Canada will suffer 4,000 restaurant closures in 2026 as fundamentals no longer support a sector that was propped up by COVID-19 pandemic-era relief measures, says a leading researcher.

“On paper, the industry looks stable,” wrote Sylvain Charlebois in a Canadian Grocer blog post. “On the ground, it does not.”

Charlebois is a professor in food distribution policy and senior director of the AGRI-Food Analytics Lab at Dalhousie University in Halifax. His blog post was based on a report that the lab produced.

Statistics indicate that eateries have increased, surpassing pre-pandemic levels and painting a picture of an an industry that has recovered and is now expanding. But the restaurant sector is actually contracting, according to Charlebois.

“The lived reality of Canada’s restaurant economy tells a very different story—one defined by margin compression, rising fixed costs, softening demand, and mounting financial fatigue,” he wrote. “Speak with operators, suppliers, landlords, insurers, or lenders and a consistent picture emerges: Closures are accelerating, balance sheets are deteriorating, and survival increasingly depends on short-term coping strategies rather than long-term viability.

“The problem is not that restaurants are failing suddenly. It is that the sector has been operating in a prolonged state of economic stress since 2021, masked temporarily by extraordinary policy interventions.”

Pandemic-era supports—including wage subsidies, rent relief, loan deferrals and tax postponements—kept thousands of establishments in business long after their underlying cost structures had become misaligned with market conditions, he contended.

“These measures were effective at preventing an immediate collapse, but they also delayed the necessary adjustment,” he wrote. “That adjustment is now unavoidable.

Charlebois contends that the restaurant business model has fundamentally shifted due irreversible high labour costs, increased rents amid weakening customer traffic; rising insurance, utility, compliance costs and changing consumer attitudes whereby restaurant-goers are eating out less often and spending more cautiously when they do.

Eroding alcohol sales, brought on by lower overall consumption, higher prices, health concerns and changing social norms are also impacting restaurants. As a result, alcoholic beverages no longer subsidize food profit margins and the reduced sales cannot be offset through meals as customers resist higher prices.

“Menu price inflation, often misinterpreted as a sign of pricing power, is in fact a symptom of distress,” wrote Charlebois. “Operators are raising prices to slow losses, not to expand margins. Many are surviving by drawing down savings, refinancing debt, renegotiating leases, or delaying reinvestment. These are not indicators of health; they are indicators of exhaustion.”

The forthcoming closures will result because of reduced resilience, not deteriorated market conditions, he added.

“Owners exhaust personal capital, restructure debt, and postpone difficult decisions in the hope that conditions improve. For many restaurants, that hope carried them through 2023 and 2024. By 2026, the arithmetic becomes unavoidable. Pandemic-era loans mature, deferred liabilities crystallize, and margins that were already thin turn negative.”

Independent restaurant operators will absorb most of the contraction due to a lack of scale, brand leverage and balance-sheet flexibility. The impact will be both cultural and economic, because independent restaurants are among the industry’s most innovative and artistic outlets.

“They are often the first to experiment, the first to take risks, and the first to introduce Canadians to new cuisines, flavours, and dining concepts that later become mainstream,” wrote Charlebois.