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8 Reasons Why Hotels Should Offer Valet Parking

If you are a hotel owner or manager you might be faced with a difficult question, should my hotel business offer valet parking?

It All Comes Down To Revenue, Revenue and Revenue

When reading the 8 reasons why your hotel should offer valet parking below, keep in mind that it all comes down to one thing, revenue.

Hotel revenue through your valet department can be a highly profitable part of your hotel that attracts additional customers and improves your customer satisfaction.

So, why should hotels have valet parking? The 8 benefits of valet in a hotel are:

  1. Increased parking capacity for your hotel
  2. Greater flexibility and control of your hotel’s garage and/or lot
  3. Less stress about car accidents
  4. Safer hotel environment
  5. Better access and revenue for conferences, groups and meetings
  6. Increased convenience for urban hotel customers
  7. Extra service and capacity for airport hotel guests
  8. Additional revenue for beach hotels

#1 Increase Parking Capacity with Valet

How does hotel parking work for an increase in capacity?

Valet parking can create a minimum 10-15% extra capacity in your existing lot by enabling you to stack cars one behind the other in parking spaces and to park cars in non-parking spaces.

If you’re looking for an even greater vehicle capacity, consider any nearby off-property space to park cars.

#2 Greater Flexibility and Control of Your Hotel’s Garage and/or Lot

For more efficient access to your guests’ cars, valet parking gives you greater flexibility and control of your garage or lot.

Consider the three examples below.

Long Term Vs. Short Term Guests

You can easily separate your hourly customers from your overnight guests based on demand, rather than having to designate specific areas for each.

Flexibility For Specific Situations

You have flexibility regarding where to park cars for specific situations, such as construction, periodic maintenance and cleaning.

When The Weather Turns Bad

In addition, if a storm is approaching, you can park cars where they will be the safest (even offsite if necessary). Don’t let vehicles get caught in a hail storm.A car with a dented hood from a hail storm.

Before a snowstorm, if you park all your cars in one section of your lot you can more easily remove snow after the storm has passed by clearing the empty section, moving the cars and then clearing the rest of your lot.

#3 Less Stress About Accidents

With valet parking for your hospitality business you can restrict guest access to your lot so you no longer need to worry about guests falling or getting hit by other cars while walking through your lot.

You also do not have to worry about guests smashing into other cars with their cars.A car with bent in hood from a fender bender in a parking lot.

#4 Safer Environment

Valet parking can provide a safer environment in two ways:

  • With restricted pedestrian access, there will be less worry about strangers roaming your lot and stealing from cars and other people (or worse)
  • You can also cut down on air pollution from guests sitting in their cars while their cars are idling

#5 Better Access and Revenue for Conferences, Groups and Meetings

For groups and meetings, you can park attendees’ cars together based on their group or meeting to enable easier access during the meeting and a quicker exit at the end.  

You can also increase revenue by charging for valet parking at a reduced rate, rather than offering complimentary (free) parking, and still provide a group benefit.

More on pricing for valet parking below.

#6 Increased Convenience for Urban Hotel Customers

With valet parking, you can provide parking for your guests even if you do not have your own lot.  

You can also increase revenue by promoting valet parking as a benefit for local customers who do not want to spend time driving around in search of a space or would rather wait inside your hotel instead of outside or in a garage when picking up their car.

#7 Extra Capacity and Services for Airport Hotel Guests

Valet parking enables you to increase your capacity for your hospitality business by using off-site lots for extra parking, plus provide a variety of extra services, including:

  • Curbside pickup of your guest’s car at the airport departure area and delivery to them at baggage claim upon their arrival
  • Park & fly or park, stay & fly for customers who will be away for an extended period or need to take an early flight
  • Provide a hotel car service for guests who would rather not use your van service but do not want to wait in a taxi line or get dirty looks from taxi or car service drivers

#8 Additional Revenue for Beach Hotels

For beachfront and nearby hotels, valet parking can provide the capability for you to offer combination parking/beach access packages to generate extra revenue during slow periods.

Valet parking staff can also help you control access of non-guests who try to use your hotel and beach without parking at your hotel.

Pricing – How Much Should a Hotel Charge for Valet Parking?

Attractive pricing for valet parking is critical to help increase your revenue, profit and customer satisfaction.

Two pricing keys to make valet parking work best:

  1. Keep the incremental price of your valet parking vs. self-parking reasonable. Ideally, $5 or less above hourly self-parking options, $5/day above overnight and weekly self-parking rates.
  2. Provide at least three or four hourly pricing options (0-2 hours, 3-4 hours, etc.) at prices competitive with nearby lots, net of the valet increment.

Do some number crunching to find out how profitable valet will be at your hotel.

Conclusion

After reading this article you now know of 8 reasons why hotel owners or managers should offer valet parking.

Again, it all comes back to revenue, and valet parking can become an extremely profitable part of your hotel’s operations.

Expanding your valet parking can help you increase your hotel’s parking revenue, profit and customer satisfaction, plus improve your operations, without major investment, especially if you have access to a third-party valet service or to temporary parking help (college students, etc.).


Peter Van Allen

Mr. Van Allen served for 5-1/2 years as global leader for Non-Room Pricing for all Hilton brands, developing tools & processes globally for hotels to price non-room products and services, including food & beverage, meetings, parking and spas.  Van Allen Associates provides marketing, pricing and business strategy to the hospitality industry.  Van Allen Associates can also work with you in the way that is best for you, from up-front analysis, to recommending revised pricing, to ongoing tracking and price revisions. For more details and tools to help you revise your pricing to increase revenue, profit and customer satisfaction, go to www.vanallenassociates.com.

The Million Dollar Question – Cocktail Profitability and Recipe Deviation Cost

Million Dollar Question

When is the last time you examined the relationship between production cost and recipe deviation rates or calculated cocktail profitability? It’s probably been a long time, if ever. Everyone is quick to tell you what they think about cocktail profitability, but reluctant to disclose why. Reluctant disclosure is pure speculation influenced by opinion. Unfortunately, speculation is the foundation for failure in the bar business.

Two things are certain. Money is the byproduct of success, and accidentally succeeding in the bar business does not occur.

High volume nightclub operators, restaurant tycoons and the best bar owners all have one thing in common. They embrace bar math because it empirically proves cocktail profitability. I constantly tell clients, “Don’t tell me what you think. Show me the numbers because numbers don’t lie.” Regardless of your role in hospitality, seniority level or executive title, abandon what you think it costs to create a cocktail and do the math. Bar math begins with calculating cost per ounce and portion cost. Cost per ounce (CPO) determines how much an ounce of liquor costs. Calculating requires dividing the wholesale liquor bottle cost by its total ounces. For example;

·         Liter = 33.8 ounces

·         Liter Bottle Cost ÷ 33.8 oz. = CPO

·         750ml = 25.4 ounces

·         750ml Bottle Cost ÷ 25.4 oz. = CPO

 

Vodka Bottle Cost Bottle Size Ounces CPO
Smirnoff $24.98 LTR 33.8 $0.74
Smirnoff $15.47 750ML 25.4 $0.61

Portion cost (PC) examines the relationship between cost and serving size. Calculating portion cost requires establishing cost per ounce (CPO) then multiplying by serving size (SS).

·         Liter = 33.8 ounces

·         Liter Bottle Cost ÷ 33.8 oz. = CPO

·         Cost Per Ounce × Serving Size = PC

·         750ml = 25.4 ounces

·         750ml Bottle Cost ÷ 25.4 oz. = CPO

·         Cost Per Ounce × Serving Size = PC

 

Vodka Cost Size Ounces CPO SS PC
Absolut $26.23 LTR 33.8 $0.78 0.25 $0.20
Absolut $26.23 LTR 33.8 $0.78 0.50 $0.39
Absolut $26.23 LTR 33.8 $0.78 1.00 $0.78
Absolut $26.23 LTR 33.8 $0.78 1.25 $0.98

These calculations are phenomenal barometers for gauging cocktail profitability. However, gauging profitability and achieving it are radically different Achieving profitability requires application. Cocktail production is the most powerful application in the bar business, but systematic cocktail production per recipe is the most profitable.

A great cocktail is always profitable because it does not fluctuate. Taste and cost to manufacture remain constant. Systematic production ensures consistency. The most profitable way to make a cocktail is right the first time. By right, I mean per recipe based on beverage cost. For example, a seven ingredient Adios costs $0.89 to manufacture.

Bottle Bottle Bottle Recipe Portion
Adios Cost Size Ounces CPO Ounces Cost
Taaka Vodka $7.99 LTR 33.8 $0.24 0.25 $0.06
Taaka Gin $6.99 LTR 33.8 $0.21 0.25 $0.05
Ron Rio Rum $6.99 LTR 33.8 $0.21 0.25 $0.05
FC Triple Sec $6.99 LTR 33.8 $0.21 0.25 $0.05
FC Curacao $6.99 LTR 33.8 $0.21 0.25 $0.05
Sprite $81.98 5 Gallon 640 $0.13 3 $0.38
Sweet & Sour $52.58 5 Gallon 640 $0.08 3 $0.25
Adios Beverage Cost $0.89

Recipe deviation rates destroy cocktail profitability. A bartender’s unwillingness to prepare cocktails per recipe is financially debilitating. Witness the profit destruction incurred by ingredient substitution and over pouring. The $0.89 production cost inflates to $2.40.

Bottle Bottle Bottle Cost per Serving Portion
Adios Cost Size Ounces Ounce Size Cost
Absolut $26.23 LTR 33.8 $0.78 1.5 $1.17
Taaka Gin $6.99 LTR 33.8 $0.21 .25 $0.05
Bacardi Silver $15.68 LTR 33.8 $0.46 1 $0.46
FC Triple Sec $6.99 LTR 33.8 $0.21 0.3 $0.06
FC Curacao $6.99 LTR 33.8 $0.21 0.3 $0.06
Sprite $81.98 5 Gallon 640 $0.13 4 $0.52
Sweet & Sour $52.58 5 Gallon 640 $0.08 1 $0.08
Adios Recipe Cost Per Ounce $2.40

Recipe deviation rates cause production cost inflation. Rising cost equal profit loss. Over pouring and ingredient substitution yield a -$1.51 loss. Losing -$1.51, per Adios compounds faster than polished steel. Selling 1,060 Adios annually, with a 20% recipe deviation rate, yields -$320 loss.

Adios Loss Sales Forecast Deviation Rate Adios Sold Loss
-$1.51 1060 20% 212 -$320
-$1.51 1060 30% 318 -$480
-$1.51 1060 40% 424 -$640
-$1.51 1060 50% 530 -$800

At first glance, a -$320 annual loss seems inconsequential, but appearances are deceiving. This loss only reflects one cocktail with a 20% deviation rate. Reality sets in when you realize your product mix reflects 90 cocktails. The million-dollar question is “how many cocktails are going across the bar for a loss and how do you fix it?”

Hiring a bar consultant is the answer.

About the Author:

RideoutWith more than 20 years of hands-on operating experience, Preston has a proven track record of success for developing sustainable bar business models, bartender training, cocktail creations, cost control and profitability, Preston is the author of a number of books, manuals and articles pertaining to bar operations, profitability, standard operating procedures and achieving excellence in customer service.

Preston’s expertise is highly sought by casino executives, distillers, bar owners, architects and nightclub management companies. His consulting methodology is transparent, simple and straight forward. Preston identifies problems, creates operating systems and provides long term sustainable solutions.

 

Spa Management: Challenges and Opportunities

The operation of a successful spa demands a combination of operational skills, systems and creative promotion. No longer is it possible to develop a spa or fitness/wellness facility and expect that “if I build it, they will come.”

While all studies show that the addition of a spa positively impacts both occupancy and average daily rate for a hotel or resort, how the facility is marketed, exposed and managed are key components to the overall success of any spa.  It is also critical to select, train and develop experienced, service oriented staff who are well versed and skilled not only in customer service but in how best to promote and program the facility.

Once it has been determined a spa will be incorporated into a facility, the next question asked is who should run it?  Options include operating the spa independently, leasing out the space or hiring a third party operator to manage it for you. Each of these three options should be considered carefully.

Owner-managed spas require constant attention and focus from the owner or property manager in order to produce the desired guest experience and financial results. All too many owners decide to operate their spa and fitness facilities without the experience or passion with regard to the delivery of a consistent consumer experience, and without the knowledge to effectively and creatively promote the facility. The operation of a spa exacts a significant time commitment, which many owners do not have, and the ability to consistently interact with and supervise facility personnel.

Leases can create a guaranteed rental stream for the ownership, but control and authority are transferred to the tenant, which can create conflict down the road. The property owner and the tenant may not always be on the same page, and goals and objectives may be compromised as a result of this. In addition, a tenant does not typically have control over hotel occupancy or room rates; thus, during a period of economic downturn, this can present a significant challenge for both parties. Often, it may make sense to consider a third party operator as long as there is no loss of ultimate control or identity for the ownership group, and where the operator can bring to the table a heightened focus on the operation of the spa with accompanying resources, training and support for the staff.

When selecting a third party operator, you must first consider whether they are a good fit for the spa, based on their experience and operational philosophy.  It’s also critical to develop this relationship as a “partnership,” as the spa’s management entity will need consistent input and direction from the development/ownership group and from the hotel operator. Thus, there needs to be an approach which seamlessly integrates the spa into the fabric and culture of the property itself while paying attention to the overall vision that the developer has for the property. Therefore, communication is vital and there should be a constant stream of recommendations, ideas and direction coming from the spa operator to both the ownership and hotel operational group. This can be achieved through monthly written reports, daily and weekly meetings with the hotel management staff, interface with hotel sales and marketing, etc. An experienced spa operator should bring to the table a wide range of services including a training methodology, management supervisory skills, marketing plans, an ability to oversee finance, retail sales, IT support and oversight of all systems necessary to produce a positive financial result. In addition, third party operators must have a vision with regard to the delivery of a high standard of guest service and an ability to execute on this.

If indeed  you are ultimately seeking a relationship with a  spa consultant and/or operator, consideration should be given to those firms that have a diverse background in facility management including staff selection and training, marketing and promotion, product sales, financial management, data support and systems oversight. With that in mind, knowing that your spa operator has a well-established relationship with the proper technology to support your services will assist in your overall business management of the spa.  Some of the basic requirements for an effective data management system include: appointment booking, inventory management, online appointment booking, gift card sales and daily, weekly and monthly reporting capabilities.

Next, the spa needs to have the appropriate staff in place; essentially, the single most important decision is hiring, training and supervising a highly qualified team with specific skill sets related to the delivery of a high standard of customer service. This process is very similar to assessing the qualifications needed to successfully operate a hotel or restaurant.  A third party management partner is able to provide the necessary evaluation to ensure that staff members are appropriately qualified for the positions available, no matter what modality of service an individual may provide.

Why is training important?  It’s absolutely critical for your management team and the entire staff to be aware of and trained in the most current trends, modalities and spa business models to maximize revenue and net operating income.  Continuous education keeps both the service providers and front desk teams engaged in and excited about what’s going on in the spa, the services offered and the products for sale. This engagement and excitement leads to increased revenue and a consistently high level of guest experience.

Success with regard to spa operations is the residue of making each and every guest feel special. If this doesn’t happen, you shouldn’t expect to retain those customers.  Guest service should be the focus at every level and should include customization and authenticity.  Start with the premise that you’re aiming to create “memorable moments” – offering your guests an experience they’ll remember and want to repeat time and again. What does creating “memorable moments” for guests involve?  It starts from the time a guest books a treatment and how the phone is answered to the time they depart.  The touch points start with a warm and friendly front desk and include the journey through the spa.  Treatments must be done by highly qualified and trained staff so guests leave the treatment room feeling refreshed, with all their expectations met. It is important to create specific “wow moments” for the guest, which can be created by staff in the lounge areas, locker rooms, reception and retail area.

Before your spa ever opens, it is vital to determine the most appropriate size, scope and complexity for the facility. This can be done through a commissioned feasibility study, which helps the owner or developer understand what is the most appropriate size and costs for the spa and fitness facility. All too often, an ownership group will plunge into the design process for a spa without having thought through all of the potential pitfalls, and without having done a needs analysis as to what is truly required. This study can be used as a roadmap for a startup process for the spa, and the information that it provides should include the initial space program, competitive analysis, market and demographic evaluation and complete financial projections.  In addition, in order to attract guests within the hotel and from the local market place, it is critical to develop a well thought out sales and marketing plan for the spa. Many spas open without having a plan for how they’ll be promoted within the hotel and to outside guests.  It’s vital to develop and execute a plan which maximizes spa use at off-peak and during off-season periods.

Many spas are busy from Thursday to Sunday but don’t pay attention to developing business during the less-used periods from Monday-Wednesday, so a creative marketing approach is important.  It may hold the key to whether the spa is financially viable or not.   An example of a marketing strategy for off-peak times could be offering special rates which take effect at a certain time of day or on a particular day of the week.  Real-time last minute promotions on Facebook, Twitter and eblasts can also be done, with off-peak promotions targeted at non-hotel guests to encourage a visit to the spa for express treatments.  In short, without a specific plan devoted to promoting guests of the hotel or resort internally, and without a separate plan to promote sales externally, the spa will not meet financial goals and expectations. There also needs to be specific time and training devoted to staff on cross selling and upselling techniques particularly with regard to product sales which is an important component if the spa is to be financially viable. Gift certificate sales are also an important part of this equation and considerable training needs to be devoted to this area alone.

Another key component to successful training and marketing is vendor support.  Product selection and vendor participation is crucial.  Vendors can assist with marketing and merchandising and provide training and excitement for staff.  In addition, they can help develop the treatment menu and marketing materials with regard to treatment descriptions and protocols and participate in the creation of on-site events and promotions. They can also provide special gifts for consumers.

In summary, to open and successfully operate a spa and/or fitness facility is a challenge whether you are an owner or an operator. It demands a combination of key skills, systems and resources in order to produce a successful result, both from an operational and financial perspective. If you are considering the addition of a spa or leisure complex, it makes sense to consider a feasibility study in advance of starting the design process. Once the design process has begun, it is extremely beneficial to retain a qualified spa consultant to work closely with the architecture and construction teams to ensure that the proper attention is paid to functionality, not just to the design of an aesthetically pleasing space. In the pre-opening phase, there are numerous challenges in selecting and training staff, making the right product decisions, developing appropriate systems and marketing tools, and in many other areas where a spa consultant or an operator can be of assistance. Finally, with regard to daily operations, whether you operate a spa internally, lease the premises or bring on a qualified operator it is important to have a coordinated and very focused effort to achieve operational and financial success.


About the Author

garyhenkin

Gary Henkin is the Founder and President of WTS International based in Rockville, Maryland. He specializes in providing consulting and daily management services for spas, fitness centers and leisure facilities worldwide. His projects has spanned the globe including the Middle East, Asia, Latin America, Caribbean and Europe. Mr. Henkin is a frequent speaker at leisure industry and real estate conventions, and has also published numerous articles related to spa or health club design and management. He received a Bachelor of Science Degree from the University of Maryland.

WTS International is the world’s leading consulting and management firm for spas, fitness and leisure facilities. For over 40 years, WTS has provided feasibility studies, design, pre-opening and daily management services for spas and leisure facilities worldwide.

Unorthodox Hotel Space Repurposing to Create New Profit Centers

As a veteran hospitality consultant working out of Vancouver, British Columbia, I’m privy to some very interesting cases and projects throughout the Northwest that require highly creative solutions. Here is one instance that ended up a triumphant success because it creates an entirely new revenue stream for the property – one that would be foreign to most hoteliers.

Challenge
One of my client hotels in Kamloops, BC had a 5,000 square foot street-facing, corner restaurant that was ‘past its prime’ and losing $500k per year. Initial triage meant closing the restaurant and consolidating meal service into the lobby lounge –after giving it a facelift. That was the easy part. While the primary goal was to cut the losses and lease out the now derelict space, after four years, we still hadn’t yet found a suitor for the lease.

It was time for ‘Plan B’. We created a wellness centre concept that included a fresh brand with central reception/washrooms and entry. The intent here was to lease the space out to four or five entrepreneurs, but the numbers didn’t add up and that concept was quickly shelved.

Solution
Time for ‘Plan C’! One of our owners had the idea of a mediation and arbitration center. While it first sounded like a stretch, we retained a university graduate who had just completed his master’s degree in tourism research. His three-month assignment involved assessing and documenting regional demand, potential viability of such a business, potential tenants, its scope, details required in such a specialized facility and a handsome incentive payable for leased space.

As we were researching the concept, we lucked out. British Columbia’s Attorney General announced a strong commitment to funding and growing mediation and arbitration in order to reduce burden on the courts. It was now written into law for certain types of civil cases whereby some form of mediation or arbitration was mandatory before the disputes could even be presented to the courts. Then more unexpected news: Family Mediation Services – a mere one block away – needed additional meeting facilities due to a new law requiring an independent opinion on all separations or divorces involving minor children.

The overarching objective for us was to attract wholly new business to the hotel and to the city – especially in the fall, winter and spring seasons – rather than steal business from the competition which would result in a race to the bottom of the rate ladder. Ultimately, the goal was to create incremental rooms revenue – the core profit engine of most hotels.

At the outset of this ‘Plan C’, we identified 32+ public and quasi-public agencies plus other organizations in the province that would use such a facility. At the time, there were only three such facilities in the province located in the major cities of Vancouver and Victoria. Further, those facilities didn’t offer the scope of custom-planned space and services that we were capable of providing through the adjacent hotel.

Our researcher looked at global best practices for mediation centers to identify the essential features plus competitive attributes required so that we could become the market leader that would draw business to the facility. Given the emotional stress inherent to mediations and arbitrations, we learned that participants living outside big cities would feel more relaxed if they didn’t have to drive into an urban environment. Kamloops, as a city of approximately 100,000, was the ideal size. Moreover, as it is situated in the mountainous interior of the province, Kamloops was the perfect ‘neutral territory’. Adding to this was that smaller towns meant lower costs for hotel accommodations – an attractive offer for consumers that we promoted heavily.

Actions
To get the ball rolling, we found a tenant whose primary business was court reporting. Part of the space was leased out to them which created a nucleus and momentum for further services to view us in a legitimate light as well as a hard to duplicate attribute for the property. From there, the concept of Centrepoint was born (www.centrepointbc.ca).

Refurbishing a space for mediation and arbitration comes with specific stipulations, though. Critical items that had to be included are multiple entries/exits, natural daylight and variable lighting, the highest level of acoustical integrity, high-definition video conferencing, individual climate controls, ease of hot and cold beverage access, and ‘on-demand’ foodservice. Through local recruitment, we were able to find a manager with a BCOM degree, private banking background and experience in project marketing – all perfectly suited to the facility’s specialized needs.

Centrepoint thus became a concept that was created as a freestanding business which, once refined and proven, could be transported to other locations. By the fifth month of operation, the business was breaking even and generating synergistic business for the adjacent hotel. While initial room nights were trending at 10-25 nights per month, the property’s function space previously used for such events was now being used for larger events, with a higher profit margin and generation of yet more new rooms business which in turn lead to incidental spending and flow-through.

Many small details, such as how to keep lunches fresh, soups hot and beverages flowing without interrupting the meetings, were crucial to the formula for this success. Unlike a hotel, the absence of visible service was also required. Specialized serving wares, multiple self-serve beverage stations, lumbar-support chairs, secure high speed WiFi, panic buttons, password-controlled wireless printers, acoustical baffles in the ventilation ducts and covert security cameras all composed these details that led to the facility’s success.

The hardest challenge was explaining to lawyers, mediators and related professionals what was being created and why it would lead to a superior experience that would facilitate faster and less stressful resolutions. During the opening launch and ‘product awareness’ phase, a partnership with the local Thompson Rivers University’s law faculty brought in some healthy and immediate returns. This relationship worked to bolster recognition as well as provide referrals via faculty members and the affiliation. It acted much like a third-party stamp of approval so that lawyers and mediators would see us as a legitimate option.

In this case, an ‘if you build it, they will come’ motto actually worked! It turns out we hit the jackpot as there was a vastly underserved market for mediation and arbitration centers in British Columbia, which are on neutral ground and supported by professional hospitality services.

Another stone that was ‘turned over’ twice revealed a distinct need for serviced offices. While we had thought that most road warriors nowadays simply work on their laptops in hotel rooms, with three significant infrastructure projects on the drawing boards we recognized a growing demand for such spaces. As a result of these findings, two 225-square-foot offices were built. Centrepoint also sweetened the deal with introductory offers that included pool and fitness access plus secure underground parking.

All told, this auxiliary effort resulted in impressive bookings from a broad spectrum of non-traditional clientele, including ‘work from home’ technical consultants in need of meeting spaces. Advertising for these serviced offices opened the hotel’s doors to new, previously unreached demographics. Working in tandem with the tactics to build awareness amongst lawyers and mediators, targeting consultants helped ‘fill the gaps’ at Centrepoint so that it was continually in the black.

Results
Into its sixth month of operation, the feedback from the legal and related communities has been outstanding. One lawyer from the Maritimes was overheard saying that he felt like he was meeting in a sleek Madison Avenue office rather than in the mountains on the West Coast. A leading mediator mentioned that the facilities were the most conducive he has ever used and a catalyst to achieving an acceptable outcome for the parties involved. The differentiating factor here was adding professional hospitality to high-stress meetings as a means to facilitate resolutions and keep as much out of the court system as possible.

There has also been a marked ‘ripple effect’ of incidental spending, resulting in a significant uptick for other revenue streams like the restaurant and lounge as well as underground parking. Basically, Centrepoint has created more general activity throughout the hotel and its patrons are feeding into all other aspects of the property. It’s now a true center of commerce and not just a place for heads in beds. Even if the mediation and arbitration participants are local, the hotel’s other business streams still benefit in more ways than one.

The initial aim for this venture was to make find a use for an empty space. For this, the property passed in flying colors! The hotel now benefits by having a stable, established tenant in addition to one that created a symbiotic relationship with the year-round occupancy bolstered by arbitration parties and the abovementioned ‘ripple effect’.

Everyone wins! So the next time one of your ancillary revenue streams is faltering, you don’t always have to turn to F&B or spa for the answer. My hope is that you will learn from this unorthodox example and apply it to your own property’s unique situation and circumstances. Try a more create approach to further differentiate your property and, hopefully, maximize profits.

Article by Stephen Darling, originally published in Hotel Executive on March 21, 2016.


About the Author

sdarling

Stephen Darling is principal of Stephen Darling Hospitality Consulting Inc. and a Vancouver–based partner of Cayuga Hospitality Consultants, working with national and international clients on hotel development and operations. Stephen has consulted on several North American mixed-use developments in the luxury sector and was a senior member of the teams that brought Mandarin Oriental and Shangri-La to North America. He is also certified as an independent board director and a member of the Cornell Hotel Society. Mr. Darling can be contacted at stephen.darling@shaw.ca Please visit www.stephendarling.com for more information.

Pennies From Heaven Flowing Straight To Your Bottom Line

No Risk Solution To Lowering Credit Card Processing Fees

How did I reduce the credit card processing fees for one of my clients and save them an excess of US$20,000 a year per hotel?

By partnering with Bottom Line Concepts. They take a percent of the money they save you on credit card fees, making this a no-risk solution to improving your bottom line.

The Frustrations With Credit Card Commissions Costs

In my monthly financial reviews with the hotels I work with, I have become increasingly frustrated with that growing expense line called Credit Card Commissions.

I sensed that those charging the credit card fees were not actually doing anything to earn those commissions except electronic processing.  

The fees haven’t decreased since we ran those flimsy vouchers through an embossing machine and they were loaded into a hopper.

How To Lower Your Processing Fees

How often have you heard, “There’s nothing we can do about credit card commissions?”

Hotels negotiate rates with customers, and we can do the same with banks and credit card networks.

While you can negotiate and lower credit card processing fees yourself, this can be a time consuming process and takes some practice. This, and for other reasons, is why we suggest working with someone on your behalf.

When was the last time you looked at the detailed breakdown of the fees your bank or processor charges? The list of fees is long. To name some of these:

  • Assessment Fees
  • International Fees
  • Transaction Fees
  • Acquirer Chip Fees
  • Pin-pad and Terminal Fees

Yikes!

While you might not be able to eliminate processing fees, there’s a potential for a lot of savings here, but first you have to dig in.

Do You Know How To Read a Credit Card Processing Statement?

Most hotel GMs and financial controllers don’t know how to read a credit card processing statement or know what the true costs of transaction are. Cayuga Hospitality Consultants took a cue from experts outside the hotel field who have developed a repertoire of algorithms, best practices and contacts that are key to reducing costs associated with credit card processing fees.

While we often think that hotels are uniquely different; in the credit card processing space we are no different than the dentist down the street. When we can learn from other industries, we should seize on what they’re doing better.

Why Bottom Line Concepts

Cayuga researched this specialized market as there are several knowledgeable players in the field.

Based on the findings, the organization selected chose Bottom Line Concepts because it was found to be the most progressive across multiple business sectors, benefiting Cayuga’s clients’ unique business needs which often includes small to mid-size hotels and restaurants.

How Bottom Line Concepts Works

The partnership with Bottom Line Concepts, LLC, is helping Cayuga’s client network save money on credit card processing without changing banks or processors.

To date, they’ve helped save businesses more than $20 million in excess fees and inflated rates.

Cayuga has entered into a preferred relationship with Bottom Line Concepts in order to extend additional savings to our consultants’ hospitality clients.

They do this by analyzing credit card statements and negotiating with processors on behalf of businesses to achieve the best rates and fees, while also ensuring that the right data is being passed to the card companies for maximum savings.

Cayuga is excited about this partnership because it represents another way that our consultants can help improve their clients’ bottom lines without any risk to their business. Bottom Line Concepts charges no upfront fees and will only take a share of actual savings.

Case Study On Lowering Credit Card Processing Fees

One of my clients has two small to mid-size hotels and I had them retain Bottom Line Concepts earlier this year. After analysis, the auditors were able to negotiate reduced credit card processing fees by 22% which, of course, flowed directly to the GOP line.

The overall average commissions my client hotels were paying averaged 2.78%. Leveraging industry knowledge and contacts, Bottom Line Concepts was able to reduce the overall fees to 2.12%, saving my hospitality client in excess of US$20,000 a year per hotel.

Think of what a 22% savings on your annual credit card transactions would contribute to your bottom line.

This is a whopping no-brainer to easily convert pennies to dollars!

Revisiting Investment Decision Making In The Gaming Industry

Now that the gaming industry has experienced its first round of loan defaults, it is time to revisit fundamental investment decision criteria.

  • Foxwoods Resort Casino, located in Connecticut, is in the process of re-structuring $1.45 billion in debt. It is the largest casino in the US and has four hotels with over 2,700 hotel rooms and 31 restaurants. It serves a huge daytrip market that includes Boston, Providence and Hartford, an area that it shares with only one other large casino.
  • The Inn of the Mountain Gods Resort & Casino located in southern New Mexico 140 miles from the nearest population concentration of El Paso, needs to restructure $200 million of debt incurred when it replaced its original casino and hotel with a luxurious new resort complex. It has been profitable in only three of 11 quarters since opening in 2005.
  • In northern Michigan, the new Odawa Casino Resort is struggling to meet the debt service on $200 million incurred when the tribe replaced its old casino and added a hotel in an attempt to become a destination resort in a seasonal tourist market that is otherwise sparsely populated.
  • In Las Vegas, Strip casinos have rushed to add restaurants, hotels, condominiums and retail in recent years, without expanding gaming floors. The effect of this change in business model is shown by the fact that gaming revenue at Strip casinos now accounts for less than one-half of total revenue. The $2 billion Fontainebleau complex is in bankruptcy while still under construction. The $8.6 billion, 18 million-square foot CityCenter gaming complex which recently opened on 67 acres on the Strip is reported to be the single most expensive privately funded project in the western hemisphere.

Gaming revenue at all U.S. casinos experienced an average annual compound growth rate of over 6 percent between 2001 and 2007; Native American casino revenue increased at 13 percent. During this remarkable growth period, huge amounts of capital have been invested in non-gaming amenities in an attempt to increase market share. More restaurants and hotels have been added to numerous casinos across the country along with convention centers, show rooms, golf courses and other capital intensive and often payroll-intensive amenities. This has generally proven to be a good strategy and has resulted in vibrant casino entertainment complexes that are wonderful assets to their communities, generating jobs, entertainment and tourist dollars. These amenities have been successful in broadening the customer base beyond prolific gamblers to include a broader range of patrons seeking entertainment.

Amenities can be effective in boosting gaming revenue by inducing players from the existing market to spend more at the casino, expanding a market by attracting different patrons from the existing market, or by drawing people from a greater distance. A few amenities can be profit centers, such as a well-conceived restaurant or hotel or a gas station/convenience store. Many are break-even at best and some function consistently as loss leaders. The amount of capital invested in these amenities can be huge, while the economic return from them can be minimal.

These casino investments should be evaluated on the basis of the incremental amount of new business they generate for the casino, both in new gaming revenue and contribution to overhead from the operation of the amenity. This economic benefit must then be compared to the additional debt that is incurred to construct them.

The characteristics of each market must be carefully studied when calculating likely economic benefits from a new amenity. For instance: will a new hotel really draw players from outside the current market or will existing players fill the hotel and spend their same gaming budgets over two days instead of in one-day visits? Or perhaps the hotel will be filled with tourists who are not big gamblers. Will a showroom or convention center bring new patrons who gamble before and after an event, or will it attract non-gamblers who fill up the parking lot and drive casino regulars to a competitor? A golf course is a prestigious casino amenity, however there are few markets where a course can be economically justified on the basis of the incremental gaming revenue it attracts.

In many instances, it seems like the investment criteria of incremental revenue and return on investment may have been over shadowed in the decision-making by “we want it and can afford it” or “we need one because our competitors have one.” These latter criteria are acceptable if paid for out of cash flow or with very low leverage, but high debt leverage can jeopardize the golden goose (the casino) when negative market forces occur, such as a recession or extreme competition. Relatively large investments chasing small incremental revenues create unnecessary risk.

Many casinos found they were not immune to recent problems in the U.S. economy, which caused the casino industry to experience its first revenue decline in two decades. A business decline of 5% in 2008 and a slightly higher rate in 2009 has created financial stress for a number of highly leveraged casinos and substantially reduced distributions in others with large capital investments.

A casino gaming operation has a relatively high fixed cost and low variable cost, making its bottom line cash flow very vulnerable to a business decline. Such expenses as surveillance, security, cage operations and slot machine leases cannot be significantly reduced when casino revenues decline. Nor is there a “raw material” cost at a casino to provide an expense savings when business falls off. Thus, a large proportion of any decline in top line revenue flows through to the casino’s bottom line. (Casinos in states with high gaming taxes experience a higher variable cost and therefore cash flow may be less sensitive to a decline in business.)

In looking at an investment in a new amenity, decision-makers should never lose site of the fact that no investment they can make in bricks and mortar will ever equal the return on investment from the casino. Thus, each subsequent expenditure on additional casino amenities will diminish the return on the overall investment. Investments made with reasonable debt levels that produce a well-conceived casino complex, one that is financially viable and protects market share, is a prudent business strategy. Investment in expansions and amenities that have only marginal incremental returns or are loss leaders can greatly increase the financial risk for a casino.

A good sensitivity analysis that demonstrates the financial impact of a business decline on the casino’s ability to meet its debt service obligations is an effective tool in preventing over-investment that can topple an enterprise when market conditions deteriorate. The model used in an analysis must accurately consider the behavior of both fixed and variable costs in the event of a revenue decline. By showing how cash flow will be affected if various levels of business decline occur, and comparing these cash flows to new debt service requirements, decision-makers are better able to assess the financial risk of a planned venture.

It appears that the casinos mentioned in the opening paragraph may have gone too far in trying to capture the marginal gaming dollars in their marketplace and/or generating new dollars. Public companies have an obligation to maximize profits for their shareholders, but stability and risk are important value considerations, too. Native American tribes, where casino profits may fund government and social services and provide needed income to tribal members, should probably take a more conservative business approach.


About the Author:

Stephen Sherf is a former member of Cayuga Hospitality Consultants.