Hotels with or without a restaurant: comparing the business models
Rising staff costs and the difficulty of finding qualified people are leading many hoteliers to close the in-house restaurant and move to a bed-and-breakfast model. That decision can be a winning strategy, but it can also be a risk to the business, depending on a number of decisive factors. Chief among them are the number of rooms, the property’s location (seaside resorts, historic cities or the mountains), the profile of the target clientele, and the plans for growing the business in future.
The main differences
Running a property with a restaurant and running one without demands a different level of involvement and different skills from the operator. One of the main differences lies in the time and resources the owner has to devote to the business. In small and medium-sized hotels, there is often not enough budget to hire a food and beverage manager, which leaves that responsibility with the operator. They therefore need not only the skills to manage and sell rooms, but a solid grounding in food service as well — necessary not merely to deliver an adequate service, but above all to stop the restaurant becoming an unprofitable cost centre. That said, hotels with a restaurant have greater revenue potential, since they can attract a wider clientele and offer additional services that increase income.
Having a restaurant in the hotel means taking on a significant number of extra staff, for both front of house and the kitchen, with a corresponding rise in operating costs. It is important to recognise, however, that removing the restaurant does not simply reduce the costs associated with it. Running on a B&B basis can introduce further operating costs in other departments, such as housekeeping. This is because a shorter average stay requires greater room turnover, which increases the workload for housekeeping staff and pushes up the costs tied to linen changes and general maintenance.
Size and location of the property
It is natural to treat the number of rooms as a decisive factor, since a small number of units may not generate enough revenue flow to cover the high fixed costs that come with running a restaurant. The figure varies depending on whether the food service is offered only to hotel guests or to outside customers as well — something we will look at in the final section of this article.
Location also plays a crucial part in the decision to keep or drop the restaurant. In historic cities, for example, the B&B model often wins out thanks to the wide range of services available in the area, particularly where the surrounding streets are full of well-regarded restaurants. In seaside resorts the picture can vary considerably: if the hotel sits in a lively, well-served area, the same reasoning that applies to historic cities holds just as well. In more isolated, natural settings, however, having an in-house restaurant can become decisive for the property’s success. Finally, for mountain destinations the logic resembles that of seaside resorts, but it is highly likely that — where the number of rooms allows it — the restaurant will form a fundamental part of the offer. That is especially true given that, unlike historic cities and coastal areas, mountain locations tend to have a lower density of restaurants and food service.
Prospects for growth
This point connects back to the difference in the time and resources the two operating models demand. Choosing the B&B model makes horizontal expansion — acquiring and running further properties — considerably easier. Lower operational complexity and more contained investment costs allow a single operator to control several properties. The same is possible for hotels with restaurants, but that option would require significantly more of the operator’s time, or a manager hired for each property.
Another aspect to weigh up is how close the properties are to one another. For logistical reasons it is ideal for the hotels to be near each other. Opening several B&Bs in distant locations would not necessarily require a manager for every single property, though; in many cases one manager for every two or three properties could be enough, particularly with small and medium-sized hotels. This approach keeps management costs under control while still allowing effective expansion.
A third option
Many hotels are getting good results by separating the hotel and the restaurant, running them as independent businesses. Rather than offering full board or half board, they prefer to sell the stay on a B&B basis alongside an à la carte menu in the restaurant. It turns out that even guests who book on a B&B basis often choose to eat at least one meal in the hotel’s restaurant. Although these guests do not use the food service every day, the B&B model generates greater guest turnover, which in turn creates more opportunities to bring new customers into the restaurant.
To adopt this strategy successfully, it is essential for the restaurant to develop a strong identity distinct from the hotel’s, so that it draws in not only hotel guests but outside customers and local residents too. This approach can help grow the restaurant’s turnover by broadening the audience it speaks to.
Comparison
| Hotel with restaurant | Hotel on a B&B model | |
|---|---|---|
| Operating costs | High: more staff and more supplies | Lower: less spend on direct operations |
| Guest turnover | Lower turnover, longer stays | Higher turnover, shorter stays |
| Revenue potential | Higher, thanks to food and beverage | Limited to the room night |
| Horizontal expansion | More complex: needs more resources and staff | Simpler: leaner operation |
| Appeal to local customers | The restaurant can also attract outside customers | Limited to hotel guests only |
Conclusions
In light of all this, the decision to run a hotel with or without a restaurant is not only a strategic choice but a personal one for the entrepreneur. There is no universally correct answer: both options offer great potential, depending on the characteristics of the property, its location and the entrepreneur’s own ambitions. The key to success lies in adapting the operating model to your own needs and objectives, and making the most of the opportunities the market offers.