Rising hotel rates and higher menu prices both reflect a slightly more optimistic outlook than originally predicted for the hospitality industry in 2011. New and revised forecasts by industry experts, released in January, suggest a better year for hotels and restaurants.
New reports from the Americas Lodging Investment Summit held in January in San Diego indicate that average daily hotel rates will increase by more than 4 percent in 2011. According to Smith Travel Research, average daily rates for the U. S. hotel industry were $98.08 at the end of 2010, compared with $97.51 in 2009. For 2011, the firm forecasts a 4.2 percent increase in daily rates. Another firm, Colliers PKF Hospitality Research is more optimistic, predicting a 4.6 percent increase.
Industry leaders at the summit indicate strength in pricing, like the economy, is moving in the right direction. Jan Freitag of Smith Travel Research reported that the growth will be nominal this year, but not to expect anything significant until 2013. However, it will be the first time since 2008 that some hotels will raise rates.
Arne Sorenson, president and chief operating officer of Bethesda-based Marriott, told summit attendees that one of the advantages the lodging industry will have in 2011 is the repricing of corporate business rates secured by meeting planners, which were deeply discounted during the recession. Rates are incrementally increasing because of rising demand by business travelers and the limited new supply of rooms because of the reduced construction environment, which could continue for a few more years if financing rates increase.
The average U.S. hotel occupancy rate, however, remains just less than 60 percent.
Restaurant Outlook
Forecasts for the food service industry are trending upwards for 2011 as new macroeconomic data and increased food and beverage sales in the fourth quarter are reported.
Market research firm Technomic Inc. revised its 2011 forecast by a 0.7 percentage point increase in expected sales for food and beverage, including alcohol. In 2011, the restaurant industry is expected to post nominal sales growth of 2.3 percent. When menu price inflation is factored in, real growth for restaurants is expected to decrease 0.2 percent. This is a positive tweak from Technomic’s original forecast, which predicted a 1.6 percent growth for the restaurant industry and a decrease of 0.4 percent on a real basis.
Rising commodity prices will likely lead restaurants to increase their menu prices in 2011. Technomic changed its projected menu price inflation for 2011 from 2 percent in September to 2.5 percent in January. Also, the Bureau of Labor Statistics’ Producer Price Index for All Food increased nearly five percent in 2010 and is expected to remain elevated in 2011.
The U.S. Department of Agriculture (USDA) announced short-term projections for changes in primary market prices for various commodities, including:
Commodity 2009 2010 2011
Beef -10% 14% 1 to 9%
Pork -14% 33% -3 to 4%
Broilers -3% 7% -3 to 6%
Turkeys -9% 14% -4 to 4%
Eggs -20% 3% -2 to -8%
Milk -30% 27% -2 to 2%
Cheddar -32% 17% 1 to 6%
Butter -16% 41% -6 to -13%
Source: U.S. Department of Agriculture, December 2010 projections
According to the National Restaurant Association’s Chief Economist Bruce Grindy, restaurant operators should see a markedly improved business environment in 2011 as jobs and income grow at their fastest rates in five years. However, consumers are still holding tight to their discretionary spending according to research firm Mintel. New survey findings show that in 2011, 24 percent of respondents plan to spend less, ten percent plan to spend more, and 54 percent will maintain their 2010 restaurant spending levels.
“Even with the economy on the mend, consumers are still very cautious about increasing their restaurant spending,” said Eric Giandelone, director of foodservice research at Mintel. “The restaurant industry grew 2.1% to reach $403.5 billion last year, but if restaurant-goers reduce how much they spend when they eat out, or only spend as much as they did last year, restaurants could have a slow recovery ahead of them.”
Cindy Vizza is NCA’s Director of Communications and Editor of Club Director.