OTTAWA — Increased competition paired with decreased consumer spending will slow growth in Canada’s foodservice industry, according to the Conference Board of Canada.
In its recent report Canadian Industrial Outlook: Canada’s Food Service Industry, the board predicts revenue growth will be limited to 3.9 per cent in 2017. Pre-tax profit for foodservice is expected to reach $1.6 billion this year.
“A lot of the tailwinds that have helped the industry in the last few years are not necessarily going to be there going forward,” said Michael Burt, director of industrial economic trends for the Conference Board of Canada.
Since 2011, the number of restaurants in Canada has grown at a rate of 1.8 per cent. In the same time span, Canada’s population has grown at a rate of 1.1 per cent.
“The industry has experienced healthy growth in terms of revenue and value over the last four or five years,” Burt said. “At the same time, the number of restaurants is growing almost twice as quickly as population growth.”
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As well, consumer spending growth is expected to drop to 1.5 to 2 per cent in the next few years, compared to previous growth of 2 to 2.5 per cent.
“That’s tied to the fact that debt burdens are quite high. Income growth is going to be fairly modest so consumers are going to have to pull back a bit,” Burt said. “That means cutting back on discretionary spending, which would include restaurants.”
Grocery stores will also take a bite out of revenue growth. While menu prices have increased, the cost of purchasing food from a grocery store is declining.
“That makes it more attractive for people to spend their food dollar on ready-to-eat meals coming from a grocery store,” Burt said. “We’re concerned the price competitiveness of dining in versus dining out is changing.”
The report also notes profits margins in the restaurant industry are low, averaging 2.3 per cent in the last 10 years.
“It’s definitely below average. For a sector of that size, I’m struggling to think of one that’s comparable, in terms of a low margin,” Burt said. “At two per cent, you’re having to rely on a lot of turnover to make a return on your investment.”
The increase in competition, combined with a low margin, is contributing to “an uptick” in foodservice business bankruptcies. Nearly five out of every 1,000 businesses in the accommodations and food services sector will declare bankruptcy, more than three times the average for Canadian businesses. Burt noted bankruptcy statistics are a hospitality average, and restaurants are more likely to close than hotels.
“We expect to see more businesses exiting the industry and a bit of a stabilization there,” Burt said. “That will coincide with some of the slower growth we expect to see in terms of revenue growth.”
In the food manufacturing sector, pre-tax profit will climb four per cent to $4.2 billion this year. New trade deals, increased demand from the United States and weaker agricultural commodity prices are expected to drive growth.
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