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Some Hotel Guy

8 Jan, 28 tweets, 5 min read

1/27 De-Risking Hotel Acquisitions Thread 4: Business Plan, B+C, Minibar, IRD, and Other Revenue

We’ve got a good one for you tonight folks! #SteveHarveyImpression

2/27 We’re going to start with Banquets + Catering (B+C) revenues, then hit on the small F+B sources – minibar and in-room dining (IRD) – and then move on to other revenues.

3/27 Since we’re trying to hit a bunch of things and I’ve been exceptionally long winded (2021 goal – learn how to edit writing for Twitter) I’ll try to be a bit more concise on each.

First, B+C.

4/27 There are two ways I analyze B+C revenues: (i) per square foot; and, (ii) cover counts / check averages / add-ons.

5/27 If I’m looking at speculative new development OR doing a quick “sniff” test on an acquisition, PSF is the way to go – if my deal works at $450 PSF but my comps are $300 PSF, I know I’ve got a problem (and vice versa).

6/27 When you have an established set of B+C spaces and can make more accurate comparisons among spaces, going the cover count route is more accurate.

7/27 This means you’ll need to comp by space (e.g. ballroom-to-ballroom) and amenity (e.g. A/V system to A/V system), understanding the types of groups you’re going after and what the add-ons are.

8/27 You’ll have this for your own comps, but you may not get details for your potential acquisition until you’re under an LOI and in formal DD – that’s ok.

9/27 As part of your renovation planning, understanding the types of groups you’re going after and tailoring your reno dollars to their appeal is critical – corporate users and weddings have very different use cases for a ballroom, and being more tailored to one or the other…

10/27 …(depending on your positioning) can make material difference. Also, it’s important to understand what business is on the books post-acquisition for renovation planning purposes, and it’s worth getting as much info as you can on groups from prior years.

11/27 Finally, when I’m doing DD on B+C biz, if there is a local CVB or equivalent, I like to spend some time with them. They’re a good source of knowledge and insight, and (depending on the market, etc.) can be a great source of business.

Now Minibar.

12/27 The old adage is “minibar loses money”, and this is generally true in practice but doesn’t need to be true in theory. With that said, I tend to think it’s more of a pain than its worth.

13/27 The technology to make these run efficiently is finicky at best, and customer disputes of charges are time consuming and painful – either to guest experience (they really didn’t use the item) or bottom line (they really did).

14/27 If you’re going to have a minibar experience, here are some best practices: (a) focus on margin – where legally possible, booze and candy are your best bet; (b) the tech is finicky, but it helps… automate data collection where you can; and, (c) this is a GREAT area for…

15/27 …local partnerships – local breweries / wineries / distilleries… local snack makers… even local water bottlers… can help with building community connection and reputation.

16/27 IRD! IRD sucks. Cut it entirely where possible, or to the bones where not. That’s it. That’s the tweet.

Had a deal where cutting IRD put a few hundred k back into profit b/c it was losing so much $$. Let me say this here b/c I’m so explicitly saying “cut”. Don’t be a jerk.

17/27 Be fair to your employees, offer them fair severances, etc. If you have a union, but forthright with the union and work with them on a settlement. This is someone’s livelihood, and that person deserves respect.

Other Revenues. Ahh, other revenues.

18/27 So many possibilities here. You could run a spa, a parking operation, a gift shop, a retail boutique, leased retail, on and on and on. A few sporadic notes, and I’m happy to address specific questions (on this and literally everything else).

19/27 Don’t run spas unless you have to – hire a 3rd party, or (if possible) lease them out.

20/27 If you’re in an urban location, farm your parking out to 3rd parties and take a commission… this is even better if you can lease them the garage space in your building, but if not, make sure they have ample space nearby and let them at it.

21/27 You may make less $, but your insurance will go down and your employment risk will go down. If you have surface parking that’s currently free – try charging a couple bucks a night.

22/27 $2 or $3 may annoy some people, but most will pay without thinking, and it’s free $$ at that point. Vitrines! I genuinely wonder if retail vitrines are still a thing given how messy retail is, but when I’ve looked at hotels with them in the past I love them.

23/27 Small glass-enclosed display cases in public areas rented out (at nominal $ amounts, usually) to local retailers who display their wares. I’m a big fan for a few reasons, namely the risk-free income and the ability to drive brand partnerships and associations.

24/27 Lastly, the Resort Fee / Urban Amenity Fee. So much that could be said here. Let’s separate the two. At a true Resort, particularly one offering towels / pool chairs / beach chairs / etc., it’s a reasonable charge.

25/27 In an urban destination (NYC, SFO, LA), well… does it feel scummy? Yes. Do we charge it when we have things we can offer to try to justify it (e.g. free wifi, F+B credit, local retailer discounts, etc.)? Yes. When my competitors stop, I’ll stop.

26/27 With that said, I do think there’s a point to be made about nickeling and diming at the tippy-top luxury level (e.g. Four Seasons, Aman, Six Senses) where you should just wrap it into a essentially price-insensitive rate, but that’s another convo for another time.