Restaurants to feel hurricane impact long after the storm is over

First it’s the flood waters, the lack of power, and spoiled food. Then, it really gets bad for restaurant owners coping with the aftermath of a powerful storm.

The Federal Emergency Management Agency estimates that about 40 percent of small businesses will never reopen after a disaster.

Houston restaurant owner Brian Fasthoff told CNBC that there are four or five restaurants in the downtown area that he expects will never open again after major flooding and property damage.

While Fasthoff’s restaurant, Batanga’s, was safe from flood waters, which pooled just a block from his location, the storm caused the Latin American restaurant to lose power for three to four days and forced Fasthoff to shutter for a week.

Fasthoff told CNBC the restaurant lost revenue during the time it was closed and had to toss the food in its refrigerators and freezers that had spoiled when it didn’t have power. Not to mention, he still had to pay rent and provide paychecks to his salaried employees.

Business interruption insurance should help Fasthoff recoup some of these losses, but two weeks after he put in his claim, he has yet to hear back from his insurance company.

“It’s scary,” he said. “They are about to get really busy with the other hurricanes. And we need help as soon as they can, because restaurants don’t run on big margins to begin with.”

Batanga’s has since reopened, but Fasthoff said business has been slow.

“Right now it’s about getting people back out,” he said. “To get people to trust that it is safe and dry. It’s been quite a challenge.”

Luring diners back in has been a challenge for other restaurant operators in the area, as well. Tracy Vaught, co-owner of four restaurants in Houston, told CNBC that sales at her two fine- dining establishments have been weak since the storm. However, sales at her two more moderately priced full-service restaurants have been a bit stronger.

Vaught’s restaurants saw minimal damage, with only one location sustaining a roof leak. Her restaurants were closed for two to three days, she said, but her team is used to losing a few days each year due to inclement weather or restaurant renovation.

Thomas Nguyen, brand boss at Peli Peli Restaurant Group, said most of the company’s restaurants closed for a week. Its fast casual chain Peli Peli Kitchen opened later than the other three fine-dining locations because its kitchen was being used to provide more than 20,000 meals for the Red Cross.

“The most difficult part for the restaurant industry in Houston is the decrease in general business over the next few months at least,” he told CNBC via email.

Nguyen said Houston restaurants have already been experiencing a recession due to lower oil prices, which hurt incomes in the region, and the devastation of Harvey will only make that worse. He expects that diners will be grappling with massive home repair costs and will be forced to cut back on going out to eat.

Restaurants are often looked at as a sign of stability in a community, Bill Strout, president of Intrepid Direct Insurance, a restaurant franchise business insurance agency, told CNBC.

“For a restaurant to get back up and open and support the community by having a place to go and eat is important,” he said. “And some delivery might be needed as well because some people might not be able to get out of their homes or their cars might be unusable.”

In most cases, it takes a business about 14 days to recover from a natural disaster, according to Scott Teel, senior director of communications for Agility Recovery Solutions. However, for those with extensive property damage, it could take months or even years to recover from these storms.

“Your recovery is dependent on what happened prior to the incident,” he said.

Teel suggests that restaurant owners do an initial risk assessment to determine the most likely threats to their establishment. Those risks can be mitigated by carefully choosing insurance plans that cover those specific risks, stockpiling resources well in advance of any storms and training staff on proper disaster protocol.

He said many entrepreneurs are unprepared to deal with damages.

Nine out of 10 of the business owners who contact Teel’s organization after an incident looking to obtain a generator don’t know what size or type of machine they need to power their location, he said.

It’s also important to ensure that you understand how to use the equipment, as unsafe practices could shut your business down even if the storm doesn’t. Every year, people die from carbon monoxide poisoning after running their gas-powered generators inside their homes or businesses.

Power outages can also prevent shops from being able to process credit card transactions. During times of disaster, cash-only businesses are not practical for consumers.

Teel said restaurants should look to businesses such as Waffle House, which transitions to a different menu and gas-powered cooking when it loses power.

Above all, Strout said that restaurateurs should “work with an insurance provider that is an expert in your industry.”

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