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How Eco & Green Projects Benefit A Business' Bottom Line
As part of our continuing series of Ecotourism Industry Profiles where we discuss the issues surrounding the triple bottom line and, more recently, the actual return on investment (ROI) that businesses realize as a result of implementing sustainable operations, we profile Steve Macfarlane, owner of the Glenuig Inn.
The Inn, which is located on the western coast of Scotland, is a Green Tourism Business Scheme – Gold certified Inn that has endeavored to implement sustainable practices out of geographic necessity, financial health and environmental consciousness. I had a chance to pose some questions to Steve and while his answers have been shortened for brevity, they've not been shortened for content.
You mentioned that "going green" was primarily a financial decision for Glenuig Inn. It's quite unusual for an accommodation owner to highlight green at the start of operations. Could you expand on the circumstances that convinced you green investments were going to translate to lowered expenses and/or higher revenues?
From the outset when I saw the accounts of the business, it was clear the problems were gross profit and overheads. The gross profit was easy to fix, but that in itself was not enough turn the business around; there needed to be something else.
The reason I (founded) the business was that I was looking for a building to develop into a 'proof of concept' that would showcase my ideas as to how to create an energy efficient building from an existing building, rather than build a new 'eco-build'. I wanted to prove that renovating old buildings, which are readily available (in the UK), could produce something on a par with a new 'eco-home'...
The green decision was driven from the bottom line. One of the largest overheads was energy followed by staff and finance, the latter of which could not be cut easily. Furthermore, I worked out that I could effect a 'step change' to the business' overheads that would provide returns forever, and as competitor's costs rose, so they would become less competitive, or fail completely to provide a competitive service. The logical conclusion was that if I could re-set the overhead base of the business, I would be able to compete and be profitable, and provide a service appropriate to future markets...I now know, from this experience, that there are plenty of other similar businesses out there who are trading on yesterday's goodwill, in yesterday's markets, with today's high overheads; they will not survive long as they have an unsustainable business model.
What were the two largest financial green investments you made at the start? What bottom line cost savings did you experience in the first two years? Did these meet your projections?
We wrapped the whole building, around the outside and over the top, with breathable wood fibre insulation, thus making use of the old stone walls for thermal mass to even out the heat supply and demand in the building. This key investment enabled a completely different approach to the remainder of the systems we have used in the building.
- The Solar Thermal system is on a 4 year payback schedule.
- Water conservation consists of installing auto shut off sprays in the kitchen, showers not baths and taps with aerators elsewhere.
- We reduced our waste to the point that we recycle about 80% of what we bring onto site, although as we grow, so we do not produce any more volume / weight, thus we drive efficiency that way, and reduce costs as a proportion of each guest staying / eating etc.
- I considered the cost of grey water usage to be prohibitive, and there was a very poor ROI, if implemented.
If you want to look at ROI, then the only way is to compare with what would have happened if I had not implemented the measures. I have a neighbouring business whose energy costs in 2005/6 were about 10% more than this business. They have 20 bed spaces, and there were 18 bed spaces here. 3 years ago, his energy costs were over £20,000 for the year. Add 15% per annum (the average energy cost rise in the UK for the last 3 years) and this runs to £23,000, £27,000 and this year over £31,000. In comparison, this year we expect to spend £10,000 and we now have 35 bed spaces. Thus, we have double the capacity and a third of the energy costs. Put into other words, if we had the same waste of energy here, we would have to charge an extra £10 per night for every man, woman and child who stays with us.
Turnover is a huge issue for tourism businesses. However, almost all businesses that embed sustainability into their operations have experienced dramatically lower employee turnover rates translating into substantial savings in recruitment and training costs. What has your experience been with turnover?
I'm not sure that being a green business has either increased or decreased staff turnover, or changed the direct employment costs. I have designed out of the system the ability of staff to waste energy. (For example), we cook on induction hobs which turn off as soon as the pan is lifted, so the decision to turn off or not has been taken away from the employee.
...It is easy to build and equip a building, but it is much harder to change thinking, so when I announced that we would not be having a deep fat fryer or gas hobs, there was almost a revolution in the kitchen. I knew what I wanted to do, and if the staff did not want to be part of the project, they would have to find other work. Everyone was told about the 'Direction of Travel' of the business and had the chance to get on board; we now have a team that lives and breathes the green life and message. And what was the other dividend from throwing out the gas hob a fat fryer? Our insurance premiums for the whole business reduced by over 40%; again, it's the cheaper and greener option!
And a fun one . . . the shower in the staff flat is heated from both the solar panels and the wood burner in the dining room. If there is ever a complaint that the shower is cold, it can only be because they forgot to put an extra log on the fire yesterday . . . it builds a direct sense of connection to the environment and your actions when your everyday functions are connected with noticing whether the sun is shining and if not, lighting a fire and keeping it going! Too many people's lives are disassociated from the consequences of their actions; here it is direct, personal, close and green!
...The saving, therefore, is tangential to the direct employment costs. In terms of their propensity to move on, anywhere they might go will almost certainly have deep fat fryers, carpets and nasty chemicals to contend with, and they probably won't get a new staff flat with views over the bay either. Anyone who works here has to want to live here as well, and that is not for everyone, so our staff turnover is affected more by the living and working conditions than sustainability per se.
On the one hand, sustainable operations at Glenuig Inn are so ingrained that it's almost invisible to the customer (unless they ask). With that, how much do you think the increase in Glenuig Inn's repeat customer business and customer referrals is as a result of your green / sustainable ethos?
We have two principle types of customer: individuals and activity companies. The activity companies buy into a product that suits their market (green, family accommodation, healthy food, location etc.) and once we are in their system, we work at enhancing the product and adapting to their needs in order to garner repeat business.
Individuals return for a variety of reasons, although I am not convinced that is specifically because of our green credentials, but more likely to come out of our holistic approach to having everything in the business focused on future and growth markets. We deliver this in a green way, so the customer is buying into the niche that they want - food, beer, location, no carpets, dog friendly, sea-kayaking, or whatever, rather than the 'green' per se. The green underpins the whole and gives us a raison d'être and way of linking together what we want to do to give a good value for money experience.
One of the benefits of obtaining (in this case Green Tourism Business Scheme) eco-certification is the marketing expense savings since GTBS also markets on an accommodation's behalf. How much revenue can be attributed to GTBS certification?
We don't knowingly get any business due to the certification, or through the GTBS website. The reality, as I see it, is that green is one of the factors that will either create a short list, or be the deciding factor if there are two almost equal choices.
Directly as a result of "going green", has Glenuig Inn increased or decreased bottom line revenue and revenue projections; average occupancy rate; market share; or expenses and savings projections?
- We have increased revenue and occupancy by offering what people want, and we deliver it in a green efficient, economical way so as to improve bottom line.
- I'm not sure about increasing market share, as I think we are more about baking a bigger cake than fighting over the size of the slices, so increasing the market, definitely . . . share, maybe.
- Costs have either reduced, or been held static against an upward trend. The best example here is that our annual energy costs are about the same as they were in 2005, although our sales have doubled. Our competitors (instead) have faced a threefold rise in their energy costs in the same period.
Looking forward, we have plans to remove the remaining 16% of the original Carbon Emissions identified in 2008 (we achieved 84% reduction by November 2011, which was 4% and 39 years ahead of the UK target!). This carries a saving to the bottom line, even after paying for the capital equipment.