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Strategies for Turning Around a Sinking Hotel


06 Oct 2012

More than anything else, the recent economic crises has left many industries crippled. Hospitality is no exception. With companies tightening their purses, corporate travel has suffered a major reduction. The scenario on leisure travel is worst since the spendable surplus income with individuals has shrunk drastically. Luxury has taken a back seat in individual and family lives. The buzz word seems to be savings and hedging your capital as much as you can.


The overall negative environment has left many independent as well as branded hotels in red. Unable to pay their debt or even meet their daily expenses, the hotels are desperately looking for expert consultants and advisors to help them remain afloat. The situation is really grim for those who have already slipped down the line.


Here are a few tips that you could follow to make a turnaround for your hotel. While these tips have helped many, you have to evaluate them to find which of these will be applicable to your operations. Since the profitability of the hotel is dependent on factors influencing sales and costs, these strategies are mainly directed towards efficiencies in these two areas.


Revenue Improvement and Customer Retention


Needless to say that the sales in a hotel is generated when a guest checks in, when people visit the restaurants, when conferences and events take place, when your health club gets membership and so on. The final thing being that when you get foot falls in the hotel your cash machine gets active. The biggest issue therefore is to find how to get customers and get an ever increasing number of them.


The first thing that attracts your customers to you is your brand image in the local and destination market. Hotels have to spend money and efforts to create a positive brand image in the market. For an effective turnaround strategy the hotel has to focus its efforts to establish an image that is not only positive but also better and preferred than that of a competitive hotel.


In creating its brand image, today the hotel can not only use the conventional methods but also include the latest technological tools which are not only more effective but also have a very vast reach, very fast.


It is a known fact that hotel prices get revised each year to meet the cost escalation due to inflationary pressures on the material costs. In other words, it also means that the hotel becomes out of reach for those who cannot afford it due to their budget constraints. It is therefore important that the hotel adds on new customers to its user list to make good this loss. It is like a pyramid. If the height of the peak increases, you have to add balancing width to the base to maintain the equilibrium. In a slowing economy however, this effort assumes far greater importance as both the height and the base of the pyramid shrink due to extraneous factors over which the hotel has no control. The marketing team has to come out with such innovative ideas, schemes and packages that will in the first instance insulate the hotel clientele from getting influenced with these factors but in the ultimate analysis, ensure a continuous growth in the capacity utilization.


The above can be successfully achieved by hotel if it utilizes the various marketing tools available to it including but not limited to competitive offers, packages, on line marketing, loyalty schemes, special events and many more.


Cost Control and Rationalization


The most important aspect of operating economies in distress times is absolute control over its operating costs. If a hotel allows the costs to slip, the bottom line will also slip away. The issue that most hotels and especially, the independent hotels face is the quality of their MIS. You can control your costs only if you know what your actual costs are and how do they compare with the industry norm or with your competitive set hotels. If you management information system does not generate true numbers, you would fail in your cost control efforts.


Let us assume that you have a perfect system. You have your month end report with you. For effective cost control my advice to my industry colleagues is to go line by line, check each cost, and check its behavior over months in absolute as well as percentage to sales terms. Look for any abnormal increase or even decrease; analyze the reasons for variances unless you are totally satisfied with the numbers.


Ultimately it all boils down to a simple equation and that is that Profits equal to revenue minus costs. Have a control over these two factors and you will be able to chalk out a turnaround strategy for your hotel. From the point of view of pure financial survival, factors influencing sales and cost economies play the most important in the revival of a financially sinking enterprise, the importance of people, product quality and delivery of top rate service cannot be ignored. All have to go hand in hand.



While everyone can boost of operating a hotel profitably in normal market environment only those with proven management skills, strong determination and complete dedication can turn a distressed hotel into a profitable venture.


Ram Gupta is a professional hotelier with over four decades of experience in India, Far East, Middle East and Europe. A Member of Institute of Hospitality, U.K., he is also a Certified Hotel Administrator from U.S.A. He has worked for some of the best hotel chains and was associated with over two dozen hotel projects in varying capacities. He has served on a number of trade bodies and boards of various companies. He is now an independent consultant in the Industry. His web site can be viewed at www.bcgglobal.com and can be contacted at ramgupta@bcgglobal.com

 

 

                             OCTOBER, 2012 © BUSINESS CONSULTING GROUP GLOBAL