Sustainability translates to value for hoteliers
 
Sustainability translates to value for hoteliers
17 JULY 2017 9:25 AM

Environmentally friendly initiatives at hotels aren’t likely to lead to higher pricing opportunities, but they can open up new avenues of business and bring down operating costs.

NEW YORK—There was once a time when sustainability concerns seemed like a luxury that drew just a sliver of attention from both consumers and businesses alike.

That is no longer true, as hotel industry experts speaking at the Hotel News Nows Sustainability Roundtable, sponsored by InterContinental Hotels Group and held at the InterContinental New York Barclay, said it’s now an expectation from guests and business partners alike.

“I see (sustainability issues) in more than half of our RFPs,” said Paul Snyder, VP of corporate responsibility for IHG. “Companies are asking those questions. We’re seeing it throughout IHG, and it grows every year.”

Marcus Munse, a GM at Courtesy Management, said sustainability practices are key for winning certain types of business.

“It’s big with government contracts,” he said. “It helps to tout LEED certification.”

Bennett Thomas, Hersha Hospitality Trust’s SVP of finance and sustainability who leads the company’s EarthView program, described sustainability efforts as “table stakes” in earning business. He said his company sees clear bottom-line benefits to its focus on being environmentally friendly.

“Investors are looking to move margins, and Hersha is happy to have some of the highest (earnings before interest, taxes, depreciation and amortization) margins among lodging (real estate investment trusts),” he said. “When you look at your P&L, utilities are one of the largest controllable expenses. So there is still so much opportunity on cost savings (with sustainability) even if it’s not driving higher pricing. There’s still so much value.”

Thomas said the company’s sustainability efforts translate to roughly $50 billion in portfolio value.

Hervé Houdré, GM of the InterContinental New York Barclay, said he sees a clear boost in revenue through his company’s efforts in sustainability. He said efforts to comply with green initiatives related to the United Nations have already translated to revenue for his hotel.

“That’s $200,000 we’re bringing into this hotel because we adopted those policies,” he said.

Houdré, who has been a champion of sustainability efforts throughout the course of his hospitality career, touted many of the improvements made at the InterContinental Barclay. Those include energy-efficient lighting, environmentally conscious documentaries and programming available in rooms, water and waste management efforts that include a food waste digester and locally sourced F&B offerings, including a rooftop apiary.

Connecting with consumers makes a difference
Zeke Hart, director of sustainability services at PwC, said research shows consumers are interested in having environmentally friendly options, but most don’t want that to translate to higher pricing.

“We’ve been tracking this for 10 years now, and the fundamentals of who will pay more haven’t changed much,” he said. “It’s still in the 10% to 15% range … but we’re seeing folks who say, ‘If I don’t have to (pay more), and I believe what you’re telling me, then I’ll pick the sustainable option.’”

Several experts participating in the roundtable agreed that sustainability is viewed largely as a value-add proposition for consumers, as opposed to a driver of higher pricing and revenue.

“I’m not personally confident you can make guests pay for green,” said Austin Flajser, president of Carr Hospitality. “But you can make guests choose you. If you can give them materially the same experience (but with the promise of being environmentally friendly) they will choose you over the alternative all day long. But if they’re paying more and getting less, then it will fall in that 10% to 15% range.”

Flajser said the true costs of forgoing sustainability efforts lie in missing out on potential business.

“Then you miss out on that big RFP or on the opportunity to widen your segment,” he said. “I think that’s where you can calculate (return on investment) for projects.”

Hart noted that in food-and-beverage operations, some sustainability-focused efforts, like locally sourcing foods, will actually lend an aura of luxury to offerings.

Snyder said a similar phenomenon has happened in lighting, with LED lights presenting a significantly lower usage of electricity while providing for better guestroom lighting.

“Rooms were underlit,” he said. “Now they’re lit property, and room satisfaction scores went up. It’s tough to measure the financial impact, but you can do things to drive profitability and guest engagement.”

That dynamic doesn’t always carry over to other parts of the hotel, though.

“It’s sometimes hard to show it in the experience,” Munse said. “A lot of times, it’s behind-the-scenes types of things.”

And even when consumers recognize efforts are being made to keep a hotel environmentally minded, Justin Bakule, executive director of the Shared Value Initiative, said it’s difficult for consumers to figure out what sustainability efforts are more impactful than others.

“Yes there’s growing interest, but my sense is consumers are not able to distinguish by type,” he said. “Most don’t have enough sophistication.”

Flajser said some sustainability-related technology, like motion sensors to turn off lights and air conditioning in guestrooms while they are away, has suffered from early failures and might have poor guest perception even with significant improvements over time.

“There were a lot of misfires early on,” he said. “But it’s gotten so much better. So some people who had bad experiences with emerging technology probably aren’t interested. People don’t really want to be green if it means waking up in the middle of the night because your air conditioner shut off.”

A.J. Singh, a Hilton Hotels fellow and professor of international lodging, finance and real estate at Michigan State University, said the enhancements to the overall guest experience are often overlooked when people are considering the benefits of sustainability initiatives.

“A lot of the focus is on the cost side, which is all about cost reduction,” he said. “But real experiences can be created within hotels. … Some of the research I’m reading shows that there are travelers who want this and don’t know where to get it. Hotels are not doing a good enough job of getting messaging out. There seems like there’s a gap there.”

The business case for sustainability takes off in importance
Experts in the roundtable agreed that sustainability practices are becoming more and more of a focus in the business community, which is pushing more hotel owners and operators to take it seriously.

Snyder said interest in environmental efforts seems to be much more formalized when it comes to corporate demand versus transient, leisure travelers.

“Large corporate accounts will ask about our green practices, safety and security, and a whole host of things,” he said. “There have been some instances where the things we do in reporting our green initiatives have won us the business, but it’s nascent. It’s a small number, but it’s growing.”

Participants in the roundtable said it’s still too early for things like environmental initiatives to convince owners to hire a management company over another on those grounds alone, but it’s become a serious factor of consideration given how it affects profitability.

“At the end of the day, you look for the management company who drives the best return, and you’ll never top returns,” Flajser said. “But sustainability is becoming more and more important because it’s a bottom-line consideration. I think if I’m going out with an RFP for a management company, it’d be included. But it’s still just a component in winning that business.”

Thomas noted that smart companies look for partners that are sustainability-minded, not just because they’re interested in protecting the environment but because it’s an early sign of how that company operates.

“It’s an ingredient of an innovative company,” he said. “A management company with a sustainability focus is more likely to be thinking about innovation in things like revenue management and operations.”

Singh said owners’ interest in sustainability practices in general varies by the company.

“Institutional owners are more interested, but individuals are still very conservative,” he said.

Snyder said there has been a bit of movement on the owners’ side from his perspective. He said once the idea was met in some corners with active resistance. Now those who don’t buy in are more likely to be disinterested than adversarial.

“In our conversations with small owners, some used to say, ‘I don’t believe in this. It doesn’t deliver, and I don’t believe in tree-hugging,’” he said. “Now they say, ‘I get it, but it’s not a priority for me.’”

Experts agreed that any sustainability initiative should include a careful consideration of its return on investment.

“You need to be strategic and apply the same rigor as you would apply to the rest of your business,” Hart said.

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