Comment: Myth busting the topic of F&B in hotels

Stefan Breg probes the hotel operator-owner relationship

Stef Breg
ITP Consumer Publishing Ltd
Stef Breg

The trade press frequently carries stories describing how hotel F&B cannot compete with free standing operators. The stories also describe the growth in the leasing of hotel F&B space to third parties by seemingly disgruntled owners.

We set about interviewing the people at the sharp end; hotel owners and operators, to delve deep into these hot topics. We also walked the streets of Dubai to determine exactly how big the leasing of hotel F&B space had become. Even we were surprised by the results.

We asked hotel owners questions including:
Does your hotel operator compete adequately with free standing restaurants?
Do hotel operators market their F&B as effectively as say, the Entertainer and Cobone?
How many of your F&B sites will you lease in the future?

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The answers from owners were broad, varying from total satisfaction to a complete lack of confidence; ‘I would lease every unit I could’ was one response. In terms of marketing, there was a widespread view that hotels were being ineffective; hotel room marketers were being tasked with marketing F&B; discounting seemed the only tactic; concepts, names & design were weak.

Our operator interviews described scenarios where a number of F&B venues were identified by operators to be in need of investment but requests for capital were frequently rejected by owners. Operators frequently described their owner-representative relationship as being at times, adversarial and predominantly budget-focused.

One common feature in our interviews was a perceived mis-alignment of current vs. future state outlooks; owners wanted results and change now; operators seemed to be focused on pipeline developments.

Our research on the Dubai F&B leasing situation was revealing. We looked at all the hotels in what is often called ‘new’ Dubai which comprised approximately 100 hotels and more than 500 F&B venues. We found that more than one in five F&B venues are outsourced i.e. leased to a third party or an operator-run franchise.

More than half of the leased venues had opened in the last two years illustrating a greater drive by owners to introduce leasing; an increased trend which probably started three to four years ago due to the average length of a hotel-build.

This new strategy by owners to develop their hotel F&B mix would presumably be based on bringing concepts and operators from outside the market i.e. with an offer different to the hotel operator. As it turns out, these leases were nearly always to firms based in Dubai with bespoke concepts which seems contradictory to the strategy of bringing in well-known names and outside operators to these leased locations.

We also looked at the relative success of the leased F&B venues realising our limitations that we would not be able to do that unless we had financial data on all of the 500+ venues. TripAdvisor provided a good barometer of at least the level of interest generated by the leased units; they registered twice as many reviews as unleased.  In terms of quality, leased venues had twice as many positive reviews than hotel-operated venues. Another interesting paradox was that leased venues also generated twice as many negative reviews as hotel-operated venues blowing the myth that leasing of F&B is the universal panacea described by some trade press contributors.

Times are tough. One prevailing impression we had during the interviews was that win-win was not front-of mind for both owners and operators. The only exception was the one owner’s rep with a strikingly positive view of his operators; this company has what is arguably, the most successful portfolio of both hotel and non-hotel F&B in the city. That, in itself, blows the myth that hotel F&B cannot compete.

Stefan Breg is the group strategy director at KEANE, an F&B strategy and design company established in Dubai for over 15 years with studios in London Bangkok and Florida.

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