Corporate turnaround insight for Canada’s struggling hotel industry

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In mid-March, following the World Health Organization’s official declaration of the COVID-19 pandemic, travel screeched to a halt. Consumers scrambled to cancel flights, and the accommodations they had booked fell through the cracks alongside them. With the order to “shelter at home” and the closure of Canada’s borders, domestic travellers and tourists from abroad were forced to stay put, and the hotel industry has been trying to survive the aftershocks ever since.

Within 48[1] hours of the pandemic declaration, the Hotel Association of Canada noted a 50% drop in occupancy, and within a week numbers had fallen to 10%. Hundreds of hotels were temporarily closed, resulting in the layoff of 250,000 staff.

Since then, the hospitality industry has been balancing cutting costs while also continuing the necessary operating expenses to keep the property afloat. Unlike shutting a cottage down for the season, a hotel cannot be simply locked up and left behind. In order to be prepared for a future opening, the property must be maintained, and proper care and attention must still be provided to avoid worsening future costs.

This isn’t the first time that the hospitality industry has weathered a storm, though. Following the turmoil of 9/11, business and consumer confidence in travel decreased dramatically. The downturn continued for several years, and in particular smaller properties experienced losses.

There are lessons to be learned from prior economic downturns, and the best practices for corporate turnaround that led to success in past recessions must be harnessed today to maintain a market foothold.

Personnel
As a rule, the first decision a turnaround consultant needs to make at the outset of a hotel engagement is whether or not to replace management. Management needs to have a solid grasp of the current operations and a positive vision for the hotel moving forward in order to sustain the future of the property.

Begin by asking the hotel general manager for their assessment of the cause of the hotel’s financial trouble. Obviously the COVID-19 pandemic could not be avoided, but were there factors that were already present prior to the crisis? If the GM provides excuses and scapegoats rather than concrete and plausible information, management will not be strong enough for the measures necessary to keep the operation afloat in today’s trying times.

An information meeting involving all senior managers should be held to ensure that they clearly understand the consultant’s mandate and the intended course of action over the short term. The consultant must use this meeting to assess management’s vision of the property. Meetings should also be scheduled individually.

Employees should be reassured that everything possible is being done to maintain and improve the business. The consultant should emphasize that teamwork is critical to future success, and that questions and suggestions are welcome in crafting the new strategy. Needless turnover can be prevented by examining salaries and ensuring that rates are competitive. Rewards for service excellence and benefits should be enhanced.

Meetings with sales staff will shine light on their current challenges. Rather than freezing their salaries or cancelling bonuses, it’s wise to reassure them that their problems are valid and that strategies will be put into place to assist. Bonuses can be paid quarterly based on results, which will improve immediate morale.

Marketing
When a property is experiencing financial difficulties, it is especially important to maintain or even increase the marketing budget. Especially during COVID-19, it’s imperative that the marketplace be informed of the property’s intentions for opening and closing dates. Staying in touch with existing and prospective patrons is paramount to securing their business in the coming seasons.

Ask these questions to gain clarity:

– Is there a marketing plan currently in place? Does it identify the relevant market segments for the property and the food and beverage operations?

– Does the plan provide enough detail to project revenue by month and market segment, the number of room nights, and the average daily rates?

– Are the most effective promotional methods being used to attract target markets? Is social media being leveraged to its full potential?

– Is the property’s website up to date with the current information? Is the booking system user-friendly? What are the Google rankings?

– Are the print collateral materials up to date with the latest information on offers?

– How is the property leveraging guest history data to stay in touch and deliver relevant email communication?

Competitive analyses should also be conducted to determine whether the property’s recreational amenities are in line with local competitors. Are rates and packages competitive? Do other properties offer VIP or return guest promotions that the property should introduce?

Packages and rates should be analyzed as best as possible with the information at hand. Though it’s tough to know when the property might re-open or regain full capacity, thought should be given to the kind of rates and incentives that might best suit the new marketplace.

An analysis can determine if the hotel is filled with discount bus groups on weekends, when leisure guests who are willing to pay a higher rate may be turned away. Is the hotel taking one-night bookings on weekends when it could easily be filled with two-night guests, increasing occupancy at less-per-night expense?

Further analysis can reveal whether the property would benefit from repositioning the hotel in the marketplace and creating new profit centres. What investment would be needed? What is the benefit potential? Though we are still in the early stages of determining what the “guest of the future” will be looking for, market data is slowly being released about consumer spending habits and how the pandemic is shifting consumer priorities. Use this information to take a “blue sky” look at how the hotel can adjust to suit the needs of future guests. Should new departments be added? Or should some profit centres be eliminated? For example, a flailing gift shop should be shuttered in order to keep costs low.

It may make sense to seek affiliation with a larger chain if this is not currently the case. There is an initial cost to upgrade the property to align with the chain’s standards, and its cost should be estimated. Next, sales commissions, increased sales potential, brand recognition, centralized reservations, and joint marketing should be evaluated against commissions that would need to be paid in order to clarify the true cost/benefit.

Costing

Cash flow
Every department that handles cash, food, liquor, or retail items should be carefully scrutinized. Follow the cash flow in each department from the moment sales occur until the money is deposited in the bank. Consider the following items:

– Are menu, wine, and liquor lists priced correctly?

– How is the “pour” at the bar regulated? Are spot checks implemented to check bar sales against inventory?

– Does front desk staff provide formal notice of room discounts?

– Is the amount attributed to kitchen waste reasonable and documented, and are storage refrigerators locked and kept outside immediate kitchen?

– How often are F&B inventories taken, and who validates deliveries?

– Are all personal belongings of staff left in the locker room and are bag checks performed before leaving?

– How is petty cash handled, and who has check-signing authority?

– Are expenditures pre-authorized?

– Are credit cards obtained and validated at check-in?

– Are night audits spot checked?

Productivity
Each department should be analyzed for staff imbalances. How many rooms do the housekeepers clean per day? The percentage of labour cost in the kitchen and dining areas should be assessed and it should be determined whether staffing can be reduced at off-peak times. Past repairs and maintenance expenditures should be examined to determine whether in-house staff can handle jobs being sent out to third party vendors.

Systems
All systems, including CMS, phone systems, and POS should be examined to determine if a software upgrade is necessary. A lack of accurate data can impair decision making, covering up unprofitable divisions and making it difficult to isolate inefficiencies.

Insurance
Savings can often be realized through a careful analysis of insurance coverage and costs. Are the policies competitive? If the property belongs to an association, it’s possible that less expensive rates may be available through that group.

Leases
Is the property continuing to pay monthly lease charges for hot water heaters, telephone equipment, and other items after they have been paid for? Old leases are routinely renewed without a review of competitive alternatives.

Memberships
Gather a list of the associations the property belongs to, and assess whether there are tangible benefits to members. Is the property taking advantage of preferred credit card rates, insurance discounts, group buying opportunities, joint marketing ventures, and other available benefits?

Policies
Operational policies should be carefully examined. These include policies for deposits and cancellations, guaranteed numbers for group meals, credit checks on groups requesting direct billing, hotel surcharges for special services, and outstanding accounts receivable. Once these policies have been evaluated, they need to remain enforced.

Property upgrades
Property closures during COVID-19 may be the perfect opportunity to conduct cosmetic changes in key areas that are visible to guests. Create a list of capital improvements, and commit to improving quality standards and service details. Windows can be washed, gardens should be maintained, rugs should be shampooed and old menus and uniforms should be replaced. Undergoing a deep cleaning and conducting aesthetic changes can also be positioned to the market as activities in alignment with improving the health and safety of future guests.

Work with an expert
Once day to day concerns have been addressed, decisions regarding restructuring and implementing the business plan should begin. While conducting these analyses, changes that need to be made will become obvious. That being said, the turnaround must be led by an experienced professional; one who is equipped with the financial expertise and industry knowledge to carry the business into the “new normal” of hospitality in our post-pandemic world.

At Zeifmans, our corporate turnaround management professionals have decades of experience working with hospitality clients. Having assisted so many companies in returning to profitability through multiple economic downturns, we are equipped to help today’s clients weather the current financial storm.

To learn more about our corporate turnaround services, contact our team today.

[1] Canadian Lodging News, “Canada’s Hotel Industry Faces Collapse”, http://canadianlodgingnews.com/highlights/canada-hotel-industry-faces-collapse/

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The Restart Part 2: The Automotive Industry’s Challenges

COVID-19 Business Survival Strategies

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