March 6-8, the global hotel investment community will descend on Berlin for the 20th International Hotel Investment Forum (IHIF). This year’s conference is shaping up to be one of the most compelling, if not the most thought-provoking, given the current state of the global hospitality industry in the face of such extraordinary political and social change—from the U.S. to the UK.
Ahead of the conference, we are talking to some of the many IHIF speakers for their takes on the industry. In this edition, Frank Croston, partner at London’s Hamilton Hotel Partners, whose services include asset management, all in the aim to maximize a hotel owners ROI, offers his takes on what levers to pull to maximize an owners return on capital employed (ROCE), how to balance expenses and profit and what storylines the collective hospitality industry will be talking about in 2017.
At IHIF, Croston will moderate this panel: “Independent and Alternative Brands: Delivering Innovative Experiences in a Changing Market.” The panel will look at: What can be learned from alternative and niche hotels when it comes to delivering new and engaging experiences? Can they deliver models that are strong enough to safeguard them from competition from peer-to-peer players? What will the hotel of the future look like? Croston will be in conversation with: Jean-Pierre Parra Bandeira, Co-Founder & Chief Executive Officer, Light Human Hotel; Olivia Byrne, Company Director, Eccleston Square Hotel; Hans Meyer, CEO, Zoku; and Chris Penn, Founder, SteelBMB.
1. Asset management is a crucial part of maximizing an owner’s ROCE. What are the levers asset management should be pulling to maximize hotel profitability?
Effective asset management is always built around collaboration rather than confrontation. In pretty much every hotel, there are opportunities to improve relative revenue performance and to reduce costs, without impacting guest experience. The trick is to encourage and support management to agree and “buy-in” to where action is required and then to assist and support them in execution.
Using a medical analogy, the job of the asset manager is to undertake a thorough examination and identify areas of concern. Then write up the prescription and make sure the patient understands what is being prescribed and why. Then schedule a follow up and see how the treatment has worked. They may need specialist help (revenue management, CapEx, outsourcing initiatives) and the asset manager must provide this.
One of the most effective techniques is “show and tell”: If the asset manager can provide specific examples of other hotels dealing more successfully with the same problems, the “buy-in” will be achieved more quickly. This approach will build a momentum within the relationship that is positive and beneficial to both parties.
Dealing with branded management is somewhat more complex as local management and area management will often be implementing global policies rather than having the autonomy to act independently. The asset manager needs to respect this and deal with brand issues at the brand level rather than expecting local management to effectively escalate these issues themselves. Unsurprisingly, this actually creates greater alignment with local management.
Dealing with brand-level issues takes far longer and is generally more difficult. Gandhi’s quote on resistance to the British in India sums up our own experience nicely: “First they ignore you, then they laugh at you, then they fight you, then you win.”
The most important element for the asset manager to get right is to establish and maintain credibility with management and to always behave with integrity. The best platform for successful asset management is real engagement by both parties in the dialogue, and this can only be maintained optimally by winning hearts and minds rather than winning every argument.
2. Operating a hotel is a smart balance between creating a great guest experience, but doing so by keeping expenses at bay. What’s the secret?
The “secret” is to understand that profit is an outcome, not an input. Profitability is built around guests enjoying great experiences in a well-designed and maintained product, who are served by and interact with enthusiastic and motivated associates. This applies right across the spectrum, from budget to super luxury, with the only difference being customer expectations relative to price level. If the hotelier can meet, or, even better, exceed, customer expectations then success can follow.
It is a fatal error to set out on a cost-cutting mission without understanding the need for all elements of the product and service experience to first be evaluated and refocused from a guest-centric perspective. Whilst there are always cost-side opportunities, there are endless benchmarking tools available to quickly identify and action these opportunities. The problem is more often based on inadequate revenues relative to the cost structure, and too often the shortfall in revenues is directly related to poor product, poor service, poorly motivated staff—or at worst all three.
Once the direction of travel on delivering great customer experiences is set correctly the right approach to optimizing profitability is far more to do with “culture” than with specific cost-side activities. The biggest challenge is often management failing to manage costs relative to activity levels, which most often stems from an inadequate focus on forecasting.
Regular and meaningful communication across the management team and to each and every associate is critical to engage the entire team in creating and sustaining a winning culture. At the heart of every poorly performing hotel facing a profit challenge is a lack of understanding of mission and vision and a failure to harness the energy and enthusiasm of the associates as a result of this.
The hardest place to get good service is in an empty restaurant. The question for management is more to do with why is the restaurant empty rather than trying to save another shift.
3. You are leading a panel on independent and alternative hospitality brands. How do you define an alternative brand and how do they compare with the traditional brands for customer wallet?
I prefer the term “lifestyle” to alternative and we are benefitting massively as an industry from the entrepreneurs who are delivering these new and exciting brands into the hotel landscape. I think of it as the industry’s R&D lab, where new approaches and particularly new and innovative designs can be tested and evolved. The sheer scale of the global major brand families mean that any attempt to regard this as an assault on share of wallet would not be meaningful. What will happen is that these pioneers will demonstrate success and viability and the global brands will imitate and evolve their own brand offerings to follow the emerging consumer preferences.
What is true is that consumers are increasingly seeking out hotel experiences that are better designed and often feature public areas, which are far more lively and interactive than the traditional. Food-and-beverage offerings are far less formal and the themes are “fun” and “informal.”
There is plenty of scope for one or several of these new brands to emerge over the next 10 years as significant players in their own right and the consumer appetite for these products is clearly demonstrable. Don’t miss the panel and pick your own winners!
4. What will be the defining storyline for the hospitality industry in 2017?
It is improbable that there will be just one storyline for the industry in 2017, as this will vary enormously by region and in response to evolving economic and social issues. As ever, the external environment will have a major performance impact and factors which need to be closely monitored this year include:
- Outbound investment into the global hotel industry by Chinese investors
- The impact of exchange rate movements on travel volumes and destination preferences
- The stability of economic growth in the light of the new administration in the U.S. and the uncertainty surrounding Brexit in Europe
- The evolving battle for customer ownership between the global brands and the OTAs
- The potential for more direct institutional investment into the sector
IHIF is March 6-8 at the InterContinental Berlin. For more information and to register, visit www.ihif.com.