Hotel Online Special Report
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U.S. Hotels Reduce Food and Beverage Service, 
Lodging Research Network Reports
Yet Luxury Hotels Demand Celebrity Chefs More Than Ever
 
NEW YORK, Nov. 5, 1998 -  Food and beverage (FB) service accounts for an ever-smaller part of overall U.S. lodging revenue, as full-service and luxury properties scale back FB operations and developers build more limited-service hotels, which offer limited or no food service at all. 

Meanwhile, top chefs with celebrity or near-celebrity status are more in demand than ever at U.S. luxury hotels. So says the Lodging Research Network (www.lodgingresearch.com), the comprehensive Internet-based resource for lodging industry data and information from PricewaterhouseCoopers, the world's largest professional services Organization.

"Income from FB operations has consistently declined as a share of overall hotel revenue for the last 35 years," observes Bjorn Hanson, Ph.D., New York-based global partner in the PricewaterhouseCoopers lodging, gaming and leisure group. "FB income accounted for as much as 50 percent of a typical hotel's revenue in 1960. It is now approximately 20 percent -- and trending lower," he adds.

Costly and labor-intensive, FB operations have traditionally been an uneconomic choice for hotel operators, Dr. Hanson explains. Today, a successful FB operation yields departmental profit of 25 percent, up from an historical 15 to 20 percent.. By comparison, a successful rooms operation yields departmental profit of 75 to 80 percent.

"Remember that FB's 25 percent departmental profit is before costs such as credit card commissions, liability and property insurance, repairs and maintenance, energy costs, management costs, marketing and advertising and property taxes," Dr. Hanson observes. When those costs are subtracted, FB operations usually result in a financial loss for hotels.

Behind FB's Costs

Driving hotels' FB costs are unique forces that free-standing food-service operations -- such as restaurants -- do not encounter.

Hotel food-service workers are unionized to a greater degree than workers in independent restaurants, and wages and benefits for hotel employees are typically more generous than those of restaurant employees in comparable roles. Even non-union hotels have employee-benefit packages more extensive than those in restaurants, Dr. Hanson observes.

The high costs are derived from FB's role as an amenity intended to enhance a hotel's image and service.

For example, FB operations provide longer hours of service than do independent restaurants. Hotels serve meals seven days per week, at three meal periods per day. By contrast, independent hotels can close for unprofitable mealtimes, days or even entire seasons. This difference in service drives hotels' already higher payroll and related costs higher.

For guest convenience, hotels often operate multiple FB outlets on one site to meet a range of dining needs. Operating a medium-priced restaurant, fine dining site and even a specialty themed restaurant inside one full-service hotel is common in major U.S. cities. Such facilities require multiple kitchens with duplicate staffing, expanded managerial controls and higher costs for distribution of food and supplies as well as maintenance.

Further, hotel restaurants are spaciously designed for periods of maximum hotel occupancy, although such occupancy may occur only once during one season, the Lodging Research Network says. By contrast, independent restaurants typically follow a business model of smaller rooms and more rapid guest turnover. Also, many independent restaurants derive appeal from a small, full dining room and a waiting list that suggests popularity, Dr. Hanson notes.

"Hotel dining operations are undeniably labor-intensive," Dr. Hanson says, "but room service, with its signature rapid attention to many guests at once, is the most labor-intensive service a hotel can provide. Labor is always a hotel's greatest cost, representing as much as 50 percent of all outlays and consuming as much as 25 percent of all revenue," he adds.

Further, the nature of hotel management and supervision typically includes more layers of personnel than in a free-standing restaurant. Whereas independent restaurants are often owner-managed, hotels employ FB controllers and auditors as well as purchasing managers. In cases where employees are ill, restaurants often "make do" with "skeleton" staff. In hotels, unions often require a substitute worker be deployed.

Still, Top Hotels Vie For Celebrity Chefs

While FB's rising costs have led full-service hotels to scale back operations and have fueled a generation of limited-service properties, luxury hotels more than ever place a premium on chefs of celebrity or near-celebrity status.  A culinary master's association with a hotel is seen as enhancing its reputation, image and ability to serve guests thoroughly, Dr. Hanson says. It adds to marketing power -- and also drives room rates higher, he adds.

"The cachet of a celebrity chef in a hotel restaurant justifies an incremental rise in a hotel's average daily room rate," Dr. Hanson observes. "Conversely, the cost of hiring a celebrity chef can necessitate an incremental rise in room rates," he adds.

When a hotel restaurant is owned by a renowned outside restaurateur, hotel management may find its necessary enter cost-sharing arrangements that recognize the loss the restaurant will take on room service operations. Examples of such arrangements include breaks on rent paid by on-site restaurants.

The PricewaterhouseCoopers Lodging Research Network (www.lodgingresearch.com) makes available via the Internet PricewaterhouseCoopers' renowned econometric forecasts for the lodging industry; breaking lodging industry news; Sales Comps, an exclusive database of lodging industry real estate sales and Development Outlook, a comprehensive database of hotel construction data from the Lodging Econometrics research division of National Hotel Realty; financial data of publicly traded lodging companies (including SEC filings), as well as an extensive research library that includes U.S. econometric and demographic statistics. For more information about the Lodging Research Network, call toll-free 888-576-6656.

With a worldwide network of 6000 professionals, PricewaterhouseCoopers' Financial Advisory Services (FAS) practice provides creative solutions and ideas that increase value to clients during critical periods and when they are making important decisions that define their future. The FAS business is organized along five product lines. The Business Recovery Services, Dispute Analysis Investigations, and Valuations Shareholder Value product lines are the largest in the world. The Project Finance Privatization product line was rated second in Privatisation International's global league table by number of privatization financial advisory assignments and second in Project Finance International's global ranking by number of project finance advisory mandates. The Mergers Acquisitions product line was second in the world in number of deals completed, according to Securities Data Company. PricewaterhouseCoopers advised on 341 deals with a total worth of $33.2 billion.

PricewaterhouseCoopers (www.pwcglobal.com), the world's largest professional services organization, helps its clients build value, manage risk and improve their performance. Drawing on the talents of more than 144,000 people in 152 countries, the organization provides a full range of business advisory services to leading global, national and local companies and to public institutions. PricewaterhouseCoopers refers to the US firm of PricewaterhouseCoopers LLP and other members of the worldwide PricewaterhouseCoopers organization.

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Contact:
Adam Brecht 
of PricewaterhouseCoopers LLP, 
212-259-3619
Web site: http://www.lodgingresearch.com
Web site:  http://www.pwcglobal.com
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Also See:
Seven Steps to Food Cost Control / Oct 1998 / Kirby D. Payne, CHA 
Branding and Repositioning Food & Beverage - the case for outsourcing partnerships / Arthur Andersen / Summer 1998 

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