What’s around the corner?

By Travis Traini

In many ways, it seems the restaurant industry is getting back on track; however, operators are still experiencing strains on their profitability.

A survey completed in May 2022 indicated most Canadians (89 per cent) feel comfortable eating indoors at a full-service restaurant compared to just 48 per cent the year before1. While that is a huge increase in consumer confidence, restaurant traffic is still recovering, slowed by the shift to remote working situations (32 per cent of respondents to that survey indicated they work mostly or entirely remotely)2

While customer traffic at some operations is beginning to return to 2018 and 2019 levels, the operating climate and expenses are significantly different from these pre-pandemic periods. A survey conducted by Restaurants Canada in July 20223 indicated 29 per cent of respondents were operating at a loss, and 22 per cent were breaking even. More restaurant closures are expected, and a greater number of permanent restaurant closures were recorded in May, June, and July than in the previous 12 months combined, with new openings not offsetting the number of closures.

Against this backdrop, fsSTRATEGY conducted a survey of restaurant executives in September 2022.

When asked how they expected 2023 traffic to compare to 2022, over 40 per cent expected traffic to increase by up to 10 per cent. In the current operating climate, many respondents expected operating costs (as a percentage of revenue) to also increase in 2023. Greater than 55 per cent of respondents expected food costs to increase in 2023, with 26 per cent expecting an increase of greater than two per cent of revenues, compared to 2022.

The greatest continued operating challenges anticipated by respondents included staff retention/labour shortages (especially skilled labour), food costs, economic effects on customer spending, interest rates and other operating cost increases. Respondents indicated that in the past 12 months compared to 2019, filling positions has become more challenging for the back-of-house (86 per cent), managers/supervisors (71 per cent), and front-of-house (62 per cent). Restaurants Canada indicated restaurants are operating at an average of 80 per cent of their normal capacity due to labour shortages4. Operators are changing work and compensation packages to attract staff, including increased base wages (excluding changes to minimum wage), offering more schedule flexibility, and increasing paid benefits.

To operate profitably and grow revenues in the current market, top reported strategies included adding new locations, capturing market share from competitors, modifying menus to reduce costs of goods sold, growing average checks, and modifying operations and/or facilities to reduce labour costs. Other opportunities include making greater use of technology, social media marketing, taking advantage of greater site availability (due to closures/vacancy), virtual brands, growth in non-traditional revenue streams (grocery/retail), and focusing on key operating strengths.

Heading into 2023, restaurant operators may seek to combat rising costs and labour availability through automation technology, upgrading online/mobile ordering and payment options, POS upgrades, and inventory management systems. Most survey respondents indicated they plan on using third-party delivery in the future, and most use multiple third-party delivery platforms right now. Certainly, millennials and Generation Z customers prefer restaurants with technology options for ordering and payment. Operators should be looking to technology, not only to assist with operating challenges but to continue to be attractive to younger generations of customers.

1. Angus Reid Institute, May 2022

2. Angus Reid Institute, May 2022

3. Restaurants Canada’s Q2 2022 Restaurant Outlook Survey

4. Restaurants Canada, RC Intel – Foodservice Facts 2022