Finance Committee on April 23rd, 2020

[The Chair, Liberal, Wayne Easter]

For the purposes of formality and proper procedure, I'll call this meeting to order.

Welcome to meeting number 21 of the House of Commons Standing Committee on Finance. Pursuant to the order of reference of Tuesday, March 24, the committee is meeting on the government's response to the COVID-19 pandemic.

Before we start, I want to inform members that pursuant to this order of reference, the committee is meeting for two reasons. One is for the purpose of receiving evidence concerning matters related to COVID-19 and the other is to consider the biweekly report by the Minister of Finance, which we will get next week again.

Today's meeting is taking place by video conference and proceedings will be made available via the House of Commons website. Just so you are aware, the website will always show the person speaking rather than the entirety of the committee, and that goes for the witnesses as well.

We went through most of the procedures for participating, so mute your microphone when you're not speaking, if you can, and speak as slowly and as clearly as possible. That will make it easier for the interpreters to hear you and then translate into the second language.

I'll start with the witnesses now.

I would ask witnesses to try to keep their comments to about five minutes if they can. We will then be able to have a good series of questions.

Starting with Javaroma Gourmet Coffee and Tea, we have Rami Kassem, president.

Mr. Kassem, go ahead, please.

[Rami Kassem, President, Javaroma Gourmet Coffee and Tea]

Thank you so much for inviting me to this meeting. I really appreciate being here.

I appreciate so much what the government is doing for us as owners of small businesses. It's a big support. In the last month and a half, we have been in a big depression on both the personal side and the business side. When you go home, you don't want to talk to anyone. When you go to work, there is no job, there is no work and there are no customers and no money. Slowly the federal government started coming up with a plan to help small businesses, starting with paying a percentage for the employees working for us, up from 10% to 75%, and with grants, and the territorial government as well is giving us loans, along with the federal government.

What we need is to be afloat, and to be afloat until this pandemic is over. With the support of the federal government and the [Technical difficulty—Editor] here in the Northwest Territories, everybody is doing their job. Thank you as well to our MP, Michael McLeod, for his hard work and dedication.

Thank you, everyone. We'll keep going.

[The Clerk of the Committee, Mr. David Gagnon]

I'm sorry, Mr. Chair, but you have to unmute your mike. We cannot hear you.

[The Chair, Liberal, Wayne Easter]

I gave a great speech there, and nobody heard it.

Thank you very much, Rami.

We will turn now to the Manitoba Restaurant and Food Services Association and Shaun Jeffrey, executive director.

Shaun, the floor is yours. Welcome.

[Shaun Jeffrey, Executive Director, Manitoba Restaurant and Food Services Association]

Thank you very much for allowing me to join you all today.

I would like to thank you for the opportunity to speak on behalf of the restaurant and hospitality industries here in Manitoba.

As a meeting place for enjoyable nights out with family and friends, our industry has been reduced to a meek and unpredictable takeout and delivery business, with 75% of our industry operating on only 20% of its revenue stream to sustain their businesses. Our average profit margin of only 4.5% is not sustainable for any length of time. We've seen about an 80% reduction in the workforce, and dedicated operators have been turned into cooks, delivery drivers and grocery store clerks to keep us sustainable during this destructive time. With no current federal or provincial programs for fixed costs or for rent assistance and loan application processes that are very convoluted and time-consuming, we're actually seeing a lot of operators unable to create enough hours in the day to remain operationally effective and also remain up to speed on delayed or unavailable programs.

For the approximately 25% of restaurants that are not operational, federal assistance programs available on the basis of wage subsidy are moot. Each day these operations come closer to joining the list of restaurants that will never open their doors again.

A recent conversation I had with an operator of five local fine dining restaurants resulted in a tear-filled plea for more industry-specific assistance, including a federal rebate program for the approximately $75,000 in third-party delivery commissions that he's been forced to pay due to the mandated closure of his dining rooms.

As an industry that struggles to attract high-quality and dedicated employees, each day our industry loses more and more of these existing employees to government programs like CERB. Every day we see another brick in that structure that supports our future removed. Uncertainty about the status of our industry and the future poses significant challenges on retaining post-COVID-19 profitable business. Reality shows that our industry will retain significant losses due to social distancing guidelines for months and possibly years to come.

The reliance on delivery will probably change the structure of a restaurant experience. Federal relief in maybe the form of a CRA adjustment to deductions for claimable business meals would assist in fostering beneficial growth in business revenue, in the form of both dine-in and takeout options.

As one of the first industries to self-close to ensure both patron and staff safety in Manitoba, our industry has been driven to devise operational protocols to ensure that our future patrons can enjoy a dining experience in a responsible and safe manner. We're looking to our federal government to institute a social distancing subsidy program to be available for operators who require changes to their restaurant operational schematic and to ensure that their future business is conducted within the guidelines of social distancing in the dining room, the lobby and in the kitchen.

As we continue to provide feedback at our provincial and federal levels, we continue to see a lack of a unified approach to a national strategy on recovery within our restaurant industry. We're looking to the federal government to initiate a national committee of underlying layers to bring leaders in contact with each other within the restaurant industry to compile a unified strategy on recovery processes, with an ultimate goal of returning our industry to pre-COVID-19 success.

With one week remaining before May 2020's remittance date for commercial rent, operators continue to search for unique ways to meet rent costs with no significant rent relief options in sight. Our industry cannot sustain these consistent drawbacks to the already deteriorated morale that accompanies the uncertainty of a viable future. We're looking to our federal government to initiate these collaborative rental assistance programs that will provide immediate and time-sensitive relief to our operators.

As operators create new and innovative operational processes like grocery delivery to remain viable, we're looking to our federal government to utilize these same principles to initialize programs that will ensure our industry will continue to grow and provide essential services to people and ensure that it's a safe environment in which to enjoy the fellowship of family and friends for years to come.

Thank you for allowing us to discuss the challenge with you today. We're confident that our federal government will do the right thing to preserve our industry for generations to come.

Cheers.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Shaun.

I am now turning to Oliver and Bonacini Hospitality, with Andrew Oliver, president and CEO.

Mr. Oliver, you are on.

[Andrew Oliver, President and Chief Executive Officer, Oliver and Bonacini Hospitality]

Good afternoon.

Good afternoon, everyone. I am Andrew Oliver, restaurant operator and president of Oliver and Bonacini Hospitality. Thank you for allowing me to address the committee today.

Oliver and Bonacini manages a number of restaurants and venues with operations in Quebec, Ontario, Saskatchewan and Alberta. Our portfolio ranges from quick service to fine dining.

Our industry urgently requires specifically tailored financial solutions for most of our industry to survive this crisis. We are high-labour job creators, the fourth-largest employer in Canada, and we account for 4% of GDP, representing 1.3 million jobs. The numbers are significant, right up there with oil and gas and airlines, but we get there bit by bit, as we are are normally made up mostly of small to medium-sized independent businesses.

A crisis of this magnitude in the hospitality sector is going to have a massive negative impact on the Canadian economy, and the damage is already well under way. Over one million of our workers are currently laid off. According to Restaurants Canada, as of the end of March, 10% of restaurants have already closed their doors permanently, with an additional 18% expected to close their doors by the end of this month. Survey results released today indicate that one in every two independent restaurants—that's 50%—do not expect to survive this crisis, and most multi-unit food service businesses will have to permanently shut down at least one of their locations.

More than 95% of restaurant revenue is redistributed right back into the Canadian economy, and an estimated 30% of our revenue is redirected right into government coffers through taxation. That was over $30 billion last year. Any amount of failure in our industry will have broad-ranging economic repercussions, with massive amounts of contagion.

For instance, restaurants represent one of the largest and highest-paying tenant groups in Canada, spending an estimated $9 billion annually in rent. This represents approximately $150 billion of real estate value. An additional 300,000 jobs in direct supply chains are supported by the hospitality industry. Canadian wineries, local breweries and distilleries, purveyors, farmers and artisans are all part of the Canadian small business network.

To give you just one example, the majority of Canadian farmed shellfish is consumed in restaurants. Closures have now caused the demand for oysters to collapse, and for shellfish like clams and mussels, it's down 70% to 80%, according to the Canadian Aquaculture Industry Alliance.

Bobby MacMillan is a mussels supplier at Atlantic Aqua Farms in the Malpeque region of P.E.I. He tells me that 50% of his sales go to restaurants and that the permanent closures are going to have a devastating impact, not only on his business but on his local community.

In fact, there are billions of dollars in unpaid invoices still owing to suppliers, invoices that are at risk of never being paid.

When this crisis hit, our government's first and urgent priority was getting money into the hands of individuals who were out of work. We applaud and support that decision, but our next priority must be the preservation of jobs. We are concerned that the current emergency support programs will not solve the immediate cash crisis that many restaurants face. It will lead to permanent closures and permanent job losses.

Fixed costs and working capital are our top issues. The majority of all Canadian restaurants are currently drawing next to zero revenue, but the fixed costs of rent, loan payments, insurance, and WSIB and employee benefits for laid-off workers must all be paid.

The $40,000 interest-free loan program, recently expanded, was a step in the right direction; however, many restaurants with many employees are excluded from the program. Moreover, if you are included and you are at the higher end of payroll, the amount of capital provided is simply not enough. Our costs are way too high.

Another step in the right direction is CECRA, the rent relief program for small businesses. It's not yet approved, nor do we have enough details, but for restaurants that are drawing little or no income or revenue, it's unlikely that anything short of 100% rent coverage will do enough for many to survive, which will cause a second wave of closures and permanent job losses. Rents are 10% to 12% of sales. The math is extremely straightforward. A 75% wage subsidy is not, by and large, a viable solution for restaurants that are closed and have zero revenue. If subsidies were made available to us at the time of restart, it would be quite helpful; however, most owners will not have enough working capital to bankroll full payroll for the weeks and months until government reimbursements arrive.

Mindful of these unique challenges, I've been working with a coalition of my peers through savehospitality.ca and representing over 75,000 laid-off workers from coast to coast. We've been very active in working with municipal, provincial and federal governments. We are actively lobbying for rent relief and have been credited with helping get it on the agenda, and we are also providing some solution-driven recommendations.

As an example, on the wage subsidy, we are recommending low-interest to no-interest government-backed loans to bridge the period before government reimbursement begins to flow.

To address the fixed costs and working capital issues, we are recommending a forgivable loan program, which would provide a percentage of an operator's prior year net revenue as a means of support through the mandated closure and give operators enough capital for a restart.

Having recently renovated and reopened a restaurant, only to be forced to shut down some two weeks later due to COVID, we know what it costs, and it's very expensive.

In conclusion, there are solutions that can help us get back on our feet. They just need to make sense for our industry and our unique set of circumstances. For this to be affordable for the government, we need industry-specific solutions tailored to resolve our hospitality issues.

We are here as an industry, and I am here with our government, to find solutions that will work to stop the next wave of closures and ensure a strong industry once this is over, but we need your help. At Oliver and Bonacini, we closed our restaurants across the country before it was mandated, as did so many of our peers. We did the right thing, and we likely slowed the spread and saved lives. Now we need you to save us. We're not lobbying to reopen before it is safe, but we need support to bridge us through, to ensure that there is a business left to reopen when it is safe to do so.

I am here because I love my industry. I love my business, and I'm fighting with every fibre of my being to keep my 3,000 employees, employees who have families to feed and rent to pay. Those with the heavy burden of finding solutions must take the same approach in supporting the members of my team, whose talent, work ethic and passionate dedication make them just as deserving.

I am tremendously grateful to you for everything you are doing and your time today.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Andrew. The passion for your industry certainly comes through. I can vouch for those on the oysters and mussels side, because a lot of those producers are in my riding. Their product is being lost in storage right now, and they're trying to figure out how to manage the new crop.

Turning to Restaurants Canada, we are joined by David Lefebvre, vice-president, federal and Quebec affairs.

[David Lefebvre, Vice-President, Federal and Québec Affairs, Restaurants Canada]

Good afternoon.

Mr. Chair, distinguished members of the committee, thank you for inviting me.

My name is David Lefebvre. I am vice-president of federal affairs and Quebec at Restaurants Canada. We are the national restaurant association, representing over 30,000 members, including full-service restaurants, quick-service restaurants, catering services, bars or drinking places.

In normal times, our industry employs 1.2 million people, generates $93 billion in economic activity and serves 22 million Canadians every single day.

As you all know, these are not normal times. Since mid-March, the COVID-19 outbreak in this country has wreaked havoc on restaurant operators, with 800,000 jobs lost and close to a quarter of restaurants either permanently closed or thinking about shutting down forever over the next few weeks. More than half of our industry does not have any sales. Dreams are broken. Retirement hopes are broken. Careers are broken. Lives are in shambles.

Our people are ingenious in Canada through many circumstances, but right now some have both knees on the ground, and they need a friend. It is not a situation they like, and they did not choose to be in it. Our association fully accepts public health measures and our continued role, but we also request proper support. This is a time for action.

The federal government has implemented some terrific programs in the past month, ranging from the Canada emergency response benefit for workers and the wage subsidy to a series of loans for businesses and even support for young workers and students.

As we transition slowly from a time of emergency measures to a period of greater sustainability, Restaurants Canada would like to share its recommendations.

Without your help, the carnage in our sector will continue. According to a survey made public yesterday, 75% of our members describe their debt situation as serious or critical.

Canadian restaurateurs need sector-specific support.

Rent payment is by far the highest fixed cost in our industry. As the next step to ensure business continuity, it is essential that this be addressed by the federal government and its provincial counterparts. Without action, you will not be able to drive two blocks in a few months without witnessing tons of closed stores and massive desolation. It's going to be true in the 338 ridings across the country. Nobody wished that to happen.

Restaurants are different from other stores. Closing down seven weeks ago meant a massive loss in inventory. Fresh food was donated or lost. There's no inventory anymore. I mean no disrespect, but we're not a candle store or a clothing store that will not have lost most of their inventory. Even when reopening, it's going to be like rebuilding from scratch. It's just not possible to simply flip on the light switch.

Our members face a triple whammy of closure—often total—lost inventories and mounting bills. On top of that, operators have lost excellent employees who might not come back to the business after the crisis.

Today, we are sounding the alarm: help restaurants, the establishments that play a central role in our lives.

First, we recommend an immediate moratorium on evictions for commercial tenants, which would relieve pressure while stakeholders continue to develop solutions for the long term.

Second, we recommend rent assistance at a percentage in line with decreased revenue. Deferrals and loans are very helpful in the short term but, if not combined with relief mechanisms for the longer term, will contribute to more permanent closures.

Last, we recommend ongoing measures while the economy is still in recovery. That means maintaining rent relief measures until consumer confidence rebounds, the time it takes for business revenues to return to 70% of what they were before the crisis.

We also ask for tax relief, not only deferrals, which often just punt the problem to a later date. Granting waiver on GST and HST for a quarter would be a sound economic measure. Providing some form of subsidy based on a percentage of 2019 revenues is also a path that might be chosen to help restaurants. An extension of the wage subsidy qualifying periods would also truly make a difference.

Restaurants Canada is grateful for the steps taken by the government so far to help, but more is needed as we move into this transition period. Our sole purpose is for as many restaurants as possible to survive, so that our industry can fully contribute to this great country of ours.

We appreciate being able to share with you the experience from the front line of our industry. We would be more than happy to answer whatever questions the committee has, and we remain available to answer your questions for the benefit of all Canadians.

Thank you, ladies and gentlemen.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Lefebvre, and for your suggestions.

We'll turn next to Superior Lodging Corporation, with Marc Staniloff, owner.

Go ahead, Marc.

[Marc Staniloff, Owner, Superior Lodging Corp]

Thank you, Mr. Chairman, for the opportunity to appear before you.

My name is Marc Staniloff. I live in Calgary and I own Superior Lodging Corp.

My company owns the franchise rights in Canada for the following brands: Super 8 hotels, Travelodge Hotels, and Microtel Inns and Suites.

All of these brands are part of the Wyndham Hotel Group. There are a total of about 525 Wyndham hotels in Canada, of which 255 are under my franchise.

I want to point out that all the Super 8, Travelodge and Microtel hotels are all individually owned by local operators and are all Canadian owned. My company owns interest in about 30 of these different hotels.

Currently there are 100 Wyndham hotels closed in Canada, of which 20 are Super 8, 21 are Travelodge and two are Microtel. About 20% of the hotels under my brand are closed right now. The other brands—Marriott, Hilton, and all the other brands—have similar numbers.

About 20%-25% of hotels in Canada are currently closed.

Currently occupancy in the hotels that are open is running at about 9%. That gives you the context of the current state of the industry in Canada.

In addition to the COVID crisis, we are also getting slammed by the oil and gas markets in the resource-rich communities where we have hotels.

We have several big issues today.

The first is that we need to get businesses open as soon as possible. I know this cannot happen all at once, and I think it needs to be on a measured basis, both in regions and in sectors, depending on the different companies and businesses.

As well, we need to get people travelling again, both by car and by plane.

Then the next big issue is what this recovery will look like. This is going to be a very long haul, and many of our businesses might not make it through.

We think we need to ensure that our sectors can fully benefit from the wage subsidy program and we need to recognize that the recovery of our sector will likely be slow. Thus, we need to extend the duration of the wage subsidy for businesses that will take longer to recover. For example, until revenue losses are below 30%, the subsidies should stay in effect. This will ensure that we rehire our staff and keep them.

We also need to make adjustments to the loan criteria so that banks actually approve us. Right now it's way too risky and the process is way too cumbersome.

First, we need to find a way to have the loans based on the property rather than at the level of a corporate entity. A number of corporate entities own a number of hotels, and as a result of the way the loan process is set up, if they own 10 hotels, they are only entitled to one loan.

Second, the loan process is such that the borrowers have to qualify for the loan. Hotels today are not going to be able to qualify, and as this goes along, they will be less and less likely to be able to do so. We need these loans to be simple and based on a simple checklist and verification of solvency as of March 15.

We need relief, and by that I mean interest forgiveness. I know a couple of the other witnesses have mentioned the same thing. We cannot just pile on more debt and kick the can down the road. This is a recipe for disaster, so for the loans I just mentioned, there has to be a forgivable portion and there has to be a formula for that.

For us to have a solid recovery package, we feel we need the government to provide marketing funds for Destination Canada to fully advertise Canada. We want people who live in Canada to travel in Canada.

In addition, we need a subsidy to support low room rates to incentivize travel. The GST could be eliminated for an interim period, and the deductibility of entertainment expenses could be considered.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you very much.

We will test Mr. Cooper and Ms. May later, but the first one up on the six-minute round of questions will be Marty Morantz, followed by Annie Koutrakis.

I will turn now to fellow islander Rose Dennis, second vice-president of the Tourist Industry Association of Prince Edward Island.

Go ahead, Rose.

[Rose Dennis, Second Vice-President and Executive Director of Explore Summerside, Tourism Industry Association of Prince Edward Island]

Thank you, everybody, for this opportunity to represent Prince Edward Island and the Tourism Industry Association of Prince Edward Island. I am also the executive director of Explore Summerside, which is the second-largest city within Prince Edward Island.

As all of you may be aware, tourism is a vital industry in Prince Edward Island. It provides over 8,600 full-time jobs for islanders. It accounts for over $500 million in economic activity each year and 6.3% of GDP, which is the highest percentage for any Canadian province.

One of our greatest concerns is seasonal operators and their need for support. We are pleased to see that many federal and provincial business support programs have been rolled out in the last few days and weeks, but it is important that we not lose sight of the seasonal operators at this time.

Our island’s seasonal operators are currently weighing decisions related to whether they will open for the 2020 tourism season. In our latest COVID-19 impact survey from April 6, 2020, operators were asked a series of questions about how COVID-19 is impacting their businesses. In terms of the impacts, there were two really dominant statements within the survey. When we asked them about looking ahead to the next three months and what risks their businesses were facing, 75% said that closing their businesses temporarily was an option, 55% are facing employee layoffs and over 50% are unable to pay staff wages.

When we followed up with a question about what kind of financial assistance or stimulus their business operations require, over 60% favoured having government taxes, dues, and financial demands waived for the next 12 months, starting immediately. Over 54% asked for wage subsidies for employees with reduced hours and 43% talked about credit and incentives to continue or start capital expenditures.

With these concerns of operators top of mind, the following are the main areas of concern for these seasonal businesses. Currently, the wage subsidy is only offered retroactive from March 15 and available until June 6, 2020. The limited timeline of the subsidy will not be of great assistance to our seasonal operators in their planning and hiring. We would like the subsidy extended to September of 2020 to help operators plan for opening their operations and for proper staffing. If it is not extended, we feel that operators may not open, or ultimately may open but will only hire skeleton crews, resulting in a reduced experience being offered because of understaffing.

When we also consider seasonal staffing, we are aware that there are now concerns around what happens to people on EI who may not be able to get their insurable weeks this summer. We would like to see EI extended or a program offered to support them in either getting their weeks or covering what would have been their EI in the fall and winter. Having the wage subsidy would also assist in giving them a better opportunity to work their full 12 weeks.

Top of mind are loan options and availability. While loan options will benefit some tourism operators, and we welcome loan options, many operators do not want to add to their current debt load. Operators would like to see government working with lending agencies and financial institutions to encourage multi-month deferrals of 12 to 18 months. While some financial institutions are currently promoting three-month deferrals, these are of little benefit. Operators need time to achieve revenue in the 2020 and early 2021 season to be used to pay back existing loans.

In addition to hoping for longer deferrals for loans, several have expressed concern about the interest that will be accruing on top of the original principal and interest during the deferral period. Having no additional interest would be of greater assistance to the operators.

Additionally, government, working with suppliers of electricity, telephone, Internet and other services, could encourage deferred payments and rollbacks on rates for these services.

We feel the window is closing on our tourism operators' ability to make decisions about operating within the 2020 tourism season landscape. We call on the government to take these issues very seriously and to offer support that will provide seasonal tourism operators with some level of confidence moving into the ever-important summer operating season. This will provide continuity to our tourism industry’s ability to contribute significantly to the economy of Prince Edward Island if we see the government support them with these resources.

Thank you so much for this opportunity to provide some testimony on behalf of the industry. We look forward to helping Canada's hospitality industry recoup and recover post COVID-19.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Rose.

Thank you to all the witnesses for their heartfelt presentations on this pandemic that we're going through and on solutions to try to assist the industries.

Could we do a quick test on your microphone, Michael Cooper?

[Michael Cooper, Conservative, St. Albert—Edmonton, AB]

Sure.

I'm just here in my office on Parliament Hill. It's a beautiful sunny day here in Ottawa.

Does that work?

[The Chair, Liberal, Wayne Easter]

Yes.

Michael, do you have a headset?

[Michael Cooper, Conservative, St. Albert—Edmonton, AB]

We've been having some technical issues. The headset that I have doesn't work with this phone.

I apologize for this. We're having a few wrinkles here, as I'm set up in my Ottawa office as opposed to my constituency office. Can you hear me well enough?

[The Chair, Liberal, Wayne Easter]

I can, but I don't think translation can, from what I hear.

[Michael Cooper, Conservative, St. Albert—Edmonton, AB]

Okay.

We're working to get this rectified as we speak. Hopefully, in the next 15 or 20 minutes I will have the right phone with the right headset.

[The Chair, Liberal, Wayne Easter]

Thank you, Michael. You have about 20 or 25 minutes before you're on.

Elizabeth May, do you want to give us a quick line, please?

[Elizabeth May, Green, Saanich—Gulf Islands, BC]

Absolutely.

I don't know if I'll get a question in, but I want to say that my parents ran a place at Margaree Harbour on the Cabot Trail. I waitressed and cooked in the Schooner Village restaurant for many years, and this testimony we're hearing goes right to my heart. Thank you all.

[The Chair, Liberal, Wayne Easter]

Okay, we will now turn to the six-minute round of questions, starting with Mr. Morantz.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Thank you, Mr. Chair.

I want to thank the committee for taking me up on my suggestion last week of hearing from the hospitality industry, because what we've heard today is the stark and frightening reality of the restaurant and hotel business in Canada today.

My questions will be for Mr. Jeffrey.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Hi, Shaun. It's always nice to have a fellow Manitoban on the line. I want to thank you for your excellent presentation.

[Shaun Jeffrey]

Thank you.