October, 2004

F&B Makes a Comeback
Believe it or not, some hoteliers make money on foodservice

What is the right role of food and beverage in a hotel? Can it be a profit producer, even though catering is the only segment that probably makes any money? Is it an amenity that just like the swimming pool, few guests use but all expect to be there? Or can it add significant dollars to the bottom line, keep your guests satisfied and prevent them from going off property for meals?

"An increasing number of hotel owners and operators are convinced that f&b should no longer be the black sheep of the lodging industry. Rather, they say, foodservice is worth the effort, both because it is an amenity many guests want and because it can make major contributions to the bottom line. What they don't agree on, however, is the best way to provide profit-producing hotel f&b.

Bob Voelker, for example, is an old-school hotelier who believes foodservice is a perfect match for a property's primary mission to sell rooms. Trained at the Culinary Institute of America as well as the University of Houston hotel school, Voelker was for many years an executive with Stouffer Hotels, the now-defunct brand that was as well known for its innovative food and beverage offerings as anything else.

It's no wonder, then, that Voelker's entrepreneurial venture, Gateway Hospitality Group, relies heavily on innovative foodservice to drive rooms revenues and profits at the four hotels it owns and operates.

Voelker's latest project, which he co-owns with chef Brandt Evans and several other partners, is Blue Canyon Kitchen * Tavern, a freestanding upscale destination restaurant that shares a parking lot with the company's Hilton Garden Inn in the suburbs between Cleveland and Akron. The large (10,000 square feet with nearly 300 seats) Blue Canyon serves a variety of functions in its six dining environments.

Despite his deep culinary roots, Voelker originally hoped to attract a high-profile chain restaurant to the location. The long, narrow site was an issue for some potential tenants, while others didn't believe the community had a sufficient population base to support an upscale concept.

"We're determined to prove them wrong, but to do so we had to make a design statement that is unique enough to attract people's attention," says Voelker. Drawing from the look of his own home, Voelker chose a dramatic log interior with walls of glass, cathedral ceilings, water features and floor-to-ceiling fireplaces. "In addition to making the design statement we wanted, the interior of the restaurant is the logical complement to chef Evans' American cuisine."

Blue Canyon's extensive, reasonably priced menu attracts a lot of local business from a high-growth region of northeast Ohio. It also serves the hotel's primary weekday base of business travelers and small-to medium-sized meetings. (The hotel, as mandated by the brand, has a small lobby restaurant that's mostly used for breakfast service.)

On weekends, the synergy between the hotel and the restaurant kicks into high gear. Voelker believes in a lot of meeting and banquet space, even for a select service product like Hilton Garden Inn. With 12,000 square feet of meeting space, including a ballroom that seats 700, the

property's four-person sales team books a lot of corporate and association business during the week and weddings and other parties on the weekends. Blue Canyon gives the sales staff the ability to sell an alternative food venue to inhouse guests, and the restaurant is a natural to host rehearsal dinners and other pre-wedding functions.

"Blue Canyon also gives us a big edge in selling the hotel to the corporate market," says Voelker. "Groups want alternatives for their food and beverage events, and they're willing to pay higher room rates to stay at properties that offer these options."

Another plus for the restaurant is co-owner/chef Evans, who joined Voelker several years ago to head culinary operations at the company's Hilton Garden Inn and adjoining conference center in downtown Cleveland. Previously, Evans was chef or owner of several of the city's standout restaurants. "Brandt gives the restaurant the power of a name chef, which is particularly significant in attracting locals," says Voelker.

He says Blue Canyon has surpassed all of its early goals, both as a business builder for the Hilton Garden Inn and as a profit-producing freestanding restaurant. In its first few months, Blue Canyon was already grossing about $100,000 in sales per week.

A strong believer in the Hilton Garden Inn brand, Voelker has two more under development: A 142-room property with 14,000 square feet of meeting space in a southern suburb of Dallas and a 147-room hotel and smaller version of Blue Canyon in Missoula, MT. Both properties open next year.

BRANDING WITH CONTROL
Other hoteliers believe branded foodservice is the key to success at a full-service hotel. Not surprisingly, however, there are several ways to implement brand-name foodservice in a lodging property.

A solution that makes sense to hoteliers Gary Williams and Brian Plemmons is to replace their in-house outlets with chain restaurants they franchise and operate. Both chose the mid-scale casual Houlihan's concept for their full-service properties.

For Williams, a veteran hotelier and president of Coakley & Williams Hotel Management Co., franchising was a logical answer.

"I've franchised hotels for many years, so I know the business model works," says Williams, who last month opened a Houlihan's in the company's 16-year-old, 246-room Hilton in Springfield, VA. "We also know we needed to operate the restaurant ourselves. Having a tenant operate the foodservice at a hotel can be a nightmare because the hotel owner and the foodservice operator often have different and sometimes conflicting goals."

Plemmons agrees, which is one reason he obtained a Houlihan's franchise for his company's Wyndham Hotel in Columbus, GA. The firm, Valley Hospitality, purchased the property in late 2002 and did a $4-million renovation that included moving the no-name restaurant from the lobby to space that was formerly a ballroom and has exterior exposure and a separate entrance. The restaurant was converted to a 100-seat Houlihan's as part of the upgrade.

"We never considered leasing the space," he says. "Once you do, you lose control of the operation, which is especially critical if like us you need to serve breakfast and provide roomservice."

Plemmons says the decision changed the hotel's f&b operation from a no-profit outlet that grossed $600,000 a year to a profit-producer with annual sales of $1.8 million. He says the presence of a chain restaurant also helps build occupancy and keep corporate guests in house during meal periods.

PARTNERSHIP OPTION
Grand Heritage Hotels and its president, John Cullen, take a different approach by outsourcing the company's f&b operations to brand-category leaders. He views these companies as his strategic partners, rather than just tenants.

"Since 80 percent or more of hotel f&b is locally driven, it's important to establish a facility with local marketing strength and a local management team," says Cullen, who started the firm in the 1980s, sold it to Wyndham in 1997 and repurchased it last year. Grand Heritage owns and operates 12 independent historic hotels. "On the other hand, we don't want to be dragged down by the problems associated with f&b, so we connect with a series of partners that lease space from us."

At the Providence (RI) Biltmore, for example, the company contracts with Starbucks to operate the coffee shop, McCormick & Schmick as the restaurant lessee and Restaurant Associates to handle catering operations at the 300-room hotel. By year-end, an Elizabeth Arden Red Door Spa will open at the hotel with limited foodservice provided by McCormick & Schmick.

"The leases are triple net rent, which doesn't generate a lot of dollars to us, but the arrangement enables the general manager to redeploy his time and energies to the sales and service engine of the hotel," says Cullen. "Put another way, it reverses the standard rule of thumb in which food and beverage produces 10 percent of a hotel's profit but takes up 90 percent of the GM's time."

Cullen believes another benefit is the brand power these companies bring to the hotel. "It enables us to keep our properties independent, because now instead of them being branded hotel rooms with no-name restaurants, we have locally branded hotels with brand-name restaurants," he says.