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Food Beverage Minimums

Understanding Food & Beverage Minimums in Hotel Contracts

In this video, you’ll learn why food and beverage can be important for groups to focus on for receiving the benefits of concessions, discounts, and function space. Understand how hotels account for F&B revenue differently than room revenue and much more!

Overview

The way most food and beverage provisions work is that if you don’t meet your minimum, you pay the difference between the minimum and the amount that you actually spent.

Group Perspective

  • Food and beverage are an essential component of any meeting and event, and it’s a particularly important component both to the groups and to the hotel. It’s also one of consternation as hotels will often require a certain food and beverage minimum amount that the group needs to spend to get benefits of concessions and rate discounts as well as function space.
  • Groups also need to understand that when that dollar amount is stated. It doesn’t include taxes, gratuities, service charges. So, it’s important to make sure you’re understanding that number and you’re comfortable with it.

Tip: You often hear people say plus-plus or they’ll use those terms in the contract and that’s not a good idea. Always remember in any contract provision, you want it to be written so that a third party who knows nothing about your arrangements or your business, knows what that means. And a judge or a jury doesn’t know that plus-plus usually means taxes, service charges, and gratuities. It’s usually taxes, service charges, and gratuities. So, spell that out or at least define it the first time you use it so that that’s clear in the contract what your obligation is going to be.

  • If your organization has sponsors or affiliates that do functions at your meeting, you’d like to capture that revenue toward your total which needs to be included in the provision. Sometimes referred to as “in conjunction with” or as “ICW revenue”.

Hotel Perspective

  • When discussing the food and beverage minimum Using “In Conjunction With” depends on how that “In Conjunction With” event occurs. If the event is sponsored by a sponsor and it’s held in the group’s meeting space, then yes, you should get credit for that. But if another group comes to the hotel in conjunction with your event and they enter their own catering contract for their own space in the hotel, they’re going to have their own minimums. So, they aren’t going to be counted towards the main group’s food and beverage commitment because it’s a separate contractual agreement.
  • When it comes to hotels and budgets and line items the food and beverage service and the catering banquet revenue is a different line item in the hotel’s budgets and profit and loss. So, they’re going to treat the food and beverage commitment separately from the room revenue commitment.
  • When hotels are evaluating your business, they are looking not just at that room revenue but also the food and beverage revenue. If you’re only willing to commit to $100,000 in food and beverage, you’re going to get different guest room rates and concessions than if you’re willing to commit to a $200,000 food and beverage minimum.

Tip: The important thing to keep in mind is it should never be a situation where you’re ending up paying damages for not meeting your food and beverage goal. Meaning, you should work with a hotel as you’re in the final planning stages for your event and say, ‘Based on our menus based on our guarantees are we going to hit our minimum?’ And if it’s not going to hit your minimum, then change your menus. Go from chicken to lobster. You might as well get the benefit rather than simply paying cash to the hotel. The hotel would rather serve you that food than collect that cash.

  • Another thing that often comes up is that groups will ask for a discount on food and beverage and the hotel may or may not agree to that. But you need to clarify whether that discount in some way reduces that minimum, usually it doesn’t. So, it allows you to enhance your menus rather than having a lower minimum spend.
  • Most of the time the hotel is going to say that your service charge and gratuity are going to be based on the regular retail prices rather than the discounted prices. And that’s fair and reasonable. Because those servers that are working on the event didn’t agree to a discount on their pay. So, usually, the price is based on the retail amount.

Tip: If the group does go for a food and beverage discount and the hotel is willing to offer it, make sure you’re benchmarking your prices. If your contract isn’t for two or three more years and you’re going to get a 15% discount on food and beverage prices for those years, and you don’t know what the current year’s prices are, you’re agreeing to a discount on an amount that you don’t even know.