Unit-growth trends reveal challenges and opportunities in today’s restaurant environment

Reading Between The Lines

By Vince Sgebellone

“Restaurants seem to be busier than ever.” This is a comment I hear frequently and as a consumer of foodservice meals, I tend to agree. As a foodservice industry analyst, I’m a bit more discerning, so let’s review the data first.

Restaurant traffic in Canada for the 12 months ending May 2023 was up by 10 per cent compared to the same period a year ago. This includes a 16- per-cent gain for full-service restaurants and an eight-per-cent lift for quick-service restaurants. On the surface, these latest results from Circana’s CREST consumer tracking service indicate restaurants are indeed busier. But digging a little deeper, we see restaurant visits have not quite returned to 2019 levels. Additionally, off-premise restaurant occasions now make up an even larger portion of these visits. That means a larger portion of the restaurant traffic is in the drive-thru lane or at the takeout/delivery counter.

But traffic gains don’t tell the entire story. For that, we need to understand how many restaurants there are across the total industry. Circana’s 2023 Canadian ReCount restaurant census shows the net number of restaurants rose slightly in the past year by 0.6 per cent, or 300 units, for a total of almost 62,000 units. This net growth is a bit of positive news against the backdrop of a recent report from Restaurants Canada that indicated restaurant bankruptcies soared to more than 300 in the first half of 2023. Overall, the foodservice industry has lost more than 2,000 net units since 2019. This recent news about closures suggests unit counts will not return to those historic levels any time soon.

The unit-growth trends reveal some of the other challenges and opportunities in today’s restaurant environment. Here’s a quick look: QSRs grew by 500 units while FSRs declined by 200. This highlights the incremental hardships faced by FSR operators, despite recent traffic gains. The fastest-growing FSR subchannel in terms of unit growth is midscale diners, bucking the trend in overall FSR units.

This is consistent with CREST data that shows midscale operators are benefiting from industry morning meal traffic growth of almost 12 per cent. Independent and small-chain locations drove most of the unit growth, while large chains with 500 or more locations were flat. CREST confirms this trend as well, as it reports large chains have lost two points of traffic share to these smaller operator sets since 2019.
Unit growth in the West is outpacing the other regions, matching the region’s traffic-growth performance. Restaurant counts outside of the large urban centres grew faster than those within the larger centres.

This is consistent with Statistics Canada’s population data, which indicates growth of downtowns slowed during the pandemic. Combined with persistent work-from-home habits and the resulting deficit in work-related foodservice visits, restaurants in the big city cores will continue to face an uphill battle. So, are restaurants busier than ever? Well, on average, the answer would be yes but it all depends on where the restaurant is located and the customer base it serves.

Overall, restaurants aren’t busy enough to return the industry to its former state of profitability. And yet, new restaurants are opening steadily to replace those that have closed; investors and entrepreneurs continue to bank on the industry’s long-term viability. After more than two decades in this business, I can understand that sentiment completely. Canadians love to eat out, and restaurateurs love to serve them.

Vince Sgabellone is the director of Client Development and Foodservice Industry analyst at Circana. He can be reached at [email protected]

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