Ms. Roberts

Sales & Marketing

The Do’s and Don’ts of Hotel Pantry Planning

By Janine Roberts, Director of Sales and Marketing, Tradavo

In any industry, there are basic tenets and practices that industry experts rely on as common knowledge. But in an industry like hotel retail, where two industries cross over each other, many basic retail practices are misunderstood or completely overlooked because the professionals in charge of overseeing the effort typically come from a hospitality background rather than retail

Unfortunately, this creates a scenario where fairly simple, yet costly mistakes are made when it comes to planning for, supplying, and managing a hotel pantry or gift shop. Many of these revenue mistakes are made by well meaning managers trying to create a clear-cut financial plan for their retail effort by setting budgets, selecting vendors, and closely managing overall Cost of Goods spent on the pantry but end up limiting the revenue and profitability potential of the retail operation.

Budgeting for Retail

Hoteliers are experts at managing budgets and procurement down to the penny. Cost conscious managers know exactly how much can be spent on FF&E, food service, and payroll on any given day.

Unfortunately, hotel retail is often treated like an operational cost rather than the profit center that it should be. Working on a fixed budget for retail can be a detriment to profitability. So long as product is selling and margins are set correctly, the ROI is immediate. Sales should be the determining factor in what is ordered, not an arbitrary number that could cause costly out of stocks when product is moving and there is no money left in the budget to re-supply.

Often I walk into a hotel pantry and find numerous facings missing leaving half empty shelves and a lack luster appeal to a potential buyer. When asked why so many holes, more often than not the response is, “We are waiting to place an order after our budget is renewed at the first of the month.” These out of stocks can costs hundreds even thousands of dollars a month in a busy market.

The best approach to “budgeting” for retail is to monitor the past month’s sales, Y/Y data, and anticipated occupancy levels to plan inventory based on guest demand.

When Cost of Goods Costs You Profits

Another issue that eats away at increased sales and profitability is complete tunnel vision when it comes to Cost of Goods (COG). Everyone is cost conscious as we attempt to maneuver through this ongoing recession, but there are times when focusing only on the COG for the pantry can be more costly than a manager thinks.

Taking this approach is often caused by two separate mistakes: supply source and product selection.

Supply Source Snafus

Managers are looking to pinch pennies anywhere possible and often do this by seeking out the lowest cost supplier – and more often when it comes to the pantry –several different low cost suppliers to source for a relatively small space. I have met managers with stores under 25 square feet that are using as many as 6 different vendor/supply sources in order to bring in their retail assortment and then send an employee offsite to go to a wholesale club or grocery store as well.

When asked why they are jumping through so many hoops to supply such a small store, the answer is always the same: price.

“I can get candy bars cheapest at Sam’s Club, and I get chips cheapest through my master distributor, and I get soups and quick meals at Wal-Mart because Sam’s and the master distributor don’t have them.” And then there’s the ice cream, sodas, healthy snacks, and sundries that all have to be procured through different sources to offer a complete hotel pantry assortment.

So while, in many cases, a manager may be saving $.10 to $.20 an item by driving all over town and managing multiple supply sources, the amount of effort that is required to obtain all items is causing another, even more expensive issue: out of stocks.

Too often a store experiences empty shelves and lost revenue because the manager has not had time to run to Costco to replenish. When you consider that stores typically sell out of their best sellers first, imagine the lost revenue that can occur when no one has time to go to the store. Take a look at it this way:

• If you’re buying King Sized Snicker’s bars at Costco for $.80 and selling 24 per week at $2.00, you just earned $48.00 in revenue/$19.20 in profit.

• But if you sit out of stock because you didn’t make it to the store, then that cheaper box of chocolate just cost you $48.00 in revenue, so saving even .20-.30 per Snickers did no good for the bottom line because you couldn’t manage the process.

Stick to simple supply sources that make it easy to stay in stock, have low enough minimums that you can always place an order when running low, and deliver at least once per week. There are national hotel pantry programs designed to consolidate ordering of all pantry categories into one order and meet all of the above requirements. The ability to stay fully stocked on guest favorites is essential to increasing revenue.

Limiting Assortment to Reduce COG

Another issue I see on the ground is the assortment that is offered. Nisson Cup of Soups, Austin Crackers, and Slim Jims are all sellable food that is very inexpensive to procure, but the overall quality of these products limits the markup and turn rate that can be achieved when offered in a hotel pantry.

In one select service pantry that we re-set in VA, we removed low budget items and replaced them with higher quality fare that had better shelf appeal and larger margins. The cost of goods for the store went up 9% across the total assortment. At first glance, the GM was highly concerned at the larger order and higher priced items. After watching a month’s worth of sales, COG was no longer an issue. The revenue increased by 24% and profitability by 25%.

Tradavo recently re-set all of the hotel pantries for SREE hotels to enhance their product offering, improve merchandising, and ensure their retail pricing to guests was properly set for maximum profitability. They immediately experienced a COG increase when a wider variety of high quality products were introduced. This increase was clearly offset by a 21% increase in revenue and a 33% increase in profits for the quarter.

Which Came First...

Over the past few years, hotel pantries have become more of a standard in select service and extended stay hotels and they are gaining popularity as brands and management companies analyze the incremental revenue potential of these simple lobby shops.

Unfortunately, a lot of mistakes have been made along the way which have led many managers to be very cautious about investing in the success of their retail operation.“My pantry doesn’t make any money, so I don’t want to invest any additional money into it.” It’s the chicken and the egg syndrome and it is perpetuating retail failure and costing hotels thousands of dollars a month in sales.

This mind set prevents managers from doing what needs to be done to improve their sales and make the pantry the true profit center that it could be with a small investment in fixtures and assortment.

A few simple, low cost adjustments can be made to improve existing pantries that have tremendous impact on sales.

• Fixtures: The single most important fixture a pantry can have is a shelf management system to properly display product and maintain organization of categories and products. These drop-in systems can fit into almost any existing millwork and typically cost about $250 to outfit an entire pantry. It allows vertical merchandising in neat rows and spring loaded push mechanism that maximizes shelf space and keeps the pantry looking fully stocked down to the last item in the row.

• Quality and Variety: Offering best selling, quality snack and meal options results in sales. Period. Make sure to stay on top of trends and guest favorites, but also know what your staples are so that you are getting the greatest possible revenue potential out of the shelf space you have to work with.

King Size It: Although King Size items have gone through a bit of re-branding in response to America’s obesity epidemic, the fact is, King Size still sells. This is true for Chocolates, Candies, Chips, and Beverages. And with that desire for a larger portion, comes the understanding that they are going to pay more for it which benefits your bottom line more than you may realize.

For example, a Grab Bag (aka King Size) bag of Doritos typically costs about .80 and retails at 2.25. That’s a $1.45 in profit per bag on one of your top 10 selling items in the pantry. Go with the smaller, single-serve bag to reduce your cost of goods? A small bag costs about $.55 and retails at $1.25. That’s a 50% loss of profit over offering the larger bag.

The most successful pantries I encounter are ALWAYS managed by a GM, front office manager, or front desk associate that takes great pride in the market. The managers who understand that it requires a financial investment to run a successful retail operation, reap the benefits of increased revenue, profitability and guest satisfaction. And while this may cost more on the front end, it will definitely pay for itself by month end when the right assortment, merchandising, and pricing practices are utilized.

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 Extended Bio...

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