Squeezing revenue beyond hotel rooms

Hoteliers are starting to realise that room rates alone can’t drive the profits they need. As many reach a ceiling when it comes to average daily rates (ADR), there’s a question mark hanging over how to boost the bottom line. It has to come from other revenue streams, but many are struggling to make this work. Here’s a closer look at where the opportunities lie.

Hotel room rates have been increasing for a while now. Revenue Per Available Room (RevPAR) is up by 17% in Europe compared to January 2020 (HotStats). Estimates of the increase ADR in high end hotels suggests a 50% increase since pre-pandemic levels (Travel Weekly). But hoteliers are increasingly aware that these rates cannot continue to climb indefinitely. With escalating running costs, they need to find ways to improve the earning potential of their properties. But how?

At a Hospitality Discussion event in September 2024, Travel Market Life gathered over 20 hoteliers and industry experts to delve into five core industry issues which are available through a five-part podcast series. In the second episode, we look at where there is potential to drive more revenue in hospitality and accommodation businesses when the ADR has been maximised. And other than occupancy, how can hotels increase spend per guest?

Food and Beverage (F&B) offerings need a boost

The first place many hotels look towards for extra revenue is F&B. But this is an area that is struggling, and F&B revenue in hotels has only increased by 5% since 2020 (HotStats).

A key factor impacting F&B profitability is the shift in guest behaviour post-pandemic. The once-lucrative food revenue from meetings and events (M&E) in particular has declined sharply, affecting overall profitability. And while restaurant, bar, and lounge revenues have rebounded since the pandemic, hotels are simply not achieving meaningful growth in this area. This is compounded by increased costs in the F&B sector, including food, labour, and operational expenses.

Guest preferences have evolved considerably in recent years, with a growing focus on personalised experiences and technology integration. Today’s guests seek more than just a meal; they look for a complete experience, including ambience, service quality, and customisation. “People nowadays are more inclined to pay for a dining experience rather than just food for a meal,” Jon Siberry, Group Revenue Manager of Sarova Hotels explained. “They are paying more for the experience rather than the nutritional value.”

Themed dining is one way of doing this, and opens up opportunities for commercial partnerships too, such as the Bridgerton-inspired high tea with Netflix at The Lanesborough. “It sounds great, and it’s tied into something known,” said David Ohandjanian, Director of Up Hotel. “It gave people a reason to come, and that worked really well. Hotels need to entice people in.”

Technology is also playing a significant role in meeting these evolving guest expectations. “People are getting far more interested in tech from a guest perspective and how that can help the customer experience,” explained Scot Turner, Founder and Managing Director of Auden Hospitality. “That doesn’t necessarily mean QR codes on tables, but introducing ways that it can speed up service is definitely helping – from a profitability and from a guest experience perspective.”

Hotels can also boost their F&B revenue by emphasising local and authentic culinary experiences. Guests now expect more than generic hotel menus; they crave authentic dining experiences that reflect the destination’s unique culture. However, it’s crucial to balance authenticity with variety, especially with in-room dining. While there is a growing demand for healthy and wellness-focused options, guests still expect indulgent choices. Therefore, offering a diverse menu that caters to various preferences is essential.

“When it comes to F&B, understanding consumer behaviour and habit [is important],” Turner said. “Training is important. I think being able to make sure that your guys are going out and trying independent restaurants – seeing what’s on the market and understanding that in real life – is super important.”

For city hotels facing competition from diverse dining options, outsourcing their restaurants to local food businesses can enhance the dining experience without the burden of running an in-house restaurant. Hotels can partner with food delivery services like Deliveroo to offer guests more choices. This enriches their overall experience, and may tempt them to stay on-site for longer, where they’ll spend money on ancillary services.

The key with F&B is to use data to really understand where the specific opportunities are. “We all have a lot of data, but getting that data out of our existing systems is a challenge,” said Catt McLeod, Vice President Brand Development at Elegant Hotel Collection. “We need data analysts to help us understand the lost opportunities with food and beverage.”

The power of wellness and untapped space

Another growing focus in hotel revenue generation is integrating wellness. Hotels that offer wellness facilities like spas, pools, and fitness centres see a noticeable impact on guest spend. For many hotels, wellness has previously been an afterthought, or fitness facilities have simply been listed as being on the premises. But hotels that make much more of this, offering packages that combine room stays with spa treatments, boost their overall revenue.

Personalisation is becoming much more important across all elements of hotel operations – and it’s becoming increasingly possible thanks to technology. Being able to segment and target audiences based on their preferences – for example, those who have an interest in wellness – can drive revenue and secure repeat business.

“We’re seeing personalisation is really becoming important to build that repeat business, because acquiring guests is becoming harder and harder,” Turner said. “So, looking at profiles of guests, looking at how you can really start talking to those people. And looking at how you can get your teams to automate as much of the guest communications as you can to start really working on that loyalty.”

The importance of wellness also loops back to F&B services. Hotels that provide healthy eating options in F&B outlets and on their room service menus can cater to the increasing demand for wellbeing among guests. “We’re seeing a lot more demand for healthy eating from rooms,” Turner shared. “If you haven’t got QR codes in bedrooms for food, you’re missing an opportunity.”

Wellness isn’t the only area that has not historically reached its potential in hospitality venues. Hotels tend to have many pockets of unused or underused space, that could actually turn into lucrative revenue streams. Renting out spaces as coworking areas, for hosting events, and for short-term storage could all be options. Hotels that have car parking spaces could rent these out too. This approach optimises the use of space and gives hotels vibrancy and buzz. And it creates additional, much needed income streams.

Sustainability touches everything

Underpinning most discussions about hotels these days is the issue of sustainability. But some haven’t caught onto the fact that it can drive revenue as well as do good in the world.

Adopting sustainable practices, such as using LED lighting, implementing energy-saving measures, and supporting green initiatives, can attract environmentally conscious guests while reducing operational costs. So if a hotel’s room rates have reached a ceiling for now, profit margins could increase with some cost-saving sustainability measures in place.

Electric vehicle (EV) charging stations are increasingly in demand, yet only 6% of city hotels in the UK currently offer this facility (Zapmap). By providing EV charging, hotels can attract guests who drive electric vehicles and support the growing movement towards clean fuel. And they can potentially increase F&B spend as guests wait for their cars to charge.

In the current hospitality landscape, enhancing revenue needs to be driven by strategies that go beyond room rates. F&B is becoming a tougher market, but there can be great rewards for those who do a bit of fine tuning with their offer. Ancillary services, wellness facilities and sustainability practices can open up new revenue streams and meet evolving guest expectations too. Data can help to drive all of this. To maximise revenue and profitability, hoteliers must have a deep understanding of their data and market trends. “There are tech platforms out there now that can really help,” Turner said. “It really does help put pennies and pounds onto the bottom line.” Personalisation, technology integration, and knowing keeping on top of trends are ultimately key to achieving sustained profitability.