Money-Growing: Bribing Guests

But many Russians still shun hotel restaurants. Those establishments are believed to be inaccessible for outsiders, catering only for hotel guests; many still think that dining there is expensive while the quality of service leaves much to be desired. Hoteliers find it hard to deal with such prejudices. Attendance rates at hotel restaurants are lower than in freestanding stores.

Dining With Stars

“A restaurant is an inseparable part of amenities available at all hotels, regardless or their star ranking,” says Igor Zhukov, general director at the company BEL Development. “First and foremost, the establishment caters for hotel guests. Provided it is well-organized such an establishment may enhance the hotel’s image, make it more popular and bring good revenues.”

The size of a restaurant and a number of seats it has to offer depends on the number of rooms at the hotel and its ranking. In line with the standards adopted in Russia the number of dining spaces is calculated by multiplying the number of rooms by 0.7. In other words, Zhukov explains, a 200-room hotel must have a restaurant that can seat at least 140 guests at a time.

“A 3-star hotel with over 300 rooms should have a restaurant providing 150 to 200 dining spaces; a restaurant operating at a hotel with less than 300 rooms should be able to seat 80 to 150 persons,” adds Konstantin Kovalyov, head of sales and marketing at Heliopark Group.

The optimal size of a dining space for an economy-class 3-star hotel is 1.5sqm per 1 seat, while first-class and luxury hotels (4- and 5-star properties) should have 1.7 and 2.2sqm of dining space respectively. Although, Zhukov adds, those are only recommendations and dining space may vary in size and number depending on the specifics of each project.

“No less important is the concept of the hotel where the restaurant is situated,” says Alexander Osipov, head of sales at ROSS Group. For example, boutique hotels often maintain dining areas, which are larger in size than recommended, as public catering becomes one of the main sources of income for such establishments.

“The guest capacity of a restaurant depends on the capacity of the hotel where it is situated,” Marina Smirnova, deputy head of valuation and consulting at Colliers International, agrees. “But where a hotel provides 500 rooms that does not necessarily imply that its restaurant can seat 500 guests at a time. A tendency of late is to divide restaurant space into several dining zones. Instead of a single large restaurant guests are offered a choice of several dining establishments, smaller in size and serving various cuisines.” The objective is to keep the guests on the premises and entertain them by offering them a variety of places to dine at, she adds.

“The number of restaurants operating at a hotel depends on the company that runs the project,” says Igor Galitsyn, general director at Becar. Commercial Property. Other consultants say that a 3-star hotel may as well make do with one restaurant only, where guests may lunch and dine, as well as take their breakfast meals.

In order to meet the quality standards adopted for first-class hotels, those projects must have at least two dining areas, with one of the restaurants offering full board for hotels guests, while the other, being of a higher grade (the so-called fine-dining) caters for VIP guests, outsiders, and is used as a venue for receptions and gala events.

Luxury hotels with 5-star rankings usually run two to three restaurants, one of which offers an even higher quality of service, exquisite menu and some special features, such a cigar room or a living room with a fireplace, a panoramic view, etc. Such a prime restaurant caters for exacting guests. While fine-dining restaurants usually have 60 to 80 dining spaces, restaurants of higher class provide only 24 to 45 seats. The area of dining facilities is calculated proceeding from specifics of the project, the key goal being to make the guest feel as comfortable as possible.

“A hotel’s main restaurant must operate at least 12 hours per day,” says Marat Manasyan, general director at F&G Capital. “Prime hotels also must have at least one dining area offering round-the-clock services. And of course, the room service is offered 24 hours a day.”

The three hotels of the Marriott chain in the Russian capital operate a total of six restaurants. “Three of those are open in the evenings – The Grand Alexander at Marriott Grand, Polo Club at Marriott Royal Aurora and Grazi at Tverskaya,” Valentina Starova, public relations director at Marriott, has reported. “The most well-known of those restaurants is Polo Club. The hotels also run all-day dining restaurants where guests are served breakfast meals, lunches and dinners – Samobranka in Marriott Grand and Aurora in Marriott Royal Aurora.”

Konstantin Romanov, partner with the international realty consultancy Knight Frank, notes that the requirements as to decorations and cuisine of the establishment depend on the clientele and market situation. “Quite popular at the moment are restaurants offering Russian, European and Oriental cuisines,” Romanov says. “Guests can be advisably offered a choice of catering outlets and a top quality of service, which helps enhance the image both of the restaurant and the hotel in general.”

“Restaurants operating on the premises of large hotels should preferably offer continental cuisine,” Kuznetsov adds. “Those hotels catering to tourists from across the globe seek to satisfy the most various tastes and requirements. Hotels catering for foreigners should feature Russian cuisine restaurants. Fine-dining restaurants usually serve European cuisine, although these days we witness a tendency towards narrower specialization, in Italian or French cuisine, etc. In addition to the conventional menu, restaurants organize weeks of national cuisines.”

“Restaurants run by chain hotels often operate under a single concept; but then, the concept may be adjusted to local specifics, depending on project location,” Manasyan agrees.

Starova has reported that Marriott has already established a tradition of inviting prominent chefs from other countries to hotel restaurants for organization of days or even weeks of national cuisines.

“For example, in October Marriott Royal Aurora invited David Thompson, chef and owner of a popular Thai restaurant Nahm in London. That was his third visit to Moscow. His evenings have proved so popular that people would stand in line waiting for a seat, although even Polo Club has hardly even seen so many guests,” Starova recalls.

“The choice of cuisine depends on the concept of the hotel,” Osipov maintains. “Instead of being too fashionable the hotel restaurant should rather cater to the average taste. Hotels in the province, as well as some of the Moscow hotels, rated 3 to 4 stars, run restaurants, where the quality of service is the same at a decent canteen, although, there are some exception, of course.”

Pavel Sozinov, executive director at the Association of Realtors of St. Petersburg and Leningrad Region, recalls with pleasure his dining experience at Brighton Hotel: “The hotel itself is quite cozy and comfortable, and the restaurant offers delicious and rich meals. There is a choice of two dining halls, one specializing in European cuisine, the other serving Russian style meals. The restaurant is open twenty-four hours a day.”

Alexei Kramarev, general director at St. Petersburg-based consultancy Torgovyye Resheniya, on the contrary, speaks with no enthusiasm of catering in Moscow hotels. “Hotels run by international operators serve meals that are expensive but edible, which cannot be said of medium-class hotels such as Kosmos or Izmailovskaya where catering is inconceivably poor,” Kramarev says. “It may seem that hotel managers do not care what their guests eat. That is why when I come to Moscow I spot a decent chain supermarket and buy food that I can eat in my room.”

Alexei Ananiev, financial director at Yekaterinburg-based development company Olips, often arrives in Moscow on business. “I stayed at Baltschug, Mezhdunarodnaya, Radisson Slavyanskaya and Marriott,” he says. “In my opinion, catering is equally bad and overpriced everywhere. No sane person will lunch or dine at a hotel restaurant if he has a choice. It is just that quite often you have no choice due to lack of time, or if you attend an event, held on hotel premises, that features a coffee break or a reception.”

Chairman of the Novosibirsk chain Holiday Classic, Alexei Zakharov, regularly visits the capital but rarely dines at hotel restaurants. As a rule, the quality of meals and service offered there leaves much to be desired, Zakharov says. His worst memories are of a restaurant at Izmailovskaya Hotel: “The quality of service and dishes has not changed since the 1980s.” A restaurant operating in Metropol, on the contrary, has left a good impression: “Everything is excellent there, the only thing to complain about, perhaps, is the size of the bill.”

Unlike freestanding stores, hotel restaurants focus largely on serving breakfasts, Smirnova notes. Lunches and dinners are of secondary importance as guests have a choice of restaurants operating outside. The only exception is closed resort hotel complexes whose guests have no such alternative.

Two in One

“A hotel provides a combined service including accommodation and catering, a restaurant being part and parcel thereof,” says Smirnova. “Unlike independent establishments, hotel restaurants cater, first and foremost, to internal consumers, i.e. hotel guests.”

“Spinning off a separate business to run a hotel restaurant is too complicated,” Kirill Irtyuga, general director at the RosEuroOtel management company, believes. “Although, outsourcing may be considered as an alternative. The practice of inviting spa centers to operate on hotel premises has already showed good results. The same could be possible for a restaurant. But considering that such establishments generate additional income for a hotel it is unlikely to be willing to share it with outsiders.” A hotel and a restaurant form a single complex run by a single operator. “There is no sense in creating an independent entity to run the restaurant,” Irtyuga concludes.

Hotel restaurants are a part of a hotel service package run by a special department, called food & beverage or a public catering department. Quite often the posts of a food & beverage manager and a head cook are filled by one person. That was the case, for example, at Marriott Royal Aurora, where Thomas Kessler, hired originally as a chef, oversaw catering services in the course of nearly twelve months. “Where a restaurant is only being launched at a hotel its food & beverage service is headed by expatriates, as was the case in the Marriott hotels, for example,” Starova says. “Today our restaurants, as well as hotels are run by the U.S. operator Interstate.”

One of the challenges the foreign operator had to deal with, Starova says, was to get across the idea to the local staff that they were working in a customer-oriented business. Graduates from hotel management schools come to work at the hotel, at once claiming managerial jobs and forgetting that at first they need to accrue experience and develop working skills.

Addressing the International Hotel Forum held in Moscow recently, deputy mayor Iosif Ordzhonikidze complained about lack of skills of Moscow hotel staff. The hospitality industry of the capital employs 28,000 people, which accounts for only 1% of the city’s entire workforce. Half of them are seniors who will reach the age of retirement soon. “Staff training is one of the most acute problems in the sector. For the time being, practically no measures are taken to address it,” the official admitted.

So far none of the hotel projects operating in Moscow has invited a famous restaurant chain to take over catering services on their premises. “Outsourcing is risky,” warns Marina Usenko, senior vice-president at Jones Lang LaSalle Hotels. “The hotel owner may lose control over the restaurant and grow dependent on the operator. For example, while the restaurant may agree to serve breakfasts under an agreement, he may refuse to provide any extra services.” Finally, an independent restaurant may change hands, revise the concept or suspend operations altogether, she warns.

“For the time being we have no reliable restaurant operators, equally successful in serving both breakfasts and a la carte dinners that is why hotel operators prefer to control their catering establishments on their own,” Usenko concludes.

“Moscow hotels refrain from inviting famous restaurant chains, although the situation may change in the future,” Starova says. “While the restaurant industry booming in Moscow, the local public is not yet aware of the world’s famous restaurant brands. On their part, international restaurateurs shun Moscow, where it is hard to find good suppliers while quality foodstuffs are very expensive. But by overcharging guests at hotel restaurants operators risk losing customers.”

Although, in truth, Starova is convinced, such tandems could be mutually beneficial. A hotel would get more clients, attracted by the name of the star chef while a restaurant would have a guarantee of stable takings. Smirnova recalls that several years ago a project was announced to blend hotels with the restaurant chain Rosinter, but the authors of the idea never proceeded from words to actions.

“Resturant chains who are quite mobile as such are more interested in freestanding units, even if those are operating in immediate proximity to hotel buildings,” she says. “Western countries, for example the U.S., have seen examples of cooperation between restaurants and hotel operators, but such tandems are to be seen only in moderately-priced hotels.”

“In Moscow today it is hard to surprise anyone with anything,” Starova says. “Our hotels are centrally located, with a large choice of all sorts of restaurants operating in the area. On the one hand, this is convenient for our guests, on the other they may decide to dine out always.” “It is hard to imagine that someone will prefer dining at a restaurant, simply for the sake of eating. Usually, those facilities are used as venues for business meetings and formal dinners,” Irtyuga agrees.

The main disadvantage of any hotel restaurant is its location, Manasyan believes. “It is always situated inside, sometimes even deep at the back of the hotel, and is not visible from the street. To enter the dining area potential clients have to negotiate a barrier in the form of a guarded fenced-in territory.”

“Quite often guests from the outside are reluctant to march across the entire hotel territory to get into a restaurant. Psychologically, they may feel awkward when entering a strange place, even more so if this place is a hotel; besides, they are not always able to find the way to the restaurant at once,” Karina Mirzoyan, administrative manager in charge of Marriott Grand’s public catering services, admits.

“Hotel restaurants always have to put up with certain restrictions as to the choice of location and interior,” Kuznetsov says. “Conventional freestanding stores are often located on bustling thoroughfares with huge passenger flows, while hotel restaurants do not enjoy such advantages.”

“Attendance at our restaurants depends on the time of the year, occupancy and even on weather conditions,” Mirzoyan continues. “For example, in summer many people move to their countryside houses, few residents remain in town for the weekend, that is why in those months we usually close our Russian cuisine restaurant altogether. Besides hotel restaurants can hardly compete with numerous outdoor diners operating across the city in summer. At Grand we used to run a summer verandah, too, but the only place where we were able to operate it was on the 2nd floor next to a reception hall, where it was not visible from the street, and few knew it existed. Attendance grew during promotion campaigns held by the hotel and dropped as soon as those actions were over.”

“At dinners in both restaurants operating at Grand we have approximately a total of 50 guests, on average, per day,” Mirzoyan has reported. “On the days of special themed evenings hosted once in every four weeks attendance may grow to 60.” “Outsiders” account for 60% of visitors at Grand, Mirzoyan says. At Aurora, 75% of guests are people who are not staying at the hotel. Most experts, however, say that such correlation is not typical of hotel restaurants.

Catering at conferences and receptions constitutes a good source of extra revenues for hotel restaurants. To that end, a special menu is devised depending on the budget of the event. Another source of additional income is offsite catering. Such services may bring good takings to the hotel.

“A hotel restaurant is closely connected with all other departments of the hotel,” says Kuznetsov, commenting on advantages of such establishments. “Conventional restaurants operate independently counting only on own resources, independently take measures to boost attendance, while hotel restaurants may rest assured that travelers staying on the premises will fill up their dining spaces at least partially.”

“Hotel operators often view their restaurants as a source of extra income. Those establishments are connected with the hotel through common utility payments, the scheme of operation. The demand for catering services is generated mainly by hotel guests,” Smirnova concludes.

Implicit Income

The restaurant business is not a core activity for hotel operators who receive income chiefly from providing accommodation services and organizing conferences, property analysts admit. “On the whole, a restaurant may be considered as an encumbrance for a hotel, as returns from its operations are considerably lower than from rooms,” Smirnova says. The cost of operating a hotel restaurant reduces hotel profits, she says.

“On the other hand, a successfully operating hotel restaurant creates conditions for holding various events and may bring stable extra revenues,” Kuznetsov says. “There are hotels where restaurants account for 30% of total income, while certain boutique hotels are able to subsist on revenues from their conceptual restaurants alone,” Usenko is convinced.

“On average, gross operating revenue from the restaurant makes up 25 to 30%; such investments are quite rewarding for hotel operators,” Romanov says.

“Operating a hotel restaurant is a costly business for a hotel,” Galitsyn notes. “For example, the cost of a catering project at a quality hotel providing 200 rooms stands at least at $200,000 to $300,000.” Such projects involve huge expenses ranging from payroll to acquisition of furniture, equipment, tablecloths, uniforms, napkins, etc. Approximately 30 to 50% of the hotel’s gross earnings are spent on organization of extra services, including those offered by the restaurant, he adds.

“Operating costs may run as high as 80% from total sales (salaries to waiters and cooks, the cost of food and beverages, etc.,” Usenko admits. But while restaurants are often viewed as a non-core business by many hotels dining establishments play an important role in hotel operations. Experts believe that the quality of service a guest receives at a restaurant shapes his impression of the quality of all other services available at the hotel.

“For example, if breakfasts are poorly served or the hotel offers no breakfast whatsoever, the guest will never return to that hotel. The more expensive is the hotel, the higher is the dependence,” Smirnova says.