Managing expenses in the hospitality industry is a difficult job that gets tougher every year. Following the terrorist attacks on 9/11 and the Great Recession that started at the tail end of 2007, hoteliers scoured their businesses for ways to cut costs. Now, with varying levels of uncertainty circulating through the industry and an ever-growing difficulty pushing rate, operators are back in cost-cutting mode. Here are the top 10 ways hoteliers can manage operating expenses in 2018:
1. Focus Attention on Payroll
Wage growth remains the No. 1 challenge facing hotels’ bottom lines today, and in 2018 wage growth is forecast to outgrow average-daily-rate growth. Michelle Russo, founder and CEO of HotelAVE, said low unemployment, unfavorable immigration policies and rising wages all converge to create an uphill battle for hotels in search of savings. The fastest way to achieve those savings, Russo said, is to offer something other than higher pay.
“They are looking at a 5-percent increase in wages in Boston this year,” Russo said. “You have to be creative to mitigate that. Enhancing existing benefits, offering pet insurance, those can be effective options, but hourly employees tend to value wage increases more than benefits.”
Gary Isenberg, president of asset & property management services at LW Hospitality Advisors, said this is an area that demands attention from operators because a 5-percent to 10-percent savings in payroll is much more impactful than a 5-percent to 10-percent savings elsewhere.
For example, at a hotel earning $10 million in gross revenue, payroll typically soaks up anywhere between $4 million to $5 million of revenue a year. If management is able to improve efficiency by just 5 percent in this area, the property stands to save roughly $200,000 a year.
“As an asset manager, every hotel we’ve looked at we’ve found new payroll efficiencies,” Isenberg said. “The easiest opportunity would be housekeeping rooms production.”
Isenberg said that analyzing the payroll recorded, not scheduled, when cleaning rooms will produce a discrepancy.
“If you ask 10 GMs what their rooms production looks like, they’ll say housekeepers flip 15 to 16 rooms per shift, spending 30 minutes in each room,” he said. “Oftentimes it’s more like 13 rooms a shift. If you look at your processes and manage to get those numbers back up to 15, you will see significant savings over time.”
2. Creative Training
When hotels experience a rise in spending, training often is the first thing operators toss out. Felix Maldonado, GM of the Hilton Garden Inn New York Times Square South, said this is one of the biggest mistakes operators make when trying to manage expenses.
“It’s important to maintain training, even more so when you are stressed economically,” he said. “Try to maintain training as long as possible. It’s always possible to make people more productive, though you may have to hire the right people.”
Maldonado takes a creative approach to managing labor expenses, which he also agrees are among the highest priorities in the industry. He has found success in cross-training employees for different disciplines within the hotel, allowing individual workers to grow more productive and take more ownership over what happens on property.
The added bonus is that sometimes Maldonado doesn’t need as many people working a shift as he would normally.
“The Hilton Garden Inn New York Times Square South has typical business layers for a hotel: front office, housekeeping, engineering, security and we also had department heads,” Maldonado said. “I created ‘rooms managers,’ who trained on what they had to do at the front desk as well as housekeeping. This had a couple benefits, and it made the hotel more flexible. Instead of four assistant managers and four housekeeping employees, I had seven flexible rooms managers capable of filling any of those needs.”
The area that benefits most from this type of training is hotel food-and-beverage. Saxton Sharad, SVP of HotelAVE and president and founder of operational analytics company Post Script Hospitality, said operators should look into which positions are mandatory to run an efficient operation and which positions are complimentary.
“In a restaurant, do you need a server, back server, busser, bartender and host? How can [you] mix these positions together? Rather than a bellman, doorman and valet, ask how you can create an ‘arrival’ position,” Sharad said.
3. Automate It
Automation currently exists as a sort of boogeyman for the retail and service industries, but it’s undeniable how effective such tools are at saving costs. Some Aloft hotels have begun to use the Relay robot from Savioke to deliver amenities to guestrooms, proving the concept can work and that guests are interested in this type of service.
Still, the types of automation that are acceptable in hospitality remain a topic of discussion in search of an answer. For this reason, operators must be careful about what they automate and what they leave to humans. Russo recommended automated general cashier machines, which can alleviate some of the accounting workload for a business and remain out of sight of guests.
Another option is automated check-in or kiosks, such as those used by the Hotel RL brand from RLH Corporation, where hotel employees are on hand to assist guests with questions should they arise. Even here, however, hotels must be careful not to overstep their bounds too fast. David Sangree, president of Hotel & Leisure Advisors, said automation can negatively impact the guest experience based on the level of service expected and where it is implemented.
“For some people, [automated check-in] is great. For others, particularly older travelers who want a traditional experience, it goes too far,” Sangree said.
He also cautioned against damaging your hotel’s guest-satisfaction scores through the use of automated phone systems, suggesting text-based systems instead.
“Many hotels have tried to automate their phones. People will push a button or two, sure, but nobody wants to hit five buttons to reach a person,” Sangree said. “At the mass-market level you can do it, but if you’re trying for the luxury guest that pays a lot, they don’t want their time to be wasted.”
Maldonado said it is up to guests to drive technology in hotels, and that in some cases the kind of technology guests are after has resulted in savings.
“Now the phone can be used as a digital key, bypassing the front desk,” he said. “Give them an option to do things your way, and you might save a little.”
4. Less Traditional Dining
Until recently, most hotel F&B operations were not money-making enterprises. Today, few still are, but guests have come to expect at least some kind of foodservice offering at a full-service hotel. That doesn’t always mean they are expecting a traditional dining experience, though.
Larry Trabulsi, SVP at CHMWarnick, said hotel F&B is a large labor drain and often fails to bring in the revenue to justify its existence. Even worse, sometimes guests don’t even want what is on offer.
“When managing expenses, we usually start out looking at the F&B offerings a hotel has,” Trabulsi said. “F&B was traditionally a losing department, but some locations still need it. Over the last couple of years we have spent a fair amount of time making sure these offerings match what customers want. They want more grab-and-go and less traditional dining.”
Trabulsi also said hotels need to consider revising roomservice policies or finding methods of combining these services with other outlets because they remain a drain on resources.
5. Streamline F&B Menus
Russo criticized struggling restaurants that insist on seasonal menu changes. These seasonal changes may look attractive on paper, but they also result in a large amount of purchasing mistakes as food is thrown away. Instead, Russo suggested investing in items that have greater flexibility.
“Chicken has many uses in a kitchen. Porcini mushrooms, not so much,” Russo said.
Trabulsi expanded on this idea, suggesting hotel restaurant operators should study their own menus more to understand the total cost of each meal and how flexible they can then be with ingredients. This idea also plays into portion control. Hotels don’t want to limit the portions they are serving to guests in the hopes of saving money, but Trabulsi said that at the very least, operators can be consistent.
“The same thing goes for liquor inventory,” Trabulsi said. “Getting the right pour [sizes] is big. In boutique and lifestyle hotels where F&B is a main driver, savings there can be meaningful.”
6. Update Sustainability Measures
Trabulsi said that this is the year to save on utilities, and the best way to do so is through sustainable technology and analytics. He cited LED lighting as one area where hotels can invest a little and see fast returns on their bottom line.
According to Sangree, one of the easiest ways to find a hotel’s sustainability weaknesses is through an energy audit. Audits like these are common in drought-stricken climates, but Sangree said they provide a benefit to almost every hotel.
“People pay attention to energy audits,” he said. “It makes sense to spend more in certain markets, such as Southern California, but with climate change the way it is, just about any hotel stands to save through an audit.”
Russo said that today’s guest is also confused by the amenities and presentation on offer through turn-down service. Expressing some reservation here could save on guest confusion and money.
“Leaving that doily on the floor from [turn down] costs $1 to launder every time a guest leaves,” Russo said. “We don’t have stone floors anymore, is this necessary? Guests just want water at turn down. So outside of resorts, it’s just not a luxury proposition now.”
7. Dive into Your Data
Historical data is a powerful tool for analyzing trends, but Jay Troutman, president of hospitality software provider Aptech Computer Systems, said operators need a keen eye to look for what’s new this year, and not just what was a big deal in 2017.
“After 9/11, most of the costs we looked at cutting back on we were unable to reduce,” Troutman said. “The [hoteliers] that did the best used analytical tools to make incremental changes quickly.”
Troutman said that acting on previously identified data is one of the major trends of 2018. For example, in hotel F&B Troutman said to capture key metrics such as average check numbers, labor costs and average meal times. Above all, he said hotels should avoid using last year’s budget for 2018, with only minor adjustments based on perceived trends.
“[Hotels] should be updating rolling forecasts continuously throughout the previous year, and measure how they do on those forecasts,” he said.
Tamara Crawford, CFO of Tetherow Resort in Bend, Ore., said her property uses an analytics software called Sage Intacct to facilitate transparency between department heads and inform the hotel’s team as to where operational efficiencies could be applied.
“We’ve implemented monthly collaborative meetings to look at prior months and see where we are off base,” Crawford said. “We also implemented rolling budgets… and we are budgeting for 2019 ahead of time. This helps us talk about and control expenses month to month.”
8. Maximize Your Online Reputation
Making cuts isn’t always easy, and deciding what should be scaled back on is a painful process for many hoteliers. However, Isenberg said the easiest route is to look for ways for your hotel to increase its standing on websites such as TripAdvisor, and reduce expenses that don’t contribute to growing this reputation.
“Do everything you can to be the best,” Isenberg said. “Reduce expenses along with that, but you need to do that by being efficient, not eliminating things. For example, if operating expenses are out of line, develop an action plan and focus on that area first. If you are spending too much on linen, pay attention there.”
Maldonado said that many of the top-scoring hotels on TripAdvisor do well because they give amenities and offerings that have a high perceived value away for free.
“If you can offer a lounge event in the afternoon where guests can have some free drinks, that is something with a high perceived value,” he said.
9. Perform an Operational Review
Nothing is more helpful when trying to make cuts than a fresh set of eyes. Sangree recommends an operational review at any stage of a hotel’s expense-slashing process because this kind of effort can help hotels find deep savings that are out of view.
“Getting a firm in there to come in and have an outside person identify areas where operational efficiencies can be implemented, that is always good,” Sangree said.
Trabulsi said that reviews are also effective ways to identify tax breaks or other benefits your hotel may qualify for, particularly following renovations and major operational changes.
“With employment getting tight, look into utilities rebates,” Trabulsi said. “They are the largest rebates in terms of moving the needle. In a big hotel they can be substantial, sometimes as much as $40,000 to $50,000.”
10. Be Open to New Ideas
The biggest takeaway from all of these experts is that there is no single way to manage expenses. In fact, Sharad said this belief is at the root of many hoteliers’ struggles to cut back.
“It’s very easy for people like myself to say the minibar never works, hotel restaurants never make money or in-room dining is awful,” he said. “When you make brush strokes like that on what are revenue-generating departments, you miss out on the smart people out there who can make it work.”
Maldonado said to pay attention to what guests use and what they ask for, and make cuts based on that. For instance, he said hotels should do away with business centers and turn those areas into something that will generate revenue—but be sure to leave a printer in the lobby, because guests still use those.
“We can’t just reduce expenses for the sake of reducing them; we need to maximize customer relationships,” Isenberg said. “At some point the cycle will end. Right now indicators say there is no downturn, but the dotcom disaster and housing crash… came suddenly, and they hurt. We know it will end, so let’s be prepared, not surprised.”