Hotel Economics

Hotels have four main departments to make profits, room revenues, food & beverages revenues, telephone revenues, and miscellaneous incomes. Room and food & beverage revenues are the main drivers for the profit, while the other revenues are minor drivers. In the hotel industry, room and F&B service is very important and crucial in order to make profits. Thus increasing the customers who stayed in the hotel is also important to increase their profits. TO determine profits, main size and performance measures are used to check and maximize the profit. Examples of this are occupancy rate, annual sleepers, GUR (number of sleepers per available bed) ARR (Average Room Rate), Revenues PAR (per available room), Revenues POR (Per Occupied Room).

The cost factor are divided by elements such as administration & general, marketing, repairs and maintenance, energy costs, etc. Also fixed charges include equipment, other rent/lease, real Estate and taxes, and various types of insurance.

Recently there are new factors to make the profit such as internet based booking and the new real estate financial structures. Internet based booking can reduce the costs of booking and also increase marketing for hotels. Therefore, the result is an increase in the overall hotel occupancy rate with no decrease in the Average Room Rate. The other factor is new real estate ownership, where the trend is changing that financial investors increasingly owned ownerships of the hotel real estate. They consider more for the financial cash flow and profits like stockholders than the characteristic of the industry’s professional manager. In fact they want a large profit by taking the risk of the long term investments.

In this hotel industry, supply and demand is increasing. For example, JW Marriott plans to build 40 hotels in India by 2013 and Ritz-Carlton President Simon Cooper gives insight into new hotels emerging in Asia and the Middle East. Also hotel, room prices in Europe from Trivago (a booking website), rooms are selling for increased rates, which means both the demand of the hotel room and the supply of the hotel room increases together - a good sign for a hotel industry.

http://www.gadling.com/2010/04/15/hotel-economics-more-hotel-groups-plan-global-expansion-at-the
http://www.articlesbase.com/management-articles/hotel-financial-control-how-to-improve-your-hotel-pl-structure-based-on-new-revenues-and-costs-816287.html

Economics Impacting the Casino Industry

Las Vegas has always had the reputation as being a vibrant and unique city. When people go to visit Las Vegas, they often leave saying, “What happens in Vegas, stays in Vegas,” for a reason. This phrase stems primarily from the gambling scene, when people spend lots of money hoping to leave rich. This is the foundation of the gambling business, and there are many factors that play into the economics of a successful Casino.

In a place like Las Vegas, where everything is expensive, the casinos are able to charge what they want to play games because they know that the casinos are one of the attractions for tourists to partake in. The casino’s have to upkeep their buildings and appear to be professional, so that people want to come back and develop new clients.

There are not very many costs that casino’s have to bear. They simply have to keep their casinos modern, and pay their employees. More significantly, however, they have to pay a certain amount of money to the government. Since casino’s do not “manufacture” goods, they do not have to bear that cost. Casinos work in many ways like an insurance company. The casino relies on the fact that most people will not win big money, so when someone does win, they can afford to pay them out. It is an industry based on odds. When there are enough people (supply) to pay money at the casinos, the more money they have to give out to people, and the better the reputation the casino has.

A poor economy, however, has the potential to impact the revenue casino’s make. When the economy is in the middle of a recession, people are less likely to gamble their money, because they are unsure about when they will be able to make the money back. According to an article from the New York Times called, “Lost in Las Vegas,” Las Vegas was impacted severely due to the economy. It said, “Then, about two and a half years ago, as you may recall, the entire American economy collapsed. And with it went Las Vegas: those mega-hotels, where millions of people gambled away money they didn’t have, were suddenly empty; so were the newly built, now foreclosed-upon McMansions. Today the city’s unemployment rate is 14.9 percent, possibly the highest in the nation. Las Vegas had been humbled.” When there aren’t enough people going to the casinos, they cant afford to give out that much money. It is an ongoing cycle; whenever the economy is doing well, the casinos do well.

Overall, the economics of the casino industry are much more complex that many other industries. The casino industry is a high risk, high reward industry for both the customers, and the employees of the casino. When a casino is doing poorly, the casino will most likely lay more employees off. Casinos have such a crucial part in making money for the state, so often times the government will help them out when times are bad, but the economics of the casino industry are very shaky as a whole.
http://travel.nytimes.com/2011/02/06/travel/06lasvegas.html?pagewanted=1&sq=hotels&st=cse&scp=7

The cost of opening a restaurant in USA

The material is about the cost of opening a restaurant in San Francisco, but it is also applied to other places in USA.

One huge part of the cost is renting the space and building out the restaurant itself. For the sake of simplicity, let’s use the number of $900 a square foot to build out your kitchen and dining room. For 2,500 square feet the build out will cost you $2,250,000. (Remember these are just theoretical numbers, for a high-end place.) For your space, take improvement and upgrades you intend to make and divide by the total square footage. Plus, your rent on a space in the city — maybe as much as $6 per square foot — on 2,500 square feet could be as much as $15,500 per month. Of course, If you want to buy a space instead of renting, it will be much more expensive.

Another big part of the cost is the liquor license. A full liquor license in San Francisco will cost you as much as $250,000. In other cities of USA, it is quite expensive too. Furthermore, you will need a contingency fund in case you run into some problems and delays throughout your investment.

What delays could there be:
• Certificate of occupancy on your restaurant from the City
• Construction delays
• Delay in approval of a liquor license
• Construction delays
• Health department sign off
• Fire department sign off

There are many other aspects in which you need to spend money when opening a restaurant:

• A restaurant designer
• A public relations firm
• A lawyer to put together your partnership and operating
agreements.
• Liquor and wine inventory
• Food inventory
• China glass and silverware
• Music system
• Two weeks of staff training before you open the doors

Operating a restaurant need the following costs:
1. direct cost : insurance, direct labor (salary and bonus of service stuffs), direct material ( food, liquor, napkin)

2. indirect cost (include overhead and period cost) : insurance, depreciation on the equipment, advertising fee, salary and bonus of stuffs and managers , utilities

The cost of opening and operating a restaurant has a close connection with the gross profit. So if the managers of restaurant can find some legal ways to low the cost, it will be a significant increase in profit even the revenue is stay the same.
http://insidescoopsf.sfgate.com/tjjacobberger/2011/01/21/the-cost-of-opening-a-restaurant/

UK FOOD AND DRINK COMPANIES TAKE MEASURES AGAINST INFLATION

Many food and drink companies in the United Kingdom have been raising prices by attempting to persuade customers to use more costly products in order to protect their profit margins from high inflation.

Mitchells & Butlers, a UK based restaurant and pub chain, was deemed “the best-placed pub operator to pass through price inflation of both food and whet sales”. According the the company's Chief Executive, Adam Fowle, steps taken in order to protect their margins include persuading customers to invest in higher quality products, as simple as investing in more expensive dishes.

As a result, the market predicts a small rise in Mitchells & Butlers net operating profit margin this year.

Similarly, Britvic, a leading UK soft drinks group, is following the trend at a slower pace, since it will have to wait until the second half of the year to pass on the costs of higher commodity prices. Britvic stated that “it expects to grow its earnings before profit, taxes, depreciation and amortization margin by 50 basis points a year over the medium term”.

Even though the U.K. Economy is in a fragile state, and is putting a significant amount of pressure on these food and drink companies, their profits are predicted to be rising at a slow yet steady pace.

http://online.wsj.com/article/BT-CO-20110127-705613.html