Freebies - Hotels Give Some Things for Nothing - By Robert Mandelbaum
2011-04-20
If guests are going to criticize hotels for 'nickel and diming' them by
charging resort fees and surcharges, then they should also be aware of
the services and amenities that U.S. hotels provide on a complimentary
basis.
In 2009, a select sample of hotels that routinely offer gratis services
to their guests spent an average of $723 per available room (PAR) to
provide complimentary food, newspapers, and cocktails. This is the
actual cost to the hotel, not the theoretical "retail value" of savings
afforded to the guest.
The data comes from an analysis of rooms department expenditures for
Complimentary Services and Gifts (GSG) at 1,600 properties in our Trends® in the Hotel Industry database. The Uniform System of Accounts for the Lodging Industry
defines Complimentary Services and Gifts within the rooms department as
the provision of "items used in gratis presentations for promotional
purposes to guests...." Examples include newspapers, breakfast, manager's
receptions, and fruit baskets. Not included in this expense category
are complimentary guest supplies (such as in-room toiletries, writing
materials, bottled water, and coffee), the cost of free internet access,
or the labor costs associated with these gratis offerings. Obviously
the addition of guest supplies, internet access, and labor costs would
raise the $723 PAR figure significantly.
The following paragraphs provide further insights into the complimentary service and gift offerings found in many U.S. hotels.
Rising Standards
During the depths of the industry recession in 2009, expenditures for
Complimentary Services and Gifts were cut, along with most other
operating expenses in the rooms department. From 2008 to 2009, CSG
costs declined 6.4 percent in the study sample. However, when measured
on a dollar per occupied room basis (POR), Complimentary Services and
Gifts expenses actually increased 1.9 percent during the year.
During the recession, in an effort to preserve rate integrity, "value"
became a significant marketing factor. To retain market share and guest
satisfaction in 2009, hotel managers steadfastly maintained the same
level of CSG offered prior to the recession. In fact, most hotel
companies raised their standards for complimentary breakfasts and
cocktail receptions, the two largest components of CSG expenditures.
Not Just Suite Hotels
As expected, all-suite, extended-stay, and limited service hotels
dominate the number of properties that offer complimentary breakfasts
and cocktail receptions. However, it should be noted that 18 percent of
the properties in our survey sample are resorts and full service
operations.
All-suite hotel managers (not including extended-stay properties) spend
the most on Complimentary Services and Gifts. On average in 2009,
$1,251 PAR or $5.16 POR was spent at these properties. This equates to
3.5 percent of total revenue. The offering of a full hot breakfast
buffet and evening manager's reception contributes to the relatively
high expenditures at these hotels.
Somewhat surprisingly, the second greatest dollar amount of CSG among
the different properties types was spent as resort hotels. In 2009, CSG
expenditures at these properties averaged $893 PAR and $4.27 POR. It
can be assumed that the stigma against luxury resorts during the
recession forced these managers to increase their value proposition by
offering gratis food and beverage, a service not historically provided
at these hotels.
In aggregate, extended-stay hotel managers spent an average of $808 PAR
on Complimentary Services and Gifts, or 3.2 percent of total revenue.
However, these figures vary depending on the market position of the
extended-stay brand. For upper-tier extended-stay hotels that offer a
both a full hot breakfast buffet and a manager's reception, CSG costs
averaged $956 PAR. However, for the lower-tier extended-stay properties
that just serve a simple continental style breakfast, these
expenditures averaged $192 PAR.
Limited service hotels comprise the largest segment of property types
that offer complimentary guest services. These operators typically
provide a gratis breakfast, but no cocktail reception. Accordingly,
limited service CSG costs averaged $532 PAR, the lowest average level of
expenditures among all property types.
While managers at full service hotels typically do not offer
complimentary breakfast and cocktails on a routine basis to all guests,
they do operate concierge lounges that provide gratis food and beverages
throughout the day. Among the full service and convention hotels that
reported CSG expenses in our Trends® survey, the average expenditure was $557 PAR, or 1.2 percent of total revenue.
Based on our firm's December 2010 Hotel Horizons® forecast, an
estimated 30 percent of all hotel rooms occupied in the U.S. in 2010
were accommodated in the Midscale without F&B and Upscale
chain-scale segments. These two segments are dominated by all-suite,
limited service, and extended-stay hotels, the property types at which
complimentary services and gifts are found. In addition, these segments
have historically demonstrated strong growth in demand. Hotel guests
are increasingly expecting complimentary breakfast, as well as other
services not considered in our analysis (i.e. free WiFi). Consumer
preferences will most likely result in significant growth in the cost of
Complimentary Services and Gifts in the future.
Robert Mandelbaum is the Director of Research Information Services
for PKF Hospitality Research. He is located in the firm's Atlanta
office. For more information on the Trends® in the Hotel Industry
report, please visit www.pkfc.com/store. This article was published in the March 2011 edition of Lodging.