Hotel industry performance: EHL's Pulse-Taker reveals 5 pain points
By Jochen de Peuter, Consultant at EHL Advisory Services, Lausanne Office
The year 2020 will be marked in history, surely for the travel and hotel industry. Most hotels suffer from a sudden disruption due to COVID-19 crisis and the consequent travel regulations. Still during these days of crisis, hotel performance and business continuity varies significantly from one hotel to another.
What makes a hotel more vulnerable than another?
We try to find the answers in this article.
EHL Advisory Services has developed an online Hotel Pulse-Taker tool that allows hoteliers to evaluate and benchmark the long-term sustainability of their hotel business based on a multi-dimensional questionnaire. After completion, the hotelier receives a report pinpointing strengths and weaknesses versus the benchmark.
An initial assessment has been made available for free, and the aggregated dataset of all respondents has revealed the most recurring pain points, hereby the biggest threats, to hotels prosperity.
5 performance pain points for the hotel industry
1. Hotels' F&B departments perform poorly
The departmental profit margin from F&B department (bar and restaurant) is far below the room division profit margin. More than half of Hotel Pulse-Taker respondents report they do not reach a full restaurant or bar at least once per week or that their guests do not eat at their restaurant.
Despite the complementarity of F&B to the rooms' division, more and more new hotel lifestyle concepts respond by offering only simple snacks or self-service meals. Some brands like CitizenM or Moxy hotels place the bar with self-service at the center of the hotel, instead of an empty lobby space. Every guest goes by it and is often tempted to consume.
An attractive offer of trendy food choices (vegan, organic, Asian, light, local or homemade) encourages people to try them. On the other hand, traditional hotels with a traditional service struggle to find the right allocation of resources to respond to an ever-changing demand in numbers of guests and types of meals.
2. The hotel real estate asset is not properly suited for a hotel or badly renovated
Many hotels are located in historic buildings. Despite many facelifts inside and outside, the hotel real estate is not adapted to the modern norms such as being energy efficient or self-sufficient.
The Hotel Pulse-Taker reveals that many hotels lack a computerized building management system, have no exact energy measurement system (water, CO2), lack recycling or environmentally friendly facilities and experience very high water and electricity consumption.
In particular, older city hotels undergo a competitive disadvantage to newly built hotel real estate projects.
3. Any crisis impacts strongly and affects the cash position of hotels
According to the Hotel Pulse-Taker, the cash position has been deteriorated due to the COVID-19 crisis for almost all hotels, in particular those depending on international markets. Despite a stable growth of the net result during the last 5 years of business, most hotels burn cash everyday they are open and even return a negative result out of operations (GOP). Negative GOPs are common in a limited low demand period, off-season; however, it is not sustainable for many consecutive months or a year. In particular, large hotel structures with MICE facilities such as large luxury city hotels feel the impact. Some hotels report closing permanently, to rebrand or to sell the asset, whereas all hotels report cost-cutting as far as possible.
4. Employee turnover is commonly high in the hotel industry
Despite internal staff training or development programs, about 40% of the respondents report a yearly employee turnover above 30%. It is said that your best staff leaves first. In addition to the brain drain, it is costly to recruit and train new employees.
5. Innovative mind-set remains limited compared to other industries
There is room for more innovation. The technological or environmental progress in hospitality lags behind compared to other industries. While most Hotel Pulse-Taker respondents say they have a PMS, CRM or revenue management system, few use more advanced technological solutions such as own mobile applications to communicate with their guests or to enable checking-in on the go. There seems to be a standardization in the industry, that helps the few more innovative hotels stand out. A robot or mobile app still provides a 'wow' effect in the industry. Likewise, efforts to reduce the ecological footprint are not the priority for most hotels: less than half of the respondents have launched a formal environmental program. This puts them at risk when some hotels such as Lefay resorts have taken the lead and go for a complete neutralization of CO2 emissions.
On average, the hotel industry has to deal with a crisis every five years. Traditional indicators such as occupancy rate, ADR or RevPAR, if used in isolation, may be poor predictors of a hotel's ability to weather difficult times and succeed in the long run. Using a tool such as the Hotel Pulse-Taker is essential to reveal the pillars of long-term performance and the specific elements that pose a threat.
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