Canada’s restaurant industry is facing renewed financial strain, with a new forecast warning that thousands of establishments could shut their doors this year as consumers cut back on discretionary spending.
A study from Dalhousie University found that approximately 7,000 restaurants closed across the country last year. Researchers now project that another 4,000 restaurants could go out of business in 2026.
“In the last couple of years, it’s been extremely difficult for restaurants in general,” said Sylvain Charlebois, director of Dalhousie University’s Agri-Food Analytics Lab.
Charlebois said rising inflation and higher food costs have made Canadians more cautious about how they spend their food dollars.
“If they do dine out, they’ll dine in at home to avoid the tips and an expensive bottle of wine and things like that,” he said.
Beyond food inflation, the industry is also grappling with rising operating costs. Restaurants Canada points to increasing expenses for rent, insurance and wages as major pressures on restaurant owners.
According to the organization, 41 per cent of restaurants are either operating at a loss or barely breaking even. Many businesses are reluctant to raise prices, knowing customers are closely watching their budgets.
“There is an affordability challenge for Canadians right now,” said Kelly Higginson, president and CEO of Restaurants Canada. “There is less discretionary spending, and that means pulling back on restaurant spending.”
Restaurants Canada is urging governments to take steps to ease the burden on both consumers and businesses. From Dec. 14, 2024, to Feb. 15, 2025, Ontario temporarily removed GST/HST on restaurant meals, prepared foods, snacks and some alcoholic beverages. The industry group is now advocating for that tax break to be reinstated and made permanent.
“Let’s remove the GST off of food at a time when we are facing an issue with affordability, especially with the cost of living,” Higginson said. “Why are we taxing food? That is poor public policy.”
Charlebois echoed that view, arguing that taxes should be eliminated on all food, regardless of where it is consumed.
Another challenge facing restaurants is a decline in alcohol sales. Retailers across Canada reported a 10.6 per cent drop in alcohol sales in October, a trend that has reduced a key revenue stream for many establishments.
Charlebois also noted growing consumer frustration with tipping practices, particularly in quick-service settings. While many customers accept tipping at sit-down restaurants, he said some feel annoyed when prompted to tip at fast-food counters.
Together, these factors are contributing to a difficult outlook for Canada’s restaurant sector, with industry leaders warning that without policy relief or a rebound in consumer spending, closures are likely to continue through 2026.