Leasing Out Part of a Business Operation

An article for the Victorian AHA
May, 2008

I’ve often been asked as to whether leasing out part of a business, in particular a hotel bistro, is a good and feasible business idea and the answer I’ve usually given is one of those ‘yes’ and ‘no’ responses. In other words it can work well but I have also seen situations where neither party is happy and the blame game and the sniping are next!

In truth, I have never been in favour of the concept of leasing out (read ‘losing out’) any part of a business, kitchen or otherwise, simply due to the ensuing loss of business control. Business to a large degree is about controlling the variables (look at hard working and capable farmers who fail due to weather conditions outside their control) and leasing out part of a business can mean that someone else’s business decisions that may be implemented could conceivably impact your business – eg menu changes, poor bistro staff training, wrong marketplace positioning.

With many of my client hotels, particularly when working on marketing issues, the very first strategy we put into place is ‘cross-selling’, those actions taken by all staff to sell or influence customers to use other parts of the Hotel. It works very well when staff are cross-trained and are therefore familiar with all aspects of the business and it fails when staff, firmly entrenched in their ‘department’, have little or no interest in what happens in other areas of the Hotel. Consider the kitchen leasing issue again and it is easy to see that cross selling is unlikely to be seen as important by bistro/kitchen staff.

A second dangerous aspect is staff standards and therefore discipline – what control does the Hotel management have over bistro staff? Are customer complaints followed up? Whose responsibility are the OHS issues? These can all be handled in a contract or agreement, I hear you saying! That is true to a certain extent but in my experience lines of communication are blurred, cross selling does not occur and ‘our’ staff very quickly see ‘their’ staff as we would a totally separate business.

Lets come back to why we might want to lease the bistro/food service areas out in the first place:

“It’s not my area of expertise”. Why not make it so – you’ve done it with gaming with gusto!
“You can’t make money out of food”. So, why would someone want to lease it?
“I’ve got enough on my plate”. True, but in a well run business we are usually looking for extra revenue streams, not reducing them.
“I know a bloke who’s great with food”. Fantastic, what happens when he wants to move on – to which part of the business does the goodwill attach? Hotel or food operative?

As food has become, in many Hotels, a vital and growing revenue source, we perhaps can’t afford to treat food simply as a ‘loss leader’ department, letting bistro patrons in simply to generate drinks/gaming/wagering revenue. We as an industry have been able to get food margins up (food costs down), its now more an issue of labour cost control.

I’m no doubt sounding negative towards the idea and its fair to say I’ve advised more clients to think about running the food side of things themselves when they have been considering the leasing option, however I’m not dead set against leasing point blank, hence the ‘yes’ and ‘no’ response I talked about previously. A short term leasing arrangement when one is entering a business to reduce complexity or when one is attempting to alter marketplace position may well be feasible times to undertake a lease agreement.

I must say, however that too often a leased out kitchen generates little or no revenue for the Hotel but still incurs costs (often not included in any agreement). I’m suggesting those costs may be greater than you think.

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