Should I fire my client?

If you do things for free you need to understand they think your advice is free.
The owner likes rapping with his buddies.
Have you explained the bennies that this list bring him.
If he understood he may devote a few minutes of his time to you.

Reading your post, I see that he feels that keeping the relationships with is buddies is more important that building a list of clients that may shop exclusivley at his store instead of the competitor (if there even is one in this small town.

Reading your post, I feel that this guy is doing it as a favor and doesn't really understand the bennies to his store for being alligned with your offer to be part of your club.

One thing that comes to mind is don't make him bend over backwards to be part of this thing.
Do something that he understands, don't make him or his help place flyers in the bags. Buy him 2 weeks worth of plastic bags (with your squeeze page addy on it).
Now this is something that he can understand! (reducing his overhead expense) I bet he would use them!

Before investing in something like this, (or even the bags) I would rethink whom ought to be fired,
If he doesn't understand the value to him, why should he jump through hoops to please you just because you are a friend.

Seriously, if you havn't got this guy to understand the potential value of this thing, and he is a friend, I would re-tool and try again.
When he is calling you for a meeting, go full steam ahead.
If you can't make your warm market jump, how in the heck will you sell your idea to a cold market?
Jason