Is F&B outsourcing  on its way out?

Is F&B outsourcing on its way out?

Ralph Nader, CEO of Amber Consulting, charts the growing trend among hotel owners to take back their F&B offering inhouse and highlights the benefits of doing so, which include regaining control in key areas and opportunities to increase profits.

For most hotel owners, outsourcing F&B operations was traditionally a no brainer. Given the high level of expertise required and the low profit margin associated with the F&B industry, the advantages of outsourcing far outweighed the benefits of putting in the work to create a homegrown concept. Retaining the services of an F&B operator meant that hotel operators could focus on other outlets and services, while leaving the hassle of F&B capital expenditure and payroll to successful regional and international brands with exceptional free-standing concepts. However, times and trends are changing worldwide, including in the Middle East, as our research shows.

The outsourcing vs. inhouse F&B question is particularly important to industry players in the Middle East, given that revenues from hotel restaurants in the region have always made up a larger portion of hotel income compared to their counterparts in the US and Europe. Back in 2014, STR Global reported that hotel F&B in the region totaled 37 percent of hotel revenue, with an estimated 5-10 percent growth annually, compared to the approximate hotel F&B revenue of 25 percent globally. Today, in the post-pandemic era, the Middle East’s growth is at a nascent stage, with F&B revenues its strong suit, as Marriott’s CFO pointed out in 2021 in an interview.

A change of tack
A shift is underway in the strategic approach being adopted by hotel owners, from an automatic outsourcing tactic to a more calculated decision, weighing both in-house and outsourcing options. Against this backdrop, there is also a rising awareness that in-house F&B operations can help to drive hotel revenue growth.
The benefits of outsourcing are well known and well documented, studied extensively over the years by industry experts. Increasing the bottom line with minimum effort, while making
the maximum potential profit from a recognized regional or international F&B brand, was almost always the preferred scenario and understandable, since potential profit wasn’t adding up to a worthwhile total for hotel investors. However, several factors are now generating a shift in strategic approach:

  • Restaurants have begun to prove profitable in recent years, as attested by the surge in F&B management companies now capitalizing on opportunities. The F&B industry emerged a star performer from the pandemic, as demonstrated by the countless innovations on the F&B scene, from food delivery and home-cooked meals to several revitalized and adapted concepts.
  • Consumer trends have been increasingly shifting toward experiential outlets. This includes omnichannel and immersive experiences, with augmented reality (AR) and hyper-personalization now added to the mix.
  • Competition in the hotel industry is still increasing, bringing with it an urgency around the need for differentiation. F&B segments hold the key to enhancing a hotel’s value proposition.
  • Having noted how well restaurants performed during tough economic times, hotel owners are reconsidering their strategies for F&B, and increasingly deciding to make them an essential component rather than an ancillary or additional one. Significantly, they are also now viewing them more and more as a customer acquisition channel in their own right.
  • The question hotel owners are asking is: why outsource, when I can keep my operations inhouse and put extra effort into building a more coherent and more differentiated hotel brand identity through F&B offerings?

Driving hotel revenues from inhouse F&B The main disadvantage of outsourcing
F&B was the limited involvement it gave hotels in the area. Owners traditionally lost control of product quality and felt excluded from influencing strategic decisions and creative involvement and marketing – disadvantages that sometimes proved to be significant and were
often underestimated. In fact, keeping operations inhouse can allow hotel owners to increase their RevPaR in several ways, including:

  • Collecting F&B data: F&B data is crucial to obtain an exhaustive figure of guest spending. Limited involvement in F&B means less data is being shared with hotel stakeholders. A business needs a complete picture of its customers’ activities to use it to its advantage. Only then can it make tweaks to the customer journey and introduce key adjustments through its marketing channels.
  • Maintaining and harnessing the advantages of creative control: as the region enters a period of post-pandemic growth, it is important to recognize
    that expansion is synonymous with change. Businesses will need to continue navigating uncertainty and respond swiftly to changing consumer needs and trends. Keeping their F&B operations inhouse will allow them flexibility when it comes to adapting their offerings without clashing with a third-party strategy that they might not agree with.
  • Offering guests a seamless experience: retaining the services of an international F&B brand can undoubtedly bring with it prestige by association. However, coming up with innovative and unique concepts creates a power balance and can also give stature to the owner of the original idea when smartly executed. When outsourcing, space is usually rented to the operator, thereby restricting dining in an area of the hotel. Transforming corners of a hotel into F&B spaces can prove to be a more efficient strategy, creating a smooth and uninterrupted experience for the guest, while also increasing F&B spending. Bringing these ideas to fruition is easier to do internally, since franchises and full-grown brands already have well-defined offerings, with little or no room for flexibility unless they make changes to their brand identity. Adopting this strategy also paves the way to develop group sales as an additional revenue stream, such as corporate or personal events. These are key elements in upscale hotels and, for planners who are choosing between event spaces that are similar in terms of location and price, F&B can easily become the deciding factor.

Weigh the pros and cons
Opting to keep F&B operations inhouse is far from challenge free for hotel owners, with lack of expertise an area of weakness that often caused problems in the industry. Decisions need to be made carefully
and should be determined by each individual hotel’s specific business needs, taking account of the broader economic situation. Longer-term objectives should be reconciled with the hotel’s short-term needs, with any moves made well calculated rather than based solely on profitability. However, there’s no doubt that by taking responsibility for this area of the business, hotels have the opportunity to create exciting alternative experiences for their guests and meet demand for something different, while unleashing F&B’s potential as a profit center.

Ralph Nader
Amber Consulting
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