The New Hospitality Reality in 2013
The venerable institution of hospitality has been turning around over the past two decades. The combined impact of shifting demographics and new technologies are the primary catalysts for this metamorphosis. The Internet provides consumers an opportunity to think of the hospitality industry components as commodities. Hotels, restaurants, spas and alike have been lowering prices to gain a competitive advantage.
A Quick Summary of Hospitality Pricing
Revenue management is the set of techniques that determine which reservation requests to accept and which to reject to optimize revenue. The principles of revenue management had their origin in the airline industry back in the 1970s, but the concepts are equally applicable to hotels, restaurants, attractions and recreation venues.
The airlines used mergers and supply constraints to avoid the commoditization dilemma.
They simply owned the routes they wanted and pulled aircraft off the runways, which in turn filled flights. Hotel brands, led by Marriott and Hilton in the 1980s and 1990s, delivered a myriad of new brands such as Homewood Suites by Hilton, Hilton Garden Inn, Residence Inn by Marriott and Courtyard by Marriott. By the 21st century, every major hotel company had a verticality of brands from budget to full-service hotels. Online Travel Agencies, (OTAs) began to sell hotel product at deep discounts and this led the brands to negotiate fees with the OTAs.
Restaurant chains, from fast food to quick service to fine dining began price wars and attractions began pricing that included pay for a day, come for a year. It is time for the industry to price based on value perception and not price.
Know your Customers’ Behavior and Decision Process
Restaurants that price a la carte such as steak or seafood dinners for $39 with no appetizer and no dessert must win with popularity, location and high quality. That takes hard work and some luck with today’s fickle consumer.
Packaging is the answer to the commoditization conundrum.
The large amount of demographic and psychological information available about the make-up of today’s traveler and hospitality user requires analytical skills and creativity to correctly respond to the marketplace.
The MMGY Global/Harrison Group 2012 Portrait of American Travelers provides detailed information on consumer wants and needs today.
Product choices by consumers are influenced by a model of the consumer decision process. There are several risks that hospitality executives must overcome to achieve success in the marketplace:
- Performance Risk – the chance that the product may not satisfy the consumer
- Financial Risk – the monetary loss from a wrong decision
- Physical Risk – the likelihood of illness or injury to a guest/consumer
Loyalty to a chain is a major factor in product choice by consumers. Airlines, hotels, restaurants, spas and many attractions allow guests to accumulate points that may be exchanged for free passes, guest stays and meals. The consumer’s perception of the hospitality company and what it stands for is paramount to the success of the venture. Product quality must be exceptional, service must be at the level of “wow” and there must be a compelling value proposition for the consumer to choose your business.
Sample Formulas for Success
My father, Richard A. Rauch, Ph.D. created a multivariate model of consumer behavior that applies here in part. As such, I am borrowing key facets of this model from his work in the field of retailing in the 1990s:
A = B x W x N
A – Attitude toward the business
B – Belief of a consumer that the business possesses a particular desirable attribute
W – Weight of importance of the attribute to the consumer
N – Number of attributes important to consumers
Recently, at a conference hosted by Hotel Interactive, I listened to a presentation by Martin Sklar, former President of Walt Disney Imagineering. He told us about Mickey’s Ten Commandments and they hold true today:
- Know your audience
- Wear your guests’ shoes
- Organize the flow of people and ideas
- Create a visual magnet
- Communicate with visual literacy
- Avoid overload – create turn-ons
- Tell one story at a time
- Avoid contradictions – maintain identity
- Ounce of treatment – ton of treat
- Keep it up (maintain it)
Martin added some more comments like “leadership is earned and must be exercised daily” as well as “be optimistic because if you are not positive, who will be?”
In Conclusion
At the end of the day, we must be creative by packaging our assets in such a way to appeal to as many guests/consumers as possible. As my hotel school marketing professor, C. DeWitt Coffman once said, “marketing is finding the wants and needs of people and selling it at a profit.”
2013 will be a great year for the hospitality industry but it will leave some behind. Don’t be one of them!
Robert A. Rauch, CHA
Mickelson to Take On Torrey Pines North
from San Diego Business Journal (Dec. 17, 2012):
…In recent years, the south course at Torrey Pines has been a bigger draw than the north course, said local hotel operator and consultant Robert Rauch. Renovations to the north course may pique more visitor interest, he said.
Rauch said he didn’t expect course renovations to change hotel occupancy markedly. He also said San Diego might have a new source of golf enthusiasts, since Japan Airlines is now offering direct flights from Tokyo…
2013 Lodging Forecast – Time for Recovery!
The lodging market continues to outperform the economy as REVPAR (Revenue Per Available Room) growth outpaces gross domestic product by a wide margin. Employment levels continue to be weak, while growth in consumer spending is strictly of the holiday shopping variety and lags along with consumer confidence. The Fed is considering further incentives to move the U.S. economy at a better pace of growth and the Republicans and Democrats are far from avoiding the fiscal cliff. The fiscal cliff itself is not the problem. In our view, it’s the fear of the cliff that reduces consumer confidence. The truth of the matter is that gridlock has been in the nation’s capital for a long time and despite the gridlock, we are seeing growth, albeit slow growth. Moreover, we have seen strength in our hospitality metrics for two straight years! (more…)
San Diego Business Journal “Insider”
from San Diego Business Journal (Monday, Dec. 10, 2012):
Hotel Guru Robert Rauch, president of R. A. Rauch & Associates in San Diego, has compiled his annual list of the top 10 hospitality trends for 2013. One of his biggest predictions: Expect more international visitors, especially travelers from China, opines Rauch. He says China is ramping up to send 100 million leisure tourists abroad every year, and if the U.S. gets its share, that will mean an additional 10 million visitors from China. For more of the predictions, head on over to hotelguru.com
L’Auberge Del Mar sold for $76.9 million
from San Diego Daily Transcript (Friday, Dec 7, 2012):
Robert Rauch, a hotel consultant and developer, who acted as a receiver on the property in the 1990s, said there aren’t too many prospective buyers other than other large hotel REITs and some major Asian investors, who would have had the wherewithal to pay the $76.9 million for the property …Rauch said it is hardly surprising that L’Auberge was distressed at the time. “Don’t forget that the early to mid-1990s were extremely difficult for our industry,” Rauch said.
2013: Key Trends According to Hotelguru.com
The landscape is evolving quickly as content marketing replaces advertising campaigns, mobile merges even more with social networks and travelers are open to spending more on getaways that are worth it…more interested in finance? We just refinanced a hotel at under four percent interest. 2013 is projected to be a better and brighter one for the hospitality industry. But what are the new factors driving the market?
Increase in Travel’s Personal Value
Despite the recent years of a contentious and challenging economic climate, we’re seeing the revival of the most powerful motivation for traveling — the emotional connection between vacations and quality of life. Leisure travelers are doing less of the things that characterized the economic hardship of recent years and are now adopting more behaviors that confirm the importance of travel in their emerging lifestyles, according to the newly released MMGY Global/Harrison Group 2012 Portrait of American Travelers, a nationally-representative survey of 2,527 U.S. households.
This annual survey shows that while the number of overnight leisure trips is almost equal to that of last year, the drivers of these vacations are changing. Cost-effective “staycations” and other money-saving getaways that emerged in the midst of the recession have weakened. This year, expect a boost in travel spending due to a renewed belief in quality experiences that are worth the splurge. (more…)
UTsandiego: REALITY TV, REAL SUCCESS
from San Diego Union-Tribune (oct.25, 2012):
Local hotel, restaurant owners say airing problems on shows have helped their businesses
…Sure, these struggling businesses get to have their 15 minutes and more of fame on the small screen, but they also have to suffer the embarrassment of having all their warts exposed to a national audience, points out San Diego hotelier Robert Rauch, who also makes his living as a hotel consultant.
“I don’t view that as anything but negative publicity, but if you can handle the embarrassment it shows, there’s probably a short-term gain,” said Rauch, an owner of the Hilton Garden Inn and Homewood Suites San Diego in the Torrey Hills area. “I’ve done similar things to turn hotels around, but we charge what we think is a fair fee for services rendered.
If they end up listening to the consultant, absolutely, they can sustain (the turnaround).
”…
Using security cameras to protect your property and guests
from HotelManagement.net (Jul 2, 2012):
“Sometimes you learn the hard way,” said Robert Rauch, owner and operator of the Hilton Garden Inn and Homewood Suites by Hilton San Diego-Del Mar, Calif. Rauch’s Hilton Garden Inn was burned to the ground on June 5, 2007, in a fire that also claimed half of the Homewood.
NC TIMES: “TOURISM: Local hotels seeing strong growth, analyst says”
from the North Count Times (Saturday, Sept. 22, 2012)
San Diego County’s tourism and hospitality industry is wrapping up a strong year with growth expected to exceed the national average, according to veteran hotelier Robert Rauch. And starting in December, the region may get another boost from Asian visitors lured by the first nonstop flight from Tokyo to San Diego, Rauch said. Japan Airlines is tobegin the nonstop service on Dec. 2. Local hoteliers are experiencing stronger growth in revenue per available room, or RevPar, than the national average, Rauch said. RevPar is widely used to measure the performance of hotels.
It represents the hotel’s average daily room rate divided by its room occupancy rate.
Lodging Forecast 2013 – A Primer
The lodging market has outperformed the economy this time around. Employment levels continue to be weak and growth in consumer spending lags along with consumer confidence. Europe is on life support, China, while enjoying a strong economy in recent years is showing signs of decline and the Fed is considering further incentives to move the US economy at a better pace of growth. This is not what we would expect from election year economics, yet our industry has seen strength in our metrics for two straight years!
R. A. Rauch & Associates, Inc. 2012-2013.
By and large, by all measurements, travel demand is up. This year, the hospitality industry has seen growth in both occupancy and average rate. In Q2, 2012, the U.S. hotel industry’s occupancy increased 3.1 percent to 65.1 percent, average daily rate rose 4.7 percent to $106.41 driving revenue per available room up 7.9 percent to $69.32 according to Smith Travel Research (STR).
TravelClick, in its North American Hospitality Review (NAHR), found that the hotel occupancy outlook for third quarter 2012 through second quarter 2013 is strong, with group committed room nights up 5.9 percent and transient room nights reserved up 7 percent based on current reservations and group commitments on the books in comparison to same time last year. The July NAHR looks at group sales commitments and individual reservations in 25 major North American markets booked by July 1, 2012 for July 2012 to June 2013. (more…)