Today’s customer spending and its effect on restaurants

By Vince Sgabellone

Economists have projected a slowdown in the Canadian economy for several quarters now. Similarly, Canadian consumers have reported for over a year that they plan to cut back on their spending and studies show they have done just that. For the year ending June 2023, consumer spending across the 11 retail categories declined by three per cent in Canada.

But in the foodservice market, Circana’s CREST® industry tracking service reports foodservice spending over the same 12-month period remained quite robust, advancing by 13 per cent and restaurant traffic levels returned to 2019 numbers. This persistent strength in foodservice activity is a sign that Canadians continued to make up for lost time once the pandemic passed. Whether a grab-and-go coffee from their favourite local café or a gathering with friends and family in a restaurant, Canadians are enjoying their return to restaurant experiences.

Even so, the early signs of a flattening growth curve began to appear during the second quarter of 2023. Traffic growth for the quarter was just six per cent, the lowest level since the recovery began in 2021. In a recent consumer sentiment study, 68 per cent of respondents reported they planned to cut back on restaurant spending, and 75 per cent of them reported they would do so by cutting back on restaurant visits.

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Beyond a reduction in visits, these cautious consumers planned to introduce a series of money-saving behaviours, including trading down in restaurant type (37 per cent), trading down in menu items (37 per cent), and reducing the number of items per order (35 per cent). Sure enough, QSR traffic growth in the quarter was eight per cent, outpacing FSR growth for the first time since 2021.

Next, despite a return to in-person restaurant visits over the past year, items per order remained at pandemic-era levels. The dessert and beverage sections of the menu have felt the biggest impact of these declines.

And finally, supper growth was the lowest of all dayparts at just two per cent, while the other dayparts enjoyed gains of seven to nine per cent. Some of these gains can be attributed to increased mobility over the past year (people are leaving their homes more often), but some certainly can be attributed to money-saving tendencies since supper generates the highest average eater cheques.

The next behaviour change to watch is consumers’ planned shift in how they obtain meals. More than one quarter (28 per cent) reported they would cut back on delivery to save on fees. This corresponds with a second-quarter two per cent gain in carry-out orders and a 10 per cent reduction in delivery orders. Meanwhile, off-premises order rates remain stubbornly elevated despite the removal of restrictions, as consumers look to save on the additional cost of in-person dining.

Amid all these traffic shifts, the number-one money-saving technique consumers report for the coming quarters is a search for more deals and promotions. Coupons and meal combos are the most popular deal types — but consumers will respond well to anything that lets them enjoy a restaurant occasion, while still feeling they got good value for money. At just under 30 per cent, deal rates remain two points higher than pre-pandemic levels.

Despite this elevated cost-consciousness, it is interesting that one-third of consumers reported they do not plan to cut back on restaurant spending. Consequently, the fine dining and casual dining steakhouse subchannels experienced some of the highest traffic gains in the past year, despite their elevated eater cheques. Businesses catering to higher-end consumers may find the economic headwinds may not blow quite as strong. For the rest of the market, it will be important to focus on delivering value to the average consumer in order to maintain customer counts during these uncertain economic times.

Vince Sgabellone, Foodservice Industry Analyst, Circana, combines his analytic abilities and natural curiosity with his extensive foodservice industry experience to help his clients understand the market, the competition, and the consumer. Circana transforms complexity into clarity, as the leading advisor on the complexities of consumer behaviour.