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Restaurant Industry Post Covid-19: Challenges and Recovery

Posted by Pat Hanway on Jan 27, 2022 10:30:00 AM

The aftermath of COVID-19 has challenged every industry and put businesses in the difficult position of adjusting to new ways of working. The restaurant industry is no exception, and if anything- it was hit harder than most. According to recent data released by the National Restaurant Association, more than 90,000 restaurants have closed temporarily or permanently due to the pandemic, and industry sales fell by over $240 Billion in 2020 alone.

Where many industries were able to adjust by working from home or providing remote options to employees, the nature of the restaurant business couldn’t adapt in that same way. Between mandates, poor employee retention, and chronic lockdowns, the restaurant industry suffered a devastating few years. Now, in 2022, small and large restaurant food-service businesses alike are still playing catch up on revenue and sales, but there’s no guarantee the next year will provide relief.

Extended Lockdowns, Lost Profit

The initial loss of business in the restaurant industry was of course due to the mandated lockdowns. National and state-specific regulations forced restaurants to close for weeks at a time, leading to a sharp drop in sales and eventually layoffs of employees. While other businesses were working out ways to keep their employees remote and safe, the restaurant industry had its hands tied. Curbside pick-up and no-contact delivery was a small stand-in, but couldn’t make up for the losses the industry faced.

When the world started to slowly reopen again and people were allowed back inside businesses, restaurants still faced a whole separate series of issues. For one, there was a massive drop in the desire to eat out. Restaurants, especially higher-end ones, make a large profit from the customers who dine in. During the thick of the pandemic, even when indoor eating was permitted, many were afraid of being in closed-off spaces with other people.

To make up for the combination of fear and extended mandates, takeout and delivery became the norm. 68% of consumers say they are now more likely to purchase takeout from a restaurant than before the pandemic. While delivery is a good addition to a standard restaurant, it’s unlikely to cover the sales needed to stay open.

The vice president of the National Restaurant Associated, Sean Kennedy, noted in an interview with Baltimore Magazine that the industry is known to be a high-cost, low-profit business. In most cases, to be successful, there needs to be a full house every night. He says, “If you can make that happen, you have a good shot of getting a 3% to 5% profit margin”. With the challenges of the pandemic, it’s no surprise these numbers were nowhere near being met.

Vaccines, Precautions, and Half Capacity

Lockdowns eventually eased and the restaurants that survived the initial COVID stages were starting to open back up again. At the same time, vaccines were slowly being introduced in certain cities and states, most restaurants weren’t able to open at full capacity, restaurants had to now implement very strict COVID-19 precautions. All of these new “normals” cost the industry money, customers, and employees. In- fact, the industry is 2.5 million jobs below its pre-coronavirus level.

At this point businesses were short-staffed and losing money from only being able to stay open at half 50 or 70% capacity. In more recent months as vaccines have become more heavily mandated, the industry has faced additional challenges from those who are unvaccinated. Restaurants have been struggling to get their employees to show proof of vaccination, and the new mandates requiring people to be double vaxxed to enter public indoor spaces will further hinder the customer base for restaurants.

New Variants

Unfortunately, the chronic mutation of COVID-19 has led to endless re-surges of the pandemic, most recently with Delta and Omicron. When the rates of Covid skyrocket, the number of people eating out plummets. The restaurant industry has been plagued with trying to adapt to the constant up and down of Coronavirus rates, and forced to try and cope with extended losses in business sales.

Additionally, employees are testing positive for Covid or staying home due to potential exposure. Restaurants are already struggling to hire and retain employees, and any additional staffing shortages have been a massive burden, even forcing restaurants to temporarily re-close.

Looking Ahead to 2022

Though the restaurant industry has been hit harder than just about any other in the past 2 years, there is still hope for the future. The National Restaurant Association has written a letter to Congress in hopes of receiving additional funds through a Restaurant Revitalization Fund (RRF). The first round of funding saved close to 900,000 jobs, and the association noted: “future grants awarded after a full replenishment of the Restaurant Revitalization Fund will potentially save more than 1.6 million restaurant jobs that are currently at risk”.

The number one reported problem in the industry today, 18 months after the start of the pandemic, is recruiting. Experts say the hiring shortage is not specific to the restaurant business, but is certainly taking a toll on it. To combat the challenges, restaurants are now increasing wages, providing incentives, and offering benefits in an attempt to boost hiring rates.

2022 will also see some changes to the food itself. In order to keep up with the changing demand, businesses started utilizing data more heavily to find what would keep customers coming back to their business. Recent industry predictions from Forbes note an increased desire for innovation in the food space, as well as clean eating and plant-based foods. The spike in healthy choices is likely aligned with the theme of “immunity” which has been a focus while trying to stay safe during COVID. Restaurants are being more creative and sustainable in their food choices to reel in customers, raise prices in combat of inflation, and give their employees an establishment they can feel proud of.

Changes in the Industry Means Changes to Insurance Policies

Restaurants are also paying closer attention to their insurance policies. While coverage for the virus is quite limited in most cases, there are ways to protect your business during these challenging times. Changes in operations like adding takeout options, online ordering, new alcohol policies, and outdoor dining are all new liabilities for restaurants. Some of the new areas of focus include:

  • Cyber Insurance: With online ordering and the integration of 3rd party delivery apps, securing user information is more important than ever.
  • Updated Property Policy: Outdoor dining has introduced the need for an extended property policy that includes coverage for the extra space being utilized, as well as detached properties.
  • Equipment Insurance: Restaurants who have introduced new methods of serving, such as delivery vehicles or order technology need to ensure their new equipment/property is insured.
  • Alcohol Liability: If a restaurant has introduced “to-go alcohol” as a part of their services, alcohol liability policies need to be updated according to state regulations
  • Workers Compensation: Restaurants should be checking their workers comp to include any available coverage for Covid-19 related claims
  • Business Interruption: Coverage for business interruption should be updated to include losses from covid-19 related staffing shortages or closings, if applicable

The comeback for the restaurant industry is going to be a marathon, not a sprint. There are years of struggle to make up for, continuous mandates and regulations to battle, and a whole new customer landscape to adapt to. As noted in a recent article with QSR Magazine, It’s key for the industry to maintain a “this could happen to me” attitude, rather than a “this will never happen to me” attitude. Being prepared for the worst and having plans of action to combat the ongoing challenges will help the industry protect what they have been able to retain. If anything, the pandemic has shown this industry’s strength and devotion to keeping its businesses alive, and its customers are happy.

Protect Your Business With ECBM Insurance

ECBM has the expertise to assist your business during these challenging times. While the post-pandemic world continues to change daily, our team will take care of your insurance needs so you can focus your attention on your business. If you’re concerned about the coverages on your current policy, or if you’re looking to purchase a new one, our team can help. Contact us today for more information.

Topics: Restaurants, COVID-19