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How to Read Your Hotel's Financial Statements

Hotel Business Review by hotelexecutive.com - ·8h
The first thing you need to know about reading a hotel financial statement is there are basically 2 different statements that you will want to get comfortable with. The two different statements are the income statement, some call it the P&L for profit and loss statement and the second in the balance sheet. Now I know what you're thinking, balance sheets are for the accounting types and they are complicated. Nothing could be further from the truth and I am going to give you a new understanding and share a secret about the balance sheet and the relationship to the P&L.One thing to always keep in mind is the fact that many miss. It's the existence of a the 11th addition of the uniformed system of accounts for the lodging industry.

Owners' views on hotel distribution profitability

hotelnewsnow.com Featured Articles - 22 September 2017
The year 2016 marked a new step in hotel distribution with the active participation in travel of Google, TripAdvisor and others entering the market with instant booking and other transactional models. Here’s our straightforward assessment and actionable guidelines for owners with regards to the management of their room inventory. Asset managers have to be well-versed in the subject to be able to identify potential hidden costs. After all, as owners expect operators to generate direct bookings, management fees are computed on the basis of the “full average daily rate” and not on the “net ADR” (which is ADR minus transaction-related acquisition costs and general acquisition costs, plus ancillary spend).
Article by Robert Mandelbaum

An Analysis Of Franchise Fees

CBRE Hotels - 21 September 2017
In the current market environment of modest growth in revenue, hotel owners and operators are paying extra attention to their operating expenses. Per the June 2017 edition of Hotel Horizons(r), RevPAR growth in the U.S. is forecast to remain under 3.0 percent from 2018 through 2021. Therefore, it will be management's ability to control expenses that will enable profits to grow.One expense that management has less control over are franchise fees. Most of the fees charged by the franchising companies (brands) are assessed as a percent of a source of revenue. Therefore, owners and operators have mixed emotions when franchise-related costs rise. After all, if you are paying more franchise fees, then it is likely that your property's revenue is also on the rise.To assist hotel management and ownership in their assessment of the franchise-related costs they are paying, we have analyzed data from 1,587 U.S. hotels that reported franchise fee payments each year from 2010 through 2016. The data comes from our firm's annual Trends(r) in the Hotel Industry survey of operating statements from thousands of hotels across the nation. Some of these properties are owned and/or operated by a brand. Others license the brand, but are operated independently, or by a third-party management company.In our Trends(r) database we capture four different franchise-related fees on a discrete basis. They are:Royalty PaymentsMarketing AssessmentsReservation FeesGuest Loyalty Program FeesFor this analysis, the sum of these four components comprise "total franchise fees". These are the data that we analyze in this article.The Cost of FranchisingAs noted before, franchise-related fees are typically assessed as a percent of revenue; most frequently rooms revenue. Therefore, it is not surprising that total franchise fees measured as a percent of rooms revenue has remained fairly constant from 2010 through 2016. In 2010, franchise fees averaged 6.8 percent of rooms revenue, or $2,326 dollars per available room (PAR). This metric increased to 7.2 percent in 2016, or $3,381 PAR.Due to the ascending average daily room rates, franchise fee payments on a dollar per available room basis increase as you go up in chain-scale. In 2016, properties in the midscale segment averaged total franchise fees of $1,897 PAR, while luxury hotels paid $3,970 PAR. Conversely, franchise fees measured as a percent of revenue ranged from a high of 9.6 percent for upper-midscale hotels to a low of 5.2 percent at luxury properties.The ComponentsThe increase in franchise fees as a percent of revenue indicates that they have grown at a greater pace than rooms revenue. From 2010 to 2016, total franchise fees increased at a compound annual growth rate (CAGR) of 6.5 percent. Concurrently, rooms revenue for the hotels in the sample experienced a CAGR of just 5.5 percent. By analyzing the four individual components of franchise-related expenses, we can identify those elements that have led the rise in fees, and those that have lagged.In 2016, royalty payments constituted the greatest portion (29.5%) of franchise fees, followed by guest loyalty program fees (27.9%), marketing assessments (25.6%), and reservation fees (17.0%). This differs somewhat from the profile of payments made in 2010 when the largest share went towards guest loyalty program fees (27.3%), and royalty payments were only 26.8%.The increase in franchise fees has clearly been driven by the royalty payment component. From 2010 through 2016, franchise royalty payments have grown at a CAGR of 8.1 percent. This is 260 basis points greater than the growth in rooms revenue during the same period. Guest loyalty program payments (6.8%) also increased at a greater pace than rooms revenue the past seven year. Lagging in growth were marketing assessments (5.9%) and reservation fees (4.2%).Management Structure MattersSixty percent of the properties in the study sample were owned and/or operated by the brand affiliated with the hotel. The remaining forty percent was either managed by the owner (non-brand), or operated by a third-party management company. Between the two management structures, we see differences in both the composition of the franchise fees, and how each component has grown since 2010.In 2016, the components of franchise fee payments were more evenly distributed at the hotels operated by the brand. Since the brand is also earning management fees at these hotels, it can be assumed that they will alter components of the franchise fees as needed to win the management contract. At the brand-operated properties, the greatest share of franchise fees went towards the guest loyalty program (30.7%). However, the greatest growth in franchise fees at these properties since 2010 has occurred in the royalty payment (11.0% CAGR) component. Overall, total franchise fees at brand-operated hotels increased by a CAGR of 6.6 percent from 2010 to 2016, while rooms revenue grew by 5.5 percent CAGR.At the hotels that are self-operated or managed by a third-party company, royalty payments (45.4%) dominate the total dollars paid to the franchisor. Since the brand is not receiving any management fees at these properties, they are less likely to negotiate any reductions in franchise royalty payments. From 2010 to 2016, the component of franchise fees the increased the greatest was the guest loyalty payments (9.2% CAGR). This is significantly greater than the increase in rooms revenue (5.6%) for these properties over the same period. Since the amount paid for guest loyalty program fees is influenced by the benefit received from these programs, it can be assumed that these hotels have received an increasing volume of business from loyalty program guests over the years.Assessing ValueWith the prospects for revenue growth limited for the next few years, hotel owners are paying particular attention to the costs associated with acquiring revenue. They want a better understanding if the investments they are making in distribution channels, management, and their brand are providing a sufficient payback.When assessing the return they are getting for the franchise fees paid to their brands, owners also have the ability to dissect the value of the individual components. This enables them to make more specific comparisons to alternative brands, reservation systems, referral sources, management options, or even soft-brand alternatives offered by the franchisor.

Loss of productivity: when CAPEX and management make no sense...

Hospitality ON - 20 September 2017
Which actors are involved? Hotel groups, hotel operators, employees and the client, or more precisely clients as they are many and polymorphic. Productivity loss affects hotel groups that have not made the necessary investments and have lost control over commercialization. Hotel operators, meanwhile, have not invested in CAPEX and in new procedures in order to get the most out of their hotels. Employees have not been sufficiently trained and given the tools to adapt servuction or even to innovate in the services customers expect. Where does the quality of service come from? At the beginning of the production line, before creation, conception, commercialization of the product, but also and especially at points of direct contact. The machine that is the hospitality industry has slowed in productivity, lost in terms of quality and thus seen a drop in occupancy. To expect the customer to adapt to the product would be both utopian and suicidal when it is the product that must adapt to needs and demands.How to reboot the machine yet remain productive ? By promoting its assets: qualified workers who are trained to be autonomous, encouraged to take initiatives, able to adapt. Product ambassadors who are flourishing in their jobs and must be true local entrepreneurs rather than just passive links to the headquarters of brand operators. This is one of the first levers for improving productivity.Optimal use of new technologies makes it possible to simplify, automate and lower operating costs, thereby allowing employees to concentrate on tasks with higher added value. Only new concepts have succeeded in lowering operating costs, but the problem remains for the other, majority share, of the hotel supply.Return autonomy to the divisions will make it possible to finally improve the jobs-activity flexibility to enhance productivity, better customer satisfaction and thus better competitiveness and growth in demand. Marginal costs will decrease with the repositioning of the supply, thereby helping demand increase. Labor flexibility is necessary in order to adapt to this new demand, but it has not yet fully implemented in the organization of personnel.By returning capital and labor assets to the production unit it will be possible to improve competitiveness. Boosting activity must also happen from the bottom up, from the point of direct contact with the client rather than from headquarters, which would be wise to give hotel managers more autonomy.It is clear that competition between destinations and products has been stepped up in recent years. The arrival of new concepts, the renewal of the camping offer with an improved range and the arrival of new products such as mobile homes, the diversification and modernization of the tourism residence supply and the explosion of the shared accommodations offer are examples that show that when investments are made on the supply, competitiveness becomes obvious. We can bet that if we rethink our functioning and our priorities on a local level, it will be possible to renew the value of the hotel industry and get the machine operating full throttle again.

New accounting standards call attention to OTA revenue

hotelnewsnow.com Featured Articles - 19 September 2017
AHLA’s financial management committee recommends operators and owners understand the details of their agreements with online travel agencies. Starting on 1 January 2018, there will be several changes to the accounting and financial reporting standards that will impact the hotel industry. Owners and operators need to prepare now to ensure these accounting changes don’t negatively impact their bottom lines.
Article by David Lund

Hospitality Financial Leadership - NASCAR

The Hotel Financial Coach - 19 September 2017
We are all familiar with the American Sunday ritual of turning left several hundred times, cold beer, BBQ and t-shirts. I have long been a big fan and there is a great story and parallel to financial leadership I want to tell you about. It relates to one of my favorite drivers, Mark Martin.It has just been announced that he will be inducted into the short list NASCAR Hall of Fame recipients in 2017. Funny thing: He has never won the super bowl of the sport, The Daytona 500, and he has never won a season championship either. So, why the Hall of Fame?"To be gritty is to keep putting one foot in front of the other. To be gritty is to hold fast to an interesting and purposeful goal. To be gritty is to invest, day after week after year, in challenging practice. To be gritty is to fall down seven times, and rise eight." ~ Angela Duckworth from her book Grit.Mark's NASCAR career started in 1981 when he participated in only five races, won two poles (qualified fastest and started first) and had one top 5 finish. Pretty good for a rookie in an incredibly competitive sport. The next season he started 30 times had two top 5 finishes. His third season he started 16 times and had one top 5 finish, fourth season: five starts and no top 5's or poles, fifth season: only one start and no results. Things were not looking so good. Five years of going backwards on a young career would be enough to pull the plug, but not for Mark. If there is or will ever be a driver with GRIT it is Mark.For 33 seasons (years) he battled it out. 882 races. 255,000 laps. 40 wins. 271 top 5 finishes. 453 top 10 finishes. 56 poles. Yet no championship and no Daytona 500 win. He finished in second place for the season championship five times. How does someone keep going? Well, he looked at it this way.How can I get a little better with one small accomplishment at a time?That's Mark's motto. He would think all night long before a race: what about the shocks, what about the carbs, the tires, every part of that car. That is a great way to look at anything you are trying to accomplish. What is the next thing--the next little thing--I need to do? Do not be waiting for the BIG thing--look for all the little things--they matter and they produce the big thing. The same is true with your financial leadership, do not look for the magic solution; look to make lots and lots of continuous adjustments."I'm not good at looking in the rearview mirror, I like the windshield." ~ Mark Martin"How would it change my life?" he was asked in a recent interview if he had won the 500 or a championship.He replied, "I'm not bitter, I'm proud of my accomplishments and my career. I worked hard and that's what mattered, I didn't ever stop being a winner."This is it. What has happened in our past is history, it is not an indication of what is ahead. We do ourselves no favor by regurgitating our first 5 seasons.What are you looking at? The rear-view mirror or your windshield. So what if the events of your past are not victories. Don't go there.Keep moving forward and you will find your hall of fame. If you would like a copy of any of the following send me an email at david@hotelfinancialcoach.comHotel Financial Policy Manual - Inventory of "Sections"Hotel Financial Coach "Services Sheet"F&B Productivity SpreadsheetRooms Productivity Spreadsheet Financial Leadership Recipe F TAR WFlow Thru Cheat SheetVisit my website today for a copy of my guidebookThe Seven Secrets to Create a Financially Engaged Leadership Team in Your Hotelwww.hotelfinancialcoach.com

Navigating hotel insurance claims following hurricanes can be tricky, experts say

Hotel Management - 19 September 2017
No hoteliers in Texas are praying for rain. After Hurricane Harvey dumped nearly 50 inches of water across the state’s eastern coast, many of them are scrambling to get their businesses up and running again, while others are reeling from total property loss. A week later, Hurricane Irma left hoteliers in Florida and the Caribbean in a similar state. Their biggest fear is that while raging waters left hotels without the ability to book new guests, properties heavily damaged from the storm still have to pay rent — and in many cases, franchise fees.

Hotel Lawyer: Tax Alert for Partnerships and LLCs

Hotel Law Blog | By Jim Butler - 18 September 2017
As of January 1, 2018 owners of General Partnerships, Limited Partnerships or multi-member Limited Liability Companies may soon find themselves economically liable for the unpaid tax of former partners/members of those entities. JMBM Tax Attorney Jamie Ogden briefly describes the new audit regime, who it affects, and what you need to do to protect yourself from uncertainties.
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Hotel Lawyers at The Lodging Conference 2017: EB-5, Mixed-Use Development and Deal Making

Hotel Law Blog | By Jim Butler - 18 September 2017
The Lodging Conference is taking place at the Arizona Biltmore in Phoenix, October 30-November 2, 2017, and hotel lawyers from JMBM’s Global Hospitality Group® will be there to visit our friends in the hospitality industry, share our knowledge, learn from the experts (and do some deals!). At the conference, I will moderate the panel, Navigating the EB-5 Landscape taking place at 4:00 pm on October 31st. Funding obtained through the EB-5 Immigrant Investor Visa program continues to play a vital role in the capital stack for new hotel development and we will provide up-to-the-minute information on the status of the program, as well as share some great success stories. To get up to speed on what’s happening with EB-5, check out my recent blogs.

Five Critical Steps To Ensuring Finance's Support Of Your Budget

visionedge marketing - 14 September 2017
Speak the Right Language to Gain Your CFO's SupportAs CFO's become more responsible for activities such as prioritizing company resources, developing and communicating the company strategy, making IT decisions, and implementing performance programs, marketers will need to better quantify and measure the value of marketing programs. Without a doubt with the International Financial Reporting Standards (IFRS) accounting standards, more financial influence and control over marketing is on the way. More and more CFOs are participating in developing and driving organic growth strategies.Collaboration is Critical to Marketing's SuccessTo respond to today's fast-changing market environment, organizations need high levels of collaboration and trust between finance and marketing With the CFO and the CMO both in pursuit of growth, it will be imperative for marketers and finance to establish high levels of collaboration and trust. Marketers can take the lead by improving their ability to "speak the business." How?Use these Five Tips to Forge a Stronger Alliance with Your CFO1. Start with alignment. Having a clear line of sight between marketing initiatives and the business enables marketers to make both strategic and tactical decisions regarding customers, channels, touch points, and content investments. Alignment is the gateway to understanding what data you will need, what analytics to apply, and what metrics need to populate your dashboard. The key is for marketing and finance to work together to define performance metrics that contribute to the enterprise's strategic objectives.2. Select relevant metrics. A study by CFO.com found that CMOs report sharing marketing information with their CFOs than CFOs report receiving. In that same study, most CFOs believed that marketing could have a positive impact on profitability but 40% of them didn't know if CMOs were even trying to do so. This gap can be closed by picking t metrics that enable you to know what is and isn't working and that demonstrate Marketing's value to the business. You want metrics that help you make investment decisions and appropriate course corrections; not metrics that are easy to collect or "cool."3. Build business acumen. Marketers with business acumen understand that they are they are using company funds to make investments on behalf of the company. Best-in-class marketers build business acumen and customer intelligence so they can create value for customers and the company. Think beyond this quarter's "leads" or this year's integrated marketing campaigns and content. Understand your customers' journey and help your company validate, penetrate, and dominate markets.4. Embrace data, analytics, and modeling to facilitate market, customer, and product innovation, and competitive move decisions. The explosion of big data and advanced analytics creates a daunting task for CMOs to collect, manage, and turn data into meaningful intelligence. It behooves Marketing to work closely with CFOs who are now playing a much larger role ensuring that the structures and investments are in place to maximize the organization's enterprise-wide analytics capability.5. Take a portfolio management approach. Most CFOs' understand the concept of portfolio management. Marketers are in essence portfolio managers. Your portfolio is comprised of a mix of emerging customers and markets, and goals such as retaining and/or profitably growing a set of customers and markets. Build a marketing plan that represents this portfolio mix and how you are allocating the funds across each component. Clarify how the investments are intended to contribute to the business, and then develop a dashboard that monitors and communicates marketing's portfolio investment performance.Forging an explicit collaborative alliance with finance is critical to Marketing's success. Finance is not an adversary. Seek to create an ongoing collaborative relationship with the CFO and the finance team.
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How to Improve Your Research ROI: Six Best-Practices

MarketingProfs·Requires Registration - 13 September 2017
Successful customer and market research can provide the data you need to support specific business objectives, such as understanding requirements for a new market or a new product, fine-tuning your customer journey mapping, improving competitive market positioning, refining a customer facing process, analyzing your win/loss results, and measuring customer satisfaction. With the proliferation of survey software, it can be tempting to jump into creating survey questions, aided in part by tips published on the software company's website. But successful research is so much more than wordsmithing the questions and choosing appropriate rating scales: It's a science that takes time and money. Your methodology and corresponding survey instruments/questionnaires must support the purpose of your research, along with any business, timing, and budget constraints.
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Good Intentions, But...

Bill Geist's Zeitgeist - 13 September 2017
After 9/11, Bill Marriott infamously called for the suspension of Hotel Room Taxes to help spur a resumption of travel in America. While a nice thought, saving five bucks on a room wasn't going to inspire anyone to travel that was too nervous to do so without the offer. What was needed was a more robust marketing and communications effort from local Destination Marketing Organizations...who depend on the revenues from Hotel Taxes to power their work. Thus, throttling the primary funding stream for most DMOs, even for a few months, would be counter productive to Bill's desire.

Controlling irritable budget syndrome

hotelnewsnow.com Featured Articles - 12 September 2017
Owners can take steps to stave off the usual headaches associated with the budget process. With enough pushback from owners and asset managers, perhaps the industry will shift to a more rational budgeting process—including the adoption of flexible budgets. In the interim, budget season will, per usual, be a period when a large portion of owners and asset managers are sure to suffer from IBS … Irritable Budget Syndrome. The causes include unsupported revenue projections, sand-bagging, defensiveness, irrational intransigence, etc. The symptoms include anxiety, anger, sleeplessness, disgust, distrust and, in the worst cases, legal disputes.
Article by David Lund

Hospitality Financial Leadership - Global Hotel Revenue Management

The Hotel Financial Coach - 12 September 2017
Global is a big word and now that we have your attention I want to define global in a hotel setting. Global refers to all sources of revenue and their corresponding profit picture. A global perspective on revenue management yields the highest possible profit because we understand and apply a BIGGER view to our business.I think the title and buzz word that has our industry locked on "revenue management" is entirely the wrong way to look at it. It is not revenue we are after, it is profit. Revenue is where we start but it is always profit that we end up with. Understanding what happens to the room revenue and resulting profit from different segments is the starting point to a much more effective outcome.We essentially have three types of customers in hotels: leisure, contracted individual and groups. Let's have a look at the profitability profile of each major segment of the rooms business.DO NOT PUT ALL YOUR EGGS IN ONE BASKET. Warren BuffettUnderstanding this lesson and applying it to your hotels "global revenue management" strategy in turn helps you understand your hotel's DNA. Knowing the DNA and how we can affect it is the highest and best use of the profit maximization strategy.Leisure, on the surface, is the most desirable customer in most people's eyes. They normally pay the highest rate and we like to think they spend lots in F&B, parking and the spa. But not so fast on this one. What we need to examine is the cost to get the leisure customer. First, they book through an OTA (online-travel-agent) or the company website and both are very expensive sources of distribution. Typically, 15-20 percent of the rate comes back to the operation as a commission or reservation expense. Second, most leisure customers will use the hotel's facilities, but they also are busy seeing local attractions, including restaurants and bars. Long gone are the days when leisure guests stay put.Third, it is hit and miss with leisure guests and how they treat their room. If it is a multi-occupancy family stay, the housekeeping department better have lots of supplies and staff for service. This segment as a whole is the hardest to service. We do not know when they will arrive but it is often early. We do not know when they will leave but frequently it is a late checkout and they always pay with a credit card that attracts a nice two-plus points of total spend. The last aspect of leisure we need to be aware of is they are predominantly weekend or seasonal customers. I say the leisure guest is at best tied for second place in my preferred customer profit profile.Next up is the contracted individual or, as some hotels describe it, corporate individual traveler. In many hotels, the contracted traveler serves as a base for the rooms business. Hotels pop up all over the place and in many instances, they want to plant themselves close to other businesses and offices. This location effect attracts business travelers to the hotel. Business travelers are a desirable element for hotels to nurture as they have several positive attributes. Generally, they use the hotel throughout the year, less holidays. They typically arrive late, after 6 p.m., and leave early, before 9 a.m.Housekeepers love the corporate guest because usually it is just one customer and he or she uses the room very lightly. The use of the room cannot be overlooked. With renovations needed as early as 5-6 years in some properties, a good mix of corporate business can push the renovation out a year or more.On the distribution side, there are costs but almost always fewer than leisure because there is ability to negotiate the distribution. Corporate customers are normally hotel breakfast customers and quite often you will see them in the hotel bar having a beverage after the business day is over.Another very positive aspect of the corporate customer is he or she has the potential to bring other corporate customers, as well as small to bigger meetings, to your hotel. So, nurture your relationship with these repeat customers. Let's just say the corporate customers are easy. Overall the preferred customer rating I would assign the corporate individual traveler is tied for second. In this case, like baseball, the tie goes to the runner and the runner is the corporate individual traveler.The big cohune in most hotels is groupsAt first glance at your rates, you might conclude that the group average rate is low. Do not stop looking there. When you look at the sheer economics, groups often win the top prize.First, take the distribution costs. If the hotel is well run the group is booked through a rooming list or another low-cost reservation method. No OTAs or central reservations need be used. In effect, this adds 15-20 percent to the group rate. The group may come with a commission from a third party, but many do not, especially if you have your own sales team.Second, consider the group movement. The group arrives, moves in-house and they leave together. This is very desirable from a labor and efficiency perspective. On third base is F&B. Groups meet, eat and drink together at the same time. This effect is the most powerful profit combination. A good group with breakfast, coffee breaks, cocktail receptions and dinner are the perfect profit combination. In demand situations, hotels can place groups perfectly in their need periods. In addition to the room and F&B revenue, groups almost always need AV, display space, drayage and best of all meeting room rental.Third, the cherry on top of the group cake is they almost always pay their invoice with a check. Groups business is the number one desired customer in my book.How does a hotel measure these different sources of business and decide which way to go? The easy answer is you need all of them to be uber successful. Like Warren said, "Do not put all of your eggs in one basket." Having a diversified customer segmentation means you can better manage when one or more segments faces headwinds. If you were running a hotel in the last financial crisis, you know what I mean by customer segment diversification.Knowing what each piece of business is likely to spend and where is key. Most hotels have tools to analyze the spending and the profit to come from that revenue. Global hotel revenue managers are looking at the profitability of each piece of business, weighing the operational challenges with the economic benefits.Hotels are a pure example of the supply and demand principle.If you would like a copy of any of the following send me an email at david@hotelfinancialcoach.comPolicy Inventory OutlineF&B Productivity Spreadsheet Rooms Productivity SpreadsheetFinancial Leadership Recipe F TAR WFlow Thru Cheat SheetVisit my website today for a copy of my guidebookThe Seven Secrets to Create a Financially Engaged Leadership Team in Your Hotelwww.hotelfinancialcoach.com
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How Guest Feedback Aligns with Your Hotel's Top Goals

Hotel Business Review by hotelexecutive.com - 11 September 2017
In a recent interview, Airbnb co-founder and chief strategy officer Nathan Blecharczyk said their future goals lie in "becoming a platform for the entire trip, so no longer just about accommodations…really trying to reinvent every aspect of travel." I believe hoteliers need to think along the same lines: how do we reinvent the travel experience - from search to booking to providing a top-notch experience on-site - to not only compete with the likes of Airbnb but also to achieve your hotel's top goals?
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If you would like to change your culture, start a new conversation

mikehohnen.com Blog - 10 September 2017
Often teams say to me: “We need to change the culture around here.” And they often have a point, because toxic cultures are very powerful and can often destroy all sort of great initiatives – and as we have seen in a previous post, culture is a huge part of engagement. But it also easily becomes a fluffy excuse for not doing anything. It’s another drama triangle where the big villain is the culture and we are just the victims of this culture. “Well you know, that is just the culture around here. There’s not much we can do about it.”
Article by Robert Rauch

Hotel Business Plan Development 2018: Getting Ready for 2018 Budgeting

R. A. Rauch & Associates, Inc. - 8 September 2017
Before we complete our business plans for 2018, a review of macroeconomic data is in order. China's growth might be slowing but we anticipate a fairly steady U.S. economy in 2018. We will likely slow to about a 2 percent GDP growth rate over the next year as this economic recovery reaches the 100 month mark next year.Unemployment is low, consumer confidence is solid and household spending is strong. Interest rates remain low, business confidence is strong and nothing to derail the economy is imminent. Oil prices have been unusually flat notwithstanding the speed bump caused by Hurricane Harvey.All of this information bodes well for the hotel market in the U.S. which should lead to our estimate of 3 percent RevPAR growth in 2018. Last year at this time, we projected 4 percent RevPar growth for 2017 and stand by that number. Naturally, the caveat is that unexpected "event" that could stimulate a precipitous decline in demand. We believe that can be averted in 2018 despite the craziness in the Middle East, North Korea's chest pounding and the turbulent economies abroad.As we are now nearing the end of summer of 2017, this means budget and market planning time is here. While many operators merely look at last year's numbers to budget and forecast, the only meaningful way to budget is to analyze the market thoroughly. Whether you are opening a new business or getting ready for 2018 budgeting, now is the time to begin the planning process.The following action needs to be taken:Review trend report and competitive set information from STR. This will provide a baseline. Ghost call primary and secondary competitors to obtain price points, features and benefits. Obtain sales collateral and start a competitive information file. The process of "elicitation," coined by John Nolan in "Uncover Your Competitors' Top Business Secrets Legally and Quickly-And Protect Your Own" discusses the importance of this area.Meet with general managers and marketing team members of primary and secondary competitors. Site tour each business and establish a referral program. Coordinate a market review with your franchise marketing manager if appropriate; obtain a franchise national media schedule. Discuss opportunities for digital advertising to promote your business with your extended marketing team. Independents must create a digital presence.Develop a 2018 sales and marketing budget; do not assume growth from last year. Review the STR report and other market intelligence and market pace reports carefully. Review quality and quantity of sales collateral and ensure your email lists are updated for newsletters and blasts.Review customer information guides whether electronic or printed. Plan a sales blitz. Order blitz giveaways and mementos with your logo, address, web site and phone numbers. Choose items that will stay in contacts office such as candy jars, post-it notes or coffee mugs. Review your central reservation database property information file. Forward to your central reservations database supervisor.Meet with key contacts at your Convention and Visitors Bureau and Chambers of Commerce. Obtain a list of advertising and trade show opportunities for budgeting. Contact local Chambers of Commerce and obtain lists of your area's top businesses and employers. Qualify key companies and individuals to create or update your own emailing or mailing lists/labels. Business Journals also have great lists. Ensure that you have a list of your competitive set top demand generators (360 report).Contact guest loyalty rewards program administrators at franchise headquarters to arrange to promote your business in the next member newsletter. Solicit articles on your business as a feature story. Develop possible press releases for the coming year along with a public relations plan and contact each segment specialist for the franchise worldwide sales staff to see what opportunities are available to promote your business at upcoming trade shows, future segment specific directories or sales missions.Create a strong database for electronic mail promotions and ensure your website is not a brochure but rather a focused, customer-acquisition medium. Create website awareness, i.e., create some "buzz" via pay per click, SEO, SEM and unique offerings. And if your website is not mobile optimized by now, this needs to be corrected immediately.Continuously create and deliver "can't-resist" content. Traditional advertising is rapidly losing out as marketing professionals realize the advantages and effectiveness of digital content marketing. Marketing's new mantra of "brands must now act as publishers" has arrived in part because of social media and its potential to engage in meaningful conversations with their loyal fan base and potential clients alike.Develop a permission based electronic marketing program. This is a type of marketing whereby the target audience is solicited by e-mail and his or her approval is sought before marketing to them. By investing in the sharpest media tools like blogs, social media, newsletters, webinars, e-books, photo-sharing, videos, shared media and even Virtual Reality, you will drastically reduce the hefty investments in traditional paid media that are becoming substantially less effective with modern consumers. Simply put, you need to create and share content while being of interest to lots of people to be a player!Calculate the lifetime value of a new customer. As an example, if a traveler stays with you two nights per month at $150 per night for 5 years, that is $18,000 in today's dollars. This data is helpful in determining the value of a new customer. Include calls to action in all advertisements and measure the result of every email marketing blitz and test new approaches periodically.Use this process now or risk losing your competitive edge! And do yourself a favor and do not create the budget without first reviewing your Business Plan - otherwise you are just entering numbers to make yourself feel good. Remember that all business is local - national trends are merely the foundation of your plan.Enjoy the end of summer and Q4!

There's no rationale for price gouging

hotelnewsnow.com Featured Articles - 7 September 2017
A hotelier might call it revenue management, but it’s price gouging when those fleeing natural disasters must pay 200% or 300% above rack rates for hotel rooms. As it is with any modern 68-year-old man, Twitter is one of my primary forms of communications—both benign and sometimes combative—with those I know and strangers I meet online. I recently engaged in an acrimonious exchange with someone in the hotel business who seemed to me to condone price gouging by hoteliers serving people escaping the effects of Hurricane Harvey.
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Not the (Tourism) President We Had Hoped

Bill Geist's Zeitgeist - 7 September 2017
Regardless of one's political affiliation, the notion that a President who makes a shit ton of money in the Tourism sector might be a good thing has pretty much been proven to be beyond wishful thinking. After an initial surge in international visitation (likely by people who had booked prior to his inauguration), the number of foreign tourists today are way off. Like 700,000 off, representing a trade loss for America of $2.7 billion.

EB-5 Finance Lawyer: President's Trump's budget deal includes extension of EB-5 through 12-8-17

Hotel Law Blog | By Jim Butler - 7 September 2017
President Trump’s budget deal with Congress includes extension of EB-5 through December 8, 2017 In a message to members of the Public Policy Committee today, the IIUSA confirmed the extension of the EB-5 regional center program as part of the budget deal struck yesterday by President Trump and Congressional leaders.
Article by Mariano Faz and Yung Dang

Hotel Asset Management Guide: The Budget Process

TFG Asset Management - 7 September 2017
The first draft of the hotel's budget needs to be submitted based on the management agreement. It is advisable that the owner and the appointed asset manager request the operator to submit the budget by 1st October. Prior to this submission, the operator will need to plan the timing of their submission and obtain approval of the draft by their corporate office.Upon receiving the budget, the asset management team is required to analyse the figures, from the top line to the bottom line, covering capital expenditure and operating expenditure. The asset manager is required to review the year-end rolling forecast and establish a detailed comparison to the previous year's performance and that year's full budget. In most cases, the first draft received by the Asset Manager is highly conservative.Once the asset manager has conducted a thorough analysis the owner, the owner's representative and the hotel operator proceed discuss the budget. The operator will protect their interests and will generally attribute any downfall in the segmentation to the market conditions. This form of justification would highlight any outstanding performance in the previous year as a result of specific conditions or one-off events.Contrary to the conservative top-line forecast, the majority of CAPEX that we have studied in Asset Management generally exceeds the ones presented the previous year.Another point of contention between the owner and the operator pertains to expense provisions. The operator often attempts to increase the provision each year, in order to ensure that the property is maintained to brand standards. In contrast, the owner is primarily concerned about managing expenses. The asset manager functions as an intermediary, ensuring that the investments are mandatory and cost-effective.The conversation during the first budget meeting revolves around top-line revenues. The majority of operators normally forecast conservative growth, which raises the probability of achieving the year-end target and fulfills the performance clause. Hotel owners, on the other hand, prefer more optimistic figures. In order to assess proposed room revenues, the asset manager is required to compare last year's performance against the budget for each market segment and question any major discrepancy in segmentation for each season, or month.The asset manager should compare the top 20 accounts productions and historical room rates during the previous year to the budget for each segment monthly. The presented budget should be a reflection of the strategy and positioning of the hotel.Another controversial point is the profitability of the F&B outlets. Hoteliers actively market the rooms through different channels, but tend to dedicate less effort towards marketing their restaurants.If the asset manager identifies any major discrepancies in trends throughout the years, they are advised to query the data and propose a solution for rectification. The life cycle of a restaurant is generally shorter than that of a hotel; therefore, the concepts in place at the hotel must be regularly reviewed by all parties involved in the budget negotiation process.After having analysed the top-line revenue, the next point of contention revolves around the expenses. The asset manager must review the expenses across each department on a monthly basis. It is imperative that asset manager maintains an asset management model so that the data can be extrapolated and used to make informed decisions. For example, operating expenses are relative and be comparable if translated into a ratio which quantifies the expense against the number of occupied rooms (i.e budgeted utility cost per occupied room versus the previous year. Any major variance must be questioned to the operator).Fixed charges requires particular attention, and comprises the license fee, insurance, rental fee, management fee, FF&E etc. The asset manager must review the contract to review the management fee and ensure that the percentage allocation is correct based upon what the operator is projected to achieve. In addition, the appointed asset manager must also verify that the FF&E allocation is consistent with the terms specified in the Management Agreement.The hotel's vision and strategies are discussed throughout the budget meeting, based on the projected revenue and expense figures. Conflicts will arise as the operator and owner may not agree on a firm strategy. Items which are important to the operator may not necessarily be prioritized by the owner. This further highlights the importance of the asset manager in managing each party's perspective and influencing the strategy for the year ahead.The first round of budgeting is the most time consuming, while modifications to the budget should take a maximum of two weeks. Corporate or regional teams will revise the draft before presenting it to the owner and asset manager. Unresolved issues and further revisions of the changes in the first draft will be addressed during the second budget review. The third draft submitted to the owner is normally the final version, although it is possible for the owner to make some minor changes. Ideally, the budget should be approved and closed before 31st December.This article provides a brief review of budget round tables and what can be expected during the process, which can take up to three full months, given the time that elapses from receipt of the first draft until the closing of the budget. The asset manager and the operator enter several rounds of negotiations to discuss strategies behind the figures presented.Upon the asset manager's approval, the final budget will be submitted to the owner. Most often, if the owner appoints a credible asset management company, there will not be any resistance from the owner in approving the budget in a timely manager because the asset manager would have undertaken a comprehensive analysis.
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Hospitality Financial Leadership - How to Set Up and Report Food & Beverage in Your Hotel Financials

The Hotel Financial Coach - 5 September 2017
That is a long title and it is fitting because F&B reporting in your financials is the longest part of your hotel financial reporting process. Every other department except for benefits is a single shot. In F&B you need allocations and a roll up of all outlets into a total F&B profit statement. This is the single biggest area where I see hotels get their statements wrong. In this article, I am going to lay out how to set up your statements and general ledger to provide you strong financial reporting for your food and beverage department.Food and beverage is differentThis is the first thing to grasp. In complete contrast is the rooms department where there is a single revenue and cost structure neatly wrapped up and standing alone. With F&B there are multiple revenue and cost centers.On the revenue side, there are banquets, room service, and other outlets. Each is its own revenue center and a separate department within the general ledger. Inside the revenue centers:FoodLiquorBeerWineMinerals...are types of revenue at a minimum.Revenue from outlets should be recorded by meal period--at a minimum breakfast, lunch, and dinner. Brunch is lunch and depending on the nature of the outlet, you may want to see cover charges, gratuities, and miscellaneous revenue categories. In all the different food and beverage segments capture the number of customers and report the average customers spend. Today it is average customer revenue: total food and beverage sales divided by the number of customers. Within banquets, you will want to see group and local sales separated (see my post titled - Separating Group and Local Sales in Banquets). Additionally, in banquets capture revenue for receptions, coffee breaks, room rental, labor charges, freight/transportation, utilities, gratuities and miscellaneous.After payroll in each outlet, you will want to see the cost of sales next. Cost of sales for food, liquor, beer, wine, and minerals are all separately recorded with the dollars of cost and a percentage. Here is where so many hotels get off the road and into the ditch. Many hotels try to capture the actual cost of sales by outlet. This a noble idea but not at all practical. Allocation is the way to record and distribute the cost of sales. The most efficient way to produce food from a cost of sales and labor point of view is to have a main kitchen, banquet floor kitchen and satellite kitchens for the outlets. The main kitchen prepares the bulk of the base of food: soups, pastry, sauces, butcher, etc. The satellite outlet kitchens finish and assemble the food for their outlet at the time of service. Banquets are a little different as they often prepare the bulk of their protein and vegetables and assemble them en masse.Having one food cost is efficient because the food in the hotel moves around more than the people. I recall a study that we did in one hotel I worked in. It was to study personal individual yogurt container portions. We bought a lot of these. We concluded they were being refrigerated and used in more than 2 dozen different locations. We had one vendor for the yogurt and one invoice. To try and capture this by outlet is sheer madness. The same principle that applies to the yogurt is the same with all dairy, bread, soup base, butchered meat, salad dressings, pastries, etc. If you do not believe me, just stand in your main kitchen by the service elevator and watch the food move.Beverage is different when it comes to recording the cost of salesYou want to see the individual cost of sales by type: liquor vs. beer, etc. Doing this by outlet is much more practical than food, however, I also know from personal experience that it is largely a waste of time and effort. Why?Two reasons: First, the booze moves around your hotel. Transfers between outlets are frequent because the par stocks are a single bottle for most liquors and expensive spirits unless you want a bucket of money sitting in inventory. From my personal experience of trying to track transfers in a large hotel, this is a waste of time. Set up your par stocks, sticker your bottles, do bottle for bottle requisitioning on your spirits, insist on transfer forms and forget about tracking them. Blind controls. P.S. Do not tell anyone what you do with all that paperwork.Second is the secret most people do not get. Your beverage cost does not depend on requisitions, transfers, and potentials. It comes down to the total opening inventory, plus all the purchases for the month, less the closing inventory. NOTHING else you do is in any way part of the calculation. With beverage set all the controls that make sense, but know in the end it comes down to the cost of goods calculation. The basic calculation is also used for your food cost. Everything else is smoke and mirrors.In a large hotel that is doing millions of dollars in F&B sales, allocating the cost of sales based consistently on revenue is the way to go. Having one reliable overall cost of sales is key. Chasing your tail with outlet costs is a waste of valuable resources because, in the end, it is all for not. To capture and allocate the cost of sales have a journal entry that captures your outlet sales by type and total for the entire hotel. Once the cost of goods calculation is done at month end the gross cost by category gets allocated based on revenues by outlet. Everyone knows banquets have a lower cost and fine dining is much higher. To that, I say the efficiency of one cost and allocation far outweighs the alternative. If you want to understand the costs in the outlet, then do the analysis based on the food that enters the cost center by capturing all the food that comes to the outlet via the outlet's kitchen door.Next is payrollI wrote a separate piece on setting up F&B labor using management and hourly positions and having outlet direct payroll as well as allocated departments for the kitchen, stewarding and F&B management. See my post titled - Measuring Labor Productivity - Part II. It explains in detail how to set this up including the use of hours of work.With payroll, it is the same scenario we want to avoid in the hotel like the food chase described above. If you try to assign cooks, cleaners and F&B department management to an outlet, you are either way over staffed or splitting hairs again. The pastry kitchen, gard manager, and butcher are examples of this--every large hotel has these departments in their kitchens. They produce a large part of the base food for the hotel and this includes handling the "brought in products." The most efficient way to produce all of this is in the main kitchen. There might be outlet chefs but in large part food preparation, payroll is all lumped together. Capture all food preparation payroll for the month in an allocated department on your GL and then portion it off based on food revenue mix. The same applies for cleaners and F&B department management.In contrast to the allocation described above, there is direct payroll in each outlet. Direct positions are defined as people contact positions:WaitersBussersHostsOutlet managers, etc.Separate the outlet labor into two buckets: management and hourly.The last area to set up is expenses. The best way to do this is to have the ability to direct expense and have a process in place to allocate expenses. You want to be able to allocate expenses in F&B because much of your efforts are pointed at driving efficiencies. Can you imagine if every outlet had its own china, glassware, and silverware? Can you imagine if each one purchased its own cleaning supplies and paper goods? On the other side, there is a unique single attribute you can capture for outlets. This is where the direct mechanism comes into play. You want to directly expense items like outlet specific entertainment, uniforms, specialty china, etc. Having a choice with each purchase to either expense it directly or allocate it is the way to go. You accomplish this by having expenses accounts set up in your GL by outlet as well as an allocation department that gets zeroed out at month end with a nice allocation based on total outlet revenue to each F&B revenue center. Note there is no transfer to the kitchen or stewarding as they are not a revenue center. Matching principle in action.The final part to lay out is how statements will look. This is where things get exciting. First the order of things. You want a top-level food and beverage consolidated report. Inside your financial reporting system, you will need to design a report that pulls together all the revenues and costs for all F&B departments into one report. Here at glance, you can see the food and beverage profit performance as well as the makeup of the result. You will be able to see the total sales for the entire hotel in each area outlined above. The total cost of food and beverage including the percentages. Payroll for both direct and allocated including hours of work and EFTE's and total productivity. All payroll related benefits in total. Payroll as a percentage of revenues. Total food and beverage expenses by category and viola - food and beverage profit. All this on one page. In addition, you can draw out:Average wage rates by management and hourly, direct and allocatedAverage pricing by meal period per customerTotal expenses by customerF&B revenue per room occupiedF&B revenue per sq. footF&B revenue per hour of workFood and beverage cost per customerIf you include the customers as well as the hours of work, plus a couple of other statistics you can produce an incredibly effective F&B total financial picture for your hotel.The second thing you will see reporting on is each individual outlet performance. Your GL is set up with a department for each outlet and the beauty of this is you only need to design on chart with the appropriate accounts for revenues, cost of goods, payroll, benefits, expense and statistics. Once it is complete for one outlet you simply copy the same chart to the other outlets that have a different department number or dimension. Now each outlet reveals its actual revenues, direct labor, allocated labor, allocated benefits, expenses and outlet profit. The sum of these outlets ties back to the F&B consolidated statement and your top line profit and loss report. Each outlet will also reveal its sales and average pricing by meal period. Labor productivity for direct and allocated. Cost per customer for expenses.The final piece is a cross-view report on your biggest expense in food and beverage: labor. By designing the labor with direct and allocated as well as management and hourly, you can generate a very effective report. This report details the dollars, hours, EFTEs and productivity by outlet, by hourly positions, and management positions.There you have it. This is how you design and report F&B in a hotel in an efficient and practical way.If you would like a copy of any of the following send me an email at david@hotelfinancialcoach.comPolicy Inventory OutlineF&B Productivity SpreadsheetRooms Productivity Spreadsheet Financial Leadership Recipe F TAR WFlow Thru Cheat SheetVisit my website today for a copy of my guidebookThe Seven Secrets to Create a Financially Engaged Leadership Team in Your HotelCall or write today and arrange for a complimentary discussion on howyou can create a financially engaged leadership team in your hotel.Contact David at (415) 696-9593. Email: david@hotelfinancialcoach.com www.hotelfinancialcoach.com

The budget process is broken

hotelnewsnow.com Featured Articles - 5 September 2017
Here’s a look at the good, the bad and the utterly awful practices that keep owners and their asset managers working overtime from late August to early December. Let’s be honest, the budget process for a substantial portion of the hotel industry is broken. I can deliver chapter and verse on this topic, but to understand the core of the problem, you need only consider the following factors.
Article by David Lund

Hospitality Financial Leadership - Leadership vs. Technology

The Hotel Financial Coach - 29 August 2017
One incredibly challenging aspect of hospitality is the ever-changing technology. In a modern full-service 500-plus room hotel you have more than 50 different systems and apps to manage, integrate and upgrade. Most people do not see the massive amount of technology being used in hospitality and this article is about leadership in the face of that ever-changing landscape.I remember when we upgraded from Micros 4700 posting machines in the front office of my hotel to an IBM System 36. Back in the late 1980s, the PC was just coming into widespread use in hotels but networks and programs were almost nonexistent. The System 36 was the size of a bathtub.In those days, we did not have email; we had Merlin. Merlin was an email type of system but only for people within our company. I still remember my Merlin code, LUN0007. We had just installed a back-office GL and AP system that was PC-based and not on a network. All the GL files and data were on the one PC in the accountant's office and the AP data was on another PC. At month-end, we needed to take the AP data on a disc from one machine to the other. Accounts receivable was an out service. We input data and when we were done the data disc came out of the machine, the courier picked it up and a day later we reviewed the paperwork to see if our fingers made all the right moves.Payroll was the "one write" system where you used a peg board and carbon paper paychecks. We hand wrote each check and simultaneously recorded the details - en masse - via the carbon paper. When we finished we totaled each column of pay and deductions to balance the payroll sheet. Completing approximately 30 of these sheets equaled the hotel bi-weekly payroll. Adding them all up was a pay period journal entry. Talk about complicated and tedious.I also remember every time we upgraded systems just how stressful it was for most people. I vividly remember our accountant Walter keeping a complete manual general ledger while the "system" ran parallel books. He was not asked to keep the manual books but he did so because he did not trust the PC. He is also the same guy who welcomed hockey legend Jean Beliveau in his office for a friendly visit on a regular basis. He was an incredible individual with great knowledge and a wonderful sense of humor.I remember asking him why he kept the paper ledgers and he smiled, took a big puff of his cigarette and said, "One day it will all stop working and I'll still have the score." I have often thought about his comment in that moment. He was near retirement and the thought of change was so frightening he was willing to double his work to try and compensate. Not only did he double his work but, by not trusting the technology, he did not see that it would allow him to do other things.That is always the driver or the road block. It is the driver if we believe our lives and our personal well being are going to improve. It is the road block if we are afraid of our own redundancy and self-worth. He really believed the GL and the PC were against him. Why could it not have waited another three years until he was retired before it had to be installed?Where is the lesson in all of this?I believe Walter suffered in this situation because of a lack of leadership. His leadership, yes, but much greater leadership was missing. It is always what is missing when it comes to change, with technology and the way we embrace the human aspect of change management. What did Walter need in that scenario to successfully navigate the PC's GL system and go from paper to automation?People need to think that change is at least partly their idea. Who asked Walter what he thought and what he would like to do, or what he needed? Quite literally the box arrived, a few days later a technician, and the following week the PC was alive and blinking on a desk in his office. Nobody asked Walter for his thoughts. The decision was made to automate the GL and he was going to change how he worked. It was that simple. But wait a minute; he had over four decades of knowledge and skills.Why didn't anyone stop to make sure he was part of the technology change? He could have liked the idea if it was his idea to start with. How can we get people to like the things we need to change? Answer: Get them to think it is their idea to start with.How do you do that? You can accomplish this most of the time by putting more effort up front before the box arrives. What would Walter have had to experience to get him excited about the new system? What would it have cost and where is the ROI on that?A few years later I experienced a similar event in a completely different way. We were replacing System 36 and moving to a PC-based network (LAN) system with new modules for the GL, AP, AR and income. To get us ready for the change we were sent to Florida for a week of training and I must tell you I was scared before I spent that week in Tampa. I was scared because I did not know what this new system was all about. I could navigate the old system and - as mechanical as it was - I knew each piece and how it all came together.By the end of the week in Tampa I could:See there was something emerging that I could work with.See that some thought had been put into this.Ask lots of questions and do much of the setup of the new system.Be part of the process.Bingo! for change management and technology upgrades.Get your people involved from the get-go."People don't resist change. They resist being changed!" -- Peter SengeIn hotels with so many systems and upgrades to be managed, the act of getting your staff involved is not only necessary it is the silver lining. Many hands make light work, my mother would say.That is the battle cry when embracing technology change in hospitality.If you would like a copy of any of the following, send me an email at david@hotelfinancialcoach.comPolicy Inventory OutlineF&B Productivity SpreadsheetRooms Productivity SpreadsheetFinancial Leadership Recipe F TAR WFlow Thru Cheat SheetVisit my website today for a copy of my guidebook - The Seven Secrets to Create a Financially Engaged Leadership Team in Your Hotel www.hotelfinancialcoach.com

Business model innovation: Beyond the traditional way of innovating in hospitality

EHL - 25 August 2017
Innovations form a significant backbone to an organization's ability to secure a competitive advantage. While historically we attribute much of that innovation potential to product, process or service innovations, a study conducted by KPMG in 2015 revealed that three out of four executives believe their company's future competitive advantage would be challenged by a competitor's business model innovations (BMIs).When we talk about BMIs, we are referring to the basic logic in the way a firm does business: how the company is able to create value for customers, either by defining a new value proposition for the customer or redefining how existing value is delivered. But where does the hospitality industry stand in this regard?From time to time we see the emergence of new hotel concepts, new market penetrations, and even process innovations that modify the way the industry operates. Consider for instance digital room keys, in-room technological services, or the robot hotel in Japan. These innovations have changed hotel procedures, operations, job descriptions, but also the customer experience. However, to what extent does this represent the pool of radical innovations happening in the industry?During the recent International Advisory Board meeting at EHL, we led roundtable discussions on radical innovations in the hospitality industry. Industry experts as well as EHL students put forward their views, and while it wasn't easy to find consensus on what innovation really means for the industry, we all agreed in that the industry has experienced - and will continue facing - changes that alter the way hotels operate. But as the discussions suggested, the most radical and innovative changes currently in hospitality are not necessarily related to technology but to a firm's ability to leverage an innovative business model. In line with the KPMG study, hospitality experts highlighted the need for hotels and operators to provide distinct business models in order to create competitive advantage in the future.When it comes to innovative business models, we consider hospitality to be one of the most exciting sectors to look at. For instance, with the transition from asset-heavy to asset-light strategies and the likes of InterContinental Hotels Group (IHG), Marriot, and Wyndham among the pioneers, hotel chains have moved from owning assets to operating and managing properties. This has allowed them to penetrate new markets and grow rapidly in existing ones. In so doing, this strategy has helped hotels focus on their expertise as operators and managers, leaving ownership to real estate experts instead. It has also led to a proliferation of new business models such as independent and branded management contracts, franchising, and leasing.Pop-up experiences are also novel in hospitality, although they are already well-established in the food & beverage sector. These are temporary outlets that providing an exclusive and intriguing experience, somewhere guests will never have never been to before and will never have a chance to go to again. In a decade where luxury is becoming less defined by owning material goods and increasingly by experiences, pop-up venues have created a fitting answer - also for hospitality. Companies like Black Tomato, The Pop-Up Hotel or even established hospitality incumbents like Marriott now provide exclusive, tailor-made hospitality experiences. While Marriott and The Pop-Up Hotel have initiated their offerings at Coachella and The Glastonbury Festival, the award-winning travel provider Black Tomatooffers unique, temporary accommodation to the exact needs and wishes of customers through what they call Blink.So what do business model innovations mean for the hospitality industry? We believe it has proven more innovative and resourceful than it is often given credit, particularly when it comes to novel ways of doing business. The transition to asset-light business models from direct ownership and the industry's flexibility and ability to recreate unique pop-up experiences are only a few examples of the ways in which hoteliers can continue to inspire innovation in the industry. In summary, this means that both established, as well as new market players, will increasingly shift away from competing in saturated markets or 'red oceans'. Instead, they should look to change the rules of the game in the hospitality industry, thereby creating new market segments and allowing them to tap into unlocked market potential.
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PSD2: How new European payment regulations could elevate fraud risk

The Analytic Hospitality Executive | SAS - 25 August 2017
The Payment Services Directive 2 (PSD2) is a new European-wide regulation that requires European banks to make it easier to share customer transaction and account data (where the customer has given their consent) with third party providers, and it's the current hot topic across the payments industry in Europe. As a result of PSD2, we'll soon witness several non-banking entities enter the payments space as third party providers, for example, social media platforms and other Fintechs. In a digital world where 50 percent of buying decisions are initially researched via social networks or other online and mobile applications, this will be a game-changer for traditional banks and financial organisations. These changes will undoubtedly open new channels and offer a wider range of value-added services, but they can also contribute to increased risk of fraudulent activities.

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