Unless you’ve been living under a rock for the past six months, you’re likely well aware of Ontario’s recent minimum-wage hike and the impact it’s having on business owners — especially restaurateurs — across the province.
On Jan. 1, Ontario’s minimum wage increased to $14 per hour from $11.60 (a 21-per-cent jump) and the province aims to further increase the rate to $15 by Jan. 1, 2019. Since the plan was announced, there’s been significant pushback from business owners, academics and political pundits alike. In September, TD Bank predicted the wage hike would cost Ontarians 90,000 new jobs and, in late 2017, a report by the Bank of Canada predicted a loss of more than 60,000 positions.
More recently, several major foodservice operators announced they would be cutting employee benefits, changing tipping policies and raising menu prices to help offset the expense of the wage increase. As the industry comes to terms with this new reality, one thing is certain — prices will rise across the board.
According to data from The NPD Group, the five-year compound annual-growth rate (CAGR) for Average Eater Checks (AEC) at commercial foodservice is just 1.7 per cent, which is actually lower than menu inflation. In the full-service restaurant industry, the CAGR for AEC was 2.4 per cent, whereas at QSR that number was three per cent and at retail it was 3.1 per cent. Furthermore, in the last two years, AEC have actually remained flat as dollar growth has been driven by traffic alone. Currently, the AEC for the foodservice industry as a whole is just $7.73.
When it comes to price increases, certain dayparts are more “ripe for a hike” than others. For example, over the last three years, the overall share of breakfast traffic has increased significantly; however, AEC in that segment have actually gone down. Only the lunch and snacking categories have seen AEC growth, while supper has remained flat. In many ways, this is a demographics story: older consumers are reducing their foodservice consumption while younger consumers (who generally spend less) take their place.
The bottom line? Average Eater Checks are significantly under developed and prices need to increase. And, while consumers may not embrace this notion, the reality is that, as a whole, they’re willing to spend if they feel they’re getting quality, innovation and value.
Written by Robert Carter