Industry Committee on May 7th, 2013

[John Carmichael, Conservative, Don Valley West, ON]

Do you ship produce?

[François Bouchard]

We ship produce, we ship baked goods, frozen meat. We ship the entire selection.

[John Carmichael, Conservative, Don Valley West, ON]

What's the delivery time?

[François Bouchard]

On delivery time, it depends where. So, obviously, within the city it's a three-hour window.

[John Carmichael, Conservative, Don Valley West, ON]

Are you going to talk about the 90-minute program at—

[François Bouchard]

We're not quite there.

For example, for anything within the city limits you obviously have the entire list. If you're shipping up north through First Air and Canadian North, our partners, we will sell full groceries. If you order your groceries by three o'clock today, you will have them in Iqaluit tomorrow, and Resolute Bay tomorrow afternoon. So it's next-day delivery because we're depending on the airlines. If you're sending to the States, then we're restricted by FDA on what we can and cannot ship. Obviously, in Canada it's the same thing. But we ship the entire listing, and customers benefit from whatever is on our point-of-sale system, and that's the pricing you get online.

[John Carmichael, Conservative, Don Valley West, ON]

Do you have to vacuum seal? How do you ship produce, with the time factor?

[François Bouchard]

Everything is packaged. We actually use the same packaging as we get it in, so if we're getting apples, we would reuse that packaging to go out. Everything is in refrigerated trucks. Everything at the airport is refrigerated until it gets to the plane, and then the plane is equipped to deal with that.

[John Carmichael, Conservative, Don Valley West, ON]

Sorry, am I done?

[The Chair, Conservative, David Sweet]

Yes, thank you very much, Mr. Carmichael.

Now we'll go on to Mr. Masse for five minutes.

[Brian Masse, NDP, Windsor West, ON]

Thank you.

Mr. Finkelstein, I agree with you on some of the changes that are happening. There used to be a store called Consumers Distributing, and I could see that coming back. It's also going to change some of our municipal planning, as some of these stores exit from the power malls that were created in distinct areas, and affect tax revenue. Also, where I come from, the auto industry moved to just-in-time delivery. I can see transportation issues arising as well.

I guess what I'd like to find out first, though, is this. As we move down this road, why is it so much more expensive to ship in Canada when we consider the fees being put on consumers here versus in the United States?

[Harley Finkelstein]

I'd say that the first thing is competition. There's a lot less competition here, which means that companies can charge more. They have this great thing in the U.S. called the “one box”. Basically, you're given one box. If you're a small business in the United States, you can put anything you want in it, no matter what weight it is. If it fits in the box, it's a set price.

As a small business that may not have any more employees than just him or her, having that type of ease of use on the performance side is very, very important.

To put myself through law school, I sold T-shirts online, and I had to go to the post office on Friel at the corner of Rideau Street every day after class. I would sit there and try to figure out, well, what's the best rate for these two shirts? Do I send them separately or do I bundle them together? I'm a pretty savvy guy and I had trouble figuring it out. What does that mean for all other small businesses that are trying to ship?

I think Canada Post has done a good job of improving on that, and I've worked very closely with Mr. Chopra, CEO at Canada Post, to help that, but it's still not great. It's still pretty complicated, as a Canadian small business, to ship things. For example, the fact that we have HST in certain provinces and not in other provinces is confusing. The fact that if I'm selling children's clothing so I don't have to pay certain taxes is additionally confusing. I don't think it's just the shipping or the [Inaudible--Editor] on its own, but I think they do have an easier time in the U.S. registering a business, launching a business, and scaling a business than we do have here in Canada.

[Brian Masse, NDP, Windsor West, ON]

Is it fair to say that it's about scale? We have most of our population living along the southern sites and in the large cities, and I've never been convinced of the argument of extra costs having to be passed on to consumers in Canada because of that. They're sending stuff to Hawaii, Alaska, and other places, and they're price-competitive.

[Harley Finkelstein]

That's right.

I can't speak for why postal prices are the way they are. But we have a report from Forrester saying that Canadian consumers are finding it cheaper to purchase things from the U.S. than purchasing the same products from Canada. This is something that I'm concerned about and that I think we should all be concerned about.

Well.ca is a phenomenal Canadian story out of Ontario. They are basically an online pharmacy that sells a lot of amazing products, all of which have UPC codes. I can tell you that right now they're having trouble, because anything with a UPC code, Amazon.com in the U.S.A can probably sell cheaper. They have economies of scale that have never been seen. Amazon will be the largest retailer, by a lot, in a couple of years. Even if you combine all of Walmart's sales with all of Sears' sales, Amazon is still much larger. Those types of economies of scale create a very competitive moat that we've never seen before.

[Brian Masse, NDP, Windsor West, ON]

I was recently at the U.S. embassy, and one of the concerns raised was counterfeiting as online sales increase.

But I'm going to shift gears to Mr. Hersche.

With regard to SaskTel, I want to say thank you very much. SaskTel was one of the more progressive groups to deal with deferral accounts and the hundreds of millions of dollars overcharged to Canadians. I appreciate the way that SaskTel dealt with that situation.

I'd like to ask about what the United States is doing. If we don't have a proper rollout of the megahertz in the auction with a particular strategy, how is it going to hurt our ability to compete in the United States, because they're actually going with more assertive plans? Can you provide some comments on that?

[Robert Hersche]

In terms of making sure that everyone is connected, they have a number of plans in the United States, and they're putting some dollars away with that.

I know we can't necessarily do that in Canada; there's the fiscal situation and those kinds of things. Again, I referred earlier to the high cost of making sure that everyone can participate.

All of the kinds of businesses that I talked about in our presentation, which are just outside of Sudbury or other small Canadian towns, need to be connected if they're going to go online, or if they're going to actually go out and buy Canadian online. They're really left out of that new mode of doing business.

It's not simply a matter of doing the traditional things going online. People do that a lot. Now, for example, because of changes in how they buy things, every farmer has to do their own marketing online for wheat and other kinds of things. They need broadband to do their business.

If you're going to run large operations, such as hog barns, you're not going to locate that in a town. Therefore, they need access to these large bandwidths.

Yes, it disadvantages most of our businesses in rural Saskatchewan, because 65% of our small businesses are in rural Saskatchewan, because they are outside of town.

[The Chair, Conservative, David Sweet]

Thank you, very much, Mr. Hersche.

We'll move on to Mr. Warawa for five minutes.

[Mark Warawa, Conservative, Langley, BC]

Thank you, Chair.

Thank you, witnesses. This is very interesting.

I want to focus on what are the challenges and the hurdles for Canadian retail businesses in getting involved with online sales. You've mentioned that 5% of retail sales are online. I think you said it was 10% in the U.S., and that is improving, but very slowly. What are those hurdles?

I'd like to share an anecdote. Things are constantly changing if you're in business. Death and taxes are secure, and you know that's happening, but if you don't change with the times, I think you may be a dinosaur. I'm thinking back to way before your time, when there was a washing machine called the “wringer washer”. It didn't have a spin cycle. It had wringers or rollers that you put the clothes through to squeeze out the water. Those washers became obsolete, but a number of people still had them, and probably about 40 years ago the wringer washers all died: they broke, and they wore out, and people weren't getting them repaired anymore because they didn't compare with the new technology.

We have a changing technology now, and the anecdote I want to share with you is about a very successful bridal boutique in the Fraser Valley. What's happening now is that a prospective bride will go in there and try on different dresses. She'll try on a dress and say that it's fine, that she likes this dress, this model, in this size; she uses up the store's time, the staff time, and then she'll buy it online. They are being forced into competing with themselves. There are two prices. There's the sale price in the store, where you're getting the service, but if they do not provide a competitive price, they won't get the sale. This is the challenge they're faced with: eventually you go to the lower denominator.

Today we go into stores that used to have a lot of sales help, but it's not there any more. A bridal boutique like this may not survive. To survive, they may have to start selling online, but they can't even do that if the manufacturer is selling directly to the customer: you go right from wholesale to retail with no middleman. Things are changing.

What are the hurdles for businesses like this boutique or 95% of Canadian business? I heard from that person when they were in a consultation process when the Prime Minister went on pre-budget consultations; I heard their story. Another common problem was that the wholesale price Canadian retailers have to pay is at times more expensive than what the U.S. market is retailing for, because of tariffs. That's another issue. You have shipping and tariffs.

What is the future for Canadian retailers? What are the hurdles?

[Harley Finkelstein]

I think the anecdote you describe is showrooming. That's an example of showrooming: you've gone in and you've used the showroom, but you haven't actually made the purchase in the store. Now, presumably if they had an online store and their prices were competitive, they may have gotten the sale themselves online. But as part of this democratization, with everything becoming easier and less expensive, the fact that the barrier is lower means that there is also a lot more competition. Instead of having five bridal boutiques in this area, maybe you now have 100 bridal boutiques.

What I think it forces us to do as savvy business people is to be more creative. An example that I would give, taking a cue from your anecdote, is that if I went into that bridal boutique with my fiancée and we had the most unbelievable experience ever—we had champagne and we got an explanation of the types of garments, why they're made like this, and background on the designer—we might not necessarily care if it was cheaper to go online, because, all in all, the experience is better in the store. I think creativity is going to become the commodity, as opposed to just price.

The second thing I would say, going back to the La Bottega example, is that La Bottega wasn't able to retail the olive oils at a certain price point any longer because the original manufacturer of the olive oil was going direct to consumer. It forced La Bottega to create a private label brand called “La Bottega”. Now they have their own olive oil. They used that challenge and now have actually created an entire line of La Bottega-branded products.

So I think we have to be creative. I think that if we're going to accept technology, there are some challenges that come with it. I think the opportunities far outweigh the challenges, though.

[François Bouchard]

I would add that what it does is make us better retailers, because we have to think outside the box on everything. You talk about the technology and the information you put in your systems: everything is cleansed and everything is looked at.

We're constantly looking at cost and constantly innovating to try to lower our costs, because this e-technology brings in a whole lot of competitors that we didn't have before. We're becoming better retailers just because we're exposed to that, and we know everybody else is, so we have to do better, and that makes us better.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Bouchard.

Thank you, Mr. Warawa. That's all the time we have for that round.

Mr. Harris, go ahead for five minutes, please.

[Dan Harris, NDP, Scarborough Southwest, ON]

Thank you, Mr. Chair, and I won't get anywhere close to asking all my questions.

There has been a lot of talk about vintages here, and I guess I'm of a slightly different vintage from everyone else in the room. My background is in IT and computers. I used to run my own small web design business, and I've also worked in fibre and cabling and terminating fibre.

I'll start off with Mr. Hersche. You mentioned the high cost of plowing fibre at about $18,000 per kilometre. I have a very good understanding of what that means. Folks around the room may not. I would love to ask you about that, but it would take the whole five minutes to explain it. Could you perhaps provide to the committee at a later time an explanation of the process and what's involved in plowing fibre and why the cost is so high? I think that would be very useful for the committee to hear.

I will give you a question to answer right now. Both the United States and Australia have laid out clear long-term spectrum deployment plans to give industry certainty moving forward. In Canada, however, no such long-term plan has been announced. Has the government's failure to lay out a coherent plan for future deployment of spectrum impacted your long-term planning and business operations?

[Robert Hersche]

Yes. For example, when you start looking at the 700 megahertz spectrum right now, we don't know when the next auction will be and what kind of spectrum the next auction will involve. Some people talk about 600 megahertz spectrum, but it could be 10 years in the future before the next auction. So really every auction becomes essential for us, because we don't know if there's going to be other spectrum we can use. Also, that spectrum has to come at the same time and be usable, i.e., there are devices that actually go with that kind of spectrum. If you announce that you're going to go to this, and this spectrum is going to be available in the future in Canada, then the device manufacturers like RIM can also look at that and say that their Q10 should also do this kind of spectrum or that kind of spectrum as we go forward.

[Dan Harris, NDP, Scarborough Southwest, ON]

Mr. Hamilton, with the model that S-Trip uses, of course being fully on the cloud, I should imagine there is a fair amount of bandwidth cost associated with the business. Do the high cost of bandwidth and the limitations in Canada provide barriers to your business?

[Jason Hamilton]

They certainly do. Not only do we experience high bandwidth costs, we also experience outages as well because of the limitations within Canada. That's something we're constantly trying to improve, but the costs just get higher and more prohibitive. There isn't really a short-term or long-term solution to that right now.