At Their Wits End: How Is The Foodservice Industry Struggling To Deal With Inflation?
In recent years, inflation has emerged as a significant force reshaping the landscape of the foodservice industry in Canada. As the cost of living continues to rise, people are feeling the pinch in their wallets, which has led to a noticeable shift in consumer behaviour and preferences when it comes to dining out. From menu pricing to supply chain disruptions, staffing shortages and changing consumption patterns, inflation has now introduced a new set of challenges that will require the industry to adapt to try to maintain profitability. Many reports state that sales in the foodservice industry are coming back to pre-pandemic levels; however, that does not necessarily mean the industry is returning to the same profit levels. Could this be an indicator of the market’s transformation?
We recently spoke with Chris Elliott, Chief Economist & Vice President, Research at Restaurants Canada and delved deeper into the ways inflation has impacted the Canadian foodservice industry.
Current Challenges
Inflation is causing a rapid rise in the prices of raw materials, transportation, and labour. This is compelling the sector to strategize and adapt for its survival. The question everyone is focused on is, what are the potential strategies to navigate these turbulent times? Restaurants Canada is pushing the government to extend CEBA loans that are supposed to come due at the end of this year. These “balloon” payments will compound the pressures on the sector.
According to a recent Restaurants Canada survey, the industry’s financial landscape has undergone a stark transformation. While only 7% faced financial losses before the pandemic, the current figure stands at 33%, with a mere 5% reporting “just breaking even,” compared to 18% in the pre-pandemic era. Overall, a staggering 84% of restaurants report lower profitability today than in 2019.
300 restaurants declared bankruptcy in the first 5 months of 2023, 89% more than in 2022
“What we are now seeing is a rising concern that has spiked in the Restaurant Canada’s Outlook Survey and it pertains to the mental and physical well-being of individuals in the foodservice industry. Many are grappling with profound struggles and find it challenging to envision a clear path forward. They are very tired from the immense pressures of the pandemic, trying to reopen and now dealing with inflationary pressures. “The mental health issue has never rated so high (on our industry surveys)” states Chris Elliott.
What strategies can help?
To regain stability and thrive in this new landscape, industry stakeholders must consider a combination of innovative strategies, technological advancements, adaptive business models, and a renewed focus on customer experience. Restaurants Canada recently conducted a survey to draw a framework that would help the industry and presented its submission for the 2024-25 Federal Budget. Here’s a look at some of the key factors that can contribute to the resurgence of the foodservice sector:-
Lowering Federal Small Business Tax Rate: Lowering the small business tax rate can provide restaurants with the capital needed to pay off outstanding debts, invest in automation and energy-saving equipment, expand employee benefits, and invest in training and retention.
Indexing the Passive Investment Income Threshold to Inflation: Indexing the passive investment threshold to inflation incentivizes restaurant owners to invest in technology, sustainability, employee benefits, and professional development.
Permanently Maintaining the Cap on Alcohol Excise Tax Escalator: The 2023 federal budget capped annual excise tax increases on alcohol at 2%. Preserving this cap is vital to shield the sector from unpredictable year-over-year increases in 2024-25 and beyond.
Allowing Restaurant Meals as Deductible Business Expenses: This move encourages business owners and employees to hold meetings or events in restaurants, thereby boosting patronage and traffic in downtown cores and community hubs across Canada.
Support for Recycling and Packaging Initiatives: Collaboration between the government and provinces/territories is crucial to establish consistent guidelines for packaging, labelling, and recycling legislation. This will reduce duplicative overhead costs and aid businesses in adjusting to regionalized rules.
Creating Jobs and Streamlining Pathways to Employment: The food service and accommodation sector is the largest employer of immigrants and newcomers to Canada. It can support Canada’s population growth targets through expanded immigration policies and programs while helping small businesses thrive.
Furthermore, government support and collaboration can reinforce the industry’s ability to navigate inflationary challenges. Implementing these strategies will play an instrumental role in supporting the foodservice industry as they face inflationary pressures.
Charting a Course Towards Growth and Resilience
The Canadian food industry has demonstrated remarkable resilience and adaptability. However, urgent changes are necessary to ensure the survival and prosperity of restaurant businesses in the months ahead. The industry’s ability to weather the storm of inflation hinges on its capacity to adapt, innovate, and collaborate.
As Chris succinctly puts it, describing the situation as “back to normal” would oversimplify matters. The foodservice sector is still in the process of restoring its equilibrium.
Foodbuy, with its comprehensive purchasing, tailored procurement solutions and industry expertise, can play an instrumental role in supporting foodservice businesses to mitigate inflation and find their new equilibrium. By leveraging its extensive supplier network, Foodbuy can provide cost-effective sourcing solutions, reducing overhead expenses and enhancing profitability for restaurants.
Furthermore, Foodbuy’s data-driven insights can empower business owners to make informed decisions, ensuring competitiveness in a rapidly evolving market. Operators can tap into industry knowledge, streamline operations to help position themselves for a successful recovery. As an involved partner, not only can Foodbuy support the sector navigate through the complexities that arose with inflation, but also enable the foodservice industry to do what they do best; providing exceptional dining experience to their patrons.