Is there a difference for having a restaurant on property versus having it as a tenant?
We manage a great hotel in Sedona, Arizona, called Arabella. We pride ourselves on having unique features. These include a small hiking trail up to a spot that is ideal for star-gazing, a courtyard as a backdrop for an idyllic picnic or coffee sipping, an on-property puppy named Bella who greets guests, and a fine restaurant called the Elote Cafe.
Beyond that, we pride ourselves on having attractive and clean rooms, tremendous customer service and a fantastic location at the entrance to Sedona. But when we realized that we had a highly unique, successful James Beard-recognized restaurateur at the helm of our leased restaurant, we decided to leave the food service worries to a real pro.
Why? First, it is very difficult to make a restaurant work. Good food and a nice atmosphere are not enough. More than 25% of restaurants fail within one year, and 60% are out of business within three years. Expenses are high, and barriers to entry are low, so competition is fierce. The word of mouth required to make a restaurant successful is even tougher to come by than it is for the hotel itself. At least the hotel can afford a budget for digital marketing, some paid “buzz” and more. Restaurant margins are razor thin.
We went with our lessee, Chef Jeff Smedstad of Elote, and what a great restaurant it is. Every evening, guests line up for the opening of the doors at 5 p.m. Elote is open Tuesday through Saturday, and while there are hundreds of restaurants to choose from, Elote is No. 1 in Sedona and ranked the third-best Mexican cuisine in the U.S. Great food, service, consistency and the buzz caused by quality and limited hours has served them well. The hotel gets guaranteed income, and the reputation transfers nicely to our hotel.
At The Lafayette Hotel, Swim Club & Bungalows, our leased restaurant (the Red Fox) is like a destination and has an outside entrance. The clientele come for history (yes, the hotel is also historic) and comfort food. Personally, I like the food at our successful HOPE 46, which is operated by our management team and located inside the hotel. But getting guests to come to a restaurant inside a hotel is far more difficult than getting guests to come to one with an outside entrance or one that appears to be “free-standing.”
Both restaurants do well. The branding done by Michael Sterling Eaton—coupled with the quality of food offered by Chef Ryan Gilbert and the service our team provides—makes HOPE 46 a winner. But the effort that we put into it was time consuming, expensive and requires constant attention. On the other hand, Red Fox provides consistent income and near-zero effort.
In analyzing whether or not to go outside with a lease or manage your own restaurant, the answer is fairly simple. If you are already a successful restaurateur and you love it, then do it. Will you make money? Possibly, but you will control the quality and reputation and also have the benefit of handling banquet food opportunities. And if you have banquets, then you can really make some profits.
Our best example is our Hilton Garden Inn, located in San Diego on the border of Del Mar, California. We applied for a waiver to name the restaurant Bistro 39 because we were unable to find any panache with Hilton’s restaurant concept, Great American Grill. Hilton views these restaurants as a means to an end: Serve breakfast, lunch and dinner and have your guests be happy. For a unique experience, we had winemaker dinners, wine and chocolate tastings, beer tastings and much more. We built a ballroom, an unusual touch for a Hilton Garden Inn, and booked more than $1 million in social events in year one.
The bottom line is that we love food and beverage and know how to make it both profitable and complementary to the hotel marketing. We added a deli to the hotel and serve Boar’s Head meats and cheeses—they line up for lunch at 11:30 a.m. Yes, it is the only Hilton Garden Inn with a deli, but then we are different. We look at each hotel uniquely so that we can decide whether or not a food-and-beverage program would be worthwhile or if we are better off with a leased operation.
If you are still on the fence, just remember, if it is not in your blood to have holiday buffets, weekend events, tight margins in the restaurant, and extensive training and marketing, go with the lease! Otherwise, have some fun with it—after all, wine and beer tastings are wonderful for thanking your guests while teaching them about wine and craft beer. And if you do it for hotel guests, they only need to drive home on your elevator!
Robert Rauch is an internationally-recognized hotelier, CEO, and founder of RAR Hospitality, a leading hotel management and consulting firm based in San Diego, California. RAR Hospitality’s hotel collection includes independent, boutique and branded properties throughout North America.
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