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Profits improve, but operators stung by higher labour costs
By Chris Elliott, CRFA economist
Apr. 29, 2010
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It’s hard to get excited about 0.4 cents when most people won’t pick up a penny lying on the street. But in an industry that operators on razor-thin margins, foodservice operators will gladly take any increase in profitability.
For every dollar spent at a commercial foodservice establishment in Canada, pre-tax profit was just 4.4 cents in 2008, up from 4.0 cents in 2007, according to the latest Statistics Canada data. The average foodservice unit had $610,765 in sales with a pre-tax profit of $26,870.
Total profits in the commercial foodservice industry improved from 2007 to 2008 as a 6.2% growth in revenue offset a 5.8% increase in expenses.
Labour costs, which account for one-third of operating expenses, jumped 9.0% in 2008 following an 8.9% increase in 2007. Higher minimum wages are largely behind the rise in labour costs. Since 2001, total labour costs have soared 53%, outpacing the 37% increase in operating revenue over the same period.
Although all segments posted a higher profit margin in 2008 compared to 2007, profitability for most segments remains below 2001 levels.
(See Figure 1 graph)
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Profitability by province
Saskatchewan and Alberta are the most profitable provinces to operate a foodservice establishment for the second straight year, with pre-tax profit margins of 6.6% and 6.5% respectively. In contrast, Ontario is the least profitable due to sluggish foodservice sales growth and above-average rental and leasing costs.
(See Figure 2 graph)
The full Statistics Canada report with detailed operating expense ratios and CRFA’s 2010 Foodservice Operations Report are both tentatively scheduled for release in mid-May.
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Figure 1
Figure 2
This month’s economic insights brought to you by CRFA economist Chris Elliott.
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