HB Roundtable: Balancing Act – Top executives discuss how to cut costs without sacrificing quality

To significantly impact their bottom lines, hotel owners and operators must focus on several key areas, such as optimizing occupancy rates, implementing effective revenue management strategies and enhancing the guest experience. Keeping costs down is equally important, but it can’t come at the expense of the quality of service and offerings.

Hotel Business recently held an executive roundtable, “Impacting Your Bottom Line: Practical Solutions That Work,” hosted and sponsored by Mitsubishi Electric Trane HVAC US, at The Ben, Autograph Collection hotel in West Palm Beach, FL, where industry leaders offered best practices to positively affect the bottom line, whether it be a company or property.

Moderated by Christina Trauthwein, VP, content & partnerships, Hotel Business, the panel included Ryan Alpert, EVP, sales, commercial strategy, GF Hotels & Resorts; Ben Campbell, president/CEO, Hospitality America; Ben Haller, SVP, operations, Concord Hospitality; Justin Jabara, president, Meyer Jabara Hotels; George Jordan, president, Oxford Hotels & Resorts; Jagdish Patel, VP, shared services, NewcrestImage; Ravi Patel, president, Hawkeye Hotels; Barbara Purvis, president, Essex Hotel Management; Brian Quinn, chief development officer, Sonesta International Hotels Corporation; Kerry Ranson, partner/president of operations, Raines; and Tom Varga, senior manager, business development, Mitsubishi Electric Trane HVAC US.

Trauthwein opened the discussion by asking the panelists about practical solutions that have helped them improve the bottom lines at their properties and their companies.

“For us, it begins with the planning process and the business plan; it flows from there,” said Campbell. “We also focus on how we’re bringing in revenue at the top because the cost of our customer is greater than it’s ever been. So it is about what are doing to acquire a longer-term customer and how we’re reducing this cost.”

Jabara pointed out that since information is more available than ever, “it’s pretty easy to benchmark what the cost should be. A lot of the costs in hotels are fixed, so by focusing on the larger variable expenses, you can have some pretty significant impact there. Based on the business intelligence systems and data that is out there, we’re making the decisions in that day for that day, and not 30-to-45 days after the fact, when the money’s already out the door.”

For Alpert and GF Hotels & Resorts, being able to cross-train employees in various positions has been a way to save money.

“When we look at labor as one of the most controllable expenses, we’ve been able to reduce costs because we can move somebody from the front desk to the breakfast area or the audit department, which allows us to offset a lot of expensive labor,” he said.

Purvis agreed, noting, “You’re looking at hybrid positions, flexibility and anything that you can do to help attract and retain that quality workforce.”

Ravi Patel brought up several incremental revenue sources that “are in their infancy in the industry” but can add to the bottom line.

“We’re looking at parking fees, as well as outsourcing pantries and grab-and-gos to full-on revenue-share models,” he said. “We’re looking at different pieces of technology that can capture smoking fees. We’re launching two to three hotels at a time with any incremental revenue sources that we can find, and we’ve seen more than a seven-figure impact in the first six months of the year.”

NewcrestImage has found incremental revenue from OTA reconciliation. Jagdish Patel said, “We hired a third party to do OTA reconciliation, and they take a fee, but it took the time off of us. Once we actually learned the process, it was up to someone on the hotel staff or somebody at the corporate office to stay up on that. When we went back nine months, there was a six-figure impact that the OTA was sitting on that was actually due to us.”

Ranson said his company is “going back to basics with those pieces that we probably got complacent with at the property level,” such as forecasting and scheduling.

He added, “I think one of the biggest pieces through our breakdown of data was really a loss of opportunity around contract labor. Unfortunately, on the housekeeping side, it’s part of our life. Labor management, for us, has been a big focus, especially going back to these GMs and working with them off-site to say, ‘We’ve got this many minutes per room. We have to hold the vendor accountable to these folks getting in and out.’”

Jabara concurred with Ranson, noting, “Our business is a nickel-and-dime business, so while the numbers add up to very large numbers at the end of the month, the battle is won every day, transaction by transaction. For example, if you just look at what a property pays in credit-card fees, those numbers add up considerably across the portfolio.”

Quinn brought the conversation back to the OTAs. “I think there’s a potential for some additional disruption around the OTAs,” he said. “If you’ve been watching what’s going on with social media and being able to book and click through on some of the social media channels, it goes to the brand channels or the GDS infrastructure, and that’s at a much lower cost. A couple of the premium credit cards are also creating a channel that’s outside that OTA bottle, which is much closer to the travel agent expense of 10%. That would be a huge shift if we could get people to book through those proprietary channels at the lower cost.”

The Sonesta executive also noted that hotels should consider guest preferences to decrease costs, especially when it comes to housekeeping.

“A lot of guests are very willing to not have their room done every day, and they’re not upset about it,” he said. “That’s incredible. We’ll find a lot of ideas from the guests. They’re more willing to accept a lot post-COVID.”

Jabara replied, “What a novel concept: Listen to the customer.”

Concerning issues
Hoteliers are constantly facing many challenges to their bottom line. Today, it’s high interest rates (despite the recent cuts) and labor. A year from now, it could be something totally different. Trauthwein asked the panelists about their primary concerns in maintaining occupancy rates and revenue over the next 12 to 18 months.

“If you look at the trend of ADR growth, which has been our saving grace over the last couple of years, and you partner that with inflation, there’s just a huge amount of pressure on margin,” said Jabara. “When I think of what will keep me up at night over the next 12 months, it’s how we will deal with that margin pressure, which is very pertinent to how we save dollars and cents.”

It’s not hard to argue with the idea of controlling costs, but Jordan pointed out that “you can’t cut your way to profitability. You have to drive revenue in order to become profitable.”

He continued, “We moved rates up very rapidly beginning in late 2020, and now we’re getting margin squeeze on the downside. Also, the way things are squeezed in Detroit and Chicago, and San Francisco, Seattle and Portland is completely different than the way you see things in the Southern states, where it’s warm, there are beaches and people want to go. So the market segmentation and the skewing that’s going on there is completely different urban versus suburban, northern versus southern.”

Going back to the subject of margins, Jordan expects the margin squeeze to continue adding.

He added, “I don’t know if there’s going to be a hard landing, a soft landing or a 200-basis-point drop. Obviously, we’re experiencing a great reset for commerce, life, culture and social. We don’t know what the end game is, so I think just being nimble and flexible and always trying to look over the horizon is the prudent way to move our businesses forward.”

Quinn, as the only brand-company representative on the panel, provided some insights on guest preferences.

“The aspiration to travel is incredibly high and if unemployment stays in and around where it is today, people are going to travel,” he said. “But how do we acquire them cheaper? How do we bring more money through the pipe?

After the pandemic, everyone ran back to free breakfast. I think that was a mistake. I think the consumer is ready to pay for breakfast. On your Starbucks app, it’s $20 to get a coffee and two little egg bites. We can’t get $2 for the free breakfast for some cost recovery. I don’t think the guests would have blinked at that, so Sonesta is willing to consider charging for breakfast.”

Purvis questioned the sustainability of the franchise model, “particularly with all the pressure on the margins from all other sources” yet, she said, “We’re all still standing and continuing to buy and build hotels.”

Quinn noted that to ease their burdens, “owners and management companies should continue to hold the franchise companies responsible for the overall cost of that relationship. We get to wear both hats at Sonesta. When we launched two soft brands, we reduced the marketing fee by a third because we believed that the owners and the operators were going to have to do some of that lift, and it wasn’t fair to pull a full fee there. I think we’ll continue to look at that. We see our obligation to bring the scale value around procurement and some of the energy-efficient programs that are out there. They really make sense when you buy them for a whole brand or a whole company.”

Ultimately, for Quinn, the biggest risk to hoteliers is not straightening out their profit-and-loss (PnL) statements “if we’re going to continue to attract debt and equity and great talent.”

Haller is most concerned about the slow return to large group business.

“I think you need fewer virtual meetings and more in person like we’re doing right now,” he said. “We’ve certainly seen a decline over the last few years of those bigger, 200-to-300-person events. Having that solid group base in your hotels is going to give you that ability to drive your ADR.”

Alpert believes a solution to the margin crunch is doing “the right business at the right time in the right segment during the right month.”

He added, “If you’re a gateway city, and you’re still waiting on the international traveler, three months will go by and you won’t have any business. You have to really think outside the box and understand that maybe it’s not a business-travel market, but you need to start targeting it so you can pick up one or two points at the end of a month. I think it goes back to really strong yield management and focus on total RevPAR.”

Investment strategy
Whether it’s property improvement plans (PIPs), technology or their people, hotel companies spend a lot of money to better their hotels and the guest experience. The panelists were asked about the areas their companies plan on investing in the next three to five years.

“We’re all about investing in our people more so than ever before because most of them don’t want to do the hands-and-feet job,” said Jordan. “They want to work from home on the computer, and our business requires face-to-face, 24/7, 365 days a year. Our corporate mission for 2023 and 2024 has been what we call RTR—recruit, train and retain, and not any one of those three can stand alone.”

After a company completes the recruiting and training processes, it is of the utmost importance, especially during the current labor crisis, to do everything in its power to keep a strong employee in the fold.

At Hawkeye Hotels, this means incentive initiatives to not only reward employees but to keep them from going elsewhere.

“We’re giving bonuses on a lot of different things,” said Ravi Patel. “If they’re making $18 an hour, and we can jump that up to $23, that’s a big deal to them, and it’s a win-win for both them and the company.”

Another key to employee retention is company culture, noted Jagdish Patel, and “it has to be done from the top down. Your core values and principles have to be lived and breathed by your C-suite executives all the way down to your front desk. Otherwise, the team members don’t believe it.”

Switching gears, Campbell believes that hotel companies should focus on their investment in technology and how to utilize the data that is pushed out by the various platforms they invest in.

“In the next three to five years, we’ll all have a huge tech stack, but how will you be using the data that you’re getting?” he asked. “We have seven different platforms that our GMs have to go into, but how are we utilizing that data efficiently? We’re going through a process right now where we’re pulling in all that data to try to control it ourselves and not outsource that to someone else.”

For Raines, Ranson noted, it’s about investing in the properties themselves.

“We have the capability of investing back into the assets to reposition them with a PIP,” he said. “It’s astounding to see the return that we’re getting in markets where we did it just to retain our position. We’re actually seeing 12% increases in revenue components on what we’re getting back, and we’re picking up about three points in RevPAR index. We’re trying to pinpoint the right assets and saying, ‘Do we re-PIP these assets early and sign up for potentially a longer license because there’s an opportunity there for us to get something back on the asset?’”

Meyer Jabara has focused its investment efforts on sustainability and decarbonizing its assets.

“If you look at the cost structure of hotels, and then look at the utility line, it’s just getting worse and worse and worse,” noted Jabara. “It’s hard to take water out of a hotel, but the more we can decarbonize these assets, the better it is for the environment. There’s a big focus on heat-pump technology and adding solar panels. Architect Bruce Redman Becker, who built the Hotel Marcel in New Haven, CT, has worked with us on kitchens that have no gas. That’s the future.”

Varga noted that “Mitsubishi also recognizes where we’re headed and the electrification that’s occurring in large cities like Seattle and New York. We offer a heat-pump water heater. In fact, Bruce has one of the first ones in the Hotel Marcel.”

While on the subject of sustainability, moderator Trauthwein asked the industry leaders if they have found that their guests are becoming more aware of sustainability, energy-efficiency and energy management.

Campbell has found that groups and meeting planners are asking about the carbon footprint of his hotels’ events and spaces because “they have to report that, or they’re trying to reduce their own carbon footprint.”

According to Purvis, “There has to be a narrative and explanation around sustainability. We’re seeing it with corporate planners, but we’re not seeing it with the individual as much. People can say they want it, but if there’s a cost associated, they’re not willing to pay for it.”

Hotels can cut costs by adding eco-friendly equipment and technology, but one way to add revenue is to enhance their food and beverage offerings.

“We’ve had some success with making the restaurants very friendly for people to come to town and use their laptops,” said Quinn. “There’s going to be the ice-water crowd, and you don’t earn any money off of that, but there’s going to be a cast of characters that are ordering the coffee and then end up ordering food when a restaurant opens. We’ve seen that in Portland, Seattle, San Francisco, Chicago and some other markets.”

Concord’s Haller said that the success of F&B varies from market to market.

He added, “Some F&B outlets are doing very well, but you’re competing with so many more that are out there,” he said. “Those that were first in the market are phasing out, and people are transitioning into new hot spots. They’re going to capture the business for the next 30-60-90 days, and then something new will open up and be that new hot spot.”

Cutting costs
Hoteliers must spend money to improve the guest experience and their properties’ operational efficiency. But in order to balance the bottom line, they also have to control costs and cut expenses. Trauthwein asked the executives how they cut costs while still maintaining a quality experience.

“I think it’s a fine balance, but there is a lot you can do with the PnL that does not at all touch the guest, such as OTA reconciliation,” said Ravi Patel. “That’s a six- to seven-figure opportunity. We just had a group of industry peers get together, from about five management companies, and we compared a lot of line items. Another massive one, if you look at year-over-year uptick, is chargebacks, which can range from 0.2% of revenue to 1.2% of revenue. If you look at 1.2% of your revenue, and you’re a $100-million company, that’s big dollars. We’ve hired one person internally just to manage our hotel effectiveness, where he’s on calls with properties that are above 103% and digging into the granular aspects of why and how, and a lot of it is waste, so it is not impacting the guest experience. He’s just getting that back under control and putting a strategy in place for these properties.”

Jabara pointed to technology as part of the solution to the balance, noting, “Technology is evolving, but through mobile check-in and AI, it can solve a lot of these cost issues while also making a better experience for our guests, making the hotel more profitable and giving our associates better tools so that they’re spending time with the guests and creating that memorable experience, which we’re all striving to do.”

AI will also help the hotelier make the hotel run more efficiently. “I think as the algorithms get smarter and smarter, it’s going to predict higher check-in times or that a specific type of traveler is coming in,” said Alpert. “Smart investment into that technology now is going to allow us to better understand and articulate how you can shave some of those points off at the bottom.”

But, Haller noted, for some people, the technology becomes just data entry. “They go through the motions of plugging in the numbers and the data, but they don’t understand it,” he said.

“We’re turning our people into widgets themselves because they’re getting all this data and all this dashboard stuff, but they don’t really know what it means and how it comes together,” Jordan replied. “It’s like being able to use a calculator but not knowing how to add and subtract on your own.”