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Class Notes for Introduction to Hospitality, 7th Edition

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    Online Instructor’s Manual to accompany Introduction to Hospitality, 7e Introduction to Hospitality Management, 5e John R. Walker

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    Table of Contents PART I: THE HOSPITALITY INDUSTRY AND TOURISM 1. Welcome to the Hospitality Industry 1 2. Tourism 13 PART II: LODGING 3. The Hotel Business 28 4. Rooms Division Operations 43 5. Food and Beverage Operations 54 PART III: RESTAURANTS, MANAGER SERVICES AND BEVERAGES 6. Restaurant Business 70 7. Restaurant Operations 82 8. Managed Services 98 9. Beverages 110 PART IV: RECREATION, THEME PARKS, CLUBS AND GAMING ENTERTAINMENT 10. Recreation, Theme Parks and Clubs 129 11. Gaming Entertainment 147 PART V: ASSEMBLIES AND EVENT MANAGEMENT 12. Meetings, Conventions, Expositions 161 13. Special Events 178 PART VI: MANAGERIAL AREAS OF THE HOSPITALITY INDUSTRY 14. Leadership and Management 190 15. Planning 198 16. Organizing 209 17. Communicating and Decision-Making 218 18. Control 231

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    Chapter One Introducing Hospitality I. Chapter Objectives After reading and studying this chapter, you should be able to: 1. Discuss the history of hospitality through the ages 2. Describe the characteristics of the hospitality industry. 3. Explain corporate philosophy and Total Quality Management 4. Discuss the many facets of service and why it has become such an important part of the hospitality industry. 5. Suggest ways to improve service. 6. Discuss current trends in the hospitality industry II. Key Teaching Elements/Chapter Outline/Lecture Suggestions Page Object. Prelude A short introduction to the hospitality industry 4 1 Hospitality Through the Ages The word hospitality comes from hospice, an old French term meaning “to provide care/shelter for travelers.” Hospice de Beaune in Burgundy, France was established as a refuge for the poor in 1443 and still exists today. The sale of wine from its estates every November determines the prices for the next year’s Burgundy wines. 4 1 Ancient Times The Sumerians (what is now Iraq) were the first to record elements of hospitality as they provided locals and travelers taverns where they served beer, food, and provided a place to stay. Between 4,000 and 2,000 B.C.E., early civilizations in Europe, China, Egypt, and India all had some elements of hospitality offerings, such as taverns and inns along the roadside. 4 1 Greece and Rome The Code of Hammurabi (circa 1700 B.C.E) made mention of tavern owners responsibilities. Increased travel made some form of overnight accommodations necessary and taverns and inns sprang up everywhere. By the time Marco Polo traveled to the Far East, there were 10,000 inns with the best in China. 5 1

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    Medieval Times Charlemagne established rest houses for pilgrims in the eighth century and innkeepers in Florence, Italy formed a successful guild in 1282 that had 86 members by 1290. A stagecoach journey from London to Bath took three days with several stopovers at inns or taverns called ‘post houses.’ In the late sixteenth century, a type of tavern for commoners called an ‘ordinary’ were serving food for a fixed price. The food was ‘ordinary’ and there was no choice in the meal plan. 5 1 Coffee Houses Coffee and tea became popular in the 16 th century and coffeehouses became a way of life. With water being dangerous, these flavored drinks became popular very quickly. 6 1 The New World The “ordinary’ as taverns were called in the early days of the American colonies, were gathering places for residents, hold meetings, and conduct business. The tavern was an important part of the new world. George Washington used the Frauncis Tavern as his Revolutionary War headquarters and it still operates today. Even future presidents own ed and operated taverns as the new colonies were being established. The French Revolution 7 1 The French revolution changed the course of culinary history as it was nobility that employed most of the country’s chefs. With the elimination (literally) of t he noble class, French chefs began the immigration to other countries and especially to the Americas. Thomas Jefferson installed a French chef in the White House, which influenced interest in French cooking in the new colonies. Many of the immigrant chef s found New Orleans and changed the culinary direction of the region with their style of cooking. 7 1 The Nineteenth Century In 1856, Antoine Car ê me published La Cuisine Classique detailing numerous dishes and sauces. This led to the re - invention of the restaurant and its classic fare. By 1848, a hierarchy of eating places existed in New York City. There was a restaurant , level of service and price for everyone. 8 1 The Twentieth Century Several restaurant chains began in the 1900’s, including the classic White Castle with its sparse décor yet popular menu. In 1959 the Four Seasons opened as the first elegant American restaurant that was not 9 1

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    French in style. Following World War II, America took to the road and expanded rapidly with hotels, motels, fast food, and coffee shops. With the expansion of air transportation, hotels and restaurants sprang up to meet the needs of the expanding nation. In the 1980’s, hospitality, trave l, and tourism continued to increase dramatically. The baby boomers began to exert influence through their buying power. Distant exotic destinations and resorts became more accessible. The Twenty - First Century The hospitality industry continues to mature with increased market segmentation and consolidation. More people are traveling, especially from and to China, Brazil, and India. The recession slowed the industry, but as we emerge from it occupancies are up along with revenue per available room. Now companies are driving the margins to squeeze out a reasonable profit. 1 0 1 Welcome to You, the Future Hospitality Industry Leaders! The hospitality industry is one of the most fascinating, fun, and stimulating to work in, plus you get paid quite well and have excellent advancement opportunities. The hospitality industry is one where it does not take long before advancement o pportunities come along. A degree plus experience enables almost anyone with the service spirit to enjoy success. One of the reasons that Marriott International is so successful is given by Jim Collins writing in the forward of Bill Marriott’s book The S pirit to Serve: Marriott’s Way . He writes that Marriott has timeless core values and enduring purpose…including the belief that people are number one…”take care of Marriott people and they will take care of the guests.” People with a service spirit are hap py to do something extra to make the guest’s experience memorable. As one human resource director says, “Creating memorable experiences for others and being an Ambassador of the world, adding warmth and caring.” 10 1, 2 The National Restaurant Association (NRA) forecasts a need for thousands of supervisors and managers in the hospitality and tourism industry. 1 3 1 , 2

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    The Pineapple Tradition The pineapple is a symbol of welcome, friendship, and hospitality. Imported from the West Indies, pineapples were often served to royal families and the elite. 1 4 1 , 2 The Interrelated Nature of Hospitality and Tourism The hospitality and tourism industry is the largest and fastest growing industry in the world. An exciting aspect is that the industry comprises so many different professions. 1 4 1 ,2,6 Common dynamics in this diverse industry include the delivery of services and products and the customer - guest impressions of them. 1 4 1 , 2 Whether in direct contact with a guest (front of the house) or working behind the scenes (back of the house), the most challenging aspect of working in the industry is creating powerful impressions that have the ability to affect the human experience. 1 4 1 , 2 People who provide services to travelers have the responsibility of representing their communities, creating memorable experiences, and meeting the needs and wants of people away from home. 1 5 1 , 2 Restaurants fill the biological need to eat as well as the need to socialize and to be entertained. 16 1 , 2 In managed services, foodservices are provided to institutional clients, meeting the needs of the guests as well as the client itself. Studies show that as many as 57 percent of consumers now use the Internet to book their travel, a percentage that vastly changes the landscape of the hospitality industry. In fact, technology could be the thin line between a successful business and bankruptcy for many organizations. Restaurants use more than 30 different technology applications to provide faster, more cost efficient and productive business operations for guests and staff. Many studies already showed that high-speed Internet is one of the most important in-room amenities that enable guest satisfaction in a hotel. 17 1 , 2 Characteristics of the Hospitality Industry Open 365 days a year, twenty - four hours a day, the hospitality industry tends to work longer hours than most other industries. Those in senior positions can expect to work 10 - 12 hours a day regardless of the time 19 2

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    or day. Due to t he industry running twenty - four hours a day, it relies heavily on shift work. Essentially there are four shifts including 11 p.m. to 7:30 a.m., known as the graveyard shift. 19 2 Hospitality industries are in the business of providing guest satisfaction at a price. The difficulty here is that the product is intangible ; that is, the consumption and production occur at the same time making them inseparable . This helps explain why the product is also perishable; that is, a room or meal not sold tonight cannot be saved and sold tomorrow. 19 2 The other unique characteristic of this industry is the perishability of our product. For example, we have 1,400 guest rooms in inventory that are available to sell, but we only sell 1,200 rooms. What happens with the 200 unsold guest rooms? Nothing! We have permanently lost the revenue from these rooms. One other unique characteristic of the hospitality industry to consider is the variability inherent within those that produce and consume. For instance, on the production side of the equation, each employee has different levels of skill, knowledge, ability, and passion for what they do and therefore we often see variability in the quality of work. And the same holds true for the guest! In the hospitality industry, we are in business to make a return on investment for owners and/or shareholders and society. People invest money for us to run a business, and they expect a fair return on their investment. 19 2 Careers There are hundreds of career options for you to consider, and it’s fine if you are not yet sure which one is for you. The text will explore careers in lodging, foodservice, recreation, and special events to name a few. 2 0 2 Hospitality Industry Philosophy We have seen a change in current corporate philosophy. It used to be that corporate philosophy focused on the manager’s ability to plan, organize, implement, and measure performance. Today there is a more stringent shift toward managers’ counseling associa tes, giving them resources, and helping them to develop and think for themselves. This shift has proven effective in that it promotes empowerment, and strong ties to Total Quality Management (TQM). Major changes include increased corporate ethics, morals, fairness, and equality. 23 2 , 3

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    Service Philosophy Is a Way of Life “Spirit to serve” comes from deep -rooted values. Service should be a commitment to continuous improvement and overcoming adversity . Our culture influences the way we treat associates, guests, and the community, and that affects the success of everyone. Sustainable Hospitality 24 2, 3 The concept of sustainability involves “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” Sustainability is the ability to achieve ongoing economic prosperity while protecting the natural resources of the planet and maintaining an ideal quality of life for its people and future generations. 24 2, 3 ,6 Success in Service To achieve success, exceptional service is required . The satisfaction of external customers ultimately measures a company’s success since they are the people who are willing to pay for its services. To ensure success, one must also ensure guest loyalty. 25 2, 4 Given that approximately 70 percent of the U.S. and Canadian economies and an increasing percentage of other coun tries’ are engaged in service industries , it is critical to offer guests exceptional service . 25 2, 4 This is the age of service , and the hospitality industry is getting revamped becau se guest expectations have increased and the realization is that “ we buy loyalty with service .” A guest is anyone who receives or benefits from the output of someone’s work. 25 2, 4 For success in service, it is necessary to focus on the guest, understand the role of the guest - contact employee, weave a service culture, promote high - touch instead of high - tech, and thrive on change. Guest loyalty is the key. 25 2,3,4 Moments of Truth Every hospitality organization encounters hundreds of moments of truth (guest encounters) every day. Service commitment is a total organizational approach that makes quality of service as perceived by the customer. 28 3, 4, 5

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    The Focus on Service Giving great service is a very difficult task; few businesses give enough priority to training associates in how to provide service. The Educational Foundation of the National Restaurant Association (NRA) developed programs to enhance hospitality students’ professional development. One of their courses is Foodservice Leadership. Guest service is a central focus of hospitality. It is what hospitality is all about — what we do. Our job, first and foremost, is to enhance the lives of those people (guests, passengers, etc.) to whom we are dedicated to serve. Our job is to make the lives of others better in a small way or big way; it makes no difference. Quality guest service requires that we understand our guest’s needs. The guest needs to feel welcome, comfort able, and they need to feel important. Service and Total Quality Management 29 3 , 4, 5 In the area of service, TQM is a participatory process that empowers all levels of employees to work in groups to establish guest service expectations and determine the best way to meet or exceed those expectations. TQM works best when managers are also good leaders. The difference between TQM and quality control (QC) is that QC focuses on error detection, while TQM focuses on error prevention. 29 2, 3, 4 The Disney Approach to Guest Service The Disney mission statement is “We create happiness.” Disney’s commitment to service means they understand their product and the meaning of the brand, they look at the business from the guests’ perspective, and t hey consider it their responsibility to create an exceptional experience for each guest. New managers are provided technical training, guests are asked to take surveys, and encouraging cast members to be innovative in their daily approach are all models u sed by Disney to provide guest ser v ices above and beyond what is expected. 34 1, 3, 4 , 5 Career Paths The career path of most individuals is not necessarily in a straight line. The path is often a combination of paths such as food and beverage, rooms di vision, marketing, human resources, or finance and accounting. Progression from department to department earns you the experience necessary for the next step. 38 2 , 6

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    Career Goals If you are not sure of which career path to pursue, that’s OK. Now is the time to explore the industry to gain the information you need to decide which career path to follow. A great way to do this is through internships and work experience. 39 2 , 6 Is the Hospitality Industry for You? We also know that it is an exciting and dynamic industry with growth potential, especially when the economy is strong. In the hospitality industry we are often working when others are at leisure. Ensuring that guests receive outstanding service is a goal of hospitality corporations. The personal characteristics, qualities, skills, and abilities you’ll need are honesty, hard work, being a team player, being prepared to work long hours spread over various shifts, the ability to cope with stress, good decision-making skills, good communication skills, being dedicated to exceptional service, and having a passion and desire to exceed guest expectations. Recruiters look for service - oriented people, who “walk their talk,” meaning they do what they say they’re going to do. Good work experience, involvement in on-campus and professional organizations, a positive attitude, a good grade point average — all show a commitment to an individual’s studies. 39 2 Self - Assessment and P ersonal Philosophy The purpose of completing a self-assessment is to measure our current strengths and weaknesses and to determine what we need to improve on if we are going to reach our goals. Self-assessment helps establish where we are now and shows us the links to where we want to go, our goals. Your philosophy is your beliefs and the way you treat others and your work. It will determine who you are and what you stand for. 40 4, 5 Now is the Time to Get Involved For your own enjoyment and personal growth and development, it is very important to get involved with on-campus and professional hospitality and tourism organizations and participate in the organization of events. Recruiters notice the difference between students who have become involved with various organizations and students who have not, and they take that into consideration when assessing candidates for positions with companies. 40 4, 5

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    Professional Organizations Becoming a student member in hospitality related organizations show your commitment to your career and become a basis for recruiters to see your professional attitude. 41 4, 5 , 6 Trends in Hospitality and Tourism Major trends in the hospitality industry include Globalization, Health, Safety and Security, Diversity and changing Demographics , Service, Technology, Sustainability and Green Travel, Legal issues, Travel with a Purpose, and Social Med ia and Mobile. 41 2 , 6 III. Teaching Techniques/Classroom Exercises Note: The content of these exercises is such that they may also be used as essay questions. Exercise One: Have students describe the Hospitality Industry. Their descriptions should include industry characteristics and scope, including travel, lodging, foodservice, and recreation. Exercise Two: Have students research and discuss the corporate philosophy of a company of their choice, preferably one in the hospitality industry. Be sure to include things such as corporate culture, missions, goals, objectives, and strategies. Exercise Three: Over the past several years, there have been numerous mergers and acquisitions throughout the hospitality industry. An appreciation of “who owns what” and the company growth pattern can help readers understand how integrated the industry is. Check Your Knowledge, p. 20 1) Question: Identify and explain two differences between the hospitality business and other business sectors. Answer: Hospitality businesses are open 365 days a year and 24 hours a day. The hospitality industry depends heavily on shift work. (p. 19) Other characteristics are the constant strive for outstanding guest service, the intangibility, and the perishability of the product. 2) Question : List and describe the four shifts in the hospitality industry. Answer: Morning Shift: 7 a.m. – 3 p.m. This is the early shift and may begin an hour or so earlier or later but typically runs 8 hours. Mid Shift: 10 a.m. – 7:00 p.m. Great for experience and is typically covered by those who need minimum supervision such as supervisors. This shift requires

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    coordination with morning shift and evening shift. Evening Shift: 3 p.m. – 11:30 p.m. Particularly common with hotels and food and beverage employees. Graveyard Shift: 11 p.m. – 7:30 a.m. Commonly known as the night audit, this shift often involves several accounting functions that are best done during slower business times and operations. (page 19) 3) Question: Identify some of the highlighted characteristics of the hospitality industry. Answer: The hospitality business produces guest satisfaction, an intangible, and its product is perishable. (page 19) Check Your Knowledge, p. 24 1) Question: Describe Marriott’s “Spirit to Serve” Answer: It is the “Marriott Way” serving the associates, the customer, and the community. These are the cornerstone for all Marriott associates who strive to fulfill the values that originate from deep inside the people themselves; they are authentic, bone-deep, and passionately held. These values drive Marriot culture. (page 24) 2) Question: Define the term corporate philosophy and how it is currently understood, especially in the hospitality industry. Answer: Corporate philosophy embraces the values of the organization, including ethics, morals, fairness, and equality. (page 23 ) 3) Question: What is sustainability, and how does it relate to the hospitality industry? Answer: Sustainability is the ability to achieve ongoing economic prosperity while protecting the natural resources of the planet and maintaining an ideal quality of life for its people and future generations . (page 24 ) Check Your Knowledge, p. 28 1) Question: Explain why service in the hospitality industry is so important. Give an example from your own experience as a guest, if possible. Answer: It is critical to offer guests exceptional service . This is the age of service , and the hospitality industry is getting revamped because guest expectations have increased and the realization is that “ we buy loyalty with service.” Student answers will var y. 2) Question: List the five things required for success in service. Answer: Focus on the guest, understand the role of the guest-contact employee, weave a service culture into education and training systems, emphasize high-

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    touch as well as high-tech, and thrive on change – constantly improve the guest experience. 3) Question: What is a moment of truth? Answer: A “moment of truth” involves face -to-face or physical encounters with service. A moment of truth occurs between the customer and the service provider. Check Your Knowledge, p. 33 1) Question: What is the Malcolm Baldrige National Quality Award? Answer: The Malcolm Baldrige National Quality Award is the highest level of national recognition for quality that a U.S. company can receive. The award promotes an understanding of quality excellence, greater awareness of quality on a critical competitive element, and the sharing of quality information and strategies. The Ritz-Carlton Hotel Company has won this award on two occasions – both in 1993 and 1999 for groundbreaking levels of service. 2) Question: Explain Total Quality Management. Answer: TQM is a participatory process that empowers all levels of employees to work in groups to establish guest service expectations and determine the best way to meet or exceed these expectations. 3) Question: List several ways a leader can empower employees. Answer: Empowerment is a feeling of partnership in which employees feel responsible for their jobs and have a stake in the organization’s success. Managers can empower employees by doing the following: take risks, delegate, foster a learning environment, share information and encourage self-expression, involve employees in defining their own vision, and be thorough and patient with employees. IV. Answers to Chapter 1 Review Questions 1) The satisfaction of customers ultimately measures a company’s success, since they are the people who are willing to pay for its service. A key objective of service is to create guest loyalty – keep them happy during their stay and they will keep coming back. 2) A mission statement is a short statement of central purposes, strategies, and values of a company. It should answer the question, “What business are we in?” Some mission statements are very simple: “To WOW the guests.” Moment of Truth is a term coined by Jan Carlson of Scandinavian Airline System. They are guest encounters and an approach that makes the quality of service, as perceived by the customer, the number one driving force for the operation of the business. Every hospitality organization has thousands of moments of truth every day. This challenges employees to maintain their quality service. Service commitment is a total organizational approach that makes the quality of service, as perceived by the

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    customer, the number one driving force for the operation of the business. 3) The Disney service model: It begins with a S mile. Make E ye contact and use body language. R espect and welcome all guests. V alue the magic. I nitiate guest contact. C reate service solutions. E nd with a “thank you.” 4) The Ritz-Carlton Hotel won the Malcolm Baldrige National Quality Award for its principles of quality service commitment to guests. The Gold Standards of these core values include three steps of service: A warm and sincere greeting. Anticipation and compliance with guests’ needs. A fond farewell, using guests’ names if and when possible. 5) Pages 41 to 44 lists several of the more prominent trends facing the industry today. Answers will vary. V. Mini-Case Discussion Question Answers Being Promoted From Within 1. Students will have various answers. The likely cause is the previous relationship with their new supervisor. Familiarity might allow the staff to believe that they are immune to supervision with their ‘friend’ in charge. 2. Tom should assess the current challenges with the staff and meet with them to discuss (or require) their cooperation in comp liance. It’s time that Tom takes charge. 3. Perhaps tell Tom that he could maintain a ‘friendly’ relationship with his co - workers, but as a supervisor he could no longer be ‘friends.’

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    Chapter Two The Hotel Business I. Chapter Objectives After reading and studying this chapter, the student should be able to do the following: 1. Describe hotel ownership and development via hotel franchising and management contracts . 2. Explain the diamond rating classification of hotels. 2. Classify hotels by rating system type, location, and price. 3. Discuss the concept and growth of vacation ownership 4. Discuss sustainable/green lodging. 5. Identify trends influencing the hotel business. II. Key Teaching Elements/Chapter Outline/Lecture Suggestions Hotel Development and Ownership Page Object. The lodging industry is a more than $155 billion industry that includes approximately 53,000 properties with almost five million guestrooms. Franchising and management contracts are the two main driving forces in the development and operation of the hotel business. 54 1 Franchising Franchising in the hospitality industry is a concept that allows a company to expand more quickly by using other people’s money, rather than acquiring its own financing. 56 1 Under a franchise agreement, the company or franchiso r grants certain rights – for example, the right to use the company trademark, operating procedures, reservation systems, marketing know-how, purchasing discounts, etc. – for a fee. In return, the franchisee agrees to operate the restaurant, hotel, etc., within guidelines set by the franchiso r. 56 1 Holiday Inn, Ritz- Carlton, and Howard Johnson’s all grew in the 1950s and 1960s through franchising. One of the key factors that led to the success of Holiday Inn was that they were the first company to enter the mid-price range and that they were located near important freeway intersections and in the suburbs. Budget hotel properties (Motel 6, Days Inn) grew during this time period. 56 1 Franchising was the primary growth and development strategy of hotels and motels during the 1960s through the 1980s. Challenges to the franchise arrangement include the maintenance of quality 57 1, 2

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    standards and the financial stability of the franchisee. Franchise fees can vary tremendously and are often negotiated between the franchiser and the franchisee. The average agreement is 3% to 4% of room revenue. Franchising presents both benefits and drawbacks. Careful consideration should be given to these factors. 57, 58 1 Is There a Franchise in Your Futur e? It is predicted that more than half of retail sales in the U.S. (including restaurants) will soon be transacted through franchised units. There are jobs working directly for a franchiser, a franchisee, or you might buy a franchise yourself. 58 1 Many franchisors own their own units that they use to test new operational or marketing ideas and to demonstrate the viability of the business to potential franchisees. 59 1 Many of the m istakes that a new entrepreneur may make have already been overcome by your franchisor. The company might provide cash flow. The company might also provide other support services at little or no cost, such as marketing a nd advertising, site selection, construction plans, assistance with financing, and so on. All this assi stance leads to a second key reason for buying a franchise — reducing your risk of failure. 59 1 Franchising does have some disadvantages. As a franchisee, your freedom is somewhat restricted. You must operate within the constraints set out by your franchi se agreement and the operational standards manual. 59 1 Referral Associations A marketing consortium or referral organization is a group of independent properties that refer businesses to one another. The benefit of this arrangement is that independent hotel operations are able to compete with chain operations. Hotels with a referral association share a centralized reservation system (CRS) and a common image, logo, or advertising slogan. 61 1 Management Contracts Management contracts have helped stimulate the growth of the hotel industry since the 1970s. They are popular because little or no up- front financing or equity is involved. 62 1 The management contract usually allows for the hotel company to manage the property for a period of years. In return, the company 62 1

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    receives a management fee determined as a percentage of gross or net operating profits . Today, many contracts are for a percentage of sales and a percentage of operating profit. This is normally 2 + 2 percent. Hotel companies have increasingly entered into management contracts because less capital is “tied up” in managing the properti es than is required in owning properties. 63 1 Today, hotel management companies exist in an extremely competitive environment. They have discovered that the hotel business, like most others, has changed and they are adapting accordingly. Today’s hotel owners are demanding better bottom - line results and reduced fees. Management companies are seeking sustainability and a bigger share of the business. 63 1 Real Estate Investment Trust (REIT) A RE IT must have at least 75 percent of its assets in real estate. Today, about 300 REITs, with a combined market value of $70 billion, are publicly traded. Investors like them because they do not pay corporate income tax and instead are required to distribute at least 95 percent of net income to sh areholders. In addition, because they trade as stocks, they are much easier to get into or out of than are limited partnerships or the direct ownership of properties. 63 1 Hotel Development Hotel ownership and development is very capital intensive . New hotels are built as a business venture by a developer, and because the developer expects to make a fair return on the ( substantial ) investment , a feasibility study is done to assess the viability of the project. The feasibility study determines the degree to which the proposed hotel project would be financially successful. 65 1 One of the most important documents is a Summary Operating Statement , which details revenues and expenses for a period. 65 1 Close to 70 percent of a hotel’s revenue and most of the profit comes from the sale of rooms. About 26 percent of revenue comes from food and beverage sales. 65 1 There are two views on new hotels versus remodeled hotels as far as room rates and profits are concerned. It is often difficult for a new prope rty to make a profit for a few years because of the higher cost of construction and the need to become known and to gain a good market share. On the other hand, a remodeled hotel has the cost of remodeling to pay for plus higher operating costs for energy and maintenance, so the two options tend to cancel each other out. 65 1

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    Older hotels are generally renovated about every seven years. This is because they become dated and would otherwise lose market share, which equals profit. Older hotels have an advantage over new ones — or should have an advantage as a result of positive recognition in the market. 65 1 The Economic Impact of Hotels Hotels provide substantial direct and indirect economic impact to the communities in which they are located. For direct impact, consider a hotel that has an average of 240 guests a night who spend $250 at the hotel and in restaurants and stores in the community. That would mean $240 x $250 x 365 days = $21.9 million a year infused into the local economy. 67 1 The indirect impact comes from the ripple effect, which we describe in the tourism chapter; this is where money is spent by the employees (wages and salaries) of the hotel in the community. It is also money used by the hotel to purchase all the items to service the guests. Communities also benefit from the Transient Occupancy Tax (TOT), otherwise known as the bed tax. 68 1 Classification of Hotels and Lodging Properties According to the American Hotel and Lodging Association (AHL A), in 2013 the U.S. l odging industry consists of 52,887 hotels and motels, with a total of 4, 926,543 million rooms and $163 billion in sales . The Lodging Industry 69 1 Hotels may be classified in several ways and may have one or more affiliations. For instance, hotels may be classified using the Smith Travel Research (STR) hotel classification system, the Forbes Travel Guide Five - Star rating process , and the American Automobile Association (AAA) Five - Diamond award system. Smith Travel, Forbes , and AAA have all expanded their rating practices outside the U nited S tates . 69 2 Hotel Affiliations A hotel may have multiple affiliations including being part of a chain, parent company, operation (such as corporation, franchise, or independent), management company, owner, asset management company , and / or a member of a membership or marketing group. 69 3

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    Hotels may also be classified as corporate, franchise , or independent. A corporate hotel is a chain hotel owned or managed by the chain or parent company. A franchise hotel is a chain hotel run by a third party, where the chain receives some sort of franchise fee. An independent hotel is not affiliated with a chain or parent company. Hotels may also be affiliated with a management company that operates the hotel on behalf of another party. Hotels may also be affiliated with one or more membership and marketing groups that provide va rious benefits, such as marketing assistance and reservation services. Hotels may now be classified as a qua s i - chain. Qua s i - chains have recently come into existence and are basically a cross between a chain and a marketing group for independent hotels. 70 3 Hotel Classification by Rating System: AAA and Forbes The AAA has been inspecting and rating the nation’s hotels since 1977. About three percent of the 59,000 (29,000 hotels and 30,000 restaurants) properties inspected annually throughout the United States, Canada, and Mexico earn the five - diamond award, which is the association’s highest award for excellence. In 2013, the five - d iamond awa rd was bestowed on 124 lodging establishments in the United States, Canada, the Caribbean , and Mexico 71 2 Similar to the system used by AAA, Forbes Travel Guide classifies hotels using a five - star rating system. Out of the 50,000 hotels in the U nited S tates , Forbes rates and recommends about 8,000 properties a year. Of those, only a few dozen earn the five - star rating. The hotel industry also classifies hotels by location or features and benefits. A hotel may be located in an urban or city center, subu rban, airport, interstate or freeway, resort, small town/rural, casino, full - service, extended - stay, all - suite, convention, or bed and breakfast. 72 2 City center and Suburban Hotels City center hotels meet the needs of business and leisure travelers. They offer a range of accommodations and services. 75 3 They offer a signature restaurant, coffee shop, or an equivalent recognized name restaurant; a lounge; a named bar; meeting and convention rooms; a ballroom; and possibly a fancy night s pot. 75 3

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    Resort Hotels Resort hotels developed initially with the growth of rail travel, In the late 1800s, luxury resort hotels were developed to accommodate the clientele that the railways brought. 75 3 Many resorts began as seasonal ventures, but with the increase of air and automobile travel, many resorts have become year-round destinations. 77 3 Today, there are numerous resort hotel properties that cater to the needs of many segments of the population. Some resorts are family friendly, whereas others seek to create a quiet get-away for the adult. Many resorts actively work to attract conventions and conferences to increase occupancy, especially in the off-season. To increase occupancies, resorts have diversified their marketing mix to in clude conventions, business meetings, sales meetings, incentive groups, sporting events, additional sporting and recreational facilities, spas, adventure tourism, ecotourism, and more. Because guests are cocooned in the resort, they expect to be pampered. This requires an attentive, well - trained staff; hiring, training, and retaining a competent staff present a challenge in some remote areas and in developing countries. 77 3 Airport Hotels In general, airport hotels have high occupancy rates because of the large number of travelers arriving and departing from major airports. Some properties have added meeting space to cater to business people who need to fly in, meet, and then fly out on a very tight schedule. 79 3 These hotels are usually full service and have 200 to 600 rooms. 79 3 Freeway and Interstate Hotels and Motels Freeway hotels and motels grew most quickly in the 1950s and 1960s. They provided a convenient place to stay that was reasonably priced with few frills. 80 3 They are smaller than most hotels — usually fewer than fifty rooms — and are frequently mom - and - pop establishments or franchised (such as Motel 6). 80 3 Casino Hotels The casino hotel industry is now coming into the financial mainstream, to the point that, as a si gnificant segment of the 80 3

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    entertainment industry, it is reshaping the U.S. economy. The entertainment and recreation sector has become a very important engine for U.S. economic growth, providing a boost to consumer spending, and thus creating tremendous pro sperity for the industry. One of the fastest - growing sectors of the entertainment field is gaming Larger casino hotels also attract conventions, which represent a lucrative business. Ther e are now more than 150 hotels o n Native American tribal land. 80 3 Conference and Convention Hotels Convention hotels offer facilities that meet the needs of groups attending and holding conventions. These facilities may include large public areas and banquet facilities, a business center, a travel desk, and an airport shuttle, as well as other amenities. Convention hotels usually have a mini m um of 300 guest rooms and a minimum of 20,000 square feet of meeting space and larger public areas to accommodate hundreds of people at any given time. Convention hotels have many banquet areas within and around the hotel complex. Full - Service Hotels 81 3 Hotels may be classified by the degree of service offered: full - service, economy, extended - stay, and all - suite hotels. Full-service hotels offer a wide range of facilities, services, and amenities for both the business and pleasure traveler. Examples: Hilton, Hyatt, Four Seasons. Most of the major North American cities have hotel chain representation, such as Four Seasons, Hilton, InterContinental, Choice, Hyatt, Marriott, Omni, Wyndham, Radisson, Loews, and Starwood. 81 3 Economy/Budget Hotels These properties provide clean, reasonably sized and furnished rooms without “frills.” Economy hotels focus on selling beds. They do not offer meals or meeting rooms, as a general rule. 82 3 Boutique Hotels These hotels offer a different experience. They have a unique architecture, style, décor, size, usually 25-125 rooms offering a high level of personal service. 82 3

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    Extended - Stay Hotels and All - Suite Extended - Stay Hotels These hotels provide accommodations to guests staying longer than 5 days. Rates are usually decreased based on the length of the stay. Guests are usually a mix – professionals, business people, and families that are relocating. 83 3 Extended-stay hotels offer full kitchen facilities and shopping services or a convenience store on the premises. 84 3 All-suite hotels usually offer more space per room, for the same rate as a regular hotel in the same price range. The additional space is usually dedicated as a lounge or kitchenette, or both, within the room. These hotels are attractive to guests who may be relocating, attending training seminars, or are on work-related projects. 84 3 Condotels , Timeshare, and Mixed - Us e Hotels A combination of a hotel and condominium. Developers build a hotel and sell it as condo units. 84 3, 4 This means that a hotel may also have residences; condos that people use rather than renting like a condotel. They have spas and sports facilities. Can be part of urban or resort development that might include office buildings, etc. 85 3, 4 Bed and Breakfast Inns Bed and breakfast operations offer variety in accommodation and in cost. Although not all B&Bs are owner occupied, they provide an alternative to the traditional lodging experience. 85 3 A true B&B is an accommodation with the owner, who lives on the premises or nearby, providing a clean, attractive accommodation and breakfast, usually a memorable one. There are an estimated 25,000 bed and breakfast places in the United States alone. 85 3 Best, Biggest, and Most Unusual Hotels and Chains The largest hotel in the world is the Izmailovo Hotel in Moscow with 7,500 rooms, followed by the 7,372 - room MGM Grand in Las Vegas and the Venetian Hotel, also in Las Vegas, which has 7,117 rooms. The Best Hotel Chains 86 3, 6 The Ritz - Carlton and Canadian - owned Four Seasons are rated the highest quality chain hotels. The Ritz - Carlton Hotel Company has received all the major awards the hospitality industry and leading 86 3, 6

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    consumer organizations can bestow. It has received the Malcolm Baldrige National Quality Award from the U . S . Department of Commerce . The Most U nusual Hotels Unusual hotels include The Treetops in Kenya, the Ice Hotel in Swedish Lapland, and the underwater hotel at Great Barrier Reef. 88 3, 6 Timeshare, Vacation Ownership , and Fractional Ownership Vacation ownership is the fastest growing segment of the US travel and tourism industry. A variation of the “time share” model is the vacation club. Consumers earn points toward vacation benefits. Flexibility is a key advantage of this type of program. Hotel companies have found this segment of the industry to be extremely lucrative. As a result, many leading hoteliers are entering into it. Fees such as yearly maintenance fees are required in addition to vacation ownership charges. 88 3, 4 Time share ownership lets owners save on the rising costs of vacation accommodations over the long term, while providing the space and flexibility to meet the needs of any size family or group. Vacation or fractional ownership is a form of real estate ownership or right to use a property in part. These types of properties are often resort or urban condominiums, town homes , or single family homes, in which multiple parties own and have rights to the property and amenities. 89 3, 4 Time shares also provide the possibility of worldwide travel by means of ownership exchange. By locking in the purchase price of accommodations, vacation ownership helps ensure future vacations at today’s prices at luxurious resorts with amenities, service, and ambie nce that rival any of the world’s top - rated vacation destinations. Travel the World Through Exchange Vacations 90 3, 4 Through the international vacation exchange networks, owners can trade their timeshare intervals for vacation time at comparable resort s around the world. Most resorts are affiliated with an exchange company that administers the exchange service for its members. Typically, the exchange company directly solicits annual membership. Owners individually elect to become members of the affiliat ed exchange company. To exchange, the owner places his or her interval into the exchange company’s pool of resorts and weeks available for exchange and, in turn, chooses an available resort and week from that pool. 90 4, 6

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    International Perspective The global economy is segmented into large trading blocks such as the European Economic Community (EEC) and the North American Free Trade Agreement (NAFTA). Such agreements reduce limitations on the transfer of goods and labor. This can lead to increased travel, tourism, commerce, and industry. 91 1 , 6 Growth is expected to continue under the EEC and NAFTA. The Pacific Rim is also growing dramatically in the realm of tourism. In Asia, Hong Kong’s growth has been encouraged by booming economies througho ut Southeast Asia and the kind of tax system for which supply - siders hunger. The Hong Kong government levies a flat 16.5 percent corporate tax, a 15 percent individual income tax, and no tax on capital gains or dividends. 91 1 , 6 In developing countries, once political stability has been established and maintained, hotel and tourism development follows closely. 92 1 , 6 Sustainable or Green Lodging Developers are more environmentally conscious because it can cost far more not only to build a lodging facility but also to run it if it is not sustainable. 92 5 The cost of energy has increased so much in recent years that lodging construction now incorporates ways of using natural lighti ng and building energy efficient buildings. 92 5 Lighting can acc ount for 30 to 40 percent of commercial electricity consumption. 92 5 Water conservation is another method that can greatly reduce waste. Today, many hotels are replacing showerheads, toilets, and faucets with low - flow water devices. 93 5 Career Information 93 There area variety of options related to hotel development and classification. Some examples would be working in corporate offices or consulting firms. In any case, a variety of positions in hotels will benefit the person wanting to go i nto management. Trends in Hotel Development and Management Topics include capacity control, safety and security, technology, assets and capital, new management, globalization, consolidation, diversific ation within segments of the lodging industry , r apid growth in vacation ownership, increase in the number of spas and treatments, 94 - 95

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    gaming, mixed-use properties, sustainable lodging development, and culinary selectiveness. III. Teaching Techniques/Classroom Exercises Note: The content of these exercises is such that they may also be used as essay questions. Exercise One: Ask students to generate a list of hotels in the area using an Internet search site such as Hotels.com. As needed, facilitate the list development by adding to the list properties that they omit, such as Mom and Pop motel properties, residential hotel properties, etc. Once a comprehensive list has been generated, ask students to classify the hotel properties using the categories from the text. Through discussion, analyze the list. Which hotel types are most prevalent? Why? Which are omitted from the list? Why? Has the lodging industry in the area gone through changes in the past 20 years? 30 years? etc.? If so, why? Exercise Two: Send students on a scavenger hunt using the Internet. Have them search for articles that highlight unusual worldwide hotel properties and/or important hoteliers, in addition to those listed in the text. Have students share findings. This activity could easily be turned into a contest, with “points” being earned for articles that are the most unusual. Exercise Three: Have students identify which type of hotel they would like to work for and why. Which type of hotel would they like to own? What characteristics make this hotel ideal for their career? Exercise Four: Give students a specific list of hotels that have a broad range of classification. Have students access websites or other sources to find information on the hotels. Most hotel chain websites will offer details on specific hotels, including rates, amenities, and services at each property. Using the text have students work independently to classify each hotel. This can be used for a discussion and/or debate on how hotels are classified. Check Your Knowledge, p. 63 1) Questio n: What main factor changed the nature of the hotel industry? What impact does it have today? Answer: Improved transportation has changed the nature of the hotel industry from small, independently owned inns to big hotels and lodging chains operations by such concepts as franchising and management contracts.

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    2) Question: What are some of the benefits and drawbacks to being a franchisee? Answer: Benefits to the Franchisee are as follows:  A set of plans and specifications from which to build  National advertising  A centralized reservation system (CRS)  Participation in volume discounts for purchasing furnishings, fixtures, and equipment  Listing in the franchisor’s directory  Low fee percentage charged by credit card companies The drawbacks to the franchisee are as follows:  Franchisees must pay high fees, both to join and ongoing.  Central reservations generally produce between 17 and 26 percent of reservations.  Franchisees must conform to the franchisor’s agreement.  Franchisees must maintain all standards set by the franchisor. The benefits to the franchise company are as follows:  Increased market share and recognition  Up-front fees The drawbacks to the franchise company are as follows:  The need to be very careful in the selection of franchisees  Difficulty in maintaining control of standards 3) Question: In your own words, define franchising and management contracts. Answer: Answers will vary but should be similar to text’s definitions. Franchising is a concept that allows a company to expand quickly by allowing qualified people to use the systems, marketing, and purchasing power of the franchisor. Management contracts are written agreements between an owner and an operator of a hotel or motor inn by which the owner employs the operator as an agent (employee) to assume full responsibility for operating and managing the property. 4) Question: Explain the nature of a referral association and some of the benefits such an arrangement offers. Answer: Very similar to franchising but without the cost. Hotels and motels with a referral association share a CRS and a common image, logo, or advertising slogan. In addition, referrals may offer group-buying discounts to members, as well as management training and continuing education programs. Each independent hotel refers guests to each of the other member hotels. Hotels and motels pay an initial fee to join a referral association. Size and appearance standards are less stringent than those in a franchise agreement; hence, guests may find more variation between the facilities than between franchise members. Check Your Knowledge, p. 69 1) Question: Explain a Real Estate Investment Trust (REIT). Answer: REIT’s focus on specific sectors such as hotels, office buildings, apartments, malls, and nursing homes. A REIT must have at least 75 percent of its assets in real estate. Investors like them because they do not pay corporate income

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    taxes. They are required to distribute at least 95 percent of net income to shareholders. In addition, because they trade as stocks, they are much easier to get into or out of than are limited partnerships or the direct ownership of properties. 2) Question: What is the difference between direct and indirect economic impact? Answer: For direct impact, consider a hotel that has an average of 240 guests a night, each of whom spends $250 at the hotel and in restaurants and stores in the community per day. That would mean $240  $250  year infused into the local economy. The indirect impact comes from the ripple effect, which we describe in the tourism chapter; this is where money is spent by the employees (wages and salaries) of the hotel in the community. It is also money used by the hotel to purchase all the items to service the guests. Communities also benefit from the Transient Occupancy Tax (TOT), otherwise known as the bed tax. 3) Question: Identify the two views with regard to new hotel versus remodeled hotel development. Answer: There are two views on new hotels versus remodeled hotels as far as room rates and profits are concerned. It is often difficult for a new property to make a profit for a few years because of the higher cost of construction and the need to become known and to gain a good market share. On the other hand, a remodeled hotel has the cost of remodeling to pay for plus higher operating costs for energy and maintenance, so the two options tend to almost cancel each other out. Check Your Knowledge, p. 86 1) Question: What is the role of Smith Travel Research? Answer: Smith Travel Research scale categorization is popular for the hotel industry to classify hotels. Smith Travel uses a seven-scale categorization, with six categories for chain hotels (e.g., economy, midscale, upper midscale, upscale, upper upscale, and luxury) and one scale category for independent hotels. Smith Travel Research focuses on hotel ADR rather than features or amenities when positioning chains into a scale group. 2) Question: Identify the characteristics of one through five-diamond, as well as one through five-star hotels. Answer: AAA properties: One-diamond properties have simple roadside appeal and the basic lodging needs. Two-diamond properties have average roadside appeal, with some landscaping and a noticeable enhancement in interior décor. Three diamonds carry a degree of sophistication through higher service and comfort. Four diamonds have excellent roadside appeal and service levels that give guests what they need before they even ask for it. Five-diamond properties have the highest service levels, sophistication, and

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    offerings. Forbes Travel Guide: One-star hotels are limited-service hotels or inns that are considered clean, comfortable, and reliable establishments. Two-star hotels are considered clean, comfortable, and reliable establishments that have expanded amenities, such as a full-service restaurant. Three-star hotels are well-appointed establishments with enhanced amenities that provide travelers with a strong sense of location, whether for style or function. They may have a distinguishing style and ambience in both the public spaces and guest rooms. Four-star hotels provide a distinctive setting with many interesting and inviting elements to enjoy throughout the property. Attention to detail is prominent from design concept to quality of products provided. Staff are accommodating and take pride in catering to the guest’s specific needs. Five-star hotels are exceptional properties that provide a memorable experience through virtually flawless service and the finest of amenities. Staff are intuitive, engaging, and passionate and eagerly deliver service above and beyond the guests’ expectations. The hotel was designed with the guest’s comfort in mind, with particular attention paid to craftsmanship and quality of product. 3) Question: List the characteristics of each hotel segment highlighted. Answer: Hotels are categorized several ways. They are listed under geographic orientations, markets, locations, features, and price. Some of the classifications are: City Center and Suburban : May include luxury, first-class, full-service, convention, midscale, economy, boutique, extended stay, corporate housing, and all-suite hotels. Resort : May include luxury, midscale, economy suites, condominium, timeshare, convention, boutique, all-suite, all-inclusive, or a mixed-use hotel (e.g., includes a full-service hotel, condominiums, homes, and fractional ownership/timeshare units on property). Airport : May include luxury, full-service, midscale, economy, and all-suite hotels. Freeway : May include midscale, economy, and all-suite hotels. Casino : May include luxury, upper upscale, and midscale hotels with an attached casino operation. Rural and Small Town: May include a mix of midscale, economy, and bed and breakfast hotels. Check Your Knowledge, page 95 1) Question: Explain timeshare, vacation, and fractional ownership Answer: Timeshare is an “owned” suite that is rented out rather than a hotel room that is rented out. Vacation or fractional ownership is a form of real estate ownership or right to use a property in part. These types of properties are often resort or urban condominiums, town homes, or single family homes, in which multiple parties own and have rights to the property and amenities. Ownership and access are designated in defined periods of time (e.g., one week, two weeks, a

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    month, etc.), and the units may be owned forever or on a specified period of time lease or right-to-use basis. 2) Question: Identify several sustainable or green lodging strategies. Answer: There are eight steps you can take to start an effective, sustainable lodging program including: 1. Organize a waste reduction team; 2. Conduct a waste assessment; 3. Establish waste reduction goals; 4. Secure recycling markets; 5. Set up a collection and storage system; 6. Buy recycled products. 7. Conserving energy through electricity consumption 8. Water conservation See page 93 for the complete explanation. 3) Question: List and explain some trends in hotel development. Answer: Some trends are; increased use of capacity control mechanisms, enhanced safety and security programs, the continued increase of technology, globalization, more consolidation in the industry, etc. A comprehensive list is on pages 94 – 95. IV. Answers to Chapter 2 Review Questions 1) a) Management contracts have the advantage of requiring little up-front financing and usually allow the hotel company to manage the property for several years, whereby the company receives a percentage of the net operating profit as a management fee. This allows for the rapid expansion of the hotel market, especially since increased competition among management companies has decreased the management contract fees. b) The concept of franchising allowed for the rapid expansion of hotels and motels. Franchising allows franchisees to use the brand names and services of a franchisor in exchange for a fee. This has the advantages of involving less up-front capital, a centralized reservation system, national advertising, and increased market recognition, but it also includes the challenges of maintenance of quality standards and avoidance of financial failure on the part of the franchisee. 2) a) Resorts are usually located at exotic places with spectacular scenery, offering relaxation and recreational activities. The Treetop hotel located in one of Kenya's wild animal parks is architecturally built on the tops of trees, whereas the Cocoon Hotel in Japan offers guests an affordable alternative space of about seven feet by four feet with just a bed and television. b) Airport hotels offer extended room service and restaurant hours to accommodate early and late arriving and departing guests.

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    c) Vertical Integration is the trend of having properties in all segments of the market: luxury, mid-scale, and economy. 3) Vacation ownership is more commonly known as time-sharing. Vacationers buy the "right" to use a hotel room/condominium/cabin/apartment, etc., for a given amount of time each year. The destination and the "unit" may be fixed or may be flexible. Vacation clubs provide the greatest amount of flexibility as members can choose from various member destinations.

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