No one said it was going to be easy. The hospitality industry, largely recovered from the pandemic’s severest economic effects, finds itself now battling the impact of what some observers describe as hyper-inflation.
At The Hospitality Show held earlier this year, how to combat cost increases that continue to chip—some would assert chop—away at profits was the focus of a lively panel moderated by Dana Katz, director of business intelligence/Enterprise Analytics Group for Host Hotels & Resorts. Panelists offering their opinions on how best to wrangle inflation’s challenges and protect the bottom line were: Sarah Gulla, SVP of asset management, Pebblebrook Hotel Trust; Mark Hemmer, president of Vesta Hospitality; and Jyoti Sarolia, co-founder and principal, Ellis Hospitality.
“The reality of owning and operating hotel real estate is that rates are adjusted daily, which can be a built-in inflation hedge,” said Katz, noting hoteliers don’t set the prices, customers do. That said, panelists detailed how their particular companies are coping with inflation. “One of the lessons that we learned in 2020 is that you have to stay actively engaged on a day-to-day basis,” said Sarolia. The company didn’t have a revenue-management person then and has since hired one to handle sales, marketing and revenue-management initiatives, no longer relying on the general managers to do so.
She added that sticking strictly to brand standards for offerings like breakfast (i.e., no add-ons) has also helped curb costs.
“When we talk about pricing, it's not just the published rate,” said Gulla. “It’s changing your mix of business, making sure you have the right segmentation and, candidly, making sure that that segmentation represents the most profitable guests.”
Even with dynamic pricing and the ability to adjust prices multiple times a day, Hemmer said having a team in alignment is critical. “If the revenue team, whoever that is at your location, is not aligned with what the goals are, when the hotel has a soft weekend, all of a sudden that becomes a race to the bottom. And the rates drop,” he said.
Looking beyond rate, the panelists noted ancillary revenue streams at properties have proved to be a distinct buffer against rising hotel costs.
“Obviously, in the resort world, there's lots of ancillary revenue streams, whether it's food and beverage, spa, golf, recreation, etc.,” said Gulla. However, she asserted every single hotel can find opportunity by looking for it. Recent successes for Pebblebrook have included rooftop cell-tower leases, F&B space leases and billboards that monetize the exterior of the building. She did stress that while the lure of lease income is enticing, “It still has to work for the hotel at the end of the day.”
With midscale limited-service hotels, Sarolia said Ellis Hospitality has been selective in monetizing some of its hotels. It placed a cell phone tower at a San Diego property, an EMV charging station at a Silicon Valley location and is looking to do breakfast packages within its room rate for a 37-room hotel in San Francisco.
“That brand doesn't require a breakfast. So, we want to offer breakfast but upcharging,” she said. Another area of consideration is charging for parking, not just for guests, but also in corporate markets for commuters.
The panel agreed that just like implementing late-check-out fees, early check-in is ramping up as the next chargeable guest option.
“We're all famous for the late-check-out fees, and all that does is irritate our customers,” said Hemmer. “They push back; they’re going to score you poorly on their surveys. However, an early-check-in fee pays dividends. People just want to get in the room.” He noted Vesta has implemented such a fee at a number of its properties, and has met with success.
Overall, finding the right associates, managers, suppliers and contractors also is key to hedging against inflation, the panel suggested, as respectively, they can learn to upsell, focus on cross-training, offer deals for volume and do a job sooner than later, when inflation likely will have pushed the price upward.