Hungry for more

Rising food costs, shrinking labour resources and increased competition is a difficult pill to swallow for many F&B managers currently operating in the region.

But for many, the situation is creating an environment where only the fittest survive, and the best ideas are being rewarded with client loyalty and increased market share.

“Without exception, we have seen a price rise for every item that we offer on our menus from meat to vegetables to dairy products,” says Novotel and Ibis World Trade Centre executive chef Timothy Kairu. “As a hotel in the Middle East, we are particularly affected because nearly all the food items we use are imported.”

Kairu’s concerns are shared by many F&B directors in the region. The combination of the current economic instability and soaring food costs is taking its toll on the profit margins of catering events, and F&B directors have found themselves on the front line.

They need to put in place cost-effective solutions that do not affect the overall quality of their menus.

“Rising food costs are definitely hitting the bottom line,” agrees Radisson SAS Hotel Muscat assistant F&B manager Yash Singhal.

“In a market like Oman, it’s becoming extremely tough to offer quality products at reasonable prices and meet guest expectations. Also, many of our products are imported. The combination of rising fuel prices, rising food prices and export restrictions in a number of countries has intensified the problem in the Middle East.”

According to Kairu, the cost of food has risen by 22% over the last 10 months and Singhal reports a staggering 43% increase in fish prices this year.

These increases are particularly sensitive to economic fluctuations because the limitations of local agriculture have made Middle Eastern hotels somewhat reliant on imported goods – and therefore at the mercy of economic conditions.

Positive outcomes

Hotels have been working hard to restructure their large scale catering events in an effort to retain their overall profitability – with some surprisingly positive outcomes.

Grand Hyatt Dubai’s executive chef Josef Miklavc and food and beverage director Till Martin report that price increases have actually invigorated their business practices and refocused their menus.

“The price increases made us re-evaluate our relationships with suppliers and also brought us into contact with new suppliers,” they explain.

“In addition, we discovered more options to make more use of local products instead of imported products without influencing the quality of our offerings.”

Similarly Crowne Plaza Muscat F&B manager Cedric Gaillard has found that the re-evaluation of his business processes has led to a more dynamic and integrated departmental structure.

The hotel has recently regrouped all the revenue generating departments together including food and beverage, conference and banqueting, reservation, and sales and marketing.

Gaillard explains that this restructuring has facilitated the flow and speed of information within these departments, providing better customer service and growing the revenue and profitability of the hotel.

In turn, this has increased the demand for large scale catering events which has offset the price increases in food over the last year. For example, Gaillard notes the increasing demand for residential meetings, which has maximised the revenue for the entire hotel.

“Ultimately, our strategy has always been to focus on quality regardless of the cost pressures,” says Gaillard. “In the long-term this has resulted in a more successful and profitable food and beverage operation.”In an area of the industry marred by stories of economic gloom, it is refreshing to hear that hotels are taking a positive attitude towards rising costs by refusing to compromise on quality.

Managers are acutely aware that, even if price increases impact upon the bottom line, effective food and beverage events can still add value across the business.

“Depending on the event, large catering events can be a big image boost for a venue, even if it doesn’t generate great financial rewards,” explains Rotana Hotels corporate vice president of food and beverage project development Hans Herges.

“Not all venues are able to handle this type of event and there are lots of hidden costs, but any hotel with good operating standards can still make money out of this type of business.”

The need for analysis

With budgets tightening, hotels need to make more detailed cost analyses for their large scale catering events. Venues need to find cost-effective ways of meeting their customers’ expectations without compromising on quality.

Hotels may also need to make better use of their current facilities, make more provisions for live finishing stations or order prudently to minimise wastage. In other words, F&B directors need to take a more analytical approach to their sales and cost data in order to maximise an event’s profit margin.

According to Rohit Talwar, co-author of The Future of Travel and Tourism in the Middle East, the industry is going to have to make more sophisticated use of its data to analyse and forecast demand.

“Understanding the quality of the customers’ experience, consumption per head, and accurately estimating the percentage of no-shows will help to accurately forecast food and beverage consumption at a large scale catering event,” he explains.

“Managers need a detailed understanding of the input costs to enable them to budget more effectively and maximise profit in a range of scenarios.”

Of course, Talwar’s suggestion is a good business model for the industry regardless of the current economic condition.

It could be argued that food and beverage directors in the region have become accustomed to low food prices over the last decade and have built their business practices around this phenomenon.

Although the current spike in food commodity prices has been acute, it is not out of line with the pattern that has emerged over the last three decades, and considering the Middle East’s precarious exposure to fluctuating food prices, these increases are nothing new for the industry.

“High food cost has been an issue for the industry in the past and will be in the future,” says Herges. “It’s an ongoing concern for any gastro organisation and has to be dealt with.”

To retain the profitability of catering events at all levels, Herges similarly advises a more analytical approach to data. He suggests that the day-to-day food cost should be closely monitored and efficiency saving measures should be introduced gradually.

“Food cost percentage shown at the end of the month is a useful indicator but should not trigger panic if it’s above the approved budget,” he explained.

“Instead, we protect our profit margin by continually engineering our menu. We regularly analyse our menu sales report, placing an emphasis on the actual number of dishes sold (the contribution margin) and adjust the menus if necessary. It provides a good overview and helps to balance the general cost factor.

“An experienced manager knows that he or she needs to look at the contribution margin, which shows the actual amount of clear profit generated by individual dishes. For example, a lower cost product like chicken could be sold with a higher mark up yet at a reasonable price – this increases the volume sold. An expensive product like veal tenderloin is sold with a lower mark up, but a higher sales price still contributes to a higher cash profit.”

Ambient kicks

One trend that has emerged across the region is the idea of adding value for the customer in other areas of the dining experience. This idea has gained momentum throughout the industry because it taps into an area of consumer demand that is not heavily exposed to food price fluctuations.The introduction of “ambient kicks” has become the mainstay of large scale catering events, with the introduction of more live cooking stations and an emphasis on the catering experience.

These solutions not only provide a visual dimension to the events, but also allow tighter control over food portioning.

Suppliers have also noticed an increase in orders for large contemporary objects designed to add the “wow” factor to large-scale events.

For example, supplier Desert River report a strong demand for their large illuminated ice boxes and bars which have proved so popular at events that many hotels are now incorporating the products into their permanent buffet displays.

Although hotels clearly understand the importance of these ambient kicks at large scale catering events, it hasn’t stopped them from focusing on the value of good quality customer service.

“Providing our customers with superior and personalised service has always been an idea that has worked for us,” explained Singhal. “You will always see repeat custom if you do this properly – even if your competitors are charging less.”

From his industry-wide perspective, Talwar is concerned that improving customer service may not prove to be the easy fix that hotels are hoping for. In fact, it could turn out to be a more expensive solution in the long run.

“This is proving tough for many businesses because of the difficulties in attracting high-quality staff. Improved service is important, but may not offset a customer’s concern about being over-charged at an event. Although this is an area where hotels can add value, there’s also a cost associated with delivering it,” he says.

Finding new ways

In the search for cost-effective solutions, some new products and ideas are also finding their way into the kitchen.

For executive chef Kairu, ready to use frozen pastries and half-baked frozen breads are among his favourite new products in the marketplace because they reduce the preparation time without affecting the overall quality of the final product.

“The new frozen breads and pastries have proven to be successful because most pastry kitchens are constrained by their size and are simply not able to produce lots of baked items and desserts at the same time,” he explains. “Also, from a health and hygiene point of view, it is better to handle pre-cooked items than raw ones.”

However, the savings made by reducing preparation time at large scale catering events could soon be offset by an increase in the product’s price, ultimately reducing the commercial viability of large-scale catering.

“If food prices continue to increase in the same way that we have seen over the last year, I believe there will be a knock on effect for large scale events,” Kairu continues.

“The menu price for these events could soon become cost-prohibitive and chefs may be forced to prepare menus with a smaller selection.”

Gaillard has his own solution to this problem: a complete overhaul of how large scale catering events are delivered at the Crowne Plaza Muscat:

“We are preparing to make a transition from the buffet set up to set menus,” he outlines. “Once the hotel’s operations are better prepared for this type of service, we will implement it. This type of service would enable us to more efficiently cost-control large events and ensure that customers receive innovative dishes prepared to a high quality.”

Gaillard’s bold decision is a necessary move in the current climate. The catering industry at large has become accustomed to low food prices for over a decade, but now the party could be over.

As food becomes an expensive commodity, it is essential for food and beverage managers to adjust their business models accordingly.

Evidently, there is still money to be made from these types of events so long as managers can find ways to keep driving demand – in Dubai especially, this should not be difficult as Miklavc and Martin remind us: “There is definitely a bright future for large hotel-based events thanks to the influx of multinational companies into Dubai and their need to meet and expose themselves”.

Perhaps the party has really only just begun.