The government’s recent announcement to eradicate the remaining Covid restrictions signals the end to the global pandemic or at least says that we have to live with it. The hospitality sector is returning to normal with customers flocking back to restaurants, bars, cafes, and theatres with many organisations reporting like-for-likes up, or at least at parity, compared with 2019.
Customer demand may have returned to pre-Covid levels however the hospitality sector’s cost base has not. Over the last two years operators have seen significant cost inflation in the cost of goods, distribution and indirect third party costs, largely blamed on global supply chain disruptions, lack of supply, increased demand and labour shortages. However, as we returned to normality should these costs not also start to return to pre covert times, or at least move in that direction?
Analysis of a basket of common cost lines shows significant cost inflation, but as this year plays out operators should be actively managing suppliers to track these costs downwards and reflect this benefit in operating margin.
It is far easier to accept price increases when you are trying to keep the lights on and maintain the level of service for your customer. However, without proactive management of your cost base it is not so easy to put this in reverse and many organisations are continuing to see margins squeezed over the remainder of this year.
With margins under pressure there are three options: increase prices to your customers, which may impact revenue as customers look elsewhere; reduce specification, quality or portion size which again could impact revenue and negatively impact your brand reputation; or work with your supply base to reduce and realign your cost base. The latter is where Procurement can help.
4C are experts in cost optimisation, deploying a holistic approach to managing your cost base, from farm to fork. Our approach works collaborative with your business and supply base to explore opportunities to reduce cost using levers such as SKU rationalisation, specification optimisation, packaging reduction, pack size and streamlining distribution, as well as using commodity data and insights to obtain a fair price and stay ahead of the curve.
Please contact Gavin Bowen-Ashwin, Head of Hospitality Practice at 4C Associates at gavin.bowen-ashwin@4cassociates.com if you would like to understand more about how we can help you to reduce you cost base and improve you margin.
To contact 4C Associates, book a meeting with us here.
