Mr. Karpinski

Food & Beverage

A New Future for Hotel Restaurants

By Peter Karpinski, Partner, Sage Hospitality

Is it possible to change the way travelers currently think about hotel restaurants? Can hotel restaurants provide a customer experience so good that they capture significant local market share in an ultra-competitive sector, and also deliver a solid return to shareholders?

At Sage Restaurant Group, those are exactly the challenges we work every day to solve and the same questions I wrestled with during my early experience in hotels and restaurants. In the end, we create unexpected, playful and locally focused food and beverage experiences that resonate with guests and the people who live and work in the communities we serve. Integrating great restaurant fundamentals in the unique context of F&B can be delivered through true partnerships at the property level. But this isn't the way I was taught.

Like many in this industry, I received my hospitality degree and went to work learning the business, inside and out. I was fortunate enough to work with some of the best companies in the world - Four Seasons Hotels & Resorts, Starwood Hotels & Resorts, Caesars Entertainment, and Starr Restaurant Organization. Along the way I internalized the concept of continual learning.

In each of my professional relationships, I gained new insights about hotel and restaurant customers and stakeholders. I asked questions and I watched and learned from extremely talented managers and executives. I sought mentors all along the way. I built as much perspective as possible.

In a quest to learn about the strengths and pitfalls of independent restaurants, I professionally progressed away from the traditional hotel F&B environment, and closer to the world of independent restaurants, until I finally found myself out of the hotel sector altogether. As I learned about the business models of free standing restaurants, I realized the gap between profit and loss and knowing your markets. I realized there was no reason hotel restaurants should be loss leaders to the lodging business or unreliable sources of hotel profit. With that conviction, I needed a partner who understood the opportunity and was willing to join my commitment to shift the paradigm.

In 2005, I met Walter Isenberg and Zack Neumeyer at Sage Hospitality and they were open to this new opportunity. As Sage was becoming a more active owner, developer, and operator of premier full-service branded hotels, they were committed to developing a more sustainable in-house F&B platform and, from that, Sage Restaurant Group was born. Our new platform has changed the way our guests and our hotel ownership groups think of hotel restaurants. It has created a new model for investors and executives, and has provided our organization with a unique proprietary differentiator.

Because of Sage Hospitality's willingness to invest and take risk in this new platform, and the innovative approach of Sage Restaurant Group, we have enjoyed considerable success.

Why should hotel companies commit internal resources to their own restaurants?

Our industry must recognize that travelers have evolved. Travelers know they have excellent restaurant choices wherever they go, and the perception is that the hotel restaurant is not their best option. People who live and work in the marketplaces that hotels are in do not view the hotel restaurant as a viable choice - they think it is overpriced and typically offers poor ambiance, service, and food. Unfortunately, that perception is reality much of the time. When people travel they want an indigenous experience. Our goal was to create an experience that both outside guests and locals would seek out repeatedly.

Probably a more important answer to this question, however, is money. By definition, hotel investors are in this business to make money and want to see a solid return on investment.

The restaurant or outlet portion of a traditional hotel F&B model, from an investment perspective, is often viewed as a loss leader that is required but not accretive to the overall value of the business.

In this environment of negative overall incremental value, some of these businesses find themselves crafting third party deals with independent restaurant companies or celebrity chefs. In these arrangements the celebrity chefs and restaurant companies create good restaurants, but they lack an understanding of the hotel business and the importance of banquets, catering, and room service on the overall success of the hotel. They create excellent restaurants without an aligned approach to the complete F&B platform.

For hotel operations, F&B is a catalyst to increase group business as well as corporate and transient room nights. Without a seamless integration between F&B and the lodging side, there is a compromise to the hotel's objectives and ownership's potential. More so, when lease structures are involved, they encumber a hotel's sale unfairly, which has a direct impact for the investor wishing to exit.

In the last seven years at Sage Restaurant Group, we have added significant value in those hotels at which we operate. Hotels can have very strong, independent restaurant brands that thrive within the communities they reside. Furthermore, hotel restaurants no longer have to be breakfast-centric.

There are several things that have helped SRG create consistently successful restaurants, but for this purpose I have chosen three that I feel are at the top of the list: a symbiotic partnership with our hotels, a financial commitment to long-term success, and brand integrity.

Symbiotic Partnerships: One Building, Two Businesses

Integrated solutions, combining both restaurants and hotel F&B services, can be delivered through true partnerships at the property level. This model requires a comprehensive upfront vision and investment with a long-term target.

For the most part, restaurateurs know and understand independent restaurants, but they do not understand catering and room service. Nor do they fully understand the needs and priorities of the national hotel brand companies. Hotel managers are historically masters at putting heads in beds, and understanding and executing solid banquet, catering and in-room dining operations. Often when they try to bring those skills, perspective and approach to the hotel restaurant, it can be detrimental to the overall business.

In turning over the restaurant and F&B operations to the wrong third party or leasing the space, hotel managers can lose oversight of some of those functions they do best. The third-party restaurant managers are solely focused on their customers, rather than hotel guests. The third party or leased operator services the hotel guests without the necessary background and expertise. We understand, and have immense respect for these two different skill sets.

In our hotel relationships, the experts manage the areas of their own expertise and must work together toward an overarching goal. We act as a service provider to the hotel and the hotel and restaurant guests benefit from the best service from each entity. Independent leaders manage and operate the hotel and the restaurant, respectively. They share some common goals, but also work independently to fulfill the missions and brand identity of each business.

Go Big or Go Home: Why an upfront investment matters

In the traditional hotel model, competitive set comparisons are usually built around other hotel restaurants. A typical hotel restaurant sees upwards of 80% of their business from their own in-house capture because that is where the effort is exerted. As noted, many of these hotel guests are only interested in breakfast, making any focus on the dinner menu inconsequential. At SRG restaurants, 85% of our customers on average are not hotel guests, and dinner is our largest revenue generating meal period. This increase of non-hotel guests allows us to increase top line revenue by several million dollars relative to a typical hotel restaurant.

For any new restaurant to see real success, early planning requires investigation into the best restaurants in the city, not other hotel restaurants. That is the competition, and success means the new restaurant earning market share from those operators.

We are big believers that overall success cannot be assured in the early stages of visioning, but failure can. Because we are careful about honing the concept to occupy a sweet spot in the market, we spend financial and intellectual capital in the nascent stages of a restaurant launch. In fact, SRG created a five-step process to guide our work. The success of this technique depends on our ability to work through these steps independent of the hotel management.

We first build a team of specialized leaders. This team is really the backbone of the restaurant and includes: a great chef, an experienced general manager usually from the world of independent restaurants, cutting edge interior designers, and brand identity experts. With a strong team in place from the start, the decision-making and creative process becomes more efficient and productive.

We next carefully ascertain a financial reality check. That means we commit the capital necessary to create the right concept. We do not achieve this by over-spending or ignoring our bottom line. The financial reality check is a tool that compels us to ensure that we can commit the resources necessary to create the concept that works.

When we were working through the design process for one of our recent restaurants, an architect said to me, "Should we really be committing this amount of space and be allocating this much money into the hotel restaurant?" He wanted to know why the restaurant warranted so much scrutiny. A hotel restaurant, he surmised, was simply no more than an accouterment to the hotel.

I should add that we often get these types of questions during some stage of development. The commonly held belief about hotel restaurants, in other words, has been internalized in our industry.

We do sophisticated market research, including demographic and psychographic studies. This includes multiple research and development trips to the target market as well as markets where our brand or similar brands currently thrive, conducting focus groups, and purchasing relevant consumer data reports. We then compile the data and take a scientific look at our findings.

Once directional, data-supported decisions are made and resources are dedicated to the project, we dive into the community to watch, listen and learn everything we can about the nuances related to the people and the culture. We learn how to best appeal to the existing market and then we innovate.

Armed with market research and our experts, we develop a robust and strong brand. We avoid passing trends, as instead our goal is to build our restaurant into a brand that can grow into an iconic business in its marketplace. We build brands - and are now replicating the most successful of those brands - that can thrive in the markets where they operate, while complementing the hotel.

Finally, and maybe most importantly, we prioritize fun and ensure that the customer will have a true guest experience that is fun and memorable. With a successful restaurant, hard working, service-focused staff and incredible food, we can enjoy our success while building the brand. Our "have fun" mantra is anything but inwardly focused. Energy and passion fuel our performance and that translates to our customers in every dining experience. We create a dining experience just for them, and this creates a sense of ownership and loyalty among our clientele.

Be Who You Are: Brand Integrity

Even with a robust investment and diligent research, no one entity can be everything to everyone. Our restaurants may not appeal to every hotel guest or everyone in any given market, but we cannot fall prey to second-guessing.

When we first developed Mercat a la Planxa, our award-winning restaurant in Chicago, we knew we wanted a Catalan Spanish market look and feel in the right space and location. The space in the Renaissance Blackstone Hotel in Chicago presented a perfect canvas, with its high ceilings and views of Michigan Avenue and Grant Park, and several significant business demand generators. It was a place where we could settle in and build long-term relationships in the market.

Collectively, we hashed out our best ideas, researched the market, committed the resources and stayed the course. We created a dining experience that was recognized by Esquire Magazine in 2008 as one of the best restaurants in the country, and received a glowing review in the Chicago Tribune titled "Mission Accomplished."

The entire staff at Mercat a la Planxa continues to deliver award-winning dining, without compromise.

Once a concept like Mercat a la Planxa has been created, the restaurant needs to stick to a plan and avoid undermining its brand so that it can become something that customers connect with over long periods of time. At many hotels, restaurants are asked to adjust menus or service in order to satisfy requirements or ideas from its headquarters or from the hotel management that are more focused on their hotel guest, rather than on the greater and much larger market share where they are located. Abiding by the whims of the hotel brands does not allow for the true restaurant brand to stand firm. Our management structure helps achieve this consistency. The F&B leader remains committed to their own brand integrity, while working in tandem with the hotel leader who is committed to the hotel guest experience.

Both hotels and restaurants can profit from long-term brand commitment and integrity and it is important to recognize and commit to the strengths of each entity.

A new future for hotel restaurants

At Sage Restaurant Group, we have worked to shift the paradigm and be a catalyst in how both consumers and the industry perceive hotel restaurants.

Sage Hospitality executives were open to a new reality for travelers, shareholders and the communities in which we operate. They trusted the idea that creating new spaces at hotels could turn a profit and thrive in the partnership model we developed.

Partnerships are not easy. They take time, patience, trust, forgiveness and commitment. But productive partnerships can create a powerful advantage over your competitors.

In the end, successful, creative restaurants can work at hotels and at SRG we are proving it can be done. We have established ten profitable brands at hotels across the country. Our restaurants range from $3 to $5 million in sales per year on average over a traditional hotel environment, and we are building a strong customer base in our communities.

It is possible to change the way travelers and others think about hotel restaurants, and we encourage hotel executives to continually evolve and innovate. We are confident that this approach will put you on a path to finding success for yourself and your businesses.

Peter Karpinski is the creative entrepreneurial force behind both Sage Restaurant Group and Sage Hospitality. SRG is a successful Denver-based enterprise developing independent restaurants that break the mold of traditional hotel dining, while Sage Hospitality is one of the countryís largest hotel management and development companies with a specialization in lifestyle and luxury properties. Through Mr. Karpinskiís bold thought leadership, he has launched eleven award-winning Sage Restaurant Group concepts, all located adjacent to Sage Hospitality properties. In both roles, Mr. Karpinski leads lifestyle-focused real estate development projects and curates overall brand development, ownership, and management platforms. His entrepreneurship, unrivaled hospitality experience, and business ethics intertwine and pave the way for the continued growth of each company. Mr. Karpinski can be contacted at 303-405-8394 or peter.karpinski@sagerestaurantgroup.com Extended Bio...

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