Profitability and success factors for hotel restaurant operations

Restaurants in Hotels

The restaurant business is a tough one, and the going can be even tougher for those located in hotels. This paper describes the pros and cons of operating a restaurant in a hotel. It then explains the chances of growth and profitability and makes recommendations for the types of restaurants and operations that are more likely to achieve success.

There are several benefits of having a restaurant in a hotel (Ursin, 1999). The first is having a built-in business from the hotel's guests. The restaurant may also be able to handle the hotel's room service and banquet business to drive extra revenue. A restaurant can often share kitchen facilities and banquet rooms with the hotel's food-and-beverage operation and may be able to derive discounts by ordering some of its supplies in conjunction with the hotel. Further, a restaurant can benefit from things such as a hotel's central reservation system, advertisements in the guest rooms, and joint promotional events.

Despite the advantages of having a restaurant in a hotel, there are plenty of disadvantages (Ursin, 1999). The usual arrangement for obtaining space from a hotel involves leasing and handing over a percentage of profits. Differences in style between a restaurant operator used to being an entrepreneur and hotel management used to a more corporate structure can lead to a strained relationship. And, hotel management frequently changes, causing greater probability for conflict over time.

Good restaurant space should be visible to both hotel guests and the public with a lot of foot traffic passing by, but this isn't always the case. Often, space is hidden down a corridor where even hotel guests often have a difficult time finding it.

The growth and profit potential for a restaurant in a hotel is usually small and the risk is high. Because of their historically low profit margins, restaurants in hotels generally are the "bane of the existence of the hotel manager" (Walker, 1997). This is the reason why so many hotels are turning to outsourcing their restaurant operations to pass on their headache to someone else. With most hotel/restaurant combinations, the hotel typically has a seventy percent profit margin; the restaurant's margin is closer to only ten percent (Walker, 1997). One large impediment to profitability is that most hotel guests eat breakfast at their hotel, some eat lunch at their hotel, very few eat dinner at the hotel where they are staying (Schonwalder, 2002).