Canada's food services industry's profit margins limited by sluggish Canadian economy

As Canadians deal with weaker growth in disposable income and high levels of household debt, Canada's food service industry is expected to face challenging times in the near term, according to The Conference Board of Canada's latest Industrial Outlook: Canada's Food Services Industry–Winter 2016. 

Also read, Higher wine taxes yet another hit to Ontario's restaurant industry.

"Canadians now carry the highest debt-to-income ratio among G7 countries," said Michael Burt, Director, Industrial Economic Trends. "Consumers that prioritize paying off debt could spell bad news for Canada's food services industry, since one of the first items that households cut back in difficult economic times is dining out."

HIGHLIGHTS

• Slowing disposable income growth and record household debt levels could translate into weaker domestic demand to dine out.
• A weak Canadian dollar is encouraging international tourists to visit Canada, and making Canadians rethink travel abroad. This should support rising foreign and domestic tourism spending at food service operations. 
• As cost growth outstripped revenue growth in 2015, the industry's pre-tax profits fell to $1.6 billion. 

Growth in consumer spending on dining out varies greatly by province. Alberta's growing pessimism about future job prospects within the province has led to a decline in per capita spending on food services. Weighed down by an ageing population and poor economic growth, Quebec has experienced only modest improvements in food services spending per capita.

In contrast, Ontario and B.C. continue to experience strong growth in food services spending. Buoyed by strong consumer demand, and robust housing sectors, Ontario and B.C. have seen restaurant receipts rise by an average of 5.3 and 6.9 percent per year respectively since 2012, which compares to an increase of only 3.2 per cent across all other provinces.

With the Canadian dollar expected to remain below 75 cents U.S. in the near term and the strong U.S. economic performance, the outlook for the tourism industry will stay positive. This will provide a much needed boost to the food services industry, as foreign and domestic tourism spending accounts for more than one-fifth of total Canadian food services spending.

Canada's food services industry is also expected to benefit from innovations, such as food-ordering apps, which will continue to provide opportunities for restaurant operators to promote their menu choices and grow sales to customers who may not have otherwise visited their location.
As cost growth outstripped revenue growth in 2015, pre-tax profits fell to $1.6 billion.
Industry profits should improve starting this year, rising to $2.1 billion by 2020. However, profit margins will remain steady averaging around 2.8 per cent over the next five years.

SOURCE Conference Board of Canada