From A to Z, the cost of hospitality only goes up

By Bob Habeeb  

Over the past three years, beleaguered hoteliers have faced down high turnover, uncertainty, the need to invest in new technology and, of course, price volatility. Everything from tangible goods like construction materials to the utilities underpinning each property has experienced a marked price increase due to a disrupted supply chain and inflation. Even the fluctuating price of eggs has made it more expensive to serve a good breakfast. When are hoteliers going to catch a break?

Unfortunately, once prices go up, they rarely return to where they started. Costs are rising across the industry, and with debt servicing still getting more expensive, many hoteliers are feeling the squeeze that comes with high borrowing costs. Some markets, such as Chicago, are feeling the brunt of lofty property taxes and a more significant tab for goods for amenities. Inflation is likely to intensify these pressures in the short term, working the market into a frenzy that will ultimately compound further inflation.

In the battle for the bottom line, the winners will be determined by who can remain aware of their expenses and prepare for any potential hiccups that the market might throw their way. Some elements will be difficult to mitigate at this stage, such as rising utility rates and growing wages, so it’s important for hoteliers to get their arms around anything they can control as soon as possible. That goes for essentially everything guests touch during their stay, from linens and bathrobes to food & beverage offerings, and may require hoteliers to adopt a different purchasing strategy for the year to come, if not longer.

This is doubly true for labor expenses. Hotels are desperate for skilled, reliable workers, and the best way to retain your ideal staff members today is to treat them well. Managing these relationships will require flexibility, understanding and competitive compensation. Inflation has a residual effect here as well, as rising room rates have positioned travelers to expect more on arrival only to often check into a property that is understaffed and potentially in need of a refresh.

Guests visit hotels seeking service and a high-quality product, regardless of chain scale, and the hospitality industry cannot afford to continue charging higher rates without meeting guests’ service expectations. Our guests will notice if the quality of the experience falters, as they have over the past few years, which could potentially have long-term implications on how hotels are perceived in the eyes of travelers.

The price of commodities is always in some degree of flux, and rapid shifts in their value are not unheard of. Mad cow disease and other scares have driven the price of some commodities sky-high in short order. only for costs to normalize over time. Fortunately, hotels threw away the rulebook at the start of the pandemic, breaking from tradition to embrace new technology that has better positioned the industry to manage this level of volatility than ever before. Contactless technology has assisted operators with labor expenses while delivering a service guests desire and are asking for, and advancements in revenue management and purchasing tools have helped hoteliers identify new opportunities to mitigate the impact of some of their more volatile amenities on their bottom line. Hotels are now recognizing the value of smarter staffing strategies, and the next step is to apply this knowledge to improve retention across the board.

While costs are unlikely to come down to pre-pandemic levels, I urge hoteliers to consider the options available to them and how their peers have used technology and new operational strategies to rethink how their properties manage these expenses. It’s possible that inflation will lead to a new high-water mark for hotel rates, and that after stabilizing operators will be positioned to reap the rewards of the inflationary process in 12-18 months. However, operators who rethink their purchasing and operational strategies today will be better positioned to control their destinies, at any cost.

Bob Habeeb is the CEO of third-party management firm Maverick Hotels & Restaurants.

This is a contributed piece to Hotel Business, authored by an industry professional. The thoughts expressed are the perspective of the bylined individual.