research restaurants canada quarterly forecast · household debt have led to a notable slowdown in...

Restaurant Quarterly Forecast 1

Q3 2019

Restaurants Canada Quarterly Forecast

RESEARCH

RestaurantsCanadaResearch


Highlights � Due to high household debt and a slowdown in household wealth,

commercial foodservice sales in Canada rose by a modest 2.5% in Q3 2019. This represents the weakest quarterly growth since Q1 2013.

� As a result, commercial foodservice sales in Canada are forecast to grow by a downgraded 3.6% in 2019 compared to the earlier forecast of 4.6% in the previous edition of the Quarterly Forecast.

� A recent survey by BDO found that 53% of Canadian households are living paycheque to paycheque and that seven in 10 households don’t feel they have enough money to retire.

� In 2020, commercial foodservice sales are forecast to grow by 4.0% to $77.5 billion. This is a downward revision from the previous forecast of 4.5%.

� Economic uncertainty, lower consumer confidence and high household debt have led to a notable slowdown in overall consumer spending including both foodservice and retail sales.

� While there is growing concern about an economic slowdown, none of the major banks are forecasting a recession. Overall, Canada’s economy is forecast to grow by 1.8% in 2020 and a further 1.9% in 2021.

� With a growing job market and low unemployment rate, disposable income is forecast to climb by 3.7% in 2020 and 3.4% in 2021.



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Restaurant Quarterly Forecast 3RestaurantsCanadaResearch

Growing concerns over a possible recession, combined with record-high household debt, led to weaker-than-expected foodservice spending in Q3 of 2019. Overall, commercial foodservice sales in Canada rose by a modest 2.5% in Q3, representing the industry’s weakest increase since Q1 2013. Similarly, total retail sales in Canada grew by a tepid 1.2% in Q3 as Canadians pulled back their spending on big-ticket items.Adjusted for menu inflation of 2.7%, real sales slipped by 0.2% in Q3 after averaging 1.4% growth in the first half of 2019.

The slowdown in consumer spending impacted all segments of the foodservice industry. Sales at quick-service restaurants moderated to 2.4% nominal growth in Q3 after averaging 4.0% growth in the first half of 2019. Full-service restaurants were slightly more buoyant as sales advanced by 2.9% in Q3, although most of this was due to an increase in the number of establishments. After a strong start to the year, drinking place sales fell by 2.6% in Q3 due to lower consumer spending across Western Canada and a moderation in spending in Quebec and New Brunswick.

Given the slowdown in spending in Q3, Restaurants Canada has lowered its outlook for 2019 to 3.5% annual growth compared to our previous forecast which called for 4.6% growth. Out forecast for menu inflation remains relatively unchanged at 2.7% for 2019.

Looking ahead, the moderation in spending will continue into 2020, although there will be a slight uptick in growth due to the leap day in February. As a result, Canada’s foodservice industry is forecast to grow by 4.0% in 2020 to a record $77.5 billion. This is slightly lower than our previous forecast, which called for 4.5% growth. The lower outlook for foodservice spending coincides with a reduction in the outlook for overall retail sales. In the previous forecast, the Conference Board of Canada said retail sales would advance by 3.6% in 2020. This has now been revised to 2.9% due to weaker consumer confidence and high household debt.

A recent survey by BDO found that 53% of Canadians are living paycheque to paycheque. Furthermore, 70% of households don’t believe they are financially ready for retirement. At the same time, net household wealth has plateaued in recent years due to a slowdown in housing prices. All of this has put a financial strain on households, resulting in a moderation in consumer spending.


The leap day in February to boost foodservice sales in most foodservice segments in 2020

No recession in the forecast, but storm clouds linger on the horizon

In 2020, quick-service restaurants will remain the largest segment of the foodservice industry with annual sales of $34.5 billion. This represents a 4.2% increase over 2019. With households watching their spending, an increasing share of guests will be looking for value when dining out.

With consumers watching their spending, full-service restaurants will experience a marginally slower pace of growth compared to quick-service restaurants over the near term. In 2020, full-service restaurants are forecast to grow by 4.0%, a pace that is still on par with the segment’s long-run average growth rate.

Caterers are forecast to lead all commercial foodservice segments with a 4.2% increase in revenues. Although caterers remain one of the most volatile segments due to large fluctuations in revenues at remote foodservice camps, annual revenues are forecast to grow by 4.2% in 2019 and

The Conference Board of Canada is predicting that Canada’s economy will grow by 1.8% in 2020 and a further 1.9% in 2021. During this time, the economy is not expected to see any contraction in activity, which is a positive sign. In September and early October, there were growing concerns of a recession in the United States. In fact, analysis by the Federal Reserve of New York put the likelihood of a recession at 38% between August 2019 and July 2020. This number has since slipped and is now hovering just below 30%. Nevertheless, any percentage over 30 is worrisome and coincided with the past three recessions in the United States.

Despite economic uncertainty, Canada’s job market remains strong. Net employment in Canada is projected to grow by a robust 381,000 jobs in 2019, which pushed the unemployment rate down to 5.5% in October. Following several years of strong gains, net

3.9% in 2020. One positive sign for 2020 is that we are finally seeing a rebound in caterer revenues in Alberta.

Due to a decline in the number of establishments and changing consumer preferences, drinking places are forecast to lag behind the rest of the foodservice industry with a 2.3% increase in sales.

With menu inflation projected to be 2.4% in 2020, real foodservice sales are forecast to grow by 1.6% in 2020. This is an improvement over the 0.8% real growth projected for 2019.

Looking further ahead to 2021, commercial foodservice sales are forecast to expand by 3.8%, while real sales will grow by 1.4%. The outlook for the next few years, however, will depend heavily on economic conditions and whether there is a recession.

employment is forecast to slow to a more sustainable pace in 2020 with the creation of 148,000 jobs.

A strong job market and low unemployment rate will lead to upward pressure on wages. As a result, disposable income is forecast to climb by a solid 3.7% in 2020. Nevertheless, high household debt and wavering consumer confidence will restrain overall consumer spending.

While a recession cannot be entirely ruled out, the slowdown in consumer spending is already happening. Restaurants need to pay close attention to managing their expenses, but also find new engines of growth to expand their revenues. Many restaurants are diversifying their menus to include more plant-based menu items, new appetizers and limited-time offers.



Quick-service restaurants

1.8%

4.5%

1.8%

4.2%

5.5%

4.5%

3.6%

4.7%

3.7%

4.0%

5.6%

4.0%

3.6%

4.4%

2.9%

3.9%

1.1%

2.3%

* Forecast from Restaurants Canada Quarterly Forecast Q2 2019, published in July 2019Source: Conference Board of Canada

Unemployment Rate

Full-service restaurants

Caterers Drinking Places Total Sales

Real GDP Disposable Income

Retail Sales

Comparison Between Previous & New Sales Forecast

Comparison Between Previous & New Economic Indicators Forecast



Previous* forecast for 2020

New forecast for 2020

Quick-service restaurants

Full-service restaurants

Caterers

Drinking Places

Total Sales

CPI-FAFH

Real Sales

Real GDP2

Pers. Disp. Income

Retail Sales

Unemployment Rate3

Inflation3

2019.1

$7.3623.8%

$7,380.44.7%

$1,272.34.1%

$579.25.7%

$16,593.94.3%

1.5493.0%

$10,712.71.2%

0.5%

3.2%

2.0%

5.8%

1.6%

3.7%

3.6%

1.8%

5.5%

2.2%

1.5%

4.6%

1.2%

5.6%

1.8%

1.6%

4.2%

2.6%

5.7%

1.9%

1.6%

4.0%

3.1%

5.7%

2.0%

1.7%

3.7%

2.7%

5.6%

1.8%

1.8%

3.5%

3.0%

5.6%

2.0%

2.0%

3.6%

2.9%

5.6%

2.1%

2020.4

$8,759.94.0%

$8,623.23.8%

$1,665.33.3%

$669.92.2%

$19,718.33.8%

1.6172.4%

$12,192.41.4%

2019.4

$8,422.93.7%

$8,307.53.1%

$1,612.15.1%

$655.52.4%

$18,998.13.5%

1.5792.6%

$12,0290.9%

2019.2

$8,489.64.3%

$8,396.64.2%

$1,492.54.8%

$634.20.3%

$19,012.94.2%

1.5602.6%

$12,187.81.6%

2020.1

$7,730.15.0%

$7,734.74.8%

$1,328.34.4%

$593.12.4%

$17,386.24.8%

1.5862.4%

$10.9612.3%

2019.3

$8,842.92.4%

$8,914.22.9%

$1,505.42.8%

$638.5-2.6%

$19.9012.5%

1.5722.7%

$12,657-0.2%

2020.2

$8,820.63.9%

$8,707.33.7%

$1,553.74.1%

$647.52.1%

$19,729.23.8%

1.5972.4%

$12,350.51.3%

2020.3

$9,205.44.1%

$9.2443.7%

$1,567.14.1%

$655.12.6%

$20,671.73.9%

1.6102.4%

$12,8391.4%

Commercial Foodservice Sales Forecast

Source: Restaurants Canada, Statistics Canada and Conference Board of Canada

NOTE:

1. Shaded areas represent forecast periods. All percentage changes are period-over-period. CPI-FAFH refers to the consumer price index for food away from home, also known as menu inflation.

2. Annualized quarter-over-quarter change.

3. Refers to actual value.

2021.3

$9,592.14.2%

$9,595.33.8%

$1,631.34.1%

$664.31.4%

$21.4833.9%

1.6472.3%

$13,042.91.6%

2021.1

$8,016.13.7%

$8,005.43.5%

$1,386.74.4%

$600.81.3%

$18.0093.6%

1.6232.3%

$11,098.51.3%

2021.4

$9,136.54.3%

$8,950.93.8%

$1,731.94.0%

$6781.2%

$20,497.34.0%

1.6542.3%

$12,389.11.6%

2021.2

$9,164.73.9%

$9,029.53.7%

$1,614.23.9%

$657.31.5%

$20,465.73.7%

1.6342.3%

$12,523.51.4%

2019

$33,117.43.5%

$32,998.83.7%

$5,882.24.2%

$2,507.51.3%

$74,505.93.6%

1.5652.7%

47,602.30.8%

2020

$34,516.14.2%

$34,309.24.0%

$6,114.33.9%

$2,565.72.3%

$77,505.34.0%

1.6032.4%

48,358.11.6%

2021

$35,909.44.0%

$35.5813.7%

$6,364.24.1%

$2,600.31.3%

$80,4553.8%

1.6402.3%

$49.0541.4%

2.0%

3.4%

3.0%

5.6%

2.1%

2.1%

3.4%

3.0%

5.6%

2.0%

1.9%

3.4%

3.0%

5.6%

2.0%

1.7%

3.3%

3.0%

5.5%

2.0%

1.6%

3.9%

1.9%

5.7%

1.9%

1.8%

3.7%

2.9%

5.6%

2.0%

1.9%

3.4%

3.0%

5.6%

2.0%

Restaurant Quarterly Forecast 6RestaurantsCanadaResearch

(all dollar amounts are in millions)


About the Restaurants Canada Quarterly Forecast

Restaurants Canada uses an econometric model to forecast commercial foodservice sales by using the Conference Board of Canada’s forecasts of consumer spending, disposable income, real GDP, employment and tourism by segment.

About Restaurants Canada

Restaurants Canada (previously CRFA) is a growing community of 30,000 foodservice businesses, including restaurants, bars, caterers, institutions and suppliers. We connect our members from coast to coast, through services, research and advocacy for a strong and vibrant restaurant community. Canada’s restaurant industry is an $89 billion industry, directly employs 1.2 million Canadians, is the number one source of first jobs, and serves 22 million customers every day.


For further informationRestaurants Canada

1155 Queen Street West, Toronto, Ontario M6J 1J4

Tel: (416) 923-8416 or 1-800-387-5649

Fax: (416) 923-1450

E-mail: [email protected]

Website: restaurantscanada.org

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