Nearly half of Canada's restaurant owners say they expect profits to worsen this year as labour constraints and uncertainty around federal policies take their toll on diners.
As a result, commercial food service operators will "keep planning in 'defensive mode,' ” Restaurants Canada said in its fourth-quarter Canadian Restaurant Intelligence Report. Restaurants Canada is a nonprofit association that advocates for the country's foodservice providers, which make up the $125 billion restaurant industry and employ nearly 1.2 million people.
“The [financial] strain is coming from every direction — food and labour first, with rent, utilities, insurance, and equipment close behind,” the report said. “Operators are planning [approximately] 4% menu price increases in 2026, but they’re bracing for price sensitivity and shrinking baskets.”
If falling profits leave operators unable to pay rent on their restaurant space, property owners could decide to replace them, brokers specializing in the space said.
The years-long cost-of-living crisis in Toronto is the catalyst for rising household debt and, by extension, dwindling disposable income that could otherwise be spent among the city’s eateries. But the confluence of declining restaurant patronage and the Ontario government’s decision to increase the general hourly minimum wage to $17.60 in October has exacerbated the plight of restaurateurs, said Ori Grad, principal of CHI Real Estate Group, a hospitality-focused team of brokers.
“Whether or not a restaurant has any employees who are paid the minimum wage, the increase pushes everybody’s salary up, from the dishwasher to the chef and everybody in between, but the timing is terrible because it’s coming at a time when people are so cash-strapped that they’re not going out to eat — and don’t forget those empty tables make seemingly small items like a single glass of wine more expensive just to meet overhead costs,” Grad told CoStar News in an interview.
Closings expected to continue
With the recent decline in patronage, Grad said he’s seen restaurants closing throughout the city and expects the trend will continue.
Some restauranteurs are missing out on the opportunity to try and sell their business, he said. They should try to get out before "they're behind in rent and the landlord is going to start taking action."
Moreover, he said, “If restaurants are already struggling because their customers are disappearing and their operational costs, including buying the food they cook, serve and sell, is going up, the numbers just don’t work.”
Despite this, some chains, including United States-based Shake Shack and Freddy’s Frozen Custard & Steakburgers, are planning to expand their number of outlets in Canada.
Price sensitivity is, indeed, proving troublesome for Canadians. Equifax Canada, part of the global credit agency based in Atlanta, said the number of missed credit card payments rose again during the third quarter of last year, as 1.45 million consumers defaulted on a payment — an increase of 46,000 from the second quarter.
Good restaurants still do really well
“Earlier this year, we saw tentative signs of stabilization, however third-quarter data indicated some renewed stress, especially in younger households and homeowners in urban centres,” said Rebecca Oakes, vice president of advanced analytics at Equifax Canada, in a statement. “The holiday season is a time when credit card spending typically rises $300-$500 per consumer and previous Equifax data shows that missed card payments increase by roughly 7% come January. Spending over the next few weeks will be a decisive moment for many consumers in Canada.”
Despite higher sales last year, six in 10 restaurant operators reported weaker profitability than in 2024, "as rising food, labour, and overhead costs continue to compress already-thin margins," the association said in its report.
However, not all restaurants are in the doldrums, added CHI Real Estate Group's Grad. Restaurants with exceptional concepts or that are known as top eateries in the city have managed to stay afloat, even thrive, he said.
“Where the restaurant scene in Toronto is right now, you just have to do it better than everybody else,” Grad said. “People have higher expectations. You’ll still see that good restaurants are doing really, really well. If they have a Michelin Star, you can hardly ever get a spot at them. That’s also because they cater to a higher-end clientele who’s not really rattled by macroeconomics."