I NSP I RAT ION FOR TRANSFORMI NG THE BUS I NESS OF FOOD
ACCELERATED, ALTERED OR ACCENTUATED BY THE PANDEMIC Food + Beverage Trends 5
2021 RECRUITMENT TRENDS IN THE RESTAURANT INDUSTRY
Franchising means audited financial tatements BY HENRY + HORNE
THE MAGAZ I NE OF THE AR I ZONA RESTAURANT ASSOC I AT ION
In this year’s second issue of Arizona Restaurant News we’re sharing useful information to keep your restaurant on track as we head into the summer months and further out of the pandemic.
I 6 5 FOOD & BEVERAGE TRENDS ACCELERATED, ALTERED OR ACCENTUATED BY THE PANDEMIC
3 0 202I RECRUITMENT TRENDS IN THE RESTAURANT INDUSTRY
4 8 FRANCHISING MEANS AUDITED FINANCIAL STATEMENTS BY HENRY + HORNE
Explore this global hub of industry news and commentary on food, drink, design and more.
2021 RECRUITMENT TRENDS IN THE RESTAURANT INDUSTRY 3 0
Get to know Arizona’s food scene through stories, interviews and conversations with industry insiders.
POST-PANDEMIC RESTAURANT SUCCESS MEANS BALANCING THE NEW NORMAL WITH OLD HABITS 3 8
PRESIDENT’S MESSAGE 0 8
MESSAGE FROM THE CHAIRWOMAN I 0
ARA’S 2021 EVENT CALENDAR I 5
Learn from the best with this business know-how guide filled with ideas, tips and resources.
FRANCHISING MEANS AUDITED FINANCIAL STATEMENTS 4 8
SERVSAFE 202I UPCOMING CLASSES I 5
5 FOOD & BEVERAGE TRENDS ACCELERATED, ALTERED OR ACCENTUATED BY THE PANDEMIC I 6
WHY BUSINESSES IN THE HOSPITALITY INDUSTRY NEED TO PROTECT THEMSELVES WITH PROPER INSURANCE 5 6
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Arizona Restaurant News is published bi-monthly by the Arizona Restaurant Association (ARA), 3333 E Camelback Road, Suite 285, Phoenix, AZ 85018, 602.307.9134, and is a benefit of membership in the association. Articles do not necessarily reflect the view or position of the ARA. Editorial coverage or permission to advertise does not constitute endorsement of the company covered or of an advertiser’s products or services, nor does Arizona Restaurant News make any claims or guarantees as to the accuracy or validity of the advertiser’s offer. © 2021 All rights reserved. No part of this publication may be reproduced in print or electronically without the express, written permission of the ARA. 6
2021 Media Kit
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restaurateurs have proven how entrepreneurial and creative they can be, and those same tools will help us weather this storm. The good news is the labor
the restaurant industry in Arizona is poised for a record
With the lifting of government restrictions and the return of guests to full indoor dining,
shortage seems to be heading in the right direction. June saw the last enhanced unemployment payment in Arizona and more and more workers are coming off the sidelines. We continue to make progress on the COVID-19 front through education and vaccination, and schools are poised to resume widespread in-person instruction, freeing many workers from other obligations. Restaurants are continuing the trend of professionalizing the industry by offering more benefits and educating their current employees and potential employees about how their experience and training can advance their career. At the end of the day, the two biggest tools restaurants have in recruiting employees are the ones we have always had: A fun environment and flexibility. The pandemic put a lot of strain on these two normal features of the industry, but now is the time to emphasize these features to help attract the next generation. year in 2021, but only if we can overcome one major hurdle…staffing. ffff
the restaurant industry in Arizona is poised for a record year in 2021, but only if we can overcome one major hurdle…staffing. I know this will not come as a shock to anyone in the industry, but the staffing shortage is one of the biggest problems facing us today. Nationwide, eight percent of restaurant operators rated retention of workforce as their top issue in January of this year, by April that number had eclipsed 57 percent. Here in Arizona, our industry is still down about 12 percent from our target staffing level and some operators are finding it hard to even open on certain days let alone maximize service. These recruitment challenges are not caused by one issue, but are a complex puzzle of stimulus supports, worker safety concerns, need for caregivers to stay home, and greater competition with other industries.
What is the solution to this? How will we make it through this next challenge? Over the past 18 months, Arizona’s
Steve Chucri President & CEO, Arizona Restaurant Association
message from the chairwoman
hospitality innovation. We are focusing efforts on workforce training to attract the next generation of restaurant workers, employers are getting creative on pay structure and benefits to retain great staff, supply chains continue to get improve as more people reenter the workforce, and as of this writing, the Arizona Legislature is look at plans to reduce the burden of the income tax hike on small businesses. I am convinced that if we continue to focus on what makes our industry great, by working with our great team members to serve our customers with the hospitality they love, we will turn 2021 into a banner year for Arizona Restaurants.
Challenges, challenges, and more challenges
It goes without saying that the COVID-19 pandemic has been the hardest challenge this industry has faced in recent memory, and while the worst of it seem to be behind us, new challenges have come forth. Arizona restaurants are experiencing a significant staffing shortage, higher prices on commodities (if we can find them at all),
Sincerely, Alicia Casale Alicia Casale Chairwoman, Arizona Restaurant Association
Having made it through the worst of COVID-19, I am confident our resilient industry will overcome these newfound hurdles and continue to lead the nation in culinary and hospitality innovation. FFFF
day-to-day inventory issues, and a significant tax hike for many operators on the horizon. What is the good news you ask? Having made it through the worst of COVID-19, I am confident our resilient industry will overcome these newfound hurdles and continue to lead the nation in culinary and
2021 events and servsafe classes
Looking Ahead: 2021 Event Calendar
SEPTEMBER September 17-26 I Fall Arizona Restaurant Week
OCTOBER TBD I Live & Local – Desert Ridge Marketplace
NOVEMBER TBD I ARA Golf Classic
Serv safe 2021 upcoming classes
Wednesday, 6/30 I English ARA Offices in Phoenix
Wednesday, 7/14 I English ARA Offices in Phoenix
Tuesday, 7/27 I English ARA Offices in Phoenix
five food & beverage trends affected by the pandemic
food & beverage trends accelerated, altered or accentuated by the pandemic
by Laurie Demeritt
We are living through an unprecedented time in which the pandemic has accelerated, altered or accentuated trends in many spheres of food and beverage culture. As we move forward into the summer of 2021 — in the context of promising trends in vaccinations and states opening fully for business — many of these behavioral changes will be in transition as consumers adapt to changing perceptions of safety and risk and explore access to a wider array of food experiences outside the home. Accelerated and altered: In-store and online grocery shopping How we shop for groceries underwent huge changes during the pandemic. Online grocery shopping showed significant acceleration while in-person shopping within food retailers became altered as a “ journey of safety” as shoppers, fraught with worries about the virus, planned well in advance, masked up, stocked up and got in and out of grocery stores as quickly as they could. We examined the meteoric rise of online shopping in our Food Sourcing in America report and found that in summer 2020, more than half (56%) of consumers said they had bought groceries online in the past 30 days. About a quarter (27%) of consumers said they shopped online for groceries more than before COVID-19, and 14% said they had shopped online for groceries for the very first time. 18
Accelerated, altered and accentuated: The rise and fall of our enthusiasm for cooking One of the most volatile trends within food culture during the pandemic has been the rise and fall in enthusiasm for cooking at home, hence our observation that the cooking trend was both altered and accelerated by national events (including “stay at home” orders and restaurant closures).
resources for instruction, ingredients and inspiration as well as encouraging improvisation in recipes and heightened engagement between family members. And yet, our Eating Occasions 2020 report finds that despite our initial shift to cooking, our enthusiasm did not last throughout 2020 as cooking fatigue quickly set in. Heading into the fall of 2020, we found that heavy levels of food preparation declined, and consumers became more comfortable with sourcing from restaurants.
Cooking as an activity of discovery has also been accentuated by the pandemic, driving more consumers to online
Accelerated: Search for functional foods and beverages
In terms of changing behaviors that link to diet and nutrition, the COVID-19 pandemic intensified consumers’ ever-evolving interest in how functional foods and beverages could boost their immunity and overall health and wellness. Our report Functional Food & Beverage and Supplements finds that at least half (55%) of adult consumers claim to use functional food/beverage solutions to treat or prevent a specific condition, including general prevention efforts.
Accelerated and altered: Snacking out of distraction
Even prior to the pandemic, we were already a nation of snackaholics, and with all the couch time at home during the pandemic, our snacking tendencies soared. The Hartman Group’s Snacking: Emerging, Evolving and Disrupted report found 35% of consumers saying they snacked more often in 2020 compared to the previous year. The increase in snacking (an eating behavior that is highly vulnerable to lifestyle changes) reflected the chaotic pandemic times and the diversity of changes occurring in consumer lifestyles. While some level of “aimless” snacking had always taken place in recent decades, the tumultuous events of 2020 elevated “distracted” snacking to the status of its own pillar. Our analysis uncovered that that 40% of all snacking reflects some need for distraction.
An accentuated focus on social justice, racial equality and community and employee welfare
production all the way down to corporate communication — are in alignment. It is becoming ever more difficult for companies to remain neutral on such issues, and so companies must aim for consistency and authenticity in communication in order to maintain consumer trust and loyalty.
The COVID-19 pandemic has shed light on long-existing inequities throughout society and the food system and exposed them as more acute, particularly among people of color. In addition, the pandemic has revealed the extent to which food and farmworkers are both essential and vulnerable — and made them even more so, bringing labor and safety issues to the attention of consumers more than ever before. Increased attention on social justice issues has brought long-standing labor concerns in the food industry — which have been exacerbated by the pandemic — to the fore. As the pandemic cast a shadow over everyday life, consumers and community organizations banded together in 2020 to lift up their communities. The growth of grassroots aid over the past year exemplifies the rise of community-mindedness among consumers and, consequently, the importance of incorporating aspects of community welfare into how food businesses operate. As issues of social justice become more and more visible, companies must closely evaluate their values and priorities and ensure that all aspects of their business — from sourcing and
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brush title tbd 2021 restaurant recruitmen tr nds
2021 Recruitment Trends in the Restaurant Industry
by Kane Carpenter, FSR Magazine
Few industries were hit harder than restaurants by the COVID-19 pandemic. In total, the restaurant sector lost over five million jobs during the early days of the crisis, as businesses across the country boarded up shop and temporarily or permanently closed operations. Over the past three months, starting in February, there have been employment increases in the restaurant sector—however, employment remains more than a million jobs short of where it was in February 2020. Therefore, even with jobs increasing, the industry as a whole is understaffed and desperately trying to find employees. “The reality is that the COVID-19 pandemic has probably changed many aspects of the restaurant and hospitality industry for good,” says Kristen Fowler, practice lead at Clarke Caniff Strategy Search, a boutique executive search firm specializing in the hospitality, services, luxury, and real estate sectors. “It is going to be interesting to see how the restaurant industry rebound plays out. So many places are struggling to find workers at the moment.” Restaurant Trends So far in 2021, trends in the restaurant industry seem to be pointing in a couple different directions.
Takeout and Delivery Are Here to Stay
Only 13 percent of limited-service brands reported being fully staffed at the start of 2020 (before the pandemic), while 38 percent of full-service brands were at a similar position. However, posted job terms such as “drive-thru, delivery, carside, and curbside” have risen from 1 percent of posted jobs pre-pandemic to more than 30 percent in December 2020. In 2021, even with more restaurants opening up as vaccination rates increase and COVID cases decrease, delivery, takeout, and curbside pickup methods of consumption are all remaining high. People seem to be more health-conscious than before the pandemic, and have also fallen into daily activity rhythms that steer away from in-person dining. 33
Front Of House is Surging
each company will have to determine their optimal method of finding employees that fit their culture, and what will allow them to retain talent.
Jobs at the “front of house” such as waiting, hosting, and delivery driving are far more popular than those at the “back of house,” namely cooking, meal prep, and quality control. Frustratingly, because of the increase in delivery and takeout orders, back of house roles are more stressed than ever, which means that understaffing is leading to back of house employees requesting shifts to the front, or just leaving. With restaurants several understaffed, recruiting and hiring teams have had to devise unique methods of obtaining high-quality candidates. Whether by offering money for interviews, increasing benefits, or focusing on employer branding, companies have had to scramble to find applicants and secure them for more than a few months. Going forward, The Impact on Recruiting and Hiring
However, there are a few major restaurant hiring trends that seem to be sweeping the industry right now:
While the shift to digital has been occurring for many years, the pandemic has greatly expedited the process. Now, career fairs and interviews are nearly all taking place online, and an even higher percentage of candidates are discovering jobs via career sites or social media. In this age, companies and recruiters must be prepared to find, interview, and onboard candidates remotely, and utilize new avenues including social media platforms such as Twitter to identify talent. The restaurant industry has faced difficulties in retaining employees, as there have been more complaints regarding wages, lack of benefits, and difficult hours. Studies have shown that candidates who are referred by current employees are more productive, and also seem more likely to stay for longer. Therefore, devising referral programs for employees is a smart and easy way of broadening candidate pool while perhaps reaching more high-quality talent. Referral Emphasis
Increased Benefits/Employer Branding
quality websites, have strong outreach campaigns to reach potential employees, and connect with employees. Therefore, the overall shift might be away from front-line employees and towards more back-end operations. Overall, recruiting and hiring trends in the restaurant industry might be permanently affected by the COVID-19 pandemic. Restaurant companies are looking for workers and have to try new methods to find and obtain high-quality talent. However, through digital marketing, an emphasis on employee referral programs, and developing an organizational culture that focuses on retention, restaurant companies should be apply to avoid being understaffed as the industry transitions into the 2020s.
There are many, many restaurant companies looking for jobs—so you need to make yours stand out. This can be done through more tangible and quantitative strategies such as higher wages or increased benefits, but also more subtly via organizational culture and staff wellness programs. By carving out a niche for yourself, you can find employees who are looking for what you are offering, and secure employees who will be there for the long haul. Finally, there are technologies that have emerged over the past couple years that are shifting the restaurant industry as well. These include cloud kitchens, digital loyalty programs, and contactless dining experiences. The latter, in particular, might be a major factor in hiring over the years, as restaurants might require fewer waiters and serving staff as menus become digital. However, as menus and payment systems shift away from physical touch, they will require more backend administration and support. Any crash in a system could prevent numerous orders from being processed, costing hundreds if not thousands of dollars. Additionally, as recruiting and hiring becomes increasingly digital, marketing and communications staff might increase in need as well. It will become more important to have high- Emerging Technologies
brush title tbd post-pandemic restau ant success
Post-pandemic restaurant success means balancing the new normal with old habits
by Samantha Des Jardins
It’s impossible to underestimate how much the restaurant industry has changed due to the pandemic: thousands of closures, the evolution and expansion of delivery, the explosion of virtual brands and ghost kitchens, chains growing despite overall sales declines and a geographic pull to the suburbs. And in the year ahead, many restaurants will have to fight a two-sided battle: getting diners back into dining rooms while also competing with convenience options that flooded into consumers’ homes when restaurants were shuttered. That’s one of the findings from Datassential’s Firefly 500+ report, an annual analysis of the country’s 500 largest restaurant chains and most pressing industry trends.
Overall, sales for the Firefly 500+ were $305.18 billion in 2020, down 4.3% from the year before, while the group – which makes up roughly a third (32.5%) of the restaurant industry in terms of sales – closed 3,616 locations, or 1.5% of total units. It ended the year with a total of nearly 230,000 units. The top chains ranked by total units were Subway, Starbucks, McDonald’s, Dunkin’ and Taco Bell. Subway and McDonald’s lost units while the others gained. Dunkin’ showed the most growth among the top five. The top chains by sales were McDonald’s, Starbucks, Taco Bell, Chick-fil-A and Wendy’s, with just Taco Bell and Starbucks reporting sales declines for the year.
In terms of closures, 10.2% of all restaurants permanently closed in the year following the declaration of a pandemic. Surprisingly, independent restaurants were not hit hardest, but instead mid-sized chains took the biggest hit in terms of permanent closures. Chains with between 11 and 100 units had a permanent closure rate of 15.2-16.2%. The largest chains weathered the pandemic the best as many consumers still had the option of a drive-thru or more delivery options. Chains took a bigger slice of a smaller pie in 2020, increasing their share of total consumer spend to 80.2%, from 67.3% a year earlier. Success in a pandemic could easily be narrowed to a conservative combination of minimizing losses and attempting to hold a steady unit count. Even in more normal times, it’s challenging to expand a brand’s footprint without sacrificing average unit volumes. Yet a few dozen brands managed to grow total sales at a faster rate than unit counts in 2020, suggesting that innovation in both menu and service structure remained as critical as ever. In 2020, those stand-out-brands included Papa John’s, which grew sales by 19% while seeing units decline; Popeye’s, which posted 20% sales growth on a 5.5% growth in overall units; and smaller chains like Penn Station East Coast Subs, which posted 5% annual sales growth with just a 0.3% increase in units.
Fast casual was the only service sentiment to end the year with more locations than the year before due to strength in segments like chicken, Mexican and salad/healthful. Suburban chains fared better than urban chains last year as many people relocated from concentrated urban centers. In general, delivery and take-out became a lifesaver for many brands. Many segments doubled or nearly-doubled their take-out or delivery availability in just the six months from June to December, including limited-service salad chains, dessert and snack operators, coffee shops and bakery-cafes. Full-service restaurants were the slowest adopters but there was no segment of the Firefly 500+ that didn’t expand off-premise options.
And as Americans get vaccinated and begin to see the light at the end of this pandemic tunnel, there is surely going to be a boost from pent-up demand as some consumers sit down in restaurants for the first time in more than a year. But beyond the initial recovery, competition with convenience will remain a top focus as consumers have become accustomed to the convenience of at-home dining, whether that’s through cooking at home, opting for a meal kit, or using takeout and delivery with greater frequency. Alcohol delivery could also create a sizable shift for full-service restaurants, as well. Successful “re-entry” for brands as the US emerges from the pandemic includes embracing technology and the continued juggling of two customers: the in-restaurant diner and that consumer who would prefer to eat in the comfort of their home, but still demands all the quality and experience they associate with foodservice.
480-326-6436 Thomas.Smeriglio@e-hps.com Thomas Smeriglio
franchising means audited financial statements
HENRY + HORNE CORNER
Franchising means audited financial statements
by Jonathan Poppel, CPA | Henry + Horne
When first getting into franchising, it might be to your benefit to establish a separate operating company strictly for the franchising side of the business. This will allow you to only report the financial activity of the franchising operations without having your existing restaurant locations subject to audit requirements. While your existing locations could be a model for potential franchisees, being able to exclude these existing locations from the audit of your newly formed franchising entity will provide cost savings. However, prior to forming this new entity, you will want to consult with a franchising attorney to ensure that other entities of yours won’t need to get roped into the audited financial statement requirement. Luckily, the need for audited financial statements could be phased in for the franchising entity. This is going to depend upon specific state requirements. Again, your franchise attorney will help you understand what is going to be required. Some states require audited financial statements from day one. There are others the follow the amended Franchise Rule, which allows for an unaudited opening balance sheet when filing your first FDD, followed with an audited balance sheet in year two and a full set of audited financial statements in year three. For those that require an audit with the first FDD filing, depending upon timing, these financial statements could be rather simple and just include an audited balance sheet consisting of cash
There may come a time when franchising your restaurant concept is attractive in growing the brand without having to take on additional debt or managing the entire restaurant operations yourself. This can help you grow more rapidly in new markets and turn your concept into a successful franchise brand. One requirement that comes with franchising is the need to have annual audited financial statements to accompany the Franchise Disclosure Document (FDD). Previously, your corporate owned restaurant locations might not have been subject to any audit requirement so the need for audited financial statements could be an adjustment for you.
and capital contributions for the new franchising entity. This will prove to the states that the franchisor is sufficiently capitalized. There are a few other requirements with audited financial statements that you will want to be aware of. First, audited financial statements must be presented in accordance with generally accepted accounting principles (GAAP). Therefore, these cannot be on an income tax or other basis of accounting. In addition, the financials cannot contain any GAAP departures. GAAP departures result in a modified audit opinion, which we have seen cause issues with registering to sell franchises in certain states. Also, the audited financial statements must include comparative information. Usually, we see franchisor financial statements including three years’ worth of financial information. Hopefully with time, your franchised concept will grow, and the audit cost will just be a small part of doing business. Having an annual audit performed will become common place, and you will be able to get that completed quickly so that you can file your FDD and renew your registration in the various states. However, the first few years could be an adjustment period if you have never been subject to an audit previously. Ultimately, prior to getting into franchising you will want to get in front of the structure of the franchising entity and the audited financial
SAVE the DATE
statement requirement so there is not any delay in getting this registered in various states so you can start your new, exciting world in franchising! If you have questions, do not hesitate to reach out to one of our restaurant professionals who can guide you through this process. Streamline Your Accounting Process Would you like to simplify your monthly bookkeeping and accounting processes? Wouldn’t it be nice to have all your invoices emailed from your vendors or scanned by restaurant managers to a centralized location for remote processing? These invoices could then be approved electronically for payment by managers, general managers or owners on their mobile phones or tablets and paid remotely by either ACH or electronic check processing. Your restaurant accounting experts at Henry+Horne can streamline your process with this technology. Give us a call today to get started!
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Brian Campbell, CPA Partner, Henry+Horne
proper insurance coverage
Why Businesses in the Hospitality Industry Need to Protect Themselves with Proper Insurance
by David DeLorenzo | founder and owner, Bar and Restaurant Insurance
Businesses in the hospitality industry are a unique breed. Contractors, car washes, dog groomers, retail clothing stores and all other industries have their own niche — and their own needs — when it comes to coverage if something goes wrong. But businesses in the hospitality industry have specific exposures that no other business has to consider, manage and, most importantly, protect themselves from. Of course, every company has some of the same concerns, such as weather or crime, that can impact their business. However, when it comes to a business such as a bar or restaurant — what is going to happen if, for example, someone accidentally hits an electrical outlet a mile away on a busy Friday night during a packed house and the restaurateur can’t fire up the ovens, the POS systems, the lights or the air conditioning system? Or what if someone drives a car through the front door (again, assumingly accidentally!) and the restaurant has to close for an extended period of time? Imagine a case in which the power goes out unexpectedly or the walk-in cooler breaks overnight and now $30,000 in perishable inventory has gone to waste. Another X factor businesses in the hospitality industry have to deal with is people. More so than any industry, these businesses must deal with the people that are coming to spend money to spend time on their premises. Seems like a fair exchange!
But the safety of these guests while on the property of a restaurant, bar or hotel is also vital and the business can be at fault if something goes wrong such as if someone slips on the floor, chokes on an olive pit or has a food allergy that wasn’t brought to light upon ordering? Or what if patrons were drinking alcohol prior to arriving at an establishment, showed no signs of intoxication on property but then got into a car accident or seriously hurt or killed someone upon leaving the place of business? How does that impact one’s business? And beyond the business aspect, this kind of tragedy can have an extreme impact on a business owner’s personal mindset and how they operate going forward. That is a lot for anyone to have to take in and take responsibility for.
This complaint could come out of nowhere and may not even have come from the owner (but rather a manager or another employee) but the owner may ultimately be the one to pay the price if not properly covered. Someone hacking into computer systems or POS systems and stealing patrons’ private information is another issue those in the hospitality industry may encounter at some point. Or staff could be secretly sneaking money little by little without it being noticed until years down the road. These scenarios are all very real and can take down a viable business in one fell swoop. But the good news is there is a way for business owners and proprietors in the hospitality industry to protect themselves, as well as their staff and patrons and it should all be clearly outlined in their insurance policy. It’s vital that they seek the advice of a professional insurance agent who understands the industry’s exposures exclusively and has experienced them firsthand. Having the guidance of an experienced professional is invaluable to the continued success of those in the hospitality industry.
Furthermore, restaurant owners can actually get sued if a fight breaks out on their premise. While this may seem absurd, in today’s world, people can easily become triggered. Add alcohol to the mix and it’s a recipe for disaster. It happens more times than a business owner might imagine. Business owners and operators in the hospitality also have their beloved staff and employees to consider, and to take care of. But what happens if an employee slaps a business owner with a discrimination, sexual harassment or fair pay lawsuit? 60
Out of his passion to serve the restaurant and hospitality industry, David DeLorenzo created the Bar and Restaurant Insurance niche division of his father’s company The Ambassador Group, which he purchased in 2009. He is an ASU graduate, an avid health and fitness guru, and a recent first-time author.
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