Industry Update
Opinion Article16 March 2016

5 Costly Mistakes Hospitality Businesses Are Making Right Now

By Tom Brialey, Owner of Action Storage

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Success in the hospitality industry is becoming ever more elusive: approximately 27 pubs are closing every week; nearly half of the UK's nightclubs have shut down over the past decade and over 40,000 hotel rooms closed in the ten years up to 2013. But it's not all doom and gloom; for example, PWC predicts that this year will see the highest regional hotel occupancy ever and the highest in London this decade.


All in all, the industry has been forced to become leaner and smarter – no bad thing. With instability in the Eurozone and the introduction of a new minimum wage this April, the pressure is only going to increase. Bearing all this in mind, we thought we'd point out five problem areas to help your business stay a cut above the rest this year:

Inventory Management

On the surface, the hospitality and food service sector runs on its staff and its environment, but look a little deeper and it's as reliant on inventory as any other industry. Whether it's haute cuisine, hard liquor or hand towels, hospitality requires a catalogue of items that have a direct impact on both customer satisfaction and the bottom line.

The industry also suffers especially from two challenges: waste and theft. Wrap estimates that food service outlets waste 920,000 tonnes of food each year, 75% of which is avoidable, and Bevinco, an international beverage auditing service, has reported that internal theft costs bars up to a staggering 26% of gross sales.

Our first tip is therefore to shine a spotlight on your inventory management practices. A quick and affordable fix is to re-evaluate your storage areas. At the least, install modern adjustable shelving systems to keep inventory well organised, or racking that encourages FIFO methods, and do what you can to control the temperature – the storage lives of most foods are cut in half by every 10°C increase. Also, ensure that high value stock areas are secured and that there’s an inventory sheet and rigid procedures in place.

In addition, it's well worth investigating inventory management software, or re-examining your current system. Many hotels are making the move from property management systems (PMS) to a more comprehensive enterprise resource planning system (ERP). Whatever you opt for, the right software can help you identify cost savings, boost productivity and collect more meaningful information about your customers.

Rethink Cost Cutting

The hospitality industry has always operated on painfully small margins, which has often meant ruthless cost cutting when times are tough. Conventional wisdom has led many to target labour costs first, making reduced wages or staff losses a common fall back for struggling businesses. However, times are changing: April will see the minimum wage increased to £7.20, and this will rise to over £9 by 2020. More than half of employees in the hotel and restaurant sectors are paid less than £7 per hour.

Of course, some of this will have to be passed on to consumers, particularly as many have been discounting rates since 2008. Sadly, some job losses also look inevitable. However, with wage rises set to be a long term pressure, the industry is going to have to rethink its cost-cutting strategies. Unless you're already overstaffed, simply dropping employees at the required rate will have a serious impact on overall service levels, which could damage your revenue over time.

The answer is likely to be a shift in focus away from labour quantity and towards labour quality. Productivity, ever critical, is primed to take centre stage. The first step is to optimise your labour schedule. Hospitality is unpredictable, and a certain amount of guesswork will always be required, but scheduling to good demand forecasts can result in much greater productivity and massive savings. If you rely on the same schedule each week, it's time to re-evaluate.

You might also consider cross-training your staff, refining your workspace layout, automating processes or introducing fair incentives for employees. Fundamentally, the goal is to build a more intelligent, positive working culture that does more with less.

Keeping with the Times

There's no doubt that technology has had a huge impact on hospitality over the past decade, from customer facing innovations in web design and social media to backroom solutions like improved analytics and cloud/SaaS software options. Yet adoption has been patchy at best.

An Adobe study found that hospitality websites are one of the highest performing in terms of minutes per visit and bounce rates, beaten only by media and entertainment sites. On the other hand, a cursory glance around the web will reveal a great deal of hate towards the glut of outdated sites. As late as 2012, a third of UK restaurants didn't even have a website. Our next tip then is to make sure you're on the winning side.

Firstly, and particularly relevant to smaller businesses, make sure you're building an online presence, including a strong social media strategy. Social media enables you to build strong relationships and receive sage advice straight from your customers. What's more, hospitality presents plenty of opportunities for sharing fantastic content: tell us about your new menu, fanciest cocktail or latest event. Better still, encourage your customers to share their experiences.

Also, if you haven't done so already, verify your business information with Google My Business. The right information ensures you're visible on Google Maps and that searchers have easy access to your contact details and opening hours. According to Google, 50% of smartphone users visit a business within a day of their local search, and 20% of all of Google searches are for local information. Not taking this simple step is giving away business to your competitors.

Imitate Wisely

Differentiation in the hospitality sector can be extraordinarily difficult to achieve: low margins make costly differentiation strategies unappealing, and the ease of imitation means competitors can quickly seek to capitalise on your hard work. However, with consumers empowered to view the whole market at the touch of a few buttons, standing out has never been more beneficial. The thorny problem is how to strike the right balance between profitable innovation and strategic imitation.

It's hardly necessary to point out the benefits of innovation, but it's worth examining its scope and scale. Research suggests that innovators are persistently more profitable than non-innovators; yet, the effect is surprisingly modest. It's also been suggested that long-term profitability may be linked to the process of innovation itself, rather than the direct benefits of product innovation.

Why is this important? Creating differentiated value for guests is deemed a critical marketing strategy across much of the hospitality industry, but the evidence suggests that its benefits are variable. For example, a study of Spanish hotels found that high competition discourages innovation, with non-innovators imitating its advantages and avoiding the associated costs.

More than a Smile

The golden rule of hospitality has forever been to wear a smile no matter what, and long may this continue, but customers are beginning to expect more. Whether in retail, media consumption or even financial services, consumers are being presented with personalised solutions across a range of industries. Our final tip is to join in and ensure you're offering guests an experience that's tailored to them.

Astonishingly, nearly three in five travellers now say their hotel stay is significantly more comfortable if services are personalised, according to InterContinental Hotels Group. Personalisation is also lucrative: Deloitte found that, of those interested in personalised services, 71% would be prepared to pay a premium, and one in five of those would be willing to spend 20% more. Perhaps most surprisingly of all, the phenomenon is not only championed by the young, with the over 55s more likely to book a personalised holiday than Millennials.

Clearly then, a smile is not enough, yet businesses across the hospitality sector are lagging behind – too many regular guests bristle at the question, 'Have you stayed with us before?' In all fairness, the industry has had a great many hurdles to overcome; in particular, a jumble of unintegrated platforms for booking, PMS, POS, marketing, etc. However, single vendor and cloud based software solutions, accessible from multiple locations, are beginning to break down these boundaries.

Our advice is to leverage novel technologies to deliver personal relevance, which could be as simple as ensuring your customer contact preferences are kept up-to-date, or as complex as providing custom entertainment, services or products to guests during their stay.

Tom Brialey

Tom Brialey is the owner of Action Storage Systems, a specialist supplier, installer and stockholder of storage systems to suit warehouses, stockrooms, store, garment hanging and in addition markets a wide range of lockers for secure storage of personal effects. Tom is an avid football fan and supports Tottenham Hotspur.

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