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Why Hotel F&B Is On The Rise

Industry Evolves And Looks To Leverage Potential For Increased Profitability

Tuesday, February 12, 2019
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By Rory Crawford

Over the past few years, I’ve had the pleasure of working with thousands of great hospitality businesses. One shift I’ve noticed and heard from our customers time and time again is the increasing focus on food and beverage within the U.S. hotel space. As an example, spending at hotel bars and restaurants grew 5% last year.

I recently sat down with three industry leaders to get their perspective on growing trends, the history of hotel food and beverage programs in the U.S., and where they think this evolution is taking the industry.

Hotel food and beverage programs were a luxury, not a basic amenity

Hilton, Hyatt, and Marriott are three massive hotel brands that historically dominated the hotel market. In the past, they were solely focused on driving revenue with their rooms. Food and beverage programs were considered an amenity, not a core competency. Lokesh Singh, who has more than 35 years of experience managing food and beverage for various hotels and government agencies, explains the evolution. “Forty years ago, things were very different. Food and beverage were not a revenue-producing department for brands like Sheraton. If you broke even, you were in very good shape,” he said.

When hotels did invest in their food and beverage programs, it was often in their banquet and event catering business. Dean Wendel, corporate director of food and beverage for Concord Hospitality, explained how extravagant these events really got.

“Going back to the Ritz-Carlton in the mid 1980’s we had large corporations spending a lot of money on events and conferences. There was seemingly no expense too grand to pull off an event. We were doing single events going for $100k, $200k, and more,” he noted.

The U.S. hotel industry was hit hard by the 2008 economic downturn. Between 2008 and 2009, market demand shrunk by 7.5%. Wendel discussed the impact. “Staffing got cut and changes were made to maintain the level of profits…brands like Courtyard and other select-service hotels were focused on gaining the profits from rooms. Once we hit 2008, everything kind of just fell out. We had to work twice as hard to capture the same amount of business, and you had to execute flawlessly or you would lose the business,” he said.

Almost a decade removed, things are looking up for the hotel industry. But, with time comes changing tastes and needs. In my experience working with food and beverage directors, I’ve noticed three specific trends most of all.

Third-party management companies are here to stay

For many brands looking to reinvent themselves hiring these companies makes sense—their approach to hoteling is holistic, creative, and can be much more dynamic than legacy hotel brands.These management companies are also increasingly focused on upscale full-service food and beverage projects. In order to compete, these management companies are creating a unique food and beverage core competency and executing their strategy across their portfolio of hotels.

Bridging the economy and luxury divide with lifestyle hotels

Gone are the days when you could only choose between the luxury St. Regis or the economy Best Western. Hotel development in recent years has focused largely on the upscale and upper-midscale hotel segments. Between 2013 and 2016, the percentage of upscale rooms under construction grew from 35% to just over 45% of total construction by segment. In 2015, upper-midscale peaked at almost 35%.

Meanwhile, luxury and economy have struggled to surpass 5% of all rooms under construction over the same period of time. A big trend driving this mid-tier growth is the proliferation of lifestyle brand hotels, which offer more than a room and a free breakfast buffet. These brands focus on delivering a unique hospitality experience that’s designed to cater to the changing tastes of its guests; something out of the box and unique to the hotel’s neighborhood or community.

Chelsea Melvin, corporate director of beverage operations for Concord Hospitality, says she’s seen this shift in traveler preferences for a while now. “The days of the 1,500 room hotels are gone. I think it’s going to be full-service, smaller, lifestyle-branded hotels,” she insisted.
A defining feature of lifestyle hotels is their emphasis on food and beverage. “People are focusing on creating lifestyle brands taking food and beverage to the next level and putting it to the forefront,” explains Melvin.

Banquet business is booming (and driving profits)

As competition heats up among hotel segments (and even among hotels and Airbnb) food and beverage is helping properties stand out from the crowd. But many hotels are still relying on banquet space to drive beverage revenue and profits for the business.

Hotel banquet space offers opportunity to drive significant revenue at much lower costs than traditional restaurants. “If you have a hotel with a minimum of 10,000 sq./ft of banquet space, you can do weddings. You can do social nights,” noted Melvin.

“If you charge $50 per person for five hours of open bar and when you go back and do an analysis—sometimes it’s crazy—nine times out of 10, these social events where you’re running an open bar, you’re running at 10%, 9% total cost of goods. That kind of scale and profitability is impossible in a traditional restaurant setting,” she added.

More catering business can also lead to more rooms booked. “Food and beverage are now helping room sales tremendously, which wasn’t the case years back,” explained Singh.
Hotel bars and restaurants are setting trends, not following them

If someone is traveling and staying in a hotel, they’re often either working or on vacation. Hotels and food and beverage should live together. It makes sense; eating is as critical to the human experience as finding a place to sleep.

We’re seeing some of the most innovative food and beverage programs coming out of hotels like The NoMad in New York City and Los Angeles and The Godfrey Hotel in Boston. We’re not the only ones noticing. In a recent list of the World’s Best 50 Bars, three of the top five are hotel bars. Consistent guest foot traffic, combined with more square footage for events, enables these programs to carry more inventory and experiment with larger programs, all while maintaining industry-leading profitability levels.

Hotel management companies are also taking new steps to grow their corporate food and beverage teams to keep up with their growing number of full-service properties. When I asked Wendel from Concord Hospitality how hotel kitchens are evolving, he emphasized how important it is to not only hire the right people, but make sure they have the tools and support to be successful. “We’re making sure we have the right equipment in place to execute our product goals. Most importantly, we are hiring great leaders and staffing correctly,” he said.

Food and beverage aren’t the afterthought, it’s the focus

Hotels are a vital piece of the hospitality industry, but I believe that food and beverage is now just as vital. Changing consumer preferences and the growing full-service market has provided hoteliers with a unique opportunity to differentiate themselves through their food and beverage programs.

Rory Crawford is the co-founder and CEO of Bevspot www.bevspot.com in Boston, a food and beverage program management software that helps restaurant owners and managers take control of their entire operation - from the bar to kitchen - on any device by taking inventory, tracking orders, and providing sales data instantly backed up to the cloud and accessible anywhere.
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