The most profitable full service hotels and resorts have one thing in common. They have phenomenal food & beverage programs that engage guests at every outlet – even the function space. You can maximize food & beverage profitability through a combination of the right programming and astute management. However, a poor execution could end up costlier than the potential benefit.
Below are five areas where a food & beverage program can go wrong and how to correct course.
1. Wrong Concept
Hospitality is a street corner business. Excellent service and clean facilities are universal, basic requirements for any establishment, but alignment with guest expectations is essential for consistent revenue. The major brands spend millions on research to develop the right guest experience at every stage of the stay. You can take many of these concepts into the food & beverage outlets.
A food & beverage concept is usually built around culinary programming, but success also depends on engaging other senses beyond taste and smell. Everything from finishes on the floor, wall, and ceiling to quality of the table and chairs will impact the guest experience. Further, each of these elements must interact with each other in a cohesive way.
Spend some time talking to a variety of guests to learn their needs and desires. Everyone will have one meal while their staying at your hotel. Your objective is to keep your guest on-property for that meal and many others.
Try to understand what keeps your guests from leaving the property. Similarly, try to catch local patrons that frequent your food & beverage outlets to get a sense of what makes it a special place for them.
The concept does not have to be overly complicated, but it should run with a general theme. For example, the theme might be, “we’re the best place for a quick breakfast.” Now, simply put together all the elements that meet those demands, which may be as simple as having some grab n’ go items in a cooler and a convenient coffee station.
2. No Value Proposition
Hotel restaurants are notorious for overpriced menu items. This is probably what makes the complimentary breakfast so attractive at many select service hotel chains. High prices are easy to justify so long as there is clear value in the offering.
Value is more than just amount of food on the plate. Your guest could easily venture to the local Chinese buffet if she was interested in filling up on calories.
The right combination of food quality, thoughtful preparation, and dining experience are essential elements of value. You capture a golden opportunity to wow your guest and maximize food & beverage profitability when you get this combination right.
Think about your most memorable positive dining experience. The price of the meal doesn’t even surface in that memory, whether it was in a local diner or at a high-end steakhouse. You think about the server being on top of her game and the food being on point. Any failure on either of these would have tipped it toward a bad experience, and you would probably be disappointed about the cost.
Consider the guest experience in its entirety. Work to improve areas that can be modified with additional staff training, décor adjustments, or reprogramming the menu. Every guest is value-oriented, even if they’re spending their company per diem. The final step is to align pricing to fit the experience.
3. Poor Management
Restaurants have three major expense categories – cost of goods sold (COGS), labor, and operating expenses. This is a low margin business, but you can maximize food & beverage profitability when the sum of COGS and labor is less than 60% of revenue. Many cost factors are outside your control, so you must focus on effectively managing inventories and scheduling.
Profit margins will depend on the type of outlets you are operating. Full service restaurants are least efficient because of the unpredictability of demand. Banquets and catering operations benefit from advanced bookings and deposits, which allows you to buy just enough food and schedule just the right amount of staff for the party.
Beverage sales – alcoholic and non-alcoholic – are priced multiples higher than their cost, and the labor involved with service is minimal. Therefore, beverage sales are critical for driving profit in any operation.
Food & beverage management is a specialized skill that takes years to master. Consider outsourcing the management to reduce the risk and learn from a skilled manager if you’re just starting to explore expansion. This can be done in three ways:
- Hire an experienced manager
- Contract with a management company
- Lease the space to a third party
Each of these comes with its own risks and benefits. Your business plan and experience level will dictate the route you take.
4. Insufficient or Misdirected Sales & Marketing
Every business success begins and ends with revenue, and revenue begins with sales and marketing.
Concept, pricing, and management are threshold requirements for opening your doors. To get people to sit in the seats, you need to break through the noise. The captive audience that is sleeping in your guest rooms is a huge advantage over a standalone restaurant, but even those guests have other options.
Sales and marketing is all about engagement.
Sales is direct, one-on-one engagement to explore and meet the customer’s needs and desires.
Marketing is an indirect, broadcast engagement to educate and explain how your product can meet the needs and desires of a customer community.
Feedback is essential to understand what is important to your customer. The interaction mechanism in each approach is different, but the concept is the same. A community of raving fans will visit your restaurant frequently. These raving fans are going to be your ambassadors that bring the masses.
5. Rapid Obsolescence
Innovation is most exciting at the very beginning. This is especially true with hotels and restaurants. Hotels have the benefit of higher barriers to entry than a standalone restaurant, so they have more staying power beyond the initial opening. However, you can’t take your eye off the ball.
Create a stress test for your financial plan to reflect lower revenue and higher operating costs soon after opening. Be prepared for the worst but operate at your best.
Be sure include sufficient funding for fan engagement. You only need a few regulars to make a good business, but raving fans make a great business.
Your staying power lies in the engagement of your 1,000 true fans.
Finally, embrace the peak-end rule from evolutionary psychology. Your patrons will judge their experience based on how they felt at its most intense point and the end.
Train your staff to look for periods of enlightenment (good or bad) in their guests. This may be when they take the first bite of their entrée. A direct follow-up to ask about the meal to that one person allows for course correction or further engagement.
God is in the details.
Align your concept with great guest experience before, during, and after their stay. This is the path to maximize food & beverage profitability and success in any other venture.