Barter Process in Hotel and Restaurant

 Barter


KEY TAKEAWAYS

  • Bartering is the exchange of goods and services between two or more parties without the use of money.
  • It is the oldest form of commerce.
  • Individuals and companies barter goods and services between each other based on equivalent estimates of prices and goods.
  • The IRS considers bartering to be a form of income that incurs taxes.

Bartering occurs when two or more parties – such as individuals, businesses and nations – exchange goods or services evenly without the use of a monetary medium. While a barter economy is considered more primitive than modern economies, barter transactions still regularly transpire in the marketplace.

Below are three basic examples of bartering for goods and services, along with a common contemporary barter exchange.

KEY TAKEAWAYS

  • Barter is an alternative method of trading where goods and services are exchanged directly for one another without using money as an intermediary.
  • For instance, a farmer may exchange a bushel of wheat for a pair of shoes from a shoemaker.
  • While uncommon, barter still does occur on the margins in some markets such as the business-to-business (B2B) space and some consumer services.

Hotels pay for everything they buy on trade with unsold rooms. All businesses using a trade network are buying products or services at their own incremental costs of goods sold. In the case of a hotel, it is already paying the overhead for the facility regardless of occupancy rates. The added cost of selling the room on trade would be the actual cleaning cost, sales tax, and replacing consumed toiletries. These incurred costs tend to be quite low in relation to the room rental rates. Let’s use as an example a hotel with 70% occupancy rates. Not bad, but room for improvement. The hotel can leverage those empty rooms for corporate scrip that pays for, or subsidizes, media purchases (radio, TV, online, print, billboards). It may also cover purchases of toiletries, liquor, wine, beer, landscaping, painting, renovations, artwork, furniture, flooring, reciprocal travel, and a multitude of other products and services. That said, media arbitrage is the cornerstone of corporate barter. Each slot, as in hotel rooms, has an expiration date. Unsold, they are worthless. Strategically using offset trading to cover expenses using new trade sales to maximize profits is a no-brainer. A hotel can easily increase it’s cash sales with increased advertising paid for in empty rooms. If the incremental cost of renting out that hotel room is 20% of the sale price (eg. $25 cleaning turnover, plus $25 tax) on a $250 room, then everything bought through the trade network is discounted in real terms to 80% off!

Another important consideration is that trade credit (room credit) may be donated to registered non-profits for tax deductible receipt. If you are not offsetting your taxes by donating your spare capacity directly to good causes, a good trade broker can even find you a psychologist on trade. Plus, every time you sell an extra room on trade, you have more customers in your hotel which will only add to the bottom line of all associated divisions, such as excursions, restaurants, shops, and so on.

A great success story of a resort group grown through trade networks is Sandals and Beaches resorts. Butch Stewart, the founder, is a barter legend. Pretty sure that he made those hotels household names without spending a dime on media. All paid in excess capacity. Brilliant.

In British Columbia, Canada, one of the richest Canadians is another barter legend, Jim Pattison. He built an empire, and having his own trade network helped his diverse group of companies maximize their profitability.

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