Food and Beverage Minimums In Your Hotel Contracts

The information provided in this video does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information in this video may not constitute the most up-to-date legal or other information. Readers of this website should contact their attorney to obtain advice with respect to any particular legal matter.

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!

Check out what Barbara Dunn (Partner at Barnes & Thornburg LLP, representing groups) and Lisa Sommer Devlin (Devlin Law Firm, P.C. representing hotels) have to say in Legalease With the Ladies- powered by HopSkip!

Video Transcript:

Food and Beverage Minimums In Your Hotel Contracts

Barbara: Hi, I'm Barbara Dunn, an attorney that works with groups in connection with their meetings travel and hospitality contracts.

Lisa: And I'm Lisa Sommer Devlin, an attorney that represents hotels and resorts regarding convention and group related matters.

Barbara: And together, we're Legalease with the Ladies powered by HopSkip. Thank you for joining us today. 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 in order to get benefits of concessions and rate discounts as well as function space. So, it's a really important provision to focus on from the group's perspective. Among the things that I look for is the food and beverage minimum, the dollar amount itself, whether the group is comfortable meeting that dollar amount.

Groups also need to understand that when that dollar amount is stated, it's stated above sort of what we call plus plus or the top of the bill. So, in other words, 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. Also, if your organization has sponsors or affiliates that do functions at your meeting, you'd like to capture that revenue toward your total. And that's something that definitely needs to be included in the provision. Sometimes some of you may know this as "in conjunction with" or ICW revenue, that's something that will need to be particularly or specifically I should say listed within the provision.

So, essentially 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. And again, on that actual spend, that might include if you negotiated the ICW revenue. Now bad joke here folks let's say that when it comes to food and beverage minimums, don't bite off more than you can chew. The issue really here is making sure you're comfortable with it. One thing that I've seen over the years and certainly within the last year is that, groups and meetings have changed. Schedules have been become condensed and a little bit more concentrated and attendance may be lower. That might mean the need to reduce your food and beverage minimum ahead of the meeting similar to how you might reduce your room block ahead of the meeting.

So, if that's important to you and you need that flexibility that's something, I definitely would recommend that you'd ask the hotel about to see if you have an opportunity to reduce the food and beverage minimum ahead of the meeting. And then again, be responsible for the difference in the meeting. Lisa, I know when it comes to hotels and budgets and line items the food and beverage service and the catering banquet revenue is really a different line item for the hotels and equally as important.

Lisa: You're right Barbara. It is a completely different line item in the hotel's budgets and profit and loss. So, they're going to treat the food and beverage commitment completely separate from the room revenue commitment. Now Barbara’s right that you need to be comfortable with your food and beverage minimum, but 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 200,000. 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.

And what do I mean by that? 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. So, that's something to think about. I don't disagree with Barbara about affiliates or "In Conjunction With" but it 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 into 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.

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. And another thing to think about is most of the time the hotel is going to say that your service charge and gratuity is 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 in their pay. So, usually the price is based on the retail amount.

A final thing to think about is that 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 charge and gratuities. It's funny because people tend to put two plus symbols when it's really three things. It's usually taxes, service charge 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. Barbara, any last thoughts on this one?

Barbara: Yes, Lisa I agree with you as to use of that terminology and I think often these terms would be excluding or including in the case of the sponsor and affiliate revenue. With regard to food and beverage discounts, I agree with you. Often, I'll advise a client that that's not necessarily the best concession to get that they might look for other concessions that hit the bottom line. But 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 really agreeing to a discount on an amount that you don't even know.

So, attach those menus/include those menus so there is some benchmarking. It will do you a good service later on if there are issues associated with that and getting the discount. But I agree with Lisa, I think overall food and beverage is definitely something that the hotels and the groups should work together to better understand. Not only the minimums and how they come about but also the way those service charges and gratuities are used and how those may be shared with the staff and used differently from one hotel to the other.

Thanks again to our good friends at HopSkip. This has been Legalease with the Ladies. Thank you for joining us. Please leave your feedback and comments below.

The information provided in this video does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information in this video may not constitute the most up-to-date legal or other information. Readers of this website should contact their attorney to obtain advice with respect to any particular legal matter.