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.
The Hotel Business Review articles are free to read on a weekly basis, but you must purchase a subscription to access
our library archives. We have more than 5000 best practice articles on hotel management and operations, so our
knowledge bank is an excellent investment! Subscribe today and access the articles in our archives.