Promoting Fair Competition in the Restaurant and Mobile Food Industry
On this page
- The Competition Bureau encourages municipalities to review mobile food regulations
- Mobile food services revival
- Benefits of mobile food services
- Mobile food regulations vary significantly across Canada
- Impact of regulation in the mobile food industry
- Are mobile food services “unfair competition” to bricks‑and‑mortar restaurants?
- Restrictive regulations can make it difficult to compete, but best practices are emerging
- The Bureau invites municipalities to re‑think their regulations based on best available evidence
The Competition Bureau encourages municipalities to review mobile food regulations
It’s noon at the office and you are thinking about quick and convenient food options, having rushed out the door in the morning without time to pack a lunch. Sound familiar? You are not alone. Around 60% of Canadians eat out at least once a week.
Buoyed by strong demand and ever‑evolving consumer preferences for convenient and diversified food offerings, the food truck movement that gained popularity over the past decade in a number of urban centres throughout the United States has made significant inroads in Canada.
While Canadian consumers have been quick to embrace the food truck movement, the response from municipalities and incumbent food service providers has not always been so welcoming. Municipal regulations often limit where food trucks can be located, the number of continuous hours they can operate and the number of providers permitted in a given area. While these regulations can serve legitimate urban planning or other policy goals, some restrictions may go further than necessary. Restricting the ability of food trucks to compete in the food service industry can reduce consumer choice and stifle innovation.
Many Canadian municipalities have improved market access for mobile food services in recent years, but there is room for more progress to be made. In finding the right regulatory balance, municipalities should take an evidence‑based approach, look to emerging best practices, and consider the benefits of embracing new forms of competition. In particular, cities could try to level the playing field between bricks‑and‑mortar restaurants and food trucks, and avoid imposing regulations on mobile food providers that disproportionately impede their ability to compete with restaurants. As outlined below, evidence suggests that the two models can successfully co‑exist in the marketplace.
Mobile food services revival
Many credit the food truck revival to the 2008 launch of Kogi, a Los Angeles based food truck. Kogi revolutionized a staid, mobile food industry that primarily offered basic food items such as hot dogs and fries, by leveraging social media to drive demand for its innovative Korean‑Mexican fusion cuisine. The consumer demand for this new type of mobile food offering was so significant that Kogi exceeded $2 million USD in annual sales in its first year of operations. This inspired other entrepreneurs and young chefs to open food trucks and to offer gourmet‑calibre meals at a lower price than traditional restaurants, often attracting a younger clientele. Today, the broader mobile food services industry generates over $2 billion USD in annual revenues.
This trend quickly spilled into Canada. According to IBISWorld, more than 2,200 mobile food services operators in Canada are expected to earn more than $300 million CAD in revenue in 2017.
Benefits of mobile food services
Studies from the US Institute for Justice and the City of Portland show that mobile food services offer many benefits to local residents including greater street vitality, safety (with more “eyes on the street”), pedestrian‑friendly environments and neighborhood interaction, affordable and convenient food options, and employment opportunities. Mobile food services can also help fill the void in areas that are not well‑served by restaurants and have positive impacts on other fixed businesses by bringing customers to a particular area.
The lackluster reputation regarding food safety in food trucks is long gone. Indeed, comprehensive data shows that mobile food services matched or surpassed restaurants on food safety indicators in the United States.
The lower barriers to entry to establish mobile food services (e.g., low start‑up costs) make this business model more accessible to middle‑class entrepreneurs, new Canadians and aspiring chefs.
Mobile food regulations vary significantly across Canada
The Competition Bureau (“Bureau”) analyzed a cross‑section of regulations that apply to mobile food services across Canada and found significant variation, including complete prohibition of food trucks (e.g., in Gatineau) and many restrictions that extend beyond those applied to traditional bricks‑and‑mortar restaurants.
The Bureau recognizes that regulators must balance competition considerations with other important policy goals. For municipalities, these goals may include important considerations such as health and safety requirements as well as traffic and noise abatement. However, as highlighted in our 2016 Competition Advocate publication on balancing regulation and competition, regulations should be reviewed regularly to ensure they are based on the best possible evidence and are no more restrictive than necessary to achieve legitimate policy goals.
The Bureau has taken a closer look at regulations imposed on mobile food services that go above and beyond regulations that are applied to bricks‑and‑mortar restaurants.
|Proximity requirements (i.e., minimum distance between mobile food providers and bricks‑and‑mortar restaurants)||
|Limits on the number of vendors||
|Mechanism for local businesses to oppose mobile food services||
|Requirement to own or be associated with a “production kitchen” (often a brick‑and‑mortar restaurant or catering business)||
|Selection committees (determine which applicant will be granted a license based on different criteria: diversity, quality, etc.)||
Impact of regulation in the mobile food industry
Many point to Chicago as a case study on the stifling impact regulations can have on the competitiveness of the mobile food industry (e.g., Montreal Economic Institute). In Chicago, roaming vendors may only operate from a parking spot for a maximum of two hours and are not allowed to operate closer than 60 metres from any business that sells food (including convenience stores and pharmacies) — a contravention of the bylaw is subject to a $2,000 fine. These regulations have consequences for residents, customers, other businesses and the city. Since their introduction in 2012, the regulations have contributed to an estimated 50% decrease in the number of Chicago area food trucks. According to the Illinois Policy Institute, liberalizing the industry could add an additional 6,435 jobs, increase annual sales by Chicago businesses from $120 million to $160 million and increase local sales tax revenues from $2.1 million to $8.5 million.
In Canada, we have seen first‑hand how quickly these benefits can accrue when mobile food services regulations are less restrictive. While more progress can still be achieved to reduce requirements, Vancouver and Toronto provide two useful examples of rapid growth in mobile food services. In Vancouver, the number of mobile food providers grew from 17 to over 100 food vendors following the city’s pilot project in 2010. In 2013, Vancouver was actually named third best street food city in North America by Travel & Escape Magazine. Toronto has also seen a major increase in food trucks after it changed its regulations in 2015, reducing its proximity requirement from 50 metres to 30 metres and increasing the number of maximum continuous hours a food truck can operate in a single location from three to five hours. Indeed, the number of food truck licenses in Toronto increased by 400% from 2014 to 2016 (from 14 to 56 food trucks).
Are mobile food services “unfair competition” to bricks‑and‑mortar restaurants?
Critics of mobile food services, including restaurant associations and owners (e.g., Ontario Restaurant, Motel and Hotel Association, Association des restaurateurs du Québec), have argued that mobile food services represent “unfair competition” to restaurants that pay high operating costs (e.g., high rent and start‑up costs). They argue that strict regulations should be in place to avoid direct competition between restaurants and mobile food services. On the other hand, supporters of mobile food services recommend avoiding regulations that unduly limit competition in this industry (e.g., Montreal Economic Institute, The Toronto food truck debate: More competition or legislated cartel?).
Generally speaking, the Bureau does not view competition from low cost business models as unfair or something that regulators should seek to discourage (see info box beside). Regardless, the Bureau found no clear evidence that shows detrimental impacts of mobile food services on restaurants. Rather than being “unfair competition”, mobile food services and restaurants largely reflect two different business models with different levels of investments and services.
Understanding the Competition Act: what is “unfair competition”?
While “unfair competition” is not defined under the Competition Act (“Act”), the Act does prohibit certain conduct that is considered anti‑competitive, such as:
- when a dominant firm engages in conduct that is intended to eliminate or discipline a competitor or deter future entry by new competitors (e.g., predatory pricing);
- deceptive marketing practices (e.g., making false performance claims to gain a market advantage), or
- agreeing with a competitor to fix prices or market share. Simply having lower start‑up and operating costs does not constitute anti‑competitive conduct.
In response to “unfair competition” concerns, cities have often enacted stringent operating requirements on food trucks, such as proximity requirements and limits on the number of food trucks in a given area as evidenced above in Table 1.
While mobile food services may compete with certain restaurants at the margin, the two categories are different in many ways. Unlike food trucks, restaurants tend to have a dependable location shielded from weather, seating, personalized services, alcoholic beverages, and other conveniences (music, bathrooms, etc.). Higher‑end restaurants offer many more experiences that cannot be replicated by mobile food providers.
In fact, some evidence suggests that mobile food services may be stimulating demand in the food service market by attracting new customers that would not have purchased food at all were it not for the food trucks. Indeed, according to the U.S. Bureau of Labor Statistics and as reported by The Economist, counties in the U.S. that experienced higher growth in mobile food services have also had quicker growth in their restaurant and catering businesses.
Restrictive regulations can make it difficult to compete, but best practices are emerging
The Bureau recommends that regulators take‑stock of their current regulations based on the best practices, evidence and recommendations identified below:
Municipalities could consider the impact of reducing or repealing proximity requirements to promote competition between food service providers and provide consumers with increased choice. The Bureau has not found any clear evidence that suggests stringent proximity requirements are necessary. If proximity requirements are considered, the Bureau recommends that municipalities limit them as much as possible to protect only “core” business elements of restaurants (e.g., obstructing restaurants from street view; preventing restaurants to leverage unique features, such as scenic views).
Municipalities could consider restricting where food trucks can operate only when there is a legitimate reason to do so. The Bureau recognizes that a number of policy issues are at play in municipal zoning decisions (e.g., traffic management, availability of parking, noise concerns) but food trucks should not be barred from operating in neighbourhoods or commercial centres where bricks‑and‑mortar restaurants are allowed to operate. If congestion is a concern, cities could consider targeted measures in specific congested areas (e.g., maximum of food trucks per block). Designated spaces also offer a model that has proven successful, as long as there are a sufficient number of spaces available for vendors.
Selection committees / limits on the number of providers
Municipalities could consider letting the market choose “economic winners”, instead of imposing limits on the number of vendors or having selection committees triage applications. Customers usually “pick” winners in the food service industry. This should not be different for mobile food providers. While some cities, like the city of Quebec, limit the number of restaurants in certain neighbourhoods, the limits imposed on food trucks should be no more onerous. Clear operating requirements should be sufficient to ensure safe operation of mobile food services. The market will dictate the optimal number of providers. Selection processes could artificially hinder business opportunities by imposing superficial selection criteria and could lead to possible bias (e.g., if the restaurant industry sits on the committee).
Limits on operating hours
Municipalities could consider whether constraints on operating hours are in place for a legitimate reason (e.g., health and safety). Limited operating hours could favour one type of food service provider over another and restrict customers’ choice. The Bureau has not found any evidence that supports the rationale for limited operating hours.
In addition, the Bureau notes a wide range of fees applicable to mobile food providers, from $350 for an annual permit in Montreal (parking fees at designated space are extra and cost between $10 and $40 daily) to $500 per hour to operate in Campbellton, New Brunswick. While the Bureau is not in a position to determine whether fees being charged by municipalities are justified, the Bureau does recommend that fees be supported by a strong rationale and consider current market prices for public use (e.g., the fee charged for a designated space on a street could be in line with the price of parking on that same street). The Bureau does not recommend excessive fees that “artificially” preserve restaurants’ market share.
The Bureau invites municipalities to re‑think their regulations based on best available evidence
In response to the growth of mobile food services, a number of municipalities are considering changes to their regulations or have enacted changes over recent years. While the municipalities are best positioned to design regulations that reflect their unique policy objectives and local context, the Bureau does invite municipalities to rethink their regulations based on the best practices identified above and on the best available evidence.
While the Bureau analysis did not focus directly on regulations applicable to restaurants, municipalities should also look to review those regulations to determine whether they remain well tailored to address legitimate policy objectives and whether a lessening of regulations may also be warranted.
Renewed and flexible regulations could offer more choices to Canadians in search of something to eat…at any time of day.
- Date modified: