Inflation is hitting restaurants hard. What to expect when dining out in 2023

Click to play video: 'Inflation taking a bite out of restaurant earnings'
Inflation taking a bite out of restaurant earnings
WATCH: Restaurants looking to recapture momentum lost during the pandemic are now faced with a tough balancing act thanks to food inflation. Shallima Maharaj hears from the owner of a downtown Toronto institution – Jan 5, 2023

As inflation bites into people’s wallets, eating out is set to get even more expensive in Canada this year.

That’s according to Restaurants Canada, a national food service association with almost 30,000 members across the country.

With food prices soaring amid decades-high inflation, Canadians have already seen their grocery and restaurant bills go up, and that is only expected to continue in the new year, said Kelly Higginson, chief operating officer at Restaurants Canada.

“Many operators have still tried to hold back on really passing through all the costs through to their customers,” she told Global News.

“Inevitably, they’re going to have to raise their prices more to continue to try and cover some of the cost increases.”

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Food waste a bad taste

The food industry, along with travel, was one of the hardest hit sectors by the COVID-19 pandemic due to lockdowns and other coronavirus restrictions.

With COVID-19 measures now lifted, inflation has driven up the costs of utilities, insurance and food, and that is making it “nearly impossible” to recover and run a profitable food service establishment, Higginson said.

Inflationary pressures that have made it difficult for Canadians to buy groceries and property and to pay for gas are also affecting how much people are willing to spend at restaurants.

“We also are very aware that the people coming through the door have less money in their pocket to spend … out at a restaurant and making some of these decisions, so that is making the industry very nervous as well,” Higginson said.

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Inflation is forcing restaurants to change or slim down their menus and use cost-effective ingredients. Businesses will also try to maximize the use of affordable food items on the menu.

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“We’re going to see more and more of that over the coming months,” Higginson said.

Meanwhile, there is also a shift toward the use of automation and changes in equipment in the face of acute labour shortages.

“We’re seeing some people make changes to their concepts or make changes to their menus so that they have to have fewer cooks in the kitchen.”

Click to play video: 'How to eat healthy on a budget'
How to eat healthy on a budget

What is driving food prices up?

A report by Dalhousie University, the University of Guelph, the University of British Columbia, and the University of Saskatchewan released in December predicts that overall food prices will increase by another five to seven per cent on average in 2023.

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The report says price hikes will be seen across all food groups but expects vegetables to see the biggest cost increase of six to eight per cent. The cost of eating out at restaurants is set to go up four to six per cent, along with the price of seafood.

“Restaurant prices will continue to increase as businesses contend with rising food costs, rent increases, and labour challenges with the accommodation and food services industry seeing a 46.3% vacancy rate,” the report states.

Grocery prices rose by 11.4 per cent year-over-year in November, according to the latest inflation report by Statistics Canada released on Dec. 21.

Among items seeing the biggest annual price growth were edible fats and oils (up 26 per cent), non-alcoholic beverages (up 19.4 per cent), coffee and tea (up 16.8 per cent) and eggs (up 16.7 per cent).

Click to play video: '‘2023 won’t be much of a break’: Food prices expected to keep soaring in 2023'
‘2023 won’t be much of a break’: Food prices expected to keep soaring in 2023

Food prices soared in Canada last year in part because of the lingering global supply chain problems brought on by the COVID-19 pandemic and Russia’s ongoing invasion of Ukraine.

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Extreme weather conditions have also had an impact as less is being produced with food production disrupted.

For example, drought, heatwaves, flooding and snap freezing in the United States, Canada’s top agricultural trading partner, caused prices for fresh vegetables (up 11 per cent) and fruits (up 8.9 per cent) to rise in the fall, according to a StatCan report published in mid-November.

To encourage customers to eat out, businesses will be leaning on social media, apps and reward programs, Higginson said

— with files from Global News’ Craig Lord and Sean Boynton.

Click to play video: 'Rising food prices and the impact on restaurants'
Rising food prices and the impact on restaurants

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