Guests and Growth: They cannot be mutually exclusive
By Shaun Burchard President, Meridian Hospitality Group, Inc. | May 28, 2010
2009 saw the culmination of years of the lender/borrower manipulation game in one of the worst economies ever. Budgets written to impress (mislead?) lenders fell apart under the weight of the lending pace that had been set for the past several years. Loans and lines of credit were consumed in mismanaged construction cost overruns, and bad investments in overbuilt markets. Brands continued to expand product lines offering diluted quality and value, and the larger economy finally collapsed – impacting the hospitality sector in dramatic fashion. Usually one of the first industries impacted and one of the last to recover, the hotel business was faced with daunting challenges, or as I like to call them, "moments of truth." How do we continue to grow with no working capital available? Where can we shore up our performance on paper so that lenders will lend?
For many, the obvious solution was to cut costs. For too many, years of improved statistical performance in metrics like ADR, RevPAR and market share had led to a lethargic autopilot approach, and 2009 was an "opportunity" to eliminate waste and trim fat. As one example, a major family of brands was asked to identify $50 million in sustainable year over year cuts. One has to wonder why it was acceptable to throw away $50 million annually before 2009? So with machete in hand, many went to work hacking and slashing at cost centers with reckless abandon when a strategic scalpel was more in order.
The problem with cutting costs in this environment is that the panic caused by a lack of development funds blinds many to the impact of their proposed cuts on the lifeblood of our industry – guests and their money. When developers and buyers cannot borrow, they cannot grow – or can they? Of course they can. The pace of growth is all that is impacted, and the truth is that many cannot bear the thought of slowing down to let business run its normal and necessary course.
How do we grow our portfolios in this environment? Not through borrowing or developing with money we cannot access, but through the gradual growth that comes from developing superior financial statements by focusing on our brand promise, our value proposition to our guests and consistently delivering the product and service experience that our price point calls for. In other words, out-thinking, out-hustling, out -selling and out-servicing the guy across the street.
This brings us back to the machete and the scalpel and more importantly, our approach to cost cutting. A few weeks ago, I was talking with a peer who is looking for a General Manager to operate two properties that share a property line. The properties are from different families of brands in a secondary location in an overbuilt market, with no dedicated sales presence. The owner wants to hire someone with a "strong background in sales," hoping to save the money required to have both a General Manager and a Director of Sales or Sales Manager. Fair enough. Where it gets interesting is that the owner wants to pay a relatively low base salary and offer strong incentives based on the budgets that were again, written to impress lenders, as opposed to represent what the properties should reasonably produce in 2010. Does anyone know where to find an experienced General Manager with a "strong sales background" for a less-than-industry-prevailing salary? If the General Manager is to be incentivized on revenue performance only, what is the impact on their focus on operational success? You and I understand that one supports the other, but in terms of day-to-day time management issues, this is clearly problematic. Where is the focus on the most important asset we have today – the Guest Experience? The owner's preferred approach is a recipe for certain failure, and the focus is only on saving money today – not on developing long-term success.
Growth today will come from refining operational performance in the most cost-effective ways possible without sacrificing anything that impacts the value proposition of your price point. Unfortunately, many developers and buyers will lose sight of this, or already have. The need to squeeze every penny to the bottom line to support present or future commitments will potentially take the guest completely out of the equation and that, in the long-term, is contradictory to the very growth objectives that are being used to rationalize and justify the strategies being implemented in the short-term.