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Half of restaurants were operating at a loss or just breaking even as of July 2022 — typically one of the busiest months of the year, the report found. As a result of higher costs, more than a third of full-service restaurant operators plan to raise their prices by more than seven per cent, and many between 10 and 15 per cent.

The report, released this week, is the latest window into what is shaping up to be a turning point for restaurants, said Sylvain Charlebois, director of the Agri-Food Analytics Lab at Dalhousie University, who believes many won’t make it through.

“I think the bleeding hasn’t stopped,” he said.

For the first time since the pandemic began, the restaurant industry is predicting a return to pre-COVID-19 sales levels by the end of 2022. But inflation is dampening that milestone: adjusted for inflation, real sales in 2022 are 11 per cent below 2019, according to the report.

“Traffic is still down,” said James Rilett, vice-president of Central Canada for Restaurants Canada — it’s inflation that’s brought sales back to 2019 levels, not the return of customers.

That’s especially true in full-service restaurants, according to the report, even as Canadians get more comfortable with dining out; consumers are being more wary with their wallets as the price of everything, not just eating out, has skyrocketed.

“On the surface, it certainly feels like we’re back to normal,” said Restaurants Canada senior economist Chris Elliott at a webinar for the organization’s members on Tuesday. Walk down the street, he said, and you’ll see people sitting on patios, grabbing a drink at the bar, or having lunch with friends.

But “it’s anything but normal” for restaurateurs, Elliott said. Reopening doesn’t mean businesses are back to making money, and many aren’t sure if they can claw their way back to success.

Inflation has driven the prices of many restaurant staples up this year, from meat to flour to canola oil — a key ingredient in many kitchens. As well, thousands of workers left the industry during the pandemic, seeking better pay and working conditions, and many restaurateurs are struggling to fill vital roles, with many offering higher wages to try to attract and retain talent. The industry was 171,300 jobs below pre-pandemic levels as of May 2022, according to the report. Businesses are also dealing with debt from pandemic loans, added Rilett.

All these costs have driven menu prices up faster than usual; in 2022, Restaurants Canada predicts prices will be up 6.8 per cent compared to 2021. Full-service restaurants will likely see higher price increases than quick-service places.

Restaurants facing higher costs have to walk a fine line between raising prices to cover their bottom line and continuing to bring in customers who are also watching their costs, said Rilett.

“Eating out is usually one of the first things to go when people feel the pinch,” he said.

Nine in 10 restaurants in Canada are struggling to hire back-of-house positions in particular, according to the report, such as cooks or dishwashers. Food-service businesses are operating at an average of 80 per cent of their normal capacity due to labour shortages, Restaurants Canada found.

Operating below capacity can mean thousands of dollars in lost potential revenue at a crucial time, said Elliott.

A variety of factors are to blame, Rilett said: labour force demographic changes, lower immigration, and an exodus of workers during the pandemic.

Restaurants are raising wages, reducing operating hours and more to deal with staffing shortages, according to the report. They’re also shrinking their menus to streamline service and reduce waste, another way of cutting costs, said Dal’s Charlebois.

“You have to make more money per hour now … just because of the fact that things are costing more to produce,” said Charlebois.

Meanwhile, many Canadians continue to work from home, and that’s impacting their spending habits, the report found. They’re spending less throughout the week on snacks, drinks and meals simply because they’re not out, and this is likely to continue for the foreseeable future.

Charlebois said this long-term shift in how people work presents both a challenge and an opportunity for the food service industry: “How will people consume food in 2025?”

Quick-service restaurants will continue to see a much larger share of their sales coming from delivery, he said, and will have to compete with grocery delivery, as people cook more when working from home. Meanwhile, fine-dining establishments will have to grapple with tough economic times over the next year, he said, with consumers tightening their purse strings.

Between April 2021 and July 2022, almost 3,800 restaurants closed permanently, according to the report — but that number is likely even higher, and will climb in the coming months, said Rilett.

Some businesses quietly close their doors long before they’re officially closed, said Rilett, and so the data on closures is delayed. In addition, many waited to see how the summer would go, the busiest season, and are now faced with a tough decision, he said.

“If there’s a reckoning, we might see it coming up this fall.”

Some restaurants are still taking on debt to stay open, said Elliott, and monthly closures have been going up steadily for several months, even during the busy summer season.

Meanwhile, the number of new businesses is much lower, meaning the total number of restaurants is going down.

Over the longer term, Rilett predicts more technology will start appearing in restaurants, from ordering through tablets or websites from the dining table, to even the occasional robot bringing your food out to you.

Restaurant owners have come to the realization that they have to adapt, he said: “They have to keep using new technologies and doing things differently.”