Hortons, and franchise owners worked on a strategy before Ontario’s new minimum wage rate came into effect Jan. 1. “It is not a surprise. Everyone knew it was coming,” Charlebois said.

Price increases take time to calculate and roll out, he said, so large companies with many locations or franchises that didn’t plan ahead might have been in a scramble to adjust to the hike and target their workers instead.

“Food services are heavily affected because most of their workers are paid minimum wage and they can’t rely on robotics and automation, but things like changing benefits or asking employees to pay for uniforms are things you can change very quickly,” Charlebois said.

Raising prices can also be problematic because there’s only so far you can increase them without driving away customers. A study published in the Journal of Labour Research has shown food service companies can only sustain a three per cent increase over a few years, which Charlebois said often pales in comparison to the amount needed to offset higher labour costs.

Despite that research, Ontario Labour Minister Kevin Flynn seemed to be nudging businesses to at least consider price increases.

He said Monday that companies struggling to cope with the minimum wage legislation have many ways to handle cost constraints and “to pretend that maybe pricing isn’t a part of that, I think it would be unfair.”

“I think any business having to make decisions would take a look at, is my pricing fair?” Flynn said. “Is this something where I can make a profit, but make sure that the people that I’m paying, the people that I’m employing, aren’t living in poverty?”

Those aren’t questions all business owners can mull over. Franchisees, for example, often aren’t allowed to raise prices.

The Great White North Franchisee Association, a group created last year to give voice to the concerns of some Tim Hortons franchises, has said that without help from their parent company in raising prices among other cost offsetting requests, franchisees have been forced to take steps to protect their business.

In a statement Monday, Tim Hortons head office said franchisees could offset costs by analyzing their top-line sales, operational efficiencies, and savings on equipment and costs such as waste management.

The statement came days after head office called franchisees who took aim at employee benefits, calling them “reckless” and “completely unacceptable,” and said staff “should never be used to further an agenda or be treated as just an ‘expense.”’

Pizza Nova CEO Domenic Primucci said restaurant franchises at his chain will pass along the cost of Ontario’s new minimum wage rate to customers rather than transfer the brunt of the hike to employees, though he wouldn’t say when or by how much.

While he said the legislation has been “contentious” and has started to have an impact on everyone from owners of small mom-and-pop shops to large corporations, “it doesn’t affect one more than the other.”

“There is not much we can do about it other than accept it and move forward.”