Hotel Food and Beverage: A Profitable Venture?

By Michael Haynie, SR., President, Parkway Hospitality Management

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 décor: 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 décor clean, fresh and modern.
• Well-trained staff understanding the nature of great service: Again, you can have great food, but an inexperienced or rude server can ruin even the best of meals. Guests are spending their hard-earned money for the entire dining experience, and servers should ensure that they are providing excellent customer service from beverages to dessert.
• An experienced food and beverage person managing the operations: A well-run kitchen and dining room is key to both a good customer experience and profitability. A good manager can streamline operations, including staffing and food purchasing, and help promote success.
• Excellent wine selections: Beverages could be the difference-maker in profitability. A well-stocked bar and wine cellar can help entice new customers and keep customers coming back. Consult with a sommelier or local wine experts on the trends of the moment and what longtime favorites are a must to have on hand.
• Understand the fantasy and loyalty to “locally grown”: For customers, locally grown food means that the items are fresh and contribute to the local economy. Research your profit margins when it comes to locally grown food to see if this can be part of your marketing strategy. Just a mention of “locally grown” food can attract diners.
• Including the local flavor in the menu: Many hotel restaurant guests are guests of the city as well. Travelers enjoy tasting local specialties when they visit somewhere new. Make it convenient for them to try these dishes at your hotel.
• A simplified menu: Streamline your menu to keep costs of ingredients down and to eliminate waste. Evaluate your customers’ orders and see what selections may not be cost efficient.
• Larger convention type properties should have multiple outlets for various tastes and budgets: Does your hotel offer restaurants/eateries at various price points? For example, a coffee shop, a casual dining café and a five-star restaurant may be found in larger hotels, meeting the needs of guests of all ages and incomes.
• An exterior entrance: You should absolutely consider an exterior entrance, as many people still have an affinity to walking into a hotel for a good restaurant meal even if they are in their own home town.
• Social media networking: Marketing, public relations and social media are all important ways to promote your restaurant. Word-of-mouth through social media reviews and posts can help boost a restaurant’s client base and keep people returning.

All of the above items are very helpful as you venture into the highly volatile world of hotel restaurants. With all of this, to be able to achieve a profitability margin of 10 – 12 percent would be a considerable victory.

And with the hotel restaurant also comes to mind catering. Catering can offer tremendous profitability. If you do it well, you can expect profitability margins as high as 35 – 40 percent, but that is not necessarily the norm. The predictability of the number of guests expected helps immensely in food purchasing and staffing, and should help in controlling related overhead. So how do you get catering customers coming to you?

• Flexible banquet space is critical. Flexibility means you can service 50 guests as well as 650-700 guests, which has an effect on your profit margins.
• Excellent environmental controls are essential. There is nothing worse than having a reputation as a “cold” or “hot” facility.
• Only do events which are within your comfort zone. Don’t do Mitzvahs or weddings if you have no experience or the ability to do so. It will only hurt your reputation.
• Hire a good cost conscious banquet chef who understands the critical aspects of timing and center plate design. You don’t want your banquet food looking like everyone else’s. Local flavor again would be highly recommended, as well as locally grown food products.
• Be sure to have a highly motivated sales force who are “out there” in the public and are very social media conscious.
• Great service is non-negotiable. Your staff should be well trained, and the equipment used in the banquet needs to be in excellent repair. Clean seats and linens are a must.

Profitable food and beverage in a hotel environment is possible, but it needs to be taken seriously as a priority. Owners no longer tolerate amenities in hotels with one hundred plus percent cost. Understanding your market and what you want to be, as well as hiring the right food and beverage skills to suit your operations will give your restaurant a chance to succeed. Bon Appetit!

Michael Haynie has devoted his entire professional career to the lodging and hospitality industry. After attending Northeastern University in Boston, MA, he took on various entry level positions before rising through the ranks to the executive level positions he has held for many years. Mr. Haynie has experience in every facet of hotel operations and has served in leadership capacities in hotels ranging from economy to luxury. Prior to launching his own hotel management enterprise, Mr. Haynie served as the Vice-President and Managing Director of Baltimore’s Tremonts Hotels which encompassed the upscale Tremont Plaza Hotel and the economy Tremont Park Hotel. Mr. Haynie, SR. can be contacted at 443-604-3835.