Before March 2020, hotel operations varied hugely. The sector was on a high. STR reported a record year in 2019 and, although costs and supply were both rising, it seemed that a cyclical dip was being pushed ever farther back, and the good times could continue indefinitely.
One cloud floating on the horizon before the pandemic spread was that of costs. RevPAR growth was slowing. Revenues were unable to keep pace with growing costs and ADR was rising at a slower rate than inflation, which was being stoked by a multitude of issues, including staff wages.
Then, in early 2020, many hotels were forced to close entirely, forcing owners to face an unheard-of situation, with zero revenue. A situation few had ever modeled and one which exposed the flaws in their operations, issues which, when times were good, they may have overlooked.
The time for overlooking was now past, and we found that owners were coming to us, wanting an even closer look at every aspect of how their hotel functioned. As specialist asset managers, being those fresh eyes on a property is at the center of what we do, but it was rare that we had a chance to take hotels back to the very beginning and create a whole new approach.
The move away from thinking of hotels as just heads in beds had been in progress for some time, gradually. The growth of sectors such as co-living, co-working, and peer-to-peer lodging was driving changes in operational real estate which were being felt in the hotel sector.
Hotels were being viewed more and more as a mainstream asset class and attracting investors who were more used to less complicated assets, those with greater transparency than the hotel sector has traditionally known. The demands of this new group of investors have meant that every ballroom, every large reception area, every meeting room, must make a case for its existence.
For me, asset management has always meant managing the whole asset, not just the beds, and that thinking is now becoming the norm. Owners – and the brands – are looking afresh at what each space means, about whether it can be multi-functional and about whether it is being put to the most profitable use.
The most obvious shift we have seen in recent years is the attitude towards F&B. Many hotels, particularly in city centers, have given up on having a restaurant or, in a few cases, even a bar, focusing more on the bedrooms and taking advantage of the lower operating costs as a result. I remember a proud GM telling me that he was “outsourcing everything whenever possible: food and beverage, housekeeping, spa…” Operators were forgetting the reasons why they were paid for, losing quality along the way, and often profit after only a couple of years. Let’s not even talk about distribution and commission here. The pandemic helped the operators and owners to stop and look closely at their business model again.
For the luxury segment, this is less of an option – we are used to our F&B being more of a destination that the rest of the hotel sector, but that doesn’t mean that there aren’t areas which can be tightened up and improved. Without a close oversight, F&B can lose cash faster than it can bring it in, but a properly-run bar and restaurant can filter through to the rest of the hotel, and allow you to drive ADR.
It is important to ensure that stock is monitored daily, with supplies checked as they arrive and any discrepancies immediately taken care of. The same applies to the cash in the system. Cash is used more frequently here than anyway else in the hotel and it is easy for mistakes to be made, mistakes which can snowball if left unchecked.
Costs are more flexible here than anywhere else in the hotel and it is key that you maintain an eye on suppliers and ensure that the operation remains profitable (e.g., frequent review of menu engineering), than you are now overplaying for menu items and that the cost of the offering stays within certain boundaries. The trend towards local sourcing and seasonal products has been a positive one for the hotel sector; many guests demand this, particularly in the luxury segment, and this can help keep costs lower. Similarly, the move towards ESG means that it is easier to explain to guests why shipping out-of-season food around the world is not desirable.
Wage inflation is the area where many owners are losing sleep, and this can be approached in a number of ways. We seek to create a motivated team, loyal to the property, and part of this means creating a welcoming back-of-house experience. It may seem counterintuitive to spend money in an area that the guest will never see, but making the team feel valued will lower staff turnover and increase dedication – saving money and helping to improve service.
Another area that involves upfront cost but long-term savings is technology. The luxury sector, in particular, has been resistant to the use of technology alongside team members, but we have found service has been enhanced, rather than destroyed by robots.
This reticence was overturned by the pandemic, which saw arms-length service demanded by guests taking every caution with their health. The advantages were many: technology can free up your team, taking care of the tedious detail of check-in and making it more accurate.
Other tasks can also be automated, allowing the team the freedom to be more creative, to engage with the customer, to stop them from getting dragged down in checking boxes and give them a chance to get to know the guest, as well as making the experience more rewarding for the staff member, helping retention. These same staff members can then focus on that other key area of improving revenue per square foot; incremental revenue.
Technology also helps to increase your knowledge of operations, which makes timetabling more efficient and means that you can more effectively timetable back-of-house staff as well as those cleaning and refreshing rooms.
This knowledge can also help you take advantage of outsourcing and let you reduce the number of team members to fit the number of guests. A good asset manager can help alleviate the risk that outsourcing means a fall in standards – a common fear which is easy to resolve by having a good relationship with your supplier.
Messaging is an important factor in delivering on the long-sought-after seamless experience, it also helps to create a relationship with the guest, which drives loyalty and helps drive sales. After all, you’re more likely to choose the indulgent burger and an extra bottle of wine if you can order it from your device and not by speaking to an individual. You should have the options. And the more you are on hand for your guest, the more luxurious and tailored the service can be.
Privacy and space are also factors in your spa operations, where guests are increasingly eager to have their own private space – space which they are willing to pay extra for. If you have the space which you can allocate to the spa, then consider making it into a private area. Again, technology can help drive revenue and make booking treatments and spa time easier – and therefore more attractive – for the guest.
Another trend that is building thanks to the likes of Airbnb and its live like a local promise is connecting more with the local community. Guests like to feel that they have stayed somewhere unique, that they have had an experience, and you can help with this by including community shops and artists in unused spaces. This can help to create a sense of the location as well as bring in rental income and the potential for interesting and social media-worthy events. This can be extend into the room; in some of hotels guests can order hotel merchandising – including local products – from a menu which they find hanging on the doorhandle of their room.
Away from the interior of the hotel, consider the complete building when looking at your revenue. Hotel rooftops are increasingly being developed to create destination bars and, with luxury hotels usually to be found in exclusive addresses, this gives you a chance to create another route to revenue that can make the most of your location as well as attract customers from the local community.
If your rooftop cannot accommodate a bar, we have also looked at the potential for mobile phone masts (rental space revenue) or, if you’re next to an airport, a camera which can follow aircraft movements (paid by the airport authorities).
For those lucky enough to have hotels at the heart of cultural events, there may even be the chance to use the hotel’s facade as a source of revenue. For instance, at the Carlton in Cannes, we rent out the façade for major film posters during the annual film festival, which helps to remind people that we play an important role in this cultural event and that we are an active part of the community.
Hoteliers had become tied to the traditional format of the hotel: bed, reception, restaurant. But, as people, we have become more flexible in the ways we live our lives and felt the benefits. Working from home, hours outside the traditional office, food delivered from our favorite restaurants.You can provide more choice for the guest, while cutting out on expensive room service. Nothing looks the same as it did a decade ago.
Now it’s time to take a fresh look at your hotel.
Published at: https://www.hotelexecutive.com/business_review/7402/managing-the-whole-asset
