Should hotels outsource their F&B?

Conventionally, the F&B side of hotel operations has been cursed with low margins and a hefty dependency on occupancy levels.

As an F&B consultant and developer I’ve had the opportunity to talk to many hotel owners and investors in the past, and when I’ve asked the majority of them what the reason is for offering F&B services despite the above, most respond by saying that it’s largely as a result of business tradition than any practical presumption that they’re going to add to bottom line. As a byproduct, paying serious attention to – or spending money on – F&B offerings hasn’t exactly been on the top of the list of priorities for hotel owners.

But over the past five years there’s been an interesting new trend: hotel owners have been bringing bigger, more popular F&B brands on board with the expectation that those brands will help make the hotel’s F&B departments profitable, bolster average daily rates and even drive occupancy levels. Even so, melding an F&B provider into a hotel isn’t as straightforward as it may sound. Aside from the legal, financial and operational issues, making sure the images of both the hotel and F&B operation are upheld, and even bolstered, is critical too.

Let me explain: historically, hotel owners have relied on a business model that’s been cemented by occupancy levels. While this did make the bigger properties more attractive thanks to expanded distribution networks, loyal customer bases and vast hotel operating know-how, the F&B services needed a big capital boost, not to mention sizeable space in which to operate – and that’s not even taking low revenues and little ROI into account. Added to that, because F&B services have traditionally been considered by guests to be the norm, hotel owners felt pressured to offer them even if it was at a loss. How did they make up the gaps? Room rates. This, of course, led to the unfortunate perception that bigger hotel brands were more expensive, old fashioned and lacked creativity.

With the advent of improved technology over the past few years, many hotel owners have became less dependent on the distribution channels and reservation systems offered by the big hotel brands, leading some to create a niche in the boutique hotel space by focusing on bringing trendy, high-end products to their properties. ‘Character, originality and profitability’ became the buzzwords, while the terms ‘standard, traditional and old-fashioned’ were thrown out with the dishwater. At the same time, many hotel owners realised they wouldn’t be able to transform F&B departments alone, so they began hunting for the ideal F&B brands to partner their hotel brand with. Enter hotel-F&B outsourcing.

Those of you who’ve met me or have heard me talk know that I believe in giving the right job to the most qualified professional which is, to be honest, why I am pro outsourcing hotels’ F&B offerings to experienced F&B providers. If you agree, there are dual ways to do this: hire an F&B provider to operate all of the F&B while leaving hotel management to the existing hotel operator, or – in addition to opening restaurants and bars – get the F&B provider in on the hotel’s room operation action, too. A great example is Nobu. Using its hotel arm, Chef Nobu and Robert De Niro’s brand signed a deal to add Nobu Hotel to Eden Roc Hotel in Miami, USA. As part of the deal, the hotel within a hotel operates a Nobu restaurant, runs F&B for the entire hotel and manages the Nobu-branded hotel rooms, with the idea being that such a popular F&B operation has great potential when it comes to creating demand for bookings, too.

Aside from the obvious draw-card factor in the case of having big F&B brands like Nobu come on board, F&B services delivered by experienced providers are more likely to boost profitability and revenue in the F&B department. In cases where the F&B brand has a piece of the room business, hotel owners can probably also expect an increase in average daily rate and occupancy levels. While there are challenges when it comes to bringing a third-party F&B provider into a hotel – for example establishing the complete provision of F&B service rights, non-compete clauses, intellectual property, properly defined financial terms and conditions, and the establishment of who will be responsible for what after the F&B provider is brought on board – flipping the traditional hotel model on its head really has the potential to be rewarding for everyone.

Duncan Fraser-Smith is the founder of The Cutting Edge Agency that specialises in the development and creation of benchmark F&B concepts through conceptualisation and training, as well as sourcing and partnering with international brands and high-profile chefs to successfully establish their presence in the Middle East.

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