any smaller to midsize hoteliers view food services as a necessary
evil, a high labour, low profit department that causes more problems
than all others combined. Often it is there only to sell rooms, bar and
beverage facilities, and cater to guest’s needs. To make money, a
restaurant manager must be on top of it 24/7. The obvious solution for
many is to lease the food services department to an experienced
operator. By doing this, the headaches are largely removed and usually
the net profit to the hotel is greater than before. However, it is not
as simple for the restaurateur as renting space in a commercial
building where there is no involvement in the day-to-day operation by
the landlord. In a hotel, the restaurant operator is always at the beck
and call of the hotel management.
With a hotel lease, a restaurateur can often obtain a prime location, a
steady stream of customers, and tap into a previously closed market at
a relatively low start-up cost. The premises, interior improvements,
often the FF&E and sometimes the small wares, are part of the
package. The out of pocket expense would be for additional small wares,
linens, menus, miscellaneous items, and usually a pizza oven and dough
mixer. The well-structured lease where nothing is left to chance, where
all terms and conditions are rendered to writing, and where all parties
do more than just agree to agree, can be a mutually profitable
long-term arrangement. Both can now make money where previously the
hotel, and perhaps the pizzeria, probably could not. If a hotel can net
five per cent on sales after taxes with a self-operated restaurant it
would require 1.2 million per annum in sales to equal $5,000 per month
net rent. For the restaurateur, in an independent restaurant operation,
if the interior improvements cost $100,000 at 15 per cent combined
interest and depreciation, using the same five per cent net, the first
$300,000 in annual sales would be required simply to justify this
investment.
However, like all business arrangements for the restaurateur there are
downsides. Look for part 2 of “Setting up shop in a hotel” in the March
issue of Canadian Pizza.
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