Challenges Intensify for Canada’s Restaurant Industry, Global Agency Sounds Alarm

Challenges Intensify for Canada's Restaurant Industry, Global Agency Sounds Alarm

[By: Shantaé Campbell] – Canada’s restaurant industry is bracing for a turbulent period ahead, grappling with the dual challenges of economic strain on consumers and the looming repayment of pandemic-era loans, according to insights from a leading global credit rating agency.

Impact of Economic Factors: Economic Shifts and Consumer Impact

The agency, DBRS Morningstar, in its 2024 Restaurant Outlook published on January 17, highlights an imminent challenge for the sector. It notes that consumers and the economy have not fully realized the full impact of recent aggressive interest rate hikes.

While a possible improvement in operational conditions is predicted for late 2024, this optimism depends on how changes in disinflation and interest rates influence consumer spending habits. Nevertheless, the cumulative strain from several difficult years is expected to continue impacting the credit profiles of restaurants throughout the year.

Industry Hardships and Consumer Trends

The past few years have been particularly challenging for the restaurant industry. Despite a brief recovery to pre-pandemic levels in 2022, the industry has since been buffeted by growing macroeconomic challenges. The agency points out that 2023 saw a noticeable squeeze on consumer purchasing power, leading to significant changes in spending habits that directly affected restaurants.

Dining Habits and Financial Struggles

Despite a latent demand for dining out, there was a notable reduction in restaurant visits in 2023. DBRS Morningstar reports a worrying statistic: 53% of Canadian restaurants are either operating at a loss or barely breaking even, a stark contrast to the pre-pandemic figure of 10%. There has been a nearly 40% increase in bankruptcies within the Canadian accommodation and food services industry over the 12 months leading up to November 30, 2023.

Additional Pressures: The CEBA Loan Repayment Deadline

Compounding these challenges is the impending deadline for the repayment of Canada Emergency Business Account (CEBA) loans on January 18. The Canadian Federation of Independent Business (CFIB) forecasts a distressing scenario where hundreds of thousands of small businesses might face a 50% increase in their pandemic-related debts due to repayment difficulties.

Despite requests from the restaurant industry and small-business groups for an extension of the repayment deadline, the federal government has not responded. The CFIB expressed disappointment in a January 17 news release, emphasizing the government’s lack of response to the pleas of numerous small business owners for more time to repay their CEBA loans and retain the forgivable portion.