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Dhm 192   the global hospitality industry Dhm 192 the global hospitality industry Document Transcript

  • CTHCM Management ProgrammesThe Global Hospitality Industry Module Guide: DHM 192 / DHCM 192
  • The Global Hospitality IndustryDHM 192 / DHCM 192The Official Guide
  • Boston Business School520 North Bridge Road #03-01Wisma AlsagoffSingapore 188742www.bostonbiz.edu.sgAll rights reserved; no part of this publication may be reproduced, storedin a retrieval system, or transmitted in any form or by any means, electronic,mechanical, photocopying, recording or otherwise without the prior writtenpermission of the Publisher. This guide may not be lent, resold, hired out orotherwise disposed of by way of trade in any form of binding or cover,other than that in which is published, without the prior consent of the Publisher.The Guide is a useful resource for those seeking to gain the internationallyrecognised CTHCM qualifications. The Guide however must be usedtogether with the recommended textbooks.
  • CONTENTS1. Introduction 12. Overview of the Global Hospitality Industry 43. Hotels 114. Business and Conference Hotels 215. Resort Hotels 296. Budget Hotels, Guest Houses & Small Hotels, 37 Boutique Hotels, Hostels and Halls of Residence7. The Food Service Sector 538. Restaurants and Fast Food 609. The Licensed Trade 8310. Contract Catering & Employee Feeding 9011. Welfare Catering 10812. Information Technology and Yield Management 11613. Travel Catering 12814. Outside catering 13915. Meeting, Incentives, Conference & Exhibition 14516. Appendix 1 - Demographics Classifications 15517. Appendix 2 - Ageing Population in the UK 157
  • 1Introduction1.1 DescriptionThe hospitality and catering industry is one of the largest industries in the world. Each yearprogressively more meal and bed nights are being purchased. The hospitality and cateringindustry is currently the third largest employer of labour worldwide. This module exploresthe scope of the industry, the various activities contained within it and its position in relationto the world market.1.2 Summary of Learning OutcomesOn completion of this module students will be able to:Investigate a range of Global Hospitality outlets and their contribution to the economy.1. Explain the organisation systems for a range of hospitality operations.2. Explore the different techniques to optimise business performance.3. Describe the influencing factors upon the hospitality industry.1.3 Syllabus Overview of the What is hospitality and catering? industry Commercial sector and catering services sector The organisational structure of the industry. The hospitality The size and scope of the industry. Social and economic industry influences which affect its performance and structure The history of the How the scale of the industry has changed in recent years, hospitality industry changes in fashion, technology and business Internal and external Economic growth/decline, government stability, disposable influences income, socio-economic grouping, cultural influences, eating and drinking habits Business and Hotel development and location, size and scale of sector, markets conference hotels, served, product offering, current issues and future trends. branding Development of global hospitality brands, branding strategies, branding in international marketing, brand development Resort hotels Size and nature of this sector, market, customers and location, product offering, organisation and staffing, current issues and future trends.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 1
  • Budget hotels, hostels Growth of sector, location characteristics, product and service and halls of residence offering, management and staffing, hostel product, demand for hostel accommodation, marketing hostels, operation of hostels and halls of residence, current issues and future trends. Boutique hotels, guest Size and nature of the sector, product and service offering, houses and small hotels organisation and staffing, USP’s, current issues and future trends. Restaurant and fast Understanding typical operational styles of this sector, sector food issues, operational issues and legal and statutory requirements. The licensed trade Identifying the variety of establishments in the sector, different management structures, types of service offered and targeted customer base, managing procedures specific to licensed retailing including generic and specific operating constraints, legal and statutory requirements. Contract catering, Identifying the sector sub-sectors, products and markets and the employee feeding underlying trends in food service management. Welfare catering Demand for welfare catering, consumers and their needs, nutrition, marketing of welfare catering, operational systems, distribution systems, legislation, current issues and future trends. Travel catering The extent and scope of this sector and applying techniques and skills to optimise management and business performance. Outside Catering Identify the two main types of functions for outside catering operations, issues in outside catering, operational aspects and Current and future trends Yield management, Ensuring maximisation of returns on investment, linking demand global distribution with supply in terms of short and long term revenue and profit systems, computer achievement, rooms inventory management, differential pricing reservation systems structure. Information systems, electronic distribution, supply chain management, channels of distribution, e-procurement and e- distribution Managing Special Different types of events, event planning and event management. Events1.4 AssessmentThis module is accessed via a 2 ½ hour examination set and marked by CTHCM. Theexamination will cover the whole of the assessment criteria in this unit and will take form of10 x 2 mark questions and 5 x 4 mark questions in Section A (40 marks), Section B willcomprise of 5 x 20 mark questions of which students must select and answer any three oftheir choice (60 marks). CTHCM is a London based body and the syllabus content will ingeneral reflect this. Any legislation and codes of practice will reflect the international natureof the industry and will not be country specific. Local centres may find it advantageous toadd local legislation or practise to their teaching but they should be aware that the CTHCMexamination will not assess this local knowledge.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 2
  • 1.5 Further GuidanceRecommended contact hours will be 45. This module carries 10 credit points.1.6 Recommended Prior LearningThere is no required prior learning however students must have completed formal educationto 18 years old or equivalent. A keen interest in the tourism industry is essential.1.7 ResourcesLearners need to access to library and research facilities which should include some or all ofthe following:• The International Hospitality Industry: Structure, Characteristics and Issues by Bob Brotherton. Published by Butterworth Heinneman. ISBN 0-75065295-0• An Introduction to Hospitality by Peter Jones. Published by Continuum International ISBN 0-8264077-1• Theory of Catering by Kinton, Cesarani and Foskett. Published by Hodder and Stoughton. ISBN 034072512 51.8 Magazines and Journals• The Caterer and hotelkeeper (Reed Business Information)• E hotelier.com• Croner’s Catering Magazine (Croner Publications)• Hospitality (Reed Business Information)• Voice of the BHA (British Hospitality Industry)Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 3
  • 2Overview of the Global Hospitality IndustryObjectiveThis chapter will give students a precise definition of global hospitality and catering. Thischapter will also highlight the various sectors in the industry such as commercial and cateringservices as well as demonstrate the organisational structure of the hospitality industry. After studying this chapter, students will be able to: • Define the global hospitality industry • Differentiate between commercial and catering services sector • Know the organisational structure of the hospitality industry2.1 Introduction to Global Hospitality IndustryHospitality is made up of two distinct services – the provision of accommodation andsustenance. The former refers to the provision of overnight accommodation for peoplestaying away from home and the latter provision of sustenance for people eating away fromhome or not preparing their own meals. Thus, the key sectors of the international hospitalityindustry are namely hotels, restaurants and contract foodservice.In the UK, the industry has gone through tremendous changes and its transformation is moresignificant over the past two decades. It has been identified that the American influence,concepts and ideas in the 80’s could be the main reasons behind these transformations.Probably a more significant factor related to American influence, has been the growth oflarge chains such as an increase in the number of American fast food chains like McDonalds,Kentucky Fried Chicken and Burger King in the UK while other small home-grown roadsidedining transformed into strong branded restaurants. Hotels chain developed strongly brandedproperties such as Forte’s Travelodge and the Stakis Court while contract foodservice saw theemergence of large companies such as Compass.These large chains transformed the hospitality industry because they introduced moreprofessionalism to the business than ever before in the likes of size, financial and manpowerresources and motivation to deliver higher standards from increased competitionCopyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 4
  • 2.2 Defining the IndustryThere are no precise criteria of how the hospitality industry can be defined. But generally it isa norm in the United Kingdom to use the Standard Industrial Classification. The StandardIndustrial Classification (SIC) was first introduced into the UK in 1948 for use in classifyingbusiness establishments and other statistical units by the type of economic activity in whichthey are engaged. The classification provides a framework for the collection, tabulation,presentation and analysis of data and its use promotes uniformity. In addition, it can be usedfor administrative purposes and by non-government bodies as a convenient way of classifyingindustrial activities into a common structure.Division Group Class & Description SubclassSECTION HOTELS AND RESTAURANTSH55 HOTELS AND RESTAURANTS 55.1 Hotels 55.11 Hotels and motels, with restaurant 55.11/1 Licensed hotels and motels 55.11/2 Unlicensed hotels and motels 55.12 Hotels and motels, without restaurant 55.2 Camping sites and other provision of short-stay accommodation 55.21 Youth hostels and mountain refuges 55.22 Camping sites, including caravan sites 55.23 Other provision of lodgings not elsewhere classified 55.23/1 Holiday centres and holiday villages 55.23/2 Other self-catering holiday accommodation 55.23/3 This code is no longer in use 55.23/9 Other tourist or short-stay accommodation 55.3 Restaurants 55.30 Restaurants 55.30/1 Licensed restaurants 55.30/2 Unlicensed restaurants and cafes 55.30/3 Take-away food shops 55.30/4 Take-away food mobile stands 55.4 Bars 55.40 Bars 55.40/1 Licensed clubs 55.40/2 Independent public houses and bars3 55.40/3 Tenanted public houses and bars 55.40/4 Managed public houses and bars 55.5 Canteens and catering 55.51 Canteens 55.52 CateringTable 2.1 The Standard Industrial Classification of the Hospitality IndustryCopyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 5
  • 2.3 The Historical Developments of the Global Hospitality IndustryThe modern hospitality trades represent a continuation that extends through millennia.Despite periods of expansion and decline there was a steady growth of trade betweencommunities and consequently a growth in the number of people travelling. Initiallytraditional values relating to the hospitable treatment of strangers enabled traveller to beaccommodated in private dwellings. As the volume of travellers grew, specialist innsemerged as places where travellers were accommodated and the nature of hospitalityrelationship began to change.In the UK, the growth of hotels and subsequently the modern hospitality industry wasprovided by the railways .In 1902 large companies in UK invested in large comfortable hotelssituated near main railway stations. This instigated the building of other large hotels andresorts in other main cities and along beaches and this further helped transform poor culinarystandards to much sophisticated standards.The improvisation of the automobile could have also contributed to the development of thehospitality industry. People can now travel faster and longer distance on their cars, thusraising the need for smaller hotels along highways. The term motel actually derived frommotor and hotel.Large brewing companies in UK which ran small drinking outlets called ale house,transformed into large Victorian public house. This could have initiated today’s exclusivepubs.2.4 The Size and Scale of the Hospitality IndustryThe hospitality industry is seen as one of the largest and fastest growing industry in theworld. In UK alone the industry has created over 2 million jobs, though some of them may bestructural and seasonal. We can easily say that almost 15% of the world’s work force isemployed under the hospitality industry.2.5 Organisations within the IndustryThere are many organisations linked with the hospitality industry. Following are some of thereasons for the existence of these organisations:• The structure of the industry which continues to have many small individually owned units, in spite of the growth of large companies.• The industry is heterogeneous-split up into many different, identifiable sectors, each with its own specific needs.• Geographically, the industry is widespread, with some types of operation concentrated around population centres, although this is not essential for all types.• The industry is a very large employer and offers a wide range of job opportunities and employment categories.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 6
  • The HCIMA’s Hospitality Yearbook 2001 has a UK directory totalling above 200 hundreddifferent organizations associated with the industry in one way or another. These includetrade unions, trade associations, advisory bodies, research bodies, government departments,educational and awarding bodies and others. There are broadly two types of organization:voluntary ones for either individual or organizations and government and quasi-governmentagencies, directly relating to the hospitality industry.Following are some of the organisations and the roles it plays:• Institute of Hospitality (Formerly known as The Hotel and Catering International Management Association (HCIMA).• National Association of Licensed House Managers• Hospital Caterers’ Association• Local Authority Caterers’ Association• Catering Managers’ Association• United Kingdom Bartenders’ Guild• United Kingdom Housekeepers’ Association• Craft Guild of Chefs• Court of Master Sommeliers• The Federation of Bakers2.5.1 Institute of HospitalityThis is a professional body that establishes recognition for its members. Institute ofHospitality also provides part-time and full-time courses for its members leading tomanagement qualifications (E.g. CTHCM Diplomas).2.5.2 National Training Organisation (NTO)The Hospitality Training Foundation is a non-governmental agency. It was originally set upas the Hotel and Catering Training Industry Board (HCITB) to ensure a trained workforce,secure an improvement in the quality and efficiency of industrial training and share the costof training more evenly among firms. It operated mainly by training on-the-job instructorswithin the firms themselves, by providing regional training centres to undertake specifictraining of personnel and by offering advice and aid through their staff of training advisors. In1997 has been designated as the National Training Organization (NTO) for the hospitalityindustry.2.5.3 British Travel Authority (BTA)The British Tourist Authority (BTA) is predominantly concerned with the development andpromotion of tourism to Britain.2.5.4 English Tourism Council (ETC)English Tourism Council (ETC) is the strategic body for tourism in England. The ETC’s jobis to take up issues, provide a focus, develop standards, give policy advice, undertakeresearch and offer the latest intelligence about the tourism market to both government andindustry.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 7
  • 2.6 The Hospitality Operations and StructuresAccommodation and foodservice are essentially different kinds of operation. There are threemain types of operation, namely product processing operations, i.e. out of customer sight;customer processing operations, i.e. with the customers’ involvement; and informationprocessing operations. In reality most activities are a combination of all three albeit indifferent proportions. This concept is useful in understanding the differences betweenaccommodation and foodservice. An accommodation operation is predominantly a customerprocessing operation, with very little product like room servicing and information processingsuch as reservations, check-in and billing. Whereas a foodservice operation is a productprocessing operation like preparing a meal with a significant element of customer processinglike the meal experience and information is processed during the entire operation asingredients are ordered, received, stored and issues and the menu items sold at pre-determined prices.2.7 Trends in Hospitality OperationsA fundamental principle of operations management is to reduce complexity, as this adds tocosts, threatens quality, and creates inefficiency. A clear trend in the hospitality industry hasbeen to develop operations that reduce complexity by reducing the number of systems withinone operation.The first trend is the production line approach. The total system might be looked at as aproduction line. Kitchen and restaurant operations can be turned into batch-process or massproduction systems. These can be achieved through ‘soft’ technologies such as focusing onpeople and systems in operations or ‘hard’ technologies such as automatic-vending machines.This is largely adopted by the foodservice industry. As accommodation is largely a consumerprocessing operation, it is difficult to introduce new technologies into the system.The second trend is decouple, which is the idea of isolating the technical core of the servicebusiness so that efficiency could be improved in the non-contact part of the provision. In thefoodservice industry, many of the recent developments in restaurant chains such as cook chilland sous-vide correspond with this aim.Increased consumer participation is another trend, which involves greater levels of consumerparticipation in the service experience, both in terms of self-selection and self-service. Soapproaches to increasing consumer participation might include family-style or self-help saladbars in restaurants, and automated check-in to budget hotels.The next trend is micro foot-printing. Foodservice operations are being designed muchsmaller so that they can located in ‘host’ environment that until recently were too small forcatering. Large fast-food chain have developed smaller unit sizes such as carts and kiosks andthis means that foodservice can now be carried out in cinemas, petrol-filling stations and soon.The use of the same infrastructure or building for more than one operation. For instance, asingle building on London’s South Bank houses both a Marriott Hotel and a Travel Inn (bothoperated by Whitbread Hotels). Accor have built a hotel in Paris that also has two hotels in it.Many roadside restaurants are also dual use with both a Little Chef and Burger KingOperation in the same unit.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 8
  • SummaryThis chapter has introduced the hospitality and its main sectors. The ddefinition of hospitalityis the warm welcome and entertainment of strangers and visitors. The main elements of thehospitality industry are the provision of accommodation and sustenance.It has further defined and subdivided the UK industry based on the SIC. Origins andhistorical developments have been explored and as a large industry, there are manyorganizations involved.This chapter also explained hospitality operations and the five trends in design:• Production-lining,• Decouple,• Self-service,• Micro foot-printing and• Dual usage.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 9
  • Tutorial Questions1. What are the main two elements that make the hospitality industry? (2 marks)2. State any organisation belonging to the public sector and describe how it influences the hospitality industry. (2 marks)3. Give a definition of Hospitality. (2 marks)4. What is the main function of the hospitality and catering industry? (2 marks)5. List four factors that have encouraged growth in the demand for hospitality and catering services. (4 marks)6. What is a decoupled system? (2 marks)7. Give an example of a decoupled system? (2 marks)Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 10
  • 3HotelsObjectiveThis chapter sets out a broad context for discussing the nature of the hotel sector of theinternational hospitality industry. Fuelled by increases in personal incomes and, inparticular, the availability of mass short- and long-distance travel, international hotelsuppliers have responded vigorously in a number of ways. These changes bring upimportant issues for hotel organisations and managers as they meet new challenges. After studying this chapter, students will be able to: • Recognize the nature and size of the international hotel sector of the international hospitality industry. • Assess differences in regional distribution of international hotel demand and supply. • Discuss the underlying factors affecting the supply of hotels in the international hospitality industry, in particular those relating to capital funding and affiliation. • Analyse the nature of growth and of integration forces in and across the hospitality and tourism sectors. • Provide evidence from a selection of international hotel operators on the nature of products and operations. • Explain possible structural developments in the hotel sector of the international hospitality industry.3.1 Overview: hospitality and hotels in an international contextHotel provision falls within the general context of hospitality, an aspect of human activitywhich has important social dimensions, as well as meeting physiological requirements ofshelter and body comforts. The actual term hotel is originally French and wascommonly applied to commercial hospitality establishments in the mid- to late eighteenthcentury. By 1780, for example, the concept had crossed from France with the founding ofNeros Hotel in London. This and other similar establishments catered for the affluentsectors of the population who were becoming increasingly mobile in their personal andwork lives.From an international perspective it is important to understand that hotel may beconsidered as a culturally bound phenomenon. This is because customs that governhospitality provision and the ways that hospitality providers operate have an in-builtset of assumptions.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 11
  • For example, in the case of hotels, locations are often chosen carefully to appeal to certaintypes of user; establishments offer particular combinations of meal and drink services toaccompany a range of private and public accommodation facilities; hotel customers andstaff operate to given social codes (e.g. certain behaviours are considered acceptable whileothers are discouraged). Many of these factors centre around- notions of hospitality andhotel keeping current in Europe and latterly the USA during the main epochs of theirdevelopment. However, both within the European/USA or Western hospitality axis, andinternationally, there are many variants to this configuration of service.Thus, different cultures and groups view hospitality in various ways and have a range ofcommercial accommodation establishments. For example, other common terms for commercialaccommodation establishments include: inns, (youth) hostels, guesthouses,pensions, boarding houses, bed and breakfast operations, taverns, lodges, apart-hotels andholiday camps/villages. Thus, while there is a ubiquitous acceptance of conventional hotelproduct/service configurations, there is a wealth of options that serve similar functions tohotels, though they work differently.In addition, commercial accommodation establishments can be treated differently bothlegislatively and administratively. Common variants across countries include themethods by which registration, licensing, classification and grading of commercialaccommodation establishments are carried out, for example, some countries demandcompulsory registration/licensing of all commercial accommodation establishments. Inpractice, national approaches towards the need for central, national systems to exist aswell as the agreement on the mechanics of current systems (classification of accommodationsectors and quality grading measures) show little standardization. This means thatstatistics covering the international nature of the hotel sector will often suffer because theyare drawn from data that are not strictly comparable.A selection of factors that influence the dynamics of tourism, and therefore impact on thehotel sector of the international hospitality industry, is shown in Table 3.1. The table is by nomeans complete, but attempts to illustrate some of the factors that could affect local andinternational business and leisure travel market characteristics at a given destination.Political: Environmental regulations and protection, tax policies, international trade regulations andrestrictions, contract enforcement law, consumer protection, employment laws, governmentorganization/attitude, political stability, competition regulations, safety regulations, travel/visa entryrequirements for international marketsEconomic : Economic growth, Interest rates and monetary policies, Government spending,unemployment policy, taxation, exchange rates, inflation rates, consumer confidence, economicattractive of destination for leisure and business purposesSocial: Income distribution, demographics (population growth rates, age distribution), labour/socialmobility, lifestyle changes, work/career and leisure attitudes, education, health consciousness, livingconditions, social customs and habitsTechnological: Public transport infrastructure, levels of car ownership, international transportfacilities such as airports/seaports, rate of technology transfer, changes in IT/Internet/Mobiletechnology, new inventions and developmentsTable 3.1 PEST FactorsCopyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 12
  • 3.2 Changing nature and characteristics of international hospitality supplyThe main physical measures of hotel size are units, rooms and bed spaces. The World TourismOrganization states that there were 29.4 million bed spaces in hotels and similar establishmentsworldwide in 1997. For comparative purposes below the figure used refers to hotel units. Thedynamism of the hotel sector internationally is evidenced by a growth of over 25% in thenumber of units in the period 1990-1998, to nearly 15.5 million units. Table 3.2 also shows avariety in growth trends across global regions from the lowest figure of 20.8% to a high of54.1%. Number of Hotels Change from Share ofRegion 1990 1998 1990 to 1998: World 000s; (%) total (%) 1998Africa 333 428 95 (28.5) 2.8Americas(North America) (3652) (4133) (481 (13.2)) (26.8)Total Americas 4308 5164 856 (19.9) 33.5Eastern Asia and Pacific 2399 3487 1088 (45.4) 22.6Western Asia 111 171 60 (54.1) 1.1Europe 4912 5935 1023 (20.8) 38.5Middle East 160 221 61 (38.1) 1.4World 12 223 15 406 3183 (26.0) 100Table 3.2 Regional Growth TrendsAs the table shows the lowest growth rate belongs to Europe, the region with the largest shareof hotel units. To an extent, this reflects the maturity of many traditional hotel markets in theregion. Another area facing elements of market maturity is the large North American market(shown as a sub-region in Table 3.2) which grew by only 13.2% though, given the limitationof the data and the safe assumption that hotels in North America are larger than those in otherparts of the world, it may be inferred that the absolute increase in room capacity is signifi-cant. Other regions, admittedly growing from much smaller bases, record higher growthrates. For example, the number of hotel units in Western Asia grew by 54.1% and in theEastern Asia and Pacific Asia region the number grew by 45.4%. This analysis emphasizesthe regional locus of international hotel development and a reflection of localsociodemographic factors, stage of economic specialisms and stages of development,international communications and specific tourism and hospitality resources.3.3 Influences on the international hotel sectors structureTo understand the nature of supply in the international hotel sector it should be rememberedthat:• It is a sector that has high fixed investment costs.• It is possible to divorce ownership of assets from their operation.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 13
  • In other words, it is important to understand that supply may be influenced by two importantcomponents: first, the capital structure of the sector that relates to the sources of capital forfunding the buildings or fixed resources of the sector; and, secondly, the type of managementarrangements that are used to operate hotel establishments. This latter arrangement is known asthe types of affiliation arrangements.3.3.1 Finance for Hotel DevelopmentGiven the capital-intensive nature of hotel investment, availability of capital is a key driver inthe development of the international hotels and hotel companies. Historically, the main sourcesof capital for international hotel development are:1. Private finance through personal savings etc.2. Loan capital through banks and other sources, often secured on property assets3. Finance provided by specialist investment companies4. Through stocks and shares (equities) in a company: these can be traded in the stock market5. Government.In some cases there may also be tourism/hotel accommodation financed by local cooperatives— sometimes known as the voluntary or not-for-profit sector — or special interest organizationssuch as conservation/historical/sporting trusts and associations. Major financial arrangements areas illustrated:• Privately financed: invariably these are businesses where ownership and operation come under the direct control of one main party. Many operations may be small units operating autonomously or only partly devoted to tourism/hotel accommodation, e.g. where hospitality/room letting makes up only part of a familys income which could also include earnings from other activities such as agriculture and/or fishing. However, there is no intrinsic reason for these operations to be small. It largely depends on personal access to large amounts of capital. Thus big businesses of either single or multiple hotels may arise when asset and income distribution is such that it allows suffi- cient concentration of wealth. Personal ownership will be favoured when capital markets are relatively less developed. In most cases these types of business draw on indigenous sources of capital including, for example, banks. It is also feasible that international capital is involved if a local business decided to accept a partnership with a foreign national who was willing to invest capital transferred from abroad.• Finance provided through limited liability companies. These are recognized by the term incorporated in the USA, PLC (public limited company) in the UK and `SA in many other countries (Societe Anonyme in French). While privately financed operations have to rely on their own resources (and loans they may be able to secure on their property), limited liability companies can raise capital on the stock market. The availability of this type of capital facilitates the expansion of hotel chains. It is a feature of many economically developed countries, which support large hotel organizations, that the limited liability company often becomes a significant phenomenon.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 14
  • • Government funding can occur through a number of different means. Governments may own assets outright or take a direct share in their ownership. This form of government involvement might occur in economies where the government wants to plan its economy to grow in very specific ways. On the other hand, governments may assist private sector development through packages of financial incentives to cover building, furnishing and equipment costs. In these cases, the government (or their agency) is likely to impose conditions on trading (e.g. purpose of building, annual period of trading, type of service offered, conditions for resale of business). Direct government involvement in hotels through ownership and operational control became less popular at the end of the last and the beginning of the twenty-first century (e.g. the dissolution of state-owned enterprises with the collapse of communist systems of government in Eastern Europe during the 1990s). However, there are still examples such as the paradores of Spain. Also, when governments wish to encourage the growth of tourism in less developed regions they may well consider direct investment in hotels to provide the necessary commercial stimulus for tourism expansion.Many hotel operations, as stated, find their capital through a mix of the above factors. In asurvey of capital sourcing among PLC/ SA hotel companies, they divide hotel capital into cate-gories: Hotel chain capital where funds come from the stock market and bank debt andHotel capital which encompasses direct equity from financial institutions, propertydevelopment companies, (local) governments, local entrepreneurs, private individuals andsyndicates.3.3.2 Affiliation ModesAnother important structural variable in the hotel sector relates to the form of affiliationhotels operate under. In this context an important feature of the sector has been thedevelopment of hotel chains. Hotel chains may be defined as multi-unit serviceorganizations in which units operate under a system of decision-making permittingcoherent policies and a common strategy through one or more decision-making centres,and where hotel units and corporate functions are linked to add value to each other byownership or contractual relationships’Affiliation modes cover consortium membership, franchising and management contracting anda final variant may be where governments or agencies directly operate hotels. Thecharacteristics of each of these modes are discussed below.3.3.2.1 Consortium Member.This is a mechanism whereby hotels (or indeed a wider set of tourism organizations) agreeto cooperate in order to gain corporate benefits, which raise revenue and/or cut costs in waysthe business could not achieve on its own. For example, benefits could accrue from jointpurchasing or marketing activities.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 15
  • Fig 3.1 Small Luxury Hotels Logo Fig 3.2 Preferred Hotels and Resorts LogoThe consortium approach can operate in tandem with other forms of affiliation – i.e. includeindependently/ autonomously owned hotels as well as units which are members of chains. Inaddition to cost efficiency possibilities, consortium membership may appeal to hotels becauseof their locational needs (e.g. marketing a specific destination during periods of slackdemand/overcapacity), market niche/branding purposes (reach new custom due to brandingnational/ international benefits together with joint services such as central reservations and jointrepresentation. Membership is considered on the basis of the fit of the applicant to theobjectives of the consortium and their ability to meet subscription and operationalrequirements (such as maintenance of a given standard/ style of operation).It is also a feature of most consortia that members are represented on the management board ofthe organization.3.3.2.2 FranchisingIn this situation the hotel owner buys-in a specific style of operation from a parent/owner ofthe operation format. The format parent or franchisor owns the business format, thetrading name and all proprietary aspects of the operation – the formula or design of thebusiness. It may also provide a range of resources and support activities such as centralreservations, training, advertising and technical advice. The operator, a franchisee, is given alicence to operate in the franchisors name, in return for the payment of a royalty fee.A franchising licence may be granted to an operator (or franchisee) for one or severaloperations. A licence which gives an operator exclusive rights in a particular territory iscalled a master franchise. As exchange for the payment of the royalty fee, the franchiseewill receive a standard operating format and the necessary back up to launch and maintain thebusiness.3.3.2.3 Management ContractingHere asset ownership and operation are separated. This might happen where the hotel owneris, for example, an investment company that has no expertise in hotel management, andenters into an agreement with a hotel operator to run the hotel on their behalf, in return for amanagement fee. In these arrangements there is clearly an expectation that the ownersexpect that the contractor will be able to run the operation more effectively than they couldthemselves.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 16
  • It is possible that a government, or its agencies, may operate hotels. However, even whengovernments played a more active part in hotel ownership (see above), the operation was oftenput out to management contract and the current decline in direct hotel asset ownership inmany countries has further decreased government operation.The attractions of belonging to a hotel chain largely hinge on the ability to gain economies ofscale. While hotel units may operate more effectively as they grow in size, economies ofscale for hotels largely express themselves at corporate levels of the organization, as well asthrough the enhanced risk of diversification gained by the possession of a geographicallydispersed portfolio of properties. In many cases the popularity of branded operations hasboth pushed established operators to develop and internationalize their chains further,while also providing smaller operators with a clear rationale for giving up an element ofindependence through joining consortium membership or franchising agreements.3.4 Issues in international hotel sector structureThe economics literature indicates that organizations will tend to expand (perhapsthrough takeovers/amalgamations with similar organizations) if there are considerableeconomies of scale to be gained. An example of possible economies, as discussed above,might lie in gaining corporate efficiencies for hotel chains.In addition, pressures for integration may come from other organizations acrossdifferent stages of the supply chain, if there is market or supply-based benefits to begained by working very closely together (e.g. improved relationships with final customers,benefits in cost and quality arising from security of supply). These latter relationshipsare termed vertical links, or vertical integration. In tourism and hospitality they can beillustrated in tie-ups between tour operators, transport providers, hoteliers and so on.Larger firms are more profitable because they both exploit market power (e.g. ability tonegotiate price discounts from suppliers) and because these larger firms are able to gamerefficiencies through scale economies.Reviews of the international hotel sector confirm two main factors: a preponderance in thelarge number of independent/small business units (important in numbers if less so byshare of total industry business) and secondly, an increasing penetration of chain units. Despitethe expansion of branded hotel capacity and the plethora of mergers, acquisitions and take-overs during the last decade, Europes hotel sector remains dominated by individually-ownedproperties or small hotel companies. As a result, it is estimated that no more than 20% ofEuropes hotel capacity is branded. It is clear, therefore, that horizontal integration andhence consolidation in the international hotel sector has been a major feature over therecent past. In establishing important drivers for change in industry or sector structure itshould be borne in mind that many other sectors of tourism, as well as hotels, are characterizedby heavy initial capital costs and low marginal/ variable costs for carrying each additionalcustomer. Further, as reflected in the commentary above, branding and market presenceobtained by growth will, in themselves, confer marketing advantages leading to higherfinancial returns.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 17
  • In a review of integration strategies in the tourism industry covering the half century to2000, its been concluded much vertical integration has failed, largely due to the differences incapital and organizational/operational characteristics in activities (e.g. the differences betweenproviding hotels to running airlines). Horizontal integration strategies have been moresuccessful, though they indicate that there are important issues of consumer choice thatshould be considered if this is diminished. Based on this work, therefore, it is likely that thegrowth of large hotel chains will be a significant feature of the international hospitalityindustry.3.5 Accommodation Operating SystemsHotel operations is made up of a set of ‘core’ operation systems and a number of ‘ancillary’operating systems relating to the size and grade of provision. The core operating systemsrelate to reservations, reception, housekeeping and billing. The ancillary which may or maynot be offered might include laundry, meals, drinks, business services (telephone, fax, etc.)and leisure services (fitness centres, swimming pool, etc.).3.6 Current trends and future trendsEach sector of the accommodation sector has some specific issues dealt with in each of thefollowing chapters. But of relevance to all sectors are three key issues that have emerged inthe late 1990’s and they are security and assets, technology and disintermediation anddesign.3.6.1 Security and AssetsEvents such as the 911 terrorist attack in 2001, foot and mouth, SARS, train crashes andfloods have an impact on businesses. Clearly there is little the industry can do about suchexternal occurrences but have contingency plans in place for responding to a decline indemand. However, customers expect hotels to be safe places to stay and hotels have toensure they have appropriate security measures to only to safeguard their guests but theiremployees and the property.3.6.2 Technology and disintermediationThe internet and information and communication technologies (ICT) are of majorsignificance to the industry. ICT is changing the channels of distribution for hotels and otherproviders. The rapid growth of the internet and the marketing of rooms directly throughhotel company websites as well s other portals such as lastminute.com has transformed howthese firms do business. By 2002 it is estimated that up to 25% of all hotel reservations willbe from the internet. This mode of booking allows customers to deal directly with the hoteland thereby no longer use intermediaries such as travel agents (hence the termdisintermediation).3.6.3 DesignDesign is replacing location as the most important aspects of hotel management. It issuggested that hotel success was now based less on where the hotel was placed but more onhow it was designed. The reason for this proposition was due to the success of a particulartype of hotel, so-called ‘boutique’ hotels.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 18
  • SummaryThis analysis of the international hospitality industry has focused on hotels. The chapterhas traced the growth in the size of the sector.In particular it has stressed:1. Growth and regional variations in international hospitality supply.2. The dynamic and changing nature of international hospitality demand.3. A perspective on hotel operations that stresses its capital intensive nature and possible separations between asset ownership and affiliation.4. Benefits of chain as opposed to independent operations, in relation to branding and different affiliation modes.5. Rationale for changes in market structure that alternatively stress horizontal, vertical and diagonal integration.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 19
  • Tutorial questions1. What is a franchise? (2 marks)2. Identify two types of finance available for hotel development. (2 marks)3. Explain why Europe has a low growth rate for hotels despite having over half the world’s tourism. (4 marks)4. Why are hotels sometimes described as culturally bound? (2 marks)5. What is the main function of hotels? (2 marks)6. Discuss the influences that contribute to deciding on the location of a hotel. (10 marks)7. Name two economic external influences that can have an effect on the hospitality and catering industry.(2 marks)8. Leading hotel groups are seeking to expand their networks across the world. Briefly explain two advantages of being part of a large chain. (2 marks)9. Residents travelling in their own country and foreign visitors generate the demand for hotel accommodation. Examine the influences that have contributed to the development of the hotel in a country of your choice. (10 marks)10. Branded hotels are increasingly dominating the hotel industry. Using your own examples clearly explain how this benefits both the customer and the owner. (20 marks)11. What are the advantages to hotels of joining consortia? (2 marks)12. What would a franchisor be expected to provide? (2 marks)13. Describe the differences between a management contract and a franchise. (4 marks)14. There are a number of influences on the market for hotels at a given location. a) Draw a table showing these, relating these to PEST factors and local and international considerations. (15 marks) b) Use an example to explain the table. (5 marks)Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 20
  • 4Business and Conference HotelsObjectiveThis chapter will expose students the development and location of business and conferencehotels. Students will also understand the size and scale of this sector, the markets served,products offered, the current issues and future trends. After studying this chapter, students will be able to: • Understand the importance of the development and location of business and conference hotels • Appreciate the size and scale of this sector and its market • Differentiate the products offered by theses hotels • The organisational structure and the trends in these sectors4.1 Introduction to Business and Conference HotelsThe growth of global commerce has created a tremendous demand for business andconference hotels. This has also created another sub industry called MICE (Meetings,Incentives, Conventions and Exhibitions).Since the Second World War, the importance of business travel to the hotel industry has veryoften superseded the significance of recreation travellers. Hotel companies, developing intoever larger chains and groups, have primarily targeted business locations for new sites andproperties. These locations have varied from commercial and market towns, to the majorcities and conurbations, from business parks and industrial estates, to roadside and airportsites.In 2000, there were an estimated 1.3 million conferences in the UK generating sales revenuesof £6 billion. Most of the incomes derived from this sector were non-residential. Thisindicates the boom in this sector. Even in Singapore the government has established a hugeconference cum exhibition hall near the airport despite having similar scale halls in downtown. This indicates these sectors will generate revenue even if visitors are not staying in.Another advantage of this sector is that its demand is not derived by seasons, unlike theleisure industry.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 21
  • Across all industrial sectors, firms have become much larger organisations in the last 30years, conglomerates covering the globe, with the subsequent need for national andinternational travel, for high quality accommodation and services, and for impressive venuesfor important meetings and conferences. These needs provide the hotel industry with anoutstanding opportunity, and the multi-national hotel chains are in a hugely competitive battleto win the custom of business travellers.4.2 The Development and LocationThe location of business and conference hotels has been determined by the level of economicactivity, the characteristics and the needs of the demand from business.Railway stations were ideal locations for business hotels. Hotels began to advertisethemselves with this new market in mind. Hotel groups still targeted business towns.More recently the motorcar has become the principal means of travel for business executives,as sales of company car fleets blossomed and motorways and dual carriageways afforded fastand convenient routes. Half a century ago many hotels were located mainly for the roadusers. This could also be the reason why the word motel evolved, which means motor andhotel (hotel for motorist). Today hotels and catering companies seek sites near to the majorroads and motorways, attracting the business traveller with their time- saving location, amplecar parking, accommodation, food and drinks.Many of the new firms in electronics and consumer services relocated to new towns andbusiness parks, away from the high rentals of city centres and away from traffic congestionand parking difficulties.We have already noted how the hotel accommodation industry has followed the major formsof transport of the day, from railways to roads, and more recently the sudden development ofair travel has influenced location of hotel businesses. The aeroplane has changed the patternof international trade and travel out of all recognition, travelling by aircraft for both holidaysand business has become an integral part of the modern society. As a result airports havebecome prime centres for hotel development.Airports attract business people for travel, for meetings and conferences, and as the roadsystems to airports have improved, so they become points of convergence and convenience,whether or not the airport itself is to be used. As a result, airport hotels have become a hybridof business and conference centres, with the additional market of airline crews and airlinepassengers also on their doorstep. As a result we can see many airport hotels (hotels locatednear airports) offer many facilities for its business customers.As businesses have reviewed their style and manner of conducting in-company meetings,training courses and seminars, so many have chosen to return to the peace and tranquillity ofthe countryside. Country house hotels have found some new and lucrative business as aresult, and have found the need to create or upgrade their facilities for smaller gatherings ofsenior executives. Such hotels can provide a calm and relaxing ambience in which businesspeople can focus their minds on decisions affecting the future of their company. Suchlocations may also provide the leisure element which many conference organizers now feel isa significant aspect. Hotels with golf courses are an example of this trend, where leisurecentres are as important as the conference room technology.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 22
  • 4.3 The Size and ScaleStudies conducted a few years back revealed that more business travellers stayed in hotelscompared to leisure travellers. At the same time the number of days a business travellerstayed was much shorter than a leisure traveller. But the most significant turning point is thatthe average spending of a business traveller was much higher than a normal leisure traveller.For example in Briton the average stay of business travellers was 3.4 days on the averagewhereas the leisure traveller stayed at a average of 5.8 days, but the business traveller spent£103.50 per day and £351.90 per visit, whilst the leisure traveller spent only £46.70 per dayand £270.90 per visit.Hilton Hotels, has reported that 70% of its revenue comes from business travellers. Thisinternational revenue from business is still concentrated on the USA and European tradingareas, though Japan and the fast developing economies of the Far East, such as Singapore,Malaysia and Korea, are beginning to be greatly influential.For hotels to maximize their revenues and profits, they need to be in a mutually beneficialarrangement with the key players in this large business and conference sector. In particular,there needs to be a nurturing of key accounts, the multi-national corporations.It is now a truly global industry with a complex scenario of hotel chains, travel agents, travelsuppliers, travel buyers and conference organizers, increasingly linked by the moderntechnology of central reservation systems. These central reservation systems (CRS) havedone much to augment the scale of the international business market. Originally developed bythe world’s major airlines, they have become the focus of all computerization of the travelindustry. Hotel chains and international consortia of hotels are aware that they must be a partof such systems, that their own bookings networks must be linked to one of the major CRS,such as Sabre or Galileo.4.4 The Various Markets ServedThe profile of this market and the needs of the market are subject to rapid change. Worldtrade is increasingly international and competitive, and today’s business people need theservices and products that a modern technological environment demands. However themarket can be segmented into a number of different levels.4.4.1 The Business MarketThe business traveller market is recognized as having particular needs, and bedrooms arebeing upgraded to provide better work areas, and data ports, that is, facilities for lap-topcomputers to be hooked up. There is also an executive lounge with an area for meetings, abusiness secretarial service and complimentary refreshments. Another important feature willbe offering travellers ample free car parking space. Fast check-in and check-out is anothercrucial service. Business hotels offer a variety of room rates. In most business hotels there arespecial corporate rates for company bookings, including a travel agent corporate rate.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 23
  • 4.4.2 The Conference MarketThe conference market is divided into those on a day-delegate rate, including room hire,lunch and refreshments, and a 24-hour rate, to additionally include breakfast, dinner andaccommodation. The latter is excellent business for the hotel, and ensures good take-up of thefood and beverage outlets. Training courses have proved a particularly useful source ofdemand in an area where firms need to constantly update their employees on changingtechnology, service and production systems, and on management techniques and practices.There are two distinct types of training course delegate, from the course that is held totallywithin the hotel, to the use of the hotel for residential purposes only, as many firms now havetheir own well-equipped training centres.Conference organizers, like the previously mentioned company travel buyers, are theimportant people for hotels to satisfy in this sector of the market. All arrangements must bechecked in great detail, and the hotel must deliver the promise and ensure that the conferencegoes smoothly. Particular issues are transport arrangements, including car parking andtransfers, timing of the catering to be in line with the programme of the conference, andexcellent communication between all the hotel departments concerned, from reception to theconference and banqueting office to the food and beverage team. Message handling is often aproblem for all business people when away from their offices, and hotels must ensure thisissue is dealt with efficiently. Leisure clubs and indoor swimming pools are an importantattraction to conference delegates and business travellers alike, as they take time to unwindand keep fit at the cud of a long day.4.4.3 The Airport MarketAirport hotels also cater for a number of different sections of the airport and airline usersmarket. Accommodating the air crews from various airlines is a regular and lucrative market.Pilots and cabin crew staff need regular stopovers in a nearby hotel between flights. Airlinesagree a room rate with the hotel, and often allocate their staff a daily amount of money to bespent on hotel services, known as a per diem. Air crew business has some special needs, withthe emphasis on basics like efficient laundry service for uniforms, ironing facilities, leisureand health and beauty salons, as well as good transport to and from the terminal buildings,and in some cases their own lounges and recreation areas. They may even require black-outcurtains in their bedrooms so that they may sleep during daylight hours between flights. Also,the hotel must be geared to check-in and check-out at all times of the day or night, dependenton flight times. Another airport connected business which calls for fast flexibility is that ofdelayed flights. Bad weather, technical difficulties or terrorism scares can all lead to airlinesneeding to accommodate large numbers of people at short notice. Airport hotels normallybuild up cooperative relationships with certain airlines, with an agreed rate for food andaccommodation. There needs to be a pool of nearby and willing staff to suddenly organizemeals and rooms for what may be hundreds of customers.The final airport related market is that of in-bound and out-bound passengers. Passengersarriving at airports often require immediate hotel accommodation, particularly after long-haulflights, or such a stay may be part of the original package. Many hotel companies formagreements with airlines and offer special inclusive rates for these independent travellers.Here is another reason for being interfaced with the airlines’ CRS bookings networks.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 24
  • Airport hotels also try to tap the out-bound market, where passengers need to be in the area ofthe airport the day before the flight. Indeed, many airport hotels have developed ‘Take-off/Touch-down’ packages to include free car parking at the hotel for the duration of the trip,and of course there is the courtesy coach to take clients to and from the airport terminal.4.5 The Various ProductsThe business traveller now needs more in their hotel bedroom than a comfortable bed and awell-lit desk area at which to work. Today’s, business market needs business systems andtechnology at hand in their hotel, such as the fast communication systems of today, like faxmachines and electronic mail. Following are some of the examples offered by hotels:• Two-line telephone• Voice mail• Fax and modem facilities• 110/240 volt converters• Full air-conditioning• Power showers• Personal room safes• Full valet service• 24-hour room service• Bedside controls for lighting and air-conditioningWhilst location, price and levels of service and quality remain essential factors, it is thefeatures like those above that are now being demanded by the top end of the market.The products offered by this sector of the hotel industry are becoming more and moresophisticated, as hotels try to keep pace with technology changes in the office and in the areaof communications. The conference market has been particularly targeted by hotel chains asan area where consistency must be achieved. Marriott has drawn up a seven-point ‘no-riskmeeting plan’ feature, to ensure success. This includes cost quotations, meetings withmanagement, a guarantee of meal breaks and refreshment breaks being served on time, even acomplimentary pager for conference organizers. Hotel groups are agreeing standards forconference table settings, from notepaper to pens and name cards, all with the group’s logoand consistent print-style. There will also be a standard range of conference equipmentavailable, from flip charts to video-monitors and for international venues, simultaneoustranslation facilities.4.6 The Organisational Structure and Its TrendsThe successful operation of any hotel requires the effective coordination of a number ofindividuals and departments. Business and conference hotels need that coordination to beboth effective and efficient: fast yet smooth. The business person is often under pressure andneeds to work quickly, and though courtesy is always necessary, so is speed of response. Themanagement of an organisation needs to be clear as to the needs of their clients, and havesystems and procedures which ensure their satisfaction.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 25
  • Increasingly business and conference hotel operators are effective forms of serviceorganisation. Integration and communication are the aims of such an approach, and all mustbe wrapped in an appropriate management style and structure. Organisations are becomingless hierarchical with reduced layers of supervisors and managers. The empowerment of hotelemployees which results will only be successful if those empowered are given the trainingand the motivation to enable them to grasp new responsibility and authority for thebetterment of the guest experience. The most expensive reservations system in the world willbe an asset in obtaining customers for a business hotel, but it is the service and the staff thatwill keep those customers, not only for the unit but for the whole group.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 26
  • SummaryA major market for hotel accommodation is the business travellers. A significant segment ofthis market is conference business whilst airport hotels also have some specificcharacteristics. Hotels serving this market tend to be located in city centres and transport hubssuch as airports, railway stations and motorway interchange. The products and services varyfrom meeting the basic needs of business people at the budget end up to sophisticatedcommunication technologies and meetings facilities in 4 and 5 star properties.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 27
  • Tutorial Questions1. What are the significant difference between a leisure traveller and a business traveller in terms of spending in a foreign country? (2 marks)2. In your own opinion state what are the ideal products a business hotel must offer its customers. (4 marks)3. Briefly explain how a hotel can benefit from the airport market. (4 marks)4. Explain how a transit hotel may be different to other types of hotel. (2 marks)5. How could an airport hotel have an occupancy level of more than 100%? (2 marks)Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 28
  • 5Resort HotelsObjectiveThis chapter will expose students the development and location of resort hotels. Students willalso understand the size and scale of these hotels, the markets served, products offered, thecurrent issues and future trends. After studying this chapter, students will be able to: • Understand the importance of the development and location of resort conference hotels • Appreciate the size and scale of this sector and its market • Differentiate the products offered by theses hotels • The organisational structure and the trends in these hotels5.1 Introduction to Resort HotelsThere has been a general misconception that resort means a property by the seaside. That isnot true; generally resort is linked with luxury and recreation. To be a resort, a property mustbe in its own spacious grounds and offer a central basic theme activity, such as achampionship golf course, with a wide range of supporting activities (anything from watersports to hunting), and be exclusive. Resort hotels are positioned as destinations in their ownright. In other words, there is no need for guests to go anywhere outside of the resort itself, itis completely self-contained.There are two main types of resort hotel categories:5.1.1 Country Resort HotelsThese are hotels located outside main towns or in the country with extensive leisure facilities.Although also enjoying peaceful, rural settings, country resort hotels with their extensiveleisure and recreational facilities and profit motivation have a different emphasis compared totraditional country house hotels. They are operated on a large scale, often 100 hotel rooms ormore, and are either converted existing hotels mansions or purpose-built properties. They arecommercially driven, which has meant that they have had to appeal to a wide cliental base,such as business, conference and local markets as well as the leisure market, served by moretraditional country house hotels.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 29
  • 5.1.2 Holiday Villages and Holiday CentresThese are where the operators, have ploughed heavy investment into the development and up-grading of facilities and accommodation. If using an international definition of ‘resort’ hotels,these resorts would still not be ‘exclusive’ enough despite this investment. The policy ofthese resort hotel operators is to provide a range of accommodation like apartments, villas,chalets and so on as well as full-service hotel rooms.5.2 Size and Nature of the SectorThese types of accommodation provide customers with a place to stay on their secondholiday or short break. Low cost air fares mean that the majority of British leisure travellerstake their main holiday overseas in destinations that have a better climate and lower prices.5.2.1 Country Resort HotelsIt is difficult to gauge accurately the entire market size of this type of resort property.However, the number of corporate hotels is easier to estimate as the majority are operated byhotel companies.• There are 11 Marriott Country Club Hotels across the UK.• De Vere Hotels operates 11 country resort hotels with a golf and leisure.• The Moat House chain has 30 of its 43 hotels.• The Jarvis chain has 18 hotels.• Hilton’s concept is called Living Well, There are 80 such health clubs.5.2.2 Holiday Villages and CentresThe holiday village and centre market was estimated to be worth £539 million in 2000. Twomajor companies dominated this market Scottish & Newcastle (S & N) and Centre Parcs inthe 90’s. There are also an unknown number of independently owned and operated holidayvillages.Both sectors of the resort hotel market sector in the UK are dominated by hotel and leisurecompanies. The results of a 1994 survey of 16 worldwide resort areas showed that large hotelchains such as Hilton, Sheraton and Marriott commanded aggregate market shares of 70% oftotal available rooms. By 2001 Marriott was well established and Four Seasons was planningto open a new resort property in Fleet, Hampshire in 2002. Club Mediterranee remains thelargest European resort operator, with resort hotels in over 100 destinations worldwide. Themost publicized resort development in Europe has been Disneyland Paris which operates5,211 rooms in 6 hotels.5.3 The Market of the Resort HotelsBoth types of resort hotel are more dependent on leisure customers than conventional hotels.In addition, although the core market for revamped holiday centres used to be the C2D socio-economic groups. Resort hotels now tend to be positioned as ‘country clubs’ offering peaceand relaxation as opposed to excitement and entertainment and target more up-marketfamilies with their high standards of service and accommodation.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 30
  • Increased leisure time, the growth of the short-break market and annual weekend breaksincreased the demand for mid-week break, and a greater interest in sport, health and fitnessactivities have also contributed to the new popularity of holiday centres. Some resorts dividetheir holiday centres like this:• Family favourites; centres targeted at the value-for-money family holiday market.• Chalet hotels; premium accommodation in three and four star chalets.• Reserved for adults; centres aimed at customers over SO years old.• Coast ‘n countryside; centres that provide a base for touring holidays.Whilst business tourism, in the form of conferences and overnight stays, contributesapproximately half of country resort hotels custom, an important additional form of revenueto these hotels is from their sports and leisure facilities. In addition, local membership meansthat they are able to replicate demand to other centres for overnight stays. Resort hotels incountry locations may have relatively small memberships, so that the majority of users arehotel guests.Another market for hotels of this type is the incentive travel market. Incentive is one of thecomponents of MICE. Incentive travel is used by all kinds of employers to reward, theirmanagers/employees for high levels of performance in the workplace. Incentive planners areattracted by the ambience, exclusivity, up-market image and the flexibility offered by theextensive grounds and facilities in these country resort hotels.5.4 Location of Resort HotelsThe most important factors affecting the location of resort hotels will be the requirement forextensive land. For example a golf course requires approximately 120 acres of land.Resort villages are not always unwelcome additions to rural areas. No further than a two hourdrive away, in terms of customers but also a local labour pool. Country resort hotels, due totheir reliance on both business and leisure tourism, require locations that are near tocommercial centres. Also, if they are targeting overseas markets they will need to be close toan airport or a railway station. The ideal location characteristics for a resort property are asfollows:• A total site of at least 130 acres, to include one golf course as a minimum (sometimes an existing course and clubhouse, with fine impressive, extensive grounds, may be deemed suitable);• A large town city within 50 Km (a good commercial centre), with a population of at least 200,000;• A nearby airport or railway;• Close to a community that has some attraction to overseas markets;• Close to local markets for golf, entertainment and conferences;• Fast and easy accessCopyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 31
  • 5.5 Products of Resort HotelA true resort hotel is designed entirely around its extensive recreation and leisure facilities.They are year-round centres/clubs/villages where innovative and extensive indoor andoutdoor facilities form an integral part of the resort. Some country resort hotel offers thefollowing products and services:• Luxurious accommodation such as five-star bedrooms;• Sport and adventure facilities and activities such as fishing, 18-hole golf course, tennis courts; putting greens; jogging trail; croquet lawn; clay shooting, archery, hot-air ballooning, horse back riding, squash courts;• Recreation facilities such as gardens and swimming pools;• Variety of food and beverage outlets such as restaurants, lounges and cocktail bars;• Health and beauty facilities such as aromatherapy, massages, steam rooms, sun beds, saunas, facials, body treatments and hairdressing;• Fitness facilities such as, gymnasiums, dance studios and fitness studios;• Activities and facilities for children such as crèches and games rooms;• Business facilities such as conference facilitiesThe sports and leisure orientation of resort hotels is therefore a key differentiating featureover conventional hotels.To keep pace with rising consumer expectations, all holiday centres are investing in betterquality accommodation, restaurant facilities and general comfort. Centres now also provide achoice of self-catering or full board catering, a trend that reflects transatlantic resortinfluences. Guests can choose from a range of cafés, bars, and restaurants offering everythingfrom a quick snack to a full meal. The provision of self-catering facilities has been the reasonwhy holiday centre operators have often not been included in the ‘hotel company’ category.5.6 Staffing and OrganisingThe prominence of sports, leisure and recreational facilities in all types of resort hotels meansthat their organisational structures and corresponding staffing requirements are quite differentfrom traditional hotels and holiday centres.A hotel executive may know little about the different operational demands of the sports andleisure areas, therefore, an experienced leisure/recreation manager has an important role toplay in resort hotels, and they will have a better appreciation of customer needs and theconfidence to know that what is being offered meets with expectations. Safety of course isanother important operational aspect which must be managed correctly, and is made morecomplex by the addition of guests involved in recreational and sporting activities.Successful resorts also tend to achieve higher occupancy and higher sales per room than othercategories of hotels. However, corporate country resort hotels are probably the mostexpensive hotels to operate. They average a higher number of employees per room (due totheir high service levels), and thus their payrolls are much higher than for other kinds ofhotels. Holiday centres, in terms of the number of staff employed, are large establishments.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 32
  • 5.7 Standard Operating ProceduresOnce again, extensive leisure amenities, the scale of operations and the holiday ‘experience’(offered particularly by holiday centres and villages) make some of the operating proceduresfor these hotels distinct. The economics of leisure and sports facilities are similar to those of ahotel. The purpose is to maximize yield through full utilization of capacity. Foraccommodation this means that all rooms/villas are occupied to their optimum capacity,while for sports like golf, all courses are fully booked by complete foursomes spaced atproper ten-minute intervals with the maximum number of playable hours.Excepting changes in the weather for outside activities and the different popularity of certainsports, systems can be installed in order to maximize facility use and manage the capacity ofthese amenities. Corporate country resort hotels, for example, operate different ‘use’categories such as ‘peak’ and ‘off-peak’ membership and computerized booking systems forsports facilities are used by all types of resort hotels.An important operational task in the large capacity holiday centres is the management oflarge peaks in demand, due to their less varied demand and specified arrival and departuredates. Procedures that assist in managing these trading peaks include the use of queuingsystems or in some instances bookable facilities. Services such as laundry are also often bestcontracted out in order to help with the huge demand for linen on change-over days. The pre-payment of short breaks or long holidays also reduces the front-of-house operation (andrelieves the need for a major cashiering function) on arrival and departure days.Many non-accommodation facilities in resort hotels, such as retail outlets, bars andrestaurants, utilize computerized point-of-sale equipment in order to monitor these facilitiesand as a feedback system for recognizing demand trends. These information systems areparticularly significant given the importance of these additional sources of revenue.Country resort hotels tend to use the conventional mix of hotel distribution channels.However, business and conference houses, incentive planners and sales representativesoverseas are particularly important sources of business given their characteristics of demand.Meanwhile, many holiday centres are keen to work with the travel trade; they all operateefficient booking systems and commission structures. Their long and short holiday breaks areeasy packages to sell through this route and there is the possibility for agents to earn extracommission by selling add-on items such as rail travel to and from the holiday centre.However, in reality most holiday villages operate through direct selling only, in other words,its holidays are not available through travel agents. The internet is an increasing source ofsuch reservations.5.8 Current Issues and Future TrendsIn the future, it is likely that UK leisure trends will follow the pattern in the USA. The marketwill then be driven by affluent and active middle-aged and early retired consumers. Resorthotels, particularly corporate country hotels because of their quality of accommodationprovision and high service levels will be the best placed to benefit form this expected growthin active leisure as conventional hotels do not have enough facilities to meet this emergingdemand.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 33
  • This sector will continue to be constrained in terms of new supply due to the sizeable landrequirements and inclement weather in the UK. Environmental impacts of their operationstoo have to be considered. The key market for the future will be the short break market ratherthan the long holiday market and holiday centres in particular should continue to targetfamilies with children less than 14 years of age, a group of consumers that are set to increasein the UK.Following overseas trend again, there is potential for UK resort hotels to become more mixeddevelopments. In other words, a hotel, villas, condominiums and homes for time-share couldall be developed on the same site. The real estate opportunity could therefore be reallyexploited for those resort operators who own their own properties, extending their expertiseinto different accommodation forms.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 34
  • SummaryThere has been a general misconception that resort means a property by the seaside. That isnot true; generally resort is linked with luxury and recreation. There are two main types ofresort hotel categories:• Country resort hotels;• Holiday villages and holiday centres;Increased leisure time, the growth of the short-break market and annual weekend breaksincreased the demand for mid-week break, and a greater interest in sport, health and fitnessactivities have also contributed to the new popularity of holiday centres.Another market for hotels of this type is the incentive travel market. Incentive is one of thecomponents of MICE. Incentive travel is used by all kinds of employers to reward, theirmanagers/employees for high levels of performance in the workplace. Incentive planners areattracted by the ambience, exclusivity, up-market image and the flexibility offered by theextensive grounds and facilities in these country resort hotels.The most important factors affecting the location of resort hotels will be the requirement forextensive land. They are year-round centres/clubs/villages where innovative and extensiveindoor and outdoor facilities form an integral part of the resort. The prominence of sports,leisure and recreational facilities in all types of resort hotels means that their organisationalstructures and corresponding staffing requirements are quite different from traditional hotelsand holiday centres.Once again, extensive leisure amenities, the scale of operations and the holiday ‘experience’(offered particularly by holiday centres and villages) make some of the operating proceduresfor these hotels distinct. The economics of leisure and sports facilities are similar to those of ahotel. The purpose is to maximize yield through full utilization of capacity.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 35
  • Tutorial Questions1. Explain the main requirements for a property to be classified as a resort.2. State the two types of resorts, and their differences.3. State 8 different products of resort hotels.4. State and briefly discuss the ideal characteristics of the location of resort hotels.5. Briefly discuss the differences between holiday village and holiday centres.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 36
  • 6Budget Hotels, Guest Houses & Small Hotels,Boutique Hotels, Hostels and Halls of ResidenceObjectiveThis chapter will teach students about the growth of budget hotels, boutique hotels, hostels,guest houses and hall of residence. The chapter will also look into the management andstaffing in these sectors, as well as the products and services offered by them. The alsoanalyse the location characteristics, management and staffing procedures as well as the futuretrends of these sectors. After studying this chapter, students will be able to: • Understand the importance of the development and location of these hotels • Properly define budget, small and boutique hotels and appreciate the need for their existence • Appreciate the size and scale of this sector and its market • Differentiate the products offered by theses hotels • The organisational structure and the trends in these hotels6.1 Budget Hotels6.1.1 Introducing and Defining Budget HotelsThe term budget hotel was only introduced less than thirty years ago. Prior to that the termsintroduced to us were guest houses, inns, farmhouses and bed & breakfast provisions. It isbeing argued that budget hotel is not an innovative concept; rather it is a repackaged oldconcept, where a new product is created by systematically stripping out many of the featuresof conventional, full service hotels in order to create a lower service offering. On the otherhand, the rapid growth of budget hotels and the high occupancy levels that they typicallyachieve has been interpreted by some as evidence that a new market has been created. It isargued that a significant slice of budget hotel customers have never previously patronizedother forms of low cost accommodation.Budget hotels offer 2 to 3 star accommodation at 1 to 2 star tariffs. Mainly located on majorroads, they are designed with “no-frills” convenience as a priority. The budget hotel has twoprincipal differences when compared with a standard hotel namely, price and location. Thereductionism approach to facilities and services used by budget hotels has called intoquestion the appropriateness of the term ‘hotel’ when describing that which is left.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 37
  • Fig 6.1 Hotel Formula 1 LogoConventional hotel guide/classification schemes had difficulty in embracing budget hotelsgiven their level of product/service offering. However, both the AA and RAC haveacknowledged the importance of budget hotels and have altered their classification scheme inways to capture them.AA introduced a new category of hotel called ‘Lodge’. Lodges generally provide a highstandard of accommodation with a wide range of facilities required by the business andleisure user, but often provide none of the traditional hotel ‘services’ expected, and thecatering operation is usually housed in an adjacent block. Lodge accommodation usuallymeans two star standards but for the above reasons, does not qualify for a star rating. It wouldseem that any attempt to define budget hotels using only the tangible features of tariff, facilitylevels and location will be limiting. So much so that the word hotel has to be eliminated andreplaced by the term ‘lodge’.The English Tourist Board (ETB) sought to widen the definition by seeing budget hotels notonly in terms of their facilities but also in terms of what these facilities might mean forcustomers. They stated that such hotels provide a highly standardized and branded product,with simple front and back-of-house operations, offering a standard national room charge(excluding breakfast) with minimal public/common facilities and offering no discounts. Insummary, the main features that these classification schemes have identified as beingpertinent to the budget hotel concept are as follows:• Lower Tariffs Than Industry Norm;• Two/Three Star Standard Of Accommodation;• Limited Facilities And Services;• Aimed At The Transient Market;• Located On Major Road Networks Or In Secondary Urban Locations (Retail Parks);• Catering Is Usually Provided By An Adjacent Food Operation,• Purpose Built In Terms Of Location And Design,• Standardized Operational Procedures And Charges Nationwide;• Branded Network Of Hotels6.1.2 The Market of Budget HotelsIt has been accepted that the budget hotel has two main target markets through which tomaximize its profit potential.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 38
  • The first and core market is the business traveller. It has been estimated that this targetmarket represents around 60% of all bedroom sales in the budget sector, and dominates theMonday to Thursday market. These transient business travellers are thought to be juniormanagers in large corporations who would rather utilize the high standards of the budgethotel than use a local independent hotel or guest house with whom they have no guarantee ofstandards. These business users was joined by a large number of middle managers who havebeen forced to ‘trade down’ from traditional full-service hotels due to cuts in what is seen asunnecessary expenditure.The second target market is the leisure user. The average consumer now travels morefrequently, further away from home and more independently than ever before. This trend, inconjunction with the increasing number of families who take short break holidays has led tomore demand for affordable, quality accommodation in convenient locations.Room pricing is attractive to the family market with rates charged per room, not per person.This is also ideal for visitors who do not intend to physically stay in their hotel for the totalduration of their visit. These are consumers who are not looking at the hotel as a venue atwhich to spend their time, but as a functional place in which to rest, eat and drink.Budget hotel users appear to be attracted by the fact that they can pay for the combination offacilities that they want to use. Paying full price for full service makes little sense if you haveneither the time, nor the inclination, to use the services provided. Slight alterations to theproduct/service offering can therefore appeal to a particular group of users and segment themfor particular targeting. Segmentation of budget hotels has occurred in order to target certainuser groups more specifically.A number of different types of budget hotel customer have been identified. These include:• Business users down-trading from hotels with higher service levels;• Business users trading up from bed and breakfast style accommodation t standardized accommodation facilities;• Transient UK leisure users who are attracted by low tariffs — particularly for family occupancy;• Overseas leisure users already familiar with the budget hotel concept within their home market;• First time/new users attracted by ‘value for money’, i.e. the ability to pay only for those facilities which they actually use.The future for the budget hotel market appears to be in a growing mode.6.1.3 The Locations of Budget HotelThe correct location is the key to the success of a budget hotel. It must be situated in a placewith easy access. Adequate car parking space is important. Land and planning permissionmust be available at the right price. Budget accommodation cannot be provided,economically, on premium-priced land. Budget hotels are now being built in cities, but oftentheir room tariff is adjusted upwards to reflect this location.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 39
  • 6.1.4 The Products and Services of Budget HotelsThe AA identifies that lodges must meet the minimum standards for two stars with thefollowing exceptions:• Porterage need not be available;• Foyer or reception area seating to be available, although its existence may be limited;• Writing facilities are optional;• A bar is not required;• Light refreshment and breakfast facilities in neighbouring restaurant (where available) will be acceptable;• Room service is not required;• Telephone need not be provided in-room;• 100% en suite facilities are required.This demonstrates that the budget concept places less emphasis on traditional hotel servicesand offers customers a different atmosphere and product.It is the design of the accommodation provision that holds the key to the success of theoperation. A strict set of standard operating procedures is made possible by regulating thedesign of the bedrooms and reducing the consumer staff interaction. It is this concentrationon the product design and operation at all budget levels that makes the budget brands suitablefor franchise.The budget hotel is designed to maximize revenue-earning potential, whilst maintaining lowbuild and maintenance costs. The design then, is crucial to the profitability of the budgetconcept. Revenue is small in comparison to traditional hotels; therefore costs have to be morekeenly controlled. The maximization of revenue earning space is demonstrated by the roleergonomics plays in the design of budget hotels with few if any public areas, standard roomlayout allowing for easy maintenance and economics of scale to be gained from suppliers.Even though the market is far from saturated, competitive rivalry is already showing in thesense the niche sub-segments of the sector are already emerging. These niche brands arecompeting in this value-for-money market by offering more value-added features or by‘stripping down’ further to an even more utilitarian product in order to offer an even lowertariff.6.1.5 Trends of Budget HotelsBudget hotels are the fastest growing sector in the UK market in the 1990. All the mainplayers are announcing plans for expansion and new players are entering or are expected toenter the UK market in the new future. They are here to stay and prosper for at least the nextten years in their current format. Technological advancements may enable furtherimprovements to be made to increase convenience. Future locations are likely to includefurther development of city centre and airport location and there is the possibility of thembuilt close to hospitals as ‘patient hotels’.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 40
  • Budget hotels have carved themselves a suitable niche market and it has been interesting tosee that they are least affected by adverse trading conditions following the outbreak of footand mouth in the UK and the downturn in international travel following September 11 in theUSA.6.2 Guest Houses and Small Hotels6.2.1 Introduction and Definition of Guest Houses and Small HotelsThere is a legal difference between a guest house and a small hotel. The Hotel Proprietor Act(1956) states that a hotel is an establishment held out by the proprietor as offering food, drinkand, if so required sleeping accommodation, without special contract, to any travellerpresenting himself who appears willing and ready to pay a reasonable sum for the serviceprovided and who is in a fit State to be received. Unlike a hotel, a guest house has no legalobligation to receive all persons who arrive at the door, and has the right to be selective.Guest houses also differ in that they tend to have the character of an extended family,welcoming guests into the household in a very personal manner.The English Tourist Board defines a guest house as an establishment, licensed or unlicensed,which provides accommodation, meals and sometimes other services for residents only. Thusis the UK, a guest house is variously described as a private hotel, a guest house, be andbreakfast or a boarding house to suit specific guide books. They tend to be smaller than hotels(4 to 9 rooms) with more limited facilities for residents.6.2.2 New Ratings for Guest HousesIn 1999 the English Tourism Council, the Royal Automobile Club (RAG) and AutomobileAssociation (AA) combined to create a new overall rating scheme for guest houses. Customercare and guest service are emphasized in these diamond ratings, rather than the range offacilities, as follows:• One diamond — clean and comfortable accommodation, providing breakfast and a helpful service;• Two diamonds — an increased level of quality and comfort, with greater emphasis on guest care;• Three diamonds — well maintained, with practical decor, a good choice of breakfast dishes and a higher degree of customer care. At least 40% of the bedrooms have private or en suite bathrooms;• Four diamonds — an even higher level of customer care, comfort and quality;• Five diamonds — excellent level of customer care.6.2.3 The Scale of Guest Houses and Small HotelsThe size of guest houses and small hotels grew rapidly over the years; following are some ofthe factors:6.2.3.1 Relative ease of entryThe capital investment required is lower than in many other industries, specialist knowledgeand qualifications were not essential. Basically anyone can enter.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 41
  • 6.2.3.2 Market demand highly diverseMarket demand is highly segmented; many of which do not lend themselves to satisfaction bystandardized corporate properties. More players are required to manage the demand.6.2.3.3 Consumer satisfactionThe nature of accommodation provision is such that the small establishments may be bettersuited to respond quickly to customer needs and expectations. The nature of the industry onlyrequires smaller establishments to meet the requirements fast.6.2.3.4 EmploymentThere are 127,000 persons self-employed in the hotel and catering industry, which representsapproximately 11% of total employment in these sectors.6.2.3.5 Turnover and profit earningThe industry has the highest number of low turnover companies of any industry in theeconomy. The independent hotel delivers a trading profit per room seven times less than thecorporate hotel, reflecting a general lack of the economies of scale enjoyed by the largergroups.6.2.3.6 ViabilityTheir viability is threatened by operating only a small number of rooms, mainly at lowmarket levels, resulting in relatively low turnover and profit earning potential.6.2.3.7 SizeUsing one hotel establishment as a unit of measurement, estimates of the percentage of hotelstock which falls into small category vary between 65 and 75% while the average room sizeof a small independently owned hotel is 15%.6.2.3.8 Market level75% of all UK hotels operate at the two-star/unclassified market level, compared to around18% of corporate owned hotels and achieve average annual room occupancy of 45% to 55%.6.2.4 The Markets of Guest Houses and Small HotelsWhile the pattern of trade remains highly seasonal, the spread is not as bad as it was in thepast. Furthermore, the nature of the product encourages a high level of core repeat businesspassing trade from touring customers.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 42
  • The profile of typical customers is made of two main markets, the domestic and the overseas.The domestic market is dominated by the leisure, secondary or short break holiday guestusing guest houses and small hotels for short stays of 4 to 7 nights mainly during April toSeptember. The majority travel by private car, average party size is four, drawn mainly fromABC1 socio-economic groups (see Appendix 1), and are aged 35 plus. Approximately 80 to90% of accommodation arrangements are made independent of travel agents or touroperators, with guest booking directly with the individual operators.The overseas market is also dominated by the leisure guest with over 40% of overseasvisitors on their main holiday, 25% on an additional holiday, and 11% visiting friends andrelatives. The average length of stay in the small hotels and guest houses tends to be 2 to 3nights. Around 80% of guests belong to AB socio-economic groups, tend not to beaccompanied by children, and are aged between 25 and 54, with the 25 to 34 age group aloneaccounting for 33% of all visitors. Approximately 77% make independent accommodationarrangements, with only 23% booking through travel agents. Generally, of all overseastourists 32% use small hotels and 31% use guest house accommodation, providing thatquality expectations are satisfied.Important Segments for Guest Houses and Small HotelsThere are six priority segments for the guest house and small hotel sectors.• Short break, promoted directly to the customer, by-passing the travel trade.• Independent travellers reached through direct mail, press coverage, consumer advertising, carefully selected wholesalers, retailers and press departments.• Special interest and activity, e.g. golfing, craft course, walking, bird watching.• European holidaymakers, travelling independently and to a lesser extent travel operators. This segment is best targeted through retail travel agents which tailor make itineraries to the customer’s specifications, e.g. ‘Go As You Please’ car touring types of programmes;• Families are a durable segment which need is nurtured by devoting more effort to providing children’s menus, meal times, baby-sitting services, entertainment and activities, and appropriate pricing policies.• Visiting friends and relatives will be recommended to use a local guest house or small hotel of sound, established reputation and reasonable price as a substitute to staying with friends and relatives.6.2.5 Locations of Guest Houses and Small HotelsThe majority of existing guest houses and small hotels can be found in secondary and tertiarylocations, reflecting historic travel patterns of both domestic and overseas consumers. Thereare very few guest houses and small hotels that are sited in prime locations. Most are wellhidden, up long driveways, in the back of towns and remote scenic areas. However, theirlocation is in fact a major strength, as the charming names adopted by the guest houses inparticular reflect their attractive location. When selecting a location for a guest house or smallhotel, decisions are influenced by a mix of personal and business factors. However,frequently the personal factors override the business, which may not bode well for a soundcommercial future.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 43
  • 6.2.6 Product and Services of Guest Houses and Small HotelsThe majority of owners are seeking out a more personalized, individualistic environmentoffering a specialized product, often a style of living to which the guest would like to becomeaccustomed.The ideal components of the core product of a small hotel consist of:• A warm welcome;• Comfortable facilities;• Attractive location;• Satisfaction of perceptions of value for money;• Pride in preparing and serving good quality local produce;• ‘caring’, represented by the owner taking a personal interest in their guest;• Efficient, friendly staff mirroring the attitude of ‘mine host’, tailoring customer service to each individual guest’s needs;• Availability of special interest and activities programme;• Easy to purchase, attractive packages of all the components needed for a tourism experience.Perhaps the most critical of these components to the success of the operation is the human,caring element mine host and the staff. Take that out and the unique selling propositiondisappears, the heart of the operation has been extracted. With all the components in place,the owner has a clearly focused, differentiated market proposition, a specialist product withwhich to strengthen their market appeal in niche markets and prosper.6.2.7 Staffing and Organising of Guest Houses and Small HotelsTo better understand factors which influence business organisations, two issues need to bediscussed: degree of income dependency, and ‘amateur’ status.First, three main levels of income dependency on the business can be identified, each ofwhich will result in differing attitudes and motivations towards organisation and staffing. Thehotelier or guest house owner may run the unit as their primary source of income. They aretherefore likely to be heavily reliant on overdraft facilities and loan capital. Second, thebusiness may be a secondary source of income, whilst the owner carries on their ‘real’profession. Finally the owner may be in the ‘comfort zone’. The property has been purchasedoutright, and the owners seek only to achieve a ‘comfort level’ in terms of level of incomegeneration to sustain a desired life-style.A second issue is the ‘amateur’ status of guest house and small hotel operators, which hashistorically been a characteristic of these sectors. Operations are often started by anindividual with enthusiasm for the social aspect of the business, but with only very basicknowledge of business practice and operations. Many have been ‘in businesses before asopposed to ‘running their own accommodation businesses and have no idea of the reality.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 44
  • As a result of these two factors, owners bring different levels of commitment and abilities tothe business organisation. Frequently, motivations are highly life-style driven, rather thancommercial, which often results in operating below optimum. In addition, outdatedmanagement mentalities and general management weaknesses are common. Such businessflaws were masked during the more buoyant 1980s, but the 90s were less tolerant of theinexperienced amateur.No matter the size of the accommodation unit, marketing, housekeeping, maintenance, foodand beverage, and human resources all need to be professionally planned, managed andcontrolled, profits maximized and accurate records maintained. What is different in the smalloperations, is that it is the owner alone who has to cope with these tasks, without a team ofsubordinates to delegate to. It is the ability to successfully juggle these roles, a strongengaging personality, combined with excellent service, which will influence the success ofthe operation.Managing a small business can be a lonely affair, unlike the large corporate groups there areno superiors, or a head office, to ask for specialist advice. Thus, this team of professionals isa substitute for the more formal support network of a large firm, with the organisationalstructure being one of ‘hub and spoke’.Within the operation the organisational structure is simple, reflecting more the image of anextended family, rather than any hierarchical configuration. Family members are looked tofirst as a source of convenient and economic labour. From that core of ‘staff’, employees willbe kept to the minimal required to cope with the differing seasonal demands. Remote, out oftown, locations may find it difficult to attract and retain good quality staff and such hotelsgenerally need to provide staff accommodation.Training is generally done ‘on the job’. However operators are currently being encouraged toincrease the training provision for their employees through example, the Welcome Hostprogramme.6.2.8 The Changing Trends of Guest Houses and Small HotelsOne of the problems that are being faced within this sector is the uphill struggle to persuadethe owners into the need and value of thinking strategically. This has never been moreimportant as the dominant competitions, the corporate groups, have access to all the tacticsavailable to the independent owner, but in addition they have many more opportunities andresources denied the small operator. As such, the smaller operators have little hope ofchanging the rules of the competitive game.At first glance they may seem to be in conflict: product differentiation and cooperativenetworks. The first urges the operator to be unique, specialized, a loner while the secondrecommends that he becomes a team player. However, together these two strands of strategycan present a winning combination.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 45
  • 6.2.8.1 Product DifferentiationIn current hotel product marketing there is seldom reference to a ‘common’ hotel product, butmore to a specific type of hotel, e.g. fishing, golfing, country house, non-smoking. Thus, forthe early 2000s, the guest house or small hotel needs to consider the possibility oftransforming an ‘all-purpose’ operation into a more differentiated product, capitalising on itsunique selling points of the personalized environment, cherishing the customer, andcustomizing the product offering to their individual needs. In doing this the operators aredeveloping niches in which corporate groups have no particular interest or advantage. Thus,the small operator is offering a specialized product, with a distinctive image, serving theneeds of a targeted market niche.6.2.8.2 Cooperative NetworksThe trend in the tourist industry as a whole is towards greater integration through cooperativenetworks which bring together all components of the tourism product, airlines, car hire,accommodation, credit card companies, special activity programmes. Such cooperativenetworks enable the packaging and effective distribution of a compound tourism product, ofwhich the guest houses and small hotels are part. Operators are developing cooperativenetworks to assist them with: professional advice and support, centralized marketing, accessto central reservations systems (CRS) and global markets, financial services, access to publicsector funding and information.6.3 Boutique HotelsDefinitions of boutique hotels vary but operators, designers and owners would agree on theirmajor characteristics. The first is obviously design. These types are very individually in theirlooks. They may be in old or newly built building but their exteriors and interiors are alwaysdistinctive. The aim is to create an environment which creates a sense of style, distinction,warmth and intimacy. In most boutique hotels, each guestroom is individually designedmaking every stay unique even for repeat guests while rooms are more exotic, smaller andhighly intimate. Technology also enhances the design and ambience and used to promoteemotional contact between the guests and the hard attributes of the building through effectivelighting and music. It is also provided for the convenience of hotel guests including featuressuch as in-room DVD players, flat-screen television sets, cordless phones and computer withhigh-speed internet and the latest monitor genres. Of key importance is the extent to whichsuch technology is leading edge and fashionable.The second feature is the nature of guest experience. Most operators insist that this type ofproperty should not exceed 150 rooms so that every guest can be recognized by employees,acknowledge by name and given the individual service. Entertainment is an importantdynamic in creating a lively, chic and trendy mind-set and is not limited to events such as livemusic ad performances. The boutique concept itself is entertainment because it has a hiprestaurant, trendy lounge and ‘in’ bar.The third feature is that the target market could be defined as the ‘image conscious’. Suchpeople tend to be early 20’s to mid-50s with mid to upper-incomes.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 46
  • There are clearly two types of boutique property depending on their location. The first type iscity based where location is of major importance and not on proximity or convenience but thetrendiness of the neighbourhood, vibrant economies and high-end socioeconomic groups.The second type is in resort destinations. Location is also important which are typically foundin well-hidden, tucked away, deserted corners of the island or mountain. The more difficult itis to reach by means of common transportation the more fashionable the location isconsidered. Here the guest experience is not based on technology but features such astraditional spas, rose petal bath, private individual plunge pools, honeymoon packages and artand painting sessions.Boutique hotels bring certain benefits in terms of operations and profitability. Besides strongcustomer demand, the economies are favourable for operators. For example, in the context ofdisintermediation they can easily reach their target markets at low cost. Once established,boutique hotels also tend to have a higher percentage of repeat business compared to thegeneral industry. Smart boutique hotels must continue to adapt to the incessantly changingneeds, tastes, preferences and fashions to remain competitive.6.4 Hostels and Halls of Residence6.4.1 Introduction to Hostels and Halls of ResidenceHostels are houses or halls of residence are for groups who have specific needs like students,young workers, tourists and organised parties. The majority hostels came into existence inresponse to a demand for safe, affordable, accommodation.Education establishments, universities, public schools and colleges, have had a long historyof associated accommodation provision children of the middle and upper classes were ‘sentaway’ to be educated. In the late 1800s, large numbers of young people moved away fromtheir domiciles to find work. They too required secure and respectable accommodations thatideally gave them access to social and leisure activities with people of their own age andinterests; this was the main reasons for the development of YMCAs and YWCA. It alsobecame a fashion, between the First World Wars, that young workers and student groups leftthe towns to cycle around the countryside.6.4.2 The Demand for HostelsThe management of accommodation and the experience of the hostel product would differaccording to the needs of the users. The majority of commercially let hostel accommodationis provided for the younger members of society. College halls of residence, youth hostels, theYMCA, YWCA, school study centres and the like all exist predominantly to serve the needsof youth. Security, affordability, a functional living environment and easy access to leisureactivities are equally important to each user group.• Young Workers• Students• Tourists• Conferencing and Activities Breaks• Organised School Activity WorkshopsCopyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 47
  • 6.4.3 The Products and Services of HostelsHostels are clearly not hotels. They do not provide the same level or range of service and theydo not consider the people who use them as guests. Hostels therefore cannot be compared orconsidered in the same way as accommodation provided by the hospital service or the prisonservice. The motivation to use hostel accommodation is created by the user for either short-term or longer-term living space and to give the user access to leisure or work. The level ofintervention by hostel management, in the living activities of the residents, is much less thanmost serviced accommodation, as hostels become the home of the user, if only for a veryshort time. The management of hostels is, therefore, less intrusive and less sophisticated thanin a hotel or guest house, in some cases the relationship becomes more related to that oflandlord and tenant than of hotelier and guest. It is therefore not unreasonable to expectpeople who use hostels to provide much more in the way of goods needed for day-to-dayliving.The range of facilities provided by hostels and the associated intensity of service is reflectedin the prices charged, but the significant advantage of hostel accommodation over thecommercial alternatives is that they all provide the resident with an increased level of securityand to some extent safety through supervision.A typical study bedroom in a university hail of residence has to fulfil two basic needs of thestudent, first to act as a home bedroom where the student lives, and second as a place wherethey can work at their studies.It is equipped with a single bed, wardrobe, wash hand basin, bookcase, coffee table, desk anddesk chair and an easy chair; soft furnishings are kept to a minimum in order to reducemaintenance Bathrooms, shower rooms, and toilets are usually shared, but some of the newhalls have en-suite facilities.6.4.4 Marketing of HostelsThe demand for hostel accommodation is dependent upon the extent of the booking period,the pricing strategies and the membership practices adopted by the hostel management. Littleexternal marketing is carried out by hostel operators where residents stay for long periods oftime and particularly where prices are consistent with, or marginally below, the value ofcommercial letting policy.6.4.4.1 Long-Term Residential LetsHalls of residence in the university sector and young workers’ hostel places are always indemand and waiting lists are not uncommon. In these environments, internal marketing iscarried out to maintain an atmosphere of understanding between residents and the hostelmanagement. It would be easy to assume that because the hostel residents regard the rooms astheir temporary homes that they, as a client group, become a captive audience.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 48
  • Common marketing strategies include direct mail to residents’ rooms, keeping residentsinformed of changes in routine, improvements to the administration of their accommodation,and activities in which they can join. Notice boards and posters involve residents in theactivities of the hostels and at the very least keep them informed of what is going on. By farthe most effective marketing is carried out by personal contact and word-of-mouth, incommon with most closed communities, students’ opinions are formed by the people theytalk to and hall wardens are a major source of information.6.4.4.2 Short-Term Residential HostelsWhere hostels rely exclusively on short-stay residents, such as in a youth hostel makes senseto encourage users to join the hostel’s membership. This identifies people who have used thehostels in the past and hopefully will use them again in the future. The membership fee fulfilstwo roles for an organisation. First it helps to maintain cash flows throughout the yearregardless of the occupancy levels of the hostels. Second it provides the organisation with adatabase of name and addresses to which it can directly market itself, knowing that these arethe people who know and like the organisation and can be encouraged to re-buy. Membershipmagazines, accommodation guides, newsletters, promotional offers all are typically used asways of affecting buyer behaviour and encouraging repeat business.6.4.5 Operating ProceduresJust as the marketing of a hostel varies according to whether it has long-stay lets, as in thecase of a student hall of residence, or short-stay lets, as in a youth hostel, also does theoperation of these facilities.6.4.5.1 Halls of Residence OperationsA typical university may have between five and twenty halls of residence accommodatingbetween 200 to 2000 students. If the university is one of the newer ‘red-brick’ universities,built during the 1960s and 1970s, the halls of residence are likely to be located on campus,whereas older universities may have halls spread through the local area. They typicallyconsist of mainly single study bedrooms and usually are big enough to justify their owncatering facilities. Perhaps 20% of all such accommodation will be self catering. In addition,some halls of residence may have twin bedded accommodation. This style of room is only letin term time on a single sex occupancy basis and they are not popular with the majority ofstudents who value periods of privacy and quiet study time. The Accommodation ServicesDepartment would coordinate various student contracts in the halls, as well room renting andleasing schemes in the private sector, which supplement the total stock of rooms available tostudents. Rooms are allocated to incoming students at the beginning of each year. Newstudents are asked to complete letting contracts, which specify the payment of fees and therules of the college in terms of both their behaviour and their understanding ofresponsibilities as residents. Students entering college for the first time, students from outsidethe immediate locality of the college, and overseas students are usually given priority.Allocation is based, where possible, on the students’ personal needs. For instance, smallerhalls may be set aside for occupancy by mature students, or even students with youngchildren, so that additional facilities such as a crèche and a self-service laundry may also beprovided.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 49
  • The Head of Accommodation Services would typically report directly to the college principalfor all issues that may arise from the management of the halls. Each of the halls is likely tohave a Warden who is given some responsibility for general student conduct, and to act as thefirst point of contact in a crisis or emergency. They are usually drawn from among theuniversity’s staff or student body and live in an apartment or room in the hall for which theyare responsible. If the Warden is a student, they are usually either final-year students, orpostgraduates. They are given some compensation in rent as payment for their services.Within the Accommodation Services team, support will be provided to the wardens both interms of dealing with the residents and dealing with the hail of residence. Should a wardenhave a problem with a resident, a ‘Student Services Manager’ is usually available to provideadvice. Ultimately, if problems continue, conditions outlined in the student contract will beenforced and students be asked to leave the halls if their behaviour warrants it. Likewise, if anemergency occurs at any time of the day, the Estates Manager is likely to have a serviceengineer available to deal with the problem. In addition there will be available emergencycontractors from the gas, electricity and water utilities.6.4.5.2 Hostel OperationsThe informal culture of the hostel movement is reflected in the informality organisation.These hostel operators rely on small teams of people who maintain the standards of theorganisation according to their rules and operating methods. Organisation charts appear veryflat, with one or two people being responsible for the practical operational management, anda mixture of full-time, part-time, casual, or, in some cases volunteer staff providing the labourforce. In a bigger hostel the scale of operation demands a more formalized structure as themanagement task is more.6.4.6 The Changing Trends of HostelsThe demand for hostel accommodation is not diminishing and most organisations are openingnew hostels o refurbishing old ones as funds allow. Hostels are very busy and have found anew market segment in school groups, who occupy hostel accommodation outside thetraditional holiday periods.With regard to universities and colleges, it is difficult to envisage a time when all studentswill be guaranteed a place in halls of residence. Whether or attendance at university declines,student accommodation is an important factor in attracting students to any one particularinstitution.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 50
  • SummaryBudget hotels offer 2 to 3 star accommodation at 1 to 2 star tariffs. Mainly located on majorroads, they are designed with “no-frills” convenience as a priority. The budget hotel has twoprincipal differences when compared with a standard hotel namely, price and location.In current hotel product marketing there is seldom reference to a ‘common’ hotel product, butmore to a specific type of hotel, e.g. fishing, golfing, country house, non-smoking. Thus, forthe early 2000s, the guest house or small hotel needs to consider the possibility oftransforming an ‘all-purpose’ operation into a more differentiated product, capitalising on itsunique selling points of the personalized environment, cherishing the customer, andcustomizing the product offering to their individual needs. In doing this the operators aredeveloping niches in which corporate groups have no particular interest or advantage. Thus,the small operator is offering a specialized product, with a distinctive image, serving theneeds of a targeted market niche. The trend in the tourist industry as a whole is towardsgreater integration through cooperative networks which bring together all components of thetourism product, airlines, car hire, accommodation, credit card companies, special activityprogrammes. Such cooperative networks enable the packaging and effective distribution of acompound tourism product, of which the guest houses and small hotels are part. Operators aredeveloping cooperative networks to assist them with: professional advice and support,centralized marketing, access to central reservations systems (CRS) and global markets,financial services, access to public sector funding and information.There are now some hotels called boutique hotels and they have created a niche market basedon their image and design.Halls of residence in the university sector and young workers’ hostel places are always indemand and waiting lists are not uncommon. In these environments, internal marketing iscarried out to maintain an atmosphere of understanding between residents and the hostelmanagement.The demand for hostel accommodation is not diminishing and most organisations are openingnew hostels o refurbishing old ones as funds allow. Hostels are very busy and have found anew market segment in school groups, who occupy hostel accommodation outside thetraditional holiday periods.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 51
  • Tutorial Questions1. How does ETB define lodge, and what are the main features of a lodge. (4 marks)2. Describe in your own words, what should be the ideal location for a budget hotel. (4 marks)3. State the legal definition of a small hotel, and describe how it differentiates from a guest house. (4 marks)4. According to RAG and AA what facilities should a 3 diamond guest house have? (2 marks)5. State at least 5 of the services offered by a normal guest house. (5 marks)6. Mention any three market segments that can induce demand for a hostel. (2 marks)7. Briefly state the various roles a warden plays in a hall of residence. (4 marks)8. Name four different types of hotel. Provide a very brief explanation for each type of hotel. (4 marks)9. What is a boutique hotel? (2 marks)10. Budget Hotels have seen a major growth over recent years. a) Give a definition of a Budget Hotel. (2 marks) b) Discuss the factors which have led to the development of Budget Hotels. (10 marks) c) Budget Hotels are generally in prime locations. Discuss the reasons for this. (8 marks)Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 52
  • 7The Food Service SectorObjectiveAfter studying this chapter, students should be able to:• Identify the difference types of hotel catering formats.• Explain the trends in hotels food operations.• Identify the main food service systems used in the food service industry.• Identify the types of room service systems used in hotels.7.1 IntroductionThe largest sectors in the UK hospitality industry, in terms of numbers of outlets, are hotelsand pubs — a microcosm of the catering industry itself since it comprises a wide variety ofoutlets, from sports clubs and stadia to theme parks, historic properties, cinemas and beyond.Indeed, many researchers are unsure whether to include the leisure sector within the cateringmarket, since it consists of a large number of outlets, each of which serves only smallquantities of food. However, this sector will be among those showing the fastest growth overthe next few years.Like hospitality and tourism, all leisure markets benefit from improving economic conditions.For many people, real disposable income has grown and the forecasts are that it will continueto grow. On average, people were approximately a third wealthier at the end of the 1990sthan they were at the beginning. In wealthy markets, the leisure and pleasure sectorsoutperform the economy in general. It is usually the case that, as people become wealthier,their incremental income is not usually spent on upgrading the essentials but on pleasure andluxury items. However, whenever there is a downturn in the economy, the leisure sectorssuffer disproportionately.The leisure industry has been described as the biggest, fastest-growing industry in the UK.Within the leisure sector, some areas have slowed down, while others are consolidating andconcentrating on core businesses. One of the most useful ways of categorising the leisuresector is to separate it into popular leisure activities — for example, theatre, ten-pin bowlingand cue sports, casinos, bingo, and health and fitness.In terms of meals served, the most significant sectors are food service, followed by pubs, staffcatering and health care. An expected rise in household incomes of 3.4 per cent per annum inreal terms between 1999 and 2009 will result in a rise of 3.7 per cent in money spent oneating out. This means that spending on catering will account for a slightly greater share ofpersonal disposable income by 2009.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 53
  • Traditionally, catering activity has been divided into either profit or cost sector markets. Theprofit sector includes such establishments as restaurants, fast-food outlets, cafés, takeaways,pubs, and leisure and travel catering outlets; the cost sector refers to catering outlets forbusiness and industry, education and health care. Recent developments have blurred thedivision between profit- and cost-orientated establishments.7.2 Hotel Catering7.2.1 Hotel Food and Beverage StrategyUnlike in the past, when hotels typically operated food and beverage facilities merely tosatisfy the demands of their guests, today’s hoteliers are increasingly adopting a moreproactive approach by using their food and beverage outlets as a means to generate not onlyprofit but also publicity, as well as to cultivate a loyal following. Traditionally, hotelrestaurants have not been profitable enterprises for hotels, given that they were oftenconsidered to be only an essential value-added service for guests.Mintel has identified four hotel catering formats, as follows.1. General: Hotels featuring restaurants that cater primarily for residents of the hotel and, second, for walk-in guests who are not residents. These often take the form of casual, all-day dining facilities. The most enterprising of these are attempting to attract different consumers at different times of the day. For example, the Harrington Hotel in London aims to attract residents in the morning for breakfast, conference and banqueting clients for lunch, and walk-in customers for evening meals.2. Signature: Hotels that have developed a restaurant as a brand that stands alone from the hotel, and is therefore primarily aimed at walk-in customers. Most of these restaurants are located in luxury or upscale establishments, a number of which are managed by celebrity chefs such as Giorgio Locatelli, Gary Rhodes, Gordon Ramsay, Brian Turner, Angela Harnett and Marcus Wareing. Signature restaurants tend to operate independently of the hotel they are attached to. Establishments that fall into this category include Nobu (Metropolitan Hotel, London), Chino Latino (Park Plaza, Leeds and Nottingham) and Locanda Locatelli (Hyatt Churchill, London).3. Outsourced: Hotels that outsource the management and operation of their catering provision to a third party. The outsourcing of a hotel’s food and beverage operations can take several forms: a lease contract, management contract or an agreement with a contracted caterer. An example of an outsourced food and beverage hotel operation is the Cumberland Hotel, London, which contracted Restaurant Associates, a division of the contract catering giant Compass plc, in early 2005 to operate all its bars and restaurants.4. Budget: Hotels that provide only a limited catering service, and sometimes no catering at all other than food from vending machines. The budget hotel sector in the UK is rapidly expanding, and consequently the vast majority of new hotels do not have any food and beverage facilities at all — in part this is due to lenders providing limited capital to developers in the accommodation sector.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 54
  • Recently, there have been a number of other developments, which are blurring the linesbetween signature and outsourced restaurants.• Parallel, the restaurant operations division of the contract caterer Aramark, announced in February 2004 that Refettorio, the upscale restaurant at the Crowne Plaza — London The City, will be run as a joint venture with GiorgiO Locatelli, a celebrity chef and Crowne Plaza (part of the Intercontinental Hotel Group). Each partner is anticipated to take a share of the profits.• GaryRhodes, another celebrity chef, is set to manage the brasserie and fine dining operation at a major London hotel, in partnership with Restaurant Associates (at the time of writing, details had not been finalised, although the name Rhodes at Hyde Park has been suggested).• Furthermore, many hotel chains that have come to rely upon the strength of their brand names have resorted to developing sub-brands designed to appeal to both guests and non-residents. For example, Thistle introduced three branded catering concepts in its hotels in 2001: CoMotion is marketed as a deli-style café; the Faya brand offers Mediterranean food; the third brand, Gengis, offers a range of Mediterranean and Asian food.7.2.2 Conferences and BanquetingSpend on hotel catering by the conference and banqueting segment was £808 million in 2004and, at the time of writing, was expected to have increased by 5% in 2005 to £851 million.Overall, spend by this segment is expected to account for 21% of total catering expenditure in2005. TRI Hospitality Consulting reports that conferences accounted for 10% of the marketmix in UK hotels in 2004, thus implying that those in this market are above-average spenderson hotel catering.The trend for one-day conferences (i.e. conferences that do not require an overnight stay)remains, as well as the demand for smaller conference facilities. According to the Meetingsand Incentive Association’s (MIA) UK Conference Market Survey 2004, the averageduration of meetings and conferences in the UK was 1.4 days for the corporate sector and 1.6days for associations. The survey also found that 84 per cent of corporate meetings orconference delegates visited city-centre hotels and 21% had attended meetings or conferencesat out-of-town hotels.However, the MIA survey identified that food was the top bone of contention for bothassociation and corporate delegates. Food quality is certainly an issue and it is apparent thatthere is a clear need for hotels to look for innovative ways to enhance existing cateringfacilities and services.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 55
  • 7.2.3 Outsourcing: A Growing TrendThe contracting-out of food and beverage services to third parties will continue to be a majortrend in the hotel catering sector over the next few years, although this will be much strongerin London than in the provinces. As many hotels continue to remain sluggish owing toevolving consumer demand for food and beverages and intense competition from the highstreet, the attraction of outsourcing food and beverage services will become increasinglyappealing.Vertical integration between many hotel and restaurant groups has meant that the outsourcingdecision is often not such a radical step to take for many hoteliers, as costs and revenuesremain within the group. Most outsourcing is agreed on either a flat fee or percentage basisand this is expected to remain unchanged.Outsourcing is not always a straightforward option for hotels, however. To attract walk-incustomers, a hotel ideally needs to be located where there is easy access to the restaurantitself, and the location of the hotel itself (city centre, countryside, etc.) needs to fit with theclientele that are being targeted — that is, the product must be attractive to the passing trade.Despite these constraints, the number of outsourced restaurants is expected to increaseconsiderably over the next three years.7.2.4 In-House Catering DevelopmentWith increased consumer interest in food and eating out, hotels are becoming more focusedon developing attractive food and beverage facilities in-house. The success of in-housecatering development will depend on the willingness of hotels to deliver a product that willbe attractive to the outside market, and to maintain this product so that it evolves withchanging consumer tastes and trends. According to human resource specialists within thehotel sector, key factors holding back further development are that food and beveragemanagers in hotels tend to be hoteliers rather than restaurateurs, as well as the shortage ofexperienced culinary and service staff.For the majority of the population, pub restaurants and gastropubs remain the most popularplaces to eat out (see Figure 7.1). Fast Food 27% Pub catering 23% Hotel catering 15% Restaurant Meal 14% Ethnic Restaurant 7% In-store 5% Roadside 2% Other 7%Fig 7.1 Most popular places to eat out at (UK)Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 56
  • 7.2.5 Room ServiceRoom service must be provided in those hotels that wish to attain a four or five star rating,but like lounge service, room service is expensive to operate and demand is uncertain. In astudy of hotel room service (Buick, 1994), 83% of hotels that were surveyed saw roomservice as an important component of hotel operations and 94% felt it was a service, pertinentto guest satisfaction.Some hotels have replaced a few room-service facilities with vending machines, such as in-room cocktail bars or soft-drinks vending machines and shoe-cleaning equipment incorridors. Hotels that continue to provide traditional room service; gather that their roomservice operations focus on the following areas: Snacks 3% Lunch 6% meals served Dinner 35% Breakfast 56% 0% 20% 40% 60% 80% 100%To simply room service, hotels have encouraged the trend towards continental breakfasts,either by making continental breakfast inclusive in the room tariff and charging extra for afull English breakfast or by making the latter only available in the hotel’s restaurant or coffeeshop.Basic Room Service SystemThere are three basic systems for providing service in a guest’s room.• Floor-pantry system• Centralized floor service• Through reception7.2.5.1 Floor-Pantry SystemFloor service staffs are based on each floor or every second or third floor and operate from aservice pantry. The pantry is stocked with goods and equipment necessary to providebeverages and snack-type meals for those rooms that the pantry has to service.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 57
  • Advantages• Staff should be able to respond quickly to a guest request, since locating near guest rooms.• Customer who uses room service frequently will be able to build some rapport with the server responsible and feel a greater sense of well-being from the personal attention.Disadvantages• Demand is erratic, peaking at breakfast time and in the early and late evening. Hence extra staff must be deployed at peak periods.• In general, one staff serve two floors of guest, during peak period the delivery time might be affected. In addition, the quality of service will also be inconsistent.7.2.5.2 Centralised Floor ServiceTo overcome most of the problems of floor-pantry system, many hotels operate a centralfloor service that all floor service staff operates from. Each order will be directed to roomservice and staff will take turns to serve the orders.Advantages• Fewer staff is required to provide a comprehensive service, especially during off-peak period.• Control is made easier with central point usually located near main kitchen• Equipment and stock level are lower as there are no pantries on each floor.7.2.5.3 Through ReceptionThe most popular room service system, according to Buick’s (1994) survey, is by channelingguest enquiries for room service through reception.7.3 Service SystemsLilliscrap (1971) identified nine styles of service including guéridon, full silver, plate silver,plate, family counter (or cafeteria), snack bar, French, and Russian. However, due to themodernization of the industry, French and Russian styles of service are hardly used in theindustry today. On the other hand, cafeteria service developed during the 1970s with severalvariations designed to increase throughput such as free-flow, scramble and carousel systems.In addition, there is also buffet service, tray systems, trolley service and automatic vendingmachines. As such, further systems analysis has been carried out (Cousins and Lilliscrap,1999) and five main types of front-of-house service style have been identified.• Table service – This is service to customers sitting at a laid cover. It includes silver service, family service and plate service.• Assisted service – This is any combination of table service and self service. For instance, many restaurants have incorporated self-help salad bars into their operations.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 58
  • • Self-service – Customers select from either a single counter or several counters of food and drink items, often using a tray and pay at a till point. Alternative configurations of counters are known as ‘free-flow’, ‘scramble’, echelon and carousel.• Single point service – Customers are served at a single point, and food may be consumed on the premises or taken away. This includes take-aways, kiosks, vending machines, food courts and bars.• Specialised or in situ – This refers largely to the service of food and drink to customers in places not primarily designed for foodservice consumption. It includes tray serve systems, such as in hospitals or on airlines, trolley service, home delivery, drive-ins and hotel floor service.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 59
  • 8Restaurants and Fast FoodObjectiveThis chapter will enhance students’ understanding on the operational styles of modern dayrestaurants and fast food outlets. This chapter will also analyse the operational issues andother legal requirements of this sector. After studying this chapter, students will be able to: • Define restaurants and differentiate fast food • Comprehend the development of fast food and restaurants • Appreciate the size and scale of these sectors • Understand the importance of the locations for restaurants and fast food • Understand the business structure and services these sectors offer • Discuss on the changing trends of these establishments8.1 Introduction to RestaurantsRestaurants tend to be owned and operated by individuals. There is no formula for openingand operating a successful restaurant. However, some establishments have set out to create achain of units which depend for their success on mass appeal, so that two broad groups ofrestaurant can be identified, namely popular catering units and ‘speciality’ restaurants.Home delivery is a development from the takeaway, but instead of customers having to visitthe shop in person, all they need to do is telephone their order and the meal will be deliveredto their home. Drive-ins have also been developed in some countries. Convenience storesprovide self-serve food and drink facilities in retail outlets, while food courts operate severalcatering concepts in one location, sharing the seating capacity.8.2 Structure of the International Restaurant SectorThe restaurant sector represents an important constituent of the international hospitalityindustry. Using a global sample of 103 countries the International Hotel and RestaurantAssociation (1998) estimated that, in 1997, the total number of restaurants was 8.1million and that these generated US$704 billion and employed 48 million people. While thesector has developed at varying rates in different countries, in general, expansion appearsto have been especially substantial over the last two to three decades.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 60
  • A restaurant is basically defined here as an establishment where refreshments or meals can beobtained, usually for money, by the public. However, these basic definitions are very broadand conceal a diversity of restaurant types. Consideration of a few variations will serve toillustrate this point. Refreshments or meals are normally supplied for consumption on thepremises in restaurants but sometimes a take-away service may also be available whererefreshments or meals are supplied for consumption off the premises. Many ethnic res-taurants, such as Indian and Chinese restaurants, and fast-food restaurants offer both anon-site and take-away service.Many conventional fast-food restaurants offer prepared food for take-away as a means ofdiversifying and increasing trade. Restaurants range from up-market; full service gourmetrestaurants to self-serve establishments and some may have elements of both. They mayor may not be licensed to provide alcoholic liquor with meals. Factors such as these make thedistinction between restaurant types increasingly blurred.In most countries the restaurant trade is extremely fragmented and comprises a widediversity of outlets and food types providing for different markets. A variety of different criteriacan be used when analysing the structure of the restaurant sector. These include analysis byownership, by branded or unbranded operations and by market, concept and menu.8.3 Restaurant OwnershipDespite some of the difficulties referred to above, different types of restaurants can besegmented according to one of three patterns of ownership structure: independents, chains orfranchises.8.3.1 Independent RestaurantsIndependent operators, running small single establishments mostly in secondary locations,dominate the worldwide market for restaurant food. In the USA, which is often perceivedto be dominated by large corporate chains, most restaurants are, in reality, smallbusinesses with annual sales less than $US 500 000. Similarly in the UK independents andsmall restaurant groups dominate the market.Individuals or proprietors who are also involved in the day-to-day operation of thebusiness mostly own independent restaurants. If the proprietors have more than oneproperty then it is often the case that each property operates independently and has littleor no formal relationship with other properties under their ownership.8.3.2 Chain RestaurantsThe multiunit restaurant chains have captured, and at the expense of the independents, anincreasing share of the total restaurant market. In the USA, this has been particularly thecase since 1950. In other countries this trend has been more recent. In the UK, for example,this trend dates back only 20-30 years.A chain restaurant is one of two or more restaurants normally owned by a company andmarketed on a corporate basis. The individual restaurant in the chain is virtuallyidentical to the others in the chain in terms of its target market, concept, menu, designand name.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 61
  • McDonalds, KFC, and Burger King are examples of fast-food, or quick- service,international restaurant chains. Hard Rock Café, Planet Hollywood, Rainforest Café and T.G.I.Fridays are examples of international theme restaurant chains offering moderate upscaleconcepts and operating in the casual dining market.Chains may be owned by franchise or management companies while others may be family-owned. Small and adventurous chains have been predicted to perform much better in the UKup to 2010 than their big corporate rivals.Table 8.1 shows a variety of competitive advantages and disadvantages of small independentsand chain restaurant businesses. It should be recognized that these are general and mayvary in their importance to individual businesses. Competitive advantages Competitive disadvantagesIndependent Flexible Limited bargaining power Few Specialized offerings economies of scale Reduced Direct control of strategy, image media access Over-dependence Consistency and independence on owner Limited planning Entrepreneurial drive Inertia Often lack specialist retail Close to customer expertise and capital to expand Offer greatest risk Bargaining powerChains Multiunit efficiencies Inflexibility Greater use of sophisticated High investment costs technologies Reduced managerial control Well-defined management Limited independence capital Often able to attract expansion Specialist expertise Long-range planningTable 8.1 Advantages and disadvantages of Independent Restaurants compared to Chain Restaurants8.3.3 FranchisesFranchising has been a major factor in the growth of many fast-food and some otherrestaurant concepts. Franchising has been commonly utilized by chains. The largest fast-foodcompanies are involved with franchising and, according to EntrepreneurInternational, six of the top ten international franchisors in 1999 were in the restaurantsector, with McDonalds in top position.A restaurant franchise is a form of restaurant ownership where the parent company, thefranchisor, allows other people, the franchisees, to operate clones of the business under thesame name, and using the same systems and operating procedures in return for an initialfee and an ongoing management services fee. Both the franchisor and its franchisees havecontractual obligations to one another.Business format franchising is the most common form of franchising arrangement. It hasbeen utilized by many leading international I restaurant businesses to grow their businesses.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 62
  • Much franchising activity in the UK occurs in the restaurant market that has about a quarterof all franchises.To many, fast food is the home of the franchise. It certainly has made a key contribution tothe popularization of the concept with its simple menus, quick product finishing and servicetimes, standardized production methods and service delivery systems and heavily brandedchains. These factors have made it easier for the fast-food concept to be rolled out acrossthe world and have attracted entrepreneurial financing through franchising. This has enabledbusinesses with sound fast-food concepts to achieve rapid distribution independent of havingto raise extra capital funds. Fast-food giants such as McDonalds, KFC, Dunkin Donuts,Burger King and Subway, household names worldwide, have all developed their chainsthrough franchising. For non-fast-food restaurants chaining and groups are less prominentand therefore so is franchising. Nevertheless, there are some well-known corporate-ownednon-fast-food restaurant chains, which have used franchising to expand their concepts,including T.G.I. Fridays and Harry Ramsdens. While food may be produced and servedless quickly and be relatively highly priced compared to fast-food products they are stillstandardized and Chemed restaurant branded concepts. These factors along with the desirefor geographic expansion, often on an international scale, have facilitated franchising.Restaurant franchising effectively began in the USA in the 1950s, with McDonalds,Kentucky Fried Chicken and the Burger King franchise system called at that time InstaBurger King. In the UK Wimpy opened their first franchised outlet in Ramsgate in 1957.Wimpy grew on a franchise basis to over 1200 outlets in 37 countries over the next 20years. However, unlike the USA where fast food and franchising became dominant forces,in the UK there were, with the exception of KFC in 1965, few new entrants to themarket until the mid-1970s with the arrival of McDonalds and Burger King. Sincethen restaurant franchising activity has increased in the UK. Most American fast-foodfranchisors regard the UK as the gateway to Europe with there being moreAmerican franchise units in the UK than the rest of Europe combined. In Britain therestaurant sector contributes an average of 18% of sales to the total franchise sector, whereasin the USA by comparison this is 11%.8.3.4 Multiunit Restaurant BusinessesMultiunit restaurant businesses are another ownership type. These are most commonly asingle company that owns and operates a number of restaurants, each with a differentconcept, menu and target market. In the UK, City Centre Restaurants plc and Groupe ChezGerard plc are examples, whereas in the US McDonalds has diversified through theacquisition of Chipotle Mexican Grill and Donatos Pizza. Some multiunit companiesmay be completely responsible for the management and operation of restaurants but do notown them. Multiunit restaurant businesses may benefit from some of the economies ofchain restaurants such as centralized human resource functions. However, there may berisks associated with them as each concept is different and will have to prove itself in themarket.8.4 Concept, Menu and MarketThe structure of the restaurant sector can also be analysed according to concept, menuand market. The following categories using these criteria:Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 63
  • • Fine dining restaurants• Theme restaurants• Casual dinner houses• Ethnic restaurants• Family restaurants• Grill/buffet• Quick-service or fast-food restaurants.A similar categorization approach is employed by the Restaurants and Institutionspublication in its annual ranking of the top 400 restaurant concepts with their corporateheadquarters in the USA. Such a structural analysis presents a number of issues. Onerelates to the ease of categorizing certain restaurant types due to the increasingly mixedmenus and target markets of certain operations. Another issue for some relates to identifyingcertain categories, e.g. sandwiches/bakery and coffee/snacks as restaurants. However, whenthese categories are considered in relation to the definitions of restaurants set out earlier inthis section then it is clear that these are restaurants. Table 8.2 shows the 20 top rankingrestaurant chains according to Restaurants and Institutions in 2004. AVERAGE 032004 03 UNIT CHAIN Menu Segment SALESRANK UNITS VOLUME† $MM ($000) 1 McDonald’s Burgers 44,900.0 30,187 1,487 2 KFC Chicken 11,200.0 12,878 870 3 Burger King Burgers 11,100.0 11,285 984 4 Pizza Hut Pizza 8,100.0 12,083 670 5 Wendy’s Burgers 7,750.0 6,481 1,196 6 Subway Sandwiches/Bakery-Cafe 6,819.0 20,260 337 7 Taco Bell Mexican 5,500.0 6,238 882 8 Domino’s Pizza Pizza 4,200.0 7,427 566 9 Applebee’s Neighborhood Grill & Bar Casual Dining 3,592.0 1,585 2,266 10 Dunkin’ Donuts Coffee/Tea 3,200.0 5,835 548 11 Starbucks Coffee/Tea 3,105.0 7,225 430 12 Arby’s Sandwiches/Bakery-Cafe 2,772.8 3,450 804 13 Dairy Queen Coffee/Tea 2,750.0 5,790 475 14 Chili’s Grill & Bar Casual Dining 2,573.7 944 2,726 15 T.G.I. Friday’s Casual Dining 2,480.0 735 3,374 16 Red Lobster Seafood 2,433.0 680 3,578 17 Sonic Drive-In Burgers 2,419.0 2,741 883 18 Outback Steakhouse Steak/Barbecue 2,400.0 723 3,320 19 Jack in the Box Burgers 2,360.0 1,956 1,207 20 7-Eleven C-Store 2,246.0 5,784 388Table 8.2 Top 20 Restaurants ChainsCopyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 64
  • 8.5 BrandingA restaurant brand is a name, design or symbol (or a combination of these) used to identifythe offering provided by a restaurant. Branding has become even more important in the eatingout market in recent years. In the UK, for example, many operators have sought to notonly strengthen their existing brands, by emphasising quality of service and pricing, butthey have also established new brands which are helping to further change the eating habitsof UK consumers (Mintel, 2001). The City Centre Restaurants group has done this in the UK.It has three brand categories: developed, developing and new brands. In 1998 new brandsunder trial included Wok Wok and Rick Shaws. Downbeat financial announcements fromleading UK operators have caused companies to focus heavily on brands and particularlyupon the development of flagship brands to the provinces outside of London, which hasbeen claimed to be oversupplied with restaurants.In 1999 the Hotel and Catering Research Centre at Huddersfield University (UK) identified 347companies in the UK operating 713 brands in 22 859 restaurants. The 20 leading operatorsrepresented nearly 62% of all the branded restaurants. However, as mentioned previously,the sector is fragmented and no operator dominates the restaurant market.The significance of branding in the restaurant sector can be explained by four factors:1. Repeat business represents an important source of restaurant income, and repeat business depends on satisfied customers and a recognizable brand name. So product acceptance is improved by popularizing brand names.2. The number of different restaurant brands and the rapid rate of new brand introduction complicate choice for customers and emphasize the need to obtain customer brand recognition.3. The choice of brand has implications for the companys marketing mix.4. Customer loyalty in restaurants is difficult to obtain and hence branding is very important.The Hotel and Catering Research Centre has also analyzed the structure of the brandedrestaurant sector in the UK using a similar concept-menu-market model. Interestingly thisfound pub restaurant brands are the most notable having 192 brands and nearly 10,000 units8.6 The SpectrumThis analysis assumes that there are three most important variables, namely the menu, theservice style and the price. In order to define restaurant categories there should be room for atleast one of the eleven types of restaurant mentioned below, as they each appeal to a differentmarket segment. Eleven types of restaurant are defined:Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 65
  • • Takeaway;• Snack stand;• Limited menu, low price, self-service;• Limited menu, low/moderate price, self-service;• Limited menu, moderate price, service;• Full menu, low/moderate price, service;• Full menu, low/moderate price, self-service;• Full menu, moderate price, service;• Full menu, moderate/high price, service;• Luxury menu, high price, continental (gueridon) service;• Social caterer.8.7 Nature of the Restaurant Product and OperationsThe principal component of any restaurant operation is the menu. However, products may becomposed of both tangibles and intangibles. For a restaurant the most significant intangiblecomponent is the service but the product is much more than just food and service, it is acomplete meal experience.The complete meal experience includes:• Food – appearance, aroma, taste, texture and temperature• Service – speed of service, style of service and the standard of service• Cleanliness and hygiene – the staff, the equipment and the environment or room itself• Décor – interior design, colours, decorations• Lighting – brightness, mood and ambience• Air conditioning – temperature, air quality and ventilation• Furnishings – comfort of the tables and chairs• Acoustics – noise, voices, music• Clientele – other customers in the roomWith the diverse range of restaurants that has developed over the past two centuries therehave been several approaches to the classification of restaurants, which have attempted todefine more clearly the product and its mode of delivery. Some have focused upon theproduct itself utilizing the menu, service style and price as significant variables indetermining the levels within the classification while others have viewed them from a systemsperspective utilizing complexity and innovativeness as essential criteria. Most of theseclassifications have been derived from studies of restaurant operations in the USA. Whilethe Spectrum classification produced eleven restaurant types, the Powers classificationshowed the restaurant typology in matrix format plotting complexity of delivery againstinnovativeness of the system. Thus the least complex and-most traditional format would befor example, the hamburger stand in the USA or a street vendor in Hong Kong. The mostcomplex and innovative format would include theme restaurants, a popular form ofwhich is a theme derived from other cultures. For example, a Thai restaurant in Australia inwhich an atmosphere is created by means of artefacts, furnishings, traditional dress andmenu items reflecting the unique ingredients and tastes of Thailand, all of whichcontribute to transport the diner to Thailand.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 66
  • The ideal classification would combine factors from both of these classification types andalso incorporate the nature of the business, whether independent stand-alone or multiunitchain restaurants. In the typology used to describe independent restaurants, three segmentshave commonly been identified, quick-service, midscale and upscale restaurants. However,this typology is inadequate for the multiunit chains and added two more segments, moderateupscale and business dining, to produce their Expanded Restaurant Typology. The fiveresulting segments may be summarized as follows:• Quick-service restaurants, which provide a consistent product with fast service at a low price, like McDonalds• Midscale restaurants, for example Dennys family restaurants, which offer comfortable surroundings, value for money, convenience and greater selection of menu items with table or counter service• Moderate upscale ‘casual-theme’ restaurants, like T.G.I.F Fridays, which make a fashion statement where customers identify with the restaurants concept and where there is more concentration on ambience and flexibility of use by key customer segments• Upscale restaurants, often independently owned but include chains like Outback Steakhouses, which offer a higher priced product with the greatest emphasis on the dining experience, relying more on personalization, image, quality, style and ambience• Business dining, often provided by contract caterers like Serco Ltd in corporate locations, which places emphasis on value for money, price – whether subsidised or discounted – convenient location of the operation and changing menus to satisfy regular business clients within the captive market.8.8 Components of the Products and ServicesA restaurant classification system aids the ordering of restaurants and also helps to clarifythe nature of the restaurant product. The classifications previously outlined show a number ofterms directly applicable to the product are constantly recurring: menu, service, ambience,speed, consistency, comfort, quality, flexibility, dining experience and style. These terms, almostin themselves, reflect a hierarchy of components of the product as the restaurant attempts tosatisfy consumer needs from the most basic of physiological needs to the higher, more sociallevels of the need for self-respect, reputation, prestige and status.The system for delivery of the product will be determined by the combination of tangiblesand intangibles it comprises. For delivery of the tangible components of the product, the foodand beverages, systems for production and service will be required. These systems in turnwill be dictated by organizational policies, financial and resource constraints and also by thedemands of customers in the target market. Furthermore, these factors will be overlaid bycultural influences within each country. At one end of the scale customer needs may bevery basic, with food and beverages of consistent quality, served quickly and at a low tomoderate price while, at the other end of the scale, there may be greater emphasis on anextensive, high quality and creative menu with ambience, comfort and style contributing to thetotal experience offered at a much higher price. For quick, efficient service, delivering aconsistent product at a moderate to low price, a totally different system is required than for thehighly creative and expensive menus in the most exclusive establishments.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 67
  • 8.9 The Role of TechnologyAdvances in information and catering technology over the past two decades have enabledfoodservice systems to be developed which have revolutionized the delivery of food andbeverages in restaurants. These developments have also produced an unprecedented increasein the productivity of foodservice operations, which consequently has led tointensification of competition within the sector. The larger operations, in particular themultiunit chains and franchise operators from fast food like McDonalds to upscale restaurantslike Outback Steakhouses, have benefited most from these advances in technology. Suchlarge organizations have the financial capacity to:• Build up expertise in the implementation of new technology• Develop customized operational systems• Design sophisticated production facilities• Undertake new product research and development with suppliers• Establish comprehensive human resource support systems including training• Select and utilize suitable locations for new operations.For small restaurant businesses, particularly in underdeveloped countries, competition fromsuch large organizations has presented a considerable challenge. With these advantageslarge chains can enter new markets in developing countries offering franchises to localoperators who then can provide advice so that modifications, necessary for success withinthe local culture, can be made into menu items.8.10 The Nature of Catering SystemsFoodservice operational systems have frequently been referred to as catering systems.However, there are systems for food production and systems for food service. The guidingprinciple for any operational system is that of control throughout the operation. For any systemthere are inputs and outputs. In between, processes are involved in transforming the inputs tooutputs and, once this has been achieved, there is feedback. In a restaurant, three types ofprocessing that take place, customer processing, product processing, and informationprocessing. When a customer enters the restaurant, is seated, orders from the menu and the meal isserved, the service staff are involved in processing the customer. For production of themenu items, food is processed; ingredients are transformed into dishes, which are in turnserved to the customer. Furthermore, information is processed during the entireoperation as ingredients are ordered, received, stored and issued and the menu items sold atpre-determined prices.An important characteristic of processing is the utilization of technology notably in theprocessing of food in the kitchen and in the collection and analysis of information throughoutthe operation. Customer processing is more personalized with both staff and customersinvolved in the service encounter.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 68
  • 8.11 Process FlowIn foodservice operations back of house and front of house operations can bedistinguished. In most systems models, how: ever, the service, front of house component,is usually incorporated unless the system is decoupled and the two components of productionand service are completely separated in different locations. Systems models may beillustrated in a simple way by using a process flow diagram. The concept of process flow is anessential principle on which all systems depend. Essentially the flow of materials is tracedfrom the point at which the materials enter the operation, through every process stage in theoperation to the point when the final process is completed. Figure 8.1 shows models for atraditional a la carte operation and a cook-chill catering system.For an a la carte operation seven process steps have been identified, while for the cook-chillsystem an additional three steps have been added; holding, transportation andregeneration. However, these are simple process flow diagrams and not all processes areshown, for example in cook-chill and sous vide packaging is important, whether the product issealed in a bag before processing, or vacuum packed after rapid chilling. Furthermore, holdingmay be introduced in more than one step, for example in cook-chill there may be refrigeratedholding in the central production facility before transportation, then holding again at thesatellite kitchen under refrigeration before regeneration and service. Three genericdedicated systems are categorized as follows;• Integrated foodservice systems, where food production and service are undertaken in the same operation• Food manufacturing systems, which incorporate decoupling and where food production is separated from service• Food delivery systems, which focus on the service of meals to customers involving either regeneration or assembly of the dishes.8.12 The Scale of Restaurants in UKThe UK restaurant sector remains fragmented, with a large number of independent businessesoperating locally but a growing number of national chains. Of the largest restaurant chains,three are based around families (Harvester, Toby Restaurants, Brewers Fayre), two aroundpizza (Pizza Hut and Pizza Express), one main based on steak (Beefeater) and one (LittleChef) is a roadside chain. The top brands dominate their sectors: Pizza Hut has one third ofthe pizza restaurant market, Beefeater one-third of the steakhouse sales, and Little Chef hasno direct competitor.In addition to these main brands, there are also a number of smaller chains based around‘theme’ concepts. City Centre restaurants is the UK’s largest independent restaurant companywith 210 restaurants. Its brands include Garfunkels, Deep Pan Pizza, Café Uno, Frankie &Benny’s, Est Est Est and Wok Wok. Compass operates the Harry Ramsden chain of fishrestaurants, and a new independent chain Fish has recently come into the market. Scottish &Newcastle operate the Old Orleans theme restaurant chain, whilst Whitbread have the TGIFriday’s franchise (32 outlets). Other Whitbread restaurant brands include Café Rouge (103outlets), Bella Pasta (73 outlets) and Mamma Amalfi. Chains with around 20 to 30 outletsinclude Angus Steak House, Ask (pizza concept), Brannigans, Conran Restaurants, ChezGerard, Mongolian Barbeque, Nandos (up-market chicken concept), and Yo! Sushi. A cleartrend in the branding of restaurant chains is the use of the exclamation mark!Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 69
  • Traditional a la carte operation Cook-chill operation Storage Storage ↓ ↓ Preparation Preparation ↓ ↓ Cooking Cooking ↓ ↓ Service Holding ↓ ↓ Dining Transport ↓ ↓ Clearing Regeneration ↓ ↓ Dishwash Service ↓ Dining ↓ Clearing ↓ DishwashFig 8.1 Example of simple systems models of foodservice operations8.13 The Market of RestaurantThe mid-scale restaurant offers value, comfort, table and counter service, with an appropriatemenu mix and choice. In using a moderate upscale restaurant the customer is making a‘fashion statement’ and seeking ambience. The up-scale restaurant customer is very muchinto the full meal experience, with a great deal of style, ambience and service. While thebusiness dining customer wants an easy purchase decision, value, and an accessible location.8.14 Location of RestaurantsThe diverse types of operation and wide range of market segments served make it difficult tobe precise about the criteria for selecting a restaurant site. There are therefore two ways inwhich an operator can go about selecting a site for a restaurant. The first way is to identify alocation and develop the right kind of restaurant for that site; the second way, is to define therestaurant concept and then seek a location with the appropriate market demographics. Thefirst approach is usually adopted by independent restaurateurs operating single units; whereasthe latter is the approach adopted by chains.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 70
  • 8.14.1 The pre-selected location approachThe first step is to carry out an analysis of the secondary data available with respect to thechosen location. This is followed by a primary market study which reviews the competitionand establishes the needs and wants of people in the area. Both this primary and secondarydata enables the specification of life-cycle categories and trends, from which it is possible todraw up a specification of market segments. These segments are usually defined by age,income, and family structure. From this specification, a customer profile is drawn up, whichthen enables a restaurant concept to be defined.8.14.2 The pre-selected concept approachIn many respects this is the reverse process. The operator starts with a well-defined concept,identifies the customer profile, defines the segmentation, collects secondary data on severalpotential areas, carries out primary research on likely suitable locations, and then selects themost appropriate market area.8.15 Operational FeaturesIn the restaurant industry no clear service style can clearly be identified, food is served in anumber of ways.8.15.1 Plate ServiceThis style of service has the food item plated then individually served to each customer. Withthe growth of bistros, family restaurants and in particular nouvelle cuisine and other styles ofgastronomic cooking, this style of service has also been adopted in up-market operations.Plate service is particularly suitable for this as it enables the chef to present the foodartistically.8.15.2 Family ServiceThis style is ideal for use in restaurants serving Far Eastern cuisine. Eastern eating habitsdiffer from the European concept of eating a sequence of courses, including a principal dishor main course. In India, for instance, food is traditionally served on a large tray, containingdifferent dishes and accompaniments, and people help themselves to small amounts from onedish at a time, although there is no hard-and-fast rule for the order in which the food shouldbe eaten. Likewise, in China every bowl, from a wide selection is available to all diners andthey serve themselves from each dish with chopsticks. Thus, in opening restaurants in Britain,Indian and Chinese restaurateurs have adapted their service style to meet Western demands,in a similar way to their adaptation of the cuisine to Western tastes.Family service is the practice of serving food in dishes, from which customers are expected tohelp themselves as they are placed on the table. Apart from maintaining links with tradition,this style of service requires fewer staff than silver or guéridon service requires, and also lesstraining in service skills in necessary.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 71
  • The key element to the success of such operations is ensuring that the temperature of the foodis maintained. This means that the kitchen must serve very hot food into heated dishes,customers must be supplied with hot plates, and that the dishes are kept hot by lamps orhotplates placed on the table. The restaurateur may also find that disposable table linen ispreferable, as, in serving themselves, the customers may not be as efficient as a waiter andspillages often occur.8.15.3 Silver ServiceThis used to be the ‘standard’ style of service found in restaurants and hotels. Food ispresented on ‘flats’ (serving trays) or in dishes to the customer and then served by the waitingstaff onto the plate. Silver service originated because food is traditionally served on silverflats to enhance the appearance and maintain the temperature of the food and it provides thecustomer with a degree of ‘service’. It is becoming out-dated because the economic necessityof using stainless steel instead of silver has removed one of the main attractions of ‘silverservice’. If food can be presented attractively on the plate from the kitchen then the need forservice equipment, dishes and flats is reduced, along with capital investment and operatingcosts. Also, silver-service waiting staff requires a level of skill and consequent training thatsimpler food service methods eliminate.8.15.4 GuéridonThis style of service was developed during the Edwardian era and is symptomatic of theEdwardian’s gastronomic indulgence. A guéridon is a table or trolley placed beside thecustomer’s table at which the waiter prepares fillets, carves and sometimes cooks the dishesto be served. This style of service is flamboyant and emphasizes the personal attention andservice that a customer receives. It is also associated with menu dishes that are of the highestquality, and are very expensive, being based on classical French cuisine. For this reason,guéridon service is restricted to restaurants catering for a market that is prepared to pay thehigh prices that must be charged to cover operating costs.8.16 Introduction to Fast FoodFast food has been one of the biggest successes in the food industry over the last threedecades. Fast food makes up 32% of the consumer catering market. With this rapid anddynamic growth, fast food has made an increasingly significant impact upon our diets, ourpersonal spending, our social life and the environment. The fast-food industry has also madea marked impression in the hospitality industry and other industries being the impetus behindnumerous modern technological, marketing and managerial developments. The multi-unitchains have spearheaded many of these developments.8.17 Definition of Fast FoodDefinitions of fast food tend to be product-based, process-based or place of provision-based.Each definition has its own distinct features, application and values. The definition of fastfood used here is product-based and focuses on the physical composition of the product. Itcontains four features which must coexist for fast food to be clearly differentiated from otherproducts. These features are:Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 72
  • • A finished product shelf life of usually minutes (e.g. hot fast food, ice cream) and on occasion’s hours (e.g. sandwiches). Rapid deterioration occurs beyond these times particularly without holding equipment. This perishability factor is consistent with that of service products generally.• Fast product finishing (and in some cases total production) and service times The range of fast foods, demand levels, production methods and system efficiencies mean that actual times will differ from between 2 to about 15 minutes for products provided to consumers on site to about 30 minutes for those delivered to consumers off site.• A hand- or fingers-held product often accompanied with disposable packaging and sometimes disposable cutlery.• A low selling price relative to other restaurant products.Because of its nature fast food can be consumed on the premises or off the premises as atakeaway, or a delivered product.8.18 Fast Food OperationsFast food is supplied to consumers through many sources and in both the private and publicsectors. Some private sector outlets such as McDonalds’ restaurants, KFC outlets or fish andchip shops, specialize in the sale of fast food, selling no or very few other products. In othersfast-food sales comprise only a part of the outlet’s overall sales. In such cases fast-food salescan be relatively significant (e.g. a Pizza Hut restaurant, or an ethnic cuisine restaurant, suchas an Indian or Chinese restaurant, with a takeaway or home delivery service) or minor (e.g. apublic house, a garage forecourt shop or a supermarket with a takeaway facility).8.18.1 Traditional OperationsThese include them being small single unit, family run, and low capital investmentoperations. They also tend to rely on rather traditional and fairly labour-intensive on-site foodpreparation and presentation methods and make little use of sophisticated technology andmarketing techniques. Together these traditional operations comprise a large, fragmented andheterogeneous sector.8.18.2 Modern OperationsOver the last thirty years big fast-food chain operators like Burger King, McDonalds, KFCand Pizza Hut, has expanded rapidly through franchising, and consequently have polarizedthe market between themselves and the traditional independent operations. A number ofmethods of involvement are used by the chains in the fast-food industry including company-owned and managed outlets, franchised operations and joint ventures. Modern operationsincreasingly offer a combination of eat-on-the-premises, takeaway, drive-through or customerdelivery service types.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 73
  • 8.18.3 Convenience StoresConvenience store is essentially a typical, old-fashioned, neighbourhood corner shop that alsosells food and drinks for consumption as takeaways. It is presented in a manner very similarto fast-food stores, through the use of illuminated, coloured menu boards, and refrigerateddisplay counters. But there are no staff providing service to the customer. The customers self-select food and drink items off the shelf or from dispensers, heat their food in the availablemicrowave ovens if required, and take their items to a retail-type check-out. The range offood and drink items and type of menu on offer varies according to the location of the store.8.18.4 Coffee ShopsCoffee shop could be argued as not a fast food, but then they are not really restaurants orpubs either. The coffee shop concept is based around the idea of serving high-quality freshcoffee in a variety of styles, along with soft drinks and some food provision. But a keyelement of the coffee shop concept is the notion of image and style. Starbucks uses the phrase‘a comforting third place’ in order to promote itself. This ‘third place’ is a comforting andwelcoming alternative to home and the workplace.8.19 The Scale of Fast FoodThe strongest and most expanding segment of the market is in sandwiches. This market hasseen a great deal of innovation in the variety of products on offer, in terms of both breads andfillings. This has appealed to customers who are concerned about a healthy diet and the timethey have to eat lunch. Sandwiches are also sold through a wider variety of outlets than everbefore. The two major chains McDonalds and Burger King compete greatly on price and runpromotions often linked to new movies aimed at kids. They continue to open new outlets, butthese tend to be smaller and in non high street locations, such as roadside or suburban drive-thru.8.20 The Market of Fast FoodIn spite of the limitations of the many existing definitions of fast food, and consequentshortcomings of any related size calculations, evidence clearly indicates that the market islarge, significant and growing. The current popularity for fast food is due to a combination ofsocial and other factors. These include:• Greater average real personal disposable incomes although the recent recession temporarily affected incomes.• Trading down from relatively more expensive and more formal catering outlets during the recent recession.• Less formal eating patterns and more casual eating ‘eating on the run’ or ‘grazing’, as it is sometimes called, has increased.• An increasing number of women going to work women have less time at home to prepare meals and are more likely to be able to afford fast food.• An increase in one-person households.• Better access to private transport.• Efforts of the industry to create demand by advertising heavily and offering a quick and efficient service at low prices.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 74
  • • Increased international travel has increased desire for foreign fast foods at home.• Increased urbanization of population.8.21 Location of Fast FoodOne of the most important factors in establishing a successful fast-food operation is finding asuitable location. This is because fast food for most consumers is a low involvement,convenience, often impulse, product for which they are not usually prepared to travel veryfar. This is unless perhaps the purchase of fast food is linked to other purchases, e.g. cinematickets or other leisure products. Because, traditionally, fast-food chain operators have reliedon relatively high volume sales of low unit cost food and drink items to ensure financialsuccess, locations have been chosen where there are relatively large potential customer flowsor concentrations of potential customers in close proximity. This helps to explain why fast-food chain outlets were originally located in prime high street locations but are now to befound in a wide variety of locations with similar customer flows or concentrations. As theselocations become exhausted and their associated markets saturated newer locations will besought.The decision about where to locate a fast-food outlet is basically comprised of two separateyet interrelated elements. The first of these is selection of a general trading area. Some of thefactors determining the potential of a trading area include:• Population and population density;• Volume of traffic flows;• Income distribution;• Extent of house building;• Nature and extent of competition;• Job security of population;• Health of local businesses;• Presence of advertising media;• Employee availability;• Nearness of supply source.• Convenience and approachability factors;• Legal enactments;• Physical conditions;• Occupancy costs.8.22 Staffing and Organisation of Fast FoodTraditional hot fast-food operations utilize simple low technologies where the equipment ismanually controlled and designed more for domestic than industrial use. They have reliedheavily upon the social and technical skills: hard work, commitment and the attitude of theirpersonnel who in many cases have no qualifications and are self-taught. Outlets are normallysmall in area and cater for small volumes. Consequently staffing complements are low andare often restricted to members of the proprietor’s family and, if needed, to two or three hiredstaff.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 75
  • Modern fast-food units are staffed and organized differently. Those which need highcustomer volumes and throughput to achieve acceptable returns, e.g. high street operationsare labour hungry and need staffing complements to cover long opening hours and probablyseven-days-a-week operation. The standardized part-time staff permits greater flexibility. Theorganisation of a fast-food chain must combine strong control with flexibility.8.23 Operating Procedures of Fast FoodA fast-food outlet is a combination of a production and a retail service out. Modern outletsutilize manufacturing-style production methods and technique similar to those commonlyfound in factories while simultaneously promoting themselves as food and drink retailerscompeting with other such retailers. They can thus be considered as both a small factory anda retail shop. Such operations mass production techniques, production line principles andsystematic approaches to design, planning, organising and control. These approaches enablecustomers to be served quickly and facilitate the efficient production of a standardisedproduct of a reliable quality. Operations are driven especially by organized preplannedsystems, or soft technology, rather than being reliant upon the discretion, attitude or skill oftheir workers. Operatives use advanced equipment and carry out simple tasks requiring littleskill.Table 8.3 shows the main features and potential benefits of the production line approach inthe context of fast-food operations.Table 8.3 Features and benefits of production line fast-food operationsFeatures Potential benefitsLimited discretion of personnel Standardization, order and qualitySubstitution of personnel by equipment Lower labour costsDivision of labour Specialization of labour skillsStandardization of service Better control of labour costs Simplified training Fast service at lower costMany modern fast-food outlets are built upon the operational target of closely controllinglabour utilization and upon the scientific management principles of work organization,worker selection and training, performance monitoring and the use of scientific methods.These scientific methods can be seen in the way work activities are precisely defined and inthe way the total job is broken down into a sequence of tasks, which in turn are broken downinto the smallest and simplest of steps. Each of these steps requires the minimum of skill.In many of the chain operators, standards and working activities are clearly defined in anoperating procedures manual. These are comprehensive documents often comprisinghundreds of pages, and cover the whole operation. Staff training is based upon them; workactivity is conducted in accordance with them and performance is monitored and controlledaccording to themFast-food operations use a variety of methods to produce food. The choice of method isinfluenced by the ability of the food production area to satisfy the volume of demand and bythe shelf life of prepared food.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 76
  • The following types of fast food production methods can be identified:1. Batch production – Food is produced in batches. It is suitable for low-volume outlets or periods.2. Ongoing production – Production is continuous. It is not directly tied to demand, but careful forecasting is necessary. It is suitable for high-volume situations and busy outlets.3. To order production – Food is produced once it is ordered. It is directly tied to demand and suitable for low volume outlets or for customized menu items.The control of food production to reduce spoilage is critical to fast-food operations. Limitingorder takers, using a ‘bin’ person as in McDonalds and using communication/informationsystems between the production area and the service area.Many modern fast-food outlets are built upon the operational target of closely controllinglabour utilization and upon the scientific management principles of work organisation,worker selection and training, performance monitoring and the use of scientific methods.These scientific methods can be seen in the way work activities are precisely defined and inthe way the total job is broken down into a sequence of tasks, which in turn are broken downinto the smallest and simplest of steps.The success of modern fast-food operations greatly depends on their ability to meet thedocumented standards of operating procedures. In franchised fast-food operations thefranchisee is bound by the franchise agreement to operate the business according to thedocumented procedures and is trained accordingly. Commonly franchised agreements givefranchisers the right to audit the franchisee’s performance based upon the laid-downoperating procedures. The concept of inventory control is frequently used for auditing in bothfranchised and non-franchised fast-food chains.8.24 Current and Changing Trends of Fast FoodFast food has received nutritional criticism. Fast food is also continuously being blamed forthe obesity epidemic that is evident in many developed nations. High saturated fat, salt andsugar levels and low fibre contents continues to come under scrutiny. Some operators addedhealthy items such as salads and fruit to the menu, but these items made up a smallpercentage of sales.Green-pressure form fast food consumers, the general public and others are increasinglybeing exerted on fast food operators. These issues include disposable packaging, wastedisposal, litter and the use of natural resources. Again, some companies have respondedpositively by adopting environment friendly policies, waste reduction measures, the use ofrecycled materials and energy management.The fast food industry is expected to continue to grow. The multi-unit branded operationswill lead the way for the industry and the future of fast food will be strongly brand related.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 77
  • One trend expected to continue is the increased diversity of fast food locations. Fast foodswill be available in contract catering sites, pubs, hotels, restaurants, leisure complexes andpetrol stations forecourts. Some of this development will be aided by the development offranchised small fast food bar units, requiring lower capital investment. (Identified in Chapter1 as micro-footprinting.)Opportunity remains for geographical growth with the more remote parts, smaller towns andurban suburbs offering particular opportunities.An increased number of operations use newer delivery systems such as drive-through, home-delivery and self-pay systems.Further technological advancements are also expected, e.g. credit card payment systems andcustomer-operated ordering terminals.8.25 Changing Market of RestaurantsIn USA, UK and Australia there has been a trend towards spending more of the fooddollar/pound on food eaten outside the home. In the USA in 1999 this exceeded 42% while inAustralia it was 26%. People in Britain spent £21.4b on eating and drinking in restaurants in1999 compared with £59b spent on food eaten in the home, i.e. 27% of all food and drinkconsumed is in restaurants.Factors contributing to this trend include the increase in the consumers disposable incomeand busier lifestyles. With longer hours at work, more women in the paid workforce and theconsumers desire for convenience, for value for money and for entertainment away fromhome there is less time for meal preparation. The result has been an increase in theconsumers food dollar spent in restaurants.8.26 Restaurant TrendsRestaurateurs operate in a very competitive environment. They are not only in competitionwith each other but are also in competition with other businesses offering convenient foodincluding hotels, motels, pubs, convenience stores, roadside kiosks, takeaway food and homemeal replacements from supermarkets.In recent research conducted by the National Restaurant Association (1999) in the USA andthe Centre for Hospitality and Tourism Research (CHTR) at Victoria University in Australia,the issue of competition was identified as just one of the challenges which the restaurantsector will be facing between 2001 and 2010 (Centre for Hospitality and Tourism Research,2001). The National Restaurant Association (1999) predicted that the restaurant industry willexperience intense competition from 2001 to 2010 and, for success, restaurant operationswill have to provide the highest levels of service and quality food.In Australia casual dining is increasing with restaurants and cafés serving a lighter style offood more suited to grazing and snacking. Simultaneously an increase in the number of newentrants to the sector has occurred leading to more intense competition, particularly for casualdining. Much of the competition is price based and, together with rising costs, especiallyfixed overhead costs, the sector will be forced to emphasize non-price competition and seekways of controlling costs while still achieving high standards of food and service quality.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 78
  • Furthermore, in Australia, payroll costs are also significant for, unlike in the USA, there is apay award system which ensures that employees receive adequate payment for work done, sofrontline staff is not reliant on tips and sales commissions to boost their basic pay.In the USA the demographic changes taking place and their effect on the labour force are ofgreater concern. Labour force growth here is slowing down as the population is ageing. Thesize of the age groups, 25-34 years and 35-44 years, will actually decrease over the nextdecade and it is from these age groups that many restaurant employees are recruited. For thisreason it is acknowledged that it is difficult to recruit and retain staff. It is recognized,therefore, that there needs to be a focus on training and the creation of improved incentiveschemes to retain good staff.The role of technology in restaurants has also been recognized in the USA, and elsewhere,providing opportunities for greater management efficiency and control of costs.More restaurants will have web sites and consumers will increasingly use the Internet forobtaining information about restaurants and making bookings. In the USA it is expected that,as Point of Sale technology becomes faster and more accurate, efficiency will be improvedand costs cut (National Restaurant Association, 1999). In Australia, with a greater proportionof small businesses, this trend may be a little slower to penetrate the restaurant sector. Withsuch an increasing intensity of competition, differentiation of restaurant businesses becomeseven more important. When businesses cannot compete on price then non-price competitionbecomes the focus. Service was seen as a means of maintaining the competitive edge, whilethe National Restaurant Association in 2001 is now predicting that, once food and servicequality meet consumer demands, the physical setting involving design, decor and atmospherewill be used as a key differentiator, particularly for upscale dining places.8.27 Consumer TrendsConsumer trends in the USA include the return of the focus on the home and family, witheating out providing a chance for breaks from business and the stresses of daily life and forfamily gatherings. Eating out was seen as convenient and providing new experiences andleisure activity. Furthermore, in the USA and Australia, restaurant consumers are seekingvalue for money and also are becoming increasingly knowledgeable and discerning aboutfood (National Restaurant Association, 1999; Centre for Hospitality and Tourism Research,2001).Eating patterns change as people pass through the family life cycle. In households of youngsingles and where women undertake paid work more convenience and ready-prepared foodsare used. More food is eaten on the move or at the desk with popularity of hand-held foodsincreasing. As a result of irregular work patterns and busy lifestyles, eating at traditional mealtimes is declining as people eat more snacks at different times in the day. Furthermore,younger households spend more per week than older households on fast food and cafe meals,with children increasingly influencing family spending on food.In the USA, UK and Australia, the largest group of consumers, the baby boomers bornbetween 1946 and 1964, is ageing. This group is approaching the empty nest life stage withmore disposable income, as their children begin to leave home (National RestaurantAssociation, 1999). In the USA, in 1999 there were 77.2 million in this baby boomer group,28% of the total population. In Australia the baby boomer group was 4.3 million strong inCopyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 79
  • 2000, 24% of the population. This group will be a significant market for the restaurant sectoras it ages. For this generation and for the 65 years and over age group there is a greaterconcern for health and so expectations in terms of nutrition will also increase.Within the restaurant sector the consumer can choose from a wide range of cuisines. This isespecially the case in multicultural societies. In the UK, the restaurant market is segmentedinto ethnic restaurants, with 37% market share, and all other non-ethnic outlets that have63% market share. Ethnic restaurants offer mostly Asian cuisines, while other non-ethnicrestaurants include British, European and American style outlets.Furthermore, despite the bovine spongiform encephalopathy (BSE) crisis in the mid-1990s,traditional British fare is still first choice for consumers in the UK. In the USA, whenpredicting consumer trends to 2020 and beyond, noted an increasing interest in ethniccuisines particularly from around the Pacific Rim, the Mediterranean Rim and the CaribbeanBasin. In Australia, which has cultural diversity owing to the high rates of immigration overthe past two decades, there is a wide range of ethnic restaurants. These restaurants arepredominantly Asian (25%), Australian (20%) and Italian (10%) with fewer than 2% with anAmerican theme. Furthermore, in a recent survey, the perceptions of growth in specificcuisines for restaurants in Australia was reported as being greatest for Italian cuisine, thenother Asian, followed by Thai and then Chinese.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 80
  • SummaryThe restaurant sector is currently facing a number of significant challenges and the greatest ofthese is the intensity of competition. While small businesses dominate, they do not attract aproportionate amount of the restaurant sectors total revenue. Multiunit operations, whetherfranchises or chains, are becoming increasingly significant, particularly in the US and UK.Rising costs for the sector are leading to increasing efficiencies and on the design of effectiveoperational systems. Economies of scale provide significant advantages for larger operationsalthough smaller operations can still benefit from advances in technology by the introductionof computerized management systems and use of modern multipurpose equipment.The growth of casual dining mainly because of the increased pace of life, more women in theworkforce and longer working hours has changed the restaurant sector to accommodate thegrazing and snacking consumer. Furthermore, the consumer is more discerning and lookingfor value for money.With a challenging future ahead, restaurants will seek better ways of gaining competitiveadvantage. Differentiation not only of product and service quality but also in terms ofphysical setting and ambience will be important. However, the best marketing intentions mustalways be underpinned by efficient management and operating systems that are capable ofdelivering quality meal experience.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 81
  • Tutorial Questions1. Mention four types of fast food operations. (4 marks)2. In your own words explain how a convenience store can be classified as a fast food outlet. (2 marks)3. Franchising is a common method used in hotel and restaurant ownership. McDonalds, KFC and Holiday Inn all use this method. Considering franchising; a) Describe five advantages for the franchisee. (5 marks) b) Describe five advantages for the franchiser. (5 marks) c) Describe five disadvantages for the franchisee. (5 marks) d) Describe five disadvantages for the franchiser. (5 marks)4. Discuss the various factors which make up the meal experience and the contributions they make to customer satisfaction.(10 marks)5. The fast food industry has seen major growth over recent years. a) Give a definition of fast food (2 marks) b) Discuss the factors which have led to the popularity of fast food. (12 marks) c) Fast food has received criticism over its nutritional value in recent years. (5 marks)6. What advantages does an independent operator have over a chain operation? (2 marks)7. What is meant by the phrase ‘the complete meal experience’? (2 marks)8. Explain why it is difficult to classify restaurants in terms that are accepted globally, but hotels can be classified in terms that are accepted globally. (4 marks)9. What is the difference between a public house and a restaurant? (2 marks)10. What impact will the internet and Information Technology have on the restaurant sector of the future? (20 marks)11. Restaurants operate in a very competitive market. Who else are they competing with apart from each other? (4 marks) a) How are restaurants reacting to this increased challenge? (4 marks) b) Bearing in mind the previous two questions, what do you see as the future of the restaurant industry? (2 marks)12. Describe five current trends in eating that are affecting the preparation and service of food in the hospitality and catering industry. (5 marks)Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 82
  • 9The Licensed TradeObjectiveThis chapter will help students identify the variety of establishments in the sector, differentmanagement structures, types of service offered and targeted customer base, managingprocedures specific to licensed retailing including generic and specific operating constraints,legal and statutory requirements. After studying this chapter, students will be able to: • Define the meaning of licensed food service • Explain the development of this sector • Describe the sized, structure and scale of this sector • Discuss on the changing trends of this sector9.1 Defining Licensed FoodserviceIn most countries the sale of alcoholic liquor is regulated by law. The original and principalobject is to check the evils arising from the immoderate use of such liquor, in the interest ofpublic order, morality and health; a secondary object is to raise revenue from the traffic. Theform and the stringency of the laws passed for these purposes vary very widely in differentcountries according to the habits of the people and the state of public opinion.Historically, licensed premises were called alehouses, taverns, or inns. Alehouses tended tosell only beer; taverns have become what are now commonly called a ‘public house’ or pub;and inns provided accommodation as well as food and beverages. Today public houses andbars are licensed for the ‘sale of drinks for consumption generally on the premises’ as definedby the Standard Industrial Classification, but the sale of food accounts for a substantialportion of the receipts of these establishments. The licensed trade includes public houses,clubs, wine bars, and any bar where alcoholic drink and often food is offered for sale. Eachrequires a different type of license in order to be able to sell alcoholic beverages, which canstipulate the range of drinks that may be sold and the opening hours of the operation.The British system of bar ownership and operation has evolved over time to become like noother in the world. Such premises and the food and drink sold, represent an important part ofBritish social life and guest and strangers enjoy the friendly and generous welcome andreception. Furthermore, it is contributing considerable sums to the national economy throughthe tax which is paid on alcohol.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 83
  • 9.2 Licensed House (Pub) CateringThere are approximately 61,000 licensed houses in the UK and almost all of them offer foodin some form. To many people the food served in public houses is ideal for what they want.That is usually simple, moderate in price and quickly served in a congenial atmosphere.There is great variety of food on offer in such places, from the handle to cheese roll operationto exclusive a la carte restaurant. Public House catering can be categorised into thefollowing:• The luxury type restaurant• Gastro pubs – there is growing trend for well-qualified chefs to work in pubs and develop the menu according to their own specialities making good use of local produce• The speciality restaurant – such as steak bar, fish restaurant, carvery dinning• ‘Fork dishes’ served from the bar counter, where food is consumed in the drinking areas• Finger snacks – such as roll and sandwiches.Interesting Facts on Beer and PubsBeer• Around 90% of the beer sold in UK is produce in the UK.• In the UK around 28 million pints of beer are consumed everyday that equates to 100 litres head each year – compared to 20 litres of wine per head.• Beer is a traditional and wholesome produce made from natural ingredients.• Over one-third of the UK barley crop is brought by UK brewers, who are major users of English hops too.• There are over 2000 different beer brands available in UK, and over 1.5 million pints per day are exported to over 120 different countries.• UK brewers are industry leaders on environmental issues. Since 1976, energy usage pertaining to beer produced has been reduced by 45%, water consumption reduced by 40% and carbon dioxide (greenhouse gas) emissions reduced by over 40%.Pubs• Eight out of ten adults count themselves pub-goers and over 15 million people drink beer at least once a week.• Over 900,000 people rely on beer and pubs for their employment.• Over 80% of pubs are small businesses run by tenants, licensees and owners.• The average pub spends over £70,000 per annum on locally sourced goods and services.• The pub food market continues to thrive; UK pubs now serve over one billion meals.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 84
  • 9.3 The Development of Licensed Trade in BritainAs settlements grew in size and number, the pubs became communal meeting places forsocial interaction. In 1830, licenses were issued to beer houses in an attempt to reduce theconsumption of spirits, by the following year more than 30,000 new beer shops were openedand this process brought the total in existence to 50,000 by the middle of the century.These licensing laws had their origin during the First World War, when it was felt necessaryto reduce the opening hours of licensed premises so as to concentrate the efforts of workers,especially in munitions factories, upon essential war work. Licensing regulations remainedunchanged until 1988, when pubs were allowed to extend permitted opening hours in linewith those of mainland Europe.Until the 19th century, all public houses were independently owned. The brewers, numberingfar more than they do today, sought to increase loans made to publicans in return for theexclusive right to sell the brewer’s beers in the pubs. By the end of the 19th century, with thestagnation of beer sales and tightening of licensing controls, the competitive forces increased.These informal loan arrangements were turned into outright acquisitions to prevent outletsfalling into the hands of competitors. This process is called vertical integration and it meantthat brewers could either run their pubs themselves by employing managers or selectingtenants who were ‘tied’ to sell their beers in exchange for a rental fee.From the 1950s many mergers and acquisitions gave rise to a concentration of large numbersof tied outlets within a small number of large brewing companies, and, in economic terms,this is called an oligopoly. Since the 1960s many felt that this oligopolistic arrangement wasacting against the public interest in reducing consumer choice and artificially raising prices.The Monopolies and Mergers Commission (MMC) report of 1989 was the twenty-thirdinvestigation into the licensed trade since 1966 which reported that a complex monopolyexisted in brewing. The result of this report was the Beer Orders of 1990 by which licenseeswere permitted to purchase draught cask-conditioned beer from a ‘guest’ brewer. From 1992onwards brewers’ control of tied outlets was limited to 2000 per company.9.4 Size and Scale of the SectorIn Great Britain, 51,500 bars generated sales of 13.75 billion in 2000. The sector employed830,000 people in 2000. While alcohol is still the mainstay of their income, it is representingan increasingly small proportion with food value increasing. There are pubs whichpredominantly sell food and those which sell alcohol of which beer is the largest seller. Buteven in pub sector, food now represents on average nearly 16% of turnover. Despite orperhaps of these changes, the public house remains the most visited leisure venue witharound 70% of the population paying at least one visit during the year. Women figureprominently in the once a week drinking category and a survey claims that one of the mostpopular places to eat out at lunchtime are public houses. The frequency of evening visits topubs for a meal are less than in the daytime and women are more likely to eat in a pub thanmen. The perception was that public houses offered good food and was the best source oftraditional British food but drinks were sometimes expensive compared to supermarkets.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 85
  • 9.5 Structure of the SectorThe licensed trade sector has therefore become divided into three clear sectors: independent,pub companies and brewery owned pubs.9.5.1 Independent SectorThe free houses (free of brewery tie and often run by sole proprietors) accounted for around30% of the total pub outlets.9.5.2 Pub CompaniesIndependent chains of pubs, not owned by a brewery, have over one-third of the market interms of pubs owned.9.5.3 BrewersSome national brewers responded by re-focusing upon a single primary activity. Pub chainsnow tend to ‘brand’ their outlets.9.6 Licensed House ManagementAs in many hospitality operations, the public house product includes such intangibles asatmosphere and warmth of welcome, and the professional licensee is fully aware of theirimportance. Traditionally, the acquisition of a licence was regarded as attractive to candidateswith a service pension seeking a comfortable semi-retirement in congenial surroundings.Today, individual tenants or leaseholders too, have become more business-oriented andprofessional. The following skills are becoming more important because the licensed tradecurrently in a stage of transformation to cope with a hostile environment. So the professionallicensee needs social, technical, business and marketing skills• Social skills e.g. handling people, staff, suppliers, morally sound, banned substances, not serving young ones and intoxicated people.• Technical skills e.g. cellar control, hygiene, storage, food preparation, service• Business skills e.g. no credit for alcohol by law, making profits• Marketing skills e.g. identify target market, flexibility and responsiveness, closeness to customers and suppliers,9.7 Changing TrendsCurrently, operators of licensed premises are concerned with emerging trends, which affectthe viability of their businesses. These include the following.• Market size Licensed House have ceased to be recession proof and has become a part of the wider leisure industry characterized by greater competition for disposable income. Turnover and profits are being adversely affected.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 86
  • • Costs Economies of scale provide larger organization of buying at advantages quantity discount terms but not for smaller traders. Rent is the greater costs for tenants or leaseholders paid to their landlord and is representing a greater proportion of their turnover.• Consumer trends Consumers are seeking value for money and drink-driving legislations are affecting pubs in rural location. Their expectations continue to rise and pubs are providing better facilities such as family rooms, better décor and no smoking areas.• Investment The capability to reinvest is linked to profits especially for sole traders. Many have sought to maximize their peripheral income from gaming machine, juke boxes and pool tables. Large chains are makes the most investment.• Liberalization of licensing law Extended operating hours during the millennium celebrations and responding to customer demand, the government is considering changing licensing law to allow pubs to open for as long they want to.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 87
  • SummaryHistorically, licensed premises were called alehouses, taverns, or inns. Today public housesand bars are licensed for the ‘sale of drinks for consumption generally on the premises’ asdefined by the Standard Industrial Classification, but the sale of food accounts for asubstantial portion of the receipts of these establishments.The licensing laws had their origin during the First World War, when it was felt necessary toreduce the opening hours of licensed premises so as to concentrate the efforts of workers,especially in munitions factories, upon essential war work.From the 1950s many mergers and acquisitions gave rise to a concentration of large numbersof tied outlets within a small number of large brewing companies, and, in economic terms,this is called an oligopoly.The licensed trade sector has therefore become divided into three clear sectors: independent,pub companies and brewery owned pubs.• Independent Sector• Pub Companies• BrewersSome national brewers responded by re-focusing upon a single primary activity. Pub chainsnow tend to ‘brand’ their outlets. The acquisition of a licence was regarded as attractive tocandidates with a service pension seeking a comfortable semi-retirement in congenialsurroundings. Today, individual tenants or leaseholders too, have become more business-oriented and professional. The following skills are important because the licensed tradecurrently in a stage of transformation to cope with a hostile environment. So the professionallicensee needs social, technical, business and marketing skills.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 88
  • Tutorial Questions1. What are the advantages of licensing the industry? (4 marks)2. What are the essential skills required to sustain in this industry, and why? (8 marks)3. What are the main concerns of an operator today? (10 marks)4. The British Public House or Pub is a unique concept. Describe the features which distinguish it, including both tangible and intangible factors. (10 marks)5. In most countries in the world the government applies some controls to the sale of alcohol. Explain two reasons why they do so. (4 marks)6. Alcohol may be served in a variety of establishments. Describe the differences between the customer target base for a hotel cocktail bar and a stand alone bar, such as a pub, tavern or roadhouse. (4 marks)Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 89
  • 10Contract Catering & Employee FeedingObjectiveThis chapter will help students identifying the contract catering and employee feeding sectorsand sub-sectors, the chapter will also analyse the products and markets and the underlyingtrends in food service management. After studying this chapter, students will be able to: • Understand the size and significance of contact catering and employee feeding • Identify the factors that lead to the success of contract catering and employee feeding • Recognise the changing trends in contract catering and employee feeding10.1 IntroductionContract catering comprises the service needed to prepare and deliver meals to peopleworking, in schools, hospitals, prisons, etc. where these services are entrusted to a serviceprovider (contract caterer).The word contract in contract catering refers to the set of terms binding the client to thecontract catering firm in the context of the provision of services10.2 The Scale of Contract CateringContract catering has become an important part of the overall foodservice industry invirtually every industrialized country. This sector in Great Britain, is known as ‘foodservicemanagement’ to cover the combined feeding people at work in business and industry, and inschools, colleges and universities, hospitals and healthcare, welfare and local authoritycatering, and other non-profit making outlets.Determining the size and growth of contract catering, therefore, is confounded by theseevolutionary changes. Each country defines its contract catering sector differently, and theavailability and reliability of data on this industry sector do differ.10.3 The Success Factors for Contract CateringOver the past decade the contract catering sector has undergone rapid change based aroundthe nature of the following relationships: caterer-to-customer, caterer-to-client, caterer-to-supplier, and caterer-to-caterer.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 90
  • Starting with the customer in institutional settings, it is commonly perceived that they havebeen taken for granted – served simple, common food at the lowest possible prices in sterilecafeteria-like settings. How the world has changed! Today this is a business recipe fordisaster and is totally unacceptable and unworkable in many settings. First of all, there are notypical customers and, contrary to opinion, they are no longer captive, nor easilymanipulated. In every market sector and at every site, customer needs and wants vary.The driving forces attributed to demographic shifts are important, but it is the psychographic,or values and lifestyle, characteristics that are driving acceptance, patronage, expenditure anduse. For instance, consumers today are more knowledgeable and discriminating about whatthey eat. Information on health, diet and exercise has proliferated through the learningchannels of education, mass communication, and travel. The trends towards healthy eating,improved and more adventuresome diets have affected contract catering as much as any otherfood sector.Hurried lifestyles, dual-career or single-parent families, the paucity of time, tight schedulesand the daily commute, drive the demand for convenience, however that may be defined –availability of food when and where customers want it; speed of service and delivery; no line-ups, no waiting, and no hassles. In Canada and the USA, where foodservice earns almost halfof every dollar spent on food, convenience over quality is strongly in evidence, though inEurope quality might still have the edge. While this requirement shows up in the proliferationof quick-service restaurants and street food vendors, it is also in evidence in non-commercialfoodservice outlets. At work more flexible working hours and increasing pressures on timemean that the traditional meal times (particularly lunch) are becoming less significant.Increasingly people are grazing, that is, they desire snacks and meals, at all times of the day,and sometimes the evening.The business-to-business relationship between caterer and client is also being re-shaped. Aspreviously suggested more organizations are coming to the conclusion that their non-coreactivities should be outsourced. This process typically begins with a company identifying andperforming only those value creation activities that form the basis of its competitiveadvantage. The remaining activities are then reviewed to see whether they can be performedmore effectively and efficiently by independent suppliers. This puts considerable pressure onthe catering firms actually to prove that this can be done. But this step is only the beginning.With the consolidation and globalization of many industries there is a preference usually todeal with a minimum number of suppliers. Hence the pressure on the leading contractcatering firms to expand geographically and to offer a broader range of non-food services –security, cleaning and laundry, office services, plant operations and maintenance – thatincreases sales volume and margins. The relationships between caterers (managed serviceproviders) and clients are then structured in accordance with long-term contracts. It should beemphasized, however, that the terms of the contracts are often tied to whether or not theservice provider makes an investment. Furthermore, these contractual relationships aremanaged on the basis of competitive bidding. Obviously, the objective among the cateringfirms is to become the preferred supplier.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 91
  • The advantages with outsourcing include the following:• A reduction to the clients cost structure ;• In most cases transfer of the financial risks associated with operating foodservices on a commercial basis;• The ability of both the client and the caterer constantly to improve their ability to differentiate their offerings and to concentrate on value-adding resources to further strengthen their core or distinctive competencies.The only problem is that outsourcing allows clients to become more flexible and responsiveto market conditions. Unencumbered by commitments to internal suppliers, a client canswitch more easily between providers of non-core value creation activities. Consequently,caterers are now spending considerably more time fostering strong relationships with theiractual and prospective clients. The last thing a caterer wants is to respond to a barrage ofclient requests to improve services.Rather, the perception of providing professional expertise now demands a proactive stance —continually monitoring the prevailing mood and desires of customers and clients andanticipating and implementing needed improvements to menus, services, and diningenvironments. This calls for extreme vigilance and recognition that client and customerrelationship marketing (CRM) are becoming the quintessential tools in managing theserelationships.While the particulars of catering contracts will be discussed further on in this chapter, it isworth pointing out that the changing nature of the caterer—client relationship is resulting inprofit and loss contracts becoming more popular as cost-plus contracts decline. A few yearsago, cost-plus contracts represented over 50% of all contract catering contracts, but theirshare has now fallen to only a third of all contracts.As caterers become larger and more dominant players, the resulting yield is greater power inrelationships with suppliers. This is not the case if catering firms remain small and lack thepurchasing power to drive down food, beverage and other supply costs. Since excellentsupplier relationships are a major factor in helping caterers land and maintain contracts,suppliers are being asked (nudged) to bring more to the table. Supply chain management,therefore, is becoming a critical catalyst in identifying and reining in hidden costs. One of theprime developments that will re-shape this relationship is efficient foodservice response(EFR). In attempts to create a more efficient foodservice supply chain, the goal is tomodernize and streamline business practices by eliminating non-value adding activities;improving product flows; improving the timely flow of accurate demand data up the supplychain; integrated product integration processes; re-engineered revenue cycle transactionprocessing; facilitating the movement of labour intensive food preparation activities out ofoperations to upstream locations and adopting information technologies such as bar codes andelectronic data interchange (EDI).Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 92
  • Supply chain inefficiencies in the foodservice sector are pronounced in comparison to otherconsumer goods industries. While technology is the enabler in achieving benefits or value-added, that can be passed on to clients, the impact of these initiatives will go beyondimprovements in cost structures and more modernized infrastructures. The contract cateringfirms would also be positioning themselves for revenue growth in those markets whereinstitutional self-catering would lose its appeal and economic rationale. As these supply chaininitiatives work their way through the sector, caterers will have to continue to work with theirsuppliers in providing new and more innovative meal solutions for todays time- and value-conscious consumers and clients. And, without a doubt, the impact will be changes inbusiness practices, increasing supply chain coordination, and a reversal of the pastsinefficient traditional relationships within the sector.With purchasing leverage becoming the key strategic driver, the push for continued mergerand acquisition activity among the major firms will not abate; further sector consolidation islikely. The acquisition of Marriott Management Services by Sodexho in North America is acase in point. In fact, as the key firms get larger, more opportunities to achieve purchasingeconomics can be realized, simply bypassing distributors and negotiating directly withmanufacturers. Some companies are even going further up the food chain and contractingwith growers for certain crops, such as coffee. As this trend continues distributors will merelyperform a logistics function.It should be noted, however, that distributors are in the process of consolidating as well,thereby improving their geographic coverage and operating efficiencies. Indeed, many areputting a lot of stock in efficient food-service response (EFR) to bring about neededefficiencies. Because the foodservice sector is so fragmented, distributors will prevail andwill become more important partners in the management of the supply chain.While the demand for contract catering services is expected to grow, there are a number offactors that could serve to limit customer patronage. First of all, many organizations arereviewing their policies regarding meals as fringe benefits, particularly because of the taxablebenefit issues. Rules may vary from country to country but there are exceptions based onqualified employee discounts, de minimus’ fringe benefits, and remote location exclusions,for example. Secondly, employees or customers may decide to avoid the catered facilities,opting to provide their own snacks and meals. This option is quite prevalent in situationswhere food and beverage costs are viewed as too high or choice and quality of offeringsperceived as poor. Thirdly are the trends associated with employment patterns. In manyorganizations full-time employees are being replaced with part-timers; and then there is theincreasing acceptance of home-based employment or telecommuting.It should be quite evident that competition among contract catering firms is as intense as inmost industries. As the preceding arguments attest, the driving forces within the sector, thatare predominantly customer-, client- and supplier-based, result in situations in which thereexists exceptional rivalry to land contracts and achieve preferred supplier status. Competitionfor patronage and share of stomach, however, also emanates from the plethora of commercialestablishments that frequently operate within the confines of business, industry, healthcareand educational facilities. Many of these outlets are branded concepts that have won favourwith customers. While many contract caterers are co-opting these, brands through theformalizing of partnerships agreements, as well as inventing their own brands, the pre-dominant activity in order to retain contracts is investment into leasehold improvements inclient facilities, the modernization of eating and dining areas, and efforts to improve theCopyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 93
  • preparation, presentation and merchandising of food. The opportunity for clients to substitutecatering with vending machines remains, but usually this type of foodservice is provided asan adjunct.These and other driving forces represent sequences of events, or forms of behaviour, that arehaving significant impact on contract catering. Managers are recognizing the need to beaware of these trends in order to track changes in products, services and markets. The criticalsuccess factors being employed to capitalize on these trends seem radically different than theusual systems-oriented, cost-driven approaches of the past. Not that these are ineffective orno longer appropriate; they are, but the focus is moving toward a more innovative set ofcharacteristics that characterize entrepreneurs or intrapreneurs - people who can spot patternsand trends, and seize opportunities. These characteristics are:• Ingenuity - caterers need to be in tune with their customers and clients so that they can think freely and openly, and come up with new concepts, clever approaches to merchandising. This process has been labelled coincidental adaptation• Flexibility - caterers must have the ability to change their businesses to accommodate new clients and customers• Niche picking - caterers must have the ability to spot what customers and clients want, and then respond faster, cheaper, and better than the competitors• New channels - caterers need to notice and exploit new locations, distribution channels, supplier, and partnership relationships.It could be said that these new critical success factors represent a bit of a paradox. For agescontract caterers have excelled at managing the mundane. Now the fight for competitiveadvantage requires new skills that force companies into anticipating and planning for thefuture. There are dual strategies at work. Operating catering businesses and changing themare not sequential but parallel pursuits. Running a successful catering business requires aclear strategy in terms of defining target markets and lavishing attention on those quality,service, cleanliness and value factors which are critical to success. Changing a cateringbusiness in anticipation of the future requires a vision of how the future will look and astrategy for how the organization will have to adapt to meet future challenges. Unfortunately,these tasks are typically divided between operations staff and their search for excellence, andsenior management and the long-term needs for change. Given how the driving forces arefundamentally changing the contract catering sector, this divide will need to be narrowed asmanaging for results is ultimately linked to managing for change.10.4 Key Contract Catering FirmsThere are three major worldwide players in the contract catering sector — Compass Groupplc, based in the UK, Sodexho, based in France, and ARAMARK, based in the USA.Depending on the country a number of other major players or operators exist. Thesecompanies tend to focus on a specific niche sector of the market, or a geographic area. Theycompete based on their ability to provide more specialized and more personal service, butusually lack the depth of purchasing power and programming of the larger firms. As aconsequence these firms are susceptible in two ways: as attractive take-over targets if theyhave coveted clients, or as a candidate for potential failure. For example, for the year 2000,the Plimsoll analysis of catering firms, revealed that one in every three catering companieswas at a high risk of failure.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 94
  • The larger firms are more immune to sudden changes in the market because they havedifferentiated themselves through branding, unique service delivery models, proprietaryprogrammes, and service partner alliances. Of course, there still remain a large proportion ofinstitutional foodservices that continue to be operated by the institution. To maintain theirviability in doing so, some institutions have banded together to form support groups;established purchasing organizations; brought in well-known branded concepts; created theirown unique brands; been very innovative in the design of their facilities and in themerchandising of food; and have opened, but then closed, their central commissaries.To appreciate the prowess of the major firms, a description of the three market leaders andsome of their more obvious strategic initiatives follows.10.4.1 The Compass Group PlcAs previously stated the Compass Group has evolved into one of the worlds largestfoodservice companies with annual 2007 food-service revenues in excess of £11 billion. Thecompany has structured itself as a core service provider whose subsidiary companies use theirexpertise to meet the demands of particular market segments.Eurest services the needs of business and industry, and manages a wide variety of locationsfrom multisite contracts to private dining facilities, as well specialized services for offshoreand remote sites and the armed services. Chartwells provides specialised services for studentsof all ages. It has developed a number of branded concepts to take advantage of the FoodCourts frequently found in post-secondary institutions.Select Service Partner is the largest operator of airport restaurants in Europe. Bateman wascreated to meet the special needs of an increasingly sophisticated healthcare managementindustry. The company provides food and hotel services to hospitals and nursing homes.Canteen Vending Services, as its name suggests, provides branded concept foods and healthyalternative fare through an innovative information labelling system. The Compass Group inNorth America (a US$4 billion subsidiary) operates with the same brands and, in addition,serves concessions and retail through Restaurant Associates and Patina, and Canteen isinvolved in the corrections market. The Compass Group is an aggressive, growth-orientedcompany that has obtained its market leadership through acquisitions and organic growthopportunities in all major markets. A notable feature of this company is its adoption andimplementation of a Balanced Scorecard system. Their future in practice is pursued andmeasured in five core areas: customer and client satisfaction, market leadership, preferredemployer, operational excellence, and finally financial performance.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 95
  • 10.4.2 Sodexho Alliance SAWhile Sodexho, founded in 1966, is based in France, for comparative purposes, it reportedsales of approximately £10.5 billion in 2000. It employs 305 000 people at 22 000 sites in 70countries. Sodexho Marriott was created in 1998 from the merger of the North Americanoperations of Sodexho Alliance and Marriott Management Services. In 2001 it changed itsname to Sodexho, Inc. and is now North Americas leading provider of food and managementservices with annual sales of US$4.7 billion, 111 000 employees at 5000 locations in theUSA and Canada.Among Sodexhos claims to fame is its strong commitment to achieving ISO accreditationthroughout the world. It ensures provision of quality services through deployment ofcustomer research programmes such as Conviv Styles. In the business and industry segmentit has pioneered `Relais Gourmand mobile stands, an Integrated Services ManagementInformation System, and Prestige Sodexho (for important business dining and meetingevents).In the healthcare market it has implemented similar programmes and in the UK has evenbecome an equity partner in three Private Finance Initiative (PFI) hospital projects. For theseniors market Sodexho undertook a major international research project to profile seniorcitizens, and is active in organizing special events for seniors. Sodexhos involvement in theeducation market has resulted in other research projects leading to the development of specialprogrammes for students at all levels. Their most notable programme is CrossRoads Cuisines,which has become a benchmark brand. This brand, while extended to school lunch pro-grammes and hospitals, was first introduced in their corporate food services.Involvement in the corrections market began in France in 1987 with its division SIGES, andthis has evolved into multiservice and integrated prison management packages that comprisedesigning, building and financing. Their division Universal Sodexho provides services toremote sites throughout the world.10.4.3 AramarkAs a privately held company, which recently had an IPO, its reported sales amounted toUS$7.8 million with net income of $176.5 million in their fiscal year ended 2001.ARAMARK is a leading international provider of a broad range of outsourced services tobusiness, educational, healthcare and governmental institutions and sports, entertainment andrecreational facilities.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 96
  • 10.5 Characteristics and Contractual ArrangementsContract catering as a sector within the foodservice industry tends to be dominated by fewerand fewer but larger and larger firms. As the major players pursue the larger more lucrativeaccounts, there is room for the more specialized, local and regional firms to personalize theirservices and to grow their businesses. Brand loyalty can be earned one client at a time, butthe ability to grow and expand is severely constrained through an inability to obtain absolutecost advantages and economies of scale. The major players are also able to build greaterbrand awareness through advertising and marketing, supplier alliances, technological andafter-sales support.As for the entire foodservice industry, contract catering is viewed as a mature industry sector.The effects of this are being seen as the major form of growth is through acquisition and asbarriers of entry and profit margins continue to be squeezed. Nevertheless, opportunities forgrowth do exist in certain market segments, as will be explained in an upcoming section. Ascontract caterers improve their ability to manage the supply chain, adopt EFR initiatives, andeffectively utilize CRM (customer relationship management), market share in the non-commercial side of the sector will be wrestled away from self-managed operations. Over timethe value equation will decidedly favour the contract caterer. For these reasons, labelling thesector matured may be premature.To appreciate the true nature of contract caterers it is important to understand the contractualarrangements with clients. First of all, depending on the type of contract, there are a set ofagreements and standards to be negotiated. These deal with the provision of meals, operatingtimes, budget allotments for feeding, assigned responsibilities for cleaning, maintenance,equipment replacement, penalty clauses for non-compliance, and so on. There have been fivestyles of contracts:• Cost plus management fee. In such an arrangement, the client or institution pays the actual cost of food, supplies, labour and other direct costs plus a management fee. These fees are typically based on a percentage of managed volume. In a cost plus management fee contract, the institution assumes all of the risk but has a higher level of control over the service.• Fixed price establishes a total price within which the caterer will work. The contractor had to accurately assess all operating costs for the period ahead and then bill the client with, for example, one twelfth of the years projected costs each month. If the contractor underestimates the costs, they have to bear the losses. However, if this did occur, the contractor was likely to want to renegotiate usually on the basis that they had insufficient information on which to make a detailed assessment of cost. This form of contract is becoming increasingly popular with clients as in this way they can be assured of their catering costs. Using fixed-price contract allows clients to compare projected tender costs easily.• The full cost recovery contract which essentially dictates the pricing policy is adopted when the client does not wish to subsidize the catering operations. If this is acceptable the contractor would provide services at commercial prices and retain all income. The contractor has to operate them rather like any commercial restaurant and hence runs the risk of making a loss if the management is ineffective. Such contracts may or may not include provision to cover overhead costs such as energy.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 97
  • • Commercial return contracts are a growing trend in catering operations as contractors increasingly begin to run commercial operations. Again as part of a contract with a local authority there may be some public services in addition to those provided for the employees of the organization. Thus a contract may offer a fixed sum of money or a percentage of sales to the client in order to operate that part of the business• Guaranteed performance contract can take several forms but it is quite common for the client to ask the tariff charged to recover food costs or food costs including VAT. In this way such, costs are not charged to the client nor are takings returned to them. It essentially means that the client will only have to subsidize labour and overheads and that is guaranteed. Such operations usually will involve a ‘floating tariff’ to customers as commodity prices fluctuate throughout the year.A contract between a client and a contractor would normally specify the following:• Specifications of the standards expected with regard to meals and beverages served. Contractors usually have standard portion sizes for catering operations, but will vary these according to individual client requirements.• Operating times of the various facilities.• Total budget available for the service provision.• Responsibility for cleaning and maintenance of equipment and facilities.• Relationship for VAT purposes, i.e. the contractor acts either as a principal or agent for VAT purposes.• Description of responsibilities for insurances and public liabilities.• Financial arrangements regarding bill payments and possible client deposits.An increasing trend is for contractors to offer a range of services in addition to catering, suchas office cleaning and grounds maintenance, which will save a client having to deal withseveral different organisations for different services.10.6 Sectoral MarketsThe non-commercial or institutional foodservice markets with whom catering firms conductbusiness are described here and key trends and opportunities for contract catering firms arenoted.10.6.1 HealthcareThis category covers institutions that operate in the following categories: hospitals, nursinghomes, public and charitable homes for the aged, retirement facilities, homes for the mentallyand/or physically challenged, orphanages, and hospices.10.6.2 Business and IndustryFoodservice is offered in a wide variety of work places. These include industrial plants,private and public sector (government) offices, research facilities, remote sites such as lumbercamps, oil rigs and other mining or resource extraction sites. Line and staff employees,management personnel and visitors are typical customers.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 98
  • 10.6.3 EducationFoodservice is provided in universities, colleges, private and public schools at all levels. Thismarket consists of students, faculty staff, visitors and the general public.10.6.3 CorrectionsJails and work camps provide a captive market of inmates, plus a cadre of correctionalofficers and staff. This is a difficult market to understand, and it is self-catered in mostcountries.10.6.5 TransportationFoodservice is provided for airlines, railways, ships, ferries, cruise lines, and in theirrespective terminals. Given the current economic and terrorist events, the transportationindustry and those contract catering firms serving it, have been decimated by the cutbacks intravel, the increased emphasis on safety and security, and the elimination of frills andamenities that add to travel costs.10.6.6 The MilitaryMilitary personnel, contractors and guests whether at bases or in the field require foodservicesupport. Throughout the world there has been some willingness to outsource foodservices onstatic sites or bases that are not core to their missions.10.7 Operational Trends and Key IssuesThe following issues are critical to the success of companies operating in the contractcatering markets:• Conversion and consolidation• Branding• Line extension• Account retention• Food safety• Labour shortages• Technology10.7.1 Conversion and consolidationIn certain markets such as healthcare, the majority of institutions continue to operate theirown foodservices. Public sector funding pressure and private sector profit pressure isnecessitating the delivery of low cost services. This bodes well for managed service providerswhose purchasing power and proprietary systems and procedures minimize costs. Thesecompanies are looking to convert more of their self operations to the outsourced managementservice they provide. Due to the low margins associated with managed services, however,volume is the key to maximization of profits. Many regional and one-country operators havebeen purchased by the three large world players in recent years. This trend is expected tocontinue.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 99
  • 10.7.2 BrandingBrands and the ability to build brand equity have been a strategic thrust in the commercialmarket for decades. Branding is now finding its way into the contract catering business. Theintent is to find ways to differentiate product and service offerings, to rise average spending,and to respond to dining preferences that customers have learned and been introduced tothrough restaurant chains. Contract caterers utilize a blend of proprietary in-house brands andpopular franchise brands to provide balance to the branding trend and the additional costs thatcome with the operation of a franchise. High volume is required to justify brands, eventhough caterers are finding creative ways to introduce brands into smaller locations. It shouldbe pointed out that accepted brands ensure the availability of consumer choice, therebyholding a potential clientele as well as attracting new traffic.10.7.3 Line extensionAs has already been identified, the major contract caterers are on the verge of becomingmanaged service providers and have focused on providing an expanding range of servicesthat clients utilize and may be requesting. This practice yields a variety of benefits includingthe ability to drive higher margin revenues without obtaining new accounts; the ability tocreate a more sustainable relationship with clients; and the ability to consolidate clientsupport services over a variety of services, thereby delivering greater value. Becoming amanaged service provider requires organizational and cultural changes and a broader set ofmanagerial competencies. There is a learning curve to be mastered; plus there is thepossibility of losing focus and/or the ability to excel in the core foodservice activities thatinitially created the contractual relationship.10.7.4 Account retentionIt is always cheaper to retain an existing client relationship than to build new ones. Whiledeveloping prospects and building a new client base is a constant and on-going activity,contractors are discovering that they must enhance their competencies in managing existingrelationships. Use of customer relationship management (CRM) and other team buildingstrategies is becoming quite common.10.7.5 Food safetyWhile the foodservice sector has made significant strides in improving the safety of the foodchain, this issue remains front and centre throughout the sector, and is on the minds of bothclients and customers. One incident of illness or death due to food-borne contamination isone too many, as a few commercial operators have learned. It destroys demand, profitability,and the most important assets of all – brand and reputation. Contract caterers have gone togreat lengths to implement HACCP programmes and other safety initiatives. ISO certificationis becoming increasingly important, especially in Europe.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 100
  • 10.7.6 Labour shortagesDespite the growth in the use of technology, foodservice remains labour-intensive. As peoplehave become more educated, affluent and older, the availability of relatively low-paidpersonnel for this sector has steadily eroded. The availability of skilled food preparation andmanagement personnel is an even greater challenge. On-the-job training is being taken moreseriously; educational institutions are attempting to fill the void; and operators are askingfood and food equipment manufacturers to come up with foodservice system solutions ratherthan just products. Despite these efforts the labour shortage issue is not likely to go away inthe foreseeable future. In fact, it will likely become the single most important driving force interms of increasing the cost of food consumed away from home. It is for this reason thatimprovements to supply chain management and efficient foodservice response initiatives(EFR) are of critical importance.10.7.7 TechnologyTechnological improvements in foodservice are having a positive impact on food service andquality, and have brought some labour savings. In the front-of-the-house there have beenimprovements in software systems for processing orders and settling transactions. In theback-of-the-house, advances have focused on food preparation and cooking equipmentdesigned to minimize work steps, ensure consistency and promotes greater food safety. In thehealthcare area, for example, food manufacturers have developed ready to eat/ready to servemeal components in frozen, sous-vide, chilled and shelf-stable formats. A range of popular,speciality diet and texture modifications are available. Computer-driven tray carts have beendeveloped that hold meals in a chilled state until needed. They automatically re-thermalizehot items to eating temperatures at predetermined times, while keeping cold foods cold.If sufficient space is available, re-thermalization can take place in hospital wards. Soiledtrays, dishes and utensils are returned to the kitchen in the carts for washing. A wide varietyof disposable dishes and liners have been developed to minimize the amount of dishes thatrequire handling and washing.10.8 Operations and Operational IssuesFor operators there is the need to provide an adequate service, yet to keep costs under control.For a contractor, there is a constant dilemma for the organisation has to meet the needs ofboth the client and the customer in the various catering outlets. In order to facilitate this therehas been a growth in the use of self-clearing systems, self-help systems, takeaways andcashless operations, which result in lower labour costs. Sometimes in an attempt to makefacilities more attractive, and in improving the service, the usage of a facility may increase.The current trend is for organisations to attempt to recover food costs in their tariff structures,and many attempt to add a margin to contribute towards the recovery of other operating costs.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 101
  • 10.8.1 CafeteriaThere are three main variations of the cafeteria system.10.8.1.1 The ‘In-Line’ CafeteriaThe ‘in-line’ cafeteria consists of a single counter along which customers pass to select foodand beverage. It is sometimes described as the ‘straight-line’ cafeteria, but not all suchcounters are in fact straight, although there are advantages in ensuring the counter is straightprimarily because customers pushing trays along the counter may be distracted enough topush the tray either off the rail where it changes direction away from them or into the counter,thereby spilling items, where it turns towards them.This style of cafeteria can serve between four and eight customers per minute dependingupon those factors mentioned above such as speed of the service staff, proficiency of thecashier and the menu display, and also the customer’s familiarity with the unit and the orderof presentation of items along the counter. Some experts believe that the counter should bearranged logically in the order of the menu so customers select a starter, main course, a sweetand beverage in the ‘correct’ sequence, while others advocate that all those items served atroom temperature or chilled should be at the beginning of the counter, so that hot items areserved last and therefore have less time to cool before they are eaten. Whichever method ofpresentation is adopted, it is important to be consistent so that customers will become familiarwith the layout, and will know at which point along the counter they will find particularitems.10.8.1.2 The Free-Flow SystemThe free-flow system is also known as the ‘scramble system’ or ‘hollow-square’. Whereas in-line cafeterias comprise usually one counter in whatever configuration thought suitable, thefree-flow system has several counters each serving different meal items, such as hot foods,sandwiches, salads, desserts and beverages. The major advantage of free-flow is that it avoidsthe necessity to queue, and although short queues may form at periods of high demand, thenumber of customers that can be served may be as high as 15 per’ minute.Customers prefer this layout because the service is quicker, there is less queuing, and thecustomer who only wants a snack does not have to use the same counter as someone whorequires a three-course meal. Additionally, a wider selection of menu items may be offered.In particular, it is possible to operate a call-order counter for grills that in a conventionalcafeteria is impracticable. From the caterer’s point of view, the free-flow layout has theadvantage of flexibility. During periods of slack demand, some counters may be closed,counters may be removed in the event of breakdown and greater use may be made of self-service by customers since the flow of the entire system is not held up by one slow customer.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 102
  • 10.8.1.3 The CarouselThe Carousel was first introduced into Britain some years ago and has been a limited success.It comprises a large rotating arrangement of shelves, approximately two metres in diameter,on which food and drink are presented. Thus customers remain stationary as the carouselrevolves once every minute to enable them to select items from it. Only one half of thecarousel is in the service area, so that as items are removed, the shelves can be replenished inthe serving area behind the unit. Trays, cutlery, napkins and beverages are usually separatelyavailable from dispensers so as to avoid congestion at the unit. Cashiers are situated betweenthe carousel and the dining room. As a method of self-service, it has a customer throughout ofbetween eight and ten per minute, which is higher than the traditional in-line counters. Itrequires less space than many other self-service layouts, particularly in the service area of theoperation.10.8.2 Automatic VendingFrom the caterer’s viewpoint, there are four main categories:• Beverages (hot and cold ): Hot can be further divided into ‘instant’ which is further divided into dried and frozen products, fresh brew, and capsule vendors which allow customers choice of particular blends of tea of coffee in encapsulated form. Cold drinks too may be dispensed by the machine using concentrates, or alternatively by refrigerated can vendors.• Confectionery and snacks: Usually a supply of common branded confectionery goods.• Sandwiches: This includes items such as pork pies, Scotch eggs, quiche, etc.• Meals (hot or cold): These are offered in refrigerated units, often adopting a carousel type of mechanism to deliver a range of products to the customer. Such machines are often sited next to microwave ovens which allow customers to reheat their food. These are used particularly in unmanned facilities, perhaps to provide a service for maintenance or computer staff who has to be on duty throughout the night.10.8.3 Trolley ServiceDespite the advent of automatic vending, some operators still operate a tea or beveragetrolley that tours the factory or offices providing mid-morning and mid- afternoonrefreshment. The principal advantage of such a service is that the refreshments go to theemployees rather than the employees having to leave their work place to have refreshment.Also, staff representatives have tended to support the person bringing round the tea ratherthan make him or her redundant through replacement with machines.10.9 Food Production SystemFood systems in this sector tend be very traditional, although it is influenced by technologicalchange. Also influenced by customer requirements, in relation to ‘healthy eating’ there hasbeen a return to these traditional approaches.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 103
  • 10.10 Current Issues and Future Trend10.10.1 Industry ConcentrationThis sector has changed dramatically in the last five years through widespread merger andacquisition activity both locally and globally. Between them Compass and Sodexho have anestimated market share of 76% while Aramark has 7% share.10.10.2 InvestmentIt is increasingly the case that foodservice contractors may be asked to invest capital in anoutlet in order to win the contract. Such investment is frequently linked to the redesign orrefurbishment of the outlet, often to bring in one of the contractor’s branded facilities.Contract foodservice companies are also becoming involved with the Private FinanceInitiative (PFI) whereby in collaboration with other parties, such as builders and civilengineers, buildings are constructed and leased back to the public sector for specified period,during which the contractor has the foodservice contract.10.10.3 Contractor DiversificationThe dependence on traditional business and industry of this sector has declined. The trend isincreasingly for contractors to develop businesses in providing meal services for the public.The number of contractor-run outlets in state education has risen sharply, partly broughtabout by the introduction of Compulsory Competitive Tendering legislation. Those offeringin house services seem to be switching to the contractors whose knowledge, expertise andresources are able to better respond to changing customer needs.10.10.4 Support ServicesSome firms also consider the use of contractors for other services. Many contract foodservicecompanies therefore provide a range of support services. Such services include baroperations, cleaning, housekeeping, property management, laundry, shops and security.10.11 InternationalisationBy 2001 contract foodservice companies were truly global with increased overseas turnover.Sodexho operates 22,200 sites and employs 286,000 people in 70 countries. LikewiseCompass had an annual turnover of £8.7 billion in 2001 with 300,000 employees in morethan 90 countries.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 104
  • 10.12 Supply-chain managementUntil the mid-1990s UK hospitality operators were not too highly effective in theirmanagement of the supply chain, this meant that companies found themselves holding a widerange of stock items and high levels of stock as well as dealing with a large number ofsuppliers and processing relatively small orders. For instance, one large UK hotel chain foundthat it needed 4000 separate food and beverage items to support the range of menus offered inits hotel, which was reduced to just 1000 by simplifying and rationalizing standard recipesand menus. Contract foodservice companies too, have become aware of the need to bettermanage their inventory and engage in supply-chain management. Clearly they are dealingwith fewer but larger suppliers, which reduces administration and increase the likelihood ofsupplier discounts. Furthermore contractors are working closely with suppliers in a number ofdifferent ways, such as menu and new product development, equipment development,distribution efficiencies and culinary support.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 105
  • SummaryContract catering has become an important part of the overall foodservice industry invirtually every industrialized country. In every market sector and at every site, customerneeds and wants vary. The driving forces attributed to demographic shifts. As caterersbecome larger and more dominant players, the resulting yield is greater power inrelationships with suppliers.The non-commercial or institutional foodservice markets with which catering firms conductbusiness are described here and key trends and opportunities for contract catering firms arenoted.• Healthcare• Business and Industry• Education• Corrections• Transportation• The MilitaryThe following issues are critical to the success of companies operating in the contractcatering markets:• Conversion and consolidation• Branding• Line extension• Account retention• Food safety• Labour shortages• TechnologyThere are three main variations of the cafeteria system, the in-line, the free-flow and theCarousel. There are four main categories automatic vending, beverages (hot and cold);confectionery and snacks; sandwiches and meals (hot or cold). Food systems in this sectortend be very traditional, although it is influenced by technological change.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 106
  • Tutorial Questions1. Explain the meaning of the term ‘contract’ in contract catering. (2 marks)2. Employee feeding is seen as a critical factor to business success today, discuss. (20 marks)3. State the three types of cafeteria systems and briefly describe them. (6 marks)4. Describe the differences between the commercial sector and the catering sector of the hospitality and catering industry. Support your answer with examples of outlets in the different sectors. (10 marks)5. Identify two major contract-catering firms and explain why organisations use contract caterers. (4 marks)6. Identify and describe the main factors within the contract-catering sector. (20 marks)7. Define contract catering. (2 marks)8. List four ways that a client of a catering contractor can measure performance. (4 marks)9. There are various types of contracts that can be used in contract catering. Provide an explanation of three of these. (6 marks)10. Apart from feeding people at work, give four other places where contract caterers operate? (4 marks)Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 107
  • 11Welfare CateringObjectiveThis chapter will make students comprehend the demand for welfare catering, its consumersand their needs. The chapter will also look into the nutrition and marketing of welfarecatering as well as its operational systems, distribution systems, legislation, current issues andfuture trends. After studying this chapter, students will be able to: • Understand the actual demand for welfare catering as well understands the various types of customers and their needs • To know how marketing is done in welfare catering • Appreciate the various operating systems of welfare catering11.1 Introduction to Welfare cateringDefinition of the welfare catering sector is not simple. It was previously known asinstitutional catering and was closely related to charitable and state social provision in areassuch as education, health and the penal system. In these areas profit has not normally been theprimary motive and for this reason it is often grouped with employee feeding and identifiedas cost sector catering. However, with recent developments such as competitive tendering andthe resultant move towards a more commercial orientation this distinction has become lessclear cut.Any contemporary definition of the sector is perhaps best guided by application of thegeneral definition, ‘the provision of meals for those unable to provide for themselves’.Welfare catering is thus generally seen as including food service in education like schools,colleges and universities, healthcare public and private hospitals, and social care like mealson wheels, day centres, care homes and prisons.The significance of the welfare catering sector is perhaps best illustrated by its size. On thebasis of the number of school children, patients, prisoners, attendance at day centres and thenumber of meals on wheels served.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 108
  • 11.2 The Demand for Welfare Catering In BritainWith knowledge of birth rates, death rates, net immigration and the current age profile of thepopulation, it is relatively simple to predict the numbers in particular age groups into thefuture. The groups of particular interest to the welfare catering sector are those under 16 andthose over 64. These two groups are identified as the dependent population in that theyrepresent that proportion of the population who are supported by those of working age. Theyare also those who make the greatest demands on the educational, health and care services.The dependency ratio, the number of children and pensioners per 100 people of working age,is a key statistic. The ratio was 63 in 1992 but it is expected to peak in 2036 at 82 when thebaby boom generation reaches retirement age. Another factor that had a substantial effect onthe demand for welfare services, such as meals on wheels and day centres, was the 1991 CareProgramme Approach which detailed the Government’s policy of providing care for as manypeople as possible in the community. Finally, the proportion of one-person households givesan indication of potential dependency on healthcare services.(See Appendix 2.)11.3 The Customers of Welfare Catering and Their NeedsThe operational characteristics of the welfare catering sector are largely determined by thenature of the consumer groups it serves. The most significant factor being that, as an ancillaryservice to other activities, (e.g. education, health), welfare catering has to serve apredetermined market created by the primary service with which it is associated. This oftenleads to extremely varied markets made up of a range of different consumer groups, the bestexamples being large general hospitals where a whole range of capabilities (physical andmental), age, socio-economic and lifestyle groups will be present. It is nevertheless possibleto identify a number of general consumer-need characteristics in the welfare catering sector.These are discussed in the sections below.11.3.1 NutritionThe nutritional role of any welfare provision will however be determined by the contributionit is expected to make to the overall diet. With school children, for example, the school mealis only one of a number of feeding opportunities during the day and should therefore be seenwithin the context of the child’s whole diet. Care homes providing 24-hour care, on the otherhand, will be providing the resident’s whole diet and should therefore plan to meet theappropriate nutritional standards for that type of person and their lifestyle. In hospitals, mealprogrammes often play a significant part in the overall medical care.11.3.2 Social RoleThe social role of meals in the welfare sector has become increasingly recognized in recentyears. The role of meals goes beyond the purely nutritional to include wider concepts of care.In health and social care meal times often represent the few fixed points in the day andfrequently the only opportunities to socialise.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 109
  • 11.3.3 Choice and VarietyAs well as providing nutritionally sound meals it is essential that caterers provide a choice ofmeals to ensure that all consumers have an alternative that is acceptable to them. Withoutchoice it is likely that some people would find the offered meal unacceptable for reasons ofpreference, medical condition, religion or beliefs. Without the provision of an alternativesome consumers may fail to eat meals and certainly uneaten meals can make no contributionto the diet regardless of their nutritional content.11.3.4 LocationWelfare caterers have to plan for the fact that because of limited physical or mentalcapabilities, many of their consumers will not be readily able to feed themselves and that inmany cases they will not be able to go to restaurants or other central meal locations. Thischaracteristic of the welfare sector requires that, in these situations (meals on wheels andhospitals for example) the prepared meals have to be transported to the consumers, who aresometimes in remote locations, from central production facilities. A number of systems havebeen developed to address the problems associated with the transportation of meals.11.3.5 Consumer OrientationFood service operators have recognized that the key issue has become one of market needsanalysts rather than market segmentation Through analysing the specific needs of theirconsumers, operators seek to identify the key factors that need to be satisfied with a view totailoring their product and service to match these needs. In this way it is anticipated thateffectiveness and consumer satisfaction can be maximized.11.4 MarketingRecent experience has shown that marketing planning is an essential component in theprovision of quality meals services. Whilst market segmentation is not necessarilyappropriate, market analysis in terms of needs is essential to the development and provisionof a consumer oriented service. Marketing plans in terms of products and servicesspecifications, price (where appropriate), location and distribution, and promotion shouldthen be generated in response to the findings of the market needs analysis.11.5 The Operating Systems of Welfare CateringThe challenges of catering in the welfare sector, particularly in terms of the large volumesusually involved and the transportation of meals, have led to the development of a number ofdifferent systems. Whilst the systems adopted in each of the welfare areas are different, thereare a number of general themes common to several of them.11.5.1 Central Production FacilitiesPerhaps the most fundamental decision in many situations is whether to centralize ordecentralize meal production. Decentralization involves the development of multipleproduction and service units located close to the point of consumption.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 110
  • Centralized systems involve the development of a large-scale central production unit (CPU)which produces the meals in a central location. Meals are then either distributed hot direct torecipients, or in a preserved form (chilled or frozen) to a number of satellite end-kitchens,which are located closer to the point of consumption, where the meals are regenerated andthen served locally.There are a number of advantages and disadvantages associated with the use of centralizedsystems which should be fully considered before their implementation. The advantagesinclude:• Higher labour productivity as result of mass production techniques• Lower labour costs-reduced as much as 20% for large units• Higher productivity from facilities and machinery which can be utilized for extended periods• The need for fewer skilled staff, most of whom are located at the CPU. Skilled workers are not normally required at the satellite kitchens• Savings in materials costs through bulk purchasing and closer control at the central unit• Improved control over quality and food safety systems-particularly in terms of the ability to demonstrate due diligence• Greater standardization leading to improved reliability and consistency of product• Lower capital investment per meal produced• More social working hours for most of the production staffThe disadvantages of centralized systems include:• The need for locating, purchasing and obtaining planning consent for an appropriate site for the CPU.• In the event of contamination the number of consumers affected will be many times that of a single cook serve location.• Any breakdown of the system or problems with staff like labour relations would have far wider implications.11.5.2 Meal PreservationWelfare catering systems depended on the warm-holding of foods during delivery. This wasusually achieved through the use of various types of insulated or heated containers. Earlymeals on wheels were delivered using a range of insulation-based methods including woodenhay boxes, wrapping in old blankets and virtually anything else that would retain heat. Inhospitals, delivery systems have been based on plates with heat-store elements, electricallyheated trolleys and insulated trays. Preservation systems that extend the delivery and storagetime are:• Cook Chill• Cook Freeze• Sous VideCopyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 111
  • 11.5.3 Distribution SystemsThe transportation requirements of meals will be largely determined by the type ofpreservation adopted. As previously discussed, where hot meals are being transported, theywill either have to be insulated or placed in heated containers to ensure maintenance of themeals above the minimum temperature of 63°C. With storage time critical to the quality ofmeals in these systems, distribution networks must be designed to minimize delivery times.Chilled meals present a similar problem of temperature control during distribution. Indeed theproblem is accentuated by the very narrow band of permissible temperatures (0°C to 8°C)which are unlikely to be maintained by merely insulating the meals. For this reason it isessential that chilled meals are distributed in refrigerated transport with temperaturemonitoring equipment. It should be noted that although the legal maximum storagetemperature is 8°C, good practice would be storage at 0°C to 3°C.Frozen meals should also be distributed at their storage temperature. It might be tempting toallow these meals to thaw during delivery but thawing without temperature control is anunacceptable hazard. Delivery in a chilled environment, (0°C to 5°C) would also createpotential problems since such meals would have to be regenerated and consumed on the dayof delivery thereby reducing flexibility at the local level. There is also the risk that they maybe refrozen or stored at the satellite location.11.5.4 RegenerationOne of the advantages of hot meal delivery is that it requires no regeneration and therefore noheating equipment at the point of consumption. Systems that employ preservation techniques,however, inevitably require some form of regeneration at the local level.11.5.5 Information SystemsThe evolution of computer-based systems has led to the development of sophisticated real-time information systems in parts of the food service industry, particularly the fast-foodsector. The welfare sector has been slow to realize the benefits such systems can bring to itslarger volume, logistically complicated, situations. This looks set to change with contractcaterers introducing their information systems to welfare contracts and them having to followsuit to remain competitive.11.6 HospitalsThe modern hospital catering service was created as a result of concerns about patient dietsduring the Second World War. Although significant improvements were made in the serviceup to the 1970s, the provision remained below the expected catering standards. This and thegovernment’s demands for efficiencies in public spending led to legislation requiringcompetitive tendering.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 112
  • 11.7 Prison CateringThere is little published information on prison catering. As in other sectors, cateringprovision may be in-house or contracted out. A distinctive feature in this sector is thatprisoners may often play a role in food preparation and production. Prisoners may performsuch tasks as pot washing, vegetable preparation, bakery, butchery and kitchen portering. Inmany cases this is tied into enabling prisoners to gain qualifications such as NVQs as part oftheir rehabilitation. Likewise, in some prisons, the foodstuffs used are actually grown onprison farms and market gardens. As with most cafeteria systems in the welfare sector, mostprison caterers operate to a menu plan over a five- or six-week cycle, with limited choiceeach day.11.8 Current and Future TrendsBetween 1945 and the late 1970s, the welfare catering sector as a whole was relatively stable.Even the introduction of new technologies such as tray serve systems, free-flow cafeteriasand central production seemed to have little impact on the nature of the customer experienceor meal product offered. However, during the 1980s legislative changes had a major impacton catering provision in all parts of the sector. During this period the major drive was tomaintain standards of provision whilst significantly improving productivity and efficiency.The main way this was to be achieved was through opening up public service provision tocompetition. This would enable contract foodservice companies to apply commercialprinciples and expertise thereby reducing costs. In practice, this was very slow in developing.Commercial firms found that local authorities, hospital trusts, and other public serviceorganisations devised tender documents that were so detailed and so complex that biddingwas too time consuming. Furthermore, this sector operates on very low margins so that thefinancial return was not great. So in 1991 contract foodservice companies only had 450contracts for outlets in state education and 337 in healthcare. By 1995 this had changeddramatically with significant growth in both these sectors due to changes in the legislativeframework and tendering process, the opportunity presented by the end of five-year contractsawarded in the 1980s, and the growing expertise of commercial firms in this sector.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 113
  • SummaryThis chapter has looked at foodservice in hospitals, care homes, schools and prisons. It is asector that has been affected by the contracting out of foodservice as discussed in previouschapters. A feature of the sector is the special needs that client groups such as hospitalpatients, the elderly and school children may have, especially with regard to their health anddiet. Meals may also play a social role in this sector. To keep costs down and produce mealsin large volume, this sector was one of the first to adopt central production facilities andcook-chill methods. In hospitals, which require tray service for patients confined to bed, thishas also involved the development of specific systems for plating and keeping food hot. Thisis also the case with respect to meals on wheels. The major issue currently facing the sector isthe raising of standards which the National Health Service has involved patient groups,industry professionals, health workers and celebrity chefs working on a better hospital foodplan.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 114
  • Tutorial Questions1. What are the various sub-sectors covered by welfare catering? (4 marks)2. State any two operating systems used by welfare catering. (2 marks)3. State the importance of food preservation in welfare catering. (4 marks)4. Give four of the main differences between welfare catering and retail catering. (8 marks)Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 115
  • 12Information Technology and Yield ManagementObjectiveThis chapter will show students how information technology is effectively used in thehospitality industry, particularly in managing its revenues and profits. After studying this chapter, students will be able to: • Appreciate the extensive use of information technology in the industry • Define how computers assist in channelling hospitality products to the ultimate consumers • Explain how the supply chain is managed, with the help of technology • Explain the advantages and disadvantages of cashless systems • Understand the concept and practice of yield management12.1 Information Technology in the Hospitality IndustryThe hospitality industry at large has pioneered many information system innovations. Airlinereservation systems, for example, were completing electronic commerce transactions longbefore the commercialization of the Internet.While the improved control introduced by computerized systems justified implementationsfrom a cost perspective, computer systems were still perceived as being overly technical anddifficult to use. This was due in part to the manner in which the systems were created byaccountants working in conjunction with the developers and to the fact that they had to beultimately used by front-line employees. Overly focused on the control of operations, andlacking usability, early systems were resented by end-users generally not involved in thedesign and development activities.Falling hardware prices, the development of the personal computer and graphic userinterfaces, and the explosive growth of the Internet have made computerized systemspractically everywhere throughout all sectors of the industry today. Moreover, as computershave become progressively easier to use and embedded in society, problems stemming fromusability have been partially subdued even though the typical hospitality computingenvironment can be quite complex.Over time, individual systems have developed to act as the information hubs of thehospitality organisation.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 116
  • 1. EPOS (electronic point of sales system) was used for restaurants and food service.2. PMS (property management system) was used for hotels and cruise ships.This has developed into the key application. Better integration means that such systems nowperform a key coordination and control function, acting as the central system around whichall the others revolve and interact.12.2 The Channel of Distribution (Electronic Distribution System)Effective distribution is especially important in the airline, hotel and cruise sectors; as suchproducts are extremely perishable. Revenue from an unsold room or cabin is lost forever, andthus selling each product at an optimum price is critical. Both hotels and cruise companieshave traditionally used a variety of distribution channels to help maximize sales. However,channels involving intermediaries are relatively expensive, and increasing emphasis is beingplaced on using electronic channels, as they have the potential to reduce costs withoutsacrificing geographical or market reach.Electronic distribution systems have many advantages over their traditional, labour intensive,counterparts. They have few capacity limitations, offer infinitely more geographical reach,have a low marginal cost and are able to incorporate dynamic data such as roominventory/rates. Furthermore, while traditional channels have to be used in pairs as both anadvertising medium (e.g. brochures or guidebooks) and an interactive medium (e.g. atelesales agent or a travel agent) to complete the transaction electronic systems canpotentially fulfil both roles and allow travellers to make reservations in a fraction of the time,cost and inconvenience associated with traditional methods.12.2.1 Global Distribution System (GDS)Electronic distribution of the hospitality product has traditionally centred on the travel agentfocused Global Distribution Systems (GDS). Originally conceived as internal inventorycontrol systems by the airlines, the GDS subsequently broadened their product scope toinclude most hospitality products and provide direct access to the system for travel agents.GDS now allow agents to see real time availability/pricing information and to make instantbookings which are valuable and benefit the travel agent. Processing reservations manually isa time consuming, labour intensive and costly process. In contrast, processing reservationsusing a GDS is cheaper and more efficient. Airline deregulation accelerated the travel agents’adoption of technology as computerised systems became, to a large extent, essential tountangle the increased number of flight and fare options. GDS today are used by practicallymost travel agencies worldwide, and many of the major agency chains will no longer make abooking for a client unless it can be processed electronically. Thus, representation on a GDSis essential for any hospitality company wishing to sell its products through the travel agentmarket.There are shortfalls due to the use of GDS. Although consumers can now access GDSdirectly over the Internet, their structure and methods of operation still focus on the needs oftravel agents, resulting in complex procedures, cryptic codes and unintelligible data. As theGDS were designed to distribute the simpler and more homogeneous airline product, theirdatabases cannot cope with the depth and diversity of data needed effectively to marketdiverse hospitality products.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 117
  • 12.2.2 Central Reservation System (CRS)Changing the structure of these databases is a nearly impossible task, given their size,complexity and the fact that they rely on technology that is over 20 years old. In response tothis lack of flexibility, many hospitality companies developed their own Central ReservationsSystems (CRS) with a more appropriate database structure, and subsequently linked themelectronically to the GDS. To enable connectivity among GDS and CRS, technical and costlyinterfaces had to be developed. In most cases several were needed as each GDS servicesdifferent geographical markets something that quickly became too expensive for individualhospitality management companies. To minimize costs, the major hotel companiescooperated to create a universal switch a multiway translator connecting the subscribing CRSto the numerous GDS platforms. As a result, each company only needed a single interface togive access to all of the major GDS systems.12.2.3 Destination Management System (DMS)Recently, smaller non-chain hotels have enabled themselves with CRS facilities. The use ofDestination Management Systems (DMS) could also be regarded as a strategy. DMSconcentrate on distributing a wide variety of different tourism products focused primarily onthe leisure customer, are generally government sponsored and pay particular attention todistributing smaller and independent tourism suppliers.12.2.4 Distribution through the InternetFrom the perspective of the hospitality operator, use of electronic distribution was effectivebut expensive. At the same time, one of the most revolutionary technological infrastructuresof all time the Internet was becoming available to the public and commercial enterprises. Thedevelopment of the World Wide Web one of the services of the Internet provided theopportunity for suppliers to reach customers directly. In contrast to earlier electronicchannels, the Web allows for a much richer product selection experience, putting a fullcolour, interactive brochure directly into the hands of potential customers at a relatively lowcost. Furthermore, the Internet offers two-way communications, allowing transactions to becarried out directly with the customer. Thus, intermediaries, such as travel agents, canpotentially be eliminated, reducing the cost of distribution.Most websites need to offer multiple products (air, hotel, car, etc.) from multiple vendors. Asa result, they need detailed content and reservation facilities for multiple products, which theycan only get by cooperating with other intermediaries. Direct selling has become morecommon as both business and leisure travellers increasingly make their own travelarrangements using various Web-based services. This makes it essential for hospitalitycompanies to list their products electronically.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 118
  • 12.3 Managing the Supply Chain Electronically (Procurement)The area that has attracted much attention, due to its potential for creating efficiency gains, isthat of procurement. Here the focus is on IT that enables external integration with partners inthe value chain, rather than narrowly focusing on automating internal operations.Traditionally the hospitality sector has had an inefficient purchasing process. Multiple units,fragmented supply chains and inefficient business processes all adversely affected thepurchasing process by creating inefficiencies and increasing costs. In general, unit-level staffmanaged procurement, and there was a high frequency of low value orders to multiplesuppliers, which resulted in high administrative costs. Even where contracts existed forspecific products, the unpredictability of hospitality operations meant that ‘maverick’purchases from unapproved vendors were, and still are, common, further increasing costs.Using technology to facilitate the purchasing process overcomes many of these problemswhile potentially creating some others. By digitizing the processes involved in purchasing,great efficiencies can be achieved when sourcing, specifying, ordering, tracking delivery of,and paying for, purchases. In effect e-procurement involves electronically managing theentire purchasing process from product identification through requisition to payment. One ofthe minimal but immediately apparent effects of using e-procurement is that processimprovements mean that the labour and other administrative costs associated with purchasingare reduced. The use of a computerized system also makes vendor comparison easier, resultsin tightened adherence to approved products and vendors, helps to ensure quality standardsare met and minimize off-contract purchasing. Good systems also help users to identifyappropriate suppliers and facilitate the aggregation of small purchases from multiple units.This allows smaller organisations to benefit from economies of scale that previously couldonly be enjoyed by the larger international companies.In most cases, the Internet facilitates e-procurement. As a ubiquitous communicationsmedium, it makes it easy to bring buyers and sellers together into what have become knownas ‘market spaces’. While initial e-procurement solutions focused on giving customers accessto vendors electronically, this type of approach was expensive and time-consuming toimplement.12.4 Customer Relations ManagementCustomer relationship management (CRM), a strategic orientation consisting of offeringindividual service to guests based on their relationship with the company, is widely regardedas the managerial tool to achieve this kind of differentiation.Developments in technology have dramatically altered what can be done in terms of datacollection, storage and processing and therefore IT has significantly broadened the potentialmagnitude of CRM initiatives in a number of respects.Building a data warehouse, particularly on a chain wide basis, allows a company to get toknow its customers at different levels. First, as with the manual systems, it allows thecompany to focus on its most frequent guests and serve them better.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 119
  • However, the database can also be analysed for patterns, both at the individual customer andaggregate levels a process often referred to as data mining (IBM, 2001). For the individualcustomers, this should result in more closely customized offers that perhaps actually interestthem instead of the usual mass-market junk mail.Database marketing and CRM are not synonymous. The latter requires a major change inphilosophy throughout the entire organisation. The successful use of CRM revolves aroundplacing the customer at the centre of the organisation. To do this, the organisation mustcapture exhaustive data about existing and potential customers, profile them accurately,identify their needs and expectations and generate actionable customer knowledge that can beused at each point of contact. Simply having a database of customer information does not, inand of itself, imply a CRM approach. The information in that database must be usedsomething that we in the hospitality industry are not good at doing. In effect, the companymust consistently treat different customers, and types of customers, differently. Maintaining acustomer database allows a company to identify its mainstream customers and to quantifythis segment’s spending patterns, preferences and other behaviour.The beauty of a CRM approach lies in its ability to help a company manage this portfolio ofcustomer types ensuring that its best customers receive more personalized service while thecompany benefits from higher revenues, lower costs and increased customer loyalty.Unfortunately, the hospitality sector has to date largely failed to exploit the valuable datastored in its systems data that are routinely discarded as organisations fail to recognise theirvalue.Initial steps are being taken to achieve this. Many hospitality software applications are beingdeveloped using an Application Service Provider (ASP) approach. ASP technology uses theInternet to deliver the functionality of a software package to an end user, while at the sametime storing the program and its associated databases on a central server at a remote location.The application ‘runs’ in a Web browser on the user’s computer, but in reality this is just theuser interface the data input screens and reports that allow the user to interact with theapplication that is being displayed.12.5 Cashless PaymentsThe concept of electronic cashless transactions appeals to consumers and suppliers alike.This form of payment reduces the overheads of handling cash, cuts down on the risk of theftand any inconvenience of having to find the right amount of change for a vending or car parkmachine.Cashless payments not only reduce overheads and inconveniences, they also automaticallykeep electronic records of cash transactions from the moment any monetary value is loadedonto a card. However, there are certain issues that every hospitality organisation shouldknow about cashless payments before investing in such a system.The decreasing cost of technology has made it possible for anyone who wants into thecashless world. Some smaller establishment can be more nimble and take advantage oftechnology changes faster. Not only do they find the cost of entry into this cashless game isless than expected, they also are encountering a genre of entrepreneurs to hoping to cater totheir needs.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 120
  • Cashless payment is being promoted and launched alongside the deployment of point of sale(POS) terminals in the country. POS terminals act as a complement to the already existingAutomated Teller Machines (ATM). The objective of most cashless payments is to moveaway from a cash-based economy to a card-based nation and facilitate an efficient andeffective payment system.12.5.1 Concept and operationCashless payments can be made in many ways, but the most common is by loading creditonto a smartcard. A smart card is one that contains at least one electronic chip that holds dataor software programs. There are two basic smartcards:• Contact• ContactlessContact cards require physical contact with a card reader, and are often sucked into a readerand then ejected out when operation is complete. The cost of setting up this system is usuallycheaper than that of contactless card system. This process may take a long time if the card isfaulty and the reader machine may also have mechanical failure.Contactless cards have hidden chips and aerials. The aerial is usually placed around theperimeter of the card. These can be read by placing the card on top of or very close to areader. This form of payment offer very efficient processes and the readers suffer fewermechanical failures than contact card readers. On the other hand, contactless cards are moreexpensive and create problems of their own. Such as, card holders do not hold the card closeto a reader for long enough for the transaction to complete. This can lead to data corruptionand occasionally render the card useless.Another important factor to consider is Government regulations that would apply to thescheme pertaining to issuing e-money. An organisation cannot just go ahead and set up an e-Cash vending machine payment system without first obtaining an approval from relatedgovernment statutory boards. A more extensive set of rules usually apply to larger cashlesspayment schemes; where the value of transactions cannot be predetermined. In suchcircumstances, the e-Money issuer has to obtain a different type of license from thegovernment and has to comply with requirements similar to those of a retail bank.12.5.2 Advantages of cashless payment1. Faster transactionsIt has been proven the queuing at point of sale terminals and vending machines can reducedup to three times the time people spend on cash handling machines.2. Reduce the cost of handling cashLabour and time spend on collecting; counting and sorting cash can be significant. Withoutthese cost, organisations can better put to use their resources into other areas of operation.3. Attract a wide market of peopleCashless payment offers a chance for millions of consumers who do not have credit cards butstill be part of the electronic economy.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 121
  • 4. Reduce loss through human and/or machine error.With cashless payment, organisation will be able to reduce the problem of human and/ormachine error when it comes to payment collection.5. Reduces risk of theft and pilferageWithout large amount of cash being storage and/or handled, establishments need not worryabout attracting armed robbery. In addition, staff will not have to opportunity or temptationto steal internally as well.6. Offering more optionsGuest will be offered a variety of payment option that enhances their experience with theorganisation and increasing the possibility of repeat businesses.7. Improved Hygiene in the food premisesThe handling of coins and notes provides an easy way for bacteria to spread quickly from oneindividual to another. Food handlers would not have to handle cash and serve food.8. Increased salesIt was proved that sales increased in the establishments using cashless systems, as foodpurchases are often dictated by the amount of loose change we have in our pockets. It alsoencourages pupils and staff to remain on site at lunch times.9. Dietary control and monitoringIt provides a way of keeping track and monitoring what is eaten. Especially useful forparents trying to control what their children are eating in school.12.5.3 Disadvantages of cashless payment1. Expensive to installAlthough the cost of technology has decrease, but the overall installation in large companiescan be significant.2. Possibility of fraudOnce a user loss his/her card, the possibility of him/her losing a huge amount of money.3. Has to be carefully planned and implementedMany small organisations find that there is simply no business case or a smart card-basedcashless payment scheme.4. Remember money?Human habits and cultural attachments (e.g. tipping) to the traditional idea of money may behurdles that continue to prevent the total domination of cashless payment in present society.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 122
  • 12.6 Yield ManagementYield management also known as Revenue management at times, is a process understanding,anticipating and reacting to consumers’ behaviour in order to maximise revenue.Organisations that practice yield management usually use a computerised yield managementsystem to do so. The development of internet has contributed significantly to the success ofyield in much hospitality organisation.Three industries where yield management is used consistently are passenger airlinecompanies, hotel and car rental industry. In airline and/ or hotel industry, the latter uses aspecialised yield management system to monitor seats/hotel rooms are being reserved andreact accordingly. For example, offering discounts when occupancy is low and/or increaseroom rates and restriction on room reservation and/or sales when in demand so as to bestmaximise revenue for the property.In general, definition of the term yield management can be describe as a practice ofmaximising revenue by selling products/services at the highest possible price during the bestpossible period.12.6.1 History of Yield ManagementThe airline industry is primarily responsible for the birth of yield or revenue management.Prior to deregulation in 1978, all airlines offered the same government-approved fares;discounts were rare with the exception of night and weekend flights. When Peoples Expressintroduced the industrys first low fares nationwide, major carriers were forced to react or goout of business. Thats when American Airlines unveiled the first true yield managementsystem, which allowed it to track fares and bookings system wide and adjust fares based onhistorical and current booking patterns.Up until the late 1980s, revenue management for most hotels was similar to revenuemanagement for the airlines before deregulation. Their rate variables consisted of offeringweekday and weekend rates, negotiating corporate volume discounts, and overselling groupblocks in order to maximize occupancy. Once the airlines instituted yield management,however, the hotel industry gradually woke up and realized the potential that thismanagement philosophy, and subsequent technology tools, offered.So, in the early 1990s, major hotel chains began experimenting with yield managementmodels. Some chains, like Hyatt, invested in sophisticated computerized systems that trackednumerous sources of data. Others responded with predominantly manual systems combiningthe reporting capabilities of their reservations and front desk systems with a team of trainedmanagers to direct pricing and inventory issues. Either way, the result was the same: Hotelsdiscovered that they could dramatically increase revenue growth and profitability bycommitting to yield management systems.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 123
  • 12.6.2 Practicing Yield ManagementOrganisation that uses yield management, would periodically review transaction of all goodsand services already sold and those that may be supplier in future. In addition, reviewingpertinent information (e.g. statistics) pertaining to events (e.g. holidays, conference orunexpected past such as terrorist attack), competitive information (such as price) and seasonalpatterns that affect generation of sales. As such, it is important to note that yield management is best suited for organisations withthe following characteristics:1. It is expensive or impossible to store excess resource (we cannot store tonights room for use by tomorrow nights customer). Perishability of hospitality products.2. Commitments need to be made when future demand is uncertain (we must set aside rooms for business customers - "protect" them from low-priced leisure travellers - before we know how many business customers will arrive).3. The firm can differentiate among customer segments, and each segment has a different demand curve (purchase restrictions and refund ability requirements help to segment the market between leisure and business customers. The latter are more indifferent to the price.).4. The same unit of capacity can be used to deliver many different products or services (rooms are essentially the same, whether used by business or leisure travellers).5. Producers are profit-oriented and have broad freedom of action (in the hotel industry, withholding rooms from current customers for future profit is not illegal or morally irresponsible. On the other hand, such practices are controversial in emergency wards or when allocating organs for transplantation).Yield management is particularly suitable when selling perishable products/goods thatbecome unsellable at a point in time (e.g. hotel room night after the day is over). With anadvance forecast of demand and pricing flexibility, consumers can purchase based on:• Their price sensitivity – using the buyer power during low season• Their demand sensitivity – must travel to Shanghai for business meeting• Their time of purchase – making last minute booking of hotel or airline ticketIn this way, yield management’s overall aim is to provide an optimal mix of products at avariety of price points during different period in time. In addition, most yield managementsystem aims to distribute over balanced time as well as high.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 124
  • 12.6.3 Ethical Issues and Question of EffectivenessGood yield management maximises or at least significantly increases revenue with the samenumber of products, by taking advantage of the forecast of high and low demand periods.Effectively shifting demand from high demands periods to low demand periods, thuscharging a premium for late bookings. While yield management systems tend to generatehigher revenues, the revenue streams tend to arrive later in the booking horizon as moreproducts are held for late sale at premium prices.As such yield management is often seen as a form of price discrimination and facespredictable consumer resistance. With some consumers being concerned that yieldmanagement could penalise them for conditions which cannot be helped and/or are unethicalto penalise. For example, hotels can base on customers’ profile and find out their socio-economic information such as age and home address. Then charges a higher price toconsumers who are between 30 to 65, or live in neighbourhoods with higher average wealthand even if those neighbourhoods also include poor households.However, in actual circumstances, very few hotels would employ yield management at thislevel of discrimination. Yield management also include many non-controversial and moreprevalent practices, such as varying prices over time to reflect demand. This level of yieldmanagement makes up the majority of revenue management practice in the hospitalityindustry.For example hotels may make a hotel room on Valentine’s Day more expensive than theweek later. Alternatively, they may make hotel rooms more expensive to guest who walk-inthan those with prior reservation. The goal of this level of yield management is essentiallytrying to get demand to equal supply.When yield management was first introduced, many suggested that despite the obviousimmediate increase in revenues, it might harm customer satisfaction and loyalty and drivecustomers to firms that do not practice yield management. As such, to some extent, customerloyalty programmes were developed as a response to regain customer loyalty and rewardfrequent user.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 125
  • SummaryThe hospitality industry at large has pioneered many information system innovations. Airlinereservation systems, for example, were completing electronic commerce transactions longbefore the commercialization of the Internet. Over time, individual systems have developedto act as the information hubs of the hospitality organisation.1. EPOS (electronic point of sales system) was used for restaurants and food service.2. PMS (property management system) was used for hotels and cruise ships.This has developed into the key application. Better integration means that such systems nowperform a key coordination and control function, acting as the central system around whichall the others revolve and interact.Effective distribution is especially important in the airline, hotel and cruise sectors; as suchproducts are extremely perishable. Revenue from an unsold room or cabin is lost forever, andthus selling each product at an optimum price is critical. Both hotels and cruise companieshave traditionally used a variety of distribution channels to help maximize sales.Electronic distribution of the hospitality product has traditionally centred on the travel agentfocused Global Distribution Systems (GDS). Originally conceived as internal inventorycontrol systems by the airlines, the GDS subsequently broadened their product scope toinclude most hospitality products and provide direct access to the system for travel agents.In response to this lack of flexibility, many hospitality companies developed their ownCentral Reservations Systems (CRS) with a more appropriate database structure, andsubsequently linked them electronically to the GDS. Recently, smaller non-chain hotels hasenabled themselves with CRS facilities. The use of Destination Management Systems (DMS)could also be regarded as a strategy.Most websites need to offer multiple products (air, hotel, car, etc.) from multiple vendors. Asa result, they need detailed content and reservation facilities for multiple products, which theycan only get by cooperating with other intermediaries.Using technology to facilitate the purchasing process overcomes many of these problemswhile potentially creating some others. In most cases, the Internet facilitates e-procurement.As a ubiquitous communications medium, it makes it easy to bring buyers and sellerstogether into what have become known as ‘market spaces’.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 126
  • Tutorial Questions1 Write in your own words the benefits of e-procurement. (10 marks)2 Describe how a GDS differs from a CRS in terms of functionalities. (5 marks)3 What do you think has caused the hospitality industry to embark on information technology? (4 marks)4 List and briefly describe the two basic types of cashless payment cards. (8 marks)5 State and explain the advantages and disadvantages of cashless payment. (20 marks)6 Define the term yield management. (2 marks)7 Briefly describe the characteristics of organisation best suited for the practice of yield management. (10 marks)8 Discuss the concept of yield management and the ethical issues surrounding the practice of yield management in the hospitality industry. Taking into consideration the effectiveness of a yield management system. Use examples to aid your answer (20 marks)Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 127
  • 13Travel CateringObjectiveThis chapter will allow students to explore the extent and scope of travel catering sector andalso learn about the techniques and skills to optimise management and business performance. After studying this chapter, students will be able to: • Talk about the size, scale and importance of location in airline catering • Discuss the markets, products and staff of railway catering • Differentiate between short sea route and cruise ship catering • Appreciate the changing trends of travel catering13.1 Introduction to Travel CateringTravel catering is a relatively well defined sector of the foodservice industry, which hasshown modest growth in the last few years. Although rail, airline and ship catering differ interms of the types of food they offer and the systems they use to provide the service, theyhave many factors in common. In particular, passengers who are travelling long distancescannot make the same choices about where to eat or drink that are open to people travellingby private car. Organisations also have the operational constraints of providing staff and rawmaterials to a unit that moves from one location to another. This requires a sophisticatedlogistic planning system for the allocation of staff and distribution of materials. In thischapter each sector of travel catering will be looked at in turn airline, rail, ferry, cruise shipand terminus catering.13.2 Airline CateringOne of the unique aspects of airline catering is that the cost of the catering service is usuallyincluded in the price of the airline ticket. The nature of in-flight catering is fundamentallyrelated to the airline, flight type and class of ticket. There are a number of differentdimensions to this. These include the duration of flight either long haul or short haul; the typeof route domestic or international; the type of flight charter or scheduled; and class of servicebudget/economy/tourist, club business/executive, or first. Foodservice varies from a soldbeverage and a pack of nuts or crackers on a short domestic flight, to two or three mealsserved on china and accompanied by wines and liqueurs, as is found on a first class long-haulflight. One of the main determinants of the nature of the cabin service provided is related tothe duration of the fight.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 128
  • 13.2.1 Nature of In-Flight CateringThe market for in-flight meals is obviously closely related to the growth in the number ofpeople travelling by air. In spite of the increased competition from road and rail, particularlyfor short-haul flights, and despite changes in methods of conducting business because ofelectronic mail and teleconferencing, the number of air flights has increased by 5% per year.Despite the short-term impact of 11 September on air travel, it is expected this growth willcontinue for the next decade. Throughout the 1990s the nature of in-flight catering waschanging because of marketing and financial and operational pressures on airlines.Particularly in the case of short-haul flights, where there is competition, not only with otherairlines but also with other modes of transportation.13.2.2 Product OfferingThe service of food and drinks to passengers on an aircraft has become a standard feature formany airlines, even on short-haul flights of less than two hours duration. There is a case to bemade for all airline passengers to be served a non- alcoholic beverage because of thedehydrating effect of flying. But many services are considerably in excess of the level ofprovision needed to satisfy basic physiological needs of passengers for food and drink.Another of the original functions may have been to entertain and distract passengers fromwhat could be a tedious or frightening experience, but this function has now to a considerableextent, been superseded by in-flight entertainment systems. However, the function of foodand beverage service on aircraft has become a way of defining a unique characteristic of anairline it is a means of product differentiation in what is otherwise a fairly standard way ofcovering long distances in a short period of time. Particularly where there is competition on aroute, airlines may use the cabin service as a means of marketing their product.Both the taste of food and drink and the appetite of passengers change when flying at altitude.This affects the nature of food offered and the time of service. For example, the flavour offoods become less distinct and the aroma of wines are reduced. At high altitude, many peoplereact more strongly to alcohol and caffeine. A further effect of long-haul flights is that thebody becomes dehydrated and therefore passengers are encouraged to drink non-alcoholicbeverages and water at regular intervals. Because passengers are restricted in the amount ofmovement and exercise they can take, heavy foods and those which are difficult to digest areavoided.There are severe limitations on the service (tray size etc), on the technology (selecting foodsand recipes which are tolerant of the time/temperature process involved) and on the needs ofcaptive and sedentary customers. Planned menus are converted to standard recipes which areused as the basis of the in-house or contract specification to control quantities, quality andcost. Photographs are often used to communicate precise information about both the meal andtray layout. Because of the importance of meal service as a means of breaking up themonotony of a long flight journey, particular emphasis must be placed on the appearance ofthe meal. Attention also needs to be paid to satisfying the requirements of specific groupssuch as vegetarian and vegan customers and those with particular ethnic requirements. Forexample, in order to satisfy international customers, it may be necessary to provide kosherand halal meals.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 129
  • 13.2.3 Organisation and StaffingFlight kitchens are now being developed which have capacities in excess of 40,000 meals perday and service flights for up to 40 different airlines. In all in-flight catering systems, hygieneplays an important part because of the use of high-risk products, such as meat, fish and dairyproducts, which are stored at chilled temperatures for long periods of time. Strict qualitycontrol is required, based on the principles of risk assessment, precise time temperaturecontrol, microbiological testing of products and hygiene audits of all storage and productionareas. In-flight production kitchens either have their own laboratory or send materials to acommercial laboratory for testing. This testing includes the quality of all raw materials andfinished dishes and the hygiene standards of all production areas. Samples of all mealsproduced are kept until one week after the flight has ended in case there have been any foodrelated illnesses or complaints reported.13.2.4 Standard Operating ProceduresOperating procedures can be divided into a number of activities: those which take place in theproduction unit; the transportation to the airport; the loading of materials onto the aircraft; theservice of food and beverages to customers and crew; and the transfer of waste and materialsfor washing back to the production unit. Typically, the service provided is much more thanjust the food and beverage requirements of the flight but also includes duty-free sales,blankets, pillows, linen, toiletries, newspapers, magazines, children’s games, baby food, firstaid kits and printed menu cards.Whether the service is provided by a subsidiary of the airline company or by a contractor, thebasis of the service will be a detailed specification for each flight. Initial production planningis done one to two weeks before the flight, when an estimate is made of materialrequirements for each flight, to allow the ordering of materials. Four days before departure,production plans are prepared for each department. Final adjustments are made on the day ofthe flight, when the detailed planning sequence is commenced. For each flight, there is aplanned sequence of preparation of meals, assembly of materials and printing of labels fortrolleys and containers. This includes all the special meal requirements; such as vegetarian,special diets and one of requirements for first class, and VIP customers. An inventory list ofall items required on the flight is printed out to allow inspectors to check for the correctassembly of items for each flight. A full load for a 747—400 consists of 6.5 tonnes ofmaterials, including over 800 laid-up meal trays. Checking is essential to ensure that all of therequirements are present.A computer system is used to link the production, facility with information from reservationsand check-in. Food items are produced to a schedule based on the estimated time of departureof the flight and on the projected number of passengers in each class. The majority of itemsare provided using a sophisticated cook—chill system. All foods, whether to be served, hot orcold, are prepared in advance and chilled to below 5°C and held in chilled storage until theyare ready for service. During transportation, dry ice is used to maintain the temperature offood items. Not all foods are produced in this way. For some flights, hot meals may bepacked in insulated trays whilst still hot and kept above 60°C until they are served to thepassenger. This system may be used on short-haul flights where the meal must be served assoon as the aircraft is in the air.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 130
  • The majority of hot food items are cooked in bulk, using large-scale equipment such asconvection ovens, combination ovens, pressure cookers and continuous fryers. The cookeddishes are then portioned into bulk containers and rapidly chilled. Following this, they arethen held in chilled storage until required by the assembly department. In a similar way, allbaked items such as breads and desserts are prepared in advance and chilled.A few hours before the flight is due to depart the process of packing, assembly and loadingbegins. Meals which are to be served hot are taken from chilled storage and packed intooven-proof containers, which may be foil, plastic or china. The foods are portioned into ovencontainers in accordance with the flight specification, which will lay down the weights ofeach component of the meal and the appearance of the meal. The oven containers are thenloaded into oven racks and kept in chilled storage until they are required for assembly. Foodassembly areas require control of temperature if hazardous foods remain in this area for anylength of time out of refrigeration. Temperatures of 10°C or less are recommended.The next stage is referred to as ‘tray setting’, which consists of assembling all of the itemsneeded on a meal tray. For large operations a conveyor belt may be used to carry the trayspast a series of assembly points. At the end of the conveyor, assembled trays are then placedinto trolleys. There are several different sizes of trolleys used by the airlines and it isimportant that the correct trolleys are used to suit the type of aircraft used on a specific flight.Labels are placed on the outside of the trolley, indicating the flight number, the contents ofthe trolley and its location on the aircraft.Two to three hours before a flight, all of the trolleys and containers are assembled in thedispatch bay. At this stage checks are made to ensure that all requirements are complete.These materials are then loaded into special delivery vehicles. The vehicles are designed tohave pneumatic elevators to raise the height of the platform of the truck to that of the loadingdoor on the aircraft— this is 9 metres above ground level in the case of a 747. At the lastminute ice and newspapers are added to the load. The complete load for a long-haul Boeing747-400 aircraft is made up of over 40,000 items which must be supplied by the cateringcompany. This load occupies over 60 square metres of space.The journey of the trucks is planned to coincide with the requirements of the airline.Communications links are vital. Flight times are subject to delays and cancellations and thereis often less than two hours to unload, clean and reload an aircraft. Before loading can begin,the used trolleys and containers must be removed from the aircraft into an empty truck andreturned to the in-flight catering unit. To cope with last minute needs, the catering companywill have a fleet of small vans which can be used to facilitate last minute changes which ariseafter the trucks have started their journey.After they have been loaded onto the aircraft, materials and equipment are stowed in thegalley areas. Small aircraft may have two galleys, whereas a 747-400 may have six galleys.The precise configuration will be specified by the airline. All trolleys and containers must bestowed in the correct location in each of the galleys on the aircraft, so that cabin crew do nothave to search through a number of trolleys before finding what they want. To this end,catering staff liaise with the cabin staff to check that all materials are on-board and thatmaterials are located in their correct storage areas. All equipment and supplies must besecurely fastened ready for take-off.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 131
  • At this stage, cabin crews have more to think about than just food and drink, since they needto ensure that all passengers Ware correctly seated, their cabin luggage securely stowed andthat safety instructions are completed. However, even with all of these other activities takingplace, cabin service may have started with the service of a. complimentary drink to first and.business class passengers while the aircraft is still on the ground. Also, the first meal to beserved may be loaded into the on-board convection ovens if the meal is to be served as soonas the flight is in the air.The planned service of food and drink starts as soon as the plane is in the air. The exactsequence depends on the time and duration of the flight. A short domestic flight may have afull hot breakfast or dinner service in the short time that the aircraft is in the air. A charterflight may have only a beverage and chilled snack service. A long-haul flight may serve twoor three hot meals during the flight together with frequent drinks, to reduce the effects ofdehydration and jet-lag.Whatever the nature of the flight, the sequence of service is similar. The pattern of servicewill be largely dictated by the configuration of the aircraft, taking into account factors such asthe number of aisles and the number of seats in each section. Oven racks with pre-loaded hotmeal containers are placed in the ovens 15 to 20 minutes before they are required for service.Cabin crew then start service according to a planned sequence, which will vary from oneairline to another. For a given meal there may be one trolley for meal trays and hot meals anda second for beverage service. In addition to this, items such as bread rolls and hot beveragesmay be required. At the end of the meal, trays are returned to the trolleys which in turn arerelocated in the appropriate galley storage area and made safe for landing.When the aircraft has landed, used trolleys and containers are transported to the local in-flightunit for sorting and cleaning. Conveyor belts are used to allow staff to separate glasses, chinaand cutlery from all of the waste material. There are now many initiatives to reduce thevolume of waste and to maximize recycling of materials. In some operations, this activity hasbeen automated, with magnets used to remove cutlery and powerful water sprays to rinse offwaste food, plastic materials and napkins. Large flight dishwashing machines are used towash all of the glasses, china and trays. These are then returned to store until needed for thenext flight. In order to service an aircraft, three sets of all equipment are required, one set onthe aircraft, one at the start of the flight and the other at the destination.13.3 Railway Catering in BritonThe provision of food and beverages on the railways has undergone dramatic changes in thelast few years, not least due to the restructuring of the railways in line with recentgovernment policy and the provisions of the Railways Act (November 1993). The institutionthat was once British Rail is now no longer, although the name lives on. Names such asBritish Transport Hotels, Travellers Fare and more recently Enter City On Board Serviceshave all disappeared, although some still operate under a new mantle. On 1 April 1994, Railtrack was set up as a separate government-owned company and the then existing passengerbusinesses (Network South East, Inter City and Regional Railways) were replaced by 25passenger train operating units which were to be franchised. Prior to privatization railcatering was the responsibility of Intercity On Board Services (ICOBS) on all Intercity andNetwork South East trains. Catering on other routes was open to tender from other cateringoperators. Since privatization each of the train operators is responsible for its own on-traincatering.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 132
  • As in contract foodservice, contracts vary from a fixed amount per meals sold to a percentageof the profits. In 1997, Rail Gourmet had 95% of the market, with 15 contracts to supply1000 trains a day with food and drink (on trolleys) and to cater on 350 of them.13.3.1 The Market and Products of Railway CateringThe single most important issue in contemporary rail travel was the opening of the ChannelTunnel. This had a significant impact on both the airlines and ferry companies which operateon the short-haul continental routes and, once the rail services were operating at full capacity,the competition for business on theLondon/Paris/Brussels routes became even fiercer.The types of service offered on-board are as follows:• Trolley service; This is an at-seat service offering hot and cold beverages, sandwiches and snacks from a trolley pushed through the carriages and stopping at the customer’s request.• Buffet bar; The buffet bar service offers, in addition to hot and cold beverages and snack items, a limited range of hot food such as burgers, pizzas, lasagne and stews. These are reheated in the galley behind the buffet and the customer takes them to their seat.• At-seat service; Serve first class and standard plus passengers in their seats hot and cold snacks and drinks during breakfast, lunch and dinner service times.• Restaurant car; These services operate a traditional meal for both lunch and dinner.• Sleeper service; Operating only on designated night services.13.3.2 The Staffing & Operating Procedures of Railway CateringStaffing on board will vary in accordance with the type of services being offered. On servicesoperating a buffet service only, one member of catering staff would be required. Where bothbuffet and trolley service are in operation, a minimum of two staff members would berequired, with up to 7 to 8 members required for the provision of the above plus fullrestaurant services.Prior to any catering services being provided there is a complex system of ordering fooditems to be done. Passenger loads for specific journeys are calculated, often based onprevious sales data and the Trains Manager places the orders a week in advance withsuppliers for each train. Based on past sales figures, the required amount of food stock isdelivered to the respective trains. Staff is then issued with this stock, for which they areresponsible and any shortages at the end of the journey must be accounted for. Should extrasupplies of certain foodstuffs be required en route due to excess demand, staff can phoneahead to the next pick-up point and supplies are collected there upon arrival. This additionalstock must also be reckoned for in the closing inventory.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 133
  • A high degree of control is maintained in the provision of food and beverage, irrespective ofthe route operated. All commodities are logged out to trains and the catering staffs areresponsible for this. Issues to the staff are recorded at the beginning of the journey and aclosing stock taken at the end. The staff member must then submit the relevant cash sum forthe stock consumed. This system applies to all types of service. Due to the nature of the fooditems, the trolley services and Buffet Bar are 100% controllable. Here most items are prepacked (even tea and coffee come in sealed containers) and stock easily reconcilable.13.4 Marine Travel Catering (Short Sea Routes)There are relatively few operators in the short sea sector of the market. There are holidaymakers or clientele travelling by sea for pleasure purposes; commercial vehicle drivers; andthe business community. Each type of market will present the caterer with their own specificneeds. Recognition and fulfilling their needs, as in any catering operations, is the key tosuccess. Some operators provide concessionary restaurants for commercial vehicle drivers,recognizing that their particular needs are quite different from those of the pleasure travelleror the business executive. Most operators offer a business or club class package, with waiterservice of complimentary tea and coffee in clearly designated lounges, designed specificallyto meet the needs of the busy executive, with facilities on some of the multi-purpose ‘superferries’ extending to on-board conference rooms and associated services.The period spent on board a ferry can be viewed as a pause in the journey which is totallyunder the passengers’ control. Increasingly it is being marketed by operators as being ‘part ofthe holiday experience’ and importantly a time of relaxation for the passenger, be it as aholiday maker or commercial vehicle driver.Passengers therefore must be provided with catering facilities commensurate with their needs.The number and types of catering facilities on board ferries varies according to the physicalconstraints of the vessel, the number and type of passengers it carries and, importantly, theduration of the journey. Many modern ferries are more akin to floating hotels, with a range ofservices available to make the trip relaxing and entertaining. Food and beverages areprovided in outlets ranging from kiosks, for simple snacks, to self-service style restaurantsseating up to several hundred people on the new ‘super ferries’. Silver service restaurants stillfeature on many vessels, especially those offering a premium class service although this styleof food service system tends not to be found on the very short sea crossings due toconstrictions of time. On average, there tend to be between 3 and 5 various foods andbeverage outlets on most ferries, obviously dependent: upon size, not including staff feedingfacilities.Staffing on board ferries will vary according to the time of day, the facilities offered and thetype of vessel. It is difficult to generalize about staffing structure, as not all operators willmanage their vessels in the same fashion. Generally each vessel will have a purser, who isresponsible for the provision and service of all ‘hotel facilities’ and to whom the staff report.Other key members of catering staff on board are the assistant purser and the senior chiefcook. On a ferry with a complement of 100 staff, up to 60 of them may be primarily involvedin catering but they may also be called upon to perform other duties. At the less senior levels,staff may work a variety of shifts, for example two weeks continuously day on, day off,followed by one week of night shift followed by six days off.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 134
  • Computerized central purchasing is common practice given the scale of some of theoperations. Individual food items are sourced by management and their supply to thecompany’s dockside warehouses is dealt with by one of these designated suppliers. Eachvessel must carry sufficient supplies for the return journey as victual ling of vessels takesplace only in the home port.In keeping with consumer demand, there is a greater emphasis now placed on the use of freshproduce, with many of the dishes being prepared on board. To facilitate this, cook—chillproduction systems are also used, with regeneration of dishes on board ship, while other fooditems, especially fast food products are prepared in much the same fashion as they are in theirshore based counterparts. With regard to service of food, this is similar to restaurantoperations based on shore, incorporating self service, buffet, waiter service, and silver serviceand kiosk styles of service. The supply of food and beverages to passengers usually takesplace port to port in order to maximize sales and provide efficient customer service. Mealprovision is therefore less restricted than it may be in other forms of travel catering.13.5 Cruise Ship CateringAfter a period of decline in the 1970s, the world cruise market is growing at a tremendousrate. Estimates show that the market is due to double by the year 2005 with a worldwideincrease from 5.3 million passengers to 11.5 million passengers.The logistics of provisioning a cruise ship are rather more complex than those of a cross-Channel ferry. In addition to the vast amount of equipment required, the liner may be at seafor an extended period of time and will often have to restock in foreign ports. However itmust have, at all times, sufficient supplies to maintain a full catering service to high paying,often demanding passengers.Irrespective of the category of the ship, or the ticket price, it is often the quality of the foodwhich determines the success of a voyage. The price of the food, (and, in some classes, oftenthe beverages) is included in the ticket price and for this reason a variety of restaurants areoperated. Thus the facilities may range from one (or several) full silver service fine diningrooms, through to self-service restaurants and coffee shops. In many respects the facilitiesoffered on board resemble those in a large luxury hotel with a full array of leisure andshopping facilities, staffed and managed in very much the same manner.Generally, the passenger crew ratio on most ships is very high, with an average of one crewmember to every two passengers. However, on the most luxurious ships this ratio can almostbe 1:1. As in a luxury hotel, all grades of staff are employed; however working hours arelong, with up to 14 hours a day not being unusual. Coupled with working seven days a week,often for several months, shared accommodation with work colleagues and living at sea,make working in this sector of marine catering rather arduous. The financial rewards arehigh, often with tax-free wages and substantial tips and the opportunity to travel the world,making this a particularly interesting field in which to work.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 135
  • 13.6 Terminus CateringIn addition to the provision of a food and beverage service during the journey, the availabilityof restaurants, coffee shops and bars is a common feature of the airport, railway station andport terminal buildings. These facilities are most fully developed at airports, where airportoperating companies are well aware of the importance of income from catering and otherretailing concessions to the financial performance of the airport. The service has beenexpanded from the provision of food and beverages, to include large retailing operations,largely through the leasing of space to concessionaries. Retailing has been most fullydeveloped at airports, where very large numbers of people visit major international airportsand are often there for long periods of time waiting for flights or waiting to meet friends andrelatives. The recognition of the importance of retailing activities has resulted in thedevelopment of large retailing areas in airports. A large international airport may receive 50percentage of its revenue from retailing concessions. Concession income is much moresignificant for airports with a. large proportion of international travellers, as compared withcommuter airports. The trend is towards the provision of a large number of small units ratherthan a few large concessions. Also, we have seen the introduction of familiar high-streetbrands into these retailing areas.13.7 The Changing TrendsThere have been a number of approaches developed to control the cost of in-flight meals, butthis is proving quite difficult in practice. One way of controlling cost is to reduce the amountof labour required. This can be done by buying in ready prepared food items which willreduce the number of catering staff required. Purchase of ready to assemble food productscan include: ready portioned meats; ready prepared sauces; and cook freeze and cook chillproducts. In addition to catering staff, a large number of people are required to pack andassemble meals, trays and trolleys. The use of robotics is being introduced in order to reducethe cost of some of these activities.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 136
  • SummaryThis chapter has considered catering for aircraft, trains, ferries, cruise ships and in transporttermini. Many of the systems that are used in these segments are also found in other sectors.In-flight catering is based around cook-chill and tray lay-up systems, similar to those used inhospitals. Rail catering operates back-bar production kitchens and table service restaurantcars, as well as a trolley service. Ferries and termini are likely to have facilities very similarto those found on motorway service areas. It is very difficult to obtain statistics for the sizeand scale of this sector, as it is not usually considered separately. However it is clear that avery large number of people are served meals in these forms of transports.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 137
  • Tutorial Questions1. What are the products offered under airline catering? (4 marks)2. In your own opinion, how does railway catering pose a competition to airline catering? (4 marks)3. What are the main responsibilities of a flight kitchen in a large international airport? (20 marks)4. Besides the scale and size how does catering in short sea routes differ from cruise ship catering? (4 marks)5. Name four sectors of travel catering. (2 marks)6. How does catering differ on board trains, aircraft and cruise ships? (20 marks)Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 138
  • 14Outside CateringObjectiveThis chapter introduces students to a specialized sector of the food service industry which isprobably one of the most difficult to operate successfully and one of the most speculative. After studying this chapter, students will be able to: • Identify the two main types of functions • Outside catering operations • Issues in outside catering • Operational aspects • Current and future trends14.1 Types of Outside Catering14.1.1 Contracted FunctionsIn this case the operator agrees to cater for a specified and guaranteed number of customers.The setting is likely to be a semi-permanent chalet as in the case of many of the agriculturaland country shows or a marquee on the lawn for one-off events such as wedding receptions orgarden parties.14.1.2 Speculative FunctionsThe outside caterer in this instance is not assured of any customers, but contracts to providerefreshment on a site for members of the general public attending the event as in the case ofmany sporting events. If the attendances at such events are high then the rewards are great forthe caterer can achieve a very high turnover in a very short period but the risks are high toofor attendance is often subject to the vagaries of the weather to the extent that many outsidecaterers will insure themselves against losses due to adverse weather conditions affectingbusiness. The relationship though is not always adverse. For instance, during tennis matchesat Wimbledon, breaks due to rain or bad light might increase food and drink sales.14.2 Corporate HospitalityA major source demand is known as ‘corporate hospitality’. Many companies invite theirstake holders to events as part of the marketing effort. In the case of customers suchhospitality is effective promotion and public relations; for employees it may be part of anincentive package; for suppliers it is largely public relations and so on. In 1988, the CorporateHospitality Association was formed in the UK.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 139
  • There are three different members.1. Principal suppliers who are often outside catering firms or the venue at which the event is taking place such as Wembley Stadium. They sell corporate hospitality packages which might include parking, meals, drinks and entrance tickets for an all inclusive price.2. Agents who buy hospitality from such suppliers and sell it to their customers sometimes having added value to packages such as including guest speakers. Such agents may be able to negotiate discounts with suppliers due to their bulk purchase of hospitality.3. Brokers who are hired by clients to find suitable hospitality packages. They purchase these often on a commission basis from suppliers or agents. Some operators may be both supplier and agent.14.3 Outside Catering CaterersThere are two types of caterers engaged in this business.14.3.1 Professional Outside Catering FirmsThese range form sole traders with their mobile ice-cream vans or hot dos stall up to verylarge firms. The large firms are very much specialist. They have a management team incharge if sales, operations, personnel and administration. There are also a very small numberof operators.14.3.2 Non-Specialist Outside CaterersOutside catering is often undertaken by hotels, restaurants and other who are not regularly inthe business of catering outdoors. First there are aware that the rewards for success are highand secondly because regular clients of their hotel specially request them to do so. Thepitfalls are two-fold, in attempting to cater elsewhere, the regular business is deprived of keypersonnel and equipments which results in a lowering of the hotel or restaurant standards tothe dissatisfaction of the customer and the quality, presentation and service of the food is notup to the standards expected by clients.14.4 Operational Issues In Outside CateringProblems associated with outside catering are the essential services such as plumbed in i.e.sanitation, running hot and cold water, electricity and gas. Cooking may need to be done onCalor-gas, water transported from a distance and lighting provided by gas or paraffin.It is difficult to meet hygiene requirements due to sometimes primitive accommodation. Thecaterer must ensure that the storage of foodstuffs, cleaning and washing of kitchen andservice equipments, practises and activities of staff are all of the highest standard because thegood name and reputation of the firm depends on the quality of the food and service and alsobecause of health inspectors visiting them on site.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 140
  • Security problems such as theft and pilferage are major problems too. Foodstuffs, cellarstocks and equipment all have to be stored in relatively high stocks as the caterer is usuallymiles from base and these are often in only canvas marquees or tents that are extremelydifficult to make secure. Thus thefts and pilferage are not unknown. The public attends thelarger events in thousands, so that inevitably there dishonest elements who will takeadvantage of the crowds and circumstances to remove anything that is not secure.At the same time, in order to staff the event, caterers have no option but to employ part-timestaff about whom they know very little. Such staff may not physically steal items from thesite, but they may consume food and drinks while at work or break equipments due tomalpractice, both of whom will affect caterers’ profitsTwo aspects of staffing are problematic. First, it may be extremely difficult to obtain therequired number of staff and second staff may require some training. Usually firms have wellestablished links with casual staff and they can find enough staff from such contacts but forthe larger events they employ housewives and students particularly those studying hotel andcatering subjects. This may necessitate bringing in staff in on the day before the event orsome hours before it starts to brief them fully on the style of the operation and train them upto the required level of service.Finally acts of God can befall the outside caterer which describes the unforeseen andunpleasant things that can befall the outside caterer. These are weather such as torrential rain,very hot weather which can place an enormous strain on coolers and portable refrigeratorsand making it very difficult to serve the type of food demanded by the customer. There is alsoproblems of insects, flies, wasps which are increase the risk of cross-contamination andextremely unsightly around beautifully presented foodstuffs.14.5 Catering CostsGenerally, the prices of food and refreshments at outside catering functions are higher thenthose charged at regular outlets such as restaurants. The reason is the need to cover theadditional cost of catering indoors such as;14.5.1 MarqueesMarquees may be owned or hired and the cost borne directly by the clients or passed onto thecustomers through prices14.5.2 TransportationTransportation cost includes hiring if applicable, running costs of petrol, driver’s wages andthe possible capital costs of depreciation, insurance and so on.14.5.3 FuelFuel which the caterer has to provide for cooking. The costs of this may prove to be moreexpensive than usual.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 141
  • 14.5.4 EquipmentEquipment such as provision of crockery and glassware, they may have a value of severalhundred pounds even for a relatively small function. This may require the use of specialpacking cases and boxes designed for such purposes which add to the cost.14.5.5 InsuranceMany caterers have the additional cost of insurance coverage against unforeseen events, inaddition to the normal insurance costs related to equipment and employees’ protection and itis likely that the premiums are higher for outside caterers than for those who operate undernormal circumstances.14.5.6 DepreciationLarge sums of money are tied up by the large stocks of equipment needed for peak-seasonbusiness.14.5.7 LossesDespite all the care they have taken, they will still have relatively high losses of equipmentand losses due to breakages, misuse and pilferage. Such losses have to be, of course, passedon to the customer.In many respects an outside catering is no different from a banquet functions. Full details ofthe clients requirements are taken and in addition the caterer should visit to establish meansof getting there and other services available such as power, gas, size of floor areas andstorage space in both preparation and service areas to plan the sitting of cooking equipments,table and chairs etc... During the function food can be served in three ways. All food can becentrally heated and sent out to be re-heated and dressed on flats or plates; all food can beprepared and served on site or a combination of two. During the course, the catering firmcould be responsible for the service of thousands of meals and employ many hundreds ofstaff.14.6 Current TrendsThe millennium celebrations did not attract much attention as originally thought. Increasedmarketing should be undertaken to reassure clients while as demands from clients haveresulted in only the large companies being able to meet their needs. The future will see ahigher level of concentration in the industry as the less competitive firms will be forced out ofthe market.Market growth is expected as major venues are increasing their corporate hospitalitycapacities.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 142
  • SummaryOutside catering covers a wide range of functions and events. It is a risky business thatrequires forethought and planning down to the last detail with regard to all aspect of theoperation. Once it is under way, it is essential to control very closely the movements of stocksand performance of staff for without strict control the potential profits from an outsidecatering function may not be realized. In many respects this type of catering provides a realchallenge to the professional caterer and a great deal of his job satisfaction is to be gainedfrom the diversity of operations and difficulties surmounted.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 143
  • Tutorial Questions1. List two types of outside catering operators. (2 marks)2. List two types of outside catering. (2 marks)3. Describe four operational aspects of outside catering. (4 marks)Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 144
  • 15Meeting, Incentives, Conference & ExhibitionObjective After studying this chapter, students will be able to: • Understand the concept of MICE industry • Describe the objectives of events management • Understand the constraint of MICE industry • Explain the components of event management • Understand and describe the approaches to event management15.1 MICE IndustryMeeting, Incentives, Conferences and Exhibition often associated with the acronym MICE isapplied inconsistently with the ‘E’ sometimes referring to events and the ‘C’ sometimesreferred to as conventions. MICE industry is often referred to as a sector within the tourismand/or hospitality industry of most countries. The MICE industry’s activities are usuallyplanned in advance for a large group of people brought together for a particular purpose.MICE industry usually includes a well planned and/or organised agenda centre around aparticular theme, hobby, profession or an educational topic. Such as:• Trade show (hospitality, wine or career fair)• Business conferences (IMF conference)• Political conferences (EU, ASEAN, UN conferences)• Leisure Fair (golf, travel and computer)• Educational fairMICE events are normally specialised conventions located in a particular country, city orestablishment for the purpose of bidding on MICE activities. The process of marketing andorganising a MICE event is normally conducted well in advance of the actual event, oftenseveral years. MICE industry is known for its extensive management process and demandingclientele.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 145
  • 15.1.1 MeetingsMeetings are conferences, workshops, seminars, or other events designed to bring peopletogether for the purpose of exchanging information. Meetings can take any one of thefollowing forms:• Clinic: A workshop-type educational experience in which attendees learn by doing. A clinic usually involves small groups interacting with each other on an individual basis.• Forum: An assembly for the discussion of common concerns. Usually experts in a given field take opposite sides of an issue in a panel discussion, with liberal opportunity for audience participation.• Seminar: A lecture and a dialogue that allow participants to share experiences in a particular field. A seminar is guided by an expert discussion leader, and usually thirty or fewer persons participate.• Symposium: An event at which a particular subject is discussed by experts and opinions are gathered.• Workshop: A small group led by a facilitator or trainer. It generally includes exercises to enhance skills or develop knowledge in a specific topic.Meetings are mostly organized by corporations, associations, or social, military, educational,religious, and fraternal groups. The reasons for having a meeting can range from thepresentation of a new sales plan to a total quality management workshop. The purpose ofmeetings is to affect behaviour. For example, as a result of attending a meeting, a personshould know or be able to do certain things. Some outcomes are very specific; others may beless so. For instance, if a meeting were called to brainstorm new ideas, the outcome might beless concrete than for other types of meetings. The number of people attending a meeting canvary.Successful meetings require a great deal of careful planning and organization. In a majorconvention city, convention delegates spend approximately $423 per day, almost twice that ofvacation travellers.Meetings are set up according to the wishes of the client. The three main types of meetingsetups are theater style, classroom style, and boardroom style.• Theater style generally is intended for a large audience that does not need to make a lot of notes or refer to documents. This style usually consists of a raised platform and a lectern from which a presenter addresses the audience.• Classroom setup is used when the meeting format is more instructional and participants need to take notes or refer to documents. A workshop-type meeting often use this format.• Boardroom setups are made for small numbers of people. The meeting takes place around one block rectangular table.15.1.2 IncentivesMost components of MICE are well understood, with the exception of incentives. Forincentives tourism is usually undertaken as a type of employee reward by an organisation fortargets met or exceeded. Unlike other components of MICE industry, incentive tourism isusually conducted purely for entertainment, rather than professional or educational purposes.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 146
  • 15.1.3 ConferencesThe term conference can be used to describe any meeting of people to ‘confer’ (exchangeviews) on a certain topic. These are generally larger meetings.15.1.4 ExhibitionsExhibitions are events that bring together sellers of products and services at a location(usually a convention center) where they can show their products and services to a group ofattendees at a convention or trade show. Exhibitors are an essential component of the industrybecause they pay to exhibit their products to the attendees. Exhibitors interact with attendeeswith the intention of making sales or establishing contacts and leads for follow-up.15.2 Events Management15.2.1 Event Management IndustryEvent management is often seen as a specialise field with expertise that runs the MICEindustry. Event management is a multi-million dollar industry, growing rapidly with megashows and events hosted regularly.The MICE segment of the tourism industry can be especially lucrative. Industry statisticspoint to the fact that the average MICE tourist spends about twice the amount of money thatother tourists spend.’The MICE industry represents an important revenue source for organizations. Whether ameeting planner is organizing a meeting, a convention or exhibition, the primary sources ofrevenue are as follows:• Attendee registration fees• Exhibit space rentals• Sponsorship fees• Conference program advertising feesThe pricing strategy for organizing events varies. Considerations include whether it is aconsumer event or a trade event. For example, when organizing an event in which a largepublic attendance is desired, it may be best to keep attendance fees low in an effort to attractthe largest number of attendees. In that case, the meeting planners would attempt to attractcorporate sponsors, exhibitors, or advertisers to make up the difference in revenue.Several factors are evaluated when determining the site. Considerations include facilitylocation and service level, accessibility, hotel room availability, conference room availability,price, city, restaurant service and quality, personal safety, local attractions and geographiclocation, and hospitality.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 147
  • 15.2.2 Event Management ResourcesEvent management is the process of organising and managing resources (e.g. people andtime) in order for a particular event to be completed within defined objectives, quality, andtime and cost efficiency. An event can be considered a temporary and/or one time projectundertaken to create a unique product or service that brings about beneficial change or addvalue.An event can often be defined as a set of activities that carefully use resources such as thefollowing to meet a pre-defined set of objectives:• Money• People• Materials• Energy• Space• Provisions• CommunicationThe recent growth of festivals and events as an industry around the world means that eventsmanagement can no longer be ad hoc. Events as grand as Olympic Games or as small as abusiness conference between ten people have a huge impact on local community and/or thewhole country.15.2.3 Events as a Marketing ToolsEvent management is often used as one form of strategic marketing and communication toolsby companies of all sizes. From product launches to press conferences, companies createpromotional events to help them communicate with clients and/or potential clients.Companies will reach out to their market segment by using news media, making use of mediacoverage to reach thousands or millions of people. In addition, they may also invite theirtarget audience to specific events and reach them at the actual event.15.2.4 Event ManagerAn event manager is a person who plans and executes the event. Event managers and his/herteam are often working behind the scenes coordinating the event. General responsibilities ofan event manger are:• Planning and execution of the event• Brand building• Marketing• Communication strategy• Technical and logistical support• Budgeting and negotiation• Client servicesCopyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 148
  • 15.3 Constraint of MICE IndustryAlike most projects, events need to be performed and delivered under some constraints. Inmost contexts, these constraints have been generalised as scope, time and cost. Theseconstraints are also often viewed in a triangle, whereby each side represents a constraint. Assuch, each side of the triangle cannot be changed without impacting the other sides.• Time constraint = refers to amount of time available to complete event• Cost constraint = refers to the budget available for the project• Scope constraint = refers to what must be done in order to meet event’s objectives.These constraints are often interlinked; as such any increase in scope constraint will usuallyresult in an increase in time and cost. Scope Time Quality CostFig 15.1 Constraint triangleThe discipline of event management is about providing tools and techniques that enable themanagement team to organise their work to meet these constraint.Another approach towards constraints is to consider these constraints as finance, time andhuman resources. For instance, if a job has to be finished faster, by assigning more people tothe job can solve the problem. However, this will in turn lead to increase cost of the event,unless by doing this job quicker reduces cost elsewhere in the project by an equal amount.• CostCost involve in developing/managing events depend on several variables that mainlyincludes:• Labour• Rates• Material rates• Building & machinesWhen a specialised event management company is hired, cost will usually be determined bythe consultant’s rate multiplied by an estimated quantity for completion.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 149
  • • ScopeRequirements specified for end result. The overall definition of what the event is supposed toaccomplish, and a specific description of what is accomplish at the end. A major componentof scope is the quality of the final product.• TimeThe amount of time put into individual tasks determines the overall quality of the event.Some task may require a given amount of time to complete, but given more time could becompleted exceptionally.15.4 Components of Event ManagementEvent management is made up of several components such as:1. Planning and setting objectives2. Budgeting and allocation of resources3. Organisation of work4. Acquiring human and material resources5. Assigning and directing work activities6. Tracking and reporting progress7. Evaluating results based on results achieved8. Defect prevention and rectification9. Event closure10. Communicating to stake holders15.5 Know Your ClientSignificant information required to build a successful event includes, but is not limited to, thefollowing:• Group demographics: gender mix, age, profession, regional location, religious doctrine• Conference/convention purpose• Event date in relation to the rest of the meeting program• Dietary preferences, restrictions, and special requests• Meal and menu program for entire convention• Past events held by the group• Expected attendance number• Event budgetAll of these are of equal importance; however, the budget carries the most weight.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 150
  • 15.6 Event Management StagesThere are several approaches that can be taken to managing event activities that includesagile, interactive, incremental and phased approaches.Regardless of the approach used, consideration need to be given in clarifying issuespertaining to event objectives, goals and roles and responsibilities of all participants andstakeholders.A generally acceptable approach to managing event has five main components.1. Initial stage2. Planning or design stage3. Execution stage4. Monitoring and controlling systems5. Event completion15.6.1 Initial StageThe initial stage determines the nature and scope of the development. If this stage is notperformed well, it is highly likely that the event will not be successful in meeting the client’sneeds. The key project control needed here are an understanding of the business environmentand making sure that all necessary controls are incorporated into the event. Any deficienciesshould be reported and a rectification should be made to fix them.The initiation stage should include a cohesive plan that encompasses the following areas:• Analyze business needs in measurable goals• Review of current operations• Conceptual design of the event’s operation• Equipment requirement• Financial and budget analysis• Targeting selected market segments15.6.2 Planning and Design StageDuring the planning and design stage the following will be done:• Negotiate contracts• Prepare correspondence and packets• Plan travel to and from site• Arrange ground transportation• Create marketing plan• Select meeting site and facilities• Select hotels• Organise audiovisual needsCopyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 151
  • 15.6.3 Execution stage• Conduct pre-event briefing• Prepare executive plan• Move people in and out• Troubleshoot• Approve invoices15.6.4 Monitoring and Controlling Systems• Debrief• Evaluate• Provide recognistion and appreciation• Arrange shipping15.6.5 Closing and MaintenanceClosing includes the formal acceptance of the project and ending thereof. Administrativeactivities include the archiving of the files and documenting lessons learned. As such,maintenance should be an ongoing process that includes:• Continuing support of end users• Correction of errors• Update of preventive measures• Plan for next yearCopyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 152
  • SummaryEvent management process is the conceptual framework for every effective event. Theprocess is dynamic and will require selectivity by the event manager to determine where tobegin and how to proceed to best accomplish the objectives. Regardless of the approachused, the ultimate aim to meet all event objectives is important to the success of allevents.Taking into considerations the constraints of event management, where each constrainthas to be given careful consideration before and during the process of eventmanagement. Event management objectives should be specific, measurable, realistic andwithin given time frame in order for any event to be successful.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 153
  • Tutorial Questions1. Briefly describe the main constraints in managing any events.2. List the major components of event management.3. Explain the event development stages by using related examples to aid your explanation.4. Name ten different venues that can be used for conferences. (5 marks)5. The simplest form of conference will involve the consumption of food and drink. For a day conference that starts at 09.00 (9am) and finishes at 17.00 (5pm) show the format that it may typically take. Your answer should include timings. (5 marks)6. For the caterer at a conference what are the key questions which will determine the arrangements for food and drink? (4 marks)7. List six important influences on the buying process for conferences. (6 marks)Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 154
  • Appendix 1Demographics ClassificationsSocial class definitions and geodemographics are mainly used by marketing professionals,statistical researchers and social and lifestyle commentators. Terms like ABC1 as adefinition of consumer types, are often used to describe a profile of users or target customers.Demographical and social grade definitions enable the classification and measurement ofpeople of different social grade and income and earnings levels, for market research,targeting, social commentary, lifestyle statistics, and statistical research and analysis.Geodemographics combine the analysis of demographic lifestyle and geography. The provenprinciple is that people living in similar neighbourhoods generally exhibit similar lifestyleand spending tendencies.NRS Social Grade Definitions (UK)NRS stands for National Readership Survey (NRS Ltd). NRS is a not-for-profit companywhich is funded by the UK Institute of Practitioners in Advertising (IPA), NewspaperPublishers Association (NPA), and Periodical Publishers Association (PPA). The NRS socialgrade definitions have been in use for decades, ostensibly for audience profiling and targetingby the media, publishing and advertising sectors, and have become established as a genericreference series for classifying and describing social classes, especially for consumertargeting and consumer market research. See below for the NRS estimates of uk populationby social grade Jan-Dec 2005, and for Jan-Dec 2004. Social Social Status Occupation Grade higher managerial, administrative orA upper middle class professional intermediate managerial, administrative orB middle class professional supervisory or clerical, junior managerial,C1 lower middle class administrative or professionalC2 skilled working class skilled manual workersD working class semi and unskilled manual workers those at lowest level of state pensioners or widows (no other earner),E subsistence casual or lowest grade workersCopyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 155
  • NRS Estimates of UK Population by Social Grade Jan-Dec 2006 All UK Adults Men Women (15+) EstimatedTotals 48,186 23,378 24,808 000s % profile 100 100 100 Upper Middle Class -Social Higher managerial, Estimated 1,932 1,032 900Grade A administrative or 000s professional % profile 4.0 4.4 3.6 Middle Class - IntermediateSocial Estimated managerial, administrative 10,573 5,404 5,169Grade B 000s or professional % profile 21.9 23.1 20.8 Lower Middle Class - Supervisory or clerical andSocial Estimated junior managerial, 13,982 6,400 7,581Grade C1 000s administrative or professional % profile 29.0 27.4 30.6Social Skilled Working Class - Estimated 9,964 5,395 4,570Grade C2 Skilled manual workers 000s % profile 20.7 23.1 18.4Social Working Class - Semi and Estimated 7,819 3,712 4,107Grade D unskilled manual workers 000s % profile 16.2 15.9 16.6 Those at the lowest levelsSocial of subsistence - Entirely Estimated 3,916 1,435 2,481Grade E dependent on state for long- 000s term income % profile 8.1 6.1 10.0Source: National Readership Survey, January-December 2006.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 156
  • Appendix 2Ageing Population in the UK16% of UK population are aged 65 or over Population: by age, United KingdomThe UK’s population is ageing. Although the population grew by 8 per cent in the last thirty-five years, from 55.9 million in 1971 to 60.6 million in mid-2006, this change has notoccurred evenly across all age groups. The population aged over 65 grew by 31 per cent,from 7.4 to 9.7 million, whilst the population aged under 16 declined by 19 per cent, from14.2 to 11.5 million.The largest percentage growth in population in the year to mid-2006 was at ages 85 and over(5.9 per cent). The number of people aged 85 and over grew by 69,000 in the year to 2006,reaching a record 1.2 million. This large increase reflects improving survival and the postWorld War One baby boomers now reaching this age group.The percentage of people under age 16 fell from 26 per cent in mid-1971 to 19 per cent inmid-2006. Over the same period, the percentage aged 65 and over increased from 13 per centto 16 per cent.Another indicator is the dependency of the old and young on the population of working-age.In 1971 there were 43.8 children per hundred people of working age, by 2006 this numberhad fallen to 30.5. This fall reflects both the smaller number of children in 2006 relative to1971 and the increase in the working-age population, which was due to the 1960s babyboomers who joined the working-age population from the late 1970s.It is because of this increase in the population of working age that the old-age dependencyratio only increased slightly between 1971 and 2006, reaching 30.0 per hundred working-agepeople. The ageing index, the ratio of older people to children, rose sharply from 64.0 in 1971to 97.8 in 2006.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 157
  • Age structure indicators, United KingdomPopulation ageing will continue during the first half of this century. The rise in the proportionof the population aged 65 and over is set to continue as the large numbers of people born afterthe Second World War and during the 1960s baby boom age. As the baby boomers move intoretirement they will be replaced in the working age population by smaller numbers of peopleborn since the 1960s. Even though fertility has risen recently, the number of people beingborn is still less than was the case in the 1960s.Sources: Mid-year population estimates: Office for National Statistics, General RegisterOffice for Scotland, Northern Ireland Statistics and Research AgencyNotes:Population ageing is defined as the process by which older individuals make up aproportionally larger share of the total population over a period of time.The population aged above state pension age refers to men aged 65 and over and women aged60 and over.The working-age population refers to men aged 16 to 64 and women aged 16 to 59.Copyright Boston Business School 2007 – The Global Hospitality Industry DHM 192 / DHCM 192 158
  • The Guide aims to support candidates in their preparation for CTHCM Diploma level examinations. Each Guide: > covers the syllabus of the relevant module > contains comprehensive explanations of key topics > builds knowledge of the module gradually and systematically The Guide is a useful resource for thoseseeking to gain an internationally recognised CTHCM qualifications. The Guide must be used together with recommended textbooks and with full support from a qualified lecturer.