Wine and dine is about to become whine and dine as the U.S. credit crunch and financial crisis spreads deeper into Canada.

That means this country's restaurant sector is bracing for hard times ahead, even though earlier indicators have been fairly positive when it comes to dining out.

"Our sector is usually the first in when bad times are called and the last out," says Tony Elenis, president and CEO of the Ontario Restaurant Hotel & Motel Association (ORHMA), the largest provincial hospitality association in Canada with 4,000 members. "What will happen moving forward all depends on consumer confidence."

Officials say it's too early to tell how recent economic events, including a dramatic downturn in the stock market, will play out when it comes to choosing between eating at home or going out to a restaurant.

Chef David Adjey believes the restaurant sector will move away from 'expensive gimmicks' in favour of home-style cooking.

However, they also agree that any fallout will likely hurt expensive fine-dining destinations more than it will affect smaller restaurants that offer value for the dollars spent.

"The restaurant sector is certainly affected by the economy," says chef David Adjey, who has 28 years of experience and works as a restaurant industry consultant. "But when you shake the tree, usually the apples that fall off are the restaurants that are very expensive and high priced."

When restaurant spending dries up, chefs are more likely to revert to comfort food or home-style cooking such as mashed potatoes and meatloaf, instead of expensive gimmicks such as $300 tasting menus or tableside ice-cream freezing at $25 a pop, says Adjey.

"That's (those excesses) a sign for chefs that something is wrong with the economy - and that's usually just at the peak before an economic downturn," adds Adjey, who stars in the upcoming Food Network series Restaurant 101, where first-time restaurant owners are given the tools to open and run a successful business, and is one of the hotshot chefs on the TV show Restaurant Makeover.

"People never stop going out. We just choose to spend our money differently."

In Ontario, many residents are opting to spend more of their dining-out dollars at the supermarket instead of the restaurant, according to a new online survey of 1,081 grocery shoppers.

Sixty per cent of Ontarians are dining in more often to reduce expenses, according to the Metro Food-Life Balance Survey, conducted by Ipsos Reid for the Metro supermarket chain.

In the face of such frugality, there's no question restaurant operators "are under pressure to control their costs and to keep their prices down," said Jill Holroyd, vice-president of research and communications for the Canadian Restaurant and Foodservices Association. "We're forecasting menu inflation to rise by 3.2 per cent in 2009," said Holroyd, whose group represents most members of the food service and restaurant industry.

To stay afloat, restaurant owners will be looking to trim their costs wherever they can through negotiating with their suppliers, improved labour and energy efficiencies, Holroyd added.

By the end of 2009, Metro will have 158 stores in Ontario, consolidating its A & P, Dominion, Loeb, The Barn and Ultra stores under the Metro banner. Metro's figures show its home meal replacement (HMR) offerings - a large assortment of ready-to-serve meals as well as premium items such as salmon with mango salsa - are up by 20 per cent in 2008, compared to 2007. While the polling numbers are from late August, Metro believes the numbers would likely be at least as strong now or stronger when it comes to eating at home.

"From everything we're hearing and reading, the economy is at the forefront of consumer's minds, so we would imagine that this trend would continue," says Selena Fiacco, director of communications for Metro Ontario Inc. "We definitely think that in times of economic uncertainty, dining out is one of the most controllable factors consumers have."

But others don't completely agree.

"Right now this is not a bad-news story," says Jane Graham, the Toronto-based vice-president of the U.S.-based research firm NPD Group. "The overall economic indicators are good in Canada, Canadians are employed and they have disposable income. All of this should fare well for the industry."

Figures released in mid-September show that despite rising gasoline prices and an economic slowdown, consumer spending at Canadian restaurants increased 4.6 per cent in the 12 months ending May 2008 over the same period in 2007.

During this time, according to the NPD group, a 6.3-per-cent increase in the average check per person helped to offset a modest decline in restaurant traffic of 1.6 per cent.

With menu inflation of only 2.5 per cent, most of the increase in the average check size came from increased consumer spending, rather than from rising menu prices, Graham says.

Graham adds that the fact more money is being spent at supermarkets instead of restaurants is not new, and only a slight trend.

Ian Tostenson, president and CEO of the Vancouver-based BC Restaurant & Foodservices Association (BCRFA), agrees restaurants, especially those owned by small-business owners, shouldn't be counted out.

"I think what you have there is more of a convenience factor than an economic factor," he says. "I still think restaurants will win with quality and fair value.

"Small restaurants will win by being a integral part of their local community and as a place serving fairly priced food, good quality as well as a place to socialize. I think that's a winning ingredient."

Tostenson adds people will still continue to dine out.

"There's a general comfort for people - dining out and putting the realities of life behind them," says Tostenson, adding that they may pare back their spending a bit by not buying a drink with their meal or sharing a dessert instead of ordering two.

He also believes it's the higher-end establishments - not the small ones - that will be hit hardest, and notes the situation in Canada is nowhere near as bad as the U.S.

Menu changes

How can small restaurants deal with an economic slowdown?

The answer is simple, says David Adjey, a chef, television personality and restaurant consultant.

* Back To Basics: In economic downturns, people tend to turn to food that is comforting and brings back good memories. Add items like meatloaf and mashed potatoes.

* Give Them What They're Looking For: Great food, great service and good value.

* Get Back To The Art Of Cooking: Rather than buying expensive pre-cut cuts of meat such as rack of lamb, buy the whole lamb. Braise the shoulder and roast the leg. That way, you can still serve lamb, but you're bringing the portion cost down.

* Consider rewards programs: Offer customers reasonable rewards or points designed to increase traffic levels..

- Source: David Adjey Cuisine

- With files from The Canadian Press
(Laura Severs can be reached at laura@businessedge.ca)