Profits in 2010 will rebound by more than 20 per cent in the food services, retail, and accommodation industries, according to the Autumn 2010 edition of the Canadian Industrial Profile Service.
The Autumn edition of the Canadian Industrial Profile Service, published by The Conference Board of Canada in collaboration with Business Development Bank of Canada (BDC), provides a five-year (2010-2014) production, revenue, cost and profitability forecast for six Canadian industries:
- Food and Beverage Manufacturing
- Food Services
- Retail Trade
- Transportation and Warehousing
- Wholesale Trade
“Profits will rebound this year in four of the six industries covered in this outlook. The other two industries—transportation and warehousing, and food and beverage manufacturing—can expect slight declines in profits in 2010,” said Michael Burt, Associate Director, Industrial Economic Trends. “Weaker economic growth in the second half of 2010 will dampen profitability in 2011 for most of the industries covered.”
“Despite signs of recovery, entrepreneurs have had difficulty accessing working capital. To address their needs, BDC has increased its financing activities and, for most industries, posted double-digit growth in loan dollars authorised. BDC loans to the accommodation sector increased by 55 per cent in fiscal 2010 compared to fiscal 2009,” said Jérôme Nycz, BDC Vice President, Strategy and ERM. “We also took the initiative and promoted an Economic Recovery Loans Program from July to October. Almost 3,800 entrepreneurs took advantage of the program and received pre-authorized BDC loans to finance their operations. Businesses in the hospitality sector were among the most responsive to it. In the current fiscal year, almost 60 per cent of BDC loans to the accommodation industry have been economic recovery loans.”
Sales are up, occupancy rates are rising, and prices have improved in the accommodation industry, producing a 24 per cent increase in profits this year. In the first half of 2010, improved corporate profitability and strong employment growth led to more business and personal travel. Domestic travellers remain the main source of growth for the industry, as most other developed economies continue to struggle, and the high dollar makes Canada a more expensive destination for international visitors.
Food and Beverage Manufacturing
In contrast to many other industries, the food and beverage manufacturing industry continued to grow through 2009. A stable domestic market and growing exports to emerging economies contributed to the industry’s expansion. But agricultural and energy prices are on the rise and this is expected to lead to a modest correction in industry profits this year and next.
With strong job creation occurring in the first half of 2010, consumers started returning to restaurants and spent more dining out. Full-service restaurants bore the brunt of the recession’s effects and sales in this segment are proving slow to recover. However, rising sales and price increases will allow industry profits to recover to their pre-recession peak of $1.3 billion in 2010.
Retail sales rebounded in the first half of the year, but recent fears of slowing economic activity have led to a pause in retail spending growth. Retailers of durable goods—such as furniture, electronics, and motor vehicles—suffered the largest declines during the recession and many have not fully recovered. Sales growth is expected to resume in the coming months. These gains, combined with cost savings from the strong Canadian dollar, will help industry profits to reach a new high of $12.8 billion in 2010.
Transportation and Warehousing
International trade activity has rebounded, boosting demand for transportation services. Industry costs are increasing, however, because fuel prices are on the rise. As a result, the industry will have to wait another year for profits to improve. Profits are expected to decline by 7.5 per cent to $5.1 billion this year before growing steadily over the next four years.
The rebound in retail sales contributed to a recovery in revenues for the wholesale trade industry, even though overall sales are not back to their pre-recession peak. In particular, wholesalers of machinery and equipment have yet to see an improvement in sales. Manufacturers and businesses remain uncertain about the pace of recovery and are waiting before investing in new machinery. Nonetheless, industry profits are forecast to rise by almost 10 per cent in 2010.
The Canadian Industrial Profile Service is part of The Conference Board of Canada’s Industrial Economic Trends research. Outlooks for 23 industries are completed each year. The publications are available at http://www.e-library.ca/. BDC clients who wish to receive a copy of the profiles free of charge can contact their BDC account manager.
BDC is Canada’s business development bank. From more than 100 business centres across the country, BDC promotes entrepreneurship by providing highly tailored financing, venture capital and consulting services to entrepreneurs. Visit http://www.bdc.ca/ for more information.
For further information:
Brent Dowdall, Media Relations
The Conference Board of Canada
613- 526-3090, ext. 448
Director, Public relations, BDC