Just five years ago, the hotel industry was hurting for group business. But negotiating leverage clearly has swung back to the hotelier. Recent research by PKF shows increases in occupancy, average daily rate, revenue per available room and demand all exceeding the long-term average growth rate. Supply, on the other hand, is growing at a below-average rate. The upshot: There is greater demand for less space.
For a firsthand account of how the shift is affecting negotiations, M&C arranged a frank discussion between Rodahl Leong-Lyons, vice president of sales for the Americas at Chicago-based Hyatt Hotels Corp., and Amanda Armstrong, CMP, corporate meetings and travel manager for San Diego-based Enterprise Holdings, the parent company of Enterprise, Alamo and National car rental brands. Following is an excerpt from the discussion, both from a webcast ("Understanding Negotiations From the Hotelier's Perspective," accessible free of charge at mcmag.com/webcasts) and a follow-up chat to answer some of the many questions posed by the audience.
• How has the shift in market conditions affected the way you do business?
Leong-Lyons: One of the first things we look at is the projection of RevPAR [revenue per available room] going up. The real question is, where is that going to come from? Average rate or occupancy? Is it being driven by a disproportionate amount in specific cities? The projections from PKF are saying RevPAR growth is going to come from average rate going up. The first question we think about is, how do we explain this to our meeting planners? We can't all of a sudden, overnight, quote a much higher rate and expect that everything is going to be OK.
This is a transition period, and it does require a lot of communication. Our hotels are becoming much more selective about each request for proposal that they look at, and if we can't meet the needs of the planner, a lot of times we end up turning down the RFP, which is tough. Often our hotels are thinking, what if? What if something better comes along? What if something that fits what I have available comes along? What if nothing comes along after this RFP that's sitting in front of me? It makes it a much more complex conversation with the revenue manager, and it makes it a much more complex conversation with the planner. It's a matter of hotels being able to maximize every inch of their property.
Armstrong: When I look at those projections, the first thing I think is, "OK, the rates are going up. How is that going to affect my budget?" As planners, we manage several line items in the budget, and one is room rate through negotiation. But you can only negotiate so low. Just a couple of years ago, in the buyer's market, there was more room for negotiating the rate. Now, that window is closing, so I shift my focus to sourcing. Do I need to be in the downtown five-star hotel? Can I afford to be there at these new rates? I go back to the goals and objectives of my meeting; what do my stakeholders want?
If the bottom line is our number-one priority, then I really need to be negotiating rates more aggressively, or looking at a second-tier city or at a suburban hotel. If the rate is solid, I should look at my budget and examine other costs -- my audiovisual, transportation and speaker budgets.
The other thing I notice is that occupancy is increasing. That means hotels are going to be selling out in some situations; the limited availability is going to affect my sourcing timeline. If there is a particular hotel that the decision maker prefers, and it's vital that we go there, then I need to be sending those RFPs as soon as possible.
With the current demand and supply, there is a lot of competition out there for rooms and space. We've all noticed over the past year that hotels are full, or they're very careful about which RFPs they accept.
Since hotels are being more selective, you really need to understand the market, what's changing, what the relevant conversations are. Ask the hotelier: If my pattern were flexible, would that change anything? If my dates were flexible, would that change anything? Am I asking for too much space based on the number of hotel room nights I've committed? These conversations are vital; some hotels may be able to squeeze you in, or maybe they didn't realize your program was flexible.• What can you do when your meeting requires a disproportionate amount of meeting space vs. room nights?Armstrong:
We've all been there. You need a general session, you also need a meal room, you need six breakouts and you only have 100 sleeping rooms plus you are doubling up attendees. I think the best thing to do is to talk to your global sales rep about "layering in" on another meeting.
When I have space challenges, I look for citywides that have most of their meeting space at the convention center, so they're not using much hotel meeting space, and I request to be layered on top of that group. My global sales reps are aware of my program dates, and if there's a citywide in one of my preferred cities, they call me. That has worked well.Leong-Lyons:
Be flexible on dates and days of the week. Many hotels have issues with weekends and holidays and will be much more flexible over other dates or days. Every hotel has "need" dates where they are willing to deal -- not as many as in the past two years, but they are still out there. In secondary and tertiary cities it might be easier to find these opportunities. And if you absolutely cannot be flexible, ask the hotel if there is a price they will charge to give you what you want. Anything can be done for a consideration of price or value. Another tactic is to offer additional pieces of business if the hotel agrees to take the disproportionate piece of business for this particular meeting.• Have you seen changes with respect to lead time or multiyear contracts?Armstrong:
I book three years out and always have given the space requirements I need. I would like to do multiyear contracts, but availability is an obstacle.Leong-Lyons:
We are seeing more with multiyears because availability is an issue. Planners want to secure their preferred cities and dates, and the short-term nature that worked before is not working now. That being said, many planners cannot carry that kind of liability on their books; hotels are reluctant to offer contract terms that reduce the liability of the customer so that it would be lower than the hotel's level of commitment.• How do you make your meeting stand out when you haven't done it before and thus lack historical data from past events?Armstrong:
That's a tough one. If you have any other type of meeting that's similar, use it to project F&B spend and room pickup. Oftentimes we might hear about a similar meeting that was conducted in the past; ask colleagues if the meeting was conducted before your time there. If you don't have the data, ask your global sales rep if they could possibly look up your pickup and spend for that meeting. Or call the hotel; they should have the records. If there's any history out there, it is worth your time to find it.
If you really can't find anything, I'd just be honest with the hotel and request some flexibility. Ask about right-sizing the meeting; is it possible to adjust your block and space as the meeting approaches? Ask about a flexible food-and-beverage minimum. Say, "If I don't use all six of those breakouts, and I give four of them back to you three weeks out, can you give me a break on the F&B minimum if you resell the meeting space?" Hotels welcome these conversations because you're giving them more information, and the further out, the better the outcome can be for both parties.Leong-Lyons:
When you're trying to project your total spend, other factors come into play as well. For example, you might have a salesperson who is only focused on the room revenue and/or catering revenue because that's all they are bonused or compensated on.
But I agree with Amanda: Planners should gather all of the information they can, and the salesperson should take that to the strategy meeting. The salesperson is then armed with the necessary information to present the case to the strategy or yield team, to say not only are we getting these types of revenue for rooms or meeting space -- and I know it's not perfect -- but consider these additional revenue streams the planner has informed me of, such as outlet spend.
Give them the information that would allow the yield team to reconsider this not-so-perfect piece of business as something reasonable. The sales rep should be the voice for the planner and find a way to get that piece of business booked. If the rep doesn't care about the ancillary spend potential because it's not part of their bonus program, they're not going to get that group. And really, they lose.• That sounds like advice for hoteliers as much as it is insight for planners.
Sure. The economy is changing, and there is a "new normal." We as suppliers need to take a look at the way we measure ourselves. We need to look at the business. Because something has worked for us before -- such the way we create bonuses or incentives -- might not be the way we should do things going forward. We should take this opportunity to consider that, and to change and evolve.
We have engaged some of our customers in discussions about changing fundamental things we do as a company. When you employ the opinion of the customer, everything else just makes so much more sense. The changes that you make, you make with so much more confidence because you've bounced it off of someone who is actually going to buy from you using that strategy.
• We've talked about the importance of communication and partnership. How do you define a true partnership, and how do you make that work?
From my side, when it was a buyer's market I was a true partner and booking business when many planners were not. I had RFPs and I wanted to book business at fair rates. I asked for competitive rates and fair terms, not for the sun and the moon, as the hotels were hurting in some markets. I was reasonable. And I think they remember that.
Now, in a seller's market, I have needed favors. I've asked for them to take a second look at my RFP. I've asked for them to layer me in, I've asked for extra meeting space. And, because three years ago I did the right thing and patronized a couple of hotels that were having a hard time placing meetings, they remembered and helped me out. True partnership is about the long view. The approach you take today, the way you partner -- you'll see the effects in the future.
That absolutely makes sense. I think we need to make sure that we are more articulate about explaining the why. If you're telling a planner, "My revenue manager said no," or "My director of sales said no," and that's the end of the conversation, then that is not a partnership. Explaining the why, being transparent and asking for help -- that's a true partnership. The conversation should be: "This is the situation we're in, this is what I need from you, and I know this is what you said you had to have, but I can't give it to you. Here are some other options I've thought about; what do you think?"
We can't be afraid to have those open and honest conversations, because you just don't know where you can actually help each other out. And it doesn't mean you're going to agree. You will definitely get to a point where you're going to say, "You know what? Doesn't work for you, doesn't work for me. Let's just agree to disagree." We part as friends on this piece of business, and then we look at what other alternatives we can offer each other, to help each other out. Because at the end of the day, that's really why we're all here.Armstrong:
I agree. Some of the most beneficial conversations I've had with hoteliers started with a no -- and then an explanation of why. And I learned why this meeting would never work there, under those market conditions or space needs, and why it was actually in my best interests to look elsewhere. And, I tell you, the suppliers I remembered the most were the ones who suggested another property in their brand, or another city or even a competitor. I remember them as the sales reps who educated me, who helped me.