Thank you, Mr. Chairman and members of the committee.
Good afternoon.
Canada's $60 billion food service industry accounts for 4% of the national economy and over one million jobs. Our members include chain and independent operators of quick- and full-service restaurants, bars and pubs, cafeterias and caterers, as well as a combination of entertainment and institutional providers.
While tourism is very important to our industry and accounts for approximately 18.7% of our revenue--4.2% of that being international, and the remaining domestic tourist spending--our scope is broader than tourism. Like many other industries, food service has been hard hit by the economic downturn. The average unit volume fell by 1.9% in the first nine months of 2009 compared to the same period in 2008. Adjusted for rising menu prices, the real average unit volume fell by 5.4% in the first nine months of 2009.
All segments of the industry are struggling, but high-end restaurants have been hit the hardest. Limited-service restaurants have outperformed full-service restaurants as consumers look for value and convenience.
Food service is a very competitive business that operates on razor-thin margins. According to the most recent data from Statistics Canada, the pre-tax profit margin of the average food service business was 4% in 2007. That was when times were good. By contrast, Canada as a whole enjoyed a pre-tax profit of 7.7%.
Past research by CRFA has found that food service sales tend to lag economic activity by two to three quarters, and this recession is no different. Following several quarters of growth, the average unit volume fell in the second and third quarters of 2009 even though the recession began in September 2008. While food service operators continued to hire employees in the first five months of 2009, worsening sales in the second half of the year have led to a drop in the number of employees. Compared to September 2008, net food service employment at restaurants, caterers, and drinking places fell by nearly 16,000 workers in September 2009.
You should know, however, that the food service industry is uniquely positioned to contribute to economic recovery and growth. Every $1 million in restaurant sales creates nearly 27 jobs, making our industry one of the top five job creators in Canada. Every dollar spent at a restaurant generates an additional $1.85 in spending in the rest of the economy, and that's well above the average for all industries in Canada. The diverse nature of our industry means the benefits are felt in every community and not just in major centres.
I was also asked to comment on how government can help. We're not looking to government for bailouts, subsidies, or handouts. We are looking to government for fairness in how taxes and policies are applied and how our operators' hard-earned tax contributions are spent.
As mentioned by my colleague, our members in British Columbia are extremely concerned about the new 7% sales tax on restaurant meals resulting from GST/PST harmonization. Based on our experience in 1991 when GST was imposed on restaurant meals, similar and identical meals in grocery stores remained tax-free. We know this will have a devastating impact on our businesses, our customers, and our employees. To avoid history repeating itself and crippling this key sector of the B.C. economy, it is critical that the federal government work with the provincial government on joint solutions.
Food service businesses' key inputs are food and labour, and the cost of both has been rising dramatically. Neither is subject to input tax credit. Harmonization through input tax credits provides tax relief to capital-intensive companies. We believe it's time to provide tax relief to labour-intensive businesses.
Specifically, food service is looking for payroll tax relief through a yearly basic exemption in the employment insurance program. I can discuss that more in Q and A. We're also very concerned about the prospect of dramatic increases in employment insurance premiums in 2011. Payroll taxes represent a large percentage of our tax load. They are job killing, they are regressive, and they're profit insensitive. Again, I can elaborate on this during questions.
Finally, like my colleague Tony Pollard, I want to identify labour shortages as a continuing concern over the long term. While this economic downturn has eased the crisis in the short term, demographics tell us that we will again be experiencing shortages of skilled, semi-skilled, and unskilled workers in the years ahead.
Thank you. I look forward to your questions.