Selling to the Hospitality Industry in 2001
By Wm R. Griffin, President
Copyright © 2001 Cleaning Consultant Services, Inc.
According the American Hotel & Motel Association, the hospitality industry has continued to grow in both total sales and total profit over the last year. 1999 surpassed 1998 with the industry grossing $22.0 billion in pretax profits on sales of $99.7 billion. That's an increase of approximately 5.8 % over 1998, nearly double the amount earned in 1996 and nearly $30 billion more in revenue than in 1990.
The hospitality industry has come out of a period of losses that occurred in the early 1990s and in 1999 earned record profits. Considering the speed of change we live with, it's a little difficult to know for sure what's happening today, as the most recent figures available are a little over a year old and a lot has changed in the last year. The economy has begun to slow, energy prices have skyrocketed, the stock market has taken a dive, the dot.com mania crashed and technology has given people new ways to meet, chat, exchange information and get together without having to leave their homes or offices. Only time will tell how all of this, as well as changes on the political front, will impact the hospitality and related industries in the U.S., as well as international economies.
Aside from the unknown, the hospitality industry is a big market that encompasses everything from hotels and motels, to private and public clubs, casinos, amusement parks, golf courses, cruise ships and time shares condominiums. The American Hotel & Motel Association, with over 11,000 members, represent some 1.4 million rooms. Non members have another 40,000 plus properties and 2.5 million rooms. Any way you look at it; the hospitality industry is big business in the U.S.A and around the world.
From a paper and sanitary supply perspective, it's a good business to be in because much of what you sell, the hospitality customer can't do without. And even though the industry faces serious challenges, like a labor shortage and increased regulation regarding safety and health issues, it's a market that's expected to grow and has a need for the products and services you provide. Some might even say that the challenges the industry faces are actually opportunities for profit for the innovative paper and janitorial supplier.
What the Expert Have to Say
Last year I spoke with Dick Moskal, Senior Vice President of Purchasepro.com, a company in Las Vegas, NV that helps hotels and motels implement computerized purchasing systems. I gave Moskal a call again this year to see how his business had changed over the last year. According to Moskal, business is good and the use of their service and systems is continuing to grow and gain acceptance. Moskal said, "Everyday, we see more facilities using our system or one of our competitors programs. We recently completed phase one for the Hilton Hotel chain, which brought 350 owned units on line and with the completion of phase two 1200 franchised units will also come online. We have also developed systems for Best Western, MGM Grand, Park Place, Mirage and other large customers.
"The big companies tend to go online first since they have the most to gain," said Moskal. "Using our service tends to reduce product costs by a few points, but you can only squeeze a vendor so much. The real saving is in backend cost for a hotel. On average, the cost of issuing a purchase order is between $75.00 and $150.00 each. If a hotel needs two cases of toilet paper with a value of $50.00 and it costs $150.00 to issue the paperwork to make the purchase, it's not very cost effective. With a system such as ours, we reduce the back end cost to $15.00 or $20.00 per transaction. That's where the real money is saved. In a large facility or a multiple location chain, that savings can mean the difference between being competitive in the market place and showing a profit or having empty rooms and showing a loss for the year.
"These systems are getting more sophisticated by the day," said Moskal. "We're getting to the point where everything can be done electronically. The buyer issues the electronic PO, the supplier receives the Pull Ticket for the warehouse and emails the invoice to the customer who then authorizes the bank to make an electronic payment directly into the suppliers bank account. At the same time, small companies can use parts of the system. We have a number of suppliers, who get their orders via the fax, because they aren't on line yet and may never be. One thing is for sure, we have seen a dramatic increase in the use of our service over the last year and we now have over 2500 hotels using our programs.
"One trend I'm seeing," said Moskal, "is consolidation and acquisition on the part of large national distributors. Sysco Corporation is in the process of buying Guest Supply Inc., which will enable them to fill their customers orders for additional types of products besides food, paper and cleaning supplies. The hotels want to buy everything they can from one source and the big companies want to be that source. When it happens with one big company, it puts pressure on the other large distributors to do the same thing to remain competitive."
Lou Richards, General Manager for Waxie Sanitary Supply in Las Vegas, NV told me that the core of his business is the hospitality market. " More and more properties are going electronic everyday as they look for complete solutions to fill their supply needs," said Richards. "We get electronic bid requests everyday. It's up maybe 25% over last year. And it's definitely price driven and plays a role in margin compression. But we have to respond. It makes it tough for us as we're a value added company so we are always looking for ways to get the margins we need.
"We work with our customers to offer seminars and help them develop training programs for their guest attendants. It's still relationship selling; our sales people are out in the field calling on customers everyday. We sell quite a bit of paper, but we'd like to sell more. Probably 50% of the housekeeping departments supply budget is for disposables.
"Things are tougher these days; distributors have to prove their value to end users and manufacturers alike. It's a key to our success and survival. Some end users and manufacturers would like to take us out of the transactions, so it's important for us to continually prove our value to those we do business with. It's just the way the market is and we have to learn to deal with it."
Meeting the Needs of the Hospitality Market
When you talk to people in this market, it doesn't take long to figure out what they want, expect, demand and get.
1. Delivery: The customer is waiting and storage space is hard to come by. If you're going to serve the hospitality market, you have to be able to deliver complete and accurate orders on a regular basis, when scheduled and often on short notice.
2. Price: The hospitality market is a very competitive business. They have high overhead for facilities, furnishings, and labor. Paper and janitorial products are seen as commodity products and an expense that they would just as soon do without if they could find a way. From the customer's perspective, buying paper and cleaning supplies is an expense that they can't mark up or resell. Part of a manager's job is to keep such expenses as low as possible because they come directly off the bottom line.
The volume may be high, but the profit is generally low. The way to make money is to keep your internal costs low, turn as much product as you can and position yourself to provide other products to the customer that will allow you to make a higher rate of return on select items. It's important to keep your eyes and ears open and be of service when it comes to helping solve your customers problems.
3. Convenience: Make it easy for your customers to do business with you. In today's world of high technology, that often means fast and easy on line access to inventory, invoice, email and technical data as well as ordering 24/7/365. When it's convenient for you to drop by, call or answer the phone may not fit your customer's schedule. The Internet can make it easier and more cost efficient for both of you.
4. Service: Regardless of what the customer pays, they expect quality-personalized service. On site training, immediate access and technical support, new product information, repairs, and computerized management assistance are what separates the professional supplier from a delivery service. Your challenge is to figure out how to cover the cost of providing these premium, value added services to all your customers, regardless of what they pay or how much they purchase. Whether you like it or not, that's what your customer wants, expects and will get from their supplier.
Hospitality Hot Buttons for 2001
Every employer is having trouble finding and keeping good help. If you can help your customer solve or reduce their employee problems, you'll establish yourself as a valuable resource.
Employers need help when it comes to developing and conducting employee-training programs. Develop a program and a package and take it to your customers. Establish yourself as the local expert and jump at every opportunity to conduct a non-commercial training session for cleaners, supervisors and managers. Forget about pushing products and equipment for an hour and tell them what they need to know to improve themselves, solve problems on the job and provide better service to their customers.
Basically, every one of your customers is required by the newly enacted OSHA ergonomics standard to provide each employee with a two-page fact sheet on ergonomics by October 15, 2001. After that, when there is an ergonomic incident they have seven days to comply with additional requirements of the standard. The ergonomics standard provides you with an excellent opportunity to take useful information and products to your customers. Get to know the specifics of the standard for your own protection and that of your customer. For complete information, visit OSHA's site on the Internet at www.osha.gov and under ergonomics print out the standard and the list of frequently asked questions.
Everybody is concerned with reducing his or her costs without a loss of quality. This is an excellent service to provide as it allows you to recommend products and equipment that will help the customer accomplish their goals. You're the expert, share your knowledge and your customers will benefit and you'll profit by it.
Housekeeping departments are transitioning to computerized management systems that give them fast and easy access to accurate information about staffing, costs, quality and inventory. A number of excellent programs are available from major chemical companies or private software developers. The more involved you are in the day to day operations of your customers cleaning operation, the less likely they will look elsewhere for supplies or a better price.
Most customers, when given a choice, prefer to purchase and use what are known as environmentally preferable or green products, as long as there is little or no extra cost involved. This can be a selling point with some private clubs and organizations, plus it's good for the world we live in.
This is a new area of concern for customers and an opportunity for suppliers to introduce innovative products and services. It is likely that you will start to see energy rating information on equipment and a new category of products designed to help customers reduce their energy usage costs in commercial facilities.
Ideas for Cutting Costs
- Team Cleaning:
This is a viable method of increasing production and reducing costs without a negative impact on cleaning quality in a facility. If some aspects of team cleaning are not being used in a facility, it is safe to say, money is being wasted and quality is suffering needlessly.
- Backpack Vacuums:
This type of equipment should not be overlooked as a way to reduce the cost of maintaining carpet and hard floors in a facility. A standard 14-inch upright vacuum cleaner has an average production rate of about 1800 sq. ft per hour; a backpack vacuum can clean the same space in about 20 minutes or less. In the cleaning business, time is money and the use of backpack vacuums is one option that should not be overlooked.
- Dry Vapor Cleaners
A small dry vapor cleaning unit is an excellent tool for cleaning thresholds, elevator tracks, baseboards, stoves, refrigerators, and anywhere else fine intricate cleaning is needed. They are also excellent for removing spots from carpet and cleaning upholstered furniture and other textured or fabric covered surfaces. The process is fast and effective in any number of specialized cleaning situations.
- Controlled Dispensing Units
Paper dispensers that limit how much paper is dispensed at one time or per pull. This type of dispensing unit will reduce usage and costs.
- Portion Control Chemical Systems
Systems that pre-measure cleaning chemical and water to assure the proper dilution of cleaning solutions when mixing. These systems on average will reduce chemical costs by at least 30% over products mixed by the custodian from a one or five gallon jug.
Selling the Hospitality Market
Hotels, motels and other segments of the hospitality market purchase large amounts of paper products and cleaning supplies on a regular basis. At the same time it's a competitive market that is moving toward electronic purchasing. The challenge becomes, how to meet the markets need for a low price, while still offering the value added services that set you apart for the competition.