Can hotels drive revenues without cutting room rates?
Hotel GMs are on the frontline in the battle to drive revenues without resorting to cutting room rates. But are they winning or is it a lost cause? Hotelier finds out
Days of easy money have disappeared for Dubai’s hotel sector. Today, the market is tough and there is greater pressure on room rates. That said, they are still above those of the United States and Europe, and other established markets.
Christophe Schnyder is the general manager of Sofitel The Palm, Dubai, a mixed use development of apartment and villas, 361 rooms, 181 serviced apartments, and three villas. He describes the property as a “true resort”, with family activities, pools, an array of F&B offerings, and conference facilities.
Being a family-focused resort means there are activities to match; a fully-fledged kids’ club, a 500-metre private beach, and hired entertainers to play games with families. “Most of these activities don’t drive revenues as such as they are free of charge,” he says. “However, it’s a comfort to families to they know they can relax.”
The Polynesian themed resort opened in 2013. “I have been here since then,” he says, pointing out that the strategy to drive revenues at the resort does not include cutting room rates. “I have built strong relationships with our travellers worldwide. We have many guests who don’t necessarily book with travel agents or tour operators but who book direct with us,” he says.
Naim Maadad, the founder and CEO of Gates Hospitality, which owns and operates hospitality concepts including Ultra Brasserie, The Black Lion Public House & Dining, Bistro des Arts, Reform Social & Grill, Publique, and Folly by Nick & Scott, and Six Senses Zighy Bay in Oman, said that he sees individual hotel GMS, rather than operators, driving the changes needed to increase revenues that do not include slashing room rates.
“There are GMs who care about their property and who have the savviness and creativity to say let’s package stuff, let’s come up with unusual events, let’s make sure if you want to buy brunch, you also get a room for the night,” he says.
Maadad went on to say that such approaches are not actually practiced industry wide, but those GMs who do practice it are winning. “They are looking at the business and saying on a Monday we are very busy, but Tuesdays are quiet so how can we address this issue without cutting room rates?”
GMs that are proactive in this manner are admirable, according to Maadad. However, it is an approach that is not without its problems. “When that particular manager decides to move on, then what? The ideas also move with that manager,” he says.
As Schnyder says, The Sofitel The Palm, Dubai counts on guest loyalty to help drive revenues at the property. Not to mention direct bookings to the hotel that he says form up to 35-40% of total bookings. “This helps drive revenues, very much,” he says, adding that the resort also benefits from the international network of AccorHotels, which has more than 5,000 hotels in its portfolio.
Schnyder reveals that since the property opened, it has been fortunate to have a stable year-round occupancy, which he says today stands at between 80-85%.
Sofitel The Palm’s source market is Europe, with the UK topping the list, followed by France and Germany. “This demographic is a good source since they are well travelled, know Dubai, know quality, and know what’s here,” he says.
Each year is different in terms of source market, which is dependent on micro economic situations. “Our strategy is to look ahead and to offer early bird promotions. There are attractive rates if you book well in advance, say three-to-six months ahead depending on what the season is.”
But can GMs do more in terms of sourcing other markets away from what, for the UAE market at least, have traditionally been seen as the fertile grounds of Europe?
Maadad believes so. He says that Dubai was built on expensive principles. “It’s a luxury city and luxury is not part of packages.” He talks about the Chinese and Indian markets, which he says are on the way, but which are not seen as luxury markets but are viable nevertheless. “Are we ready for those? We don’t have packages for that demographic. We don’t have the right room sizes or the right facilities in the hotel for these travellers,” he says.
Six percent of China’s population have a passport, according to Maadad “If we are seeing all these volumes around the globe, not only in Dubai, imagine when the Chinese market grows and develops, we need to be ready for it, including hoteliers.”
Clearly, hotels should be marketing themselves globally, and not just that of Europe. But what about closer to home? Regardless of the activities available within a property, hoteliers should also be looking beyond the property’s walls to the local community.
Such thinking should generate fresh revenue streams and stimulate loyalty from the domestic market. “We are also quite active on the local community,” says Schnyder. “We like to have people in Dubai using our facilities. So we package special F&B promotions and beach activities, which have proven to be good.”
Schnyder highlights how the beach is open to non-hotel guests at between 150-200 AED per person and that the resort offers sushi promotions which he describes as “very attractive packages. On average about 100-200 people come on the weekend. We link spa treatments with afternoon teas. We really target the local community,” he says, pointing out this helps bring people in from Dubai on to The Palm.
Maadad agrees with such an approach. “It’s so easy to drop your room rates,” he says. “I would add meals, new experiences and spa treatments in order to ensure that guests actually get a better value so when they leave the hotel they think you know what, this is a great place.”
The property has five main restaurants, which Schnyder describes as main drivers. “We have regular guests visiting our steakhouse. The seafood restaurant popular among local community” he says.
The resort provides food and beverage packages for the local community, which he describes as a key driver. “Our aim is to also make sure that our in-house guests who stay an average of 4.5 to five days stay in the resort and use our facilities. You can’t stop them going leaving, but you need to give them the choice to stay in,” he says.
Maadad says hoteliers are getting smart. “They are saying let’s bring in food and beverage professionals to run outlets, aand spa professionals to run the spa. Hoteliers try to keep it part of the offering, rather than saying this is a leased outlet so let’s keep it at arm’s length. Nobody wins if the food and beverage professionals shut shop creating a dead space in the hotel,” he says.
BACK OF HOUSE
Revenue pressures have created a cost-cutting approach; however, Maadad describes how in hotels today doormen are missing, there is nobody in the bathrooms constantly cleaning. “Hospitality is fading away,” he says, referring to back-of-house cost cuts. “A classic hotel would have these facilities, but not anymore because of these cost cutting procedures and processes of stripping things down instead of saying how do we add value, how do we keep these jobs? How do we ask people to stay with us?”
For Schnyder, the purpose is to make sure the resort is successful. “We offer a good quality product at a good price without slashing and burning,” he says. This said, the property will look for ways to streamline the business to make sure it is efficient as possible. “We look at systems and manning levels in some areas. Are there too many people at any given time in this area? Can they be flexible and work in two areas? After all payroll is a big chunk of our expenses.?
There are also suppliers where savings can be made. The resort constantly reviews the deals it has with suppliers to try find better deals. “It helps to drive the competition among the suppliers. Everybody wants to be associated with hotel like this,” Schnyder says. “We also benefit from the volumes we need to order. Plus we benefit from the AccorHotel network since some of the supplier deals are group deals.”
According to Schnyder, the hotel is well known for its approach to sustaibility. “We look into ways to reduce waste by using a software in the kitchen called Winnow. This reduces costs without affecting the guest experience,” he says.
Winnow is a technology tool that uses data to measure food portions, allowing kitchens to be more efficient.
What gets measured gets managed, and by using data intelligently kitchens can be made more efficient. Winnow develops technology to help chefs achieve greater visibility in their kitchens and make better decisions that lead to dramatically reduced food waste and costs.
We empower chefs around the world to spend more time being creative with food.
Technology is also utilised to drive performance at the resort. “Our revenue management team is constantly monitoring the market to see how it is performing compared to last year, and if it is not performing as good then we ask what strategies we can put on place.”
Maadad said that today owners of hotels have matured. He believes they are being smarter, asking the right questions in order to drive revenues rather than slash room rates. “They would add value on the spa, food and beverage, experiences and activities. It is here that we need to change the mindset. Hoteliers need to treat every space, every square metre in a hotel as a revenue centre,” he says.
He goes on to say how mature hotel owners might say “do no put the laundry facility in the basement but instead use it as some sort of revenue centre rather than a cost centre. Owners are asking ‘when will I get my money back.’”
“The challenge is,” he continues, “people in Dubai made lots of money in the early days when there was less supply and demand was massively up.”