According to Restaurant Canada’s 2022 Q4 Restaurant Outlook Survey, 40 per cent of respondents said their financial performance improved in 2022. But despite the fact that more people began dining out again last year, the survey also showed that higher operating costs resulted in 43 per cent of restaurants reporting that 2022 was a worse year for them financially than 2021.
“Despite an increase in restaurant traffic in 2022 compared to 2021, more was needed to enable restaurant owners to offset mounting operating costs,” states the report. “Everything from food to labour to equipment and insurance skyrocketed at a pace not seen in decades, all while operators were concerned with paying down the debt they had already accumulated.”
“As restaurant operators are trying to re-build their sales, they’re also dealing with these chronic labour shortages, which are driving up wages, as well as soaring food costs and rising utility prices,” said Chris Elliott, chief economist & vice-president, Research for Restaurants Canada during his recent State-of-the-Industry presentation at the 2023 RC Show. “Traffic has not come back to normal yet; delivery and takeout are continuing to change the foodservice landscape; and on top of all that, restaurant operators are making less money and going more into debt. So, the world that we now live in has a lot more complexity and a lot less certainty.”
The report also pointed to a reduction in government wage and rent subsidies as a roadblock to recovery for operators. In fact, of the table-service restaurants that experienced a worsening financial performance in 2022, 65 per cent attributed this to the reduction in government subsidies.
This sad reality means that many operators were still hesitant to share sales numbers for our report, which means the F&H team was forced to estimate sales for several of the companies appearing on our report. The good news is that our report has grown from Top 50 in 2022 to Top 75 for this year’s edition, and we’re confident that 2024 will mark a return to our full Top 100 Report.
Major Milestone
While there is no shortage of bad news, there is a light at the end of the tunnel for the foodservice industry.
“Given all of this, I want to bring a little bit of sunshine to your house,” said Elliott. “For the very first time, we are now a $100-billion foodservice industry. This was supposed to happen in 2020 but because of the pandemic it got delayed. So finally, we are at $100-billion in foodservice sales. This is a big number. This is a one followed by 11 zeros.”
Some of that sunshine was felt by the operators on F&H’s annual Top 75 Report, with the majority of the companies that provided 2022 sales numbers reporting an increase in year-end gross sales over 2022. In total, our Top 75 companies reported estimated gross sales of $34.6 billion for the calendar year ending December 31, 2022.
Our top four operators — Tim Hortons ($8.2 billion), McDonald’s Restaurants of Canada ($6.5 billion), MTY Food Group ($4.3 billion) and A&W Food Services of Canada ($1.7 billion) — finished the year with combined sales of $20.7 billion All four brands grew their sales over 2021, painting a picture of how the quick-service segment has rebounded more quickly than other segments. In fact, according to Restaurant Canada’s 2022 Q4 Restaurant Outlook Survey, only 17 per cent of QSRs reported they were still operating at a loss in 2022 compared to 33 per cent of table-service restaurants.
For Restaurant Brands International (RBI), parent company of this year’s Top 75 Report leader, Tim Hortons, 2022 saw systemwide sales growth of 13.4 per cent over the previous year for its brands (Tim Hortons, Burger King, Popeyes and Firehouse Subs).
“We rounded out an exciting 2022 with another strong quarter, including nearly eight per cent consolidated comparable sales and four per cent net restaurant growth, reflecting the strength of four iconic, global brands,” says José Cil, Chief Executive Officer of RBI.
Moving forward, Cil says RBI is “focused on being guest-led in everything we do, setting our franchisees up for long-term success and as a result, setting ourselves, and our shareholders, up for long-term value creation.”
McDonald’s Restaurants of Canada once again secured the second spot on this year’s Top 75 with gross sales of $6.5 billion across its 1,462 units, up from $6 billion in 2021.
Holding on to the number-three ranking for another year, Quebec-based MTY Food Group closed off 2022 with $4.3 billion in sales, up from $3.6 billion in 2021, making it the company that grew the most by sales volume on the Top 75 chart.
“We are extremely proud of the results realized during 2022, a year marked by COVID-related restrictions early in the year, labour and supply-chain challenges, inflationary pressure and uncertain market conditions,” says Eric Lefebvre, Chief Executive Officer of MTY. “We delivered record normalized adjusted EBITDA of more than $187 million, generated cash flows from operations of $143 millions and our system sales exceeded $4 billion for the first time on the strength of well-executed organic and acquisition-related growth.”
Capitalizing on consumer preferences for digital ordering, MTY’s digital sales in 2022 totalled $820.3 million, or 20 per cent of system sales, compared to $803.6 million, or 23 per cent of system sales, in 2021. These digital sales, which pertain mostly to takeout orders and delivery sales, benefited from the company’s increased investments in online ordering and third-party delivery options.
A&W Food Services of Canada reported $1.8 billion in gross sales for 2022, up from $1.6 billion in 2022 and good enough to move the company up the rankings from fifth to fourth position.
“While 2022 continued to be a year of recovery for many of our operators, the A&W system came together to focus on its key initiatives of increasing the speed of service for drive-thru and continuing to evolve the technology we need to be highly convenient for our guests. This resulted in another quarter of strong results,” says Susan Senecal, president and CEO of A&W Food Services.
M&A Activity
Despite myriad challenges that continued to plague the industry in 2022, foodservice merger and acquisition activity remained strong last year across a number of segments.
In May 2022, Quebec-based Foodtastic, whose 1,363 units recorded system-wide sales of $929.2 million last year, announced that it had acquired a majority interest in Shoeless Joe’s Sports Grill. A sports-themed restaurant chain with 23 locations across Canada, Shoeless Joe’s reported gross sales of $44.1 million in 2022.
Then in May, Foodtastic acquired popular healthy-eating concept Freshii for $74.4 million. The chain’s 332 locations recorded gross sales of $134 million in 2022, landing it in 38th position in this year’s Top 75 rankings.
The company closed out a busy year by acquiring the quick-service brand Quesada Burritos & Tacos in December 2022. The chain’s 180 locations posted year-end sales of $84 million for 2022, up from $69 million in 2021.
MTY Food Group also had a busy M&A year in 2022 with the August purchase of BBQ Holdings Inc. for $257 million. BBQ Holdings is a franchisor and operator of casual and fast-casual dining restaurants across 37 states in the U.S., Canada, and United Arab Emirates. Its flagship restaurant brands operate under the “Famous Dave’s”, “Village Inn”, “Barrio Queen”, and “Granite City”, banners. As of August 2022, it had 200 franchised and more than 100 corporate-owned restaurants in its portfolio.
In November 2022, MTY acquired Wetzel’s Pretzels for $284 million. The brand is a franchisor and operator of quick-service restaurants operating in the snack category. Its network of more than 350 locations, 90 per cent of which are franchised, are in 25 U.S. states, as well as in Canada and Panama. In 2022, total network sales reached approximately US$245 million.
Completing its acquisition trifecta, MTY closed out the year with the December 2022 purchase of Sauce Pizza and Wine for $14.8 million.
“In the fourth quarter of 2022, we continued our growth momentum,” says Lefebvre. “We are particularly pleased about generating a healthy organic growth in the quarter to complement our expansion through acquisition. Looking ahead to 2023, achieving growth organically and via M&A will remain our main objective.”
In June 2022, Mary Brown’s parent company, MB International Brands, announced it had reached an agreement to acquire Fat Bastard Burrito Co., creating one of the largest privately held quick-service restaurant companies in Canada.
“We are thrilled to bring together two premium, Canadian-born restaurant brands with solid track records of growth and success,” says Hadi Chahin, president of MB International Brands. “Mary Brown’s and Fat Bastard Burrito are leaders in their respective food segments. The transaction combines two highly complementary franchise networks that, together, will provide more opportunities for existing and new franchisees of both brands – across Canada and beyond.”
BY AMY BOSTOCK
