It is no secret that COVID-19 pushed the reset button on many aspects of travel and lodging.
While we do not know what that post-pandemic world will look like, some trends are becoming clear. Hygiene is a new competitive advantage, technology and digitalization are here to stay, and it is harder to retain workers than customers.
From a business perspective, a lot is happening in our industry. First, there are more investors than opportunities available, evidenced by high-priced transactions and a massive hotel pipeline. Also, inflation and labor shortages are driving operational costs up, thus compressing profit.
These trends could result in a dangerous scenario. Investors will need to justify expensive deals, demanding higher margins in an oversupplied industry with rising costs. Additionally, the pandemic seems to be far from over, and we are yet to see the full ramifications of this crisis. So far, we are seeing some level of of optimism from hoteliers [myself included] and recovery. However, in such unclear settings, I recommend that we adopt the military motto of hoping for the best but preparing for the worst.
Faced with uncertainty and difficulty, I often turn to the basics. There is nothing more basic than the notion of a hotel as a real estate business. Through a combination of brand and management, a hotel is supposed to generate return commensurate with the investment it required. Hospitality is a tool to maximize real estate value. We should never forget that.
As such, I am recommending three practices to help connect with this fundamental principle.
Think Local
Programs should be based on consumer demand, not brand. Most brands provide programming for the hotels, but it is impossible to design a hotel that will satisfy markets as diverse as Tokyo and Columbus. Therefore, you must program your hotel by taking into consideration all local demand and supply factors. How are your guests behaving? What amenities do they truly value? What services are threatened by inflation and labor shortages?
Many hotels are experiencing a change in client mix from corporate to leisure. Those hotels could consider, for example, turning the business center into a kids' club or renting the space out to a travel agency.
Be Efficient
Analyze your property and find creative ways to extract value. While you need to provide certain services, try providing them in fewer [or less desirable] spaces. Every area should be creatively geared towards a profit-generating activity.
Common practices include bringing the executive lounge to a lower floor and getting more guestrooms or turning the street-level space into retail. Today, there is a lot of demand for hybrid meetings or quiet places to take conference calls. Can you offer that somewhere in your hotel?
What's Your Anchor?
Developers plan shopping malls around anchors. Those anchors are stores that pay less rent but attract visitors. Similarly, hotels can prioritize outlets that lure more business.
In the late '90s, posh W Hotels brand debuted with its first New York City property. VIP access to the hotel's bar and club got business travelers to pay luxury hotel rates for 150 square feet of guestroom space.
Today, several hotels are defined by anchors that go from ice skating rinks to shooting ranges. Not everyone needs to go that far, though. In certain markets, a good fitness center that caters to residents or even a coffee shop for locals can drive incremental business. Ultimately, sacrificing revenue, or brand standards, for a unique attraction could be a good plan.
After looking at your space and thinking of ways to repurpose it more efficiently, I would recommend reflecting on outsourcing outlets or services. While managers dislike losing control, outsourcing mitigates risk by turning a potential loss into rent. Also, a specialized third-party may bring a solid brand to associate with. Several hotels in South Beach are partnering up with New York City restaurateurs. This not only boosts their food and beverage offering, but also draws in New Yorkers, one of Miami's biggest demand markets. Comparably, commuters stop more frequently for coffee at hotels with third-party coffee shops or those that “proudly serve” a known brand, making that hotel the most likely to be recommended to a colleague or friend.
Markets change, people change and trends evolve. Hotels constantly adapt their rates, staffing levels and menu items. However, the space seldom gets modified. Like any real estate business, we should regularly update our programming to maximize return, by making our asset more appealing or more efficient. If we do not, our competitors will.
Hugo Desenzani is Chief Executive Officer of Intursa (Libertador Hotels, Inversiones La Rioja).
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