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Growth in Hotel Food and Beverage Revenues Lack
the Same Kind of Sizzle Found in Room Revenues; 
Expense Controls Help F&B Profits Grow
PKF Study 
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Atlanta, July 11, 2005: While U.S. hotels have enjoyed a strong increase in room revenue during the current recovery period, growth in hotel food and beverage sales, while improving, lacked the same kind of sizzle, according to an recent study by a leading hospitality consultant. Fortunately, tight cost controls by management have enabled food and beverage profitability to keep pace with the profit growth of other operating departments. These observations come from an analysis of the data collected for the recently released 2005 edition of Trends in the Hotel Industry published by PKF Hospitality Research (PKF-HR), an affiliate of PKF Consulting. Only those hotels that operate food and beverage outlets or banquet facilities were included in the research.

“In 2004, hotel food and beverage (F&B) revenues grew 6.7 percent, the result of a 6.9 percent increase in food sales and a 5.5 percent bump in beverage sales,” said R. Mark Woodworth, executive managing director of Atlanta-based PKF-HR. “The 6.7 percent growth rate is certainly very healthy, but it does fall short of the 8.6 percent growth in rooms revenue, and 7.6 percent increase in total hotel revenues achieved during the same time period.”
 

Mix of Food and Beverage Revenues
2004
Banquet Food 38.2%
Food Outlets / In Room 25.0%
Other 15.5%
Beverage Outlets / In Room 11.1%
Banquet Beverage 6.1%
Banquet Meeting Room Rental 4.1%

“While the magnitude of the increase in food and beverage revenue may have fallen short, the pace of profit growth equaled that of the other operated departments within a hotel. This can be attributed to good expense control practiced by F&B management,” Woodworth concluded. In 2004, food and beverage departmental expenses grew 6.2 percent versus and an average of 6.9 percent for all other operated departments. The bottom- line was an 8.1 percent growth in food and beverage profits for 2004. This equals the increase in total Operated Department Income for all hotels.

Food and beverage revenues and expenses are just some of the 200 discrete hotel revenue and expense items captured by PKF-HR for its 2005 Trends in the Hotel Industry report. The 2005 report marks the 69 th annual review of U.S. hotel operations conducted by PKF. This year’s sample draws upon year-end 2004 financial statements received from more than 5,000 hotels across the country. Hotel managers use the PKF Trends report to benchmark the performance of their hotel’s revenues, expenses, and profits.

Volume Drives Revenue Gains

The growth in food and beverage revenues appears to be driven more by increased guest and customer counts, as opposed to increases in pricing. While food and beverage revenues measured on a per-available-room basis grew 6.7 percent in 2004, food and beverage revenue measured on a per-occupied-room basis grew 2.3 percent. “The implication from these two statistics is that the increase in F&B revenue was more attributable to the fact that there were 4.3 percent more rooms occupied, as opposed to any substantial increase in the F&B expenditures per occupied room,” said Bruce Baltin, senior vice president in the Los Angeles office of PKF Consulting. “Of course, another reason could be a boost in food and beverage patronage from local residents.”

When looking at the sources of food and beverage business for the typical hotel in PKF’s sample, revenues from banquet events account for 44.3 percent of the total sales. This compares to 36.1 percent of the total sales volume that comes from the restaurants, lounges, and room service. The remaining 19.6 percent is derived from the rental of meeting and banquet rooms, as well as other miscellaneous sources. “When looking at growth by the revenue source, we found sales emanating from restaurants and lounges increased 6.1 percent in 2004, while banquet and catering related revenues grew 7.0 percent,” Baltin added.

Tight Expense Controls

For hotel food and beverage departments, the “prime costs” are labor and cost of goods sold. In 2004, the cost of food and liquor purchased for re-sale averaged 25.6 percent of total food and beverage revenue. Salaries, wages, and employee benefits combined for another 56.1 percent of the dollars spent in the department.

“Like most other departments in a hotel, labor costs are the biggest expense item. In 2004, F&B labor costs rose 6.1 percent. This compares favorably to the 6.3 percent overall growth rate in labor costs throughout the hotel,” Woodworth said. “It also looks like the chefs and bartenders did a good job in the back-of-the- house limiting food and beverage cost increases to only 4.9 percent.”

As a result of the tight cost controls, food and beverage department profit margins improved from 30.4 percent in 2003 to 31.0 percent in 2004. While food and beverage sales accounted for 26.2 percent of total hotel revenues in 2004, F&B department profits were only 11.1 percent of total Operated Department Income for the year.

More Free Food

Since the proliferation of limited-service and all-suite hotels, a growing percentage of travelers have grown accustomed to complimentary breakfast and/or cocktail receptions. These expectations have become so prevalent that an increasing number of full-service, resort, and convention hotels are now offering complimentary food and beverages as part of special packages, preferred guest programs, or corporate rate contracts. The amount of money U.S. hotels spent on complimentary food and beverage increased 13.1 percent from 2003 to 2004.

For the industry segments that have traditionally offered complimentary breakfast, growing competition and evolving social patterns have resulted in an increase in both the quantity and healthiness of the food offered. “When measured on a dollar per-occupied-room basis, limited-service and all-suite hotels increased their spending on complimentary food and beverage by 5.0 percent. Clearly, these segments are making an effort to upgrade the quality and quantity of the food and beverages they offer to their guests. Stale doughnuts just don’t cut it anymore,” Woodworth said.
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Source: PKF Hospitality Research
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Copies of the 2005 Trends in the Hotel Industry report, which provides owners, investors, property managers, asset managers and others with detailed information on all aspects of hotel revenues, operating costs and profits, are available at PKF’s online store at www.pkfc.com, or by calling Claude Vargo toll free at (866) 842-8754.

PKF Hospitality Research (PKF-HR), headquartered in Atlanta, is the research affiliate of PKF Consulting, a consulting and real estate firm specializing in the hospitality industry. PKF Consulting has offices in New York, Philadelphia, Washington DC, Atlanta, Indianapolis, Houston, Dallas, Los Angeles, and San Francisco.

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Contact:

R. Mark Woodworth
PKF Hospitality Research
3340 Peachtree Road, Suite 580
Atlanta, GA 30326
(404) 842-1150, ext 222
www.pkfc.com

Also See: Fewer Hotels Deficient on Interest Payments; Low Interest Rates, Refinancing, and Rising Profits Are Major Factors / PKF Study / July 2005
Hotels Increase Marketing Budgets by 6.1 Percent in 2004; Hotels Continue to Shift Marketing Dollars from Advertising to Person-to-Person Selling / PKF Study / June 2005
Hotel Insurance Expense: Minor Cost, Major Concern; PKF Study Finds Premiums Doubled Since 1999 / June 2005
Rampant Optimism in U.S. Hotel Investment Arena / PKF / June 2005
Hotel Real Estate is Alive in 2005 / Scott Smith, MAI / June 2005
U.S. Hotels Staff Up - Rising Benefit Costs at Highest in 15 Years / Mark Woodworth / May 2005
Hotel Guests Not Picking Up the Phone / Robert Mandelbaum / April 2005
Are Hotel Employee Benefits Really Soaring? / Gregory J. Miller and Robert Mandelbaum / March 2005
Plying the Per Diems: How Market Forecasts Should Impact Hotel Rate Strategy / Gregory J Miller / PKF / February 2005
Double-Digit Profit Growth for U.S. Hotels in 2004 and 2005; Strong Revenue Growth Overcomes Some Expense Concerns / PKF / February 2005
Hotel Construction Signs Along the Road to Recovery; Measuring Hotel Developer Intent / R. Mark Woodworth and Robert Mandelbaum / January 2005
Understanding the Recovery Occurring in the Meeting’s Market; Surveying the Meeting Planners / Robert Mandelbaum / December 2004
First Half 2004 Hotel Profits Solidify 2005 Outlook; Industry Still Lags Far Behind its Past Peak Performance in 1998 / HRG & PKF Consulting / December 2004
Room Rates Across the Top 50 Hotel Markets in the U.S. Will Increase by 3.7% in 2004; Five Highest and Five Lowest Average Daily Room Rate Hotel Markets in 2005 / December 2004
Perspectives on the Road to Recovery - U.S. Lodging Industry 2005 / HRG & PKF Consulting / November 2004
Other Revenue Is Good Revenue / Robert Mandelbaum / November 2004
Uncanny! Hotel Occupancies “Key Indicator” of Presidential Election Outcome / October 2004
Is the Hotel Industry Smart Enough to Avoid Overbuilding; Ten Reasons Why Real Estate Markets Become Overbuilt / Jack B. Corgel / July 2004
PKF Consulting/HRG Survey Forecasts Banner Year for Hotel Transactions; Investors Favoring the Full-service Segment / May 2004
First Uptick for Hotel Industry in Three Years; Full-Service Hotels Lead the Way In U.S. Hotel Profits for 2004 / Hospitality Research Group / March 2004
Demand in the Full-service Hotel Sector is Expected to Increase by 6.3% in 2004; Best and Worst Hotel Markets in Terms of RevPAR Growth / PKF Consulting / January 2004


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