How we Trouble Shoot and Reposition an Underperforming Hotel

21-Sep-2016
Business, Hotels

The need to trouble shoot and reposition an underperforming hotel is almost always caused by the same problem.

It is due to a lack of understanding of how the travel industry works these days.

There is also the problem that many hotels are built without sufficient planning, in particular independent hotels. And frequently properties are run by inexperienced management with the team on the ground having little commercial awareness.

No matter how good the head office team is or how strong the brand is, these properties lack the capability to maximise operational and financial leverage and thus profit and asset value.

As a result, most hotel assets unnecessary underperform and quite often this is not picked up by the owners. After all, the brand is in place, asset managers have done their magic and the process is firmly in place. What else can be done? This underperformance is then put down to external factors: the economy, the location/market has changed and so on.

A good example would be a conversation I recently had with the owner of a 5-star hotel in London. Under pressure, and without any focus on providing competitive value to its segments, the hotel had descended on the price level competition. When your biggest USP is your price, then it’s all that you will be judged on. A room rate becomes your only significant value.

On top of this sales and marketing teams were operating in silos, without liaising with the Revenue Manager. Whether the market was compressed or not, offers were being extended to distributors with discounts, rebates and override commissions that were not contributing to the bottom line! The owner had no idea why commissions and acquisition costs were increasing sharply (those bad OTA’s) and why the hotel’s profit was nose diving.

If there would have been a good Revenue Manager in place this situation could have been prevented. Unfortunately, many General Managers and Front Office Managers as well lack a deep enough insight in how to really manage a hotel operation and business.

The GM in this example firmly believed that all ills in his hotel would be solved if the 30-seat restaurant would be further developed (hotel is situated in the midst of an international food destination).

Ok enough with the drama, and let’s get to the solution. What does a hotel turn-around strategy look like? How do we reverse this downward cycle and make a hotel’s revenues go up in just a few months’ time?

Manage Change with Speed

An underperforming property has probably gone through a slow process of decline. Endless soul searching, poor customer reviews, high staff turnover and unhappy owners have taken its toll on morale.

To get out of the slump you need to get momentum back on your side.

Takeover management is done with speed to reenergize the organization and the employees. The team needs to get buzzed up, exited and motivated.

The first step is to look for some quick wins to show the team that the process of change has a positive impact. Once the team is on your side you are ready for the longer battle ahead.

Lead by example

A profitable hotel is all about consistently satisfied guests. To have happy guests, you need happy staff.

The downturn happened with the team you are now leading. But is it their fault? No, of course not; they were probably not shown correctly, trained or properly managed.

Now is the time to motivate and lead by example. Roll up your sleeves and fix the issues. Show that all problems can be solved. Treat everyone with care and respect and work together to create a buzz.

The team will know all the intrinsic and important elements of the hotel and its market place. Don’t forget this and learn from them.

Communication is key and right from the start manage expectations clearly. Let all departments know what will be coming and what you expect. They probably have been neglected and left to their own devices and will welcome better support and guidance.

Simplify!

Underperforming hotels usually have operating structures and marketing and distribution strategies that are over complex.

They have become impossible to manage and control.

For example, rate structures can be typically complicated. By jumping on every promotion proposed by distributors, accumulated discounts per booking can be as much as 50%. Now subtract a 15% commission and there is only 35% left. The hotel is giving the shop away.

Keep all processes simple. Focus on the perfect end-result and work backwards to build an effective lean and mean strategy around that. Once a simple structure has been created, it can be carefully build up for effectiveness.

Positive Cash-Flow

It is critical that cash-flow becomes positive quickly, otherwise it will be difficult to implement change.

Non-essential costs should be scrapped immediately. Jump start occupancy and revenue levels with effective sales campaigns to get more people coming through the doors immediately.

Have a razor sharp understanding of the forecast and the impact it has on the cash flow. Take preventative action to ensure the hotel remains solvent throughout.

Drive Revenue

In conjunction with the above points, driving revenue has to be the key focus. Doing so effectively will turn around even the most embattled properties.

Some of the key actions to take (this list is not exhaustive!):

  • Reposition the hotel with a clear differentiating character
  • Emphasize the Unique Selling Points of the hotel on the web and all other on-line and off-line marketing profiles
  • Implement a dynamic value-led pricing strategy by highest ROI segment to allow for proper yielding based on daily demand fluctuations
  • Develop a structured pricing strategy and price discrimination tactics (e.g. non-refundable offer) to reach more price demand levels
  • Re-segment hotel room types with clear product differentiation to improve conversion and allow for upselling
  • Expand online presence, reach and exposure through expansion of distribution partnerships
  • Market penetration through targeted flash campaigns during distressed periods
  • Target consumer travel markets through packages with dedicated website landing pages
  • Improve online reputation ranking by actively requesting guest feedback on key review platforms

Measure, measure, measure!

It goes without saying that measuring progress and adjusting the plan where needed is critical in turning the ship around. Turn-round is possible even in a cut-throat and depressed market.

We would want to see Occupancy (MPI) and RevPar (RGI) to be above the fair share of the comp set within 2 to 3 months.

The initial focus is on driving occupancy before pushing rate. Once the hotel is performing significantly better than the comp set we can start tweaking ADR.

Conclusion

To trouble shoot and reposition an underperforming hotel will undeniably deliver results.

Having a strong plan, being organised and having all stakeholders (owners, operators and team on the ground) on board is key.  Timely implementation and consistent and smart execution will deliver the desired results.

 

Would you like to know more?

Download our latest White Paper entitled “Why Return on Hotel Investment Can Significantly Underperform” or contact me, Lucienne Mosquera (Managing Director) for an informal conversation about your Investment.

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