The hospitality sector has been one of the hardest hit by the ongoing cost of living crisis, with demand and consumer confidence low and business costs often at their highest in recent memory. Those struggling are not alone – in fact, hospitality accounted for 12% of all administrations in the UK last year – but finding ways to weather this storm is key if hospitality businesses are to avoid entering into Company Administration or worse, face liquidation.
Fortunately, there are a number of measures that those in the hospitality sector can take to reduce business costs and improve their competitiveness at such a difficult time. To help you feel equipped and prepared as you evolve your strategy and tackle ongoing challenges head-on, we have outlined some of these tactics in this blog post. Read on to discover how you could reduce your business costs.
Improve Energy Efficiency
The ongoing energy crisis worsened by the war in Ukraine has meant that rising energy costs are one of the biggest challenges faced by businesses in all sectors. In hospitality, energy costs are particularly high and therefore one way that you can work towards reducing your overall business costs is by focusing on energy efficiency and trying to reduce the amount of energy you use. Cut back on unnecessary energy use by making sure that lights and unnecessary appliances are switched off at the end of the working day and be willing to invest in technology like smart thermostats that give you greater control over your energy usage. The savings that can be made by making just the small changes can be surprising when added up over time.
Negotiate With Suppliers
Supplier costs are another significant outgoing for businesses in the hospitality sector. While they will have their own challenges and are likely experiencing the same increase in business costs as you, it’s still worthwhile trying to renegotiate supplier contracts if you are trying to reduce your business costs. You might be eligible for some kind of loyalty discount or be able to get a lower price by signing up for a longer-term deal. If your current suppliers aren’t willing to come to an agreement or are already offering you their best price, don’t hesitate to explore alternative options and get quotes from other suppliers.
Utilise Your Space More Effectively
Many hospitality premises find themselves stuck in premises bigger than they actually need or with space they are not using and this comes at a premium. As you tackle the challenge of reducing business costs, think carefully about whether you are using your space as effectively as you could be. You could add extra seating to maximise capacity, use the extra space to offer additional services, or move to smaller premises altogether. The latter of these options can bring a whole host of cost-saving benefits – not only will you be saving on rent/building costs, but you’ll also have a smaller area to power and heat!
Streamline Menu Options
One of the simplest but most effective measures you can take to reduce your business costs is to pay attention to your menus and optimise when necessary. Seasonality has a big impact on the cost of food throughout the year and if you keep your menu the same all year round then you might find that profit margins take a hit during periods when a certain ingredient is hard to come by. As well as focusing on a seasonal menu, think about the range of choices you are offering. Avoid having too few options, but don’t hesitate to keep things streamlined so that you can keep waste to a minimum.
Hire Staff On Flexible Contracts
Labour costs are one of the most difficult things to manage within a hospitality business, but they are also something that it is vital to get right. You must strike a sensible balance of keeping labour costs low but ensure that staff are fairly rewarded and motivated so cutting jobs and wages straight away is never the way to go. Instead, consider hiring staff on flexible contracts if you are making a conscious effort to reduce labour costs in your hospitality business. Part-time, seasonal and zero-hours staff can be more cost-effective than staff hired on longer-term contracts and will help you to cut back on costs at times of year when demand is low or slow.
Focus On Training And Retention
However you do choose to hire your staff, make sure that you invest in their training and retention if you want to keep labour costs down. While it is true that the upfront costs of investing in good training and the right benefits may be high, the long-term reward is huge and this investment is necessary as the cost of hiring new members of staff is even higher. The more you can do to retain your existing staff, the more money you save on advertising new roles and training new staff so strike a good balance to keep your staff happy. Plus, staff that stay with you for long periods of time are likely to be more productive as they will be more familiar with processes and procedures which inevitably helps your financial position in the long run!
What To Do Next
Following these measures should always offer a suitable starting point for any business looking to reduce costs in the hospitality sector. However, if you are concerned about your current position or believe you have exhausted all possible cost-saving measures with little success then you must always seek specialist advice from an experienced business rescue professional.
The experienced team of business rescue experts and licensed insolvency practitioners here at Ballard Business Recovery can give you clear and tailored advice on all of your options if you are struggling in the hospitality sector. We can also help you work through the most suitable option for you, whether that is entering into administration or embarking on a comprehensive business rescue plan. Get in touch with us today to discuss your situation.
