The Asian Business Case Centre, Nanyang Business School

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AFTERNOON TEA AT
THE PENINSULA HONG KONG
Sheryl E. Kimes
Publication No: ABCC-2007-008
Print copy version: 21 Jan 2008
Even though Afternoon tea at The Peninsula Hong Kong was extremely successful with
both guests and local residents, it seemed that there might be opportunities to increase
revenue.
You have been asked to evaluate the situation described in the case and then use revenue
management concepts to develop ideas on how to improve its performance.
This case has been prepared by Professor Sheryl E. Kimes, Singapore Tourism Board Distinguished
Professor of Asian Hospitality Management at Cornell-Nanyang Institute of Hospitality Management,
Singapore . It is based on internal company sources and interviews with key personnel from The Peninsula
Hong Kong. As the case is not intended to illustrate either effective or ineffective practices or policies, the
information presented reflects the authors interpretation of events and serves merely to provide
opportunities for classroom discussions.
COPYRIGHT 2008 Nanyang Technological University, Singapore. All rights reserved. Not to be
reproduced, stored, transmitted or altered in any way without the written consent of Nanyang Technological
University.
For copies, please write to The Asian Business Case Centre, Nanyang Business School, Nanyang
Technological University, Nanyang Avenue, Singapore 639798, Singapore
Phone: +65-6790-4864/5706, Fax: +65-6791-6207, E-mail: asiacasecentre@ntu.edu.sg
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Its just after 2.00 pm in The Lobby of
The Peninsula hotel in Kowloon, Hong
Kong. Afternoon tea, a venerable tradition
at the hotel, has just begun.The tables
are full and 20 people are already waiting
in line for a table. Classical music from
the 4-piece string quartet drifts through
The Lobby and the clatter of eating,
talking and laughing fills the room.
Afternoon tea originated in the United
Kingdom and has been adapted by many
other countries (including Hong Kong)
that were part of the former British
Empire. It is typically served at 4.00 pm
and generally consists of loose tea
served in a teapot with milk and sugar
along with small sandwiches (usually
cucumber, egg and watercress), scones
and pastries. The food is often served
on a tiered stand. In some places it is
sometimes referred to as high tea,
although traditionally in England, high tea
was a light meal eaten in the early
evening.
The Peninsula Hong Kong
1
opened in 1928. In July
2007, the rates for its 300 rooms and suites ranged
from HK$3,700 HK$6,500 for rooms and from
HK$6,000 HK$48,000 for suites.
2
The hotel had eight
restaurants, a spa and numerous upscale retail
stores. It had received a number of awards for quality
and was considered one of the best hotels in the
world.
3
In 2006, the Hong Kong hotel market was thriving
and there were 47,128 hotel rooms, with 10,809 in
higher-priced hotels. Higher-priced hotels averaged
85 percent occupancy with an average daily rate of
HK$1,691. Approximately 35 percent of higher-priced
hotel revenues came from food and beverage and
about 25 percent of expenses were attributable to
food and beverage operations. The gross operating
margin (before taxes) was about 35 percent.
4
Afternoon tea at the Pennisula Hotel was started in
the early 1980s. Since then, it had become extremely
popular with both tourists and local Hong Kong
residents alike, with queues developing every day of
the week. In 2007, it was offered each day from
2.00 pm to 7.00 pm at the 210-seat dining hall - The
Lobby. On weekends, the queue for tables would form
by 1.30 pm as customers arrived early so that they
would be among the first to be seated. By 3.00 pm or
4.00 pm, the queue could reach over 50 people and
the wait would often exceed 45 minutes. Reservations
were not accepted, but hotel guests and VIP
customers were given preferential treatment and did
not need to wait in the queue.
On average, 408 guests were served Afternoon tea
each day with a slightly higher demand on weekends.
[See Table 1.] Over a three-month period in 2007,
the daily number of guests served ranged from 287 to
537.
Table 1
Average Number of Guests by Day of Week
[3-month period in 2007]
Day of Week Average No. of
Guests
Sunday 449
Monday 379
Tuesday 374
Wednesday 370
Thursday 404
Friday 433
Saturday 450
For the Afternoon tea, the dining room was split into
two parts with 48 tables for four and 3 tables for six.
[See Figure 1.] The tables were comfortably spaced
with plenty of room to allow for the movement of staff
and guests. The queue line was located between one
side of the dining room and several retail shops.
Customers could chat, take pictures of the lobby,
read tour books or people-watch while waiting to be
seated.
A host constantly surveyed the dining room looking
for vacant tables. Once a table was available, he would
mark it down on a piece of paper, hand it to the
customer at the head of the queue and escort the
party to the designated table. On his way back, he
would look for other available tables and then seat
the next party, should another table be free.
1 For more information on Hong Kong, please see Appendix 1.
2 The exchange rate was HK$7.82 to US$1 as at 1 July, 2007.
3 For more information on The Peninsula, please see http://hongkong.peninsula.com/
4 Horwath Consulting.(2006). Hong Kong Hotel Industry Review 2006.
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While Afternoon tea attracted many repeat customers,
new customers were often confused as to how to get
a table. When they walked in through the main
entrance of the dining hall and noticed the bustle,
they were often uncertain of what to do or where to
go as the queue was not particularly visible from the
main entrance. They frequently approached a server
or manager to ask for a table. Since tables were
generally not available, the guests were directed to
the queue.
A manager assigned to each side of the dining room
ensured that the service flow was maintained, and
informed the host when tables became available. They
also helped to clear and reset tables, if necessary.
The kitchen was located at one side of the dining
room and servers walked back and forth picking up
and delivering menu items or returning used dishes.
When guests had finished their meal, the table would
be cleared, reset and reseated in approximately three
minutes.
Afternoon tea attracted a large number of couples as
well as some parties of 6 to 8. In July 2007, about 70
percent of the guests of The Lobby ordered the
Peninsula Afternoon tea which was then priced at
HK$248 per person and HK$368 for two persons.The
Peninsula Afternoon tea service offered each customer
a choice of teas and an attractive multi-tiered tray of
assorted sandwiches, scones, pastries and other
sweets. On average, customers stayed at the table
for about 45 minutes, with some customers lingering
much longer.The pace of The Lobby was fast, the
music pleasant (and definitely audible) and light from
its signature chandeliers was augmented by light
streaming in from the outside. A fair number of guests
asked their server to take pictures of them at the
table so that they could preserve the memory of their
Afternoon tea experience.
Figure 1
Peninsula Lobby
Queue
Dining Area Dining Area
Kitchen
Front Desk
Shop Elevator
Door
ASSIGNMENT
You have been asked to develop a plan for increasing Afternoon tea revenue by 10 percent. Obviously,
Afternoon tea is very popular and busy, but what could you do to make it even more successful? Be sure
to consider how they can better manage their space, their timing and their pricing.
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APPENDIX 1
HONG KONG FACT SHEET
Geographic Data
Location Eastern Asia, bordering the South China Sea
and China
Land Area 1,092 sq km
Climate Subtropical monsoon; cool and humid in winter,
hot and rainy from spring through summer, warm
and sunny in fall
People
Population 6,980,412 (July 2007 est.)
Age structure 0-14 years: 13% 15-64 years: 74% 65 years and
over: 12.9%
Population growth rate 0.561% (2007 est.)
Life expectancy at birth Male: 79.0 years Female: 84.6 years (2007 est.)
Ethnic groups Chinese 94.9%, Filipino 2.1%, other 3%
(2001 census)
Religions Eclectic mixture of local religions 90%, Christian
10%
Languages Chinese (Cantonese) 89.2% (official), other
Chinese dialects 6.4%, English 3.2% (official),
other 1.2% (2001 census)
Literacy rate (population 15 years and older) 93.5%
Economy
GDP at current market prices Purchasing power parity US$258.8 billion
(2006 est.)
GDPreal growth rate 6.8% (2006 est.)
GDPper capita at current market prices Purchasing power parity US$37,300 (2006
est.)
Inflation rate 2.2% (2006 est.)
Labour force 3.63 million (2006 est.)
Source: Central Intelligence Agency. The World Factbook. Retrieved 19th November, 2007, from https://
www.cia.gov/library/publications/the-world-factbook/geos/hk.html