Dining out is much more common today than was the case with past generations, a trend that has survived the evolution from boom-time spending to debt-financed indulgence. Until now, perhaps.
A new study predicts that cash-strapped Canadians will start cutting back, dampening sales in the food services industry over the next five years.
The Conference Board of Canada report says restaurant sales will see average growth of just 1.4 per cent annually through 2022. That’s a marked contrast to significant growth in the last two decades that saw commercial restaurant industry sales reach $68.1 billion from $31 billion in 1998, outstripping population growth six-fold.
Those increased sales continued despite ups and downs in the economy. More than 70 per cent of Canadians report dining out or ordering takeout food more than a few times a month, spending upwards of $200 each month – our most popular financial guilty pleasure.
Now, even without the minimum wage hikes that have seen restaurant prices increase, soaring household debt looks to be applying the brakes.
Weaker sales growth will increase competition for Canadians’ food dollars. Already facing increased competition from trends such as meal kits, many restaurant operators will be hard-pressed to maintain sales growth. Such an environment will present the largest challenges to full-service restaurants, which not only have the lowest margins within the industry, but have already lost sales to limited-service restaurants over the past two years, the Conference Board reports.
“Canadians’ ability to spend will be squeezed not just by high debt levels, but by rising interest rates that will increase the cost of servicing their debt,” said Michael Burt, the organizations’s director of industrial economic trends. “This will leave Canadians with less disposable income and likely diminish their willingness to dine out.”
If that’s the case, there will be a ripple effect on employment in that part of the service sector, the one area of some growth – albeit poor, often part-time labour – as globalization and automation hollow out the middle class. The Conference Board expects the industry to drop 6,000 jobs by 2019, particularly in Ontario and Alberta, where minimum wage legislation is in play.
In typical business-focused fashion, the organization predicts a “lower headcount, combined with lower food prices, should keep overall cost increases in check,” which will help the industry remain healthy overall.
Leaving aside the McJob tendency and the looming employment crisis – actual unemployment levels are typically three or four times the reported numbers – we have another indication of the perils of mounting household debt that’s maintained the illusion of middle-class lifestyles.
In that vein, we continue to spend, spend, spend … on credit.
Easy credit and low interest rates have fueled the borrowing, but it’s our spending habits that have got the better of us: bigger homes, new cars, electronic toys and so on. Our wants are limitless. Our wallets, not so much.
Worse still, our real incomes and net worth are in decline, meaning we’re borrowing just to maintain the status quo. So, even as household debt climbs relative to our incomes, we had less than we did last year.
More of us are getting caught between falling incomes and growing household debt, which reached an all-time high of almost $2 trillion. Worse still, increasingly the borrowed money is being used to finance day-to-day expenses rather than consumer goodies.
This is no accident, nor is it the result of the financial crisis that began with the meltdowns of 2008, as the middle class has been under assault for more than three decades. The recession and “recovery” that followed the collapse caused by the financial services industry is indicative of the trend: corporate profits and executive bonuses quickly bounced back, while unemployment remains high and those with jobs work longer and harder to tread water.
Increasingly squeezed for cash, we’re resorting to credit for more and more of our purchases, some more in line with necessities than others.
Clearly debt is a problem at the individual level, just as it is with governments. The key to changing the situation rests not only with cuts and austerity – we should, however, be saving for the future – but with seeing actual economic growth that moves us away from a dependence on consumerism as its fuel.
That’s mostly wishful thinking, however, as governments have done nothing to encourage that kind of behaviour. Just the opposite, in fact, given the emphasis on corporate tax reductions, deregulation, mobile capital and a host of other measures that have reduced corporate accountability. Those who call for tax policies to prompt companies to spend accordingly – taxing at a much higher rate profits not put back into productive use, for instance – have been dismissed by the business lobby, which continues to exercise tremendous influence despite the self-made crises.
This kind of bad behaviour is nothing new. Look at the history of automation and productivity gains in industry. They were supposed to bring us a higher standard of living and more leisure time. Instead we got neither. In fact, just the opposite happened. Corporations did in fact make larger profits, but the money was shuffled into the hands of a few and into dubious financial transactions. At first, workers in Canada, the U.S. and other advanced economies were displaced by the productivity gains. Real wages fell as unemployment levels rose, putting more downward pressure on incomes due to the competitive job market. Later, of course, more of the jobs were transferred offshore to low-wage countries, a trend that continues today. The result? More profits, with almost all of the gains concentrated in a few hands.
Governments routinely aid and abet the shift. That the likes of central bankers are making even low-key mention of the inequities means those who’ve created the lower standard of living are taking note of the social unrest that’s starting to bubble to the surface.
In an economy based on consumerism – a problem in its own right – debt-based spending is unsustainable, as is a shrinking middle class. Shifts in our dining habits are just one of the coal-mine canaries visible to those willing to see.