Economic Development is the creation of wealth that allows the Nation to support its members. This is created through economic development activities – starting and operating successful, profitable businesses. The more revenue a business earns, the more wealth the Nation will have, and the revenue earned will go into further economic activity, as well as it will support members with housing, healthcare, employment, education, or any other needs they have. Economic Development, done well, is a strong financial engine for Nations, can fund all resources needed for a thriving community.
Some communities decide to choose businesses they want in their community rather than businesses that support the vision of economic development for their community. And what we personally prefer isn’t always the best business decision. For a simple example of this, let’s look at two major coffee competitors: Tim Hortons and Starbucks, and suppose they both want to set up a store on Malahat lands.
Step 1: Ignore which coffee you personally prefer the taste of.
Step 2: Review the business information (below).
Tim Hortons is one of the most popular coffee chains in Canada, particularly on the east coast. In the past five years the brand has changed coffee suppliers three times, and in 2019 addressed its struggle with its own brand identity – they were losing customers and didn’t know why. The company operates on a franchise model, which means that individual franchisees pay fees to use the brand and operate them independently. This structure creates minor differences between sites, such as different menu items, or different employment and management styles. When partnering with a First Nation, Tim Hortons does not pay rent, instead they pay a percentage of net earnings (the revenue leftover after Tim Hortons pays all of its employees and bills). If the store is shut down for any reason and/or does not perform well, the Nation will not be paid or be paid little for the business. As an example, there is Tim Hortons in the mid-island region on First Nations land that through COVID-19, earned $0 for the Nation for over six months.
For the past five years Tim Hortons has been the defendant in numerous lawsuits by its franchisees regarding misuse of funds, unfair treatment, and breach of various contracts. This is a concern when exploring a franchise.
Pros: Potential high revenue if store performs well; Nation could own the franchise
Cons: Low/no revenue possible, bad reputation with franchise partnerships
Starbucks is also one of the most popular coffee chains in Canada, particularly on the west coast. However, Starbucks does not offer a franchise partnership model, instead they own all their stores corporately. This allows Starbucks to be consistent and in control of its menu and operations. Because Starbucks stores are unique and require custom development such as including a drive through and a specific café set-up, Starbucks pays a higher-than-average lease rate to the landowner through a long-term lease agreement. The land lease paid each month is guaranteed and the amount does not fluctuate, because it is paid regardless of how Starbucks performs month to month.
In the past five years Starbucks has also been sued, however for customers getting the wrong drink or a drink that was too hot, for not paying managers in Ontario overtime wages in 2014, and for the vanilla syrup label not disclosing it was not natural but rather artificial flavour. None of these claims directly risk the lease agreement partnership we are considering.
Pros: Stable revenue, higher-than-average lease
Cons: Nation cannot directly own the store (franchise)
Based on this, which one would you choose as the best business for Malahat?
…and that’s economic development!
If you want to know which one I would recommend, please feel free to reach out!
Angela van den Hout, Director of Economic Development