4,000 restaurants in Canada predicted to go out of business in 2026: forecast

While Canada's restaurant industry rebounded after the pandemic - thousands are expected to go out of business as more consumers rein in their spending.

Canada’s restaurant industry is under stress and with inflation and rising food prices, more diners, pubs, and eateries are closing their doors.

Last year, 7,000 restaurants went out of business, according to a new study from Dalhousie University.

“In the last couple of years, it’s been extremely difficult for restaurants in general,” said Sylvain Charlebois, director of the Dalhousie University Agri-Food Analytics Lab.

The university is now projecting that another 4,000 restaurants will go out of business in 2026.

According to Charlebois, consumers are becoming more frugal with their food budget.

“If they do dine out, they’ll dine in at home to avoid the tips and an expensive bottle of wine and things like that,” said Charlebois.

Along with the rising food prices and inflation, Restaurants Canada also blames increasing costs for rent, insurance and wages.

According to the organization, 41 per cent of restaurants are operating at a loss or barely breaking even, but they are trying to keep their prices low because they know customers are watching their budgets.

• READ MORE: Restaurants are under pressure as consumers steer away from dining out

“There is an affordability challenge for Canadians right now. There is less discretionary spending, so less discretionary spending means pulling back on restaurant spending,” said Kelly Higginson, president and CEO of Restaurants Canada.

From December 14, 2024, to February 15, 2025, Ontarians enjoyed a two-month GST/HST tax break on restaurant meals, prepared foods, snacks, and some alcoholic beverages.

Restaurants Canada is advocating for the tax break to be brought back and made permanent.

“Let’s remove the GST off of food at a time when we are facing an issue with affordability, especially with the cost of living. Why are we taxing food? That is poor public policy,” Higginson said.

Charlebois also agrees and told CTV News he believes taxes on all food should be eliminated.

“I would say we need to eliminate taxes on all foods, no matter where it’s consumed,” Charlebois said.

Another reason restaurant sales are seeing a downturn is that Canadians are drinking fewer alcoholic beverages, with retailers across the country recording a 10.6 per cent drop in alcohol sales in October.

Charlebois added that another blow to restaurants comes from some customers who are frustrated with tipping practices. He said many don’t mind tipping in sit-down restaurants; however, they feel annoyed when asked to tip, especially in fast food outlets, when they order at the counter.