The past year has forced independent hoteliers to manage every penny and operate leaner than ever before, and sources said 2021 budgets will be about prioritizing only ROI-guaranteed items.
REPORT FROM THE U.S.—Independent hoteliers realized in 2020 that there were a lot of things they could live without spending capital expenditures on, and in 2021 they plan to continue that streamlined focus.
Sarah Eustis, CEO of Main Street Hospitality Group, said while there still are some unknowns for 2021 and the beginning of the year is looking a little more dour than originally thought, she is proud of the bottom-line profitability results her team was able to generate on vastly reduced revenues in 2020.
However, Eustis said her team “learned in 2020 that there was a lot of stuff that we could probably live without for a period of time. And we’re going to keep living without it until we stabilize. … We’re going to continue to use the things we learned in the pandemic.”
Spending on marketing, promotions and programming is difficult right now, but it’s needed to remain present, Eustis said. Her properties are continuing with experiences they feel are meaningful to guests like art exhibitions and residencies as well as music programs and private dinners.
Prior to COVID-19, Main Street Hospitality Group was already committed to investing in technology such as revenue-management software and an updated payroll system.
“That’s ongoing, we haven’t taken our foot off the gas during COVID,” she said.
Roy Madhok, VP of revenue management at Real Hospitality Group, said in an email interview that 2021 budgets are centered on what is necessary and what has proven return on investment. Budgets should start with what the known expenses are and what areas must be priorities of spending.
Zero-based budgeting has been key, he added, and this is the first time Real Hospitality Group is doing 100% zero-based budgeting by going through every single item and mapping it out month by month. Unless it has guaranteed ROI, it’s not making it into the budget.
“The rule of thumb is simple—you can’t budget expenditure where there won’t be business,” Madhok said. “Spending heavily on generating business travel sales in the first half of the year wouldn’t be wise. A barrage of trade shows? Out. Advertising? Not unless we can see the ROI.”
Additionally, he said an easy area to mention is CapEx. Hoteliers can’t and shouldn’t budget any capital expenditures that are on their wish lists with the way hotels are operating currently.
Angela Harrington, owner of Iowa-based Highlander Hotel and Hotel Grinnell, said she can now run a hotel for $50,000 a month without a loan. Post-pandemic, she said if needed, she could operate her 90-room Highlander Hotel at 20% occupancy and the 45-room Hotel Grinnell at 30%.
“We are a lean machine,” she said. “We managed every single penny. Whatever we could trim, we trimmed early and quickly. I don’t know where you could get any leaner.”
Harrington anticipates recovery could start in June 2021 and she expects to see “normal occupancies for leisure” at her properties by the fall because her hotels are in a college town.
Matt Marquis, CEO at Pacifica Hotels, said at the start of the pandemic he began holding weekly meetings to discuss cash flow and cash balance for each property within the portfolio, and the company hasn’t stopped that since.
“We’ve completed our forecast for the entire portfolio for next year, which also then bleeds into our management company to see what all those financial forecasts are going to look like,” he said. “And I know there’s a lot of people out there that are looking at next year … and they’re saying, ‘I haven’t made any distribution this year, I don’t know how much I’m going to make next year.’”
Being able to survive another day is the name of the game right now, he said, and if investors aren’t getting returns for the next two years, that’s a long time in the hotel world.