The Hotel Restaurant in the Hotel Guest Experience Equation | The Current and Future State of Hotel F&B
Dr. Evangelo Damigos; PhD | Head of Digital Futures Research Desk
- Economic Growth
- Competitive Differentiation
Publication | Update: Sep 2020
A newly released Magid Forecast Tracker found the ongoing impact of the COVID-19 pandemic will lead to a 29% decline in annual hotel occupancy over the next 12 months, resulting in a projected revenue loss for the industry of about $ 75 billion in room revenue alone.
According to Dr. Rick Garlick, that creates even more urgency to button up other parts of the business – like food and beverage. In this environment, hoteliers are focused on business strategy. Some of those strategies are a ‘back to the basics’ approach: popular formats, ingredients and partnerships. Other strategies involve reinforcing momentum toward modernization in terms of technology or consumer behaviors.
More than half (56%) of consumers in a recent Magid study said they strongly or somewhat agreed with the statement that coronavirus is easily spread in restaurants. While this number is down from a previous wave of the study (65%), it is likely this number will fluctuate based on the epidemiology of COVID-19. Hotels fare about the same as restaurants, with 55% believing COVID-19 is easily spread within their facilities, down from 66% in the previous wave. Health and safety measures will be on the forefront of consumers’ minds for a long time to come, and hotel restaurants will likely bear the biggest burden given their exposure to skeptical attitudes on both fronts of their business.
While hotel occupancy forecasts are still challenged, the home-sharing business is doing relatively well considering the circumstances. Airbnb was recently valued at B and plans to file for IPO in August. The Magid Forecast Tracker shows higher levels of comfort and trust in private vacation rentals compared to hotels, largely due to the fact that guests don’t have to interact with others outside their immediate family or traveling party. Though vacation rentals are currently forecasted to be down 64% for the last part of the summer, they are expected to return to normal in 12 months.
The fact that vacation rentals generally do not offer on-site food and beverage services suggest this may be becoming a much less important component of the hotel guest experience. After all, more people have gotten used to cooking at home and foregoing restaurants during the lockdowns.
The Magid study examined consumers’ willingness to pay for additional health and safety measures. Twenty percent of diners indicated a willingness to pay a premium for a private dining option. While the study does not suggest how much a private dining option would be worth to consumers, there is potential to make up for some of the lost revenue brought on by capacity restrictions, which are currently still in place in most states. This is certainly an area worth exploring further, particularly at upscale and luxury properties.
Customers resisted the idea of paying more for other health and safety protocols, suggesting that, for the short term at least, there is a new expectation for doing business that may reduce the revenue potential of the traditional hotel restaurant concept. Public areas are also highly suspect as many see bars, restaurants and lobbies as a breeding ground for COVID-19. The cost of maintaining room service was already cost-challenging for many hotels prior to the pandemic. Given all these challenges, what is the path to successful growth for hotel food and beverage service?
To make a food and beverage offering successful in the foreseeable hotel environment, there will have to be a greater benefit than satisfying hunger pangs in a convenient manner. One of the building blocks for brand engagement is identification with those who share an experience, even if it is aspirational. Being a part of something unique, popular, or buzz-worthy creates an intangible benefit. In Minnesota and Dallas, Omni is partnering with local dining scene royalty to serve their NFL-team adjacent properties. In Minneapolis, the hotel is part of a multiphase mixed-use project in development.
Beyond creating an emotional benefit for diners, there is an opportunity for hotels to serve fare that appeals to a specific target demographic. A charcuterie board sans meat? That’s just one of the new specialties being served up at a new Dallas hotel being operated by Kimpton Hotels & Restaurants. Veg-forward is just one of many culinary and cocktail trends highlighted in Kimpton’s 2020 trend forecast which is crafted with the help of Kimpton’s own chefs and bartenders. A few others worth mentioning here include alternative diets (think keto and gluten-free), sweet-on-sour (vinegar-focused items like kimchi), Levantine cuisine (the new Mediterranean diet?) and spritz culture which seems destined to have staying power despite the debate sparked by last year’s infamous New York Times critique.
One trend not mentioned in the Kimpton report is restaurants using sustainable ingredients. Sustainability appears to be a growing trend whether simply referencing ingredients or extending into sustainable construction and design. While sustainable restaurants have always had a following, they seem to be growing, along with a more socially and health-conscious generation of younger travelers.
Smart hoteliers are actively streamlining operations and improving efficiency in their restaurants through technology. Linking food and beverage activity with guest profiles, allowing for app-based transactions and online reservations systems are just some of ways hotel restaurants can and should be incorporating digital tools. Many of these technology shifts predate the pandemic but warrant attention nonetheless – many even more so in our socially distant environment. Personalized contactless delivery is being designed and developed as a growing trend. However, it is yet to be seen whether technology can ever displace the friendly server who offers personalized menu suggestions and recognizes special occasions.
The Rise of the Ghost Kitchen
Last, but certainly not least: the biggest restaurant trend in 2020 is the move toward ghost kitchens. Smart hoteliers are likely considering extending existing fine dining properties into daytime ghost kitchens. These highly efficient culinary endeavors capitalize on food delivery trends that can be extended beyond the hotel property while avoiding any further strain parking as there is no front-of-house.
“We get to the restaurant every day around 11 am for prep and don’t open until 5 pm anyway. We’ve had a lot of time on our hands these past few months [and] figured this was the perfect time to roll it out,” says Houston-based chef-owner Ryan Lachaine who recently launched a specialty sandwich ghost kitchen out of his acclaimed Riel restaurant.
The ghost kitchen allows restaurants to compete in the high-demand delivery food business which has done well alongside drive-thru business in the pandemic. Furthermore, the potentially long-lasting contraction in corporate travel may mean less fine dining and more fast casual and trendy operations that cater to leisure travel more so than business travel. Ghost kitchens should allow hotel restaurant operations to capitalize on both using existing infrastructure. This innovation allows hoteliers to execute concept testing without completely reinventing their food and beverage operations.
The New Normal
While the food and beverage experience has always been a crucial aspect of the overall hotel guest experience, the new era in which we find ourselves has caused us to rethink everything. The hotel restaurant has to strike a balance between being functional enough to warrant the diner’s participation, yet experiential enough to make the diner prioritize the hotel restaurant over other options. This requires a great deal of consumer exploration as old models are likely no longer sufficient to keep hotel restaurants profitable – at least until things return to some kind of new normal.
- The Big Picture - Intelligence Center
- The Big Picture - Platform
Objectives and Study Scope
This study has assimilated knowledge and insight from business and subject-matter experts, and from a broad spectrum of market initiatives. Building on this research, the objectives of this market research report is to provide actionable intelligence on opportunities alongside the market size of various segments, as well as fact-based information on key factors influencing the market- growth drivers, industry-specific challenges and other critical issues in terms of detailed analysis and impact.
The report in its entirety provides a comprehensive overview of the current global condition, as well as notable opportunities and challenges.
The analysis reflects market size, latest trends, growth drivers, threats, opportunities, as well as key market segments. The study addresses market dynamics in several geographic segments along with market analysis for the current market environment and future scenario over the forecast period.
The report also segments the market into various categories based on the product, end user, application, type, and region.
The report also studies various growth drivers and restraints impacting the market, plus a comprehensive market and vendor landscape in addition to a SWOT analysis of the key players. This analysis also examines the competitive landscape within each market. Market factors are assessed by examining barriers to entry and market opportunities. Strategies adopted by key players including recent developments, new product launches, merger and acquisitions, and other insightful updates are provided.
Research Process & Methodology
We leverage extensive primary research, our contact database, knowledge of companies and industry relationships, patent and academic journal searches, and Institutes and University associate links to frame a strong visibility in the markets and technologies we cover.
We draw on available data sources and methods to profile developments. We use computerised data mining methods and analytical techniques, including cluster and regression modelling, to identify patterns from publicly available online information on enterprise web sites.
Historical, qualitative and quantitative information is obtained principally from confidential and proprietary sources, professional network, annual reports, investor relationship presentations, and expert interviews, about key factors, such as recent trends in industry performance and identify factors underlying those trends - drivers, restraints, opportunities, and challenges influencing the growth of the market, for both, the supply and demand sides.
In addition to our own desk research, various secondary sources, such as Hoovers, Dun & Bradstreet, Bloomberg BusinessWeek, Statista, are referred to identify key players in the industry, supply chain and market size, percentage shares, splits, and breakdowns into segments and subsegments with respect to individual growth trends, prospects, and contribution to the total market.
Research Portfolio Sources:
Global Business Reviews, Research Papers, Commentary & Strategy Reports
M&A and Risk Management | Regulation
The future outlook “forecast” is based on a set of statistical methods such as regression analysis, industry specific drivers as well as analyst evaluations, as well as analysis of the trends that influence economic outcomes and business decision making.
The Global Economic Model is covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure. We aim update our market forecast to include the latest market developments and trends.
Review of independent forecasts for the main macroeconomic variables by the following organizations provide a holistic overview of the range of alternative opinions:
As a result, the reported forecasts derive from different forecasters and may not represent the view of any one forecaster over the whole of the forecast period. These projections provide an indication of what is, in our view most likely to happen, not what it will definitely happen.
Short- and medium-term forecasts are based on a “demand-side” forecasting framework, under the assumption that supply adjusts to meet demand either directly through changes in output or through the depletion of inventories.
Long-term projections rely on a supply-side framework, in which output is determined by the availability of labour and capital equipment and the growth in productivity.
Long-term growth prospects, are impacted by factors including the workforce capabilities, the openness of the economy to trade, the legal framework, fiscal policy, the degree of government regulation.
Direct contribution to GDP
The method for calculating the direct contribution of an industry to GDP, is to measure its ‘gross value added’ (GVA); that is, to calculate the difference between the industry’s total pretax revenue and its total boughtin costs (costs excluding wages and salaries).
Forecasts of GDP growth: GDP = CN+IN+GS+NEX
GDP growth estimates take into account:
All relevant markets are quantified utilizing revenue figures for the forecast period. The Compound Annual Growth Rate (CAGR) within each segment is used to measure growth and to extrapolate data when figures are not publicly available.
Our market segments reflect major categories and subcategories of the global market, followed by an analysis of statistical data covering national spending and international trade relations and patterns. Market values reflect revenues paid by the final customer / end user to vendors and service providers either directly or through distribution channels, excluding VAT. Local currencies are converted to USD using the yearly average exchange rates of local currencies to the USD for the respective year as provided by the IMF World Economic Outlook Database.
Industry Life Cycle Market Phase
Market phase is determined using factors in the Industry Life Cycle model. The adapted market phase definitions are as follows:
The Global Economic Model
The Global Economic Model brings together macroeconomic and sectoral forecasts for quantifying the key relationships.
The model is a hybrid statistical model that uses macroeconomic variables and inter-industry linkages to forecast sectoral output. The model is used to forecast not just output, but prices, wages, employment and investment. The principal variables driving the industry model are the components of final demand, which directly or indirectly determine the demand facing each industry. However, other macroeconomic assumptions — in particular exchange rates, as well as world commodity prices — also enter into the equation, as well as other industry specific factors that have been or are expected to impact.
Forecasts of GDP growth per capita based on these factors can then be combined with demographic projections to give forecasts for overall GDP growth.
Wherever possible, publicly available data from ofﬁcial sources are used for the latest available year. Qualitative indicators are normalised (on the basis of: Normalised x = (x - Min(x)) / (Max(x) - Min(x)) where Min(x) and Max(x) are, the lowest and highest values for any given indicator respectively) and then aggregated across categories to enable an overall comparison. The normalised value is then transformed into a positive number on a scale of 0 to 100. The weighting assigned to each indicator can be changed to reﬂect different assumptions about their relative importance.
The principal explanatory variable in each industry’s output equation is the Total Demand variable, encompassing exogenous macroeconomic assumptions, consumer spending and investment, and intermediate demand for goods and services by sectors of the economy for use as inputs in the production of their own goods and services.
Elasticity measures the response of one economic variable to a change in another economic variable, whether the good or service is demanded as an input into a final product or whether it is the final product, and provides insight into the proportional impact of different economic actions and policy decisions.
Demand elasticities measure the change in the quantity demanded of a particular good or service as a result of changes to other economic variables, such as its own price, the price of competing or complementary goods and services, income levels, taxes.
Demand elasticities can be influenced by several factors. Each of these factors, along with the specific characteristics of the product, will interact to determine its overall responsiveness of demand to changes in prices and incomes.
The individual characteristics of a good or service will have an impact, but there are also a number of general factors that will typically affect the sensitivity of demand, such as the availability of substitutes, whereby the elasticity is typically higher the greater the number of available substitutes, as consumers can easily switch between different products.
The degree of necessity. Luxury products and habit forming ones, typically have a higher elasticity.
Proportion of the budget consumed by the item. Products that consume a large portion of the consumer’s budget tend to have greater elasticity.
Elasticities tend to be greater over the long run because consumers have more time to adjust their behaviour.
Finally, if the product or service is an input into a final product then the price elasticity will depend on the price elasticity of the final product, its cost share in the production costs, and the availability of substitutes for that good or service.
Prices are also forecast using an input-output framework. Input costs have two components; labour costs are driven by wages, while intermediate costs are computed as an input-output weighted aggregate of input sectors’ prices. Employment is a function of output and real sectoral wages, that are forecast as a function of whole economy growth in wages. Investment is forecast as a function of output and aggregate level business investment.