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Canada Is Becoming A Country Of Restaurant Chains, And That's Not Necessarily A Bad Thing

|Includes: Canada Carbon, Inc. (BRUZF)

Our neighbourhood rejoiced when a Cuban diner opened up nearby in the fall of 2013. The room was cheery and smartly run, with original, inexpensive cooking. My wife and I often brought our son there for after-school dinners. We'd have the tostones rellenos or the guava-braised short ribs with rice and beans and house-made hot sauce.

The servers knew us well enough to remember that we had a soft spot for the made-to-order cinnamon doughnuts. The cooks usually nodded hello when we walked in. And then one day the servers we knew no longer worked there and we didn't recognize anybody on the kitchen crew. Everything felt different. Our little local, we learned, had aspirations of "growing its brand," which is business-speak for building more locations.

It had hired a new general manager who'd come from Milestones, who carried a clipboard and gave the servers table-side scripts to recite. No wonder so many familiar faces left.

The diner in me was furious, but my pragmatic side understood it.

To make a half-decent living these days in the restaurant business, you have to attract and retain skilled staff, manage runaway food and real-estate costs and exceed the expectations of an impossibly fickle dining public, all while mostly keeping prices flat. Worse, Canada's current restaurant economy is what some industry experts call a "steal share game."

"If you're growing customers or dollars in today's market, you are literally stealing a customer from the restaurant down the road," said Robert Carter, the executive director of food service at the NPD Group Canada, a respected market-research firm.

And more now than ever, that restaurant down the road is likely to be part of a multilocation company. Canada is rapidly becoming a country of restaurant chains: You either grow or you get eaten.

In the 12 months leading up to June, 2013, the country's restaurant industry lost 905 independent places, but gained 52 chain outlets, according to the NPD Group. The firm's press release announcing those numbers was stark. "Canadians who love the charm, authenticity and inimitable cuisine found only at their favourite local eatery better hurry and make a reservation," it read.

The takeaway: Independent restaurants are dying off at an epidemic rate, and being replaced by soulless Milestones and Tim Hortons.

More worrying still, the more chains you have, the more chains you get. The entry of a deep-pocketed, brand-driven player such as an Earls Kitchen + Bar or a Joey can dramatically alter a neighbourhood's commercial real-estate ecosystem, putting rents and lease terms out of reach for independent restaurateurs.

What's surprising, though, is that the chainification of Canada's restaurants might not be such a horrible thing.

Your reaction to that statement probably has a lot to do with your definition of a chain. Are we talking McDonald's here or the wildly popular (and excellent) Burger's Priest, which has seven locations around Toronto and plans to open one in Edmonton? According to the standard definition - the one the NPD Group used in its latest numbers - a chain is any restaurant with three or more locations. While it's easy to pull out the torches and pitchforks for yet another Moxie's location, I'd bet that many Canadians would be happy to get a branch of Freshii, the 100-location (and growing) healthy-food company that started with a single restaurant in Toronto in 2005, or a Caffe Artigiano, the Vancouver-based company with more than a dozen locations that makes some of the best espresso drinks in Canada.

I could say the same about Toronto's Amaya, Queen Margherita Pizza, Buca, Terroni and Libretto companies. (The last four companies on that list all have dramatically raised the quality bar around the city in their own ways.)

That's the thing about restaurant companies. There are crappy, bottom-of-the-barrel chains whose food, drink and corporate cultures are proudly, preposterously backward - who rely on a mix of brute market saturation and Stockholm syndrome-level mass delusion to sell their products. (Hello, Tim Hortons.) But then I can think of a lot of crappy independents, too. And there are some pretty good chains (as well as restaurant groups with several distinct brands) that use their size not merely to make more money, but also to do good work.

Few restaurants champion Canadian cuisine as Toronto's Canoe does. Canoe is the flagship restaurant of the Oliver & Bonacini company, which, come to think of it, also owns a piece of Soma Chocolatemaker, to my mind just about the best bean-to-bar chocolate company anywhere.

Even Earls isn't so bad. Thanks to Earls, you can now get a pretty good jeera chicken curry or a fillet of Ocean Wise-approved steelhead trout with fennel salad not only in Vancouver and Calgary, but also in Whitehorse and Grande Prairie, Alta. A friend who grew up in Saskatoon credits Earls with turning the city a little more toward the likes of nasi goreng and vegetarian Thai salads where previously steak and potatoes largely reigned.

Jeffrey Pilcher, a food historian who teaches at the University of Toronto's Scarborough campus, has seen that sort of positive impact time and again. Pilcher edited the Oxford Handbook of Food History; his most recent book, titled Planet Taco: A Global History of Mexican Food, shows how the fast-food industry helped many Mexicans discover their culinary roots. In Pilcher's research, he found evidence that many people who started with Taco Bell soon graduated to much more grassroots representations of Mexican cooking. (Related: How many indie-loving coffee hounds got their first taste of espresso at a Starbucks? Starbucks didn't shut down independent coffee shops - it created an enormous new market for them.)

As for that chains-killing-independents narrative, Pilcher isn't buying it. "To plot out the data and say that chains are putting independent restaurants out of business, that kind of statistical inference doesn't really hold up because there are so many other factors going on around it," Pilcher said.

In some cases, the independents that go out of business were going to go under anyway because they weren't well-run, or didn't keep up with the times. In other cases, changes to restaurant landscapes are dictated by simple demographics, not by yet another half-hearted Subway turning up.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.