Insights from APT's Hospitality & Travel Practice

Are your traditional format restaurants eating into potential profits?

March 27th, 2013 | Posted by Dan Schreff in Uncategorized

Hotel guests are increasingly seeking flexibility in their hotel dining options, and since food and beverage sales are the second largest item on hotels’ income statements, hotel organizations are beginning to take notice of this trend.  According to Marriott International corporate chef Brad Nelson, “People don’t want to ask to be seated and be given menus…they want flexibility”. Since upscale and casual dining restaurants have been a hotel staple for decades, altering this traditional format will carry uncertainty and risk.  For some hotels that consider their food service to be a cost of doing business, offering new options provides a potential opportunity to minimize losses.  Executives can test innovative restaurant programs to learn how they can profitably adjust to traveler dining trends, including introducing “fast casual” restaurants and other non-traditional formats in place of sit-down restaurants, and extending hours to capitalize on late night sales.

More Flexibility

Fast casual restaurants continue to be the highest growth sector in the restaurants industry. These restaurants have distinguished themselves with ambiance and food quality.  This format has the potential to generate increased profits for hotel executives compared to casual dining, especially through decreased labor costs. Other non-traditional formats hoteliers are experimenting with include tactics such as putting a Starbucks in the lobby.

Lower Menu Prices

Fast casual restaurants and other non-traditional formats can typically carry lower menu prices, which may drive incremental visits from guests who would not have previously eaten in the hotel restaurant.  Conversely, fast casual restaurants do not offer the same atmosphere as more upscale formats, which could drive away hotel guests who were looking for that type of dining experience.

Extended Hours

A lost room is lost revenue – and so is a table that sits empty.  Some hotels should consider extending hours in order to generate higher return from their existing assets  Some hotels, including the Westin New York Grand Central, are already planning to test this supplementary revenue driver by keeping one of their restaurants open until 4 a.m. on weekends.  While variable costs including staffing, electricity, maintenance, and security will increase with extended hours, the possibility of high margin sales in an entirely new day-part is an idea worth trying.

Food-and-beverage revenues for hotels are still 13% below pre-recession levels, according to PFK Hospitality Research.  With changing dining trends for hotel guests, executives have the opportunity to profitably innovate.  By testing different restaurant initiatives in a small subset of hotels first, hoteliers can de-risk chain-wide rollout of expensive programs and drive incremental profits and guest visits.

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