With sales projected to reach $863 billion in 2019, the restaurant industry is clearly serving up what diners are looking for. However, though the sector broadly has a positive outlook, key hurdles are putting pressure on these businesses.
“The restaurant industry has many challenges facing owners and operators due to high competition, thin profit margins averaging as low as 3-5%, and a depleting labor pool,” said Chris Hagle, president and national program manager at Insurance Programs of America, a division of Specialty Program Group. “Many of the traditional workers in the teenage years are turning to alternative industries, creating a compound risk of an already high turnover ratio with fewer options on increasing labor. This tough environment makes the focus on analyzing the total cost of risk not only vital, but mandatory.”
The risks within the restaurant industry are manifold, starting with reputational risk and brand protection. With the rise of social media, restaurants have to focus on finite details to ensure consistency and quality, says Hagle. After all, bad reviews can be viral and devastating. This starts with a granular approach to operations and procedures, beginning with employee hiring processes and training. At the same time, management must maintain a diligent overview from the back of the house through the kitchen, to its client-forward staff and all the way to the front of the house.
Other challenges include the preservation of property and stock. Risk management for this concern starts with the proper cycling of food products and monitoring of proper levels of stock – vital since any contamination, whether it’s caused internally or by product outbreak, can lead to the demise of a restaurant.
The safety of guests and employees is likewise crucial, according to Hagle.
“Proper checklists and procedures on overall cleanliness is the best way to avoid one of the top factors in guest injuries – slips and falls,” he told Insurance Business. “Simple techniques, such as when and how to properly maintain common areas and flooring, go a long way to mitigating potential claims. We have found that by taking a few extra minutes to dry mop areas while cleaning drastically cuts down on incidents.”
When it comes to employees, ensuring their safety goes a long way in reducing employee turnover and the restaurant’s total cost of risk. Once a restaurant’s workers’ compensation claims get out of control, the tail can follow for years to come, says Hagle.
Finally, following a year where cyberattacks brought many businesses to their knees, data protection should be top of mind for restaurants.
“We have all seen the effects of data breaches in the restaurant and retail industries over recent years. Having a protocol in place to mitigate potential breaches will go a long way towards protecting the most important factor – reputational risk and brand protection,” said Hagle. “Most credit card vendors are PCI compliant, but don’t assume the liability will fall directly on the business owner or franchisee. While many franchisors require franchisees to utilize their systems, the liability will land on the franchisee as many contracts demand indemnification in favor of the franchisor.”
While these five challenges are ones that restaurants face year-round, the holidays can heighten risks as well.
“The busy holiday season intensifies all facets of these risks, with increased volumes and foot traffic. This is also the time for holiday parties and an increase in alcohol consumption,” said Hagle. “Restaurants should focus on proper staffing to handle these increases to alleviate the pressures of following proper TIPS training or similar intervention-based liquor distribution.”
To address the myriad of exposures they face, restaurants should have the following coverages in place, explains Hagle:
With the right coverages in hand and effective risk mitigation methods in place, restaurants can avoid significant losses that could have led them to shut their doors.