Rising labour costs shake restaurant industry confidence

Published July 26, 2017

Faced with the threat of skyrocketing labour costs, many operators now feel uncertain about the future of their business. In Restaurants Canada’s latest Restaurant Outlook Survey, the share of foodservice operators that are optimistic about the next 12 months tumbled from 69% in Q1 to 53% in Q2. Meanwhile, the share that are pessimistic jumped from 11% to 28%. Certainly, things took a rocky turn in the second quarter of 2017.

Why 2017 should have been a banner year for operators

Ironically, the current economic environment sets the stage for business success. Canada’s economy is growing at its strongest pace since 2011, adding more than 350,000 jobs in the past 12 months. Consumer confidence has rebounded, and is now at its highest level since January 2010. A strong domestic economy and an influx of tourists are key ingredients to a prosperous restaurant industry. Despite this boom, the recent spate of drastic cost increases has undermined restaurateurs’ confidence.

The culprits

Ontario’s move to hike the minimum wage by 32% in just 18 months is a significant cause of this dramatic dip in optimism, but not the only one. Operators also identified a new meal tax in Saskatchewan, minimum wage increases in other provinces, and higher interest rates that erode disposable income as confidence-killers.

How operators plan to cope

Because of higher labour costs, foodservice operators will be forced to raise their menu prices. In fact, 45% plan to increase menu prices by more than 3% over the next 12 months. This is up from 21% in Q1. Over the past seven years, menu inflation in Canada stayed under 3%.

The survey also found that the number one priority for restaurateurs over the next 12 months is reducing operating costs. To do so, operators plan to cut staff hours, reduce staffing levels and change the menu to include lower-cost food items.

The year ahead

It will certainly be a bumpy 2017 as restaurateurs reconfigure their businesses to manage these new cost burdens. Remember, Restaurants Canada is here to help. Contact Restaurants Canada’s Paul McKay to see how our cost-saving programs, lobbying activities, research and trade show can help you plan for success.

About the survey

The Restaurant Outlook Survey is e-mailed to restaurant operators. The survey was conducted in July 2017. In total, 184 completed surveys were submitted, representing 4,936 establishments.

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