Beyond Rooms: Applying Yield Strategies to Hotel F&B Revenue

By Mark Heymann Chairman & CEO, Unifocus | October 21, 2018

Hotel owners and operators have long used yield management to optimize room revenues. For instance, it's considered smart business for reservations to decline a booking for a one-night stay on Tuesday, even when a room is available, if forecasts indicate that someone else is likely to want that room for Monday through Wednesday. By rejecting the one-night stay, the hotel potentially gains two additional nights of revenue that would otherwise be lost. Hotels that employ such strategies have experienced significant gains in room revenue. And yet those same hotels often overlook other service areas that would similarly benefit from a yield management approach – in particular their food and beverage operations.

Yield management was pioneered in the 1980s by the airline industry, spurred by deregulation and the rise of global distribution system technology. A pricing strategy, it is based on the premise that different consumers will be willing to pay different prices for the same product. It is designed to generate the maximum possible revenue from a perishable resource – whether that resource is an airline seat or hotel room.

Like an airline seat or hotel room, a restaurant seat is a perishable item. For every meal period in which it sits empty or underutilized or is occupied by a low-spending vs. high-spending customer, that seat represents lost revenue that will never be recovered, no matter what. Today's business is today's and tomorrow's is tomorrow's. That's where yield management comes in. The goal of yield management is to have every seat occupied by the best possible customer at every opportunity. And an effective labor management system provides the smart staffing and scheduling, plus the key forecasting capabilities, to make that possible.

Prioritizing High-Revenue Versus Low-Revenue Diners

It's not just having any customer at the table that matters. It's having the right customer. If a customer orders a low-revenue item like coffee and Danish, his or her seat is not available for a potential customer who would have ordered a full breakfast. If that second customer declines to wait and decides to dine elsewhere, the difference in meal revenue represents lost income for the hotel.

On the rooms end, hotels use yield systems to determine the best customer. But they are less effective at looking at their food and beverage customer mix and tracking what those customers are buying. As a result, low-revenue customers too often tie up seats that could accommodate high-revenue customers. Poor seat utilization can also impact total revenue. For example, despite an extensive waiting line, a restaurant host seats a party of two at a table for four that has been created by pushing two two-tops together. By not separating the two-tops, a table that could have been made available to another party of two is wasted and potential revenue left unrealized.

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Coming up in June 2019...

Sales & Marketing: Selling Experiences

There are innumerable strategies that Hotel Sales and Marketing Directors employ to find, engage and entice guests to their property, and those strategies are constantly evolving. A breakthrough technology, pioneering platform, or even a simple algorithm update can cause new trends to emerge and upend the best laid plans. Sales and marketing departments must remain agile so they can adapt to the ever changing digital landscape. As an example, the popularity of virtual reality is on the rise, as 360 interactive technologies become more mainstream. Chatbots and artificial intelligence are also poised to become the next big things, as they take guest personalization to a whole new level. But one sales and marketing trend that is currently resulting in major benefits for hotels is experiential marketing - the effort to deliver an experience to potential guests. Mainly this is accomplished through the creative use of video and images, and by utilizing what has become known as User Generated Content. By sharing actual personal content (videos and pictures) from satisfied guests who have experienced the delights of a property, prospective guests can more easily imagine themselves having the same experience. Similarly, Hotel Generated Content is equally important. Hotels are more than beds and effective video presentations can tell a compelling story - a story about what makes the hotel appealing and unique. A video walk-through of rooms is essential, as are video tours in different areas of a hotel. The goal is to highlight what makes the property exceptional, but also to show real people having real fun - an experience that prospective guests can have too. The June Hotel Business Review will report on some of these issues and strategies, and examine how some sales and marketing professionals are integrating them into their operations.