How to Overcome Hospitality Industry Challenges

The COVID-19 pandemic has affected hospitality businesses in every state but has especially harmed those heavily dependent on tourism. A prime example is the impact of coronavirus on hospitality businesses in West Virginia. West Virginia (WV) tourism has historically outpaced national growth. While that’s great news when all’s right with the world, in troubling times, it means the success and growth of hospitality businesses can be hit hard or even suffer a backward slide. 

Like in most states, in March 2020, West Virginia Governor Jim Justice closed hospitality businesses for several weeks and ultimately issued a stay-at-home order. As the state reopens, new and reopening businesses face uncertainty about how to navigate new restrictions and the politics surrounding the virus’s threat level and appropriate community, business, and individual responses. Identifying hospitality industry challenges in your state—especially in your particular business sector and demographic—and devising effective accommodations to new public sentiment and health and safety guidelines can help your hospitality business become a vital part of and boost the local economy.

What Hospitality Businesses Have Learned from the Pandemic

The coronavirus pandemic has affected all types of businesses, but not all businesses have suffered equally. The impact of coronavirus on hospitality businesses, both from the virus itself and from the government-ordered shutdowns, depends in part on factors like these:

• The type of product or services offered;

• The business’s structure;

• The business’s financial strength before the stay-at-home order was issued; and

• The business’s ability to adapt to current health and safety restrictions and requirements and respond to any changes in public demand and comfort level

The phrase “survival of the fittest” is apt here. Hospitality businesses that can adapt to succeed in the “new normal” will do just that. To remain competitive, hospitality owners and operators need to reevaluate every aspect of the business. If the current business model is no longer profitable or does not allow for growth in the current climate, consider how to adjust the business model to serve hospitality industry trends. 

How Hospitality Businesses Can Adapt

Reevaluating your business post-shutdown from the foundation up can provide much-needed insight into ways to move forward successfully. As a first step, reassess your entire business model. Upon reconsideration, you may find it necessary to change your business structure. Risk management, profit-sharing, and liability for debts differ depending on the business entity structure. Options include:

• Sole proprietorship with no formal structure;

• Corporation;

• Limited liability corporation;

• Partnership; and

• Limited liability partnership

A business lawyer can help you understand the different business structures and which is likely to best suit your needs.

Hospitality industry challenges in each state are both like and unlike challenges faced by similar businesses in other states. For instance, restaurants, hotels, and entertainment businesses in WV have their own style, culture, and customer demographic. Wherever your business is located, keep these aspects in mind while critically examining your business by considering the following key elements:

• Your business model—what makes you profitable and competitive;

• Federal, state, and local laws, ordinances, and regulations applicable to your business;

• Your understanding of current consumer demands—what consumers want and how much they’re willing to pay for it;

• Your risk management tolerance, including whether your current policies cover coronavirus-related losses and whether you need to modify coverage to better handle similar risks in the future; and

• Your need for additional capital and where to source it

Your Business Model and Operations

Hospitality industry trends are changing. How hospitality businesses operate has changed significantly since 2019 and is likely to require additional changes as well. For example, dine-in restaurants that were able to shift to curbside, takeout, or delivery were likely able to continue operating to some extent. But restaurants that had already expanded by using newer delivery and digital option restaurant trends may have fared a little better during the economic shutdown than dine-in-only businesses. Evaluating current customer demand for delivery of your services and products can help you determine whether you need to shift your current methods.

Cleaning and sanitation methods are a key area for review for all businesses. For items all customers touch, like pens at hotels or menus and table condiments at restaurants, sanitizing after each customer is becoming the norm. Restaurants may also consider switching to disposable menus or menus that are easily sanitized after each use. With these additional steps, and, given that social distancing within a restaurant may limit your seating capacity and thereby lower your potential income, you may need to adjust your prices and offerings to offset the increased costs and decreased service capacity. 

How transactions are executed by hospitality businesses may also need to change. Crowded waiting areas with patrons holding restaurant-issued pagers may no longer work. Even how customers pay is ripe for change. Some restaurants are shifting to contactless—or at least cashless/credit card transactions—payment only. Others are prohibiting tipping unless added onto a credit card bill, but eliminating tipping may require revaluation of wait staff pay levels as well. 

Federal, State, and Local Regulation

In the current climate, health and safety regulations for hospitality businesses are much stricter than before and are also a bit of a moving target. Regular review of workplace reopening guidance from the US Department of Labor Occupational Safety and Health Administration provides recommendations, but practical application of such guidance requires careful consideration of your particular business and its customers. Each state also provides other resources. Examples in the southeast include the West Virginia Hospitality and Travel Association’s COVID-19 resource page, the COVID-19 resource page from the West Virginia Small Business Administration, and guidance for Ohio hospitality businesses from the Ohio Hotel and Lodging Association. Another source is business updates from your local chamber of commerce. A hospitality industry lawyer can help you keep up with changing regulations and advise on methods for compliance.

Market Analysis

To understand the impact of coronavirus on hospitality businesses, especially regarding consumer behavior and identifying current demands and hospitality industry trends, consider performing an informal market analysis. Whether you just “ask around,” rely on customer surveys, or bone up on industry statistics, you need to know who your customer base is, what they’re looking for, and what price the market will bear. While your knee-jerk reaction may be to lower prices, that may not always provide the results you’re targeting. Studies show that lowering prices in the hotel market, for example, may initially appear to be the solution to garner favor and a following, but it has resulted in a longer period of recovery for the business.

Risk Management

Risk management includes both practical steps to prevent loss or damage and insurance to provide coverage when loss or damage does occur. One of many hospitality industry challenges is identifying whether existing coverage may cover pandemic-related losses and whether changes in coverage are warranted to prevent similar uncovered losses in the future. Questions to consider include whether your current business interruption coverage covers your pandemic-related losses or a force majeure provision helps ease you out of financial obligations you cannot meet because of the shutdown.

Looking forward, one of the key hospitality industry challenges is quantifying your risk tolerance in our “new normal.” Relatedly, you should also evaluate your overall risk management strategies, including your insurance coverage. The social aspect that draws consumers to hospitality industry businesses is also the very aspect that, without adequate precautions, puts customers and employees at risk. 

Capital to Support Business Changes

Whether you’re making changes to a going concern or starting a new business, you need capital. Hospitality businesses that were operating before the pandemic crisis may have obtained some financial support through the Paycheck Protection Program, obtaining a loan that is 100 percent forgivable if its proceeds are applied properly. Another option is an Economic Injury Disaster (EIDL) Loan. Both of these sources have set limits and special requirements regarding collateral, business structure, and fund usage. 

Where to Turn for Help with Hospitality Industry Challenges

Sorting through your options and finding a path forward does not have to be overwhelming. Advice from an attorney focused on helping hospitality businesses can help streamline your evaluation and decision-making. 

For a consultation in dealing with hospitality industry challenges, call the firm at (304) 523-2100 or complete this online contact form.