The restaurant and foodservice sector has been thoroughly tested in its ability to navigate through the COVID pandemic.
The issues it caused restaurants will continue to impact the industry in 2022, as it struggles to close the gap between merely surviving and thriving.
It won’t be easy. Hospitality is suffering more than most from widespread labor shortages. Business travel remains substantially below 2019 levels. The quest to improve operations has kept the focus on technology-related investment, but the downside is greater exposure to cyber risks.
In fact, risk management and insurance will continue to take on a higher profile. On-site inspections are an increasingly standard practice by underwriters, and their vetting for risk has them also checking social media reviews of hospitality businesses. Among insurers’ specific concerns are restaurants’ ability to deal with rising alcohol sales and whether full measures to combat COVID-19 are being taken.
The industry’s continued creativity on multiple fronts – technology, marketing and improved employee benefits – will push improved performance in 2022. Among the key trends and issues:
1. No quick solutions for labor issues, but better offers are helping
Higher pay. Improved benefits. Better working conditions. Employers are trying it all to bring back the people they need to service customers, no mean task when a third of former hospitality workers have no intention of returning to the industry1.
The shortages are pushing many restaurants to restrict their hours. Guests aren’t necessarily seated when a table opens, but when a server isn’t overloaded. Higher wages and signing bonuses are becoming standard – McDonald’s, for one, has raised pay levels by 10% at corporate restaurants. Some employers are underwriting college tuition for workers who commit.
Protecting employees will remain the priority, especially since COVID, in whatever iteration, isn’t going away. One major red flag on the horizon for employers involves potentially disruptive changes to workers’ compensation insurance. Many states are considering new presumption rules, allowing claims that assume an infectious disease was contracted at work. This puts the pressure on employers to focus on improving working conditions not only to attract workers but to reduce risk of contagion in the process.
2. Technology – a double-edged sword
Expanded use of technology has helped save the day for the industry. It’s transforming point-of-sale systems, and improving sales, inventory and cash flow.
Without the ability to physically serve customers, many restaurants relied upon technology to survive, through delivery apps and ghost kitchens, turning their sit-down operations into delivery powerhouses. On another front, tech has been a safe way to deliver training to employees – whether apps providing driver training or pre-trip inspections of cars being used for restaurant deliveries or for incident reports.
But here’s the downside. Malware, phishing, and other cybercrimes are rising, and the growth in tech deployment makes the industry more vulnerable. As of 2021’s second quarter, the hospitality industry saw a 155.9% year-over-year rise in attempted online fraud, and 13 serious attacks in the last three years alone2.
The risk won’t lessen in 2022. Organizations need to understand their exposures and put safeguards in place, like firewalls and employee training on avoiding breaches. They also should talk to their insurance broker to ensure they have adequate cyber insurance coverage. Jumps in claims, especially for ransomware, have tightened capacity and are likely to push rates up by 20% or more.
3. In search of business travelers
It will take a resumption of business travel to return hospitality to full health. It’s happening gradually, forcing all the ingenuity the industry can muster to speed the process.
Business travel drives an inordinate amount of the hospitality industry, mainly hotels, but restaurants are also a beneficiary. So, the industry as a whole is suffering from ongoing drag on a rebound from the impact of the pandemic. Hotel revenue from business travel in 2021 is expected to dive by $59 billion in 2021 from the levels achieved in 20193 – and restaurants are sharing the pain.
The environment is causing a lot of creative pivoting among hotels, with trickle down benefits for restaurants and other draws in the market. One is to make the host hotel for meetings and conventions a “hub” for other activities, like events and local destinations. “Come early, stay late” offers are also big, with packages that play up local amenities. Such moves have helped with some recovery but have risks of their own. Plus, they still rely upon high levels of business travel. Business income coverage is expected to rise 10% in 2022, with carriers tightening terms and seeking rate increases.
4. The growing impact of extreme weather
The intensifying pressure of weather extremes affects every industry, restaurants and hotels not the least. The industry is already dealing with the economic impacts and experiencing escalation in property-casualty rates by as much as 20%.
Extreme weather disrupts operations, raises costs and reduces leisure travel and tourism as certain warm destinations get hotter. Heat and drought add to wildfire risks, in eastern and western United States, with three of the top five years for burned acreage occurring since 20154. Then, too, there are earthquakes, hurricanes, tornados, floods and hail. Circumstances make catastrophe (CAT) modeling an important part of risk management. It helps identify where weather-related catastrophes are most likely to occur; its use makes a compelling risk management story to underwriters.
Recovering from the pandemic’s impacts will continue to be a struggle in 2022. Management that pays close attention to proper risk management and the right insurance protections will experience better odds to make it through successfully.