Don't Build; Make Better Part 1
Lodging Hospitality Online Article
May 2004

In this first of a three-part series, hotel consultant Drew Dimond makes a case for improving same-store sales over new hotel development.

Oversupply, third-party distribution channels, worldwide terrorism, capital, labor shortages, general uncertainty and airline woes are all part of the standard-issue portfolio of concerns for today’s hotel industry executive.

The good news is that, despite the chaos characterizing today’s hospitality industry, there are opportunities to succeed and prosper.

A prime opportunity that is often overlooked is the turnaround of selected existing hotels. After all, if a chain is interested in your area, its analysis probably indicates that some hotels in your market are obsolete or improperly positioned rather than there simply being a lack of supply to meet current demand.

Some experts estimate that at least one-third of today’s hotels need a major overhaul—and many are well along their third and fourth major upgrades. Out of the more than four million hotel rooms in the U.S., perhaps 500,000—representing 4,500 to 5,000 hotels—are candidates for demolition or alternative uses. But the majority of these obsolete hotels will limp along with little or no upgrade. Unfortunately, a coat of paint, a resurfaced parking lot, a new sign and new bedspreads will do little to increase their occupancy. What’s even worse is that other, more ambitious and expensive renovation plans won’t be coordinated with definable market targets.

It doesn’t have to be this way. Many of these hotels were once financially feasible and built in markets that had more than enough demand to be profitable. Predictably, other developers wanted in on a good thing; and guess what? Additional hotels were built, and in most cases the newer hotels prevailed. But age and obsolescence aren’t necessarily synonymous. There are, in fact, classic cases of older hotels retaining and even gaining market share amongst the newcomers.

WHY HOTELS FAIL
The economy, oversupply, third-party distribution channels’ downward pressure on room rates and other systemic challenges are not the only reasons hotels fail. Developers, franchisors, lenders and consultants must share part of the blame as well. It pays to keep in mind that hotels have failed during good times.

Many industry observers think that the primary cause of hotel failure has been unrealistically high expectations of returns. But there are other factors:

• A hotel was not built to accommodate prevailing market conditions—which may not even have been properly evaluated in the first place;
• Poor product and service dissuaded guests’ return visits;
• Budgets were driven by home-office expectations, as opposed to local experience;
• Marketing plans were unrealistic, with more macro than micro emphasis;
• Capital-replacement needs were put on hold or ignored;
• A strategic business plan never materialized.

TRADITIONAL QUICK-FIX METHODS
Typically, when trouble looms, owners, general managers and directors of operations are under pressure from lenders and other stakeholders to “do something.” Their careers demand it. So they consult a time-honored laundry list of jump-start remedies to turn things around:

Often, these mandated quick-fixes are influenced by national trends, with little consideration given a local market’s characteristics. Sometimes these remedies or a combination of them work for the short term, but they are usually not sustainable. That’s because today’s ever-changing business environment is rarely acknowledged. If they initially appear to be effective, these band-aid measures are then confused with progress, whereas, in the long run, return on investment and return on energy are not commensurately improved.

TURNING A HOTEL AROUND
A turnaround plan has to follow a sequence. And, it must elicit the personal dedication and involvement of the management team from the start while also laying the groundwork for the program being embraced by every employee.

An effective turnaround sequence unfolds something like this:

• The right people get onboard and in the right positions;
• Management confronts the brutal facts by conducting a courageous analysis of hotel operations;
• The hotel’s existing and potential markets are thoroughly examined;
• The hotel’s competition is evaluated;
• A plan is devised that considers the hotel’s facilities, services and amenities necessary for capturing and retaining incremental business in the face of unrelenting competition;
• Costs of the relative improvements to the hotel’s facilities, services and personnel are estimated;
• Return on those costs is calculated;
• A marketing action plan is devised and an operating budget is crafted;
• Measurable goals with realistic, time-based objectives and accountable responsibilities are established and communicated to the entire staff.

Any attempt to promulgate such a sequence solely from the home office, without trying to involve the turnaround team members who will actually have to implement the program, is doomed. Moreover, attempts to execute one or more quick-fixes without integrating them into a comprehensive, programmed sequence are wasted efforts.

A serious turnaround program cannot be treated like an annual budget exercise or an incidental staff meeting. It has to be dynamic and exciting and launched with a sense of urgency. My next article will deal with effective ways to prepare for and then put in place a successful turnaround program.

Drew Dimond is Chair Emeritus of the International Society of Hospitality Consultants and CEO of The Dimond Companies, a hospitality consulting firm that provides advisory services nationwide. Ken Blanchard, co-author of the One Minute Manager has dubbed him the “one minute hotel turnaround manager.”

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