Foodservice operators fight for their slice of the market in a sluggish economy
Life used to be easier — simpler. Ten years ago, everyone worked hard and played hard, resting on Sunday as the world slowed down to enjoy family and friends. Now, in the high-speed rat race that has become our lives, everyone’s fighting to keep ahead of technology and the rapidly changing business landscape with a sense of urgency that’s only grown amidst the recessionary woes of 2009. It’s not about grabbing your piece of the pie anymore, but fighting for the last crumb as consumers pinch pennies, saving for yet another rainy day.
The recession may be over, but the sting remains. In May, The Confer-ence Board of Canada’s (CBoC) Ottawa office reported that fiscal problems in the Eurozone and the state of the U.S. housing market were just a couple of the factors paving the way for a levelling off of profitability. “Corporate profitability growth is now stabilizing, following a sharp decline during the recession and a strong recovery coming out of the downturn. After falling by 37 per cent between the second half of 2008, and the first half of 2009, profits had increased by 28 per cent by the end of last year,” Michael Burt, associate director of Industrial Economic Trends for the CBoC, said earlier in the year. “Now that profitability is approaching more normal levels for many industries, the indicator suggests there will be a significant slowdown in the rate of growth, reflecting the transition to a period of weak or no profit growth.”
TD Economics breaks it down more specifically, predicting total Real GDP growth of three per cent, an employment jump of 1.6 per cent and a 4.6 per cent spike in retail sales in 2010 versus 2009.
By the fall of this year, the economy had already turned. “Canada is slowing down in a very significant way given the fact that the first half of this recovery was basically a stimulus coming from the Canadian government or the American government, [and it] basically led to significant acceleration in the U.S., which helped Canada,” explains Benjamin Tal, deputy chief economist with CIBC World Markets, during a phone interview from his Toronto office in September. “We were really borrowing activity from the future and the future has arrived. We’re starting to slow down, and the government is starting to stop spending, the housing market is softening and investment is softening, so every element of the economy is showing signs of softness.” On the upside, even though the CIBC economist doesn’t expect to see unemployment improve, in the interim it seems to have at least stabilized.
The challenge is figuring out how to convince consumers to tap into their disposable income. “How do we instill confidence back into the economy and what are our governments doing to bring it back, so people will open up their pocketbooks?,” a frustrated Garth Whyte, president and CEO of the Canadian Restaurant and Foodservices Association (CRFA), asks in an interview with F&H.
Customers are coming out; they’re just not spending enough. “Consumer spending at commercial foodservice in Canada trended up by two per cent for January to May 2010, compared to the same period in 2009 spurred by modest traffic gains,” explains Linda Strachan, industry analyst of Foodservice for the NPD Group, Inc.’s Toronto office, referring to Crest/NPD research indicating a total market traffic gain of 1.7 per cent year-over-year. “The average spend per person remained flat, despite menu inflation running at 2.4 per cent.” She adds: “The more convenience-driven weekdays have recovered, but weekends, which tend to be more socially driven occasions, remain flat to 2009.”
Despite being buoyed by 2010’s astounding patio season, Nick Perpick, president and COO of the Mississauga, Ont.-based Prime Restaurants, which includes East Side Mario’s, Prime Pubs, Casey’s Grill • Bar and Bier Markt, has been working hard to drive traffic with $10 million in giveaways awarded earlier this year during East Side’s Budda Boom, Budda Ching promotion and fundraising drives for CIBC’s Run for the Cure. “Over the last year and a half, we’ve really focused on the product being better, focusing on doing less better,” he says, noting Casey’s new food-first mandate, which speaks to a drive to deliver more fresh, flavourful dishes.
On the downside, Perpick admits oversaturation of the market is an ongoing operating challenge. Look no further than the closest strip mall to see the influx of big American chains, like Menchie’s and — soon — Buffalo Wild Wings Grill & Bar. Alternately, the trend toward international expansion of Canadian companies is picking up steam at MTY Group, Mucho Burrito and Triple O’s, to name a few.
At Prime Restaurants, innovative thinking is helping remedy the oversupplied industry. “We’re having some success with non-traditional sources for driving revenue, whether it’s through new venues or tertiary venues,” explains the Prime president. “For example, we’re working with HMSHost Corporation on the 400 series highways — to have what we call express units on the highway.”
Expansion innovation is prevalent across the sector. Subway recently opened its new restaurant, which sits atop a crane at the construction site of 1 World Trade Center in New York; Tim Hortons recently renewed its partnership with Imperial Oil, announcing a plan to add 175 new coffee shops to Esso stations across the country; and the popularity of the ol’ chip truck is evident at Smoke’s Poutinerie in Toronto.
Of course, succeeding in 2010 meant more than surviving the remnants of the economic maelstrom of 2009. Although overall Canadian restaurant sales are up slightly — and forecasted to rise by a total of 3.1 per cent, according to the CRFA and Statistics Canada — that treasured piece of the foodservice pie became harder to grasp this year, as operators fought the newest onslaught of government regulations and labour hurdles, while trying to deliver on industry trends.
Looking forward, operators are already concerned about increases to federal employment insurance premiums, which are expected to jump across the country in 2011 by $0.07 for every $100 of insurable income. Looking back, a CRFA survey, released a month after harmonized sales tax took effect in B.C. July 1, reported that 72 per cent of respondents thought the new levy on restaurant meals had a negative impact on business. Meanwhile, a handful of provinces instituted minimum wage hikes and the health lobbyist’s national fight against sodium reached a boiling point.
The government-instituted Sodium Work- ing Group is now encouraging foodservice operators to voluntarily reduce salt in its foods in a bid to cut Canadians’ average daily intake of sodium from 3,400 mg to 2,300 mg by 2016.
“Michelle Obama [recently] spoke at the National Restaurant Association about obesity, so it’s on everyone’s radar screen,” the CRFA’s Whyte recalls. “Nutritional information is huge… There’s a lot of issues on the health file.”
And, the foodservice industry is listening. McDonald’s unveiled a chicken grilled snack wrap with less sodium this spring; soon after Boston Pizza reduced sodium in 75 per cent of its more than 100 menu items. Pizza Hut has also jumped aboard the health train, launching a health-conscious line of Heart & Stroke Foundation Health Check-approved pizzas and pastas across the country. And, the Panago Pizza team is already prepared for the implementation of new nutritional standards at Ontario schools in September 2011 — standards already in effect in B.C., Quebec, Nova Scotia, New Brunswick and Newfoundland.
Aside from offering more healthy fare, chefs are continuing to promote sustainability and local sourcing. In some ways, it’s like returning to the past. “You’re seeing a lot of simplicity,” says Prime’s Perpick in response to the types of food trends he’s witnessing. “The menus are getting smaller.”
For the next couple of years, customers will be simplifying their lives, too, as they work to keep their finances in check. “We will see a different economy, different trajectory, much more subdued consumer, less debt, more savings. That will make a more solid economy, but a less exciting one,” CIBC’s Tal quips. “This is a telling point. We have to remember the first half of the year was very strong, and this is not going to repeat itself.”
Tal advises business owners to operate conservatively and focus on quality and cost as the consumer remains cautious in a weaker economy. “The speed limit of the economy has been reduced and [it] will not be very strong over the next two to three years,” he warns.
Clearly, the long-term outlook isn’t as promising as we might have hoped in 2009. “The commodity market will probably weaken a bit because China is slowing down,” explains Tal. “This means inflation will not rise and commodity prices will not rise in any significant way. Therefore, we expect overall GDP [growth] to be below two per cent next year, which is not very strong, if you consider the potential for the economy is around three per cent.”
Not to be discouraged, there’s one thing the foodservice industry has that other sectors may be lacking; it’s something the CRFA’s Whyte witnesses every day. “There’s a resiliency and a real passion in our industry, and that’s keeping [operators] afloat,” he says. “Those people who survived this recession will do really well coming out of it. And, businesses that start up during the recession and survive have a higher probability of survival down the line. They’re watching their input costs, they’re seeing that they’re giving top-notch service, they’re sensitive to their customers, and they’ll do well when we get out of this.”
Prime’s Perpick is keeping the faith. “I’m just crossing my fingers, because everyone’s got question marks about the economy and the future of the economy… But, [customers] are going out; we’re identifying who’s going out and what we have to do to reach them,” he says, alluding to marketing through social media, direct mail and local stores.
Despite the growing need to work more and play less, most foodservice executives agree the recession has forced them to work leaner, smarter and more efficiently. It’s creative thinking that’s making that prized piece of the $60-billion foodservice pie that much sweeter.
Photography by Margaret Mulligan