The only thing a typical operator puts at risk is brand reputation. How do you know you picked the right one, and that they are performing as they should? And what if things do not go to plan?
You’ve spent blood, sweat and tears, and a lot of money, on developing or buying your dream property, and then you have to hand over operations to an external hotel operator. First, you have to find one: a company with the right brand and brand recognition in your target markets, the right management style, the appropriate distribution network, reliable systems and solid procedures, and quality managers.
Then you have to negotiate a deal: base fee, incentive fee, license fee, system charges, group contributions, reservation fees, and a host of other payments. How long should the contract run for, and under what circumstances can it be terminated? Can the operator make an equity contribution?
And then you have to let go, contractually, and stay at arms’ length to let the operator do their job. But how do you know they are? Are they achieving fair share, or better? More importantly, are they meeting your objectives, and what to do if they don’t?
Operator Search & Selection
Rule One: you should be looking for the best operator, not the cheapest one. But how do you know? We have been working with and for hotel operators for a long time: we know their brands, their management styles, their strengths and weaknesses, and often also the people behind the company.
We can either make a specific recommendation and direct approach, or stage a “beauty parade”, lining up multiple operators in a Competitive Bid Process. Different approaches suit differing circumstances, and we can assist in assessing the operators’ bids, terms and conditions, and help negotiate the best deal that works for both parties.
Performance is measured against the budget, but is the budget reasonable? How is the property performing against comparable hotels and, more importantly, its direct competitors? Is it achieving the appropriate market penetration, and average room rate performance? A snapshot analysis tells only half the story; we assess the hotel’s performance over a number of years, and look for changes in relative performance.
We look at seasonality patterns, and weekday/weekend performance. We assess business segmentation, geographic mix, distribution channels and commission structures. We also look at secondary income streams, as well as departmental and overhead expenses against a benchmark performance for comparable hotels.
The findings from a Performance Review will provide valuable input for a budget review or business plan.
If the findings from a Performance Review are not satisfactory, it’s time for a more detailed analysis. Are room rates high enough, or maybe too high and is occupancy suffering? Is the hotel targeting the right market segments, or should it change its sales & marketing strategy?
A Business Strategy aims for the (re)alignment of business objectives with the opportunity provided by the market environment in which the hotel operates. A hotel may have gone “off course” because of changing market circumstances, additions to competitive supply or repositioning of existing competitors, or simply because the property has failed to maintain its standards and service levels. Or maybe you are just not getting enough attention from your appointed operator.
A business review would assess all of the above, usually in close collaboration with the appointed operator, in order to determine an appropriate strategy to return hotel operations to optimal performance. This could be as simple as refocusing attention or market repositioning, or as complicated as rebranding the asset, changing operator, or injecting funds for a refurbishment or major renovation.