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Thursday, July 20, 2006

Market Segmentation - Strategic Focus

In a previous post, Market Segmentation - Best Practices , I reviewed the best practices from seven segments. Each of these segments has a different strategic focus and the differences impact their long range plans.

Hotels plan for occupancy levels, REVPAR, banquet event orders and conventions. These operators forecast sales and expenses by departments. In a smaller property, there may be a single kitchen with one or two bars and several banquet rooms. Larger properties have multiple kitchens and many concepts. These huge hotels and resorts often book very large events. They typically have a flexible floor plan for the affairs and book many events simultaneously.

The food and beverage team takes a critical view at each meal period, event, buffet and room service. Plans include departmental level figures for food and beverage revenue, production labor, service labor, banquet labor, bar labor, etc. In addition, all other operating expenses are budgeted by department. Monthly reports compare the actual results to these budget numbers for each operation.

The restaurant wizards take a look at previous year's statistics and focus on covers per meal period, check averages, turns, menu price increases, raw ingredient fluctuations and waitstaff productivity. They use this data to forecast the year ahead. Plans consider old competitors as well as fresh concepts in the market. Pricing strategy depends on profit targets and competitive pressures.

From the comparison of menu prices before and after a factor may be applied to the check averages. Covers per period, turns and any change in the number of seats provide the volume data. For each meal period, a sales forecast is put together using the estimated check averages and the forecast of covers. These figures are summarized by week, month and quarter and become the focus of the budget.

Clubs analyze a la carte menus much like a restaurant with a large percentage of sales from regulars. They analyze similar meal period and check average data. Often, banquets and buffets represent a higher percentage of sales than a restaurant. The banquets and buffets are forecasted from a study of previous year's data (often more than one year is examined). Operators forecast start dates and end dates for seasonal clubs and weather may help or hurt them in attaining budget goals.

Provision for staffing is required for the main season and the off-season. Food and beverage revenue and expenses is put in perspective with the members goals. Some clubs seek a break even result from F&B and others expect a small loss. The best F&B operations at major clubs make a positive contribution.

Institutional Caterers
Onsite feeders run a decaying operation along side a growing operation. Since most contracts have a definite termination date, management takes a looks at contract due to expire in the year ahead. Some contracts end when a construction project is completed. If the contract will be renewed in a competitive bid, a probability of success is assigned to the project. Knowledge of the competititor's contract expirations is also critical. Similarly, an estimated probability of taking over each account from the competition is calculated.

The marketing department provides details on new business targets and their estimated probability of success. Each project is defined as hard dollar (profit or loss depends on actual results) or cost plus (all expenses paid plus a fee for management). Total volume affects the amount of overhead required. Cost plus jobs are less risky at the operational level but the documentation of job costs is higher than a hard dollar account.

Institutional caterers break down costs into many categories since the projected margins are slim in relation to revenue. The return on equity is typically much higher than a hotel or restaurant since these operators invest very little in the bricks and mortar.

The markets I have worked with treat the prepared food section like a restaurant although the top managers use market terminology (for example shrinkage includes normal trim in many markets). Projections are made for each menu category with salad bar, roasters, sandwiches, pizza, prepared entrees, sushi, hot buffets, and bakery fairly typical of a large market. Some markets now allow guests to sit down and consume the meal on the premise and alcoholic beverages may be possible. Service is typically self-serve with trays.

The long term plans reflect the size and scope of the operation. Larger markets prepare figures similar to a food court with a single owner. Projections are calculated for each category but the entire operation usually has only one kitchen with a production staff capable of preparing any food item.

Event Caterers
Banquet event order systems house data banks for the previous year and the events already booked for the future year. Event caterers look at each month or season and visualize the year ahead. If the system has too few events in a normally busy month, they will put more sales and promotion assets to work. Letting a night go dark in a busy period is something they want to avoid.

Focusing on each event as a separate job allows a complex budgeted income statement for all events. These estimates are placed side-by side with the actual figures as the year proceeds. Many event caterers segregate purchases by event. Careful control is exercised over each detail.

Alcohol may be served in a cash bar or open bar format. This is determined for each event and estimates for the bar charge need to be made if the agreement is for a fixed beverage cost per patron.

Race Tracks
Race tracks are large complexes with lots of space for guests to roam and many ways to offer food and beverage. Most tracks offer one or more formal dining areas with wait service. Buffets are offered in many tracks since customers are in a hurry to return to the action. Throughout the entire complex, numerous bars and food outlets serve a variety of menu items in a QSR type environment.

Each kiosk is tracked separately and forecasts are required for these stands. The person in charge of the stand prepares a sheet and accounts for the beginning inventory minus ending inventory with a cash projection and reasons for shortages.
Long range plans account for the projected losses due to theft and poor forecasts. Operators try to limit these losses.

The long range plans must account for marketing costs, leasehold improvements amortization, rents, mortgage expenses, equipment rentals, depreciation, fleet maintenance, etc. At the heart of each operation, the food and beverage team need to accurately forecast demand. This demand may take the form of special events, rooms occupied, nightly covers, hot dogs per stand times the stand count, REVPAR F&B component, contracts retained, etc. The secret to success in each highly specialized segment is knowing the marketplace. Customer knowledge, competitor intelligence, major events and the weather may have a major impact on the operation from year to year.

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