The beginning of 2020 was looking like a continuation of the trends established late in 2019. The economy had begun to slow in the back-half of 2019, consumer confidence took a tumble in December, and the household debt service ratio continued to rise. GDP was expected to remain positive through the new year, but growth was slowing. This trend of continuous but slowing growth is evident in the Canadian foodservice long-term dollar trends as well. NPD’s CREST® data shows foodservice dollar growth in the winter quarter (December 2019 to February 2020) hit a modest +2%, which was the same level of average eater cheque growth. This translated into flat traffic for the quarter. It was the first non-growing quarter in recent memory.
Tracking The Pandemic: Historical Trends
This slowdown can be largely attributed to low growth of +1% in traffic visits within the dominant quick service restaurant (QSR) market segment. Meanwhile, the full service restaurant (FSR) segment grew through the year and finished off the full year almost +3% ahead of the prior year in traffic. But keeping up the trend of slowing growth, this, too, was below recent years’ performance.
One of the key factors influencing this softness in QSR was a slowdown in morning meal growth. This had long been a traffic driver for coffee-loving consumers in Canada, and the top operators in this space competed intensely for incremental share of this once-growing daypart. However, 2019 also saw the continuation of the negative trend in ‘consumed at work’ occasions, down by -2% on the year. The work-from-home migration began long before 2020, and it caused a growth slowdown in the two largest dayparts, morning meal and lunch. Many of the influencing factors above would come to define the foodservice industry performance as the events of 2020 unfolded.
The Foodservice Industry Goes Into Lockdown
When the COVID-19 situation threw the Canadian economy into shutdown in mid-March, the restaurant industry was impacted immediately and hard. The shutdown devastated restaurant traffic. In April, NPD recorded a -43% decline in restaurant visits. By the end of October, the decline had been cut in more than half, marking some hope for an eventual recovery, but much work remained.
The early days of the COVID-19 pandemic saw a rush on groceries as people stocked their pantries, freezers, and refrigerators with essential supplies. The NPD Group’s Retail Tracking Service shows they also equipped their kitchens with all of the latest gadgets and appliances, such as multi-cookers, grills, bread machines, and coffee makers. And yet, they continued to turn to the foodservice industry for some of their meals and snacks, sustaining some of their old habits while also forming many new ones that are reshaping the industry.
New Habits Take Shape
The two immediate trends that emerged during the lockdown were the shift to off-premise traffic occasions and a surging reliance on digital ordering platforms. During the first eight months of the COVID-19 period, off-premise access modes accounted for 84% of all restaurant occasions. The largest shift in off-premise traffic was at drive-thru windows. This resulted in long lineups as operators struggled to adjust to the increase in customers, plus an increase in order sizes as more and more family-sized orders went through the window. Operators with the best-developed drive-thru infrastructure outperformed the rest of the market during this time.
While drive-thru grew most when looking at visits, delivery was the fastest-growing access mode. Delivery doubled six months in a row versus the prior year, reaching as high as 14% of foodservice traffic in April. This shift to delivery has been a boon for third-party delivery service providers. Further, it has helped many operators, some of whom never served an off-premise meal before, survive during the early days. It also became the basis for a series of community-driven events encouraging Canadians to support the restaurant industry by ordering delivery and/or take-out meals from their favourite local restaurateurs. This support encouraged many restaurants to reopen just to service these off-premise customers, helping to bring in a bit of income while they waited for the all-clear to welcome customers back on premise.
No discussion on delivery is complete without a discussion of digital ordering. These orders, placed on mobile devices or otherwise, accounted for almost three-quarters of all delivery orders during the eight months ending October 2020. Delivery and total digital ordering were two of the most influential trends of the past several years. The events of 2020 accelerated this trend into the stratosphere.
Digital share of foodservice orders had more than tripled from a rate of about 5% in January 2020 to 17% in April 2020. By the end of October, it had settled in at about 14% share. This represents several years of growth in just a matter of months. Along with digital ordering came cashless payments. Cash dropped from the most popular payment method to the third most popular method. Credit and debit cards combined now account for two-thirds of all payments.
Old Habits Carry On
With the disruption in consumers’ daily routines, it should come as no surprise that the morning meal daypart has been heavily impacted by COVID-19. As mentioned previously, growth at this largest daypart already had begun to slow through 2019. And yet, morning meal continues to be the largest daypart. It seems Canada’s consumers love their coffee and their morning rituals even more than expected.
Where Do We Go From Here?
The duration and depth of COVID-19’s impact on the Canadian economy at large, and the foodservice industry in particular, will remain uncertain for the foreseeable future. But one thing is clear: The trends that existed prior to this period and accelerated through 2020 can be expected to continue into the future. Key trends include digital ordering, offering deals, delivery, and the design (or redesign) of future restaurants.
COVID-19 has changed the Canadian foodservice landscape forever. In just a matter of months, this crisis has eliminated years of growth and facilitated a decade of evolution. But consumers in Canada love their restaurants and are eager to return. They love hanging out with friends and family to enjoy the experience, the atmosphere, and the food. These are all things no home-cooked meal can replace. As soon as they feel safe and have the means, people will return to restaurants in one way or another. And with the vaccine officially approved in Canada, let’s all hope that day comes sooner than later.