Tuesday, 21 January 2014

Chefs, F&B Managers Rejoice! Revenue Share of F&B Rises Steadily as Room Revenues Show A Slide: Survey

F&B revenues become more
important as hotels battle
competition to repay debts.
Picture: Courtesy of Monkey Bar
By Sourish Bhattacharyya

THERE'S a quote attributed to one of the venerable hoteliers of the country -- I think it was Rai Bahadur M.S. Oberoi -- who is believed to have said that hotels are in the business of selling rooms and little else. Well, it doesn't seem so any longer.
The FHRAI Indian Hotels Survey 2012-13, released in New Delhi on Monday, January 20, reveals that the contribution of rooms to the average total kitty of hotels has steadily dropped from 60.5 per cent to 52.2 per cent in the five years between 2008-09 and 2012-13. In the same period, the share of food and beverages (F&B) has risen from 25.6 per cent to 29 per cent, and if you add banqueting (mainly marriages) and conferences, the contribution of F&B goes up from 34.4 per cent to 41.2 per cent.
The report also says that the net average income from rooms has seen a 4 per cent decline in these five years, which was not unexpected in view of the steady increase in the supply of rooms.
The India office of the world's most respected hospitality industry consultancy, HVS, conducted the questionnaire-based survey for the Federation of Hotel & Restaurant Associations of India (FHRAI). In December 2013, HVS sent out questionnaires to 2,505 hotels in the country's seven primary and 13 secondary hospitality industry markets; 1,450 responded.
The report, explaining why this shift is taking place, is emphatic about the growth in the share of F&B revenue to continue. "Going forward, as the competition further increases in the market with the entry of new supply, we expect F&B revenues to continue to contribute a large portion of gross revenues as they are not solely driven by occupancies," the report states.
"Additionally," it continues, "the burgeoning middle class and its propensity to spend will continue to augment demand for F&B across cities in India. With hotels focusing on the banquets and conferences segment in off-season months to beat seasonality, this department is also anticipated to increase its contribution to the total revenue pie." F&B, incidentally, is a major part of the banqueting and conference offering of any hotel.
The good news coming out of the survey is that demand has kept pace with supply, but the bad news is that the average rate is slipping. The supply of rooms has been growing at a compounded annual growth rate (CAGR) of 17.8 per cent and the demand at 17.3 per cent from 2008-09 to 2012-13.
Clearly, the growth in demand has been healthy, but the other side of the story is that "hotels are dropping average rates to attract customers in the face of increased supply". Basing itself on this data, HVS points to the emergence of a new customer mindset, which is more sensitive to the price than loyal to a hotel or brand. "As operators battle increasing departmental costs and owners struggle with debt service payments," the report says, "hotel companies need to reconsider their rate strategies."
Delhi appears to be the exception, though. Though the average occupancy has dropped from 64.8 per cent (2008-9) to 57.1 per cent (2012-13), which is below the national average of 60.4 per cent, the average room rate (ARR) has been mounting bulging from Rs 6,087 to Rs 7,455. Mumbai, on the contrary, has seen the ARR slide from Rs 6,822 to Rs 5,791. The only market with an ARR higher than Delhi's is Gurgaon, but its average of Rs 7,776 (2012-13) is lower than Rs 8,122, which it reported in the previous year.
Gurgaon, clearly, is feeling the heat of competition, so will Delhi's party be over once the Aerocity hotels open one after another this year? Mumbai, incidentally, recorded an average occupancy of 71.5 per cent in 2012-13, the highest in the country along with Kochi. Is the city's low ARR responsible for its high occupancy figure? We will crunch the numbers a little harder and talk to senior executives and analysts to answer these questions. We will also extract more information from the survey and beef up our reports with analyses, so look out for our series on the 'State of the Hospitality Industry'.