The food and beverage (F&B) sector is struggling and that includes hotel F&B. From increases in energy costs to ingredients and labour, cost increases are outstripping revenues. Are we set to see an exodus of hotel F&B services, or are there ways around it?
“Across Europe, you can see that F&B and C&B [conference and banqueting] have not recovered anywhere near the same as the rest of the revenue streams,” says Michael Grove, chief operating officer at hotel market analysis and benchmarking platform HotStats. HotStats data shows that while room revenue per available room (revpar) are up by 17% in Europe compared to January 2020, F&B is at just 5%.
“F&B is out of sync. It’s not like guests don’t want to spend money in hotels – they’re spending more on the average rate, they’re spending more on wellness, spa and leisure activities, golf, albeit it’s slowed down year on year. But they’re not spending money in the food and beverage outlets in hotels, or nowhere near enough to offset the cost increases,” explains Grove.
And while conference and events used to prop up overall food and beverage revenues, as those are down, profitability is too. The cost base increase that has really outstripped revenue has been wage costs, and with National Minimum Wage set to increase from April in the UK, margins are set to be even more squeezed.
UK hotels saw a 2.8 percentage point drop in gross operating profit (GOP) margin between 2019 and 2023, and of that, 3.1 percentage points came directly from food and beverage profitability as margins fell from 30% to 22%.
“The profitability challenge is bigger than the energy cost challenge. It’s having just under 50% more impact on profitability margin than utility costs,” adds Grove.
Hotel F&B – profitable or a loss leader?
“People are going to have to work out what’s actually making them money and that could easily lead to a cutting down of services,” says hotel consultant Melvin Gold, who suggests owners may start to look at converting F&B space into something more profitable, such as additional bedrooms.
However, he points out that it’s not a no-brainer to simply cut out hotel F&B. The attractiveness of your overall offer may well be what makes guests choose you over a competitor – and that overall offer includes your F&B.
“If there is a point at which your food and beverage is not actually making you that much profit but if you don’t do it people won’t come and stay, you’ve got a real problem,” he says.
The benefits of hotel F&B are nuanced as it can help drive other areas of the hotel. Scot Turner, founder and managing director of hotel and restaurant consultancy Auden Hospitality, offers breakfast as an example. “Is it going to be a huge revenue driver? Potentially not, but what it does have the impact to do is significantly increase room rate because MPS scores are higher, you have a higher return rate, you have increased guest satisfaction,” he says.
It also depends on the segment of the market your hotel is in. While a luxury property will be expected to offer a range of F&B services, including room service, Gold suggests that there may be increasing pressure on room service in the mid-market, a segment in which it may start to become expendable.
Will Macpherson, group director of food & beverage at RBH Hospitality Management, says the group evaluates the achievable hotel F&B opportunity based on the segment. From a gross profit position, RBH averages at 20%-25% profitability for hotel F&B, however this figure masks great variance. Limited-service hotels – such as its Holiday Inn Express, Hampton by Hilton and Ibis branded hotels – will be around 45%-50%, he says, while mid-market hotels up to five-star properties may average around 20%-25%, depending on the business mix.
On the luxury side, David Connell, group director of operations at the Exclusive Collection, which includes Pennyhill Park in Surrey and South Lodge in Sussex, doesn’t necessarily see F&B as a main driver of profitability for the business, despite its three Michelin-starred restaurants. However, it is part of why guests come to stay.
“We obviously don’t want it to be a loss leader, but equally it’s an attraction to bring guests to come and stay, which is our main target,” he says.
“What we do is sell sleep, so effectively we want to sell hotel bedrooms and that is where the margins are in terms of delivering profitability, so that is the key aim of having strong F&B and also to encourage people to return and keep coming back.”
In fact, he says he’s “pretty happy” if the Michelin-starred restaurants break even. The business’ sleeper-diner ratios are high and the real opportunity is getting guests to stay longer.
“The economies of scale of people coming to stay for longer are better for us and are more profitable,” he explains.
Profitable strategies
While margins have been under pressure at Exclusive, as they have across the industry, they have been maintained “pretty solidly”, says Connell, not only through price increases but by investing heavily in a new rota and payroll system to deliver more efficiencies in operations productivity, as well as keeping a close eye on procurement.
“It’s just constantly having a finger on the pulse of where that cost base is and looking at it accordingly, negotiating where possible,” he says.
RBH has launched an F&B training academy for its teams to maximise the opportunities of great service. “If you improve service, you increase revenues, average spend, you can get a second and third glass of wine out of someone,” says Macpherson.
The group also recently installed a system that reduces the need for beer line cleaning from weekly to once every six to eight weeks, which will save approximately £50,000 a year based on reduced beer wastage and chemical usage.
As for food wastage, Turner highlights the opportunities of AI for food waste management, drilling down into the details of your F&B operation and allowing owners to make changes that cut down on waste and can improve the guest experience.
It’s an approach he says can also be done manually simply by thinking differently about what is bringing value to each dish. “Do you need as many elements on this dish that are on there, or can we really strip it back and focus on quality, and by doing that the guest is getting a much better experience?” he says.
“Do you need to put potatoes and vegetables on there or can you just focus on a great piece of meat, great jus and then people would buy the sides, and it can help increase that average check without it feeling like the cost of the dish is high?”
However, beware the trap of simply cutting costs, warns Macpherson, and risk compromising the quality and experience.
“When you start focusing on profit instead of revenue and guest experience, you start cutting quality,” agrees Turner.
Death of the hotel dining room
In fact, if you’re going to do hotel F&B, your main priority should be doing it well and that now means competing with the high street in terms of quality and experience. Guests aren’t leaving your hotel to go and eat in another hotel – they’re going to a high street restaurant or ordering online. Hilton set up a dedicated in-house consulting and development arm earlier this year, StiR Creative Collective, to support its F&B strategy, concept creation and branding.
“People are eating out much more than they used to and are used to eating a quality of food that even in chain restaurants is way beyond what they were expecting. There is an expectation from customers that food and beverage in hotels be creative and interesting and at least as good as they’d find in a reasonable restaurant on the high street,” says Gold. He adds that it doesn’t have to be expensive, but the days of the orange juice starter and prawn cocktail with Marie Rose sauce are long over and while the ‘hotel restaurant’ lives on, the ‘hotel dining room’ is dead, “or should be”.
“If you haven’t moved on, you will be moved on,” he warns.
Macpherson agrees: “If you don’t offer something just a little bit different, they will just walk out the front door and within 100 yards they’ll find something more interesting.”
Turner makes the argument for creating a strong concept that fills a gap in the local market and is targeted at local demand, rather than trying to address the needs of a varying guest profile which may range from families to tourists and business travellers, and result in a diluted concept.
“I truly believe that if you focus on the local community and have a busy restaurant, it doesn’t matter what that restaurant is, your hotel guest will want to eat there, not have to eat there, and that’s a completely different mindset for your guests and your team to have, and for you to have as well,” he says, citing the Ned and Hoxton brands as examples of successfully gearing hotel F&B towards the local market.
Macpherson agrees that for some properties it’s the way forward, particularly if an outlet has a separate entrance to the hotel and can appear independent. However, he argues that it doesn’t work for all hotels.
“Within our portfolio, we’ve probably got maybe half a dozen to 10 where there’s decent external guest potential,” he explains.
“Costs are just getting more and more challenging; you’ve got to be able to do the volumes to counteract that. Particularly if you’re trying to make an F&B operation stand out on the high street for non-residents, the marketing costs that go into that nowadays to really make you stand out are huge. So, if you’re not doing big volume at least five nights a week, it’s very rarely worth it, in my opinion.”
Ultimately, Turner remains positive about the opportunities of hotel F&B. “Can you be profitable in F&B? Absolutely. Can it add to total profitability of the hotel? Definitely,” he says.
“It’s never going to be as strong as rooms, but it does have an amazing impact on total revenue and trevpar [total revenue per available room], which is obviously where a lot of hotels are benchmarking themselves. It’s never going to be the biggest profit-driver, but it can be profitable.”
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