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Hotel profit growth stunted by payroll costs

07 September 2016 by
Hotel profit growth stunted by payroll costs

A new study by hospitality intelligence firm HotStats suggests the pace of growth in payroll costs is hampering the ability of UK hoteliers to increase profit.

The study, Benchmarking Beyond Revpar, which polled nearly 45,000 hotel bedrooms across the UK over a 15-year period, said payroll now comprises close to one third of a regional hotel's cost base.

Profit per available room at hotels in the regions has dropped by 26.8% in the last 15 years to £30.49 in 2015 from £41.67 in 2000. During the same period, payroll levels have increased by 25.6% on a per available room basis, equivalent to an uplift of 4.6%, to 32.1% of total revenue in 2015 from 27.5% in 2000.

One of the key drivers of growth in payroll levels over the past 15 years has been the 80% increase in the National Minimum Wage to £6.70 in 2015 from £3.70 in 2000.

Alongside the introduction of the £7.20 National Living Wage in April 2016 and prospective annual increases, the survey predicts managing payroll levels will remain a challenge for UK hoteliers with the number of hotel staff employed on minimum wage contracts in the UK projected to increase to 40% by 2020.

In the regions, the 28.7% increase in payroll per available room in the rooms department played a significant role in the drop in departmental profit conversion to 69.2% in 2015 from 75.1% in 2000.

Increases in payroll as a proportion of departmental revenue were also recorded in ancillary departments at regional hotels over the last 15 years, including food and beverage (+6.2%) and Leisure (+8.7%).

In London the picture is more positive as the pace of growth in revenue apparently offset the 21.3% increase in payroll, although an increase in labour on a per available room basis was recorded in rooms (+27.2%), food and beverage (+11.7%) and leisure (+143.2%) departments 2000-2015.

Pablo Alonso, Hotstats chief executive officer, said: "It is not hard to understand the acceleration in the development of limited-service hotels when it is ‘the service' which is now the biggest cost of a hotel operation. The ability of UK hoteliers to manage payroll levels could be further tested if the fallout from Brexit triggers a significant policy change regarding immigration to the UK."

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