Mini-Bar, Maxi-Profits

One aspect of a hotel room that definitely merits more discussion from a profitability and customer satisfaction standpoint is the minibar. Truth be told, I seldom use the minibar when I travel.  I like to eat out and experience the city that I’m in, plus there’s the stigma of having to pay exorbitant fees for staple goods.  All said, the minibar is one aspect primed for reimagining, and to help kick start the call to action, I sat down with Sandeep Sharma, VP Account Management at Minibar Systems (www.minibar.ch), the pre-eminent supplier in this segment, to address the issue.

PKF’s 2011 annual Trends® in the Hotel Industry report examined minibar utilization. With 727 hotels (out of 6,500) reporting minibar revenue in 2010 and 2009, the results indicated:

  • In 2010, minibar revenue averaged $152 per available room, 60 cents per occupied room, or 0.24% of total hotel revenue.
  • In 2009, minibar revenue averaged $143 per available room, 61 cents per occupied room, or 0.23% of total hotel revenue.

Therefore, it appears that minibar revenue grew 6.3% as a source of revenue for the sample of hotels, but much was attributable to the increase in occupied rooms. For reference purposes, room service at these hotels averaged $775 per room in 2010, or 1.2% of total hotel revenue.
Sandeep, I noticed from the latest PKF data that minibars represent only a minor revenue source for hotels. Yet, I can’t remember a hotel that does not have a minibar.  What is your take on this data?

It is true that the average hotel guest at a full service, reputable hotel expects his/her guestroom to have a minibar.  From the hotel’s perspective, besides offering the convenience of a minibar to make the guest’s stay more pleasurable, there also is an opportunity to generate incremental revenue.  That is why minibars are found in most reputable hotels and hotel chains.

While it is also true that minibar revenue is a minor source of revenue (when compared to rooms, restaurants or banquets), those hotels that have our equipment averaged a Sales Per Occupied Room (SPOR) of $2.01 in 2009 and $2.41 in 2010.  This was largely a result of higher ADR and occupancy trends in the industry.  In our opinion, a hotel that is doing $0.60 SPOR really should not have minibars because at that revenue level, it is impossible to make a profit given the fixed and controllable expenses of a minibar department.
You mentioned that automatic bars were becoming an increasingly important business.  Can you explain the impact of this phenomena and where it is most prevalent.

One of the biggest expenses that a hotel has is labor.  With honor bars, labor expense (in high labor cost cities) can run as high as 80% of revenues.  Automation drastically reduces a hotel’s labor expense.  A minibar attendant can service 130 occupied rooms in a hotel that has honor bars.  That productivity goes up to 350 occupied rooms in a hotel that might use our SmartCube automated bar system.
I noticed a move towards minibars with automated accounting: remove a bottle and the guest gets computer charged.  What is the feedback from the hotels?  Have you seen a lot of complaints from guests?

A hotel that has a well-run minibar department will ensure that the daily routine includes the process of refunding to the guest account all such charges where the attendant identifies that the guest has not consumed the item.  Educating the guest about the new amenity is also critical in keeping guest complaints down.  This is done by the Front Desk on guest check-in as well as by having signage and collateral in guest rooms which provide information about the automated nature of the bars.

There are some growing pains when a hotel that has had honor bars switches to automated bars.  However, if properly managed, automation actually has the ability to cut down on minibar related guest complaints for the following reasons:

  • You are not disturbing those guests who have not moved anything in the minibar.  Compare this to honor bars where you have to knock on every occupied room.
  • Billing takes place in real time, so the chances of a guest being billed in error are minimized.
  • Because all activity in the bar is stamped with a date and time and saved on our SmartCube S3 Software, it acts as a deterrent against employee theft from the minibars.

With a trend towards healthier products, how have you guided your hotels in planning their product selection?

Our studies indicate that the trend towards healthy options in the general marketplace does not transfer over to minibars.  With the exception of Spring Water and Orange Juice, ‘healthy’ items perform poorly in minibars.  While we advise that hotels have one healthy item (such as a granola bar) offered in the minibar, for a hotel where profit is the main objective, our advise is against loading the minibar with ‘healthy’ items.  The 10 top selling and most profitable items sold in minibars have mostly remained unchanged over the years.

Despite the reasons given above, we always engineer menus based on the hotel type and guest demographic.  For instance, if a hotel is a spa resort, we will engineer a menu that focuses on that particular theme.
What can a hotel do to maximize return on their mini-bar capital investment?

This is a very interesting question and one that hotels often struggle with.  A majority of the hotels do not treat their minibar department as a profit center and never provide the focus and attention it needs.  As a result, they have unprofitable minibar departments.  The key to success consists of three simple steps:

  • Procure equipment from a well established and reputable company such as Minibar Systems.
  • Ensure that the company just does not install the minibars and disappear.  It is critical that the company provides technical and operational support for the minibars as well as the point of sale system that it installs.
  • If the hotel does not want to dedicate the time and resources needed to manage the operation then partner with a company, such as Minibar Systems, who have an established track record of providing minibar consulting and management services to the hotel industry.

What is the funniest or most unusual minibar story that you can tell us?

This story comes from Garrett Warren, our Senior Account Manager and minibar expert-at-large.

A guest was checking out of her hotel room and had been automatically charged for all of the minibar items in the external snack basket.  When the guest realized she had already been billed, she said she had all of the items in her suitcase and opened it up to retrieve the items.   As she pulled out all of the snacks, she also pulled out guest towels, hair dryer and hotel room iron.  When the Front Desk Agent asked if she wanted to return these items as well, the guest replied, “No, why should I return them if I haven’t been billed for them?”  The Front Desk Agent fell over laughing.
What is the future of minibar systems?  Do you see expansion within the accommodation marketplace?  What are the latest trends in minibar management and marketing?

While the viability of the minibar concept is often debated, the fact is that guests of upscale hotels expect minibars in their rooms.  They like the fact that some of their favorite beverages and snacks are available at an arm’s reach in their guest room and they can get what they want immediately without having to call or talk to someone.

With the advent of new technology, the way minibars work will continue to change.  For instance, Minibar Systems now offers a communication platform called PowerPlus that enables our SmartCube Minibars to work over the hotel’s electrical infrastructure.  Hotels no longer have to spend on costly wiring and cabling infrastructure to have an automated minibar in their guest rooms.

The latest trend is for hotels to outsource the operation of individual departments to companies that have the expertise, and this is happening with minibars as well.  The fact is that the F&B Director at a hotel has too many things going on and really does not have the time to focus on an operation that contributes limited revenue to his division.  That is where Minibar Systems steps in and takes over the operation and ensures that the right focus and direction is provided to ensure the minibar department is profitable.  We give our customers different options that they can choose from depending on how much they want to be involved.

Some properties retain us to provide them with consulting services for their minibar department.  We assign one of our experienced Regional Account Managers to the hotel who makes periodic onsite visits to audit the operation and make specific recommendations targeted to improve revenues and reduce expenses.  Some hotels enter into revenue sharing agreements with us wherein they have no capital costs.  We provide the hotel with the equipment as well as technical and operational support and recover our costs by sharing the revenues generated by the minibar department.  Some hotels do a full ‘outsource’ of their minibar department to us, wherein we provide the equipment, the product that is sold in the minibars and an onsite manager to operate the hotel’s minibar department.

(Article published in eHotelier on January 11, 2011)

Larry MogelonskyMini-Bar, Maxi-Profits