With Food Prices Continuing to Soar, Hotel Operators Must Strategize to Safeguard Profitability
Inflation may finally start to cool, but the hospitality industry is still battling the rising cost of food. According to the Bureau of Labor Statistics, in January 2024, the food index increased 2.6% over the last year, with food prices rising 0.4% from December to January.
Yet it’s not just rising food costs causing challenges to hotel operators. Data from CoStar showed that the total operating expenses per available room in the U.S. hotel industry increased by 9.4% year over year in October 2023. A majority of that growth stemmed from labor costs per occupied room associated with food and beverage labor expenses.
Amid market challenges like high consumer goods and labor costs, hotel operators must stay nimble and implement strategies to safeguard their profitability.
Procurement to Prioritize Profitability
Procurement involves the sourcing and purchasing of goods and services a hotel relies on to operate. This procedure includes collaborating with vendors to find the right product, engaging in communications with brokers for competitive pricing and rebates, handling contracts, monitoring inventory to ensure efficient supply and replenishment, supervising orders, invoices, payments, and returns, and monitoring expenses and benchmarks to uphold optimal rates.
For procurement to be utilized to the best of a business’s abilities, it’s important for operators to track changes in the cost of goods, oversee and monitor supply chain variances and plan their spending and declining budgets in advance. However, hotel operators struggle to balance these needs with their management duties, and this planning often tends to fall by the wayside. Therefore, it’s important to leverage technology that can help ease the burden of these tasks off operators. Today’s procurement platforms automate these processes, allowing faster speed, less room for errors and more oversight.
In addition to utilizing technology, operators should strategize to improve overall purchasing, sourcing and supply chain operations with the goal of lowering costs and minimizing associated waste. One way to do this is to standardize the procurement process. Whether by utilizing a procurement platform or setting it up manually, operators should subject all purchases to the same oversight process for approvals, due diligence and payments.
Setting up a technology stack is a vital step in furnishing operators with tools that notify them of changing inventory levels, offer insights for monitoring, and measure the effects of price fluctuations. These tools and resources empower operators to preemptively identify issues, allowing them to proactively address concerns before they affect the guest experience or financial performance. The adoption of such tools enhances visibility and paves the way for ongoing enhancements in procurement practices.
Another area of procurement where technology comes in handy is the analysis of product and service prices across vendors. Operators should utilize procurement platforms to track these costs across their network of vendors to see what goods and services are increasing, decreasing or staying stagnant in their prices.
Menu Engineering to Maintain Cost Control of Consumables
For hotels with food and beverage offerings through an on-site restaurant, kitchen, bar, event venue or sundry shop, menu engineering can be a powerful tool to safeguard profits and leverage margins in challenging market conditions like rising food costs. Menu engineering evaluates and optimizes menu offerings based on price and design to create a more profitable menu and business overall.
Operators must sort menu offerings into four categories based on the item’s popularity and profitability. These categories include “Stars,” top performers with high profitability and popularity; “Puzzles,” which offer high profitability but low popularity; “Plowhorses,” which have low profitability but high popularity; and “Dogs,” lowest performers with low profitability and low popularity. Operators can then organize their menu designs to highlight the dishes that are the “Stars” and “Puzzles” while considering strategies to drive traffic from the “Plowhorses” to the “Puzzles” and consider phasing out the “Dogs” for new items that may yield larger profits or more popularity amongst guests.
Menu engineering is a routine practice undertaken by operators, performed regularly and preceding any substantial alterations to the current menu. It is essential to consistently grasp the financial ramifications that adjustments can have on your overall bottom line.
Optimizing Labor Scheduling and Operating Hours
One of the biggest expenses for hotels is labor. Operators should regularly review labor schedules, including employee availability, needs of the business, anticipated increase or decrease of workload based on guest occupancy, seasonal and local events, full-time versus part-time workers, local and state labor restrictions like those that apply to overtime and the applicable laws surrounding predictive scheduling.
Just as there are procurement and inventory platforms, there are also labor scheduling platforms that allow operators to set and adjust schedules, track hours worked and staff attendance, allow employees to input requests for PTO and sick time, calculate and control payroll and benefits, input restrictions on overtime and create comprehensive reports and analysis. Such systems can aggregate this data in one place, reduce scheduling conflicts, overstaffing and understaffing, maintain compliance with local, state and national employment laws and improve the overall staff experience.
One of the strategies to help improve overall efficiency and reduce costs is strategic scheduling. Using collected data, operators can gain insights into which hours generate the most business, when there are off hours or frequent downtimes and if certain days or seasons like holidays, local events or special occasions require more or less staffing. For peak days and business hours, the schedule can be adjusted to have more employees working to accommodate guests. For the slow hours or days, the operator may reduce staff or allocate that labor to other hotel areas requiring additional hands.
With these strategies in mind, hotel operators can be proactive rather than reactive in safeguarding profits and reducing costs amid market challenges like rising food costs. Technology can be leveraged across these operations and help save time and resources while increasing the overall efficiency of operations and guest satisfaction.
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