Holiday Inn Express pancake stationThere may be no such thing as a free lunch, but there is definitely such a thing as a free breakfast at many hotels. In fact, a freebie competition is raging in the lower- and midprice sectors of the industry.

And brands in those sectors, despite their lower rates, spend serious money on freebies. According to Robert Mandelbaum, director of research information services at PKF Research, a select sample of hotels that routinely offer services to their guests on a complimentary basis spent an average of $723 per available room in 2009 to provide complimentary gifts and services in the form of newspapers, food and cocktails. That is the actual cost to the hotel, not the theoretical "retail value" of savings afforded to the guest.

That is real money for a hotel that might be charging only $50 or $60 a night. But according to brand leaders, it is well worth it because the "value perception" of guests far exceeds the actual cost of the freebies and frequently constitutes a strong competitive advantage.

Jim Holthouser, global head of Embassy Suites Hotels and full-service brands for Hilton Worldwide, said his brand's research shows that a family of four in a single suite will consider their free breakfasts worth as much as $60 or $70 as compared with eating in a restaurant. However, said Holt-houser, that meal will cost the hotel only $6 or $7 per available suite.

In the never-ending breakfast one-upmanship, Holiday Inn Express recently rolled out a machine that enables guests to make fresh pancakes on the spot in less than a minute; the brand rolled out machines to all 1,800 locations in the Americas in under 100 days.

Residence Inn added a waffle bar with a variety of toppings, including fresh fruit.

And travelers love these free breakfasts. Some brands claim "participation rates" (percentage of guest use) of 85% or more.

According to a recent survey by Ypartnership, 70% of respondents said a free breakfast was "very or extremely influential" in their choosing a hotel, higher than free Internet access in the room.

Mandelbaum included many food and beverage items in his research but left out the sticky issue of free WiFi as well as items like in-room toiletries and coffee, for arcane accounting reasons. But included were newspapers, breakfast, manager's receptions (usually associated with extended-stay hotels) and fruit baskets. If the WiFi and the other items were included, according to Mandelbaum, "it would raise the $723 figure significantly."

It's all about the perception of value, Mandelbaum said, and the desire by guests "that they not get nickeled-and-dimed." Concluded Mandelbaum, "these extras are expected at economy properties."

Mandelbaum said that during the recession, hotel managers "steadfastly maintained the same level of complimentary amenities offered prior to the recession." In fact, he said, most raised their standards for complimentary breakfast and cocktail receptions, the two largest components of these expenditures.

"We keep seeing additions, like adding to-go items or healthy items," Mandelbaum said. There is a payoff for these layouts. As Mandelbaum noted, "Embassy Suites offers a great value, but as a result of offering these free services, they are able to bump their rate by $20 or more."

Sangria at Embassy SuitesHoliday Inn Express has made its Express Start Breakfast Bar central to its brand appeal, with 90% of guests taking advantage of it, according to Sue Morgan, vice president-franchise food and beverage for the brand. The breakfast, she said, combines three elements: indulgence (the brand-exclusive cinnamon roll); traditional (scrambled eggs, omelets and meats); and nutritional (yogurt and branded cereals).

While Morgan would not lay out the cost per guest, she did say it is an important selling point to potential franchisees.

David Ginsburg, senior director of market and customer research for Choice Hotels, said, "Based on previous research, hotel amenities overall account for about 10% of the purchase decision vs. the top items such as price/value, room quality, safety and location/convenience. Free offerings such as parking, breakfast, Internet and happy hour generate incremental value within this."

However, Ginsburg continued, the "free" aspect of the offering can also be used to reinforce value, "which has a much stronger influence on the purchase decision and has become even more important to guests over the past two years."

Said Embassy's Holthouser, "We argue regularly about whether it's the breakfast or the size of our suites that's most important to guests. But in the research we do we get the resounding message: Don't mess with the Embassy breakfast." As is the case with breakfasts, manager's receptions are also becoming more elaborate. Holthouser said that Embassy Suites recently began to offer sangria, providing wine and fresh fruit in "a beautiful presentation." Guests help themselves to the sangria under the supervision of a staffer.

Mandelbaum said that all-suites spend the most on complimentary gifts and services: a full $1,251 per available room annually, about 3.5% of hotel revenue. Interestingly, resort hotels spend $893 on these items -- perhaps, said Mandelbaum, because luxury resorts were forced to add value during the recession through gratis food and beverage.

Extended-stay hotels, which tend to offer both free breakfast and managers receptions, spent $956 per available room at the upper end of that market, a much lower $192 at the lower end. Finally, limited-service hotels, offering free breakfast only, averaged $532 per available room.

While the PKF research mainly involved food, some brands have looked elsewhere to provide perceptions of value.

Freebies include bottled water in the rooms; local and domestic long-distance calls; premium entertainment; WiFi throughout the hotel; fax and copying services; parking; and shuttle service to airports or area attractions.

A key factor for many of these amenities is low labor cost. At a typical breakfast buffet, for example, there may be one employee monitoring the buffet and perhaps one other in the pantry maintaining inventory.


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