Foodservice 2014: boom or bust?

Since the last recession began, business owners have been anticipating when the economy would jump back into gear.

Since the last recession began, business owners have been anticipating when the economy would jump back into gear. According to one economist, the trends are pointing to just that.

The CFIB’s Business Barometer has increased by nearly five points.

“We just got word from the Bank of Canada that they are expecting significantly better economic growth in 2014-15,” Ted Mallett, vice-president and chief economist for the Canadian Federation of Independent Business (CFIB), tells Canadian Pizza. “The consumer is starting to get past some of the debt concerns that they had leveraged and that will leave Canadians with more money left over to spend.”

In the second quarter of this year, there was a bit of a pause following the positive business outlook that began in Q1. Despite the sink in optimism, Mallett notes that certain aspects could translate into a better third and fourth quarter.

“The worldwide economy is helping to bolster our export sector and the U.S. economy in particular is showing much better signs of performance, strengthening the foundation of growth,” he explains. “All those sorts of things suggest that we have got some kind of a firming of the baseline.”

Mallett also makes note of the association’s Business Barometer, which has increased by nearly five points to 64.2. Here are the numbers across the province. In Saskatchewan 71.2 per cent of businesses are optimistic in Canada, followed by Alberta (66.8 per cent), Newfoundland and Labrador (66.7 per cent) and Ontario close behind (66.5 per cent). British Columbia is above the national average at 64.9 per cent, while New Brunswick (58.9 per cent), Manitoba (58 per cent), Nova Scotia (57 per cent) and Quebec (56.4 per cent) are all below it. Prince Edward Island remains at the bottom end of the scale at 49.2 per cent. An index level above 50 means owners who expect their business’ performance to be stronger in the next year outnumber those expecting a weaker performance.

However, the economy is still weak, and weather has proven to not only put a damper on business expectations, but also cause an actual decline in sales for restaurant operators. The CRFA’s latest Restaurant Outlook Survey indicated that 31 per cent of restaurateurs expect sales to increase in the next two quarters. In 2012, 40 per cent said sales would boost.

Twenty-eight per cent of respondents reported that bad weather had a negative impact on the business, compared to 19 per cent for the same time last year. Operators have also cooled on the hiring front this year with only 21 per cent planning to bring in new employees before the end of the year, compared to 29 per cent last year.

“One in two of our members is concerned about the economy, and their sales and hiring plans reflect this,” says Garth Whyte, CRFA president and CEO, in a press release. “Expectations in our industry are a gauge of the broader economy. Indeed, pundits are forecasting Canada’s economic growth to remain soft in the second half of 2013 with modest job creation ahead.”

Higher food prices
Food prices have remained about the same at 1.4 per cent in the first four months of this year, but there are signs that the cost of food is set to increase in the upcoming months.

The Royal Bank of Canada (RBC) pointed out that last year’s drought in the United States could lead to a increase in food prices this year of roughly three or four per cent. This will mean higher prices for meats and vegetables.

In the CRFA’s outlook survey, more than half of operators reported greater food costs in the first quarter. With menu inflation already around two per cent, operators are apprehensive about increasing menu prices again. Most operators have decided to maintain current prices until the end of the year, and will re-evaluate their prices based on the market and 2014 projections.

Quick serve versus Full serve
The lives of Canadians seem to be getting busier due to a heavier workload and fewer resources. This could explain why full-service restaurant sales don’t carry the same customer base as they used to, a customer base being absorbed by quick-service restaurants.

“People’s lives are demanding with everything moving a little bit faster,” says Mallett. “The demand is to get the food quick and then dedicate the saved time elsewhere, so restaurants who see their sales down may want to incorporate snacking foods to go that don’t take much time to make.”

According to the NPD Group, when compared to 2007, annual visits to quick-service restaurants (QSR) have increased by more than 300 million. Despite the recent sales boost of full-service restaurants (FSR), it is still below the pre-recession 2007 period. Take a look at the figures: QSR has gained more than 350 million visits, while FSR has had a 63-million decline in visits over the same time period.

NPD also found when Canadians opt out of cooking, they choose a QSR 64 per cent of the time compared to a FSR at 24 per cent.

“It would appear this is where the industry is headed,” says Mallett.

The quick-service sector is expected to increase sales by 0.4 per cent in the third quarter, with another two per cent increase by the fourth quarter, while the full-service sector isn’t forecasted to see an increase in sales until 2014, according to the CRFA’s quarterly InfoStats report

Overall, the report states restaurant sales have been increasing year over year, with 2013 starting out with almost $4 billion in sales compared to $3.8 billion in 2012, and about $3.6 billion the year before that.

“If people are confident about their immediate futures, then they start looking longer term and they are a little more relaxed about their spending profile, which will most likely translate into more business dealings in the foodservice sector.”