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Alpharetta,
GA – July 2019 / Newsmaker Alert / An
analysis
of the U. S. meetings and events market by PwC, revealed that the U.S.
meetings industry generates approximately $30B – or just over one in five
dollars – in hotel room revenue, while another $110B in revenue is generated
from ancillary services such as food and beverage, event space, equipment
rental, ground transportation, audiovisual (AV) support, and other services.
Unfortunately, current revenue management practices tend to evaluate hotel
group business performance based on the revenue per available room (RevPAR)
index, which is not the best metric for determining a group’s overall profitability.
There are several factors contributing to this faulty approach.
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Factors
Contributing to a Lack of Profitability with Groups
Group
Business is More Complex
When
dealing with transient business, revenue managers work with unconstrained
demand, using price as a lever – yielding to maximize revenues which simultaneously
decreases demand from your more price-sensitive customers. Attempting to
apply transient revenue management techniques to your group business doesn’t
work. The challenge with groups, is that you must manage interdependent,
fixed inventories: guest rooms and meeting rooms. And to optimize profitability
across these inventories, you must strive to achieve the best possible
business mix between convention groups, local catering groups, and transient
business.
RM
Focus on RevPAR
The
RevPAR index is a key performance metric that drives a myriad of decisions
within your organization. However, growth in RevPAR does
not mean that your hotel profits are increasing, just as a decline
in RevPAR does not necessarily indicate a decline in profitability. When
making decisions related to group business, RevPAR only calculates your
income as a percentage of room sales and it does not incorporate other
revenue streams that contribute to your profitability, such as function
space, food and beverage, and AV rental. If you rely solely on RevPAR to
determine whether or not to accept a particular piece of group business,
you may end up making poor decisions that are detrimental to your hotel
profitability.
Incentives
for RM Leaders
Further
contributing to the problematic focus on RevPAR, is the distorting factor
of revenue management incentives. According to research
from professional services firm ZS and the HSMAI Foundation, industry
incentive compensation often relies heavily on the RevPAR index or room
night revenue. This creates a culture that leads to counterintuitive decisions
about group business because it doesn’t benefit managers to account for
the considerable revenue and profit generated from areas outside of guest
room bookings.
Not
Incorporating Meeting Space in Decision-Making
Group
business is varied, including meetings and conventions, trade shows, incentive
trips, sports tournaments, and SMERF (social, military, educational, religious
and fraternal) events. It also includes local catering groups. With the
right tools and proper forecasting that accounts for the differing lead
times (conventions typically booking further out than local catering groups),
you can maximize hotel profits on function space as well as guest rooms.
Once you have meetings/convention groups and transients on the books, you
can fill – and optimize yielding on – unused function space with local
catering groups.
Not
Incorporating F&B in Decision-Making
In
a recent
International Association of Conference Centres (IACC) survey of event
planners, hotel F&B was found to be a determining factor in site
selection. And a
trend report from Avendra found that F&B is growing in importance
as a revenue stream. Groups that frequent full-service hotels are spending
more on F&B, and they’re moving up to hire-tier proteins and beverage
options – with group business being the biggest, most important driver
of F&B demand.
An
STR
research presentation during a Hotel Data Conference, showed that food
revenue made up:
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57 percent
of catering-and-banquet revenue at luxury hotels.
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59 percent
of catering-and-banquet revenue at upper-upscale properties.
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58 percent
of catering-and-banquet revenue at upscale hotel.
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Plus,
hotels earned an additional 6 to 10 percent in beverage revenue.
Clearly,
F&B is crucial to overall hotel profitability and must play a bigger
role in decision-making when it comes to your group sales strategy.
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Improve
Profitability Through Total Revenue Opportunity
Rise
Above the Competition
Cvent
recently published their Q1
2019 Group Business Outlook, a 24-month forecast that highlights group
booking activity in the U.S. Data within the report showed that while there
was a substantial increase in awarded request for proposal (RFP) activity
at the end of last year, that increase was likely fueled by meeting planners’
desire to finalize group contracts before major hotel chain commission
policy changes went into effect this year.
Looking
forward through Q2 2021, group bookings are actually pacing down due to
relatively flat group business demand and increasing supply. This combination
is creating a hypercompetitive market that will require hotel owners to
reevaluate their group strategy. By proactively changing from a RevPAR
or “rooms first” focus to a total revenue management focus, you will increase
profitability from your group business and stay ahead of market trends.
A
Practical Look at Total Revenue Opportunity
In
order to form an effective group business strategy and grow group revenues,
you must focus on the total revenue opportunity for each piece of group
business – accurately and thoroughly calculating all revenues associated
with each booking. Because there may be times when you should accept a
group, even though a RevPAR analysis makes it appear as if the booking
is losing revenue. It’s only when you look beyond room revenue to include
ancillary options like food/beverage and meeting space in your group business
evaluation that the true value of the business is revealed. Only then can
you decide whether to accept or reject a particular piece of group business,
as well as determine the optimal rate to offer for that business.
Consider
the following scenario:
A 300-room
hotel is considering a large group opportunity spanning four days, beginning
on October 5, 2020, at a rate of $200 per room/per night.
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Based
on the analysis completed by the hotel, it would appear as if accepting
the group would result in a loss of $32,100 in room revenue due to displacement
of other higher-rated transient business. However, by including food-and-beverage
minimums as well as meeting room rental fees into the calculation, it becomes
clear that accepting this piece of group business actually increases profits.
Even
when examining historical performance, if the hotel accepts the group,
the hotel’s revenue generation index (RGI) may drop below last year’s level,
perhaps even below the level of its competition. But in fact, the hotel
would still have generated more revenue. This example illustrates the potentially
negative impact on profitability that can come from focusing on rooms revenue
as your only goal when evaluating group business
The
time has come to rethink the way we measure group revenue – with an eye
toward optimization. By taking a scientific, data-driven approach to managing
your group business, one that accounts for total revenue opportunity, you’re
empowered to drive further performance improvement from groups and thus
maximize overall hotel profitability.
About
the Author
Matt
Curry joined Rainmaker in 2016 from Cvent, the world’s largest digital
marketplace that helps hotels attract and convert group business. In his
time at Rainmaker, Matt has served in various leadership roles primarily
focusing around Sales and Product Strategy. Today, he leads global sales
and marketing efforts to help fuel growth and exceed company revenue targets.
About
Rainmaker
Rainmaker
is the hotel revenue and profit optimization cloud. The company partners
with hotels, resorts and casinos to help them outperform their revenue
and profit objectives. Rainmaker's cloud-based solutions for transient
and group pricing optimization, forecasting, and revenue-centric business
intelligence are designed to help hoteliers streamline operations, enhance
revenue optimization processes, improve lead performance, and drive guest
bookings. Recognized as one of the top privately-held companies in the
United States, Rainmaker has been named to Inc. 5000's 'Fastest Growing
Privately Held Companies' for the last seven years and to the Atlanta Business
Chronicle’s list of '100 Fastest Growing Companies in Atlanta'. Rainmaker
serves hospitality customers throughout the world from its corporate headquarters
in Alpharetta, Ga., and from offices in Las Vegas, Singapore and Dubai.
To learn more about Rainmaker and its suite of hotel revenue and profit
optimization solutions, visit www.LetItRain.com.
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Contact:
Dana
Glaze
Marketing
Manager
The
Rainmaker Group
Phone:
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