During a recent AHLA event, REIT executives said making significant investments in the food-and-beverage space are worthwhile, and the ROI can lift an entire property.
WASHINGTON—Doing food and beverage right is a vital part of maximizing profitability for some of the largest hotel ownership groups, but it can sometimes be hard to perfectly quantify the benefit of strong F&B offerings.
Speaking during the “F&B and profitability” session at AHLA’s fall F&B committee meeting, asset-management executives with three hotel real estate investment trusts said the interaction between hotel profitability and F&B is top of mind for their companies.
Hoteliers have an interest in making their F&B outlets successful and profitable on their own, and they also can’t ignore the impact that has on rooms revenue.
Thomas Healy, EVP and COO of DiamondRock Hospitality, said incorporating a compelling F&B experience into the lobby and when guests arrive will elevate how they view the property, fueling better feedback and, ultimately, rate premiums.
Healy said he’s had success whenever DiamondRock has made investments on incorporating robust F&B into the arrival and lobby experience, including at a property in Chicago, where spend per occupied room rose and the property as a whole saw a 20% increase in booking pace for 2020.
“We have to make sure we get it right and we didn’t half-ass it,” he said.
He said that type of benefit can be difficult to quantify but should show up in gauging your market share.
“Typically, I look at (revenue per available room) index against the comp set,” Healy said. “Either we’re getting (a lift) in rate or occupancy or a combination of both.”
Tom Bardenett, EVP of asset management for RLJ Lodging Trust, said hotel owners and operators need to work collaboratively with their brands where they can to enhance F&B experiences. He noted how his company has been working with the Embassy Suites brand on its enhanced lobby concept, moving away from atrium spaces.
RLJ picked up many Embassy Suites properties through its acquisition of FelCor Lodging Trust, and Bardenett said enhancing the F&B offerings has been a big part of getting the most out of that deal. While this type of brand refresh can often seem onerous to owners, he said RLJ wants “to do it because we know there’s more profitability when we get that space back.”
He said it has an added benefit of drawing higher-margin business.
“When you can change the mix on the group side, you’re going to get more profitability,” he said, noting they’re going from having a “pure transient house” to a more open space that can be used for receptions.
“Now you can do two groups versus one,” he added.
Bringing operations in house
Michael Rock, market VP of asset management for Host Hotels & Resorts, said his company has seen significant success bringing in some F&B operations to properties such as the recently acquired One Hotels South Beach. A big part of that has been being able to make sure F&B outlets at that property, along with the others in resort markets he oversees, are relevant to guests. He said relevancy translates to dollars and cents.
“I’m a little fortunate that of my 12 assets (I oversee), 11 of them are resorts,” he said. “So it’s a very horizontal portfolio with multiple food-and-beverage outlets.”
He noted the company has an increasing focus on total RevPAR instead of just room rate revenue. And if F&B is done right, hotel guests won’t be the only ones spending in those outlets.
“The relevancy in the market not just for your house guests but local guests is hypercritical,” he said.
Rock said hotels see a boost in pricing power by getting the most out of the beverage side of the F&B equation.
Healy said DiamondRock still prefers license deals for F&B spaces because of the consistency they provide in experience and their ability to provide more authentic experiences than in-house operators could.
Bardenett said RLJ gained in-house F&B expertise from the FelCor deal. Even though the REIT has other companies manage its properties, having an on-staff F&B expert gives RLJ greater insights and a bigger voice in focusing its F&B investments.
“He's looking at metrics, and we're doing benchmarking so we can do that comparison so we can drive (the F&B conversation),” he said. “The idea is that OK, we've got 21 Embassy Suites. Why is your catering for group rooms less than this one? And those are the things that we're communicating to our management companies because we've got to play offense in regards to where we can make more money.”
For an industry hypervigilant on maximizing rates for rooms, panelists said hoteliers do a poor job on making sure they’re maximizing their F&B pricing. And even when they do benchmark against competition, sources said they’re not setting their sights high enough.
Rock noted that hoteliers don’t work in the same pricing transparency environment with F&B as they do with room rates, and that should be factored in to pricing considerations.
“When I’m pushing my hotel and saying ‘You should take your lobby bar prices up $1,’ they’ll say, ‘Oh no, we’ve done our price survey, and we have the same prices as (the hotel) down the street,’” he said. “Well, your customers at the lobby bar don’t know that.”
He said those bars have a captive audience and should be priced accordingly.
“They’re at your lobby bar because they’re staying (at the hotel) or they’re meeting guests there, or they like your audience and the product you have there,” Rock said.
A focus on labor
F&B, just like all other aspects of hotels these days, is feeling the crunch of a tight labor market, which can negatively impact profits.
Rock said even amid the quest to have the coolest and newest restaurant, hotel investors must “stick to your knitting.”
He said that means looking at F&B operations closely with a highly critical eye and partnering with outside experts.
“We've found some great success over the last few years with time and motion studies from outside vendors that could come in and apply a lens and they have skin in the game on the results,” he said.