In-room Dining: From Cost Centre to Revenue Generator

When the New York Hilton Midtown announced a few months ago that it would replace its room service with a self service option, it sent surprisingly large ripples through the industry. While some industry observers asked whether this was a watershed moment where a trend was set for an industry at large to rid itself of a service that is declining in popularity, the majority viewed this as an isolated test case.

I couldn’t agree more. The New York Hilton wasn’t the first hotel to give room service the flick and it won’t be the last. But it doesn’t mean room service as a whole is dead.

It’s an interesting and worthwhile discussion to have though, and I believe there are a few points that are worth considering in the room service debate.

Things outside the US are different…

…particularly in Asia. In the US in 2012, room service revenue represented 1.2 percent of total hotel revenue, down from 1.3 percent in 2011, according an industry survey done by PKF Hospitality Research in Atlanta. This seems to echo Hilton midtown’s reports that demand for the service has declined.

But then, if you look at the charges a hotel in US typically slaps onto the room-service bill it’s no wonder: a “delivery fee” or “room service” charge of $3 to US4, plus compulsory gratuity at 18% that is automatically added whether you appreciate the way your server puts down the tablet or not. Not to mention a room service tax of about 10%. Now even an ardent room service user like me would think twice about ordering when I look at these types of charges…

Fortunately for me, here in Asia things are a lot different. With many countries not imposing value added tax and a workforce that remains vastly cheaper than in the US (or in Europe for that matter, at least in northern Europe), room service comes at a lesser cost to a hotel than elsewhere, which is generally reflected in the cost of ordering food.

Not all hotels are equal

The well-stocked ABC Store
at the Hilton Hawaiian Village

Of course, not all hotels are equal in the room service debate.  Aside from long-stay type accommodation that provides reasonably equipped kitchenettes, another type of property where room service may not be needed is resorts, where the whole resort atmosphere is part of the holiday experience and you rarely see a lone business traveler. Big resorts like the sprawling Hilton Hawaiian Village for example have not only plenty of dining options within the resort’s premises, but also a large convenience store that stocks everything from booze to ready-made meals for take away. And you can book it to your room, too. This resort has phased out room service last year (before the Hilton Midtown) and I can’t say that I’ve missed it when I stayed there.

But what about business hotels (and I would imagine the Hilton Midtown ranks in this category)? Judging from my own experience as a frequent solo-business traveler, I would give a hotel without room service a wide berth. The most important thing for me while traveling for business is convenience and minimal disruption – after a long day of meetings I don’t want to trawl around for food. I want to sit in my room, catch up on emails and eat my room service meal at the same time.  Aside from that, as a female solo-traveler going for a lone meal is not always the most pleasant thing to do, particularly in a country you don’t know well or feel unsafe in.

From cost centre to revenue generator

The one key argument that I found largely absent from the debate is how to turn room service into a revenue generator. One thing’s for sure: the room service experience of yore, where the guest is bored by pages of unimaginatively written food options, won’t do it.

Capturing the imagination of the hungry hotel guest at the point where he/she decides between ordering food from the hotel or go next door and spend their dollars elsewhere requires something more engaging.

A picture tells a thousand stories...still

It’s the perfect type of service to reside as an interactive in-room dining menu on the room TV or tablet – it’s a cliché alright, but a photo still tells a thousand stories. 

Putting the dining menu on the in-room entertainment platform, featuring inviting photos and descriptions, or even a video, combined with a direct POS link to the kitchen and voila, it’s room service re-invented as a revenue generator, rather than cost centre. 

And let’s not forget that a hotel will retain 100% of the revenues generated through in-room dining, as opposed to just 25% of other payable services such as VOD movies.

Some of the hotels that have rolled out our interactive in-room dining feature have reported overall hit rates of 5% for room service (that is 5% of total occupancy), which may not sound that much at first glance. But if you compare it with other on-demand services such as movies, where hit rates hover just about 1%, the view changes somewhat. (More data to come here in the near future!)

Lowering the barrier for guests to communicate with the hotel

Another benefit of putting the in-room dining menu on the entertainment platform is ease of use. Specifically for those guests who do not speak the local language very well, putting this service on the entertainment platform allows them to choose their preferred language of interaction and seamlessly order their meals without having to pick up the phone and speak with someone who they may not understand very well. 

For in-room dining to be successful and not a loss leader, it has to conform to the same criteria as every other service offered in a hotel – it has to be easy to access and use and offer value for money. If that cannot be achieved - for whatever reason - it should probably be scrapped, but not before carefully looking at all options.

How Hotels can Replace Dwindling VoD Revenues

Using smart in-room technology to increase revPAR post VoD

I don’t think anyone would disagree with the statement that new technologies, when used creatively more often than not maximise revenue-generating opportunities for hotels. It’s a logical expectation and a simple premise, yet so seemingly hard to put into practice.

The first time hotels felt the pinch of diminished returns from technology investments was when the meteoric rise of mobile telephony dented IDD revenues in the 90’s. Fast forward to today and the new culprit – no surprises here – is the Internet and its wider ecosystem. Since the Internet started to morph from information to entertainment medium a few years ago, it has created a vortex that draws in and transforms almost anything associated with everyday life. Think about how consumer technology devices evolve and multiply with enormous speed while doubling processing power with each new release, making consumer preferences, such as interactivity, on demand and control, ever easier to fulfil. The content delivery world has responded to this pull by transforming itself towards an on demand, interactive and, most importantly, online delivery service.

How should hoteliers react to these developments? Some hotel managers I have spoken to have seen VoD returns falling so sharply that even switching off the entertainment system for a day or two to test its popularity resulted in zero complaints. That’s some hard evidence that cannot be ignored when it comes to deciding on future IT investments. However, these hoteliers have also been busy thinking about other services they could introduce in an effort to entice their guests to spend money while they are in their rooms to replace the VoD revenues of old.

There are a number of options hotels have to intelligently use technology to replace this erstwhile lucrative revenues stream. For hotels, competition drives the need to differentiate, so the key is to opt out of simply adding easily replicable technology gadgets that may add to guest experience but don’t actually contribute to revPAR. Technology is at the heart of a lot of value added, revPAR generating services but for them to succeed, aside from being relevant for a hotel’s specific clientele, they have to fulfil three essential conditions: they need to be convenient to access, easy to use and, from the hoteliers’ perspective, have to add to the bottom line.

Let me give you two examples. Firstly, room service. The usual in-room dining menu may be printed on high quality paper embossed with golden scripture, but what it doesn’t show, is a picture of what you will be served. Now you may argue that you don’t get a menu with images in a five star restaurant either but that misses the point entirely. When I go to a five star restaurant I have usually made up my mind that I want to eat there. I may have researched the menu online, and if I have any specific questions regarding the menu my waiter will hopefully be obliged to be of assistance. On the other hand, when I look at the food menu in my room I am far from having made up my mind of where to eat, particularly if I have a myriad of choices right outside my hotel. So in other words, giving guests a bland in-room dining menu is a missed opportunity.

I often tell the story of when I travelled to the Middle East for the first time and was confronted with an in-room dining menu that listed, among other items, Foul Medames. Now if you are new to the country and culture you probably neither know what it is nor would you be too enticed by the name of the dish. Even the printed English translation, “Stewed Broad Beans”, may not sway you. But if you have the chance to study an image, or even a video of the chef preparing it on your in-room entertainment system, you may get an idea of how delicious this specialty actually is and it may just convince you to place your order - even more so if you can order the dish directly via your TV screen without having to pick up the phone and deal with staff who may not speak your language very well.

The other revenue opportunity that is attracting the attention of hoteliers is using technology to provide a vehicle for in-room shopping. Shopping on the in-room entertainment system is an entertainment option that taps into travellers’ predisposition towards opportunity buying. Many hotels have a shopping annex or Duty Free emporium attached to their premises. This makes it comparatively easy to aggregate appropriate content for an in-room, on-screen shopping catalogue, combined with a simple fulfilment processes that would suit even the shortest of short stay travellers. The limitations of the remote control as a navigation tool can be overcome by turning either a hotel-provided, or the guest’s own tablet or smartphone into a touch-based selection tool. Having all transactions linked with the hotel’s PMS system enables timely delivery and convenient payment options upon check out.

There are many more examples of how this type of online interactivity adds to revPAR, from direct booking of hotel restaurants and facilities, to local maps where local businesses in the vicinity can advertise their trade. Provided hotels are using a capable IPTV system, the technology is certainly mature enough to so the key is for hoteliers to get creative and find the type of service that suits their hotel’s and their guests’ identity and requirements.     

The Problem with Predicting Future Technologies for Hotels

While science fiction movies routinely deliver the inspiration for technology innovation, it's what they don't predict that's really interesting

Being able to peek into what the future will bring has been at the forefront of human desire for as long as we have existed. It’s the basic foundation from religion (heaven and hell come to mind) through Nostradamus and right down to the more recent fascination with all things futuristic, that probably started when H.G. Wells published his novel “The Time Machine” in the dying days of the 19^th century. A few years back, the science fiction movie everyone loved to quote in our industry was Steven Spielberg’s Minority Report, released in 2002, which was a marketer’s dream for its depiction of a world in which advertising is so tailored, targeted and ubiquitous that it merges seamlessly into everyday life, to do its work of subtle (or not so subtle) persuasion. It seemed all so very plausible and within grasp then, not least because digital signage technology had just made an entrance into the advertising world in a major way.

Fast forward nearly 10 years and we haven’t really moved on that much. According to film lore, Spielberg consulted numerous scientists in the lead up to the film in an attempt to present a more plausible future world for the year 2054 than usually imagined in science fiction films and many articles have been written over the years about how many of the film’s imagined technologies have become reality. But let’s not get too carried away. Yes, companies have invented a lot of things that make an appearance in the movie, such as electronic paper, facial recognition advertising billboards and 3D televisions, and some were most probably even inspired by the movie to do so.

The thing is though, that precious few of these inventions have entered the main stream (3D TVs being the exception), not even facial recognition technology, which has been hailed as the holy grail by digital signage providers for years now. But then you can reasonably argue that with the movie set in 2054, we haven’t done so bad after all, given that we have another 40 odd years to make all the other technologies mainstream.

However, far more interesting than what science fiction movies from the Jetsons to Star Wars and yes, Minority Report, did predict, is what they did not predict: the Internet, for one. Or Facebook  Or Twitter, in fact the whole social networking phenomenon. These technology-driven trends have, and continue to shape our lives at almost every point like no other and yet every single look into the crystal ball has missed mentioning them.

So it was with some trepidation that I consumed the recent predictions of what the hotel room in the year 2030 will look like by Ian Paterson in the study “Travelodge Future of Sleep”.

There are a lot of technologies in there that sound great and believable, being connected in our own virtual reality through a visor or contact lenses and interactive video panels are two that instantly come to mind. This and other useful innovations I can actually imagine making my hotel stay more pleasant, but others seem more appropriate as home applications, rather than additions to the guest experience in a hotel. For example the “Dietary advice from night time monitoring”, which may be a great help when I’m at home and in my weekly routine, but the last thing I want when I wake up in a hotel room is a reminder of the banquet meal, pub crawl and karaoke marathon with my customer the night before. Not the least because it will probably require something a lot stronger than is on offer on the breakfast menu to get me back on my feet.

I am also slightly puzzled by the various home-upload features, particularly the 3D room re-skin home away from home upload, where lonely business travelers will be able to choose from a range of layouts including ‘virtual family’. The incredibly sad image this produces in my imagination aside, unless I suffer from pathological homesickness I think I’d rather not have that appearing on my hotel bill.

But then that’s just my preference and this is exactly the problem with trying to predict the future: technological ability and readiness does not equal ubiquity of adoption. The road to innovation is littered with plenty of brilliant ideas based on technological innovation that never got off the ground for one reason or another. What these failed innovations neglected to take into account is something that will be near impossible to quantify for generations to come, maybe forever: human behaviour, which is complex, irrational and variable.  As much as generations of marketers have tried to predict human behaviour through market research, the cold hard truth is that it cannot easily be squeezed into bell curve modeling.

Think about the phenomenal success of Groupon, which left the business world speechless for the simplicity of its premise, even though it is based on satisfying one of the most basic of human instincts: to get a good deal. So for my part, the next time someone asks me what I predict the next killer-app for a hotel to be, I think I opt for a good bed.