NASHVILLE, Tenn. — Hoteliers were put in a unique position in 2020 at the onset of the COVID-19 pandemic when travel stopped and room revenue slowed to a trickle.
During the "How To Find Alternative Sources of Revenue in Your Hotel" panel at the Hotel Data Conference, hotel executives discussed the creative ways they were able to generate ancillary revenue when room demand was low, and how some of those revenue streams may be here to stay.
Steve Palmer, founder and chief vision officer for Indigo Road Hospitality Group — a Charleston, South Carolina-based restaurant and independent hotel company — said as the world opened back up, people sought safe outdoor spaces, and hotels with rooftop bars and restaurants excelled. He added that should affect hotel development going forward.
"I can't believe anybody would build a hotel without a rooftop bar," Palmer said. "The ROI on those bars is incredible."
Traditional hotel restaurants might be a thing of the past, too, as labor shortages continue to restrict the hospitality industry. Palmer said there's some old ways of thinking among hotel brands and some independent operators when developing a property that a hotel restaurant has to be strictly three meals per day and adhere to the hotel's style.
"On the restaurant side first and foremost, create a restaurant that is a restaurant, not a hotel restaurant," Palmer said. "And put it on the street, give it a separate entrance. Brand it, market it, identify it separately, and treat it that way from the minute you do the first floor plan. ... I truly believe that the person that's designing your hotel lobby should not be designing your restaurant. They're totally different disciplines."
In the early months of the pandemic, hotel restaurants and bars shut down completely, but the demand for fine dining and craft cocktails was still present. Caroline Dyal, vice president of operations, innovation and performance at Davidson Hospitality Group — an Atlanta-based hotel management company — said her company converted some of its hotel restaurants into "ghost kitchens" and focused on takeout and delivery service.
"We started doing ghost kitchens and takeout and packaging up guest experience items that could be enjoyed outside the hotels, so we were still providing guest service, we were still providing opportunity for teams to be employed," she said. "... There were multiple opportunities that came up that were borne out of the guests, things that were different than anything we ever thought we were going to be doing."
Indigo Road's properties similarly drove revenue through takeout orders of steak boxes and craft cocktails throughout the summer holidays in 2020.
"Some of the cities we were in would allow cocktails to-go, and so we started bottling our own cocktails premade," Palmer said. "It was really interesting to see at the Hotel Clermont in Atlanta on Fourth of July weekend we had 60 cars down Ponce De Leon [Avenue] waiting to pick up their cocktails. So we were batching them in five-gallon jugs; we were just making it fun. Anything that we could think of to throw in a box."
Some of the to-go food and beverage ideas involved helping out furloughed employees, too, he added.
"Prior to the holidays, we did a gift card campaign. And we said, 'Hey, we're going to donate 15% of the gift card revenue to our employees that have been displaced,'" Palmer said. "We raised $300,000 in 10 days, ... and we're then able to tell that story. So now suddenly we've got people going 'Absolutely I'm going to get my Thanksgiving dinner to-go from you because you're helping your employees.' So it's so multilayered but again it's all about that connectivity to your employees but also to your community."
Guest Rooms as Work Spaces
With a majority of the white-collar workforce transitioned to working from home, hotels began offering guest rooms as remote-work options. Dyal said Davidson's hotels that were able to market room rentals for a couple of hours during the day captured some ancillary revenue from workers who wanted a change of scenery.
"Everybody wanted to get out of their homes and work elsewhere," she said. "We did work-away rates, so we had some of our rooms open for two, three hours for working sessions or Zoom sessions, which were huge."
Roy Madhok, vice president of revenue management at Ocean City, Maryland-based hotel management company Real Hospitality Group, said the pandemic's push toward remote work should make hoteliers rethink some guest room design choices.
"When you look at the hotel design pre-pandemic it was moving away from having a desk in the room," Madhok said. "You saw these little micro rooms in a bunch of hotels, and those became very unpopular while the extended-stay segment was super popular. ... I don't see a situation where desks aren't coming back to your hotel room."
He added hoteliers can often be a bit detached from what guests want in their stays.
"We don't put ourselves in the guest's shoes and say, 'What do they need in the room?'" Madhok said. "They need a notepad, they need a pen, they need good light, they need the ability to access Wi-Fi. You need to have access to really high-speed Wi-Fi [because] they potentially need to host a meeting in their room."
The Danger of Too Many Fees
Travelers returned to hotels in 2021 and experienced a bit of sticker shock with higher rates than what they might have been used to paying. Dyal warned that adding too many ancillary fees on top of the room rate — especially something like a room cleaning fee — could hurt the hotel industry in the long run.
"Hotels are notoriously lambasted for overcharging for basic services anyway — I see you, resort fee," Dyal said. "It's a very slippery slope because hospitality by its nature is supposed to be service, and so when you start charging for those services, you're no longer being hospitable. ... There's opportunity for opt-in programs and for changing the perspective. I don't think we have to go back to a full, rooms-cleaned-every-single-day model, but rather some sort of hybridized version. But I think changing to a pay-per-clean model would be very dangerous."
Madhok said the more hotels nickel-and-dime consumers, the more those potential guests will book their accommodations elsewhere, perhaps preferring short-term rentals such as Airbnb.
"If you look at a Courtyard Marriott versus a vacation rental, and both are charging a $75 cleaning fee, what is the difference between the two?" Madhok said. "The only difference is the room size, and the room size is won by the vacation rental. That is a problem. The technology that these vacation rental companies have done — remember this is totally new — their technology is ground-up extremely advanced. Hotels are a disadvantage."
Opt-in housekeeping or potentially pricing tiers for depth of room cleaning could make the hotel industry more like airlines, Madhok said.
For example, the basic tier would be no housekeeping and paying the highest premium would include a deep cleaning. He compared that to the airline industry.
"It's like when you book the airline," he said. "Basic is no checked bag, and then there's one that's refundable with a checked bag, and then there's a two free checked bags. Hotels potentially are going in that direction. And I think that just opens the door even wider for vacation rentals. I think that we're on a really slippery slope when we're taking away the human feeling, the service of hotels."