Q: Our hotel is looking to renovate in the near future, and we know that we need to improve our foodservice offerings but we’re not sure whether we should lease out the space to a restaurant operator or feature an all day restaurant and handle it ourselves?
Chuck Kelley: The first thing you need to remember is that you have three stakeholders: your customers, owner and the lease holder. As a result, your solution must work well for all.
Step 1: Start by making a candid list of your current shortcomings. Is the problem profitability, lack of expertise, décor, facilities, food quality, menu variety, size or layout of outlet? It’s important to be specific.
Step 2: Ask yourself these questions: What can I fix? What resources will I need? What will it cost me? What are the potential benefits? Is there a reasonable return on my investment in both customer satisfaction and profit?
Step 3: Determine the pros and cons of leasing. On the plus side you will have known profitability, limited downside, less hassle and outside expertise. However, you may be giving up quality control; you will have to deal with potential lack of flexibility; you will need to integrate the lease holder into your operation – kitchen, storerooms, receiving, billing, et cetera.
Step 4: Determine which solution has the potential to best satisfy all stakeholders. You will have a fixed lease payment that flows directly to the bottom line. On the other hand, there is limited upside from improved performance. Will the lease operation be able to meet customer expectations? Keep in mind that dissatisfaction with your foodservice could cost you occupancy points. Will the lease holder be able to make a comfortable profit?
As a general rule of thumb, leasing works best when you have multiple restaurants and you plan to lease out your specialty restaurant that also has its own kitchen and storerooms. In my opinion leasing out your multi-purpose restaurant is too problematic and has more downside than upside.
Now, we haven’t even gotten to the various forms of lease agreements, licensing agreements, potential liabilities, termination rights for both parties and so forth. If you are seriously considering the leasing option you should “tread carefully” and get professional advice.
About Chuck Kelley, Principal G7 Hospitality Group
Chuck’s career spanned 32 years in the hotel business and during that time he gained experience in food & beverage, sales & marketing, held regional marketing positions covering California and Asia/Pacific, General Manager and Country Manager in Australia, before moving to south Florida in 1999 as EVP, for Caribbean/Latin America. After retiring from Marriott in 2010, Chuck joined G7 Hospitality Group.
G7 Hospitality Group helps hospitality and tourism organizations drive results through strategic, operations based solutions. Learn more at www.g7hospitality.com