To say it's a challenging time for restaurant operators right now may be the understatement of the year. Increases from vendors due to high gas prices, rising food costs and the implementation of new laws have all been eating away at the restaurant industry's bottom line. Combined with a rising unemployment rate and overall lack of confidence in the economy among consumers, it's not difficult to understand why restaurant operators are experiencing decreased sales and profits.

Interestingly, not every segment of the restaurant industry is experiencing a slowdown in growth. While we've seen many reports of closings and bankruptcies in the casual dining segment over the past year, fast food and fast casual chains are holding steady or in some cases increasing their number of store locations.
One of the issues faced by the casual dining restaurant segment (defined as casual restaurants with servers) is that the space is oversaturated with too many concepts that are similar in both offerings and prices. Further, just as we've seen with personal lending, commercial loans have been plentiful over the past 5 years, allowing operators to rapidly expand. Now that the demand is not meeting the supply, many restaurateurs are being forced to close locations and streamline their operations.
Meanwhile, fast food and fast casual restaurants (places that provide higher quality than fast food but do not incur the overhead of servers) are expanding. As landlords struggle to find viable tenants, this has translated into opportunities for clients in the fast food and fast casual space looking to expand to secure better terms. One of our clients who owns a chain of popular fast casual sandwich shops has opened four new locations in the past year and plans to expand with another six locations in the upcoming year.
Restaurants face a multitude of challenges, both from a business risk and operational point of view. Not only must a restaurant operator stay on top of his competition, garnering and maintaining customers, he also must stay on top of his internal challenges. Employee turnover, training, maintaining a safe environment for both customers and employees are all key to running a successful restaurant. Liquor liability is a key exposure that a restaurant operator must address and understand.
The Dreaded Dram Shop Laws
Under dram shop liability laws (governing the liability of taverns, liquor stores and commercial establishments that serve alcoholic beverages), a party injured by an intoxicated person can sue an establishment for contributing to that person's intoxication. There are a few exceptions-including Nevada, which relies heavily on tourism and its accompanying alcohol sales, and Alabama, Alaska and Michigan, which limit liability to illegal alcohol sales, like serving to minors or known alcoholics. However, most states allow for recovery simply when the defendant knew, or should have known, the customer was intoxicated.
The National Restaurant Assn. reports that more than 50 percent of first-time drunk-driving offenders were drinking at a restaurant or bar before getting into their car and endangering others. In 2003, the Outback Steakhouse chain was ordered to pay $39 million by an Indiana jury after a patron struck the plaintiff with his car. That same year, a Kentucky jury ordered T.G.I. Friday's to pay $21 million to the parents of two 16-year-olds who were killed after being involved in an accident with a drunk driver who had been served at a T.G.I. Friday's. Unfortunately, these cases are not isolated incidents. Restaurants and bars are sued every day for serving customers who are involved in alcohol-related accidents.
While we may not be able to affect our clients' top line sales, we can affect their bottom lines. As specialists in the restaurant industry since we began in 1988, we recognize that the insurance premium our clients pay is only part of the equation. From large chains to one-location businesses, restaurants need customized loss control and claims management programs to address their needs. These programs can have huge impacts on their insurance programs, allowing them to mitigate exposures.
Prevention Through Education
The most important defense against liability for alcohol-related incidents is prevention through education. We work with our clients to develop a liquor liability training program for employees who serve alcoholic beverages to customers. Many qualified programs are available, such as TIPS (Training for Intervention Procedures) and SMART (Server & Managers Alcohol Responsibility Training).
These programs provide employees with information such as how to identify valid forms of identification, how to determine if someone has had too much to drink and if necessary, deny service to a guest. Employees who complete the training sign an agreement outlining that they will comply with and understand the policies and procedures of the restaurant.
These trainings usually include the following:
1.Signs of intoxication (Courtesy of SMART, Server & Managers Alcohol Responsibility Training)
Employees learn the signs of intoxication, including:
o Slurred or slow speech
o Tendency to lose a train of thought
o Red eyes or inability to focus
o Decreased alertness
o Staggering or inability to walk
o Inhibited motor skills such as the inability to light a cigarette
o Drinking faster than normal
o Being overly friendly.
2. Monitoring consumption (Courtesy of SMART)
SMART uses the “traffic lightobCrLf system to teach employees how to recognize when patrons have had too much to drink rather than counting drinks.
Green: Patron shows no sign of impairment, is in a good mood, and is not drinking rapidly. Assessment: The guest gets a green light!
Yellow: Patron is not yet intoxicated, may be drinking quickly, is either in a “downobCrLf mood or celebrating, and may be showing signs of impairment. The goal is to stop serving before a guest is intoxicated. Assessment: Serve with caution!
Red: Patron shows signs of intoxication, may be depressed, aggressive or angry, drinks fast, and seems intent on becoming drunk. Assessment: Stop! This guest should not be served alcohol.
3. Attentive customer service
As a part of the liquor liability training program, employees should be taught to conduct friendly conversation with guests, suggest food items and slow down service while engaging in conversation (especially relevant for restaurants with a separate bar or lounge area). By building rapport early on, the server may avoid upsetting the guest if approached to stop drinking.
4. Denying service
It is important to establish a policy for how to deny patrons service when they have had too much to drink. Include the following:
o Be polite and offer non-alcoholic or food alternatives
o Remain calm and in control of the situation and avoid any threatening statements
o Place the focus on the server by explaining they could lose their job if they continued to serve the guest
o Offer to call a taxi or friend to drive the guest home
o Use a firm tone and do not back down if met with resistance
o Seek a manager's assistance immediately upon confrontation while trying to deny a guest service.
5. Reporting incidents
We provide clients with a liquor liability incident report form so no details are missed and all relevant information is gathered at the time of the incident. The report should include the name of the intoxicated guest, a description of the incident (refused service, use of false identification), the guest's condition (slurred speech, inability to walk) and witness testimony. Details often are forgotten, so the report can become an important part of a client's defense. 6. Legal consequences
Effective programs include information on how intoxicated guests could affect employees' lives. Explaining they could face consequences for not denying service to intoxicated guests helps employees understand they could be held accountable. For instance, employees must understand how serving to minors who use fake IDs will result in large fines to the employee and restaurant, or how dram shop laws allow individuals to sue owners and employees if they've been injured by a guest who was served at their restaurant. Remind employees that management is there to help and they shouldn't hesitate to call on them for support.
7. Transferring risk
The last piece of this puzzle is purchasing a liquor liability policy. Most commonly this is included as part of a package policy but it can also be purchased as a stand-alone policy. Key Carriers
Many carriers specialize in and actively seek restaurant accounts, including Fireman's Fund, Allied, Golden Eagle/Safeco, Travelers and Wausau. They include specially crafted endorsements germane to restaurant exposures. Fireman's Fund includes crisis management assistance for claims that garner widespread attention (such as bad press associated with a liquor liability claim) and wine coverage at selling price.
A key part of underwriting a restaurant account includes an analysis of the percentage of liquor receipts relative to overall receipts. Most standard markets will accept up to 40 percent, but we can often get approval up to 50 percent if the account is a fine dining restaurant with expensive wine. If liquor receipts are more than 50 percent, or the restaurant is not a fine dining establishment, it will probably have to be placed in the surplus lines marketplace. As in the standard market, several surplus lines carriers specialize in restaurants. Pricing and Future Trends
Since 2004, rates have continued to drop, due to the insurance industry's healthy loss ratios and record-breaking profits. However, recent industry shake-ups are signs of things to come. While it's too early to call this a hard market, profits are slipping and carriers are not offering the double-digit decreases of the past four years. Next year carriers will probably be aggressive with pricing only if they have to in order to retain business. Selling Tips and Tricks
There is no magic potion to sales success in restaurant business, other than hard work and perseverance. But we have found that consistency in a few areas helps us retain existing business and gain new business.

o Create safety programs unique to the restaurant industry
o Build relationships with industry association groups
o Build relationships with restaurant chain associations
o Build relationships with other vendors who specialize in the restaurant industry, such as payroll, consulting, accounting and tax firms.

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Protecting Restaurants In a Tough Environment

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