Had enough haggling over room rates? What if you could negotiate with a hotel chain once, settling not just contract terms and conditions but also setting a standard discount on food and beverage — even room rates — for all meetings booked at any of the chain's hotels throughout the year?
An increasing number of companies are creating preferred-supplier agreements with individual hotels and hotel chains to do just that. They're limiting their choices and giving up the chance for potentially better deals based on seasonality and availability at individual hotels. But in the eyes of the corporate number-crunchers, those are fair trade-offs for increased efficiency and having a known quantity in the budget.
The increasing participation of procurement and purchasing executives in meeting and travel management is a “major catalyst” for the new interest in preferred-vendor agreements, says Judi McLaughlin, CMP, director of strategic sourcing at Maritz McGettigan, the meeting and travel giant based in Philadelphia. McLaughlin has helped a number of corporate clients assess their needs and create an RFP for preferred-hotel suppliers.
“The weak economy forced companies to focus on expense reduction,” McLaughlin says. “They're looking for areas that haven't managed their spend. Travel is one of the largest controllable expenses within a corporation. There was a lot of success in the 1980s managing transient travel spend. Meetings is the logical extension of that.”
Likewise, preferred-supplier agreements are a logical extension of the move toward consolidation of meeting planning and spending. “In many companies, meeting planning is fragmented and decentralized,” McLaughlin says. Over the past few years, large companies have taken steps to consolidate that planning, if not in the hands of one person or department then in the sourcing and tracking process. “After companies get their arms around their total meeting spending, manage their sourcing, and are able to demonstrate control within their organization, the next step is to narrow the number of suppliers,” she says. “Hotels are a prime target for these initiatives, as hotel spend is the largest category of spend after air, and in many cases accounts for as much as 80 percent of total meeting spend.”
One client of McLaughlin's went through the consolidation process and found that it had used 29 different properties in Chicago in one year for some 70 meetings. As part of a national preferred-hotel program, the company now has named 10 preferred hotels in that city, including one major hotel chain partner and three secondary chain partners.
“The benefits to the company are guaranteed discounts in pricing, overall agreement to standard contracting terms and conditions, increased efficiencies in the planning process, and better-quality meetings,” McLaughlin says. “And the preferred properties are certain to see a dramatic increase in their market share of this company's business.”
Agreements that include guaranteed discounts in exchange for the promise of increased bookings have surfaced only in the past couple of years. But standard contracts that simply cover contract terms and conditions, such as attrition, cancellation, and indemnification, have been negotiated between planners and hoteliers for at least a decade. These, too, are reportedly on the upswing.
“We have a lot of those in place, and we're encouraging a lot more,” says Steve Armitage, senior vice president, sales, at Hilton Hotels Corp. He offers a quick history of the phenomenon: “The tougher business got, the more exposure to attrition, the more concern about safety and terrorism, the more we saw cost containment affecting decisions, the more protection customers wanted in contracts. So buyers and sellers started spending a lot more time working through contract clauses. That slowed down the business process. What had taken a couple of hours now took a couple of weeks.
“But in today's environment, speed is critical,” he continues. “So we agree on a contract, advise hotels that this is the contract to be used, and it saves us both time and money.”
You'd think hoteliers would jump at the chance to be named preferred suppliers. If you simply want to settle contract terms and conditions upfront, they usually do. But if you're asking for guaranteed discounts, expect a little skepticism.
Signing a preferred-vendor agreement that includes financial concessions is “a leap of faith,” says Christie Hicks, senior vice president, global sales, for Starwood Hotels, because there's little recourse for hotels when promised business isn't booked. “We do it really carefully and not very often,” she says.
But when it works, it can be huge. When Hilton signed a preferred-supplier agreement three years ago, the deal called for the client to narrow its global hotel partners from 15 companies to four, according to Hilton's Steve Armitage. “Now, in our class, we're No. 1,” he says.
Likewise, when Hicks signed a preferred-supplier agreement with a large company two years ago, Starwood moved from fourth place to first place in its share of that company's meeting business. In return, the company got guaranteed discounts on food-and-beverage and audiovisual bills, attrition allowances, the ability to replace canceled business with other business from the company, and, in Hicks' phrase, “additional complimentaries.”
But those kinds of deals are not easily done. “The first one took 10 months to negotiate,” Hicks says. While the chain has 20 preferred agreements in place that simply cover terms and conditions, Starwood has signed only four preferred agreements that spell out specific discounts — and all of those have come within the past two years. In exchange for these guaranteed concessions, the client companies have agreed to meet revenue goals. If the goal is surpassed, the company may be eligible for an override. If the company is falling short of the goal, the agreement can be terminated.
In all four cases, she points out, the companies are primarily booking short-term business. That benefits Starwood by filling occupancy gaps and benefits the client company by streamlining the already shortened booking process.
The agreements are valid chainwide, across all of Starwood's brands; however, individual properties decide whether to accept a particular meeting. “But if the property says yes,” Hicks explains, “they agree to it all.”
If you want guaranteed discounts as part of a preferred-supplier agreement with Starwood, Christie Hicks, senior vice president, global sales, will ask you to:
Guarantee revenue and market share increases.
Name Starwood the only preferred chain in the “big-hotel-company space,” as she calls it; i.e., hotel companies with properties from limited service to luxury.
Buy through national sales offices. “If we're negotiating centrally, we want them to buy centrally,” Hicks says.
Send quarterly reports to Starwood on where your meetings are being held.
Terminate the agreement if the pace is off and it's clear that your company won't meet its revenue threshold.