Thank you, Justin.
Being accountable for the food cost to the franchisees who operate the thousand-plus restaurants under the Pizza Hut, KFC, and Taco Bell banners across Canada, I spend a large part of my time managing supply management, from the producer—who is a grower—to the processor to the restaurant.
The following are key points that impact my stakeholders.
First, for poultry, the availability of fresh chicken that is within our allowable size range is an ongoing challenge. In part because of the allocation process that was mentioned earlier and the fact that the producers are incented to grow larger birds under the existing pricing model, they elect not to grow the KFC-size bird, which falls into the small bird category. The lack of sized birds can lead to a number of obstacles: the producer, capping the amount of product we can purchase, thus limiting my opportunity to sell; having to develop logistics networks to move products from one market to another, which adds cost for the transportation and handling of the products and impacts the shelf life at store level.
Second, there is an unfair advantage given to the frozen pizza makers through the class 5A program. This is approximately a 30% difference in cost—and for what? It's the same raw material, just at a different delivery point and a different point of application.
Third is the higher cost of both chicken and cheese in Canada compared with the U.S. and other leading industrial nations. As global brands, we work on maximizing our marketing successes in other countries, but unfortunately, because of the cost structures in Canada, we cannot replicate them here or, because of tariff controls, import them.
Finally, for the farmer, chicken and milk pricing may be inelastic, but at the restaurant level it is not, as the restaurants cannot continually pass costs on to the consumer. If they did, they would price themselves out of the consumers' price tolerance level and push them to our competitors in the non-supply managed focused categories.
Overall, the added complexities and cost of chicken and cheese, because of supply management and the marketing boards, impact the ability of restaurants to run efficiently and profitably. With their average profit of only 4.4% of operating revenue, as reported by Stats Canada, the profitability of restaurants, particularly the ones that are centred on supply managed ingredients, needs equal consideration to the profitability of farmers and the processors, if they are to succeed and grow.