The benefits of looking outwards14 April 2011
Rebecca Burgess examines the advantages of outsourcing hotel components, including restaurants, spas and back-of-house.
From laundry services to high-profile deals with celebrity chefs, outsourcing has long offered hoteliers the promise of added value at a competitive price. But in the current economic climate, management teams are under increasing pressure to reduce costs, including assessing whether outsourced services should be brought back in-house.
To those who make a living in the field, such as ESPA chief executive Susan Harmsworth, the reasons are simple and persuasive; outsourcing not only provides a cheaper option for hotels but can also generate new income streams.
ESPA operates 150 spas in five-star hotels in 55 countries worldwide and Harmsworth has no doubts that employing external providers makes good economic sense.
"People are very budget-aware at the moment and are looking to cut costs," she says. "But we can prove that if we are on site then we can help businesses and make them more profitable."
She believes that despite the current climate, hoteliers will always return because in the long-run it is more profitable to outsource to experts in the field than take it on themselves.
"Spas are very expensive and time-consuming to build and run. They can tie up a lot of senior management time and are very labour and energy-intensive. There are a lot of hotels, especially groups, thinking they should do it in-house – they think it is a way of cutting costs but they always come back."
She says hotels find it difficult to replicate the full package of staff expertise in-house that ESPA offers in terms of trainers, designers, management, marketing and financial support. And then there is the extra trade that hotels might otherwise miss out on. Half the visitors to ESPA spas in city hotels are local residents, a potential revenue source that may not otherwise visit the hotel's facilities without that added draw to a facility or brand.
The list of hotels that ESPA provides services for is impressive, ranging from the Yas Hotel in Abu Dhabi to the Leela Palace Kempinski Udaipur in India, and Gleneagles in Scotland. However, Harmsworth says outsourcing must offer both parties an attractive deal.
"We offer a ready-made, fully rounded package, which is fully operational and profitable from the moment it opens its doors. The best financial formula is to work together and share costs – everything from staff, energy and laundry to marketing. We work as closely as we can with our partners and see ourselves as another department of the hotel. It has to be a close working relationship to succeed."
Providing the best experience
At the Dorchester, Roland Fasel, general manager and regional director, UK, also believes that outsourcing is not just about reducing costs but generating additional revenue streams. Chef Alain Ducasse opened at the Dorchester in November 2007 and the hotel has never looked back. Since then, China Tang, run by Sir David Tang, has also opened in the Dorchester and this summer CUT is due to open at 45 Park Lane with Wolfgang Puck at the helm. Fasel says the key benefits of buying in services are the opportunities to work with incredible talent and people with expertise in a target area.
"The Dorchester has always had a reputation for being a social destination and for its 'buzz' and the restaurants contribute to this atmosphere. We always look to offer guests the best possible experiences," says Fasel.
He also highlights how the restaurants draw in local trade and help generate crucial additional revenue.
"The success of our restaurants and bars has meant that people think of the Dorchester as a place to come for lunch, dinner, afternoon tea; whether resident in the hotel or not. The Dorchester enjoys a reputation not only as a wonderful place to stay but also as a dining destination in itself."
He stresses the need for a good working relationship with contractors and believes success is down to "absolute respect, trust and communication from the outset".
"The success of working with partners is to offer a seamless experience for guests. We are seeing a huge increase in London hotels outsourcing restaurants to big name chefs and restaurateurs and I believe this will only continue to increase."
The outsourcing partnership
Michiel Bakker, senior director food and beverage EAME for Starwood Hotels and Resorts, is also quick to point out that carefully constructed relationships are critical for success. With responsibility for supporting 30 F&B operating venues as well as the sourcing, contracts and guidance of F&B partners for an additional 30 venues under development, Bakker is a firm believer in the value of outsourcing. However, he warns it does not come with a guarantee.
"It is important to establish a strong relationship at the beginning but you cannot foresee everything from the outset and both sides have to be flexible. You have to work at creating a partnership that can overcome any problems you may encounter along the way."
In his view, the most successful outsourcing agreements are in luxury, city and multiple chain hotels, simply because contracting out services can be expensive and these hotels have the finances to support it.
Having said that, he admits there can be downsides.
"Hotels give up a bit of their own destiny, and viewpoints are not always aligned when another party is brought in. There is also the cost and duplication of services such as human resources – so not all partnerships work. It is also important to remember that a guest does not make a distinction between the hotel and the outsourcer; they just see it as a whole, so it must be a real partnership to make it a seamless experience for the guest."
Despite the potential pitfalls, Bakker has no doubts as to the strengths of successful partnerships, such as the introduction of renowned chef Jean-Georges Vongerichten, who was brought in by Starwood to boost profits.
"How branding is handled is of paramount importance and it is very important to decide who is in the strongest position to deal with it," he explains. "If another party has a better understanding of a marketplace area or a stronger brand than us, then it makes sense to use their expertise and branding."
Where once accommodation was the biggest source of revenue, Mr Bakker says it is now other facilities which are drawing in guests and income, and creating new revenue streams among residents in the vicinity.
It is now typical for 30% of a European hotel's revenue to be generated by services other than accommodation, and in the lucrative markets of Dubai and Abu Dhabi this figure rises to 50%. For Bakker, outsourcing is still a booming business and one he says more and more hotel operators are continuing to embrace as they weigh up its value.