GLOBAL UPDATE : OPERATIONS started to be built again that I have actually seen a change . This is radical .”
The numbers As ruthless asset managers , Geller and his Strategic team are fanatics about finding ways to save on food , labor and — he hopes — marketing costs . In fact , he believes his systems have led to 200 to 300 basis points in savings since the Great Recession started .
“ Everyone has 100 basis points ( to save ). You can only get 200 basis points if you have a culture of doing it ,” Geller says . “ Owners have to understand it , believe it , enforce it , brainwash managers at the unit level — and have the chain say ‘ go ahead .’ The hard part is getting the unit manager brainwashed and chains to incent them properly .”
The results speak for themselves . While Strategic ’ s hotel EBITDA dipped 45 % at the trough of the downturn , it is on track to recover back to prerecession levels , according to Geller . “ We are seeing trends where RevPAR unadjusted for inflation at certain properties is getting back to peak — two years faster than we thought — and margins are better than we thought , too .”
What has Geller smiling even more is the value his hotels gain by implementing systems that save . He says three-quarters of his hotels generate US $ 50 million in revenue , while a handful do US $ 100 million . Based on his systems that save 200 basis points , for example , a luxury hotel generating US $ 100 million that sells at a 5 cap rate and saves US $ 2 million based on system changes adds US $ 40 million to its value . “ The downside is new supply can come on quicker . The upside is my hotels are worth US $ 40 million more ,” he adds .
So what has taken the brands so long to accept Strategic ’ s aggressive asset-management tactics ? Geller says the brands thought they were doing the right thing . “ The brands ’ theory of purchasing is the bigger we are the lower the price we can get via master bids . We negotiate the base price and hotels can buy . It becomes mindless ,” he says . “ It does not take into account regional and seasonal variations . They don ’ t think about engineering the menu for productivity . That is the hard work . I don ’ t want the fancy chef ’ s drizzle or fusion or froth . I don ’ t mind if my French fries are shorter as long as they are as tasty as the long fries that cost more .”
The systems Where Strategic saves the most is with menu reengineering and laborcost controls .
On the food side , it is less about purchasing and more about looking at the process so menus are efficient . Strategic delves into the entire process of making a plate of food and creates documented standards for every step .
Instead of putting menu items out to bid , Strategic instructs its people to negotiate a price with a vendor , who has to charge cost plus a percentage . Strategic will also demand the right to audit the vendor ’ s books to be sure it is being charged cost . “ That gets us 200 basis points of food costs ( a 45-basispoint increase in GOP margin ),” Geller says . “ We do monthly audits so our asset managers are acting as consultants on implementation and auditors on execution . This makes a giant difference , as 50 % of our business is non-rooms .”
Strategic also has been fighting to reorganize the entire labor force at its hotels — not just line-level staff . “ We have a philosophy that hotels are overlabored . The top two layers are farm systems for brands to grow managers at our expense ,” Geller says . By removing these layers , Geller says he can take out 200 to 300 basis points of costs that go directly to GOP margins .
Strategic ’ s Vice President of Asset Management Robert Britt explains the asset managers sit with the operator
The Hotel del Coronado , California
www . hotelsmag . com July / August 2012 HOTELS 11