When opening a business, such as opening a restaurant, there is always some element of risk involved. Understanding the risk management definition and similar practices can help you, as a business owner, prepare for potential restaurant industry risks.
A restaurant owner or restaurant manager is able to protect themselves and their teams from risks in different ways. These include defending against a cyberattack or accumulating finances to cover operation costs in order to start turning a profit.
However, in order to do this, you need to be able to identify restaurant industry risks. Restaurant risks are common and this blog covers the most popular risks to keep in mind as a restaurant owner or manager.
Restaurant Industry Risks: What Are They?
Restaurant industry risks are exposures that restaurants have to factor in that can lower their profits or cause the business to fail. Anything that poses a threat to the restaurant’s ability to reach its financial goals is considered a restaurant industry risk.
There are different factors that come together to create restaurant industry risks. In some cases, it’s the restaurant’s leadership or management that creates situations where the business is exposed to a larger degree of risk.
Restaurant owners tend to take on a great amount of risk in order to follow their dreams. By doing this, they are responsible for any accidents or damages that may occur when serving customers.
There are potential hazards that may occur when working in a restaurant. These include slippery surfaces that you, your employees, and your clients can encounter on a daily basis, open flames, and sharp knives. Properly managing risk will allow you to plan for success.
Key Takeaway: Identifying potential restaurant industry risks will allow you to avoid making mistakes in your business and manage tasks effectively.
11 Risks in the Restaurant Industry
As with any industry, businesses in the restaurant industry face various risks.
Here are 11 risks in the restaurant industry:
1. Food Storage
In a restaurant, it’s important to ensure that all food purchases are stretched as far as possible. This will go towards minimizing daily costs. In order to do this, restaurants need to have proper food storage practices in place.
Many restaurants will rely on various preservation options such as walk-in freezers and serving stations. These will help ensure food safety and freshness.
Proper food storage practices allow restaurant owners to reduce restaurant industry risks. This is because they can eliminate food contamination, spoilage, and waste.
2. Insufficient Cash Flow
Every business has a goal to become profitable. However, underestimating the time a restaurant needs to become profitable is a common mistake.
Even with considerable startup costs businesses may fail to raise enough capital. It’s possible for the most promising restaurants to operate for months or even years before they generate enough revenue to cover restaurant expenses and operational costs.
3. Restaurant Equipment
Many restaurants depend on fully-functional equipment in order to service their customers. If equipment breaks down, restaurants may experience a business interruption. In some cases, they may even experience prolonged closures.
An example of equipment breakdown would include cooking appliance malfunctions or refrigeration unit leaks. It’s also possible for equipment breakdowns to lead to property damage. This may happen if the appliance catches on fire or starts leaking.
4. Employee Injuries
Working in the hospitality industry comes with great risk. This is especially true when it comes to the risk of accidents for employees. In fact, one of the biggest restaurant industry risks to be mindful of is employee injuries.
Employee injuries include:
- Employees slipping and falling due to slippery floors
- An executive chef or sous chef cutting themselves while chopping fresh produce
- Kitchen workers suffering a back injury while carrying or unloading supplies
Restaurant workers are exposed to a lot of situations in such an environment. Due to this, it’s important to have consistent workplace safety training. Ensuring proper employee onboarding and training will reduce the risk of workplace injuries.
5. Licensing and Certifications
Some businesses require specific licensing and certifications in order to legally operate. Failure to obtain and maintain all necessary licenses and permits can be a disaster. In some cases, a business may receive fines or additional complications.
Common licenses and certifications include a liquor license, bartending license, or food handler’s permit. All licensing and paperwork should be up to date to avoid problems similar to restaurant industry risks.
6. Property Damage
If your restaurant is in a brick and mortar location, it’s prone to potential property damage risks. These damages may be caused by a break-in or a fire.
It’s common for restaurants to have assets that intruders will target. Such assets include on-site cash and high-end equipment. It’s possible to take certain precautions to protect your property from a break-in. This includes setting up a security system.
Fires are also restaurant industry risks to be mindful of. As a restaurant owner, fire safety is a huge responsibility and a positive investment. Even small fires can cause extensive damage.
7. Poor Marketing and Brand Management
All businesses will need to develop a marketing plan and that includes having restaurant marketing strategies. Restaurant marketing done right will allow businesses to stand out compared to their competitors.
Due to the great competition within the restaurant industry, it’s common for some restaurants to get lost in the crowd. Failing to develop a strong restaurant marketing plan will keep the business from performing well.
Effective marketing campaigns are crucial assets that can lead to customer acquisition and customer retention. These campaigns should be managed and improved on a regular basis to help stay up-to-date with the latest trends and strategies.
8. Customer Injuries
Once a customer enters the premises, you are responsible for their safety. Many restaurants get a lot of foot traffic which increases the chances of injury. This can be from a spilled drink or a chair in the middle of the restaurant that may cause a customer to slip and fall.
To avoid such restaurant industry risks, it’s best to have regular clean-up efforts, especially when it comes to slippery surfaces. It’s also ideal to respond quickly in case an accident does occur.
9. Staffing Shortages
Since the COVID-19 pandemic, staffing shortages have been on a rise. Many restaurants closed their doors for good once the pandemic hit. Some are now trying to reopen. However, they face the common problem of staffing shortages.
Even if staffing shortages fall, it’s one of those restaurant industry risks that may occur again without warning. This is similar to the increase in labor cost.
10. Cybersecurity
Cybercriminals tend to commonly target restaurants due to the restaurants’ payment processing practices. Many restaurants process high volume debit and credit card information.
It’s also possible for improperly trained employees to put the business at risk of phishing scams, ransomware, malware, and viruses. To avoid this, restaurants may offer separate Wi-Fi options for their guests to connect to instead of allowing them to connect to company Wi-Fi.
Not everyone understands the risks associated with cybersecurity which is why businesses tend to overlook digital security. If your business deals with credit card transactions, you may want to invest in cybersecurity precautions to avoid credit card fraud.
11. Global and Environmental Risks
The pandemic has made businesses realize that global issues can also pose possible risks in restaurant businesses. One of the main threats at the moment is related to climate change. As people become more environmentally-conscious, they are more likely to pick eco-friendly restaurants. Food service establishments should focus on sustainability and sourcing local products from produce distributors.
Inflation and supply chain disruptions are yet another potential global risk for restaurants. They can significantly reduce the purchasing power of customers. Furthermore, problems with supply chains cause significant fluctuations in prices of various products.
How to Minimize Risk in a Restaurant
Proper risk management is crucial for restaurants. Otherwise, they might find themselves unprepared for difficult situations. Here are a few tips on how to manage and minimize restaurant risk.
- Create a good risk management plan. It should cover different situations and potential actions if they arise. The risk management plan should not be focused only on the most common risks in restaurants. Instead, it should cover potential global risks such as economic turmoil or force majeure events.
- Get insurance. The main goal of insurance is to protect your enterprise from some risks. There are different types of insurance and some companies can also offer custom options specifically focused on minimizing the risk in restaurants.
- Invest in customer retention and brand awareness. All businesses go through hard times. What matters is how you move forward when difficulties arise. In order to minimize the restaurant's risk if hard times hit, make sure you have loyal customers who will come back to you.
- Benefit from modern solutions. Advancements in AI and automation software have made it easier to run a restaurant business than ever before. That’s why businesses that wish to stay ahead of the competition should benefit from the latest technological developments in restaurant software. Whether it’s ordering software like Revolution Ordering or AI tools that can quickly solve various problems, restaurants should embrace these solutions and use them to their advantage.
- Prepare for the worst and hope for the best. Benjamin Franklin said that "by failing to prepare, you are preparing to fail". That’s why the best way to minimize risk in restaurants is to prepare for it. That’s what sets world-class business owners apart from second-rate ones.
Frequently Asked Questions About Restaurant Risks
Proper risk management practices help avoid certain exposures to such problems. However, no process is 100% effective in guaranteeing an accident-free work environment.
To better understand potential restaurant risks, read the following commonly asked questions:
What Are Five Examples of Risks?
Five examples of risks include:
- Legal risks
- Physical risks
- Psychological risks
- Loss of confidentiality
- Social and economical risks
In order to succeed, a business should create a risk management plan. Writing a restaurant risk management plan will help you prepare for these risks ahead of time.
What Problems Do Restaurants Commonly Face?
Problems that restaurants commonly face include:
- Cost and budget management
- Developing a unique selling proposition (USP)
- Employee turnover
- Customer service
- Lack of automation
- Restaurant marketing challenges
- Food storage
What Are the Four Main Challenges for Restaurant Operations?
The four main challenges for restaurant operations include:
- Reaching new customers
- Mitigating rising food costs
- Finding and retaining essential staff
- Controlling increasing operational costs