If there was a bright spot for association meeting professionals through all the canceled meetings, attendance struggles, and budget cuts of the Great Recession, it was to be found at the negotiating table.
A combination of lower demand caused by a weak economy, and higher room supply created by a surge in new hotel construction produced one of the strongest buyer's markets in recent memory. Hotels would take just about any meeting they could get and planners — for the most part — had more power in negotiations.
That was then. This is now.
Occupancy is up, rates are increasing, and there is pent-up demand for meetings, say many industry experts, particularly in the corporate meetings market. An uptick in individual business travel always affects the overall meetings market, making midweek meeting space highly sought after and therefore more expensive for planners. So even though the economy remains sluggish, the buyer's market appears to be over. The pendulum started swinging in the other direction, say experts, some time in the first quarter of this year.
“I've still not seen it swing 100 percent over to being a seller's market,” says John Foster, Esq., attorney and counselor at law, Foster, Jensen & Gulley, Atlanta. But in the past few months, Foster and others have noticed hoteliers tightening up on rates, dates, space, and concessions, particularly in first-tier destinations.
Consequently, planners can no longer come to the table expecting hoteliers to bend over backward to get their business, says Tyra Hilliard, PhD, CMP, associate professor, University of Alabama, Tuscaloosa. Planners must adjust their thinking in this changing market — because hoteliers are.
During the recession, most hotels accepted bookings based on occupancy, not rate, says Tim Brown, CEO, Meeting Sites Resource, Irvine, Calif. , a firm specializing in site research and contract negotiations. It was a big change from 2006 and 2007 when hotel revenue managers were in the catbird seat, turning down three out of four RFPs to pick the group that yielded the most total revenue, says Brown. “We're not there yet, but hotels are starting to examine meeting business based on more aggressive revenue-management criteria, not just occupancy.”
That means planners must understand the value of each meeting, says Brown. Hoteliers evaluate a meeting based on criteria such as room block, peak night, pattern, food-and-beverage spend, rooms-to-space ratio, and season. They also evaluate an RFP against revenue management variables such as other groups in house and their revenue contributions, and transient demand. Brown advises creating an RFP that details all of a meeting's components and where the hotel's revenue will be generated.
It's also important to have a good history of all meeting spend, including F&B, ancillary spending (gift shops, parking garage, lobby bar), and anything else related to your attendees' spending habits. Hoteliers look at the total value of the meeting, so any data that provides a bigger picture of your value gives you more leverage.
Of course, hotels make the most profit on rooms, so they will be more reluctant to negotiate rates as they try to make up for some tough years. However, if you are flexible on dates and patterns, and look at shoulder seasons, you may still find good deals. “Now that hotels are getting busy again, it is critical to understand what type of business the hotel needs on what days of the week,” says Dave O'Connor, CMP, president, Meeting Connections, a Brasstown, N.C.-based meeting planning company. Come right out and ask them, he says. “Sometimes a slight shift in arrival/departure pattern can make all the difference.”
Another strategy: Book multiple meetings at the same hotel. Brown has saved 5 percent to 15 percent on rooms for clients by putting business on the books down the road.
For planners, negotiating in the changing market requires a shift in mind-set. “Now, planners have to be thinking, ‘What do I have to sweeten the pot to get good deals?’” says Hilliard. Some ideas: Plan an additional meal in-house to boost food-and-beverage spend; use more meeting space to improve rooms/space ratio; provide opportunities to put the hotel in the media spotlight. “Planners have to think about making their business more attractive because hotels have a choice now.”
From the terrorist attacks of September 11, 2001, to the stock market crash of 2008, to the Great Recession that followed, the events of the past decade have produced wildly fluctuating markets. With association planners signing annual meeting contracts four, five, even 10 years out, it's impossible to know where the economy will be when the meeting actually takes place.
Attorney Joshua Grimes recommends building rate flexibility into contracts. “Putting one rate in your contract for a meeting that is several years out is not realistic anymore,” says Grimes, Esq., Grimes Law Offices, Philadelphia. For larger meetings, negotiate an initial rate and tie it to changes in the market. If average rates in the destination go up (or down) 5 percent from the time of the booking to nine months out from the meeting, for example, then the initial rate would go up (or down) 5 percent.
He also suggests using a “most favored nation” clause, where the hotel agrees to give your meeting the lowest group rate it offers at the time of your meeting.
Another strategy is to focus on concessions rather than room rate. “From a psychological standpoint, the difference between $154 and $159 per night is nothing,” says James Goldberg, principal, Goldberg & Associates, Washington, D.C. The attendee sees $150 and doesn't really care about the 4 or the 9, he says. But that extra $5 can be a big help to the hotel's profit. So take $159, and ask for slack on F&B.
“In the worst part of the economy, we saw some hotels drop to 15 percent to 20 percent permissible attrition. But we are seeing a return in most markets to 5 percent or 10 percent attrition, which is where we were before the market softened,” says Steven Rudner, Esq., Rudner Law Offices, Dallas.
That leaves planners in a difficult spot. Having been burned, they do not want to be stuck with large room blocks that they are unable to fill due to unforeseen market conditions. While many were able to negotiate their way out of attrition penalties, hotels are not likely to be as lenient in the coming years. “The tendency these days is to underestimate the room block because they don't want to pay attrition penalties, but that can get planners into a danger zone,” says Grimes, since occupancy rates are on the rise.
One solution, says Grimes, is to book backup rooms at a limited-service hotel in the area. Typically, limited-service properties don't put attrition clauses in their contracts. Or, negotiate a contract that allows you to reduce the room block one year out if the economy or attendance projections look weak.
Beyond attrition, planners should also take a second look at force majeure and other clauses. “Think about what could happen that would cause attendees not to come to the meeting,” says Grimes. For some groups it might include economic or legal issues, such as the immigration law in Arizona. “It's not always easy to include those in contracts, but you have to try. The overriding point is, whatever you need, get it in before you sign.”
Another issue to watch is hotel renovations, much of which was deferred during the recession. To avoid construction affecting your meeting, include language that requires the hotel to maintain an acceptable quality standard and make sure restaurants and amenities are still accessible, says Grimes.
Coming out of the buyer's market, says Rudner, hotels know who their long-term partners are. “I don't blame anyone for trying to get the best rate they can, but there have been people who have tried to use the economy to punish a hotel and I think that says something about whether they are really a long-term partner or not.”
He offers one last piece of negotiating advice. “Those groups who continued meeting during the economic downturn have much greater bargaining power now.” And they should use that to their advantage. “You can say to a hotel, ‘When all the other customers went away, we kept having our meetings. We've proven that we are a long-term partner.’”
Here's some free advice from two of the top attorneys in the association meetings business.
Jonathan Howe, Esq., president and founding partner, Howe and Hutton Ltd., Chicago
Know the busy months and the shoulder seasons in the targeted destinations. Know when other big groups are in town. Even in the busiest of destinations, you can find good deals if you know when to look. Know how your group fits the hotel's needs. A good history that includes all spending in the hotel, room pickup, and other data is powerful.
Make three lists: needs, wants, and interests. “Needs” are what you absolutely must have in the contract. “Wants” are important, but you have flexibility. “Interests” would be nice to have, but are not essential.
The needs list will be dictated by the type of meeting and the preferences of attendees. Thus, it's essential to know your group. For example, if there are a significant number of international attendees, an airport with direct flights overseas is a must. To win your needs, you may find it's necessary to give in on some of your wants and interests.
If you booked the hotel because it had five restaurants, don't assume they will all be open when your meeting rolls around. Or if the hotel has a freight elevator, don't assume it can handle your freight. If it's important to the event, put it in the contract. If you don't ask, you don't get. Checking on a hotel's fees to deliver packages is another big budget item that may be negotiable.
Don't sign until you ask for clarification about anything you don't understand. What you don't know can come back to haunt you.
Don't sit down to negotiate unless you have the power to stand up and leave. Sometimes negotiating with your feet is the best bet.
It's not always possible, or necessary, for smaller meetings, but for the major meeting of the year, negotiate in person. It's good to meet the people you are working with. And body language can often reveal more than a phone conversation.
John Foster, Esq., attorney and counselor at law, Foster, Jensen & Gulley, Atlanta
Let suppliers know that they are competing with other properties. Too many planners put all their eggs in one basket and let the other side know that they are only looking at one hotel. The more options you have, the more negotiating leverage you have.
If you're not satisfied with an offer, simply say, ‘You're going to have to do better. We can't agree to that.’ Use it instead of making a counter offer until the other side stops making concessions or an agreement is reached. It puts the pressure back on the other side.
Investment doesn't just mean money — it can mean time. The more time you get the other side to spend negotiating, the more reluctant they will be to let the deal fail, and they may become more flexible. Most negotiators have more power than they realize, they just don't understand it or use it correctly.
Never assume an issue is non-negotiable, particularly when the other side says it is. It may mean they need more information about your meeting. It may mean you haven't negotiated with them enough to make them understand that you are not going to accept their first answer. Failing to negotiate is a planner's biggest mistake.
Don't negotiate when you are rushed or don't have a lot of time. That's easier said than done, but it's important to make time to negotiate. Avoid saying, “I have to get this done by Tuesday.” If you do that, they won't start talking to you until Monday afternoon.
Never give a concession without asking for something in return. Always ask, ‘If we do this for you, what are you going to do for us?’
Continue Reading: The Hotelier’s View on the Seller’s Market