NEW YORK — On the last day of this week’s NYU International Hospitality Industry Investment Conference, executives gathered for a workshop to discuss operational efficiency and improving profitability. The expansive conversation provided key tips for hoteliers looking to save money, from engaging directly with lower-level employees to using data to reduce expenses.
With rising wages and falling unemployment, labor costs continue to eat into margins. So it’s no surprise that, for a panel focused on saving money, employee turnover was a frequent point of discussion.
Aaron Olson, SVP of hotel operations at Crestline Hotels & Resorts, estimated the cost of hiring a new employee to be around $5,000. But that number is just the baseline when it comes to the overall price of losing a quality employee. “It may take three to four hires before you get one that sticks and becomes a long-term team member and now you’re up to potentially $15,000 to 20,000 in one year for turning over that one position,” he said.
Olson said Crestline has successfully combated the issue by engaging directly with employees. Whenever a regional VP goes on a hotel visit now, he said, he or she gathers a group of four to five hourly employees and asks them five open-ended questions. “It’s all about soliciting honest, open feedback,” he said.
David Marriott, president of U.S. full-service managed hotels at Marriott International, said he personally has visited about 150 hotels this year. While there, he, too, takes to time to meet with employees in the kitchens and docks, shaking their hands and thanking them for their work.
The CEO of consulting firm SIB Fixed Cost Reduction, Dan Schneider, also identified talking to hourly employees as “easy, low-hanging fruit.” Just having people from the corporate office come onto the property and speak with lower-level employees definitely helps with retention, he said.
Schneider also advised hoteliers to ask questions that can result in reduced expenses. “So if you ask them, ‘How do you think we could do this more efficiently or less expensive,’ they’re just going to sit there and tell you nothing because they’re used to it,” he said. “But if you were to say, ‘What parts of your job do you think don’t make any sense or are just the biggest pain points for you,’ a lot of times that’s the biggest inefficiency.”
Schneider also highlighted the importance of consistent general ledger codes. If hotels across a portfolio are inconsistent about how they tag different expenses, the organization will be unable to effectively read the data and see what hotels are really spending too much on and in which categories. “It also gives people a false sense of security, too, and it’s because there’s $250,000 of expenses in a different GL code,” he said.
Olson said Crestline has hired a VP of procurement to oversee purchasing and ensure individual hotels are buying from the correct vendors to maximize discounts and rebates. In 2018, he said, the company received $1.2 million in rebates through its purchasing program, which directly went to the hotel owners.
Ben Cary, SVP of North American development for Meininger Hotels, said his company also has someone in charge of procurement at its home office. This agent reviews not only everything the company purchases, but also expenses involved with attorney contracts and interior designers.
Lean, But Not Too Lean
While becoming leaner might sound like a logical way to reduce expenses, Olson cautioned against taking it too far. “We have seen owners and talent leave other companies to join a company like ours because of the pressure, feeling like just not having enough resources, being squeezed to do more with less,” he said. Aside from potentially losing talent, he also cautioned that reductions potentially could lead to an increase in employee lawsuits, wage claims and workers’ compensation claims.
Schneider echoed Olson’s sentiment, stressing the importance of not taking it to either extreme. On one end, he said he’s had experiences where owners are paying for services they never use. In one example, he said a California hotel was paying $25,000 to $30,000 a year for a recycling consultant that hadn’t been onsite in two years. But on the other side of the spectrum, he warned that when people become strapped for time, their focus becomes just staying afloat instead of making improvements.