RESTAURANT OUTLOOK SURVEY

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1 Reference Period: Third Quarter 2014 RESTAURANT OUTLOOK SURVEY Prepared by Chris Elliott, Senior Economist October 27, 2014

2 Restaurant Outlook Survey Third Quarter 2014 Highlights Nearly four in 10 operators reported higher same-store sales in Q3. The share of operators reporting lower same-store sales fell to 25% -- a record low. Operators are cautiously optimistic about the future as 36% expect their sales to accelerate over the next six months. This compares to just 16% that expect sales to decelerate. Due to rising meat prices, food costs was the number one issue having a negative impact on operators. The share of operators reporting a shortage of skilled labour jumped to 38% in Q3. This was most acute in British Columbia and Alberta where 63% of operators reported either a shortage of skilled or unskilled workers. For the second consecutive month, four in 10 respondents reported higher same store sales in Q3. This share also matches the share that reported higher same-store sales in Q Another 36% reported their same-store sales were about the same in Q3 compared to a year ago. There was a significant improvement in operators reporting lower sales. In Q3, 25% of respondents reported lower same-store sales compared to 38% in Q1. This is the smallest share since Restaurants Canada began the Restaurant Outlook Survey in By segment, 42% of tableservice restaurants reported higher same-store sales in Q3. This is up from 37% in Q2 and 25% in Q1. In contrast, reported lower same-store sales. 1 The share of quick-service restaurants that reported higher same-store sales slipped from 42% in Q2 to 36% in Q3. Thirty-eight percent of all other foodservice, which includes accommodation, caterers and drinking places, reported higher same-store sales in Q3. September was the strongest month in Q3 as 47% of operators reported higher same-store sales. Looking ahead, 36% of operators expect same-store sales to accelerate over the next six months. This is relatively unchanged from Q2. Although the share of operators that expect sales to decelerate over the next six months rose slightly from 14% in Q2 to 16% in Q3, this share remains at an all time low. This suggests that operators remain confident about the future. Nearly four in 10 operators reported higher same-store sales in Q3. Nearly four in 10 respondents expect their same-store sales will grow at a greater rate over the next six months. 4 39% 36% 4 36% 25% Lower Greater rate Lesser rate 16% Q: In the third quarter of 2014, was your total sales volume (on a same-store basis) higher, lower, or about the same versus the same period one year ago? Q: Over the next six months, do you expect your total sales volume (on a same-store basis) will grow at a greater, lesser, or about the same rate as the previous six months?

3 2 Growing signs of an improving economy in the second half of 2014 and into 2015 are likely driving this optimism. TD Economics is forecasting Canada s real GDP will grow by 2.7% in 2015 following a 2.4% expansion in Thirty-six percent of quick-service respondents expect sales to grow at a greater rate compared to 16% of operators that expect sales to decelerate over the next six months. Similarly, 35% of table-service restaurant operators expect sales to accelerate over the next six months compared to that anticipate a deceleration in growth. While 38% of all other foodservice operators expect sales to accelerate over the next six months, more than half anticipate growth will remain at about the same level. Only 11% of respondents expect their sales to decelerate. The share respondents reporting higher average food costs moderated slightly in Q3 of Q: In the third quarter, were your average food costs higher, lower or about the same as the third quarter of 2013? Half of operators surveyed plan to raise their menu prices over the next six months % 24% Food Costs and Menu Prices 4 47% The share of operators reporting higher average food costs slipped slightly from 7 in Q2 to 67% in Q3. Nevertheless, a number of operators reported a sharp increase in meat prices. Indeed, the latest consumer price index data from Statistics Canada show that prices have jumped for beef (+13.3%) and pork (+14.5%) in July and August compared to a year ago. Prices for fresh fruits and vegetables, however, moderated in Q3 following strong gains in the first half of the year. The average operator reported a 3.7% increase in their overall food costs on a year-over-year basis. This compares to a 2.6% increase in Q Despite the recent jump in food and labour costs, the share of operators that plan to raise their menu prices slipped for the second consecutive quarter to. Q: Over the next six months, do you expect your menu prices to be higher, lower, or the same as the previous six months? A nearly equal share (47%) plan to maintain their current menu prices. The share of table-service restaurants that plan to raise their menu prices dropped from 65% in Q2 to 53% in Q3. While 45% of quick-service restaurant operators plan to increase their menu prices, the majority (52%) plan to maintain their current menu prices.

4 3 Employment Twenty percent of respondents plan to hire more employees over the next six months while another 58% plan to maintain their current employment levels. These results are consistent with the hiring outlook in Q Historically, the hiring outlook is positive in Q1 and Q2 due to an increase in seasonal workers during the summer months and turns negative in Q3 and Q4. Twenty-three percent of quick-service restaurant operators plan to raise their employment levels over the next six months compared to 14% of table-service restaurants. Factors Impacting Business Six in 10 operators cited food costs as the biggest issue impacting their business. While prices have moderated for fresh fruits and vegetables, beef and pork prices have climbed sharply in recent months. Rising food costs is the number one issue for quick-service restaurants, having a negative impact on twothirds of operators. Labour costs where the second most significant issue, impacting nearly six in 10 operators. A shortage of skilled labour had a negative impact on nearly four in 10 operators the highest share since Restaurants Canada began the Restaurant Outlook Survey. A shortage of unskilled labour impacted of operators. Credit card merchant fees had a negative impact on of table-service restaurants compared to 18% for quick-service restaurants. With the economy showing signs of improvement, the share of operators citing a weak economy dropped to 33% in Q3 compared to 43% in Q Six in 10 restaurant operators plan to keep their employment level about the same over the next six months Lower Q: Over the next six months, is your company's level of employment expected to be higher, lower, or about the same as the previous six months? After a challenging start to the year, bad weather had a negative impact on 25% of operators in Q3 compared to 59% in Q1 and 33% in Q2. Cool temperatures and wet weather in many parts of the country curtailed business for 36% of operators in July, but only 15% of respondents in September. Weak customer demand and rising gasoline prices had a negative impact on 19% of operators in Q3, down from 32% in Q2. Liquor costs had a negative impact on 23% of table-service operators and 18% for all other foodservice. The share of operators that reported a decline in tourists fell to 18% in Q3 compared to 29% in Q This corresponds with a general increase in the number of international visitors to Canada over the summer. Total international visitors rose by 1.6% in Q3 as a decline in American visitors was offset by a sharp increase in non-american travelers. 58% 22%

5 4 Food and labour costs are the biggest challenge for restaurant operators. Food costs Labour costs 59% 57% Shortage of skilled labour Credit card merchant fees Weak economy Shortage of unskilled labour Bad weather Gasoline prices Weak customer demand Decline in tourists Liquor costs Sales taxes 38% 35% 33% 25% 19% 19% 18% 17% 15% No factors 5% Q: What factors, if any, are currently having a negative impact on your business? About the Restaurant Outlook Survey The responses for the third quarter are compiled from a monthly to restaurant operators inviting them to take an online survey. The survey covers the reference periods July, August and September In total, 227 completed surveys were submitted for the third quarter, representing 9,560 establishments. Results of the survey are considered accurate within +/- 6.6 percentage points 19 times out of 20. The margin of error will be larger within subgroupings of the survey. Future editions will provide an ongoing index of business performance and expectations that will help restaurant owners, suppliers and policy makers in their business planning and analysis. We encourage restaurant operators to participate in the Restaurant Outlook Survey to ensure results continue to be representative of our industry. About Restaurants Canada Since its founding in 1944, Restaurants Canada has grown to represent 30,000 businesses in every segment of the foodservice industry, including restaurants, bars, clubs, cafeterias, and contract and social caterers. Through advocacy, research, member savings and industry events, we help our members in every Canadian community grow and prosper. Contact: Restaurants Canada 1155 Queen Street West, Toronto, Ontario M6J 1J4 Tel: (416) or Fax: (416) info@restaurantscanada.org Web Site: