Q4 2020 Taking Stock
Positioning Retail and Restaurant Companies for Success in 2021
A global public health crisis, civil unrest and social justice activism, increasing insurance prices, more astute cyber criminals, and an unprecedented number of named storms —2020 has not been an easy year for businesses. For retailers and restaurants that traditionally depend on in-person interactions for the bulk of their business, this year has been especially challenging.
Dozens of retailers have filed for bankruptcy in 2020, and thousands of stores have already closed across the country, a trend that predates the pandemic. Restaurants, too, are having to fight harder than usual to stay afloat, making unprecedented changes to their business models. Despite a number of adaptations, for many the struggle has proven too difficult to maintain, forcing both independent restaurants and well-known chains to close locations.
As restaurants and retailers faced unprecedented challenges, many senior leaders have turned to their risk management team for answers during a tumultuous year that has reinforced the relevance of risk management, shining a spotlight on the need for plans to mitigate, respond, and recover from a combination of risks.
Resilience in the Face of Difficulty
A difficult year has underscored the industry’s fortitude as organizations — from mom-and-pop shops to national chains — have scrambled to adapt to a new reality. The adoption and advancement of digital and e-commerce platforms has greatly accelerated. Curbside pickup has become a differentiator for retailers and restaurants and the meal kit industry has experienced a rebound. Some restaurants have transformed into contactless markets and many have converted previously unused outside areas into makeshift dining rooms.
Even the retailers and restaurants that have weathered the storm will have their work cut out for them in 2021 as they seek to recover from a multitude of challenges. While individual companies will need to address specific needs, it’s important to focus your risk-mitigation strategy on the following areas.
1. Challenging Insurance Market Remains a Concern
Even as they continue to grapple with the pandemic’s effects, the majority of retailers surveyed during Marsh’s 2020 North American Retail/Wholesale Roundtable pointed to the increasingly challenging insurance market as their biggest concern for 2021. This highlights the need for a robust risk management structure to help manage risk profiles through data-based insights.
As we enter a new year, retailers and restaurants will need to review their coverage strategy and make sure it is a proper fit for their current risk profile. With insurers becoming more selective, it’s important to engage in early discussions with your broker, tapping into their benchmarking data, analytics, and market knowledge to better present your risk. Your broker can help you better understand the trajectory of rates ahead of renewal meetings, allowing you to prepare senior management and devise a strategy for your renewal, including exploring alternative risk finance options. Restaurant and retail companies should also be prepared to market their program and to reexamine the tradeoffs from increasing retentions and reducing limits.
2. Restaurants, Retailers Need Event-Neutral Business Resiliency Plans
Entering 2020, many retailers and restaurants had made strides in creating robust business continuity and crisis management plans. However, the effects of the pandemic, coupled with the impact of protests and civil unrest and the threat of natural disasters, have underlined the importance of having plans that will respond effectively to different risks and a wide range of scenarios.
Although prior to 2020 there was general recognition that a pandemic could affect restaurants and retailers, few, if any, viewed it as a top risk to their operations. This meant that business resiliency plans may not have addressed the rapid and at times significant changes to retail and restaurant companies’ operations over the past months.
For organizations to remain resilient in the face of major threats, they should continuously review and refine their business continuity and crisis management plans not only with a view of known risks, but also in preparation for the unknown. Retailers and restaurants will need to think beyond peril-specific plans and instead address individual points of failure within their organizations. For example, a retailer might want to prepare for a situation in which employees are unable to get to a store during a peak shopping period, irrespective of the reason. And a restaurant owner would do well to have a plan for continuous operations when a regular supplier is unable to fulfill an order for an essential ingredient, whether this is due to a natural disaster or geopolitical tensions.
Such event-neutral plans can enable organizations to be more agile and able to respond effectively to the impacts of a variety of risks — for example, a break in the supply chain, whether due to geopolitical tensions, a natural disaster, or civil unrest.
3. Digital Acceleration 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 the move to e-commerce.
But while this shift has been instrumental in retail and restaurant companies’ 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 “if” but rather “when” 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.