“The long-term viability and profitability of hotels is inextricably linked to their green credentials”, says RBH Hospitality Management’s Head of Group Procurement, James Kennedy in his musings on rising hotel costs and inflation.
What impact will the rise in cost prices and inflation have on hospitality as a whole?
RBH Hospitality Management is seeing significant cost pressures in F&B, utilities and soft facilities management (FM) areas. On average RBH has seen 7% increases (on F&B and soft FM), however, on certain individual food lines this has been up to 20%. Utilities has even larger increases with the wholesale market increasing hundreds of percent since 2020. This unprecedented rise comes after the war in Ukraine, the sanctions on Russia and the general spooking of the markets.
Hospitality is specifically affected more by increases in utilities, as unlike many other industries, advances in energy reduction technology haven’t been as readily adopted. The knock-on effect is that hotels already struggling from Covid closures etc are facing some very stark choices about their viability. Other hotels will inevitably have to increase their room rates and pass these increases to the customer.
When it comes to budgeting and forecasting, how far ahead should hotels be looking?
Energy prices have increased hundreds of percent since 2020 so hotels need to be acutely aware of when their energy contracts are ending. Energy prices are expected to stay high for the foreseeable future so hotels should be reviewing budgets monthly as winter 2022 will be especially tough. With “flex” contracts, energy brokers can hedge energy up to five years into the future to help mitigate short term spikes. This is something RBH is investigating.
How will hotels mitigate cost pressures?
Hotels must look at ways to reduce energy consumption, whether it be lighting or heating, in the kitchens or guest bedrooms. Not using as much electricity through behaviour change or by investing in energy reduction equipment will need to become a priority. Of course, the final resort will be increases to room rates to cover these significant increases.
If the cost of gas and electricity is spiralling, is now a good time for hotel owners to invest in renewables?
Renewable energy is a cost saver long-term, but a huge investment in the short-term. Energy conservation devices may herald quicker returns i.e. movement-based lighting etc. Staff behaviour is also another major contributor to energy usage. Furthermore, having accurate consumption data will enable hotels to track and record unusual peaks in consumption to help identify areas for improvement.
The saying “you can’t be green if you are in the red” still holds true. Solar panels, wind turbines, heat exchange pumps, battery storage etc represent cheaper green energy over the longer term, however, they represent significant capital expenditures (which some hotels will struggle to justify) and must be looked at holistically in conjunction with other initiatives. There are many suppliers that will happily sell these products but without adequate initial energy benchmarks or energy goals it will be impossible to understand the full benefits they will bring (don’t forget the maintenance costs involved also). However, with energy costs as they are, these investments will inevitably provide ROI much faster than ever before and should form part of any hotel’s energy strategy.
RBH is looking to move energy supply to green contracts, whereby energy is procured from providers that have made the investment in renewables already. However, due to the ongoing energy crisis, these “green” contracts are more expensive than traditional “brown” contracts and the green credentials can be challenged with claims of greenwashing.
What steps should hotels/hotel owners be taking to making their properties greener? Setting realistic goals and targets is key. There are many difficult financial decisions to be made that may take many years to pay off. So having short, medium, and long-term goals is very important. With these goals in mind, hotels should identify key areas for improvement, whether it be consumption, cost, or materials, and set up working groups to look at each area and agree key actions based on financial ROI and ease of implementation.
What are the long-term benefits of investing in renewables (both financial and environmental)?
Being environmentally conscious is becoming increasingly important amongst hotel investors and customers alike and is a mark of differentiation amongst competitors. So, long-term viability and profitability of hotels is inextricably linked to their green credentials. Longer term, hotel groups can look to invest in CPPA (Corporate Power Purchase Agreement) whereby hotels can be powered directly by a nearby solar farm that is purpose built to power the hotels, for example. Not only will these arrangements provide long-term energy security, but they will also be significantly cheaper than buying from the grid. The energy is also truly green and free from any greenwashing claims, which can help hotels achieve Carbon net zero status and remove their reliance on fossil fuels. These are long term initiatives that require significant commitments by hotel owners but may represent the logical next step for some hotel chains.
