The city is getting into the coffee shop business and it’s not just any coffee shop — it’s a Starbucks.
The city will spend $280,000 to start up a Starbucks location at Servus Credit Union Place in November under a deal passed by council Monday.
The city will buy a licence to use the Starbucks name and will operate the shop in the kiosk outside the facility’s aquatic centre. The city will operate the shop according to Starbucks’ standards and will hire two full-time employees plus some casual staff.
Coun. Cathy Heron thought the arrangement was a creative way to increase revenue. She thinks it will find a receptive market in hockey parents like herself.
“I’ve heard it from other people in this demographic that they don’t stop elsewhere [for a coffee] because they’re rushing to Servus, but if there was a Starbucks available, they would stop and buy it,” she said.
The $280,000 investment will cover an undisclosed licensing fee, equipment and renovations to the space, said general manager of community and protective services Chris Jardine. The city will borrow the money from its own reserves and pay it back over 10 years.
Financial projections suggest the location will deliver net revenues of $90,000 a year. This will be applied to the facility’s deficit, which is running at about $700,000 a year.
City administration looked into various options, including Tim Hortons and Second Cup, Jardine said. Tim Hortons wasn’t interested and Starbucks was the best value.
He thinks the revenue projections are sound.
“They’ve got it down to a fine science, based on people that walk through the door, how many will buy that $4 cup of coffee,” he said. “This isn’t information that we’re just dreaming up. This is working with Starbucks … and relying on their 18,000 stores of experience.”
Council approved the scheme in a 4-2 vote. Coun. Roger Lemieux was absent.
“I don’t see the city’s role to include being involved in operating a retail business,” said Coun. Malcolm Parker.
He was concerned about the city competing with private businesses.
“This arrangement sends an unfriendly business message to the business community,” he said. “It’s unfair competition and it will [raise] the question, will my business be impacted next?”
Within the facility the operators of Skybox Grill, which run the kiosk, are glad to let their lease go, Jardine said.
For Coun. Cam MacKay, the location of the shop at the money-losing Servus Place didn’t change the principle that residents don’t pay taxes to have their city take on a business risk and compete with other local businesses.
“There’s a reason why governments don’t drill for oil or develop real estate or open up McDonald’s restaurants,” he said.
“I do not want to be in a position where two years later we have to explain to the public why we lost $280,000 in a Starbucks.”