Understanding F&B profitability strategies, including Price Engineering, Break Even Points, Profit vs. Profitability and Weighted Margins will help heighten revenues. By Lance Simmons, Manager, Avendra Consulting Services.
In the food-and-beverage arena, it’s not always easy to understand the value and impact of a single dollar. Yet spending a dollar here, rather than spending it there, can make an enormous difference to a hotel’s top and bottom lines. To generate profits, hoteliers need to spend money the right way. That means selling one menu item at a higher price to have a better top line, while selling more of another item at a lesser price to be profitable. Each menu item has a specific effect on the business. Having costs in line and expenses under budget does not mean that the operation is making money efficiently. In other words, the question isn’t “How much money did I make on these menu items today?” but rather “How much did it cost me to make money today?”
Naturally properties should always take the needs and preferences of a particular hotel’s guests into consideration when making purchasing decisions. Yet F&B operators should also establish a pricing and distribution strategy that takes market fluctuations – based on foreseen or unforeseen circumstances – into account. For instance, a shortage of boats in the South China Sea means a shortage of available crab for restaurants. If F&B teams aren’t analyzing this product and watching the market closely, they can cause a hotel to lose thousands or a management company to lose millions of dollars in lost profit opportunity. Market-price increases also have a direct impact on revenues. When the cost of goods rises, hoteliers often react by cutting labor or swapping out a lesser-quality menu item. Neither option is good for guests.
An effective way for a hotel’s F&B outlet to generate a profit and ensure its guests are satisfied is by understanding and implementing these four strategies:
1. Price Engineering
This common practice examines what items on a menu sell or do not sell. By examining the volume of sales, the average sale price of an item and the extended sales total of items, hotel managers can quickly identify areas of opportunity for the property.
Here are a few examples:
- The Wagyu Burger is the most popular item on the menu but contains below average profit margins. If the hotel increases the price of the Wagyu Burger by $2, it will increase profitability of the product by 17%. In other words, anything below a 16% “decrease” in sales is more profitable.
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