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Panelists talk hotel cost containment strategies
March 10 2011

Efficiencies can be found in every budget. Panelists at the Hotel Association of Canada’s Annual Conference illuminated some of the best places to look.

  • If you cut too much out of your budget, your guests will let you know.
  • Cutting out menu items that don’t add value can help thin down a budget.
  • CapEx reserves are as high as 10%.

TORONTO—Cost containment has been a key objective in the hotel sector during the industry’s downturn and subsequent slow recovery. Panelists at the Hotel Association of Canada’s Annual Conference examined some ways hoteliers can continue to keep expenses in line.

One of the most important keys to managing expenses is through careful measurement, Tim Terceira, GM of the Ritz-Carlton Toronto, said during the session at the Sheraton Centre Toronto Hotel.

“If you don’t measure, you’ll really never know if you’re being successful,” he said.

Measurement, Terceira added, goes beyond analyzing numbers on a budget. It’s important also to keep in touch with guests, especially as it relates to the cutting of services at a property.

“Being in touch with your customers will let you know when you’ve gone too far,” he said.

Find efficiencies
Hoteliers should look closely to find spots where budgets can be made more efficient, Terceira said. A property’s food-and-beverage operation is one place to start.

“Look at the menu,” he said. “Do you have menu items that aren’t adding value to the plate? Let the greens be the star.”

Be wary of cutting too much out, however, Terceira warned. “You can’t cost-manage yourself to success,” he said. “I don’t think I’ve ever seen anyone do that before.”

And pricing of non-room items should be revisited frequently, he said. “That doesn’t mean you do what everyone else is doing,” Terceira warned. That line of thinking has led hoteliers down some not-so-good roads in the not-so-distant past, he reminded the audience.

Hotels should maintain minimum staffing levels and increase from there as business picks up, he said.

“You want to look like a swan. … Above the water, graceful; below the water, paddling like crazy,” Terceira said.

Budgeting for CapEx
Hotels also can be efficient when it comes to managing capital expenditures, said Eric Malcolmson, director of HLT Advisory. A long-term CapEx strategy that extends beyond a three-to-five-year window is important because it provides direction over where future money will be spent.

“It forces you to look into the future for an operational perspective, and it helps you prioritize spending,” he said.

Malcolmson said limited-service hotels should keep 2% to 5% in reserve for CapEx, while higher-end properties should keep up to 6%.

Charles Suddaby, a VP with Cushman & Wakefield, said reserve numbers can be as high as 10%.

3/12/2011 8:04:00 PM
Mr. Malcolmson shares valuable advice. I also recommend long range CapEx plans. It is especially important to hotels that have guest room renovations in their future. Properties such as this should extend their capital expenditure plans far enough out to include guest room renovations. As an example, knowing that casegoods are to be replaced in a particular year can assist hoteliers in making prudent decisions prior to the replacement year.
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