F&B revenues, profits on the rise
30 NOVEMBER 2015 9:26 AM
In STR Analytics’ most recent crop of data, analysts examine the apparent rise of F&B revenues in the hotel industry.
BROOMFIELD, Colorado—Hotel food-and-beverage operations have been increasingly profitable in recent years. However, successful hotel F&B operations can be difficult to replicate due to market-to-market differences, site differences and differences in guest preferences, among others.
STR Analytics, sister company of Hotel News Now, looked for what similarities may exist by examining the most successful F&B operations. To do this, we used HOST data for the top performing F&B operations, in terms of F&B profit margin. First, we examined all the full-service hotels that reported 2014 data. We mapped F&B revenues (ratio-to-sales) and F&B department profit for all of these hotels below.
By simply adding a trend line, it is easy to see that larger F&B operations are more profitable. In general, we see that hotels that have a greater percentage of revenues come from the F&B department also generate higher profit margins within the F&B department. The largest of F&B operations approach 50% of total revenues for the hotel. The chart also illustrates that F&B profitability seems to peak at 45%. Only a small percentage of hotels were able to achieve higher F&B profitability than 45%.
Most profitable F&B operations
After examining all full-service hotels, we wanted to examine the top F&B operations. We pulled custom HOST reports for the top 10% of hotels in terms of F&B profit margin. We compared these hotels to the other 90% of full-service hotels below.
Click chart to enlarge.
Click chart to enlarge.
The top 10% of F&B operations are largely group-focused hotels with a significant amount of meeting space, and sizable banquet and catering operations. The majority were also larger in room count and upper upscale in class. Interestingly, in comparing the two sets, the top F&B hotels actually had lower average room rates.
In examining F&B expenses, we found that the top F&B operations have lower margins for all the detailed F&B expense categories. However, if we look at the actual expenses in dollars per available room, we see that the most profitable F&B operations actually spent more on the cost of food per available room, as well as per occupied roomnight.
F&B revenue and profit trends
In recent years, F&B revenues and profits have increased significantly. Data from a five-year custom HOST report illustrates the trend in revenues below.
The chart shows revenue growth for a same-store set of more than 900 full-service hotels. In 2009, F&B revenues decreased, in terms of percentage change, nearly identically to rooms revenues. However, we can see that F&B revenues have been much slower to recover than rooms revenues since that time. Other F&B revenues have been particularly slow to recover. Other F&B revenues include primarily meeting space rental revenue, audiovisual rental and services revenue, and F&B service charges. These revenues are highly reliant on group business, which we know has been the slowest demand segment to recover. Similar to group business, we see that Other F&B revenues grew particularly strongly in 2013 and 2014.
The 10-year trend of F&B profit margin for these hotels is illustrated in the chart below.
As the chart indicates, F&B profit margin has continued to increase the past the several years. In 2014, the profit margin finally fully recovered back to pre-recession levels. This profit margin should continue to increase in 2015, as we have seen more group demand this year than for the same period last year.
The outlook for hotel F&B operations is optimistic. F&B revenue growth has accelerated the past three years. Group business is finally back to pre-recession levels. Occupancies are at historic levels and growing, and little new supply is in the pipeline for large, full-service, meeting hotels. As such, expect hotel F&B rates to continue to rise in the near term along with F&B revenues and profits.