Pandemic Pivots Don’t Offset Restaurants’ Need to Manage Looming Risks

The restaurant industry isn’t totally out of the coronavirus pandemic woods yet, but those that have survived this long have proved their resilience and agility in adapting to once-in-a-lifetime (hopefully) circumstances. 

The trick will to be bring the same resourcefulness they’ve shown so far to overcome the barriers ahead – even as they continue to leverage the opportunities. In this environment, smart and strategic risk management has never been more important. 

Pandemic Pivots Still in Play

On the positive side, the pandemic forced any number of pivots among restaurateurs as they struggled during the pandemic shutdown to keep their doors open and kitchens cooking. 

Virtual kitchens, for example, were already accelerating trends when the pandemic hit. Those organizations that could used excess capacity in their existing kitchens to launch all-new, delivery-only brands – even as they continued to serve up items from their existing restaurants’ menus. 

These virtual brands have allowed restaurants to hone in on hot niche trends (anything chicken related, typically) with consumers. The carryout-only brand of It’s Just Wings, operating out of Chili’s kitchens. Cracker Barrel trialed a chicken and biscuit concept. Tender Shack, out of Outback Steakhouse kitchens, is also focusing on chicken – not steak. Do these brands have staying power? Apparently. Tender Shack’s parent company (Blooming Brands), for one, is looking for it to hit $75 million in sales this year.

And it hasn’t been only the deeper-pocketed restaurant groups seizing this opportunity. Some mom and pop establishments have partnered with delivery apps like Uber Eats to do so. UberEats uses its search data to identify unmet demand for different cuisine types in its markets, and works with local restaurants to create delivery-exclusive menus. 

However, that may not offset the hate in the love/hate relationships many restaurateurs have with the deliver apps, which, if anything, gained more clout during the pandemic. Their 30 percent on-average take on sales pushed many to hybrid delivery model, but the apps still have the clout. For the 12 months ended March 31, 2021, their pace of digital orders was up by 207 percent, versus 98 percentthrough direct restaurant ordering. 

Risks to Look Out For

Various risks may complicate the restaurant industry’s continuing recovery – how well they are anticipated and managed will make a difference. 

One, of course, is the need for enough people to manage the crowds now that their doors have reopened. It’s not just restaurants that are hurting. As the co-owner of two Asheville, N.C. restaurants told The New York Times, “I don’t think anything like this has ever happened. Everybody in the world is hiring at the same time.”

It’s forcing change on issues that have long been problematic – like pay and benefits. Hourly wages of $15 are becoming more standard. Hiring bonuses are also being offered. Some are eliminating tips – adding surcharges to customer checks to give servers hourly wages of $18 to $25..

Another risk centers on the hybrid delivery model. The third-party delivery apps offer risk transfer benefits worth thinking about. The restaurant’s liabilities start with food safety – what if it’s no longer edible when it’s delivered? Another issue concerns the restaurant’s drivers. If they are payroll employees, they should get additional auto coverage; the restaurant is protected in the event of a driver’s accident. Independent drivers, though, should be advised to procure their own coverage. 

And then there’s the restaurant’s customer data, which is increasingly being handed off to the delivery apps as they grow in influence. Are third party deliveries making a big difference in the bottom line or just driving incremental revenue? The answer should prompt serious thinking, given the role of data analytics in understanding and influencing the customer experience – and driving business growth.   

In this changing environment, the right and adequate amount of insurance protection has never been more important. But the hard market that’s underway creates another level of challenges for restaurateurs, given substantial exclusions in some lines, challenges in getting policies underwritten, and escalating premiums, too.

There’s a price for the unrelenting barrage of natural disasters, and it’s making excess liability insurance hard to find above standard liability limits. Property insurance is under pressure due to exposures from COVID-19 (think business interruption insurance) as well as natural disasters. Escalating cybercrime is another concern given hospitality’s growing use of technology, making premium jumps of 50% or more not uncommon.

In other words, organizations that have gotten through this far would be smart to not get too comfortable. They should also enlist the guidance of their insurance brokers and risk consultants on navigating the path forward, given their expertise in effectively managing through the forces like these that are changing the industry.