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4 tips for hotel cost control
June 15 2010

Keeping expenses low is essential for any property, not to mention a hotel that is on the comeback trail. Hoteliers offer these four tips to maintain cost-efficient operations.

Editor’s note: This is the second installment in a three-part series on hotel turnaround strategies. Read part 1, PIP financing remains tough to come by.

REPORT FROM THE U.S.—When looking to return a distressed property to its former glory, a long, hard look at expenses is often one of the first steps.

Keeping expenses under control is integral to the asset’s future success—but where to start? Hoteliers offer these four tips.

Be diligent. New Castle Hotels & Resorts, which is the owner/operator of 28 hotels totaling 4,000 guestrooms, keeps a constant eye on expenditures, said Gerry Chase, the company’s COO.

“We want to be careful now that we are seeing a little bit of a lift that we don’t fall into the danger zone of, ‘OK, let’s go out and spend all the money now that we see revenue coming in,’” he said.

He added, “We think it’s going to be a slow recovery, and we have to be careful we’re not spending money we don’t have.”

 

Aggressively contest property appraisals. One source of significant savings for Allen Management Hotel Group has been contesting real estate tax assessments, said Michael Allen, president of Allen Management.

The company has seen savings of between 20 percent and 35 percent on the company’s 14 hotels and 1,000 rooms. “That has been a real moneymaker for me,” Allen said.

The practice is especially appropriate in a time, such as now, of declining revenue, said Dan Vosotas, president of Trans Inns Management.

Michael Allen
president
Allen Management

“Hotels are more an operating play than real estate anyway, so we do contest assessments,” he said. “I don’t want to say we do it every year, but we look at it every year.”

 Don’t become overly frustrated if city officials, who have budget shortfalls of their own to fill, don’t fall all over themselves to reassess your property, hoteliers said.

“It’s an arcane art,” Allen said of the negotiation process. “I think there’s a science to it, but it’s an art. You get no’s a whole lot more before you get a yes.”

Encourage vendor competition. Renegotiating contracts as often as possible is another way to curb expenses, Vosotas said.

“We really spur competition,” he said. “We like to do that once a year per contract period and put it out to bid, which does help.”

New Castle has been consolidating purchases and getting the best prices by becoming volume buyers, Chase said, adding the company routinely asks for multiple bids.

One example can be found with the company’s liability insurance, which is put out to bid every year. “The insurance industry, I wouldn’t say they’re hurting, but the cost of insurance is more flexible,” he said.

Audit your staffing. And finally, payroll might be the most obvious place to look when considering cost reductions. Despite the potential savings, hotels should be wary of layoffs because the effect on the guest can be negative, Chase said.

Dan Vosotas
president
Trans Inns Management

“During the most recent recession, we did not do damage to the customer experience,” Chase said. “We retained our best people.” The company employs 3,200, he added.

In fact, talking with associates might be one of the best ways to achieve savings, Vosotas said.

“With them being on the day-to-day line, they’re in a better position to streamline any operations out there,” he said.

But at the end of the day, reality has to come into play: It can sometimes just be cost prohibitive to try to turnaround aging properties so they are able to compete with newer hotels, Vosotas said.

“There comes a time when you gotta know when to fold them and know when to hold them,” he said.

COMMENTS   Show All
Anonymous
5/27/2013 10:44:00 AM
i want to know more about hotel cost control
Anonymous
11/11/2012 12:28:00 AM
Its high time that hotels need to make the post of a cost controller redundant. In this industry sometimes the blames are put on to the cost controller. One doesnt need this post at all. If the Chef and F&B are empowered and made responsible and accountable, there can be methods by which cost can be reduced to a large extent. At present what all cost controllers do 90% of their time is post mortem. While a cost conscious chef and F&B who are accountable (budgets are given to them and they are answerable)can reduce the cost from the source itself. Payroll has been a concern for so many properties. In the middle east depts like Housekeeping, Security, and even F&B to a certain extent and also POMEC were outsourced. Skilled staff were layed off and these outsourced staff were taken. To a large extent it has spoiled the hotel making it into properties without any standards or else with skeletal staff they were overworked. So cost consciousness should be without loosing quality. Chefs were forced to buy cheaper products instead of changing the existing menus to a much more cost concious one. This affected the final product. Some Financial controllers do not have knowledge of the industry and they go by the book. Well theory is different, but what we need is practical FC from whom decisions come fast. The more they delay the more cost they are going to incur. Empowering is the key word with responsbility and accountability, not a cost controller which some properties are keeping like a watchdog. End of the day the figure speaks.
Anonymous
8/13/2012 5:41:00 AM
In F&B Industry we will have to take a action on hotel or restaurant staff nc policy make limit per member of staff to take his duty meal and spoilage control and do contract with vegetable & fruits supplier ......and fuel liquor happy hour on low category ...items..... ravindra kumar F&B Controller..... 9811649626
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