It hurts," says Mickey Schaefer, vice president membership, meetings, conventions, and administration, with the American Academy of Family Physicians (AAFP), Kansas City, MO, explaining that one chain refused three pieces of her business in three months. Despite their long-standing relationship, the chain turned down the AAFP, which spends an estimated $8 million a year on meetings. The business just wasn't profitable enough.
It's a situation that is becoming all too familiar to planners of large and small meetings, as the balance of negotiating power tips even more dramatically toward hoteliers. There is no relief in sight as average room rates hit record highs, and experts predict that next year hotels will achieve the strongest growth in occupancies and profits since the 1940s .
"Yield management has taken on a tougher face," observes Ann J. Boehme, CMP, president, Meetings and Management Techniques Plus, in Valley Stream, NY. "If this hotel that I've had good relations with for five years decides we are not their maximum business, where do we go from here?" Planners wrestle with this question as they search to create some leverage in a marketplace that in a mere five years has turned from one of the worst in hotel history to its best, straining long-time relationships between association planners and their hotel suppliers. Hot spots in negotiating continue to beclauses, but new areas of contention, such as small-meetings bookings, third-party housing payments, and renovation clauses, are heating up as availability tightens. And availability is probably the number one problem.
Limited Options Lack of availability is especially acute in first-tier cities during prime meeting season. The problem is worsening as planners respond by booking during traditionally slower seasons, such as July in Washington, DC, making those times more competitive, too. Small meetings, space-intensive meetings, and those with few on-site food and beverage functions are also difficult to place in today's marketplace. Many planners say they have to book further out. The International Sign Association, in Alexandria, VA, used to book three years out, for example, but board members recently booked their international show through the year 2005.
When hotels do accept business, the pressure is on. Thestipulates that the offer is good through a certain date-the option date. While hoteliers formerly allowed planners to sit on for a few weeks or months after the option date, Schaefer says, now the hotel may call on that day, explain that another group is interested, and press for a commitment.
Many hotels are refusing to book blocks as large as planners request, and are less flexible about adding rooms later. Bill Deal, president and CeO, International Sign Association, who holds annual meetings attracting about 13,000 people in Orlando and Las Vegas, noted that he can try saying he'll take his business to another property, "but those hotels are selling out, and it's kind of like, 'so what?' They don't need meetings anymore in Las Vegas." (We were saddened to learn at press time that Bill Deal had passed away).
"No doubt about it," says John Parke, vice president, national accounts, Marriott Hotels, Resorts & Suites, "there is not as much flexibility on date availability-right now demand exceeds supply but that balance could shift with the cyclical nature of the industry. We have so many calls coming in for meeting space, especially the mid-week business. We focus on the most economically viable business, while at the same time [we] cherish our long-term customer relationships."
Contract Clauses Tighten Cherished is not how planners describe feeling when they see hotel contracts. "Outrageous" and "atrocious" are a couple of the adjectives that pop up when they discuss contracts, especially the tougher attrition and cancellation clauses. "Hotels are trying to take advantage of the marketplace," says Jed R. Mandel, attorney at law with Neal, Gerber & eisenberg in Chicago, IL. "It's overkill."
He warns against "subtle and egregious" attrition clauses that assess penalties based on the original room block, advising instead that attrition fees are charged against the final adjusted room block.
While attrition penalties used to kick in if planners fell below 80 percent of the room blocks, some hotels are shifting the figure to 85 and 90 percent. Planners suggest a variety of negotiating tactics, such as reducing the percentages and requesting review dates when room blocks can be adjusted without penalties.
Other planners refuse to sign attrition clauses-a tactic that can backfire, as hoteliers say they take the refusal as a sign that the planner's commitment may not be solid. Dave Scypinski, director of meeting and convention, Hilton Hotels Corporation, tells customers, "If you don't want to sign, that is fine. However, what the hotel is going to do is consider your business subordinate to other business that doesn't have that baggage attached. Don't come crying to me if the hotel doesn't take your business in the future. Because of the strength of the market, we have other hits on those dates. Our job is to book the best piece of business we can."
Food and beverage slippage clauses are another growing source of contention. "I've seen proposals where if your rooms go down, you pay; if your food and beverage goes down, you pay," observes Jeff Rasco, CMP, marketing director foreducational resources at the University of Texas M.D. Anderson Cancer Center, in Houston. "Make up your mind. Pick one or the other." Rasco prefers to sign for food and beverage slippage, saying he has more control over the number of functions than the number of attendees who participate in room blocks.
Planners are now also frequently faced with meeting space rental fees. "I won't sign for meeting room rental and attrition," asserts Christine P. Pruitt, department head for meetings and expositions, American Chemical Society, Washington, DC. "I think it's double dipping." Rather than sign an attrition clause, Kay V. Granath, CMP, director of meetings and conventions for the Association Management Center in Glenview, IL, prefers to pay meeting room rental if she falls below a specified number of sleeping rooms. "It's easier to justify to the client," she says. "I can put into the budget $4,000, or whatever. If we don't have to pay, great. If we do, we're covered." Mandel adds that room rentals are often less expensive than slippage fees, and advises planners to calculate which clause is more cost-effective.
With hotel salespeople pressured to generate maximum revenue, planners have to be especially vigilant about holding on to their meeting rooms. Not only may you get shifted to a different space, but one planner noted that when she read the contract's fine print she realized she would be charged for two meeting rooms if she used an air wall divider in one room.
Renovation clauses are also getting more problematic. With fewer hotels being built, many hotels are undergoing major renovations, and using those renovations as a selling point. But too many planners don't even include standard renovation clauses in their contracts and don't check in with facilities every year to see if they have scheduled renovations, says Joan L. eisenstodt, president of the Washington, DC-based eisenstodt Associates. She points to the recent Hilton suit against Healthdyne, Inc., an Atlanta-based health care company now known as Matria Corp., as having great implications for planners. In that case, a planner thought renovations would not be finished on schedule for her meeting. Believing her contract's renovation clause protected her, she canceled her meeting. However, the renovation work was completed in time for her meeting. Hilton sued her-and won, although the compensation was only about $4,500. eisenstodt notes that the planner's standard renovation contract was too broad, using words such as "reasonable." Insert a clause in your own contract stipulating that a hotel must inform you in writing within five business days if they decide to renovate, eisenstodt says, and add that they must provide you with a specific timeline for completion.
Another trend planners must contend with is early departure fees. If attendees pay early departure fees, deduct them from your attrition payment, Pruitt stresses. While many planners feel that the fees are fair, understanding that hotels may not fill rooms vacated at the last minute, Mandel believes they are another example of hotels' one-sided contracts. "What if people arrive early and the hotel benefits, or the room block is exceeded and the hotel can fill empty rooms?" he posits. "There doesn't seem to an upside, only a downside. Planners need to get creative."
Planners are responding by bringing their own contracts and addenda to the table. As Boehme notes, "The person who writes the contract usually has the upper hand." Schaefer says her staff members prevent problems and save time by sending a list of their deal-breaker contract issues along with their initial bid sheets. If a hotel won't accommodate their desires, Schaefer says, "We say 'bye-bye.'"
There doesn't seem to be an upside, only a downside. Planners need to get creative."
Housing Heats Up The seller's market has pushed the housing controversy to the forefront-and planners are feeling the squeeze. The International Sign Association hired a private housing vendor because the Las Vegas bureau has a 45-day cut-off, and in the past attendees couldn't find rooms after that date. The vendor will book rooms until the day before the convention.
Some vendors, such as the one contracted by the International Sign Association, get paid via room commissions. (AM's 1996 trend survey showed that of those associations that use third-party housing companies, half of them were paid by commission versus flat fee.) Securely in the driver's seat, hotels are now getting picky about paying those commissions. Why should they pay, hoteliers ask. The business is already booked. "Tack on a ten percent cost, and we sit back and say, 'Gee whiz. We're paying for something we are getting no value from,'" says Jim evans, executive vice president of operations, Doubletree Hotels Corporation. The costs are too high, evans says. The Hyatt Regency Chicago paid an estimated $2 million in housing costs for 1996.
"When you take $2 million off the bottom line of a big hotel, it has an enormous impact," says evans, who was formerly senior vice president of sales for Hyatt Hotels. Those costs affect which meetings hotels accept. evans says, "Business that brings a lot of cost is not so attractive."
Another problem, adds Scypinski, is that the housing commission costs are passed on to the attendee, and the higher hotel rates can result in lower attendance and associations paying more in attrition penalties. evans offers another, equally distressing alternative. "It's somewhat uncomfortable," evans states, "but the association should pay. They're the ones saying, 'I need housing services outsourced and improved.' You buy the transportation in a city, you buy the housing service. It only makes sense to me [that you should buy the housing too]."
But hoteliers' negative attitudes about commissions are a result of the market, argues one private housing vendor, who asked not to be identified. The vendor, who charges a commission, says, "They're greedy. As soon as the climate changes, you can be sure hotels will be saying, 'Commissions? No problem.'"
Survival Strategies Networking is a crucial strategy in today's market, planners stress. They suggest joining organizations, such as Meetings Professionals International (MPI), American Society of Association executives (ASAe), and Professional Convention Management Association (PCMA). When destination-shopping, "The first thing I do is pick up the MPI directory and call members in the cities we are considering," says Jeff Rasco of the University of Texas. "You can get very honest opinions from other planners." He also describes MPINet, an online service for members, as "a tremendous tool."
Another strategy is to establish relationships with national sales reps. They will explain why your meeting is hard to place and what you can do to make it more attractive. A case in point was described by Michael K. Hausman, CHSe, CMP, director, national sales, Renaissance Hotels International, during a seminar this year at the Affordable Meetings Conference in Washington, DC. When a planner asked for four breakouts on 24-hour hold for a 15-person meeting, he told her, "You've got a problem-24-hour hold is deadly." But Hausman, the national sales representative, was the first to explain that to her.
In some instances, Schaefer of the American Academy of Family Physicians has worked out standard contracts through national sales offices, so that she can book hotels in different cities without having to redo the contract.
Planners emphasize that treating hoteliers as partners rather than adversaries is one of the most important elements in conducting successful negotiations. Insight into the hotelier's point of view can help you better sell your meeting, they say. Understanding hotel profit centers can give you a bargaining edge. "Most planners start at the wrong end-where hotels make the least profit," explained Kelly M. Moneyhan, CHSe, national sales manager, Tampa/Hillsborough Convention and Visitors Association, speaking at Affordable Meetings. Hotels make about 70 percent profit on room rates, and 14 to 30 percent on meal functions. But, said Moneyhan, "Planners accept the room rate and beat up the sales manager on catering."
With rates increasing and space at a premium, date flexibility may be a planner's only bargaining chip. "Don't pigeonhole yourself," warns Scypinski. "If you're going to say, 'I'm not flexible, I've got to have this [date]; if not, I'm sunk,' then why don't you just say, "Give me the worst deal'? That's what you're asking for."
Organizing multiple meetings can make your business more attractive. But your approach is still crucial. Rasco describes his attitude as "almost apologetic" when approaching major properties. "Some planners try to push their way around, and say they will book 15 meetings in a certain hotel this year or the hotel can forget the business," Rasco says. "I think that's stupid, to put it bluntly."
The Future Faced with what sometimes seem like no-win situations, many planners are looking for alternative venues. But despite their frustrations, the planners interviewed were reticent to say that hotels are being greedy or unfair. They take the philosophical view that business is business. Shouldering some of the blame, they recall that during the buyer's market, some planners took advantage by overestimating room blocks. The market has resulted in enhanced professionalism on both sides, planners observe, putting a positive spin on a difficult situation. Planners also point out that the economy is healthier when hotels are making money, and that sooner or later the market will turn around again.
None of those points make it any easier. "It's kind of hard to swallow that you're not able to get what you used to," says Schaefer. "It's like getting flowers from your spouse every Valentine's Day-and then you don't get them anymore."
Small meetings are the orphans of the industry, asserts Mickey Schaefer, vice president membership, meetings and conventions, and admin- istration, with the American Academy of Family Physicians. When interviewed, she had just received a call from a national sales manager asking her to move a five-day meeting to a different time or a different property so the hotel could book another group.
"I don't blame them for wanting a $2 million piece of business," Schaefer says, "but I keep saying over and over, a meeting is a marketable product for us." Her contract stipulates that the hotel cannot move or cancel to book another piece of business. Nevertheless Schaefer has a long relationship with the chain and wants to help them. But by asking her to move, the hotel has put her in a difficult situation and created a lot more work for her, as she must assess the costs of moving and weigh the pros and cons.
She has faced similar dilemmas many times before. "I think hotels sometimes forget the importance of small meetings to associations," Schaefer says. "I want them to realize all meetings we do are an integral part of what we are trying to accomplish, even if they are not real profitable to the hotel."
Placing small meetings is increasingly difficult. One planner went through ten hotels in Atlanta before finding one to accept her meeting. Planners have lost leverage as hoteliers no longer take the long view of their business. "I don't have the clout," Kay V. Granath, Association Management Center, complains. "even though we represent a number of associations, [hotels] treat you as one piece of business."
Planners cannot bank on their long-term relationships with chain hotels, Granath adds, particularly those with management contracts and franchises, rather than those owned by hotel companies. [Hyatt owns no hotels in North America, and Marriott owns one, according to the "Brand Report" in Lodging Hospitality, an industry publication. Hilton and Sheraton, on the other hand, own one-third and one-fifth of their properties, respectively].
"We go through our regional offices exclusively, and we expect them to bat for us," Granath says. "But the answer comes back that the owners of this property want x-percent of profit. They don't care how many rooms we book at the chain. It kind of invalidates the use of the chain." Other planners report their relationships with national salespeople are still beneficial.
In the fight for availability, Joan L. eisenstodt, president of the Washington, DC-based eisenstodt Associates, an independent conference management company, observes that planners who had never used conference centers before are now using them. Hotels don't want [small meetings] now," eisenstodt says. "Conference centers want their business." So do second and third-tier cities, and more and more meetings-big and small-are being booked at these destinations.
Some planners are sensing a shift in hotels' attitudes toward small meetings, observing that hoteliers are now recognizing they need that bread and butter business. Susan Bitter Smith, CAe, American Society of Association executives (ASAe) board chair, and executive director of the Arizona Telecommunications Association, says she receives a lot of cold calls from medium-sized chains, and individually owned hotels. "Small business offsets the loss when big groups don't pick up rooms," says David Scypinski,director of meeting and convention marketing for the Hilton Corporation.
Hilton, Marriott, Westin, and Hyatt offer small meetings services. This June, ITT Sheraton launched the small meeting group sales department, as a demonstration of its commitment to the small meetings market.
Bitter Smith says the Sheraton program is "a terrific sign of progress and an indication of a trend." She plans to use her ASAe tenure to encourage that trend. She advises planners to aggressively promote the viability of small meetings. "We tend to say nobody wants to talk to us because we are small. Large associations may come in one year, and hotels never see them again. Small meetings and small associations are loyal," Bitter Smith asserts. "We are consistent. We can be significant. We need to communicate that message to our hospitality industry friends."