What’s the Recipe for Making Celebrity Chef F&B Outlets a Success?
 
February 22, 2007
 
Joseph "Joe" Guay- New York

The hospitality marketplace is an ever-expanding one, and demand continues to grow for better amenity services. One of the newer trends in the lodging industry is a move away from the mundane fare offered by many hotels’ standard food and beverage (F&B) outlets to branded, celebrity chef-owned, operated and/or licensed venues. While such venues may bring many benefits to a particular property (including increased revenues and market recognition, in addition to hipper and trendier fare), they also present challenges for hotel owners and operators, who often seek to control the F&B outlets – a central part of hotel operations and their impact on the overall guest experience.

A hotel’s F&B operations can be complex. Not only do many F&B outlets have to function as a restaurant, but catering, event and meeting planning, and room service may also be provided or supported by these F&B operations. With an additional party in the mix, in the form of a celebrity chef, one has to ask, “What are the correct ingredients that go into making a celebrity chef F&B outlet a success?”

Under the old model, the hotel operator would run the hotel’s F&B outlets with its own staff and limited branding, as one of the departments of the hotel. Consistency rather than cutting-edge cuisine or brand recognition was the overall concern. Provided that the physical layout of the hotel allowed for it, as guests demanded more, many hotel owners and operators then looked to established franchise brands to come in and operate a stand-alone franchise at their hotel. While this provided customers with variety, it still had a certain cookie-cutter feel to it. Today’s guests and customers want more; they want to travel to destinations that provide them with a variety of unique dining experiences. While this trend is seen on a grand scale in places like Las Vegas, where a single casino hotel may offer 10 or more venues, individual hotels are also getting into the mix.

Trade-Offs to Consider

There are certain trade-offs that must be taken into account when a hotel considers taking on a celebrity chef-owned, operated and/or licensed F&B outlet. First is the cost. Chefs are not going to lend their name, time and effort to create a venue unless they know that they are going to receive some compensation from the venture. As a result, having an awareness of an appropriate licensing or branding fee structure is an important business consideration. Often times, viewing the new F&B outlet as another restaurant operated by the chef does not translate when preparing the proforma. Instead, it’s important to understand the hotel and its position in the market. For example, will the restaurant be filled entirely by guests and patrons of the hotel, or will it pull in customers from outside? In addition, many chefs are going to ask for an upside participation if the venture does well. Therefore, one needs to consider some form of incentive fee to encourage the continued success of the restaurant as well as the continued participation of the celebrity chef in promoting the success of the restaurant.

Another important issue is control – for example, deciding who will be determining pricing, menu and recipe development, training procedures, and cooking processes and presentation. What makes many celebrity chefs attractive is that they are not well-established franchises. The good ones, who may be viewed more favorably, do not have scores of restaurants with policies and procedures in place. The chefs are going to want to make sure that they have a good amount of input into the process, especially if their name is on the door. They might want very specific recipes to be included on the menu, and might specify such details as the type of truffle to be used and which supplier will provide the seafood. This can often conflict with a hotel owner/operator’s interest, which may be more cost driven than cuisine driven.

Also, a hotel operator needs to satisfy the guests. If the restaurant in question offers Asian Fusion cuisine, how does the operator deal with the fact that the business traveler arriving at 10:00 p.m. may just want a simple burger and fries from room service? Anticipating these types of operational challenges is very important in making these types of agreements work.

Anticipating the Legal Issues

The legal issues involved with these types of agreements are varied. There are employment law considerations, for example, especially where employees may be provided by both the hotel operator (typically the wait staff and front-of-the-house employees) and by the celebrity chef (often the sous chefs and other back-of-the-house specialty positions). As an owner/operator, you want to avoid circumstances that could bring employer liability claims against you from employees who are not truly within your employ. These situations often arise when chefs look to control the hiring and firing of certain key employees. Who actually employs these individuals is critical to determining who can make these types of employment decisions – many times there is a conflict.

Another important legal area involves intellectual property rights. On the owner/operator side, it is important to make sure that if something unique is created for the hotel (and possibly involves the hotel’s name or marks), it will not be duplicated or used without your consent or approval. You also want to make sure that the rights you are paying for with your licensing fees are in fact registered (surprisingly, this is not always the case) and that you will be protected against unlawful use claims in the event that they are not. And it is imperative to have a clear understanding of what you can use and the manner in which you can use it (including in the restaurant name and marketing materials for both the hotel and the restaurant).

Another consideration is the termination rights that you want to reserve for yourself. In addition to the usual default provisions that one would expect to see for a failure of a party to do something, you want to consider the right to terminate in the event the restaurant does not meet or exceed the financial expectations set forth in the proforma. Many restaurants fail, and the last thing a hotel owner or operator wants is to find their operations being dragged down by a restaurant that is supposed to be adding to the hotel’s profile. It is important to build in protections to get out of the deal if things are not working out, including building in performance termination provisions that measure financial success as well as success from a guest-satisfaction perspective. Also, because celebrity chefs as personalities are often what make the restaurant work, owners and operators should protect themselves in the event the individual does something in the public eye that does not fit the image of the hotel (whether illegal or otherwise). This could include the celebrity chef making public remarks that disparage the hotel, its owner or operator. In addition, if the restaurant works because of a celebrity chef’s presence at the restaurant, as unfortunate as it may be, the agreement should identify the celebrity chef’s death or serious disability as an event permitting termination.

Because the owner is going to invest a lot of time (and potentially, capital) in the restaurant and its theme and concept, in order to protect the hotel and preserve the unique dining experience that the hotel is trying to create, it is important to consider certain trade area restrictions or limitations with respect to the restaurant. There is a careful balance in this area. On the one hand, you don’t want to keep the restaurant and chef so obscure that no one outside of New York or Los Angeles knows who he or she is. On the other hand, as mentioned above, you do not want your restaurant to become the next Chili’s or TGIFs. Having a fair and well thought out territorial restriction will both enhance the hotel’s restaurant and brand and drive demand by creating a buzz outside the hotel itself.

Setting Standards

Obviously, another important consideration is maintaining standards, both as they apply to the hotel overall and the restaurant itself. As previously mentioned, many celebrity chefs lack formal policies, procedures and guidelines with respect to their restaurants. As such, making sure that you understand what makes their concept and brand work in another venue – one where they may not always be present to oversee quality control issues – is important. Taking a step back and getting the chef to identify what these qualities are is usually the first place to start. It also is a big plus to understand what it is that makes an existing restaurant run by the chef a success. Often, the chef will not be physically present at the hotel restaurant all of the time, so it is critical to delineate exactly what his or her personal obligations are; typically, they will involve more than just showing up at the Grand Opening and a few media events. Successful restaurants usually have a chef who is actively involved with training, menu preparation and taste panels, and budgetary recommendations, as well as someone who provides input on overall theme, concept and design decisions.

Creating a celebrity chef-owned, operated, leased or licensed restaurant is a great way for a hotel to differentiate itself to its guests and customers. Considering all of the business and legal issues associated with such an undertaking can help to ensure that you have all the ingredients and the right recipe for making the restaurant a success.
 

For more information, e-mail Joseph Guay at joe.guay@hklaw.com or call toll free, 1-888-688-8500.