Special report: Third-party concepts

Gone are the days when restaurants in hotels were all about in-house brands. Just a decade ago, leasing spaces within a hotel, working on franchises, or entering into a profit-share partnership was rare.

The market has shifted - Devina Divecha finds out the nitty gritty of third-party concepts and in-house brands, the differences between the two, and whether the twain shall meet

Panel of experts

- Marc Gicquel, regional director of F&B, Arabian Peninsula, Hilton Worldwide
- Julien Besancon, cluster F&B manager, Hilton Jumeirah and The Walk
- Sascha Triemer, VP culinary, Atlantis, The Palm, Dubai
- Alban Daubenton, director of F&B, Amwaj Rotana
- Felix Hartmann, director of operations, Media One Hotel
- Naim Maadad, CEO, Gates Hospitality
- Sadettin Kaya, executive assistant manager F&B, Mina Seyahi Complex
- James Worthington, director of F&B, InterContinental Dubai Marina

In the current climate, hotel F&B usually comprises in-house concepts and third-party brands — whether by way of rent, a franchise or a profit-share model. With all these varietals, the properties face a myriad of opportunities and challenges — ranging from profitability and budgeting, to operations and recruitment, among other key issues.

There has also been a growing shift seen in the way hoteliers approach restaurants, now plumping for more empowerment within restaurants. This model has seen groups such as Jumeirah and Hilton Worldwide work on having a chef patron or general manager responsible for the restaurant and its performance.

In the age of growing importance of F&B in the Middle East market (indeed, according to STR Global, total F&B accounts for approximately 37% of revenue across the region), what is the future of the Middle East hotel restaurant? Is it third-party managed outlets? Is it in-house concepts? Or are we looking at a healthy combination? And in this tussle of power between the two, what are the factors hoteliers and restaurateurs must consider?

Apples to oranges?

Do hoteliers have a clear preference on whether they want more third-party concepts in their property versus in-house brands, and do these even compare? Sadettin Kaya, executive assistant manager F&B, Mina Seyahi Complex, says the question is very pertinent to the Dubai market because in other parts of the world, like Asia, third-party operators are not in high demand.

He explains: “Because of the type of clientele we are catering for, people are expecting more and more brands they are familiar with, and have heard of.”

Gates Hospitality CEO Naim Maadad says the two kinds of concepts are very different, and adds: “We should never compare our own hotel restaurants within a hotel with third-party leased or franchised F&B outlets — they are totally different businesses and I think what we should be looking at is, how do you find a vacuum and find the right business model for that vacuum?”

The battle between operators and hoteliers comes about, Maadad says, because they are different businesses in terms of outcome, operations, recruitment, and even legality.

Hilton Worldwide regional director of F&B, Arabian Peninsula Marc Gicquel says the important thing to consider was that the aim should always be to create an F&B destination — no matter where it is — and that third-party brands should be a complementary offer with hotel brands.

He also echoes the statistics from STR Global and says: “In this part of the world, in some hotels, we sometimes have more F&B revenue than we have in rooms and that totally changes the equation. F&B is a key element to drive the hotel as a whole, and a good mix is a win-win situation.”

Maadad adds the business offering caters to different audiences. He says: “If we’re to be honest with each other, until hotel brands are treated as self-standing units, they don’t actually pull in a lot of local residents. They cater for hotel guests.”

However, Gicquel disagrees and says that because of the nature of alcohol licensing in the region, people do venture into a hotel if they would like to visit a licensed restaurant, athough he agrees that operational mind-sets need to change to learn from standalone restaurants.

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Healthy competition benefits everyone

More outlets just mean more competition, and there’s no reason why this isn’t a good thing. Gicqel comments that external brands challenge in-house concepts and how they operate, which he feels is beneficial all around.

Media One Hotel director of operations Felix Hartmann says third-party operators keep the hotel F&B on its toes, and creates a nice, competitive spirit in the building. He adds: “Everyone is driving the business much more aggressively because there is internal competition, if rightly chosen, complementing the offerings in that property.”

Jason Atherton’s Marina Social is a third-party concept in the up and coming InterContinental Dubai Marina. The hotel’s director of F&B, James Worthington, says having that brand will help bring people into the property, who may not venture there on their own.

He explains: “Suddenly you’ve got this revenue stream that’s coming into Marina Social and they see these other outlets, and the options you have. So that’s how it starts layering up and you get a revenue base from a whole area other than the hotel.”

Amwaj Rotana director of F&B Alban Daubenton agrees and says: “It is important to get a third party, whether a franchise or a lease, because it helps you to bring footfall and to get known in the market.”

Julien Besancon, cluster F&B manager, Hilton Dubai Jumeirah Resort and Hilton Dubai The Walk, agrees and says it has reached a situation with BiCE in Hilton Dubai Jumeirah, where both brands are associated with each other. He says: “It is part of the variety of the F&B outlets and it benefits the hotel and the in-house guests.”

Operations run differently

In some cases, consumers may have no idea if a restaurant is not an in-house concept, and this is because the third-party brands integrate really well with the property.

However, there’s also a concern of operations and standards. Hotel groups have a SOP, and Atlantis, The Palm, Dubai vice president culinary Sascha Triemer said some brands have their own philosophy, and so does the hotel. “If you can manage that, it’s probably the way to succeed, but it’s very difficult,” he says.

Kaya agrees and says: “If you have a third-party operator or a franchise in your hotel brand, you have to make sure that all international chains have their brand standards. The third-party operator has to follow these these guidelines as well.” He gives the example of hotel guidelines demanding name tags on everyone, but a third-party operator not wanting to do so because it goes against the brand image. How do you overcome this, he asks?

Gicquel points out that as a hotel operator, if a brand is approached, it’s because it is admired. “Taking the brand and not following the brand standards and not keeping the integrity of the brand leads to failure. It shouldn’t be part of a standard hotel audit, otherwise you turn a brand into a hotel operation and that’s wrong.

It would be very difficult for you to explain to an owner that you’ve had to pay a fee just to turn something into a standard hotel operation. So it’s really important that we also as hotel operators keep the brand standards of any brand we bring in.”

There’s also the layers of approvals that separate businesses. Maadad explains: “Don’t forget the layers that any business has to go through — a restaurant manager will go through his F&B director, through his general manager, through the owning company… so by the time the message reaches the decision maker, it’s diluted 50%.

“I don’t think there’s one right business or one wrong business. It’s about keeping the process right and making sure you don’t invest incorrectly. A lot of people in the market are thinking ‘if I invest more in the actual asset, I’m going to make a successful business’ — incorrect. The right operator, the right concept, and the right location [is important].”

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Costs, revenues ... money!

Many in the F&B industry have commented to Caterer Middle East about budgets available to freestanding restaurants as compared to those within a hotel operation. It affects elements like staff salaries, first and foremost, among other things. Triemer says: “Financially, people get different pay than they would in hotels so you get more skilled people in operations.”

Maadad agrees, saying: “I couldn’t agree more and that’s why I started by saying they are completely different businesses, you can’t even compare them. We recruit differently, we have a different payroll, we have a different food cost, a different beverage cost, a different rent factor.”

The final P&L is also affected depending on what kind of third-party agreement has been struck. Maadad explains further: “When it’s a franchise, it is part of the hotel and they pay a fee for the operator for the brand, and they give you a set of SOP manuals and you run the business on their behalf.”

But when it comes to rent, Gicquel says there can be some financial agreements between both parties over things like alcohol licensing and a shared delivery bay.

But there is a fee applicable for anything extra the leased space reaches out for, says Maadad. “For example the hotel would say ‘if you want to use our laundry sure, but you need to pay 10% extra handling fee’. Or recruitment — they will recruit for you but there would be a fee because they’re using their resources on your behalf.”

Hartmann agrees and says: “Hotels make money through the HR department as well, because you take care of the visas, all the services, laundry, window cleaning.”

Kaya points out the available models are not always franchises or leases. He explains: “There’s also profit share, where if you’re an operator running a restaurant, you share profit, and depending on how much you get and what deal you have, you have certain involvement in the way they run the business.”

Wait, why did it all change?

Residents of this region for a decade or more will recognise this is a changed perspective, so having the conversation is a forward step in the evolution of F&B. The earlier perspective was all for having only in-house concepts — but now the third-party model is exploding.

What was the catalyst? And where is it going from here? The change was probably revenue concerns, says Kaya. “Eight or nine years ago, hotels were able to generate revenues based on in-house guests. That’s not the case anymore.”

Maadad also says the rise in population and the number of people who have the spending power to dine out regularly is also a factor. Gicquel spins this and says competition has also changed.

He explains: “There were fewer hotels and fewer restaurants, so you opened the door and you had thousands of people coming in. Also, 10-15 years ago there was a very, very limited number of operators in the market that could drive and run those types of third-party concepts. Brands were starting to arrive in Dubai as well, so the market has shifted.”

The unique position of the Middle East market when it comes to alcohol licences is also a contributor, says Kaya.
“In other cities, international brands wouldn’t operate within a hotel because they don’t have to. In Dubai, some brands coming with really great offers to operators have to be in a hotel because otherwise they can’t get the alcohol license. Because of that, the hotel brands are more and more open to having a third party operator within their hotel.”

So what happens next? Maadad says in the short term, he sees an 80/20 split of third-party versus in-house, where the market will eventually stabilise to a 60/40 split. He explains: “To justify that — it’s because ownership is now stepping in and saying ‘who is making more money per square metre for me?’ and this is the difference.”

Kaya says there will be rise in the number of consultancy firms working on new concepts, while Gicquel believes that the time of more than 15 outlets in one property is gone, so the aim is to provide quality over quantity. He says: “In that sense there’s probably going to be a good adjustment between in-house brands and external — whether franchise or rent.”

Triemer says the split will either be 50/50 or 60/40. “The market will mature and you’ll have fewer operators, so people can concentrate on a concept and understand what they’re doing and the hotel should focus on their properties.”

The third-party market is definitely one to explore, and all the expert comments are pointing to a continued influx — but perhaps in measured numbers, rather than an all-out assault.

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Do synergies exist?

When a hotel has a third-party concept within its property, are there any shared synergies or opportunities for collaboration? Atlantis, The Palm, Dubai’s Sascha Triemer calls it akin to a marriage, where everyone needs to gel together.

InterContinental Dubai Marina’s James Worthington says he has benefited from this especially in terms of recruitment. With a few people established in Marina Social who have worked on Jason Atherton’s projects before, Worthington has had their input with easing the process forward.

He says: “They’re going to help with the recruitment and so when the restaurant opens you will have the right feel, the right touch. It's not necessarily HR saying ‘Ok you get this, this and this’ — we’ve got these people in place to help move that process forward so when you walk in there it should have a familiar experience to London. It’s just making sure that HR, the team from the hotel and the team from Marina Social all work closely together.”

However, it depends on the kind of agreement signed. Hilton Worldwide’s Marc Gicquel says when there is a lease concept, it’s like a totally different company, which has a separate P&L and recruitment drive. “There are so much less synergies than a franchise,” he adds.

Gicquel continues: “It depends on the set-up. If it’s a rent, there are limited synergies in the sense that it is two different companies, two different P&Ls, two different teams, different recruitment. If it’s a franchise, that’s the same back-of-house, the same team, the same P&L. It’s just that there’s a franchise fee to be paid in exchange for some guidelines and some brand support, so there’s much more synergies with the franchise set-up than you can have with a pure rent.”

Maadad concurs: “IT, sales and marketing, everything is centralised with a franchise, everything is basically the hotel’s responsibility, whereas with a lease you’re on your own. You pay a rent and you run your business.”

Julien Besancon, cluster F&B manager, Hilton Dubai Jumeirah Resort and Hilton Dubai The Walk, also says there are some synergies around “how we sell the outlet as well because it is part of our F&B portfolio”.

He adds: “We are selling the other outlets in our operation and we also expose the outlets in our social media platforms so there is a synergy there. It’s not just the cost side, it’s synergies in how we sell and promote the outlet.”