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Middle East hotels’ F&B segment remains a strong earner despite pressures: panel

ABU DHABI: The Middle East hotels’ food and beverage segment contributes strongly to topline numbers despite operational pressures and challenges to the hospitality industry. 

“This region still has quite a strong proportion of the revenue capital that comes from food or beverage … So when it comes from a percentage perspective and in fact, if I widened it to the Middle East, about 40 percent of hotel revenue is dumped into the beverage. So it’s certainly a really important factor for investors in this region,” Michael Grove, chief operating officer of industry benchmarking outfit Hotstats, said on the opening day of the Future Hospitality Summit in Abu Dhabi. 

The three-day industry event gathers over 1,000 hospitality leaders around the theme “Focus on Investment,” with over 150 speakers expected in panel discussions, one-on-one interviews, roundtables and innovation pitches. 

The region has seen a “dramatic growth in average rates or rooms performance,” Grove said, such that some indicators, when indexed on a 12-month rolling trend, showed that a big chunk of revenue stream among UAE hotels came from beverage sales. 

Another trend, according to the Hotstats executive, was the resurgence of conferences and events: “You know competition is coming back.” 

“We have seen certainly … the fears we had during the pandemic as to what would happen due to hybrid working (and) all of the other things, and how that would impact not just restaurants but, of course, the actual spending on the conference. It is again a huge chunk of revenue from the large hotels in the region,” Grove said. 

“What we’re looking at is how much things have changed versus pre-pandemic by area of the business. You can see we’ve seen growth in all areas of the business. But actually that chunk of food or beverages … that we’ve really seen a bit of a decline. 

“There is a lot more ability for people to eat and drink outside of hotels now, which again, going back a few years ago, hotels were the real place people could go. You could eat and drink in your bedrooms again; this region, I think, really maximized that opportunity,” Grove continued. 

He added that food and beverage profitability has become a challenge even in some parts of Europe, where hotels return as low as 12 percent profit margins. However, the Middle East region is “still significantly higher than that.” 

But Middle East hoteliers nonetheless have been able to offset cost challenges — such as the cost of inputs and labor — by making significant operational changes to run more efficiently during the pandemic. 

“Actually, we can see from the numbers that there’s been quite a shift in the way that we operate through the beverage industry. We definitely operate more efficiently, and I don’t think to the detriment of our hotel performance,” Grove said. 

In one of the discussions at the event, food and beverage executives said celebrity chefs and their accompanying franchises were important from a performance standpoint, but due diligence was needed because franchising is a long-term commitment and very difficult to disengage. 

“A lot of people sell franchises with all due respect, but what’s the sign … that you get that top-notch service on any franchise that is signed up with?” asked Marvin Alballi, the head of food and beverage at Arenco. 

“We need to also understand if the brand fits in the local market… to understand if there’s going to be some traction and if the brand has a huge amount of followers and get attractive, specific training.” 

Tatiana Veller, managing director at Stirling Hospitality Advisors, meanwhile told the panel: “As asset managers, definitely our function is to make sure that every square meter on the property that industry builds makes money for them … and this little secret, of course, is that profitability for the food and beverage square meters is declining.”

Speaking on labor issues, she added: “Your outfits are only as profitable, and you can only deliver … to the extent that you can bring the right people in. And it has been a huge issue here and continues to be a huge issue. Yes, our margins are good, but it’s still difficult to hire high quality that can deliver that power and service.” 

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