Canadian restaurants need to combat appeal of home dining in 2017
March 14 2017
Increased competition and weaker consumer spending will limit revenue growth for Canadian restaurants to 3.9 per cent in 2017.
This is according to a report from the Conference Board of Canada and would represent the industry’s weakest performance since 2011. It would also back up projections from January that quick and full-service restaurants should expect to see growth hover around four per cent this year.
Michael Burt, director of industrial economic trends at the Conference Board of Canada, believes that in addition to fighting for customers and market share, restaurants also will be forced to slug it out with grocery stores as staying-in continues to gain popularity.
“Dining at home is becoming relatively attractive compared with eating out, given slower growth in income and the fact that prices at restaurants have steadily risen despite a drop in grocery prices over the last year,” said Mr Burt.
December 2016 saw restaurant prices grow by 2.3 per cent while grocery prices went the other way by 2.8 per cent.
He added that this fiercer competition may drive less profitable independent restaurants out of business as they struggle to contend with chains on food prices and keep up with food trends.
An imbalance in the number of new restaurants and Canadian residents to eat in them has emerged in recent years too.
The number of restaurants in Canada has grown at a rate of 1.8 per cent since 2011, the report found. This is well above the 1.1 per cent growth in total population.
Reasons to smile
It wasn’t all downbeat though, the report noted strong growth in breakfast traffic, rising 6.3 per cent in 2016 to help it account for just under a fifth of restaurant visits.
Some fast food restaurants are now addressing this historically low-margin, low-revenue market by offering fast and portable breakfast options like all-day breakfasts to capitalize on rising demand.
Another reason to smile is that pre-tax profits in the food services industry are forecast to reach $1.6 billion in 2017. This is partly down to the anticipated increased tourism in 2017 as Canada celebrates its 150th anniversary.
However, over the longer term, the Canadian dollar is projected to gradually strengthen. This would dilute one of the key factors that has made Canada an attractive destination for international visitors over the last couple of years.
As a result, growth in spending from international and domestic customers is expected to slow.
Weakening margins may well continue to bite a chunk out of profits but the financial picture of the food services industry will remain stable through 2017.
Cost growth will be held in check by weaker food prices and while sales growth will slow, it will remain positive, with pre-tax profits in the food services industry set to hit $1.6 billion this year.
The increased appeal of dining at home will help support Canada’s food manufacturing industry achieve solid sales growth of 4.1 per cent with companies benefitting from a strong export outlook, fuelled by improving U.S. demand.
You can download the Conference Board of Canada’s full Canadian Industrial Outlook: Canada’s Food Services Industry report here.