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US Tariff Policies Trigger Contingency Procurement Plans Among Hoteliers – Image Credit Unsplash+
- The introduction of US tariffs on goods from China, Canada, and Mexico is posing challenges for the hotel industry, potentially impacting profit margins.
- Hoteliers are developing strategies to mitigate these impacts, including diversifying vendors and countries of origin for goods and adjusting food and beverage offerings.
US hotels, already facing the challenge of rising expenses, are now contending with the impact of newly introduced tariffs on goods from China, Canada, and Mexico. These tariffs, imposed by former President Donald Trump, are part of a strategy to negotiate more favorable trade terms for the US and boost domestic manufacturing capability. The tariffs could significantly impact the spending of companies that rely on international products due to domestic availability and pricing.
According to Alan Benjamin, President of Benjamin West, a hospitality furniture, fixtures and equipment procurement firm, there is no need to panic. He advises understanding how tariffs work and finding multiple options to manage imported products. It’s important to remember that tariffs apply to the first cost free on board (FOB), not the full purchase order price, and that the tariff situation is still evolving. He suggests a contingency of 10% on furniture, fixtures, and equipment amount only, not on the entire project cost.
Benjamin also recommends having at least two vendors for major items in hotel rooms, and if any product isn’t made in the US, to have two countries of origin for the goods. This approach provides flexibility if a tariff goes into effect during the setup process. While China used to provide around 50% of hotel room components 15-20 years ago, it is now about 15%. This is due to the 25% tariff Trump placed on Chinese goods in 2018, which boosted Vietnamese production.
Richard Jones, Executive Vice President and COO at Hospitality Ventures Management Group (HVMG), says the hotel industry has been managing inflation in construction and renovation for years. He says the manufacturing sector has diversified, with countries like Vietnam and India becoming major furniture producers. Moreover, more manufacturers are appearing in the US.
HVMG has outlined a seven-point plan to navigate the tariff impacts in the food-and-beverage sector. This involves constant price comparisons, menu adjustments, and bulk purchases to lock in current pricing. The goal is to optimize every line item to ensure year-over-year profit growth and hotel value increases. If necessary, hoteliers must adjust their prices proportionately to the expense increase to maintain profit margins.
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