A recent survey on the costs of room service found that a club sandwich costs an average of $16. Mac and Cheese might cost upwards of $20, with a glass of milk coming in about the same. Strangely, even with the exorbitant prices, hotels are losing money on room service. And, New York’s second largest hotel just discontinued room service. Why does it survive?
Here is the breakdown of the TripAdvisor survey on the price of a Club Sandwich purchased through room service. It includes not only the list price, but all of the additional fees that go with hotel room kitchen-to-door delivery.
Typically, a 15 percent service fee and an “in-room dining” charge ranging from $5-12 will be added automatically to the bill. Add in tax, you’re suddenly looking at a $25-plus sandwich. If you’re in Honolulu, think closer to $40.
Even at these prices, hotels lose money. They only continue room service because their competition does and because it has become one of the amenities that high-paying customers expect. The market-driven jury is still out regarding whether not having room service at New York’s Hilton will affect its bookings. But from a management point of view, the elimination of room service resulted in the layoff of 55 workers and the shifting of their former salaries right to the bottom line.
One reason is that hotels exercise price discrimination. Pricing room service above cost allows a hotel to charge more to those who have more money to spend; if a guest is willing to shell out $400 for a night in an opulent room, they are probably willing to also pay above market price for eggs and toast if offered the convenience of delivery. Those who value saving time enough to order room service are likely also people who make a lot of money with their time, and have the cash to spend on the service.
Another factor that plays into this is consumer myopia, or the underestimation by a consumer as to how much additional services will cost for a purchased good or service. That is, when a guest sees a $12 sandwich on a room service menu, they don’t take into consideration the additional charges that will make it much more expensive (usually, these stipulations are in minuscule print at the bottom of the menu).
But the biggest factor is that there is a willingness to pay. People often arrive at a hotel tired and hungry, and don’t have the energy to venture out into unfamiliar territory to go meal-hunting. Americans are also more likely to splurge on luxuries while on vacation.
Will an alternative arise? The answer to that question is a resounding, “Yes.” However, there must be some profit in order to attract entrepreneurs to this field. One website, MovingMenus.com.au, in Australia is already in operation. Will such a service thrive in the USA? Time will tell.
Other websites closer to home focus on take-out and delivery for everyone. They also provide delivery to hotels, of course. Grubhub.com has been opening in more and more cities across the country from Ann Arbor to Austin and from Tempe to Tampa. Eat24.com has been opening new cities as well. And, if you have a craving for caviar in Seattle, Manhattan or San Francisco, tryCaviar.com can help.
Photo: Will Merydith, Flickr Creative Commons