by Patrick Quek

For most people, Bed-and-Breakfast Inns conjure up images of quaint little houses, greetings from a gracious host or hostess, and the aroma of freshly baked pastries in the morning. While Bed-and-Breakfast Inns are all this, plus more, those of us who spend most of our time dealing with more "conventional" forms of lodging should take note of the unique operating performance and characteristics of this segment of our industry. Not only are Bed-and-Breakfast Inns growing in number, but they are also growing in the sophistication of their operations, effectiveness of their marketing, and the introduction of innovative guest services and amenities.

On behalf of the Professional Association of Innkeepers International, PKF Consulting has recently completed a comprehensive study of the operations, marketing, and finances of Bed-and-Breakfast and Country Inns. The Professional Association on Innkeepers International is the trade association supporting Bed and Breakfast/Country Inns in North America and the central repository for research conducted on this industry. Within the realm of small inns, Country Inns serve meals other than breakfast at least somewhat regularly, while Bed-and-Breakfast Inns serve only breakfast and probably snacks. The findings of the study are based on the participation of 251 Bed-and-Breakfast Inns and 135 Country Inns located throughout the United States and Canada. For the purposes of this article, I will concentrate on the performance of the Bed-and-Breakfast operations. More Than Just A Business

For the vast majority of Bed-and-Breakfast owners, the distinction between the business operation and their personal lives is not very clear. Eighty-three (83) percent of all B&B owners live on-premises, while 84 percent take an active role in the day-to-day operations. On average, the typical B&B has 2.2 active owners, each spending 44 hours per week performing such tasks as management, housekeeping, maintenance, and cooking.

While these numbers represent a fairly active level of owner participation, the average number of hours spent by each owner, as well as the perceived value of their participation (estimated replacement salary), has declined somewhat since 1994. This is indicative of both the increased investment in Bed-and-Breakfast Inns by disinterested owners, as well as greater delegation of duties by veteran owners. As more owners look at their operation as a business investment, the need for, and role of, full-time professional managers is becoming more prevalent. While this trend could lead to greater employment opportunities for hospitality professionals, I hope that the personal touch and influence of ownership is not lost in the future. Reaching Out To A Broader Audience

Social guests, tourists, and guests celebrating a special occasion (honeymoon, anniversary, engagement, etc.) still comprise the largest demand segments for Bed-and-Breakfast Inns. However, in an effort to grow their business, innkeepers are attempting to attract and accommodate a wider diversity of travelers.

In 1994, business travelers and meeting attendees accounted for 20 percent of all rooms occupied at Bed-and-Breakfast Inns. In 1996, this number increased to 24 percent. Thought to be solely the choice of leisure travelers, business people and conventioneers are now choosing Bed-and-Breakfast Inns because of their availability and high degree of personal service. On their part, Bed-and-Breakfast Inns are reaching out to these segments by offering such services as fax machines, in-room coffee makers, and dedicated meeting facilities. Returning guests, travel guides, and word-of-mouth referrals are the most used marketing channels for Bed and Breakfast guests, however, the number of B&B guests who booked their room through the Internet grew from zero percent in 1994 to six percent in 1996. Few Pennies To Spare

With Bed and Breakfast inns averaging 7.4 rooms in size, and 28 percent of the inns open for only part of the year, the potential annual revenue for a B&B is limited. The average annual total revenue for a Bed and Breakfast in 1996 was $146,045. The typical Bed and Breakfast achieved an average occupancy of 53 percent, and an average daily room rate of $107.55 in 1996.

Despite the limitations placed on revenue, Bed and Breakfast managers are able to achieve an average operating profit margin (before owner's draw) of 37 percent. This compares favorably to the 36.6 percent operating profit margin achieved by the average limited-service hotel in 1996. On average, the typical Bed and Breakfast spends $4.04 per guest on food for the breakfast meal. This compares to an average expenditure of 80 cents per guest for those limited-service hotels that offer some form of complimentary breakfast. For further comparative purposes, the direct advertising/promotion, maintenance, and utilities costs for a B&B each average approximately five percent of total revenues, ratios that are not too different than the typical limited-service hotel. Owner Compensation And Pay-Back

Obviously, the missing direct operating expense incurred by a Bed and Breakfast Inn is the compensation that would be paid to someone else performing the tasks of the owner. Based on their self-estimation of value, if wages were deducted for the work performed by the owner, the average profit margin would drop from 37 percent to 15 percent.

What this brings into discussion is the whole issue of ownership compensation and return on investment in the Bed and Breakfast segment of the lodging industry. Traditionally, most lodging investors measure their return on investment by utilizing such measurements as a discounted cash-flow analysis or cash-on-cash return. In other words, the cash flows from the operation must be sufficient to cover the initial costs of development/investment and provide a reasonable rate of return.

For the Bed and Breakfast investor, the equation is much more complicated. Quite simply, the average Bed and Breakfast operation would not pass the strict investment requirements of the typical disinterested lodging investor. The cash flows from operations most often do not cover the absolute costs of construction or conversion. Therefore, when evaluating the return on investment of a Bed and Breakfast Inn, the value of the "living benefits" an owner receives must be part of the equation. There is no exact formula for calculating these "living benefits", but it should take into consideration such tangible benefits as the full or partial coverage of your residential, food, phone, and automobile costs, as well as the intangible benefit of a chosen life-style.

The Bed and Breakfast industry is not quite ready for the participation of the heavy hitters currently investing in more traditional hotels, motels, resorts, or conference centers. However, this does not mean that the efforts and successes of Bed and Breakfast owners and operators should be ignored. Instead, they should be studied and appreciated for their management skills and ability to deliver an excellent lodging experience.

To purchase a complete copy of the Bed and Breakfast/Country Inn survey, please contact the Professional Association of Innkeepers International at: (805) 569 - 1853.

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Patrick Quek is president and CEO of PKF Consulting, an international hospitality consulting firm headquartered in San Francisco.

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