Guests and Growth: They cannot be mutually exclusive
By Shaun Burchard, President, Meridian Hospitality Group, Inc.
2009 saw the culmination of years of the lender/borrower manipulation game in one of the worst economies ever. Budgets written to impress (mislead?) lenders fell apart under the weight of the lending pace that had been set for the past several years. Loans and lines of credit were consumed in mismanaged construction cost overruns, and bad investments in overbuilt markets. Brands continued to expand product lines offering diluted quality and value, and the larger economy finally collapsed - impacting the hospitality sector in dramatic fashion. Usually one of the first industries impacted and one of the last to recover, the hotel business was faced with daunting challenges, or as I like to call them, "moments of truth." How do we continue to grow with no working capital available? Where can we shore up our performance on paper so that lenders will lend?
For many, the obvious solution was to cut costs. For too many, years of improved statistical performance in metrics like ADR, RevPAR and market share had led to a lethargic autopilot approach, and 2009 was an "opportunity" to eliminate waste and trim fat. As one example, a major family of brands was asked to identify $50 million in sustainable year over year cuts. One has to wonder why it was acceptable to throw away $50 million annually before 2009? So with machete in hand, many went to work hacking and slashing at cost centers with reckless abandon when a strategic scalpel was more in order.
The problem with cutting costs in this environment is that the panic caused by a lack of development funds blinds many to the impact of their proposed cuts on the lifeblood of our industry - guests and their money. When developers and buyers cannot borrow, they cannot grow - or can they? Of course they can. The pace of growth is all that is impacted, and the truth is that many cannot bear the thought of slowing down to let business run its normal and necessary course.
How do we grow our portfolios in this environment? Not through borrowing or developing with money we cannot access, but through the gradual growth that comes from developing superior financial statements by focusing on our brand promise, our value proposition to our guests and consistently delivering the product and service experience that our price point calls for. In other words, out-thinking, out-hustling, out -selling and out-servicing the guy across the street.
This brings us back to the machete and the scalpel and more importantly, our approach to cost cutting. A few weeks ago, I was talking with a peer who is looking for a General Manager to operate two properties that share a property line. The properties are from different families of brands in a secondary location in an overbuilt market, with no dedicated sales presence. The owner wants to hire someone with a "strong background in sales," hoping to save the money required to have both a General Manager and a Director of Sales or Sales Manager. Fair enough. Where it gets interesting is that the owner wants to pay a relatively low base salary and offer strong incentives based on the budgets that were again, written to impress lenders, as opposed to represent what the properties should reasonably produce in 2010. Does anyone know where to find an experienced General Manager with a "strong sales background" for a less-than-industry-prevailing salary? If the General Manager is to be incentivized on revenue performance only, what is the impact on their focus on operational success? You and I understand that one supports the other, but in terms of day-to-day time management issues, this is clearly problematic. Where is the focus on the most important asset we have today - the Guest Experience? The owner's preferred approach is a recipe for certain failure, and the focus is only on saving money today - not on developing long-term success.
Growth today will come from refining operational performance in the most cost-effective ways possible without sacrificing anything that impacts the value proposition of your price point. Unfortunately, many developers and buyers will lose sight of this, or already have. The need to squeeze every penny to the bottom line to support present or future commitments will potentially take the guest completely out of the equation and that, in the long-term, is contradictory to the very growth objectives that are being used to rationalize and justify the strategies being implemented in the short-term.
How do you avoid this? Simple. For 2010 (and forever if you want to be truly successful), put as much emphasis on your Guest Satisfaction scores as on the Profit & Loss Statement or the STAR report. Redevelop your incentive programs (or develop them if you haven't by now) to reward your field teams for taking exceptional care of the guest. Analyze where you are scoring well versus poorly and strategize solutions for the "opportunity scores" within your control. Reward everyone at the property level in some way based on feedback from your guests, keeping in mind that tipped employees are, by default, already compensated based on the Guest Experience. One of the many benefits of this is that your guest scores are an objective third party metric, eliminating claims of manipulation or favoritism. Lastly, do not use the brand average as your benchmark. Do you want to be even marginally better than the average or truly exceptional? Set your targets and thresholds for bonus compensation accordingly.
Talk to your guests. I know, pretty novel. Surprisingly, many operators don't engage directly with their customers until there is a complaint, which is obviously too late. As opposed to fielding complaints (reactive as opposed to proactive), make it a point to speak with 5 to 10 guests daily in your hotel (more if you have time) and ask this simple question: "What can we do to improve our product or service for you?" Powerful. The guest will tell you. The next steps are critical - collect and analyze their comments to identify commonality and/or trends - and then act upon them. Nothing is more deflating than being asked for your input and then being left with the perception that you are being ignored. Send the guest a personal thank you note for supplying you with this invaluable intelligence - and let them know what you intend to do, or why you don't intend to do anything. What a powerful sequence - ask for honest feedback, thank the contributor for it, and then do something with it. Guests for life - guaranteed.
Revisit and reinforce the basics. While "the big three" buying decision factors change slightly over time (usually as a result of new technology or other product offering), I am consistently a proponent of three above all others: cleanliness, responsiveness to needs and quality of your HSIA (high speed internet access) offering. If you accept these (feel free to define your own), the next critical step is to strategize methodologies to ensure that your operation is consistently superior to your competition in the delivery.
I'm always amazed by the discussions of whether or not a room cleanliness inspection process is necessary. The room is the product you are selling at the highest profit margin - of course a quality assurance program is necessary. Unfortunately, many are eliminating room inspection positions to save money - exposing their guests to an inconsistent product in the area most likely to impact their repeat buy decision. Do the short-term savings really represent a positive ROI in the long-term? In terms of risk and reward, I equate this to Russian Roulette; except that while it may be suicidal in nature, it also targets the guest as collateral damage.
So do we focus on Guests or Growth…?
The lesson of 2009 is that there is limited money for empire expansion and that the symbiotic lender/borrower relationship has undergone a needed (albeit probably too short lived) paradigm shift - placing more emphasis on the performance of existing operations as opposed to dog and pony shows and press-the-flesh deal making. The industry has to "put up or shut up" and the differentiator will be the quality operators who protect and preserve their guests (and their revenue), versus those that blindly cut costs in an effort to fatten their bottom lines while running the risk of losing guests, share, and ultimately, of exchanging growth for failure.
Guests and growth cannot be separated - and the biggest error we can make in the current economic environment is to miss the opportunity to be sales-savvy and operationally sound while protecting and preserving the brand promise.
To increase referrals, repeat buys and strengthen guest loyalty, focus on maximizing performance (which includes smart spending) and protecting the most limited resource you have - your guests.
Shaun Burchard, a hotel professional since 1986 and a Certified Hotel Administrator, is President and Operating Partner of Meridian Hospitality Group, Inc., a hotel performance company delivering superior hotel results since its formation in 2004. Mr. Burchard and his partners at MHG have built the company from a single distressed hotel to operating more than 26 hotels across the country including brands with Hilton, Marriott, IHG, Choice, and Best Western. Find/follow Shaun and MHG on Facebook by searching "Meridian Hospitality Group" and on Twitter at "MeridianHotels." Mr. Burchard can be contacted at 618-531-5177 or firstname.lastname@example.org Extended Bio...
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