Less than half of Canadian restaurants operating at a loss due to rising costs of ingredients
A third of restaurants are operating at a loss and the sector is poised for upheaval, according to a new report from Restaurants Canada.
The industry group’s 2023 annual market report, released Monday, projects total foodservice sales will reach $110-billion by the end of this year, up from $100-billion last year. Both years surpassed pre-pandemic 2019 sales of $95-billion.
But even as the top line grows, restaurateurs say they are facing increasing pressure on their bottom lines because of the rising costs of ingredients, insurance and wages. That is making it challenging to turn a profit: 34 per cent of restaurants were operating at a loss as of March, 2023, compared with seven per cent before the pandemic, the report says. And another 17 per cent said they were only breaking even, compared with five per cent four years ago.
“This is directly related to the hangover, or the aftershocks, of the pandemic,” said Restaurants Canada president Kelly Higginson. “We’ve got operators with a heavy amount of debt. We’ve got operators having to negotiate the same interest rate challenges that Canadians are managing on a day-to-day basis. And we’ve got heavy, heavy inflation that has just smacked the industry.”
Restaurant owners are raising menu prices at record rates, but at a pace that is slower than their costs are rising. For example, in March, 2023, menu prices went up 6.4 per cent, while the price of food sold at grocery stores was up 9.1 per cent, according to Statistics Canada.
Ms. Higginson said this contributes to the erosion of restaurant bottom lines. But customers are highly sensitive to any changes in menu price.
“The scary part of increasing prices is the way you find out that you’ve pushed too far is that people stop coming back,” she said.
Leslie Echino, owner of Annabelle’s Kitchen in Calgary, said she’s experienced this pressure first-hand.
One of her favourite menu items is a tempura-battered cauliflower, based on a recipe from her grandmother. She said the price of a head of cauliflower was about $3 a couple of years ago, and has typically been $4 or $5 this year – and she was shocked recently when her staff brought in a new case of cauliflower.
“I saw the price, it was over $12 per cauliflower. I almost had a heart attack,” she said. “I was like, guys, this is only $15 on the menu.’”
She said she’s cut other items because of their costs. “We’re not putting a steak on the menu right now because I don’t want to have to charge guests $45 for a steak,” she said. “That price point scares me.”
Chain restaurants have more successfully absorbed the higher expenses, the report suggests. Data from market-research firm Circana shows there were 34,583 chain restaurants in Canada in 2023, up modestly from 34,413 in 2019. However, the number of independent restaurants dropped to 27,400 in 2023, from 29,877 in 2019.
The food services and accommodation sector has been the sector with the most insolvency filings, federal data show. There were 70 filings in August alone.
“We’ve had operators take out second mortgages,” Ms. Higginson said. “They have been maxing out lines of credit, credit cards. That can only go on for so long.”
Still, overall spending in the sector continues to rise, suggesting there is strong consumer demand, which is giving restaurant owners some cause for hope.
Ms. Echino, who has run restaurants in Calgary since 2007, said she was finally seeing sales close to pre-COVID numbers in September, and one of her three locations recently ended three consecutive years of monthly losses. She said it was making her cautiously optimistic there would be a new normal in the market.
“We’re used to high pressure, high stress,” she said of restaurant owners. “COVID has definitely made me a better operator because I’ve paid more attention to the bottom line than ever.”
This article was reported by The Globe and Mail
