Increasing Impact of F&B in Hotel Revenue

Hotel chains may soon start earning more from food and beverage (F&B) than room revenues as F&B revenue has been growing constantly over the past five years while room revenue has been dipping. 

According to a recent HVS-FHRAI report on the Indian hotel industry, revenue from F&B segment - which includes banquets and restaurants - rose to 42.6 per cent in 2015-16 against 36.6 per cent in 2010-11, while room revenues declined to 50.9 per cent in 2015-16 from 57.2 per cent in in 2010-11.

"There has been a marked, double digit growth in food and beverage revenues over the past couple of years. Within the F&B segment, banqueting is showing great potential, which is powered mainly by MICE and this has positively impacted our F&B revenues, boosting overall revenues at ITC Hotels," said Dipak Haksar, chief executive, ITC Hotels and WelcomHotels. 

With F&B in hotels across India becoming a key revenue driver and contributing anywhere between 35 and 50 per cent to overall revenues, hoteliers say the success of food and beverage can make or break a hotel. 

For the Oberoi Group, close to 40 per cent of its revenues come from food and beverage. "For us, the ratio has moved from 35 per cent to 40 per cent on an overall basis. As more and more Indians start dining out, we believe that food and beverage will play a very important role going ahead. To give you an example, Indians only dine out twice a month while the Chinese are dining out 60 times a month - an average of twice a day. Even Indonesians dine out 15 times a month," said Kapil Chopra, president, The Oberoi Group. 

The importance of F&B revenues has increased as profitability from room revenues has declined over the past decade in India. What seems to be driving this growth in F&B is a change in cultural trend of eating out often. 

Hotels are aggressively promoting their F&B through discounts and offers to maintain their topline. In fact, new hotels across the country have come up with large meeting spaces and restaurants. Developers are including banqueting spaces in resorts in leisure locations too to attract MICE business. 

Moreover, with standalone restaurants giving upscale hotels a run for their money, hotels are trying to exploit the potential of this segment to the fullest and are coming up with newer ways to offer more than just good food and drinks. 

"We are gearing up our F&B outlets to compete with freestanding restaurants and so we are constantly doing R&D and new things like flying down international chefs, food promotions, designing new menus, etc," says Chakraborty of Sofitel Hotel. 

Haksar of ITC Hotels says the company has incubated new brands in cuisines like Japanese and Italian to stay relevant and contemporary in its offerings. The company also launched a premium vegetarian dining restaurant Royal Vega at its luxury property ITC Grand Chola in Chennai. 

While hotels are earning good share of their revenue from F&B, margins from room revenue still continue to be higher than F&B. Hotels try to maintain their food costs at around 25 per cent but additional costs such as labour and heat, light, power (HLP) increase the spends. 

"The margins in the room business is always higher than the food and beverage business due to the fact that the room business does not have the food cost associated with it," says Chopra of Oberoi Group.