Canadians are increasing their consumption of meals outside the home. The average household spends nearly $2600 on food purchased from restaurants, which is an increase of more than 17 per cent increase in four years. Franchisees also have an established customer base and this is good news for restaurant owners.
However, there are a number of issues affecting operations. This includes an increase in the cost of labour, digital disruption, new competition, and more. There are also a number of other day-to-day business challenges, such as maintaining positive cash flow, attracting and retaining workers, and dealing with issues related to bookkeeping and payroll.
The operational challenges
Labour is one of the biggest expenses for a franchise restaurant. Minimum wage has soared in a number of provinces and territories between 2014 and 2019 (more than 50 per cent in Alberta and nearly 37 per cent in Ontario).
Employee turnover is another issue. In some restaurant positions, however, the annual staff replacement rate can be as high as 300 per cent. Further, a strengthening economy in many parts of the country is making it difficult to retain workers or fill certain roles.
Those high turnover rates in the restaurant industry can affect payroll. Every time an employee leaves, a record of employment (ROE) needs to be issued promptly. Statement of remuneration paid (T4) season is also tougher for restaurants than many other industries because of seasonal employees and taxable benefits can differ. Payroll legislation and rules are constantly changing, which can make it difficult to stay up-to-date.
Bookkeeping is another problem for franchise restaurant owners, especially if they do it themselves or they do not have a dedicated clerk. Accounting for sales from a franchisor’s app is simple, but the emergence of third-party food delivery apps has made this even more complex and difficult.
Disruption and trends
Food delivery apps are here to stay. While they can increase a restaurant’s customer base and reduce costs because drivers do not need to be hired, there are also some negative aspects. Once the order leaves, it is now in the hands of another party. This means the food quality can no longer be controlled. Also, commissions on these programs are high and can be upwards of 35 per cent (in some cases) which can put a big dent in profit margins.
There are also changing trends in eating and drinking. Canadians are consuming less beef, corn, and soft drinks; they are eating more chicken, turkey, and rice; countrywide, people also want to eat healthier and care more about where their food comes from, and have a variety of dietary restrictions.
Millennials and a more diverse population are the driving force behind some of Canada’s changing habits. Younger Canadians are eating less meat and demanding plant-based options. Ethnic food chains are also popping up across the country to cater to the growing population of multicultural Canadians.
American retailers tend to move north when they expand outside of the United States. The same can be said for franchise restaurants as many of them have opened across Canada or have plans to open units in the country.
The bottom line
Franchise owners can handle many of these issues by hiring more part-time staff, being more flexible with employee scheduling, creating a staff retention strategy, and consider outsourcing their payroll and bookkeeping. For the challenges and trends franchisees cannot control, they should focus on what they can manage: providing a great guest experience, hiring the right people, and maintaining consistent food quality to keep customers coming back.
To learn more about these challenges and trends—and for some solutions to help with these issues—download BDO’s Franchise Restaurants Report 2019: Owners’ top concerns and trends affecting the industry.
All information listed in this section was submitted by BDO.
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