Hotelmatters - Issue 7 - Nov 2008

© The Hotel Solutions Partnership Ltd 2008

Welcome to the latest edition of our newsletter. More than one thousand clients and friends now receive it and, from the feedback sent to us, we are delighted that so many of you are interested in our consulting experiences.

We all know the industry is battling against a fierce headwind. The absence of a functioning global banking system has paralysed hotel investment and is rapidly starting to throttle the corporate, SME and leisure markets on which so many hotels depend.

In this crisis, hotel leaders know they need to make bold decisions to survive. There are no simple answers to the complex questions the current situation poses. Some of the so-called quick fixes just won’t work - shortening restaurant opening times, enforcing holiday requirements, freezing hiring, culling HQ staff. Hotel customers and cash flow are the two keys to survival.

In this newsletter, our consultants highlight on some customer-centric and cash-centric issues. We hope you find them thought provoking

And, if you think the team at Hotel Solutions Partnership can add value to your hotel business at this difficult time, please contact us.

Good luck

The Editor

Contents

• Leisure club customers feel the pinch in their pockets as well as their waistlines
• Accidents happen - but you shouldn’t lose existing customers
• IT - a source of significant savings
• Cash is king
• Survival - lessons from the bushmen
  

Leisure club customers feel the pinch in their pockets as well as their waistlines

Contributed by associate Carl Donnelly

Fit for now… fit for the future. Just what or who are leisure clubs competing against? It is no longer just down to price or the choice of one leisure brand over another. Research proves that the consumer is also looking for ‘the experience’.

And the competition is not just restricted to the super size clubs of 2,000 members. You can now add to the mix the growth in the ‘affordable luxury’ day and residential spa sector, investment and branding in public sector leisure clubs, and the growth in ‘high end’ hobbies such as cycling and outdoor activities.

There has also been significant growth in the ‘leisure learning’ sector, where the consumer wants to combine their leisure experience while learning or trying a new skill such as residential cookery, photography and music courses.

These are just some of choices and alternatives on which consumers can spend their leisure dollars, euros or pounds. Something’s got to give. If consumers have to cut back on spending, what will they choose to protect? What will they drop?

First, understand the true picture and tap into it. The need for the combination of leisure, exercise and relaxation is still there, perhaps even more so in tough economic times. Spending may well be transferred from one leisure activity to another. Rather than eating out several times a month, consumers may cut back on meals out to protect their ‘me time’ in their leisure club. Look at the profile, age group and spending profile of your membership base. The 50-plus sector, for example, may be more resilient to economic down-turns.

One of the biggest changes in consumer spending is the amount they are prepared to commit to their ‘media expenditure’, be it their mobile phones, internet or TV channel subscriptions. The consumers’ need for ‘connectivity’ to these media sources, indeed their dependency on such products and services, is a large part of their disposable income. The reality is that they will choose to protect their media expenditure, perhaps at the expense of leisure expenditure.

Five key recommendations for staying fit in the Leisure Club sector

1. Innovate and invest wisely in marketing initiatives – leverage all the services and products you have to offer, package and promote them well. Open your mind and distribution channels. There are plenty of retailers out there looking for joint marketing opportunities.

2. Ensure your service delivery is top notch, especially in the ‘flash points’ such as changing rooms and operating equipment. Tired stressed consumers faced with inconsistent service delivery will seriously consider moving their membership. ‘Retention, retention, retention’ needs to be top of the team’s priorities.

3. Invest time in training, coaching and encouraging your team to focus on delivering consistent and friendly service. Big smiles, eye contact and a few friendly words between your staff and customers will aid retention. Be creative with incentives and bonuses. It’s not all about cash rewards; local retailers may be a source for funding incentives.

4. Manage the money - check the basics such as direct debit transactions and make sure you are capturing all your income. Manage costs as opposed to cutting them. Define your top ten KPIs and manage them rigorously. Make sure you are getting the best deal from all suppliers – insurance will be one of your highest costs – so shop around.

Remember this - the real assets have legs. Your customers and your staff will walk away when dissatisfied. Retention is the name of the game.

Accidents happen - but you shouldn’t lose existing customers

Contributed by Rosemary Jackson lead associate

A cautionary tale for hoteliers.

Guest who is checking out
I’ve decided that I am not coming back to stay here in future

Guest service agent
Can I suggest I call the duty manager?

Duty manager

Good morning, madam. I understand that you have stayed with us on several occasions including the last three nights, that you feel we have let you down and you’re cancelling next week’s reservation. I’d like the opportunity to change your mind. What can I do to make that happen?

Guest

It’s too late. I’ve been staying here off and on for more than a year now. I’ve probably spent 20 nights in your hotel and spent several thousands of pounds with you. My client, who pays for my full board accommodation while I am in town, has corporate rate agreements with three hotels in the area. Until today, I have chosen to stay here because it’s a hotel with a new fresh feeling. You offer organic food and high-speed free wifi. Although you are the least well located for my client’s office of the three hotels, I have always chosen to come here if I can.

But I’ve had enough. Gradually, you’ve reduced the standard of what you’re offering and gradually your team has lost touch with your guests, particularly in your bars and restaurants. Despite being a frequent visitor, I am not recognised or valued. The sense of value for money, welcome and fairness has slowly but inexorably withdrawn

Take last night in the restaurant. I was having dinner with one of my client’s board members. Around us were several well-known personalities. This is a successful restaurant. We had our starter, then everyone in the restaurant waited, waited and waited. I was engaged in a business discussion and, for a while, didn’t notice. But then it was clear that the kitchen and waiting staff had been redirected to serve a meal in one of the banqueting rooms and all the diners in the restaurant had been left to fend for ourselves. I complained and eventually service was resumed. The head waiter apologised and did not charge us for our wine.

But why did it happen in the first place? You deliberately diverted resources from your small-ticket, high-margin, high-long-term-value customer to an ad-hoc low-value big-ticket customer. Who is the mad man who made this decision? The customer – your guest - has a choice and I have made mine. I am going to use one of your competitor hotels from now one.

Duty Manager

But madam, surely one night’s inattention is not enough for us to lose your custom?

Guest

No, of course not. It’s just the last straw. Take the night before in the bar. My friend and I ordered a bottle of wine and shared two starters. The dip with one of the starter was inedible and the other spicy dip was anything but. We left them and the waitress cleared away without taking any interest and without asking why we were leaving so much of it.

We then ordered a cheese platter. We waited and waited and waited and eventually I got up and went to the bar to chase it up. How difficult is it to assemble and serve a cheese platter? When it was eventually served, one of the three tiny pieces of cheese was mainly rind.

It wasn’t like this last time. I had a very good steak and frites. I just get the feeling that you are increasingly taking your guests for granted. Well, if that’s the case, I’m off.

And then, to rub salt into the wound, there’s the no-show charge. I was booked in from Sunday night for a four-night stay but didn’t let you know that I’d only be coming on Monday. On check-in, I was told that you’d charge me for the no-show. I asked that the receptionist take advice from management in the light of my frequent use of the hotel and the huge size of my client’s account with the hotel. The next day, I asked what the decision was and was told that the no-show charge was being applied. I said that’s a choice you have - and I have a choice too.

I have a choice to use another hotel and that’s what I’m going to do. I have a choice to tell my client about my experiences here and I will do that too.

Duty manager

But madam…

Guest

Don’t ‘but madam’ me. This is the first time any member of the hotel team has taken the time to recognise me and my personal needs. Would it be so difficult to recognise me when I come down to breakfast instead of being treated as a bedroom number? Would it be so difficult to welcome me back to the hotel when I check in? After all, I might never have stayed here if it hadn’t been for my client’s arrangement with you. Would it be so difficult for someone to pass the time of day with me when I am waiting in the lobby? Would it be so difficult to treat me as me rather than as a nobody, a room number or as anyone else?

It’s like a dripping tap – turning off a guest happens slowly and away from the headlines. But now that you’ve turned me off, I’ll tell my client so that when the new negotiations for the corporate rate come up, they’ll remember this consultant’s experience and just perhaps find another hotel to be their third hotel.

And I’ll talk and write about this experience. In any case, this guest is off. I have choice and I am exercising it.

IT - a source of significant savings

Contributed by lead associate Mike Wrigley

Over the past few years, hotels and hotel companies have rightly invested heavily in information technology. Often such investments bring higher operating costs.

Demand is now slowing down for the first time in years. There may be opportunities to take out some of the IT fat that has accumulated. But beware. Many aspects of IT are critical to survival. How would you reduce IT costs in the short term without prejudicing the long term?

IT can enable tomorrows’ customers and guests to buy hotel services and the majority of the people employed in IT have developed hard-to-replace skills.

The IT landscape is continually evolving and businesses need not only to survive any short-term challenges but also be positioned to take advantage of medium- and long-term changes. Much of the cost of IT is sunk. The business has the hardware; it has the software; it has the people. There will be implications on other parts of the business that would need to be understood before commencing with an aggressive cost savings programme.

I am certainly not advocating a ‘slash and burn’ approach. If I were to aggressively look for short-term reductions in IT costs, here are some of the areas I’d be looking at.

(a) People

• Review headcount – what is required for tomorrow’s business rather than yesterday’s; what will tomorrow’s customers require of us by comparison to yesterday’s?
• Review performance evaluations and aim to retain only ‘Satisfactory’ and above.
• Eliminate ‘in-sourced’ positions.
• Merge middle management roles to eliminate at least half the direct reports to the senior IT executive.
• Convert some full-time positions into part-time roles.
• Extend the CIO role to include operational support services including distribution, revenue optimisation, loyalty programmes, training, education and development plus property support services.

(b) Postponing:

• projects that do not have identifiable and acceptable rates of returns
• projects that are not business mission critical in tomorrow’s world
• new hires – critical vacancies re-allocated from (a)

(c) Cut

• Look at creating new efficiencies and performance from current systems in place
• Cut unproductive processes and legacy (‘because we always have’) actions.
• Cease unproductive expenditure – cut out anything considered ‘nice to have’ or excessive in these tough times
• Cut T&E budgets and premium air fares.
• Review infrastructure costs – are you getting value and what can be cut or reduced?

(d) Vendors

• Consolidate suppliers and challenge prices.
• Review support contracts for value and service levels – what are you really paying for and is it necessary?

But we can’t just sit on our hands made cuts. We need to invest for the future so I’d insist on an IT services development budget for four key issues.

1. Software-as-a-service
Can you cost efficiently convert from internally hosted solutions to externally hosted solutions? There may be a loss (perceived?) of flexibility but is this a price worth accepting?

2. Business Intelligence
Do your existing systems provide you with enough customer-centric knowledge to drive competitive decision making? If not, you should consider investing in such applications to protect your competitive position.

3. Revenue generating systems
Work on the revenue systems to tune, refine and spot opportunities to identify new sales channels and revenue leaks. Your marketing and sales forces will need IT to be flexible to reach out to new segments, new intermediaries, new customers, even as old segments, old intermediaries and old customers are falling away.

4. Outsource

• Review all non-core activities such as network management, security, email support, help desk arrangements, etc. - and outsource as much as possible
• Review internal implementation and support teams. If the utilisation rate and carry cost is not vendor competitive, it should be outsourced.

An overall saving goal is likely to be made up of savings from four separate sources and investments in four areas for the future. And, critically, IT savings should only be actioned once the implications to other elements of the business are fully understood.

Cash is king

Contributed by principal Ian Graham

Mismanaging cash can be unforgiving. In recent weeks some huge organisations have crashed to the ground. No doubt out of the glare of publicity, many smaller ones have too.

The cause? A lack of confidence – but, underlying that, a mismatch of cash obligations to cash in hand. Cash is the life-blood of any business - small or large, growing or declining, start-up or mature.

For many years, the hotel industry has had a fixation on revenue (RevPAR) and profitability. Witness the continued reliance by most owners of branded hotels and most hotel brands on profit and loss reporting advocated by the Uniform System of Accounts for the Lodging Industry.

I, for one, expect progressive hotel groups to augment this now as a result of recent support by the British Association of Hospitality Accountants to a piece of research authored by our friends at Oxford Brookes University which proposes to add to or revise the focus of profitability from departments to customers.

However, even with this improved reporting focus, as an industry we pay little formal attention to cash and cash flow management. This, despite the fact that many of the OpCo / PropCo structures put in place in recent years, as well as other joint venture structures, has resulted in forcing major operators to focus on cash flow at an entity level in ways for which many hotel managers and controllers have been ill-trained.

Perhaps this is because at a working capital level, most hotels operate with negative working capital. At start-up, a hotel requires an investment in working capital – cash balances, inventories, prepayments and deposits. But as the business gets going, normally such a requirement is reversed as cash inflow from customers and guests comes in advance of cash outflows to employees, the state and suppliers.

Why is this? In an urban business hotel, cash paid by the credit card companies is typically received several days after check out and the relatively small number of customers with authorised credit normally pays within 30 – 60 days. Obligations to employees are typically paid in arrears at the end of the month, to the tax authorities in arrears at least monthly and sometimes quarterly, and to suppliers several weeks after receipt of the goods and services. Even in a resort hotel, deposits typically form an important ‘quasi’ equity easing the ability of the business to trade. It is our experience that most well-run hotels operate with greater current liabilities than current assets – effectively with negative working capital.

Remember three golden rules.

1. Cash is not a given - rather it is an outcome. It is not inevitable. It needs to be worked for. Chased and hunted, captured and banked. Are your processes as robust as they can be?

2. Cash management is a core process - it’s as important as sales, customer service. Your hotel needs to be excellent in cash management just as it is in the creation of the core experiences that you sell to guests and customers. It can’t be outsourced or probably downsized. It can’t be reduced to a non-core process.

3. Cash management requires information - to proactively manage all aspects of every process that impacts the use of and generation of cash. In the supplier focused ‘Purchase to Pay’ process, the customer-focused ‘Acquire to Sell’ processes, in the employee-focused ‘Hire to Retire’ process, there needs to be excellence built in around the sourcing and application of cash.

Only if your hotel or your hotel company excels in all three rules will the company’s survival be assured.

Survival - lessons from the bushmen

Contributed by principal Ian Graham and lead associate Rosemary Jackson

Last month, we visited the second least-populated country in the world - Namibia - and journeyed to the remote north-west of the country to spend time with the bushmen.

Almost 20,000 years ago, their direct ancestors had migrated from what is now Botswana. Today’s bushmen maintain the way of life that has served their culture so well for more than a thousand generations.

In this article, we share some of our learning and how we believe the hotel industry in a time of crisis can learn to survive from one of the oldest, if not the oldest, peoples in the world.

The nest

The bushmen’s home is an inverted nest - a nest on the ground made of branches and covered in straw. A nest is a place of protection during sleep and a place for the rearing of the young. The men move to live in their wives’ villages with their dependant relatives. Neighbouring villagers are related to each other but the genetic dangers of inbreeding are avoided.

If a neighbouring village needs help or a visiting neighbour needs shelter, it is willingly given for sometime, somewhere, the favour will be returned. Camps and people move regularly following the rains and the annual rotation of food sources. There is no chief –all important decisions are made collectively.

A hotel guest room is first and foremost a place for sleep – protected from the outside and with privacy from others. Hoteliers do well to remember that the quality of each core element - the mattress, the sheets, the pillows, the curtains, the soundproofing, and the in-room climate - assists the guest achieve restful sleep. When the hotelier compromises on any of these elements, the quality of sleep is adversely affected and, with it, the sense of renewal that the guest is seeking. Guest satisfaction falls as a result. In a competitive world, if you compromise and your competitor doesn’t, you’ll fall at this first hurdle.

A guest arriving at a hotel front desk is like a visitor from a neighbouring village – and should be welcomed and made at home. Welcoming attitudes, when displayed by the hotel staff, will be returned by the guest to the long-term benefit of the hotel. We are, after all, from one tribe.

Water

In developed societies, we have forgotten the life-preserving nature of water. We drink our coffee. We carry around our bottles of branded waters. We forget where the liquid that keeps us alive comes from and we forget its role in maintaining our health and fitness.

Not so the bushmen who will site their huts and villages close to reliable sources of water. These sources may, of course, change as the seasons move from hot and dry through the short rainy season to the long rainy season. Through the actions of the bushman, we saw plenty of evidence that water is available in what appears to be the least hospitable places to those who know what to look for and to those with an ability to dig down to the water table.

Cash is, of course, the water of a business. Without cash, a business can’t start or continue. In a separate article in this edition ‘Cash is king’, we address some of the key issues in delivering excellent cash management.

But it’s worth noting that, while many hotels provide free drinking water in the bedrooms and on the dining room table, this by no means the rule. We returned from Namibia believing that we need to replace the environmentally damaging provision of bottled water with the provision free potable water wherever and whenever the hotel guest wants it.

The hunter gatherer

The main source of protein for the bushmen is nuts. The bushmen (men and women) gather seasonal roots, fruit, nuts and honey – and they share and enjoy the meat and fish that augments their diet that is the result of successfully hunting and fishing.

This approach means that the gathering activities provide a foundation for year round survival with hunted meat and fish supplementing the core diet and directly adding to the communal sense of wellbeing.

Each hotel needs to find demand for accommodation year by year, month by month, week by week, day by day. These sources will be different at different times. The first goal of the sales force must be to sell accommodation to enough separate segments that there is a base of revenue sufficient to breakeven. Survival is assured.

Only with bankable demand at above breakeven levels should the sales force be empowered to aggressively attract demand. And such ‘hunted’ demand should be enjoyed because it will be directly contributing to the hotel’s team’s success.

Window shopping

On their daily foraging trips and when hunting, the bushmen range over a wide area outside the village. Each of them notes where plants are growing and bees nesting, so that the wild honey can be harvested and, that when the seasons change, the new roots, fruits and nuts can be harvested efficiently. Using collective and individual memories to access future stores of food is an essential key to ensuring survival.

Every member of a hotel team has a role to play in paying attention to where tomorrow’s business will come from. Everyone should be on the look out for new sources of demand and new channels - and everyone needs to have an agreed vehicle for sharing this knowledge so that the sales force can focus specific messages to specific segments at the right time and with the right offer. The sales team cannot and should not act in isolation.

Predators

The bushmen walk through the savannah in single file and they walk looking downwards most of the time. They are looking for the spores and droppings of animals and the direction of trampled grass. By reading the environment, they are interpreting recent activity in the area they are walking through. Although a hunting opportunity may be uncovered, the core reason for such an approach is to pro-actively guard against danger.

Business can be stolen or lost very easily. A wise hotel team pays special attention to the acts of direct and indirect competitors. As we illustrate elsewhere in this newsletter (Accidents happen - but you shouldn’t lose existing customers), neglect of guests can cause business to drift away but so too can the launch of new and better offers by competitors.

And it’s not just customers that can be stolen. Competitive advantage can lie in IT systems, in HR systems, in procurement.

Hotels that are intent on surviving do not allow competitors to poach their business – but hotels that are intent on surviving will be quite comfortable with continually stealing business from competitors. Businesses that intend to survive ensure their competitively strong processes are bolstered.

Opportunism

The bushman will take each and every opportunity that the land offers. As they forage for roots and fruit and nuts, they will stop a while at a bush to feed themselves on the berries that are in season. And the women will feed the baby they are carrying with these berries too. As the bushman is making his way to a known source of wild honey, he will be on the look out for game to hunt. The bushman survives by augmenting a basic diet with opportunistic gains.

A hotel that is intent on surviving will have a team that is highly alert to opportunities to up-sell and cross-sell to existing customers, as well as to converting tentative enquiries into sales, no matter what channel is being used by the customer.

No stone will be left unturned in meeting in-house customers’ demands with attractively priced offers.

Conclusion

We hope that these observations on survival can help you refocus your hotel business on those elements that can contribute to long-term survival during such challenging times as those we are living and working through now.