Chris Powers is a Texas-based real estate investor, and I’ve learned a lot from him over the past year on what owners are looking for. Last week he tweeted:
As someone in real estate, I'm always blown away when I see a hotel executing on all levels.
So many workers, so many processes, so many details.
It's pretty remarkable when done right. It's good to see hotels rocking and rolling again.
Cheers to the hotel industry.
— Chris Powers (@fortworthchris)
Sep 10, 2021
Hotels are small (and sometimes large) operating businesses with an underlying real estate component. Our operating SOPs and people are our lifeblood twitter.com/fortworthchris…
— Some Hotel Guy (@somehotelguy)
Sep 10, 2021
This underscored something I believe: that operations is now the biggest differentiator in hospitality today. It's how travel memories are made for guests, and business value is created for investors.
In the last issue, we heard from the hotel owner that’s been involved in more than $1 billion in hotel transactions. Today, I want to share another perspective - that of a top-performing hotel operator.
My friend Michael Hraba is Partner at Waterford Hospitality, which manages hotels such as The Lodge at the Presidio - the #1 guest-rated hotel in San Francisco. We recently spoke about challenges in hospitality today and why the current labor shortage needs to be addressed holistically.
Where owners can screw up a hospitality business
“Something happened to hospitality during a couple of recessions in the ’80s and ’90s where some investors got into the market and began to aggressively reduce expenses to increase profits. They were asking things like ‘do you really have to pay that person that much,’ and ‘do you have to staff that many people there,’ and this whittled away a lot of what made hospitality special in those properties.
“Hotels never really were high-margin, high-profit businesses. But it got to a point where the industry was led by capital-minded people versus hospitality-minded people. It really altered hospitality. They weren’t making decisions based on hospitality, they were looking at the P&L, and that was where everything was decided. You can’t create great hospitality from a spreadsheet.
“One of the biggest things we’ve noticed about staffing is that it’s not just the unstaffed position. When you understaff for the purpose of saving on labor cost – or if you can’t fill the position because you burned your ability to draw proper candidates – the effect on the people at the property is deleterious.
“I saw this a couple of weeks ago at a hotel in Napa. My wife had work up there and we stayed overnight and I saw a guy who was working his butt off as they were understaffed. You could see in his eyes – he’s this dedicated, loyal as hell employee, and he’s just in the weeds. You can see he was depressed about it. He’s not telling people like, ‘Oh, that sucks.’ He’s working his ass off. But you can see the dehumanizing aspects of when a hotel isn’t even staffed properly.
“You can’t blame the pandemic on the staffing crisis, because we’ve had this staffing crisis for at least five years. It’s been half a decade and we haven’t been able to reinvent what it means to have a career in hospitality.
“We’re lucky at Waterford. Our company has been able to pay more than any of our competitors, and we’ve added crazy benefits because we have owners that are not only debt service-minded and cashflow-minded, but they’re also profit-minded.”
The business case for addressing staffing holistically
“I’ve met owners that wonder why their property did twice as many spa services from 2015-2019 as it’s doing now. That’s not less marketing, it’s not bad reviews, it’s just that they can’t handle capacity.
“When you add in the higher prices from COVID pent-up demand, general value and sentiment are going to be lower. And in the long run, that’s going to really hurt the owner’s bottom line.
“The hospitality industry is losing revenue by not having staff. And so we’re seeing many companies updating their policies because they need people. One great example is all the grooming policy updates. We started auditing other luxury destinations and urban city centers, and grooming guidelines have changed so much at brands such as Fairmont, Four Seasons, and Montage. It used to be, ‘Okay, you can do another half-inch of sideburn down by the ear.’ It was that strict. And now it is basically just come be yourself and we’ll decide if anything’s too extreme.
“The problem is, if we don’t staff because of an edgy hairstyle in the spa, that’s $150,000 of lost revenue in our spa. Or if a sleeve tattoo is disqualifying, that’s $200-$250k lost in room revenue of not being able to turn the room. There are very few hotels in America right now operating at full capacity that could be.
“The staffing shortage means guests are going to have to change their expectations of what service means. It’s sad to see that in hospitality. It means, for example, doubling the time you’re waiting for a valet car because they don’t have the staff. Reduced capacity means fewer guests want to be there, and fewer guests want to upgrade.
“If guests upgrade because they know they’re going to have a good experience, that money goes to the bottom line - there’s no added cost or operational complexity there.”
Later this week we’ll look at some practical ways to address the labor shortage in hospitality today. Stay tuned….
If you’re working on something you’d like me to share here - or come across a story of someone providing exceptional hospitality - let me know by replying to this email ([email protected]).
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And that’s it, folks! Go out there and make someone’s day today.