FRONT OFFICE OPERATIONS AND MANAGEMENT

OBJECTIVES ON THIS CHAPTER:

 

 

Historical origins of the lodging industry Various relationships between lodging ownership and management Three keys to a hotels success Importance of room sales

Hospitality industry is a fascinating and everchanging field.  Due to the many disparate disciplines functioning under one roof, hotels have been referred to as miniconglomerates  One is easily able to change industries because of the may skills learned in a hotel can be applied elsewhere


HOTELS PAST AND PRESENT

hotel - derived from the 14th century Latin word hoste or oste which evolved into todays English version of host, and a host too, is a place of lodging. It is a person or thing that provides something for a guest, usually lodging, and sometimes food. hostel is derived from host meaning an inexpensive inn.

Hostel then branched off to become hospes or hospitale; both are of 14th century Latin. These in turn have become hospice and hospital respectively. it is from hostel that hotel derives its most basic definition and describing its function, which is a place for travelers and others to spend the night. Hotels are different from hostels, as hospices are different from hospitals.

Today a hotel or resort is not just a hotel, but a hospitality business, as many hotels also provide fine dining restaurants, conference rooms, health clubs, and shopping malls, all intended to provide the guests with the most unique experience that can be offered in addition to solely providing a place to sleep.

THE BEGINNING OF THE HOTEL: 5TH CENTURY BC TO 5TH CENTURY AD

Prior to the 17th century there were basically two categories of hotels. 1. hotel (hostel, hospice, hospital) 2. resort/spa Initially, the hotel was just a temporary shelter for a weary traveler; it was a place to rest before one continued on their journey.

Resorts were intended to provide pleasure, social activities, and healthcare. first hotels were simply boarding houses (which eventually evolved into inns) located within a city or just outside it. boarding house/apartment building provided little in the way of service, amenities, food, or other things. just a place to sleep often in a communal setting with no privacy, and overcrowding was a major problem.

They essentially went unchanged for the next several hundred years. During the same time period, the most primitive resort was the Greek spa. They provided bathing as well as medicinal healing. Later in the 1st century BC, Roman bathhouses followed the spa became a place for social activities and pleasure.

HISTORICAL PERSPECTIVE
History of lodging can be traced back to the civilizations of Sumaria and ancient Egypt Reason for travel: trading between cultures Certain stopping points became favored out of necessity Areas where different tading routes intersected also became favored stopping points which grew into trading centers

When travelling over vast distances, people were limited by their mode of transportation and the supplies they could carry The journey segment by camel or horse was longer than by journey segment on foot Lodging facilities became a need. relay houses China khans Persia tabernas - Rome

As the history of lodging evolved, innovations began to emerge Innkeepers began to incorporate food and beverage service in their operations Roman network of roads crisscrossed Europe, parts of Asia and Africa New facilities began to emerge as an option for travelers Spare rooms in the castles and estates of the wealthy and landed aristocracy became a source of revenue

EXAMPLES: 1. English inns  Most often reserved for the aristocracy  Rented out individual sleeping rooms 2. colonial inns  Offered rooms to anyone who could afford to pay  Regularly offered large rooms with several beds inside

City Hotel 1st lodging facility considered to be a precursor of the modern hotel built in 1794 - a significant milestone in the lodging history because its sole purpose was to house guests Tremont House another significant event in the early evolution of hotels - 1st five-star hotel

MID-19TH TO THE EARLY 20TH CENTURY

Railroad: dominant form of overland travel in America  Brought people and supplies from the east  New junction points emerged which eventually evolved into cities like Chicago and St. Louis served as trading centers that needed lodging facilities


SAME TIME IN THE EAST CITIES(1908)

Ellsworth Statler opened the Buffalo Statler considered to be the first modern hotel because of the many innovations incorporated into his product - fire doors - light switches inside the door so that guests could enter lighted room

- private bathroom - key holes above doorknobs for easy access - hot and cold water in each room - full-length mirrors - morning newspaper

1950s : Mr. Statlers famous 2 contemporaries bought his company in spite its great success - Conrad Hilton - j. Willard Marriott

THE MOBLEYthe first hotel to carry the Hilton name in Dallas (1919) The Stevens the largest hotel of its time(1945) - renamed Chicago Hilton and Towers


1949: Hilton leased one of the most famous hotels of all time which he later bought outright Waldorf-Astoria founded by William Waldorf Astoria

Mr. Marriott began as restaurateur in Washington, D.C. - owned the Hot Shoppes restaurants became popular drive-ins - offered his first ever in-flight food service to airlines Eastern Air Transport served Marriotts first in-flight meal

1957 to expand the name recognition of his Restaurants, Marriot opened his first hotel


Twin Bridges His experience in food service gave a reputation for quality to his restaurants which added to the appeal of the hotel Today, Marriott is a widely recognized name with several hotel brands under management

While Hilton and Marriott were expanding their empires, US govt also expanded the nations highway system People began to drive long distances for vacations or visit friends and family Frustrated with the locations and varied quality of hotels on a family trip, Kemmons Wilson created the first Holiday Inn to provide a clean, low-priced room for families like his in Memphis in 1952

Wilson incorporated the theory of brand loyalty to his chain of hotels institutionalized preferences of a consumer for a product or service based on a brand name or logo
The

best surprise is no surprise

Considered to be the first hotelier to put two beds in one hotel room Today, Holiday Inn brand is part of the Six Continents Hotel Group

MARKETPLACE CONSISTENCY


1957: another modern hotel became a major name in the industry Hyatt House hotel - purchased by Chicago-based Jay Pritzker Hyatt Hotel brand name

- the HYATT REGENCY ATLANTA worlds first

atrium hotel A hotel that celebrated open spaces Developed larger, more luxurious hotels and stopped developing smaller ones Remains privately held by the Pritzker family but is a leader in the hotel and resort industry today

1960S AND 1970S

Another significant event happened Smaller hotels banded together to pool their resources by combining their individually small advertising budgets into one large one to create awareness on their own Referral organization an alternative to chain affiliation

Best Western best known

1980S - limited service hotel concept was

introduced Ray Schultz - Pioneers in this type of hotel - developed Hampton Inns

LODGING MANAGEMENT ASOCIATION

- relationship between ownership and management - classifies a hotel at a foundation level 5 basic lodging management associations: 1. owner-operated 4. franchised 2. Owner-managed 5. management 3. Independent contract

OWNER-OPERATED
The first type of lodging management association Run by an owner and the owners family bed and breakfast hotel: owner cooks the meals, cleans the rooms, and perform all such tasks Commonly referred to as mom and pop Facilities are limited by the size of the owners family

OWNER-MANAGED
Owner has hired additional personnel to help run the property Can be large or small Overall management remains with the owner but day-to-day operations can be in other hands Cant be affiliated with a chain so management association wont be altered

INDEPENDENT
Also not chain affiliated Owner has no role in management or day-today operations Independent group of managers are responsible for the hotels performance An independently managed hotel eliminates any potential conflict of interest

FRANCHISED
Independently owned hotels that affiliate themselves with a chain The owner(franchisee) pays franchise fee to the chain(franchiser) in exchange for the rights to use their name The chain provides SOP and other guidelines on administration so that a consistent level of quality and service is maintained

BENEFITS OF A FRANCHISE HOTEL:

1.National marketing campaigns 2. Access to a central reservation system(CRS) -provides the consumer with an avenue to locate a hotel of choice in a certain location -can generate significant demand for a hotel through brand loyalty by using an easy-to- find toll free numbers or websites 3. Franchise company will act as an agent on behalf of the owner and implement the franchise agreement between the owner and the hotel chain

Flying a flag use of a chains name, logo, and signage Reflagged when a hotel changes its association from one chain to another Costs involved in operating a franchised hotel: 1. Construction cost per room 2. Application fees 3. Franchise fees (royalties) 4. Marketing fees 5. Reservation fees

MANAGEMENT CONTRACT
Similar to a franchise, it is supplied with SOPs as well as quality and service level targets Hotels differ because they are actually operated by the company that supplied those standards The company offering the management contract is directly associated with the organization supplying the operational standards and guidelines

BENEFITS OF A MANAGEMENT CONTRACT:

1. 2. 3. 4.

Name brands CRS Marketing efforts Managers trained and supervised by the management company itself which brings wealth of experience to the operation * management fee is often greater than the franchise fee from the same chain for this reason

Owner retains less control as the management companies require higher levels of autonomy Performance expectations are higher Hotel chains can be involved in the ownership of a hotel Ownership and operation of a hotel are not mutually exclusive Ownership of hotels can simplify their operations

BENEFITS TO OWNING THE HOTEL YOU OPERATE 1. greater autonomy 2. Freedom However, ownership can expose an organization to potentially unstable factors i.e. real estate fluctuations and interest rates Stock prices could be depressed for reasons other than the hotel performance Analysis of core competencies reveal strengths and weaknesses

Core competency: run hotels not own them To address the issue: hotel companies reorganized ex. Marriott hotel split into 2 diffirent entities: 1. Host Marriott-handle ownership of the hotels and all their respective physical assets 2. Marriott Intl-focused on growing the management contract and franchise segments of their business

NONAFFILIATED MANAGEMENT COMPANIES Also offer management contract to owners These are organizations with no tie to a chain, but also offer hotel management and operational expertise in such the same way a chain would. Owners prefer these types of arrangements because they allow for greater flexibility operation

NONAFFILIATED MANAGEMENT COMPANIES Cannot offer much in terms of natl marketing or CRS support but can be very flexible in operations and more effective at implementing change than the larger chains. Lack of a model to base expectations on often allows for more freedom

Revenue Sources

Successful and profitable operation ultimate goal in the hospitality industry maximized all its revenue sources to the best of their potential

Revenue source the result of a product or service a hotel makes available to guests for a price. 3 main revenues sources: 1. Sleeping rooms 2. Meeting/function space 3. Outlets/ancillary revenue sources

Sleeping rooms
-

traditionally the main product of any hotel It is defined as one of the accommodation units since the primary purpose of a hotel is to provide accomodations.

Room rate price of each accommodation unit Occupancy the measurement of how many rooms are sold each night versus how many rooms the hotel has available to sell - viewed as one of the most important to overall hotel performance

Meeting/Function space
Meeting

rooms/function rooms are utilized for any type of group function can be a meeting , meal, dance, exposition, or any other gathering of more than one person.

Revenue sources from meeting or function space come from: 1. Selling the space for a specified period room rental-proceeds from the renting of these rooms 2. Providing the food and beverage service in these rooms revenue is called banquet/catering revenue

Outlets/Ancillary revenue sources

Outlet a food and beverage point of sale. Ancillary revenue sources are revenue sources outside of sleeping rooms or food/beverage can be a hotels business center, golf course, tennis center, audio/visual services, or gift shop.

Other ancillary revenue sources: - In-room services like movies, mini bars, telephone service *sleeping room most profitable portion of all the products and services sold in any given hotel because of its profit margin

Profit margin is determined by comparing the sales revenue versus the costs incurred in providing a service or a product. * To fully understand why sale of rooms is vital, one must conduct an analysis of the cost of a sleeping room

Room cost - Components are heat, light, power, labor costs, overhead costs (pls. refer to page 16 for the breakdown) actual cost $31.00 Room cost = ------------------- = -------------------room rate $150.00 = 21 % Room rate room cost = Profit

Food cost
-

the cost of a particular food item in relation to the price for which it is sold. Often measured as a percentage

Food cost percentage the percentage of the profit taken up by the actual cost of the item

purchase price Food cost =----------------------------menu price example: food cost of steak $5.95@ =--------------------- = 27.0% $22.00

Comparison of profit margins:

Item Purchase price menu price Steak $5.95 $22 Chicken $3.95 $17.95 Salad $1.99 $9.95 Room cost Sleeping room $30 profit margin $16.03 $14.00 $7.96

room rate PM $150 $120

Opportunity cost

* Sleeping rooms are considered a perishable commodity. Each night, when a room goes unsold, the hotel loses that opportunity to ever sell it again. A hotel cannot regain that opportunity. A hotel inventory expires on a nightly basis.

Advantages of catering sales and food/beverage sales:

1. 2.

Food sales can be ordered based on projected demand Unprepared food can be stored for future sale

Empty Room Theory once a room goes unoccupied, it is gone forever.

Captive Audience Quotient

guests who are staying at the hotel and will, for convenience and lack of other options, utilize the outlets in the hotel.

Group catering contribution

-

is defined as the catering business acquired by a hotel that has all, or a major portion of, the attendees staying at the hotel itself. Has direct impact on the catering operation of a hotel