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Cost Outlook Provides a Look Ahead for Luxury Properties

By Annie Davidson, Director, Luxury Account Management for Avendra, LLC
4 August 2022
5 min read
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Guests have largely regained the confidence to travel, driving demand for luxury hotel stays. 

The future looks bright but reigning in budgets during surging inflation is a top-of-mind concern for luxury property managers today, with the consumer price index in the U.S. hitting 40-year highs just in the past few months. 

As the leading hospitality procurement services provider, our supply-chain experts at Avendra continually monitor the supply chain and provide data-driven guidance to clients. In my role as Account Director at Avendra, I’ve had the opportunity to hone my purchasing expertise for luxury and lifestyle clients and that allows me to provide creative, solutions for maximizing the guest experience while minimizing the budgetary impact for clients. 

Recently, Avendra published our 2023 Cost Outlook, and there are four key areas impacting the Luxury sector: Food and Beverage, Rooms (Amenities), Textiles, and Golf Agronomy.

Food & Beverage

Whether it’s your full-service restaurant, in-room snacks, or grab-and-go food choices, the food and beverage category is being battered by inflationary forces from all sides. Some good news, though, as seafood prices are expected to decrease up to 8% in the short-term and up to 10% in the long-term as availability is expected to improve. We suggest exploring additional sustainable seafood items or adding more shrimp dishes to your menus.  Shrimp is expected to have favorable pricing and sufficient supply for all sizes. 

For other proteins, we recommend adjusting menu items, downsizing items/portions, being flexible with protein and produce choices, and adjusting menu prices as needed to best manage food costs.

Avendra is forecasting mid to high single-digit inflation in the food and beverage category for Q4 2022, for the U.S., and more of the same into 2023 as raw input costs remain high in most categories. The threat of a potential recession may put some downward pressure on prices toward the middle of next year. In Mexico, expect food and beverage price increases of around 7% to 15% depending on the product category.

Rooms (Amenities)

In the rooms category, increased labor, freight, chemicals, and packaging costs – driven in large part by fossil fuels and commodity vegetable oils – will continue to keep prices higher in 2022. A smart strategy to manage costs in amenities is to change the mix or SKU size. You should also consider high-quality, well-designed, large-scale amenities. For brand programs, work with your distributor to understand the availability of brand-specified products. When items are back-ordered, you can also use brand-approved substitutions or have products shipped from a non-local distribution center. We’re advising our clients to budget for a 7% to 12% increase for the remainder of the year as some key ingredients and raw materials remain in short supply due to ongoing international conflict. 

Textiles

Robes, sheeting, bath linens, and top-of-bed items are being impacted by inflation as well. Fortunately, systemwide, the textile supply chain is much improved. We encourage our luxury sector clients to build pars now before any potential cost increases. We also recommend purchasing available and approved substitutes to support your operational needs. Hotel properties in Mexico should consider buying products manufactured there to help reduce freight costs.

The linen and terry category is affected by labor, freight, and increased cotton costs, which were recently floating between $1.59 and $1.69 per pound, but moved to under $1.00 per pound in the last few weeks. Most increases have already been passed on but as cotton prices are expected to remain volatile in the coming months. expect a few select suppliers to have additional increases in the range of 3% to 10% through the remainder of the year.

Golf Agronomy

For the next several months, we anticipate continued instability in golf agronomy. To prepare for double-digit increases in chemicals, seed, and fertilizer, we advise placing your orders early and locking in pricing. This guarantees inventory and pricing prior to your typical annual purchase time frame.

We expect to see turf chemicals increase in the 5% to 15% range in 2022, and an additional 10% next year. Seed availability will be late, and prices will be at an all-time high and up approximately 30% from 2021 pricing, which was already twice as high as 2020 pricing. Fertilizer pricing will continue to increase 30% to 50% in 2022 and another 30% in 2023 due to natural gas and oil prices, and the ongoing international conflict.

Containing Costs

A combination of flexibility, creativity, and strong supplier relationships will help mitigate challenges brought on by unprecedented inflation. At Avendra, we collaborate with our suppliers and clients to find innovative solutions to meet their needs and focus on combatting price increases. We address each supplier’s requests for price increases with an eye toward minimizing the impact on our clients and providing supply assurance throughout the luxury sector. Our goal at Avendra is to deliver solutions that mitigate price increases and avoid disruptions in their operations, assuring outstanding guest experiences.

As your procurement partner, Avendra delivers custom-tailored solutions to meet the dynamic needs and business objectives of luxury properties. We provide ongoing, data-driven recommendations to help clients prepare and adjust their operations accordingly. 

Avendra, we get it. And we can help

About the Author

In her role as Account Director, Annie Davidson leverages her extensive experience in procurement operations and process improvement to serve Avendra’s luxury and lifestyle clients. With more than 20 years of proven experience in hotel operations, corporate procurement, multi-brand growth & supply chain strategy, Annie helps guide and assists her clients with strategic vision, growth, savings, and sustainability insights. 

About AvendraAvendra is North America’s leading hospitality procurement services provider. Our supply chain management solutions are tailored to our client’s business strategies and deliver benefits beyond great savings. We combine years of hospitality expertise, purchasing power, services and software to help customers impact the bottom line, improve operational performance, and better serve guests. More than 10,000 customers rely on Avendra as a trusted partner. Visit avendra.com to learn more.