The Fifteen Group’s David Hopkins assesses the lay of the land in Canadian foodservice this year
By Tom Nightingale
For Canadian foodservice and the nationwide restaurant industry, the dawn of 2021 is not exactly a case of “new year, new you.” Instead, it’s more an extension of the struggle to survive and start moving forward again. For many operators across the country, this year’s resolutions won’t go much further than simply doing their best to leave behind the woes of 2020.
Throughout the COVID-19 pandemic, it’s an understatement to say that Canadian foodservice has shared a steep learning curve. Nationwide, operators have repeatedly been forced to adapt on the fly to keep things going during restrictions and shutdowns.
Perilous and precarious times
At the time of writing, the situation is certainly perilous for Canadian foodservice. Ontario is in a shutdown, Quebec is under a curfew, and other provinces are seeing various levels of disruption. Recently, leading Canadian hospitality consulting agency The Fifteen Group surveyed its clients about the lessons learned so far, challenges still being faced, and how operators feel heading into a new year full of similar uncertainty.
To put it bluntly, the outlook remains pretty bleak.
As of a month ago, it’s estimated that 10,000 restaurants have closed since March 2020. The Fifteen Group’s president, David Hopkins, illustrates the severity of the situation. He tells RestoBiz that 49 per cent of respondents aren’t sure whether they will survive the rest of the pandemic.
“That is a massive, massive amount,” laments Hopkins. And it may not even paint the whole picture of the current situation. As Hopkins explained, the survey was carried out back in December. That was before Ontario’s latest shutdown on Boxing Day or Quebec instigated its evening curfew. Unfortunately, the stark reality is that for many businesses, things have worsened in the weeks since. “Back in December, things were looking a bit rosier than they do right now.”
The silver lining of consumer support
We’ve been here before, of course: last spring, lockdowns and enforced closures swept the country.
This time around, though, there are key differences for Canadian foodservice. Firstly, we’ve been at this for 10 months now; we’re no longer staring into a completely unknown landscape. As painful as it’s been, much has been learned since spring, from best infection control practices to cost mitigation.
Another thing that has changed is customers’ attitudes. Hopkins thinks that is a huge silver lining that can make a difference during the second wave. “As the pandemic is moving along, the consumer has become more and more aware that they need to do their part to help small businesses survive.”
81 per cent of respondents indicated that their customer base has been very supportive of their restaurant. It seems that understanding is increasing.
Hopkins suggests that early in the pandemic closures, there was something of an “everyone-for-themselves” attitude. “Now, there’s been a movement towards helping small businesses survive. I think a lot of that is from a morality or ethical standpoint. People really have more of an understanding now that a lot of businesses are in trouble. Consumers are doing whatever they can to support the industries.”
Indeed, much focus has been placed on the part patrons can play in helping small and medium-sized businesses survive. That can include buying gift cards from restaurants. Another method is ordering food as curbside pickup while indoor dining has been closed to save restaurants paying delivery fees. “There’s no doubt that takeout has been a growing trend and it’s accelerated hugely,” acknowledges Hopkins. “Restaurants are pushing for consumers to pick it up instead of getting it delivered and people seem to have responded well to that.”
More help needed
However, help has been greatly needed, and still is. The survey suggests most restaurants have spent between $15,000 and $20,000 on COVID-19-related changes. Some have shelled out up to $50,000. A lot of that has gone on PPE and sanitization. But its also been spent on getting all-season patios set up, securing outdoor heaters, and other winterization expenses. The impacts went beyond financial expense, too. Considerable time and effort was thrown into something that ultimately proved fruitless for many.
Hopkins notes that in some cases, “literally four weeks” after they were set up and ready to go, that option was removed for much of Canadian foodservice. “And these are operations that were hanging on by a thread already; it wasn’t like they had that $25,000 just lying around. It was a bottom-of-the-barrel attempt to salvage things.”
So what do operators need throughout the rest of winter and into the bulk of 2021? “We still see a huge want for more support from governments,” says Hopkins.
There was some assistance in 2020, albeit late-arriving. An 85 per cent wage subsidy in the summer and a governmental rent subsidy in fall propped up many establishments. But, Hopkins stresses, all of that did little more than help restaurants barely scrape by to get through the fall.
Now, in a second wave that is worse than the first in many areas, the supports have dwindled. “The typical restaurant now is probably only getting about a 50-55 per cent wage subsidy compared to 85 per cent in the summer,” says Hopkins. There are other measures, like a one-time financial support that operators can apply for now, but these are mere stop-gaps.
“The big challenge is that restaurants going into the first wave were at least coming out of normal operations, so they may have had a bit of a buffer to figure stuff out. Now, going into the second wave, it’s not like the fall filled up their coffers again. They’ve got nothing, and I think that will prove disastrous for many over the next eight to 12 weeks.”
Over 80 per cent of respondents felt the restrictions in place by December adequately kept customers and employees safe. That has not been reflected by the recent intensifying of restrictions.
Take calculated risks
So, moving forward, where should foodservice look to go? Hopkins notes regional caps on delivery fees have helped somewhat. So has the introduction of alcohol delivery and reduced wholesale liquor pricing in B.C. He hopes to see that latter measure expanded nationwide. Reduced wholesale pricing, he says, would make a big difference to restaurants’ short- and long-term costs. “That would be a huge win.”
The major thing restaurateurs want to see, though, is for rent and wage subsidies to be pushed back up. Hopkins notes that if revenues are down 80 per cent, the wage subsidy can still be as high as 75 per cent subsidy. In contrast, if revenue’s down 45 per cent, the subsidy has only been about 35 or 40 per cent. “If you’re down 45 per cent in revenues, that’s a huge hit,” he says. “Back in the summer, if you could access a 70 per cent subsidy, that was a huge boost, whereas 40 per cent doesn’t even come close to filling the gap.”
Back in the fall, when we were heading into the onset of winter, Hopkins advised operators to be bold. Not much has changed on that front. For those establishments lucky enough to be in areas of the country where they can remain open at a limited capacity, he urges the consideration of price hikes. “If you streamline your menu and strategically increase prices, between that and the wage subsidy, you can generally get back towards pre-COVID-19 profit levels.”
Hopkins notes that, for the most part in these situations, a price increase of about 15 to 20 per cent offsets capacity restriction losses. It comes back to that silver lining of increased consumer support and understanding. Patrons will, on the whole, be much more receptive and tolerant of marginal pricing – Hopkins gives the example of raising the price of a club sandwich from $12 to $14 – now that the desperation of the situation has been long apparent.
“Consumers know restaurants are hurting and want to support. But you need to be wise about it, be in tune with your business and what’s required. The price increase for us is the easiest thing to do, makes the most sense, and can help get restaurants back to where they need to be without too much pain for the consumer.”
Even taking on a certain level of debt may help, Hopkins adds, with the proviso that operators must be sure to have a firm handle on their day-to-day. “We’re highly recommending that restaurants do whatever they can to make it through.”
Light at the end of the tunnel
In summation, perhaps the key way in which things are different for Canadian foodservice in January 2021 compared to April 2020 is that there is sun on the horizon. In March or April 2020, there was no clear end in sight. Now, Hopkins notes, there is a sense that at some point this year, things will begin to come out the other side. “There’s a light at the end of the tunnel, so some restaurateurs now may – and should – be willing to take on a bit of debt, raise some prices to make it through.”
For those operators still in business, there is some optimism. The closures have been tragic, but one thing it does mean is that the post-pandemic market will likely be hugely profitable down the line. People will, largely speaking, be desperate to eat and drink out again and there will be 20 to 25 per cent less competition for operators in their local markets with so many establishments closed. The journey has been painful – fatal, in fact, for some – but there’s hope to be had.
“I definitely think a typical restaurant one year post-pandemic will see a fairly good profit increase over where they were one year pre-pandemic,” concludes Hopkins, “and that’s probably worth a fair bit.”