Is Hilton’s war on breakfast a big deal? (On Nick’s mind)

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Rumor has it that Hilton will permanently replace “free breakfast” with its food & beverage credit. Is this the beginning of the end? A reader asked this question during our Youtube Live Ask Us Anything this week:

Why does it seem the future of hotel loyalty programs are dying? The Hilton change has me upset.

I can certainly understand the sentiment behind the question, but is it true? Is Hilton’s war on breakfast a big deal?

While the truth is that the change seems rational to me for a number of reasons, it will greatly reduce Hilton’s ability to force my hand toward the type of irrational decisions loyalty programs are designed to encourage.

Free breakfast on memorable stays like the Conrad Bora Bora probably had me overvaluing

Increased flexibility = decreased cost and increased profit

During the pandemic, Hilton replaced “free breakfast” for Gold and Diamond members with a food & beverage credit. They billed it as a way of offering “flexibility”, though clearly flexibility involves choice and so the ability to choose between breakfast and a food & beverage credit would have been actual flexibility. This is about cutting costs, though it works out well for some people.

The rumor is that this change will be permanent, at least at properties within the United States. Personally, I am really disappointed by that to an extent that goes beyond breakfast, but I’ll come back to that in a moment. First, I have to recognize that this change makes a lot of sense for some travelers.

Keep in mind that a loyalty program is designed to attract and keep the most valuable customers, not to reward those of us who live and breathe max value extraction. The most valuable customers — indeed, the vast majority of those spending 30 or 40 or 60 nights a year in hotels – are business travelers. Sure, leisure travelers may spend a bundle on one nice vacation each year, but business travelers spend consistently throughout the year and it can really add up.

In a lot of cases (most cases?), a business traveler’s employer will reimburse the cost of meals. I have to imagine that “free breakfast” doesn’t really matter to many business travelers because they wouldn’t need to pay for it themselves anyway. Free breakfast is probably meaningless to a lot of people who were receiving it as a perk of their loyalty. I can see why it not only might not be worth the expense to Hilton but why Hilton may have felt that it was long missing a chance for revenue in offering something for free that it didn’t have to. In fact, I could see where Hilton may assume that a business traveler will be happy to sign the breakfast check since their employer is paying for it anyway and maybe Hilton thinks that a credit that can be used at the hotel bar has more chance to persuade business travelers to choose Hilton.

Atlas Bar at the Conrad Fort Lauderdale

The above rationale matches why I have long assumed Hyatt offers free parking for Globalists on award stays but not paid stays. My guess is that their assumption is that most Globalists are business travelers and in most cases the company is going to cover parking anyway, so that benefit (which may come with real cost in many cities) doesn’t provide value for the business traveler when they aren’t the ones footing the bill anyway. However, when they use the points they accumulated by being loyal to Hyatt to take the family on vacation, getting free parking is meaningful.

Hilton probably viewed free breakfast as an unnecessary cost and they might not be wrong in some ways.

While the program as a whole is likely designed with a business traveler in mind, Hilton’s food & beverage credit obviously also works for some non-business travelers. Not everyone is a morning person and I can relate to that. Further, like many readers, I have enjoyed checking out local breakfast places over the years. I get that there are people for whom a credit that can be used for dinner or a drink at the bar or snacks for the room would be preferable.

And while I am personally not a fan of losing “free breakfast”, I can admit to the fact that I do enjoy room service breakfast and will probably use breakfast credits toward room service at some point (though that use case is probably quite poor since delivery and service fees will significantly erode the dollar value of the credit).

I do love a room service breakfast, so I’ll probably use Hilton’s elite credit for it at some point.

And even for credit card holders, the change might not be as bad as it feels on the surface. Whereas a card with a $95 annual fee used to give you free breakfast everywhere, it now gives you at least $10 in credit per stay. Even if you only value that at 50% of face value, it only takes a relative few stays with two guests in the room to recoup the cost of the annual fee.

The intangible value of free breakfast

Despite the fact that I understand that “free breakfast” comes at unnecessary cost (since many business travelers would have happily spent the company’s dime on breakfast anyway), I think this marks a strongly negative change for the Hilton Honors program that will certainly affect my hotel choices moving forward — and I’m not talking out of spite over losing my bagel and coffee from the buffet but rather because it eliminates my incentive to book direct with Hilton and actually makes it easier to shop around.

Whereas in the past, I would often go directly to the Hilton app on my phone to search for a Hilton property, there is now limited upside to booking direct. My primary two motivators for booking direct with a hotel chain are flexibility (free cancellation) and elite benefits. The value of those things is highly subjective and easily clouded.

How much is Hilton free breakfast worth? I don’t know, but it sure feels like a lot in some cases. Some people say that breakfast is the most overvalued part of this hobby. I staunchly disagree, but my disagreement isn’t mathematical. It is entirely abstract and related to the way I value the ability to wade through a sleepy fog and order the elixir of life with one cream and one sugar before I’ve had to think about whether I need to wear a jacket or bring an umbrella or whether the diaper bag has a change of clothes for both kids. How much do they charge for breakfast at the average X or Y chain hotel? I have no idea since I haven’t had to pay that price in years and I’m probably not going to call the hotel in advance to find out how much they charge for breakfast to be able to compare the value I’m getting at Hilton against other chains or booking channels. The value of not having to worry about it is emotional and valuable beyond the sticker price.

To me, that made it easy for Hilton.com to compete. I wanted to book direct because I valued the experience of free breakfast to an extent that couldn’t easily be measured. To be clear, that probably led me to poor choices. I’m sure I’ve probably overpaid more than once to book direct or to book a Hilton Garden Inn over a Courtyard because of “free breakfast”.

Out: convenience. In: calculation.

Hilton’s elite member benefit is now very easily measurable: it is worth $10 per person to $25 per person depending on brand. I’ll mentally discount that a bit in cases where I think I’ll use room service and lose some of the credit to room service fees.

For example, I just now looked up a night at the Hilton Garden Inn at Buffalo Niagara Airport (no particular reason, that hotel just popped into mind as I’ve stayed there before). On Hilton.com, the rates for the night I checked started at $134.

This is a nonrefundable advance purchase “member” rate.

At Capital One Travel, the same hotel is $121 (unfortunately with the same advance purchase / nonrefundable restriction).

If I were traveling by myself, I would clearly book that via Capital One (if I didn’t mind a nonrefundable rate). The nightly rate difference ($13) is greater than the maximum value that I can hope to extract from the $10 free breakfast credit. It is no longer an irrational emotional choice about convenience but now it is a measurable dollars-and-cents decision.

One thing I’ll lose by not booking direct is the opportunity to earn Hilton points. While that could be disappointing, the value of Hilton Honors points is probably far too opaque for most customers since there is no easy award chart against which to compare your earnings to determine what they could buy you in the future. Sure, I have a pretty concrete idea what Hilton points are worth, but if the chance to earn a lot of hotel points that have no clearly defined value were a primary motivator in choosing a loyalty program, IHG would have been the talk of the town for years already.

In my case, losing out on the chance to earn Hilton points wouldn’t really hurt at all. Sure, I’ll give up the chance to earn 10 base Hilton points per dollar spent (18x total as a Gold member or 20x as a Diamond member before any promotions), but I’d stand to earn 10x Capital One miles per dollar spent when booking through Capital One Travel. Earning 10 transferable miles per dollar spent could certainly make up for the loss of Hilton point earnings. I’d lose elite credit for the nights, but I’m not counting nights in the Hilton Honors program anyway since all it takes is a credit card to have elite status.

And if elite nights do matter to you, it may still be possible to get lucky and combine the cheaper price with an elite night earned. Last night, I spent the night at a Fairfield Inn (by Marriott) that I booked via Capital One Travel. Upon arrival, we grabbed a couple of bottles of water to charge to the room, so I asked if I could add my Marriott Bonvoy number to the reservation. The agent let me know that since I had booked and paid via a third party, I wouldn’t receive any points for the room, just night credit. I didn’t think he was correct about earning elite night credit, but then the reservation did immediately get added to my stays in the Marriott app. I don’t know for sure that I’ll get elite night credit, but if I do, that will be a nice little bonus.

Capital One travel was just one example of how you might shop around, but anyone using a hotel aggregator will find the mental math a bit easier with a defined value of the F&B credit in mind. The breakfast credit still takes what had a very opaque value proposition (“free breakfast”) and makes it easily measurable against other booking options. For instance, Hotels.com gives an effective 10% back with their “free night after 10 stamps” system. The same hotel above was $137 via Hotels.com.

Via Hotels.com, you’d get the hotel stay + an effective $13.70 toward a future stay for $137 vs the getting hotel stay + a $10 food & beverage credit that must be used during the stay for $134. It really comes down to whether you would rather have ~$10 off of a future hotel stay anywhere and anytime or $10 in food & beverage credit at the Hilton Garden Inn Buffalo / Niagara Airport. I’d lean towards Hotels.com before even considering whether I could get a discount on their gift cards in advance.

Indeed, the breakfast credit may be a many of us in that it may encourage us to shop around and take advantage of things like Hotels.com’s rewards program or Capital One Travel more freely. For those who aren’t loyal to a chain, will make it easier to justify being a free agent.

The purpose of creating a loyalty program is to influence people to make irrational decisions. You want people to not do calculations like those above so they make emotional or irrational decisions based on perceived value (rather than a concrete idea of value). The excellent breakfasts I’ve had at fancy Hilton properties in far-flung places likely influenced me to overvalue breakfast at the Hilton Garden Inn Buffalo-Niagara International Airport in the past, but that won’t be the case in the future.

And so I think the real loss here for Hilton going forward is that members may be more apt to shop around when they can easily reference a dollar value for the food & beverage credit. No longer will I choose Hilton because I want free breakfast, instead I’ll look at a hotel aggregator and pick what comes out the cheapest after accounting for the ten or fifteen dollar credit I might expect at a Hilton property.

At least, that’s what I’ll do when I no longer have Hyatt and Marriott elite status, where I’ll probably look more often since they still have me fooled into overvaluing breakfast by just giving me the convenience without the calculation.

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