Coping with Cost of Brand Standards

At the recently concluded HICSA 2024 in Bengaluru, the spotlight for the first day was on the owners. In an interactive session “Solving for Owner Challenges” a group of over 120 owners shared their insights on the present state of the hospitality industry in India and their desired areas of improvement.

A critical aspect of this session is its exclusivity. Unlike other sessions, this one is reserved solely for owners, offering a unique opportunity for owners to openly express their challenges among peers and subject matter experts. Operators, hotel developers, and operational heads are not permitted, ensuring a focused and intimate discussion among fellow owners.

Taking up two such key points, discussed at the Owners Only Workshop, it would be interesting to note Hotelivate’s Take on them.

Brand Standards

The Owners’ Opinion: Brand standards are a contentious issue between owners and operators, marked by a lack of flexibility. Owners find the rigidity troubling, considering the significant capital expenditure involved to meet the brand standards. Many international brand standards don’t align practically with the Indian market context, failing to reflect the local milieu. There’s a need for adaptability in brand standards to suit specific markets. On a contrasting note, despite this rigidity, brand standards are often conveniently bent or altered when it benefits the operator. This inconsistency highlights a misalignment of interests between the two parties. Practical discussions and greater adaptability in brand standards are necessary to resolve this issue.

Hotelivate’s Take: Most brands do need to give this critical issue a serious thought. Either brand standards are sacrosanct, or they are adaptable and flexible. The brands cannot have the best of both worlds, as and when it suits their interests. The present environment does leave a bad taste in the mouths of owners when they witness this opportunistic attitude of many-a-brand. In our opinion, the so-called PIP is badly handled, and some level of practicality needs to be brought in.

Over the past few years and going forward, there will be a lot of conversion opportunities and if brands need to grow, they will need to show greater flexibility. To give credit, IHCL as an Indian brand and Radisson as an international brand have shown this flexibility by creating newer sub-brands and have adopted this approach successfully to be able to convert hotels fast and give that benefit to the owner.

F&B Profitability

The Owners’ Opinion: There’s a noticeable lack of focus on the profitability of F&B operations within hotels. If F&B outlets were viewed as standalone profit centres, with a portion of overhead costs allocated accordingly, many existing outlets would fail to demonstrate profits. Despite brands advocating for multiple outlets within properties, there is limited attention given to ensuring their profitability and crafting unique dining experiences. Instead, these outlets often function as cost centres, diminishing the overall profitability of hotels.

Several solutions are available for brands to address this issue including:

  • Implementing centralised kitchens or clustered operations for outlets within a property, or in some cases, outlets across properties in a region, thereby enhancing operational efficiency.
  • Outsourcing remains an attractive option for hotels, promoting both unique dining experiences and reducing cost.

Additionally, it is imperative for restaurant managers and general managers to treat outlets’ independent P&Ls, as separate from the hotel itself. These outlets should be branded and marketed distinctly, with their own identities in the market, to drive profitability.

Hotelivate’s Take: The suggestions being proposed are not untested, as several successful markets across the globe already adopt these strategies. It is about time all of these strategies were deployed by owners, with the help of their brand partners. In fact, to solve the long-term problem of F&B in hotels, it is recommended that right at the inception stage when hotels are being designed by the architect and the technical services team of hotels, there needs to be careful thought given to see if multiple restaurants are even required. Right now, the base fee and incentive fee are being paid on total revenue and GOP of a hotel, respectively. So basically, the room revenues are subsidising the operating losses of these units, as many hotels’ F&B outlets are failing to drive profitability in these restaurants. The food for thought here is that should it be separated?

During the session, a variety of crucial topics were explored and debated. These discussions touched upon essential aspects of the industry, including emerging trends, innovative strategies, and challenges facing hotel owners.

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