Restaurant Prices Outpace Groceries Amid Business Struggles


Restaurant price inflation has surpassed grocery inflation for several months, indicating ongoing challenges for business owners, according to Restaurants Canada.

Kelly Higginson, president and CEO of Restaurants Canada, noted that restaurateurs initially hesitated to pass on increased costs to customers. However, as pressures mounted, many were left with no choice but to adjust their pricing.

While grocery inflation slowed to 1.9% in March compared to a year ago, food prices at restaurants rose by 5.1% during the same period. Fast food and take-out restaurants experienced the highest price increases, with a 6.4% jump in March compared to a year earlier.

Restaurant owners are facing various inflationary pressures, including rising insurance and labor costs, as well as higher interest rates. Many emerged from the pandemic with significant debt, making it challenging to manage expenses.

Despite the need to increase menu prices, restaurant owners have been cautious, especially during the post-pandemic recovery period when the focus was on rebuilding the industry and attracting customers back to dining establishments.

Inflation trends have shifted, with food prices at restaurants consistently higher than grocery inflation since the second half of 2023. This reversal has persisted, with restaurant inflation remaining above 5% while grocery inflation has moderated.

The restaurant industry has been deeply impacted, with almost two-thirds of establishments operating at a loss or breaking even. Bankruptcies in the sector reached a decade-high figure last year, highlighting the financial strain faced by businesses.

Weak sales, driven by consumer reluctance to spend amid rising costs, have contributed to the industry’s challenges. Despite the upcoming patio season potentially boosting sales, many businesses are still struggling to improve margins amid ongoing inflationary pressures.

Restaurant prices were among the top contributors to overall inflation in March, alongside mortgage interest, rent, gasoline, and car insurance premiums.

While grocery inflation has declined in recent months, it may not provide immediate relief to consumers. Rising food prices over the past few years have become a significant burden for households, prompting them to seek value-oriented options such as discount stores and private-label products.

In response to consumer demand, major grocery chains have expanded their discount offerings, but the impact on household budgets remains significant. Shoppers are expected to continue seeking value and cost-saving strategies in the face of persistently high food prices.

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