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Article by Robert A. Rauch

The Hospitality Industry from a Management Perspective

R. A. Rauch & Associates, Inc. · 6 May 2015
Management Company PerspectiveWhat key components have contributed to the growth of RAR over the last 6 months?At RAR we are actively and continually involved in all facets of the tourism and hospitality industry. We have focused on bringing the latest trends to each hotel with a focus on driving revenue and building loyalty. After generating revenue, we concentrate on optimizing that revenue and converting it to net income. We are always cognizant of asset value and net income is what measures that value.Innovative digital marketing and social media marketing and management helps our portfolio stay ahead of the trends and reach guests in new and inventive ways. We have also developed a successful operating strategy that combines knowledge transfer across properties and segments with agility in deploying resources. These resources are laser-focused on achieving the hotel owner's investment and strategic goals.When owners are searching for a management company, what are the top three things they should look for?Common values and culture: When looking for a hotel management company, it's important to look for a company that is aligned with your own values and company culture. Having common beliefs about how your hotel should be operated and your guests taken care of will help you be on the same page as your management company.Management style should also be considered when looking at different management companies. Does the management company require onerous paperwork from managers, thus making it difficult to be the face of the hotel? Perhaps you prefer a company that encourages "management by walking around" rather than having managers sitting behind a desk all day. There are various styles and it is important to understand the style you are comfortable with that will ultimately provide the healthiest of both relationship and returns.Lastly, finding a management company that provides innovative technology within the day-to-day operations should be a focus when searching for a management company today. The art of hospitality is now becoming the science of hospitality.Staying aware of and implementing technology that will help your property increase revenue, operating profits and net income is crucial. Technology should not be implemented for technology's sake but it should aid your hotel in staying ahead of the competition and meeting your guest's expectations while protecting the value of the asset at all times.As a management company, what drives your success?Success starts with our team and the leaders we have in place. One of the keys to successful leadership is celebrating successes, even if it is a simple thank you or acknowledgment to a team member who has made a smart decision that positively impacts the hotel.From our managers to our executives, we promote "management by walking around" which in our business refers to among other things, checking in on the restaurant, greeting guests in the lobby, inspecting rooms and working "in the trenches," particularly during the peak periods of check-in, check-out and meal periods.Our success is also driven by our relationships with our owners. We are owners, managers and experts that take pride in providing them with the peace of mind that their assets are reaching their full potential. We provide open communication and want our owners to feel confident that the trust they placed in us to manage their properties was a smart decision.What outside factors could drastically impact how hotels are operated?The sharing economy, such as Airbnb, is a new reality hoteliers are still grasping to embrace. The challenge here is that users like these services, government legislation is not generally keeping up with these rapid developments and hoteliers are unsure of how to react. Is Airbnb a complement to hotels or is it a threat to the traditional hotel model? We as hoteliers need to accept that the sharing economy is a new reality to which all of us need to adapt.Political uncertainty will continue to be an unfortunate reality at the national level; hoteliers are impacted in many ways but most crucially in the area of healthcare. Whether or not you agree with Obamacare and its implementation, it is reality and the hotel industry must get its arms around incorporating the demands of the legislation into HR policies, legal ramifications and the impact it has on the healthcare options available to employees.Impacted by national, state, and local politics is the living wage movement and the uncertainty of how quickly the minimum wage will increase. One thing is clear, the minimum wage is going up across the country and hoteliers need to plan accordingly.As an owner and operator, you offer unique insight. Which markets are considered hot right now?Phoenix is one of the hottest recovery markets in the U.S. along with Denver. There are sub-markets that are stronger than others but all are seeing "lift" from the strength in both room demand and rate growth.Should owners be buying or selling in the current market?It will be a good time to buy hotels in 2015 in markets that recovered more slowly due to oversupply. 2014 saw strong increases in occupancy rates and average rate growth above the rate of inflation. Once occupancy levels increase, room rates grow naturally.Further, the "hold" period that an investor desires to keep a property becomes a critical matter when the later stages of a cycle arrive. Buying a property in 2015 on a 3-5 year hold might not be ideal for return on investment if we see a soft landing or recession in two years.Each deal must be reviewed based on everything from leverage to hold period to interest rates and return requirements. The window for an upside is closing, but there remain opportunities if you know where to look!
Article by Robert A. Rauch

Hospitality Industry Service Leadership 2015

R. A. Rauch & Associates, Inc. ·31 March 2015
Perhaps the most critical items for a business success plan are to have a vision, a clearly defined set of goals and a "glass is half full" mindset. If the vision is to lead the market in revenues and one of the goals is raising revenues through average rate or check average, detailed knowledge of the competition is paramount. The goal should be stated (in writing for emphasis) to the entire staff and accountability for achieving each goal should be determined for the sales department and front desk in a hotel, servers and hosts in a restaurant, etc. If the leader exhibits a positive approach to goal achievement, success is much more attainable. Lastly, this vision should be good for five years or more and should define a commitment to a legacy, culture and/or a brand.Another item on the business success list is the "Just Do It" mentality. Nike's ad campaign has served us well. Often, talk is cheap and actions do not take place in the market. Leaders act and get it right the first time by taking action the moment it is required. They also inspire others to do the same. Decision-makers are future leaders because they do not "toss the monkey" back. Leadership talents include caring, giving and building others into leaders.This mentality is also important when looking for more business. As an example, a hotel finds it is lagging in online reservations. To win the electronic booking war, one must find the playing field. The field is new and dominated by major web sites or Online Travel Agencies (OTAs) - Expedia, and Hotel Tonight to name a few. The ability to attack this new market opportunity is not limited to technology experts, rather it is limited to those who passionately want to drive market share. But they must "do it!"Do sales managers return calls within an hour or two at most? Are requests for proposals sent out the same day they are made? At the front desk, can guest service agents resolve guest concerns and make refunds without the manager? Do restaurant team members know how to promptly handle a food complaint?Unfortunately for many, hard work and persistence are required for hospitality industry success. A hotel is a 24/7 business. The image that some young people have about the hospitality industry being "all about fun" is only true after years of hard work and even then, it is important to be persistent in the pursuit of excellent customer service.When looking for talent, we should ask:Will their leadership skills grow through "coaching?"What is the difference between an individual with "passion and vision" versus an individual who simply takes requests or pleases others?Will they grow through their mistakes and creative ideas?When we hire, we must look for leaders who have self-confidence, ask lots of questions and care for others. These are the types of people who can someday replace us; perhaps they have some unique skills that we do not have. Call that "value-added!"After we have hired the right person, we must train the team members in the specifics of the job and coach them to do their job well. After both training and coaching, the manager (leader) needs to get out of the way and let people do their job. Delegate tasks, authority and decision-making, but hold people accountable for their actions. A manager who works seven days a week to make sure things get done right is missing the most important attribute of leadership.Moreover, as was discussed in Ken Blanchard's One Minute Manager, leadership behavior that acknowledges someone for having done something right will stimulate the team as a whole. Unfortunately, many managers see their role as correcting behavior only when it is wrong. We have all worked for the manager that was always on our case when we made a mistake, was slow to give praise for having done something right and rarely said, "good job." Good Leadership is always noticing when someone does something right and makes mention of it. Blanchard also promoted "management by walking around" which in our business refers to checking restaurant service in process, inspecting rooms and working "in the trenches."In Service, America by Karl Albrecht and Ron Eke, "moments of truth" was a phrase coined by Jan Carlzon, then president of Scandinavian Airlines. For purposes of this article the phrase means, "if you do not define what is supposed to happen when a customer encounters your organization at any given point, the experience will certainly not be a "wow" experience." Leadership sets an expectation, creates an environment where that expectation is routinely met and ensures that it will carry on over time. Every service encounter that a team member will make and every expectation that leadership has must be communicated and reinforced.Fiscal health is another leadership responsibility item that requires guiding the organization toward profitability. Line managers and department heads sometimes lose sight of the fact that their decisions have financial impacts on the business. Leadership must always be caring and compassionate but today's worker's compensation costs, insurance costs, energy costs and labor costs may cause a business to fail. If that occurs, human conditions like lay-offs, bankruptcy, foreclosure or hostile take-over will be much worse than the stress of dealing with and reigning in expenses.In the 2006 publication The Power of Teamwork Inspired by the Blue Angels, Scott Beare and Michael McMillan come to realize that "every team member is counted upon to perform their role; teamwork allows teams to meet goals." The concept of teamwork has been around for a very long time and it has been proven that every successful team needs an apt, motivating and inspiring leader so that goals can be met. The real question is what shift will we be experiencing in leadership in 2015 and beyond?We are able to draw many parallels between the art of hospitality in modern society and how it was practiced in the good old days. To reach peak performance, all members of a team need to have shared visions and values for a company. Moreover, the leader needs to realize that sacrificing individual gain for the team's greater good still remains a necessity, as it did many years ago. "Lead by example and walk the talk" are words that have been taught for many years.Establishing oneself as simply a leader is vastly different than becoming an influential leader. An influential leader is able to create boundaries, purpose, values, goals and structure. Lee Iacocca once said that "the only things you need are people, products and profits. Without a team, forget the other two." When focusing on people it is crucial to prioritize, execute relentlessly and to not lose sight of the tasks at hand. You must set goals to inspire action; if you aim at nothing, you will hit nothing. Once you start progressing, keep pushing until the said goals are reached and if necessary, adapt and improvise to continue to move forward. Perhaps the most important element is, "do not obsess over your inbox." Rather, fixate on your personal tasks set in front of you; this type of interaction and communication with your staff will influence them to follow your example as a successful leader.Not only is it important to be a leader among your team and staff, it is very important that one remains an industry leader as well. Staying informed on the constant, rapid technological advancements within the industry will make all the difference when competing with other companies and organizations. There is a need to compare today's distribution channels with those that were in existence over the past few years to become aware of the significant differences. The observation of an emerging mobile web, a blossoming social media market and development in digital marketing is pivotal in staying ahead of the curve.World-class service organizations have proven themselves as leaders in hospitality by finding value in applying certain practices that most companies do not, giving them a strong competitive advantage. They are able to exceed customer expectations by anticipating them ahead of time. This form of customer service needs to be planned and executed with diligence, ease and grace because it is the rule, not the exception. Although this method is seemingly easy, viewing customer service as an attitude and a culture requires significant preparation in the processes of hiring, training and monitoring efforts. As acclaimed leadership expert Mark Stanborn states, "success is based on our ability to change faster than the competition, customers and business."At the end of the day, be honest, caring and hard-working or the above will not matter. Be both a teacher and a mentor so that when people learn, they also feel like they have a "go to" source for advice. Our greatest assets are our team members and our customers. If we treat them both honestly, care about them and work hard to preserve the quality and attention to detail that they require, we will have helped to create a "unique selling proposition" that sets us apart from the competition.This, coupled with sales leaders who follow up with handwritten notes, will help to win the market share war. The all-important profit war will come easier if the revenues are there...and those profits might be the best example of service leadership. To add a quote from legendary North Carolina State men's basketball coach Jimmy Valvano, "never give up, don't ever give up."
Article by Robert A. Rauch

The Seventh Inning Begins

R. A. Rauch & Associates, Inc. · 3 March 2015
The tourism industry continues to show signs of growth relative to increased corporate demand, resulting in improved hotel occupancy and steady leisure demand which has firmed up rates. Average price increases were over 5 percent in primary markets in the United States in 2014 and according to our analysis, rates will grow at or beyond that level in 2015.Group, leisure and corporate demand for lodging is coming together at the same time driving rates up markedly while new supply has been slow to enter the equation. This combination will allow for the highest occupancy levels in decades and with average rates rising above the cost of living, net income will grow by double digits over the next two years.According to Patrick Ford of Lodging Econometrics, "favorable economic conditions, record-setting operating metrics, and a positive outlook for the next few years have combined to make this an opportune time for hotel developers." At the end of Q3 2014, there were 3,516 projects and 443,936 rooms in the development pipeline. By our estimate, that would represent an increase in room supply of about 8 percent, all of which can be absorbed by our current demand growth.The U.S. lodging industry is in a very unique period of time where the market is favorable for acquisitions, dispositions and development of hotels in the U.S. The U.S. economy finally seems to be firing on all cylinders with much stronger consumer confidence, employment and housing numbers. "Developing middle classes throughout the globe are creating new travelers that want to explore and see the world, in particular the Unites States of America," according to Dan Lesser, one of the leading appraisal experts in the industry. Additionally, says Lesser, "foreigners perceive the U.S. as the gold standard destination for investing and preserving capital."Buy or SellDoes this mean it is a good time to buy? Is it a good time to sell? That depends on your perspective. It will be a good time to buy hotels in 2015 in markets that recovered more slowly due to over supply. 2014 saw strong increases in occupancy rates and average rate growth above the rate of inflation. Once occupancy levels increase, room rate growth grows naturally. The window for an upside is closing as we are now entering the seventh inning, but there remain opportunities if you know where to look!Host Hotels and Resorts noted last month that this late in the cycle, capital is coming in and bidding up asset values. Their concern is that the cycle is in the later stages. We certainly agree that we are past the sixth inning but we believe that we have at least two years of powerful growth ahead.With crude oil prices falling more than 35 percent since the summer of 2014, Tourism Economics (TE) is forecasting what the effects will be on the U.S. economy. Using their Global Economic Model they estimate that a $30 per barrel drop in crude oil prices boosts real GDP growth by around 0.6 percentage points.The savings to consumers represents the equivalent of a stimulus of $62 billion annually or a 0.5 percent boost to disposable income which should translate into increased consumer spending. The negative here is the impact on communities that have exploded with the growth from hydraulic fracturing ("fracking") and other domestic sources of oil.Supply growth has been 2 percent on average for the last 20 years. Typically, revenue per available room (RevPAR) growth spurs additional supply to the point that RevPAR is pressured. Supply growth is up to 1.6 percent next year, still below the 2 percent average but "RevPAR growth peaked in Q3, so we see a slower rate of RevPAR growth in 2015," according to UBS.Valuations are the biggest concern that investors have at this point in the lodging cycle. Do we hold the hotel asset until clear signs of a cycle ends? If so, we maximize cash returns but sacrifice asset pricing. The market rewards those who can time it so that it appears that you are leaving meat on the bone for the buyer but in actuality you have optimized the disposition by pulling out great cash returns and hitting the peak of the asset pricing market. Capitalization rates are forecast to be stable but if you want to be safe, do not assume this. They may creep up just as interest rates do in the second half of 2015.Bottom LineIs this is the time to sell? The answer is yes, if you want to cash out, and no if you are enjoying success and cash flow. Markets like the Phoenix metropolitan area and the Palm Springs market area have very weak occupancy levels now but are coming back. East coast and west coast markets will perform well over the long haul and notwithstanding the possibility of an economic "event," the market will be very strong for the next two years and interest rates are fantastic!Sure there are the typical caveats of "economic or global event" or huge increases in costs from Obamacare or labor increases but right now, I suggest investors should be "all in" the hotel industry. Those who are ready to exit will get good prices because the future is bright but that window will close as we exit the seventh inning later this year and go to the bullpen to get the closer!Robert A. Rauch, CHA
Article by Robert Rauch

Top 10 Hospitality Industry Trends in 2015

R. A. Rauch & Associates, Inc. ·15 December 2014
Millennials have become the fastest growing customer segment within the hospitality industry. Exploration, interaction and experience are the major focus of Millennials who are willing to pay more for a greater experience. Many of them are looking for an overall gourmet experience for a reasonable price and this has produced all new lobby designs in the hotel sector. Lobby bars and hotel restaurants are wide open with combination work, play and eat/drink spaces designed with this Millennial customer in mind, one who is a "party of one" but "hanging out together." They are looking for a unique and novel experience and this has and will continue to command change within the market. Moreover, this customer segment is interested in utilizing technology to do things that many others have become accustomed to doing manually: checking in at hotels, paying their restaurant and bar bills and looking up places to eat, shop and play to name a few. In addition to wanting technology, Millennials have no problems speaking up. If what they are seeking is not handled to their liking, they will turn to Twitter, Facebook, Yelp or TripAdvisor to voice their complaints. And last but not least, 59 percent of Millennials stayed at independent hotels last year, 20 percent more than boomers and double those 70 and over, according to MMGY. They currently represent 32 percent of all US travelers and by 2025 will represent over 50 percent of all travelers.Customer service will make the list every year but this year it must be a combination of "high tech, high touch" as coined by John Naisbitt in his best seller "Megatrends" in 1985. Service today must include enabling guests to be self-sufficient. As an example, if a guest wants to find information using his/her smart phone, providing an app or mobile website that accommodates that information will appeal to many. The rise of this digital traveler requires the hotel industry to balance the expectation of personalization while enhancing the need to remain independent. For those who are either tech-challenged or prefer more service, that service must be genuine and of a high quality - good recommendations whether they be for food, shopping or activities delivered by a truly caring team member. "WOW" Service is the only way to ensure repeat business. By creating an impressive, unique guest experience that exceeds all expectations, we are able to capture the customer whether it be with or without technology. On the meeting and event side, planners are expecting hotels to have tools to assist them. These tools may include online requests for proposals, dynamic package pricing that allows the planner to pick and choose certain amenities and more.Expectation of more international visitors has been talked about for two years but these travelers are here now. International leisure travel has increased markedly due to the visa waiver program introduced by President Obama in 2012 and this is moving more international tourists to travel to the United States. The U.S. Department of Commerce projects an annual growth rate of approximately 4 percent in international travel. This represents over 80 million visitors. China is preparing to send tens of millions of leisure tourists into the international market every year. With the new "10 year visa" agreement between the U.S. and China signed earlier this year, we will be getting more than our fair share of Chinese travelers. Considering the average Chinese traveler spends a week in the U.S., huge incremental demand is created. These Chinese travelers average spending over $1,000 per day when traveling abroad, excluding accommodation. Moreover, the busiest times for Chinese guests to travel are in February at the time of the Chinese New Year and around Chinese Labor Day in May. Other popular months are April and July while European visitors tend to travel April to October. Again, specific to China due to their huge numbers, more than 618 million Chinese use the Internet, more than 80 percent of whom access the web via their mobile device! While they have been known in the past to travel in groups, 2 out of 3 make their own arrangements now. All of this is big news and comes courtesy of Chinese International Travel Monitor 2014, published by more profitable business is critical as more revenues result from strong increases in occupancy levels, average rates and revenue per available room (RevPAR). This may suggest more profits, but the growth in distribution costs as well as other operating costs such as health care and the minimum wage increases can stunt profit growth. While the revenues are coming first and foremost from RevPAR growth, there are additional ways to increase both revenue and net income. One is by less reliance on the online travel agencies (OTAs). By directing guests to your hotel's website and telephones, the savings are abundant. The digital distribution costs are soaring and the number of players entering the market to compete with OTAs is rapidly rising (think Google, Facebook, Apple, TripAdvisor, Amazon and more). The key is to negotiate with your distribution team (yes, the OTAs can be an integral part of your team) and reduce your commissions. Then make certain that you have a strategy in place to earn the repeat business of every single guest...and get them to book direct next time. Think incentives!Innovative technology, mobile check-in, and seamless connectivity across platforms and devices are no longer the future, they are the present. Today, mobile apps are being used as everything from a digital concierge to accessing big data. Geo-location can make it easy to sell guests something that is literally right in front of them. In a recent survey by Software Advice, guests desired local restaurant and hotel restaurant discounts when looking for deals as well as maps with coupons for other deals. At our hotels, we use 1App, which sends guests deals to do everything related to eating, playing and shopping. Additionally, monitoring guest use of the Internet relative to bandwidth can provide a different data set, perhaps one that will drive down your ever increasing costs of providing ridiculous levels of said bandwidth. Most importantly, when looking at the face of a changing consumer today, technology innovation is paramount. As most have heard, Starwood and Hilton will be having guests check in via mobile phone in 2015.The sharing economy is a new reality hoteliers are still grasping to embrace. Over the past few weeks we have seen jurisdictions attempt to regulate this reality as evidenced by the San Francisco City Council implementing new legislation providing a legal avenue for Airbnb. Uber, Lyft, and other ride sharing companies are also in uncharted legal territory that will be legislated over the next few years. The challenge here is that users like these services, government legislation is not generally keeping up with these rapid developments, and hoteliers are unsure of how to react. Is Airbnb a complement to hotels or is it a threat to the traditional hotel model? Given the penchant of Millennials to chart their own path and their increasing share of the traveling public, expect to see Airbnb, Uber, and other competitors continue to dominate the conversation. It would be interesting to see if STR is able to capture the impact of Airbnb and incorporate it into the competitive set of hotels, particularly in dense, urban environments where the impact may be the greatest.Political uncertainty will continue to be an unfortunate reality because at the national level, it is unclear that the President and the new Republican Congress will be willing to compromise on anything leading into the 2016 presidential campaign. This impacts hoteliers on many levels but most crucially as it impacts two areas of vital importance to the hospitality industry: healthcare and the re-authorization of Brand USA legislation. Whether or not you agree with Obamacare and its implementation, now that it is reality the hotel industry is just getting its arms around incorporating the demands of the legislation into HR policies, legal ramifications, and the impact it has on the healthcare options available to employees. Continuing threats of repealing the legislation or defunding Obamacare create uncertainty about what resources may or may not need to be allocated in the coming years.Reauthorizing Brand USA through a renewal of the Travel Promotion Act is something that the lodging industry will continue to promote because the initial legislation attracted more than 1.1 million additional visitors to the US that resulted in $3.4 billion in spending. This public-private partnership has been highly successful and the legislation's renewal is critical.Impacted by national, state, and local politics is the living wage movement and the uncertainty of how quickly the minimum wage will increase. But one thing is clear, the minimum wage is going up across the country and hoteliers need to plan accordingly. In San Diego where we run several hotels, the City Council recently passed legislation to increase the minimum wage above and beyond the already scheduled increase in the state minimum wage. Although that wage increase is now on hold pending a public referendum in June 2016, the confusion creates uncertainty in the business climate and does not allow businesses to forecast or budget accurately.Reputation management continues its importance because it is no longer all about TripAdvisor. Although this platform continues to dominate in the hotel industry, it is easy to skip over the increasing importance of Yelp, Yahoo, Facebook, and Expedia for guest reviews and comments. Managing a property's reputation is increasingly important and using tools to help this process is crucial. Many of our properties use Revinate as a complete, one-stop solution for reputation management instead of the cumbersome process of logging into each platform and spending an exorbitant amount of time on a crucial yet time consuming aspect of the hotel industry. Engaging with guests and responding to their needs publicly through these forums can go a long way in driving future bookings to your property.Social is Mobile and maybe soon we will see social as a dominant booking engine. According to PhoCusWright, the term "mocial" may be among the most overused buzzwords of the past few years, but there's no disputing the importance of mobile to social strategy. Hotel companies are likely underestimating traveler interaction with them via mobile. For most social platforms, mobile is becoming the primary means for travelers to access and contribute content.Travelers' ability to access social networks anytime, anywhere empowers them to create and consume more content than ever before. And this is not just for domestic travelers. Our international visitors are just as likely to have a smart phone.In addition, nearly 50 percent of hotel companies have a booking engine or widget on their Facebook page, according to PhoCusWright's "Social media in travel: Mayhem, myths, mobile and money" study. Bookings generated through the channel, however, are generally low, with 45 percent of companies surveyed saying they receive less than 1 percent of total bookings through the site.Real time marketing and providing content on an ongoing basis will dominate the industry. Although it would be unwise to discount the impact of traditional marketing, real time marketing must take place on a regular basis and incorporate guest-generated content, especially via social media. This must be a crucial component of the marketing mix. Think of your property's Facebook page as a second website with the option for guests to contact hotel staff and make reservations. At RAR we use a Facebook app provided by buuteeq, one of our digital marketing providers, that pulls information about the property from the hotel's website onto its Facebook page. This app also provides a link through which guests can book a room directly on the property's website. Facebook pages also need to take advantage of custom apps that can highlight a hotel's unique features, characteristics, and charm. Whether it is Facebook or another social media outlet, guests should be able to contact the hotel with an expectation that they will receive a response in a timely manner.Video campaigns on social media, when done properly, are proving to be successful for hoteliers looking to generate guest engagement. We are anticipating the use of video campaigns this year and have already introduced the use of to engage future guests in social media conversations. allows for hotels to connect with guests from the moment they make a reservation and to create a unique experience upon arrival. By connecting with the hotel, guests are able to share with their friends and family about their upcoming trip. then creates a custom experience for their social media connections that can help lead to future bookings. In the first few months since we partnered with, we have seen an increase in interactions with the hotel, shared experiences with friends and family and future rooms booked directly from the engagement.Finally, the days of "walk-in" reservations are dwindling. With mobile apps such as Hotel Tonight and others, guests rarely walk in to inquire about room availability. Instead, they turn to apps and mobile websites, so remember, "mobile is the new walk-in"...tighten up your mobile displays!Health and wellness trends will continue to drive customer decisions. Healthy food options are one of the easiest ways to cater to this trend. The Chicago Marriott O'Hare recently implemented a test pilot in partnership with Farmer's Fridge, a Chicago start-up, to provide a healthy vending machine. At the suggestion of a guest, soda, candy bars, and ice cream were replaced with a "detox salad" made of kale, quinoa, Greek yogurt, berries and locally sourced honey. Although the response to the healthy vending machine has been positive, the hotel's best-selling food item is still the Marriott burger. There is a need to balance health and wellness with tasty options that are cost effective.One of the successful ways I catered to the health and wellness of my guests was through a weekly "Run with the Owner." Repeat guests especially enjoyed the opportunity to provide a consistent program to maintain their exercise routine while away on business, not to mention having a nice "chat."As I wrote in my recent forecast, 2015 is poised to be the best year the hotel industry has ever experienced. Understanding these trends and planning accordingly will provide you with the opportunity to experience a record-breaking year ahead on both the revenue and net income side of the equation.
Article by Robert Rauch

Naked Bootleg: Football Play Gives Game Plan to Hoteliers and Restaurateurs

R. A. Rauch & Associates, Inc. ·29 August 2014
Naked bootleg is a term used in football whereby the quarterback runs counter to his blockers and tries to create a run or pass opportunity with no help from his blockers. With changes in the economy, new products entering our market and brands trying to out smart other brands, we are operating our businesses naked. We are trying to develop new strategies in the ways we operate and market our hotels while trying to stay ahead of game changers such as new technology, savvy customers and new product in our markets.Management today must include creative leadership that stresses the urgency to work as a team and find ways to entice corporate travelers and groups to our hotels and restaurants. Gone are the days when we just responded to leads from our brands and convention bureaus. Also gone are the days when we posted our "vacancy" signs outside the hotel and guests would just check in...yes, I was around in the 1970s when that was all that was necessary to fill a mid-market hotel.Today, we need to be developing revenue sources in a whole new ballgame. Consumers are vigilant at finding the absolute best value out there. They are savvy in the way they shop by consulting multiple web sites and relying on social media to get input from friends or those who think alike. That means that we as operators must know what key words to use to get potential guests to find our own web sites and we must proactively utilize social media to market our products. This medium includes but is certainly not limited to Trip Advisor, Twitter, Facebook and LinkedIn. Restaurants need to be conscious of Yelp along with their ratings and reviews.Moreover, we must be very responsive to any requests for information by providing clear, concise correspondence that highlights our competitive advantages and shows where the value is in staying at our properties. Our proposals must be both attractive in appearance and easy to read and (though it seems like a given) have flawless grammar and no spelling errors or typos.Those of us with restaurants, spas, and ancillary businesses must be extra aggressive in targeting repeat users via digital marketing. In our case, at the Hilton Garden Inn, San Diego/ Del Mar, we actually create our own events including seminars on college funding, health and fitness, and more. We host winemaker dinners and wine and food tastings on a regular basis as well. Our bar specials are never ending with specials seven days a week. These prove to build strong relationships with not only hotel guests, but also local neighbors.Once we are able to get guests to our hotels and restaurants, we must provide "wow" customer service. When we look at service today, there are basically four levels: basic, expected, desired and wow. Basic service can be found at the post office. Expected service can be found at most fast food restaurants and many businesses today. Desired service is often found at good hotels and restaurants...but "wow" service is the only way to ensure repeat business.How do we provide wow service? It's all about training, that first item in the budget to be cut by many companies. Good training coupled with strong leadership makes for a good start. To retain customers and get a viral marketing effect for your business, travelers must feel they are getting value. Add in a "wow" customer service level and that viral marketing grows exponentially. Relationships with clients and guests can be developed much more easily when the combination of value and wow service is apparent. That combination of high value in traveler sentiment and wow customer service is paramount.Leadership is showing the management team how critical this concept is by "walking the talk." We all have something that we can do that is different. In my case, I run with our guests at the Hilton Garden Inn and Homewood Suites, Del Mar and offer personal training sessions for others. My passion and knowledge of running and fitness motivate me to coach our guests into a healthy lifestyle. Relationships can be improved dramatically with genuine, individual interaction - and that is my build these relationships. Our "run with the GM" is popular with our business travelers, especially those who do not yet know the neighborhood.For better or worse, it takes more than driving revenues to thrive today as a hotelier. Hiring the right people is certainly part of it but there are responsibilities that we have that cannot disappear even when the economy threatens to cripple us. Good insurance policies require diligence. Safety and security of staff and guests, an up-to-date emergency plan and a very clear set of policies is at the heart of preventive management.Speaking of preventive management, staying on top of capital expenditures and routine maintenance projects is difficult during these tough times. There is a delicate balance between rigidly tight expense control and prudent investing in key areas. To make profits in these times is much more difficult than when the proverbial "wind is at our back." Let's hope 2015 has more positive "wind" to be blown our way.

Panelists Discuss U.S. Lodging Industry Forecast; 6% RevPAR Increase Predicted for 2014 & 2015

R. A. Rauch & Associates, Inc. ·19 March 2014
The five panelists shared their thoughts to an audience of hotel owners, operators, investors, and service providers about the state of the lodging industry, particularly in Southern California, and the positive trajectory and outstanding valuations being realized. Gary London began the event with a brief talk on the state of the economy and the long tail economic recovery given the depths of the Great Recession and the sluggish recovery that followed. According to London, San Diego will continue to add jobs to the local economy in 2014.Bob Rauch provided his forecast that Revenue Per Available Room (RevPAR) - a key metric in the hotel industry - will increase 6 percent in 2014, and 6 percent in 2015 after increasing 5.4 percent last year. This growth is fueled by growth in group, corporate, and leisure travel. Rauch also expounded on three key issues facing the hotel industry: Chinese travelers, the rising impact of Millenials, and the importance of digital marketing. Nearly 100 million Chinese travelled overseas in 2013 and that number is expected to increase by over 10 percent in 2014. If the US receives its fair share of these travelers, at least 10 million Chinese tourists, primarily on leisure, will visit the US in 2014. The average length of a trip for Chinese travelers is 7 days and the average spend per person is $8,000. If San Diego recognizes its fair share of just one percent of this business, the result will be 700,000 room nights which will drive occupancy levels 5 percent higher. A key factor in getting more Chinese travelers to San Diego is an increased number of direct flights between San Diego and Asia. At present there is one daily flight between San Diego and Tokyo.Rauch continued to discuss the importance of courting Millenials (typically people born between 1980 and 1995) who he described using three "W"s - wired, web savvy, and word of mouth. Millenials prefer user generated content and when searching for hotel options, they prefer social hubs with quality food and beverage. Brand loyalty is not nearly as important as word of mouth feedback from their network. Hotels need to address the needs of Millenials in their design, their service offerings, and the reliability of their wifi.The digital marketing explosion is proof positive that the hotel business is truly a science and no longer the art it used to be. Whether it is distribution channel management, social media marketing, reputation management, or the fact that a significant portion of hotel bookings now occur from mobile devices, digital marketing is a necessity in today's competitive landscape. Rauch also explained that the industry is in the early stages of monetizing social media, a potential game changer that will demonstrate positive ROI far beyond the hotel industry.JMBM's Guy Maisnik discussed the impact of international and particularly Chinese investments on the U.S. hotel market. International capital was held back from investment opportunities for a lengthy period as a result of the Great Recession and the sluggish recovery that followed. That capital now needs to find a home and the U.S. market continues to be the most attractive market because of long-term economic stability and a strong rule of law. These factors, in addition to a higher quality of life and better education for their children, are an impetus for the capital flight of Chinese investors moving money from China to the U.S. Many of the Chinese investments are all cash deals that drive up valuations and leave lenders in a bind. Maisnik reminded the audience that the last time the market was flooded with so many cash deals, the Fed was created so the full impact of the onslaught of Chinese investment is still to be determined on the overall economy. And while Chinese investment in California is most evident in San Francisco and Los Angeles today, it is only a matter of time before these investments find their way to San Diego.Atlas Hospitality Group's Alan Reay discussed the astounding increase in valuations of hotel properties. Reay explained that the total dollar amount of acquisitions was up 35 percent last year and the median price per room skyrocketed 40 percent year over year in San Diego. Valuations are up dramatically because of record profitability, a huge constraint on new supply as a result of a lack of available land in many major markets, record low interest rates, and higher demand for hotels by REITs and global capital. The market is ripe for hotel development because the financials make more sense to build ground up then when a thirty plus year old asset is selling for prices of $200,000 to $300,000 per room. Reay shared with the audience that he is now involved in a number of transactions in which he is selling hotels to developers who simply tear them down and build new, particularly in San Diego. The lack of land and no need for rezoning makes this option attractive, especially when there is major pressure from the brands - Hilton, Marriott, IHG and Starwood in particular,- to make major upgrades to assets that are as little as fifteen to twenty-five years old to cater to Gen Xers and Millenials.TravelClick's Sandra Shapira expounded on San Diego's lodging industry recovery sharing that San Diego is one of five markets in the U.S. that is already pacing nearly 10 percent ahead of last year for future bookings; the other four markets are Atlanta, Denver, Minneapolis/St. Paul and Tampa. She also reiterated the theme that the hotel industry is now a science and no longer an art because with so many tools available to hotel operators across all aspects of operations, it is crucial that hotels capitalize on cutting edge technology and invest in brain power to manage these tools.
Article by Robert Rauch

Lodging Forecast 2014

R. A. Rauch & Associates, Inc. ·18 December 2013
U.S. EconomyHow are we able to keep track of what is really going on with the U.S. Economy when so many factors are constantly changing it? At The Lodging Conference this past September in Phoenix, I had the chance to meet the Chief Global Economist at the Economic Outlook Group, Bernard Baumohl. Through conversations with Bernard, I became aware of the impacts of geopolitical shocks, oil supplies, terrorism and global financial instability, and his insights have guided much of this section's thoughts.Due to the drama surrounding the shutdown, consumer confidence was impacted and the general consensus developed that the Fed will not tighten in any way until a series of solid, reliable economic reports are issued to show clear trends. The fact that China, the second largest economy behind the U.S., went from fighting growing pains to experiencing a sudden decrease in growth truly instills fear into the market. Healthy domestic economic performance depends on the global markets. The export industry has been the best performing sector of the U.S. economy over the past decade, positively impacting tourism, an export industry. Most of us are aware that Europe has not fully recovered from its recession and geopolitical events can occur anytime. The growth of the global economy will largely be driven by emerging countries, not large, established countries. With the assumption that no major events will occur, we need to determine which key indicators to watch here in the U.S.The jobs report is perhaps the most important indicator of economic performance and generally shares good news. Other key indicators include consumer confidence that had been doing well earlier this year, international trade and the consumer price index (CPI). The CPI is critical because inflation impacts everyone on a personal and professional level. U.S. employers are on track to add 2.5 million jobs this year, exceeding last year's total of 2.2 million hires. Fueled by expanding payrolls, resilient consumer spending and the resurgent housing sector, the U.S. economy will grow 3-4 percent this year, according to the Economic Outlook Group. While I have a high regard for Bernard and his group, I believe we would be prudent to use 2.5 percent growth for 2014 as a result of two important factors: the Affordable Care Act might have a negative impact in the short run and the hope that interest rates may continue to rise. Despite a weak government sector, private sector hiring year-to-date through this past summer has restored more than 75 percent of all positions lost during the recession. As we noted above, several segments of the economy are trending positive and contributing to economic growth. The housing market is recovering, posting upward trends in sales and construction of new dwellings, and household wealth is increasing while household debt is moving downward as desired. In the energy sector, oil and gas production has driven strong hotel performance in several states over the past few years although this growth may be leveling off. The energy sector, notably oil and gas, has rocketed many North American cities that previously did not boast strong hotel markets. For example, in the Canadian province of Alberta, job growth fueled by this sector has created a huge demand for lodging. All things considered, aside from cyber wars causing global meltdowns, terrorism or other geopolitical events that may discredit these comments, our lodging forecast predicts strong growth.Lodging Industry Forecast 2014The pace of economic growth is not robust, however, it will drive improvement in hotel performance within the U.S. in 2014, just as it did in 2013. Development has been minimal and 2013 has shown growth of approximately 6 percent in revenue per available room (RevPAR). While development activity progresses, average rate growth should help keep us moving forward at that 6 percent RevPAR clip. This pace will allow net income to rise at a double digit pace, fueled largely by average rate growth going forward. In 2012, NOI grew at 15.4 percent according to PKF Consulting. This has had an enormous impact on valuations because the two primary drivers of value are net income (NOI) and capitalization rates (cap rates).At the end of July, more than 75,000 rooms were under construction in the U.S., according to Lodging Econometrics, an increase of 23 percent from the previous year. However, projects underway represent 1.5 percent of supply, lower than the long term average of closer to 2 percent. Based on this newly limited supply, we see growth of demand at 2 percent increasing occupancy by half a percentage point and average rate growth of 4 percent. This 6 percent RevPAR growth should continue for the next two years.We believe that valuations of hotel assets will improve by about 25 percent to hit a peak at the end of 2015. This will be made possible if two things occur: 1) NOI continues to grow by double digits, which we predict it will for the next two years, and 2) cap rates, driven largely by interest rates and economic conditions, stay where they are. For hotel owners who are looking to optimize cash flow and values without waiting too long to sell, this is crucial. As a buyer or developer, purchasing in 2015 allows you to ramp up earnings for a refinance at the end of 2016 with a new or purchased asset before the next economic downturn. The bottom line, our forecast calls for an overall increase of 2 percent in demand and 4 percent in average rate with a 1 percent increase in supply.Large States DominateThe National Hospitality Group (NHG) put out a recent report that indicates an ongoing recovery in the hotel sector will be determined by the performance of the five largest states by room count. Collectively, California, Florida, Texas, New York and Nevada account for more than one third of all rooms in the U.S. Year to date each state has outperformed the U.S. in several primary performance measures according to STR (formerly called Smith Travel Research).CaliforniaIncreasing travel to popular leisure destinations and a recovering statewide economy are driving occupancy gains in California. In Anaheim, fueled by Disneyland, room nights have jumped by over 3 percent year to date with strong rate growth. The San Francisco Bay Area is flying high as is the Los Angeles metro area. Due largely to sequestration, cyclically low group demand at the San Diego Convention Center and especially due to a fight between former Mayor Bob Filner and the San Diego Tourism Marketing District, San Diego is up less than 5 percent this year. Full disclosure, I predicted very early on that then Mayor Filner would turn out to be the worst mayor in the history of the U.S. and he fulfilled that prediction. No funding in San Diego has shown how important promoting tourism is. Statewide, occupancy is up 2 percentage points year to date to 71.2 percent. Texas and Oil and GasOil and gas activities continue to fuel a strong economic recovery in Texas where occupancy year to date is up to 64.8 percent. Supply growth of 1.2 percent is well above the national rate of expansion and may pressure RevPAR growth in the months ahead according to NHG. This pattern might also be found in North Dakota, Alberta (Canada) and other markets where oil, gas or related energy booms are fueling rapid demand growth.Revenue Management and TechnologyWe have all witnessed the shift in revenue management from art to science, but we have yet to see a shift in group room nights. As s sector group meetings have been invisible on the revenue lines since 2008. When it returns - and it will - it will have a material impact on revenue management trends considering many of today's revenue managers are younger and were not in such positions when groups were abundant.One thing that makes it difficult to manage revenues vis-a-vis group demand is that many guests desire to "book outside the block." The key point is that as the economy expands, group travel will return but it will look different. Fewer attendees per company, fewer room nights per trip and smaller group size will be the new norm. While it may be years before big box hotels can host large conventions in abundance, smaller meetings and groups with limited needs are out there for all hotels with some space. Whether it is revenue management systems or any other form of technology, the pace of change continues to be faster than most individual minds can handle. It is very prudent to use the RFP approach, just as we always have with major purchases. While the brands dictate the software you may use, most of our hotels are independent and require the use of new technology without any trusted individual to call upon for advice.So what do we do? We subscribe to Hospitality Upgrade, a great publication that comes digitally or in a print edition. The fall 2013 edition has a feature story on analytics that is required reading for owners and managers. Proper analytics are capable of providing everything from your guest demographics to understanding the impact of the guest experience on your business. Hot topics today are both flash sales and last minute bookings. Online Travel Agencies (OTAs) of various sorts have products that seem to fit perfectly with lodging industry needs. But of course the devil is always in the details. If you know how to use these products from the OTAs, they are very helpful in moving market share. If, however, you become reliant on this business and educate your customers that you always play in the last-minute discount sector, watch out for lower average rates!Social Media and MillennialsTo begin a discussion on social media, it is necessary to point out a few facts. Facebook has over 1 billion users. Twitter has over 400 million tweets per day. Google Plus, while way behind those numbers, serves as an entree to Google searches and should not be ignored. Pinterest has more users than Google Plus, YouTube and LinkedIn combined and Instagram's users average 257 minutes on the site per month. While additional emerging social media might be encouraging and have great potential, the above should form your foundation. Baby Boomers might continue to be the strongest tourism market in the near future but it is time to play to the Millennials. All the chains are drastically changing their approach to these travelers with new open spaces in their lobbies and technologies to keep pace with this new generation of travelers.Cornell's Center for Hospitality Research found key links between social media and lodging performance. As an example, a hotel that improves its rating from 3.3 to 4.3 out of 5 could increase its price by 11.2 percent before impacting occupancy. This comprehensive study went way beyond my one example but the relationship between these two areas (social media and lodging performance) indicates the critical nature of user generated content. CapexMost hotels today are positioning themselves for future average rate growth with improved products. Brands demand it and independent hotels know that they must have a competitive edge. Interest rates are low and the return on equity of well-planned renovations will be strong.Capital expenditure (Capex) needs and reserves are often out of sync due to weak cash flow during recessionary periods. Today, with three strong years of average rate growth ahead, hoteliers must have their properties in competitive condition. We have found a complete inability to drive rate when the product is inferior or tired. Those who do not have new or renovated products by early 2014 have missed the boat.Interestingly, there is a direct correlation between the freshness and quality of an asset and the ability to execute on a business plan. An owner who looks at the competitive set of his/her hotel and believes that the hotel will achieve fair share is looking for trouble if the hotel is not up to par in physical condition vis-a-vis the comp set. SummaryAt the end of the day, those who have fresh products, strong marketing teams, experienced and hard-working operations executives and a clear understanding of the ever changing technology landscape are the winners. These winners will likely beat the competition on the revenue side by a fairly wide margin and due to the growth in average rates this year, they could very well see another 15 percent growth in profits as well. Let's toast to another great year in 2014!
Article by Robert Rauch, CHA

Top 10 Hospitality Industry Trends in 2014

R. A. Rauch & Associates, Inc. · 6 December 2013
Millennials will become the core customer within the hospitality and travel industries over the next five to ten years. The majority of airlines, hotels and travel companies will benefit from this sector as they enter into their peak earning, spending and travel years. Within this group of GenY travelers, there are many different markets considering the fact that exploration, interaction and experience are the major focus of Millennials. Willing to pay more for a greater experience, "foodies" are a prevalent subset of this market; looking for an overall gourmet experience for a reasonable price will cause the industry to revamp their lobby bars, restaurants and food service. Internet bloggers, culture buffs, LGBT and Multi-generational travelers all looking for a unique, novel experience will command change within the market. Speed and precision will be a requirement when it comes to accommodating Millennials in upcoming years according to's latest Hotel Price Index report. Fast booking, fast check-in, fast WiFi and fast responses to customer service needs will need to be implemented within hotels. Considering Millennials have no problems speaking up, if what they are seeking is not quick enough, they will turn to Twitter, Facebook, Yelp or TripAdvisor to voice their complaints. WOW customer service will become even more influential this year. Service today consists of four levels: basic, expected, desired and WOW. Basic service can be found at the post office whereas expected service can be found at most fast food restaurants and many businesses. Desired service is often found at good hotels and restaurants but WOW Service is the only way to ensure repeat business. By creating an impressive, unique guest experience that exceeds all expectations, you are able to capture the customer. Leadership is modeling the way and showing your management team how critical it is to "walk the talk." Each and every employee, including myself, all have something we can work on. Forming a connection with guests can improve dramatically with genuine, individual interaction. It is my goal as a leader to instill the value of building relationships by sharing the knowledge I have and learning from them as well. For instance, I run with our guests staying at the Hilton Garden Inn and Homewood Suites San Diego/Del Mar and offer personal training sessions for others. Expectation of more international visitors. Average rates and occupancy levels in the U.S. are likely to increase over the next few years, influenced by a very new market. "Leisure demand from abroad, fueled in part by the new Discover America campaign, will stimulate a new demand" according to Arne Sorenson, President and CEO of Marriott Hotels & Resorts. China is preparing to send about 100 million leisure tourists into the international market every year. If the U.S. gets its typical share, that will mean an additional 10 million visitors from China alone. Considering the average Chinese traveler spends a week in the U.S., demand is created for an additional 70 million room nights in a market where prices are steadily rising. The globalization of travel will prove to be a massive force. Social media and mobile will be inseparable. Social media and mobile already live in symbiosis and we will only continue to see them merge over the course of this year. Mobile activity has allowed social media to live in real time by allowing users to create updates, tag friends and check in on their mobile devices. Smartphones represent 50 percent of new mobile devices being purchased and the growth of connected devices will only continue to rise. Ericsson estimates that there will be over 50 billion connected devices in circulation by 2020, including laptops, tablets and smartphones. In North America, 2014 will mark the first year that online access is greater from mobile devices than a desktop or laptop. Keeping an eye out for authentic ways to make use of emerging social/mobile applications will be of great value to those in hotel marketing. Content marketing will replace traditional advertising. Traditional advertising is rapidly losing value as hotel marketing professionals begin to take advantage of effective content marketing. Marketing's new mantra, "Brands must now act as publishers," has come about due to social media and its potential to engage in meaningful conversations with loyal fans and clients alike. You will be able to drastically reduce investments in traditional paid media by implementing media tools such as blogs, social media, newsletters, webinars, eBooks, photo or video sharing and shared media. If brands begin to "opt out" of being a producer, SEO efforts will be affected. Google is now weighing current content, social proof and author scores in their results ranking. Simply put, you need to create and share content while engaging people if you want to be recognized moving forward. Renewed focus on property websites. Finding ways of encouraging direct bookings will be one of the most important parts of a marketing director's job in 2014. Considering travelers are increasingly taking their transactions online, the hotel's own website needs to become the most important avenue for bookings to gain the highest ROI. After American hotels spent an estimated $2.7 billion on OTA commissions, the rates rose and restrictions tightened. Hotels are looking at any and all ways to increase direct bookings in 2014. This means that hotel websites will need to create incentives through booking with them directly rather than via the OTAs. Fresh content, consistent updates of promotions and rich media will draw in the guests. Review site tactics. According to The Wall Street Journal, Yelp reports 50 million users across its web and mobile platforms. TripAdvisor has become the world's most popular travel website with 34 million unique users each month. Google Places is the Yellow Pages of the digital age meaning that business listings also show up on iPhone searches as well as on Google Maps. In 2014 there is a need to: Monitor Yelp, TripAdvisor and Google Places reviews and alert management of any low reviews twice a week Comment on glowing reviews to thank them Comment on low reviews and how the property intends to handle future situations Feature Yelp deals Reputation Management. There is much anticipation that reputation management will begin to dictate the hotel industry in upcoming years. Considering there are millions of reviews written each day across a plethora of different platforms, the world wide web has the power of influencing one's decision making process; being able to manage your businesses reputation will determine success or failure. TrustYou had made it their mission to influence travel decisions in a positive way, developing a technology and software making it simple to monitor, manage and market a businesses reputation. Another company,, has been making strides to tap into the market of potential travelers' family and friends considering 70% of customers take recommendations from their family or friends when choosing a product, brand or business.
Article by Robert A. Rauch

Top 10 Hospitality Industry Trends for 2013

R. A. Rauch & Associates, Inc. ·29 November 2012
the emotional connection between vacations and quality of life. Leisure travelers are doing less of the things that characterized the economic hardship of recent years and are now adopting more behaviors that confirm the importance of travel in their emerging lifestyles, according to the newly released MMGY Global/Harrison Group 2012 Portrait of American Travelers, a nationally-representative survey of 2,527 U.S. households. This annual survey shows that while the number of overnight leisure trips is almost equal to that of last year, the drivers of these vacations are changing. Cost-effective "staycations" and other money-saving getaways that emerged in the midst of the recession have weakened. This year, expect a boost in travel spending due to a renewed belief in quality experiences that are worth the splurge.Expect More International Visitors | Average rates and occupancy levels in the US are likely to increase over the next few years for a very new reason. "Leisure demand from abroad, fueled in part by the new Discover America campaign, will stimulate new demand" according to Arne Sorenson, president and CEO of Marriott Hotels & Resorts during a GBTA panel discussion in Boston last month. Brand USA, the DMO behind Discover America, is the national marketing engine promoting US travel to international visitors. The U.S. has about 5 million hotel rooms and almost no new supply in the construction pipeline, Sorenson noted. At the same time, China is ramping up to send about 100 million leisure tourists into the international market every year. If the U.S. gets its typical share, that will mean an additional 10 million visitors from China alone. The average Chinese leisure traveler spends a week in the U.S., Sorenson said. That means an additional 70 million room nights in a market where prices are already rising due to growing domestic demand. And that doesn't count growth from other inbound markets, such as Brazil and India, Sorenson said. "The globalization of travel is a massive force."A Second Look at Refinancing | When moving from your business plan to your actual budget, remember that while a zero-based budget is time consuming, it will save you tens of thousands of dollars on your bottom line. Each dollar on the bottom line increases the value of your asset by about $16 depending on capitalization rates. So a savings of $60,000 means an increase in value of about $1M! If refinancing is an option, remember that interest rates are unbelievably low right now and that debt is actually available! As a matter of fact, though it is limited, there is even some new development activity in the pipeline. While there is still some economic uncertainty, this industry is cyclical and we are already in the fourth inning of the recovery. Look back and remember 1996-2000 and 2004-2008. Compare them to 2012-2016. The money is made in the middle innings and we are there.Social Media and Mobile Will Be Inseparable Social media and mobile already live in symbiosis and this year we will continue to see them merge. Now, people can create social media updates from their phone, while tagging friends or checking in. Mobile has allowed social media to truly become real time. Smartphones represent more than 50 percent of new mobile devices being purchased. And, the growth of connected devices will only continue to soar throughout 2013. In fact, Ericsson estimates there will be over 50 billion connected devices in circulation by 2020, including laptops, tablets and smartphones. In North America, 2013 will mark the first year that online access is greater from mobile devices than desktop or laptop. Smart hotel marketers will keep their eye out for authentic ways to make use of emerging social/mobile applications in 2013.Photo-Sharing Will Dominate | Photo-sharing sites like Pinterest and Instagram saw their coming of age this year. By curating cool content through images, the Pinterest provides a powerful way to visually communicate lifestyle messages exuding from brands in the hospitality business. Pinterest is, at its core, a master of content curation. And with Pinterest API coming sooner rather than later, hotels will be presented a unique opportunity to curate, collect and highlight the very best of the pinning service through their own digital channels. Copycats are bound to arise, but 2013 will certainly provide us with new players on this field.More Unrehearsed Marketing Videos | Video is one of the most effective ways to make an impact on web visitors and the opportunities to use videos are endless. In 2013, video is predicted to be an even more vital element in a hotel marketer's arsenal with more and more people viewing and sharing videos online, including hundreds of thousands of consumers regularly streaming videos on their mobile devices. These videos can strengthen your organic SEO efforts and your video doesn't have to "go viral" to be effective. More importantly, it doesn't have to be a literal walk-through of your lobby and rooms. First and foremost, your social videos should showcase interesting and useful information. The content featured in your videos should highlight the uniqueness of your property, as well as the destination and area attractions. Plus, try different ways of presenting, including interviews, instructions, demos, reviews, or coverage of special events, activities or nearby attractions.Content Marketing Will Replace Traditional Advertising | Traditional advertising is rapidly losing out as hotel marketing professionals begin to realize the advantages and effectiveness of content marketing. Marketing's new mantra of "Brands must now acts as publishers," has arrived in part because of social media and its potential to engage in meaningful conversations with their loyal fan base and potential clients alike. In short, content marketing is the new advertising. By investing in the sharpest media tools like blogs, social media, newsletters, webinars, ebooks, photo-sharing, or videos and shared media, you'll drastically reduce the hefty investments in traditional paid media. Plus, your SEO efforts will be affected if you "opt out" of being a producer. Google is now weighing current content, social proof and author scores in their results ranking. Simply put, you need to create and share content, while being of interest to lots of people to even be a player going forward.Renewed Focus on Property Websites | Direct bookings are king. And, finding ways of encouraging direct bookings will be one of the most important parts of a marketing director's job in 2013. As travelers are increasingly taking their transactions online, the hotel's own Website has grown into the most important avenue for them to gain the highest ROI. In 2010, American hotels spent an estimated $2.7 billion on OTA commissions. Now, as those rates rise and rate parity restrictions tighten, hotels are looking at any and all ways to increase direct bookings through their websites. To achieve this, hotel Web sites must find compelling ways to convey the advantages of going through them, rather than the OTA's. Today's hotel website needs fresh content, constantly updated promotions and rich media. Then all of this content needs to be marketed across all channels, including desktop Web site, the mobile site and social media profiles.Guests Will Crave Food, Not Celebrity Chefs | Foodies have driven hotel culinary offerings these past few years, with chefs creating meals like pieces of carefully crafted art. Plus, investments to woo celebrity chefs to helm hotel kitchens have skyrocketed because of the rise of big-name chefs emerging from Food Network shows. Hotel owners used these chefs' newfound celebrity status to bring in F&B business. However, now meeting planners and leisure guests aren't focused so much on the chef in the kitchen, but the food on the table. What they'll care about now are menus filled with healthy and organic options, and more options for diet restrictions. F&B directors should reevaluate where their ingredients are coming from, and highly consider procuring from local farmers and vendors if they're not already. Showcasing where your food is coming from will allow guests to connect more with the property, the restaurant and their experience overall.More Meeting Planners via Social Networks | More and more, meeting planners are utilizing social media tools to research, compare and read reviews of hotels and conference centers. Plus, they are using social networks to strengthen professional relationships like the rest of us. Hotels should designate a sales team member to oversee the property's LinkedIn profile and engage the entire sales team to actively connect with planners online on a daily basis. Some ways hotels can attract meeting planners with their own social media? Have a separate customer service-focused Twitter account to manage questions or issues during conferences. Use webinars to educate planners about things that matter to them. Share positive reviews from other planners on all your sites. Last but not least, make sure you're monitoring and answering review sites like TripAdvisor. Use your hotel blog to write about meeting ideas. Planners are increasingly using former guests' reviews to see if they want their attendees staying with you.In ClosingRemember that our industry is now more of a science than an art...great stewardship of your properties will reward you in the millions over the next few years. This will include digital marketing, social media marketing, revenue management, distribution channel management and mobile web marketing. May the wind be at your back and the occupancy, rate, net income and values make you happy this coming year and for many years to come!
Article by Robert Rauch

Top 10 Hospitality Industry Trends for 2012

R. A. Rauch & Associates, Inc. ·20 December 2011
The upcoming year is projected to be a better and brighter one for the hospitality industry, but what are the new factors driving the market in 2012? The landscape is evolving quickly as new technology demands that hotels become more social and engaging in their marketing efforts, travelers are looking for the best value propositions, and consumer demand is pushing for hotels to make concerted efforts on property upgrades and improvements.To understand the market and to help hoteliers capitalize on what's to come, Robert Rauch, otherwise known as the Hotel Guru and president of R.A. Rauch & Associates, a San Diego-based hospitality management company, has compiled and released his list of Top 10 hospitality industry trends for 2012:Hoteliers will invest in reinvigorating properties to take advantage of the market.After years of delaying capital expenditures, hotel companies are betting that now is the best opportunity to renovate their properties. In 2012, we'll see even more hotels renovating lobbies, restaurants, bars and fitness centers, as well as replacing beds, TVs, and more. Hotel sales, an absolute outcome of an improved market, will spur even more renovations since sale contracts always contain a provision requiring the new owner to upgrade the property.There will be little to no new development dollars on the debt or equity Side.This is good news for most, but bad news for the developers who genuinely have enviable sites in great markets. Despite that, optimism reigns. A great deal can, and will, get done. We've seen it. In fact, we're working on one ourselves.Online booking will continue to (modestly) grow.The number of U.S. travelers booking and researching online is still growing. More than 114 million people will research travel online this year, while 94 million will actually book reservations. While more than 50 percent of travel bookings are made on the Internet, the online travel market has matured and I expect modest growth and stabilization.There will be more mobile bookings and research.More and more travelers will be turning to their mobile devices to not only research lodging and travel options, but to book and communicate room preferences directly with the hotel. Mobile channel booking has increased four-fold between 2008 and 2010 according to Forrester Research. Plus, Google is projecting that mobile will overtake PCs as the most common Web-access device by 2013. With travelers adopting smartphones and tablets at such a rapid pace, it's crucial for hoteliers to optimize their website for mobile usage to capture potential mobile transactions.Demand and average rate are up in most markets, but not equally distributed.The top 25 markets in the U.S., and those that were really battered at the height of the recession, have seen the most bounce by and large. Many secondary and tertiary markets have not seen a strong recovery to date.Revenue management will make the art of managing a hotel more of a science.Revenue management has morphed from the days it was first introduced by the airline industry in the 1970s to being a complex science today. Managers have always lowered prices to stimulate sales when demand is weak and have raised prices during peak demand periods. Hotels are now able to update prices for all future arrival dates to match market demands each day, via advanced market intelligence applications. TravelClick has pace reports for transient and group demand that look at bookings one year in advance. Plus, Smith Travel Research will soon introduce reports offering intelligence looking at future bookings, rather than solely historic figures.Proliferation of distribution channel management will largely impact pricing.More than ever, it will be vital for hotel owners and operators to stay on top of the distribution landscape that is expanding beyond OTAs, including popular sales vehicles such as meta-search, flash sales and mobile channels. Beyond simple awareness of the different mediums available to sell hotel rooms, hoteliers must know the costs of the variety of distribution channels and the returns expected from each. Hoteliers must preserve rate parity and their brand by utilizing the most cost-effective distribution channels, instead of using desperate measures to sell inventory.Brands will put more money into deals to expand market share.The brands are at war for the development deals that have a chance to get financed. Starwood, Hyatt, and Intercontinental are aggressively pursuing the Hilton and Marriott juggernaut. Whether it's key money, mezzanine debt or equity, seasoned developers will have their way with the brands as they fight for share of the new builds.Prepare for growth.However, know where we are in the game. We are in the second inning of the industry when compared to a baseball game with the peak or 9th inning coming in 2016...use caution from 2017 and beyond. These next five years will see hotel values with annualized double digit growth. Demand will stabilize in 2012 but rates will grow beyond the rate of inflation. That means profits and values improve markedly. Social media will continue to transform connections with travelers.By 2016, half of the travel industry will be using social media as a way of generating revenue and bookings. Currently more than one-fifth (22 percent) use social media as a revenue generating tool with a further 27 percent planning to do so over the next five years. Plus, social media will become more of a key component of Search Engine Results Page (SERP) algorithms. Facebook's posts are already integrated into Bing search and Google+ emerged with native integration into Google search. Hotels can no longer afford to linger over adding social media to their marketing mix. It's now a necessary element of traffic-driving success.
Article by Robert A. Rauch

Trends in the U.S. Lodging Industry: 2011 Q3 Update

R. A. Rauch & Associates, Inc. ·10 October 2011
We continue to experience the 'hangover' from the great recession of 2008. It looked like things were turning around in May but summer may have been soft enough to keep a watchful eye out for a possible yet unlikely "double-dip" recession.FORECAST UPDATE U.S. AND SAN DIEGOThe Global Business Travel Association Foundation study claims business travel will be up 9.2 percent this year. They claim that by 2013, peak 2008 levels will have returned. A TravelClick study, also looking forward, is indicating that global distribution system bookings are up and in fact, were up 15 percent year over year on the day Standard & Poor's downgraded the U.S. credit rating. The advantage to their information is that it is based on actual booked rooms over the next 12 months. In 2010, according to Smith Travel Research, supply was up two percent while demand increased almost eight percent bringing occupancy levels to 57.6 percent. Average rate (ADR) was flat at $98. Through Q2, 2011, occupancy was up 4.5 percent and ADR was up 3.5 percent and we project, despite the uncertainty in the market like high unemployment, slowing global growth, shaky consumer confidence and more, that we will finish the year at just under 60% at close to $102.As for the economy in San Diego, the Burnham-Moores Center for Real Estate at the University of San Diego reported that leading economic indicators were up sharply in San Diego through May.This pattern softened quite a bit in June where the Leading Economic Indicators experienced the first drop in two years and July was virtually flat at +.2 percent. Notwithstanding this, occupancy levels should hit 69 percent by year end, up from 66.7 percent last year and $127, up from $122 last year. The booking pace, according to TravelClick is up in both the group and individual segments.REVENUE MANAGEMENTRevenue Management (RM) has gone from being an art when it was first introduced by the airline industry in the 1970s to being a complex science today. RM is the set of techniques which collectively determine which reservation requests to accept and which to reject to optimize revenue. The principles of revenue management had their origin in the airline industry, but the concepts are equally applicable to hotels. A revenue management system optimizes revenue and profit by controlling reservation inventory in two ways - discount allocation and duration controls. Managers have always lowered prices to stimulate sales when demand is weak and have raised prices during peak demand periods.Today, the frequency of these pricing decisions is dramatically different. Some hotel companies have revenue management meetings daily, others weekly. Advances in technology can support immediate measurement of competitive market forces. It is now possible to update prices for all future arrival dates to match market demands each day.Business intelligence (market data) is one of the most critical applications for revenue management. Better decisions can be made on daily pricing tactics when we have aggregated meaningful data that includes both historic and future travel patterns, length and dates of stay and booking channels combined with key external information, such as competitive and market performance. With the right business intelligence applications, we have the ability to "slice and dice" information to yield flexible, ad-hoc reports as conditions change. This is particularly important when it comes to shifting market mix to optimize revenues.Mobile channel booking has increased four-fold between 2008 and 2010 according to Forrester Research and Google is projecting that mobile will overtake PCs as the most common web-access device by 2013! This, coupled with social media represents a good portion of the major shift in revenue management from art to science. RM allows one to project revenues and provides for a set of actions that form a foundation for a successful business plan. This then becomes the key ingredient in the budget process for 2012. Without an accurate business plan and budget, a hotel is not likely to be successful.OTHER KEY TRENDSThe Lodging Industry Investment Council claims that the hotel investment market will peak in 2015 and that lodging real estate values are going to continue to improve. We have already seen lodging transaction volume increase markedly. Acquisition debt is back and occupancy and rates will continue to grow. Speaking of debt, the jobs act increased the limit on Small Business Administration loans from $2-5 million.There are some programs that were part of the Economic Stimulus Plan that expire this year, so talk to your lender/advisor soon if you are going to be looking for debt in 2011.We expect distressed asset transactions to continue as over leveraged properties reach loan maturity dates and owners are unable to come up with the expected equity requirements. The market appears to be getting more competitive for hotel buyers in the U.S. Many public companies target an internal rate of return north of 10 percent, but many of the REIT acquisitions have been well below that, particularly a few in San Diego.Another trend that has taken hold is social media mania. Get on board if you are not yet busy with Facebook, Twitter, LinkedIn and the maze of social media opportunities, but have a plan. While social media is not a panacea and does not yet close deals, travelers clearly rely on the information to help them choose a hotel. Moreover, we are entering a period of time where "reputation management" is also becoming a science. This field is growing as technology companies work to differentiate themselves. The leader in hospitality reputation management is Travel Media Group. This group provides reports that help manage all reviews about the hotel and have a system that helps to create more good reviews. Hence, we are now utilizing their system at our independent hotels.


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