Back in September 2019, news headlines were a buzz with ominous headlines of a potential recession or global economic downturn. The number of times the word “recession” was entered into Google’s search engine jumped to its highest level since the great recession of 2008. This, of course, struck fear in the hearts and minds of consumers, with Canada’s consumer confidence index in October 2019 tumbling to a 33-month low. Businesses may also have been anxious as net employment plummeted by 71,000 jobs in November—the largest monthly decline since the recession.
Fast forward a few months later, and there is no sign that we were in a recession; nor are there any immediate indications that one is on the way. Still, we know a recession is lurking somewhere in the shadows as it’s been more than 10 years since the end of the last recession.
All of this recession talk is like chasing phantoms in the dark: what seems real one moment, quickly fades the next. I had a similar experience on my recent trip to one of the “most haunted” houses in America: The Whaley House in Old Town San Diego. Walking around with cameras in hand, people go through looking for any signs of a haunting, no matter how subtle. Sometimes, and I witnessed this several times, people scared themselves with their own shadows.
As we look for signs of a recession and imagine the impact on Canada’s foodservice industry, is what we are seeing in the data real, or are we just scaring ourselves with imaginary shadows?
A look back at foodservice sales in 2019
Given that the foodservice industry averaged 5.6% nominal growth between 2014 and 2018, a slowdown in foodservice sales was inevitable. Nevertheless, sales in the first half of 2019 were restrained by frigid temperatures in Q1, followed by a damp and cold spring that delayed the patio season in Q2. Then in Q3, foodservice sales decelerated to a tepid 2.5 per cent growth, representing the weakest increase since Q1 2013. As a result, annual commercial foodservice sales in Canada slowed to a projected 3.6 per cent growth in 2019—the slowest pace of growth since 2011.
The current slowdown in foodservice sales is not new to those in the retail world. After a robust 7.1 per cent increase in 2017, total retail spending sales slowed to 2.9 per cent growth in 2018 and were projected to finish the year with a tepid increase in 2019.
Consumers haunted by record high debt
In late September 2019, BDO Canada released a survey that found that 53% of Canadians are living paycheque to paycheque and 27% do not have enough to cover their needs. Three in ten have delayed paying off their credit card balances because they can’t afford it. Looking ahead at retirement, the same study also found that roughly three in ten Canadians (including boomers and seniors) have no retirement savings. With households under significant financial pressure, consumers will be seeking value when they dine out.
Economic outlook remains calm
It isn’t all doom and gloom though. The Conference Board of Canada is predicting that Canada’s economy will grow by 1.8% in 2020 and a further 1.9 per cent in 2021. During this time, the economy is not expected to see any contraction in activity, which is a positive sign.Canada’s job market remains resilient, despite a significant setback in the jobs data in November 2019. Following several years of strong gains, net employment is forecast to slow to a more sustainable pace in 2020 with the creation of 148,000 jobs. The unemployment rate is forecast to fall to an average in 2020, the lowest level in more than 44 years.
The outlook for foodservice sales in 2020 and beyond
In 2020, commercial foodservice sales are forecast to grow by 4.0% to $77.5 billion. Economic uncertainty, lower consumer confidence and high household debt have led to a notable slowdown in overall consumer spending, which will continue to impact both foodservice and retail sales. On a positive note, Canada’s foodservice industry will benefit from an extra day in February due to the leap year. Over the long term, foodservice sales will advance by an average of 3.8% over the next four years, a noticeable deceleration from the average 5.3 per cent gain of the previous four years.
To find out what’s in store for Canada’s foodservice industry by segment and by province, download a copy of the 2019-2023 Foodservice Industry Forecast from Restaurants Canada’s member portal.