Outlook mixed for food service industry

Ottawa — As Canadians deal with weaker growth in disposable income and high levels of household debt, the national food service industry is expected to face challenging times in the near term, indicates the latest report from the Conference Board of Canada, Industrial Outlook: Canada’s Food Services Industry–Winter 2016. The effects will vary across the country and the low dollar could lead to a boost in foreign and domestic tourism spending.

“Canadians now carry the highest debt-to-income ratio among G7 countries,” said Michael Burt, director, industrial economic trends in a Conference Board release. “Consumers that prioritize paying off debt could spell bad news for Canada’s food services industry, since one of the first items that households cut back in difficult economic times is dining out.”

The report points out that growth in consumer spending on dining out varies greatly by province. Alberta’s pessimism about future job prospects has led to a decline in per capita spending on food services, and Quebec, weighed down by an ageing population and poor economic growth, has experienced only modest improvements in food services spending per capita.

In contrast, Ontario and B.C. continue to experience strong growth in food services spending. Buoyed by strong consumer demand, and robust housing sectors, Ontario and B.C. have seen restaurant receipts rise by an average of 5.3 and 6.9 per cent per year respectively since 2012, which compares to an increase of only 3.2 per cent across all other provinces.

The report also acknowledges that a weak Canadian dollar is encouraging international tourism, while also making Canadians rethink travel abroad, which should support rising foreign and domestic tourism spending at food service operations, which accounts for more than one-fifth of the total Canadian food services spending.

Labour shortages of both skilled and unskilled workers will continue to challenge certain regions of Canada and keep pressure on industry wages.

Canada’s food services industry is expected to benefit from innovations, such as food-ordering apps, which will continue to provide opportunities for restaurant operators to promote their menu choices and grow sales to customers who may not have otherwise visited their location.

As cost growth outstripped revenue growth in 2015, pre-tax profits fell to $1.6 billion. Industry profits should improve starting this year, rising to $2.1 billion by 2020. However, profit margins will remain steady averaging around 2.8 per cent over the next five years.