Coping in a Sellers Market

Meetings & Conventions - Coping in a Seller’s Market - October 2000

October 2000
Robert Johns

Coping in a Seller’s Market

Hoteliers might have the upper hand, but these planners have found ways to thrive in tough times

By Cheryl-Anne Sturken

Jill Jordan’s timing leaves something to be desired. In the ’80s she was in hotel sales, weathering that industry’s lean years when the meeting planner’s wish was the hotelier’s command. Then, in 1994, just as the tides began to turn, she became regional director of Orlando-based Arrowhead Conferences & Events, a subsidiary of Redlands, Calif.-based Campus Crusade for Christ. While she’s now on the other side of the table, it is still Jordan who is expected to bend in negotiations.

This is one point planners across all markets agree on: It is a red-hot seller’s market. And they do not like it. Hotels, they claim, are out to get them at every turn. Attrition formulas are tighter than ever. Cancellation clauses are stricter and kick in earlier. Room rates and food and beverage charges continue to rise unchecked. Competition for space in some cities is so fierce, many claim, they can’t even get their foot in the door, far less garner a seat at the negotiating table to pitch their group’s dollar potential.

How exactly did the buyer-seller relationship swing so far off kilter? Blame the economy. In 1990, the hotel market was at its lowest point. With the country entrenched in a full-fledged recession, hotel room supply outstripped demand. Hotels competed aggressively with each other for group business, and meeting planners assumed the comfortable role of calling the shots at the negotiating table, rarely settling for less than 100 percent of their demands. Attrition? It was not even an industry term.

Two years later, the party was all but over. By 1992, the economy had begun to pick up speed, demand began to increase, and hotel owners, no longer allowed a tax write-off on underperforming real estate, pushed their management teams to run a more profitable ship. The fallout on the buyer’s side was inevitable and almost immediate.

No longer willing to accept the consequences of a group’s poor performance, hotels began holding planners accountable. Attrition was in, and total revenue management, not room rates, became the new measure of success for hotels.

“The good old days, when meeting planners went into a hotel, pounded both fists on the table and got pretty much what they wanted, are over,” says David Scypinski, senior vice president of industry relations for White Plains, N.Y.-based Starwood Hotels & Resorts. The frustration planners have today, he says, comes from the fact that they simply were unprepared for the fast change in the market. “Hotels are charging more and asking for more, simply because they can. It is nothing vindictive. It is pure economics,” insists Scypinski.

Planners like Jordan, however, are taking pains to overcome the strain of this eight-year bullish seller’s market. Getting ahead in today’s cutthroat environment, they say, means mastering the very rules hotels play by, countering with rules of one’s own and not being afraid to think out of the box.

“Most hotels bargain based on how much risk they think they will incur,” says Suzette Eaddy, CMP, director of conferences for the National Minority Supplier Development Council in New York City. “The thing to do is figure out what they need, what you need and what you can give up.”

And according to hoteliers, to stay in the game, planners need to demonstrate flexibility, a strong group history, creative negotiating and a long-term commitment. Planners who understand the changing dynamics of the hotel industry, they say, know what to press for at the negotiating table and when to fold.

“Everything is not just about space, dates and rates, as it was in the past,” says Steven Armitage, vice president and managing director of sales for Beverly Hills, Calif.-based Hilton Hotels Corp. “We realize we are in a strong seller’s market, but we also recognize that this business is cyclical.”

Playing the attrition game
Attrition clauses, some planners charge, have become so impossibly unfair, they often are counterproductive to successful business negotiations. “We always got what I felt was a reasonable attrition clause, 75 or 80 percent,” says Robert Johns, executive director of the Washington, D.C.-based National Dental Association. “Now hotels are presenting contracts requiring 95 percent.”

Hoteliers, for the most part, disagree with the charge that they aren’t playing fair. The difference between now and the 1980s, when groups faced zero liability for room pickup, is hotels simply have learned to manage themselves more wisely, says Fred Shea, vice president of sales operations for Chicago-based Hyatt Hotels & Resorts. “Before, contracts were set up with absolutely no liability in them at all for the buyer,” he notes. “We held the space and the dates, and if they didn’t pick up, there was no risk at all to them. We assumed all the risk. Now hotel companies want planners to share that risk.”

“Somehow, 20 percent became a forgiveness factor, and meeting planners held on to it as an entitlement,” says Starwood’s Scypinski. “In any other business if you buy 100 widgets, you pay for them. In our business you buy 100 and get 20 free, and we take it on the chin.”

Armitage concedes that hotels could do a better job of controlling attrition. “Unfortunately, the hotel industry is trying to deal with attrition as if every group and destination is the same,” he says. “I think we need to add some common sense to contracts on both sides.”

Planners fight back
Some planners, like Jordan, prefer to put forth rules they can live with, rather than letting the hotel take the lead. Among their tactics:

Talking tough: Jill Jordan insists that hotels accept her client-approved attrition clauses.

Bring your own formula. “The approach I take is to present the hotel with an attrition formula that my client has already approved,” says Jill Jordan, whose nonprofit organization books more than 100,000 room nights a year. But, she adds, “Many times hotels balk, and it can be a deal-breaker.” Jordan’s response to hotels that play hardball: “If a hotel is standing so tough, my job is to tell my client, ‘You don’t want to lock yourself into one hotel, one option.’ I will walk away, and I have.”

Consider lost profits. Jil Froelich, contract compliance manager for Lilly Corporate Meeting Services, the internal meetings division of Indianapolis-based Eli Lilly & Company, teaches her staff to negotiate for attrition on lost profit, not lost revenue. “While the contracted room rate might be $150 per night, ask the hotel what the profit is per room, and use either a percentage or a dollar amount based on that,” she advises. For example, profit might be $30 dollars, or 20 percent of the room rate.

For some hotels, she admits, an attrition formula based on lost profit is a new and difficult concept, and getting them to accept it can be a challenge. Persist, says Froelich. When a hotel is resistant to the idea, she enlists her contact at the national sales office as a liaison between the local sales director and the group, and then steps in to handle the negotiations herself.

Tout your history. “Attrition clauses might be tougher than they ever were, but they are still negotiable,” says Johns, who plans close to 50 annual events for the NDA, including its annual meeting, which draws up to 2,000 attendees. “If the only thing holding you up is the attrition clause, present the group history.”

Hotels agree. “Attrition has to do with the expectations of a group’s performance. A lot is based on group history,” says Chip Stuckmeyer, director of network initiatives for Marriott Hotels & Resorts.

Adds Jordan, “My job is to have the strongest history on my client, so when I go in, I don’t have to sell my client. the history speaks for itself.”

Just say no. When push comes to shove, says Michelle O’Donnell, conference manager for the Society of Plastics Engineers, based in Brookfield, Conn., be prepared to walk away. Recently, one hotel proved so inflexible in the attrition demands it placed on the association, despite the group’s good standing with the hotel from previous business, that O’Donnell decided enough was enough and pulled out of the negotiation process. “They became infuriated,” she recalls, “but I would hope they change their tactic with other people. The contract was very one-sided.”

Working the market
Keeping up in tough times sometimes means changing pace altogether. Smart planners are booking further out to ensure that they snag space, moving their business to more group-friendly destinations and learning to deploy creative negotiating ploys when small budgets threaten to derail their efforts. Here are some strategies.

Widen the search. Cordie Miller, director of meetings for the Berkeley, Calif.-based International Society for Magnetic Resonance in Medicine, looks elsewhere for the welcome sign, rather than wasting time and energy on a closed-door market. “Locations that were on our consideration list five years ago might no longer be there, because their demand has grown such that we cannot afford their rates,” she notes. “I have begun to look at second- and third-tier cities, and even full-service conference centers and university campuses.”

Karen Peterson, CMP, meeting planner and exhibit manager with Tupperware Corp., based in Orlando, agrees. “I am going into cities that I would never have looked at five years ago,” she says.

The Society of Plastics Engineers has been priced out of major markets for its annual event, which draws more than 4,000 attendees, says O’Donnell. Now planning for shows eight to 10 years out, she is eyeing several emerging markets, including Baltimore; Charlotte, N.C.; Cincinnati, and Philadelphia. “I tell my staff we are picking second-tier cities now, but by the time we get there, they will be first-tier, and we’ll still be paying second-tier rates,” she says.

Robert Johns of the NDA says his association’s site-selection committee is actively looking at Birmingham, Ala.; Memphis, Tenn.; Minneapolis, and Seattle. “We also like to look at where other groups, such as the National Bar Association, are going,” he adds. “Maybe it’s a city we wouldn’t have thought of.”

Make friends at the national level. Forging strong relationships with a chain’s national and regional sales managers, say planners and hoteliers alike, is far more critical to doing business today than cozying up to a local sales director.

“I try to deal with national salespeople so they can sell to me, instead of me having to sell myself to them,” says Eaddy of the National Minority Supplier Development Council, who is responsible for planning 10 events annually, including the council’s annual conference, which draws more than 5,000 members.

Jody Zeman, director of meetings and conventions for the Denver-based Association of Operating Room Nurses, is more blunt: “I will only deal at the national level. That is the only way to do it. You don’t have relationships with local salespeople.”

Explains Starwood’s David Scypinski, national salespeople are responsible for drumming up new business for a hotel chain. As such, he says, “They are the customer’s best advocate” particularly for new accounts.

Be flexible. When inventory is at a premium, the more flexibility a planner demonstrates, the greater his chance of getting into the property of his choice. “Some business tends to be perfect for filling gaps between association convention business. The smart planner who can be flexible knows this and sells the hotel on that angle,” notes Brian Stage, executive vice president of marketing and sales for Minneapolis-based Radisson Hotels & Resorts.

“I try to pay attention to off-season dips in the market,” says the NDA’s Johns. “If [hotels] don’t have the business on the books, they will want yours.”

Sell the hotel on the idea that they want your business, rather than take the ‘What can you do for me?’ approach, suggests Jordan. “We tell them we understand they have goals, and we want to help them fill their holes by bringing in business in off-peak times,” she says. “They come back and say, ‘We want your business.’”

Think out of the box. “You have to do your homework and develop creative alternatives,” says Eaddy. Not long ago, while negotiating with the New York Hilton, she asked the food and beverage director if he could arrange to have a bar carved out of ice for one of the group’s events. In exchange for a low rate, Eaddy promised, and delivered, publicity for the hotel about the unusual bar.

“You have to be more creative in your negotiations. If you are using corporate sponsorships, use them as leverage,” says Johns of the NDA, which holds a yearly roundtable sponsored by Proctor & Gamble, American Express, Colgate-Palmolive Co. and Black Entertainment Television.

“It is refreshing when someone says, ‘If you don’t do this to me, I can give you this,’ instead of just, ‘Give me, and now give me a little bit more later on,’” says Scypinski.

Revisit old markets. Today’s hot market might well become tomorrow’s giveaway, suggests Marina Bryant, CMP, owner of Atlanta-based World Events Inc. Bryant recently returned to Hawaii after avoiding the islands for several years due to high costs. “With the hot Japanese market gone, Hawaii has changed a great deal,” she says. “We see that our negotiations have definitely gotten better.”

Keep score. At Eli Lilly, Froelich grades every hotel contract the company signs based on the extent to which it met the firm’s requirements. Results are logged on the company’s database for future reference. Planners go to the database to check a hotel’s rating before walking in the door. “We keep very detailed records to identify where we’ve had good contracts with fair terms and conditions,” says Froelich. “If the hotel is flexible, it gets a good rating. With some properties, we have been there so often we have a standard contract.”

Additional reporting for this story was contributed by Martha Cooke.

When Will It End?
Will the seller’s market continue? “This has been an unprecedented up cycle,” says Robert Mandelbaum, director of research information services for the Atlanta-based Hospitality Research Group of PKF Consulting. “The good times have lingered, based on the good economy. But the pace of hotel growth has slowed down.” Mandelbaum’s take on current and future market conditions:

Why is space so tight? “Most new hotels have been limited-service properties, which does not help meeting planners. In the past two to three years, though, more full-service meeting hotels are being built, which will force the market issue for leverage and negotiation.”

Can planners expect a little relief? “Not right away. The suppliers will still have the upper hand. Hotels are still running high occupancies.”

Keep an eye on St. Louis Why do some cities remain such tough markets? “Urban markets usually are the last to see new developments because of lack of availability and high development costs. Some, such as New York and San Francisco, will continue to be tough.”

Are there any markets to watch? “Charlotte and Sacramento are building headquarters hotels. And San Antonio and St. Louis have just completed deals for new convention hotels. Those will be areas to keep your eye on.”

C.A.S.