Debate: to F&B or not to F&B, a hotelier’s dilemma…

International Hospitality Media and AHV Associates LLP hosted a no-cost hospitality business discussion and presentation at L’Oscar in London on 12th March

Katrina Craig was delighted to attend this business breakfast discussion on March 12th at the beautiful new boutique hotel L’Oscar in London’s Southampton Road.  

This was one of the last high level face-to-face gatherings of senior hotel industry professionals to take place before the UK government issued social distancing guidance on March 13th. The title of the event was: “To F&B or not to F&B- a hoteliers dilemma”. This was a roundtable debate with the motion-

‘Hoteliers are notoriously poor at running profitable F&B-They should stick to what they do best and outsource their F&B operations to a third party specialist’.

Mike Coldicott, of Tricon and Spencer Yeo, Campbell Gray Hotels opened up the conversation as proposer and oppose respectively.

The argument AGAINST hotels providing F&B can be summarised as follows:

  • They lower EBITDA margins due to high overhead costs. Investors felt that “F&B wrecks profitability, high CAPEX, high fixed cost (labour) and difficult to sustain (bad reviews, food poisoning/allergies, etc.).” F&B has negative impact on bottom line.
  • Room service is a loss leader and nobody uses it (this from Gus Bakker at Frasers and this was opposed by most of the luxury operators)
  • Investors and lenders apply an increased weighted average cost of capital to discounted cash flow analysis when the hotel operates a lot of F&B, this is to reflect higher risk
  • Cost of operating F&B are increasing due to living wage requirements and it is very hard to recruit and retain good staff
  • Customers are seeking new experiences and have changing culinary preferences/allergies (i.e. sustainability, veganism, gluten free, locally sourced, etc.) that are very difficult to respond to if hotel brands have inflexible concepts. Better to outsource to an F&B operator who can respond to the changing local environment.
  • If you operate a hotel in a UK County town, it will be difficult to get walk in guests as the local community may view it as being more expensive.
  • Hotel brands can be very slow to respond to trends.
  • Getting a good F&B tenant offering a good local concept can really help a hotel have a ‘sense of place’.
  • Some guests perceive hotel breakfast to be expensive and think that hotel food will be more expensive
  • Disruptors like Uber eats and Deliveroo mean that guests can now order in from local food providers and bypass the hotel’s offer.

Arguments given FOR having F&B are as follows:

  • F&B can be a real differentiator and some guests would choose a hotel and pay a higher rate for a hotel with its own restaurant. F&B generates higher ADR.
  • Not operating its own F&B means that a hotel’s room service and banqueting can be compromised. Banqueting is a money maker so should be retained by the hotel
  • Hotels are better placed to provide F&B because they are not worried about the capital investment required for kitchens and restaurants. Hotel owners take a longer term view on investment returns whereas independent restauranteurs are afraid of CAPEX and have a much shorter time horizon for getting returns on investment.
  • Hotels can utilise their F&B for take away (something that in light of the current C-19 crisis could help maintain revenues).
  • Some hoteliers are now pricing for room service the same as that dish is priced in their restaurant. They are also careful to price their dishes in relation to external competitor restaurant pricing.
  • Hotels that have a lot of leisure business (e.g. resorts) or that are in Asia and the Middle East make a lot of income from their F&B as they are perceived to have higher quality and a safer environment than external restaurants. 
  • Some hotels now embrace Ubereats and Deliveroo. They reheat the food and serve it on plates then charge a service charge. Hotel must have a policy about this, particularly to identify who is responsible for health and safety if outside food is provided but served by the hotel staff.
  • Some hotels have a very buzzy bar scene as a ‘place maker’- Ruby Hotels, Citizen M, Rosewood
  • If outsourcing F&B, best to regard the F&B operator as a partner and to share the risk and reward rather than just have a tenant-landlord relationship. Must get F&B partner on-side and incentivised to respond to hotel’s clientele and help the hotel attract the right guests.
  • Some hotel chains such as AK have a local F&B partner that provides breakfast and lunch but not dinner. They can operate the lounge bar and provide a pared down bar menu at night. Providing dinner is the big issue.

Debate was lively with arguments on both sides making strong cases, “it is clear that an F&B offering means different things to everyone, owners, operators and guests alike” commented Katrina, and that this is a very creative market positioning element for any hotel.