Archive for October 26th, 2009

Another Way to Structure Corporate F&B?

First, let’s get real about hotel F&B.

If you’ve been in hotel F&B most of your career, you may be surprised to learn that all F&B at all hotels (USA) accounts for about 4% of “food away from home”. The remaining 96% of the $400-billion+ industry, which includes restaurants, institutional feeding, caterers and kiosks, is generally profitable. Those that are not profitable go out of business. Hotel F&B is generally unprofitable unless there is a lot of banquets/catering space. And hotel restaurants are never profitable, unless they are operated by an independent operator.

Unlike freestanding restaurants, hotel restaurants that are not profitable (and this would be nearly all of them – see previous sentence), do not go out of business. Nor should they, as their purpose is to support the hotel. This isn’t wrong, and it isn’t stupid. It is, well…tradition. So we accept it. And build structure and infrastructure around it.

In the last decade or two, some hotel chains have started to lease to or partner with restaurant brands (including celebrity chef “brands”). If you’re willing to relinquish control of some of your services and maybe even a portion of your image, and especially if you can retain the most profitable end of the business, banquets/catering, this can be a rewarding strategy.

But there may be another approach. It’s a paradigm shift, really. “Spin off” your corporate F&B into a separate (wholly owned) corporation. Next, lease all of your restaurants and F&B to the new corporation. F&B employees will work for the new company, and F&B Directors (they will now be restaurant “General Managers”) will report to the new corporation. And surely you will have to “beef up” the corporate F&B infrastructure.

What a mess, huh? Hotel GM’s – or whomever is responsible for the lease – will have to negotiate services and payment for services as well as lease rates and terms. All of those free meals, discounts and other bargains passed on to sell rooms will have a real cost attached to them.

And what about F&B? Well, they’ve got to make a payroll don’t they? And pay their vendors. They may have to pay for administrative and accounting services and maintenance services, and utilities – all of which can and should be negotiated and included in the lease.

Wait a minute – this is a lot of hassle! Why bother? Well, unlike a standard lease to a third party, your company is still “in control”. And this new perspective may go a long way toward making both businesses – hotel and F&B – more profitable than ever before. Oh, and now you own a restaurant company. I wonder if that makes you part of the “remaining 96%”?

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