What happens when the growth stops?
For almost ten years our industry has been a rocket ship of top line growth driven almost exclusively by big gains in revPAR driven by solid increases in occupancy and rate.
You also can’t go too far inside the online world without finding articles that speak to when and if this growth will stop. We all know it will and it’s never been a question of if it will stop, the question is when it will stop.
Knowing this growth inevitably will stop and being cognisant that when it does stop it will go backwards, what can you do? History always repeats itself.
When the growth stops and revenues year-over-year shrink, what will hotels do to minimise losses and maximise profit retention? For most of us we remember the major negative historical economic events of the past 25+ years and the results to the hotel business that followed.
For me my memory going backwards is this: the 2007- 2009 debt crisis, SARS (I’m Canadian), 9-11 and the Gulf War. All of these had a major impact on the hotels I worked in and we scrambled to throw anything and everything off the sinking ship.
I painfully remember: hiring and wage freezes, layoffs, mandatory vacations, amenity reductions, outlet closures, corporate training program suspensions, mandatory productivity targets and FF&E (furniture, fittings and electrical) contribution freezes.
I also remember pre-emptive contingency plans that targeted a 10-15 percent decrease in revenues that dictated reductions in: fixed staffing, linen pars, china glass and silver pars, fresh flowers, service audits, uniform purchases, suspension of conferences, relocation freezes, VIP gift eliminations, departmental restructurings, management incentive plan cuts, live music expenses curtailment, aggressive food and beverage cost targets, elimination of administrative assistants, employee opinion survey cancellations, health and safety program reductions, moratoriums on seasonal parties and sports teams, a halt to the company newsletter and travel bans.
I took part in planning and communicating: in-house meal and entertainment stoppage, the temporary addition of energy surcharges, elimination of hotel executive auto leases, combining like positions, grandfathering personal device purchases, curtailing of cell phone reimbursement, direct in dial telephone line termination, fax number consolidations, pool attendant layoffs, security department day/time/hour reductions, crisis and communications training moratoriums, sales incentive plan restructuring, familiarisation trip reductions, guest floor shutdowns, and the elimination of supervisors on the front desk and in housekeeping.
I vividly recall how painful it was when we: eliminated turn down service; mandated business centre staffing cutbacks; eliminated one-time seasonal decoration expenses; trimmed dry cleaning privileges; downsized duty meals; we combined stores and receiving positions; we outsourced payroll services; we made cutbacks to in-house IT staff; we completed sales coordinator right sizing; we exercised reservation department closures; attempted Sunday lounge service moderation; delivered on banquet captain consolidations; completed valet parking outsourcing; started charging for parking; then the up-sell program pruning; and worst of all for me was the requirement to show all of these changes and adjustments in the subsequent detailed forecast for the balance of the year.
This is where the rubber hit the road. I recall how impossible it was to execute the reductions, in many cases, because the departmental managers did not know what was really in their budget/forecasts to begin with. Sure, they had dollars for their expenses and hours and dollars for their payroll, but it was not defined in detail.
There were no zero-based expenses where we could really look at the current shopping list and eliminate or adjust real things. The same with payroll, there was no fixed staffing guide and no formula for variable payroll.
We just took our expenses from last year and added five percent when doing the budget and the same with payroll; wages were forecast to increase three percent, so we added three percent. We did cost per cover and cost per room occupied so we would simply extrapolate that and create the budget. Things would come together because they always do until they didn’t any longer.
We didn’t know what was in the middle of our statement so when someone said reduce something it’s like, OK we will make that change but it’s not a defined result because we were starting without a list, without a real starting point.
Here is a domestic example of what I mean. If I send you to the grocery store with $200 and tell you to go buy some groceries you will come back with $200 worth of stuff. On the other hand, if I send you to the store with a list and the corresponding costs for each item you will come back with exactly what was on the list. Now this is where it gets good. I now send you to the store with the same list, but I only give you $175 to spend. I inform you that we must make some reductions this month. I now tell you to eliminate, reduce or forgo what you can to equal the new cash I gave you. This way you know what you’re starting with and what your changes result in.
The same applies to payroll. You need a concrete fixed staffing list that’s approved annually with your budget and meticulously maintained through the year and a detailed staffing formula for every variable payroll category in your entire hotel – not a guide of payroll cost percentage by department or an hour per room or covers formula.
These are useless when it comes time to trim, reduce and curtail. They do not work when reductions are necessary. They just confuse the executives and frustrate the department managers.
The next big thing as I see it is, we learn from our past mistakes. We take the appropriate actions to ensure our operating department managers all know what’s in the middle of their statements, down to how many of each item and at what cost that makes up every line of their expenses. We also need to go down to a monthly payroll forecast that is detailed by position and contains the exact number of hours wage rate. This way when it’s time once again to cut costs we will have a real starting point. Or, we can just hold our breath like I did and hope that it will all get better soon.
Once upon a time…
David Lund is founder of www.hotelfinancialcoach.com and helps hotel leaders worldwide with financial leadership coaching and workshops.
