Sourcing Outsourcing

By Karyn Strauss, Senior Editor -- Hotels, 6/1/2007

To lease or not to lease, that is the question hoteliers today ponder when looking to open or redo a restaurant. Wanting to capitalize on the resurgence in popularity of hotel dining over the last few years, hoteliers have shifted their mindset from the hotel restaurant as "the necessary evil" to an opportunity to drive room nights while attracting a local clientele. But the question remains how best to accomplish those goals? Not surprisingly, the decision whether to operate the restaurant in-house, lease the space out to a tenant or seek a management contract-an attractive hybrid of the two that is gaining favor-depends on several market fundamentals with no one-sizefits- all solution. And more often than not, smart hoteliers are turning to experts to help them weigh the pros and cons of these complex dilemmas. Here, HOTELS attempts to help cut through the clutter and share insight from these experts in the industry as well as from operators who have successfully tackled the issue.

Concept Creation

The outsourcing debate aside, the first priority is to come up with a concept that fits the market. So where to begin? Restaurant consultant Bob Puccini, Puccini Restaurant Group, San Francisco, says the key is for his team to work with the hotel and the owner to develop best operating practices. "First, we figure out the economic reality of any location, and then what type of restaurant for that location. Not all sites are created equal. Many of our clients lose money on restaurants, and sometimes ROI is just breaking even or losing less money. So there, a management contract doesn't work so well," he says. "Restaurants are distinct from other aspects of hotel F&B. It's not just a flavor or a price, but an experience, and that's what people in the hotel business need. It is not just about leases or management contracts; we work with our clients to add color and depth."

For example, his company recently undertook the project of repositioning the restaurant in the Marriott Boca Raton, Florida. Located inside a shopping mall with no exterior view, the restaurant prior to new ownership had been best known as a venue offering senior citizens halfpriced meals. Puccini's challenge: create an independent-style restaurant. The solution-which Marriott is managing under the guidance of Puccini-is Absinthe, a trendy restaurant that adds a stylish appeal to the market. It has become a much more successful venture for the owner, who has seen business grow almost completely via word of mouth. More brands are realizing that "restaurants are the jewelry of hotels, whether it's a coffee bar or whatever, they want something more than the 'beigeness,'" Puccini says.

Elizabeth Blau, founder of Las Vegasbased restaurant consultancy Elizabeth Blau & Associates, also specializes in creating destination restaurants for hotels. Whether it is consulting on new concepts to be run internally by The Ritz-Carlton Palm Beach or developing celebrity chef concepts like Simon LA at the Sofitel Los Angeles and running that operation via a management contract, Blau agrees that the hotel industry is getting smarter about creating that independent restaurant vibe. "More and more hotels are learning to develop signature concepts internally. The brands are getting into the game. They understand that it's one thing to retain your hotel guest in the hotel restaurant, but it's another to get someone to come into the hotel to dine," she says. "And it helps sell rooms, and even banquets."

When Outsourcing Works

With this new understanding, Blau believes the management contract can be a great solution for busy hotel operators. "We're seeing more and more of it. It means less financial risk for the hotel, and it's great because they get something more special than the routine hotel restaurant," she says, using Simon LA as an example of a successful partnership. "We run the kitchen and dining room, but all the ancillary support is done by the hotels-like human resources. So it's great for the employees because they are all a part of [Sofitel parent company] Accor and get all the benefits of being part of that huge organization. It's important to create a synergy like that."

Outsourcing also can be a smart solution when looking to bring an entirely new type of cuisine to a particular locale. For example, when Hilton Hotels Corp. took over a property in Kingston, Jamaica, eight years ago, General Manager Frank Rosheuvel decided to spruce up the resort's food and beverage program entirely. At the time the hotel had one all-purpose restaurant, The Palm Court, and Rosheuvel decided to expand the hotel's offerings by moving dinner service outside to the pool area and opening a Japanese restaurant-at the time there were no such restaurants in Kingston, despite the large Japanese population in Jamaica. "So, I decided to look for a Japanese concept to bring to Kingston. I went to Miami and checked everything out, but nothing took. Word spread all over Jamaica that I was looking to do a Japanese restaurant, and I was approached by a Japanese woman living here who told me she was the person I was looking for. She had never run a restaurant, but I liked her attitude, so I said, 'Let's see what you can do.' And from day one Restaurant Japan has been a huge success," Rosheuvel says. "The profit ratio is four times as much in a month as it is in The Palm Court-and it is only open for dinner."

To what does he contribute the success? It was different and authentically executed. "I knew we didn't have the expertise to run it ourselves. We are good at the all-purpose type of restaurant and at banquets, but for this you need the proper vision," he says. "If you want to do a specialized type of cuisine, you don't want to go do it yourself when you can have someone fantastic do it for you." His dream, he says, is to add more Asian cuisine concepts. "I think that when you can create that, then the hotel becomes the center of all activities on the island," he says.

The Dorchester Hotel in London also has the goal of becoming the center of activity for London's elite, and is, therefore, using outsourcing to add the cache of celebrity chefs. "Quite a few years ago hotels wanted to get rid of restaurants and do minimum in F&B, but trends have changed," explains General Manager Christopher Cowdray. "We wanted The Dorchester to be the sought-after place to be," he says. No stranger to outsourcing, Cowdray formerly was the GM at nearby Claridge's responsible for bringing in Chef Gordon Ramsey to open a namesake restaurant there. Cowdray sought a similar formula with The Dorchester and last year opened the high-end Chinese concept China Tang with Chef David Tang. And this September the hotel will add a namesake dining venue with renowned Chef Alain Ducasse. "For a hotel like ours it is important to have that celebrity appeal. There were many chefs that wanted to come to The Dorchester, but we needed that cache. Both chefs are very high-profile people so that attracts a great deal of interest, and then we have a niche with our own restaurant (The Grill) to complement those two." Of course both Rosheuvel and Cowdray stress the vital importance in a lease situation of integrating the restaurant staff in with the hotel's own staff to ensure a seamless experience for guests. "You have to ensure all delivery systems are on the same level as the hotel. That's the only challenge, but can be done with proper training," Rosheuvel says. Adds Cowdray: "If you go for a lease and nothing else, you have no control. So we have an operating agreement that ensures employees follow the house rules in terms of service standards. We do health and safety training and give them the opportunity to use our training facilities. We want them to feel as integrated as much as possible."

Outsourcing Challenges

While Blau believes outsourcing is often a great solution for hotel restaurants, she stresses the fact that the market logistics need to work seamlessly. For example, her company consulted on the re-branding of the restaurant at the boutique Hotel Icon in Houston. Because the restaurant is going to be open for all dayparts, she says it made more sense for the hotel to run it internally. That is because many restaurateurs do not want the hassle of breakfast service, with its lower profit margins, nor do they often want to extend their operating hours for late-arriving hotel guests. In another situation, she had a client who was interested in outsourcing a concept that could have had appeal at multiple locations, but because of the property's centralized kitchen and no separate storage facilities, outsourcing did not make sense.

"The big negative on leasing is if you only have one kitchen and you have lots of meeting space. Then how can you do a meaningful restaurant?" adds Kirby Payne of HVS/American Hospitality Management, a Rhode Island-based hotel consultancy and management company. Payne sees the hotel restaurant's top priority as a way to enhance the potential of room night sales. He, therefore, is wary of outsourcing concepts to tenants whose goals are not aligned as such. "Why would a heavily invested hotel owner want an interrelated business with different business goals-and possibly incompatible clientele-in the building?" he asks. While Payne acknowledges that leased restaurants can be more focused on execution and marketing of the venue, he cautions hoteliers about the consequences of a situation where the operating terms between the hotel and restaurant are not in sync.

"It is crucial that a restaurant operation not detract from the rest of the hotel," Payne says, offering an example of a report his company did of a mid-priced, branded hotel in a major metropolitan area where hotel guests recorded numerous complaints about the restaurant, including employees not wearing uniforms, problems with charging the bill to a hotel room and generally rude wait staff. "Guests and other restaurant patrons believe that a hotel restaurant is run by the hotel and, therefore, ownership and management should demand that the F&B lessee follow the property's standards for behavior and service," Payne says. "The restaurant must be developed as an asset that contributes to the overall profitability of the hotel enterprise."