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Prices Are Up, But Hotels Keeping Menu Prices Down The cost of many basic goods is rising and not as many people are eating out. Here’s how to keep profits up, while the gross revenue is down. Wednesday, September 10, 2008 Lisa Rogak

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Though gas prices are coming down from their record levels of $4.00+ a gallon earlier this summer, food and beverage managers at hotels across the country report that diners aren’t loosening tightened purse strings. Though it’s tempting to raise menu prices to keep profit margins, in many markets it’s the equivalent of committing budgetary suicide, giving even more customers – both in-house guests and locals – yet another reason to stay away.

With recession looming and prices for meat, dairy and produce  – which have not dropped with lower gas prices – fluctuating on a daily basis, hotel restaurant managers are facing real challenges. The best approach to maintain robust net revenue is to combine a bit of elective surgery with a healthy dose of creativity.

At the Magnolia Hotel in Denver, food and beverage director Don Lindeberg, has taken a multi-pronged approach to cutting costs. His first step was to stop buying steaks, poultry and fish in pre-formed portion-control products from his distributors. Now he gets the product untrimmed, which can cost up to 25% less on a per-pound basis, and kitchen staffers cut it themselves. They also use the trimmings in other dishes, which not only saves money but cuts down on trash-hauling costs. 

Along the same lines, Lindeberg decided to make soups and sauces from scratch instead of buying ready-made products, which naturally attracts positive attention from customers. And instead of using pure olive oil, the kitchen switched to a blend. “We’re always looking for ways to reduce our costs; however, it’s a priority that the quality does not suffer in the process,” he says.

At The Peabody Orlando, the first thing director of food and beverage John Askew did was…nothing. “Unless an unprecedented increase occurs on a particular item, we’re keeping menu prices unchanged,” he said. “This can shrink the margin percentage, but let’s face it, you don't take percentages to the bank, you take dollars. So the first thing to do is to get the revenue stream in the door.”

He’s turned to bundling meals in some of his restaurants. At Dux, the hotel’s signature restaurant, customers can choose a three-course menu for two with some choices for $89. While this definitely represents a value in the customer’s mind, Askew admits that the option has presented a few challenges in the kitchen. “The chef has to get very creative with this initiative by researching little-known products that haven't skyrocketed in price yet,” he said. But at the same time, there’s been an unintended benefit. “The package has turned into a good sales tool for front-of-the-house staff, since it gives them the opportunity to educate and excite guests about a new product,” he noted.

The creativity extends to dealing with the hotel’s food and wine distributors. One of the hotel’s special features is regular wine and spirits dinners. Not only has Askew reduced the price on their wine dinners at the casual-dining Capriccio Grill, but he’s asked for – and received – discounts on wines featured at the dinners. “Hey, if we’re getting navels to the tables, that means the distributors are selling wine,” he adds. “It makes sense to work together through the tough times just like we did through the good times.”

Another way Askew is working with his distributors is to specifically request products that are new, unique or otherwise underutilized, which helps the distributor not only from a stocking and inventory perspective, but also helps create demand for new products. And since many distributors have tacked on fuel surcharges to deliveries, Askew specifically requests that trucks arrive as full as possible in order to reduce the number of trips the distributor makes.

Like the Peabody Hotel, Roy Feicco, food and beverage director at the Danfords Hotel and Marina, in Port Jefferson, NY, declined to raise menu prices at the resort’s Wave Restaurant and Lounge. “We’ve decreased our profit margin on many items in an effort to avoid any negative impact on our patrons,” he says. “Guests are being even more selective with their dining choices, and regular patrons simply aren’t going out as much,” says Feicco. He has shifted the focus from raising prices and cutting portion sizes to generating supplemental revenue through promoting sales of premium bottled water, specialty cocktails and a new tapas menu, all of which have a much higher profit margin.

Surprisingly, the hotel’s check average has actually increased.
Many methods that save money are also recognized to be environmentally friendly, a fact that savvy F&B managers aren’t shy about mentioning to customers and in promotional literature.

At The Cliff House Resort & Spa in Ogunquit, ME, director Eric Sargent sells the kitchen’s leftover cooking oil to a biofuel manufacturer, which not only is environmentally friendly but also generates income for the restaurant. Like Feicco, he also opted to eliminate one delivery day each week, which reduces fuel and delivery costs. “Without that additional day, we’ve saved a lot of fuel,” he said.

Sargent has also cut payroll costs to avoid raising menu prices, which he’s accomplished by actually adding staff. How has he done it? By establishing a culinary intern program. He and his chef visited area culinary schools in order to attract interns to the resort’s kitchens to gain valuable training for their resumes. “The program has reduced the payroll while providing us with a knowledgeable, dedicated staff,” he said. He assigned responsibility for running the resort’s poolside restaurant to the interns, which they greatly appreciate because it gives them ownership of the operation, which most restaurant internship programs lack.

While saving green is green in many cases, in at least one case, Don Lindeberg opted to stop using an organic product because of cost. “We were using some organic products but weren’t promoting them as such, which was a waste of money,” he said. “We ended up switching to a non-organic product with the same quality and nobody notices.”

No one knows when current economic conditions will loosen, but this kind of creativity can only help operations in a hotel restaurant, in good times and bad.