Hotel Operating Costs: Everything is More Expensive
- Kenneth Heymann
- Feb 8
- 7 min read
What once cost $1.00 in 2021 now costs $1.24, according to the US bureau of Labor Statistics. In less than 5 years you need an extra quarter to buy the same thing.
And it's not getting better. Inflation for 2025 - 2026 is anticipated to increase by another 2.8 - 3.2%, bringing the increase since 2021 to over 25%. While inflation has cooled in recent years (the high was 6.5% - 7.0% in 2021 - 2022) and has come down since its height, it is still a major problem considering that one can anticipate continued inflation for the coming year.
Supply costs aren't the only thing that have gone up. From January 2021 to July 2025, average hourly earnings in the United States increased by 21.8% according to data from the U.S. Bureau of Labor Statistics. And while the federal minimum wage has remained at $7.25 an hour since 2009, 30 states have a minimum wage higher than the federal minimum and 21 states increased their minimum wage as of January 1, 2025. There are also some 60 municipalities with minimum wages in excess of the state minimum. And, in all cases, the higher minimum wage (state vs. federal, or municipal vs. state) prevails.
Without delving into the various contributing factors, it is absolutely apparent that all the major costs associated with running a hotel - food, supplies and labor - have increased and it is highly unlikely that these costs will drop in the near term, even if inflation slows down and the increases in wage rates also taper off.
Food Cost
According to the US Dept. Of Agriculture (study by Victoria Davidenko and Megan Sweitzer above) food prices increased by almost 24% from 2020 to 2024. And they have gone up again in 2025.
Managing food cost has always been a central focus for hotels. But now, more than ever, the core components of effective food cost management need to be in place. There's not much you can do about the price of eggs or meat, but you can make sure that your control systems minimize loss and waste.
1. Ordering
Who has authority to order food? Are orders based on par levels that are volume sensitive? Does the system in place ensure that the amount of product ordered is tied to a cover forecast? This is particularly important for perishables. It's easy to leave a can of tuna fish on the shelf. Lettuce doesn't last that long. And while meats can be cooled or frozen, they do not have an unlimited shelf life. Are PO's required? While it may be fine to bypass PO's for daily orders, everyone should have a threshold for orders over a certain dollar value? That threshold should be appropriate for the size of the operation. The keys are: 1) ordering should relate to a cover forecast 2) make sure that you know who is ordering and only allow authorized staff to place orders. That is one of the many ways to minimize waste.
2. Receiving
Who checks the product as it comes in the back door? Who makes sure that the product coming in is consistent with the order placed. People make mistakes. Wrong items are delivered. Ordered items are forgotten. Prices are incorrect. Perishables aren't as fresh as they need to be to last a few days. The sooner you catch these issues, the easier the resolution and the further elimination of unnecessary costs.
3. Storing and Issuing
Who controls the storeroom? How well organized is it? Who is allowed to get product from the storeroom? Does everyone practice FIFO in the storeroom(s) and walk-ins. Are food products wrapped and dated when put in refrigeration?
4. Production
Are there set production pars? For example, if there is a buffet breakfast does the kitchen a) have a forecast of guests / covers for the buffet and b) are pars set so that more eggs are scrambled on busy days and fewer eggs on slower days? Has anyone ever watched what happens to unused food when the buffet is broken down to get insight into how much waste there is. The same question can be asked of numerous other production items. Are there par levels for soup stocks tied to the weekly forecast? Does the mis en place change when the forecast is for a low cover count?
5. High-Cost Inventory
Is there a daily inventory for steaks and other high-cost items if sold? (sea bass, lobster, etc.)
6. Menu Engineering
Finally, as much as it's imperative to ensure that each step from ordering to production is well controlled, it can be useful to study the menu carefully. Is there so much variety that you have to buy a wide array of products which creates a risk of spoilage if certain items don't sell. While organizations track food cost, it's important to periodically study popularity to be sure you know what sells. And, of course, the menu can be revised to potentially reduce the amount of product that needs to be purchased.
Whether it's using chicken for a sandwich, a pasta dish and a dinner entree, or ground beef for hamburgers, meat loaf and chili it's occasionally useful to think about reducing the overall inventory need while offering the ability to use a core product in a variety of ways. While a filet, if bought pre-portioned, can only be sold as a filet, other products can be utilized in a variety of menu options which helps reduce the overall cost of inventory (which ties up cash) and reduces spoilage.
Supply Cost
Much of what was said about food cost applies to managing supply costs. Everything from using ordering based on pars tied to a short term or monthly forecast, to PO's to ensure that expenditures are approved, to being clear about who is authorized to order supplies, to knowing how supplies are stored and distributed is just as pertinent for room amenities, cleaning supplies, etc. as for food supplies. While a significant majority of hotels, especially the major brands, have all moved away from individual amenities (soap, shampoo, body lotion, etc.), and now provide in-room dispensers, there are still other supplies (especially in the luxury market where sewing kits, shower caps, etc. are still provided) which can be managed more carefully. And bulk supplies provided in dispensers can also be managed more carefully. A few points are worth elaborating:
Cages in which guest amenities are stored should be locked after distribution to room attendants.
Cleaning supplies, if provided in bulk and then made available for dispensers, should also be secured so that property staff can't fill dispensers brought from home.
If Laundry is outsourced for cleaning, pick-ups and deliveries should be weighted to ensure that no linen or towels are lost along the way. Counts should be taken periodically to ensure the correct number of king sheets, hand towels, etc.
Bulk purchases of amenities or cleaning supplies can reduce overall cost though they may pose some challenges from a P&L perspective if the cost of a bulk purchase is expensed entirely in the month in which it is bought. This is distinct from putting the purchase cost on the balance sheet and expensing it each month in order to provide a more accurate assessment of cleaning and amenity supplies on a per room or per cover basis.
While Food Cost typically gets more attention than supply costs, this is often an area of opportunity that, with more attention, will further help hotels manage rising costs.
Labor Cost
I have discussed the key components of a Labor Management system in an earlier article that was published in January of 2025.
But in the context of managing labor costs, I want to start with a simple observation - A schedule is a purchase order for labor. That's it. This observation is particularly interesting when one compares the process of scheduling employees to the process of purchasing goods and supplies. Virtually all hotels limit how much a manager can spend on supplies without prior approval. Whether PO's have a $500 limit or a $1,000 limit, or more, it is rare to find an organization that doesn't limit how much a manager can spend.
But it is equally rare to find an organization that scrutinizes how much a schedule costs. In making this assertion, I am in no way suggesting that hotels should go back to scheduling based on labor cost or labor cost percentages. But I am saying that labor management should follow the same disciplined process that is appropriate to managing food or supply costs.
As the first step in managing costs is to have an organized process for ordering (tied to par levels and anticipated volume levels) ordering labor (writing a schedule) should also be tied to anticipated volumes and par levels - better expressed as labor standards.
While specific components of labor management do not align precisely with the process of managing food or supply costs, the core principles are aligned. If making sure that the correct product is received, it is important to make sure that the right people are assigned to the right jobs and are available (on station) at the right time. And if properly preparing and using supplies is a step, it is just as important to ensure that service delivery is provided in an effective manner.
Conclusion
There are some other steps that brands, management companies and even individual hotels can take:
Look for more opportunities to buy supplies in bulk. In some instances, it may be cost effective to rent storage space (if not immediately available) to store non-perishable products (linen, toilet paper, paper towels, light bulbs, toilet valves).
Just as many hotels have moved away from individual amenities (soap, shampoo, body lotion) for both cost and environmental reasons, F&B operations should look for opportunities to move from single serving ketchups, mustard, etc. There may be an up-front cost to acquire serving pieces (monkey dishes and ramekins), but money will be saved in the long run.
Look at the cost of in-room pens and note pads (buy interesting pencils?).
Perhaps, and - I believe - most importantly, ask your line employees. They always have ideas on how to reduce costs by pointing out waste that they see regularly.
While there are no easy solutions, improved systems and increased scrutiny will help you hold the line as best as possible.
Originally Published in Hotel Business Review - Hotel Executive
