March 12, 2015
Just when I was starting to feel that proposing new menu labelling laws was so early-2014, along come two major announcements from the provincial Liberals and U.S. federal government that are likely to have profound effects on the restaurant franchise industry in North America.
Laws that require certain restaurants to publish certain nutritional information concerning their menus are rooted in two main policy objectives – reduce childhood obesity and reduce healthcare costs. Both are laudable and uncontroversial goals which, of course, deserve our support (which they do have, by the way – a recent University of Toronto research study found that 80% of surveyed members wanted to know the nutritional content of menu items), but compliance with and enforcement of these laws may prove to be quite costly for restaurant operators across Canada and the United States.
This all started in Ontario in late 2013 when a bill introduced by the provincial NDP proposed to require all operators of a “food service premise” which was part of a chain of food service premises having a minimum of five locations in Ontario and having gross annual revenue of over $5 million to post the caloric and sodium content of all food and drink items. In early 2014, the provincial Liberals introduced a bill entitled the Making Healthier Choices Act (“MHCA”), which would require food service premises to post the caloric content of standard food and drink items if that food service premise is part of a chain having a minimum of twenty locations in Ontario.
For those of us following the progress of these bills, it seemed all but guaranteed that the MHCA would be pushed through to become law following the majority win by the Liberals in the recent Ontario provincial election – it was never a matter of ‘if’, but ‘when’ would it become law. That question now appears to be answered as the close of 2014 brought with it the reintroduction of the MHCA which looks likely to be passed into law.
The MHCA will apply to every person who owns or operates a regulated food premises which includes any food service provider, restaurant, grocery store, convenience store or other operator that is part of a chain with 20 or more locations in Ontario that operate under the same or substantially the same name, regardless of ownership (meaning that franchised businesses are included) and that offer the same or substantially the same standard food items. Standard food items refer to food or drink items that are sold in standardized portions and content.
The primary obligation of those businesses captured by the MHCA is that each subject operator must ensure that the number of calories for each standard food item that is offered for sale at the regulated food premise is displayed on each menu where listed, and on an identifying label if the item is put on display. “Menus” includes those signs, boards and other materials provided for at the regulated food premises as well as take-out menus. The calorie posting requirement relates to every variety, flavour and size of each individual standard food item and to combination meals which are to be treated as a single standard food item.
Despite its best intentions, the MHCA contains a number of drafting issues which will make compliance difficult, and potentially have unintended consequences in its enforcement. A “standard food item” is not yet sufficiently defined, so it is not a straightforward exercise to identify which menu items need to comply with the requirements. While this determination may seem at first to be fairly intuitive, try telling that to a pizza restaurant operator whose lone ‘standard’ item might just be a cheese pizza, which consumers can customize to their tastes from there.
One unintended result of the MHCA may be that franchisors will have to exercise more vigilance as it relates to the system’s supply chain and ensure that every single ingredient is purchased from a designated supplier so as to be able to ensure that the caloric information posted on menus is consistent with that which is known to the franchisor. This is because the bill makes franchisors liable for a franchisee’s non-compliance.
Interestingly, in late November, 2014 the United States Food and Drug Administration released a nutritional labelling rules to clarify and amend the Food, Drug & Cosmetics Act (part of the Affordable Care Act) which similarly provides that any food establishment with twenty or more locations doing business under the same name must provide caloric information for their standard menu items as well.
Much of the U.S. and Ontario laws look similar, but it is worth noting that the U.S. legislation does apply on a federal level. That is a broader scope, to be sure, but is also does ensure consistency across the country and avoid the likelihood that franchisors in Canada are going to face increased compliance costs based on a patchwork of differing provincial requirements. It is also important to be aware that both of these laws will apply to food service establishments which have at least twenty or more locations in the subject jurisdictions, regardless of where the franchisor is based. Accordingly, these legislative developments are going to result in education for the foodservice and restaurant industries internationally since foreign franchisors may have crossed the threshold number of units and not be aware that these laws apply to them.
And that's a lot to chew on.