Restaurant industry facing bleak outlook, as costs mount even faster than skyrocketing prices

After withstanding the once in a lifetime pummeling of the COVID-19 pandemic, Canada's restaurant industry is still in dire straits and many businesses are in danger of going under.

That's the main takeaway from a recent report from Restaurants Canada, which found that despite surviving the depths of the pandemic, the outlook for the industry as a whole looks bleak.

Total spending at restaurants is on track to top $110 billion this year, a 10 per cent increase from the previous year's level, but costs are up by even more, which is pushing many to the brink of insolvency.

The group says more than half of its members are losing money this year. While that's not uncommon in an industry known for its razor thin profit margins, in 2019, only about 12 per cent of the group's membership were at risk.

"It's very challenging because everything that goes into operating a restaurant has increased double digits," said Richard Alexander, the group's executive vice-president, in an interview with CBC News.

For the first five months of 2023, bankruptcies in the sector rose by about 50 per cent compared to the same period last year, and he says even more are coming. "It's a really, really critical time."

Frédéric Dimanche, director of the Ted Rogers School of Hospitality and Tourism Management at Toronto Metropolitan University says he's not surprised to hear that more restaurants are struggling.

The restaurant industry was hit perhaps harder than any other by the COVID-19 pandemic, since it's an in-person experience. 

Government programs designed to keep people employed and paying the rent helped, but those have now expired, and demand for dining out has not returned to its pre-pandemic levels.

If anything, it's declining: data from OpenTable, a restaurant reservation system, shows that across Canada, demand has fallen by about three per cent this month, and it's even worse in some cities. In Edmonton, demand has fallen every month since April, while in Toronto it's declined five months in a row.

Meanwhile, costs keep going up.

"Many restaurants have had to increase wages in order to not only attract people but also to keep them," Dimanche said. "The cost of doing business is increasing."

Alida Solomon knows that all too well.

But as an entrepreneur about to celebrate her restaurant Tutti Matti's 21st year in operation in downtown Toronto, she says wage increases to attract and keep her staff are nowhere near her biggest problem.