Saturday, April 29, 2017

Hotel Management: What is a healthy ratio of food & beverage revenue to room revenue?

Zero to irrelevant. (I'm not being a wise guy. I'm serious.)
  • If you have a limited service or select service operation with a breakfast, manager's reception, or snacks and sodas provided to attendees of your events in whatever meeting or small conference space you have; then you have no f&b revenue or, if you do (say, the eight to ten bucks you can be asked to pay for a cooked-to-order breakfast at a Hilton Garden Inn), food is only incidental to your main business of renting the rooms, or renting the conference facility. The $8-10 you charge for breakfast at a Hyatt Place (another one of those new, 'upscale select service' brands that, along with Hilton Garden Inn, are a growing segment of the business . . .) will take the edge off the cost of providing it, but will not amount to a significant revenue source by comparison to your room charges - if it even completely covers the cost of providing the food.
Image result for hotel restaurant

  • If you have a full service operation, then you're running two (or more) very loosely related businesses - a hotel operation, and a restaurant (and/or lounge) operation. Each of those must stand alone and justify itself on the basis of profitability.
  • If you have convention and banquet facilities, that adds yet another degree of complexity to it, and each of the three businesses in which you're engaged - rooms, restaurant, and convention space - are so interdependent that it's tricky to properly record and distribute the revenue from each, and the cost of providing each. You now have banquets to think about. Your restaurant kitchen - nearly all of whose employees are on the same payroll in the same department, and perform tasks related to both restaurant and banquet service, switching back and forth between the two on a moment's notice - is also going to be turning out banquet meals, an altogether different revenue stream. You're going to be renting rooms that you wouldn't have if you didn't have that conference center, to guests who wouldn't be there if there wasn't an event there. The electricity in your facility needed to provide power for all of that is all fed - and billed - through one or two meters: ditto for the water, gas, telephone and any other utilities. So, moving right along --
  • If your f&b runs in the red, then you have to ask, is it necessary to have it in order to rent the rooms and provide the ambience and environment that is required to get people to rent them at the rates you ask, or to book your meeting and banquet facilities at a price that has you come out with money in your pocket after the bills on it are all paid? (For many, if not most, hotels that have f&b, it's a cost factor: look up 'loss leader' in a dictionary of business and financial terminology, and there's a picture of a happy family on their trip to Florida eating in a nearly empty hotel restaurant with a single waitress hovering over them with a coffeepot for lack of anything better to do. I wouldn't want food and beverages in a hotel unless I was assured lots and lots of good meeting and banquet business to justify the cost of having it.)

Finally, in any hotel - whether select service or full service - room revenue is a wild card: what you can ask for your rooms is going to be entirely dependent upon the local market and what comparable hotels are asking for theirs. Surf Hampton Inn's website, and check rates at all the Hampton Inns in all the towns you'd like to visit if I gave you a 'fly all over the country, unlimited miles, for 90 days' pass. The same experiment would work for Courtyard by Marriott, or Hilton Garden Inn: in either case, you're dealing with a hotel brand with very consistent - and consistently applied - standards; and wherever you go, the room, the amenities, and the common areas, are all going to pretty much come one way. Rent a king room in a Hampton Inn in either, say, Ohio or Texas, and there will be no noticeable difference in what you'll find there, either in terms of your room, or the common areas, or the breakfast or amenities provided.

Within most any town, the rate for the Hampton Inn on north side of town will be comparable to, if not exactly the same as, that of the Hampton Inn on the west side of town (The one out by the airport might be good for a little deviation, but not that much; and the occasional, oddball, twenty-five year old exterior-corridor building, or the even rarer Hampton Inn located in a bad part of town, doesn't count), All you can tell from that is that the Hampton Inn (or Courtyard, if that's what you're using as your basis of comparison) product - and within a given town, the price asked for it - is pretty consistent.

But that's not what you're looking for. What I want you to notice is how the rates at Hampton Inns compare from town to town. In any town to which you travel, the rooms are going to be just alike - but you'll definitely notice that the prevailing rates differ. Local construction and development costs is sometimes a factor, land costs is definitely a factor (which is half the reason Panama City Beach is so much more costly than Panama City); but usually it's supply and demand doing its power and magic. The more hotel rooms altogether there are in a town, by contrast for the demand for them, the lower the rate will be. The higher the demand in a popular destination, by contrast to the number of available rooms, the higher the rate will be.
  • A room at a Hampton Inn in Newport, Rhode Island (recently recognized as the most pricey hotel destination in the country outside a major city like New York or San Francisco) will cost you $209 per night.
  • Of course, New York plays by its own rules, as do all other major cities: $329 in Times Square North, $279 at Times Square South.
  • In Worcester, Massachusetts (a town I like so much, I wouldn't mind living there, but not exactly a resort or even business travel destination - too close to Boston to draw those customers, but not close enough to fetch Boston-size room rates), you pay only $159. 
  • In Reading, Pennsylvania, the same room will cost you only $134 (there are things I like about Reading, but face it - how many people would want to come along with you on a trip there?).
  • In Cleveland, Tennessee (who the heck wants to go there?), you get - again, the exact, same room - for $104.
  • Chapel Hill, North Carolina (near where I live, good town, lots of potential but for now, badly overbuilt), same room: $99;
  • Ditto for Ocala, Florida (Ocala's in north Florida, nowhere near the beach, and not Orlando or Miami Beach. Unless you're really into horses . . . ).
  • None of this takes into account seasonal fluctuations, or bad hits taken for whatever reason by the local economy. The Hampton Inn Boone, North Carolina had a bad winter (unusually warm, not much snow, no good for skiing) and a rack rate of $59 back in March: less than what you'd be asked to pay at an older Quality Inn in Winston-Salem. Things have leveled out a bit now with the summer tourists, but you can tell it's a hot summer, no one wants to spend a lot of time outdoors, and Appalachian State University is on summer break: their rate is now $76 for the same double room for which you'd pay $199 in Newport, with the same breakfast and same amenities. 
See what I'm getting at?

(Did I go and look up all these rates for you just to post this answer? Yes . . . and not really. We track it. All I did was pull up a database. The figures should be out of date, if at all, by no more than four months.)

And that just takes into account hotels in Hampton Inn's 'comp set', hotels in the same class as Hampton Inn that compete directly with them. It doesn't take into account big-box full-service Marriotts, Sheratons or Hiltons, nor luxury brands like W Hotels, Ritz-Carlton, InterContinental or The Waldorf-Astoria Collection (each of which will have a very different ratio of f&b revenue to room revenue); nor economy properties like Super 8's and Econo Lodges, nor all-suite properties like Residence Inn and Staybridge Suites, nor what we call 'Class B' mid-market properties - Sleep Inns, Microtels, Baymont Inns, Quality Inns, Days Inns, and the like . . .

But while the cost of a hotel room from town to town can differ widely, the cost of providing food (unless you're someplace overseas, where supply and delivery can be a problem) is going to be pretty much the same everywhere you go. (Kitchen, and service costs - waiters, room service, dining room decor - might cause the figures to vary somewhat, as will what you offer on the menu, but all of that is under your control. How you negotiate your contract with your suppliers is another variable.) So, even if you have a hotel where food is provided as part of the daily room charge (limiting your customers to people who'd want to pay the extra cost of that as part of their room rate), the percentage figure you're looking for would only have any validity in the town in which your hotel is located. Hampton Inn's breakfast is complimentary, but there is very little difference in their food costs between Boone and Newport.

Also, if you pursue meeting, banquet and event business, you have an additional problem: unless your customer is committed to your city and can't really consider another, your room revenue wild card gets even wilder. You're not necessarily pricing your rooms at a rate comparable hotels in your town are getting for comparable rooms: you have to consider what competing rates would be at any hotel, anywhere, that's competing for that convention or event. So, you might be able to get $129 per room per night for a group booking in Winston-Salem with a meeting room rental and accommodations for a banquet - if they have to have it in Winston-Salem. But if comparable facilities are available in Boone, only 86 miles away, and the rooms are only seventy-six bucks . . . how many people will be attending that event, times how many nights, times fifty-three dollars?

Hope this is helpful (I know, it's probably not, but hopefully, it'll prompt you to move it along to what would be the right question to ask.)

Originally appeared on Quora

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