How higher wages and other factors are affecting restaurants

November 13, 2019

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Wages are rising, the unemployment rate is near a record low, and franchise owner/operators are straining to attract and retain top employees. These factors are cutting into profits and creating more challenges in an already highly competitive market for many restauranteurs across Canada.

The minimum wage has soared in a number of provinces over the past few years. This year alone, seven provinces and territories have increased their minimum wage. The largest increase was in British Columbia, which increased the minimum wage by 9.5% to $13.85 an hour from $12.65 on June 1.

The effect of minimum wage

In Alberta, the minimum wage for adult workers jumped nearly 51% to $15 an hour between 2014 and 2019.

In Ontario, the minimum wage rose nearly 37% to $14 an hour over the same five-year period (2014-2019). A further increase of $1 to $15 that was supposed to start this year was scrapped when the Progressive Conservatives came into power in 2018.

These increases are difficult for restaurants to cope with since labour is one of their largest expenses. And while independent restaurants may have some opportunity to raise prices, franchise restaurants often don’t have that option since the franchisor generally mandates menu prices.

Unemployment rates are dropping

Finding and keeping high performing employees can also be difficult for many restaurant owners.

The unemployment rate dropped to 5.4% in May—the lowest level in more than 40 years. In some cities, the rates are even lower. In August, the rate was 2.6% in Quebec City, 3.3% in Victoria, 4.4% in Vancouver, and 5.2% in Regina.

The Conference Board of Canada notes that the “threat of labour shortages [is higher] in blue collar and low-pay services occupations than in more highly educated white collar occupations, the exact opposite of the prevailing trends in recent decades.” Similarly, a British Columbia Restaurant & Food Services Association study found that 39% of Metro Vancouver restaurant operators had annual turnover rates of up to 33%.

The bottom line

Regulated increases in minimum wage rates combined with one of the most competitive labour markets - further exacerbated by intensifying consumer demands - has created one of the most challenging times in recent history to own and run a franchise restaurant.

Optimizing scheduling and improving employee satisfaction are just a couple of the ways restauranteurs should seek to make improvements.

To learn more about these issues and for tips on retaining employees, download BDO’s Franchise Restaurant Report 2019: Owners’ top concerns and trends affecting the industry.