By Laura Pratt
“We were told that coming out of the pandemic everyone would be eager to come back [to restaurants],” says Shira Blustein, general manager of both The Acorn and The Arbor in Vancouver. “But what happened was rising prices from our suppliers, starting with fuel surcharges, and then all of our food costs, insurance, minimum wage — everything went up. The guest is only willing to pay so much.”
“All the issues we’re dealing with now flow from the pandemic,” says Mark von Schellwitz, vice-president Western Canada, Restaurants Canada. Overall, input costs have increased by about 20 per cent, he says, contrasted by menu inflation of only around six per cent — “because we can’t pass all those costs onto our consumers.”
Restaurants continue to feel the effects of the workplace shift to home-based industry and the enduring pivot from on-premise dining to takeout and delivery. Before the pandemic, about 12 per cent of the average full-service restaurant’s sales were in takeout and delivery; now it’s 38 per cent.
Then there’s the demographic labour crunch. “We lost a lot of jobs during the pandemic and we’re having difficulty attracting them back,” says von Schellwitz, adding restaurants — the largest employer of youth of any industry — must be proactive in finding good people, working with foreign workers, and encouraging semi-retirees to stay longer or join the workforce part time.
He believes this combination explains why more than half of Restaurant Canada’s members are not making a profit (compared to just 12 per cent before the pandemic) and why restaurant bankruptcies jumped by 90 per cent last year over 2022.
“There’s more government [involvement] now in our industry overall than there was five or six years ago,” BC Restaurant and Foodservices Association CEO Ian Tostenson says, and points to his government’s threat to move to electricity — a problem given West Coast restaurants’ reliance on natural gas — and the lack of CEBA loan extensions, which saw restaurants scrambling to pay back $40,000 to qualify for the $20,000 grant. “A lot of smaller restaurants won’t survive that.”
The provincial governments, meanwhile, have piled on increases in sick days, hikes in minimum wage, and a new statutory holiday, along with new legislation on single-use items and reduction of plastic. And at the municipal level, taxes on leases have increased to the point where “a lot of small restaurants just can’t afford to renew,” says von Schellwitz. “We’ve got a perfect post-pandemic storm.
The quick-service segment has always been strong, observers agree, and the pandemic stretch augmented that. But the middle of the Western-Canadian foodservice market — family-style, upscale casual restaurants — are poised to suffer most, because, says von Schellwitz, “they have the most price-sensitive consumers. If you’re a high-end restaurant with a pretty wealthy clientele, you’re not going to be impacted because it won’t change your consumers’ behaviour if prices go up.”
People are still willing to spend for special occasions at high-end restaurants, Blustein agrees. “But with the more casual eatery, there are just fewer people coming on the regular.”
The fine-dining restaurant in Cody Allmin’s portfolio, Published On Main, in Vancouver, is doing better than the rest, Allmin confirms, because it’s a “celebratory destination. The people that only dine out once or twice a year fill out a big chunk of our books.”
But Circana’s CREST industry tracking database shows that, for the year ending November 2023, while FSR had a much higher share of traffic in B.C. (28 per cent) than anywhere else in Canada, “it could present a challenge in the coming year if the economic headwinds impact the foodservice industry as they’re expected to,” says Vince Sgabellone, a foodservice industry analyst with Circana. “One of the ways consumers are planning to cut back on foodservice spending will be to trade down to less expensive restaurant occasions.”
Chains, meanwhile, have the advantage of economics and purchasing power, Tostenson says, and with the current economic uncertainty, people tend to go where they’re familiar. More than that, chains can be “more adventurous” in their pricing, where independents have higher cost structures and infrastructures that aren’t as deep. “You’ve got to be way more on top of your costs and operations now because of inflation,” he says. “There’s no room for error. A lot of independents are working six days a week,
12 hours a day.
“We’ve never stabilized since the pandemic,” he says. While patrons have returned, inflation has been quick to yank back progress. “We’ve been unable as an industry to increase our prices to cover inflation, so restaurants either have no margin or are losing money.”
Allmin, whose four-year-old fine-dining restaurant has a Michelin star, calls the restaurant business in Western Canada “challenging” right now. “When your operating costs are already high because it’s Vancouver and then your labour rates and cost of goods go up and you try to match your prices to be in line with inflation, but nobody has the money to spend more, you get complaints from every side.”
He calls the future for restaurants in this part of the country “fairly bleak” and explains that they’ve put a pause on growth for the next year while they “watch the economy.”
Allmin’s contemporary, Angus An, the chef-owner of a handful of restaurants in Vancouver, including Michelin Guide-recommended Maeman, concedes “there are more challenges than ever for restaurants.” But he’s keeping his cool, he says, informed by how the 2008 recession prepared him for the COVID experience. He feels consumers are craving quality, but also value. “People need to eat and as long as you provide them with value, you have the ability to thrive.
“We’ve got to start competing with quality. We can’t pay the higher wages that some of these talented personnel deserve and by competing with price, the only thing that suffers is quality. Rather than compete on price, compete on value.”
Bruce Fox, executive vice-president, Business Development with Browns Restaurant Group, says business is “tougher than it’s ever been and I’ve been in the business 50 years.” New build costs are up 30 per cent from two years ago, he says, and “We can’t build new restaurants under those conditions. And we can’t staff them.” None of that means they’re not trying, he points out.
While almost all of the restaurants in his system are making money, it’s “not much,” he qualifies. “The scene is worse than it’s ever been.”
“We’re going to see a lot more restaurants closing,” Blustein agrees. We need that rebound where people feel freer, where they have more expendable income.”
Going forward, Tostenson agrees Western Canada is facing a culling of the industry. He believes up to 2,000 restaurants across the B.C. are at risk of closing this spring unless a “miracle” comes their way.
But from that scene will rise a re-generation. Tostenson points to a recent rush of investment and innovation. “The era of the big restaurants with hundreds of seats, thousands of square feet, and high-cost operations is over. But people are coming in with more focused concepts, more diversity and ethnicity, and smaller restaurants, lower overheads, more technology.”
Indeed, says Fox, there’s reason for hope. “We figured out how to deal with no-smoking sections. We’ll figure it out. It’s depressing, but restaurant people are smart, capable, energetic, vibrant, innovative. We love what we do and we’re in there for the next round to keep fighting.”
