Hotel Food and Beverage: A Profitable Venture?

By Michael Haynie, SR. President, Parkway Hospitality Management | August 05, 2012

Restaurants have always been a good debate amongst hoteliers - both regarding the need for them and at what level of a property. Full service hotels mean just that, and they are basically called "full service" because of the inclusion of a restaurant. Limited service simply describes hotels without a restaurant. Years ago, the brand name hotels used restaurants to further define standards and try to create a sense of consistency and feel for decor and service. Needless to say, this was an evolving challenge which never seemed to quite get where intended. Brands even tried to standardize how an egg was cooked or even the size of glasses of juice. All good intentions, but what many of the owners were looking for was a model of profitability for their hotel.

Let's go back to the late 1980s and early 1990s when hotel restaurants were the "in" trend, particularly in markets like Washington, D.C. and New York. Having a signature restaurant in your hotel was a sign that your hotel was truly upscale and had "arrived." You saw many of these trendy five-star restaurants in independent hotels. Top chefs such as Michel Richard at the Latham in Georgetown or Jean Louis at the infamous Watergate Hotel were known for their high quality operations and absolutely fantastic food. It is questionable whether these hotels made money or even came close to breaking even, but the exquisite environment and top notch cooking were never in question.

Many hotels back then attempted to duplicate the "Jones" and found themselves in serious trouble, particularly with the oncoming recession in the early 90s and the change in tax laws. The hotel business was and is all about room profitability, and yes, there is something to having the right mix and type of amenities. But it became quite apparent coming out of the 90s recession that "limited service" hotels were the wave of the future. In many cases, it was far more cost effective to give away the food and beverage at a property than to attempt to have a restaurant. So what you saw emerge as a hotel business model were the branded limited service properties "giving away" breakfast and a snack later when you arrived back to your hotel after a day out. Many of the more successful real estate investment trusts (REITS) today still have as a significant portion of their portfolio quality limited service brands. Earnings per share was and is still the nature of the day, and hotel restaurants were seen as a cash drain.

Let's fast forward to the 21st century to see if the model for restaurant operations had changed and we had learned our lessons from the past, or if we just stopped having restaurants in our hotels. Well, I am happy to report we still have the term "full service hotel" in our vocabulary; however how we view these full service hotels and the food and beverage operations has changed with the times. For some, leasing space to an experienced operator of restaurants and figuring out the complicated issues of how to do room service or cater small meetings became the challenge. For others, it was to ensure the general manager could continue to entertain clients at the establishment without the ugly glares of the staff and management. Then there are the full service establishments who still believe the way to driving market share, including rooms, is to have a signature chef's name on their establishment. Not the chef - just the name. Back in the old days, you would truly see Jean Louis, Michel Richard and Jim Papovich actually cooking your meal! With the advent of cooking shows and the outcrop of celebrity chefs because of the exposure of these shows, it has truly helped drive restaurant traffic to the hotel. Because of the up and down nature of occupancy, the reliance on hotel guests is still not enough.

Modern day hotel food and beverage operations need to be geared towards profitability. Here are some things that should be taken into consideration by hotel management in regards to their restaurant operations.

• Modernized updated decor: Is your restaurant serving four-star dinners but still stuck in the last decade with dated tables, chairs, linens and wall coverings? No matter how delicious the food, first impressions count, and diners want to feel that your space is welcoming. Be sure to keep your decor clean, fresh and modern.

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The hotel industry has undertaken a long-term effort to build more responsible and socially conscious businesses. What began with small efforts to reduce waste - such as paperless checkouts and refillable soap dispensers - has evolved into an international movement toward implementing sustainable development practices. In addition to establishing themselves as good corporate citizens, adopting eco-friendly practices is sound business for hotels. According to a recent report from Deloitte, 95% of business travelers believe the hotel industry should be undertaking “green” initiatives, and Millennials are twice as likely to support brands with strong management of environmental and social issues. Given these conclusions, hotels are continuing to innovate in the areas of environmental sustainability. For example, one leading hotel chain has designed special elevators that collect kinetic energy from the moving lift and in the process, they have reduced their energy consumption by 50%  over conventional elevators. Also, they installed an advanced air conditioning system which employs a magnetic mechanical system that makes them more energy efficient. Other hotels are installing Intelligent Building Systems which monitor and control temperatures in rooms, common areas and swimming pools, as well as ventilation and cold water systems. Some hotels are installing Electric Vehicle charging stations, planting rooftop gardens, implementing stringent recycling programs, and insisting on the use of biodegradable materials. Another trend is the creation of Green Teams within a hotel's operation that are tasked to implement earth-friendly practices and manage budgets for green projects. Some hotels have even gone so far as to curtail or eliminate room service, believing that keeping the kitchen open 24/7 isn't terribly sustainable. The May issue of the Hotel Business Review will document what some hotels are doing to integrate sustainable practices into their operations and how they are benefiting from them.