With the hotel market arguably at the top of the cycle, fighting for a few more dollars in room rate (ADR) is an increasingly difficult challenge. It’s a strategy that, over time, could potentially yield progressively disappointing results. So, it’s time to start thinking about shifting strategy to one utilizing a restaurant mentality, rather than an F&B mentality. It’s critical to think more about the overarching guest experience utilizing a cohesive strategy, rather than just serving food and drink. It’s an approach that shields you from fighting against competitors solely on rate. In 2017 and beyond, it’s about offering guests a well-rounded restaurant/bar experience, something we’ve learned operating restaurants and hotels for decades. This strategy applies to full- and select-service hotels, as the restaurant and hotel businesses are inextricably linked. When both operate in a symbiotic relationship, they form a mutually beneficial kinship.
At The Lodging Conference, held at the end of the month in Phoenix, top industry executives will gather to conduct development business, while assessing overall hotel industry conditions.
Here are some of the top issues you can expect to see explored during this extremely influential hospitality industry conference:
Increasing operational pressure
Hotel operating costs are trending upward, more so than during the beginning of this upcycle. An increasingly shrinking labor pool, combined with a high volume of executive mobility, is causing wages to rise across the board. And, of course, many jurisdictions are moving to higher minimum-wage mandates. Plus, major hotel companies are requiring PIPs that, in many cases, further eat into operating margins, while OTAs are seeking a larger slice of the pie—and the industry is in the midst of soft-brand proliferation. The automotive sector, for example, fell victim to similar circumstances in the 1990s. Established dealers had an epiphany: Place a greater emphasis on their parts and service business. This focus increased profits and cemented a stronger relationship with the customer to repeatedly return for additional purchases. For full-service hotels, parts and service operations are analogous to restaurants. Operators placing greater focus on a “true” restaurant model often see similar benefits.
Automation through technology
Because technology helps lower costs through automation, in many instances, there are times when these solutions erode the number of total staff interactions with guests. That creates risk. The best way to create experiences people expect, remember and want again in the future is through repeated personal exchanges. One example: Self check-in eliminates the need of a critical touchpoint. Having a restaurant mindset in place increases interactions between guests and staff, an important connection to customers. Bartenders, for example, are an increasingly important experience provider in hotels and can be used to both connect with guests on a human level, while selling customers on high-margin specialty drinks. Plus, people still crave personal interaction during meal times. Today, our most successful hotel GMs are brought up from our restaurants, in part because they are used to more frequent touchpoints with guests.
Softening of industry fundamentals
For 2018, STR is predicting occupancy to drop 0.2% or more during 2018, while new hotel supply increases to its highest levels since the Great Recession, outstripping hotel demand by 0.2%. While those numbers may be statistically small, they’re the hint of what is sure to grow over time. More important, it’s a critical warning sign signaling it’s time for a strategy shift. Having a branded dining concept prominently positioned as part of a hotel can pull people in from both the hotel and the surrounding community. For example, a well-known, branded, full-service hotel in Eau Claire, WI, has seen a high degree of resonance with locals since opening with a branded steakhouse concept. Both brands resonate with customers. In fact, more than 30% of dining sales come from people not staying at the hotel. Results like that add immediate profits, while also acting as an advertisement for the hotel to the community.
Increasing consolidation in the hospitality industry, combined with the introduction of myriad new select-service hotel brands, means heightened competition throughout every market in the country. To separate your hotel from the vast numbers of new and aging properties in what may already be a crowded marketplace, a compelling restaurant concept resonates with consumers. Pulling the restaurant space from beyond the confines of the tower and creating a pronounced external appearance go hand in hand to create a dining destination.
Overall, the hotel industry should continue performing well into 2018. However, the smartest hoteliers are adding smartly branded dining/bar elements in an effort to remain relevant and diversified when the market inevitably shifts downward.
Ajay Singh is VP of brand development at Heart of America Group/Johnny’s Italian Steakhouse. He is responsible for franchise development of the brand. Singh’s background in hospitality includes limited, select-service, boutique and full-service brands. Prior experience includes 10 years in private banking (national and regional levels) and 15 years overseeing some of the nation’s largest privately held luxury automotive dealerships (Mercedes-Benz, Lexus, Porsche, Audi and Jaguar).
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