Outsourcing Restaurants: A Marriage of Convenience for Hotels

By Deepak Khera MORE-than two decades ago, there were only two distinct types of eating places in our country. One being the luxurious five star hotels and other being the free standing small eateries. Only handpicked professional restaurant companies were operating to fulfil the gastronomic need of its citizens. Sooner with the economy opening up, the pockets of the then conservative eating-out-families became bigger as people started to scout for newer places to spend time and money. While this on one hand not only led to the birth of many professional restaurants in the country but also served as a catalyst for many international restaurants chains who geared up to step into the Indian market. As their level of expertise increased, domestic restaurant brands started to give tough competition to five star hotels, which then started to focus on very high end spenders. In the budget and economy segment, free standing restaurants with great value-for-money meals became very popular with the locals as well as people travelling on business and holidays. This heavily affected the business of restaurants of the mid segment hotel who now struggled to cope up with the new freestanding players. With the restaurant business becoming more specialized, various restaurants became experts in hiring and training the staff and are producing great food within reasonably affordable prices. Their expertise surpassed those of the many small hotel operators as many suffered from losses in restaurant business. Many budget hotels saw this as an opportunity to sublet their Food and Beverage outlets, leading to a ’marriage of convenience.' Many formulae of profit sharing came into play, where the hotels would provide infrastructure and the catering companies would operate them, under their own brands. The agreements would vary from rentals only model to profit sharing, with minimum guaranteed rent to the space provider. There were two different terms which came into play, namely wet lease and dry-lease. In the former, the hotel pays for all the expense and keeps all the profit and would pay a management fees to the operator of the restaurant. In the case of dry-lease the hotel would provide the space only and all the other expenses would be borne by the operator. Leading from these two types of agreements, many in-between arrangements of cost sharing and profit sharing came into existence. These days too, many new combinations of agreements are being negotiated between the space provider (Hotel) and the operator (restaurant Management Company). Based on their location, the restaurants within the budget hotel are attracting a great number of local customers because of the diverse entertainment options they offer and great deals are paying far more in rentals and profit share to the hotel. Though there is no fixed formula of profit share but based on the projected business, various calculations have emerged for a mutually win-win situation. As more and more successful arrangements are come into existence we are expected to witness more of such professional arrangements. -The author is a hospitality consultant with 25 years of experience based out of the NCR.-