North West hotels cutting costs to stay profitable, finds report

Moore and Smalley’s annual Hotel Benchmarking Review, which examines the accounting data of over 50 hotels across the region, recorded a marginal increase in average net profit for hotels in spite of an average drop in turnover of five per cent.

According to the report, which compares figures for 2011 with the same period in 2010, hotels have managed to achieve this slight upturn in profit even with increased staff costs, suggesting significant cuts are being made elsewhere.

Judith Dugdale, head of the leisure and tourism team at Moore and Smalley, said while it was good to see hoteliers being prudent, hotel businesses had to guard against cutting costs too deeply, especially in areas such a marketing and investment in product quality.

The headline findings of Moore and Smalley’s Hotel Benchmarking Survey included:

• A small average increase in net profit for all hotels

• A drop in turnover of around nine per cent for hotels in seaside resorts

• An increase in turnover of under one per cent for hotels in rural locations, including the Lake District

• Wage costs have increased to 37 per cent as a percentage of turnover

• Investment in hotels (as a percentage of turnover) has dropped considerably from 2010.

• Seaside hotels have seen a bigger fall in sales than their countryside counterparts.

Judith, who advises hotel businesses across the region, said: “Income is hard to come by and room rates are being challenged across the sector. Turnover is down on average and seaside locations have suffered the most with an average drop in turnover of 9 per cent on the same period the previous year.

“As turnover has reduced and wages have risen this suggests that hoteliers must have been cutting other costs in order to report an increase in net profit. We have seen a reduction in marketing spend from hotel businesses, but this has to be done with caution.

“Cutting back too much in these areas can lead to reductions in sales for years to come and hoteliers need to ascertain which areas of marketing are not working and concentrate on more effective marketing techniques to find ways of attracting customers.”

According to the survey, employee costs remain the largest cost for a traditional hotel with average wage costs being 37 per cent of turnover, compared to 35 per cent the previous year.

Countryside hoteliers appear to be able to keep their payroll costs down (33.8 per cent) compared to their seaside rivals (40 per cent).

The main reason for this, according to Judith is that countryside hotels tend to have higher number of wedding functions than their seaside counterparts, and these functions return a better margin on wage costs than standard accommodation, bar and restaurant income.

Judith also stressed the importance of hotel businesses investing in the product offering.

She added: “Investment in hotels as a percentage of turnover has dropped considerably on 2010 levels. This will be because many hotels have made significant investments in previous years, but hoteliers need to ensure they are constantly investing in product quality.”