the Same Kind of Sizzle Found in Room Revenues;
Expense Controls Help F&B Profits Grow
|Atlanta, July 11, 2005: While U.S. hotels have enjoyed a strong increase
in room revenue during the current recovery period, growth in hotel food
and beverage sales, while improving, lacked the same kind of sizzle, according
to an recent study by a leading hospitality consultant. Fortunately, tight
cost controls by management have enabled food and beverage profitability
to keep pace with the profit growth of other operating departments. These
observations come from an analysis of the data collected for the recently
released 2005 edition of Trends in the Hotel Industry published by PKF
Hospitality Research (PKF-HR), an affiliate of PKF Consulting. Only those
hotels that operate food and beverage outlets or banquet facilities were
included in the research.
“In 2004, hotel food and beverage (F&B) revenues grew 6.7 percent,
the result of a 6.9 percent increase in food sales and a 5.5 percent bump
in beverage sales,” said R. Mark Woodworth, executive managing director
of Atlanta-based PKF-HR. “The 6.7 percent growth rate is certainly very
healthy, but it does fall short of the 8.6 percent growth in rooms revenue,
and 7.6 percent increase in total hotel revenues achieved during the same
“While the magnitude of the increase in food and beverage revenue may have fallen short, the pace of profit growth equaled that of the other operated departments within a hotel. This can be attributed to good expense control practiced by F&B management,” Woodworth concluded. In 2004, food and beverage departmental expenses grew 6.2 percent versus and an average of 6.9 percent for all other operated departments. The bottom- line was an 8.1 percent growth in food and beverage profits for 2004. This equals the increase in total Operated Department Income for all hotels.
Food and beverage revenues and expenses are just some of the 200 discrete hotel revenue and expense items captured by PKF-HR for its 2005 Trends in the Hotel Industry report. The 2005 report marks the 69 th annual review of U.S. hotel operations conducted by PKF. This year’s sample draws upon year-end 2004 financial statements received from more than 5,000 hotels across the country. Hotel managers use the PKF Trends report to benchmark the performance of their hotel’s revenues, expenses, and profits.
Volume Drives Revenue Gains
The growth in food and beverage revenues appears to be driven more by increased guest and customer counts, as opposed to increases in pricing. While food and beverage revenues measured on a per-available-room basis grew 6.7 percent in 2004, food and beverage revenue measured on a per-occupied-room basis grew 2.3 percent. “The implication from these two statistics is that the increase in F&B revenue was more attributable to the fact that there were 4.3 percent more rooms occupied, as opposed to any substantial increase in the F&B expenditures per occupied room,” said Bruce Baltin, senior vice president in the Los Angeles office of PKF Consulting. “Of course, another reason could be a boost in food and beverage patronage from local residents.”
When looking at the sources of food and beverage business for the typical hotel in PKF’s sample, revenues from banquet events account for 44.3 percent of the total sales. This compares to 36.1 percent of the total sales volume that comes from the restaurants, lounges, and room service. The remaining 19.6 percent is derived from the rental of meeting and banquet rooms, as well as other miscellaneous sources. “When looking at growth by the revenue source, we found sales emanating from restaurants and lounges increased 6.1 percent in 2004, while banquet and catering related revenues grew 7.0 percent,” Baltin added.
Tight Expense Controls
For hotel food and beverage departments, the “prime costs” are labor and cost of goods sold. In 2004, the cost of food and liquor purchased for re-sale averaged 25.6 percent of total food and beverage revenue. Salaries, wages, and employee benefits combined for another 56.1 percent of the dollars spent in the department.
“Like most other departments in a hotel, labor costs are the biggest expense item. In 2004, F&B labor costs rose 6.1 percent. This compares favorably to the 6.3 percent overall growth rate in labor costs throughout the hotel,” Woodworth said. “It also looks like the chefs and bartenders did a good job in the back-of-the- house limiting food and beverage cost increases to only 4.9 percent.”
As a result of the tight cost controls, food and beverage department profit margins improved from 30.4 percent in 2003 to 31.0 percent in 2004. While food and beverage sales accounted for 26.2 percent of total hotel revenues in 2004, F&B department profits were only 11.1 percent of total Operated Department Income for the year.
More Free Food
Since the proliferation of limited-service and all-suite hotels, a growing percentage of travelers have grown accustomed to complimentary breakfast and/or cocktail receptions. These expectations have become so prevalent that an increasing number of full-service, resort, and convention hotels are now offering complimentary food and beverages as part of special packages, preferred guest programs, or corporate rate contracts. The amount of money U.S. hotels spent on complimentary food and beverage increased 13.1 percent from 2003 to 2004.
For the industry segments that have traditionally offered complimentary
breakfast, growing competition and evolving social patterns have resulted
in an increase in both the quantity and healthiness of the food offered.
“When measured on a dollar per-occupied-room basis, limited-service and
all-suite hotels increased their spending on complimentary food and beverage
by 5.0 percent. Clearly, these segments are making an effort to upgrade
the quality and quantity of the food and beverages they offer to their
guests. Stale doughnuts just don’t cut it anymore,” Woodworth said.
Source: PKF Hospitality Research
Copies of the 2005 Trends in the Hotel Industry report, which provides owners, investors, property managers, asset managers and others with detailed information on all aspects of hotel revenues, operating costs and profits, are available at PKF’s online store at www.pkfc.com, or by calling Claude Vargo toll free at (866) 842-8754.
PKF Hospitality Research (PKF-HR), headquartered in Atlanta, is the research affiliate of PKF Consulting, a consulting and real estate firm specializing in the hospitality industry. PKF Consulting has offices in New York, Philadelphia, Washington DC, Atlanta, Indianapolis, Houston, Dallas, Los Angeles, and San Francisco.
R. Mark Woodworth
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|Are Hotel Employee Benefits Really Soaring? / Gregory J. Miller and Robert Mandelbaum / March 2005|
|Plying the Per Diems: How Market Forecasts Should Impact Hotel Rate Strategy / Gregory J Miller / PKF / February 2005|
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