F&B is driving labor cost growth in 2024: STR

Overall strength in hotel group performance (up 3.5% year-over-year through September) drives the increase in F&B revenue at hotels, which also increases labor costs in that area. The increase in this segment is also aiding the growth of F&B revenue per occupied room, as that metric has nearly recovered to 2019 levels. The research concluded that as the F&B spend per guest is improving, the distribution of labor costs is shifting back to the ratios seen in 2019.

Before the group’s recent growth, the research found that more hotels were employing contract labor for F&B, but that appears to be shifting back to using full-time employees. However, the wages side has posted a different level of growth, which the research attributes to the higher expense versus contract labor.

The research found that on a year-to-date basis, labor costs per available room (LPAR) are up 11%, which is putting pressure on the bottom line and inhibiting profit increases despite the rise in total revenues. Throughout this year, there has not been a single month that has posted less than 6% LPAR growth year-over-year, with some months (like April) showing labor costs increase by 16%.

In top 25 markets, more than a quarter hold a group rate premium over transient rates, with urban locations within these major markets driving much of the growth. To accommodate groups, hotels are employing more labor – specifically within F&B- to accommodate the growth. So, it’s not surprising that urban locations have seen the highest LPAR (up 10.8%) this year.

In conclusion, while labor costs as a percentage of revenues have grown year-over-year, there is reason for hope as STR is forecasting labor cost growth to soften in 2025, which would also allow improvement in profit margins.