Menu inflation driving increase in Canada's foodservice sales

It appears Canada's commercial foodservice sales are on the rise. They'll increase 4.6 percent to a record $71.5 billion, which follows a 5.3 percent increase in 2017, according to Restaurants Canada's latest forecast.

That's not the whole story, however, since most of that growth is due to inflated menu prices, according to the report prepared by Chris Elliott, senior economist. He expects menu prices to climb 3.8 percent this year due to the passage of Ontario's Fair Workplaces, Better Jobs Act, which took effect, Jan. 1, and: 
•    Increases the minimum wage.
•    Mandates equal pay for equal work.
•    Expands personal emergency leave.
•    Enhances employment standards enforcement.

After adjusting for menu inflation, real sales in Canada will expand by just 0.6 percent — the weakest increase since 2011, Elliott said.

"Many restaurant operators are passing on higher labor costs to customers rather than make significant adjustments to employment levels," Elliott said in the forecast. "Foodservice employment in Ontario rose slightly in the first two months of 2018, largely due to an increase in units. Meanwhile, average hours worked per foodservice employee posted a modest decline."

The sharp increase in menu prices coincides with a backdrop of a projected slowdown in overall consumer spending. Following several years of gains, a moderation in disposable income, slower real GDP gains, a slowdown in the housing market and high household debt will restrain annual commercial foodservice sales growth in Canada to 4.6 percent this year Elliott said.

Full- and quick-service restaurant sales are on track to post slower sales growth in 2018 than 2017. 

"This reflects weaker economic conditions and an overall slowdown in consumer spending," Elliot said. "The Conference Board of Canada, for instance, is forecasting total retail sales will moderate from 6.7 percent growth in 2017 to 3 percent growth in 2018 and just 2 percent in 2019. Once adjusted for menu inflation, real foodservice sales in Canada will increase by a tepid 0.8 percent in 2018 following a vibrant 2.7 percent pace in 2017.

Looking ahead to 2019, Elliott predicted that foodservice will be weighed down by a combination of slower disposable income growth and as high household debt take the wind out of discretionary spending.

"A stronger-than-expected influx in international travelers may lead to stronger foodservice sales over the forecast horizon. In contrast, however, uncertainty in the housing market or NAFTA may suppress consumer confidence and lead to weaker foodservice sales growth."

Topics: Trends / Statistics

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