Navigating New Legislation and Labor Shortages
How is the Industry Performing?
California’s hospitality industry is one of the largest in the country. The sector is currently showing positive signs of growth and recovery, despite the challenges caused by the COVID-19 pandemic. The warm climate, tourist attractions, and endless beaches continue to draw many visitors, prompting investments and continued construction to meet the growing demand. California’s hospitality industry is experiencing an influx of investor interest and a high volume of hotels traded, indicating a healthy and promising market.
Here are some of the top issues facing California’s hospitality sector:
- Labor Shortages: According to the American Hotel and Lodging Association (AHLA), in October 2022, a survey of hotels found that 87 percent of them were facing a shortage of staff, with 36 percent experiencing a severe shortage. The most pressing need was for housekeeping staff, with 43 percent of hotels ranking it as their biggest challenge. Employees in the industry face challenges such as low wages, long working hours, and a lack of job security. Many businesses are struggling to find skilled employees to fill vacant positions, leading to a decline in customer service quality. The labor shortage is also decreasing productivity, affecting the industry’s overall revenue.
- High Hotel Prices: Recent information provided by travel website Hopper indicates that the average hotel room price in the United States during January 2023 was $212 per night, which is 54 percent more expensive than the same month in the previous year. Using comprehensive data from 5,073 hotels, it has been found that the average price for a hotel in California is $221, with a median price of $170. While high hotel prices may seem beneficial for businesses, they are causing problems for both customers and employees. High hotel prices are driving away customers looking for affordable options, leading to a decline in the industry’s revenue. These prices can impact employees by reducing demand for rooms and services, leading to layoffs or reduced hours, increasing workload and stress, and affecting employee compensation and benefits.
- Competition: The hospitality sector in California is highly competitive, and businesses must continuously innovate and improve their services to stay ahead of the competition. Smith Travel Research has reported that the state currently has more than 430,000 hotel rooms spread out over more than 4,000 hotels.
- Changing Consumer Preferences: Consumers are becoming more discerning and demanding regarding the services they expect from the hospitality sector, forcing businesses to implement updated amenities.
- Environmental Concerns: As the tourism industry grows, hospitality businesses face increasing pressure to adopt sustainable practices and reduce their environmental impact, forcing businesses to implement new technologies. According to a 2021 study, 81 percent of the surveyed travelers stated their intention to opt for sustainable accommodation in the upcoming year. This represents a consistent increase in the percentage of environmentally-conscious travelers over the six-year period during which the study was conducted.
- Government Regulations: The hospitality sector in California is subject to a wide range of government regulations, which can be complex and challenging to navigate for businesses.
New Minimum Wage Law Enacted: AB 257
The talk of the state has been the passing of a law that faced heavy opposition from business trade groups and fast-food franchisees. AB 257, also known as the Fast Recovery Act, establishes a unique council comprising workers, corporate representatives, franchisees, and state officials, intending to set basic industry standards such as minimum wages, working hours, and other employment conditions for fast food workers throughout the state. Advocates view this innovative approach as empowering workers with limited avenues to address widespread issues like wage theft and substandard, hazardous working environments. Those opposed feel that the law unfairly singles out California fast-food companies and would result in much higher food prices.
However, the law does not immediately change the minimum wage. Labor groups must gather signatures from 10,000 employees to create a council and appoint representatives to raise fast-food wages.
How New Legislation Poses a Threat to the Industry
So how does the minimum wage for fast-food restaurants affect the hospitality industry? If the elected committee votes to raise California’s minimum wage for fast-food restaurants, California’s hospitality sector may be in trouble. Hotel owners will be forced to choose between experiencing an even more heightened labor shortage or risk losing profit to raise their minimum wage to stay competitive with fast-food companies. Hotel owners are predicting a significant shift in their labor due to this recent legislature, and they must start planning to combat the change.
In conclusion, California’s hospitality sector faces numerous challenges on the horizon, and stakeholders need to develop effective solutions to address them. While some of the challenges may be beyond businesses’ control, measures can still be taken to mitigate their impact and ensure that the industry remains competitive and sustainable in the long run.