Management

Turning Unwanted F&B Areas into Profit Centres

In many motels around the state that offer restaurant and dining facilities the relevance of this side of the business is in question.

A number of motels that previously offered in house dining no longer do so. This has been mainly due to the following reasons:

1. The lower profit margin the food and beverage side of the business offers in comparison to the accommodation side of the business
2. The added requirements of extra staff and the operators increased amount of labour and involvement in the dining area
3. A lower interest in the food and beverage area by new incoming owners/operators who would rather remodel the restaurant area into more rentable motel units
4. Increased competition from other faster and cheaper dining options available
5. The proximity to other dining options

For these reasons the in-house dining side within some areas of the industry is diminishing slowly, however we note it is gaining momentum. The refurbishment of restaurant and dining areas within motels into increased numbers of rentable motel rooms is growing. An existing area under roof that is not being utilised to its fullest extent that can produce a strong income and profit offers excellent value adding opportunities. An existing area under roof where the exterior walls are not being changed, only the internal layout can offer minimal issue and requirements from local council and therefore helps reduce the capital outlays for such works.

In one recent example, a motel with new owners who had no interest in operating the in-house restaurant and bar (that had been closed months ago by the previous operator) rebuilt the former restaurant, bar and kitchen area into four large motel rooms. The rooms were completed to a higher standard than the existing older units within the property and were able to achieve $165 per night (the already existing rooms were achieving $125 per night) and averaged 80% occupancy in their first year of operation.

This took a non-income producing area within the property to an annual income of $175,200 with an increased estimated annual profit to the owner of $115,000 – $120,000. This in turn increased the value of the motel substantially based on the increased infrastructure and profit of the business.

There will however always be a strong demand for food and beverage within larger corporate based motel operations. The mix of accommodation, dining and conferencing in the one locality is only going to continue to grow with the demands for training and conferencing growing within most industries. This may require the industry to change and grow with the rapidly changing requirements of the market where everything is demanded to be within a finger-tip’s reach and supplied without delay.

Locality is also a driving force in the decision making in whether in house dining is viable for the motel’s future. In areas where there are few dining options for guests the value of the restaurant to the business may not be in question. Often it is then a very viable business in its own right. In locations where other dining options surround a motel the question becomes more relevant.

Many buyers looking to acquire a motel are looking for something that can offer added value. The opportunity that an under-utilised area within a motel offers such as closed or non-profitable dining area, can be a great way to add value without expending costs that make building expansion works prohibitive.

Andrew Morgan
QTHB

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