A number of things have speakers at the Southern Lodging Summit @ Memphis concerned about the health and direction of the U.S. hotel industry. Here are seven that surfaced during the 15th annual event’s presidents’ panel.
MEMPHIS, Tennessee—Finding solutions for the many uncertainties facing the hotel industry is easier said than done, according to industry leaders speaking at last week’s Southern Lodging Summit @ Memphis.
But don’t think for a minute they aren’t trying to discovery remedies to the problems, wherever they can, speakers on the “President’s Panel” said. Based on that discussion, here are seven key concerns hoteliers must face.
“It’s really harder to find quality labor in our industry, and it’s an industry with enormous opportunity,” said Doug Dreher, president & CEO of The Hotel Group, a Spokane, Washington-based ownership and management company.
For example, a Homewood Suites by Hilton property THG recently opened had zero housekeeping applicants when it first advertised the positions. It eventually filled the jobs by increasing the compensation package.
“We’re certainly not a minimum wage employer anymore,” Dreher said. “We’ve had to take those costs up, and that’s a good investment in the long term.”
Jagruti Panwala, treasurer of the Asian American Hotel Owners Association and CEO of asset-protection company Wealth Protection Strategies, said the Affordable Care Act has had a big impact on the hotel industry because it has dramatically increased labor costs. Panwala also owns six hotels with her family.
“Most of the hotel owners aren’t sure if their compliant or not because there are so many rules,” Panwala said. “It needs to be simplified for the business owners.”
“With unemployment at the low point that it is … the cost of labor is absolutely important,” added Andrea Foster, SVP of development for Marcus Hotels & Resorts, a Milwaukee, Wisconsin-based hotel ownership and management company. “It’s training; it’s development. … We want to get the right employees, and we want to retain those employees. And when we source new employees, we want to make sure they realize there’s a career path in this.”
Communicating with employees is essential for that retention, according to Mark Shalala, VP of development/upscale brands for Choice Hotels International.
“More than ever, employees want to know their thoughts, their contributions are adding to the overall goal of the company,” Shalala said.
But he said companies have to follow up on that feedback.
“The worst thing an organization can do is not listen or let several months or years go by without addressing some of the gripes,” he added.
Panwala, who started in the industry as a housekeeper eight years ago and now heads a company that owns six hotels, said treating employees like family is an important step in making them feel appreciated. She said doing so will keep employees satisfied, allowing them to make hotel guests happy.
It’s essential to make employees feel important, Dreher said, and things such as back-of-the-house employee-centric areas must be included in plans when renovations or upgrades are considered for the property.
“That’s often the most neglected (area), and it’s often not in the (property-improvement plan),” he said. “Provide a space that’s exciting for them and what are they going to do? They’re going to serve our guests better.”
Shalala said staying on top of technology is important because it’s moving faster than ever. “If the pace of change is not faster internally than externally, then you start falling behind,” he said.
Foster said a hotel will have more success by focusing more on letting guests feel like the hotel is their personal space, than by putting a lot of crazy technology in rooms. Guests prefer to connect their own technology when traveling, she said.
“It gets back to convenience and control,” Foster said.
The executives said it’s more important than ever to retain guests because it’s much more expensive to cultivate new ones—especially with the array of choices facing consumers who are looking for something unique.
“The cost of getting the guest is increasing. … Loyalty program costs keep going up,” Dreher said. “Retaining your current guests is so huge. Know who your customers are and treat them like royalty.”
Moderator Isaac Collazo, VP of performance strategy and planning for IHG, said the dizzying pace of the growth of brands—he counted 268 brands in STR’s U.S. census list—is more confusing than ever to consumers.
“Seriously, I think there are 200 too many,” Dreher said. “More often than not, there’s not a huge differentiation; 268 is just overwhelming.”
Foster said some brands will be phased out, and there will be a reinvention of a lot of mature brands because consumers will demand it.
“The brand standards are changing, and the parent company is saying ‘we want something different,’” she said. “We’re going to see changes of brands in a lot of different markets.”
The introduction of soft brands to the hotel industry has helped guests feel more at home, while offering developers more options, Panwala said.
“Almost every single brand (company) has come up with another brand to capture every single segment,” she said. “It’s good for the developers and those coming up because they get to choose between the brands that are more modern and technology oriented.”
The increased consumer awareness of short-term rental properties doesn’t alarm the executives, but the circumstances around the business model continue to be top of mind.
“Competition is always welcome … the only thing is we need to make sure it’s fair competition,” Panwala said. “The piece that is missing here is that Airbnb doesn’t have to follow the same regulations.”
Dreher said he’d welcome at least one offshoot of Airbnb’s model.
“They do have the advantage of a two-way review system,” he said. “We’d love to review our guests at some point down the line.”
The bottom line for the executives is that the short-term-rental model isn’t going away and must be considered a competitor.
“Any time any business scales that quickly and gains that much traction, you have to keep an eye on it,” Shalala said.
“It’s clearly a threat now,” Dreher said. “A downturn will come at some point, and that’s where it will be a bigger threat.”
The prospect of new hotels in any given market always makes owners and operators nervous. With a pipeline that Hotel News Now parent company STR states has nearly 190,000 rooms under construction in the U.S. (not accounting for recent hurricane damage), the leaders are keeping a wary eye on the horizon.
- Click here to view Jan Freitag’s Southern Lodging Summit @ Memphis presentation (free registration required)
Panwala said the upscale and upper midscale segments command the most attention because they have the largest supply pipelines.
“At some point, we have to remember what happened in 2008, 2009,” she said.
Foster said underwriting internal rates of return based on reasonable pro formas remains the key to success when it comes to projects.
“What might be pulling down the entire (industry) is there was a lot of supply in the early stage of this cycle.” Shalala said. “You had a lot of people developing hotels in urban markets, where rate can swing most dramatic. As those markets take on more supply, they’re adjusting to try to maximize rate, and that’s going to be a challenge.”
Driving rate often is the Holy Grail for hotel operators—and that is getting more difficult with all the noise in the market, speakers said.
“The headline is going to be ‘softer ADR growth,’” Shalala said. “We are recognizing softness in ADR, but it is to a certain extent market specific.”
“It’s an interesting thing …,” Dreher said. “You talk to your friends and family, and they would say ‘Wow, I’m paying way more than ever before for a Hampton Inn or a Holiday Inn Express.’ … So you do feel like you’re pushing it.
“But at the company level—corporations, the RFPs, contract business, group business—it’s hard to get that rate.”
Recent decisions by companies such as Marriott International and Hilton to roll out stricter cancellation policies with earlier deadlines is a big win for hotel owners and operators, the THG leader said.
“You do have that inventory situation where getting cancellations and attrition occurs,” Dreher said. “It’s a bit of challenge. The absolute numbers are pretty solid, though. … Total (revenue per available room) and rates at our company are at high water marks, as well as occupancy.”
Gridlock in Washington has left the speakers exasperated at the lack of regulatory reform.
“It’s hard to see anything major getting done,” Dreher said. “At the end of the day, we do need immigration reform, we do need infrastructure, and we need healthcare reform. But D.C. … it’s pretty dysfunctional.”
Foster said one of the major concerns for Marcus is the future of J1 visas and the effect a reduction of those will have on the hotel industry—particular seasonal properties.
“They’re incredibly effective,” Foster said.