Canadian Restaurant Numbers on the Decline in the Face of the Pandemic

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Since 2016, after a few years of declines, the number of commercial restaurant locations in Canada held steady at about 66,000. However, over the last five years, chain restaurant brands have been adding rooftops, while independent restaurant brands have been losing them, at a rate of about 1,000 per year. Then 2020 happened and everything changed. The NPD Group’s ReCount 2020 restaurant census reports the Canadian restaurant landscape now includes approximately 5,000 fewer locations than it did a year earlier, a decline of about eight per cent. As anticipated, the decline has hit the independent restaurants harder with 3,000 closures.

The restaurant categories hardest hit by closures are those that relied heavily on customers’ normal day-to-day routines, such as shopping, working or schooling. For 12 months ending December 2020, lunch traffic experienced the worst decline (26 per cent), compared to the same period a year before. NPD’s CREST industry tracker also reports a 25-per-cent decline in deli sandwiches, a popular lunchtime menu item. It should come as no surprise that the sandwich-restaurant category lost the greatest number of units, with a store-count decline of seven per cent.

There’s a similar reliance on office workers, students and gym-goers, who have impacted the juice, snack and salad bars restaurant category with declines in the mid-teens. The gourmet coffee and tea category rounds out this list of decliners for similar reasons. The anomaly for this restaurant segment is the specialty-coffee category, which is outperforming the market and showing signs of strength, which means extra customers for those locations that continue to operate.

All of the declining restaurant categories are classified as quick-service restaurants (QSR), meaning this segment lost units at a similar rate to the full-service restaurant (FSR) segment. This may seem counter-intuitive, since it has been well-reported that the QSR segment has been outperforming the FSR segment since this crisis began over a year ago. The disparity between the unit and spending declines highlights the challenges that restaurants continue to face, especially the independents operators concentrated in the FSR segment.

Meanwhile, just two restaurant categories added units last year. The QSR Mexican category (up almost eight per cent) and the QSR cookie category, which aligns nicely with the snacking trend we’re capturing with our CREST data.

Another restaurant segment experiencing growth, but is too new to be captured in our current census, is the ghost-kitchen phenomenon. Several start-ups are fuelling the growth, but chain operators have begun to experiment with this business model as well. In short, the ghost-kitchen concept involves a shared kitchen, or commissary, preparing meals across many brands. These operations are frequently located in non-prime real-estate locations to reduce overhead and the customer base is largely virtual, enabled by technology and a growing market for on-demand delivery. Since saving costs and digital ordering are two trends that will never go out of style, the ghost-kitchen trend will continue into the post-pandemic era.

Consumer demand for restaurant meals will return to historic levels at some point in the future. According to a recent NPD Canada study, at least half of all consumers plan to increase their visits to restaurants as soon as restrictions are lifted. Growing restaurant traffic in global markets bears this out. “The restaurant investor/operator community sees this certainty as an opportunity to invest and grow,” says Jacob Mancini, assistant vice-president of Restaurant and Brewery Finance, CWB Franchise Finance. “The increased supply of commercial real estate due to retail closures, combined with the increased efficiencies and new business models that have emerged through this crisis, have created restaurant investment opportunities.”

The declines reported above are all net. In other words, openings minus closures. Even during a pandemic, new restaurants continued to open this past year. As the expected recovery plays out over the coming months, expect to see even more openings, and maybe some returning names, that will be added to our ReCount census next year. The resourcefulness and tenacity of the restaurant industry never ceases to impress.

Vince Sgabellone is a foodservice industry analyst with The NPD Group. He can be reached at vince.sgabellone@npd.com.

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