Despite Improved 2024 Outlook, Labor, and Other Risks May Drag Restaurants Down

The U.S. restaurant industry will continue to shake off the aftereffects of the pandemic in 2024, but that doesn’t mean the challenges that remain are easily dispelled. 

Even though cooling inflation is a positive, it’s still running ahead of the Federal Reserve’s 2 percent target and has not yet resulted in relief on costs. Stubbornly high interest rates also keep operators squeezed by the cost of money, both long-term debt and revolving credit lines.

But the leading drag on the industry are its labor woes. The persistent shortage of people is aggravated by inflationary pressures on wages combined with complications of new minimum pay requirements. Another growing risk: nuclear verdicts over dram shop law violations, driving up the costs of liquor liability insurance.

Those restaurant organizations that closely monitor and manage such existing and emerging risks will be best positioned to ride out the turbulence. Here’s an overview.

Dealing Better with Labor Pains

The industry needs more people. Full-service, cafeterias and grill buffets are the segments experiencing the biggest struggle. Quick service, fast casual and bars and taverns have exceeded where they were in February 2020. As of the end of 2023, the industry is still 14,000 jobs behind that pre-pandemic level.

It’s the industry’s biggest concern. Nearly 75 percent of the industry executives surveyed in the HUB International 2024 Outlook Executive Survey said it has affected their business’ vitality, leading over half to sharpen their employee recruiting practices.

Beyond recruiting, many employers are responding to the tight labor market by sharpening their focus on the kind of employee experience they’re providing. One way to improve its quality is through personalized benefits that speak to the individual’s needs and wants. Older workers, for example, might prioritize prescription drug benefits and a robust retirement plan. Younger employees might be less interested in a comprehensive health plan, but more interested in telehealth and mental health counseling services.

In fact, offering wellness benefits that cover mental health services would solve a lot of the industry’s ills. The environment, marked by ongoing disruption and uncertainty, has created a huge burnout problem. With their mental health affected, 42 percent of foodservice frontline workers currently want to leave their jobs.  

Many restaurant groups have improved their employee assistance programs in response. Some larger groups have even added a therapist to the staff. And well-being benefits do make a difference, reducing recruiting costs and sick days taken as well as promoting employee satisfaction. 

Liquor Liability, Wage and Hour Risks Grow

Nuclear verdicts over violations of dram shop laws are increasingly common. One Miami bar, for example, was ordered to pay a whopping $95 million for damages stemming from a drunk driving incident.

It’s a continuing problem into 2024 for establishments that serve, making it critical to have adequate liquor liability insurance. But it’s hard to get and very costly. One South Carolina bar owner reported that his liquor liability costs skyrocketed from $5,000 to $60,000 in only three years. It should encourage managers to tighten their practices in 2024, starting with fine-tuning and documenting policies, and training to help avert over-serving. Conflict resolution training is also a must.

Another potential issue in 2024 is the risk of wage and hour violations as higher minimum wage requirements – with their attendant complications – take effect. This can get complicated, raising concerns like maintaining a fair pay gap between more experienced staff and minimum wage employees, and compensating fairly for tipped versus non-tipped work.

One of the impacts will be on employment practices liability insurance in 2024. Insurers are adding wage and hour exclusions to policies and reducing limits in response to class-action litigation filed by servers and other front-of-house staff.

Preparing for Whatever Comes

By consulting a broker before renewal, restaurant owners demonstrate to underwriters their commitment to risk reduction through plans for mitigating potential exposures. It’s the best way to secure coverage at the best terms and prices. Some guidelines:

• Thoughtfully lean into risk. Factors like high interest rates and nuclear verdicts make insurance more expensive. Alternative insurance vehicles like captives can provide access to insurance capacity. Look for guidance on insurance strategies aligned with your risk profile and budget.
• Increase workforce engagement through benefits. Hospitality companies with a benefits strategy based on personalization that foster a quality employee experience (QEX) will boost engagement, have an advantage in recruiting and retention and lower risk as well.
• No surprises. Share with your broker any changes to the business to avoid surprises at renewal. Exposures and insurance needs should be reviewed at least 90 days prior to policy renewal, so your broker can identify the best options.