What is in this article?:
- Leverage in Hotel Negotiation: Where You Have It, Where You Donâ€™t
- The Year Ahead
If you’ve been to an industry meeting in the past year, you may have heard Michael Dominguez, vice president,sales, Loews Hotels & Resorts, talking about “the new abnormal.” In a presentation he says he delivered 19 times in 2011, Dominguez pulls back the curtain on hotels’ profit and loss statements as a way to help meeting planners get what they need in their .
“Nothing makes you look weaker than trying to leverage something that has no leverage,” Dominguez said during the version of the talk that he delivered for the Elite Meetings Alliance at Rancho Las Palmas in Rancho Mirage, Calif., January 31. To help, Dominguez reviewed how hotels view leads and the value they attach to your different buckets of spending. Here are some of his insights:
1. Know a hotel’s profit powerhouses.
The revenue from rooms and from F&B is nearly equal in group-focused hotels. “Those are what we care about,” Dominguez said.
“It doesn’t ‘make us whole’ because it doesn’t completely count as , and it doesn’t count as market share,” he said.
3. Don’t automatically ask for 10 percent off F&B.
As noted, the revenue from rooms and the revenue from F&B are nearly equal. However, the cost to deliver F&B is 65 percent of the revenue it brings in. (The direct cost to deliver rooms is 24 percent of the revenue they bring in.) Why does that matter? Because you might want to re-think automatically asking for 10 percent off banquet menus, which typically, Dominguez says, have been priced so the hotel achieves its budgeted 35 percent profit margin. So when the menu says “filet” and “chef’s choice of vegetable,” what you get is going to depend on what you pay. When you get 10 percent off, you’ll get the smaller filet—or a different protein altogether—and the lowest-priced vegetable. That’s because chefs are evaluated on controlling food costs, Dominguez explains. “This isn’t a hidden secret.”
A better idea, in his view, is to give the chef a budget range and let him or her build you a menu you are happy with. Chefs want to create, he added.
A few other F&B budget-saving tips:
- Ask your convention services manager for the “value menu” or the “menu of the day.” This is the “Ford assembly line theory of banquet food,” Dominguez said. Piggybacking on what someone else is serving can save the hotel time and money—savings that could get passed along to you.
- Use food as décor: Try a dessert tree as your centerpiece.
- Serve food family-style. This way, the chef controls the portions. It’s better than a buffet, because with a buffet you can’t control the portions and you have to keep the serving dishes full, which inevitably leads to waste.
4. Spa and golf? Not so big.
Spa and golf revenue are part of an “other” category that brings in, for a hypothetical 500-room group hotel in the Western U.S., $7 million in revenue against $5.5 million in expenses. In other words, “very little true profit when all is said and done,” Dominguez said. It’s not nothing, but your group’s massages and tournaments won’t win you a better room rate.
5. The hotel will make its profit margin.
Why is a gallon of coffee so expensive? Why did service charges go from 14 percent to 23 percent? Hotels weigh a lot of variables when they do their pricing. For F&B currently, commodity prices are having a big impact: Last year’s freeze in Florida, the ongoing Texas drought, coffee beans doubling in price, orange juice at an all-time high—all of these affect the chef’s ability to keep food costs at 24 percent, which is his or her goal.
So when planners ask the questions above, Dominguez reminds them that they don’t pay meeting room rental, yet there are hard costs (heat, light, power, labor) associated with using that space.
6. Buying out the restaurant might not matter.
Before you present your restaurant buyout as negotiating leverage, find out if the hotel owns that restaurant. It’s become more common for hotels to house restaurants that they don’t own, and in that case your buyout brings no additional revenue to the table.
7. One number you must know: F&B revenue per occupied group room.
Historically planners and suppliers have evaluated F&B spending with adjectives (such as “great”), Dominguez said. Now we need hard numbers: How does your F&B break down per occupied group room? For example: $20,000 in F&B spend over 200 group room-nights is $100 in F&B revenue per occupied group room.
Whether that’s good or not so good depends upon the hotel’s history. “Ask the hotel for the average at the time you want to book,” Dominguez advised. “If your F&B per occupied group room is $100 in Tucson in March, that’s not strong. The average is $175. I’m taking a hit from the F&B perspective if I take your group. Say you bring $225 in F&B per occupied group room to Tucson in March, then you have a ton of leverage on room rate.”
8. Comp rooms cost hotels.
It doesn’t mean you shouldn’t ask for them, Dominguez said, but realize that every “one per 50” brings the hotel’s average rate down about $2. It’s the same for every two staff rooms that are priced at 50 percent of the group rate.
9. Gratuities get paid.
“We have some planners who remove contracted gratuities,” Dominguez said. “But if gratuities are built into a compensation for staff, the hotel is paying it. It’s a true cost that someone will pay.”
10. Don’t hold a meeting room for no reason.
For example, if you put a boardroom on 24-hour hold, you could cause the hotel to lose out on a social event or a local meeting. If you put a hold on the ballroom so you can set up midday Saturday, but your group isn’t checking in until Sunday, you might cost the hotel a Friday night stay. Dominguez suggested a “plan A and plan B.” Plan A is to have the setup Saturday night, even though you’ll have to pay the higher union labor costs; then your plan B is to call the hotel three weeks out, and if the meeting space still isn’t booked, you get your midday setup.