Dozens of retailers have filed for bankruptcy in 2020, and聽thousands of stores have聽聽across the country, a聽trend that predates the pandemic. Restaurants, too, are having聽to fight harder than usual to stay afloat, making unprecedented聽changes to their business models. Despite a number of聽adaptations, for many the struggle has proven too difficult to聽maintain, forcing both independent restaurants and well-known聽chains to close locations.
As restaurants and retailers faced unprecedented challenges,聽many senior leaders have turned to their risk management聽team for answers during a tumultuous year that has reinforced聽the relevance of risk management, shining a spotlight聽on the need for plans to mitigate, respond, and recover聽from a combination of risks.
Resilience in the Face of Difficulty
A difficult year has underscored the industry鈥檚 fortitude as聽organizations 鈥 from mom-and-pop shops to national chains 鈥斅爃ave scrambled to adapt to a new reality. The adoption and聽advancement of digital and e-commerce platforms has greatly聽accelerated. Curbside pickup has become a differentiator聽for retailers and restaurants and the meal kit industry has聽experienced a rebound. Some restaurants have transformed聽into contactless markets and many have converted previously聽unused outside areas into makeshift dining rooms.
Even the retailers and restaurants that have weathered the聽storm will have their work cut out for them in 2021 as they seek聽to recover from a multitude of challenges. While individual聽companies will need to address specific needs, it鈥檚 important to聽focus your risk-mitigation strategy on the following areas.
1. Challenging Insurance Market聽 Remains a Concern
Even as they continue to grapple with the pandemic鈥檚 effects,聽the majority of retailers surveyed during Marsh鈥檚 2020 North聽American Retail/Wholesale Roundtable pointed to the聽聽as their biggest concern for 2021.聽This highlights the need for a robust risk management structure to聽help manage risk profiles through data-based insights.
As we enter a new year, retailers and restaurants will need to review聽their coverage strategy and make sure it is a proper fit for their聽current risk profile. With insurers becoming more selective, it鈥檚聽important to engage in early discussions with your broker, tapping聽into their benchmarking data, analytics, and market knowledge聽to better present your risk. Your broker can help you better聽understand the trajectory of rates ahead of renewal meetings,聽allowing you to prepare senior management and devise a strategy聽for your renewal, including exploring alternative risk finance聽options. Restaurant and retail companies should also be prepared聽to market their program and to reexamine the tradeoffs from聽increasing retentions and reducing limits.
2. Restaurants, Retailers聽Need Event-Neutral Business聽Resiliency Plans
Entering 2020, many retailers and restaurants had made strides in聽creating robust business continuity and crisis management plans.聽However, the effects of the pandemic, coupled with the impact聽of protests and civil unrest and the threat of natural disasters,聽have underlined the importance of having plans that will respond聽effectively to different risks and a wide range of scenarios.
Although prior to 2020 there was general recognition that a聽pandemic could affect restaurants and retailers, few, if any,聽viewed it as a top risk to their operations. This meant that business聽resiliency plans may not have addressed the rapid and at times聽significant changes to retail and restaurant companies鈥 operations聽over the past months.
For organizations to remain resilient in the face of major threats,聽they should continuously review and refine their business聽continuity and crisis management plans not only with a view of聽known risks, but also in preparation for the unknown. Retailers聽and restaurants will need to think beyond peril-specific plans聽and instead address individual points of failure within their聽organizations. For example, a retailer might want to prepare聽for a situation in which employees are unable to get to a store聽during a peak shopping period, irrespective of the reason. And聽a restaurant owner would do well to have a plan for continuous聽operations when a regular supplier is unable to fulfill an order for聽an essential ingredient, whether this is due to a natural disaster聽or geopolitical tensions.
Such event-neutral plans can enable organizations to be more聽agile and able to respond effectively to the impacts of a variety of聽risks 鈥 for example, a break in the supply chain, whether due to聽geopolitical tensions, a natural disaster, or civil unrest.
3. Digital Acceleration聽Requires Cyber Strategy
Curbside pickup, buy online/pickup in store, same-day deliveries: These have become everyday terms as more Americans have stayed close to home and restaurants and retailers shifted their business models to cater to new needs. Before COVID-19, many retailers and restaurants had been working for several years to enhance their digital experience, and the pandemic accelerated聽the move to e-commerce.
But while this shift has been instrumental in retail and restaurant companies鈥 fight for survival, it has also increased their susceptibility to cybercrime. And with the digital shift likely to persist, at least to an extent, in the post-pandemic era, retail and restaurant companies will need to focus more on becoming cyber resilient.
As cyber criminals become more savvy, it is not a question of 鈥渋f鈥 but rather 鈥渨hen鈥 a cyber breach or attack will occur. And retail and restaurant companies should be aware of this reality and enhance their defenses and response practices.
Investing in security, however, is not enough. Retailers and restaurants should have plans in place to quickly identify, respond to, and recover from a cyber event. Ransomware incidents in particular, are rapidly increasing in both frequency and severity; having proactive and well-rehearsed plans in place can help an organization minimize the risk of operational disruption or paralysis if critical systems and data are held hostage. Organizations should also revisit their risk transfer strategy, ideally investing in standalone cyber insurance, which can be instrumental in helping protect them against financial losses and get them back on their feet after an attack.
Adapting Learnings from 2020
As we look ahead to 2021, retail and restaurant companies should reflect on the actions they took to navigate the current year and continue strengthening their risk management plans moving forward.
Even after the pandemic is behind us, senior leaders will need to contend with the possibility that consumer preferences have changed permanently. And retailers and restaurants will need to adapt to yet another new reality in the new normal.