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PKF Reports U.S. Hotel Profits Grew 9.8 Percent in 2010

5/17/2011

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May 17, 2011, Atlanta, GA–After two years of declining profits, the average U.S. hotel enjoyed a 9.8 percent bottom line increase in 2010, according to a recently released report, Trends® in the Hotel Industry, issued by PKF Hospitality Research (PKF-HR).  The gain, however, does not make up for the 37.9 percent cumulative loss experienced by U.S. hotels during 2008 and 2009.

While 70 percent of the properties in the Trends® sample enjoyed an increase in total revenue in 2010, only 60 percent were able to convert that into more money in the bank, indicating that the turnaround in industry performance has not occurred evenly across all sectors of the U.S. lodging industry

“In the March 2011 edition of our monthly Hospitality Market Update newsletter, we noted that the driving force behind revenue growth in 2011 starts with the price tier segment you are positioned within,” said R. Mark Woodworth, president of PKF-HR.  “The higher the price tier, the greater the projected growth in ADR and, consequently, RevPAR.  After analyzing the results of the 2011 Trends® in the Hotel Industry survey, the relationship between price position and profits appears to be as strong as the correlation between room rates and the ability to grow revenue.”

According to the 2011 edition of Trends®, hotels in the highest room rate categories achieved the greatest increases in net operating income in 2010.  Conversely, properties in the lowest rate categories either achieved minor increases in profit or suffered their third consecutive year of bottom line declines.

“The full-service properties in the Trends® sample typify this relationship between prices and profits,” Woodworth said.  “Within the full-service category, those hotels in the lowest ADR category (less than $100) saw just a slight 0.3 percent increase in profits in 2010.  At the other end of the spectrum, upper-upscale and luxury hotels with an ADR greater than $200 enjoyed a strong 33.0 percent gain in profit.”

Each year PKF-HR collects financial statements from thousands of hotel owners and operators across the U.S. for its Trends® in the Hotel Industry report.  The 2011 Trends® report marks the 75th anniversary of this publication and provides industry benchmarks for 2010 unit-level revenues, expenses, and profits.  For the purpose of this report, profits are defined as net operating income (NOI) before deductions for capital reserves, rent, interest, income taxes, depreciation, and amortization.

Revenue Up For Most Everyone

Nearly 80 percent of hotels in the Trends® sample enjoyed an increase in rooms occupied in 2010, but only 67 percent were able to leverage that into increases in total revenue.  On average, the hotels in the Trends® sample achieved a 6.2 percent increase in occupancy, but were unable to raise their room rates.  In the aggregate, ADR for the overall sample declined 0.9 percent.

Based on the preceding changes in occupancy and ADR, the Trends® sample averaged a 5.3 percent rise in rooms revenue in 2010.  Among the other sources of revenue, food and beverage sales increased 5.6 percent and other operated department revenue rose 2.2 percent, but rentals and other income declined 10.0 percent.  The net result was a 4.8 percent increase in total hotel revenue for the overall Trends® sample.

Expense Growth Suppressed

Given the fact that the gains in revenue were driven by growth in the number of rooms occupied, it is not surprising that the costs and expenses to operate a hotel also grew.  Total operating expenses increased 3.4 percent in 2010.

“While this growth in expenses was more than double the rise in the consumer price index for the year, it is slightly less than expected given the historical expenditure patterns we observed during the initial stages of past lodging industry recoveries,” said John B. (Jack) Corgel Ph.D., the Robert C. Baker Professor of Real Estate at the Cornell University School of Hotel Administration and senior advisor to PKF-HR.  “Part of the reason for the more modest growth in operating expenses is the continued high rate of unemployment and the resulting lack of pressure on wage rates.  Labor costs for U.S. hotels increased a modest 2.7 percent from 2009 to 2010.”

In contrast, the amount spent to purchase all other goods and services needed to operate a hotel (excluding management fees, property taxes, and insurance) climbed 5.3 percent in 2010.  The largest increases among these expenditures occurred in the rooms (6.2 percent) and food and beverage (9.3 percent) departments.  These higher operated department costs are to be expected, given that revenue growth was driven by increased business volume as opposed to a rise in prices.

Facing dramatic declines in revenue in 2009, hotel managers were effective in cutting all department expenses except fixed charges (property taxes and insurance).  “As we predicted in the 2010 Trends® report, the profit declines in 2009 led to decreases in property values in 2010.  Accordingly, fixed charges fell 3.8 percent in 2010, the only expense category to be reduced during the year,” Woodworth said.

Profit Growth Varied

On average, unit-level NOI for the Trends® sample rose 9.8 percent in 2010, with the ability to grow profits varying by property type.  The greatest gains in NOI were achieved by full-service (+14.4%), resort (+10.4%), and convention hotels (+8.7%).  Limited-service (+0.5%) and suite hotels with food and beverage (+1.8%) lagged in their ability to generate more dollars on the bottom line.  This diversity of performance follows the previously described observation relating profit growth to price positioning.

2011 Outlook

Based on the March 2011 edition of Hotel Horizons®, PKF-HR is forecasting that the average hotel in the U.S. will be able to increase their total revenue by 6.8 percent for the entire year.  The revenue growth will come from a relatively equal contribution of increases in occupancy and ADR.

Accordingly, hotel operators will need to continue their diligent efforts to control costs.  “Assisting management in curbing costs in 2011 will be the continued lack of upward pressure on wages resulting from lingering high levels of unemployment,” said Corgel.  “However, commodity price escalation has already contributed to a rise in utility costs, delivery surcharges, and the cost of goods sold.  Cost controls might be what dictates hotel profitability in 2011."
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11 for '11: Technomic Names Leading Restaurant Trends

12/15/2010

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Technomic examines the future for restaurants through the lens of 40-plus years tracking the industry, and sees 11 top trends emerging in 2011.

As the nation begins to emerge from recession, restaurants are seeing lapsed customers return. Same-store sales are inching up, signaling the industry’s initial rebound to health; hiring is also up, signaling positive expectations for 2011. But this isn’t the same restaurant industry as before. Big changes are on the way—on menus, in concept development and in the competitive landscape.

Technomic, the leading foodservice research and consulting firm, examines the future for restaurants through the lens of 40-plus years tracking the industry, and sees 11 top trends emerging in 2011:



1. Action in adult beverages. As Americans decide they’re once again ready to celebrate, we’ll be seeing lots of action in “Mad Men”-style retro cocktails, high-cachet gin and bourbon, craft beers and punch (including sangria). Look for cocktails with herbal and floral ingredients; “skinny” cocktails; even more adult beverages in fast-casual eateries to set them apart from traditional limited-service competitors.



2. Beyond bricks-and-mortar. Food trucks, facilitated by social media that notify foodies of their whereabouts, were an L.A. and Manhattan fad a year ago; now they’re proliferating around the country. “Land-based” restaurants are using food trucks as brand extensions and catering aids; food-truck districts and “rodeos” are starting to appear; regulatory agencies are scrambling to keep up. Also unmooring restaurants from their traditional street corners: temporary or seasonal pop-up eateries and kiosks.



3. Farmers as celebrities. Once, it was all about celebrity operators; then star chefs rose to prominence. Now, the back-to-the-source mentality sends farmers and producers into the spotlight. Restaurants will feature their celebrity suppliers by offering special menus, inviting them to comment on blogs, even hosting visits. More often, farmers and artisans will be saluted in highly detailed menu descriptions. More attention to the supply chain also means more attention to food safety and product traceability as well as local sourcing.



4. Social media and technology: evolutionary spurt. We’ll see constant changes in applications for marketing and operations in 2011. Kiosk ordering, wine lists on iPads, tableside payment systems—which technologies will revolutionize operations? Couponing websites and location-based social media will grow, while the apps fad will continue to evolve, while facing new competition from developing formats and technologies. Front-of-house and back-of-house technology and social media are evolving so fast that rewards and risks are high—but the biggest risk of all is failure to innovate.



5. Korean and beyond. The Korean taco—an only-in-America synthesis of Korean-style fillings and a Mexican format—signals the rise of Korean barbecue and Korean food in general; multicultural tacos with world ingredients, sometimes in surprising combinations; and portable street food and small plates from around the planet.



6. Frugality fatigue. Penny-pinching was a novelty when the recession began; now it’s gotten old. Anyone who can afford it will dip back into luxury dining in 2011. Look for flashy high-end restaurants and some extravagant, indulgent specials even on staid menus. Meanwhile, the middle class will gravitate to reasonably priced but high-experience-value, thrill-a-minute concepts with memorable menus. Pricey full-service concepts will continue to push bar menus, bringing in new customers at a lower price point, and gastropubs will proliferate.



7. How low can you go? Consumers will continue to demand price deals, everywhere they eat. As food input prices heat up next year, sustaining the bottom line will continue to be a crucial issue for operators. Look for more restructuring of price deals—for example, “everyday low price” positioning favored by retailers.



8. Carefully calibrated brand action. As the restaurant industry emerges from recession and capital spending picks up, we’ll see more fast-casual brand extensions by full-service restaurants and even non-restaurant brands; more ultra-niche eateries with narrowly focused menus and high-concept ambiance; investment in brand refreshes and remodels instead of unit growth. What new units we’ll see will be smaller, sustainably built, with more efficient layouts, often in nontraditional locations.



9. Back to our roots. The durable hunger for comfort food develops an appetite for homestyle Southern fare, from grits to seafood; retro Italian, including meatballs; gourmet donuts and popsicles for dessert; family-style service formats and family-size portions that would look right at home in a Norman Rockwell print.



10. New competition from c-stores. Retailers have been encroaching on restaurant turf for some time, but now the hottest action is among convenience-store operators upgrading their foodservice, where margins are 40-60 percent instead of the 5 percent typical for gas. Consumers are responding positively to upgraded offerings, variety and ambiance.



11. Healthful vs. indulgent: the little angel says one thing, the little devil another. As federal menu labeling requirements take effect in 2011, the issue of healthful vs. indulgent fare—on the menu and in menu descriptions—gets complicated. Look for more items and detailed descriptions on “healthy” menus—including gluten-free fare as well as more “under x calories” items. Limited-time offers (including seasonal fare) will trend up, not only because they attract attention, but also because they don’t require posting nutrition data that consumers would rather not know. “Eating a little better” will translate into menu modifications such as slightly-lower-sodium, slightly-more-glamorous sea salt; “eating better some of the time” will lead to more innovations like “Meatless Mondays.”

For additional food industry trend-tracking insights from Technomic.


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