Consumer Psychology Plays Role in Pricing Hotel Food and Beverage

Hotel guests’ expectations for food-and-beverage offerings have risen with the record-high average daily rates across the country. But meeting those expectations amid staffing issues is no piece of cake.

Panelists on a session titled “Profitable F&B? Sounds Delicious!” at the 2022 Hotel Data Conference spoke about the shift in dining and drinking trends over the past year and how they’re adjusting to higher guest expectations.

Food-and-beverage directors are working more closely with revenue management specialists to ensure menu items are priced at the most profitable rate.

While most hotel restaurants aren’t pushing dynamic pricing quite yet, data being collected at least weekly is helping inform directors when to change the menus, said Steve Palmer, founder of The Indigo Road Hospitality Group. Flexibility has allowed the company to operate currently at its lowest food costs, he said.

The shift in daily thinking based on room rates and raised expectations has forced food-and-beverage directors to think outside the box to deliver on the experiences coveted by guests, Guido Salvatori, senior director of integrations at Duetto, said. Tying all the data together can be a challenge, though.

“How to take this data and make sense of it and now start to be able to adjust the pricing and be able to incorporate it into your overall strategy, it’s difficult,” he said.

Steve Palmer of The Indigo Road Hospitality (left) and Richard Garcia of Remington Hotels (right) speak during the “Profitable F&B? Sounds Delicious!” panel at the 2022 Hotel Data Conference. (Cost)

Richard Garcia, senior vice president of food and beverage at Remington Hotels, said his staff combs through its budget every day to stay on top of costs. The biggest surprise in the data is not the cost of meat and seafood, but the rise in prices of common goods such as flour and sugar.

“If you’re not paying attention to those basic commodities, I would highly suggest you do,” he said.

Although higher room rates have increased guest expectations, they also provide an opportunity to push the ceiling on high-priced menu items, he said. A guest staying at a hotel with a high room rate will likely be able to afford to spend more on an expensive dinner.

Palmer agreed that there is little resistance to pricing at Indigo Road’s steakhouses, but they’ve had to pull some items off the menu at its seafood restaurants because of high prices — not because the customer wouldn’t pay for it, but because they wanted to stay “virtuous in that way to our guests.”

“We’ve had to make some changes. There’s things that at some point, we just don’t feel good about charging a certain price for something,” he said.

Consumer psychology plays a big role in the pricing strategy, he said. When considering pricing and service, there is one litmus test for Palmer.

“There’s one question you have to ask yourself: Are they going to come back? If they’re not going to come back, it doesn’t matter what you charged them for their steak; it doesn’t matter how right you thought you were. … We do an enormous amount of listening,” he said.

The food-and-beverage industry is not immune to the staffing issues the rest of the hospitality industry faces. The solution, however, is the same — prioritize retention.

“I keep telling our team, ‘We’re not going to be recruitment experts, so let’s be retention enthusiasts,'” Palmer said. “We know that our best employees come from within.”

As a culture-driven company, Palmer said hospitality has to come for the employee before the guest so they can relay a positive experience. Building a solid culture coupled with the opportunity to grow is a real selling point for prospective workers, he said.

Indigo Road has a task force of general managers and chefs who travel to different locations to fill holes when needed. Even with the staffing issues, Palmer said “it needs to be harder to get a job with us.”

“We know that a bad hire will cost your culture, not even the cost of the dollars involved, but it’s the emotional toil and it’s the message you’re sending. When we talk about high standards, holding people accountable — how we treat each other is the most important thing,” he said. “When we make a bad hire and all of that is not true, but we’re holding onto that person because, ‘Oh my god, we’re short of staff,’ then you’re just a corporate bobblehead, and you’ you’re not living your values.”

Don Brookshire, director of food and beverage at The Joseph, a Luxury Collection hotel in Nashville, said the labor demand has led to cook wages nearly doubling over the past year while the skill level has declined. The Joseph has implemented weekly check-ins and meetings to fully embrace its employees and retain the current staff.

“Employee benefits, employee culture, all of those things you have learned to take care of — protecting our people is the No. 1 asset right now,” he said.

Maintaining the same level of service to guests who are paying more for rates, thus increasing their expectations, is a challenge. Garcia said Remington’s solution was to stray away from hiring high-priced chefs.

Remington shifted its hiring strategy and started targeting kitchen managers from chain restaurants to run its kitchens. I said they have 40 hotels following that strategy today, with some of them employing only cooks but no chefs.

“They really understand how to manage finances. They’re not the most creative, but the reality is, between myself, my VP of food and beverage, and our area food-and-beverage directors, we have the creativity to be able to create experiences. We need people to manage that,” he said.

Driving revenue from banquets and catering has been a struggle for hotels since the onset of the pandemic, in part due to the slow recovery of business transient demand. But as that segment returns, Salvatori said hoteliers now face a tough decision — prioritizing business or group travelers.

It’s easy to accept business travelers for the rates and catering perspective, but banquet events such as weddings are driven by group travelers who are used to lower rates, he said. There needs to be a balance between the two to protect the long-term vision of business travel while taking into consideration the potential of group travel.

Garcia said Remington’s hotels are nearly at 50/50 between restaurant revenue and banquet-and-catering revenue, a gap that has closed drastically in favor of the latter over the past seven months. The goal is for banquets and catering to drive food-and-beverage revenue and then in part investing that into the restaurants, he said.

Since the start of the pandemic, Brookshire said group guests at his Nashville hotel have been more inclined to stay within the confines of the hotel rather than testing the waters of the nearby Broadway entertainment thoroughfare. “They don’t want to leave their bubble,” I said. “They’re happy to come here, but they’re afraid to leave the hotel.”

Instead, The Joseph’s catering attempts to bring Broadway to guests by providing a whiskey kitchen and tableside offerings while putting on live music and demonstrations like line dancing.

Group dining has come back especially in destination markets, Palmer said. Indigo Road has provided interactive cooking classes like pasta-making classes that guests have embraced.

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