Tim Hortons and Lessons in Government Inefficiency

LvMIC:

Tim Hortons is Canada’s largest fast food chain.  It has over 3,000 stores across the country; twice the number of McDonald’s.  The multi-million dollar brand is most famous for its donuts and coffee.  With such popularity and profitability, it would seem that investment in the Tim Hortons franchise almost guarantees financial success.   Building a brand which consumers trust takes time.  Customer preference can change instantaneously.  The entrepreneur’s job is to predict unpredictable behavior.  Whether he is correct is measured in the profit he earns by satisfying purchasers of his offered goods.  The myth that the average consumer is blindly duped into buying whatever predatory advertisers decide is the new “it” product is a deceitful conception peddled by enemies of the free market.  As Murray Rothbard points out,

For if, by advertising, business production automatically creates its own consumer demand, there would be no need whatever for market research—and no worry about bankruptcy either. In fact, far from the consumer in an affluent society being more of a “slave” to the business firm, the truth is precisely the opposite: for as living standards rise above subsistence, the consumer gets more particular and choosy about what he buys.

Tim Hortons has earned its favorable reputation by satisfying consumers for decades.  Otherwise it would not have grown into the dominant restaurant chain Canadians see today.  It is estimated that, on average, the owner of a Tim Hortons franchise makes $265,000 in profit.  So when the National Post reported that a specific franchise in Newfoundland found itself in the red by $260,000 last year, it would seem that something else was amiss besides inept management.  According to NP, the failure to turn a profit didn’t have to do with individual managers but the fact that this specific franchise was staffed by public employees.

When the Tim Hortons at Newfoundland’s Health Sciences Centre opened in 1995, the hospital’s administrator predicted the shop would turn an annual profit of up to $300,000 and pay for seven nurses — or 11 support staff, or maybe even pay for the increase in chemotherapy drugs for cancer patients.

Instead, the coffee shop at the St. John’s hospital lost about $260,000 last year, offering what critics say is a cautionary tale of what can happen when the public sector gets involved in things better done by private enterprise.

According to the President and CEO of Tim Hortons, Vicki Kaminski, the staff who pour coffee and serve food within the franchise are unionized public employees who are paid $28 an hour.  “No Tim Hortons pays that,” says Kaminksi.  The Eastern Health authority which runs the Health Sciences Centre is losing $1.2 million annually on dietary services.  With Canada’s government-administered health care system, that means taxpayers are on the hook to make up for the loss.

Over in Ontario, the three Tim Hortons within Windsor Regional Hospital are losing $265,000 a year.  This is because the employees are paid “nearly triple what the average coffee server makes” according to CBC News.  Food services overall see a $600,000 loss at the hospital.  Again, taxpayers are forced into paying for the shortfall.

This money losing fiasco is illustrative of why the state, unlike the private sector, is unable to economize effectively.  When private business has no choice but to appease willful consumers in order to be profitable, it must control costs in such a way that it can remain operational.  Any experienced losses are borne by the owners, shareholders, and subsequently the employees who expect a steadily reoccurring paycheck.  In short, a private company’s livelihood depends on its income covering its costs.  For those businesses that find themselves unprofitable, bankruptcy occurs and assets are sold off to aspiring entrepreneurs who hope to be better stewards of the newly acquired capital.  This recycling of resources results in the most effective producers prevailing over the inefficient ones in the long run.

What governments lack in comparison with the private sector is not only the monetary incentive to earn a profit but the flexibility in meeting the capricious demands of the fickle consumer.  Those firms more in tune to the changing conditions of the market are in a better position to adapt and direct production towards what will yield a profit.  The state, in being an abominable bureaucracy, will tend to always fall prey to its own static operational style.  As goes Gary North’s comical yet accurate Law of Bureaucracy:

“There is no government regulation, no matter how plausible it initially appears, that will not eventually be applied by some bureaucrat in a way that defies common sense.”

North’s Law is on full display in the case of the various unprofitable Tim Hortons.  Even though the three restaurants are losing massive amounts of money each year within the Windsor Regional Hospital, the chair of the union which represents its workers is unwilling to budge on wage concessions.

CAW Local 2458 chair Ken Durocher, who represents over 450 service workers at Windsor Regional, said his union lost a few jobs in the past, but never experienced wage concessions.

“We wouldn’t accept a lower wage just to keep the cafeteria open,” Durocher said.

Instead, he said cutting the hours of the cafeteria’s operation would be a better option.

The motto of every union leader, especially those in the public sector, is always “never cut pay, never cut benefits, the public be damned!”  Windsor CEO David Musyj has admitted “the hospital will likely continue to lose money” as he is bound to abide by the collective bargaining agreement.  This government enforced contract of subservience all but ensures taxpayers will remain targets for continued shakedowns to pay for the above-market pay and benefits of unionized employees.

So while Canadians are burdened with enduring increasing costs and reduced quality of state-run health care, they are also coerced into paying extravagant wages for unionized coffee pourers.  Politicians keep buying votes.  Unions get their overpriced perks.  Joe Public has the jackboot of government extortion pressed ever more firmly against his throat.