By Robert Carter, Managing Director, The StratonHunter Group

As the Canadian restaurant industry attempts to recalibrate in the aftermath of the pandemic, another major challenge has reared its ugly head: inflation. The restaurant industry is both innovative and resilient, but the threats we have faced over the last 3+ years have been significant.

• Half of restaurants and foodservice companies in Canada are currently operating at a loss or just breaking even, according to Restaurants Canada. This trend will likely continue as food costs continue to grow.
• The consumer is also feeling the squeeze. According to online restaurant reservation service OpenTable the number of seated diners at restaurants in several Canadian cities has significantly slowed year-over-year.
• According to the Bank of Canada, inflation is expected to fall to about 3% in late 2023, then return to 2% by the middle of 2025 as the economy responds to higher interest rates and as the effects of elevated commodity prices and supply disruptions fade.
• Food Inflation in Canada is expected to be 6.5% by the end of this quarter. In the long-term, it is projected to trend around 3% in 2024, according to Trading Economics.

While food inflation has softened from its double-digit peak in March and April 2023, prices for many grocery items have continued to increase month after month and, on balance, are 20% above levels reported two years earlier.

We have been here before and historically, when grocery prices increase faster than increases in restaurant meal prices, consumers actually increase restaurant usage!

What Does This Mean for the Restaurant Consumer?

For most consumers, the appeal of restaurants remains; however, inflationary pressures do usher in a change in consumer spending habits. It’s crucial to note that reduced spending doesn’t necessarily equate to reduced dining out. Instead, consumers might recalibrate what they value in their dining experiences.

The impacts of inflation are wide-reaching. Operators are forced to manage escalating operational costs, such as ingredients, utilities, and wages. As these costs rise, restaurants must grapple with the dilemma of transferring these increases to customers through higher menu prices or seeking cost-saving measures that might compromise quality.

On the other end of the spectrum, consumer behavior tends to shift as dining out becomes pricier, leading to reduced frequency and preference changes, thereby challenging restaurants to balance quality, experience, and affordability.

To better understand the multifaceted implications of inflation for the Canadian restaurant industry, let’s delve into some of these concepts in more detail.

A Pricier Plate: The Direct Impact

At its core, inflation means higher prices. For the restaurant industry, this translates to rising costs across the board – from ingredients and utilities to wages. These incremental costs inevitably trickle down to the consumer, making every bite pricier. For many Canadians, dining out, which is already viewed as a discretionary expense, may start feeling like an extravagant indulgence. It’s important for restaurateurs to really “up their game” in these economically challenging times and recognize the price pressures consumers are facing.

Changing Consumer Preferences

Inflation doesn’t just impact the wallet; it transforms consumer choices. As prices inch up, there’s a noticeable shift towards value-driven decisions. This does not necessarily mean “cheaper prices”. Value can equate to more combo opportunities, increased service levels, or free delivery. There are numerous tools operators can use to drive the perception of value.

Innovation as the Antidote

Herein lies the silver lining. Challenges often spur innovation. Faced with inflationary challenges, restaurants have an opportunity to rethink their offerings. From introducing cost-efficient, locally sourced ingredients to embracing technology for streamlined operations, innovative strategies can help offset cost pressures without compromising on experience.

Collaboration is Key

In these turbulent times, fostering partnerships can be a game-changer. Whether it’s collaborating with local farmers for fresh produce or joining forces with tech platforms for efficient delivery systems, there’s strength in unity. By pooling resources and expertise, we can mitigate the challenges of inflation and ensure that the Canadian restaurant and food industries continue to grow.

What’s Next for The Canadian Restaurant Industry?

Inflation, while challenging, is not insurmountable. With proactive strategies, adaptability, and a dash of innovation, restaurants can continue to thrive. Navigating the choppy waters of inflation requires foresight and strategy. With the right approach, your business can remain relevant, profitable, and ready for the future.

If your business is having a hard time managing the impact of inflation, consider reaching out to the StratonHunter Group for strategic advice and perspective on industry challenges and opportunities.

About Robert Carter

Robert Carter is Canada’s leading food retail strategist and consumer behaviour industry expert. He has an expansive background in the industry with 20 years of experience spanning operations, strategy, marketing, and consumer research. As an innovative leader in the food industry, he has developed powerful relationships with industry leaders and has become a highly regarded industry expert with dynamic communication skills and an immense passion for tracking food trends and consumer activity.

About The StratonHunter Group

The StratonHunter Group develops strategic plans for leading restaurant chains and foodservice manufacturers. Our clients work with us to increase market share, expand franchise concepts, strengthen operational and development processes, create a culture of Innovation, identify new growth opportunities, and structure for an acquisition. For more information, visit www.stratonhunter.com.