Outsourcing & Technology: Taking Hospitality F&B to The Top of Its Game?

The hospitality industry is trying hard to catch its collective breath and recover from the COVID-19 pandemic. As the world began to reopen, hotels, restaurants, and other food and beverage (F&B) service companies all expected a slow return of visitors and diners.

However, the resurgence was everything but slow, as evidenced by the Q3 2021 banqueting and catering revenues that doubled over the previous quarter.

This meant that many F&B providers were caught on the back foot. Now, the hospitality industry as a whole is looking for ways to address the F&B challenges it faces and to integrate the learnings from the pandemic into its day-to-day operations.

Two specific issues are proving particularly difficult for the industry to resolve. The first is the ongoing labor shortage, as people in the U.S., U.K., and other countries descend en masse on facilities struggling to employ the staff they need. Next up are the enhanced sanitization requirements that are a primary COVID legacy. Restaurants, bars, banqueting, events management, and catering services all face the same issues. Some leading hospitality organizations are implementing innovative new ways to address the problems.

Facing Fierce Challenges

The current labor shortage is a global concern, with industries across the board finding themselves competing for the ever-dwindling human resources available. In hospitality, however, it's not just about a dearth of skilled workers at operational levels. The labor shortage also affects middle and senior management and executive teams.

What the Numbers Say

Hospitality labor statistics are telling. Employment data from November 2021 shows 4.5 million Americans quit their jobs in a single month, and of those, 6.4 percent were from hospitality and leisure. Meanwhile, the National Restaurant Association reported it had 14.5 million industry employees at the end of last year, which is a reduction of one million employees from pre-pandemic levels.

Reasons for the Shortages

Several reasons exist for the current labor shortage, and none of them should be a surprise. When the pandemic began, hospitality organizations laid off staff left and right. Although some jobs recovered as the various states opened up, many former F&B workers have moved on to other jobs and are no longer available. Other contributory factors include toxic workplaces, unsatisfactory work-life balance, job insecurity, and failures by management to recognize employee performance.

Underpayment of staff was a concern long before COVID-19. Basic F&B compensation has always been low, even during the heyday of tourism, and the perception remains that this is the case. Work in this division typically involves unpredictable hours and unpaid overtime, which makes it seem less attractive to workers of all ages. Demographics also represent a problem because many countries are experiencing aging populations. In the United States, 16 percent of people are over 65 years, while the European Union shows 16 percent are over 55 years. With fewer working-age people in the economy, the shortage of qualified workers leads to greater difficulty filling F&B roles.

The Sanitization Situation

COVID-19 ushered in rigorous new sanitization requirements for public spaces, notably where food is served or medical services are provided. With the hospitality industry already struggling to fill long-established positions, the pressure to engage additional staff to handle sanitization protocols plays into the labor issue and turns it into a tipping point for many organizations. Many facilities have redesigned their dining areas, doing away with buffets, salad bars, shared serving utensils, and self-serve beverage stations. These are being replaced by spaced seating, antimicrobial surfaces, and plexiglass dividers between tables.

Discovering Real Resolutions

Finding resolutions to the challenges posed by the "Great Resignation," as it has been dubbed, is top of mind for hospitality executives. Most have concluded by now that the fix is not a simple matter of offering sign-on bonuses and other incentives. Much innovation will be required to restore full operability in the sector, but there is hope for rejuvenation based on a couple of principle concepts.

The Outsourcing Option

Outsourcing could be the solution the industry needs to solve many of its post-pandemic problems, especially the labor shortage issue. For some years before Covid, the trend of outsourcing a hotel's Food and Beverage (F&B) operation was already popular in hospitality. With F&B delivering around 25 percent of revenue in 2016, it was an important hotel income stream. However, managing F&B in-house wasn't always a profitable venture, which led to many hotels outsourcing their F&B facilities. Services that are already widely outsourced, particularly in Europe, include dining areas, room service, and kitchen management, among others.

Choosing the right outsourcing partner is critical for ensuring a smooth transition without compromising quality or control. Companies must also choose between several types of outsourcing arrangements, depending on the services required, the agreement period, and the fee structure. The most common arrangements include a management contract, a lease agreement, a franchising opportunity, a licensing arrangement, or a combination of one or more of these. For example, a hotel property with several F&B operations could outsource some of its facilities while retaining control over others.

When a hotel or hotel chain outsources its food and beverage operations, financial savings are typically one of the primary drivers. Outsourcing F&B allows companies to trim not only salaries, but also payroll taxes, employee benefits, and the costs associated with high staff turnover rates and training. Food and beverage outsourcing gives hospitality companies the chance to establish a predictable revenue stream from rent, regardless of whether the facilities generate profits. Even when rental agreements are linked to turnover, they offer the host properties some security during slow periods.

The outsourcing of food and beverage services has included some novel approaches over the years. It remains to be seen which methods will trend in the aftermath of the pandemic, but a popular option includes subcontracting hotel room service to local restaurants and ghost kitchens. These options allow hotels and accommodation venues to continue offering guests a reliable food service without having to manage the labor and sanitization challenges that accompany it. Few guests have never stayed in a hotel room that offered deliveries from the local pizzeria.

While there are multiple benefits to gain from outsourcing various F&B functions, disadvantages do still exist. Giving food service management over to a chain or franchise eliminates the differentiation of having a specialty restaurant. Hotels lose the profit stream from the division, and it could be difficult to conclude an agreement that doesn't guarantee a specific number of diners or a minimum turnover.

Reputable third-party service providers have the expertise and resources to meet the current challenges facing the market. They can also leverage economies of scale in purchasing that help them maintain pricing stability and ensure a positive customer experience for diners and guests.

Taking a Technological Approach

Just as COVID-19 precipitated a massive shift to remote work, it also significantly increased the adoption of technology. Since pandemic sanitization protocols required them to minimize the handling of items such as menus, restaurants and other hospitality venues have embraced purpose-built technology. Digital options like quick response (QR) codes and electronic order placement have become commonplace. QR codes have become easier to use because they no longer require users to download a third-party app for each venue. Smartphone cameras can now scan the codes and access their landing pages.

The pandemic's focus on contactless payment methods reduced the use of cash and ushered in point-of-sale systems in most F&B facilities. These offer significant data collection opportunities from recording in-restaurant purchase behavior. This can help restaurateurs create data-driven menus that minimize waste, generate savings through optimized procurement practices, and boost profitability by answering diner and guest needs.

Other types of technology in use post-COVID-19 include programmable air purification systems, which are increasingly being installed in food service locations. In addition, online table reservation systems and automated inventory management software reduce the need for staffing and deliver savings on labor and its associated costs.

Emerging from the Ashes

Without question, the hospitality industry's food and beverage division has taken a real beating over the past couple of years. According to Guy Maisnik, Partner and Vice-Chair of Global Hospitality Group at Jeffer Mangels Butler & Mitchell LLP, nearly 90 percent of hotel food and beverage services were shut down during the pandemic.

However, we have seen in the past just how remarkably resilient the hospitality industry and its stakeholders can be. I have no doubt we'll see similar outcomes this time around. It may still be some time before we can expect robotic servers to be making the rounds in restaurants delivering meals, but many of the outsourcing and technological initiatives mentioned here are already in use.