Rethinking Profitability in Hotel F&B Operations
Rethinking Profitability in Hotel F&B Operations

In the hospitality industry, there is a notable deficiency in the focus on the profitability of Food and Beverage (F&B) operations within hotels. Often, F&B outlets are not treated as standalone profit centres but rather as components that share overhead costs with the hotel. As a result, many of these outlets struggle to demonstrate profitability on their own merit. Despite hotel brands promoting the incorporation of multiple dining options within their properties, there is scant emphasis on ensuring that these outlets are both profitable and offer unique dining experiences. Typically, these F&B outlets are managed as cost centres, which can negatively impact the overall profitability of hotels. A common industry benchmark is that F&B revenue should ideally account for around 25 percent to 35 percent of total hotel revenue.

To combat these challenges, several solutions have been proposed and successfully implemented in various global markets. One effective strategy is the implementation of centralised kitchens or clustered operations for outlets within the same property or across regional properties. This approach significantly boosts operational efficiency. Another viable option is outsourcing, which not only enhances dining experiences but also helps in cost reduction.

Furthermore, it is crucial for restaurant managers and general managers to operate these outlets as independent profit and loss (P&L) entities, separate from the hotel’s finances. Establishing a distinct brand and market identity for these outlets can substantially aid in driving their profitability.

The effectiveness of these strategies is evident as they have been embraced by successful markets worldwide. The implementation of these strategies requires proactive involvement from property owners and their brand partners. Additionally, at the inception of hotel design—overseen by architects and the technical services team—careful consideration should be given to the necessity and viability of multiple restaurants.

Currently, the base fee and incentive fee in many hotels are calculated on the total revenue and Gross Operating Profit (GOP) respectively, leading to a scenario where room revenues subsidise the operating losses of F&B outlets. This raises a significant question: Should the finances of hotel rooms and F&B operations be separated to ensure better accountability and profitability? This could be the crucial change needed to enhance the financial health of F&B services in hotels, ensuring they are not just supplementary services but profitable entities in their own right.

“We firmly believe that the profitability of F&B operations within hotels stems from a comprehensive approach that emphasises quality at every stage. This commitment involves dedicating ourselves to providing exceptional service, sourcing the finest ingredients, and creating unforgettable dining experiences. By ensuring that our guests receive unparalleled value, we foster both guest satisfaction and loyalty, which are crucial for our success. However, quality extends beyond the food we serve. It includes the ambiance we create, the training and development of our staff, and our dedication to sustainability and local sourcing. These factors not only enrich the guest experience but also boost our operational efficiency and profitability. By focusing on these key elements, we transform each meal into a memorable event, embodying our steadfast standard of hospitality, Director of La Mer Events and Hospitality commented in an interaction.

In many cases, F&B cost controls are either limited or entirely absent in the hospitality industry. Effective controls should encompass every aspect of the operational chain, including procurement, receiving, storage, inventory, and production. Unfortunately, numerous hotels lack these necessary cost controls, while others may allocate food and beverage costs across various outlets and catering services based on revenues. This method often obscures less profitable operations.

It is advisable for hotel owners or general managers to query their chefs and F&B managers about the presence of cost controls across all the aforementioned areas. The absence of a clear understanding of these controls by the F&B manager and chef usually signifies that these controls do not exist, which likely has a detrimental impact on departmental profitability.

“It is recommended that owners or general managers ask their F&B personnel to explain the discrepancies between the actual cost of sales and the theoretical cost of sales for each outlet during each period. The theoretical cost is determined by multiplying itemised sales by the cost of recipes for each menu item. Ideally, the actual cost of sales, which is calculated from the beginning inventory plus purchases minus the ending inventory, should only be one to one-and-a-half points higher than the theoretical cost, accounting for normal waste. A significant deviation from this range indicates a potential control issue within the F&B department that needs further investigation,” Chef Mohit, who has served as executive chef in brands like Hilton and Marriott commented.

Adding to Mohit, Gaurav Shetty, the director at Peninsula Group of Hospitality feels that to sustain and thrive in the competitive hospitality industry, focusing on the profitability of F&B operations is paramount. “It's not just about offering exceptional F&B; it's about optimising every aspect of the operation, from sourcing to service, to ensure each plate contributes positively to the bottom line,” he added.

Labour cost controls are another area often overlooked in hotel F&B departments. If the operation has a schedule that is the same every week, labour costs are not being controlled. Scheduling should consider occupancy projections, hotel activity (if there is a group in the hotel on their own for lunch), events in the area, seasonality, etc.  

“From my experience, the profitability of most hotel F&B departments can be significantly enhanced without increasing menu prices. The key departmental costs to manage are sales and labour. Controlling these costs is equally critical as delivering high-quality food, beverages, and service. By boosting the profitability of the F&B department, you also raise the overall value of the hotel,” Chef Mohit concluded.

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