By Adam and Larry Mogelonsky
While the pent-up demand from 2022’s travel recovery has now normalized, hotels are still mired by inflationary wages and high turnover. This presents a sweeping, existential issue for the industry on multiple fronts, with labor issues at the forefront of discussion heading into this year’s ALIS (American Lodging Investment Summit), happening January 23-25 in Los Angeles.
For owners and investors, increasing labor costs mean less going to the bottom line which can disincentivize capex and product innovation. For operations, staying within budget can mean cutting corners elsewhere, ultimately impacting service standards. All this can lead to a self-reinforcing spiral if we don’t address it head-on.
To get a bit more granular on the problem in order to then help hospitality organizations find near-term solutions, we interviewed Adam Glickman, VP of Brand Strategy at Actabl. Hotel Effectiveness is one of Actabl’s solutions; it uses an unparalleled network of labor-related data feeds accrued from over 6,000 US-based properties to then offer benchmarked recommendations to individual hotels and groups.
To kick off this conversation, Glickman showed us two mic-drop statistics. As of December 2022, service fulfillment on guest expectations has reached 97% of 2019 levels, but the average CPOR (cost per occupied room) across all hotel categories has hemorrhaged to over 15% above the 2019 index. Then on the turnover front, the shocker is that over 50% of general managers have changed jobs in the past two years.
While turnover has always been very high in our industry amongst hourly employees, the current rate of leadership turnover is unprecedented. With high churn both at the hourly wage and salaried levels, hotels are now confronted by huge cost overruns right at a time when rates and occupancies are primed to stagnate, all the while on-property leadership is also lacking to navigate these uncertain waters.
Reducing Replacement Costs for Profit Preservation
This past summer was all about recovering from the pandemic through yielding in order to maximize topline revenues. The next few business cycles, however, will be centered around defending bottom-line profits while still upholding or surpassing current service expectations. In the face of rising wages, we’re huge advocates of automation so that hotels can make labor as efficient as possible, thereby improving service delivery and restraining overtime requirements.
But there’s another crucial question in here that we’ve asked CFOs and other C-level executives when on consulting assignments, and it’s one where we see Hotel Effectiveness offering an integral answer. Have you (the owner or operator) ever calculated the true cost of turnover?
In this quest for profit preservation, the pain point that hoteliers see is the blooming cost of associate wages. What they don’t see is the replacement cost which has also dramatically increased in today’s supply-sensitive labor market. Generally speaking, this includes:
- Inability to clean rooms and make them available for resale
- Interruptions or full cessations of specific services impacting guest satisfaction
- Interruptions or full cessations of amenities impacting ancillary revenues
- Human resources time spent in recruitment and screening of new hires
- Paid onboarding time and sign-on incentives for new hires
- Training time of new hires by veteran team members
When fully tabulated, you’ll find that, for the vast majority of cases, the total replacement cost is substantially higher. Therefore, while on the surface a wage bump may be agonizing, it’s actually the better move to avoid the torment of employee churn.
To this end, Hotel Effectiveness offers region-specific wage benchmarks so that any property can stay competitive. And often this arms race for some markets can come down to as small as an extra 25 cents or 50 cents above index.
With so much cultural narrative right now around a ‘living wage’ and the ‘high cost of living’, what the two of us have seen is that housekeepers or front desk agents working at different properties in a city or area all talk to one another through backchannels like WhatsApp group chats. They have come to realize their power in a labor-constrained landscape and are willing to leave an employer without warning for the competitor next door if the wage offer is only marginally better. In this environment, profit preservation is directly related to employee retention, thus requiring vigilant monitoring of benchmarked wages.
Smart Labor Management to Aid Decision Making
When discussing associate replacement costs, nothing hits harder than losing a room attendant where the result is an inability to maximize occupancy. Despite all your efforts to retain your housekeeping team – whether wage-related or otherwise – the bitter pill is that there isn’t a wide pool of candidates who want to clean rooms. Why exactly this is comes down to a variety of factors beyond any single property’s control, so for the here and now it’s about making the best with what you have.
During the product demo, Glickman showed us the platform’s real-time daily housekeeping room cleaning forecasting tools, so that hotels can determine the best days to clean rooms utilizing the labor available to them. While this just-in-time daily approach to cleaning rooms is aimed at maximizing occupancy by minimizing out-of-order rooms, it also works to lower overtime allocations and optimize how contract labor is used.
Next came a detailed CPOR comparison of stayover cleans versus check-out cleans as only Hotel Effectiveness could generate from its proprietary data feeds. For many midscale and upscale brands, the going assumption is that cleaning the room only at check-out minimizes the total number of cleans and thus saves labor hours per stay.
Counterintuitively, a reduction in stayover cleans can lead to a sizably higher burden post-departure due to the check-out rooms requiring significantly more cleaning time. This then creates the problem of drastically more minutes needed to turn a check-out room, leading to knock-on effects like overtime, lower morale or dirty rooms that can’t be sold.
Smart labor management tools become a must-have, not a nice to have, to optimize operations costs. In the case of Hotel Effectiveness, much of this is delivered to the harried executive via a dashboard, and to the on-property operations leaders through a simple ‘five-minute labor check-in’ dashboard that immediately compares labor forecasts to actuals with clear projections of overtime usage.
Moreover, with the formation of Actabl this past summer – the new parent company that brings together Hotel Effectiveness with the business intelligence platform ProfitSword – these forecasts can be used in conjunction with other business planning tools at the fingertips of corporate or regional executives.
Manager-Level Problems You Don’t See
Just as it’s easy to focus on rising wages instead of employee replacement costs because the former is easier to quantify, the same can be said about how ‘The Great Resignation’ has drained the leadership in key on-premises manager roles. In our opinion, this actually represents an even bigger problem than inflationary wages at the associate level because such job vacancies can delay or outright halt any number of tasks that require signing authority.
Akin to the previously posed question, have you ever evaluated the true replacement cost of losing a general manager in terms of recruitment, onboarding, possible salary increases for the new hire, loss of knowledge and postponed innovation?
With so many situations nowadays that all gain from fast decision-making, a vacancy at the top can ricochet through every department. To fight turnover at this level, Hotel Effectiveness offers regional and national benchmarks so that you can ensure your compensation remains fair.
As well, having data segmented by role and by hotel category can tell you when some positions are experiencing especially high churn so that you know where to devote extra attention to avert a management disruption, as well as identify places where corporate teams need to further support their GMs in the field.
So, to close by emphasizing a main point, the key to profit preservation for 2023 is keeping your teams intact. But defending against the damage from turnover isn’t something that can be done solely through goodwill. In a world of competitive wages and managerial pay scales, you need data to know exactly where you stand.
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Editor’s note: To discuss business challenges or speaking engagements please contact Larry or Adam directly.