Impact of labor costs, low unemployment on hotels
 
Impact of labor costs, low unemployment on hotels
06 AUGUST 2019 7:39 AM

Here’s a look at several way hoteliers can combat challenges with labor on property.

With unemployment rate at 3.6% and hotel supply continuing to rise, there is a shortage of labor within the hospitality industry.

Hoteliers are increasingly having to rely on contract labor and experiencing higher rates of turnover for in-house associates. Contract labor is often more costly than hired associates in today’s labor environment and comes with increased training costs and inconsistent work product. The U.S. Bureau of Labor Statistics estimates an annualized employee turnover rate of 73.8% in the hotel and motel industry compared to a 10% to 15% benchmark as outlined by most HR experts. Labor consulting firm Labor Pros estimates that reducing turnover by 1% can result in annual savings of $10,000, so the hospitality industry has a tremendous opportunity to control costs by increasing employee satisfaction and engagement.

Furthermore, new laws are getting passed in various cities which limit the amount of work employees can conduct during a normal shift. For example, in Long Beach, California, Measure “WW” is a new law that was passed in 2018 and prohibits housekeepers from cleaning more than 4,000 square feet during a normal eight-hour workday unless the employer pays twice the regular rate of pay for all hours worked. Housekeepers normally clean 15 rooms per shift on average, but Measure “WW” limits the amount of rooms cleaned per shift to 11 to 12 rooms on average.

Here’s a look at how hoteliers can combat the rising labor costs, low-employment rate, high turnover rates and new regulations that limit productivity.

Employee engagement, recruitment, retention and incentives
From an asset manager’s perspective, it is critical to have a strong executive committee team in place as the leaders on property will help drive employee engagement, recruitment, retention and overall performance for the asset. Within the hotel management agreement, insist upon approval rights over hiring key executive committee team members.

To ensure the right team is in place and any pertinent issues with associates are addressed, it is important to ensure that a feedback loop is in place between the associates and management via weekly or bi-weekly forums where questions and concerns can be addressed. If there are questions about the leadership on property or concerns with high turnover rates, ownership should conduct a labor audit to determine if there are any deeper problems that may not be immediately apparent. Furthermore, asset managers should work to develop strong working relationships with each of their property teams, so they can flag any personnel issues as early as possible and address accordingly with ownership.

Recruiting associates can be challenging in today’s labor market, so asset managers should encourage the property teams to setup apprenticeship and referral programs. In addition to setting up recruitment programs, asset managers should review how compensation and benefits compare to other hotels in the market on a regular basis with the management company. Ensuring that compensation and benefits are competitive can reduce turnover rates and improve hiring rates.

Aligning incentives and ensuring ownership expectations are easily defined is vital to keeping the property team engaged and motivated. During the budgeting process, asset managers should outline ownership’s expectations, supported by data and analysis, of key KPI’s for the upcoming year. Establishing these benchmarks early and receiving buy-in from the property team will help create a successful partnership throughout the year. For properties coming out of a renovation or struggling to improve their TripAdvisor ranking, asset managers also should evaluate rolling out an additional TripAdvisor incentive plan which establishes an overall ranking goal and rewards associates for five dot reviews. This program can help create comradery with the team and accelerate the ramp up of performance post renovation.

Green program and technology additions
There a few programs and technology upgrades that the property team can implement to help limit the burden on staffing needs in this challenging labor market. The first program is often referred to as a green program where guests are offered points or food-and-beverage credit in exchange for no housekeeping service during a multi-night stay. Second, many brands are implementing digital check-in where guests can skip going to the front desk by having their key delivered to their phone after completing the mobile check-in. Finally, some hotels are starting to utilize robots to help with the cleaning and/or check-in processes.

Future of service offerings at hotels?
With challenging labor markets and the increased use of technology, it raises the question of how the service offerings at hotels may change in the near future. Looking at the Airbnb operating model, guests may never interact with an individual during their stay, check-in is all handled online, units are only cleaned upon check-out and guests are charged a cleaning fee. In order to drive improved operating margins and combat a difficult labor environment, asset managers should evaluate adapting some of the efficient operating processes mentioned above.

Overall, the current unemployment rate and rising labor costs coupled with anemic revenue growth is putting downward pressure on hotel operating margins. Asset managers should focus on employee recruitment and retention plans, implement green program and technology upgrades and evaluate implementing more efficient operating processes to help keep margins and costs in line.

Eduard “Woody” Wedel, VP of asset management and acquisitions, is responsible for Chartres Lodging’s asset management activities, including investment strategy execution; oversight of property managers and hotel operations; relationship management with lenders and capital partners; local market research and financial performance review; and acquisitions activities including market research, deal sourcing, investment underwriting, due diligence, document negotiation and transaction administration. In the past seven years, he has led several successful acquisitions, repositionings, turnarounds and exits overseeing all aspects of the investment. He is a graduate of Cornell University, graduating with a B.S in hotel administration with a finance concentration and minor in real estate. Prior to joining Chartres Lodging, he gained experienced working for both JP Morgan Chase & Co. and The Leading Hotels of the World. He also gained early exposure to the hospitality industry through his many different roles at his family owned and operated restaurant.

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