Food & Beverage Profitability – Hotel Chain’s Achilles Heel?
Food and Beverage profitability has hardly been a strong point for most global hotel management chains. What seemed to be the right thing to do for years i.e. keeping Rooms as the focus of hotel operations is not a winning strategy any more.
CEO I Chair I Board Member I Adviser I Keynote Speaker
24 July 2013
Today there are multiple opportunities available to an unhappy Owner from picking and
bringing a star restaurant, a franchise or celebrity chef on site. Hence, hotel chains need to ensure they treat their F&B part of the business as an independent business unit with a separate business plan of its own.
By nature of its structural constitution, any hotel's Food and Beverage (F&B) revenues
has historically been driven by the Rooms division's level of activity. In some cases, F&B outlets operated by the global chains have been an appendage of the management business model where it is a pre-requisite for hotel operations and often a support centre for Rooms division with the two most important services provided being the breakfast and room service.
F&B Profitability— Source: Bridge.Over Group S.A.
It is no surprise then that so few hotel chains have
successfully carved a separate identity for their F&B outlets and forged a bond with customers that can be compared to the achievements of their standalone restaurant counterparts. Whilst a standalone restaurant has had to fight to get its customer share, most hotels have enjoyed the captive audience of in-house guests too busy to venture past the hotel lobby for meals with very little effort.
Over and above, the fact that the contribution of the F&B department to top line is only
less than half of that of Rooms and that the profit margins are in mid to upper 20's even in the best case scenario does not help the case to make F&B a focus area for hotel chains. In an environment where budget constraints dictate decisions, any cost benefit analysis and analysis of return on every dollar invested would rightly point to the need to focus on Rooms as against F&B to achieve healthy gross operating profits – the measuring gauge for management fees.
But today there are multiple opportunities available to an unsatisfied Owner to pick and
bring a star restaurant, a franchise or celebrity chef on site and hotel chains need to ensure they have a plan to manage the impact. When the profitability dwindles beyond a certain point of time, Owners are quick to react and explore outsourcing the operations. The obvious answer is that hotel chains need to make their outlets more attractive to the outside public and the local community at large, increase occupancy in- house and boost the average F&B check.
Equally and perhaps more
importantly what is needed is a change in mind set from both the Operators and Owners. Perhaps it is time for hotel chains to actively look at their F&B part of the business as an independent business unit with a separate business plan of its own. Preparing a mini strategic plan for each F&B outlet should not be an enormous task especially considering the template exists and is used for the hotel as a whole anyway. The idea is to replicate it for F&B operations as well – a mini plan for each outlet complete with revenue and profit targets, staffing, capital expenditure, concept, menu and a marketing plan.
The American bar at the Stafford has carved its own identity as a legendary and quirky bar.— Photo by The Stafford London by Kempinski
The American Bar at The Stafford in London is one such example
where an F&B outlet is renowned for its atmosphere and lead manages the hotel profile as a watering hole of distinction.
Similarly, Owners need to push the envelope in seeking accountability from Operators to ensure their performance is meeting requirements at different levels of the Operations including F&B and not just at a blended gross operating profit level. This in all likelihood will keep everyone engaged and committed to achieving results.
Bridge.over is a boutique strategy consulting firm dedicated to solving business challenges for hospitality visionaries across the globe. Sought after by hotel owners, investors, sovereign funds and management companies alike for its entrepreneurial way of thinking, Bridge.over is an ideal partner of choice for companies seeking fresh ideas for change and improvement from London to Dubai to Beijing. To learn more, please visit bridge-over.com
