Delivering efficiencies in the Hospitality & Leisure Sector

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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.” CHRI S 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. This is relevant for all H&LI operators: large hotel to art gallery; museum to restaurant chain; sports venue to holiday resort.

Just as important is formatting data to present to suppliers in such a way that they can tender against requirement to offer the best value for money. It isn’t enough to trawl search engines, obtain 3 quotes and go for the cheapest. Good purchasing of operational goods and services requires expert buying knowledge to obtain optimal pricing and quality across the breadth of indirect spend areas that typically exist within the H&LI. The majority of organisations simply do not have this level of expertise on their payroll.

Despite much noise about how technology can automate front and back-of-house activities, this is a people industry and therefore, finite staff resources need to be focused predominantly on client facing activities.

The procurement function in H&LI organisations can sometimes be a part-time role, shared amongst staff already delivering various other responsibilities. This can result in real savings falling below anticipated savings and supplier relationships which are either overly cosy, or not commercially managed to optimise the benefit to the customer.

Some examples of H&LI spend areas are explored in the following pages.

7 Strategic procurement partnership assists CASE STUDY CASE STUDY with growth

Over the last seven years, Away Resorts and Expense Reduction Analysts have built a strong relationship based on trust, respect and a common goal; to secure the best prices and services on the market to support commercial growth. Two notable projects carried out by ERA included Laundry and LPG Gas.

When looking at Laundry, ERA conducted a company-wide review and, based on market knowledge, negotiated new, reduced rates with the incumbent supplier. Two years later, ERA was able to negotiate new rates and a new, beneficial contract period, mid-term.

For fuel, ERA streamlined Away Resorts’ LPG supply chain by consolidating multiple suppliers. By leveraging market knowledge, ERA was able to bring costs down and under control whilst at the same time, improving service across the parks After the first two years, ERA negotiated a significant reduction on proposed price increases midway through the contract.

“I was particularly impressed with ERA’s data gathering and tender process – the level of detail is beyond anything we could have achieved in house. Rather than being a drain on my time or resource, ERA delivered top-line, need-to-know information to me, backed up by detailed analysis. By continually achieving cost savings and efficiency gains for the business, they’ve become a trusted partner.”

Greg Lashley, Operations Director, Away Resorts

Since commencing its partnership with ERA, Away Resorts has acquired three further holiday parks, bringing the estate’s offering to a choice of six stand-out holiday destinations.

Laundry savings: 6.5% LPG savings: 29.1%

8 Cost Optimisation Opportunities

Workwear & Laundry Utilities Waste

Facilities Contract IT Management Cleaning

Payments Water Food & Beverage

99 Waste

Two major high end hotels in central London, both with height restrictions for vehicles and limited access times due to pedestrians and local road limitations, were using a trusted incumbent supplier to service them.

The client was nervous about moving away from their incumbent unless service and pricing improvements could be demonstrated. Working with the client and drawing on our experience of other trusted suppliers in London, ERA built a bespoke spend profile, managed a tender process and submitted an alternative solution. The result was an £80,000 pa saving over 2 years and a new supplier that matched service expectations and improved reliability of service.

Is your waste solution the best-fit for your business? Would talking to a Waste expert about what other options may be available be of benefit?

10 10 Facilities Management

On a practical basis most Facilities Managers are faced with a paucity of data about their estates and assets within; asset lists and real-time data are a luxury few have at their fingertips. Over time and with the growth of the ‘Internet of Things’, the problem of an acute lack of data transparency will render the many advantages of smart data useless, inevitably putting performance under threat and driving up costs.

Furthermore, this acute lack of data introduces risk to the business, leading to an over-reliance on contractors to know what is going on day to day. Ultimately any potential risk rests with the business ranging from non-compliance to asset failure. But unless it is presented effectively, big data will get in the way of making the right decisions; the right technologies can make this manageable and with the increasing deployment of mobile technology, FM is available everywhere, at any time, making asset management virtually instantaneous and reducing the downside impact of failures to the business.

Having the right supply partners who can support these concepts is becoming crucial to a client who is seeking to optimise asset performance, improve up-time, create innovation whilst driving down costs. Having the right data, the right measures and transparency of information at your fingertips will help to achieve these objectives.

Contract Cleaning

From 1st April 2019 the statutory National Living Wage (NLW) for those aged 25 and over increased 4.9% from £7.83 to £8.21. Add to this the 1% increase in Automatic Enrolment pension costs and H&LI businesses are looking at a substantial increase for contracted services.

Whilst this is quite rightly good news for workers, there are also many benefits for employers; increased motivation, staff retention, quality of performance and improved applications.

However, H&LI operators will need to look at ways to pay for this additional cost, which in many cases is over 6% of total contract costs. This is particularly so in major conurbations, where the applicant pool is diminishing (traditionally cleaners are represented by a high proportion of migrant workers). This is causing resourcing issues for service providers.

Therefore, in order to mitigate increasing costs, future productivity and efficiency of operations are very important. ERA have ways of mitigating the cost increases by reviewing services and looking at innovations and processes that can increase productivity and efficiency.

11 IT

Expense Reduction Analysts provides practical and effective solution to IT problems in the H&LI. These include, but are not limited to; cost and budget reduction, supplier management issues, supplier selection and transition, expert analysis and advice, and general IT commercial consultancy. We have helped numerous clients across the H&LI to leverage best value from IT whilst improving the services provided to end users, increasing our client’s revenues and profits.

Payments

To optimise value from payments providers, hotels, venues, restaurants and agencies balance cost with booking system / POS and regulatory requirements. Changes to PCI and Strong Customer Authentication require process and operating system changes. By providing expert insight to guide clients across the sector to identify clear priorities, we then use our influence in the market to deliver and sustain best cost, streamlined processes and improved supplier service standards.

Water

ERA helps operators in the H&LI by undertaking an independent forensic audit of their water & wastewater costs, utilising over 30-years’ industry experience. Our water expert regularly delivers very significant savings (both historic rebates and future budget), that come from the validation of invoice charges, through to management of supplies and water efficiency measures.

Food & Beverage

F&B costs are the beating heart of many H&LI organisations. Some elements of food costs can be extremely volatile and so agreeing price holds for as long as possible makes good business sense. Perhaps spot buying by pitching suppliers against each other isn’t such good practice, once employee cost per hour is factored into any monetary gains. Far better to agree pricing on a wide basket of goods with agreed margin on everything else thus allowing your highly skilled back-of- house staff to focus their efforts on food production. ERA food projects help to lessen the effects of a multitude of external factors and consistently deliver levels of savings without sacrificing quality.

12 Great improvements for Donnington Valley CASE STUDY CASE STUDY

Daniel Buck, Finance Manager for the Donnington Valley Group recognised the need to focus on reducing operational costs to generate profit improvement. Without a specific purchasing function, he acknowledged a more structured approach was needed. He chose to engage ERA.

The initial strategic review identified £2m of non-core costs, such as utilities, laundry services, print and stationery for independent analysis, which led to an overall a profit improvement in excess of £105,000. The initial project was so successful that it is now part of an ongoing programme of business expenditure reduction, which is proving more critical than ever given the current economic climate.

“The cost savings achieved have had a significant impact on our bottom line, and importantly, we have demonstrated best business practice and not just cost cutting. Lots of hard work has gone into the expenditure reduction programme, and we’re now much more aware of the many different solutions to our requirements than before.” Daniel Buck, Finance Manager

Business Print savings: 44% Promotion Print savings: 29% Stationery savings: 22% Utilities savings: 21% Telephone savings: 15% Laundry Services savings: 14%

13 Summary

The outlook for the Hospitality and Leisure Industry is largely positive. The sector as a whole is forecast to grow to £257 billion by 2025, which is a particularly positive figure in the light of economic issues and political uncertainty. Spending on leisure services is forecast to continue expanding by 4% each year to 2021.

This growth, plus an increase in confidence in the sector, provides plenty to be positive about for those who are working within hospitality and leisure. However, proactively managing cost and quality of indirect goods and services is essential. Doing more with less may have become commonplace, but it merely leaves organisations with a feeling of surviving rather than thriving.

Seize the opportunity and take control of operational costs with an expert partner; that partner is ERA, delivering Value through InsightTM.

14 Authors

Chris Wardle

Chris has worked in the Hospitality industry for over 30 years and his experience covers a range of roles and service sectors including Hotel F&B, Events, Pubs and Rail Catering. He also served for over 20 years as a Catering Officer in the Royal Air Force in operations director and food supply roles in the UK, Falkland Islands, Bosnia and Afghanistan. Chris is a Fellow of the Institute of Hospitality and Member of the Editorial Board of Hospitality Magazine. He holds teaching qualifications from his time as a departmental head at a catering college as well as a BSc (Hons) and a related MSc. Since joining ERA Chris has led and delivered numerous projects to Hospitality Clients, including reviews of food supplies, consumables, business rates, insurance, utilities, water, merchant card fees, waste and communications. He took up the role of Chair of the Hospitality and Leisure IPG for ERA EMEA in January 2019. [email protected]

Alastair Baker Alastair’s career started in the theatre industry and moved on to 20 years as CEO of a UK event management agency engaged on commercial events across Europe, N.America and Africa. This included; conferences, exhibitions and rallies for up to 10,000 delegates. Since joining ERA he has delivered successful cost management projects for: event buyers, venues and event promotors in areas such as; venue contracts, marquee and infrastructure hire, technical and production services. As a rounded entrepreneur, Alastair has also held non-exec roles in the hotel and food service industries. [email protected]

Catherine Anderson

Catherine joined ERA in 2014 following a successful time owning and running her own hotel, during which she increased turnover by 65% over 5 years. She was Chair of the Brighton and Hove Hotels Association (BHHA) and was also an active member of the Tourism Alliance. At BHHA her achievements included setting up the large hotels group and implementing supplier discounts for members. She acted as liaison between public and private sector bodies and the media promoting the hotel sector’s value and contribution to the city. Drawing on her past experience she’s now enabling ERA specialists to deliver improved efficiency for her clients whilst generating ongoing value and significant savings in areas like waste, print, FM and payments. [email protected]

15 TM

The Hospitality & Leisure Industry is continually undergoing change and innovation, so it is more important than ever to grasp new opportunities and understand the value of possibilities available.

Whether your requirement is simply some expert advice in a specific category of spend, or a wide ranging review of operational costs, ERA have a proven ability to deliver Value Through InsightTM.

expensereduction.com

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