A Profitable Approach to Budgeting Hotel Retail Inventory
By Janine Roberts Director of Sales and Marketing, Tradavo | January 22, 2012
Do you have a fixed monthly budget for your hotel market or gift shop? If so, what factors are used to determine that monthly amount? And what happens to profitability and the ability to meet your guests' needs when inventory runs out before the next month's budget can be used? How managers define and set the hotel retail inventory budget has an undeniable impact on both retail profitability and overall guest satisfaction, yet many purchasing managers are getting this important revenue source all wrong by treating it like a capital expense and setting a fixed budget that limits profitability and disappoints guests.
Hotel executives and general managers deal with numerous budget decisions on a daily basis. Some purchases like new pillows, TV's, or flooring upgrades are viewed as an expense or a "fixed cost" that is a necessary expenditure to maintain the quality of the hotel but offers no immediate, measurable return on investment.
Other purchases are considered "investments" as they are intended to yield an expected and measured return to justify the cost of the purchase. The length of time required to realize the anticipated return and the amount of profit expected are important factors in determining the budget for this type of purchase with a short term, high profit yielding investment being the most desirable.
Research clearly shows a properly managed hotel gift shop or pantry that is well merchandised with correctly priced inventory is an investment that will yield an immediate, highly profitable return on investment - even in a down economy! Consumer goods such as bottled water, sodas, snack foods, quick meals, and sundry or personal care items offered in a lobby shop provide both a considerable revenue increase in the all important Sales Per Occupied Room numbers as well as a highly valued convenience factor to guests looking for a late night snack or quick relief to a splitting headache.
A product that is purchased for the hotel pantry can easily sell the same day it is offered yielding a 50-65% profit margin - with products such as soda and water yielding as much as a 200% profit margin! Highly profitable returns from fast moving consumer goods are all but guaranteed when best selling assortments are offered and adequately stocked in a hotel gift shop or pantry.
Yet, many purchasing managers treat the pantry like a capital expense and set a fixed monthly budget limiting the potential for the operation to meet its maximum profit potential when budgets run out and disappointing valued guests when shelves sit empty. A fixed budget is frugal and wise to do to with expenses or even with investments that have a long return horizon, but can be costly when limiting the purchases of products that move quickly and yield an immediate return that is otherwise lost when inventory runs low.
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