Manpower shortage hits payroll costs in

hotels

NEW DELHI, MUMBAI: The hotel industry in India is faced with a shortage of quality
professionals and a sharp rise in payroll costs, and the crisis will deepen with the number of hotel
rooms set to more than double in five years.

"There is a lot of pressure on hotel bottom lines," says Natwar Nagar, managing director of HVS
Executive Search that helps hotels recruit staff. "The demand for manpower from across new
hotels is coming up and supply is naturally restricted. Hence there has been an increase in per-
employee costs by default," he says.

Hoteliers say their payroll costs have almost doubled in the last three years. Dilip Puri, managing
director at Starwood Hotels and Resorts, says that today, typically the industry payroll costs
range anywhere between 20% and 30% of a company's average revenue, up from 15-17 % three
years ago. Companies blame this on high attrition rates across the industry, over-hiring and
growing sizes of food and beverage outlets. Perhaps the biggest reason for the manpower crisis
in hotel industry is that a majority of fresh hotel management graduates prefer to join allied
industries.
"We have seen that students from hotel management institutes move to other areas like banking
sector, travel and tour operators, smaller restaurants, etc," S Kacker, principal of Institute of
Hotel Management at Dadar in Mumbai, says. He says that only around 30% of the students join
hotel industry, while the rest move to other industries or pursue higher studies.

"The main reason why students choose other sectors is due to better pay packages, working
hours and conditions than hotels," Kacker says. With hotel room supply in the country estimated
to increase 111% over the next five years, the manpower crisis may get a lot worse for the
industry . Ashwin Shirali, regional director of human resources at Accor Hotels India, says
payroll costs can go as high as 35-40 % of annual revenue for a new hotel property.

According to an HVS report, hotels' average payroll costs were 20.3% of annual revenues last
year and the average payroll cost per employee (including labour/job contract ) was 2,77,858.
Rajiv Kaul, president at The Leela Palaces, Hotels and Resorts, says the group has always had
higher manpower costs than regular industry standards and there is a problem of attrition. "We
have had some attrition , but you always lose people when another brand offers them growth," he
says. At Intercontinental Hotel Group, attrition is highest in food and beverages department at
around 20%.

"We see that F&B witnesses more attrition as it is a seasonal business," says Kaval Verma,
director of human resources at InterContinental Hotels Group, South West Asia. Hotels are now
trying different strategies to manage their shrinking workforce. The Leela, where payroll costs
account to 22% of its revenues, plans to reduce the average manpower to room ratio to 2.2:1
from 2.4:1. The Lalit New Delhi hires just enough F&B staff for the entire year but increases it
in the peak season. Oberoi encourages cross-exposure at its global properties to incentivise staff,
while Accor is developing a variable talent pool with people who can play multiple roles, saving
on manpower. "When business travel is lower, we move talent to busier properties .

This way we have been able to maintain bottom lines when there is lot of churn happening in the
industry ," Accor's Shirali says.

The Lodhi in New Delhi, where payroll costs go as high as 30% of revenues, has increased work
cycle from five-day week to six-day week.

"We ensure employees are encouraged to take vacations in the summer months of the year, when
footfalls are lower," the hotel's general manager Robyn Bickford says. "We have reduced our
expat staff too, which has saved us a huge chunk of manpower costs," she says. Starwood
properties have outsourced their entire room-booking operations to a centralised system.

"We also ensure our employees grow into senior positions in our Middle-Eastern properties
where there is a promise of greater growth," says Puri of Starwood.

A senior person in the industry who did not wish to be named says groups such as The Oberoi
and The Taj have traditionally been saddled with an aging workforce that puts up a lot of
resistance and has a large amount of trade union posturing. But mid-market hotel groups such as
The Lemon Tree Hotel have consistently maintained optimum staffto-room ratio. The entire
workforce of 2,147 employees across the hotels and an employee costs make up for 18% of The
Lemon Tree's revenue, much lower than luxury hotels. Rahul Pandit, president and executive
director at The Lemon Tree, says they hire from 30 campuses across India.

"Our philosophy is to hire at the early stages of a person's career and then groom high-
potential employees on a fast track growth path," he says. Though the entire industry is starting
to bring parity in compensation structures and is looking at innovative ways towards employee
retention, the huge number of new rooms coming up will lead higher manpower costs, Natwar
Nagar of HVS says.