For every step the hospitality industry seems to take forward (and away from the business drag of the pandemic effect), it seems as though circumstances are pulling it back two.
Revenues are moving in a positive upward trendline; revenue per room this year is likely to hit $188 billion, 11 percent ahead of 2019. But recreational travel is outpacing business travel, which the industry really needs to get back to normal: It’s the business traveler whose spending puts more money into hospitality’s coffers.
Compounding the challenges across the board? An uncertain economy and an inflationary one at that. As interest rates continue to climb to attempt to manage inflation, it keeps the pressure on costs. That includes wages as the industry looks to bigger paychecks to attract and keep workers, the lack of which remains a drag on performance.
Hospitality is not yet out of the woods. Here’s a look at trends shaping 2023.
The Continuing Squeeze on Profit Margins
Costs are rising for everything from labor to food, beverages and other supplies, and the delays and difficulties of the clogged supply chain add to the challenges. Hospitality wages have jumped 18 percent since 2019; among restaurants, 95 percent of their sales cover those increasing expenses.
As interest rates rise to hold inflation in check, many operators are scrambling to refinance their debt. Further, the cost of money is putting projects on hold, now and into 2023. This has broader economic implications given the investment needed to build a new hotel or resort.
Adding to the pressure are rising insurance costs. Properties with liquor liability or live entertainment exposures, or with amenities like spa services, can expect to pay up to 20 percent more for insurance in 2023. Management should ensure that policies on alcohol-related risks are updated, and make sure that training is scheduled regularly for employees involved in serving. Likewise, risk-management protocols should be in place for amenities to reduce liabilities.
Risks to Head Off in 2023
The nation’s hotels are ending 2022 with a severe shortage of workers—a deficit of some 400,000, with 87 percent of lodging operators reporting shortages. It’s even worse for the restaurant industry, which is short 750,000 workers compared to 2019.
But higher wages might not be sufficient to turn the situation around. Making a job worthwhile means making the employee experience worth the investment, and that often takes more than money alone. The experience comes down to the environment, culture and a system of rewards that show people are valued.
Improved benefits, combined with greater flexibility, will help make the difference in 2023. Personalized benefits are key to the optimal employee experience, crafted around individual needs, given each person’s life and work stage. It takes an investment in employee research, such as workplace persona analysis, to hone a deeper understanding. But the effort will pay off in higher loyalty and a burnished brand with prospective employees too.
Technology advances have helped compensate for staffing shortfalls and have otherwise created huge efficiencies in day-to-day operations. But the downside is the increasingly high risk of cyber intrusions, given the industry’s wealth of personal customer data.
Cybersecurity has never been more important, but it is harder than ever to secure. By some estimates, the number of hospitality businesses who can’t afford or are denied coverage will double in 2023. It’s making it imperative to have proven cybersecurity protocols in place and strictly followed, with security audits, multifactor authentication and employee training as top priorities.
Finally, hospitality management needs to be prepared for the unpreparable: natural disasters and catastrophes such as hurricanes, tornados, floods and fires. They are occurring more frequently and with more severity than ever before and causing huge amounts of damage. For properties in the most at-risk regions, it’s spelling an increasingly tough time for property insurance, where rates may jump by as much as 20 percent.
A proven risk-management strategy, including a robust post-disaster recovery plan, will demonstrate to underwriters that all exposures—anticipated or not—are covered.
Kimberly Gore is the national practice leader of Hub International’s Hospitality Specialty Practice.