The 1990s was the breakthrough decade for hotel food and beverage, placing you either at the dining room table eating foie gras, or waiting on line in the lobby for a bran muffin.  The attitude of hotel owners and operators towards food and beverage is one of two extremes; make a serious go of it, or limit your operations to meet the minimal needs of your guests.  The days of chain-mandated, bland, break-even restaurants and lounges are history.

A quick look at current hotel development reports shows the diversity of the food and beverage operations at hotels these days.  The vast majority of new hotels have no F&B facilities at all.  On the other end of the spectrum, the �fastest-growing� segment is upscale operations with multiple food and beverage outlets and large banquet facilities.  Even those properties that fall into the traditional mid-market, full-service category are either limiting their menus, or closing down during certain meal periods.

In order to examine this trend of polarity, we analyzed the food and beverage statistics of 484 full-service hotels from the period 1994 through 1999.  These same-store data came from our Trends in the Hotel Industry database.

Feast Or Famine

From 1994 through 1999, food and beverage revenues at the properties analyzed grew at a 6.3 percent compound annual growth rate (CAGR).  This is just slightly less than the 6.4 percent CAGR for total hotel revenues during the same period.  On the surface, these statistic show comparability for the overall sample.  However, to show the diversity of operations mentioned earlier, we have divided our survey sample into four quartiles based on food and beverage revenue volume.

From 1994 through 1999, those full-service hotels with the lowest volume of F&B sales grew their revenues just 1.3 percent.  On the other hand, the properties that gross the greatest food and beverage dollars grew their revenues 6.4 percent.  Further analysis shows that the disparity between those hotels in the lowest and highest quartiles has grown.  In 1994, hotels in the highest quartile averaged food and beverage revenues 6.4 times those in the lowest quartile.  This multiple grew to 8.2 in 1999.

These statistics clearly show that hotels emphasizing food and beverage operations have been very successful in growing their revenues.  Conversely, those properties that have made the decision to limit their food and beverage service have simply gone into a maintenance mode.

Chowing Down, But Less Drinking

While the growth of combined F&B revenue has matched total hotel revenue growth, a closer examination finds significant growth in food sales, while beverage income has slid in importance.  (Please note that, in the lodging industry, beverage revenue is defined as the sale of alcoholic beverages in a hotel�s restaurants, lounges, and banquet operations.)

From 1994 through 1999, food revenues for the subject sample grew 7.2 percent, 0.8 percentage point greater than the growth rate for all hotel revenues.  The surging growth in food revenues can be attributed to a number of trends:

• Upgraded restaurant outlets
• Increasing menu prices that follow the rise in rooms rates
• An increase in higher-priced banquet activity
• Increased volume from local patrons

Food Operations Feed Hotel Profits

While the growth in food and beverage revenues has been impressive, the growth in food and beverage profits has been even more spectacular.  From 1994 though 1999, food and beverage department profits grew at a compound annual rate of 11.9 percent.  In comparison, growth in total operated departmental profits was 7.9 percent.  Despite all the hoopla over the impact of increased average daily rates (ADRs) on hotel profitability, recognition should be given to hotel food and beverage managers who have not only grown revenues, but improved their profitability as well.

Just as we saw with revenues, there has been a different story when comparing the respective profitability of the food and beverage departments.  During the period analyzed, the food departments of the hotels in our survey sample averaged a tremendous 19.8 percent annual growth rate in departmental profits.  In comparison, average annual profit growth was only 5.7 percent for beverage departments.  The boom in food and beverage profits is particularly impressive, given the increases that we have seen in labor costs, combined with the increased costs typically associated with the previously discussed upgrading of outlets and menus.

Second Helpings

Hotel food and beverage operations have, and will be, heavily influenced by external economic factors.  On the supply side, look for an increase in the percentage of limited-service hotels being built, as lenders are becoming more conservative and limiting the amount of capital available for hotel development.  However, on the demand side, a hopeful healthy economy should continue to support the demand for upgraded food and beverage service at the nation�s full-service properties.

Owners and operators need to evaluate the role that food and beverage will have in the overall strategic positioning of their property.  If a restaurant or lounge is not needed to accommodate the types of travelers that you are targeting, then there is no need to add such a potential money-loser.  On the other hand, as the preceding numbers have proven, those who opt for full-service properties now have the opportunity to run food and beverage operations that not only enhance rooms revenues, but contribute significant profits on their own.