With the summer in full swing and the economy continuing its recovery, consumers are loosening up their purse strings and spending more on travel, dining out and various events. In fact, IBISWorld estimates consumer spending will increase a steady 3.3% per year on average through 2018. In turn, rising foot traffic into restaurants and hotels will drive price growth for the various products and services these establishments use. Strengthening business and rising prices of necessary products and services means there is no better time for companies in the hospitality industry to reevaluate their procurement techniques to capitalize on growth opportunities and reduce costs. For example, smart investment in technology will not only help businesses enhance their guest services, providing them with a strong competitive edge, but also boost their operational efficiency. Meanwhile, renting necessary goods might be more cost effective than purchasing them upfront. IBISWorld has identified a few ways for buyers in the hospitality industry to maximize their earnings and operate with leaner cost structures.
Technology innovation is paramount
In order to be successful in the hospitality industry, guest satisfaction should be at the forefront of any business developments. As such, smart investment in technology can help hotels and restaurants not only enhance their guest services, but also boost operational productivity and efficiency. For instance, buyers can look into purchasing mobile enterprise application platforms (MEAPs), which serve as a solution for integrating multiple mobile applications, operating systems and data sources into a single back-end system. In the hospitality industry, MEAPs can be used to effectively manage operations through real-time updates and better coordinate the work of staff across different departments, such as janitorial services, front office operations and facility maintenance and repair services. For example, AT&T’s MEAP for the consumer goods and hospitality industries aims to provide real-time access of service requests, reduce paper-based data entry and improve worker utilization. Depending on the complexity of the buyer’s network, customization level and the scope of services required, prices for MEAPs can range from $20.00 to $150.00 per user per month. Prices for MEAPs are projected to rise marginally in the next three years, which means buyers can take their time to make purchasing decisions.
Recent technological developments have drastically changed the way consumers interact, shop and travel, so it is essential for businesses to keep up with those technologies. With the rising use of mobile applications, hotels and restaurants are increasingly incorporating tablet computers and other devices into their businesses to enhance customer service. While prices for tablet computers can vary greatly depending on the brand name, storage capacity, speed and size, they average about $309 per tablet. Despite surging demand, prices for tablet computers have been contracting since 2012 due to decreasing production costs and mounting competition among tablet suppliers. As market competition intensifies in the next three years, prices for tablet computers are projected to continue falling, thereby strengthening buyer bargaining power.
In light of the rising proliferation of mobile devices like tablets and smartphones, hotels and other hospitality establishments should carefully monitor guest use of internet services to contain associated costs. Because buyers usually enter into long-term contracts, which are usual difficult and costly to terminate early, buyers should thoroughly evaluate potential internet providers. Also, to maximize connectivity and reduce extra costs, buyers should accurately assess their business needs to determine the amount of data that will be transferred in and out of the local network. While underestimating internet needs can lead to congestion of bandwidth and lower productivity, overestimating them can result in unnecessary costs. Scalable plans that charge according to usage can be more cost effective for buyers that have a difficult time estimating their internet needs.
To rent, or to purchase
Linens, bedding and uniforms are among the most essential items in the hospitality industry’s daily operations. When considering purchasing or renting them, buyers should consider a number of factors to find the most effective and cost-efficient solutions.
Buyers can expect to pay anywhere from $0.30 to $1.00 per processed pound of linens when renting, depending on a buyer’s usage volume, preferred linen quality, replenish frequency and contract length. The frequency of delivery in particular plays a big role in setting the price for hospitality linen rental services. As such, buyers that require faster turnaround times are likely to incur higher service rates due to the faster processing time required and the additional costs associated with more frequent deliveries. Alternatively, disposable linens might be more cost effective for buyers with small-scale operations.
Similarly, prices for uniform rental services can range between $1.00 and $2.00 per uniform per day, depending on uniform type and size, contract length and buyer location. Outsourcing uniforms can be a significant advantage, particularly for businesses with a high number of staff that require uniforms. For these high-volume users, however, the multiyear contracts required make it difficult to switch suppliers. Contracts generally last from three to five years and are very costly to break. As such, buyers should evaluate the cost of terminating a contract early versus the savings from obtaining a lower rental price.
Hotels and restaurants that choose to own linens and uniforms will have to either outsource laundry services to a third-party commercial cleaning and laundry services provider or launder them in-house. Depending on the type of item and material, cleaning method and a supplier’s location, prices for outsourced services can vary widely from $3.00 to $140.00 per item. Items requiring special cleaning agents or dry-cleaning will increase service prices because they require extra inputs and labor. Buyers may be able to secure cost savings if they bundle other related services, such as alterations and ironing or pressing services, from one supplier.
When deciding whether to outsource dry-cleaning and laundry services, buyers should consider various factors to maximize their operational efficiency, such as the frequency of need, volume of laundry and type of laundering process. For instance, a hotel with high occupancy rates will likely benefit from establishing an on-site laundry facility to maximize accessibility, minimize turnaround time and slash off-site cleaner costs. Of course buyers should be cognizant of the costs associated with significant capital investments into expensive machinery and labor.
Gaining a competitive edge
Positive economic outlook and rising consumer spending provide businesses in the hospitality industry with ample opportunities to boost their revenue. Integrating new technologies to keep up with changing consumer preferences can help businesses win and retain business in the highly competitive environment. Buyers should also invest in more effective strategic sourcing to reduce operating costs and improve efficiency. In other words, staying innovative while spending smart will help businesses gain a competitive edge in their fight for the consumer’s dollar.
For a printable pdf of Innovation & Smart Spending Mean Cost Savings for Hospitality, click here.