7 October 2019
There is a lot of discussion and debate about productivity in the Hospitality sector at the moment. In its latest ‘Future Shock’ publication, UK Hospitality dedicated several pages to the issue of productivity, covering definitions of productivity, how it’s measured, how it’s tracked and the regulatory drag, for example, calorie labelling on menus. EP Business in Hospitality has announced the creation of a new board for its ‘Fuelling Productivity’ campaign, which will involve over 20 industry leaders and experts.
What is productivity?
Productivity, in economics, measures output per unit of input, such as labour, capital or any other resource – and is typically calculated for the economy as a whole, as a ratio of gross domestic product (GDP) to hours worked.
At the corporate level, where productivity is a measure of the efficiency of a company's operations, it is calculated by measuring the number of units produced relative to employee labour hours or by measuring a company's net sales relative to employee labour hours.
This approach can be applied to hotels and restaurants fairly easily as such data should be readily available from the company’s existing information systems. Net sales per employee is the most important measure of productivity from a financial point of view as any improvement feeds into the bottom line and ultimately improves cash flow, i.e. producing more goods and services for a given number of hours worked.
Other financial measures of productivity are used, but these can be misleading. For example, sales versus wage costs as a measure of productivity would be adversely affected by a rise in the minimum wage, but this is not necessarily a reflection of worsening productivity levels.
Softer measures of productivity
There are other ways to assess productivity, but these are “softer” measures, such as revenue per square foot, focusing on property costs, average spend per customer and meals served per kitchen. There is no harm in monitoring these KPIs as well.
Strategy
In the past, hospitality has been perceived as a sector with relatively low labour productivity, principally due to the fact that it is fairly labour intensive – more hours are worked for each pound of revenue generated. The flat sales growth for pubs and restaurants in the last few years has not helped, but this is changing, partly due to the raised profile of the sector in the UK economy, now employing 11% of the regional workforce.
Increasing productivity is an important strategy for all hospitality businesses and helps towards its underlying success. As well as the obvious initiative of increasing prices to boost productivity, other ways to increase productivity include revamping the menu, additional spend on marketing, energizing and motivating the workforce and the increased use of technology, which can include better data analytics and enhanced team engagement with customers and back of house. It will be interesting to see how robotics and artificial intelligence (AI) develop in hospitality to improve productivity – restaurants can use virtual assistants to process customer orders and AI-driven robots to increase the speed of food preparation and delivery.
If you have any queries or would like to discuss this topic further, please contact your local UHY adviser.
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