FAST-FOOD DINERS EAT UP MARKET AFTER FLAT 2016
Full-service restaurants ‘getting hammered’
Canada’s restaurant sector TORONTO is expected to remain flat in 2017 after a tepid 2016, and that doesn’t bode well for full-service dining establishments, which continue to lose ground to their fastfood counterparts.
Overall restaurant customer traffic will remain stagnant this year, according to market research firm NPD Group, following a flat 2016. Quick-service restaurants, characterized by players such as Tim Hortons and McDonald’s, will see a one per cent rise in customer visits, while traffic in the lagging full-service sector will fall two per cent.
“The full-service, casual-dining segment is still getting hammered in Canada,” said Robert Carter, executive director of food service at NPD Group. “Consumers continue to spend a little bit when they go out, but all of (the growth) is taking place in that quick-service segment.”
While traffic was also flat in 2016, overall dollar sales at restaurants rose two per cent to $51 billion. In 2015, dollar sales were $50 billion, a one per cent increase over 2014.
The biggest full-service casualties came at independent restaurants, with a record 2,047 restaurant units closing in 2016, according to NPD.
But big, full-service restaurant operators did not fare much better: Cara Operations Ltd., owner of multiple chains including Swiss Chalet, St. Hubert and Milestones, said sales at its restaurants open for more than a year fell 1.2 per cent in the 39 weeks ended Sept. 25, 2016, compared with the same period a year earlier.
At Boston Pizza, year-to-date same-restaurant sales as of Sept. 30 grew just 0.7 per cent. Both restaurant companies noted an impact from weak sales in Western Canada, hit by an economic downturn.
By category, quick-serve restaurants accounted for 51 per cent of restaurant dollar sales in 2016, and full-service restaurants accounted for 42 per cent of dollar sales.
Before the 2008 recession, fullservice restaurants had a share above 50 per cent. The remaining seven per cent of dollar sales in 2016 were in the growing “home meal replacement” category, as grocery stores and convenience stores continue to expand their takeout meal options.
“At full-service restaurants we are not seeing the menu innovation that we are seeing in quick-service restaurants,” Carter said, noting smaller restaurant chains such as Cactus Club, Browns Socialhouse, Moxie’s and Joey’s had been outperforming the rest of the fullservice segment. “But even their traffic gains are not comparable to the quick-service segment.”
While consumers eschew fullservice family restaurants for quick-service options, the biggest growth in the latter is coming in the breakfast category.
The analyst also noted quickserve chains have been more forward-thinking than full-service establishments when it comes to digital options, allowing customers to order and accrue loyalty points through mobile apps. “We know that when consumers order through an app they tend to spend more money,” Carter said.
In such a climate, companies such as McDonald’s have tried to innovate by adding digital ordering options and customizable menu items. The chain is also testing allday breakfast at a handful of Canadian restaurants, a move generally followed by a full-scale rollout.
Loblaw, meanwhile, has outfitted its mid-sized food stores with an enhanced section for ready-to-eat meal options, offering soups, salads, sushi, pasta dinners and other entrees. Grocery chain Metro has also focused on improving its takeout meals section, a strategy furthered by its 2011 purchase of the ethnic food retailer Marche Adonis, which has large fresh-meal counters that sell items such as hot sandwiches and Middle Eastern pastries.
Grocery stores have been upping their assortment of fresh food and home meal replacement dishes as data shows consumers continue to reduce the number of minutes they spend on preparing meals at home, Carter said.
“Those factors should be good for the restaurant industry, because it suggests that the convenience factors are drivers for consumer consumption,” Carter said. “But when we look at the evolution of grocery stores, we see fresh food and readyto-eat areas increasing, and those are all geared to take more of the food service dollar.”
Consumers continue to spend a little bit when they go out, but all of (the growth) is ... in that quickservice segment.