Running a successful hotel business is a complex endeavour, which can be further complicated by the necessity of operating a food-and-beverage outlet that appeals to both guests and locals. This particular challenge has led some hotel operators to lease out their restaurant spaces, leaving the operation to restaurant professionals.
“Pretty much all of [our hotels] have a restaurant and we lease out all of them except for one, which we run ourselves,” says Mandy Farmer, president and CEO of Accent Inns, which operates eight hotels under the Accent Inns and Hotel Zed brands. “Running a restaurant is a lot of work with little return. We decided we’re passionate hoteliers — why don’t we leave the restaurant business up to the passionate restaurateurs out there? We’ll focus on what we do best and the restaurateurs can focus on what they do best.”
“The restaurant business is the penny business and having a manager running it is sometimes not as effective as an entrepreneur who has the house and mortgage on the line to make sure it’s successful,” agrees Jeff Hyslop, senior vice-president – Asset Management for Toronto-based InnVest Hotels.
In the case of InnVest Hotels, only six of the 35 restaurant outlets in its portfolio are leased, including Jungle Jim’s and A Domicile locations.
As Hyslop explains, the decision to lease out a restaurant space can come down to the mix of food-and-beverage business at the hotel. “If it’s a small catering operation with small banquet or meeting rooms and you’re comfortable giving that business to a third-party operator, then that’s one decision. But, if you have a major catering operation that is really impactful on your group business at the hotel, then maybe you’re more hesitant in giving that banquet space to the third-party operator,” he says.
“Generally, what we look at is the business-trading area,” agrees Kenny Gibson, president, Sunray Group of Hotels. “Where we have Holiday Inns or Radissons, we typically operate our restaurants in conjunction with our meeting space. So, in those cases where we have banquet halls and corporate-meeting spots, we tend to operate our own restaurants.”
Hyslop notes that the location of the outlet within the property plays a factor as well. “It’s much harder to get a third-party operator if it’s an internal outlet compared to one with its own street presence. Third-party operators rely on more business than just the hotel guests; they want to drive outside traffic and that’s very hard to do at an internally positioned outlet.”
The Right Fit
Given the restaurant reflects upon the hotel and leasing out these spaces creates a long-term relationship, ensuring the tenant is a good fit is imperative.
“Hopefully the [restaurant] operator becomes a true partner in the hotel,” says Hyslop. “Guests, in many cases, don’t understand that it really is a separate owner and business than the hotel. So, the guest perception of that outlet will certainly impact their perception of the hotel.”
To help align the two businesses’ goals, Farmer says she likes to charge a percentage of the restaurant’s gross revenue on top of a base rent. “It motivates our team to make the restaurant successful, because we have a stake in their increasing revenues,” she explains.
And, to ensure a restaurant reflects well on the hotel, she will also dictate the restaurant’s hours and include clauses regarding quality and upkeep (such as no ripped seats) and how differences will be mediated.
Accent Inns works largely with chain restaurants, including Ricky’s, White Spot and, most recently, Eggspectation. “We also have some independent operators that we’ve helped along the way,” Farmer adds. These include a Bin 4 Burger Lounge location at Accent Inns Victoria Hotel and The Ruby at Hotel Zed Victoria.
In the case of her independent operators, Farmer made a point of setting out to find the perfect fit for her hotels. “I didn’t wait for people to come to me, I went out and found the people I wanted to work with,” she explains. “The most important thing for me is the relationship with the tenants.”
This was especially true in the case of Hotel Zed Victoria, where the restaurant doesn’t have its own separate entrance. In this case, “we’re a little bit more like roommates…and that adds a whole different element to the tenant-landlord relationship,” says Farmer.
As Farmer explains, the company’s relationship with these unique local concepts has its particular benefits. “What I love about [Bin 4] is they are the “it-spot” in Victoria, so they’ve suddenly made our hotel one of the “it-spots” in Victoria. It’s elevated our profile, our customers love it and I don’t have to worry about whether the dishwasher shows up or not.”
On its quest to find the right restaurant partners, InnVest employs various methods. “In some locations, we may hire a broker to look for options and [in others] we would actually talk to trusted restaurant operators in the market to see if they have interest in the space,” says Hyslop — the latter of which was used when opening Kimpton Saint George in Toronto. “At the Kimpton, we talked to a handful of operators, got their view on the location and what their ideas would be for the space,” he says. The process ultimately led to Toronto-based Pegasus Group taking over the space and opening The Fortunate Fox, which offers an elevated take on a classic pub, with a menu of made-from-scratch items and a selection of local craft beers and cocktails.
“Hotel restaurants always have a bit of a negative connotation…The belief is they’re overpriced or sometimes the concepts aren’t really there, so if you put a tried-and-tested concept [in a hotel], then there’s already that brand knowledge that gives [a level of] comfort for non-hotel guests to utilize the outlet,” says Hyslop. For example, “If you’re doing a Recipe Unlimited [concept], there’s pre-existing market knowledge of that concept, which makes it easier to get people into the hotel.”
However, Farmer notes dealing with franchisees can be a drawback to working with chain concepts, as the person running the restaurant may not live up to the brand’s promises. “You might go and meet with a brand and the brand fills [the space] but you don’t actually know who the franchisee is going to be that runs [the restaurant],” she explains.
Sunray Group has been employing a solution that circumvents this obstacle, while still allowing its hotels to benefit from the cachet of an established brand. As Gibson explains, the company has had success aligning several of its properties with Fionn MacCool’s restaurants as a franchisee. “Each of our hotels [has a] separate ownership structure, so the owner of the property — all of which are affiliated with Sunray — would become the franchisee of the restaurant,” he says. “Pairing strong hotel brands with a strong restaurant brand, and us operating both, really enhances the guest experience and gives a different offering than you would typically find in a regular hotel.”
Although Sunray still has leased restaurants in its portfolio, Gibson notes the company prefers to own and operate the spaces internally through this method.