Planning for a downturn: Prepare now or repair later
 
Planning for a downturn: Prepare now or repair later
19 OCTOBER 2018 8:17 AM

To weather issues created by an economic slowdown, have a plan in place well in advance that is developed by management and employees, said speakers from International Society of Hospitality Consultants on a Hotel News Now/Castell Project think tank.

MIAMI—Hoteliers take heed: “It’s better to be preparing rather than to be repairing.”

That line from Tea Ros, managing director for Strategic Hotel Consulting, summarizes the advice from seven consultants participating on last week’s Hotel News Now/Castell Project think tank, titled “Now is the time to prepare for the downturn.”

The event, held in conjunction with the International Society of Hospitality Consultants’ 30th annual conference at the 1 Hotel South Beach, revealed the importance consultants place on anticipating and solving problems long before the next downturn strikes the hotel industry.

Whether that downturn is six weeks, six months or six years away is irrelevant. These speakers said the time for hoteliers to fortify their position is now.

“If you are in a situation where you have no plan in place, and the downturn does come, and you have to then quickly try to implement and start putting together a plan, you’re just one step behind already,” Ros said. “My recommendation—always to owners—is let’s start this. … (It) doesn’t matter where the economy is, where the cycle is.”

Deborah Friedland, managing director for EisnerAmper LLP, said sticking to the plan is as important as having one.

“Don’t panic,” she said. “Walk through it, and talk to your team members and strategize.”

Suzanne Mellen, senior managing director-practice leader for HVS, said owners and operators should already be working on plans for the next downturn that involve all employees—not just the senior management team.

Though the circumstances surrounding any future downturn are likely to be different than the last one, it’s important to look at what worked and what didn’t work, Mellen said. She pointed to how online travel agencies and companies like Airbnb have changed the industry since the Great Recession, noting that plans need to reflect the changing landscape.

Consider labor scenarios
Labor, as always, will be a key component to surviving future downturns, according to speakers.

Mellen encouraged owners and operators to run through various scenarios to ensure the plan has flexibility based on the situation.

“This is a good time while everyone’s doing their budgeting, that you can say, ‘Can you take an extra step and put together a contingency budget, figure out what happens if our occupancy or (revenue per available room) declines this much, and what would that look like?’” Mellen said.

Amanda Chivers, managing principal for Crown Hospitality Consulting, said her company has started looking at full-time employee ratios at all of its properties as a way to be prepared for the next downturn.

“Labor costs are such a significant part of the profitability story that you have to start there,” Chivers said. “What we try to do is make sure that we have the right team, across the board, in place.”

That involves cross-training now to make staff more adaptable to whatever situation arises in the future.

“That’s going to help us in those lean times, when, if in fact we do have to re-balance staffing—they’re prepared for it, and they know how to operate those outlets much more efficiently,” Chivers said.

Admittedly, that’s not always doable, especially if there’s a union employee base involved, speakers said.

But even with a different approach, productive results can be achieved, said Judy King, founder and principal of Quality Management Services.

“The big thing is the communication aspect of it and sharing with them what we’re looking at from the standpoint of ‘here’s what we’re seeing,’” King said. “It’s not to scare them, but to trust them as adults to understand what’s going on so they’re not surprised and caught off-guard. It’s extremely important to engage in really good communication.”

The idea is to engage the staff so they understand any downsizing or changes are being done with them, not to them, she added.

“From the standpoint of being considered a reliable and very trustworthy employer, those types of strategies and tactics go a very long way,” King said.

Plan ahead now to avoid problems later
Diversifying product offerings, packages and amenities now can go a long way in softening the blow when a downturn strikes, speakers said.

Jennifer Findlay, founder of Core Essence, said that’s particularly true for a hotel that has a spa.

“From the spa and wellness perspective, in the previous downturn … a lot of us were caught off-guard and really without a plan,” she said. “It really put our businesses to the test, and what’s occurring now is we’ve come back looking at things differently and being (less) reliant on a single revenue stream.”

It’s also true in the back of the house, where efficiency is key, Friedland said.

“You should always be looking at your systems, your internal controls. Do you have the right staff in place? Are you ensuring that inventory’s properly tracked?” she said. “Be diligent in terms of ensuring that internal controls are properly overseen and always improve things. Test out procedures, and just really ensure that the message to your management (and staff) is that we’re always watching, we’re always diligent, we’re always going to make sure that we’re coming in in line with budget.”

Whether it’s having the right procurement program for toilet paper or being more efficient in the laundry operations, finding the right balance now could help save hoteliers from making cuts during a recession that could potentially affect guest service, Friedland said.

Balance is key when considering changes
The bottom line is the top concern for owners and operators, regardless of the economic cycle’s position, and speakers said having an open conversation about that during the good times helps ease the stress of a downturn.

There is a delicate balance between preparing for a downturn and driving revenue while performance is still solid, Mellen said. Owners and operator must share the same strategy, she said, adding that being a little conservative in operations and pushing to maximize RevPAR can create conflict.

Part of the conversation should be how to fill future room blocks while a market is at or near peak performance, she said.

“You get owners who are pushing budgets and striving very high, and some hotels are, for example, keeping themselves out of future booking room blocks because they want to maximize the late-booking transient demand that comes along with the groups, and that’s how they’re maximizing their RevPAR and their yields right now,” Mellen said.

“But what we found in the last downturn is that was really a disastrous strategy to take, because when the downturn hit they didn’t have any of those bookings. So the hotels that had been more conservative and made sure that they did have a block of the group-room nights … they just went through the storm much better than those hotels that did not.”

Chivers said it’s important to look at current year and previous year bookings as well as business that was passed up.

“We’re doing this right now because there’s so much demand in group. They can sell out a hotel, and you can get premium rate right now that the business that gets displaced is your base business,” Chivers said. “So we are actively reaching out to regional partners, strategic partners—those that we know are going to be in the marketplace who haven’t been able to have those meetings, and (that) we haven’t been able to accommodate … because of the demand.”

The company is reaching out to this misplaced business, providing a hotel’s actual need dates and offering a discounted rate for those periods.

“We want their business … We want to host their holiday parties; we want to host their board meetings or small meetings. And we fill the gaps in between the big groups that we have in-house with that base book of business,” Chivers said. “Reach out to those people now; you build that business now. Don’t wait for the group business to evaporate and then find yourself behind the eight ball.”

The new landscape
Any plan to deal with a downturn must take into consideration how much the industry has changed since the last downturn, which began in 2008.

Friedland said a big differentiator this time around will be the rise of social media. Service cuts on par with the cuts of the previous downturn will be skewered all over social media, she said.

“While obviously it’s prudent to cut costs by reducing labor, we should all keep in mind that service has to be maintained,” she said. “We must provide the guest with the experience that they’re looking for and in fact exceed their expectations during a recession. You want to be careful about where you cut and not to interfere with the guest experience.”

Findlay said moving the product beyond traditional walls by integrating technology and other cutting-edge advancements is important in good times and during the throes of a downturn.

For example, streaming fitness, yoga and meditation classes to guestrooms can extend a spa’s reach while also streamlining staff requirements.

“What the guest gets out of that experience is actually a very customized opportunity that isn’t so heavily reliant on team members,” Findlay said. “I’m not trying to say that can be a substitute for face-to-face interaction, but I think there’s ways we’re becoming more and more intelligent in the way we’re using our people and meeting the needs of the guest.”

And don’t forget about your lender, said Cecilia Gordon, director for Goulston & Storrs.

“You should definitely have your lender’s phone number—seriously,” she said. “And you should have a relationship with somebody at your lender, which in the CMBS world, can be hard to accomplish. But having that number and not having to take three months to get to a live person makes a big difference.”

The message for the lender should be simple, Gordon said.

“It’s ‘here’s our plan—you don’t need to worry about us, go worry about the rest of your portfolio, but here’s a person to call if you’ve got questions so let me know if you need me to send you information,’” Gordon said. “Opening that line of dialogue definitely helps.”

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