How to Engineer Profitability at Your Hotel

The hospitality industry is at the forefront of change, embracing innovation and new strategies to drive business forward. From the paradigm shift toward Total Profit Optimization to finding success in an inflationary environment, this week’s newsletter explores how hoteliers and industry professionals are leveraging data, menu engineering, and tackling new legislation to set new standards for success.

Shifting the Mindset to Total Profit Optimization

The concept of total profit optimization has grown in significance within the hospitality industry. Not just a focus on profit margins, this approach embraces all revenue-generating areas in a hotel, including ancillary outlets. By harnessing the power of data, hoteliers measure the performance of each outlet to identify the most profitable strategies, setting a new standard for business optimization. For many, focusing only on top-line revenue doesn’t give enough context to make business decisions that truly drive a property forward.

So, how can hoteliers shift the mindset to true total profit optimization? It starts with connecting the data. Simply put, everyone needs to know their data, according to Brian M. Goodman , Associate, Acquisitions & Development at Real Hospitality Group . “Everyone involved who touches an asset, whether it be an asset manager, general manager, a regional director of operations, or even a front desk agent, needs to know their data,” he said.

Read the article on MDO.

Prioritizing Ancillary Revenues

Revenue management and hotel ownership experts say driving ancillary revenues, shifting the focus of revenue management to total revenue rather than revenue per available room and improving technologies are a few ways to evolve the discipline and lead to better hotel margins, according to a recent article in Hotel News Now .

Priya Chandnani , vice president of revenue and distribution strategy at Pyramid Global Hospitality , said during the “Courageous Revenue Management” panel at the 2023 Hotel Data Conference (HDC) that investing in better data technology to evaluate customers’ spending trends can be perceived as a risk, but it’s a worthwhile opportunity to analyze the true spend over several revenue channels and not just room revenue.

Read the article on Hotel News Now.

5 Lessons Learned at HDC 2023

Speaking of this year’s Hotel Data Conference (HDC) , we’ve got the roundup of the top lessons learned during the event. This year, speakers took the stage to provide a high-level overview of where the industry is headed, then engaged in smaller discussions about implementing a more data-driven culture. Key takeaways include:

1. The travel industry is expected to withstand a likely oncoming recession.
2. Hotel companies need “data stewards” to ensure all departments are aligned on the numbers and strategy.
3. Artificial Intelligence (AI) has brought the hospitality industry to the cusp of a technological revolution.
4. On average, hotels are most profitable when they run around 87% occupancy.
5. More hotels are increasing transparency over ancillary fees and showing total costs to the guest at the time of booking.

Read more about the takeaways on MDO.

Understanding Profitability of Every Menu Item

So, how can hoteliers head down the Total Profit Optimization path? While many operators focus on lowering their food cost percentage, they should instead focus on the profit of an item and its overall contribution to the bottom line, according to Russ Spencer , Senior Director of Restaurant Success at Craftable .

Menu engineering is the ticket to doing just that. “The most effective way to engineer your menu is to look at the popularity and profitability of each item. Using those two factors, we want to design a menu that influences the customer's purchasing behaviors and drives maximum profitability,” he said.

Read the interview on Hospitality Tech.

F&B Strategies in an Inflationary Environment

But in an economic environment that has seen countries facing double- and even triple-digit year-on-year food price inflation, the hospitality sector suffering from persistent staffing shortages and food and beverage revenues continuing to lag behind 2019 levels, how might hotel operators drive profitability?

One way is to maximize the opportunities beverages present, according to an article in Hospitality Investor . “You have to find that sweet spot where they’re getting value for money,” says Michael Ellis, who was appointed president of F&B and culinary experiences at hospitality project management company FEBC Group last year. “It takes trial and error to find out where you want to position your beverage program.”

Read the article on Hospitality Investor.