Soaring raw materials and labour shortages: the breeding ground behind rising hospitality prices
The hospitality sector is set to achieve record figures this summer, mainly thanks to an August that will close with an estimated 10% increase in revenue compared to 2022. An increase that will make up for the sluggishness of July in much of Spain, including some of the most touristy areas. So much so that many employers’ associations have lowered their summer expectations.
More than on higher consumption, the road to new levels of business is built on the increase in prices, both in accommodation and restaurants. This is a circumstance that has not gone unnoticed by consumers, whose negative perception is increasing with the idea that companies are seeking to recover what was lost during the pandemic by raising prices across the board.
This latter perspective is fuelled by a new report by the Bank of Spain that shows how certain economic activities would have passed on “a substantial part” of the increase in their production costs in 2022 to selling prices. And among the sectors that applied a higher increase, it highlights the hotel and catering industry, energy, transport and storage.
Specifically, hoteliers experienced a 5.9% rise in their unit production costs over the past year. In contrast, their selling prices rose by 9.3% over the same period, much more strongly than their supplier bill. In the case of the hotel segment, the escalation continues, as staying in an establishment in July cost 128.8 euros on average, 6.3% more expensive than in the same period in 2022.
A very heavy backpack of costs
In contrast to the opinions that accuse the sector of taking advantage of the upturn in activity, the Spanish Hotel and Catering Industry argues that in recent years businesses have accumulated a strong rebound in costs”. In fact, only part of this is being covered by the increase in hotel and catering prices, although with a slow recovery in business margins, despite the slowdown in prices in recent months.
Proof of the latter is that in July the profitability of hotel and catering companies was still 5.9% below the figures for 2019, according to data from the employers’ association itself. One of the reasons for this is that the hotel and catering sector was slow to pass on the generalised rise in prices that began at the start of 2022, with its evolution below the general CPI until the end of that year.
The Bank of Spain takes this difference into account by pointing out that it “may be due to the slowness with which companies adjust their selling prices in response to changes in their costs”, and also to a “stronger increase in production costs” in 2021. This would have led some companies to have a greater need to pass them on in order to avoid a fall in their margins.
Indeed, since November, the hotel and catering sector has been forced to adapt prices, whereas until then it had opted to bear the brunt of the inflationary backpack. However, “they have always remained below the rise in food prices on which so much depends and which have maintained their double-digit percentage increase since April 2022”, according to Hostelería de España. Thus, prices have begun to moderate since February and in June the accumulated rise was 6.7%, compared to 10.3% for food and beverages. In the case of basic foodstuffs such as olive oil, the increase was 31%.
Job stress on the rise
But the increase in prices in the hotel and catering industry is not simply explained by the rise in the cost of materials and energy. Labour costs in the hotel and catering industry have shot up by 12.6%. In fact, a recent study by CaixaBank points to wage costs as one of the notorious causes of price increases in the hotel and catering industry, together with the resistance of demand and the reforms undertaken in establishments.
According to this study, exposure to food and construction costs have been key to the 33.4% increase in hotel revenues since confinement. So much so that the wage bill is now equivalent to 29% of total revenues. In the opinion of Fernando Gallardo, president of the Hotel Alliance, the situation could worsen in view of the labour shortage and “the stress that companies are currently under to fill vacancies at exceptional times of the tourist season, such as this summer of 2023”.
Labour costs account for about a third of hotel revenues
An example of this labour shock is that the Hotel Alliance launched an international recruitment programme at the beginning of the year with the medium-term objective of filling the 344 vacancies at 85 of its 172 hotels at that time. “The results of this search, although still precarious due to the delays in the processing of the recruitment files by the Immigration Department, have shown that the salary costs to attract talent have doubled in almost all cases,” Gallardo says. They have even quadrupled in those cases where staff are provided with residence and food.
For the association, the employment future of the hotel industry is not very promising. In the first phase, “vacancies will have to be filled by a foreign workforce coming from a much larger precariat and more adaptable to the needs of a hotel product based on the large flows that have boosted tourism activity in Spain”, they point out.
The second phase will be marked by the development of robotics and the automation of internal processes, the only way that tourism companies will be able to provide services that do not require any human intervention as an added value, just as automatic washing machines once replaced manual laundresses.
