Factors Affecting Hotel Restaurant’s Profitability

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24/03/2018 - Hospitality

The importance of F&B outlets to a hotel’s overall operational performance and profitability has long been a topic of debate in the hospitality industry.

While in the past hotel-based restaurants were used to cater for rooms demand and act as a support department, restaurateurs are now uncapping the potential of these outlets as stand-alone revenue generators. When opening an F&B outlet in a hotel, hoteliers now have the responsibility to treat these outlets as profit-driven operations and ensure they reach their maximum potential. At TFG Asset Management we have identified the key success factors that can affect the profitability of a hotel-based restaurant.

The first factor is food quality and service standards. Potential customers have more transparency than ever; thanks to social media platforms like Zomato or Yelp they can read other customer experiences and make purchasing decisions based on this feedback.

If a restaurant has received negative reviews it won’t take long for word to spread. A hotel restaurant is able to leverage the property’s economies of scale to obtain better-quality products at discounted rates. International hotel operators hold an even greater advantage in this case as they often have preferential status with certain suppliers.

The second factor is location. Hotel restaurants have the advantage of generating business through Half Boards and Breakfasts. Additionally, hoteliers need to ensure their F&B offerings match the demand expected in their area to attract external diners. Location also strongly affects menu pricing structures.

It is becoming increasingly popular for hoteliers to allow third-party operators to manage their F&B operations.

The argument in favour of this approach is that hoteliers cannot run their F&B outlets to their maximum potential due to other operational commitments involved in running the hotel. Room revenues remain a core priority, often to the detriment of F&B operations.

Contracting an external party to manage an F&B outlet allows the operator to focus efforts entirely on managing the overall performance of the hotel.

The different operating models currently employed in the hospitality market are franchising, leasing, third-party management and in-house management.

Creating an original and viable F&B concept is also becoming increasingly important to the success or otherwise of a hotel restaurant. Food quality will generate repeat customers and in the long run overall demand, but in the short-term, and just after opening a restaurant, it is important to create a concept that will attract guests from day one. By utilising a hotel’s marketing and sales resources the restaurant operator can better market the F&B concept to target segments.

The main challenge is to achieve a favourable outcome for both the hotel and the outlet and create a concept that attracts external diners but doesn’t alienate hotel guests. A hotel restaurant can take advantage of all the resources a hotel has but in some cases the conflict of interest could lead to a loss in F&B revenue which is why many owners decide to let third-party operators manage the asset. At TFG Asset Management we treat every F&B outlet as a stand-alone business and we assess financial performance based solely on the expenses and revenues associated with each outlet.