The 2023 Hospitality Market Report highlights macro trends in Canada’s foodservice landscape


The events of the last two years have immeasurably re-shaped the foodservice industry. Shifts have occurred in how Canadians access restaurant meals, where they eat them, and what they eat and drink. Also changed is the face of the foodservice consumer: Boomers continue to age out of the market and Gen Z has begun to exert its influence. Additionally, every Canadian consumer faces economic headwinds. The macro trends highlighted on these pages offer a foundational understanding of the state of the foodservice industry, and your place within it, as the industry’s transformation continues in the months and years to come.

Transition from Retail to Foodservice
It’s highly unlikely we will get to enjoy a repeat of the previous century’s roaring ’20s. That said, despite economic uncertainty in Canada, cautious consumers are willing to spend on experiences, including foodservice, and they want to look and feel their best when leaving the home. Retail categories such as apparel, footwear and beauty, which suffered alongside foodservice during the height of the pandemic, have rebounded, posting year-over-year growth for each of the past two years. There has also been a return to brick-and-mortar retail, and malls in particular as consumers seek efficient and practical shopping, which in turn provides another experience outside the home. It’s worth noting that increased spending in fashion and beauty typically aligns well with foodservice growth.

So how will these economic and retail dynamics affect foodservice in 2023 and beyond? At the highest level, economic headwinds have slowed, but not stalled, growth. Functional foodservice visits have returned to pre-pandemic levels; despite being viewed as a discretionary spend, treating oneself to a restaurant meal or snack remains an affordable luxury. Consumers have embraced digital-purchase options, home delivery is more reliable and convenient than ever, and perhaps most importantly, loyal customers have enjoyed returning to in-person dining at their favourite restaurants. And even if discretionary spending continues to be scrutinized by wallet-conscious consumers, they can trade up or down to fit any occasion or budget constraint. With most leading economists anticipating improved economic conditions in the back half of 2023, there are plenty of reasons to be optimistic about continued growth in foodservice. The growth drivers might be different in the year ahead, but that should not be a surprise given the consistent need for change in this highly innovative industry.

Here, The NPD Group’s foodservice-industry experts speak to the leading trends and market catalysts most likely to yield growth in 2023.

The Rise of the Independents
For the first time since 2008, The NPD Group’s ReCount restaurant census reports independent operators gained units in 2021 compared to 2020. In fact, independent operator unit growth (up seven per cent) surpassed chain operator unit growth (up one per cent) last year.

Independent unit growth is led by QSR and casual dining.

NPD data also reveals independent operators surpassed chain operators in traffic growth in 2022. While both grew, independent operators were up 29 per cent, and chain operators increased 11 per cent.

Labour Shortages and Service Levels
Arguably the biggest issue the restaurant industry faces today is labour. The staffing crisis has created a need for coping mechanisms among restaurateurs — shorter hours, shuttered dining rooms, simpler menus and lower staff levels. Some innovative solutions also have been added to the mix, including robot servers, kitchen-automation tools and vending machines. The question is, are consumers noticing a shift in service levels resulting from these changes? The simple answer is no, as revealed by the latest data from The NPD Group’s Customer Satisfaction Survey. Reviewing two common scenarios, full-service restaurants (FSR) on-premises and quick-service restaurants (QSR) off-premises, consumer-reported service levels for speed, efficiency, wait times and accuracy were all at or above pre-pandemic levels. Even more telling, scores increased for “made me feel like a valued customer” in the FSR scenario. This could be consumers’ way of indicating they accept the new normal in service associated the post-pandemic era. More likely, it showcases the industry’s resilience and effectiveness and the hard-working people who have risen to the challenges and delivered results. That’s not to say the industry can sit back and accept the ongoing labour challenge, but at least it appears the restaurant-going public will give the industry some time to work toward acceptable solutions.

Menu Inflation
Restaurateurs have responded to increasing costs with unprecedented price increases. And there is little doubt that the way consumers interact with restaurants has changed as a result. During “normal” economic times, food inflation hovers in the two to four per cent range, and growth in the average eater check increases by a similar amount. Over the past three years, which have proven anything but normal, average eater check growth has continued to trend in this same historical range. According to The NPD Group/CREST, 12 ME October 2022 data, this discrepancy between spending and pricing can be attributed to:

Smaller orders: Consumers are moderating their foodservice spending by ordering fewer items per visit. This could take the form of a reduced number of beverages, desserts, or other add-ons.

Trading down: Burgers and chicken sandwiches are some of the fastest-growing items in FSR right now. Several factors are at play here, but it’s a strong indication consumers are trading down from larger entrées to these more affordable menu items. Similarly, QSR supper visits now exceed pre-pandemic levels, while FSR supper continues to trail historical levels.

Dealing: Consumers are always on the hunt for the best value, and the current economic climate certainly does not diminish this spirit. Overall foodservice deal rates have increased by two points to 28 per cent since the start of the pandemic. And the traffic segment with the highest deal rate is delivery, which also happens to have grown the fastest over the past two years, doubling in share.

Staying home: Restaurant meals consumed at home remain elevated, despite the removal of restaurant restrictions. Consumers continue to make use of off-premises occasions in part to control their overall restaurant budget. This lowers average checks and tips and eliminates additional costs such as parking and babysitters. Additionally, at-home restaurant meals allow consumers to augment their order with an item already available at home, such as beverages and desserts, coming full circle back to the first item in this list: smaller orders.

Digital and Loyalty
Much has been written about the growing importance of digital ordering across every retail industry, including foodservice, and we haven’t yet seen the final chapter. The pandemic ushered in a tidal wave of consumer digital activity, resulting in years of evolution in just a matter of weeks. The overall impact on the foodservice industry remains to be seen. Here, we consider just a small cross-section of the foodservice digital landscape as a case study.

Perhaps this outcome is obvious. Digital ordering, loyalty programs and coffee consumption are connected. The implication is that an effective digital platform is so much more than a tool for customers to place an order. Instead, a digital platform is a vehicle for brands to regularly communicate with their clients to grow loyalty and repeat visits. It is also one way small brands can compete with the big brands to level the playing field. This extends well beyond the grab-and-go coffee universe. Any meal occasion — especially those with a habitual nature, such as workday lunches, family pizza nights and game-night social gatherings — can be an excuse for a restaurant to encourage a customer to return for another meal occasion and some more loyalty points.

Throughout the pandemic, we’ve seen drastic shifts in the Canadian foodservice market’s service modes. The transition from bustling out-of-home lifestyles to slower stay-at-home lifestyles due to public-health restrictions caused shifts from on-premises dining to off-premises. These changes are widely apparent across the market, whether dine-out drive-thru meals, the lazy lunches ordered for delivery at home, or the simple suppers that involve picking up a pizza for the family. As a result, total restaurant on-premises dining remains about a third below pre-pandemic levels. Meanwhile, carry-out and drive-thru traffic levels are up 12 per cent and 17 per cent, respectively, and delivery traffic is nearly double where it was in the 12 months ending October 2019.

To understand the changing service-mode environment, it’s important to look at FSRs and QSRs separately since they experienced the effects of this shift very differently. Nearly two-thirds of QSR traffic came from off-premises service before the pandemic; consumers were accustomed to taking their meals to go, and many of these restaurants already had delivery programs and drive-thru infrastructure in place. FSRs, on the other hand, offered an out-of-home dining experience for consumers where they could connect with friends and family. Thus, nearly three-quarters of FSR visits came from on-premises dining before the pandemic. These restaurants had to adapt quickly to the changing market by offering delivery, carry-out, and curbside-pickup programs to meet consumers’ changing pandemic-related needs. Indoor-dining restrictions forced a dramatic shift to consumers’ off-premises dining habits in both QSRs and FSRs, which is expected to endure even as restaurant restrictions have largely been lifted.

From Functional to Emotional
Numerous consumer studies conducted by The NPD Group at the height of the pandemic, revealed what customers missed the most about dining out was the ability to socialize with family and friends. Socialization was even more important to them than the food itself. NPD’s Dining Demands Consumer Segmentation model provides context.

With the lifting of restaurant restrictions in 2022, the Socialize consumer segment almost doubled in size from the prior year; it now represents 11 per cent of total foodservice visits. This share is still five points below pre-pandemic levels, indicating the potential pent-up demand for even more of these emotionally based restaurant visits and even more recovery during the coming months. A restaurant meal still represents an affordable, indulgent experience the entire family can enjoy. This mostly benefits the FSR segment, but even QSRs can take part by providing a night out for a family or social group that has spent too much time at home these past few years.

On the other end of the scale are the functional visits characterized by the Fuel consumer segment. This segment is all about convenient grab-and-go meal solutions. As people spent more time at home and consumed more off-premises foodservice meals, this segment’s prominence grew. But the return of in-person dining has resulted in a two-point share drop for these occasions in 2022.

Overlapping these two segments is Quench, the segment characterized by restaurant occasions that include nothing but a beverage. Morning brewed-coffee occasions dominate this segment, but they have diminished in volume and importance since 2019. Instead, the pandemic brought on a functional to emotional shift here, as well. More indulgent occasions featuring specialty coffee beverages, both hot and cold, have grown in importance. Similarly, beverage-alcohol occasions have risen in importance this year, signaling another opportunity for licensed operators to welcome back guests looking for a social and emotional escape from pandemic boredom.


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