Restaurants: Pointing Fingers at Employees, Customers and Suppliers
On March 22, a diner at a Wendy's restaurant in San Jose made a claim that Joe Kovalcik, vice president of risk management of Wendy's International, will not soon forget. The customer, Anna Ayala, claims she bit down on a severed finger while eating a bowl of chili.
These kinds of incidents send chills down the spine of people like Kovalcik, as they can easily force a restaurant into bankruptcy. In the case of Wendy's, which has thousands of locations around the country, the chain survived, although the incident was blamed for a 2.8 percent drop in firstquarter earnings compared with the year-earlier period. A number of outlets in northern California also suffered through slower business and layoffs.
"I don't know what Wendy's did," says Dan Knise, executive vice president of Restaurant Insurance Corp. "Surely, though, what you want to do is save as much evidence as possible, ideally in the serving that created the problem. Also, you should preserve any raw materials and other ingredients that would be back on your pantry shelf."
As it turns out, however, Wendy's was hardly to blame as Ayala's claim appeared to be a hoax.
Police, who arrested the woman at her Las Vegas home, say she has a history of making claims against large corporations, news reports say. A complaint against her alleges Wendy's restaurants in the San Francisco Bay area lost $2.5 million.
Kovalcik, citing the police investigation and legal issues surrounding the case, declined to comment. But in a conference call in late April with analysts, Jack Schuessler, chairman and CEO, said, "We're starting to climb back."
Kohl's Frozen Custard in Wilmington, N.C., may not find it so easy to bounce back. In May,
Clarence Stowers found part of 23-year-old Brandon Fizer's finger in a pint of ice cream. The owner of the store, Craig Thomas, confirmed the incident, saying Fizer lost part of his finger after trying to catch a bucket dropped inadvertently in a custard-dispensing machine. A drive-thru window attendant scooped custard from the bucket into a pint before being alerted to the accident.
And just to show how nasty this fight is about to get, Stowers, according to an Associated Press report in May, had no intention of returning the finger to either a doctor or the shop owner. According to a note on Kohl's Web site, Stowers stormed out of the store claiming he was going to contact local television stations and a lawyer.
Incidents of restaurant patrons biting down on "foreign objects" in their food isn't uncommon, however. In a survey of general liability claims conducted by the Restaurant Insurance Corp., almost 30 percent of the claims were for biting into and/or swallowing a foreign substance, such as a piece of bone or metal.
The average cost of each claim, stemming from subsequent dental work and jaw injuries, was about $1,800.
One way for restaurant industry risk managers to protect their companies against such claims, says Knise, is to preserve the evidence. "For example, if it turns out that the mashed potatoes have a foreign substance in them, many managers throw all of the remainder of the supply out," he says. "They may do this with a half-empty can of tomatoes, too."
Managers should be instructed to keep all remaining supplies of food when foreign substances are found. "This is important evidence, so we can determine whether the problem was caused by the restaurant or the supplier," he says. If it turns out to be the latter, it works in favor of the risk management department and the corporation. But without evidence, there is no way to prove supplier culpability.
THE SUPPLIER ISSUE
Moving beyond a single incident affecting a single chain to the broader concerns of the multibillion-dollar restaurant industry is the worry about food contamination as more and more restaurants buy their food, fresh fruits and vegetables in particular, from around the world based on growing seasons.
"The USDA, which is responsible for food safety, does not inspect food coming in from outside the country as much as it does domestic food sources," says Roy Maize, director of the Restaurant & Hospitality Management program at the University of Alabama. "As a result, food is coming in that is grown under conditions we would not accept domestically, such as with the use of different fertilizers or even raw manure."
Though meat is heavily regulated, produce is not, and that causes three problems for people like Kurt Leisure, vice president of risk services for the Cheesecake Factory in Calabasas, Calif. Because there are so many companies in the loop--the grower, the packer, the shipper and the distributor--it is difficult to trace a problem back to its source.
In addition, standards of food production and distribution are often lower outside of the United States, and while meat is cooked before it is served, "a lot of produce, however, is served raw," says Leisure, who claims his company is "highly selective" when it comes to choosing where food comes from. As a result, Cheesecake Factory is willing to pay more for some food products just to ensure that they've gone through more rigorous quality controls.
David Hanley, president of Largo Vista, Texas-based Professional Liability Insurance Services Inc., which provides crisis management insurance coverage for lost business due to food contamination, recommends that risk executives create a due diligence program to monitor and ensure the safety of the food bought overseas.
"Most risk managers believe that the majority of food contamination problems originate with the suppliers," he says. In fact, suppliers are more than likely not to blame. As much as 90 percent of all food contamination issues are internally generated, says Hanley.
They come from restaurant employees who fail to wash their hands, or who carry microbes like salmonella, listeria, e-coli and hepatitis.
Thus the importance of training staff to wash their hands, use separate cutting boards for meats and vegetables, and take the temperature of cooked foods. Maize also recommends participation in a program called Hazard Analysis Critical Control Point, which has the support of the nation's top food regulator, the Food and Drug Administration.
DRIVING DOWN LOSS COSTS
Despite an unsavory incident in one isolated Wendy's restaurant earlier this year, Kovalcik says the fast-food chain has made big gains in driving down its loss frequencies.
The company's loss frequencies over the past 10 years have dropped from 4.15 workers' comp and general liability claims per $1 million of sales to 1.3 workers' compensation and general liability claims per $1 million of sales.
Loss costs have shrunk because store managers are held responsible. Those claims costs are charged to a manager's profit and loss statement and managers are penalized when incidents are not reported by the end of a given shift.
"We have driven losses down incredibly," he says.
The other strategy used at Wendy's is marketing the firm's safety programs. At Wendy's, the program is called "60 Seconds for Safety." "We want everyone to focus on safety at least 60 seconds a day," he says.
The dividends of such a program are well worth the investment. "The two keys to success are keeping the floors clean and demanding that employees wear the appropriate personal protective equipment," he says. "If you do these two things, you will reduce safety problems by 95 percent to 98 percent."
Another way to deal with general liability issues is to prevent them before they reach the point of formal claims. This is an approach that works well for Eagan, Minn.-based Buffets Inc. "We have gotten control of our guest claims, because we focus on guest relations and retention," says Teri Burthay, senior manager of risk services.
In other words, depending on how the company handles the situation from the very beginning, it could turn into a guest-relations opportunity or a claim. When Buffets looked at its data, about two-thirds of its guest claims ended up with a zero payout. These were situations where restaurant managers were able to resolve the issue.
"If a guest is not happy with the way a manager handles an incident, and the guest calls the corporate office, we receive the call in our department," she says. "We decide whether it is something we can handle here or whether it needs to be forwarded to our TPA for a thorough investigation."
The first option is to focus on the concern as a guest-relations issue. If there was an incident with no injury or illness, Buffets takes the time to try to resolve the concern "out of court" so to speak. "The results have been phenomenal," she says.
an Indiana-based freelance writer, is a frequent contributor to the magazine.
July 1, 2005
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