Favourable income gains to boost foodservice sales in the second half of 2019

Published July 31, 2019

Canada’s commercial foodservice industry is projected to average 4.6% growth in the second half of 2019 due to stronger-than-expected disposable income growth. Adjusted for menu inflation, real sales will expand by an average of 2.1%. This comes on the heels of modest real sales growth throughout 2018 and in the first quarter of 2019.

Looking back, a number of operators struggled in the first half of 2019 due to the bitter cold, lots of snow and a slow start to spring. Nevertheless, Canada’s commercial foodservice industry performed as forecasted with sales advancing by 4.2% in Q1 2019. Real sales, adjusted for menu inflation of 3.0%, improved to 1.2% growth in Q1 2019, following a 1.0% increase in Q4 2018.  Although not all the data is in yet, nominal sales are on track to advance by 4.7% in Q2, representing 2.2% real growth.

The biggest change to the outlook is the Conference Board of Canada’s upgraded forecast for disposable income to 4.0% growth in 2019. This compares to their previous projection of 3.0% growth. Tightening labour market conditions and the lowest average national unemployment rate in decades, is driving up wage growth. While Canadians’ debt-to-income ratio is still concerning, consumers are feeling the confidence to spend discretionary dollars on foodservice. As a result, annual commercial foodservice sales in Canada are now forecast to expand by 4.6% in 2019, up from the previous forecast of 4.2%.

The outlook for 2020 remains relatively unchanged with commercial foodservice sales forecast to climb by 4.5% to $78.6 billion.

The improved foodservice sales forecast is mirrored in Restaurants Canada’s forthcoming Q2 2019 Restaurant Outlook Survey. Nearly half (48%) of respondents said they feel optimistic about the next 12 months versus 24% that are pessimistic. Those that are optimistic believe that an increase in traffic and recent investments in renovations will bolster sales.

Yet, sales are only one part of the equation. Even those that feel optimistic about the future are worried about eroding margins due to increased competition and rising labour costs. In addition, labour shortages remain a significant challenge for more than half of restaurant owners

To learn about which segments will see the strongest growth, and which direction menu inflation is headed, download your copy of Restaurants Canada’s Quarterly Forecast for Q2 2019 here.

Kartikey Bhargava

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