Profiting From hotel and restaurant partnerships

Steve Halliday, managing director of Vancouver’s recently opened 156-room Rosewood Hotel Georgia, knows what a successful hotel restaurant looks like.

By Marni Andrews

Steve Halliday, managing director of Vancouver’s recently opened 156-room Rosewood Hotel Georgia, knows what a successful hotel restaurant looks like. The hotel rents space to onsite Hawksworth, a farm- to-table contemporary restaurant run by chef/owner David Hawksworth. Despite only being open since May 2011, it was named Restaurant of the Year last October by Maclean’s magazine. 

Halliday says that Hawksworth is mentioned by guests as a bonus to staying at the hotel almost as much as the hotel’s Bentley car and driver. “It’s seamless to the customer because they can charge their dinner at Hawksworth to their guestroom,” he says.

Delta Land Development, which was behind the reopening of the Hotel Georgia, was responsible for bringing David Hawksworth on board. Halliday says that Delta sought out a great local chef so that he would have a personal stake in the success of the restaurant. “When you buy a chef’s name from Paris or New York, it’s not the same. That may work in Vegas or New York but not in Vancouver,” says Halliday.

At the Rosewood Hotel Georgia, about 40 per cent of revenue comes from food and beverage (including room service, a lobby bar called 1927, a seasonal patio called Reflections and banquet facilities, but not Hawksworth). Prohibition, a music lounge/club, will open in a year and will skew that ratio further.

“That percentage is high for a hotel of our size. The average room to F&B ratio is more like 80/20. We have a lot of liquor-selling seats. You don’t tend to find that outside of cities like New York or Vegas or somewhere in Asia,” says Halliday.

Leasing out

Traditionally, hotel restaurants did not make money, but as long as the rooms division made enough to cover the losses, it was considered an acceptable arrangement, says Gabor Forgacs, associate professor at the Ted Rogers School of Hospitality and Tourism Management in Toronto. In recent years, financial pressures have placed hotel management under heightened scrutiny and now each revenue stream must be profitable. “The main advantage for leasing out a restaurant instead of operating it is in the elimination of a headache – [that] of an operational challenge and of a loss-producing unit,” says Forgacs. “As a business, rooms are a lot simpler to sell. One can sell a room online and let guests check themselves in. Provide a room attendant to clean the room and that seems just fine for budget or even midmarket operations.”

Jeff Dover, vice-president of fsStrategy, notes that hotels are very good now at yielding their rooms but they don’t do food and beverage well. “Depending on whether a hotel has meeting space for catering revenue or not, F&B is typically only a 20 to 30 per cent contribution,” estimates Dover.

The major advantage of a hotel partnering with a restaurateur is that hoteliers are not in the restaurant business, says Andrew Higgs, senior associate with HVS, which offers hotel consulting and evaluation. The return they potentially get from F&B compared to rooms is minimal, but they have the majority of the operating headache. It’s seen as a necessary evil because the consumer expects a restaurant within the hotel, says Higgs.

A good restaurateur, on the other hand, is in tune with local markets, resourceful and quick to adapt with menu changes to current food trends.

One of the big shifts in dining is to more transparent eating, nose to tail. This shift also marks a higher profit on the restaurant side because they’re using more of an animal.

“You are probably not going to see those trends picked up by a typical, 365-day hotel restaurant that’s also empty six nights a week. It’s the hotels that have partnered with chefs or full-time restaurateurs who can really embrace those new concepts,” says Higgs.

There can, however, be drawbacks to outsourcing a food and beverage program. The biggest disadvantage of having someone else running the restaurant operation is that if it is not done well, the hotel can suffer by implication, says Dover. “Guests don’t see the difference between the restaurant and the hotel. If the focus of the restaurant is not the same as that of the hotel, it might be negative for the hotel. You want a market focus that matches your hotel. And you have to be able to handle breakfast, room service and catering and deal with the hotel’s F&B standards,” he says.

“Generally a hotel/restaurant partnership is done with a lease agreement of base rent with possibly some profit sharing. With or without profit sharing, there is the guarantee of a monthly stipend from the lease and that monthly income is valuable,” says Dover. “Restaurants within the hotel are more common with full service properties while suburban markets and limited service properties can do well with a branded restaurant because it can draw customers in what is often a competitive market.”

Ultimately, though, Higgs emphasizes that flexibility is required for the decision to outsource or not since every market and every hotel is different.

Work with a feeder market

A limited service property without a restaurant can gain a competitive advantage by bringing in a branded restaurant. The operating controls that are in place are much better when working with a chain, says Dover. For co-branding to be successful, both brands must bring something to the table: the hotel gets more guests because of the restaurant, while the restaurant benefits from the captive hotel market. They must have a similar brand presence and similar customer focus.

This situation was the case at the Blue Mountain resort in Collingwood, ON.

In November 2005, The Westin Trillium House Blue Mountain opened in conjunction with Oliver & Bonacini Café Grill, Blue Mountain, a 60-seat restaurant with 10,000 sq. ft. meeting space. O&B paid rent to Intrawest Commercial (now Skyline Hotels), which managed several restaurant and retail spaces within the resort village. O&B also pays fees to the condo corporation that owns the hotel (similar to common area maintenance fees) and marketing fees to the Blue Mountain Village Association, says Andrea Sire, general manager of Oliver & Bonacini Café Grill. A percentage of sales from in-room dining and from the banquet operation is paid to the hotel directly.

“Partnerships [like this] allow operators to focus on their core business,” explains Sire. “Often in hotels the F&B is a cost or loss centre. With this sort of relationship, the hotel is guaranteed profit via fees/commissions paid by the F&B operator.”

Stacy Manning, director of sales and marketing for the 224-room Westin Trillium House Blue Mountain, says, Westin chose O&B as their restaurant partner because O&B worked with Westin to incorporate certain Westin brand standards. As well, Toronto, where O&B is headquartered and has a number of popular restaurants, serves as a feeder market for both the hotel and the restaurant.

“The Blue Mountain O&B location has more destination diners, so they pulled items from some of their other locations such as Jump and Canoe because people are often eating there several times in a row and want more selection. They’ve tweaked the destination for the consumer who’s here,” she says.

The O&B name also serves as an attractive draw for Toronto-based group conference traffic.

“It’s a huge sell. They know it, they live it, some of them already dine there twice a week,” explains Manning. “It’s a very positive relationship.”

The hybrid approach: hotel as restaurant franchisee

At the 391-room Four Points by Sheraton in Niagara Falls, director of operations Anthony Lucisano is confident that the approach his property has taken—franchisee or licensee of four well-known foodservice outlets on the premises—was the solution that gives everyone what they want. There is a Starbucks, IHOP, East Side Mario’s and a Ruth’s Chris steakhouse located inside the hotel to provide “control and one-stop shopping” for the diverse range of clientele who visit, says Lucisano.

The hotel has no kitchen but room service is available from IHOP for breakfast, East Side Mario’s for lunch or dinner and from Ruth’s Chris. Starbucks coffee beans are also provided in every room with the coffee maker.

“We chose franchises that were recognized and popular. It’s the trust and credibility,” he says. “If customers have a favourite dish, they know they’ll get it every time. We save by not having a hotel kitchen, but we pay royalties through the franchises. It’s not about savings as much as it is giving our customer what they want.”

Lucisano does not see any negatives with franchises. In fact he says they are actually an amenity for the hotel.

To maintain control over communications between the different concepts and the hotel, there is a weekly meeting with the different restaurants’ general managers. Changes in hours of operation, a monthly special or something exciting going on at one of the food concepts is passed along to the hotel who may communicate it to the customer at check-in, through an in-room directory or email confirmation, or even via reader boards or an easel in the lobby.

Kim Cunningham, director of foodservice, Starbucks Coffee Canada, says that after 20 years or so of focusing on the lodging channel, there are now about 300 hotel properties across the country that use their We Proudly Serve Starbucks program or the Serving the Best, Seattle’s Best coffee program. About 10 properties have a retail location within their hotel. For example, The Delta Bow Valley in Calgary has a Starbucks banquet program, a restaurant program, and a retail store. The Hyatt Vancouver offers Starbucks’ Torrefazione Italia program in-room, and for their banquets, restaurants and the retail store in the lobby.

“One of the things that has given us leadership in the channel is that we consult on solutions from stem to stern. We have a team of coffee experts for quality assurance audits,” she says. “It doesn’t have to be all one roast profile; it’s about offering the guest choice so F&B doesn’t have to think about coffee at all.”

Keeping it in the family

Peter Fowler, CEO and president, SIR Corp. with 12 restaurant concepts, has run a number of restaurants within hotels in his career and has also been approached to build restaurants within hotels. None of SIR Corp.’s restaurants are located within hotels.

“The challenge with operating restaurants within hotels is that hoteliers are looking for a restaurant offering that works for all dayparts across a broad spectrum of guests. However, the same restaurant atmosphere that works for lunch, dinner and late-night tends not to work for breakfast offerings. And breakfast is the least profitable daypart,” explains Fowler.

Furthermore, because the guest base is so broad, hoteliers often request that key parts of the concept be altered, such as turning lights up for older guests who can’t see, turning down the music for business meetings, and/or accommodating families within a lively bar space, he says. All of these aspects are often in conflict with providing a compelling restaurant experience that attracts guests from outside the hotel.

“Successful restaurants in hotels in larger cities such as New York and Toronto [succeed] because they have not tried to satisfy all of the guest base across all the dayparts. Restaurant concepts can be a help to hotels by driving excellent food and a great experience so long as they are not hamstrung by satisfying a broad range of guests,” says Fowler.

Metropolitan Hotels operates Diva at the Met in Vancouver and Senses at the SoHo Metropolitan in Toronto. Metropolitan’s chief operating officer Nancy Munzar Kelly explains that the company’s restaurants have always been operated in house since they opened their first property in Toronto with Lai Wah Heen and Hemisphere’s Bar and Bistro almost 19 years ago. She says that Metropolitan’s restaurant clientele are both travellers and locals.

“Having first class restaurants that are not only a part of the hotel but have a place in the community is important. This community recognition and support takes our restaurants beyond being a ‘hotel restaurant’ to becoming a noteworthy part of the cities and neighbourhoods in which they are located in Toronto and Vancouver,” she says.

“As an independent Canadian hotel chain, we’ve worked hard to set ourselves apart from other hotels. One way that we have done this is through our food and beverage. For us, the advantage of not outsourcing is twofold: it allows us to be local and relevant in the community as well as allows us to have creative freedom.”

One aspect of that creative freedom is a trend that Andrew Higgs is seeing in Europe and increasingly in North America: the pop-up restaurant.

“Because hotels are so vast and capital put into them is so intensive, a lot of planning goes into their design and the space can’t be shifted overnight. Pop-up restaurants offer that versatility. Opus in Vancouver did one and it was wildly successful. By using a space not otherwise being used to drive revenue and by continuing to adapt that space to something new, people are drawn in to check it out,” says Higgs.

The SoHo Metropolitan in Toronto did a series of pop-up dining experiences last fall that were very successful, says Munzar Kelly. During the Toronto International Film Festival in September, Senses Bakery staged a 20-seat dim sum pop-up featuring Lai Wah Heen’s master chef making dim sum on site and in the open. During November, Senses played host to the GwaiLo pop-up that featured a local chef, Nick Liu.

Liquid gold and mini-meals

A few key trends further driving hotel/restaurant profitability is the emergence of beverages as a driver as well as the rise of all-hours mini meals preferred by many younger urban professionals.

Andrew Higgs of HVS has noticed the beverage side of hotels really picking up in urban centres on the West coast.

“There is a lot of potential profit in beverage revenue,” he says. “People are looking for design-oriented spaces, often in newer hotel bars, to go after work or after hours. I didn’t expect to see this happening. Also the way that people are eating now is not traditional. No longer is it a dinner at 6 p.m.

They may have a snack at 3 p.m. or 4 p.m. and a few cocktails later. Hotels are capitalizing on that.”

“Some hotel brands have recognized the changes in eating habits of their target segment, especially lifestyle hotels targeting young professionals 25 to 45,” agrees Forgacs. “This generation eats differently. They eat at odd hours, they may want a grab and go item or may want to work while they eat.

However, they don’t want junk food. They want nutritious, well-presented and creative food and they don’t mind paying for it. It’s not a pizza at midnight. It’s teriyaki glazed salmon with salad wrapped in an organic fajita at 2 a.m. with a no-whip, tall mocha made with soya milk and an extra shot of espresso.”

An article in the Wall Street Journal from April 2012 confirmed that there is an army of sophisticated mobile workers, especially in urban locations, who are abandoning crowded coffee houses and embracing the free WiFi that many downtown hotels are offering in order to create desirable buzz in their lobbies. Once there, many are racking up substantial F&B tabs of high quality food. They say the convenience and the overall ambience is worth the cost.

Put simply, lobby guests are another revenue stream. It’s one more thing to add to the already complex decision making process for hotel/restaurant partnerships.