Leave it to the professionals. The maxim holds true for almost any business, and it is infinitely true in food service. And while traditional restaurants are fading from select-service hotels, these properties can still incorporate F&B in other ways if they find the right partners.
Select-service hotels can still serve breakfast, and many can have a bar with some sort of light pub fare—but one could make a case for not investing the money, time, and effort into developing a full-scale restaurant operation only to leave it in the hands of hotel experts rather than restaurateurs.
Instead, hotels should leave the restaurant-running to those who do it for a living—and who earn a profit at the trade. A deal with professional restaurateurs can both enhance a hotel and add valuation in the eventuality of a sale.
There are many reasons why hotels struggle to turn a profit when running restaurants internally. For example, staff schedules are frequently planned in eight-hour shift increments, whereas restaurateurs schedule their staff in four-hour shifts (except maybe the culinary staff). A hotel's restaurant will typically only be serving meals for seven hours per day (two hours at breakfast, two hours at lunch and three hours a dinner), so the serving staff does not need to be scheduled for a full day's shift.
If a hotelier is lucky enough to have a restaurant with a 20-percent gross operating profit in a hotel, you are most likely losing money—probably 10 percent. I have been through the rigmarole where a hotel team has written some pro-forma for a house-run restaurant showing a substantial GOP (40 percent or better) and then, when you net it down, the enterprise was slated to lose money.
How does this happen? First and foremost, there’s that age-old kitchen allocation, which gets spread across all the restaurants and bars in a hotel—often way under what a dedicated kitchen staff for a restaurant would cost.
It's the same thing with the food cost: Unless you can completely split off all food purchases for the restaurant, you are allocating food cost expenses to this restaurant and under-cutting what your true food cost expenses are for the individual establishment.
As an example, we went through the exercise of writing a pro forma for a steakhouse that a hotel was recapturing from a lessee. This was a big banquet house, accounting for 70 percent of the overall food and beverage-generated revenue. When the property team wrote the pro forma, they included a food cost of 18 percent. Based on a calculation of $3 million in sales and 70 percent of that being food sales, our difference in food cost was $462,000—or 15 percent of sales on one line item.
The rest of the pro forma followed suit. The beverage-cost calculation failed to include an uptick in red wine sales and a lack of significant house wine sales either by-the-glass or by-the bottle. They forgot to include costs for linen (another allocated expense); and any allocations for utilities, insurance, the restaurant manager and chef; and credit card fees.
Hoteliers have become office managers and barely touch food anymore. Parent companies require them to produce and review lots of reports—so many that we now think that this is our primary focus, instead of giving guests a reason to come back once they've dined at the hotel restaurant.
We need to get out of our own way here and let the professionals do what they do. We, as an industry, have made hotel restaurants into modern day dinosaurs on the verge of extinction.
As Yogi Berra once said: “When you come to a fork in the road, take it.” I agree: Take the fork that will leave you with the most amount of money for the least amount of headache and and give your hotel the panache it so deserves.
Doug Zeif is the founder and principal of Next! Hospitality Advisors and The Concept Gurus, consulting and advisory services firms he founded in 2013. Prior, Doug was SVP of Food and Beverage/Asset Management Services for a portfolio company subsidiary of the Blackstone Group, which Doug joined in late 2004 to help develop and operate the LXR Luxury Resorts & Hotels brand of hotels and resorts.