Delivering efficiencies in the Hospitality & Leisure Sector TM 1 “Ours is a complex and changing industry, characterised by low margins and reliance on available labour. Operators must ensure that operational purchasing is as cost-efficient as possible to survive and thrive.” CHRIS WARDLE – CHAIR ERA HOSPITALITY & LEISURE IPG Find out more at expensereduction.com 2 Who are ERA At Expense Reduction Analysts we help our clients to get more value from their operational purchasing, by improving services received and reducing costs. Our extensive team is able to interrogate every aspect of your operational expenditure. With our comprehensive understanding of the Hospitality and Leisure Industry (H&LI) cost base, we support organisations to address weaknesses and overcome the challenges preventing them from optimising the value they receive from suppliers. Our proven track record demonstrates how we improve the efficiency and profitability of organisations just like yours. Our consultants will look into every aspect of your expenditure, past, present and future, to deliver Value through InsightTM. 3 Industry Outlook The H&LI is the 4th largest employer in the UK and has a significant role to play in the UK economy. In total, the industry currently represents around 10% of UK GDP. The creation of 300,000 new jobs in the past five years alone is a strong indication that the H&LI has been going through a period of resilience, despite the turbulence in and around the sector. The current state of the H&LI is characterised by a number of key themes affecting profitability, including the following: • Attracting and retaining talented people. • External factors including the National Living Wage and Brexit. • The changing role in adoption of technology. • Rising costs, especially relating to food, labour and property. It is for these reasons that the UK Institute of Hospitality considers 2019 to be the Year of Uncertainty. Focusing on the last bullet, whilst many initiatives ebb and flow on the tide of popularity, one aspect of the H&LI that shows no sign of reducing in priority is the need to focus on operational costs. Every penny must be spent as effectively as possible. Given the small margins many organisations in our industry are working to, this focus isn’t just good stewardship of funds by conscientious operators; it is critical to help ensure survival. Because rising costs bite and bite hard, the last 18 months have seen a huge number of well-known and not so well-known H&LI businesses go into administration, enter into CVAs or restructure and reduce their operations significantly. This has affected all aspects of the sector: food-centric operators including Pizza Express, Spudulike, Patisserie Valerie, Gaucho, Prezzo, Jamie’s Italian, Carluccios, Byron, Giraffe and Eat; travel operators Thomas Cook, Wow Air, Late Rooms, Superbreak and Dream Lodge; and even into the leisure end of the sector, such as Bury Football Club. These are tough times and eliminating inefficient spending is something every organisation must take ownership of. On the positive side, the UK has seen a rise in REVPAR due to the weakening pound and more UK residents deciding to stay at home, along with a recovering global economy…..for now. However, any increase in profit margins is expected to be offset to some degree by rising wages. So what positive steps must you take to ensure your business is as lean as possible to ensure growth, or perhaps even survival? 4 Seize the Opportunity Effective purchasing of operational goods and services is not a ‘nice to have’. It is essential if operators are to minimise overheads and remain competitive. Now more than ever, a holistic view of operational costs is crucial to identify where inefficiencies exist and can be addressed. Growing sales revenue is hugely desirable of course, but a reluctance to review costs means that what is good for the top line is not necessarily good for the bottom line. We’ve spoken to hotels who have decided not to review spend areas when there was a Potential £20,000 saving on offer because it wasn’t ‘worth doing’. I wonder what their response would be if a truck reversed up to their premises and took £20,000 p/a of stock each year? I’m sure they would go to great lengths to stop this happening immediately. Look at your operational spends in the same manner. Every penny saved contributes to opportunity, whether that is taking on more staff, funding new technology or even servicing existing debt. But crucially, this is cash already in your business; it just isn’t working to your benefit. Better that it is in your account than that of your suppliers. The majority of our H&LI clients have experience of using brokers to obtain deals on insurance and utilities. Why not expand this approach of using 3rd party expertise to consider other parts of the purchase ledger, perhaps in areas that have not been reviewed recently? How positive a message would it be to inform your Board that all operational spend areas will be subject to forensic review over the next 12 months? Take a top-down look at all spending and critically assess what could be improved. Which areas cause you the most concern? Are you sacrificing quality for cost or do you worry that you are paying more than perhaps you should be? Rising Industry Costs According to a 2018 UKHospitality Christie & Co Benchmarking Report: Risen to an average 52.5% of total operating costs The single largest cost for hospitality businesses: Staff Costs 29.4% https://www.morningadvertiser.co.uk/Article/2018/11/12/Hospitality-costs-hit-12-year-high 5 Why ERA? Put simply, because we know what ‘good’ looks like and can help make it a reality in your business. Our clients in the Hospitality and Leisure sector rely on us to share insight and provide expert resource to solve protracted purchasing issues that are facing their businesses right now. Our focus is on helping you procure the right solutions to fit your business, in whatever sphere of operational purchasing matters to you. This could be a simple case of tendering to identify better value for money on foodstuffs, through to ensuring you are investing in the right technologies at the right time, and everything in-between. Providing expert knowledge to maximise spend on operational goods and services is where our expertise lies and where maximum benefit can be found for your business. There can be some resistance to engage professional purchasing support, for fear of unexpectedly becoming committed to all kinds of undesirable liabilities. Of course, nothing could be further from the truth. We cannot do half a job, submit an invoice and then quietly retreat into the shadows. We pride ourselves on forensic reviews and supported implementations that enable clients to benefit where they would otherwise not. These benefits broadly fall under 1 or more of 3 headings: Fix, Avoid and Accomplish With our help, you may well Fix an issue that has been a problem for some time. This could be replacing poor supplier service and quality with an alternate supplier that is better suited to your organisation, or agreeing price holds for a further 12/24 months. We may help you Avoid something that could have a negative effect on your business, such as automatic contract extensions or switching to a supplier who our market knowledge would suggest isn’t a good fit for your business. And we may also help you Accomplish something, turning aspiration into reality. A great example of this was obtaining a disputed Food & Beverage rebate for a H&LI client that had been ongoing for many months. Another example is consolidating suppliers to obtain best value and reduce complexity. Without expert help you will likely find some savings but this is only part of the story. Effective purchasing with ERA also enables a host of non-financial benefits, such as the following: • Improved service & quality • Market insight and options • Reduced consumption (this is more often than • Identifying and introducing control to combat not a direct result of a review) maverick spend • Consolidation of suppliers (where applicable), • Quarterly auditing and reporting to provide leading to reduced ordering, receipting and enhanced MI processing • Generating savings to benefit investment or • Inviting innovation from suppliers in terms of new other areas of the business, and to verify that products, processes and sharing of best practice your current arrangements are market leading • Retaining valued incumbent suppliers, if this is • A fast turnaround of data, tendering and important implementation, so that opportunities are identified and acted upon as soon as possible • Avoiding adopting the wrong solutions • Being aware of how suppliers are treating other • A longer-term view that concurrently leads to clients, challenging where necessary immediate benefits ...at a price that is fair & agreed. 6 Where to Look for Better Value H&LI organisations deal with a wide array of expenditure, typically managed via complex supply chains. There are huge opportunities for businesses to find considerable cost reductions and service improvements, providing you have the expert resource to do so effectively. Whilst the more obvious spend areas such as volatile F&B costs, utilities, cleaning supplies and waste are on most people’s cost radar, what about other less obvious categories. Areas that require expert knowledge that is perhaps less available internally. For example, when was the last time your organisation reviewed merchant card fees, water & waste water, agency staff contracts, managed print, business rates or introducing a Web2Print service for marketing material? Such spend areas require an in-depth knowledge of characteristics, markets and suppliers to understand what ‘good’ looks like to ensure a good fit.