Foodservice outlook for 2018: Less optimism and higher menu prices

Published November 1, 2017

Restaurants Canada’s latest Q3 Restaurant Outlook Survey shows how deeply concerned foodservice operators are about minimum wage increases. Nationally, 85% of operators said that labour costs are the number one issue for their business. By contrast, food costs had a negative impact on 62% of operators and 27% attributed the weak economy as a challenge.

Although every province will raise their minimum wage in 2017, its the big increases in Ontario ($14/hour by January 2018 and then $15/hour in January 2019) and Alberta ($15/hour by October 2018) that have operators particularly worried.

Optimism for 2018 falls

Foodservice operators began the year in high spirits, as seven in 10 operators were optimistic about their foodservice operation over the next 12 months.  With strong economic growth and healthy job creation, the restaurant industry reported strong sales across most of the country

That share tumbled to 43% in Q3 due to the dramatic increase in the minimum wage in many parts of the country. In addition, high household debt and rising interest rates, will lead to a moderation in consumer spending in the coming years. The combination of slower consumer spending and rising expenses (labour, food and utilities) has eroded the confidence of restaurateurs.

Menu prices to climb in 2018

Due to higher operating costs, menu prices are projected to climb sharply over the next 12 months. Overall, 29% of operators in Canada plan to raise their menu prices by more than 5%. Historically, menu inflation has averaged 2.5 % per year over the past two decades.

On a weighted basis, menu prices in Ontario are forecast to climb by 4%. This compares to menu inflation of 2% in the first half of 2017. By segment, there was no statistically significant difference in the projected menu inflation rates between quick-service restaurants and table-service restaurants.

What can operators do?

The Q2 and Q3 Restaurant Outlook Surveys also identified ways that operators plan to control their operating costs as well as their key priorities for their business (such as off-premise dining and dayparts) over the next 12 months.  In addition, Restaurants Canada will release a document on how to cope with higher minimum wage increases.  For more information about the Restaurant Outlook Survey, login to the member portal to download the latest reports.

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