Self-catering gives you options that you don't get from hotels.
I think options are good when you are going on holiday for the first time with toddlers.
If you are in a self-catering area, there will be restuarants in the vicinity - not all self-catering customers will literally cook for themselves.
If you self-cater, you can mix and match according to your family needs.
We like to eat out on holiday, but do not value paying extortionate amounts for children's breakfasts. We tend to pay a restaurant for one main meal (lunch or supper) and cook the other one ourselves.
Saying that, this year we are going full-board We are holidaying in Canada and are on 'full American plan', which means three meals per day.
Last year, we have 3 days in Paris. The hotel charged us 10E per person for breakfast (which was basically bread and cheese). There were no places to go nearby, including McDonalds). With seven of us, I was fairly gutted at the cost and encouraged lots of taking of food from breakfast for snacks. Later in our holiday, when we were at Centerparcs, we bought baguettes daily and made our own ham/chese combs. 3 baguettes cost less than 3E.
For me, breakfast is the thing that matters. It is horrendously costly if paying a la care, but incredibley cheap and easy if self-catering. The other two meals, I tended to value based on the behaviour of the children. I found it easier to self-cater the evening meal when I had feisty boy-toddlers - and that meal could easily morph into bath and bedtime.
Now for us, we can manage a civilised lunch or evening meal. We choose only one out as amatter of cost. Eitehr lunch or supper works for us, but we can't generally afford both.