Insurance Considerations for Ghost Kitchens and Virtual Restaurants

First, cover your risk. Then, make the food.

Take Out Sign Shining in the Dark Night

In San Francisco, we’ve experienced firsthand the growth of ghost kitchens (delivery-only eateries) and virtual restaurants (which combine both sit down and delivery). Both of these are rapidly emerging as popular restaurant business models, and a number of our clients have delivery-only kitchens or are actively exploring the possibilities.

The New York Times reports that eating out is becoming more about eating in, as restaurant patrons across the globe are turning to Uber Eats, Grubhub, or one of the ever-expanding meal delivery options. For the restaurateur, this can pose business opportunities as well as challenges.

With all unique business models, there are nuanced insurance considerations an owner must account for. If you’re an operator in the virtual space, most standard coverage needs will still apply (like general liability, fire, and property). However, you may be able to lower your limits on some of your policies. For example, you could lower your property and employment liabilities, as there would be less patron and employee foot traffic in your establishment.

Premium savings obtained from these reduced policies could be used to offset other types of insurances where you might need to increase coverage. Here are the top coverages to consider adding or increasing:

Cyber and Privacy: As a general rule, where there is a higher risk, there should be more types of coverage and increased coverage amounts. For digitally based restaurants, cyber risk can be significantly higher. 

Contingent Business Interruption (CBI): Because virtual restaurants rely on third parties to manage the data of their patrons, it’s a good idea to get CBI coverage. That way, if a cyberattack hits a vendor that affects your business income, your financial damages will be covered. 

Foodborne Illnesses: You should review your liability coverage limits, particularly for foodborne illnesses; the quality of your product is at risk once it leaves the establishment, potentially increasing your liability.

As we all enjoy our delicious meals from our favorite restaurants, it’s admittedly an extra treat to be able to do so in the comfort of our homes. To achieve success in the food delivery space, first place the right insurance coverages that anticipate and mitigate your risk.

Adapted from https://www.newfront.com/blog/insurance-considerations-for-ghost-kitchens-and-virtual-restaurants