Why Hotels Regularly Leave 6–16% EBITDA on the Table via Procurement

Hotel management teams are by necessity, highly focused on revenue performance.

Occupancy, average daily rate (ADR), and channel mix dominate internal discussions, supported by increasingly sophisticated revenue management tools. In a competitive and often volatile market, this focus is entirely rational.

Where attention turns to cost, it tends to centre on the most visible and immediate pressures—namely labour and energy. Both are significant, both have been subject to sharp inflation in recent years, and both sit clearly on the operating cost line.

However, beneath these headline categories sits a less visible, but equally material, area of financial performance: procurement.

In many hotels—particularly independent hotels and smaller portfolios—procurement remains structurally under-managed. The result is not typically a series of poor decisions, but a gradual and compounding erosion of margin that often goes unnoticed.

A Structural Blind Spot in Hotel Operations

Procurement—particularly within food and beverage (F&B)—typically sits within a blind spot in hotel operations.

Unlike labour, which is managed through staffing models and payroll control, or energy, which is often addressed through contracts and hedging strategies, procurement requires ongoing, detailed oversight at a line-item level.

This includes:

• Monitoring individual product pricing

• Tracking supplier-led changes in specification or pack size

• Benchmarking core items against the wider market

• Actively managing substitutions and alternatives

In practice, most hotel management teams lack the time and resource to operate at this level of granularity. Procurement responsibility is typically dispersed across operational roles—head chefs, general managers, or finance teams—with limited specific accountability.

The result is a significant section of the P&L that no one actively manages.

The Nature of Procurement Cost Inflation

This issue is often overlooked due to the incremental and compounding nature of procurement cost increases. Unlike labour or energy, procurement inflation rarely presents itself in sharp, visible movements or high-profile government policy announcements - there is typically no single moment that triggers intervention.

Instead, cost increases occur incrementally:

• Small, periodic price rises on certain lines each month

• Subtle changes in product specification

• Adjustments to pack sizes or yields

• Introduction of “equivalent” alternatives at higher price points

Individually, these changes appear immaterial. A few percentage points on a single line item does not warrant escalation. However, across hundreds of SKUs and a 12–24 month period most hotels in this situation will experience excessive cost inflation without a clear line of sight as to how it has arisen.

Supplier Incentives and Commercial Structures

Supplier behaviour is often structured in a way that reinforces this dynamic. Many procurement arrangements in the hospitality sector incorporate mechanisms such as:

• Retrospective rebate structures

• Listing or onboarding fees

• Long-term contractual commitments

While these are typically presented as value-enhancing—and can appear commercially attractive—they often have the opposite effect in practice.

Rebates, for example, are rarely a true gain. In most cases, they are funded through margins embedded within the underlying cost of goods. Hotels receive periodic income, but this is often a portion of their own spend being returned, rather than evidence of genuinely competitive pricing.

Listing fees can be similarly misleading. While they may appear as upfront value, they are frequently tied to volume commitments and pricing structures that erode flexibility. In effect, they function less as a commercial benefit and more as a form of pre-paid margin.

When combined with longer-term agreements—which reduce the frequency of market testing—these structures allow pricing inefficiencies to persist and compound over time.

Quantifying the Impact

To understand the scale of this issue, it is useful to consider a representative mid-sized hotel.

Assume:

• Annual revenue of £2.0 million

• EBITDA of £300,000

• Cost of goods sold (COGS) of approximately £300,000

• Of which roughly 80% relates to food and beverage

Within this cost base, it is common to observe pricing variances on core F&B lines in the range of 8% to 22% when benchmarked against market rates. This is particularly the case if the hotel has maintained a supplier relationship over time with minimal challenge. This can translate to a potential annual saving of between £19,000 and £48,000 (a 6-16% EBITDA uplift).

Crucially, these savings fall directly to the EBITDA line. Unlike revenue growth initiatives, which often carry associated costs, procurement savings improve profitability without requiring additional demand or operational expansion.

Low Disruption, High Impact

One of the most overlooked aspects of procurement optimisation is the relatively low level of operational disruption required to realise these gains. In many cases, improvement can be achieved through:

• Re-benchmarking existing suppliers

• Adjusting pricing on core lines

• Rationalising product specifications

• Introducing competitive tension into existing supply arrangements

Fundamental supplier changes are not always necessary. Nor is there typically any impact on guest experience, provided that product quality and consistency are maintained.

This distinguishes procurement from other forms of cost reduction, which may involve visible trade-offs in service levels or operational capability.

Why This Opportunity Is Often Missed

Despite the scale and accessibility of this opportunity, procurement remains consistently under-prioritised. There are three primary reasons for this.

First, it lacks visibility. Procurement inefficiency does not present itself in a single line on the P&L. Instead, it is distributed across multiple cost categories, making it difficult to isolate.

Second, it lacks immediacy. There is no triggering event comparable to an energy price spike or a wage increase. As a result, it rarely reaches the top of the management agenda.

Third, it requires specialist capability. Effective procurement optimisation involves a combination of market knowledge, supplier engagement, and data analysis that is not typically embedded within hotel operating teams.

Closing Perspective

In an environment where margins are under sustained pressure, identifying low-risk, high-impact opportunities for EBITDA improvement is critical.

Procurement represents one of the most immediate and actionable of these opportunities.

The evidence suggests that many hotels are leaving 6–16% of EBITDA impact on the table—not through strategic oversight, but through a lack of structured focus on an inherently complex area.

For operators seeking to improve profitability without increasing risk or disrupting operations, procurement deserves significantly greater attention than it currently receives.

________________________________________

About Argillan

Argillan works with independent hotels and hospitality portfolios to identify and capture procurement-driven EBITDA improvement.

Contact us today to help you quickly quantify the scale of opportunity within your business and provide a clear path to delivery.