hotelmatters - Issue no 10 - Sep 2009

© The Hotel Solutions Partnership Ltd 2009

With this tenth edition of hotelmatters, we are celebrating six successful years of providing a different type of consultancy to hotel owners, hotel operators, hotel brands and others with an economic interest in the global hotel industry.

In the last six years, but in particular this last one, we have learned to expect the unexpected - and we always benefit from the learning that each new assignment, each new client and each new year brings.

We hope you will find our thoughts about the world as it currently presents itself to hoteliers stimulating and that we will have the opportunity to work with each of you on an assignment that unlocks strategic advantage in your business

Until that time, enjoy these articles and please share them with your colleagues

With best wishes

All @ Hotel Solutions Partnership

Contents

What to do if swine flu visits your hotel
Welcome to the 'new normal' - and normal it is not
Managing rates in a price-sensitive market
Selling a management contract

What to do if swine flu visits your hotel

Contributed by associate Doug Fiedler

As the world gets smaller and our guests travel from city to city, country to country, and continent to continent, the opportunity to spread viruses and diseases increases dramatically.

In recent months, the current strain of flu, the H1N1 virus commonly known as swine flu, has gained a lot of media attention.

Let’s take a look at what hoteliers can do to contain the virus and prevent it spreading further.

Transmitting H1N1

H1N1 is transmitted by droplets. The virus can live on surfaces after a cough, sneeze and even a laugh. Think of all of the surfaces in a hotel that a droplet could survive on – exercise equipment, TV remotes, bathroom fittings and door handles, cutlery, glasses, plates, napkins, lift buttons, tables - the list goes on and on.

The key to containment is diligent and continuous cleaning with antiseptic cleaners.

Symptoms

H1N1 presents itself as any version of flu. Victims have fever and cough, difficulty breathing, discoloured or pale skin, may be irritable and may vomit. Sometimes, the victim will begin to feel better only to have a second bout with another fever and even worse cough.

Treatment

Treating H1N1 is no different to treating regular flu. Drink plenty of liquids, rest and sleep, and take over- the-counter medication for pain and fever. Most importantly, though, employees must stay away from work and guests must be isolated as much as possible. Fevers in excess of 38°C/101°F should receive professional medical attention.

Plan your actions before your action becomes your plan

Assume for a moment that your employees suddenly start contracting H1N1. How will you continue to run your hotel when:

• 25% of your employees are off sick on any given day for two to three weeks;
• an employee who is obviously still sick returns to work;
• local schools get closed and, while your employees are not sick, they don’t have child care in place so they must stay home;
• your suppliers can’t make deliveries because they are short staffed as well;
• the local TV station airs a news feature about the swine flu outbreak at your hotel.

The antidote is careful planning, starting with your employees.

• Observe cleaning practices
  Start with an employee committee that includes a management member from each key operating department. Establish an assessment process for cleaning practices in each department. For example, ask the food and beverage member to observe the cleaning practices of the housekeeping department to see if another set of eyes spots an opportunity to bolster cleaning regimens.
• Seek professional PR advice
  Be prepared – seek professional public relations advice on how to handle the media frenzy. Have a short press release ready to use that states emphatically that management has the situation under control. Have copies ready to pass out to reporters that show up unannounced.
• Training Train
  all employees on the dangers of H1N1 and how to prevent it – clean, clean and clean again, with the proper antiseptic cleaner for each surface. Label cleaning solution bottles clearly in multiple languages to avoid confusion and include the surface that the agent should (and should not) be used on. The best and cheapest cleaning solution is diluted bleach and water, but be careful of fabrics that might be damaged by the bleach.
• Hand washing
  Hand washing skills are critically importantly and training should be conducted and observed by a manager or supervisor.
  
  Use the hottest water possible with plenty of soap, vigorously rub hands together and get soap under the fingernails and in the cracks and crevices, for at least 15 seconds. Dry hands on paper towels or with hot air dryers – do not use linen or cloth towels that have been used before. In areas where gloves are used, remove the gloves and dispose of them properly. Never re-use gloves. Wash hands many, many times per day – housekeepers should wash their hands after each room is cleaned, for instance. After using the rest room, coughing or sneezing and before/after preparing or eating foods.

The sick guest

Consider preparing a pamphlet to hand out at check in advising all guests that the hotel is doing everything possible to prevent an outbreak. Encourage guests to do the same things your employees but, most importantly, call the hotel operator or front desk if a guest starts to feel ill. Plan to quarantine the guest in their room, providing plenty of soft foods and liquids (water is always best).

While controversy surrounds face masks, if you deem them appropriate, the hotel should pay for them. The best to use is an N95-level respirator type – not the flimsy cotton type seen on so many news clips. Used masks, if you decide to use them, should be treated as biohazard materials when disposing of them.

Always encourage sick guests to contact their own doctors, a local recommended doctor and/or local public health officials. Do not take the guest to a medical facility – you can jeopardize the health of your own staff and anyone at the facility or en route if you do that.

When a sick guest checks out, lock the guest room and thoroughly clean and sterilize it before it is occupied again. This may require you to double bolt the door locks and/or set your electronic key system to top security levels.

Most importantly, maintain records of your actions and recommendations, and the guest’s responses, throughout the event. Detailed written records can be very helpful to local officials should the outbreak escalate.

More information

For more information on developing your own plan of attack, contact Hotel Solutions Partnership at http://www.hotelsolutionspartnership.com/contact/contact.php. We have experts ready to help you develop a comprehensive plan.

Welcome to the 'new normal' - and normal it is not

Contributed by associate Carl Donnelly

If you and your team are waiting for things ‘to return to normal – to survive the current storm’ – then not even the best life-saving kit will help you.

Here are a few indictors of the ‘new normal’.

The new normal may well include investor intervention
Banks and investors may seriously question the senior management team’s ability to deliver in terms of financial covenants. Therefore, expect:

• lenders restructuring investment teams to take a robust approach to incumbent management. These teams will not shy away from insisting on change to ensure that financial covenants are achieved.
• lenders to take a close look at the ‘mindset’ of the team. Are they anchored in day-to-day survival? Or are they in an optimistic forward thinking “Thrive” mode, supported with creative, yet realistic ideas to grow the business.

The consumer’s impact on the new normal will definitely see…

• consumers using a variety of channel distribution methods to gain knowledge on price and service delivery - mobile phones as well as PCs and laptops.
• an expectation of instant access to information, high-quality content and a fast response.
• social networking media content - product and service reviews – which will influence consumer decision making.
• demographics having an impact with the 50+ market seeking not just value but authentic, practical, convenient and affordable exclusivity.

Order making will replace order taking in terms of sales initiatives

• Conference & events and room sales teams will need to be coached and developed on this important business dynamic.
• Researching internal data on past and present customers and good record keeping are essential traits in an effective ‘order maker’.

Lifting the mood and focusing on consistency and creativity will be the new norm with service delivery

• Create an atmosphere that encourages revenue-producing ‘dwell time’ by using atmospheric touch points in lobbies and welcome points in bars and restaurants. Offer free tastings and product samples - your suppliers may help you fund this.
• Revisit your food and beverage product offering – revisit does not necessarily mean reducing your prices and margins. Clever re-engineering using good value products is the best route.
• Remember your team is under pressure so seek genuine ways to lift and sustain their mood. Switch from constantly pressing your teams to ‘sell more and reduce costs’ to encourage your teams to ‘give more genuine customer value’.

Managing rates in a price-sensitive market

Contributed by associate Chris Barlow

When hotels are fighting for a share of a diminishing market, cheap last-minute deals can pull in customers – at least in the short term. But are they profitable and do they encourage customer loyalty? The answer to both these questions is ‘yes’.

But is this the whole picture?

It is always more profitable than having empty rooms and it probably does encourage customer loyalty - at least for those getting the deal and as long as they get it again next time.

The essential requirement for maximising profit is occupancy. First of all, you need occupancy and one of the best approaches is to encourage repeat business through a loyal customer base.

So why do we risk upsetting our good loyal regular customers who book well in advance and rarely cancel by offering lower rates to new customers who book at the last minute? Frequently, all this achieves in the long run is to encourage those loyal higher rate customers to wait for the late deals or worse to go elsewhere.

Fundamental principle

One fundamental principle of rate management is that you sell your low rates early and subsequently increase rates as time passes and demand increases. If demand doesn’t increase, you have the option to keep rates low in order to help maximise occupancy.

Offering discounted rates to those loyal regular customers who usually pay full tariff in order to guarantee their room and dates can be a leap of faith. Evidence shows that, combined with the right terms and conditions and effective marketing, it works. It encourages repeat bookings, creates customer loyalty, and increases occupancy, profit and cash flow.

Increased cash flow

When you offer the maximum discount you are prepared to give in return for payment in advance, many will take it - especially if it comes with a no-quibble cancellation refund and a guarantee that this will be the very best deal on offer (or the difference refunded). And very substantial advance payments on account can be accumulated with the commensurate cash flow benefits.

At worst, you may create the problem of filling your hotel with business paying below that level you might have historically targeted and having to turn away late booking higher rate business – a nice problem these days I would have thought.

Selling a management contract

Contributed by principal Ian Graham

Part of the ‘old normal’ was that hotel management companies could woo intermediaries such as banks, legal practices, real estate brokers and consultancy divisions of the major accounting practices and get a practically free ride into opportunities. A tweak or two on a standard fee proposition and ‘bob’s your uncle’, we’ve got another flag on the map. In tomorrow’s world such an approach seems to us much less likely to be a sustainable route to market.

We believe hotel management companies will have to focus on defining their unique proposition in the context of each specific site.

Hotel operator excellence

For a start, hotel operators will need to be able to demonstrate that they can operate hotels - and do this more efficiently than others.

Surprisingly, in our experience, few existing hotel management companies can readily provide evidence to support to a statement that they have unique processes that can be shown to produce higher than benchmark GOPPAR. It’s not so difficult to do yet we have found that the operators’ development teams are not provided with the evidence and do not seem to obtain such evidence their organisations.

A key part of operating a hotel is talent management - the ability to attract, retain and develop executives, management and staff all of whom represent the way the brand values are conveyed to the customer.

It ought, perhaps, to be the key differentiator for a management company – after all what are they actually managing if not people. Yet again, all too often we find the hotel development executives are unable to properly articulate the process excellence in their business or give examples of its outcomes.

There is, of course, one very good way to sell a product and service - and that is to give examples of happy customers. Yet how many hotel development executives can provide examples of owner satisfaction from elsewhere? And how many times has one been offered the opportunity to speak to a satisfied owner - precious few in our experience.

Appropriateness of the hotel brand

Under the old order, it was quite easy to decide on the brand. The hotel owner / developer started with a thesis that he wanted a Hilton or a Novotel or a Holiday Inn.

Now when the sales rep from the hotel brand comes visiting, he is selling something called Hampton by Hilton or Pullman or Indigo. And in our experience, the offer is increasingly limited to these new brands as the brand owner seeks to build a family of brands on the back of a successful master brand.

At the end of the day, the brand needs to offer a benefit to a defined audience who are persuaded to believe that their travel experience is augmented by use of the brand. In part, it’s about product, service and experience; in part, it’s about distribution; in part, it’s about channels of distribution; in part, it’s about the tools used to promote the brand; and in part, it’s about price.

The seller of a management contract faced with a knowledgeable owner needs to be able both to articulate theses matter and give benchmarks of performance that demonstrate what the recommended brand can be reasonably expected to deliver in this location.

In our experience, few development sales executives are sufficiently persuasive when it comes to brand appropriateness – and this is even more the case as they are incentivised to sell newer members of the brand family.

Cost is an issue

It would be stupid to pretend otherwise. When the NPV of most management contracts represents something like half the construction cost of a hotel, it’s little wonder that owners seek to get as good a financial deal as possible.

In reality of course, there is such an opaque market operating that the potential owner of a managed hotel finds that there is relatively little difference in overall cost.

Unlike other professional services, it’s not easy for anyone to categorise the providers of management contracts into budget, economy, full service and luxury. Most owners would categorise most offers they receive into the full service or luxury end of the continuum. We await with interest the arrival on the market of a low-cost provider of hotel management services. In our experience, there is a gap in the market.

Aligning interests

‘You can have any colour so long as it’s is black’ - Henry Ford’s initial manufacturing proposition is all too often the start and finish point for sellers of hotel management contracts.

We listen to our owners and this is not something that many development executives would claim or be able to support. In a world where online networking is increasingly the norm, the next generation of management contracts needs to come with a much more web-enabled and adult approach to knowledge sharing and willingness by operators to listen.

For most operators, but not yet all, it is now recognised that the owner must have the right to sell the contract unencumbered, just as owners increasingly recognise that operators take some time, maybe years, to recover the initial investment in launching a hotel or rebranding a hotel. So most times, it is now the norm that contracts provide for an early termination by one party through a compensation of the party. This is just one way of aligning interests.

But, if we explored more the proliferation of ‘sub-brands’ and the reluctance by operators to provide master brand radius protection for a number of years or even sub-brand protection, we are not yet at a point that operators can truly sleep easy at night knowing that their business objectives are wholly aligned with those of their business partners, the owners.

Perhaps the biggest ask that a management company makes is to require the construction of the hotel to brand design standards. The physical definition of the brand is not defined, not available or just about to change. Just try to get a cost per square meter estimate out of the person trying to sell a hotel management contract. It’s not an unreasonable request yet few developers will even give a range of costs caveated with a legal treatise to avoid liability.

Conclusions

There is plenty of opportunity for management companies to sell their services. The winners will increasingly be those that treat their prospective business partner with sincerity by delivering a focused sales message that talks to the true areas of value-add in the specific situation and providing examples of where best practice can be expected to deliver value.