Recovery Mode: Last year started off shaky, but operators saw light at the end of 2021


While foodservice operators continued to struggle in the first half of 2021, the latter part of the year signaled the beginning of the climb to pre-pandemic levels for the industry.

“If you look at the whole year, it was a bounce-back year and the start of the recovery,” says Vince Sgabellone, Industry Analyst, Canada Foodservice at The NPD Group in Toronto. “Visits finished off 12-per-cent above the prior year, which left us 12-per-cent below 2019. But it really was a tale of two halves, because the first half of the year was a continuation of 2020, and then the recovery started as restrictions really started easing through the late spring and early summer.”

In Q3 2021, Sgabellone says the industry was within just a few points of 2019 and “we thought this is great, we’re coming back and just have a five-point gap to make up. But then patio season ended, the next wave hit and we’re back into a bit of a slump in Q4, only to bounce back in Q1 of this year. So, let’s just say it was it was the start of the recovery.”

By the Numbers
The numbers tell the story. Despite continued COVID-19-related struggles, many companies on our 2021 Top 50 Report recorded gains for the year and overall, the Top-50 companies recorded higher gross sales for 2021 – $31,706.5 million for the fiscal year ending December 31, 2021, up $7,554.2 million from $24,152.3 million in 2020.

Our top-3 companies accounted for more than half (56.5 per cent) of that total, with Tim Horton’s McDonald’s Canada and MTY Food Group leading the pack with combined estimated gross sales of $17,854.3 million, up from their combined estimated gross sales of $13, 947.1 million in 2020.

In top spot for 2021 is Restaurant Brands International’s (RBI) iconic Tim Hortons brand with estimated gross sales of $8,223.0 million, up $2,735.0 million over it’s 2020 total.“I’m proud of the strong performance our brands delivered as we closed out 2021,” José Cil, Chief Executive Officer of RBI commented in the company’s 2021 annual report. “During the [fourth] quarter, we saw sequential improvements in each brand and around the world, including notable growth at Tim Hortons Canada. Our growth throughout 2021 resulted in strong free cash-flow generation, allowing us to make important investments in our business while returning over $1.5 billion of capital to shareholders and acquiring a new restaurant brand in Firehouse Subs.”

McDonald’s Canada, which landed in second spot on our Top 50 Report with $6 billion in gross sales across its network of 1,452 units, grew its gross sales from an estimated $5 billion in 2020.

McDonald’s is a business case in how to successfully pivot. The chain is spread across the entire country and across everyday part. It was an early adopter of digital and made a huge investment in drive thru, and delivery. So when it lost the morning coffee business, it had digital and delivery to pick up the slack.

Once again securing third position in the rankings, MTY Food Group recording $3,631.3 in sales for 2021 ($1,260 million of it in Canada) across its 6,719 units. This represents a $171.9 mil-lion increase over its 2020 system-wide sales.

“After nearly two years of navigating through the COVID-19 pandemic, the strength of our brands and sustainability of our business model, combined with the resilience of our franchisees and staff, allowed MTY to deliver robust financial results and further improve our balance sheet in fiscal 2021,” said Eric Lefebvre, Chief Executive Officer of MTY in the company’s annual report.

Coffee giant Starbucks closed out 2021 with estimated gross sales of $1,620.0 million, good enough for fourth spot on our Top 50 Report. And while Sgabellone says breakfast was one of the hardest-hit dayparts (along with lunch) because of the increased number of people working from home, coffee and breakfast occasions started rebounding in in the fall of 2021 as kids went back to school and consumers started running errands again.

“Breakfast lost the most visits [but it] never lost its largest [daypart] status. It was always the biggest daypart in terms of number of visits – not in terms of dollars and spend.”

Maintaining Momentum
Entering the third and fourth quarters of 2021, many operators saw revenues begin to climb as the last of the government-enforced restrictions began to be lifted. But, says Sgabellone, many of the brands that thrived in the beginning of COVID-19 began to lose momentum in 2021.

“The [operators] who thrived in the beginning [of the pandemic] were the ones who were able to really capitalize on the terrible situation in 2020 because they already had their digital platforms up and running or were heavily invested in drive-thru. And then, as all the rest of the industry caught up, and as on-premises began to return, those same operators are now having to lap that.”

He points to segments such as pizza and chicken (the Top 50 Report features six chicken chains and seven pizza chains in 2021) – which performed very well during the early days of the pandemic – as examples of segments that are now struggling to maintain the momentum they created during the early days.

“There are some operators/segments of the market that are now struggling with the return to normal. And the windfall that they saw at the beginning of 2020 is diminishing,” he says.

Digital has been a top speaking point since the pandemic began and analysts are still bringing it up. “We keep talking about it because it’s so big and it is still a trend,” says Sgabellone.

“Our digital investments have been embraced by our guests, with global digital sales reaching $10 billion in 2021, up from $6 billion in 2020 and now representing about 30 per cent of our global system-wide sales,” said Cil, whose Tim Hortons brand unveiled numerous changes to its digital platform as well as its loyalty program throughout the pandemic.

“Altogether, system sales improved five per cent year-over-year, as the entire team responded proactively to pandemic-related challenges along with global supply-chain and labour issues while capitalizing on opportunities such as the increased prevalence of digital sales and marketing,” said Lefebvre in MTY’s 2021 annual report.

Investment in digital proved a winning strategy for many operators in 2021 and was closely linked to the shift to off-premise dining, which continued to prevail through 2021.

“It emerged as the only way to go in 2020 as the lockdown began and really did continue to sustain the industry through 2021, even as restaurants started to open,” says Sgabellone. Operators who were able to capitalize on off-premises sales (including takeout, delivery and drive-thru orders) fared better.

Making Waves
Several of our Top-50 operators used the pandemic to re-evaluate their business models, with many focusing on opportunities for growth, both at home and abroad.

New to the Top 50 Report this year, Church’s Chicken debuted in 44th spot with sales of $59.5 million across its 46 Canadian units. While many chains have slowed or halted expansion plans during the pandemic, the fried-chicken chain is pushing forward with its ambitious growth plan and has 61 sites planned for 2022, which would more than double the size of the brand this year in Canada.

Quebec-based Foodtastic has four of its 19 brands included in our Top 50 for 2021 (Pita Pit, Milestones, Second Cup and La Belle & La Boeuf). In March 2021, the company secured a $50-million investment to further its asset-light organic -growth plan, announcing its plan to open 90 new restaurants over the next 30 months. Despite pandemic challengs, Foodtastic went on a buying spree in 2021, adding Copper Branch, Milestones Bar + Grill, the iconic Second Cup brand and Pita Pit.

Redberry Restaurants also defied the odds, showcasing exceptional growth in 2021 with the opening of 15 new Burger King locations, multiple Burger King renovations, one new Pizza Hut location, and the addition of a new brand to the portfolio through the acquisition of 14 Taco Bell restaurants. The growth earned them 20th position in the Top 50 rankings with sales of $255.0 million, up from $216.0 million in 2020.

Vancouver-based Brown’s Restaurant Group also recorded gains in 2021, adding five stores to its inventory and reporting sales of $200 million, up from $150 million in 2020.

Looking Forward
New data from NPD Group shows that Canadian restaurants enjoyed a robust return of customers in the first quarter of 2022.

The numbers show that physical and online visits to restaurants and commercial foodservice outlets increased by 18 per cent in Q1 ’22 compared to the same quarter last year, when traffic declined by nine per cent due to indoor-dining restrictions. Consumer spending in the quarter grew by 27 per cent compared to a year ago, when spending declined by 12 per cent, according to NPD’s continual tracking of the Canadian foodservice industry.

Full-service restaurants (FSR) in particular benefitted from the pent-up demand to dine out. Compared to the previous year, FSR visits have grown over the last four quarters. According to data from The NPD Group, in the first quarter of 2022, full-service traffic increased by 47 per cent, and dollars grew by 52 per cent compared to the same quarter a year ago. With dine-in restrictions lifted, most FSR customers opted to dine at the restaurants instead of carry-out or delivery. Dine-in visits increased by 187 per cent compared to last year’s same quarter, when on-premises traffic declined by 74 per cent.

QSR fared better than FSR during the pandemic. NPD research shows that the segment, representing 70 per cent of commercial foodservice traffic in Canada, increased traffic by 14 per cent in this year’s first quarter compared to a year ago. Consumer spending at QSR increased by 18 per cent compared to the first quarter of 2021.

“With Canada facing the same macro-economic headwinds as many nations — global unrest, rising inflation and interest rates, supply chain issues — the impact on the long-term restaurant recovery remains unclear,” says Sgabellone. “But for now, restaurants are enjoying the robust return of customers, even as it braces for whatever comes next.”

By Amy Bostock

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