Restaurant closures on the rise as the economy teeters in Ontario, but experts say there’s hope

Earlier this year, when the weather was still ice cold and the six-foot snow piles had yet to fully melt, residents of a busy east end Toronto neighbourhood noticed that three restaurants–one of which was home to a bustling patio not even two summers prior–had closed or announced plans to close their doors for good.

The heartfelt social media posts from the restaurateurs felt like a bad omen, a sign that the city, still struggling to recover from a pandemic that kept much of its businesses closed for the better part of two years, wasn’t faring much better more than three years out from lockdowns and several years into a stagnant economy.

In conversations held in parks, houses, cafes and Facebook groups, people wondered aloud what would happen to their once vibrant neighbourhoods. Would more and more independent restaurants, bars and cafes close, only to reopen as pharmacies or physiotherapy clinics? What was causing this seemingly unstoppable exodus? Was it sky-high rent? Increasing food and labour costs? The lack of customers, exacerbated by the growth of work-from-home jobs and less spending power? 

It turns out that all of those factors play a part in restaurant closures, but the news is not all bad. When some doors close, other windows tend to open in their place. 

First, the bad news

Restaurants Canada, an advocacy group that represents food service providers across the country, began noticing an uptick in bankruptcies last year. The organization said that in the first three months of 2024, 357 businesses called it quits–significantly more than the 184 restaurants that declared bankruptcy in the first few months of 2023. 

Last year, the organization recorded 882 bankruptcies nationally, more than double the number of bankruptcies in 2020. The net number of independent restaurants in Canada was down by 3,000 locations in 2023 compared to 2019.

With 2025 well underway, Kelly Higginson, the group’s president and CEO, says many of the metrics plaguing Canadian restaurateurs are still in play.

“Our industry obviously came out of the pandemic in a very vulnerable situation and a lot of our operators had high levels of debt that they had to manage. Then, like Canadians, saw inflation was just running rampant,” Higginson tells YourCityWithIN.com. 

“Canadians saw their grocery bills going up, their cost of living going up, all the things we need to live were going up and it was the same for [restaurant] operators. All their food, all their operational supplies, equipment, all of these things were going up at the same time.”

To exacerbate the challenges, Canadians struggling with increased debt and expenses decided to reduce their discretionary spending, choosing to eat at home. 

“The first thing to go, unfortunately, is restaurants,” Higginson says. 

The drop in spending isn’t eye-watering, but it’s substantial. 

According to Restaurants Canada, Ontarians spent $2,592 per capita on restaurant food in 2019. In 2024, they spent $2,378. Other numbers also bear out the industry’s challenges. A January report from Restaurants Canada found that pre-pandemic, just 12 per cent of Canadian restaurant companies were not profitable. Today, that number sits at a whopping 53 per cent. 

At a time when restaurant operators are struggling with high costs, rising crime (including theft and potentially dangerous confrontations with members of the public), an ongoing labour shortage and changes in consumer behaviour (including alcohol avoidance and a preference for takeout and delivery), the financial squeeze on consumers compounds the situation. 

“Our operators felt like they couldn’t charge people [more] because of all these costs going up because they knew that their customers had less money in their pockets and they were seeing this pull back,” she says. 

And while takeout and delivery might help a restaurant in the short-term, Higginson points out that customers might only order an entree and skip the drink, appetizer and dessert, making it harder to stay afloat. 

Restaurateurs have also noticed that even with a great concept and menu, profit can be elusive. 

Sanjay Singhal, the founder of the Toronto-based Forthspace Hospitality Group (which operates Coffee Oysters Champagne and Runway 06) says that Marked, the bustling Entertainment District hotspot that reopened as Runway 06 earlier this year, was “never profitable,”–news that might come as a shock to anyone who attended one of its packed bottomless mimosa brunches. 

“The brunch was a huge success,” he tells YourCityWithIN.com, adding that while the resto was busy on weekends and offered great South American cuisine, it wasn’t a big financial success. 

“I would have to say that COVID came in and obviously it hurt both places but Coffee Oysters Champagne and à toi (COC’s hidden speakeasy and cocktail bar) did recover fairly quickly. But our costs went up. Our labour costs went up 30 per cent and everything else went up an equivalent amount shortly after COVID, with just the inflation that set in,” he says. 

After Marked closed, he decided to take the space in a different direction. He opened Runway 06, an immersive restaurant that offers five airport-themed experiences (the Pan Am Lounge, the Pan Am Patio, the Upper Deck Suite, the Sky Lounge and the Main Cabin) and the bottomless brunch that filled the former restaurant to the brim on Sunday afternoons.

“I didn’t just want to just have a restaurant. I wanted that something extra. I decided to make it more of an immersive experience, something with a vibe,” he says. 

Runway 06 was inspired, in part, by Sleep No More, an immersive, interactive play that ran in New York City.

“You just wander through this warehouse and each room is decorated. There’s a psych ward, a girl’s bedroom, a candy shop and you’re walking through these rooms and actors appear and act out a silent scene around you. I thought was the most amazing thing,” he says.

“So that was the template for it, and we created it. I didn’t do it to make money. I did it out of passion.”

In Singhal’s case, the passion behind Runway 06 makes the project–which has steadily attracted diners and experience-seekers–worthwhile.

That said, the project isn’t turning huge profits. 

“Our brunch has continued to be popular. We’re always full on Saturday nights for dinner and gradually building up everything else, but we’re not profitable and in fact, not even remotely.” 

Now, the good news

Singhal says that while Runway 06 isn’t generating record profits, it’s not failing either–and he’s been able to navigate some challenges by being mindful of costs.

“We’ve gotten much, much better at controlling costs at Runway, so we’re not losing the same amount of money we were losing last year, even though our sales are down quite a bit. They’re recovering nicely now, and we’re putting in lots of immersive features and remodelling our VIP bar to be a speakeasy. There are all kinds of little hidden nooks and crannies and fun elements that I’m adding in because I’m doing it out of passion.” 

Restaurants Canada CEO Higginson agrees that cost control can help mitigate the challenges restaurateurs are facing.

“One of the things I like to talk to restaurants a lot about is operational controls when it comes to food costs and managing their inventories closely,” she says. 

“There are so many great, simple programs out there that can support operators so they can really monitor costs.” 

Other industry experts say that while the news across the board isn’t great, there’s one important thing to remember: In a city like Toronto, the sky is truly the limit, and the opportunities are–or can be–endless. 

“The hospitality industry is ever-evolving in Toronto. We have one of the hottest food scenes not just in the country, but in the world. I’m surprised it took so long for Toronto restaurants to get recognized internationally by Michelin,” Simon Shahin, the CEO of Build IT, a Toronto-based contracting company that constructs restaurants and hospitality spaces throughout the GTA, tells YourCityWithIN.com. 

BUILD IT recently completed three highly anticipated projects in Toronto: a new Ballroom Bowl location at Yonge and Dundas, a Mediterranean street food restaurant, Miznon, and a second Hello Nori location, a destination for late-night Japanese hand rolls. 

Shahin says that overall, the mood is optimistic. 

“Deals are being done, new leases are being signed, new projects are being designed. For somebody to have a restaurant or open a business in the hospitality realm, it’s a long time coming. We see that happening–a lot of people in the industry for a long time who have perfected their craft and saved money. On Ossington, you’ll find some of the best independent restaurants in the city.” 

In Toronto, Shahin sees a climate that’s friendly to both independent hotspots and big corporate restaurant chains. 

“We’re steakhouse central right now. I would say as much as there’s the small indie chefs making their dreams come true, we’re also a city where corporate restauranteurs can put their financial plans to work and raise funds for restaurants through investors, and open these glorious places,” he says, calling out Blue Bovine, Harbour 60, Milos and Nobu. 

That said, he acknowledges that surviving is tough–and always has been. 

“The restaurant business has always been a risky business. There’s a high failure rate.” 

Be on trend, but not too trendy

There’s a fine line between giving the people what they want and giving them too much of a good thing–often at great expense. 

“I was at another supper club on King West on a Friday night and they had aerial acrobats hanging from the ceiling, confetti bombs going off and a mascot in a silver disco ball dancing around, and I know that place has been losing money hand over fist for years,” says Forthspace’s Singhal, adding that while extras can be a financial drain, they can also encourage other operators to add more extravagant perks that ultimately don’t pay off. 

“We keep experimenting and trying things. We’ve experimented with having really talented dancers come in and perform on Friday and Saturday nights and we found it didn’t do enough in terms of building of crowd to make it worthwhile. Then we’ll turn it off and see other restaurants around the city doing the same thing we tried. We’ll see Instagram reels and it’s like, ‘oh, they think we’re profitable and that’s why we’re profitable,’ but it’s actually not.” 

Singhal says that when operators think they need to add more frills and flourishes, more restaurants can enter a danger zone. 

“Toronto consumers get used to having all this extra stuff going on that they’re not paying for because we can’t charge [for it]. We can’t charge for a drink what you pay in New York City and Miami, where they’re able to access cheaper labour,” he says. 

“If there’s a message I could get out there and just scream from the rooftops, it is that people think that these popular restaurants are making money, they’re not. So if you get into the business, get into it with your eyes open that you’re not going to make money. There are other great reasons to be in the business, but it’s not because these clubs are printing cash right now.” 

BUILD IT’s Shahin says restauranteurs need to have their ear to the ground and know their audience. He also says it’s important to suss out opportunities, such as purchasing a franchise during an economic downturn when customers are more likely to choose a more affordable meal over a higher-end one. 

“We’re seeing leases being signed and places starting to be filled. In 2023 and 2024, we saw large projects and now we’re seeing mid-range stuff. We’re seeing a lot of the small projects push forward,” he says. 

Ultimately, he says restaurants need to know who they’re serving and set themselves apart from the competition. 

“Like any other business, you need to have a well-defined concept and brand. People need to know what you are and what to expect and how you’re differentiating yourself from your competitors,” he says, adding that managing costs should always be top of mind.

“Closures paint a bleak picture but it comes from unprecedented disruption due to COVID. It was less costly at first for people to take over closures and do renovations. [Restaurateurs need to] make sure the client experience is what it’s meant to be and maintain a customer-centric mindset. Going out to eat is a treat. You won’t have only good food, but the ambiance is essential, the level of service is important. You want to sit in a beautiful room and be taken care of,” he says. 

So, what’s next?

While no one has a crystal ball, experts say opening a restaurant is worthwhile if you can set yourself apart while also managing costs as efficiently as possible. 

“There’s a level of show or entertainment value,” BUILD IT’s Shahin says. 

“In some of these steakhouses, there’s an option to have a server who will make something right beside your table. We built a wine club across the hall from Blue Bovine, which adds a level of exclusivity to it. Some burger places, you have to go online and get a number and wait your turn.” 

Restaurants Canada’s Higginson says that during difficult times (especially with stop-and-go tariffs impacting businesses across the country), restaurants have succeeded in securing some government supports–namely the recent GST holiday that kicked off during the holiday season and wrapped up earlier this year. 

“That GST holiday that we were able to secure for the restaurant industry and really did translate into higher sales across the country,” she says, adding that it’s important to emphasize that restaurants are not ‘nice to have,’ they’re community mainstays. 

“We really need the government to understand the value of the industry. We’re the fourth-largest private employer in the country. We impact every single community. Restaurants are critical to our neighbourhoods.”

Singhal says that despite the bad news, he’s optimistic that something as simple as the warm weather will change hearts and minds and get diners through the doors.

“Spring is going to roll around, and people are going to feel better. Some of the shocking news about tariffs and everything that’s going on will be gone from the new cycle, and people will be ready to venture out again. I suspect if we had this conversation a year from now, we’d say ‘my god, it’s better than it’s ever been.’ A lot of it’s just cyclical and we got hit with COVID, bad winter weather and the tariffs.” 

Shahin says that while it’s not like 2019, normality has returned for the most part and he’s optimistic that the food scene will thrive as the world moves forward.

“The guest expectation is back in full swing. They like being in a dining room or a retail store with other people. King Street looks like it did in 2019. People are out and about and having a good time,” he says, adding that big global brands–such as the U.S.-based Shake Shack- are still investing in Canada. 

“There are still issues and challenges–labour, supply chain, work from home. Some things have changed since COVID, but there’s a strong sense of optimism overall. New concepts keep emerging and established brands are investing and growing.”

For Higginson, the challenges are vast, but the resilience among operators is a sign that, ultimately, restaurants aren’t going anywhere. 

“Restaurants have been around since the beginning of time. We didn’t even close down in wartime when operators had to get by on limited supplies. Restaurants are vital to the social and economic fabric of Canada,” she says.

That said, she believes something must give when it comes to the high cost of living that’s making dining out less feasible for growing numbers of Canadians.  

“Hardworking Canadians have to be able to treat themselves to some of these little luxuries.”