Restaurant price hikes outpace food inflation as businesses struggle – Winnipeg Free Press

Restaurant price inflation has outpaced food inflation for months, a sign that business owners are struggling with higher costs, Restaurants Canada reports.

“When we started to see those initial inflationary pressures coming through, restaurateurs were a little nervous to start passing on the cost increases to guests,” said Kelly Higginson, president and CEO of Restaurant Canada.

Increasingly, restaurants were being “pushed to the brink” and owners were left with no choice, he said.

Food inflation continued to slow in March, rising just 1.9 percent from a year earlier, Statistics Canada reported Tuesday. That's down from February's 2.4 percent annual rate and well below the 11.4 percent peak in food inflation in late 2022 and early 2023.

However, the price of food purchased from restaurants increased by 5.1 percent compared to last year, which is the same as in February and January.

This was led by fast food and fine-dining restaurants, whose prices rose by 6.4 percent in March compared to a year ago.

Restaurant owners are struggling with a variety of inflationary pressures, including rising insurance and labor costs and higher interest rates, Higginson said.

“We came out of the pandemic with a lot of debt,” he said, including lines of credit and credit cards.

But restaurant owners have been wary of going too high or too fast for a walk-in menu, Higginson said.

“Especially when we came out of the pandemic, there was a lot of concern about giving it as we tried to rebuild the industry,” he said. “We've been trying to get people back into the restaurants.”

For all of 2022 and just over half of 2023, restaurant-purchased food inflation was consistently lower than grocery inflation, often by a few percentage points. For example, in November 2022, food inflation was 11.4 percent, while restaurant inflation was 7.7 percent.

But food inflation started to moderate in the second half of 2023, and September saw a reversal of the trend as food inflation fell below restaurant inflation. Since then, it has been low, and restaurant inflation has remained above five percent.

Almost two-thirds of restaurants are operating at a loss or barely breaking even, Restaurants Canada said in a February report.

The association said last year bankruptcies in the industry reached their highest annual rate in a decade.

One of the main challenges was weak sales, the report said, as consumers continued to cut back on discretionary spending amid rising costs.

But even with patio season just around the corner, promising an uptick in sales, that may not be enough for many businesses, Higginson said. Margins should improve to ease inflationary pressures on the labor-intensive industry, he said.

“It's very difficult because it's not necessarily a sales issue. This is a fundamental problem,” he said.

Statistics Canada found restaurant prices were one of the five biggest contributors to overall inflation in March, along with mortgage interest, rent, gasoline and auto insurance premiums.

The general inflation in March slightly increased compared to February, making 2.9 percent. Food inflation, which includes food and restaurants, was three percent.

Continually rising food prices have worried Canadians, as housing costs and interest rates have also risen. Canada's biggest food producers have come under fire from politicians, with the government calling on companies last fall to submit plans to reduce food inflation.

The pressure has led many shoppers to seek discounts at discount grocers or by purchasing private label products instead of brand names. Major grocery chains have responded by opening or repositioning discount stores, notably Loblaw, which opened more than 30 new Maxi and No Frills stores last year.

But while food inflation has declined steadily in recent months, this will not necessarily translate into relief in the short term.

RBC Capital Markets analyst Irene Nattel noted that food prices have risen significantly over the past two years and remain a significant barrier to household budgets.

Because of this, shoppers may continue to engage in “value-seeking activities” such as going to discount stores and choosing private label or sale products, Nattel said in a note.

This Canadian Press report was first published on April 16, 2024.