Crisis Management in the Hospitality Industry

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Hospitality Review

Volume 17Issue 1 Hospitality Review Volume 17/Issue 1

Article 6

1-1-1999

Crisis Management in the Hospitality IndustryTim SellnowUniversity of North Dakota, [email protected]

Mort SarabakhshNorth Dakota University, [email protected]

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Recommended CitationSellnow, Tim and Sarabakhsh, Mort (1999) "Crisis Management in the Hospitality Industry," Hospitality Review: Vol. 17: Iss. 1, Article6.

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Crisis Management in the Hospitality Industry

Abstract

e authors identify several guidelines associated with eective crisis communication for the hospitality

industry and explore the feasibility of these guidelines based upon the diverse resources available tohospitality organizations of all sizes

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risis managementin the hospitality industrybyTimothy Sellnowand ort Sarabakhsh

The authors identify several guidelinesassooated with effeciw crisis communication for the hospitality industry and expbrethe feasibility of these guidelines basedupon th dive= resources availabfe to hospitality organizations of a sizes.

T e prevalence and peril oforganizational crises areevident in the fact that''four of five major U.S. corpora-tions have formal crisis communi-cations plans in place for disastersand emergencies. ' Having a com-munication crisis plan avdableprior to a threatening event canhelp an organization offset somecriticism by making a timely andaccurate response to the crisis.Delivering a strategic responseimmediately following a crisis isessential because a failure to do socan trigger a torrent of negativepublicity.''

Although an increasing num-ber of corporations are developingcrisis management plans, manycompanies continue to focus onoperations, rather than communi-

c a t i ~ n . ~learly, few crises can beresolved without focusing on oper-ations; however, the a c t e d orga-nization's reputation following theurgent period of the risis is large-ly determined by how the organi-zation communicatesto the publicand the press.

rises are prevalentCrises are inevitable in the

hospitality industry. In his study,Laurencc Barton, associate pro-fessor of management and organi-zation at Pem State University-Great Valley, illustrate that ofsome 802 business disasters from1980 to 1991, nearly 8 percentoccurred in the hospitality indus-try Among the more prominentevents are the lethal outbreak ofLegionnaires' Disease at Philadel-phia's BeUevue Stratford Hotel(19761, the MGM Grand Hotel firein Las Vegas (1980), the HyattRegency Skybridge collapse inKansas City (19811, the murder of3 people at Lubys Restaurant in

Sel lnow and Sarabakhsh 53

FIU Hospitality Review, Volume17, Number 1 & 2, 1999Contents 1999 by FIU Hospitality Review. The reproduction of any artwork,

editorial or other material is expressly prohibited without written permissionfrom the publisher.


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Killeen, Texas (1991), and thedeaths of two employees of PeriniConstruction who were killed dur-ing separate construction acci-dents at the 2,800 room LuxorHotel and Casino in Las Vegas(1993).

The most profound crisis tostrike the hospitality industry inrecent years was the murder of 10foreign and 12 American touristsin Florida during a one-year peri-od, jeopardizing a 31 billiontourism industry and leadingNewsweek magazine to call Flori-da a state of terror. The recentstrawberry-hepatitis story contin-ues to live on in the media. In aateline broadcast on April 21,1997, the program covered theneed for a so-called food czar to

protect America's restaurant goersand supermarket shoppers.In early 1993Jack-in-the-Box,the San Diego-based company,experienced the first large-scaleoutbreak of E. coli 0157:H7. Sev-eral people became seriously illand a child died as a result of eat-ing a tainted burger. There was abarrage of negative attacks andpublicity against Jack-in-the-Boxrestaurant chains, and the safetyof eating hamburger was ques-tioned across the nation.In 1997 a recall of 25 millionpounds of potentially taintedground beef sparked the fast-foodgiant Burger King Corporation tosever long-standing ties with oneof its biggest beef suppliers in aneffort to reassure consumersabout the safety of its hamburger.BurgerKing ased in Miami, wasone of the nation's largest restau-

rant operators affected by therecall. The virulent form of E. colicontamination was a nightmare ofnegative publicity for the secondlargest burger chain in the U.S.A.Sixteen people in Coloradobecame ill in 1997 from E.wli foodpoisoning after they ate the meatprocessed by a Hudson Foods,Inc., plant in Columbus, Nebras-ka.The plant, Hudson's only facil-ity exclusively devotedto beef pro-cessing, was a major supplier ofburgers for Burger King andmeatloaf for Boston MarketRestaurants. It also suppliedfrozen patties to Sam's Clubs,Walart Stores and Safeway, Inc.,Supermarkets. Hudson had torecall ll production dating back toJune 4, 1997, and shut down theplant pending the possible needfor updating and for the wmple-tion of a U.S. Department of Agri-culture inve~tigation.~ommunication s important

From the hospitality industryto individual operations, commu-nication systems need to be devel-oped to manage these kinds ofcrises. Restaurateurs have insur-ance policies covering every antic-ipated disaster, from kitchen firesand burglaries to severe accidentsand liquor liability. otal insur-ance bills probably wme to a per-cent of the annual take or sales.But, one of the most importantinsurance programs restaura-teurs can arrange for their busi-ness is one that is free. Called c r isis management or crisis comrnu-nications, it is an essential pro-gram when a crisis strikes. The

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restaurateur and business ownermust communicate effectivelywith customers, employees, gov-ernment officials, and the press.Failure to do so means rislunglong-term potentidy fatal dam-age t a business.No one is immune to food-borne illness outbreaks, and aslong as the hospitality industry isput in the hands of humans, therewill be occasional mistakes andineptitude. According to the Cen-ters for Disease Control, approxi-mately 20,000 people a year areinfected by E. coli. A crisis com-munications plan s essential forhospitality managerdowners totell their side of the story and topreserve their image as profes-sional, caring, and concerned citi-zens. According to Michael Fine-man, a public relations consultantin San Francisco, the first 24 to 48hours in a crisis are critical; heoffers the following advice:

Do prepare a statement forthe media; do be honest; anddo designate a spokesperson.Don't speculate; don't speakabout issues better handledby an attorney; and don'tpanic.

ndustry h s respondedThe r s t mund of media cov-erage determines whether thecompany is seen as a victim or vil-lain. The food industry's responset crises started in 1993. TheNational Restaurant Associationhelped to form the Industry Coun-cil on Food Safety. More recently,

the Industry Council spotlightedthe safety issue even more withthe formation of the Partnershipfor Food Safety Education, whichincludes the NRA American MeatInstitute, Food Marketing Insti-tute, American Egg Board,National Cattlemen's BeefAssoei-ation, and Produce MarketingAssociation, a major force of orga-nizations involved in commercialfood handling.

The response of a restaurantchain such sBurger King to sucha crisis reveals some potentiallyeffective communication strate-gies. Initially, the Burger Kingspokeswoman, Kim Miller,announced that Hudson meat hadbeen pulled from about 1,205restaurants in its central, lakes,and western regions. In someinstances, restaurants were with-out sufficient supplies for a periodof 24 t 48 hours while newsources were established. OnAwt 25,1997, Burger King andits National Franchise Associationissued a statement to consumersnoting that their burgers wereg in available a t all stores. It alsotold its customers, V e re writing

to assure you that the hamburgerswe serve a t Burger Kingare safe.Burger King handled theircrisis better than the Jack-in-the-

Box restaurant chain. FoodMaker, Inc., parent of the Jack-in-the-Box chain, was involved inthe 993 E. coli contaminationrecall in which four children diedand 700 people fell ill. FoodMaker, Inc. now has become oneof the leaders in food safety oper-ations. It has rebounded t o be one

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of the most profitable companiesin the industry.The NR and other majorhotel and restaurant chains dohave sutficient resources to repairthemselves after a crisis andreturn to the market with a newimage and successful operations,but what about independent hos-pitality operators who do not havethe resources, name, size, andexpertise t handle their commu-nication crisis? Independent oper-ators have their own set of indi-vidual problems that must beaddressed by owners.

ne spokesperson is bestOne survey showed that fourof five major U.S. corporations

have formal crisis communicationplans in place for disasters, andbecause a decentralized structureis ineffective following a crisis,hospitality organizations comrnu-nicate most effectively through asingle spokesperson, typically theorganization's owner or the corpo-ration's CEO. This individual com-monly addresses the media daily.For example, Robert Nugent,president of Foodmaker, Inc.,emerged as the primaryspokesperson when the corpora-tions' Jack-in-the-Box estaurantswere struggling to overcome an E.coli outbreak.

n organization's post-crisiscommunication must be fast andefficient; however, in making post-crisis decisions, organizations arebest served by taking some time tevaluate the feedback related tothe crisis. First, organizationsshould consider the needs of ll

people affected by the crisis,including victims, the media, cus-tomers, regulatory agencies,investors, employees, and others.Organizations tend to fail whenthey do not solicit and adapt tosuch feedback.

Second, problems arise inpost-crisis communication whenorganizations insist that, despiteevidence t the contrary, no actionis needed or that whatever strate-gythey adopt initially is sufEcient.Williams and Olaniran also arguethat organizations are likelytofailif they avoid cues that stimulateanxiety or other pa in t3 feelings. 'R person is keyIn order to select the best cri-

sis response strategy, the organi-zation's public relations specialistshould be a key figure throughoutthe post-crisis communicationefforts. The restaurant's leader-ship must have a complete under-standing of how the crisis is por-trayed to customers. Public rela-tions personnel are best preparedto collect and interpret this kind ofinformation. Flexibility is also avital component in post-crisis com-munication. No single approachwill work for ll crises. Instead,managers must study the crisisand adapt according to the feed-back they receive.

For example, Schwan's SalesEnterprises' (Schwan's) crisisresponse to ts salmonella evolvedsteadily as more informationbecame available to them.Schwan's began with a rec ll ofproduds even before they were for-mally confirmed s the source of a

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nationwide salmonella outbreak. research leads to several consistentOnce the source of the problem was guidelines for post-crisis communi-identified as an e x t e k truckingagency, Schwan's announced anextensive list of preventative mea-sures, including pasteurization ofa ice cream products and inter-nalizing the truck transportationactivities. Schwan's also paid med-ical expenses for their customerswho were suffering from salmo-nella poisoning. The company wasable to accept responsibility with-out blame by compensating itscustomers and victims at the sametime as announcing that thesource of the outbreak residedwithin an external truckingagency. Each step in Schwan's cri-sis response involved adaptingtheir strategy according to theinformation that was available.Whatever the response, how-ever, organizations are expected tocommunicate honestly. Honestyis essential because any effort tmislead or cover up responsibilityfor a crisis is likely to be discov-ered by the media eventually.When inaccuracy of such claimsby a restaurant is eventuallyrevealed, as one public relationsexpert put it, the press d l atyou alive.Responses must be timelyWhen faced with crises, theoverall goal for hospitality organi-zations is to move beyond the crisisas quickly and thoroughly as possi-ble, while maintaining economicviability and social legitimacy. lsome extent, the demands of each~Tisisreunique. Still,the existingrhetorical and public relations

&on. ~ltho$h no guidelinescanassure sum ss , post-crisis cornmu-nication is typically more suc-cessful in hospitality organiza-tions if the organizations dedi-cate themselves to making open,timely, informed, and consistentresponses.mmediacy is necessarySuccessful organizations com-municate openly and accurately to

their multiple audiences immedi-ately a fkr crises occur. Withhold-ing information or failing to behonest only exacerbates the crisiswhen, as is inevitable, the wholestory is eventually known. Thesooner a restaurant c n share itsmessage with the public, the bet-ter chance it has of avoiding nega-tive publicity. s awareness of thecrisis spreads, customers,investors, and regulators demandt see or hear a response from theorganization. Failure to providethis response typically leads toadded scrutiny from all interestedparties. Thus, if a restaurant fallsbehind in its post-crisis communi-cation, it relinquishes the oppor-tunity t be proactive.The most effective means foran organization to meet theexpectation for a swiR response isto have a crisis management planin place. Crisis managementplans enable organizations toavoid inefficiency by assigningroles in advance. Although largercorporations may have a staff inplace to establish, test, and updatecrisis management plans, there is

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nothing to preclude smaller orga-nizations from developing suchplans. relatively simple planthat designates who will speak towhom, how and when to shutdown the operation, and anyother spe&c actions that mightbe needed could serve small orga-nizations quite effectively.

ecisions are requiredDespite the need for a candid

and prompt response following acrisis, hospitality organizationsmust account for the f ad Lhat cri-sis situations are ambiguous.Finding the source of a food poi-soning outbreak, for example,c ntake days or even weeks. Hence,arestaurant may have less timethan it needs to decide betweendenying or accepting responsibili-ty for a crisis. Moreover, the shockof a crisis can leave organizationsuncertain as to how the crisis c nbest be resolved. Typicalls organi-zations cannot be certain thatthey are making the best responseuntil they enact a strategy andevaluate its results. Because ofthis ambiguity, successful organi-zations are flexible in their crisisresponse. They constantly moni-tor their environment to deter-mine the degree to which their cri-sis response is addressing theneeds of their multiple audiences.If a post-crisis strategy does notproduce a favorable reaction, therestaurant must be prepared toadapt its approach.

Large organizations typicallyhave the resources to conduct theirown investigations into eventssuch as food poisoning outbreaks.

While this may be an advantagefor organizations with extensiveresources, smaller organizationscan work directly with state or federal agencies that often assist ininvestigating crises. In fad, thedata generated by such objectiveforces may even be perceived asmore credible by consumers.Press is monitored

Monitoring reactions from themedia is particularly crucial fororganizations. The press tends toemphasize the most dramaticaspects of crises. Hearit contendsthat reporters often make attribu-tions of guilt and innocence intheir crisis coverage which is theantithesis of an objective story.Successful organizations followmedia coverage closely in order todefend themselves against anyfalse information that is reported.Furthermore, organizations canpurchase advertising, fliers, w ddirect mailing to emphasize fadsthat are not included in themedia's coverage of a crisis.

Without remaining informedof media coverage and reactingto it, organizations risk beingvictimized by the press. In thiscase, smaller organizations mayactually have an advantage.Largecorporations typically have anational or international audience.Smaller organizations can focustheir communication in one or afew communities. Thus, communi-cationc nbe targeted more directly and efficiently by corporationswith a smaller pool of customers.

Despite the rushed and con-fused nature of crises, successful

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from the publisher.


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organizations should provide wn-sistent messages to the public. omeet this demand, internal orga-nizational communication tendsbe centralized to a crisis manage-ment team that is capable of mak-ing informed decisions quicklyand consistently. When possible,organizations should communi-cate to their multiple audienceswith a single, unified voice. Typi-cally, this role isbest served by theorganization's CEO.

However, consistency shouldnot begin with the crisis. Organi-zations should make an ongoingeffort to develop positive relation-ships with their potential criticsprior to crisis events. For example,organizations that have developedongoing relationships with specialinterest groups can use these rela-tionships to monitor reactions andto solicit advice during crises.Media reauire honesty

newspaper editor, television andradio news directors, and politicalrepresentatives on a face-to-facebasis. This familiarity pays divi-dends during crisis situations.

Such guidelines cannot elimi-nate the inevitable threat of crisisfor hospitality organizations. Yet,having a crisis management planas well as an understanding ofhow to adapt one's post-crisis com-munication can enhance a restau-rant's chances ofrecovering fromacrisis quickly.

uidelines ensure successThe crisis response of Schwan'sSales Enterprises to its salmonella

outbreak serves as a clear exampleof how organizations who adoptthese guidelines can emerge from acrisis successfully. Schwan's main-tained an open and accurate com-munication style h m he outset ofits Salmonella outbreak crisis. Infact, the organization instituted a

Orga ations can often avoid warning to customers and a recallcontentious relationships with the of uroduds before being advised tomedia and other obsekers if theycommunicate in an open, timely,informed, and consistent manner.Organizations that fail to do so areoften forced to endure more criti-cism and longer recovery periods.At worst, organizations that areineffective in their post-crisis com-munication may never regaintheir social legitimacy.Again helimited audience of smallcr orga-nizations makes establishing rela-tionships with relevant media andpolitical contacts less complexthan is the case for large corpora-tions. For example, a restaurantowner can work with her or his

duk so by state health-agencies inMinnesota.

By the timc Schwan's waslegally obligated to begin a recall,the process was well underway.

Initially, the cause of theSchwan's crisis was clouded withuncertainty. Schwan's continuallyadapted its response strategy asmore information became avail-able. For example, when an exter-nal trucking agency was identifiedas the source of the outbreak,Schwan's immediately announcedthat it would develop its owntrucking fleet and build a new pas-teurization plant enabling them t~

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treat all relevant products beforesale. This radical change inSchwan's food processing proce-dures represents the companyability t adapt its crisis responsebased on information as i t becameavailable.

Schwan's also worked closelywith the media throughout the cri-sis. In addition to consistent pressreleases, Schwan's communicatedregularly with the media througha single spokesperson. Thisspokesperson had worked directlywith the political leaders in thestate of Minnesota as well as keymedia contacts before the crisisoccurred. These contacts, alongwith the open communicationstyle of the organization, enabledSchwan's to maintain a civil rela-tionship with the media through-out the crisis.

Finally, Schwan's maintaineda clear and consistent messagethroughout the crisis. The compa-nfs primary theme at every stageof the crisis was that the customerwas the most important consider-ation. As such, Schwan's began arecall with full reimbursement forcustomers a t the earliest stage ofthe crisis, set a up a toll-free hot-line regarding the crisis, andoffered payment for medical feesincurred due t the crisis. Thiscustomer focus worked well forSchwan's. Within a year of the crisis, sales had returned to near thelevel where they had been prior tothe salmonella outbreak.It is evident that the hospital-ty industry has the potential toface many types of challenges dueto crises, ranging from fire to food-

borne illnesses and other relatedissues. Owners and managers ofhotel and restaurant establish-ments should prepare themselveswell in advance to deal with crisesin an effective and efficient man-ner. The absence of a strategy andan organized approach to handle atypical crisis such as foodborne ill-ness can lead a hotel or a restau-rant operation to its demise.

reparation is essentialHotel and restaurant chains

have been able to develop crisisplanning to overcome these poten-tial marketing and operationalproblems. Burger King and Hyatthotel chains are good examples oforganizations that were able toface these challenges and retaintheir market share. These hospi-tality chains have financialresources, expertise, and pre-mar-keted names to survive fromcrises. The real concern and chal-lenge which remains is amongmostly small and independenthospitality businesses which lackthe resources, such as financialexpertise to draw a strategy, andtime to invest in crisis manage-ment. Small and independentoperators are mostly busy withtheir daily business activities andspend little or no time thinkinabout how to manage a crisis.

The National RestaurantAssociation NRA) and the Ameri-can Hotel Motel AssociationAHMA)should continue to stresscrisis management issues to theirmembers and hospitality opera-tors. These two professional asso-ciations are in a position with

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their resources and expertise tassist not only the large chaincompanies but independent andsmall operators aswell. The NRAand AHMA can provide and offercrisis management workshopsduring annual regional andnational hotel and food showsdevelop videotapes a n d publishrelated materials for their mem-bers and small operators.

s the study indicates exten-sive resources are not needed tfulfill the guidelines for effectivecrisis communication. Smallerorganizations can identifi aspokesperson m int in flexibilityin their crisis communication andestablish helpful relationships. Infact some of these communicationstrategies can be enacted moreeffectively in smaller organiza-tions than n larger corporations.In short small organizations can-not offer major recalls or generouscompensation packages to the vic-tims of crises; however they canas Michael Fineman advises com-municate in an honest efficientand composed manner.

ReferencesSpecial port Crisis management:Guidelines for savine your restaurantbusiness, ~ es tau ra nt i n a ~ e m e n tnsider, 10 No. 35.G. Cheney,Rhetoric in an organlza-twnal society Managing multiple identz-

tips Columbia:University of South Car-olina Press, 1991).R L. Papernick and M. Hamstra,Burger King beefs up food safety, cutsHudson ties, Nation's Restaumnt News(Septcmbcr 1997):1D. E. Williams and B. A Olaniran,Exxon's decision-making flaws The

hypervigilant response to the Valdezgrounding, Public Relations Reuieu~ 20No. 1 (1994):5-18.M. Seeger,Ethics and organizatwn-

a con~municution, (Cresskill, N J :Hampton Press. Inc.,1997).K M Hearit, e Use of Counter-Attack in Apologetic Public RelationsCrises: The Case of General Motors vs.Dateline NBC, Public Relations Review22, No. 3 i1996):233-248.

imothyW t n ow s cfraauf me Depanmenr ofCommunrcarronand Mort arabakhsha a Cer-eft HolelAdm~n sfrafor rddfrector of me Horel.Motel, and Restaurant Management program atNo DakoIa Sfare University

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Crisis Management in the Hospitality Industry