INVESTMENT
impact of which was felt almost immediately , catapulting hotels into unprecedented territory and significant loss .
Now , imagine opening a new hotel during this time , an undertaking that , in the best of times , is fraught with challenge and complexity . Although the industry is still not on the other side of this global pandemic and challenges still abound , we are fortunate to have emerged with many learnings , among them , how to open a hotel during such troubled times . This article includes observations and considerations for owners derived from opening multiple hotels during this period .
. Revisit the business plan . Opening a hotel during the pandemic using the original playbook can be like trying to fit a square peg in a round hole , as most of the projects were underwritten back in 2017 / 18 under the very best of market conditions . As a result , a hard look at the business plan to address current pitfalls , new demand dynamics , and other situations unique to this period will be needed to mitigate impact and optimize future performance and value . This may also require an honest assessment of the hold period and other factors to manage partner expectations versus original underwriting , so adjustments to the investment strategy can be made accordingly .
. Mind your business mix : Occupancy / ADR dynamics are trickier than ever to navigate . There are some significant factors to consider and potential management pitfalls to look out for :
. Deviating from your target customer / focusing on current demand . Nearly every hotel has been forced to pivot and adjust its segmentation and channel strategy to opportunistically target available business as a means of getting through the immediate term . While this is a prudent strategy for well-established hotels , there are longer-term effects that new hotels need to consider before they go off-script . The old expression rings true : “ You only have one chance to make a first impression .” New hotels need to focus on building awareness , establishing their market positioning , fostering relationships , and planting seeds for future business , which may not lend itself to prioritizing short-term gain . Carefully question “ who are the longterm customers that the hotel needs to be successful ?”, “ Is there a short-term business that can be pursued without negatively impacting rate positioning ?”, “ What will deviating from the underwriting strategy do in terms of the future market positioning and performance of the hotel ?” Owners need to be mindful of sacrificing long-term value for immediate cash flow .
. Dropping rate in efforts to stimulate high occupancy is a bad thing . Research and statistics have proven time and again that a rate race to the bottom sinks all ships and prolongs recovery , the effects of which will be even more pronounced as operating cost increases continue to outpace revenue growth . So , let ’ s consider this a lesson learned from the last two downturns . Now , let ’ s consider the following issues at hand . We are facing a major staffing crisis right now ; not only is labor in incredibly short supply , but managers and staff alike are facing burnout , forcing many to look to other industries for employment . This , coupled with the wear and tear on a building that otherwise would have had a more robust preventive maintenance program pre-pandemic , can lead to unintended capital consequences down the road . Be mindful of the pricing tactics being used to drive occupancy , and evaluate what level of operation makes sense given current resources .
. Be mindful of price gouging . On the flipside , use caution in charging too high a rate with limited amenities and service levels . While this will undoubtedly reap short-term gains in the leisure markets that have been able to capitalize on strong demand , these increases are not sustainable . Guests will likely remember the experience of paying US $ 500 a night for a hotel that did not offer food and beverage options , access to the gym / pool , or other amenities that should come along with such a room rate . A negative reputation , whether memorialized on TripAdvisor or shared anecdotally , is tough to overcome .
. A new hotel is in effect “ making history ” in real-time , as opposed to relying on it , which makes it increasingly more difficult for newly opened hotels to assess how best to measure and benchmark performance . While comparing macro indicators such as occupancy and average daily rate to 2019 has proven the industry standard and useful to established hotels , other metrics , such as housekeeping productivity , food cost , linen PAR levels , and a host of others , have been difficult and nuanced due to changes in cleaning standards , supply chain issues , the lack of skilled labor across many departments and issues with third-party vendors . Looking to how other hotels had performed in pre-pandemic times becomes an increasingly difficult exercise and a poor predictor of future performance . Zero-based budgeting in light of current conditions and establishing key performance targets is imperative to managing hotels effectively during early opening .
. Open food and beverage outlets the right way ; avoid rushing outlet openings to meet grand opening deadlines if not ready or fully staffed . This is especially important in the case of lifestyle-focused hotels , where a particular outlet may be the focal point or is expected to be a local / regional draw to the non-hotel guest . As stated previously , you do not get a second chance to
82 hotelsmag . com November / December 2021