A year and a half after COVID-19 first brought the Canadian restaurant industry to its knees, operators across all segments continue to take a hit. And while some operators fared better than others, 2020 will be remembered as a year when hundreds of restaurants closed their doors permanently, while those who were able to keep the lights on woke daily to the reality of dining-room closures, labour challenges and lost income.
Ironically, COVID-19 hit just as F&H staff were collecting the Top 100 data from 2019, making it a challenging undertaking for our team to get the necessary information for last year’s report. And, with operators so focused on dealing with the impacts of the pandemic, and their very survival, the decision was made last year to not produce the Top 100 Report, marking the first time in the magazine’s history we haven’t published this signature report.
While we had hoped that by 2021 the pandemic would have been over, reality proved otherwise. And with most restaurant chains forced to close their doors for the majority of 2020, and the staggering loss of revenue left in the pandemic’s wake, a large number of our Top 100 firms chose not to release their year-end results for 2020, forcing us to make yet another decision as to whether we should once again cancel the report entirely. We opted instead to produce a truncated version, listing only those companies that chose to release their information to us as well as a handful of companies we estimated based on their importance to the foodservice landscape. So, instead of our usual Top 100 Report, we present this year’s Top 50 Report, a modified version that, while smaller than usual, highlights the resiliency of the industry and the people who are part of it.
While the sales data may be lower than usual and the number of companies fewer than what is the norm, the levels of innovation and determination to succeed are high. The following pages will examine some of the opportunities that surfaced from the pandemic and how savvy operators were able to pivot to survive and, in some cases, even thrive.
By the Numbers
According to Todd Barclay president & CEO, Restaurants Canada, “2020 [was] a devastating year for the foodservice industry and we [had] to adapt and adjust at a faster rate than ever before.” In fact, according to the association’s Foodservice Industry Forecast 2021-2015, commercial foodservice sales in Canada were projected to decline by 28.7 per cent in 2020, down to $54.9 billion, representing a $22-billion reduction in sales compared to 2019.
This year’s Top 50 Report paints a grim picture with regard to sales — and no one was immune. Coffee giant Tim Hortons saw its annual gross sales fall to $5.4 billion at year-end 2020, down from $8.9 billion at year-end 2018 (F&H’s last published Top 100 Report), while QSR behemoth McDonald’s Restaurants of Canada recorded an estimated $5 billion in gross sales for 2020, down from $5.3 billion in 2018.
Total gross sales for this year’s Top 50 Report totalled $24 billion for the calendar year ending December 31, 2020. Declining revenues and dining-room closures also meant record job losses across the industry. According to Foodservice Industry Forecast 2021-2015, “when employment in Canada fell by three million jobs in March and April, it was hard to imagine how long it would take for the job market to return to pre-COVID-19 levels. Remarkably by December 2020, employment levels in a number of industries returned to, and even exceeded, those of February 2020. At the height of the crisis, Canada’s unemployment rate peaked at 13.7 per cent in May 2020.
By December 2020, the report states, the unemployment rate had fallen to 8.6 per cent. “While employment has steadily improved in many industries, the largest job loss gap remains in the foodservice industry. As of December 2020, overall employment across all industries was 636,400 jobs below February 2020 levels,” says the report.
Some segments were hit harder than others, due in part to the nature of the lockdown restrictions. According to Foodservice Facts 2020, at the height of the pandemic, commercial foodservice sales fell by 61.4 per cent in April 2020 compared to April 2019. “The most significant declines were at full-service restaurants and bars, pubs and nightclubs,” states the report.
“Most establishments in these categories temporarily closed in the second half of March and throughout April, as many were not in a position to offer takeout or delivery. Quick-service restaurants fared better in relative terms, but still saw declines of 40.6 per cent in April. Despite many QSRs remaining open for takeout and delivery, it was not enough to offset the drop in overall traffic.”
For Mandarin Restaurant Franchise Corporation, which operates 28 buffet restaurants, the COVID-19 pandemic and its associated health-and-safety restrictions signalled the demise of the buffet concept. The iconic Canadian brand saw sales plummet to $54.4 million at the end of 2020, compared to $153.1 million for the same number of units at year-end 2018.
Burger concepts held on through the pandemic, thanks in large part to consumer’s pursuit of value and the desire for “comfort” foods during uncertain times. While the large burger chains such as McDonald’s and Burger King both saw declines in sales, others, such as A&W Food Services of Canada, saw moderate increases in both unit counts and gross revenue (see sidebar).
The pizza segment, with its established takeout and delivery infrastructure, also showed less-dramatic declines in 2020. The four pizza chains represented on this year’s report (Pizza Pizza, Panago Pizza, Pizza Nova and Pizza 73) account for $823 million of the Top 50 companies’ total gross sales for 2020 (Pizza Hut refused to disclose sales). Pizza Pizza Ltd. had 622 units operating in 2020 and recorded sales of $403 million — down $143 million from $546 million (672 units) in 2018.
While Panago Pizza Inc. reported eight fewer units in 2020, the Abbotsford, B.C.-based chain increased its gross revenue by $3.4 million over its 2018 sales. Pizza Nova, which recorded sales of $142 million across its 156 units, down from $149 million in 2018, invested heavily in making its operations safe in 2020. In April of last year, the chain launched contactless delivery and takeout at all its stores province-wide. Customers placed their orders online and selected contactless delivery to follow pre-payment steps. Then in May 2020, Pizza Nova expanded its grocery assortment. In addition to the Primucci grocery products that were already available in-store and via delivery, the re-branded Grocery Mercato grew to include fresh produce and Italian grocery staples.
The morning meal has been the hardest-hit victim of the COVID-19 pandemic, since the segment is dependent on people leaving the house. “It’s very habitual; we often stop for a morning meal and the morning meal includes grabbing that morning coffee,” says Vince Sgabellone, industry analyst, Canada Foodservice at Toronto-based NPD Group. “It’s not necessarily a full sit-down breakfast, it also includes the morning snack occasion. And so, we’re not leaving the house, we don’t stop for coffee and we don’t stop to grab something on the go — and we certainly don’t have time to or the opportunity these days to sit down in a full-service restaurant and grab breakfast.”
In fact, according to The NPD Group/CREST data, morning meal traffic is down by 23 per cent for the year ending March 2021, or almost 500 million visits. This is a bit worse than the total commercial market as a whole. Drive-thru traffic now accounts for almost half of all morning meal visits, up from 30 per cent a year ago and the major quick-service chains have all gained share due in part to their drive-thru infrastructure and the ongoing restrictions on full-service dining.
Sgabellone says hot brewed coffee remains the number-1 menu item, included in almost half of all visits. But servings at this daypart are down by 300 million. Meanwhile, iced-brewed coffee is up by more than 20 per cent, which is part of the all-day trend for this menu item.
When it comes to this daypart, Sgabellone says the drive-thru has become the great differentiator. “Drive-thru business is booming across all day parts and business segments for those operators who are lucky enough to have them,” he says. “But carry out has bounced back somewhat now that the stores are open again.”
But, he says, hub dining — transit hubs, business hubs, education hubs —is still suffering as “these are all basically ghost towns now.”
Performance began to look up last September, says Sgabellone, and breakfast got a little boost. “Kids were back in school, stores were starting to open and all of a sudden we had an excuse to leave the house again. And when we did, we started going out for coffee. So now, the breakfast daypart is about in line with the market in terms of performance. But it was that big dip in the beginning that keeps it down a little bit lower over the year.”
Looking at the 12-month period, performance for the breakfast occasion is still trailing slightly, but it has recovered slightly as well. “We love our coffee, we love our breakfast and the pandemic kept us away from it a little bit, but we’re slowly finding our way back,” says Sgabellone.
But it’s not all doom and gloom for the foodservice industry. Faced with dining-room closures and revenue drops, operators across all segments rallied to pivot business models and re-invent themselves.
With takeout and delivery emerging as the lifeline keeping operators afloat, technology became top of mind for chains and independents alike trying to create a streamlined, contactless version of foodservice.
“The two key technology areas on everyone’s mind these days are touchless and integration,” says Jenny Campion, vice-president, Western Operations for The Fifteen Group in Toronto. Right now, these are the biggest pieces. The pandemic has fast-forwarded the development of a lot of systems in this area immensely.”
For example, Pizza Pizza, which recorded 2020 sales of $403 million, introduced tamper-proof boxes, contactless delivery, and e-gift cards that Paul Goddard, CEO, Pizza Pizza Limited says “were all key innovations that helped us deliver even more for our customers.”
“Driving rapid digital innovation has been essential to the recovery of our business,” says Jose Cil, Chief Executive Officer of Restaurant Brands International Inc. in the company’s 2020 annual report. During 2020, RBI — parent company of Tim Hortons and Popeyes Louisiana Chicken — increased support for and continued to build on its e-commerce platforms, re-imagined service opportunities such as curbside pickup and expanded delivery services into thousands of new restaurants. “The outcome has been the more than doubling of digital sales in North America.”
For Quebec-based MTY Group, which saw gross sales of $3.5 billion for YE 2020, digital transformation was a key pillar of its operations. “Our ability to adapt was showcased in our response to the rapid pandemic-induced consumer shift to online ordering and delivery,” says Eric Lefebvre, CEO of MTY in the company’s annual filing. “To this end, we expanded our third-party delivery partnerships and developed and further enhanced our brand’s online ordering platforms.”
As a result, MTY experienced a major acceleration in the proportion of sales generated digitally, which represented 22.5 per cent of system sales in the fourth quarter of 2020. Since we last published our report, MTY has acquired additional brands, making it a major player in the industry, but also leading us to have challenges in producing individual brand sales.
Alongside digital transformation, another area seeing rapid uptake is the ghost-kitchen concept. (see Pushing Boundries, p. 32) Ghost kitchens, which exist only on delivery apps or websites, can either be a satellite outlet for a bricks-and-mortar restaurant or an independent restaurant that has only ever existed on the app.
Along these lines, Recipe Unlimited opened two Ultimate Kitchens locations in Toronto during 2020. Ultimate Kitchens is a delivery and take-out concept offering customers greater choice from the ability to order from multiple brands on the same order or to simply order from a specific brand. “Ultimate Kitchens represents a significant opportunity for future growth and expansion for Recipe,” states the company’s 2020 annual report. “It is on-point with the shift in consumer behaviour, and is a viable option for us to serve markets where it may otherwise be cost prohibitive to build a traditional restaurant.” The company intends to open two additional Ultimate Kitchens locations in Montreal and Hamilton, Ont. during the first and second quarters of 2021.
After permanently shuttering its Canyon Creek Square One and Scarborough, Ont. locations at the end of 2020 (with more on the way), SIR Corp launched its Renegade Chicken concept in 2021 — embracing takeout and delivery services with the new ghost-kitchen concept. In addition to the brand’s pop-up location at Toronto’s St. Lawrence Market, Renegade’s signature chicken is now available from 25 locations across Ontario, including downtown Toronto, the Greater Toronto Area, Ottawa and London.
According to Restaurant Canada’s Foodservice Industry Forecast 2021-2015, annual sales at commercial foodservice establishments in Canada are predicted to improve to $61.4 billion in 2021. This represents an 11.8 per cent year-over year increase, but still remains 20-per-cent below pre-COVID-19 levels. In 2022, commercial foodservice sales in Canada are forecast to grow to $74.6 billion. This will represent a 21.6-per-cent increase over 2021, but will remain three-per-cent below 2019 levels.
In 2023, the commercial foodservice industry is forecast to grow by 5.3 per cent to $78.6 billion. This will be the first year that foodservice sales will be higher than 2019 levels, as we will see improved spending at restaurants.
At this year’s first-ever fully virtual RC Show, Restaurant Canada’s senior economist, Chris Elliot, shared data about where our industry is headed, the latest consumer and sales trends and talked about what these market behaviours mean for your business.
According to the data, Elliot predicts real GDP/total consumer spending will return to pre-COVID-19 levels around Q4 2021, but, “We predict foodservice sales will return to pre-COVID-19 levels around Q4 2022,” he said.
He said quick-service restaurants will be the first to recover, while drinking establishments will be the last.
“Recovery will vary by province,” he said, “as population determines long-term foodservice sales growth.” During the show, a session titled Are Canadians Ready to Come Back?: Data Insights on Canadian Consumers, saw Shauna Houlton, director, Consumer Insights, Corus Entertainment and Janet Zuccarini, CEO & owner, Toronto-based Gusto 54 Restaurant Group, offer an in-depth look at how consumers’ feelings have shifted throughout the pandemic and what that means for restaurants.
According to Houlton, Canadians stuck at home since COVID-19 appeared last March have been putting their money into savings and there is a pent-up demand to get out and spend. That, said Zuccarini, is good for the restaurant industry.
Halfway into 2021, the industry is already seeing signs of recovery, with a number of large operators expanding their footprints both at home and abroad. In April, Quebec-based Foodtastic completed its purchase of Second Cup Coffee Co. (whose gross sales for 2020 came in at $69 million across its 216 units) from Aegis Brands Inc. for $14 million, followed by its May acquisition of Copper Branch. Vaughan, Ont.-based Recipe Unlimited which closed out 2020 with 1,341 units and $2.4 billion in gross sales, completed the acquisition of Crave It Restaurant Group’s (Crave It) ownership interest in both The Burger’s Priest and the ‘Fresh-Crave It-Recipe’ joint venture for new market growth of Fresh Plant Powered (Fresh Restaurants) in early May.
In early March 2021, Restaurant Brands International’s Popeyes brand announced a new agreement with JK Capital to bring hundreds of new Popeyes restaurants to Mexico over the coming years, while Chipotle Mexican Grill announced it will continue its expansion into Canada with a new location in Surrey, B.C. — its first new Canadian location since its Markham, Ont. restaurant opened its doors in October 2018.
“I’m extremely bullish on the restaurant industry [future],” said Zuccarini during her session. “And with [people’s] savings at an all-time high, the first place they’re going to want to spend it is to go out to restaurants.
She also said those operators who survive will see a silver lining. “Business will come back 100 per cent — even stronger — because there’ll be less competition, unfortunately. So, the restaurants that survive will have more business because of less competition. And the silver lining is, if you survive, you’ll be able to cut better real-estate deals, you’ll be able to buy real estate at a more affordable price and the talent pool will increase, unfortunately, with restaurants closing and freeing up a lot of talent.”