Why is hotel food so expensive?

Lately, there has been a lot of chatter in the blogosphere about government excess and the $16 muffins and $8 cups of coffee that the Department of Justice had at a couple of their events (Here is the article that touched it off). Mind you, the article leaves out a lot of details behind the numbers and, instead, focuses on the particular items that are sure to fire people up. After all, they need an attention-grabbing piece to sell the news and including the details explaining how those figures came to be would have turned off most readers. The Meeting Professionals International (MPI) blog posted a response to it here, so I won’t go into that particular issue.

However, I have heard complaints for many years – from conference attendees and funders, mostly – about how expensive hotel food is. It certainly seems that way. $8/person for a coffee break, $22/person for a lunch, $34/person for dinner – you can certainly eat quite well as an individual at those prices, especially when you find out that these prices are “plus-plus”. Let’s examine each of these examples one by one. I’ll start with dinner, since that is the one most often referenced in conversations on this topic.

Dinner, at a hotel, typically includes a soup and/or salad, bread, the entrée (with sides), dessert, and coffee service. All of that is included in the $34/person. Now it isn’t fair to compare this to a fast food joint, like McDonald’s or Carl’s Jr. The two types of meal service aren’t even close. Meals served at conferences are more like eating at a restaurant – and a moderately nice one at that. If I were to get the same menu items at a middle-of-the-road restaurant in the same city as my conference, the prices (before tax and tip) might break down like this:

• Soup (or Salad): $5
• Bread: usually included for free
• Chicken Entrée: $16
• Dessert: $7
• Coffee or Tea: $3

Add that all up and you have…$31. Suddenly, the hotel’s pricing does not seem so out of line as it did before, does it? Yes, it is still a bit higher, but it is not shockingly so, which is what most people react to.

Lunch is very similar to dinner. For a restaurant lunch comparable to what a hotel might serve, you’re looking at prices something along these lines:

• Soup (or Salad): $4
• Bread: usually included for free
• Sandwich Entrée: $10
• Dessert: $5
• Coffee or Tea: $2

The total for a similar lunch at a restaurant is…$21? Yep, we’ve saved an entire dollar compared to the hotel’s pricing. Not much of a difference there…

Finally, let’s look at the $8 coffee. Yes, I know I said I wasn’t going to into it here but this is the one that seems to generate the most ire from certain folks and it is one area where your local coffee shop is way below the prices charged by hotels. Let’s look at in more detail…at $8/person for coffee service, what do you get? You get coffee service for a fixed amount of time (usually 1/2 hour), during which your attendees can pretty much drink as much coffee or tea as they want. How many of them do you think have just one cup?

When I order “in bulk” for coffee (to save money), I know that one gallon will give me 16-20 cups, depending on the size of the cups used by the hotel (see this post for more details). Will I order one gallon, then, for a group of 20 people? Probably not. I will want to have some extra available in case they drink more than I anticipated, even if this results in leftover coffee that no one drinks.

When ordering a break package, such as coffee service billed “per person” instead of by the gallon, the same principle is at work. The hotel does not want to run out of coffee (it makes them look bad), so they need to prepare more than they think people will drink. Plus, coffee service includes tea and decaf. The hotel needs to make sure that there is enough for people with those preferences as well. Your corner coffee shop (even Starbucks) can make coffee one gallon at a time and still promptly serve their customers. A hotel, trying to serve coffee to several hundred people all at the same time, must make much larger batches.

The upshot of all of this is that there is the potential for considerable leftovers (aka “waste”) with coffee service. Since the hotel must, at least, cover costs for providing it, they must take that into account – which results in higher prices. Even your corner coffee shop does this; their level of “lost product” is simply much smaller. In fact, every business that serves food must take wastage into account with their pricing or they will quickly be out of business. That’s basic economics.

So, does this mean that hotel food in not expensive? No, it’s still pricy – and I still think it’s expensive when I compare it to preparing a meal at home. However, when I compare it to eating out, I find that the prices are not too far off from what I would pay in a restaurant. Restaurants and hotel both need to cover not just the cost of the food, but also the costs of rent, equipment, staff wages, maintenance, and a myriad of other expenses that go into providing a service to the public – which means that it will always be more expensive than what it costs me to make the same dishes at home (assuming I even know how to make and have the time to make said dishes…).

So, the next time you hear a complaint about how expensive hotel food is, look at similar options before joining the chorus. You might find that the claims are right on track – or a bit overblown…

~ Karl Baur, CMP • Project Director, RDL enterprises

Financial Goals and Funding Categories for Events

Generally speaking, there are three types of meetings when viewed from a fiscal standpoint: Revenue Generator, Break-Even, and Underwritten.

• A Revenue Generator is a meeting in which the primary goal is to make money and to have your income for the event exceed its expenses – the more you exceed expenses, the better. While other goals may also be pursued for the event, the main focus is on ending the event with significantly more money than it cost to put it on. 

• A Break-Even event is often confused with a Revenue Generator but they are not really the same thing; the main difference is in scale. Yes, income is still important for a Break-Even event but, once expenses are covered, more income is not necessarily desired or desirable. The basic goal here (and what sets it apart from a Revenue Generator) is to have income match expenses, with perhaps a little extra left over to use as seed money for the next event. The event should pay for itself.

• An Underwritten event is one in which there is no expectation of turning a profit. The agency or organization hosting the event is not concerned with showing a profit or even necessarily recouping costs. You simply have a budget for the event and, so long as you don’t exceed budget, you’re in good shape.

Funding for any of these types can come from one or more of three categories of sources: internal, external, and self-supporting.

• Internal funding is also known as organizational funding and is most common with Underwritten events such as trainings or business retreats.

• External funding is derived primarily from sponsorships. The group hosting the event looks outside their own organization for the money to put on the event.

• A Self-Supporting event is one in which the money to cover costs is raised from sales of registrations, exhibit space, etc.

While it is nice to be able to say a particular meeting is funded a certain way, most events use a combination of funding streams to reach their fiscal goals. And, as a planner, I find this to be both useful and interesting information to know about a client and their event: what are their financial goals for their event and where is the money coming from to pay for it? Each approach has its own strengths and weaknesses – knowing the group’s goals and funding allows me to better focus my efforts to effectively aid them in creating a successful conference.

~ Karl Baur, CMP • Project Director, RDL enterprises

Ed. Note: For more information about calculating break-even points, check out these posts: Calculating Break-Even and An Example of Break-Even Calculation

Offering Gratuities to Hotel Staff After the Conclusion of the Event

It is great when you have enough money in your budget to offer additional gratuities after a conference to reward those who went above and beyond the call of duty in support of your event. So how does one go about doing that, short of walking around with an envelope full of cash...?

If you wish to present gratuities to staff at a hotel for exemplary service, I would recommend creating a list of those individuals that you want to recognize with cash payments (gratuities). From there, you can start plugging in dollar amounts. Alternately, you decide on a total that you are willing/can afford to pay and start giving it to various people until you run out. The more someone did for you and/or the group, the more they would receive. The whole process is a back and forth kind of affair as you adjust the list of names, the amounts they get, and the total you are disbursing until you reach a final list you are comfortable with.

Typically, the CSM gets the largest amount, followed by banquet captains or other "dedicated" staff at the hotel, depending on their role in supporting the event. I will sometimes include servers or other line staff if they really went "above and beyond" in their service - though, as often as not, a letter to the General Manager acknowledging their work and expressing thanks serves a more valuable role for them. Only in extreme instances do I include bellmen or anyone else who would have received a cash gratuity on the spot for their services. In any case, my list of folks who received gratuities after the fact is rarely more than six to ten people.

Though various service industries often try to set “recommended” gratuity rates, remember that gratuities here are a reward for service “above and beyond”, not just for good service – and there really is no one right amount to give if you are presenting gratuities. Do what feels right (and is within your budget).

When you have your list finalized, you send a check to the hotel for the total amount along with a list spelling out who gets how much of that total. The list and check typically go to the CSM, though sometimes they will go to someone else instead – confirm who should get them before sending.

~ Karl Baur, CMP • Project Director, RDL enterprises

An Update on What is Happening in the Hotel Industry and How it Affects Meeting Planners

An article in the Oct. 11, 2010, edition of Business Travel News (posted online October 15th) warns meeting planners to expect more difficult negotiations in 2011. According to the author, attrition clauses, demands for room cut-off dates, and deposits will become much less negotiable and planners should be prepared for this new trend. The article goes on to say that planners can still expect to negotiate freely for food and beverage credits, room upgrades, and waivers on resort fees and parking. This is helpful to know as we begin moving forward in sending out RFP’s and negotiating for sites for future meetings.

We have all been reading room rates are rising. One source for the article predicts that we could see anywhere from a 7 – 11 percent increase in room rates. Others have projected a 5 percent increase. I think we have all been expecting this increase and have just been waiting. This can be interpreted as an optimistic move on the part of the hotel industry. We also are encouraged to watch out for the hidden fees such as occupancy tax, resort fees, etc. Some properties have increased those fees in order to keep their rack rate low, yet still raise their bottom line.

The one thing not taken into account is the issue of Video Conferencing. Everyone pays lip service to this type of meeting as it a method of cutting travel and lodging costs. The question is how will this affect the bottom line in the hotel industry? Are they gearing up for meetings that include this component? If not, they need to be developing marketing strategies to the planners with ways for attendees to be video conferenced into a live event. We are constantly dealing with this issue with clients and expect to see an increase in this demand as the government begins implementing their new travel guidelines. An increase in room rates may not deter a client from using a convention property, but not having the facilities to conference others in or do a live feed out could eliminate a property from consideration.

We would love to hear your thoughts.

~ Linda Begbie • CEO & Executive Director, RDL enterprises

Why is the transient market important to meeting planners?

You may think that this is a subject that only the hoteliers out there care about but I would argue that it is one that all planners should pay attention to. In my recent post on meeting planning and the economy, I posited that the ups and downs of leisure travel were an indicator of the how the industry as a whole would perform in the future. Why is that? What is my reasoning for taking such a position?

Primarily, it comes down to the mentality of individuals. Since predicting the behavior of individuals can be tricky, though, it is sometimes helpful to look instead at the behavior of masses – in this case market segments. I combine leisure travel and transient business into one segment. Corporate, association, and government are the others that I typically look at when reviewing trends in the industry. These do not encompass all of the possible market segments but they do allow me to view, in broad brush strokes, the landscape of the hospitality industry. However, each segment is usually treated as separate and somewhat unrelated. So why does the transient market have such an impact that I consider it to be an important indicator of economic trends? Why not one of the others?

My stand is that it is the beliefs and attitudes of individuals that drives our industry. If enough individuals believe that the economy is bad and do not want to travel (whatever the reason), those beliefs have a negative impact on each market segment. The same is true if they believe that the economy is good and feel comfortable with travel and going to meetings. Here’s how I see it working…

Individuals have opinions about traveling, be it for personal or professional reasons. When they do not feel like they can afford to travel personally (usually for fiscal reasons), the transient market drops. The more people who feel that way, the more that market segment is affected.

Then, when they go to work, they carry that attitude with them – maybe not consciously but they carry it nonetheless. That affects their willingness to attend conferences (especially if it involves out-of-pocket expenditures) and their perception of the value of meetings and conferences in general. If enough people carry these feelings into the workplace, then it can cause the corporate market to sag. Add into the mix the fact that such feelings usually have some basis in real economic conditions and you have a situation where companies are already beginning to tighten their belts and clamp down on “extraneous expenditures”. Meetings and conferences tend to get eliminated from the budget along with anything else that is seen as unnecessary or wasteful.

Association events tend to weather downturns in attitudes and economies a bit differently. Because many of these events are voluntary rather than having mandated participation, you often see their events get downsized rather than eliminated completely when the economy sours. Those involved have a personal desire to attend and may work harder to do so. However, the attitudes they carry about personal travel certainly still have an impact here.

On the plus side, these same forces work when people believe that they are secure financially. They are more willing to travel in their personal lives, which translates to more willingness to travel professionally. Since their choices affect the transient market first, then the corporate and association markets, I keep an eye on trends in leisure and transient business at hotels to give me an early glimpse of what the future may have in store for my meetings and events.

~ Karl Baur, CMP • Project Director, RDL enterprises

The Current Economy and Three Signs that the Hospitality Industry is on the Road to Recovery

Like many professions and industries, the hospitality industry has been hurting. We wonder when the economy will turn around, when business will pick up, and how to survive in the meantime. And, these questions represent common themes of discussions in the groups and associations to which I belong. Given my many years in the meeting planning industry, I am frequently asked for my opinion and perspective as a planner on the state of the economy as it relates to our industry. Now, I am no economist and have nothing but anecdotal evidence and my own experiences to support my views but, for what it’s worth, here is my two cents on the matter…

The current economic “downturn” is the third one I have been through in my sixteen years as a meeting planner and it is certainly the longest and most severe. The causes are many and often disputed. To make matters worse, most reports in the news suggest that we may not come out of this for quite some time as the complex interplay of economic forces adjust to the “new realities”. Does this mean that the meetings industry is doomed? Are we condemned to languish for years in economic doldrums? I think not.

Each time there has been a downturn in the meetings industry, it has been preceded by a drop in leisure travel. The typical pattern has been for transient business to drop and, six to eighteen months later, corporate business falls off, which is then followed by the association market. Government meetings have usually gone on more or less unimpeded. They may have slight drops but nothing on the same scale as the other markets. This time, government has also dropped significantly (about the same time as corporate and association). However, it is not all darkness on the horizon. I have noted three signs that indicate that recovery may be on its way for meetings and conferences.

1st sign: that drop in leisure/transient business that seems to appear each time before a downturn? Well, I’ve noticed that it also appeared to rebound ahead of each of the previous recoveries. In talking with the hoteliers I know, they have all seen recent (last six months to nine months) increases in the level of transient business at their properties. And, these increases have been significant both in terms of numbers and duration. Transient business, once it started to pick up again, has remained solid for many of the hotels that I have talked to. In my mind, this is the most important factor in gauging how the industry will fare in days to come.

2nd sign: Inquiries for our services are up. Like hotels and other service providers, we do not win every job we submit a bid for but an increase here is another good sign. I see this an indicator that groups are once more looking to host events. In some cases, it has taken them longer to secure funding for their events; in other cases, they had fired their planners (to cut costs) but now need assistance to produce those mandatory events that were once handled in-house. In either case, it means that the desire to hold an event is there and as the saying goes: where there’s a will, there’s a way.

3rd sign: Last minute hotel bookings are up. This also tells me that people still want to do meetings and events but perhaps they have been waiting to make sure their funding is secure or it is taking longer for meetings to get approved. A year ago at this time, there was nothing happening - many hotels were practically empty - so to see the increase in last minute bookings is encouraging. The uptick in the transient market, combined with high levels of last minute bookings for events has helped carry them through thus far.

As encouraging as the signs may be, though, we are not out of the woods yet. I do agree with the economists that the industry is still in for some rocky times but I also believe that our recovery is already beginning. Where everything last year was very gloomy and all signs were negative, I now have some positive signs to point to that reinforce my belief that things are improving.

~ Karl Baur, CMP • Project Director, RDL enterprises

Thoughts on Surviving this Economy as a Small Service Business

After over 20 years in business, the economy finally came knocking on our door, walked in, did a little staff reduction, and found a place to stay for a while. As is true for all businesses, this has been a challenging eighteen months. We are under no delusions that it is over, although we maintain hope that things are easing.

How have we survived? I can only say our survival is based on some tangible and some intangible reasons. Probably the biggest reason is commitment. The staff here at RDL have maintained a commitment to success in spite of the months our client base had dwindled, and we were marketing as creatively as we knew how in spite of our limitations both financially and experientially.

The RDL staff are an amazing group of people. They are absolutely positive that we will continue in our success and are unwilling to think or hear that there are any other options. Everyone has been a part of the belt tightening that keeps us going and although the belt has not been moved up or back a notch, we are breathing a little easier as our hard work has begun to show some results.

Some of our existing clients continue on planning their events, and some have postponed them in hopes of future funding. Our hard work and commitment has paid off in the new clients we have added to our base. One came as a referral from an existing client, one came as a result of good networking, and others have come through following leads.

Whoever said that positive thinking doesn’t work, should spend a day at RDL. We are positive that as the economy gets healthier so will our bottom line and we can loosen that old belt buckle or maybe even just buy a new belt.

~ Linda Begbie • Executive Director, RDL enterprises