Restaurant price growth will be slower than expected this year: report

Restaurant costs for 2020 will be much lower than initially forecast as consumers spend more of their dining-out budgets at grocery stores instead, according to an updated food price report that predicts annual restaurant sales will be slashed in half.

"It all comes down to ... the result of people having to change the way they buy and consume food," said Simon Somogyi, a University of Guelph associate professor who co-authored the report with Dalhousie University professor Sylvain Charlebois.

The COVID-19 pandemic has seen restaurants across the country close or shift to delivery and pick-up models amid efforts to contain the COVID-19 pandemic. Sales plummeted at many restaurants.

"The food industry is being decimated as the result of COVID-19," the report reads.

The initial report from researchers at the two universities anticipated restaurant prices would jump between two to four per cent in 2020, but that has now been revised downward.

Researchers didn't provide a new percentage range because they can't do so with total confidence in a rapidly changing environment, Somogyi said.

Menu prices will drop

Restaurants typically generate more than $90 billion in annual sales, but the researchers expect $40 billion to $50 billion of that will shift to grocery stores throughout the pandemic. Grocery stores have seen unprecedented demand as the pandemic spread with consumers stockpiling cleaning supplies, toilet paper and food.

Menu prices should "drop significantly" thanks to substantial disruption in the sector, according to the report.

Restaurants may have to become more competitive with pricing, said Somogyi, as full-service establishments compete for a chunk of consumers' take-out budgets with fast-food eateries, like pizza chains.

"They're going to be creeping over to that category of food service. It's going to be more competitive," he said.

People will return to restaurants

However, its unlikely this shift from food-service spending to grocery stores will be lasting, said Somogyi, though it depends on how long physical distancing recommendations are in place.

"I don't see it being a massive impact long-term," he said.

When the pandemic subsides and restaurants reopen, Somogyi noted, people may be keen to return dining rooms.

"And then, there's a flood away from purchasing at home and into restaurants."

Despite the demand grocers are experiencing now, Somogyi pointed out they're also facing new cost pressures, such as increased sanitation practices, labour to address a surge in online orders and bonus or additional hourly pay for store employees.

Overall, the report still expects total food and grocery costs to remain steady with a jump of four per cent at most for the year, with bigger than previously predicted increases in vegetable and bakery costs.

The December report anticipated a rise of up to two per cent in bakery costs and a range of between two and four per cent in vegetable prices.

Dairy, fruits, meat and seafood remain unchanged though the report notes fruit prices may slightly decrease in the summer.