Affordability is top of mind for many these days but perhaps none more so than Canada’s restaurants.

To get a handle on how operators are coping with higher costs of almost everything, one of the most prominent industry organizations, Restaurants Canada has released its latest Q1 Quarterly Report. The results show many troubling signs, though there are signs of hope.

“It’s always fascinating to do these surveys because the results are so mixed. On the one hand, you have some operators saying sales have been lower, (but) you’ve got about 50 per cent of operators saying their sales are about the same or better than what it was last year,” Chris Elliott, chief economist and vice-president of research at Restaurants Canada (RC), told FoodNX during an interview.

Elliott and co-author Sara Hamdy, research analyst with RC, wrote the report.

Sales are expected to decline by 0.2 per cent in 2026, following 2.3 per cent growth in 2025, the report states. As well, 49 per cent of operators reported lower sales so far in 2026 and 54 per cent reported fewer guests.

Higher prices affect industry

The latest report also shows some troubling numbers when it comes to how much restaurants are making, as 71 per cent report declining profitability.

“One of the other things that we’re looking at is just that overall profit level: we have 36 per cent of restaurant operators currently operating at a loss or just breaking even.”

This is an improvement however, from November 2025, when 44 per cent of operators were in this position, according to the report.

Cost pressures remain widespread. When operators were asked what were their top concerns, 91 per cent cited food costs, 87 per cent labour expenses and 69 per cent reported customers are dining out less because of affordability constraints.

These increased costs are also having an effect on discretionary spending, according to Elliott.

The organization referenced data from pollster Angus Reid which found 78 per cent of Canadians are cutting back on non-critical purchases. The ways in which consumers are reacting should be concerning to the restaurant industry: the top two cited coping mechanisms were that Canadians are dining out less often and are also cutting back on takeout or delivery.

“So of the five or six options, we’re one and two in the ways that people are trying to save money,” Elliott said.

Quick-service hit hardest

It stands to reason that lower-priced options, such as quick-service restaurants (QSRs) should be able to withstand this affordability crisis. However, according to the report, the opposite has happened: QSRs are the hardest-hit segment, with 81 per cent reporting declining profitability vs. 70 per cent for full-service restaurants.

“We’re tying that directly to the K economy, where you have the top 40 per cent are seeing their wages grow faster than inflation, but you have 60 per cent where their wages are not keeping pace with inflation, and so when you look at the top 40 per cent, the fastest-growing segment of the food service industry was fine dining last year,” Elliott explained.

However, this economic reality is having an unintended effect.

“In normal times, fine dining would be down and quick services up but because of this K economy, it’s flipped everything upside down. The fine dining is up and the quick service ones are the ones that are finding it challenging right now.”

How to mitigate negative conditions

So what can be done to help the industry? From RC’s perspective, the 2025 GST holiday was a boon, according to Elliott.

“Last year, there was such a significant increase in food service spending. The provinces that saw the greatest impact in sales were the ones that saw the greatest reduction in the tax holiday,” he said.

This also contributed to Canada’s economic health, Elliott argued. “We had more jobs created during the tax holiday than the previous 12 months of combined. There’s an economic argument to be made about it. There’s also a fairness argument: just treat all food equally.”

As well, the industry is calling for an accelerating capital cost allowance break. Currently, restaurants are only allowed to “expense about 40 per cent of investments in year one and other segments get much better treatment and so what we’re asking for is 100 per cent first year expensing so restaurants can invest faster.”

Important industry for Canada

The report provides insights into the challenges faced by one of the country’s largest industries. Restaurants employ more Canadians than auto manufacturing, aerospace, banking, primary agriculture and steel combined, according to RC.

The sector is the fourth-largest private sector employer, with 1.2 million workers, including 480,000 youth.

As well, despite these downturns, restaurants remain popular. Canadians visit restaurants 23 million times daily, generating $125 billion in annual sales, equal to 3.9 per cent of GDP.

This has provided a bright spot for the industry.

“I’m always happy to see any survey that we’ve done of Canadians; seven or eight out of 10 say that they enjoy going out to restaurants to spend time with friends and family or to connect with people. We do see people, despite everything that’s going on in the world, wanting to go out to restaurants,” Elliott said.

“For me, that has been a positive thing.”