Inflation, staff shortages mean bumpy road to recovery for most restaurants in Canada

What it takes to be a Michelin star restaurant Nick Di Donato, President and CEO of Liberty Entertainment Group, talks about what a Michelin star means for Don Alfonso 1890.

More than two-and-a-half years now since the pandemic began, restaurants are on a bumpy road to recovery thanks to high debt levels, rising expenses, and low profitability among other pressures, according to a new report by Restaurants Canada.

From the pandemic lockdowns to rising food costs, and now staffing shortages, Canadian restaurants are facing multiple headwinds.

“While nominal sales are expected to return to pre-pandemic levels before the end of the year, traffic still remains below what it was before,” said Christian Buhagiar, president and CEO of Restaurants Canada – a national, not-for-profit association. “Restaurant operators are struggling financially, with half of our operators operating at a loss or just breaking even.”

The association’s 2022 edition of its annual “Foodservice Facts” shows that pandemic-incurred debt may wipe off any profit margins enjoyed by restaurants. According to a survey, 85 per cent of independent full-service restaurants took on new debt due to COVID-19. Restaurants are also facing rising costs due to inflation and staff shortages.

Restaurant owners who spoke with CTVNews.ca say the story the restaurant association is telling through its guide is an accurate reflection of what they’re experiencing on the ground.

Michael Angeloni, the executive chef and operating partner at Open Concept Hospitality (OCH), told CTVNews.ca that his restaurant locations are yet to operate at pre-pandemic levels.

OCH runs nine locations— including Amano Trattoria, Mikey’s smash burgers, and Union Chicken at Union Station in Toronto. Angeloni, also a chef and owner of Amano Trattoria, said none of the establishments are at 100 per cent capacity.

“We just aren't seeing the same numbers as before the pandemic,” he said in a phone interview.

Some of the restaurant locations were driven heavily by tourism and businesses from the offices in the downtown core. But after lockdowns and pandemic closures, many are yet to come back to full swing.

With fewer corporate bookings and corporate lunches, restaurants are feeling the pandemic pain. Angeloni says the most popular location, Union Chicken at Union Station, is seeing 70 per cent foot traffic. Amano, meanwhile, the first sit-down restaurant to launch in the renovated Union Station, is currently at 50 per cent capacity.

Huy Tran, National Director of Marketing at Aburi Restaurants, said their restaurant locations have not reached 2019 levels.

One of the restaurants operating under Aburi, Aburi Hana is a Michelin one-star Japanese restaurant in Toronto. Aburi has two locations in Vancouver, B.C., and four locations in Toronto.

In Canada, Aburi’s most popular location is Vancouver, which is roughly working at 80 per cent capacity.

Tran told CTVNews.ca that a big reason was because of the low tourism levels during the pandemic and people working from home. But, he said, the restaurants are efficiently strategizing by proactively partnering with third parties to ensure more foot traffic.

RISING FOOD COSTS AND SUPPLY CHAIN

Foot traffic has been an important metric for indoor dining restaurants but the recovery has been complicated by the looming recession, and costs adding up.

According to Restaurant Canada, average quick-service restaurant menu prices were up 6.7 per cent and full-service restaurant menus were up by 6.5 per cent.

Meanwhile, the costs associated with some of the most important ingredients are rising for many restaurants.

Angeloni says oil—a key ingredient at Union Chicken—has seen a huge surge.

“Four years ago, it would cost us $19 and now it is $43.”

Restaurants are trying their best not to pass on the high costs to the customers by making minimal changes to their current menu prices. But to stay at the same price is an uphill battle.

Angeloni says that it's difficult to double the prices because often it's hard for consumers to understand where it’s hitting the restaurant.

Restaurants are getting creative and finding new ways to ensure they don't bump up the prices too high.

“We’re finding ways to become more efficient, such as bringing in more ingredients as a whole and breaking them down at a cheaper cost,” said Angeloni. He says a lot of changes have been made in the marketing strategies of the restaurant and they are now pouring more money into social media marketing campaigns and looking at different ways to drive traffic.

For Aburi restaurants, this means connecting proactively with different partners. The restaurant recently partnered with Toronto International Film Festival to attract more customers.

A shift in strategy that relies on local ingredients rather than waiting on shipments from Japan seems to be also working for the restaurant.

STAFFING SHORTAGES

Another hurdle in the restaurant recovery has been labour vacancies. Even though food service remains one of Canada’s top employers, the numbers lag behind other industries.

Tran says staffing shortages have been an ongoing challenge and it has become hard to maintain staff, which includes training costs.

Angeloni says staffing shortages have been a roadblock and everybody he knows in the restaurant industry is going through it.

“Before the pandemic, we had a staff of 300 employees but now there are only 170,” said Angeloni. “There’s a real lack of staff and people who want to work.”

Before the pandemic, there were foreign exchange students who were using restaurant jobs as a side gig but that changed during the pandemic.

“They have either moved back home or moved in with their parents or are focusing on their careers, which was their main choice,” he said.

Angeloni has been working seven days a week—from nine a.m. until one in the morning.

“Because I don’t have anybody else to do it,” he added.

Angeloni, however, said he’s hopeful that things will get back to normal. He says he sees traffic picking up on trains and highways and remains optimistic that by October and November this year, restaurant capacity will pick up.

“I think by the end of the year, we’ll be in a better place,” he said.