How Hotel Owners Can Avoid Losing Millions In Revenue

How Hotel Owners Lose Millions in Revenue Every Year

Join Larry Spelts and CJ Arlotta on their discussion about how and why hotel restaurants are so often a poor experience both for guests and the owners who subsidize them.

Served with Love

“Served with Love” – not just a tagline on our menus. The Indigo Road Hospitality Group puts our people first and with good reason. Learn more about all things happening in the hospitality world – from trending dishes, developing thoughtful destinations, inspiring teams, serving the community and more – from those leading our team of experience makers. Pull up a seat to our welcoming table and join us for the conversation.

 

Transcript

CJ:
Welcome to the first episode of Served With Love. The video series produced by the Indigo Road Hospitality Group. I’m your host CJ Arlotta with guest Larry Spelts, president of the Lodging and Lifestyle division. Larry good to be with you today.

Larry:
CJ it’s my pleasure.

CJ:
So, for people who aren’t familiar with you. What’ your background and what are up to now?

Larry:
I guess the simplest way to summarize my experience in hospitality is, like I’m sure like a lot of people, I wasn’t really sure what I wanted to do. I was in college, I needed a job while I was in college, so I started working in hospitality and discovered that I was good at it.

I chose the Fine Arts as an undergraduate major, which made me generally unemployable except in hospitality. And, as a result, I was off on my way to a career in hospitality and did pretty well at it. I was fortunate to begin my career in Charleston, South Carolina because there was a lot of development focused on adaptive reuse of historic structures being converted into hotels. After several years with my first employer while I was in college and immediately after, I had learned a lot. That first employer was led by a former IHG executive, and we developed several small hotels, for two of which I was the opening general manager. That was our specialty, small hotels in historic buildings. We didn’t actually have the term Boutique Hotel, but we were doing boutique. They were just smaller hotels. And after more 15 years of doing that in Charleston, I worked at the Carlyle Hotel with Rosewood.

While in New York City I decided to go to business school. I decided after a fairly successful career as an operator of luxury hotels that I wanted to see what I didn’t know, because, you know, the old saying, you don’t know what you don’t know. So, I went to New York University and got an MBA from Stern School of Business and found out there was a lot that I didn’t know.

 

There I complemented by hospitality industry experience with finance and business strategy, organization design — all the stuff that enabled me to go to another level in the industry and my career within it. After grad school, I joined a newly rebranded, small management company, Charlestowne Hotels, and built that company with Michael Tall over a period of about seven years during which we transformed the firm from a small company with fewer than a dozen hotels and mostly midscale, flagged stuff to a firm with more than 50 properties almost all of which were independent, lifestyle, experience driven boutique hotels. They now have an amazing portfolio of properties that Michael and I worked hard to put together over those years. Both Michael and I departed Charlestown, and I had an opportunity to lead the creation of a 35-acre mixed-use development with over 500,000 square feet of new real estate in Dallas, Texas for Lincoln Property Co., and Invesco. My work creating program concepts for 18 original F&B brands, several retail concepts, a boutique hotel, a fitness, and a social & swim club was wrapping up just before the COVID19 pandemic began, and I had the opportunity to return to Charleston and join the Indigo Road Hospitality Group at the invitation of its founder, Steve Palmer. He asked me to start a lodging division for what had been historically a restaurant company. Steve and I had worked together in hotels earlier in our careers when he was the opening general manager for Peninsula Grill at Planter’s Inn where I was general manager for 10 years before I headed to New York City, and Steve went on from Peninsula Grill & Planters Inn to work with Ritz-Carlton and Ginn Resorts before founding Indigo Road in 2009. We had always wanted to work together again; Steve and Indigo Road had gotten into hotel food and beverage in addition to a great, successful eleven-year run doing independent restaurants within Indigo Road. Steve invited me to come on board and start a lodging division. Indigo had 24 restaurants at that time (2020) and had received numerous James Beard award nominations, including Steve himself (three years in a row as a semifinalist for the James Beard award for outstanding restaurateur.

The timing was prompted by several boutique hotel developers approaching Indigo Road about developing the F&B programs for their planned hotels. They and many other hotel owners were not happy with how their hotel management company was operating their food and beverage. So, Indigo Road was asked to come in and do that. Steve recognized that it really wasn’t an ideal situation to have two different operating groups in the same house. It is what really prompted him to make that leap into lodging. We had a couple of projects that had approached Indigo Road and Steve knew that he didn’t want to do the F&B unless Indigo Road operated the hotel as well as the food and beverage. By bringing me on board, he was able to present that we had the competency for doing that. Since my coming on board, we’ve built a team of all the necessary disciplines to successfully operate hotels, particularly independent, upper upscale hotels, that have a lot of food and beverage.

Sorry, that was long. But yeah, that’s what happens when we’ve been in the business for 30 years. We have lots of experience!

CJ:
How would you define a boutique hotel?

Larry:
You know, this was such a popular hotel conference discussion panel topic in the late 2000s and into the early 2010’s. Every conference I attended from 2009 to 2011, I think, for at least three years in a row, there was always a panel on that question – “What is a boutique hotel?” And it was all over the place. I mean at the end of the day it’s whatever you want it to be. But I think if we took a consumer’s perspective and not an industry perspective, as a consumer – and, by the way, I am a consumer of boutique hotels — for the consumers it’s a smaller property that has unique qualities both the physical and the experiential. There’s no magic number, but probably less than 100 keys. The sweet spot may be between 50 and 75 and it must be thoughtfully designed. There needs to be a vision from a unique point of view and from someone who is passionate about the property. I think that is why corporate and chain-flag so-called boutique hotels tend to fall flat.

There’s a major private Equity Firm I’ve consulted with over the years old with various projects, and they are trying to build out a portfolio of boutique hotels. They’ve got terrific resources to do it. I have visited three of them so far, and with one possible exception, they all kind of feel very corporate. Yeah, it’s different. It’s tough. But you gotta have the ownership that is passionate, and really cares. And then not just cares because they’re investing people’s money in it like a private Equity Firm, but they care because they’re doing this as much out of passion for hospitality as they are to make a buck. The successful and enduring boutique hotel comes about as a result of the design thoughtfulness and the attention to details which include surprises and delights and the guest touchpoints, and it offers a unique perspective. That’s really the thing that drives boutique hotels. Is that each one is offering a unique perspective that is driven by ownership and that comes through in the design.

The touch points, the guest experience, the tone, and spirit of the service style — that’s also what defines a boutique hotel. And I think the last comment would be that, it’s unique. Unique meaning not one of several that are of the same brand and are trying to be the same thing. I can think of a good example of a really terrific collection of hotels under one brand — it’s one that I had the pleasure to be involved with at the genesis of this brand – Graduate Hotels. It’s really grown and it’s successful, but I wouldn’t characterize them as boutique hotels anymore because I think at least a dozen and a half, maybe two dozen later, they are all the same brand, and they all have the same look and feel. Great concept for a chain and fun hotels, but I really wouldn’t call them a boutique hotel. It’s a chain — all the one brand and all of one point of view.

CJ:
Why are you passionate about independent, boutique hotels?

Larry:
I’m sure it has a lot to do with aspects of my personality, that motivated me to be a fine arts major in college, which is, you know, creative, and I love entertaining others with what I can do with my creativity. And that’s the generous side of the Arts, and I think, of hospitality, is that we learn to do something and hopefully we wanted to do it well, and then we find a platform of sharing it with others.

Being able to do something well, and only doing it for oneself and never having it being shared with others is hollow. It’s kind of like, you know, if a tree falls in the forest and no one’s there, it doesn’t make a sound, right? Well, if someone’s there, it certainly does and we are certain that expressing a vision and creating an experience requires sharing it which validates it just like the tree falling makes the sound if somebody’s there to hear it, right? And so, for me, it’s a creative outlet.

CJ:
Good work. Well, yeah, I appreciate you. I want to move. Into another topic. And I want to talk about, why, asking a hotel operator to manage a restaurant can potentially cost you Millions. Sound good?

Larry:
Yeah, it does thank you very much. It’s going to cost you. But I think what you mean and to your point is you very often get the typical hotel management companies out there attempting to do the food and beverage. The outcome is most often not great. It just isn’t, and I remember from my years at Charlestowne hotels, for example, that we had a few properties that needed significant food, and beverage programming. And we reached out to other groups who specialized in that, including Indigo Road while I was with Charlestown hotels, and through my relationship with Steve Palmer, Indigo Road and we did a couple of hotels together where Indigo did all the food and beverage and Charlestowne did everything not food and beverage.

The reason for that was that the founder and controlling partner in Charlestown Hotels, who is still there today, wanted nothing to do with food and beverage. We were growing this management company in the boutique and lifestyle space, and he was incredibly just like – F&B is awful…it’s too difficult…it doesn’t make money, and so on. And what I found that is pretty consistent is the attitude of folks who came up in lodging that if they did food and beverage, they did it because well “…we got to have it…” and then they approach it sort of afraid of it or dreading it or feeling like it’s an imposition all of which comes through painfully clear in the final product.

Another example is developers choose a chain flag for their hotel that requires that you offer food and beverage, and the attitude becomes “I guess we have no choice but to do it.” The only way that food and beverage is executed at a high level that makes it a great experience is passion. And in all that I just described there’s zero passion — zero. And that’s really why, you know, I would tell any hotel owner be careful choosing a hotel operator. If you want to have great food and beverage in your property and if they’re coming at it from a place of fear and dread and loathe — it’s not going to be good.

CJ:
Larry in your experience. How often is the restaurant run by the hotel? And why is this?

Larry:
Yeah, it very often it is. And I think the reason is that they want to deal with one operator, and I think probably the biggest driving reason for that is they want to make sure that there is a level of continuity and that there’s an opportunity to realize potential opportunities and synergies in driving food and beverage revenues, by making sure that there’s no conflict of interest between two operators. That’s the problem with having one management group doing the hotel and another doing the restaurant, for example. Indigo Road observed in the hotels where Indigo Road is managing the food and beverage outlets and someone else was managing the hotel that the hotel operator unfortunately was not particularly supportive or willing to cooperate on innovative ideas to optimize the food and beverage opportunities by creating maybe promotional offers or packaging with rooms and things like that. So, yeah, having one operator for both becomes important for that reason.

CJ:
You mentioned something interesting just there and I want to dive a little bit more into it. You mentioned Hotel operators and restaurant operators, trying to work together. How can they work together to generate additional revenue for a property?

Well, I would say avoid that situation and find a hotel operator who is exceptional at food and beverage, right? Take Indigo Road, for example, and there are a couple of others out there who I have a lot of respect for that do a great job with both hotel and food and beverage. But if for some reason, one wants to hire a hotel operator and, and then hire a food and beverage operator for all the food and beverage, the key thing is that they need to work together to make certain that hotel guests have a great food and beverage experience.

I think leased food and beverage spaces in hotels is another issue that happens when a hotel owner gets frustrated that their hotel operator can’t do a good job with the restaurant. And so, they just decide to lease the restaurant space to a restaurant company or brand. And, I’ve seen that what happens then, is that the folks doing the food and beverage, the tenant restaurant doesn’t really have a vested interest in the hotel guests having a great food and beverage experience because they may have succeeded with building a loyal following among locals and be like, well, the hotel guest, doesn’t want to eat in here — that’s fine because I’ve got locals coming in or I got people from neighboring hotels coming in and things like that and it’s short-sighted, sure, absolutely short-sighted. But why that happens so often is that there’s this sort of in-fighting that starts happening between the restaurant, tenant, or the restaurant operator, and the hotel operator, and it’s like, well, you got to do this, you guys do that. We need you to do this and we need you to do that. And they just don’t get it together. They’re just not cooperating. You have to have one operator running the whole place – rooms and F&B and doing both well. At Indigo Road, we come at our managed hotels leading with food and beverage. Instead of the attitude that we have a hotel, and it has F&B, so we have to deal with that, we instead look at it like, “this is an F&B operation that happens to have rooms. We hire team members for our hotels in say rooms division for example who are excited about food and beverage, and why not? I mean, everybody loves food and beverage, right? Everybody wants to have a great meal, have a good drink, and have a good time eating out or going out for drinks. So, you know, it’s easy for us to find rooms executives who are really excited about great food beverage. And those are the folks that we bring on board to manage our hotels. And it works out great because everyone’s on board and supportive about making dining the primary experience for the guest.

The old saying that the way to a person’s heart is through their stomach and it’s certainly true of hotel guests.

CJ:
What are some of the biggest mistakes hotel operators make when managing a restaurant?

Larry:
Yeah, so the first and most common mistake they make is, you know the old expression playing not to lose rather than playing to win? That’s probably the most common problem with hotel operators, because historically in the industry food and beverage was a loss leader for selling rooms rather than standing on its own feet. So, they come at it playing not to lose money.

Let’s do this food and beverage and, gosh, if we can just not lose money. This is a sure recipe for mediocrity. The next thing that I think a lot of hotel operators do wrong is not thinking of a hotel restaurant as a restaurant on its own independent of the hotel. It’s just it’s like thinking of it as an amenity for the hotel. So, what we do that is very different I think from traditional hotel companies is we come into a project whether it’s an ongoing concern or development project in design, and the first thing we say is the restaurant has got to have its own identity unrelated to an unconnected to the hotel. The restaurant has to have its own unique, brand identity, not as part of the hotel’s brand identity, and we figure out what does the local market want and deliver that product rather than merely asking, what does the hotel guest need.

We believe that visitors to a destination want to eat where the locals eat. So, we develop our restaurants that happen to be in hotels for the local market not for the hotel guests because if we can make the local market happy and have locals coming into our restaurant, the guests will follow, and the guests will be very pleased as well. We have never seen an instance where locally popular restaurant in a hotel, disappointed hotel guests. The hotel guests love to be in a restaurant filled with locals.

We’ve also learned that there are some definite do’s and don’ts to make sure that we succeed in making the restaurant feel like it is truly a restaurant on its own, independent of a hotel. Even though it’s in a hotel. I would characterize those as trade secrets. We’re happy to share them when we do the project, but you know, it’s pretty consistent and we apply them consistently and we’ve consistently been successful. We’ve never had, and when I say we, I mean, Steve Palmer and me personally, wherever we’ve worked and then together at Indigo Road and even at the Indigo Road before I came on board, because they had done several hotel restaurants and bar concepts, but we’ve never had a hotel food, and beverage concept, not be successful and profitable.

It’s on by following the principle that I just outlined and doing those things that we’ve learned, when it comes to how the facilities are laid out, how it’s designed, how the branding is done. all of that. And so, we, so we’re convinced of how to come at hotel F&B to assure success.

CJ:
What types of questions should a hotel owner be asking if they are looking to select a hotel operator?

Larry:
Well, the first thing that they should do is they should go and stay and one or two of the management company’s hotels. That’s what counts, right? The proof. The proof is in the pudding. And then, you know, in terms of vetting otherwise, if the hotel operator is operating third party assets, not their own, I’d ask to speak to those owners that they’re working for, just say, hey, how are they doing? What do you like about these guys? And really that I think is the biggest thing — talk to the other owners for whom the hotel operator is managing and then go eat in the restaurants.

CJ:
Where is Indigo Road heading?

Larry:
So today we’re speaking in September 2021, I think by the end of 2023, as we’ve got several development projects ongoing and we are talking to several ongoing concerns about assuming management of their ongoing operations, I feel that by 2023, based on what we’ve got in our pipeline, that we’ll have probably six to eight open and operating hotels and all of them with substantial food and beverage. And, assuming we continue to have the success that we’re experiencing with our first opening at Skyline Lodge in Highlands, North Carolina, where we have our Oak Steakhouse. we will see rapid growth after that. That was my experience at Charlestowne. Once we got a certain number under our belt and they were doing well, and well received by the consumer that we got approached by a lot of owners and developers. They wanted us to come and do their hotel, and I think the same will happen for Indigo Road.

CJ:
Great Larry. Thank you for taking me today.

Larry:
Yeah, thank you. Enjoyed it. Sorry. I’m a little long-winded, but this stuff’s exciting. So, I love talking about it.

CJ:
You’re perfectly fine. I’m looking forward to having you back on

Larry:
Just say you’re looking forward to editing me. All right. Thank you, CJ.

CJ:
All right, sounds good.

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