Rising ingredient costs eat into bottom line for some small food businesses

Some small food businesses in London say the high cost of ingredients are forcing them to get creative — and even close their doors.  

Jocelyn Brock and Wayne DeGroot have been running zen'Za Pizzeria downtown for eight years. With the rising cost of key ingredients like olive oil and cheese, they've decided it's time to put the business up for sale.

"It really increases the cost to operate a small business," said Brock. "The olive oil that we started purchasing when we first opened our restaurant used to be $17.99 for three litres. And for that same jug of oil, it's now $45."

In Canada, the average price for one litre of olive oil has more than doubled over the past three years, to $15.93 in March 2024 from $6.62 in March 2021, according to Statistics Canada's recent report on monthly average retail prices.

Additionally, the price of cheese has nearly doubled, along with a 50-per-cent increase in the cost of pizza boxes, according to Brock.

Although the couple tried to keep menu prices low to stay competitive, Brock and DeGroot eventually had to raise the  prices on the menu to stay profitable.

"I don't think people are really always that willing to pay that much for something that they might think of as a grab-and-go kind of food even though we're not really a fast food restaurant," said Brock. "We have lots of friends that own restaurants that have had to close in the last year," said DeGroot.

Restaurants across Ontario have seen the cost of ingredients go up by an average of 25 per cent over the last two years, along with a spike in the cost of labour, operating expenses and carbon tax, according to Restaurants Canada, a non-profit advocacy group that works with the government on behalf of the food service industry.

"When we add rising costs on all the major expenses, an economy of customers struggling with affordability and high indebtedness, much of which would have been taken on through COVID, it all acts together to strain profitability and drive restaurants closures," said Kris Barnier, vice president of Restaurants Canada in Ontario. "We've seen a surge in bankruptcies and restaurants are leading the way unfortunately, and we're seeing a lot of restaurants just close."

Increase in restaurant bankruptcies

In January, more than 120 restaurants declared bankruptcy, about double from the previous January, he said.

By April, bankruptcies had dropped to 74, which was still an increase from April 2023, but the gap had narrowed. 

Continuing business as usual remains a challenge, Barnier said.

While popular chain restaurants are taking the hit, local restaurants are the most affected by the cost of ingredients, Barnier said.

"I think what we're seeing is some of the quick-serve, some of the bigger brands they're doing better, but it's really going to be the mom and pops, the independent [restaurants]... that are really struggling the most," said Barnier.

Chocolate studio adjusts business model

Marc Forrat opened Forrat's Chocolate Studio at Western Fair about a month ago, after leaving his previous store-front location in north London due to increasing rent costs.

"Ever since, we had to sell some assets…to keep the company afloat," he said.

Forrat has been faced with rising cocoa prices, which reached a record-high of $10,000 per metric ton in April due to the spread of a disease affecting crops in West Africa, where more than 70 per cent of the global cocoa supply is produced. 

To offset the ingredient costs, Forrat brought in new equipment that allows him to produce more chocolates in less time. 

"Nobody's going to buy pricey chocolate because it's not a necessity," he said. "Before, I could do 1,000 chocolates in one batch. Now, I can do 5,000 chocolates or 10,000 chocolates."

Forrat said he hopes the hike in the price of cocoa beans will eventually go down.

"I suffered a fluctuation of triple the price of the metric tonne compared to pre-COVID but it's going to go by," he said.

Supporting local helps, said one owner

One owner of a downtown coffee shop said that while she's always watching costs, her menu prices have not increased significantly because she gets her ingredients from local small businesses and farms, which cuts the cost of transportation.

"We're taking some of the hit ourselves because if we raise prices, we won't have the [same] volume of customers," said Angela Murphy, owner of Grace Bodega on Dundas Street.

She wants more people to spread the word about local businesses to help them stay open.

"So if people can follow and share and talk about the small businesses...and make that a priority," she said.

"Otherwise, all we'll have left is the big guys."