While the flow-through from revenue to profit in the food & beverage department is on average between 30%-40% for rooms it is 80%-90% and that is due to the higher variable cost in F&B versus rooms.

To sell another room you have to pay utilities, amenities and room cleaning equipment – all relatively low cost items, but to sell another meal you have to buy the raw items to produce the meal and that is just more expensive.

With increasing labor and food cost it has led to an increase in outsourced F&B Operations from 20%-30% ten years ago to 40%-50% now (with regional variations due to lower labor cost in some parts of the world).

But Outsourcing does not come without risk like misalignment with your brand message, loss of control over quality & standards, dependency on third-party operators, coordination challenges and loss of customer data.

Operating your own outlets can be beneficial not only from a brand messaging perspective, but also financially rewarding if Food & Beverage revenue management is applied. I like to define F&B Revenue Management as a process to optimize revenues and profitability of all food & beverage outlets by effectively managing pricing, inventory and demand while enhancing the customer experience.

There are many factors that impact the financial return, but in average one can expect between 5%-15% incremental revenue and these numbers do not include the increase in repeat customers.

To successfully apply F&B RM there should be a collaboration between the revenue management expert and F&B Operations. While the RM expert can provide the necessary trend analysis (demand by hour by day, demand by item, profit margin by item, correlation between food and beverage items ordered), F&B Operations can provide the necessary context and then work together to come up with a revenue enhancement strategy.

For example by understanding the profit margins by item suggestive selling techniques could be deployed to guide guest towards higher profit margin items or by understanding the correlation between food & beverage items ordered, high profit beverage items can be strategically suggested. This would involve a lot of training of the service staff and maybe considering an incentive scheme, but would result in an increase in profitability and customer satisfaction.

For me being a revenue management expert for a long time dynamic pricing comes almost naturally, but I also understand that there is still a reluctance in F&B to apply dynamic pricing. Considering the history of dynamic pricing I would guess it is just a matter of time before it will apply to F&B as well. If you recall how revenue management started in the airline industry before 1971 all prices for airline tickets were fixed and government regulated, now pricing for seats is dynamic as it can be.

Similarly in the hospitality industry rooms prices were very much fixed and then started to vary by season and by Day of Week and now there are some revenue management systems, which are able to change the price multiple times per hour and customers got completely used to it.

Why would that be different in F&B? As the industry still lacks automated systems to dynamically adjust the price of menu items according to forecasted demand, maybe the starting point could be a weekday menu and a weekend menu or what I have implemented at buffet restaurant in the past, a price by seating session (lower price starting from the beginning, increased price during the peak lunch time and lower again for the late seating).

There are many ways to apply food & beverage revenue management resulting in improved profits and an increase in customer satisfaction. If you need help with the implementation please check out the F&B Revenue Management implementation package or reach out to info@wolfcommercialconsulting.com

Stefan Wolf
Managing Director - Wolf Commercial Consulting

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