Title: The seven deadly sins that C-Store owners face
Sub-title: The temptation for C-Store owners to sell contraband, counterfeit and grey market goods is strong. But the consequences can be severe.
Quebec convenience store owners got quite a black eye last year, when René Bouchard, owner of L’Accommodation des Platanes in Charlesbourg was fined $6,750 for changing stickers on food products and selling food that was unfit for consumption. Reports describe Bouchard as a repeat offender who also obstructed the work of inspectors from Quebec’s agriculture, fisheries and food ministry.
The case, which made headlines all over the province, is an important one. Bouchard’s offenses, and those of shoddy operators across the country, reflect badly on the convenience store industry as a whole. Consumers don’t pick and choose. If one C-Store gets a bad rep, they will often assume that others are just as bad.
Temptations in a tough industry
That said, while there is no justification for selling past date food, the temptation among many convenience store owners to cut corners is great says one new entrant into the industry.
“All kinds of guys come in here to sell me funny stuff like (contraband) tobacco and things that “fell off the truck,”” says John, a C-store operator in a seedy section of Montreal’s West End, who asked that his real name not be used. “We are in a rough part of town, so there are a lot of crack-heads around here that are always looking for new ways to make money. Once a guy asked me if I wanted to buy some cases of wine that he had stolen at a supermarket down the street.”
Stephen Kucer, president of Integral Security Gates, which supplies major retailers such as liquor commissions and grocery stores with loss prevention equipment is not surprised. “We know from experience that items stolen from the major grocers such as IGA, Loblaws and Metro, often end up in convenience stores and other places in the black market chain,” says Kucer. “It’s one of the reasons that our security products are selling so well.”
Turning away easy potential profits is hard for John, who entered the C-store industry a few months ago, using his meagre savings to buy a beat-up old outlet for $7,000 – just enough to cover the cost of the used store shelves that came with the place and some unsold merchandise. Since then, John has been working 12 to 16 hours days, trying hard to make ends meet. Before buying his store John got the landlord to forego rent increases for the first five years, but the going has still been tough. “We watch our pennies,” says the young entrepreneur. “Every little bit counts.”
However, by all accounts, John was right to resist the temptation. Based on research and interviews conducted with dozens of store owners, as well as legal and enforcement personnel, C-Store Life has identified what we call “seven deadly sins,” of convenience store corner-cutting opportunities. Despite their differences, the seven sins all have a common thread: the costs of skirting the law vastly outweigh the benefits.
1. Selling counterfeit products
These days, computer technology is so advanced that the temptation to copy high quality CDs or DVDs and then resell them is enormous. That’s particularly the case for recent immigrant entrepreneurs from countries such as China and other emerging economies, where copyright laws are not always vigorously enforced.
But trying to get away with such practices here is a bad idea says Daniel Baum, a lawyer with Greenspoon Perreault LLP. “Under section 42 of the of the federal Copyright Act, any person who knowingly sells or rents or who offers to sell or rent infringing copies of copyrighted material is guilty of an offence,” says Baum. “That would make him liable for fines of up to one million dollars and/or a maximum prison sentence of five years.”
2. Playing with the “durable life” dates on products.
Baum also warns C-Store owners not to be tempted to violate provisions of Canada’s Food and Drug Act which forbid retailers from selling food that is unfit for human consumption. The Canadian Food Inspection Agency takes complaints regard fraud and misrepresentation seriously.
“Under the act, a “durable life” date must be indicated on the vast majority of pre-packaged foods,” says Baum. “Furthermore, retailers are forbidden from creating any false impression regarding a product’s durable life, by for example altering the date on food items.” Those that do so are subject to a fine of up to $250,000 and/or a maximum prison term of up to three years.
3. Contraband cigarettes
It’s no secret that during recent years, the exploding contraband cigarette market and regulations preventing the display of cigarettes in stores, has caused C-Store owners considerable harm. This at a time when contraband sellers openly sell non-tax cigarettes at a fraction of what C-Stores are forced to charge. As a result, there is considerable pressure on C-Store owners to buy non-tax products or contraband tobacco and to sell it in their stores.
However at a time when provinces, many of which derive a significant part of their revenues from tobacco, are increasingly struggling to keep their finances in line, that’s not a good idea. For example in Quebec, all tobacco products sold by retailers must be have a sticker on them indicating that duties have been paid on them. “Any retailer who posses or sells contraband is liable to a minimum fine of $5,000 for a first time offender and/or to a maximum prison sentence of two years,” says Baum.
4. Individual cigarettes (or broken down packaging
In fact the onerous taxes that governments levy on cigarettes make them almost unaffordable for a large percentage of the population, particularly in some of the country’s poorer neighbourhoods. As a result, some C-Stores have been tempted to break cigarette packs open and selling them in units of one or two. However that is against the law too says Baum.
“Under subsection 10(1) of the Tobacco Act (federal), it is forbidden, package, distribute or sell cigarettes, little cigars or blunt wraps except in a package that contains at least 20 cigarettes, little cigars or blunt wraps,” says Baum. “Every person who contravenes this disposition is guilty of an offence and liable on summary conviction to a fine not exceeding $50,000 or to imprisonment for a term not exceeding six months, or to both.”
5. Under the table booze.
In most Canadian provinces C-Store owners aren’t even allowed to sell alcohol, notably in Ontario, where the Beer Stores and the Liquor Control Board of Ontario operate quasi-monopolies in their respective areas. However even in provinces like Quebec, where C-Stores can sell beer and certain wine products in their stores, the taxes levied on those products are onerous, and C-Stores owner’s margins are low.
However the penalties for those who cut corners are severe. “Under An Act respecting offences relating to alcoholic beverages, any person selling alcohol that has not been approved by the competent authority is liable for a wide range of fines, in addition to the suspension or revocation of their permit under An Act respecting Liquor permits,” says Baum.
6. Consequences of buying stolen products
Stores that yield to the temptation to buy merchandise that “fell of the back of the truck,” or other black market property had also better watch out. According to Baum, under Canada’s Criminal code, any person who has in his possession any property or thing, knowing that all or part of the property or thing was obtained or derived directly from a criminal act (i.e. theft), can be found guilty of an offence. If convicted he is liable to imprisonment for a maximum of two years (where the value of the property is less than two years) or ten years (where the value of the property exceeds $5000).
7. Evading sales taxes
In 2009, Nallathamby Srinijakaran, the owner of Smokey Way, an Oshawa based convenience store succumbed to the pressures that face C-Stores owners in a most unadvisable way. Srinijakaran was found guilty of three counts of failure to remit $43,000 worth of Goods and Services Taxes that the store had collected. In addition, according to the Canada Revenue Agency, Srinijakaran also failed to pay income taxes on $583,000 worth of business income.
The CRA did not comment on the penalties levied against Srinijakaran. However the revenue agency noted that “when individuals of corporations are convicted of tax evasion, they have to pay the full amount of the tax owning, plus interest, and any penalties that the CRA assesses. In cases of gross negligence, the Income Tax Act and the Excise Tax Act allow the CRA to assess a penalty of up to 50 percent of the unpaid tax or the improperly claimed benefit. In addition, the court may, on summary conviction, fine them between 50 and 200 percent of the tax evaded, and sentence them to a jail term of up to two years.”
A public that sometimes looks the other way?
Yet despite the stiff penalties, the temptation to cut corners will always exist. These temptations are made worse by the fact that large swaths of the Canadian public don’t agree with many of the laws, restricting C-Store owners. As Charles Dickens wrote in Oliver Twist, sometimes “The law is an ass.” For example here in Canada contraband tobacco sales are sky-rocketing, as is music and video pirating. Many Canadians also make their own wine products, in large part to avoid the onerous taxes levied by governments on legal alcohol distribution channels.
As a result, the sheer inequity of the usurious cigarette and alcohol taxes levied, at a time when fattening foods are left untouched – despite the fact that the percentage of Canadians who are morbidly obese is at record levels, - could easily tempt store owners to satisfy customer demand by stoking those products.
That said, we live in a society of laws, and convenience store owners, who are leaders in their communities, thus need to hold themselves up to the highest standards.
Those violate those standards face tough opposition, says one law enforcement official. “Our officers, as well as those from local police or any other force will have their eyes open whenever they enter (convenience stores) or any other location, for illegal activity,” says Geneviève Bruneau, a spokesperson for the Sûreté du Québec, Quebec’s provincial police force, regarding a practice that is in place throughout the country. “We will also act in cases in which we receive complaints.”
In short, the best way for C-Store owners to fight the temptations, hard conditions and unjust laws that they face, is to avoid renegade actions. A far preferred course would be to stand and work together as an industry, to better apply pressure in the political and public policy arenas.
Sidebar: The seven deadly sins
PeterDiekmeyer (Peter@peterdiekmeyer.com) is C-Store Life Magazine’s Quebec correspondent.
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