1 Jan, 2001
Rising Food Prices Set to Impact on Hotel F&B Costs
Rising food prices are unlikely to affect Thailand’s attraction as a tourism destination, but are forcing change amongst both hotel food & beverage outlets as well as independent restaurants, according to Sanjog Modgil, President of the Food & Beverage Managers Association of Thailand.
As a rice-exporting country that is largely self-sufficient in food, except for imported products, Thailand stands to be much less affected than neighbouring destinations like Singapore and Hong Kong which are 100% dependent on imports, Mr Modgil said.
However, both hotels and the country’s vibrant restaurant scene are sharpening their pens in order to manage costs, retain customers and cut down on waste. He forecast some decline in the appetite for starting new restaurants as costs begin to bite.
Mr Modgil said rising food costs have affected meats like pork, chicken and beef, as well as vegetables such as broccoli, green peas and spinach, especially the imported varieties. Along with poultry products and rice, increases have ranged from 8 to 20% across the board.
Local produced items have remained largely unaffected. As it is highly unlikely that those costs will go down, coping with the situation has triggered both creativity and innovation, Mr Modgil said.
“We can see clearly that people are spending less on eating out. Those who would have once gone out 3-4 times a month are now cutting back to just twice,” he said.
With restaurants reporting 18-20% declines in revenue, and cash flow becoming a problem, Mr Modgil said he is aware of at least 2-3 restaurants closing down every month.
As a result, he said, there is a rush towards ensuring the loyalty of the 20% of clients who generate 80% of a restaurant’s business. Now, he said, “It’s all about making the art of the deal work and creating new markets instead of grabbing someone else’s.”
He said F&B outlets in both shopping malls and hotels have a competitive advantage over independent restaurants, as both have a larger captive market.
Restaurants in the malls attract customers because patrons can eat, shop, see a movie or take in some other form of recreation with one trip and one parking space – both important factors in traffic-choked cities and during times of rising gasoline costs. They are also supported by promotions by the malls.
Similarly, hotels make money from their room sales as well as their banqueting facilities for functions and meetings, as well as the restaurants and pubs.
Because their guests are a captive audience, hotels are becoming extra creative to get them eat mostly within the properties rather than outside.
This means quoting rates to tour operators with at least one meal per day included in the stay, creating more special offers, and developing creative ways to promote room-service dining.
Unlike air-fares with their constantly increasing fuel surcharges, restaurant menus cannot be adjusted with each rise in food prices, Mr Modgil said. Hence, different customer segments need different strategies.
He cited the rapidly growing Indian market. “You can take an Indian out of India but never take India out of an Indian,” Mr Modgil said. “Food is extremely important, and there can be no compromise. And there are many different styles of India involved. All of them have to be catered to according to their individual tastes.”
Room service meals are being adjusted to generate maximum sales by encouraging guests to do what they most enjoy – munching while watching TV. Other guests like the Britons want to drink, and they are being tempted through changes in the timings of happy hours.
Mr Modgil said menus are also being revamped to focus on popular items. High cost items like Phuket lobster or tiger prawns which can’t sell or have to be thrown away are being cut back. “The mantra is, ‘If you cant sell it, don’t buy it’,” he said.
Guests can also be enticed via early bird offers that offers discounted prices if they eat during specific off-peak hours.
He said that unless hotels have an in-house restaurant “that is really rocking,” banqueting is what makes money.
“The rest is all frills. Functions have to be held anyway, especially weddings. The high society weddings will always choose the best hotel as it is an ‘image’ thing for them. But middle class weddings now want good deals.”
He said banquets also are doing well since the national elections which have reignited the conferences, incentives and corporate meetings. There is also a trend towards healthier, lighter food with less fat and more salads.
He said apart from food price increases, hotel F& B outlets have been affected by curbs on alcohol and smoking. He said the lobby bar at the Amari Atrium hotel (where Mr Modgil is the Executive Assistant Manager) has seen a 55% drop in business as a result of the smoking ban in public places. Nobody likes to go outside the hotel just to have a smoke.
He said the number one cuisine in Thailand is Italian followed by Thai and Japanese, largely because Thailand has the largest Japanese community outside Japan.
Italian food will remain as always popular, thanks to its low costs and image as a non-elitist form of dining. Fine-dining restaurants will also do well as they are where patrons consciously decide to go well in advance – such as for celebrations — rather than at the spur of the moment.
Mr Modgil forecast that outsourcing will gain strength as hotels seek to cut costs by tying up with outside operators. Food courts are gaining popularity, and fast food will continue to make money due to the sheer volume of the business.
He said the situation is more difficult in the upcountry area where the catchment of local population is less, which forces more competition and hotels have to work harder at keeping guests in-house.
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