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Freebies - Hotels Give Some Things for Nothing - By Robert Mandelbaum

publication date: May 8, 2012
author/source: Robert Mandelbaum, Director of Research Information Services for PKF Hospitality Research

Freebies - Hotels Give Some Things for Nothing - By Robert Mandelbaum

PKF If guests are going to criticize hotels for 'nickel and diming' them by charging resort fees and surcharges, then they should also be aware of the services and amenities that U.S. hotels provide on a complimentary basis.

In 2009, a select sample of hotels that routinely offer gratis services to their guests spent an average of $723 per available room (PAR) to provide complimentary food, newspapers, and cocktails.  This is the actual cost to the hotel, not the theoretical "retail value" of savings afforded to the guest.
The data comes from an analysis of rooms department expenditures for Complimentary Services and Gifts (GSG) at 1,600 properties in our Trends® in the Hotel Industry database.  The Uniform System of Accounts for the Lodging Industry defines Complimentary Services and Gifts within the rooms department as the provision of "items used in gratis presentations for promotional purposes to guests...."  Examples include newspapers, breakfast, manager's receptions, and fruit baskets.  Not included in this expense category are complimentary guest supplies (such as in-room toiletries, writing materials, bottled water, and coffee), the cost of free internet access, or the labor costs associated with these gratis offerings.  Obviously the addition of guest supplies, internet access, and labor costs would raise the $723 PAR figure significantly.
The following paragraphs provide further insights into the complimentary service and gift offerings found in many U.S. hotels.
Rising Standards
During the depths of the industry recession in 2009, expenditures for Complimentary Services and Gifts were cut, along with most other operating expenses in the rooms department.  From 2008 to 2009, CSG costs declined 6.4 percent in the study sample.  However, when measured on a dollar per occupied room basis (POR), Complimentary Services and Gifts expenses actually increased 1.9 percent during the year.
During the recession, in an effort to preserve rate integrity, "value" became a significant marketing factor.  To retain market share and guest satisfaction in 2009, hotel managers steadfastly maintained the same level of CSG offered prior to the recession.  In fact, most hotel companies raised their standards for complimentary breakfasts and cocktail receptions, the two largest components of CSG expenditures.
Not Just Suite Hotels
As expected, all-suite, extended-stay, and limited service hotels dominate the number of properties that offer complimentary breakfasts and cocktail receptions.  However, it should be noted that 18 percent of the properties in our survey sample are resorts and full service operations.
All-suite hotel managers (not including extended-stay properties) spend the most on Complimentary Services and Gifts.  On average in 2009, $1,251 PAR or $5.16 POR was spent at these properties.  This equates to 3.5 percent of total revenue.  The offering of a full hot breakfast buffet and evening manager's reception contributes to the relatively high expenditures at these hotels.
Somewhat surprisingly, the second greatest dollar amount of CSG among the different properties types was spent as resort hotels.  In 2009, CSG expenditures at these properties averaged $893 PAR and $4.27 POR.  It can be assumed that the stigma against luxury resorts during the recession forced these managers to increase their value proposition by offering gratis food and beverage, a service not historically provided at these hotels.
In aggregate, extended-stay hotel managers spent an average of $808 PAR on Complimentary Services and Gifts, or 3.2 percent of total revenue.  However, these figures vary depending on the market position of the extended-stay brand.  For upper-tier extended-stay hotels that offer a both a full hot breakfast buffet and a manager's reception, CSG costs averaged $956 PAR.  However, for the lower-tier extended-stay properties that just serve a simple continental style breakfast, these expenditures averaged $192 PAR.
Limited service hotels comprise the largest segment of property types that offer complimentary guest services.  These operators typically provide a gratis breakfast, but no cocktail reception.  Accordingly, limited service CSG costs averaged $532 PAR, the lowest average level of expenditures among all property types.
While managers at full service hotels typically do not offer complimentary breakfast and cocktails on a routine basis to all guests, they do operate concierge lounges that provide gratis food and beverages throughout the day.  Among the full service and convention hotels that reported CSG expenses in our Trends® survey, the average expenditure was $557 PAR, or 1.2 percent of total revenue.
Based on our firm's December 2010 Hotel Horizons® forecast, an estimated 30 percent of all hotel rooms occupied in the U.S. in 2010 were accommodated in the Midscale without F&B and Upscale chain-scale segments.  These two segments are dominated by all-suite, limited service, and extended-stay hotels, the property types at which complimentary services and gifts are found.  In addition, these segments have historically demonstrated strong growth in demand.  Hotel guests are increasingly expecting complimentary breakfast, as well as other services not considered in our analysis (i.e. free WiFi).  Consumer preferences will most likely result in significant growth in the cost of Complimentary Services and Gifts in the future.

Robert Mandelbaum is the Director of Research Information Services for PKF Hospitality Research.  He is located in the firm's Atlanta office.  For more information on the Trends® in the Hotel Industry report, please visit www.pkfc.com/store.  This article was published in the March 2011 edition of Lodging.

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