The restaurant and bar industry during the last three years has experienced a great deal of changes as a result of the pandemic, a labor shortage, and inflation. The industry has had a lot on its plate, but throughout these challenging times, it continues to emerge resilient and creative.
The COVID Effect
Let’s Sit Outside
The restaurant and bar industry was among the hardest hit due to the pandemic. To survive during this period, the industry made significant changes to accommodate social distancing and other mandates once venues were allowed to reopen. “Outdoor dining, for example, grew significantly on the heels of the pandemic, even in colder climates where this option was not a part of the landscape,” says Kathy Szur, Vice President, Underwriting, at ISC.
Thousands of restaurants created outdoor spaces using heat lamps, tents, igloo structures, comfy furniture, and other fixtures. “Almost every city in the U.S. eased ordinance restrictions and allowed restaurants to set up seating on the sidewalks and streets in front of their businesses,” Kathy explains. “Some cities even provided funding to assist restaurants in transitioning to outdoor dining.” In fact, outdoor dining continues to thrive, providing restaurants with an additional channel of income.
The growth of ghost kitchens also accelerated during the pandemic. Ghost kitchens are basically restaurants without a dining space. Owners/chefs set up a commercial kitchen in a space within a delivery hub. The staff prepares dishes from the restaurant’s menu which are only available for delivery.
“The ghost kitchen concept is an opportunity to lower overhead expenses and reduce costs,” explains Kathy. “The rent is lower, and you have a few back-of-house staff fulfilling orders.”
Labor Shortage Taking Its Toll
Restaurants have not regained the level of staff – from managers to chefs and hourly workers – they lost during the pandemic. The National Restaurant Association says the industry as of May was still down 750,000 jobs, roughly 6.1% of its workforce from pre-pandemic levels.
“The staff shortage impacts an establishment’s ability to maintain quality service and its hours of operation,” says Kathy. “Some restaurants are cutting back on their hours or closing two or three days a week in order to maintain quality service and a good reputation in their communities.”
In fact, customers in the first quarter of this year in their Yelp reviews mentioned staffing shortages three times more often than in that period of 2021. Mentions of long waits on Yelp reviews rose 23%, according to an article on the CNBC.com site.
Enter robots. As we discussed in a recent article, a growing number of restaurants are turning to robotics to help out with the labor shortage and expenses. Robots in some restaurants are being used to carry plates of food from the kitchen to tables. Some are mixing drinks, while others are making deliveries. “As we did with the acceleration and proliferation of outdoor dining, we have to contemplate the additional exposures presented by the use of robotics for restaurants when underwriting an account,” Kathy notes.
Not only has inflation caused food prices to skyrocket but it’s also making consumers think twice before dining out. While some restaurants are raising prices on menu items to combat inflation, others are looking to attract diners by adding entertainment, with trivia night or karaoke, to their menu. “The dining experience becomes a special night out,” says Kathy.
Inflation is also causing restaurant owners to review where they can make adjustments to lower expenses. It’s important for agents to discuss with clients who are considering cutting back on their insurance program the risk in doing so. “Opting for lower limits or forgoing certain coverages,” says Kathy, “can be more costly in the long run if there is a loss that is uninsured or underinsured.”
A Bright Spot
There is good news in the mix. Although still not at 2019 levels, restaurant sales are climbing back up in comparison to 2020 and 2021, according to Kathy, based on insurance submissions. ISC’s Restaurant, Bar, Tavern & Nightlife (RBTN) program provides establishments with General Liability, Property, and Liquor Liability insurance coverages.