Rising operating costs are among hoteliers’ chief concerns. While these costs encompass many areas—ranging from insurance costs to technology investments—most owner/operators acknowledge the biggest of these remains rising employee wages and its impact on profitability.
According to a recent State of the Hotel Industry report from the AHLA, hotels are projected to pay employees a record of more than $123 billion in wages, salaries, and other compensation in 2024, up from $118 billion in 2023 and $102 billion in 2019.Robert Habeeb, founder/CEO, Chicago-based Maverick Hotels & Restaurants, put the rising salary issue in context.
“Wage inflation has been a huge challenge for the industry. Inflation, in general, has been a challenge. We have a compound rate of [overall] inflation of 19 percent post COVID, but wage inflation is closer to 30 percent. That presents a challenge because wage inflation is outpacing our ability to recover those dollars from consumers,” he said.
Habeeb further elaborated on some of the factors driving wage inflation in big cities, specifically citing Chicago.
“It isn’t just the fact that hourly wages are going up, but there’s so much activism on the part of the government here [in Chicago] and in other cities with ‘fight for $15 [an hour]’ and work schedule rules. In Illinois, there’s now the mandatory paid leave policy, and it’s not just a matter of what are you going to pay someone per hour for a certain job. It’s all these other costs that start to drive up your labor costs in a stealth way,” he said.
As such, management executives detailed some of the best ways for hotels to try and mitigate rising labor costs.
“In terms of cost savings, the biggest opportunity is spending your labor dollars intelligently, and that means being mindful of employees approaching overtime and scheduling the shifts to try and minimize it,” said Chris Manley, president, Denver-based Five Senses Hospitality Management.
He cited another area of focus. “The front desk needs to do what they can to incentivize guests with points or some other concession to opt out of daily housekeeping. It’s probably the biggest opportunity in the select-service environment. The less we can touch the room mid-stay, the less dollars we’re going to spend on wages,” noted Manley.
Meanwhile, Shaun Beucler, SVP, operations, Denver-based CoralTree Hospitality, asserted that having employees perform multiple job functions is another means of increasing efficiency.
“It’s the combining of several jobs. Where traditionally we used to maybe have a doorman, a bellman, a front desk agent, and a concierge, you’d have all of those four jobs doing their individual roles. Now we’re creating jobs like ‘living room agents’ or ‘lobby ambassadors,’ where team members are trained to do multiple jobs and, quite frankly, it gives them more excitement. Interestingly enough, we’re able to pay that team member more on their hourly wage and it keeps them excited and engaged because there’s not a lot of downtime,” he said.
All of the executives interviewed emphasized the importance of limiting employee turnover as part of the effort to keep costs down.
“A lot of our expense comes from turnover,” said Beucler, who also acknowledged the impact of competitive wage war. “When you’re paying somebody something and they come in your office and say, ‘Well, for 50 cents or a dollar more an hour I can go down the road’ and there’s truth to that, then you lose that team member. You then need to spend the money to recruit that team member, you need to spend the money to onboard that team member, and then train them,” he said.
Manley reinforced the point.
“One of the invisible lines on a P&L is turnover and the associated training it takes to find new team members, train them, and get them up to speed. So as an operator I would take a close look at what your actual turnover rate is and then try to identify what the source of it is. Is it the wages you’re paying? Is it your managers? Is it the working conditions? To the extent you can reduce turnover, your labor becomes a lot more productive and your labor dollars will go farther, but it takes an honest assessment of who your managers are and whether they are the root cause of the turnover,” he asserted.
Manley did add that “wage pressure is not as rampant as it was,” and he referenced some data from the U.S. government that indicates that things have improved as it pertains to employees leaving for other opportunities.
“The ‘quit ratio’ has actually gone down in recent months, which indicates that people are staying in their jobs for a longer tenure and not so willing to move just because of 25 cents an hour or because they don’t agree with their manager,” he said.
Of course, technology can play a significant role in reducing man hours and overall costs, according to executives.
“I think we’re all trying to find strategies that allow us to measure better success against controlling our labor costs, and some of it will be technology: augmenting the process everywhere you can with a technology that makes people feel more efficient,” said Habeeb.
For his part, Beucler cited digital check-in and the overall arrival experience as a key development than can help reduce labor requirements.
“You’re allowing the customer the optionality to do things through technology, which then relieves the team on the back end from having to do some more of the extra communication or physical labor,” he said.
Beucler also specifically mentioned AI (artificial intelligence) as an impactful technology.
“AI in general is becoming more prevalent everywhere in the world, but we’re using it for things like PBX support. It’s really remarkable; it feels like you’re speaking to somebody. We’ve also found areas where we can utilize AI for communication with the guests, whether on property and/or before property,” he concluded.
