By Robert Carter
Canadian Foodservice Industry Analyst
The NPD Group
Unless you’ve been living under a rock for the past six months, you’re likely well aware of Ontario’s recent minimum wage hike and its effect on business owners (especially restaurateurs) across the province.
On January 1, Ontario's minimum wage increased to $14 per hour from $11.60 (a 21 percent jump); the province plans to increase the rate again, to $15, by January 1, 2019. Since the plan was announced there has been significant pushback from business owners, academics, and political pundits alike. In September, TD Bank predicted the wage hike would cost Ontarians 90,000 new jobs. And late in 2017, a report by the Bank of Canada predicted a loss of more than 60,000 jobs.
More recently, several major foodservice operators announced they would cut employee benefits, change tipping policies, and raise prices to help offset the expense of the wage increase.
As the industry comes to terms with this new reality, one thing is certain: prices will rise across the board.
Our data shows the five-year compound annual growth rate (CAGR) for average eater cheque (AEC) at commercial foodservice is just 1.7 percent, which is lower than menu inflation. In the full service restaurant segment the CAGR for AEC was 2.4 percent. At QSR, it was 3.0 percent, and at retail it was 3.1 percent.
Furthermore, in the last two years, AEC has remained flat as dollar growth has been driven by traffic alone.
Currently, the AEC for Canada’s foodservice industry as a whole is just $7.73.
When it comes to price increases, certain dayparts are more ripe for a hike than others. For example, over the last three years, the overall share of breakfast traffic has increased significantly; however, AEC in that segment has decreased. Only the lunch and snacking categories have seen AEC growth, while supper has remained flat. In many ways this is a demographic story: older consumers are reducing their foodservice consumption while younger consumers (who generally spend less) take their place.
The bottom line? Average eater cheques are significantly underdeveloped, and prices need to increase.
And while consumers may not embrace this notion, the reality is that they are willing to spend if they feel they are getting quality, innovation, and value.