Mr. Escoffier

Food & Beverage

What the Hotel Chains are Doing to Cope with the Economy

By Marcel Escoffier, Associate Professor, FIU School of Hospitality Management

Much has been published concerning how the restaurant business has been franticly trying to cope with the current economic crisis. Little has been done written concerning the lodging business. As happens frequently, the hotel food service business is experiencing a very different economic strain than our counterparts over in the restaurant side. While restaurants have seen a shift in business down to the less costly "quickserve" and fast casual, F+B Directors have seen a shift outside the hotel property. But some operators are still making money in food and beverage. How do they do it? And how can you copy their ideas?

What Not to Do:

Waiting out the economy to turn around is probably not an option. If you could get the financial backing, closing the place for a year while you refurbish the hotel would not sound like so bad an idea. The problem with this tactic is that, first, it is nearly impossible to borrow money, and, second, what makes you think the economy will be better by the time your hotel is ready to reopen?

Another poor idea would be to continue to operate as usual. This is a viable option only at the end of our business where we include breakfast with the price of the room (the economy lodging sector.) As we will discuss in the next section, the economy hotel sector is taking advantage of current consumer desires to "get something for nothing." In the same way that the Denny's promotions have been so well received, a free breakfast promotion seems to be a very good way to attract "heads in beds".

Running like you do when you are busy is another dumb idea. I visited a hotel recently that is part of a large and venerable chain (it is my policy to try not to name places that I use as examples of what not to do.)

Picture the scene. It is dinner time, a Friday night in a fairly large business oriented hotel in a moderately large city located along the Mississippi river. It's about 7:00 pm. I enter the coffee shop and am greeted by a hostess who seats me. A busboy pours some water and a waitress asks if I'd like a drink. I order, and dine. Before I'm finished, I "visit the men's room" - actually "getting lost" and "mistakenly" entering the kitchen area (how sneaky can you get?) There is one cook and a pot / dish washer. Oh, yes, there is a cashier who politely points me in the correct direction to visit the men's room. So, what? Well, there was only one other diner in the coffee shop! Hum. Two customers for about half the usual dinner period and at least six employees. Oops! I forgot the bartender, so let's say seven employees. The monumental stupidity of this scenario still has me angry. My usual early morning walk by the front desk (and schmoozing with the night auditor) revealed a hotel occupancy of 28%. I was told, what was usual when there wasn't a convention in town. Let me suggest that, were I the General Manager, I'd have replaced the F+B Director a long time ago! Surely, if the night auditor has picked up on the way occupancy usually is at the property, than the F+B Director should have some idea. The appropriate managerial action? Forget the textbook internal controls and go with as few employees as possible. If this was a union hotel (it wasn't), than I would have sat down with representatives of the union and immediately bargained the choice: forget job categories and allow employees to do multiple tasks or explain to the employees why I am furloughing them due to in transience in allowing me to rationalize my work activities in a time of economic crisis.

In another example, a grand, luxury resort in Orlando (yes, there are a couple of them) with numerous food service outlets, was rotating closing nights. That is, the Imperial Japanese Sushi and Tempura House was the only fine dining outlet open one night, the Ruth's Chris Clone Steak House was the only one open another night. Most, but not all, were open on Friday and Saturday nights. I noticed during my stay that there was, in essence, one restaurant staff out front, looking vaguely oriental one night, and "steakhousy" another night. While I compliment management's attempt to savemoney, at $450 a night for a room, I was less than thrilled not to have a choice of outlets open on any given night. Could this resort have been in danger of losing one or more of its stars / diamonds? I can't speak for the ratings agencies, but certainly returning guests could be as disappointed as, for instance, they surely would have been had the pool been closed for repairs.

"Ignorance is Bliss" is an old saying. If true, a certain gazillion star /diamond hotel in New York is truly in bliss. It is running much as it must have run during the very height of the economic boom times. Every food and beverage outlet was open, and in each were the exorbitantly priced menus of five or so years ago. Kobe beef with seared Foie Gras, $260 per person tasting menus, you know, the works. Where I dined was fairly busy, too. Not packed, but certainly not empty. When I complimented the F+B Director the next day he told me a little secret. Some of the younger patrons were students at a local college, and were dining there "on the house" so as to make the place look lively. Only job requirement: must own good looking clothing! (I asked about a job opening, but was told that I'm too old.)

Needless to say, I am not recommending any of these practices. What should be done is to use the tools available and craft a strategy that will work given your hotel's overall strategic position; the sector you are in, the type of clientele you have, and the resources that you have available to you.

How Restaurant Chains are Coping

The basic restaurant coping strategy is to count on the need of a lot of the population to eat out ("need" is the appropriate term; a large number of people have forgotten how to cook.) The restaurant strategists have analyzed "day parts" and determined those periods of time when people are most likely to find eating out convenient, or necessary. Also, restaurant marketing gurus have figured out that people have less to spend, so some kind of special pricing offer seems to work well in order to draw people into eat. Then, too, there is still something special about eating out, so offering something that is a way to enjoy the moment seems to be a way to boost check averages for certain "day parts".

Most of this strategic thinking revolves around two key concepts: need and value. People need to eat, and we as a nation have become used to eating meals prepared by others. Just as importantly, people seek out and respond to perceived value. That is, people like to think that they are receiving a good deal; either a lot of food for the price charged, or a bargain price for what they are served.

This dual need is the reason that while overall restaurant activity has remained relatively stable, the dollars spent in restaurants has declined. A recent study showed that customer counts have only fallen a very few percentage points. But the traffic has shifted down from casual and fine dining to fast casual and "quick serve" restaurants. In other words, people are eating out about as often as before the recession started, they are simply spending less money when they eat out.

Let's keep these two concepts in mind as I review what hotels are doing to successful cope with the economic crisis.

What Hotels are Doing That Seems to Work

As I mentioned previously, the economy lodging sector is coping quite well, thank you. It has seized on the public's desire to reduce the cost of dining out by advertising that there is no additional cost to dine out (at least for breakfast) in this sector of the lodging industry. It has already dawned on several chains within this sector to advertise the fact that breakfast is a part of the room package (usually emphasizing, or at least implying, that breakfast is "free".) I am waiting for this sector to begin to emphasize this idea to those who need a short vacation, as well as showing all those business men and women in their advertising.

Since restaurant chains are frequently offering limited time free offers, and other special promotions, and, given the advertising success the economy lodging sector has had, perhaps other hotel sectors should re-introduce the Modified American Plan (MAP). The MAP includes a breakfast and/or dinner in the price of the room. It implies a sense of "value"; a universally potent marketing concept. The full American Plan (AP) probably is not going to work, unless your hotel is in some very remote area of the country with few alternative dining options. But the MAP satisfies both marketing imperatives; the need to eat, and the sense of "value".

Like most decisions in life, there is a way to ruin its appeal. Some hotels fail in implementing the MAP when they offering comparative room pricing structures. That is, where they advertise a room only plan ("European Plan") price alongside the MAP price. When you advertise an Ocean Front room for $150 and the MAP $175, it doesn't take a genius to figure out how much you are charging for the breakfast you are including! The MAP works best when the price is offered in some special way. A special "Road Warrior" rate of $199 that includes an internet hookup, a free breakfast and two for one drinks at the bar obscures the rate structure sufficiently so the potential hotel client can't judge how much you are charging for the room that, usually, you might be renting at $175 a night on the unadvertised corporate rate.

Several hotel chains have opted to go with a value oriented service plan. In this case, they have offered all you can eat service options or even replaced menu orderings entirely. When marketed to the value conscious traveler, this can be very appealing and can save the operation labor costs as well. Kimpton Hotels & Restaurants has such a program where they allow hotel guests to add a cocktail or breakfast for $1 to their room rate. I am debating if this should be called a "modified Modified American Plan!"

One other opportunity is offering a buffet. Most hotels already have the special equipment needed to do a buffet (unlike most restaurants) so this is a sure way to promote unique value to our guests. Buffet operations require a bit of thought in order to lay them out so as to control food costs, but, when done correctly, usually are quite profitable.

I am glad to see that a few hotels have tried to boost their beverage business. In addition to the above cited Kimpton Hotels & Restaurants example, many, such as the Hyatt hotels in several cities have converted their beverage service to sports bars. The sports bar concept works well, provided there is some sports out there worth watching. Competitive sports seem to draw a more boisterous (and better drinking) crowd than other events. This means that sport seasonality may make sports bars less busy at times. The need for many hotel guests to get out of their rooms and have a drink or two is strong; especially among business people and those traveling with small kids. Any kind of promotion (like free nachos, or a coloring book for the kids) all are working to get people out of their rooms. The free nachos or other such food idea works especially well as the food is inexpensive to prepare, easy to serve, and makes people thirsty.

"Need" is the other reason for eating out. We need to eat. Tradition inmost modern countries is to satisfy this need about three times a day. That gives hotels three opportunities to draw in customers based on need. The examples I have just mentioned all aim to satisfy that most primary need: breakfast. Traditionally, mid-scale and luxury hotels have satisfied this need with elaborate breakfasts and the value-added convenience of room service. But other needs should not be overlooked. Hotels situated in population centers can work toward satisfying the need to "do lunch". It amazes me the number of hotels along Powell Street, San Francisco that do so well satisfying this need. Actually, what amazes me is that hotels along similar shopping and tourist streets in other communities are not working toward filling this need. Specials, "two-fors" and other promotions can work wonders in getting people in for lunch. Most office workers are on a limited time schedule, so a lunch buffet or quick order / quick serve menus work well. A somewhat weird draw worked in Denver, we served about 120Rubens sandwiches each weekday at lunch. We pre-prepared them so that they simply needed to be browned and served. Coupled with other similarly "heat and serve" foods allowed us to average 725 people every weekday at lunch. Fairly good lunch business!

Another need exists that we can do a lot toward satisfying. That is the need for special events, in other words: catering needs. Hotels in Orlando, Daytona Beach, and elsewhere are using the twin marketing drivers of need and value to competitively price wedding receptions, bar mitzvah and other social events in a way that swings the decision away from private caterers and into the hotels. Offering full service including the venue, food," entertainment" (I'm using quotes; providing a minister for a wedding is one example within this broad definition of "entertainment"), beverage service, parking, flowers, and a host of other important accompaniments all make it worth the potential family's consideration in choosing a hotel over a private caterer.

Using the restaurant industries technique of throwing in "freebees" can swing the deal in your favor. Like the "free breakfast" offered in the economy segment, nothing need be completely "free". But the era of the $20a dozen cookies for breaks probably is over for a while. Right now you need to entice business meetings (all meetings, really) the same way restaurants are bring in customers. Stop "nickel and dimming" your catering business to death, they can, and will go elsewhere. Remember, your pricing structure can easily allow you to work through the need to offer value while still retaining a small profit.

Let's Rethink the Time Horizon

That was a good transition into the need to rethink the time horizon on all this. While some are seeing the hints of recovery right now, most economists are cautioning that the unemployment rate will not return to recent low levels for quite some time. That's "econo-speak" for a couple of years or, maybe, longer. A conservative strategy would be to aim for a rather long recovery. That way you have a chance of being pleasantly surprised were things to bounce back sooner.

A long recovery would mean that you will have to contain costs while providing the levels of food service necessary to maintain your hotel's service ratings. In other words, aim to break even when pricing your marketing for the next couple of years. If offering food and beverage at a relative discount gets people staying at the property ("heads in beds") then so be it. If you can run enough banquets in order to keep the core staff employed until times get better, price your events as low as you can go. The restaurant strategy of offering deep discounts, coupons, two for one specials, and other price incentives have worked for them, and can work for you.

But now, more than ever before, you must work with the hotel marketing department. Coupling food with rooms has always worked in the past, and remains a very powerful marketing tool. Having the marketing people alert you to any increased stays by business people will, in turn, tell you when the economy is beginning to turn around. The economy always gets better when businesses begin to send out more sales people on sales trips. Think of this up tick in corporate business as an advanced economic indicator. Your marketing people track such things and can alert you to this trend.

While expense accounts are being scrutinized more closely than before, still, the business traveler is willing to pay more for food (especially for lunch or dinner when clients are coming as well) than vacationers. So the opportunity to begin raising prices when the corporate travel business begins to pick up should not be overlooked. The tricky part will be to offer some incentive both to the business traveler and to non-business hotel guests. A drink coupon (where allowed) or an appetizer coupon has helped get the business person interested in eating at the hotel. Money off coupons work for the non-business traveler. Discerning the two at check in is not difficult, their reserved rates are an indicator. Appropriate coupons can be included with their check-in packs. The more generic coupon pack can be given when guests check in that it is unclear which group they may belong.

I highly recommend that you redouble your efforts at in-room promotions. Getting hotel guests down to the restaurants and bars in of utmost importance. Just as the hotel needs "heads in beds", we need to fill our dining room and bar seats. The F+B Director who concentrates on meals served or drinks poured rather than on gross revenue or net profits at this point in time will be doing his operation a favor.

The long-term prospects do not point toward a return to business as usual soon, or, maybe, ever. Almost every recession, especially severe ones, result in a new way of doing business. The savvy F+B Director will have to adjust to changing times and a change in the way we do business. The best way to know what trends may develop is to interact with your customers. So step one is to get customers to interact with! Think about what other operators are doing to get traffic moving into their food service outlets and try some of those techniques yourself. It is likely that some techniques will work in some of your food or beverage outlets and not in others. Remember, you are managing a microcosm of the restaurant industry. Techniques which are working in the fast casual restaurant segment are not as affective in the fine dining segment. Using a variety of methods to boost activity in your outlets will offer the best overall results.

Marcel R. Escoffier was an Associate Professor at the School of Hospitality Management Florida International University. He had over thirty years experience in hotels and restaurants throughout the U.S. Unfortunately, Mr. Escoffier passed away in September, 2009. We at HotelExecutive.com would like to continue publishing Marcel's articles on our website as a tribute to this brilliant man. The one thing we loved most about him most was his sense of humor. He would always make light of any serious situation, and this was reflected often in the articles he wrote for the Hotel Business Review. Mr. Escoffier can be contacted at editor@hotelexecutive.com Extended Bio...

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