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 February 2019...

Social Media: Getting Personal

There Social media platforms have revolutionized the hotel industry. Popular sites such as Facebook, Twitter, Pinterest, Instagram, Snapchat, YouTube and Tumblr now account for 2.3 billion active users, and this phenomenon has forever transformed how businesses interact with consumers. Given that social media allows for two-way communication between businesses and consumers, the emphasis of any marketing strategy must be to positively and personally engage the customer, and there are innumerable ways to accomplish that goal. One popular strategy is to encourage hotel guests to create their own personal content - typically videos and photos -which can be shared via their personal social media networks, reaching a sizeable audience. In addition, geo-locational tags and brand hashtags can be embedded in such posts which allow them to be found via metadata searches, substantially enlarging their scope. Influencer marketing is another prevalent social media strategy. Some hotels are paying popular social media stars and bloggers to endorse their brand on social media platforms. These kinds of endorsements generally elicit a strong response because the influencers are perceived as being trustworthy by their followers, and because an influencer's followers are likely to share similar psychographic and demographic traits. Travel review sites have also become vitally important in reputation management. Travelers consistently use social media to express pleasure or frustration about their guest experiences, so it is essential that every review be attended to personally. Assuming the responsibility to address and correct customer service concerns quickly is a way to mitigate complaints and to build brand loyalty. Plus, whether reviews are favorable or unfavorable, they are a vital source of information to managers about a hotel's operational performance.  The February Hotel Business Review will document what some hotels are doing to effectively incorporate social media strategies into their businesses.