In the past, restaurant owners who wanted their children to go into the family business often sent them to business school.

“Get a business degree,” common thinking went. “It will help the business grow.”

But make no mistake—the hospitality industry is different than other business areas.

Today, hospitality education—including NYU School—offers students the chance to earn degrees in a wide range of related subjects. They can complete a hospitality degree in concept development, for example, or asset management, where they can learn how to manage a physical location.

The only thing we haven’t developed yet at NYU—and hopefully, we will in the future—is formal culinary training. But this element of hospitality education is coming. At good schools across the country, chefs are earning bachelor’s degrees as they are being trained.

Those chefs are coming into their kitchens not only with a wonderful creative spirit, but they’re also understanding clean foods better. They understand the entire food supply chain. They know how to work with purveyors, how to buy food from small farms or small suppliers, and that the consumer wants their food from within a 100-mile radius, eating fresh food while reducing their carbon footprint.

Then there are the nuances of customer service within the hospitality industry. Marketing a restaurant is different than general marketing, for example. Today, it is important to build rapport with restaurant guests, through both social media and a genuine brand. This is true, whether your guests connect with the ethnicity of your menu or the history of your restaurant.

It’s important for a restaurant developer to understand how the concept dictates every aspect of the dining experience. For example, the concept dictates the menu; the menu dictates the kitchen; the kitchen dictates the staffing and the aesthetics of the dining room and service efficiency. Furthermore, social media and ordering logistics—whether ordering ahead or ordering for delivery—can help or hurt a restaurant, depending on the business concept and organization.

Did you know? When a customer sits down at a restaurant with a smartphone, there is usually a delay in ordering by up to 18 minutes.

Why does this matter?

If, as a restaurant owner, you want to turn a table two or three times a night and each guest takes an extra 18 minutes to order, you’ve lost an entire hour. This challenge arises when guests decide to look at their phones, instead of looking at the menu.

These are just a few of the details that help graduates of professional hospitality degrees to understand the nuances of the industry. They have more direct, specific knowledge than they would have gained through a general business degree. Students are graduating from online hospitality education programs with degrees in hospitality, hotel operations or restaurant operations. These graduates are able to jump in with both feet and adapt more quickly to a changing landscape.

Let’s take a closer look at the true sentiment to success for restaurants in the hospitality industry: cash flow and creating a business that’s profitable.
One of the things that come out of professionalizing the industry, is people get into the restaurant business to run it as a business. There’s a lot of romance in the restaurant business. We all love eating food, preparing Grandma’s recipes, and we all like to entertain our friends. Who doesn’t like to have a beer with their buddy? There are lots of wonderful romantic aspects of the restaurant business.

However, unless you are someone who has lots of money and just needs a restaurant to be entertained, we want to be profitable. To be profitable, you must establish clear budget accounts. You must make sure that there is a cash flow analysis. That you will have cash when it comes time to pay the food bill, that you will have cash when it comes time to pay for salaries of your laborers. So cash flow is important. That comes off your budget and your profit-and-loss statement every month.

A good restaurateur must establish food costs and the pricing of their menu items. They make sure they are producing a profit revenue that will bring profit to the bottom line. It has to pay all of its bills. That’s your cash flow. It needs to leave something at the end for the owner.

Many restaurateurs overspend and over-design. They find themselves in debt before they get started, and they are never able to fully catch up. So you must look at those numbers every month and make sure that you are trending to profitable revenue.

Food cost becomes important. If your food cost is too high and your cost of the item to the consumer is too low, you’re giving food away. You’re not making enough money.

On the other hand, if your food cost is too low and your price to the consumer is too high, you’re stealing from the consumer. So you need to find a middle ground on your pricing. You need to compete in the marketplace and you need to produce enough revenue to pay your bills and have some money left over for the owner.

For the first three years of a restaurant, a lot of that profit you make is going to be put right back into the restaurant. You’ll look at different food products, maybe changing the to-go items, mounting a catering campaign, or getting involved in alcohol.

So you must reinvest in your restaurant product. The success of any restaurant-when I ask a student, the answer they give me is typical: good food, great service, beautiful dining room, good marketing. Well, they are all important. However, the main ingredient of any restaurant that makes it most successful is positive cash flow.

The airline industry deals with a lot of challenges.

For example, airlines have to set themselves apart from one another. Only two major players produce airframes: Airbus and Boeing. All of the big airlines by the same equipment.

As a result, airlines have to get creative. Some set themselves apart with business class innovations. Turkish Airlines, for instance, has a chef on board who prepares excellent meals.

Other airlines use loyalty programs. For instance, American Airlines has the American AAdvantage program. They sell points that people can use to buy a house, get a loan, use a credit card, or send flowers. In fact, American Airlines sometimes makes more money by selling loyalty points than booking seats.

The other challenge, of course, is earning enough revenue. When airlines used central reservation systems, some airlines made more money moving reservations than actually flying people.

Amadeus and Apollo, for instance, made most of their money this way. This method gets challenging because it depends on the airline’s load-in factor, or the amount of seats sold per flight. Some airlines would need to sell 90% of seats before making any profit.

Airlines also face timing challenges. For example, 2008 saw more business class carriers. However, the timing didn’t work because of the great recession.

These days, we have low-cost carriers like Southwest Air and JetBlue. They fly from point A to point B rather than through a hub. Low-cost airlines only make money when the plane is in the air. When the plane stays at the gate, it doesn’t produce revenue.

This strategy comes with its own challenges. For instance, if you’re going to a destination, you may not find direct flights. Not only does this add to your travel time, but it also comes with the risk of delayed flights. Many of these low-cost carriers have added more direct flights as a result, so they can save time.

Standardized equipment and operating procedures help, too. They don’t have to train their captains with several airplane types. They also strip down the service, and they charge extra for luggage.

We sat down with experts to discuss the interesting components of the cruise line industry and what makes it a unique sector within the hospitality industry.

Cruise lines are a very interesting business because a new ship could cost $1 billion. For instance, the Norwegian cruise line has ordered six new ships called Leonardo class ships. The only thing they said was, it’s going to have a passenger capacity of 3,300 people, but what concept should they be?

They announced this in 2017, and the first ship will sail in 2022, so we have a five-year time difference. You have to predict: how is the market? What are the consumer needs? What are the trends? What is the competition doing? Because when a ship is being built it’s hard to change. You can maneuver a few things in terms of the restaurant concepts and services, but it’s pretty much set.

Cruise lines have to look into the future and predict. But it’s an interesting business, because it is a substitute for staying in a resort, and it has advantages.

In a resort in Florida, you go to Orlando and you stay in Orlando. You could visit some of the attractions there. But with the cruise line, you can visit several countries and several ports and do excursions. Today’s cruise lines are a destination by themselves. It’s similar to Las Vegas. Big casinos are destinations by themselves, but they have advantages.

Their advantages include lower labor costs because most of the employees come from countries like the Philippines, and they get paid competitive rates in terms of what they could earn in the Philippines. Resorts pay higher rates in the United States because of the minimum wage and all these things. They have an advantage in terms of their labor costs.

They can also source cheaper food because they buy in quantity for big cruise lines. Carnival Cruise Line has 103 ships, Royal Caribbean has 60, and the Norwegian cruise line has 25. These three companies control about 75% of the global cruise market. It’s an interesting business in terms of economics and offering their best guests more options.

The Norwegian cruise line is an interesting company because they’re using a concept called Free at Sea. So if you buy a higher level cabin, let’s say with a balcony, you can choose from up to six different Free at Sea. It could be a free bar, free specialty dining, a free excursion, free Wi-Fi, or it could be that two more people can stay free in the cabin. All of this is factored into the pricing, but it adds value and adds loyalty.

Shirley Lu, Revenue Analyst for The Standard Hotel explains what makes The Standard different and how they generate their revenue.

“As a revenue analyst, what we do is optimize the revenues that come into the hotels to make sure that we are performing the best and reaping in the most revenues that we can,” explains Shirley Lu. “A lot of that has to do with research and pushing our sales team to prospect new clients or continue their relationship with their current clients.”

Some of the job is managing distribution channels, making sure that we’re restricting what segments we need, to enable the highest-producing segments to come in. Overall, Shirley explains that it’s a mix of distribution channel management, analyzing data, and researching what new business we can potentially get for the two properties.

Starting with the Standard High Line building, it’s a book shape elevated on top of the High Line. “With the book shape and the floor-to-ceiling windows, I think it is those elevated floor-to-ceiling windows that add value to our product,” explains Shirley. “When people are staying in the property itself, it feels much more spacious with those window features. And having the views of the river and the city, also lets the natural sunlight in, definitely adding to the experience of the Standard High Line.”

As part of that, we are very keen on trying to contribute back to the community. “With every reservation, we give guests the option to donate $2 to the High Line to help maintain and preserve what it gives to the community and tourism. I think that’s a great initiative that we continue to do daily,” says Shirley.

Now, moving upwards into our top of the Standard venue and our Le Bain venue, Shirley explains that they are two very different venues. Top of the Standard is an elegant space for people who enjoy cocktails in a less party scene environment. We also offer sunset service to our guests, where they can watch the sun go down across the Hudson River and enjoy a cocktail up there as well. It is a much calmer, more elevated, and elegant scene.

Then, you move over to Le Bain, and you’ll hear the pumping music, the beat of the bass from our DJs, and just a wild time. So definitely, the two venues are managed differently and we try to keep them separate. But that allows for us as a hotel company to allow different clientele to come and join us all under one roof but under different venues.

So for our Le Bain, we often have guest DJs coming in. And we like the crowd to be diverse. That’s something we strive to do, is to allow as many different people to come in as possible, explains Shirley. We have the rooftops as well, where it is, again, very much a different scene from Le Bain on the 18th floor, where you have the pool, the whirlpool, that is now open for the season. Then, on the top floor, you have the open-air rooftop and views of the city all over both venues. It’s a very unique space. It continues to be the center of attention for a lot of nightlife in the city.

Then moving down to our ground floor venues, we have the beer garden, which has a lot of different activities. I think of it as an adult playground. You have giant Connect Four, ping-pong, foosball, and you have your beer. It is a very cool space as well. And then we have our highly acclaimed restaurants like the Standard Grill. We just have our chef, Rocco Forte, spearing that and bringing us to get the recognition that we strive to have.

The Plaza is the outdoor space leading into the lobby and that venue we couple internally with our Living Room, which is the indoor area where we often have a guest DJ come in, just to liven up the scene as well. Shirley mentions those two spaces, the Living Room and the Plaza work together in terms of staffing and as a venue itself.

The Plaza is a multi-purposeful space. And that is the space that we use for our art installations and different installations because it has an outdoor component. That is a space we like to allow guests to still experience the joys of the outdoor weather while still being under the High Line and in the shade of the High Line. It’s a very unique space, and we’ve been able to do so much with it already.

Speaking generally to food and beverage and how it relates to our hotel rooms aspect of the industry-so food and beverage is often separate from our hotel operations. Shirley explains most hotels outsource food and beverage because there’s more experience to be had from those who’ve already done food and beverage in the restaurant industry versus having the hotel operate both hotel rooms and food and beverage. Food and beverage generally don’t do well to bring in revenues for a hotel property. That influences the decision for a hotel to outsource food and beverage.

For us, we are completely operated, both food and beverage and hotels, under one company, The Standard. So we don’t outsource. “We are strong in the food and beverage industry for a hotel company. And we take pride in that,” explains Shirley. “So, while most hotels are losing money on the food and beverage side, we tend to generate revenues on that side.”

Shirly says she doesn’t do much with the food and beverage. Her role is specific to selling the rooms of the hotel. However, sometimes they will package rooms’ specials with food and beverage credits or food and beverage experiences to sell both components together. That’s how she interacts with the food and beverage departments. Otherwise, it is pretty separate within our property and most of the hotel properties.

Hotels have a high degree of operating leverage, a relatively high level of fixed costs, and a relatively low level of variable costs. This level of operating leverage makes the business volatile. When a hotel is below the break-even point, it can lose money very quickly. But once it gets over the break-even point, the marginal cost of filling one more room and servicing one more guest is insignificant. Profits increase dramatically.
The hotel industry is much more volatile than other real estate industries, like office buildings and shopping centers. It is much more similar to the airline industry, which has comparable operating leverage.
If a plane has 100 seats and has sold 99 seats, the marginal cost of selling the last seat is a few cents. The passenger gets half a can of soda and some pretzels. But the plane neither hires any more flight attendants nor another pilot. So, the marginal profitability of selling that last seat is pretty close to 100%.
The hotel industry is similar in that the marginal profitability of selling each additional room after crossing the break-even point is remarkably high. So, its profits increase quickly. On the flip side, when business deteriorates, the economy weakens, a hurricane comes, or there’s a health or other momentous event that affects people’s travel plans and disrupts the travel cycle, hotels can suffer drastically. It is very challenging for the industry to tighten its expenses to cut losses.
Hotels are always trying to be nimble, but they’re working against the structural aspects of the industry. It is hard to be efficient. When the hotel industry is doing well, profits rise dramatically. But when the industry is suffering, profits can erode rapidly.

There are many ways to get into the restaurant industry. The quickest and simplest is to get a job at a restaurant. Become a server, cook, or manager. The easiest way to get into the business is to get a job at a food establishment.

There are more complicated ways because you may want to have more ownership in the restaurant. Franchising would be another way to get into the restaurant business very quickly. We see franchises every day-Dunkin’ Donuts, McDonanld’s, Chopped, and Burger King. They’re all around us. These franchises provide you with all the rules, regulations, and instructions.

You rent all of this from the franchisor, and the franchisor helps you establish your business. It is a quick way to get into the business. Quick meaning three to four months- especially if you’re buying a franchise that was already in existence and the restaurant was already open. If you choose to build a new franchise, it may still take only four months, but it’s going to be a lot more difficult because you’re dealing with the construction of a restaurant.

If you don’t want to become a franchisee and buy into somebody else’s product, you can always buy a restaurant that is closed. It has a kitchen, there are tables and chairs, and it has lighting fixtures, equipment. The kitchen is equipped, but it hasn’t been open for months. You’re going to buy it, clean it up, buy food, and start a new restaurant there.

That’s another fairly simple way to get into the restaurant business fairly quickly. More complicated ways to get into the restaurant business include developing a concept of your own brand-new restaurant and then find a bare space to design a kitchen and dining room. Now you may be 18 months away from opening your business because there are permits, licenses, fees, and training.

You need to establish how you’re going to buy food and test your menu. It’s a lot more complicated. That’s the most difficult way to get into the restaurant business. The speediest way is to work for someone in the restaurant business. If you want to be an owner, a quick way if you have the capital is to buy an existing restaurant that’s already open. When you buy it, it will continue to be open and operate.

A lot of research must be done to make sure that it is a restaurant that is profitable and will continue to be profitable. If it is not, then you could be buying someone else’s albatross, and you could be out of business quickly. If it’s not, but you have a great vision of how to reinvigorate energy into the menu and the concept and know that you can market it and build an entirely new crop of consumer for it, is a quick way to get into the restaurant business and be successful fairly fast.

A lot of events—like sports events or art events—really wouldn’t be possible without sponsorship. What we see is that private companies will invest to have their brand logo displayed or to have advertisements during the event so that their brand is connected to the brand, or the event itself.
At the Olympic games, major sponsors might be, for example, McDonald’s or Samsung. They invest a lot of money so that their product is aligned with the value of the event itself.
This can also happen in much smaller events. For example, there might be a local food festival where you live, and there might be local restaurants or food companies that sponsor that. Ticket sales, of course, are a major factor. Hopefully, you can sell enough tickets to raise the money that you have invested into staging the event.
There are other ways, particularly if you work in the arts. You could tap into government funds. There might be an application process so that you can host your event for the sake of the greater good of the community. That’s where local governments often invest.
They often do that because of the tourism impact it might have. You might attract people to the event that will spend money and thus bring benefits to the community. Maybe your event has other benefits. Maybe you have a community sports event that promotes healthy living or healthy eating, and the government wants to support it.
If we think of the venues where these events might take place, some of the main stadia in New York City you might well be familiar with. Think of Madison Square Garden or Radio City or the Barclays Center, but don’t forget that a lot of events also take place outdoors. For example, the New York City Marathon ends at Central Park, or the US Open, a tennis tournament, takes place at Flushing Meadows. Other famous examples would include Yankee Stadium and MetLife Stadium.

The back of house of a restaurant operation is like a manufacturing section. This is where culinarians perform. In the back of house you have several roles that make the kitchen hum, including:
* Executive chef
* Sous-chef
* Line cooks
* Grill cooks
* Utility team

Everyone likes to be romantic when they talk about their food, but the back of house is like a manufacturer. It might seem unromantic but the stark reality is that raw materials come in the back door of a restaurant.

From vegetables, meats, to fish, everything comes in a raw state. It is butchered, sliced, and diced by the team in the kitchen. Then just like you take raw materials to build a car, the materials are manufactured into a wonderful meal that leaves the kitchen. Ideally, it’s beautifully plated and at the right temperature, ready to impress the guest receiving the meal at their table.

The kitchen, or the manufacturing team, is the back of house. These are the people who we call culinarians – ones who are preparing all the food.

There are also a lot of utility jobs in a restaurant. There is someone to clean the restrooms and someone to make sure that the plates, flatware, and glasses are sanitized and clean. These types of jobs are also part of the back of house function.

Hidden in between back of house and front of house, there are lots of jobs in the restaurant industry. It might be easier to say front of house and back of house, but there are lots of professional jobs in between as well.

Many professional jobs that are also now part of the restaurant industry. Restaurateurs need to make sure they have a good attorney and good accountants. They may even need consultants who help them navigate city codes and health departments, to make sure that they can get their certificates in a timely way.

Restaurant operations are complex, and there are many back of house functions that help bring the food and beverage operations to life.

Let’s take a closer look at mega events and the hospitality industry. These events help with long-term regeneration and can transform a city for the better.

We’ve talked about some events and how important it is to coordinate between different stakeholders. But some mega-events change cities as a whole.
The Olympics are a key example. When the Olympic games are hosted the planning process starts a decade in advance. Cities have to apply to become host cities. They have to put in an application document.

They also need to start building the venues and the Olympic Village where the athletes will need to be housed. In some cities, there will be reorganizations in terms of transport infrastructure. We see that some cities approach this as a vehicle for long-term regeneration-so in other words, a vehicle for long-term change and new prosperity to different areas.

The London 2012 Olympics were a great example of this. They were hosted specifically in East London, an area that was, for a long time, seen as an ugly, polluted, former industrial area and where nobody wanted to build or live. So it was a bit of wasted space in a major city. What the Olympics did was inject a lot of investment in that area.

There was an entire soil cleansing process. All the old industries that were located there had left heavy metals in the soil, creating a very polluted area. The whole area was cleaned up and if you look at it now, it’s almost unrecognizable. None of that investment would have happened had the Olympic Games not come to town.

Sometimes, the event itself is much bigger than the two weeks that it takes place.

You have the Olympic Games. You have the Paralympics. And in principle, then everything is over. But the lasting effects of an event for a city can be much, much more significant.