In the food-and-beverage arena, it’s not always easy to understand the value and impact of a single dollar. But spending a dollar here, rather than spending it there, can make an enormous difference to a hotel’s top and bottom lines.
To generate profits, hoteliers need to spend money the right way. That means selling one menu item at a higher price to have a better top line while selling more of another item at a lesser price to be profitable. Each menu item has a specific effect on the business; just because costs are in line and expenses are under budget, it does not mean that the operation is making money.
To generate a profit and ensure guests are satisfied, operators must understand and implement a variety of tactics, including these two key strategies.
This common practice examines which items on a menu sell or do not sell. By examining the volume of sales, the average sale price of an item and the extended sales total of items, hotel managers can quickly identify areas of opportunity for the property. For example, the wagyu burger is the most popular item on the menu but contains below-average profit margins. If the hotel increases the price of the wagyu burger by $2, it will increase profitably of the product by 17 percent.
Profit vs. Profitability
To understand the difference between making a profit and being profitable, F&B operators first must have a solid grasp on the food cost percentage and contribution margins. Would you rather make a profit of $30 on an item that cost $10 to produce or one that cost $20 to produce? The answer depends on the contribution margin of each menu item (the difference between the cost to produce the item and the end selling price). Selling a $20 steak for $50 nets the venue $30 dollars at only a 60 percent profitability against the cost. However, selling a $10 steak for $40 nets the same $30 but at 75 percent profitability.
As you can see, it’s not a question of “How much money did I make on these menu items today?” . . . but rather “How much did it cost me to make money today?” Price engineering and menu modification collectively enable F&B operators to boost revenues the right way.
Lance Simmons is a manager in the consulting services division of Avendra, a hospitality procurement services provider.