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How hotels are reinventing themselves to stay afloat
Jean-Michel Cassé, COO (India and South Asia), AccorHotels, says the world has never been as uncertain as it is today. Even with so much data to pore over, it’s difficult to decide what to do, he says. Nevertheless, the 52 hotel chain has started making city-wise forecasts for its properties, and a new business plan for six months beginning July. “We expect to earn just 50 per cent of the budgeted revenues in third and fourth quarters of 2020. Accor will go for another round of cost- cutting that includes reducing staff strength. Once we reopen hotels – in a staggered way – we expect new types of customers,” he says.
Following the 54- day lockdown announced by the government owing to the coronavirus pandemic, AccorHotels’ business, like that of other hotel chains, has come to a standstill. Even as top bosses work out plans to resume operations, the biggest concern is when and how to restart. This is because if there is limited occupancy in the first few weeks, the cost of running a hotel will be far higher than the cost of keeping it shut. This will further tighten their already-strained liquidity and bring them on the brink of permanent closure. In a recent webinar organised by the Federation of Hotel & Restaurant Associations of India (FHRAI), K.B. Kachru, Chairman Emeritus and Principal Advisor (South Asia), Radisson Hotel Group, said most hotel chains in India don’t have working capital beyond 60 days, which is effectively the entire lockdown period.
“The lockdown has proved to be a double- edged sword for hoteliers. We are advising our hotel partners to hold off openings. Some hotel owners are desperate because they have loans to repay and salaries to pay,” says a senior executive of a hotel management company.
While each hotel chain is working out strategies to get back on its feet, one thought is common to each hotelier and consultant – things are not going to be the same again. When they say things, they mean the entire gamut of operations such as annual budgeting, staff requirement, change in food & beverage ( F& B) settings, tech- enabled services, etc.
Instinct of a Start-up
Experts say hotel chains will have to change their outlook and work like start-ups. In the pre- coronavirus world, hoteliers used a bunch of reference points such as occupancy, average room rates and costs of the past few years to make projections. In the post-lockdown period, these reference points will have no value as consumer behaviour is going to change dramatically.
“Can hotels command the same rates as before? I’m not sure. Keeping hand sanitisers was never a standard practice in even seven-star properties. All hotels will need to keep them now, in addition to disinfectants. These are new costs. In the last 100 years, no such event has taken place that can guide hoteliers now,” says Siddharth Thaker, Managing Partner, Prognosis Global Consulting.
While the chains will invest heavily in hygiene and safety from day one, their tech investments for a fully contactless service are likely to be staggered. For instance, complete migration to smartphone-based check-ins and check- outs, keyless room entry and digital payments will be quick; things such as artificial intelligence- enabled concierge service and robots delivering food and other services are still some years away due to high upfront costs that hotel chains may not be able to afford at this moment.
Even as hoteliers are expected to lose a significant control over their destinies, they can focus on something that’s within their reach: maximising revenues. How will that happen? Some early trends are emerging from the current scenario. For instance, it’s believed that hotels within a driving distance of three-five hours will pick up first as compared with destination hotels that can be reached only by air. These hotels can turn themselves into destinations by offering a lot more within the property since the urge to step out will be low. “When travel restrictions will be removed, people will go to places which are driveable,” says Kavinder Singh, CEO, Mahindra Holidays.
Then, economy and midscale business hotels will see a quicker revival compared to upscale and luxury hotels. That’s partly because budget-strained airlines will ask their crew to stay in midscale hotels, affecting the erstwhile sizeable ( guaranteed) revenue source for upscale hotels. “It is likely that midscale and economy hotels will pick up quicker due to their cost versus profitability, operational efficiencies and focus on rooms and F& B,” says Navjit Ahluwalia, SVP & Country Head, Hilton India.
There are other interesting trends, too. “Small boutique firms could use room inventories as offices as there will be concerns over ( people) density in large office buildings. This could be a new revenue source for hotels,” says Mandeep Lamba, President, HVS Anarock, the South Asia arm of global hospitality consulting firm HVS.
Even as hotels get ready to resume with tweaked business models, there’s a need to understand that each hotel will be facing its own sets of challenges. While homegrown hotel chain Roseate Hotels & Resorts is ready to share live camera feed of its kitchen with guests, others are proposing a nationwide campaign to reduce fear among travellers.
Reworking F&B
As new social distancing protocols from the tourism ministry kick in (forcing restaurants to have lesser number of tables) and demand drops considerably – at least for a couple of months – the F& B segment, one of the largest revenue sources for hotels, is likely to undergo a sea change. The banqueting segment, which accounts for 35-40 per cent of F& B revenues, will partially revive due to social events such as weddings, though corporate events and conferences will vanish for all of 2020 and even beyond.
“I was in touch with one of our hotel GMs. Over the last two weeks, he has got a flood of enquiries for wedding functions, which is pleasantly surprising for us. There seems to be an interest in weddings in third and fourth quarters,” Sanjay Sethi, MD and CEO of Mumbai-based Chalet Hotels, said in the FHRAI webinar.
Yet, F& B changes are inevitable. Take, for example, an upscale or luxury hotel that operated five-six restaurants before the lockdown, including one all- day dining and several specialty restaurants. Going forward, as fewer people will eat out, running so many restaurants will not make sense. “Some outlets will be converted into high-yielding retail and office spaces. The new properties that are under construction will take into account these new realities,” says the CEO of a large hotel chain.
In fact, hotel buildings will become more modular to account for cost reduction during similar situations in future. “In the near future, hotels will shift to basic F& B of
ferings. Instead of buffet breakfast, there will be fixed meal plans,” says Thaker of Prognosis Global Consulting. Also, the large (common) bowls in buffets will make way for individual portion sizes. “We will move away from buffets and do pre-planned menus with a fixed price. The guests won’t have to wait for long, unlike à la carte where they order and wait,” says Mahindra Holidays’ Singh.
Right-sizing the Workforce
Historically, hospitality chains in India have employed more workforce compared to their global counterparts. That’s because of lower wages and high degree of personalised services offered by luxury and upscale hotels in India. Though hotel companies have made efforts to reduce the staff ratio over the years (across rooms and F& B), they continue to remain high. For instance, the all-India employee-per-room ratio stood at 1.69 in 2018/19 as compared to 2.01 in 2011/12. The global ratio is 1-1.25. As per consultancy firm Hotelivate, the employee-per-room ratio should be brought down to 1.64 in case of luxury hotels and 0.76 in case of non-luxury properties.
How will it help? Manpower is the biggest fixed cost for a hotel chain followed by power, licences and maintenance. Optimising manpower through a series of steps – rather than abruptly – will bring down a large cost component for hotels in a challenging market scenario.
But how this can be done? While it’s important to safeguard junior-level employees, effective manpower planning is required at senior positions and corporate level. It’s not a new thing, though. Hotel companies like Indian Hotels, Radisson and others have been doing efficient manpower planning for years. One way they do is to take cluster approach. So, rather than having functional heads (sales, marketing, F& B, housekeeping) for each hotel, the chains can have cluster heads, covering three-five properties in a zone. Indian Hotels’ CEO and MD Puneet Chhatwal told Business Today in January that he doesn’t need five vice presidents of marketing if he’s adding as many hotels.
Another step is to reduce the wide salary gaps and outsource key roles. “This is a good time to review, rework and reduce enlarged gaps in pay scale between different grades... Key operational areas like F& B, marketing & PR and revenue management will be outsourced to consulting companies with specialisation in these areas. Hiring of experienced resources at high salary points will cease to exist,” said a recent report from Hotelivate.
However, it’s clear that there’s no panacea to heal the wounds caused by this unprecedented crisis.
(With inputs by Ajita Shashidhar and Sonal Khetarpal)
“We expect to earn just 50 per cent of the budgeted revenues in third and fourth quarters of 2020. Accor will go for another round of cost-cutting that includes reducing staff strength. Once we reopen hotels – in a staggered way – we expect new types of customers”
“Anecdotally, I was in touch with one of our hotel GMs. Over the last two weeks, he has got a flood of enquiries for wedding functions, which is pleasantly surprising for us. There seems to be an interest in weddings in third and fourth quarters˝