Here’s what creates risks for hospitality providers in 2024
As Canada eases out of the COVID-19 pandemic, the country’s restaurateurs, hoteliers, and event venue operators face a multitude of risks.
Changes over the past four years have hospitality providers swimming in a toxic soup of pandemic-stunted social habits, inflation-dented wallets, recession fears, climbing interest rates, escalating wages and other business costs.
“The greatest risks I would point to now are anything that impacts financial stability,” said Michael Boynton, a vice president in NFP’s business insurance division. “It could be reputation, their ability to adapt [or] just customer satisfaction at a macro level – any negative incidents that may damage customer trust and lead to a decline in bookings and revenue.
“From an insurance standpoint, we look at the safety and security risks, such as cyberattacks, natural disasters, liquor liability or even foodborne illnesses [from things like] surface contamination [that] can significantly impact the reputation and business of hospitality providers.”
Watching the bottom line
When running their businesses, hospitality providers generally focus on managing revenue and expenses. But post-pandemic, “our clients are watching costs for labour and fixed expenses more than ever,” Boynton told Canadian Underwriter.
The emerging new normal has these firms monitoring cost of goods sold (COGS in industry parlance) and labour-fixed expenses, and asking themselves, ‘Can these be easily moved in a business plan?’
“In prior years in the [hospitality] industry, everyone would fixate on socials and marketing for revenue. Now it’s about managing expenses and labour percentages to make sure pricing is constantly aligned,” he said.
“Produce is up significantly – double-digit percentages. So, they’re watching that and asking themselves, ‘How can we manage our costs, and how can [we align that with] pricing…so that our clients are still funnelling into our hospitality operations?’”
Emerging tech threats
Further, hospitality firms’ growing reliance on point-of-sale payment systems increases the risk of revenue loss following a cyberattack.
“Those systems can go down,” said Boynton. “There’s a lot of technology in restaurants [as well as] events — things like processing food and beverage orders, menus are all online, bookings are done online through websites or email. All of that can be shut down.”
Cyberattacks affecting hospitality providers’ ability to operate can also cause reputational damage or lead potential clients to select other providers. And, sometimes, business shutdowns can spark a flurry of negative comments on social media.
“Online reputation management has been a key emerging risk. There’s been a rise in online reviews and social media, so hospitality providers are increasingly exposed to public criticism. There’s just so many different ways to get negative criticism,” noted Boynton.
And then there’s geopolitical volatility. “Protests and rapidly changing political climates can be an issue, especially for larger events,” he said.
In response, hospitality firms must carefully evaluate how much event cancellation coverage they’re carrying for marquee events to ensure it will cover economic risks.
Plus, underwriters will expect companies to have procedures in place for event disruptions – including ensuring planners and staff clearly understand a venue’s physical layout so they can facilitate a possible evacuation.
This article is excerpted from one appearing in the February-March 2024 print edition of Canadian Underwriter. Feature image courtesy of iStock.com/Leonsbox
