U.S. consumers have not only been paying more for their rooms in full-service hotels so far this year, they have also splurged on extras as spending on food and beverages, or F&B, has doubled year over year to more than $100 per occupied room. This is in addition to the average room rate of $253, which is now $67 higher than a year ago, an increase of 36%.
The even better news for hotel operators is that the higher room rates often have few additional costs associated with them. Costs for reserving, checking in and out and cleaning rooms are not dependent on the room rate but simply on the number of rooms sold. In contrast, higher F&B revenues are normally not a function of higher prices but of guests ordering more entrees or drinks. This implies more expenses and the need for more labor, therefore not all the increases in revenues fall to the bottom line.
The incremental departmental profit margin in the rooms department is around 80%. The additional $67 in average room revenue translated to an incremental $53 in departmental room profit. However, of the $56 in increased revenue per occupied room in F&B spending, only $24 registered as incremental departmental profits.
Compared to the first five months of 2019, full-service hotel room rates have increased by an average of $33. Departmental profits in the rooms department grew by $27 on average, so more than 80% of the increase in rooms revenue was converted to profit.
The F&B average spend of $109 is near the 2019 spending average of $108, and departmental profit is the same as it was three years ago, around an average of $34. While certainly a welcome recovery, there has essentially been no incremental revenue or profit growth in the F&B department over the past three years.
Examining luxury-class hotels shows a similar picture. In the first five months of 2022, the average incremental room revenue was $122 compared to 2019, of which $102 was incremental departmental profit. The average F&B revenue climbed by $24, of which $10 was additional profit.
Looking ahead, the continued strong room rate increases should continue to lead to more incremental profits for hotel operators, even as the higher cost of food and labor will put pressure on F&B margins.