UNDERSTANDING HOTEL UNDERSTANDING HOTEL ORGANIZATIONSORGANIZATIONS

ContentsContents

Organizational ChartLine and Staff FunctionsBusiness FormsRevenue SourcesProfit and Costs

Like most service related organizations, hotels are divided between LINE functions and STAFF functions

Line FunctionsLine FunctionsLine functions are the tasks assigned to

employees that bring them in regular contact with guests.

Line operations in a hotel are the Rooms Division & Food and Beverage Division.

Line employees are hands-on participants in the assembly and delivery of the hotel’s services.

ROOMS DEPARTMENTROOMS DEPARTMENT

Performs the lodging function of a hotel.Includes Front Office and HousekeepingTasks performed:

◦Receive reservation◦Receive guests◦Assign rooms to guests◦Maintain status of room (available or vacant?)◦Receive mail / phone messages for guests◦Maintain security & cleanliness in rooms and public areas◦Answer guests’ questions◦Close coordination needed by all subunits

FOOD AND BEVERAGE DEPARTMENT

Provide food and beverage for guestsMay include coffee shop, restaurant, poolside snack bar,

room service, banquet, function rooms, lobby bar, nightclub / disco, room service

Provides banquet and catering services for events in the hotel

Food and Beverage Department cont.Consists of kitchen (food preparation) and F&B serviceContains individual F&B outlets – restaurants and coffee

shop etc (each managed by a manager)Full service hotels have convention and catering subunitStewarding subunit does the purchasing,cleaning and

washing, expediting and arranging facilities for food and beverage

Staff FunctionsStaff FunctionsStaff functions are those behind the scenes

activities that support the line functions and have little contact with guests.

Example: Engineering, security, human resources, marketing, accounting

Sales and Marketing Department Individual sales manager in charge of corporate accounts, conventions,

tour and travel markets. Low intradepartmental interdependence.Human Resources Department Consists of employee recruitment, benefits administration, training subunitsAccounting Department Prepares payroll, manages accounts receivables, accounts payables,

handles purchases and cost controls, store room operations, night auditsEngineering and Security Repairs, maintenance, guest security

Hotel Functional Organizational Hotel Functional Organizational DesignDesign

Front Office

Reservations Room status

Housekeeping

Concierge / Bellhop

Clean room

Engineering

repair

Laundry

LODGING BUSINESS FORMSLODGING BUSINESS FORMS

Lodging Business FormsLodging Business Forms

The five basic lodging business forms:

Owner operatedOwner managedIndependentFranchisedManagement Contract

Owner OperatedOwner Operated

Understood to have been the first type of lodging management association

Hotel is run by an owner and the owner’s family

Currently popular Bed and Breakfast hotel is considered owner operated

Owner ManagedOwner Managed

The owner has hired additional (non-family) personnel to help with the running of the property

The overall management is in the hands of the owner, but day to day operations can be in the hands of others

IndependentIndependent

The owner has no role or management in day to day operations

An independent group of managers are responsible to the owner for the hotel’s performance

The hotel is not chain affiliated

FranchisedFranchised

Independently owned hotels that affiliate themselves with a chain

The chain provides standard operating procedures and guidelines to maintain a consistent level of quality and service

The chain has limited control

Franchise Costs/BenefitsFranchise Costs/Benefits

You can expect to pay in the range of $90,000 to $150,000 in initial fees for a first-class hotel franchise like Hilton‘s Homewood Suites.

Additional costs typically include royalty fees,

reservation fees, marketing fees, frequent traveler fees, and miscellaneous charges for items like training or commissions. These numbers are calculated assuming a 300-room hotel with 60% occupancy for the first year, so actual costs can vary. Total costs over ten years can run as high as $10 million or more.

Franchise Costs/BenefitsFranchise Costs/Benefits

Those with the best relationships with their franchisors reported gross operating profits per room (GOPAR) of $12,400, which translates to over $3.2 million per year in a 300 room hotel.

Top Franchises: Marriott (Ritz Carlton), Hilton, Four Seasons, Park Plaza, Holiday Inn

Management ContractManagement Contract

Independently owned hotels that affiliate themselves with a chain

The chain maintains a high level of control as the chain operates the hotel on the owner’s behalf

Many hotel companies offer both franchises and management contracts.

Management fees are paid as a % of revenues

Revenues, Profits and CostsRevenues, Profits and Costs

Revenue SourcesRevenue Sources

A revenue source is the result of a product or service a hotel makes available to guests for a price.

Sleeping Rooms

Meeting / Function Space

Outlets / Ancillary Revenue Sources

Sleeping RoomsSleeping Rooms

The sleeping room is the most profitable of all of the hotel’s products

A sleeping room is an accommodation unitThe price of each of these units is called the

room rateOccupancy is the measurement of how many

rooms are sold each night verses how many rooms the hotel has to sell.e.g. 75 rooms sold of 100 rooms available

= 75% occupancy rate

Meeting/Function SpaceMeeting/Function Space

Many hotels incorporate the revenue source of non-sleeping rooms sales

Meeting rooms, or function rooms are used for any type of group meeting

The revenue sources from meeting/function space comes from:1. Selling space for a specified period2. Providing food and beverage service in theserooms

Outlets/Ancillary Revenue SourcesOutlets/Ancillary Revenue Sources

An outlet is a food and beverage point of sale

Ancillary revenue sources are revenue sources outside of sleeping rooms or food and beverage such as gift shops or spa services.

Profit MarginProfit Margin

The hotel sleeping room is the most profitable portion of all hotel products because of profit margin.

Profit margin is determined by comparing sales revenue verses the costs incurred in providing a product or service.

Room CostRoom Cost

Room cost analysis looks at what it costs the hotel to keep a room running in relation to what it is sold for to the guest.

H/L/P Labour OverheadHeat

Light

Power

HousekeepingEngineering (Internal structure maintenance)Grounds Maintenance (Grounds surrounding building)

Debt service of owners marketing (Local effort)Management Costs (Inc. franchise or management contract fees)TaxesCorporate Obligations

Room Cost ExampleRoom Cost Example

ABC Hotel sells a room for an average of $150 per night. The cost incurred in preparing each room for sale are:

Heat $3.00 Light $2.00Power $2.00Housekeeping $9.00Engineering/Grounds $5.00Debt service of owners $0.50Marketing $2.25Management costs $2.75Corporate obligations $2.00Taxes, etc $2.50Total: $31.00

Compare this to the actual cost to the price sold (room rate) and the room cost can be determined:

Room cost = Actual CostRoom

Rate

= $ 31.00 $150.00

= 21.0%

Room Rate – Room Cost = Profit

Food CostFood Cost

A common misconception in the hospitality industry is to consider food sales as profitable as room sales. This is not the case

Food cost is the cost of a particular food item in relation to the price for which it is sold

Put simply, the food cost percentage is the percentage of the profit taken up but the actual cost of the item

Food Cost ExampleFood Cost Example

The equation for determining the cost is:Food cost = Purchase Price / Menu Price

For example:

Item Purchase Price Menu Price Food CostSteak $5.95/ea. $22.00 27.0%Chicken $3.95/ea. $17.95 22.0%Caesar Salad $1.99/ea. $ 9.95 20.0%

Opportunity CostOpportunity Cost

Each night when a room goes unsold the hotel loses that opportunity to ever sell it again

This is called opportunity cost

The “Empty Room Theory” states that once a room goes unoccupied, it is gone forever

Opportunity Cost ExampleOpportunity Cost Example

ABC Hotel has 400 sleeping roomsConsider the following example:

Room Cost Room Rate Profit Margin

Sleeping Room $30.00 $150.00 $120.00_____________________________________________________________

The daily maximum room profit potential is: $48,000 ($120x400)Weekly: $336,000Monthly: $1,400,000Yearly: $17,520,000

$17,520,000 is the maximum potential room profit that ABC Hotel could make in a year. Each unoccupied room subtracts from that number. It is easy to understand why hotel operators focus so much attention on occupancy.

Captive Audience QuotientCaptive Audience Quotient

A captive audience are guests who are staying at the hotel who will utilise the outlet in the hotel.

Captive audience quotients apply to both outlet/ancillary sales and catering sales

Group catering contribution is the catering business acquired by a hotel that has all, or a large percentage of, the attendees staying at the hotel itself