hotelmatters - Issue 12 - March

Welcome to the spring 2010 edition of our newsletter, written specially for you by some of our associates. We hope the articles give you food for thought.

In recent months, Hotel Solutions Partnership associates have worked with a variety of clients in a number of countries.

It's the practical application of lessons learned from our corporate and consulting experiences that encourages clients to return to us for further highly customised advice from this handpicked team of industry experts.

If, having read some the articles below, you think we can help you and you'd like to talk to us, please call Ian Graham on +44 1752 873198.

From us all @ Hotel Solutions Partnership

Contents

• Do performance tests really work for management contracts
• Renovate in an economic downturn?
• Gain the competitive edge
• Resorts consultancy from Hotel Solutions Partnership; Now under old management; Operating profits – the new mantra

Do performance tests really work for management contracts

Contributed by associate Doug Wignall

Many international operators now offer owners a performance test in their own template form of management agreement.

However, invariably:

• the test does not apply for the first three or four operating years and the operator then has to fail the test for two consecutive years.
• This means that the earliest year that the owner could possibly terminate the management agreement because of the failed performance test would be the beginning of the sixth or seventh year;
• it is a two-tiered test. Frequently, one of the tests is based on failure to achieve a percentage of budgeted GOP or RevPar for two consecutive operating years; the other is based on failure to achieve a GOP/RevPar equivalent to a percentage of the average GOP/RevPar of several designated competitive hotels of similar size and quality as the owner's hotel in the neighbourhood;
• the GOP/RevPar of the competitive hotels is determined by an independent hotel expert (an additional cost to owner) but, if the expert is unable to certify the accuracy of the GOP/RevPar of the competitive hotels, the test will not apply for that year;
• if the hotels within the competitive set fall below a certain number, the test will not apply until the competitive set has again reached the required level;
• the test will not apply if the reason the operator failed the test was due to causes beyond its reasonable control, which frequently not only includes 'force majeure' but also other matters such as the carrying out alterations or renovation works to the hotel or to any of the competitive hotels;
• even if the operator fails the test, it can usually avoid termination by paying the difference between the figures it has actually achieved and the minimum figures it should have achieved in order to pass the test.

In summary, the chances of the operator failing such a test are remote.

General provision
Usually, in hotel management agreements, there is a general provision on the part of the operator to the effect that it must professionally and competently fulfil its obligations regarding the management of the hotel or use the skill, care and expertise reasonably expected of an international operator of its standing.

There is, possibly, a danger that the performance test could be interpreted by a court of law as a yardstick for deciding whether the operator has managed the operation of the hotel in accordance with such a provision.

If, for example, the performance test required the operator to achieve at least 80% of the average RevPar of selected competitive hotels for two consecutive years and, for five consecutive years, the RevPar was consistently well below the average RevPar of the competitive hotels but above the 80% threshold, the operator has not failed the performance test.

In these circumstances, could the owner claim that the operator had failed to manage the hotel competently and professionally or had failed to use the skill, care and expertise reasonably expected of an international operator of its standing?

The owner's claim under the general provision may well have a greater chance of success if there was no performance test in the management agreement.

Renovate in an economic downturn?

Contributed by associate Doug Fiedler

You might be surprised to learn that the best time to renovate is in an economic downturn.

Here are some questions you should ask yourself if you are considering renovating.

1. Is your hotel's physical appearance lagging behind the competition?
In an economic downturn, guests have more choices than ever. If your facility is lagging behind your competition, guests will notice. When they notice, it is not hard for them to distribute the news to other travellers through web-based portals that collect and aggregate guest opinions, regardless of what management thinks. You might get the guest for one stay but you risk future business if you don't take steps to renovate and rejuvenate.

2. Will your hotel remain viable in a renovated state?
Renovations can bring rate premiums. However, if your renovation is over-the-top, your rate premium will also likely be over-the-top. That could put you in the untenable position of being the rate leader for your area, far ahead of the competitive set. While there is nothing wrong with being the rate leader, consider how many competitive choices your potential guests have before becoming that leader.

3. What are competitors saying about your hotel?
It is easy to find out - just call posing as someone else and request a booking. In the course of the conversation, ask about other hotels in the area and then specifically your own hotel. Listen to how the employee describes your hotel. For a real revelation, try that on your own hotel – listen to how your employees describe your hotel and their perceived competitors.

4. Do your guest rooms offer what today's guest is looking for?
Technology is invading the guest room at an ever-increasing pace. Flat screen TVs, multiple cordless phones, i-pod docking stations, CD players, computer connectivity - the list goes on. If you have these, great – if not, you've got work to do to meet the emerging needs of your guests. A disappointed guest won't easily return.

5. Can you afford a renovation?
Sometimes, the more appropriate question is 'can you afford to NOT renovate? Ego aside, are you in the right market segment to gain favorable attention from your bank for a loan? Sometimes, you need to consider moving down a market segment and being the best of the lower tier rather than trying to compete with the upper tiers. Examine your competition and your position in the market. Maybe a move down a tier would be a good idea.

6. Are your potential renovation-related suppliers desperate for work?
Misery loves company. If your painter or electrician is looking for work, the chances are very good that you can negotiate a tremendous bargain for supplies, equipment and labour. Use the economic downturn to your advantage. Get quotes for all major parts of the renovation from as many suppliers as you can. However, don't always buy on cost – you could compromise quality and efficiency in the long run.

As always, professionals can help you develop a strategy that fits your market segment, geographical location and renovation needs. Don't hesitate to bring in a highly-qualified third party to help evaluate your situation and plan your next move.

Gain the competitive edge

Contributed by associate Frank Coan

I regularly see hotel sales and marketing 'Opportunities & Threats' review as part of a SWOT analysis, but rarely see one that I believe is doing an effective job for the business.

Is it time to review yours?

A good SWOT analysis should be the starting point for initiating product development, directing your marketing priorities and focusing your communications strategy. The SWOTs I see are generally just the result of a brainstorming session without any further thought applied.

In the article in hotelmatters No:11 (jan 2010), I outlined how to improve your 'SW' or 'Strengths and Weaknesses' analysis by adding the word 'competitive'.

In this article, I outline how you can improve your 'OT or Opportunities and Threats analysis by adding the word 'marketplace' – so it becomes 'Marketplace Opportunities' and 'Marketplace Threats'. This will focus your attention on factors outside your control which may have a major impact on your business, such as significant changes in exchange rates or a new competitor opening nearby.

The important thing to remember is that 'Marketplace Opportunities and Marketplace Threats' will treat you and your competitors in a more or less even-handed way. If the market shrinks, everyone suffers; if the market expands, everyone gains. You 'win' by spotting market changes early and/or adapting to market changes before other hotels.

As an exercise, take your existing 'Opportunities' analysis and for each opportunity, ask yourself: is this a statement about the marketplace or not?

If it does not make a direct statement about the marketplace, remove it and put it to one side for further consideration. In my experience, your list of 'Opportunities' will reduce considerably.

Now, do the same exercise for your existing 'Threats' analysis and ask yourself: is this statement about the marketplace or not?

In my experience, you will have removed more opportunities than threats and, hopefully, this will start you thinking more about the marketplace.

Building 'Opportunities and Threats' analysis from scratch
What I am about to suggest will make it sound as though you need to be a full-time economics or marketing analyst. Of course you are not, but that should not stop you establishing a view of the marketplace. You can either drift with marketplace trends or you can try to understand them and do your best to exploit them – the choice is yours.

The following steps will help you develop your 'Marketplace Opportunities and Marketplace Threats' analysis.

1. Gather together general trend and forecast data

• Domestic economy
• Exchange rates for key inbound markets
• Technology
• Demographics
• Political and legislative changes
• Cultural changes
• Environmental changes
• New competition

When doing this, you need to stay very disciplined and focus on exactly what the story is and what it means for you.

I regularly see in 'Opportunities and Threats' items such as 'Exchange rates', 'Minimum wage', 'Grey market', 'New media'. These phrases are almost meaningless. For instance, explanations might say: in the past, exchange rate fluctuations have added ??% to the inbound market. We judge this trend could increase/decrease our room nights by ??.

2. Identify market segments

• Your most important segments
• Competitors' segments that you do not enjoy

3. Develop market segment trend data

• What are your trends? (Always use room nights or revenue, never percentage mix)
• What are the market trends? Market data is available for some; for many, it is not.
  Where it is not available, read trade press, talk with competitors, talk to trade intermediaries and take a view.
• What is the news? Is your trend up, down, nowhere? How does your trend compare to the market?

4. Develop 'Marketplace Opportunities and Marketplace Threats' for each market segment
Using what you have prepared above and thinking more specifically about each market segment, prepare a matrix. What are the 'Marketplace Opportunities' and what are the 'Marketplace Threats'?

Marketplace Opportunities	Marketplace Threats
-	-
-	-
-	-
-	-

Avoid single word statements - they usually lack clarity or are ambiguous about the point being made. Use short statements and maybe include numbers, so it is absolutely clear what you mean (and what the likely impact the market/your hotel might be). This approach will guide you towards appropriate action. The more care you put into expressing the 'Opportunities/Threats', the more likely you are to take the best possible action.

5. Review the above matrix carefully
Examine each entry. Would somebody, not involved in your business, know exactly what point is being made? Repeat steps 2 to 5 for each market segment. This appraisal should help you.

6. Prioritise marketing expenditure
Develop a marketing strategy and action plan for each market segment that capitalises on 'Opportunities' and considers how to respond to 'Threats'. Be very careful about fighting 'Threats'; better to take defensive action on 'Threats' whilst taking full advantage of 'Opportunities'.

7. Define product development
How can you best invest to build on 'Opportunities', particularly those that are part of long-term trends?

In conclusion
Creating a strong and robust 'Opportunities and Threats' analysis is time consuming but the effort will be rewarded with a sales and marketing strategy and action plans that are more focused on exploiting the marketplace.

Do let me know if this works for you.

Resorts consultancy from Hotel Solutions Partnership

Contributed by principal Ian Graham

Historicially, we have been very careful to restrict our offer to hotels. In recent weeks, I have had an interesting discussion with our associate Miguel Ruano.

Miguel makes the point that his recent work has been resort-related And that, in his experience, resorts nowadays (and this is even truer at the high-end) are expected to deliver the same (if not higher) level of services and design standards as urban and business hotels.

Resort guests demand more
For most of the global hospitality brands, the design standards for resorts are an expanded, improved and more exacting version of the business hotel standards. The reason being that, while on vacation at a resort, guests are likely to spend more time on the property and will, therefore, demand higher standards of service, design and technology.

Having recently visited the resorts at Australia's Hamilton Island in Queensland and at Uluru (Ayers Rock), what I found most interesting was that, while the resort room offers are clearly pitched at different markets (families, couples, singles, high-net-worth individuals, mid market, economy) and so too some of the resorts' leisure facilities, much of the resort offer is shared by all guests. The successful resort is one that enables the traveller or their travel agent to construct the mix that best meets the needs of the vacationer.

Unique resort expertise
We believe that Hotel Solutions Partnership can and should make our unique type of consulting available not only to owners, operators and developers of urban and other hotels but also the increasing number of large-scale resorts that provide a number of different hotels in their offer.

Our associates with specific resort expertise are:

• Chris Barlow
• Katrina Craig
• Simon Hudspeth
• Duncan MacArthur
• Miguel Ruano

You can contact them here

Now under old management

Contributed by principal Ian Graham

You won't have seen this sign hanging over a hotel recently but maybe you should have.

In Australia, I stayed in a hotel bearing a well-known brand. One day, I went to the concierge and asked him to recommend a restaurant in the area.

The concierge was a person in his late 20s/early 30s. He googled for a well-known restaurant, called them, booked a table and then told me how to get there based on the map provided online.

As the table reservation was for the following day, I wandered down to take a look in advance. I couldn't find the place at all so, when I got back at the hotel, I asked the concierge to confirm his directions. He did and was overhead by the Head Concierge, a man in his early 60s. Immediately, the boss said the directions were wrong and told me how to get to the restaurant.

Gaining the knowledge

He told me that, when he was a young concierge, he had been required to walk the city to get to know the restaurants, theatres and other sights. He'd passed this and other restaurants and had made a mental note of how to get there. He had been brought up in a pre-internet age and had acquired his experience in a different way.

Wikipedia and Google have a role to play in building up knowledge that can be then conveyed as advice - but there are times and places when such 'knowledge' is not comprehensive, accurate or useful. In such times, perhaps nothing replaces the experience of the years.

Not dissimilar to what we at the team at Hotel Solutions Partnership offer, I thought to myself.

Operating profits – the new mantra

Contributed by principal Ian Graham

Most of our clients tend to be hotel owners or hotel owner operators. In the recent past, these clients have been able to rely on the M&A market to offer opportunities to extract value.

But with such markets closed in many parts of the world, recent Emphasis has turned to both ensuring that the right brand and right operator are operating the hotel and that the operator is optimising the flow through from revenue to profit.

Truly independent
One of our unique characteristics is that all of the consultants in Hotel Solutions Partnership are independent - independent of brand, operator, distribution channel, audit firm, real estate consultancy, data warehousing, etc. Now that's what I call independent.

We are well-positioned to give advice to owners on the right brand and the right operator for their hotel. We are also well positioned to advise hotel operators on how to best manage revenues and costs to optimise profits and cash flow in the short, medium and long term.

Our consultants with hotel operator selection expertise include:

• Ian Graham
• Simon Hudspeth
• Ibrahim Koura and
• Douglas Wignall

Our consultants with hotel general management expertise include:

• Chris Barlow
• Doreen Boulding
• Carl Donnelly
• Ibrahim Koura
• Duncan MacArthur

Why not contact one of them now?