How much for a gallon of coffee?

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  • Brad Benton
    Keymaster
    Post count: 148

    Ask any Catering Sales Manager how much their property charges for a gallon of coffee and most will readily answer you with a price per gallon.
     
    Some will quote you a price per person or per cup, but the principle is the same.

    Now ask a Group Sales Manager at the same property how much they charge for a guestroom and you will not get such a straight answer.  Nor should you…  It’s the same when you call the airlines to ask how much a seat on one of their airplanes costs.

    This is because airlines learnt a long time ago to manage their yield.  Then only a short time ago, hotels figured that they could do the same with guestrooms.  So why not the same principle for catering?

    Consider the following scenario.  There is a citywide going on in your location and all of your guestrooms are already sold, as is most of the function space.  You only have one boardroom left available to book and it’s still 4 months  away.  Its very easy to conclude that that clearly there is significant demand over these dates – so what are you doing to maximize your profitability over these dates?

    Many will tell you that they simply raise their catering minimums for these dates.  Sure, that sounds like a good idea, but its not enough.  Raising your catering minimum merely ensures that you will receive a certain amount of revenue on this demand date – but it has done nothing to capitalize on the demand.

    To truly capitalize on the demand you should be charging more for your catering on such high demand dates.  Yes this means that a gallon of coffee costs the client more on these high demand days!  And why not – they will pay more for guestrooms on these dates…  Any future dates that you are almost sold out in your function space should immediately get a red flag as dates with potential for higher catering pricing…

    Of course the same applies for the reverse – catering prices and minimums should be lowered to stimulate demand on need dates.  But I think most hotels already do this – albeit on an ad hoc basis, when presented with clients requesting discounted pricing.  Pure economics says that pricing should be modified to ensure that you are matching your pricing to meet demand exactly.   Yes it is a delicate balancing act!

    There is no easy approach for managing the yield on your catering pricing.  But the very first step is to remove all pricing from your catering menus – especially the ones on your website.   If you are just starting with this approach the easiest way is to come up with four different levels of pricing (A-D) for all catering menus and items and then update this pricing in your sales/catering computer system.  This will probably mean that each item and menu will need to be loaded an additional three times each with different pricing – but this is a safer approach than having a catering manager have to enter a new price with each BEO.  Next step is to put together a calendar that easily communicates which future dates are A pricing, B pricing and so on.  This calendar will need to be reviewed and modified on a regular basis in exactly the same way that your Revenue (or Yield) Manager manages the pricing on your guestrooms.

    There are already plenty of hotels out there that are already doing this – and it may seem tough to start doing this in a bad economy, but I would argue that this is the perfect time to start doing this.  By removing fixed catering pricing now it becomes a lot easier to start charging more for catering once the economy does improve – it just means that more customers are being quoted your D pricing at the moment than will be the case when things improve.

    And for those of you out there that are reading this and saying that it will never work, remember that many people said the same when hotels starting varying their room rates, and look at how successful that has been!

    So ask yourself again – how much can you get away with charging for a gallon of coffee?!

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