Rising food and drink costs dent UK chain hotels

30th Jun 2008

The rising cost of food and beverages is starting to eat into the margins of UK chain hotels, according to the latest reports from TRI Hospitality Consulting.Average daily income before fixed charges (IBFC) - or gross operating profit - fell by 1.5% from May07 to £46.27 per available room. This was despite no year-on-year change in occupancy, which remained at 76.7%.

TRI said the drop in profit was the result of relatively weak growth in average daily room rates of 2.3% to £89.73, which consequently meant revenue per available room (revPAR) was also up just 2.3% at £68.84.

However it also said, on average, room sales account for less than two-thirds of the total sales of a UK full-service hotel. Due to the increasing cost of sales of food, beverages and other non-rooms departments, total sales growth of 1.8% in May was ‘even lower’ than room sales growth.

Jonathan Langston, TRI managing director, said: “Although increasing, neither room nor total sales growth is keeping pace with the rate of inflation. Hoteliers are also struggling with rising costs and flat or stagnating occupancy, so the pressure on profitability is inevitable.”

Inflation, as measured by the Consumer Prices Index, increased from 3% in April to 3.3% in May as a result of the rising price of meat, vegetables and non-alcoholic drinks.


London hotels outperformed the national average, seeing IBFC per available room improve by 2% to £65.95. Occupancy was up 1.4 percentage points at 82.9%, while rates rose 3.7% to £117.95, which resulted in a 5.4% lift in May revPAR to £97.82.

“Demand for branded full-service accommodation in London remained extremely strong in May,” Langston said.

“Hoteliers were therefore still able to increase achieved average room rates, but the more competitive environment that now exists is reflected in how growth has moderated compared with previous years.”


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