Mr. Escoffier

Food & Beverage

A Summer of Discontent? How Gasoline Prices May Affect Hotel Food & Beverage

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

Last summer many casual dining restaurant chains found that the high price of gas had a negative effect on their same store sales, food delivery costs, and, eventually, profits. Gas prices are on the rise again this year, perhaps to levels significant higher than last year. What may happen to your food and beverage profits?

As more and more people abandon their home kitchens and eat out on a regular basis, the restaurant industry is confronting some of the same issues that we have had to face in hotel Food and Beverage. As that advertising tag line goes; our guests "Gotta eat". But where? And how much will they be willing to pay?

The second challenge confronting F+B is the likelihood of rising food costs. Hmm... it sounds like a "perfect storm" of menu pricing pressures and rising food costs. You don't need the Controller to tell you what that means - a decline in operating profits.

But professors like me don't pose problems without first having a solution or two up their sleeves. Following the lessons learned in the casual dining restaurant segment coupled with a robust food cost containment program should allow the suave F+B Director to get his or her operation through the summer of discontent.

So what's happening? Why the call to arms? Well, as you may recall, last summer gasoline prices in the United States hit all time highs. Eliminating the super high prices like in San Francisco or New York City, national gas prices went to about $3.50 a gallon for regular. Most energy forecasters say that $3.50 is the minimum, and the more aggressive (let's call them for what they are: "Doomsday") forecasters say above $4.00 a gallon!

Here's what we know about the consequences of these forecasted gasoline prices. First, we know that last summer most restaurants at the two ends of the dining out scale; the quick serve (fast food) operations and the fine dining ("white tablecloth") places suffered only minor drops in sales, if any. Normal seasonal promotions and advertising campaigns helped alleviate the potential affect gas prices may have had on many foodservice operations. But the middle level of restaurants, most especially the casual dining segment, suffered a significant loss of patronage and revenue, most especially among people in their twenties and early thirties.

How does this affect you? Simple. We know from years of research that vacationers establish a vacation budget, an amount that they wish to spend on their total vacation experience. They then adjust their vacation itinerary based on their proposed budget. Some studies go on to find the obvious; that vacationers frequently (almost always) exceeded their budgets, but that's another story.

Based on the cost of transportation, modern vacationers choose between flying versus auto travel. With gas prices going up, it can be assumed that the choice of auto travel may include shorter trips, both in terms of distance from home, but also less use of the car upon arrival at their vacation destination. Of course, airline travel is also affected by fuel prices, but airlines sometimes wish to reduce profits rather than suffer significant drops in ticket sales. This theory is rooted in the old saying, "I lose a buck on every deal; but I make it up in volume."

No matter what form of transportation a vacationing family selects, studies suggest that gasoline price increases similar to last summer will have little effect with regard to room nights (then length of the vacation). Indeed, some resort hotels experience longer guest stays as vacationers forego driving to several local resort areas and stay at only one or two.

But what about food and beverage? Well, the guests are in house, but they might seek lower food expenses by going across the street for fast food. Can you compete? Yes! Do what the casual dining restaurants have done since last summer's rude awakening. Redo your menus with lower priced offerings.

Some places, like TGI Friday's have taken an interesting additional step. Like most of the casual dining chains, Friday's revised their menu. But they revised it in an interesting way; they reduced portion size and went back to the ancient way of dining - the three course meal.

Let's see... reducing the main portion size, hence, reducing food costs, but selling less expensive food items in addition to the reduced main course. This idea has a lot going for it. The operation offers greater value (a complete meal), at a lower menu price (but not by much) and experiences a reduction in food costs (which, as we will see later in this article may be significant.) Wow!

Other casual dining chains have done a more direct solution to the challenge and have developed special menus offering reduced menu price items, like a chop steak main course rather than a regular steak, or a steak and chicken main course. This type of solution directly addresses one perceived challenge, the transfer of spendable income from food purchases to gasoline purchases. If your menu prices are significantly higher than those offered by other foodservice outlets close to your hotel, this solution may work.

But if you are also concerned about giving your hotel guests an excuse not to drive off property (and waste precious gas), than the TGI Friday approach may be a solution to consider.

What else might you do to boost sales this summer? One idea that has gained some traction is the travel box. The TSA temporarily shot down the travel box as far as airline travel was concerned. Some hotels have adjusted their offerings in order to comply with the latest rules. But, so far, TSA has no rules regarding guests who travel by car. A picnic basket of goodies might save many families from the less than stellar food offerings available at the gas stations enroute. A quick trip to your local gas and food mart should give you a competitive pricing structure. Depending on your guests' economic background, the prices may be increased by a more fancy box than the cardboard ones used for air travel. An actual picnic basket is not out of line. One wine shop nearby buys them for under three dollars. I'd recommend a display near the check out side of the front desk.

A poolside snack bar operation might keep guests stay on site instead of having them spend the day elsewhere. It is increasingly common to have a spa or elaborate exercise area, so making your hotel a mini-destination is more than a pipe dream. I spent a very nice two days at a hotel in North Platte, Nebraska, a place that is not otherwise known as a destination resort area! But the pool, spa, and proximity to a nice country walking path all made for a delightful interlude on an otherwise rigorous Chicago to Denver road trip.

Finally, unless it is really a good guest draw, that fine dining operation upstairs might be converted to better use as a singles gathering place with good bistro-type foods and fun summer drinks. You may not be able to keep your guests in-house during the day, but the least you could do is have them spend their nights eating, drinking, and having a good time at your hotel.

OK, we have solutions to the sales challenges at least being considered. Let's turn to the other big challenge high gasoline prices pose for the food and beverage operation; food costs. I am very concerned about the price of beef. Last winter's blizzards killed off thousands of cattle in Eastern Colorado, and surrounding states. Some beef experts believe that the national beef supply will be as much as 1.4 billion pounds short of last summer's supply. I don't believe it will be that bad, somehow, I think beef will be imported from elsewhere. But you can bet that your suppliers will not hesitate to raise beef prices due to this situation.

Oh, and hauling that beef, and all other commodities, will become more expensive as well. Trucks guzzle fuel and truckers can absorb only so much of an increase to their operating costs before the costs get passed on to the consumer; in this case you. I am not alone in my belief that the federal government, in recent years, has been under-reporting cost increases.

Officially, inflation is under control, but somehow I seem to be living about the same lifestyle I've always lived, yet at more cost to me. In other words, my own little inflation index says to be on the lookout for commodity prices to rise, perhaps by eight to ten percent over what they were last summer. Gas is one excuse, drought in some areas, too much rain in others, and, now, the missing honey bees (whose pollination of some crops is vital to that crop's survival) all will become factors in increasing the cost of food to you. My advice: sign long term supply contracts now.

Other ways to lower food costs include stepping back from what I believe is an over-reliance on convenience foods. Cook your own bacon, peel your own vegetables, separate your own lettuce leaves. In other words, use the skills your cooks should already have and the equipment you've already purchased to make at least some of your food from scratch where feasible. This will lower the cost of food, and, if done judiciously, will not raise your labor costs.

Note that key word: "judiciously". I've seen the kitchen pendulum swing too far into the other direction. I do not advocate becoming some model of 18th century production kitchen with hundreds of workers toiling away on producing everything the hotel needs. But I also know that your kitchens are like all the others I have been in; not everyone is busy all the time. Get familiar with pre-prep timing. Some foods can be pre-prepped hours or even a day in advance of use. Cooking can be more than a boil-in-the-bag operation. Cook-chill works for things other than banquets. After your have reviewed and made changes to your menu offerings. But before you negotiate with your vendors, see if your operation is running as efficiently as it possibly can.

So I guess that you will have to cancel that vacation time you thought you had. These next two months are the time to get prepared for the summer's business challenges. Gas prices surely will be one challenge. Learn from what successful restaurant chains have done to recoup their business after they got caught napping when gas prices rose last summer. Do not assume that any possible good news concerning American gas supply will result in a stabilization of gas prices (and, whatever you do, don't listen to someone who says that gas prices will go lower for the summer.) China now makes and sells more automobiles than the United States. Unless they have invented the miracle vehicle, all those cars will need fuel! So the world wide use of gas will continue to grow while the supply remains constant (more or less) or, possibly, diminishes.

How you attract vacationers and other travelers to your property and, more importantly for you, keep them on site eating and drinking, is up to you. Good, proactive, planning coupled with a bit of luck will assure your operation remains a profitable one.

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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