Purchasing companies see green and save
Before the economy took a nosedive in the third quarter of 2008, a major priority for consumers and purchasing companies alike was using green, or sustainable and recycled, products in the hotel industry.
Most experts agree that going green is not just a fad but rather a continuing trend that can’t be ignored.
“This idea of green is going to continue, but there may be slower adoption when there’s a cost premium involved,” said Alan Benjamin, president of Benjamin West. “But a lot of items, including fabric, carpet, even some casegoods and vanities, have little or no cost premium. I think this movement really is a fundamental and generational shift, and people are going to look for and demand it,” he said.
Dennis Baker, president and CEO of Avendra, agreed that sustainable methods will endure. “Overall sustainability and being green will be important in the long term, it just won’t be top of mind in 2009 like it was last year. Much of what people talk about are things that actually save money, and that’s still going to have a high level of interest for people as things come down the pike. Other demands such as organic labels that have incremental costs are going to be put on the back burner because guests aren’t going to be willing to pay premiums for them.”
“I think green is going to be the trend of the future,” said Julian Brachfeld, president and CEO of Global Procurement Systems. “I believe people are waking up to the fact that we can’t continue to abuse our resources with no repercussions. There’s nothing negative about using products that can be used again. Also, manufacturers of green products are starting to realize efficiencies in manufacturing, and prices are not necessarily higher and are now actually coming down.”
Alan Gordon, VP of operations at Ramsey Purchasing and also a Leadership in Energy and Environmental Design Accredited Professional, said the environmentally friendly trend likely will continue, “particularly because there’s a California law that goes into effect in January. It has to do with wood and finishes. I think part of the drive will be legally driven, more so than consumer driven.”
Gordon’s LEED accreditation from the Green Building Certification Institute focuses primarily on commercial spaces, but many of the concepts translate to hotels. The LEED standards define “what kinds of products can be used and what you can substitute to have a lower impact on the environment,” Gordon added. “It covers everything from where you pick a building, to the kind of paint and carpet and how clean the air is. One consideration is sourcing vendors within 500 miles of the project.”
“Sometimes companies don’t realize that if you’re LEED certified, you get a tax break,” Gordon said. “That is something outside of the purchasing budget that we’re saving money on by looking at the big picture. But the clients have to be able to see that as a whole, not just individual budgets.”
Benjamin added that green projects that save money will be king. “For example, we had a recent East Coast project where, yes, the casegoods were from China, but instead of shipping the container to California and putting it on a truck for 3,000 miles across the country, we shipped it directly to the East Coast. It takes about two weeks longer, but it saved the company over $100,000 on just this one order. And there’s less risk for damage, because the container that was packed in China goes all the way to the hotel. On a truck it is removed from the original container and moved around. So that’s an example of a green strategy that works from an environmental standpoint, puts $100,000 in the owner’s pocket, and works green in that you have less damage to the product. Those are the projects that will continue to flourish in these tougher times.”
While sustainable products are not going anywhere, there will be hardships stemming directly from the poor economy. But opportunities still are out there.
“In my opinion, if a project did not close on financing before the second half of 2008, it is probably not going to get a shot at financing until the beginning of this coming year,” Brachfeld said. “And even then, there’s going to be a small amount of capital loaned out for hospitality projects. None of my projects have been canceled, but every single one of them has been put on hold until 2009. There will be delays not necessarily in getting projects done, but in getting them started.”
He added that “in 2009, vendors will be scrambling for business. Part of their operations will require them to get very aggressive in their cost structures. I think in 2009 the cost per key might actually be lower.”
“We’ve seen these cycles before,” Benjamin said. “The hotel industry is pretty resilient. People will always travel, whether it’s for life events such as weddings or funerals, business meetings, or high school reunions.
“And for hoteliers who have money right now, this is a great time,” Benjamin added. “Furniture, fixtures and equipment, transportation and labor costs will be lower. And if you’re renovating, it’s not difficult to take two floors out of service. … You’re not losing room revenue because the revenue might not be there if you have a drop in occupancy. If you have the money, get it done now, don’t start the project in 2011 or 2012.”
“We are seeing already where people are looking to us for help,” Baker said. “We’re helping clients think about new opportunities, look for new ways to maximize profitability, cost savings, efficiencies and new ideas in terms of products. We expect to do a lot of value engineering. For example, we might recommend a product that reduces operating labor. It may not have been a product you wanted before, but you may have fewer guests now, and it is important.
“Certain things will continue to get done. Hotel owners and hotel companies are going to continue to make prudent investments in upgrading their product, their rooms and hotels. Because of the tight credit and soft business, there’s going to be a sharper eye on expenditures,” Baker said.
Avendra also is looking at its suppliers and asking them to bring ideas to the table. “We’re asking for new products, new ways of delivering and packaging products,” Baker said. “Typically everybody wins because suppliers can pass on cost savings from the efficiencies to customers as well.
“I think we’re going to enter a cycle of partial renovations,” Benjamin said. There will be an emphasis on softgoods renovation, while hard goods such as wood furniture may get refinished instead of replaced. “The textile part of the room—carpet, window treatments, bedding and upholstery fabrics—have the most potential to look dated, from a pattern or color standpoint.”
Gordon said he’s already seen changes in the way suppliers and vendors are working together. “We’ve seen a huge push to have as much done on credit terms, so they can pay as late as possible,” he said. “Certain vendors have always asked for payment before shipping or wanted net-30 or net-60 after shipping. Now they’re actually canceling orders when they can’t get those terms. Even with vendors we’ve used for 20 years. And sometimes a hotel only has maybe a year of credit history, or maybe even less when we place an order, so no one’s giving them terms.”
Distinguish properties with furniture, fixtures and equipment
Now that the market is softening, how do hoteliers get a competitive advantage? “Go after a bigger piece of the smaller pie,” said Alan Benjamin, president of Benjamin West. “Whether it’s a one-star or a six-star hotel, all rooms typically have a bed, TV, window and bathroom. So the design of fixtures, furniture and equipment is a key driver in differentiating between hotels.”
Benjamin said he sees a big emphasis on the bathroom and giving it a spa feel. “People are spending more money per key on the bathroom, sometimes more than they even do on the guestroom. And obviously it’s a much smaller place. But overall, the bathrooms are getting bigger, even at the expense of the guestroom,” he said.
Dennis Baker, CEO of Avendra, agreed that “people are still looking for ways to distinguish individual brands or properties. We expect to see a lot of that in 2009. The answer may deal with the menu, or a signature item in the room, whether it be linens, a special terrycloth or a clock radio. They’re going to be looking for some of those more specific things to differentiate a hotel or brand.”
“The manufacturers I talk to say they have business lined up for the next 2-3 months,” said Alan Gordon, VP of operations at Ramsey Purchasing. “They don’t know what’s coming after that. So if we can offer work that’s coming three months from now, we can get a great deal. It would be an opportune time for someone who has the cash, to jump in and do some work.”