Entering the restaurant business typically is a challenging endeavor. While careful business planning, a solid concept, creative and skilled kitchen and front-of-house staff and, of course, financial capital all are key ingredients to a successful operation, location is a critical element in determining whether a restaurant concept will be successful. The same tenets hold true for the hotel business.
Current trends have shown that rather than going with a staid food-and-beverage operation, hotel owners increasingly are approaching local restaurateurs in an effort to open restaurants in their hotels that provide a local vibe and experience that appeals not only to hotel guests but also to local residents and workers. If successful, the benefit for the hotel owner is an appealing amenity to hotel guests while also attracting a critical mass of locals that may use the hotel’s services, such as a spa or conference services. The restaurateur benefits by having an immediately available audience to help create a buzz and draw in locals.
Getting to this “win-win” potential is not without its obstacles. The hotel owner and restaurateur will need to address various operational issues in any lease of space. A restaurant with entrances both from the hotel and from the street along with a waiting area apart from the hotel lobby helps attract locals and reduces the likelihood of operational conflicts between guests of each establishment. The restaurant’s fit-out will need to account for appropriate control of noise and odors so as not to disturb hotel guests in the rooms above or adjacent to the restaurant.
If a hotel is carrying a flag, the franchise agreement may pose some challenges. For example, the hotel may be required to provide certain levels of F&B service to its guests. Engaging a third party to provide F&B service may require the franchisor’s consent, which may be an obstacle for a hotel looking to hire an inexperienced restaurateur.
Further, if restaurant service falters or fails, the hotel owner may be in breach of the operating standards under the franchise agreement and risks being in default under the agreement. To mitigate risk to the hotel, the hotel owner will want flexibility to replace the restaurateur; however, finding a suitable replacement in short order may prove challenging, and a restaurateur will not want to part so easily from a space that it has expended a significant amount of capital to fit out.
Careful consideration of each party’s objectives, a well-thought-out business plan, sensitivity to a hotel operator’s franchise agreement and proper documentation by each party’s professionals are key ingredients of a successful venture.
Christopher J. Caslin is a member of law firm Cole Schotz’ real estate department. Jordan A. Fisch is a member and co-chairman of Cole Schotz’ restaurant and hospitality group.