(Illustration by David Plunkert)
Hospitality is the act of discovering how to make people feel seen. When you have an exceptional stay at a hotel, it has likely cultivated a sense of belonging and comfort by managing small details such as the linens, the artwork, the in-room coffee and snacks, and so on.
It is not easy to do this well. Hotels, especially large chains, must balance personalization and quality experiences for diverse guests with scale and cost-effectiveness.
The hospitality sector has struggled with this balance. As major brands consolidated and expanded, standardization and mass production made hotels predictable, reliable, and yet lacking in soul, inspiration, and a sense of place. When Airbnb and Vrbo came into the market, their success demonstrated what customers were craving—authentic and personalized experiences, a place with character, human connection, and a stay that gives guests a taste of a new community with the comforts of home.
To avoid staleness, hospitality companies must think strategically about procurement. Systems of procurement are typically set up to promote conformity and standardization and discourage innovation, impact, and disruption. The software that procurement teams use to pay invoices and manage their procurement processes are often designed as cost analysis tools for inventory management, ranking the cheapest linens, cups, or chocolates and elevating cost-saving measures, not considering other measures of value.
This is where social procurement can help. Over the last few years, hotels have started to distinguish themselves through local, purpose-driven, and bespoke suppliers—making public commitments to uplift small and diverse businesses. In this way, they can boost the unique experiences they seek to offer their guests while also doing good for the communities in which they do business. But for social procurement to work for both hospitality companies and the social enterprises who seek to serve them, hospitality companies must rethink the way they approach procurement.
The Procurement Game
Like many industries, hotels typically leverage contracts through group purchasing organizations (GPOs), membership organizations that negotiate preferred rates on the products or services their members purchase. Larger hotel management companies, however, negotiate directly with suppliers. In both instances, the more they spend, the more they are eligible for rebates that they pre-negotiate. The rebate acts as a form of payback from suppliers, so the per unit cost of a product is discounted when purchasing thresholds are met.
These rebates have become serious business for GPOs and hotel management companies, who use them to boost the profitability of their assets. To participate in these programs, GPOs and management companies expect their suppliers to agree to a rebate structure and use it as a negotiating tool in exchange for potential distribution to their buyers—even though they won’t guarantee any purchasing threshold.
Our suppliers are more than goods and services—they provide hotels with a competitive advantage and a meaningful way to scale their impact in communities across the country. Our products keep guests coming back because of the meaningful experience they create.
This structure does not work for my company, Procure Impact. We work exclusively with suppliers that are employment social enterprises—nonprofits or mission-driven enterprises that provide employment opportunities and support services to individuals who confront barriers to work. Our B2B marketplace features more than 100 suppliers and 3,000 products made by individuals with disabilities, resettled refugees, veterans, and individuals who have experienced incarceration, addiction, trauma, and other impediments to employment. Every purchase creates dignified work for the most marginalized and vulnerable people in our society—people who are too often left out of the workforce.
At Procure Impact, more than 60 percent of what we sell to the hospitality sector is in the snack category. These products are used in coffee shops, marketplaces, minibars, and retail stores, and are used as VIP amenities, welcome gifts, and grab-and-go snacks.
To illustrate the problem we face from traditional procurement, consider our relationship with Cameron’s Coffee & Chocolates, one of our top suppliers. Based in Fairfax, Virginia, Cameron’s was founded by Ellen and Jim Graham and named after their daughter Cameron. Since its founding more than 11 years ago, the company has provided employment opportunities for individuals with disabilities creating high-end Belgian chocolates and baked goods that are in more than 100 hotels nationwide through our platform. Each employee has a job coach and case management support to empower them through skill development to drive greater independence.
The motto of Cameron’s is “Exceptional chocolates made by exceptional people.” When Chris DeRamo, global director of Food & Beverage, Premium Brands, at InterContinental Hotels Group, tasted their truffles for the first time, he insisted on talking to the founder to personally share that they were the best truffles he had ever tasted. Our products consistently are rated highly for quality.
The snack companies and social enterprises we represent create high-quality products at affordable prices, but their labor models are more expensive because of the supportive services they provide, making their profit margins slimmer than those of traditional consumer packaged goods companies. In many cases our vendors have set up nonprofits as part of their structure to receive grant capital, creating a reliance on philanthropy.
As demand for Cameron’s has increased on our platform, the company is, like a typical growing small business, experiencing a working capital crunch. As demand rises for their products, they must invest more in inventory and infrastructure, making working capital scarce. Because its labor model is more expensive, Cameron’s cannot shoulder a cut in its already slim margins to accommodate a rebate.
The crux of the challenge and the paradox in traditional procurement is this: How do you define mutual benefit between buyers and suppliers like ours outside of the traditional pay-to-play rebate model?
Procurement teams are measured by their ability to negotiate favorable contracts and rebates, and on overall cost reductions. They are not measured by the full value of the product—its ability to drive increased revenue, to create a memorable moment, to inspire through purpose, to build brand loyalty, to elevate the guest experience, to tell a story, to connect to community, to change lives, and to support the local economy. Such measures are much harder to quantify and don’t fit nicely into a profit-and-loss statement. Because of this, too many procurement teams haven’t adjusted their frameworks to accommodate this broader vision of the true value derived from the products they purchase.
Last year, for example, a procurement team of a large management company approached us. Despite significant public statements and commitments to responsible sourcing, they were heavy-handed in their negotiations and positioned rebates as a quid pro quo. We responded that any reduction in margin would be unsustainable for our suppliers and would create harm to the populations they serve and our overall mission. We walked away.
By contrast, a major GPO took a different approach with us. In finalizing the terms of our Master Services Agreement, they stripped all mentions of rebates and acknowledged the broader strategic goals they were achieving through our partnership. They measured value based on the quality of the products, the cost, and the scale of the opportunity to change lives and improve guest satisfaction.
With stated supplier diversity and community impact goals and an increasing desire to source locally and socially, they understood that rebates would be counterproductive.
The major difference in these two conversations was the stakeholders who were involved. In the management company, we were talking only to the procurement team. With the major GPO, we conferred with officials at all levels of the C-suite, and those leaders envisioned how our collaboration fit into the broader values, goals, and objectives of the company.
When procurement teams are siloed and company-wide goals are not integrated into purchasing decisions, companies fail to unlock the full value of their purchasing power.
The Business Case
Our suppliers are more than goods and services—they provide hotels with a competitive advantage and a meaningful way to scale their impact in communities across the country. Our products are mentioned in guest comments and Tripadvisor reviews and keep guests coming back because of the meaningful experience they create. Working with us takes the delight of customers to new heights by creating an emotional connection to a place and a story that they want to share. That is why repeat orders on our marketplace are three times higher than with traditional e-commerce platforms—products with purpose sell and drive revenue for hotels.
On the other side of the profit-and-loss statement, social procurement in the hospitality sector reduces expenses in the largest expense category—labor. We have heard countless stories of the ways hotel employees connect with our vendor communities. Hotel staff have shared about their own journeys to recovery, about their children affected by disability, about loved ones who were or are incarcerated. Social procurement is a way to live out company values that inspires employee retention. Increased employee satisfaction and reduced turnover is especially important in an industry that is chronically short-staffed.
We applaud the ongoing paradigm shift in hospitality procurement that is transforming lives and redefining what it means to build a more inclusive economy. With 25 partners and counting and more than 2,000 partner hotels, we at Procure Impact see their embrace of our suppliers as an example of what’s possible when an industry shifts incentives and breaks through entrenched systems that are stifled by traditional procurement.
Read more stories by Lauren McCann.