If you’ve been to an industry meeting in the past year, you may have heard Michael Dominguez, vice president, global 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 contracts.
“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.
2. Attrition revenue isn’t the same as rooms revenue.
“It doesn’t ‘make us whole’ because it doesn’t completely count as RevPAR, 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:
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 contract 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.
Average annual growth in RevPAR (revenue per available room) over the past 20 years is 4.2 percent. In 2008, it was -2 percent; in 2009, it was -16.6 percent. “That’s the largest drop of all time,” said Michael Dominguez, vice president, global sales, Loews Hotels & Resorts, during a recent presentation.
In two years, the hotel industry lost $22 billion in profits. In the past, hotels in need of cash could refinance based on equity. “Now there is no equity,” he said, “and there are a lot of banks owning hotels.”
In 2007, Dominguez said, room rates finally had risen to match the rise in the consumer price index. Then came 2008, and rates tanked as demand disappeared.
“Pricing is coming back now, mainly because there is no new supply and demand is going up,” said Dominguez, referring specifically to the luxury and upper-upscale lodging segments, where the vast majority of meetings are booked. But it’s “a recovery of two coasts.” The East Coast has recovered; the West Coast is waiting for Las Vegas. While supply was stagnant in most of the country during the downturn, the West Coast is where the bulk of new inventory was opened in 2010. Its demand recovery (to 2007 levels) is not predicted to occur until 2014.
Overall, though, signs are positive for meeting hotels. Consider: July 2011 marked the highest number of rooms booked ever in a single month; 70 percent of demand is in the luxury and upper upscale market; and there’s no new inventory coming on line in the next three years. The good news for hotels, however, Dominguez notes, means planners will find themselves in the “gap phase,” where they will go through their first experience having to pay a higher rate than they’ve gotten used to and will have to explain that to their organizations.
Skittish companies are one challenge to the comeback of meetings. Here are the others Dominguez sees in 2012:
1. Fuel
The cost of fuel is killing the meetings industry, he says. Companies have to spend more for airfare, so they have less to spend at hotels. This is a huge challenge for the airlines, whose No. 1 expense, jet fuel, has tripled in price in 10 years.
2. Uncertainty
“Only time will ease the uncertainty of corporate America and consumers. The question is, how much time? Forty percent of those unemployed today have been unemployed for 1.5 years. We have seen good news recently but we are a long way off from 2007 employment numbers.”
3. Stock Market
It’s a rollercoaster. And although the gyrations in the stock market are all about Europe, not about the U.S., it will continue to have an impact on the meetings industry.
4. Bubbles
Consider the impending IPOs of Groupon and Facebook. “Nasdaq’s current upward trend is similar to the 1990s tech bubble,” Dominguez said. “There is this exuberance over companies that—in the case of Groupon—don’t even make money.”
5. Housing
We are still waiting for the recovery of the housing market. The most recent data from the Standard & Poor’s Case-Shiller index (which tracks single-family house prices in 20 metropolitan areas) was released in early February and showed that November 2011 home prices were 3.7 percent lower than one year earlier.