Should Justin Be Buying Us All Dinner Out?
The restaurant industry has been one of the sectors most hard hit during the ongoing pandemic. This is a sector that employs more than a million Canadians and, before the pandemic hit, represented approximately a third of every food dollar spent in this country. The closures and subsequent re-opening with reduced capacity have created significant economic hardship for many of these small businesses. There have been general programs for restaurant staff (Canada Emergency Response Benefit) and others for small businesses (wage subsidy and emergency business loans). Despite this many restaurants have already closed permanently and others are teetering on the edge, with the prospect of the end of patio season and further dining restrictions due to a second wave looming. There has been some call for direct support for restaurants. One policy option proposed by Restaurants Canada is a dining subsidy to encourage Canadians to eat out. The program is similar to one implemented in Britain in which the government paid for half of the cheque when people at out. While direct support of restaurants may be in order (I will leave that discussion for another post), I am not convinced this is the right approach. There are several reasons for that.
First, a meal subsidy would not treat all restaurants the same. You might argue that that is alright because consumers are voting with their dollars at popular restaurants. In principle that makes sense. The support is provided to the restaurants that people are keenest to sustain. There are, however, some inherent inequities. Restaurants in downtown cores often depend on commuters who come in for work in the office towers. These are simply not seeing the same traffic with people working from home so would stand to benefit less than those embedded in communities where diners are local. Similar challenges exist for restaurants in tourist areas. On the other hand, some restaurants are doing reasonably well with patios and pent up demand after the lockdown.
Second, in some cases its not clear that serving customers is in the best interest of the restaurant. Restaurants are low margin businesses. Capacity has gone down and many of us are still hesitant to eat outside on a patio or inside in a spread out dining room. If volume is to low even to generate the revenue to cover variable costs of opening, restaurants may actually lose less money if they stay closed. For restaurants in this situation, the subsidy might actually make a bad situation worse. They would be better off with money to help pay fixed costs (like rent) and stay closed until the situation allows for dining.
Finally, its not clear that the situation is going to improve in the near term. We are seeing restaurants being restricted from inside dining in hotspots (Montreal and Toronto among others). Not only does that preclude them from benefitting from the the subsidy, but it also severely limits the benefit from the program if we pay for keeping restaurants open only to close them as the second wave rises.
The proposed subsidy program may be appealing on its face, particularly for those that are eating out at restaurants already. As the risk (real and perceived) rises and patio season ends, it not clear that the subsidy will have a significant effect on demand.
Governments need to decide if a large and diverse restaurant sector is a priority and what, if anything, they can do to help. Its not clear at all that a dining subsidy will do that.
Recommended citation format: von Massow, M. "Should Justin Be Buying Us All Dinner Out?". Food Focus Guelph (100), Department of Food, Agricultural and Resource Economics, University of Guelph, Oct 12, 2020.