Hotel Business Review

Ms. Roberts

Sales & Marketing

Why Isn't My Hotel Pantry Turning a Healthy Profit?

By Janine Roberts, Director of Sales and Marketing, Tradavo

The hotel pantry has become a standard at many select service and extended stay brands. Marriott International's highly successful "The Market" and Hilton's well planned "Suite Shop" and "Pantry Pavilion" are not only guest favorites for their quality and convenience - but a revenue generator that adds dollars to a properties Sales Per Occupied Room. Unfortunately, some of the best GM's in the country admittedly know little about retail, so what should be a small gold mine for the hotel often becomes a hard to manage, unprofitable endeavor due to a few easy-to-correct, retail industry mistakes.

As the hotel lobby concept evolves from the standard check in desk with table, flowers and uncomfortable chairs to a fully functioning, business friendly social spot, the concept of the lobby gift shop has changed as well. The hotel pantry is no longer a place to simply buy candy bars, snow globes or souvenir items. It is now an expected, and much appreciated convenience for the guest in need of a late night meal, headache relief or favorite snack. These pantries should be a tremendous asset to any hotel's Sales Per Occupied Room (SPOR), but many managers are making a hand full of retail industry mistakes that consistently cost the property the majority of their profit.

Well run, well supplied pantries - even the smallest ones - can earn as much as $5-7k per month. And in a time when occupancy rates are down dramatically, every dollar added to Sales Per Occupied Room is welcome. I have seen properties with only 5 shelves and a brand sponsored refrigerator adding over $2.50 to their SPOR from the pantry alone. I have also seen huge pantries with top of the line refrigeration adding only $.35 to that number.

So why are some pantries seeing losses month after month and scrambling to cover the cost to offer this important guest convenience? The top 3 profit pilfering mistakes are: Appearance, Price, and Shrink.

Appearance

One of the most overlooked elements of the pantry is its overall appearance. Too many managers think if they have a neat pantry, products will sell, but there are important elements to consider that greatly affect the guest's perception of the pantry and their willingness to purchase from it. If you can't make a sale, you can't earn a profit.

For example, many hotel managers believe it looks more organized to put just 3-4 products on a shelf and space them out to keep from looking cluttered, but studies show that a completely full shelf with a bountiful appearance of a wide variety of products drives far more sales than a sparsely merchandised, albeit neat, set of shelves. Shelves should be full from side to side and front to back at all times and should offer a wide variety of products in each of the standard pantry categories.

Use a shelf management system to create neat, full, easy-to-stock rows. Companies like RDC Cytex of Houston, Texas offer custom sized units that drop right into your existing shelving unit to display products upright - allowing more room on a shelf for products - and pushing products forward as a guest takes one to keep the row looking full and well supplied right down to the last product available in that row. The cost is approximately $30/shelf (depending on shelf size), has been proven to increase sales dramatically, and improves the overall appearance of the pantry instantly. These units are easy to install and typically pay for themselves in the first 30 days of added revenue.

Pricing

Another area that greatly affects profit is in the pricing of products. Too often the pricing is set by one person's given perception of value. Front desk managers have said, "I would never pay $2.00 for a bag of chips - that's too much." Or they believe they have to compete with the local grocery store where they shop. It is important to remember: you are not in the grocery business. The majority of hotels cater to business travelers on expense accounts who are looking for the convenience of a quick meal or snack without having to leave the property... and they are willing to pay for it.

The retail pricing standard is a 100% markup over cost of goods to achieve the retail goal of 50% profit margins. However, this is not always possible to achieve as some products have a higher cost of goods that makes doubling the price too high. It is important to target a 50% blended margin by taking all products offered and evaluating each product based on popularity, cost of goods, and price potential.

To accomplish this, make a spreadsheet of your total inventory with the unit cost of each item in column 1. In column 2, double that price. Then, in a third column, play with prices to see where you can charge higher markups and where you need to charge lower markups. Total column 1 and column 3 at the bottom to be sure that the total assortment COST is half of the total assortment RETAIL price. That is a 50% blended margin.

For example, depending on your distributor, the large Grab Bag size (2.85oz) of Frito Lay Doritos can be purchased for approximately $.50 but will sell in a hotel pantry for 2.00-2.50 - a 400%-500% markup on a product that has one of the highest turn rates in your hotel assortment. This larger profit margin on a fast turning profit makes up for other products with a higher cost of goods that can't always be doubled in price like some premium ice cream pints or frozen dinners.

Other important things to remember when pricing your products:

1. Evaluate your pricing on a quarterly basis. Cost of goods does change. Make sure that you adjust your prices to maintain your profit margin when manufacturers and distributors increase their prices. For example, the cost of chocolate went up approximately 20% between 2008- 2009. Did you adjust your candy prices?

2. Retail studies show that hotel guests do not have price issues with products under $3.00, so if you price an item at $2.00 or $2.50, it will not affect the sale of that product, but it will result in a difference of 25% profit.

3. Guests are more likely to purchase a product from the pantry if a price list is displayed in plain view.

4. The pantry is NOT an amenity. It is a profit center utilizing valuable space in your lobby. It is in no way inhospitable to charge a premium for the convenience you are offering them. You're guests expect it - and they appreciate the availability of a quick and easy offering that is onsite.

Shrink

The last - and perhaps most frustrating - issue that gobbles up profit from the pantry is shrink due to theft and employee use of the pantry. And, while shoplifting does occur by guests, studies show that it is employee abuse of the pantry that results in the greatest losses.

To deter employee abuse, it is important to set and adhere to clear policies of what is acceptable use. Choose one of the following policies for your employees and communicate it clearly to them:

1. Employees are allowed to purchase products from the pantry at a discount (10%-20%)

2. Employees are allowed to purchase products from the pantry but pay full price.

3. Employees are not allowed to purchase from the pantry at all as it is supp lied for guests

If you choose to allow employees to purchase products, remember that this is a profit center and a convenience to your guests - not a break room or vending machine for employees. Communicate to staff that taking an item without paying for it or not charging a fellow employee for a pantry item is no different than if they walk out with a pillow, or a robe, or money from the drawer.

Imagine if 10 bottles of water are taken at no charge from the pantry over a 24 hour period. The average 16oz bottle of water costs $.40 and can be sold at $2.25. That's $1.85 in profit per bottle, $18.50 per day of lost profit, or nearly $600 per month for just one product. Every dollar counts toward your retail success. Don't let your employees come between you and your retail goals.

The pantry has proven itself to be a substantial profit center that adds dollars to your Sales Per Occupied Room numbers. To achieve these successful results, it is important to closely watch the elements that will eat into that profit. Maintaining a fully-stocked, neatly organized pantry, pricing your products with the goal of a 50% blended margin and watching closely for ways to reduce shrink are key methods to ensuring that your hotel is reaping the benefits of this ever expanding revenue opportunity.

Janine Roberts, Director of Sales and Marketing for Tradavo, a retail services company specializing in design, optimization and supply needs of the industry. She works to improve retail profits and the automate management of hotel lobby shops. Janine developed and implemented the Retail Services element of Tradavo to provide hotels assistance in selecting, merchandising and effectively pricing inventory. She also created the highly successful Grand Opening Program to help general managers preparing for a grand opening and to launch their retail operation. Ms. Roberts can be contacted at 303-883-2335 or jroberts@tradavo.com

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