On the mend

The effects of the recession are fading in the nation’s foodservice industry, according to the Conference Board of Canada.

Between the second quarter of 2008 and the third quarter of 2009, real personal expenditures on restaurants and accommodations declined by 3.8 per cent. However, from the third quarter of 2009 to the first quarter of 2010, a 2.5 per cent increase in these expenditures allowed the industry to recover roughly 60 per cent of what it lost during the recession.A recent report released by the Board found that while employment growth has increased Canadian demand for restaurants, the high exchange rate on the loonie has limited demand from foreign tourists. It also notes that as the global economy recovers from recession, inflationary pressures will re-emerge, driving up the price of food and reversing the price cut that benefited the industry during the recession.

This recovery can be at least partially attributed to this past February’s Vancouver Olympics, which pushed expenditures on restaurants and accommodation up 1.8 per cent through the first quarter of 2010. Although foodservices employment in British Columbia declined by 2.4 per cent during the second quarter, employment across the rest of Canada increased 0.8 per cent. Nationally, this represents two consecutive quarters of growth.

Gaining back lost ground
During the recession, the foodservice industry cut its workforce by approxi-mately 2.8 per cent and reduced the average number of hours worked from 22.5 to 22.2. Despite these cuts, a 3.2 per cent increase in the 2009 average wage increased labour costs by 1.6 per cent.

The increase in the foodservice industry is higher than the average for all Canadian industries. It continues a trend that has seen the industry’s average weekly earnings exceed the economy-wide average for the past four years. In 2010, the average wage rate is expected to increase by 1.8 per cent, and 2011 is anticipated to bring a 1.3 per cent increase.

Throughout 2009, growth in costs outpaced growth in revenues, and profits dropped sharply despite cost-cutting measures taken across the industry. The Olympics brought a jump in profits that is expected to vanish in the second quarter. The Conference Board of Canada predicts that in the coming years, profits will gradually recover to pre-recession levels.

Last year’s foodservice revenues posted the second-weakest growth in the past decade. The 2.2 per cent growth rate was the weakest since the SARS scare of 2003. In fact, the report states that revenues only increased due to the 3.5 per cent price increase experienced industry-wide; on a price-adjusted basis, sales actually declined by 2.3 per cent.

The Board reports that in the fourth quarter of 2009 and the first quarter of 2010, sales volume increased by 1.2 and 0.8 per cent, respectively.

Food Prices
The industry was dealing with a strong food price inflation before the recession, reports the Board. Demand was increased by several factors, including a rise in need for grain-based biofuel production, lower world grain stocks (especially wheat and corn), and people in developing countries consuming more as their income level went up. When the recession struck, many of these factors were temporarily mitigated, and the pressure on world agricultural commodity eased. The biggest saving for restaurants came from meat. Prices of meat declined by about six per cent between the summer of 2008 and the summer of 2009, mainly because meat producers were benefiting from lower feed prices, but also because demand

Future growth to come slowly
In the coming year, the Conference Board of Canada expects real sales for the foodservice industry to grow at an annual rate of 5.1 per cent from 2010 to 2014.

With the economy in recovery and consumer demand increasing, the industry has begun hiring again, creating 45,000 jobs in the first quarter of 2010. These additional workers are expected to drive the industry’s labour costs up by five per cent in 2010.

Overall, the industry recorded an 18 per cent drop in profits in 2009. After receiving a temporary boost from the Olympics in the first quarter of 2010, the Conference Board of Canada expects profits to “fall steeply in the second quarter and to grow only slowly in the remaining quarters of the year.”

The Board warns that profit margins will “stay thin throughout the forecast period and profit growth will be only modest.”