Everyone knows that tourists and locals on the Gulf Coast eat seafood and lots of it! After I spend a day on the beach with my wife’s family, one of my favorite places to eat is Lulu’s in Gulf Shores. I’ve many memories of relaxed family meals, the grownups sitting around peeling those shrimp and enjoying a margarita while the kids play in the enormous sand area at the front of the restaurant. The shrimp are a main attraction for us. They are those incomparable white shrimp…we get only tiger prawns around here, which are not the same thing at all.
Restaurant owners along the Gulf Coast are lucky to have a plentiful resource that provides a great margin on Gulf Coast staples such as their white shrimp. But because of the oil spill, fishing grounds normally used by local suppliers have closed. Basic economics teaches us that as quantity supplied decreases, price increases.
This type of price change on fish such as white shrimp could drastically increase the restaurant’s cost of goods sold and therefore create a loss of business income. For restaurants, the price changes in the wholesale fish market immediately decrease profit margins and lead to an economic loss. In other words, these changes can happen so quickly that restaurants are unable to pass the price increases to their customers, before menus can be reprinted! In addition, if patrons perceive that seafood may be unsafe, they may choose other items on the menu that have a lower margin than the local, plentiful seafood.
In either scenario, although there may not be an identifiable loss of revenue to the restaurant, the restaurant may still suffer from a loss of business income due to decreased profit margins as a result of the oil spill. The decreased profit margins are an important point, because although there may not be a loss of “sales” there can certainly still be a loss of “profits.”
For restaurants along the Gulf coast who think that they have a business interruption or loss of business income due to the BP oil spill, I suggest that they retain a forensic accountant with specific expertise in economic damage measurement to assess the possible impact to the restaurant’s bottom line. A forensic accountant can help restaurant owners get paid more quickly when a claim is made and help owners understand when a claim will not be paid because it is unsupported.
In the meantime, until the mess is cleaned up, I encourage everyone to frequent local restaurants along the Gulf Coast and support them through this crisis. I know that our family will certainly head back to Lulu’s…
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