End of Hotel Room and Restaurant Parity: Budget Hotels Missing a Trick in Foodservice Offerings

There has always been an unwritten rule amongst many industry insiders that the performance of the hotel bar or restaurant is closely linked with the performance of the rest of the hotel. Since the financial crisis hit the global hotel industry hard in 2008, however, more attention has been paid to the foodservice side of things. Utilising Euromonitor International’s Travel and Consumer Foodservice data, this article investigates the changing relationship between hotel room sales and hotel foodservice sales, and shows that budget and mid-market hotels are missing a trick when catering for changing traveller demands.

Increasing importance of food and beverages

There has been much talk about the increasing importance of food and beverage sales for hotels, as the revenues of hotel room sales slumped after the global economic crisis. Food is taking a more important role in popular culture, with social media being used to channel the inner foodie, and the number of cooking programmes – with celebrity chefs and amateur cooks alike – seemingly ever increasing. Similarly, there have been clear trends towards premiumisation in the alcoholic drinks industry, with the craft movement close to reaching its peak after almost a decade of astronomical growth.

AccorHotels provided the clearest indication of the importance of food and beverages when it appointed Amir Nahai as CEO Food and Beverages at the end of 2015 to improve earning potential and margins. Marriott acknowledged the importance of a local and authentic food offering through the launch of Marriott Canvas, offering local food entrepreneurs underused spaces in hotels to sell their products. And companies like GrubHub and Deliveroo provide hotel restaurants with an interesting new distribution channel: home delivery.

Combined data from Euromonitor International’s Travel and Consumer Foodservice systems show that, since 2009, the number of foodservice outlets globally has increased faster than the number of hotel outlets. This is an indication that hotels are increasingly opening restaurants and bars to compensate for reductions in average daily room rates due to the 2008 financial crisis.

Hotel Outlets vs Hotel Foodservice Outlets: Actuals and Y-o-Y Growth over 2009-2015

<span class=TextHighLight>hotel</span> vs cfs outlets

Source: Euromonitor International

Hotel/foodservice correlation not clear cut

Although the number of foodservice outlets in hotels has grown stronger than the number of hotels, when looking at value sales, it is clear that hotel room sales outperformed hotel foodservice sales over the review period. The growth rates (orange and blue lines in below graph) clearly show a correlation between room sales and foodservice sales, but also that the general trend is for room sales to increase faster year-on-year than foodservice sales. So, although there might be individual hotels that are benefiting from strong growth in food and beverages, overall hotel room sales are registering stronger growth than foodservice.

Interestingly, there seems to be a threshold for food and beverage sales. The blue and orange dots in the graph below show that especially North America, Latin America and Asia Pacific registered strong growth in hotel room sales over the review period (with Western Europe fluctuating), but foodservice growth was much flatter. In regions where lodging spending increases faster, the difference between rooms and foodservice increases. As the red lines in the graph show, foodservice is never more than 34.2% of hotel sales, and the ratio decreases as hotel room sales increase. This is interesting because it indicates that an increase in hotel room sales does not necessarily result in similar increases in foodservice sales.

Hotel Room Sales vs Hotel Foodservice Sales: Actuals and Y-o-Y Growth over 2009-2015

TT vs CFS value v2

Source: Euromonitor International

Budget hotels popular in emerging markets

An important reason for the failure of foodservice to keep up with the growth of hotel room sales in fast-growing regions is the strong growth of budget hotels. Foodservice outlets which perform strongly and have high average spending per transaction are mainly present in luxury and mid-market hotels, but emerging hotel markets like Asia Pacific and Latin America are seeing a strong appetite for budget hotels.

Outlets by Selected Regions and Price Platform: 2009-2015

outlets by selected regions and price platform 2009 2015

Source: Euromonitor International

Budget hotels are channelling travellers’ search for value for money, and are an attractive offering for business and leisure travellers alike who have become more value-conscious since the financial crisis. However, with full-service restaurants (not located in hotels) showing consistently higher growth than hotel foodservice over the review period, budget and mid-market hotels are clearly missing a trick. Spending priorities are changing, but unwillingness to spend money on a luxury hotel stay does not mean an inability to spend on a high-end meal.

Just because a hotel offers budget hotel rooms does not mean that it should align its hotel restaurant to these standards, or have no restaurant at all. Hotel management should view foodservice as a separate entity from their core business, in an effort to keep guests in their hotel and attract more locals to their restaurants. Currently, budget hotels do not necessarily have the best reputation for quality food offerings, but while people are looking for a cheap hotel stay, the trend points at an increasing willingness to spend on quality food. Hotels can and should cater to this, taking into account the local market, and let go of the idea that the quality of their rooms and restaurants should be at par.