Caterers say convention center hotel deal would cost them millions of dollars
Events staged at the Kansas City Convention Center’s Grand Ballroom and adjacent meeting rooms now can choose among eight city-approved food caterers that compete on price and menu.
But that longtime arrangement — and the millions of dollars those caterers have made from convention center business — could be wiped out by a controversial part of the proposed deal to build a downtown convention center hotel.
The proposal would grant exclusive meal catering rights at the convention center to Hyatt, the expected operator of the planned hotel.
City officials and the hotel’s developers say the exclusive deal is needed to make the $302.5 million hotel cost-effective. They say capturing the catering revenue and using it to help cover the debt taken on to build the hotel would protect Kansas City taxpayers.
But most of the current caterers — the nearby Westin, Sheraton and Marriott hotels; KC Catering; Brancato’s Catering; Lon Lane’s Inspired Occasions; Fiorella’s Jack Stack Barbecue and PB&J Restaurants — are against the proposed change and looking into ways to fight it.
Another caterer, Aramark, has a different concession arrangement and isn’t taking a public position on the catering deal.
The exclusive catering proposal is valued at up to $62.4 million over 15 years. For the Westin and Sheraton, losing the Grand Ballroom catering alone would be about a $2 million annual revenue hit, said Bill Lucas, president of Crown Center, which owns the two hotels.
“We’d need 15,000 room nights right off the top to make up that revenue if we won’t get it in convention center catering,” Lucas said. “That’s virtually impossible. The whole idea of a new convention hotel should be that it doesn’t damage the rest of us in the hotel industry.”
Some of the caterers are checking to see whether the city is required to put the catering business out for bid because taxpayer dollars support the convention center.
The city and the Burke Swerdling hotel development team say a multi-caterer arrangement is rare among metropolitan convention centers.
It’s “probably the last of convention center buildings around the country” to have such a setup, said David O’Neal, chief executive of Conventional Wisdom Corp., a consultant to the development team.
An exclusive food provider, according to O’Neal, would help the convention center ensure quality control because “with one vendor, the building can control quality better, and that’s what people remember about a building.”
City Manager Troy Schulte agrees. Even if the city weren’t negotiating with Hyatt, Schulte said, he was thinking about moving toward a single caterer. He said the city has received some complaints about catering, which he declined to specify. Schulte said a single provider would make quality control better.
Caterers disagree
“That’s absolutely wrong,” Brownie Simpson of KC Catering countered when asked about any quality control problems.
“That doesn’t mean someone didn’t have a complaint sometime with a caterer. But most exit evaluations are good. And that’s the whole reason for open cater. If something’s not right, you choose someone else next time. You can’t do that with one provider.”
If the Hyatt exclusive deal goes through, Simpson pegs his company’s loss of business at about $1 million a year.
Greg Scott, vice president-business development at Brancato’s, said his company would miss about $1.5 million a year.
“We’ve been behind getting a new convention hotel the whole time,” Scott said. “But we were thrown for a loop when we heard about the exclusive catering rights. This was totally not what we wanted to hear.”
Fiorella’s Jack Stack Barbecue has been a caterer for the convention center for most of the last 25 years and had revenues up to $500,000 in peak years.
“I’m disappointed the city is considering this exclusive agreement with the hotel,” said Case Dorman, Fiorella’s chief executive. “The convention center has been partly paid for by taxes from our business and businesses like ours that have been working in the city for several years.”
Paul Khoury, owner of PB&J Restaurants, also was critical: “I don’t think it is a very good deal. There shouldn’t be a monopoly. In America, there’s always competition. If one person has exclusivity, then people won’t be able to get competitive pricing. In fact, the Hyatt can charge anything they want at the convention center.”
Lon Lane, owner of Lon Lane’s Inspired Occasions, would like the center to keep using a diverse lineup of caterers.
“You can’t be all things to all people. And if people want barbecue from one of our famous barbecue establishments, they should be able to get it,” he said.
For the last 25 years, Lane has focused on four or five high-end convention events a year — weddings, corporate gatherings, milestone anniversaries — for annual revenues of about $500,000.
“As much as I hate (losing the convention center), it is not going to put me out of business,” Lane said. “But I think it could be devastating to some other caterers who have built their business on convention business, some for 30 years. They would shut them out, saying, ‘We don’t want you anymore.’ Like the guy leaving for the trophy wife.”
Hard negotiations
City officials and hotel developers said the catering proposal was a painstakingly negotiated solution to safeguard the city’s operating fund and meet the city’s demand that it not be on the hook for cost overruns or revenue shortfalls.
“From the city’s point of view, there are potential profits from the convention center catering” that could go to the city, said hotel co-developer Michael Burke. “This arrangement saves the city from putting additional cash dollars into the hotel.”
While a final catering agreement has yet to be signed, most of the current caterers are meeting privately to explore whether they have a legal basis to retain open catering.
Aramark has a slightly different perspective from the other caterers on the exclusivity proposal. It has exclusive concession rights through June 1, 2018, relating to any cash concession sales, including cash liquor service, at any event. Those rights apply to Aramark no matter who has the banquet or convention catering contract.
David Freireich, spokesman for Aramark in Philadelphia, declined to comment on the hotel proposal, saying only, “We look forward to continuing our partnership with the Kansas City Convention Center.”
The Kansas City Council is expected to vote on the Hyatt proposal this summer if plans promoted by Mayor Sly James, Schulte and the Burke Swerdling developers reach fruition.
Burke downplayed the fears about higher prices.
“Hyatt understands that they need to be competitive,” he said, or they’ll lose convention center business to other locations in the city.
But some meeting planners who are familiar with catering costs around the country echoed fears that Hyatt’s prices would be higher.
Patric Mills, senior contracts manager for the Educational Testing Service, one of the convention center’s largest annual users, said she has used Hyatt service elsewhere and “I figured it could cost us twice as much if we had to use Hyatt as exclusive.”
In Kansas City this year, the testing service had about 5,000 people using nearly 26,000 room nights over three weeks. The group this year met in four cities around the country to grade national tests and is expanding to a fifth city.
“We love Kansas City,” Mills said. “The site runs very well. The suppliers are terrific, and we love our current caterers (KC Catering and Brancato’s). But higher catering costs could price us out right out of here.”
Mills said Kansas City already is more expensive than the testing service’s other sites in Cincinnati, Louisville and Salt Lake City. For one thing, it needs to pay for shuttles to take attendees from Crown Center hotels to the convention center. A new convention center hotel and completion of the Main Street streetcar line could ameliorate those costs.
Simpson, at KC Catering, said the current open bid system for catering “keeps prices in line, keeps the convention customers happy and is good for consumers.”
“There’s nothing wrong with the new Hyatt being one of the approved caterers,” Simpson said. “But don’t exclude the existing ones. This would be devastating to the local catering companies.”
The memorandum of understanding for the convention hotel would give Hyatt — or another “major global hotel brand” operating the hotel — exclusive meal catering rights to 101,000 square feet of convention center meeting space, including the Grand Ballroom, which faces the Kauffman Center for the Performing Arts.
The convention center’s Grand Ballroom is the site for the most lucrative catering deals, the largest banquets.
Burke emphasized that Hyatt would not be able to control who gets to use the Grand Ballroom and convention center. He said the city and VisitKC, the city’s convention and tourism marketing agency, would retain their booking rights and operations of convention center.
“Hyatt will not collect fees for rental of the Grand Ballroom. The city still will collect those,” Burke said. “The city and VisitKC will control the bookings. Hyatt can’t shut anyone out.”
The exclusivity proposal would expire after 15 years, allowing the city to again authorize “multiple parties to bid to provide non-exclusive catering services to each separate event held at the convention meeting space.”
The Star’s Lynn Horsley contributed to this report.
To reach Diane Stafford, call 816-234-4359 or send email to stafford@kcstar.com.
To reach Joyce Smith, call 816-234-4692 or send email to jsmith@kcstar.com.
A complex catering proposal
According to the current memorandum of understanding between the city and the hotel developers, an exclusive catering agreement at the Kansas City Convention Center would stipulate:
▪ Gross revenues from the Hyatt hotel’s catering services at the convention center would be transferred each month to the city to be deposited in a special account.
▪ From the account, the city each month would reimburse expenses incurred by the Hyatt catering service.
▪ The city then would deposit 4 percent of the annual gross catering revenues into a fund to be used solely for maintenance and improvement of the convention center’s meeting space.
▪ Meanwhile, the city would retain 14 percent of Hyatt’s gross revenues from catering — capped at $800,000 a year — to be used as the city decides.
▪ The city would pay a fixed annual fee to the investors in monthly installments. If the money wasn’t available from gross catering revenues, the city would pay the required sum by drawing from “any legally available city funds.” According to the proposal, the annual fee would rise from about $2.44 million in year one to nearly $5.4 million in year 15.
▪ If any excess remained after the required payments, the city would be able to deposit it in a reserve fund to pay any shortfalls in the above requirements.
▪ The city also would have the right each year to retain some Super TIF revenues — from city economic activity taxes — “if gross catering revenues less expenses are insufficient to fully pay the management fee payable to hotel owner.” Those amounts would range from $244,000 in year one to $1.6 million in year 15 and would be used to cover any possible shortfall in the catering revenue.
Co-developer Michael Burke said the city’s take based on 14 percent of Hyatt’s catering revenues plus its 4 percent take to be used solely for convention center upkeep is preferrable to the current arrangement, which gives the city an 18 percent take based on existing catering revenues. The big benefit is the guaranteed 4 percent for maintenance and improvements, he said.
But local caterers contend the convention center catering business is worth more than the city and developers are stipulating and the dollar amounts stipulated in the proposed deal would shortchange city coffers. Even if true, that’s what it takes to make the deal work, according to city officials and developers.
Diane Stafford, stafford@kcstar.com
This story was originally published June 6, 2015 at 5:40 PM with the headline "Caterers say convention center hotel deal would cost them millions of dollars."