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Escalating payroll costs hampering UK hotels' profit growth

Sep 07, 2016

LONDON, England - A new study identified that the pace of growth in payroll costs is hampering the ability of UK hoteliers to increase profit.

The study, Benchmarking Beyond RevPAR, which polled a consistent sample of nearly 45,000 hotel bedrooms across the UK over a 15-year period, revealed that 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 percentage points, 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 last 15 years has been the 80% increase in the national minimum wage, to £6.70 in 2015 from £3.70 in 2000, for the adult hourly rate (ie +21 years).

And alongside the introduction of the National Living Wage in April 2016 and prospective annual increases in this hourly figure, managing payroll levels will remain a challenge for UK hoteliers as the number of hotel staff employed on minimum wage contracts in the UK is 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 & Beverage (+6.2 percentage points) and Leisure (+8.7 percentage points).

In London the picture is more positive as the pace of growth in revenue offset the 21.3% increase in payroll. That said, an uplift in labour on a per available room basis was recorded in Rooms (+27.2%), Food & Beverage (+11.7%) and Leisure (+143.2%) departments in the period from 2000 to 2015.

Pablo Alonso, Hotstats CEO said of the results “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.”

He added, “The ability of UK hoteliers to manage payroll levels could be further tested if the fall out from Brexit triggers a significant policy change regarding immigration to the UK.”

Escalating payroll costs hampering UK hotels' profit growth

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