$20 Coffee Pods and $180 Cocktails: Hotels Have Forgotten What Business They're In
When your in-room coffee costs more than the guest's lunch and two drinks at a show require a payment plan, you haven't found a revenue strategy. You've found the fastest way to teach your best customers to spend their money somewhere else.
I knew a food and beverage director once who had a phrase he used every time ownership pushed him to bump menu prices. He'd say "there's a difference between charging what something's worth and charging what you think you can get away with." The first one builds a business. The second one works exactly once.
That's what I thought about when I saw what's happening at some of these properties right now. Twenty bucks for a Nespresso pod at a Grand Hyatt. A hundred and eighty dollars for two cocktails and two waters at a show venue inside an MGM property in Vegas... and that includes a $25 "admin fee," which is my new favorite euphemism for "because we can." Look, I understand ancillary revenue. I've managed the P&L. I know what F&B margins look like and I know how hard it is to move the needle when your labor costs are running 35% and your food costs are climbing. But there's a line between smart ancillary capture and treating your guest like an ATM with legs, and we blew past that line somewhere around the time someone decided a pod of coffee that costs $0.70 wholesale should retail for twenty dollars. The math on that markup would make a pharmaceutical company blush.
Here's what nobody in the corporate revenue optimization meeting wants to hear: this stuff doesn't exist in isolation. A guest doesn't experience the $20 coffee pod as an independent transaction. They experience it as a data point in a running calculation that goes something like this... "The room was $389. Parking was $55. The resort fee was $45. And now they want twenty bucks for coffee I make at home for thirty cents." That calculation has a tipping point, and when you hit it, you don't get a complaint. You get something worse. You get a guest who checks out, leaves a three-star review, and books the boutique independent down the street next time. You never see the damage because it doesn't show up on this month's revenue report. It shows up in next year's repeat booking rate. This is what I call the Price-to-Promise Moment... every stay has one moment where the guest decides the rate was worth it or it wasn't. A $20 coffee pod at 6 AM before a business meeting is not that moment. It's the anti-moment. It's the second the guest decides they got played.
What's telling is that MGM's own CEO admitted last fall that aggressive pricing (his words, not mine) had alienated customers. He specifically referenced $12 Starbucks coffee on property. Said they'd "lost control of the narrative." They did price corrections. And now we're seeing $180 for two drinks at a show venue. So either the corrections didn't reach every outlet, or the definition of "corrected" is more generous than I'd use. Meanwhile, Hyatt is pulling back loyalty benefits and moving to a five-tier award pricing system that's going to cost members more points for the same rooms. So the message to your best, most loyal guests is... we're going to charge you more for the room AND more for the coffee once you get there. That's a bold strategy. I've seen it before. It doesn't end well.
The real problem is structural. When you go asset-light (which Hyatt is aggressively doing... 80% of earnings from fees is the target), you're collecting management and franchise fees whether the guest comes back or not. The owner eats the repeat-booking decline. The brand collects the same percentage. So who exactly has the incentive to protect the guest relationship? The brand will tell you they do. But the brand isn't the one who decided to charge $20 for a coffee pod. That decision was made at property level, by someone trying to hit a margin number, probably one that was set by an asset manager or an owner who's trying to cover the franchise fees, the loyalty assessments, the reservation fees, and the PIP debt. Everyone in the chain is rational. And the guest still pays $20 for coffee. That's the machine working as designed. Which should terrify every owner reading this, because the machine is designed to extract, not to build loyalty.
If you're a GM or a property-level F&B director, audit every single ancillary price point in your hotel this week. Not next month. This week. Calculate the markup on your top 20 highest-margin in-room and outlet items and ask yourself one question: if a guest posted this price on social media with a photo, would it make you proud or make you cringe? Because that's exactly what's happening... every overpriced coffee pod is one iPhone photo away from being your next TripAdvisor disaster. If you're an owner, understand that your brand partner's fee structure incentivizes them to push revenue up regardless of what it does to guest sentiment. That's your asset taking the long-term hit, not theirs. Set pricing guardrails in your management agreement if you haven't already. The $20 coffee pod isn't a revenue strategy. It's a reputation loan you're going to repay with interest.
