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Tim Hortons downgraded? Don’t bet on it

Coffee addicts continually clog my morning commute, regardless of the economy

By Todd Humber

I’m not a coffee drinker. In fact, one of the first things I ever wrote for Canadian HR Reporter more than a decade ago was a call for fresh juice dispensers to be installed next to the coffee machines that are ubiquitous in most workplaces.

My rallying cry didn’t work — there are still no options for fresh juice or smoothies in my office, or in nearly every office I’ve ever visited. (So much for the power of the media.)

So while I’m not qualified to comment on coffee, I certainly drive by enough Starbucks, Tim Hortons and Coffee Time franchises on my way to work to say, unequivocally, the coffee business is both booming and recession proof.

Everyone knows the global economy has been gasping and sputtering for the better part of the last four years. Statistics Canada doesn’t track the number of people turning into the Tim Hortons near my house, but I feel comfortable going on record as saying it is rising. If I don’t remember to get out of the left lane as I approach a doughnut shop during my morning commute, I invariably find myself stuck and cursing (politely, of course) as a coffee addict puts on his blinker and waits for traffic to clear.

The Java-related traffic tie-ups didn’t abate when the economy collapsed in 2008. When General Motors and Chrysler went begging to both the federal government and the Ontario government for bailouts, the beans were still being ground. Even recently, with news of thousands of job cuts at struggling BlackBerry maker Research in Motion, the bleary-eyed masses continue to lineup for their morning fix. Nothing, it seems, can stop the flow of customers.

So it’s hard to reconcile the headline I read in this morning’s paper — “Tim Hortons double-double growth stalling? Goldman Sachs downgrades to sell.”

Uh oh. What’s wrong with the coffee mecca? It can’t be a lack of customers. (See above.) It can’t be saturation. Paul House, Tim Hortons interim CEO, says there’s room in the market for 700 more franchises in Canada on top of the existing 3,300 locations. It can’t be tougher competition… according to the same article, eight out of 10 coffees poured in this country are done so at Tim Hortons, and our population is expanding.

So what’s Goldman Sachs’ problem with the stock? If I dig a bit deeper into the business news, I might be able to find the source of its angst… and here it is. All the way down in the City of Scranton.

The Pennsylvania city of 75,000 people, best known as the setting for the American version of the hit TV show “The Office,” is running out of cash. In fact, most Canadians have a higher limit on their credit cards than Scranton has in the bank.

How broke is it? According to Reuters, it only had US$5,000 left after making payroll. In a desperate move, Mayor Chris Doherty slashed the wages of the entire city’s workforce — including unionized workers — to minimum wage on July 6 in a bid to close the budget shortfall.

If it holds true (and it's doubtful it will, given court challenges) that means every city worker, including the mayor, city councillors, police officers and firefighters, would be earning US$7.25 per hour.

In Ontario and British Columbia, the minimum wage is $10.25 per hour. In Alberta, it’s $9.40. In Nova Scotia, it’s $10.15.

No wonder Goldman Sachs is sounding the alarm bells at Tim Hortons — every single worker at Timmies is being paid more than Scranton’s chief of police. That’s just not sustainable.

Todd Humber is the managing editor of Canadian HR Reporter, the national journal of human resource management. He can be reached at todd.humber@thomsonreuters.com. 

© Copyright Canadian HR Reporter, Thomson Reuters Canada Limited. All rights reserved.

Todd Humber

Todd Humber is the publisher and editor-in-chief of Canadian HR Reporter, the national journal of human resource management. Follow him on Twitter @ToddHumber
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