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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Guest Service: A Culture of YES

In a recent global consumers report, 97% of the participants said that customer service is a major factor in their loyalty to a brand, and 76% said they view customer service as the true test of how much a company values them. And since there is no industry more reliant on customer satisfaction than the hotel industry, managers must be unrelenting in their determination to hire, train and empower the very best people, and to create a culture of exceptional customer service within their organization. Of course, this begins with hiring the right people. There are people who are naturally service-oriented; people who are warm, empathetic, enthusiastic, pleasant, thoughtful and optimistic; people who take pride in their ability to solve problems for the hotel guests they are serving. Then, those same employees must be empowered to solve problems using their own judgment, without having to track down a manager to do it. This is how seamless problem solving and conflict resolution are achieved in guest service. This willingness to empower employees is part of creating a Culture of Yes within an organization.  The goal is to create an environment in which everyone is striving to say “Yes”, rather than figuring out ways to say, “No”. It is essential that this attitude be instilled in all frontline, customer-facing, employees. Finally, in order to ensure that the hotel can generate a consistent level of performance across a wide variety of situations, management must also put in place well-defined systems and standards, and then educate their employees about them. Every employee must be aware of and responsible for every standard that applies in their department. The April issue of the Hotel Business Review will document what some leading hotels are doing to cultivate and manage guest satisfaction in their operations.