Rooms and Food & Beverage: Optimizing Revenues and Profits

By S. Lakshmi Narasimhan Founder, Ignite Insight LLC | November 24, 2013

The Bread and Butter of Hotel Business

If you pick up the Income Statement (or Profit and Loss Statement, as it is more popularly called) of any hotel operation, one of the first things you will perhaps notice is that, between 80% and 90% of Total Revenues are contributed by Rooms and Food and Beverage departments. These two are the major revenue (and later in this article you will see) as well as profit contributors of a hotel operation.

However, between the two departments there are very little similarities other than that they tend to complement each other in a hotel operation.

The Rooms department is really the dominant revenue center in a hotel. By itself it can account for anything between 60% and 80% of hotel revenues. In comparison, the Food and Beverage department contributes between 10% and 20% of Total Revenues. Of course, this is a generic observation, actual percentages will depend on the size and type of hotel, room types and rates, number of restaurant outlets, whether a city hotel or a resort and so forth.

Two Major Operations

The best way to understand features of the Rooms and Food & Beverage department operations from a financial perspective would be to compare them.

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Social Media: Engagement is Key

There are currently 2.3 billion active users of social media networks and savvy hotel operators have incorporated social media into their marketing mix. There are a few Goliath channels on which one must have a presence (Facebook & Twitter) but there are also several newer upstart channels (Instagram, Snapchat &WeChat, for example) that merit consideration. With its 1.86 billion users, Facebook is a dominant platform where operators can drive brand awareness, facilitate bookings, offer incentives and collect sought-after reviews. Twitter's 284 million users generate 500 million tweets per day, and operators can use its platform for lead generation, building loyalty, and guest interaction. Instagram was originally a small photo-sharing site but it has blown up into a massive photo and video channel. The site can be used to post photos of the hotel property, as well as creating Instagram Stories - personal videos that disappear from the channel after 24 hours. In this regard, Instagram and Snapchat are now in direct competition. WeChat is a Chinese company whose aim is to be the App for Everything - instant messaging, social media, shopping and payment services - all in a single platform. In addition to these channels, blogging continues to be a popular method to establish leadership, enhance reputations, and engage with customers in a direct and personal way. The key to effective use of all social media is to find out where your customers are and then, to the fullest extent possible, engage with them on a personal level. This engagement is what creates a personal connection and sustains brand loyalty. The February Hotel Business Review will explore these issues and examine how some hotels are successfully integrating social media into their operations.