If the city was prepared to breach its contracts, reversing a decision to open a Starbucks location would only cost $30,000, but this would expose the city to potential damages of $1 million if the other parties decided to sue, said city manager Bill Holtby.
The city paid $30,000 for its license to operate a Starbucks location at Servus Credit Union Place, Holtby said. It also has a 10-year agreement to purchase product from the Starbucks chain, an agreement that adds up to hundreds of thousands of dollars.
“Guaranteed is $30,000,” Holtby said of the cost of walking away. “That’s the licensing fee we’ve already paid.”
“If, through mutual consent, we both walked away from it, that would be the only cost to the city,” he said.
If ending the deal wasn’t mutual, it would be a different story.
“If Starbucks were to hold our feet to the fire … then there’s the damages — it’s called liquidated damages — then we’re into the hundreds of thousands of dollars,” Holtby said.
The same situation applies to an agreement to lease the kiosk space at the leisure centre. The city has a 10-year agreement to lease the space back from the current tenant. That agreement is into the hundreds of thousands, so both together would approach $1 million, Holtby said.
“I’m not used to doing business and not fulfilling agreements, therefore I feel that we’re obligated,” he said.
On July 4, council voted 5-2 in favour of putting $280,000 from city reserves toward a Starbucks location at Servus Place.
The money is to cover the cost of the Starbucks license, new equipment and renovations to the kiosk outside the aquatic centre. The arrangement will see the city own the location and operate it according to Starbucks’ standards. The city will hire two full-time employees as well as casual staff.
Financials prepared by the city with guidance from Starbucks officials suggest the site will generate net revenue of $90,000 a year, which will be applied to the facility’s annual deficit — typically around $750,000.
City staff say the scheme was designed to meet a demand for premium coffee at the facility, but it has prompted unforeseen backlash from the public and business community, mostly centred on the idea of the city operating a business that competes with the private sector.
Coun. Malcolm Parker voted against the coffee shop and committed to reviewing the contracts on behalf of council to see if there’s a way out. He said Friday that the deals appear to be solid and would be costly to reverse.
“It would be significant dollars. That’s all I can tell you,” he said, citing privacy concerns.
Parker said he won’t push for council to back out of the deal but wants to hear what his colleagues have to say.
“I’m certainly open to talking with other members of council … and see what comes out of that discussion,” he said.
Mayor Nolan Crouse thinks it’s too late to go back.
“We’re probably in a position that we’ve got a signed agreement and I don’t know that there’s enough council members that are prepared to change their votes anyway,” he said.
Coun. Cam MacKay, who also voted against the coffee shop, thinks the issue will leave a stain on council that could have consequences come next election.
“This is one thing that people will remember,” he said.
Council discussed the issue publicly for the first time July 4 but held private talks twice in the last few months. Crouse and Holtby have both expressed regret at not making time for public input before finalizing the decision. The contracts were signed within two days of council’s approval and the city began advertising for a manager that same week.
The advertised salary range is between $43,000 and $52,000 a year, which has raised some eyebrows. However, this pay range came after studying the actual pay rates at other Starbucks locations in the region, Holtby said.
“That’s what they pay their managers,” he said.
The average annual salary of a Canadian Starbucks manager is about $42,000 plus about $6,000 in bonuses, according to the website www.glassdoor.com, which gathers salary information provided anonymously by employees.
