Profit erosion is an unpleasant fact of life in the hospitality industry right now. With rising inflation on one hand and post-pandemic price increases from vendors on the other, hoteliers are struggling with soaring operating costs. Many are related to services, like utilities, waste and recycling, telecom, and even property taxes and insurance, that fall outside the purview of GPOs and are typically managed at the hotel level. While there’s an urgent need to tackle these spend areas, the time and talents of general managers are best put toward the guest experience and running the day-to-day operations. Moreover, many of these costs are often considered unavoidable or non-negotiable, so general managers rarely have the experience and tools to take them on efficiently.
Hotels can’t afford NOT to capture the savings.
SIB recently sponsored a No Vacancy Live podcast entitled Lower Hotel Expenses Now!, during which host Glenn Haussman chatted with a panel of hospitality industry executives about this very conundrum. The group talked about how service-related costs are the very expenses that are often the ripest for cost reduction. Further, these costs can often be reduced without sacrificing services, impacting the quality of the guest experience, or disrupting operations. By securing better service rates, eliminating billing errors, property tax reduction, and rightsizing services, hotels can save tens to hundreds of thousands of dollars nearly instantly, which can go a long way toward fixing the profitability problem.
The panelists also discussed how hotel management groups need to equip general managers with the tools better and support they need to more successfully and efficiently reduce service costs. When they do, they create a win-win-win situation: their businesses become more profitable, their GMs have more time to focus on their guests, and their guests are happier as a result.
Here are four topics that came up on the podcast as sure ways to take a smarter approach to cost reduction:
1. Look beyond GPOs to find major savings opportunities.
Group purchasing organizations create massive buying power for consumables. However, GPOs cannot negotiate optimal contracts for certain services. Instead, the GM or Director of Finance frequently manages contracts at the local level for utilities, waste removal, telecom and internet, payroll processing, linen, laundry, and uniform services.
However, with so many other responsibilities, GMs rarely have time to hash it out with these service providers to capture available savings. Few are even aware that significant savings exist, and almost none have access to the market data to know what constitutes a best-in-class price for these services.
As a result, many of the areas ripest for major savings go overlooked. Given that hotels can reduce the costs for many of the services by as much as 25%, which can add up to thousands of dollars in savings per month, it is well worth the effort to take a closer look at the full range of operating expenses. This includes largely overlooked spend categories like bank and merchant fees, property taxes, and insurance premiums that can be reduced with zero impact on guest experience. Consider an insurance audit to save thousands on annual insurance premiums.
2. Invest in audits and reviews to get a picture of overall spending.
GMs are often well aware of where they need to invest in more or improved services. If there is a problem with anything that impacts the guest experience, for example, a good GM will immediately look into whether or not services need to increase.
GMs are much less aware of where they are overspending or where price creep in occurs. Often, when services such as trash pickup or floor mat cleaning are put into place or increased for busy times or seasonality, these spend categories are not revisited, reviewed, or rightsized later on to match service levels to changes in demand. A comprehensive audit or review is the best way for general managers to get their wide range of expenses on their radar and to become more aware of redundant services, rising prices, and areas where savings opportunities exist.
3. Use software and business intelligence tools to analyze and better understand the spend.
Executives agree there is a need to measure all their costs, review them monthly, and create a budget. Accounting and spend management software can help general managers capture and organize the spend data and derive meaningful insights more efficiently and effectively.
The right solutions will help decision makers quickly see their major expenses, identify spending trends, and find opportunities to decrease redundant services or practices and generate savings through service optimization. As one example, labor optimization software can help hotels reduce their labor costs by staffing appropriately based on forecasted occupancy rates.
4. Bring in cost reduction experts to support your GM’s success.
All the industry experts who participated in the Lower Hotel Expenses Now! podcast agree that partnering with cost reduction experts is the best way to help GMs succeed. Hoteliers need partners that offer contract management, conduct audits and review or negotiate contracts especially in specialized areas like property taxes, waste management, utilities, or anywhere they have not recently reviewed long-term agreements.
Such partners can quickly uncover the biggest opportunities for the greatest savings. They have the expertise and data to successfully capture those savings, allowing GMs to stay focused on what they enjoy and do best—improving the guest experience. The industry experts also pointed to ancillary advantages of using partners to do the cost reduction legwork, like preventing staff burnout and improving employee satisfaction by allowing them to stay focused on the parts of the job they love. This translates into reduced turnover and avoiding the expenses that go along with replacing staff.
As one panelist put it, the goal is to “take any weight we can off that hotel staff and off of that GM, so they can focus on the guest experience, not only the guests that are in-house, but also recruiting guests, right? Because both are super important. None of us are here unless we have guests in our hotel rooms.”
Learn more about lowering expenses and protecting profitability without compromising service.
In today’s economic climate, hotels need to proactively take control of profitability erosion. If they can do it in a way that doesn’t compromise the guest experience and improves the success and satisfaction of their GM and staff at the same time, then they win on every level.
To hear more about what industry experts have to say on the topic, check out the full 30-minute Lower Hotel Expenses Now! podcast.
