Prices at Toronto restaurants will rise by up to 15% – as industry deals with ‘unnatural’ situation

Menu prices at your favorite restaurants and bars, which have already been on the rise for months, could go up by up to 15 percent more. By the end of the year, as the industry continues to adjust to inflation and ongoing employment struggles.

This is according to Canada’s annual restaurant report, Food Service Facts, paints a bleak picture for the foodservice industry more than two years after COVID-19 first hit.

The report found that half of the restaurants were operating at a loss or even just a break through July 2022 – usually one of the busiest months of the year. As a result of rising costs, more than a third of full-service restaurant operators plan to raise their prices by more than seven percent, and many between 10 and 15 percent.

Sylvain Charlebois, director of the Laboratory of Agro-Food Analytics at Dalhousie University, said the report, released this week, is the latest window into what’s shaping up to be a tipping point for restaurants.

“I think the bleeding hasn’t stopped,” he said.

For the first time since the pandemic began, the restaurant industry expects to return to pre-COVID-19 sales levels by the end of 2022. But inflation is undercutting that feat: Adjusted for inflation, real sales in 2022 are 11 percent lower in 2019, according to the report.

“Traffic is still low” — it was inflation that brought sales back to 2019 levels, not returning customers, said James Rilett, Central Canada vice president for Canadian restaurants.

This is especially true in full-service restaurants, according to the report, even when Canadians feel more comfortable eating out; Consumers are becoming more careful with their wallets because the price of everything, not just eating out, has skyrocketed.

“On the surface, it certainly looks like we’re back to normal,” Chris Elliott, chief economist at Restaurants Canada, said in a webinar for members of the organization on Tuesday. Walk down the street, he said, and you’ll see people sitting on patios, sipping a drink at the bar, or having lunch with friends.

But Elliott said “it’s not a normal thing” for restaurants. Reopening doesn’t mean businesses are back in making money, and many aren’t sure if they can work their way to success.

Inflation has driven up many restaurant prices this year, from meat to flour to canola oil – A key ingredient in many kitchens. Also, thousands of workers have left the industry during the pandemic, in search of better wages and working conditions, and many restaurant owners are struggling to fill vital roles, with many offering higher wages to try to attract and retain talent. According to the report, the industry was below 171,300 jobs at pre-pandemic levels as of May 2022. Relette added that companies are also dealing with debt from pandemic loans.

All these costs have resulted in menu prices rising faster than usual; In 2022, Canadian restaurants expect prices to rise by 6.8 percent compared to 2021. Full-service restaurants are more likely to see higher price increases than quick-service venues.

Rilet said restaurants facing higher costs must walk a fine line between raising prices to cover their bottom line and continuing to attract customers who also monitor their costs.

“Eating out is usually one of the first things to go when people are feeling down,” he said.

Nine out of 10 restaurants in Canada struggle to hire home jobs in particular, according to the report, such as chefs or dishwashers. Restaurants Canada has found that food service businesses are operating at an average of 80 percent of their normal capacity due to a labor shortage.

Operating below capacity could mean thousands of dollars lost in potential revenue at a critical time, Elliott said.

Rilet said there are a variety of factors to blame: demographic changes in the workforce, reduced immigration, and worker exodus during the pandemic.

Restaurants are increasing wages, reducing hours and more to deal with staff shortages, according to the report. Dal’s Charlebois said they’re also shrinking their menus to simplify service and reduce waste, which is another way to cut costs.

“You have to make more money an hour now…just because things cost more to produce,” Charlebois said.

Meanwhile, many Canadians continue to work from home, and this is affecting their spending habits, the report found. They spend less throughout the week on snacks, drinks, and meals just because they are not outside, and this is likely to continue for the foreseeable future.

Charlebois said this long-term shift in how people work presents a challenge and an opportunity for the food service industry: “How will people consume food in 2025?”

He said that quick-service restaurants will continue to see a much larger share of their sales come from delivery, and will have to compete with grocery delivery, as people cook more when working from home. Meanwhile, fine dining establishments will have to contend with tough economic times over the next year, he said, as consumers tighten their restrictions.

Between April 2021 and July 2022, nearly 3,800 restaurants were permanently closed, according to the report – but that number is likely to be even higher, and will rise in the coming months.

Some businesses are quietly closing their doors long before they officially close, so data for shutdowns is delayed, Rilett said. Plus, many have waited to see how summer, the busiest season, will go, and are now facing a tough decision, he said.

“If there is a reckoning, we may see it coming this fall.”

Elliott said some restaurants are still incurring debt to remain open, and monthly closures are rising steadily for months, even during the busy summer season.

Meanwhile, the number of new businesses is much smaller, which means that the total number of restaurants is declining.

In the longer term, Rilett expects more technology to start appearing in restaurants, from ordering via tablets or websites from the dining table, to the occasional robot bringing your food to you.

Restaurant owners have realized that they have to adapt, he said: “They have to keep using new technologies and do things differently.”

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