HotStats: Competitive benchmarking enhances performance in uncertain times
Zero-based budgeting has gained traction since the pandemic
By Vishnu Rageev RNov 17, 2023
BENCHMARKING AGAINST COMPETITORS is the first step for hotels to grasp the competitive landscape during budget planning, according to a blog from HotStats. The research firm highlighted the increasing prevalence of zero-based budgeting in the hospitality industry since the onset of the pandemic.
HotStats’ blog also outlined measures to improve budget accuracy and performance in uncertain times, involving the utilization of technology and adaptability to changing market dynamics. In a recent blog post, Pete Sams, COO of Davidson Hospitality Group, said that benchmarking is critical.
"We view the initial stage of the budget process as comprehending the competitive landscape, conducting extensive due diligence on our competitors,” Sams said.
Sams further said his company assesses RevPAR indexes and competitive dynamics at each hotel, especially during events like renovations, management changes, or the introduction of new offerings. According to the blog, zero-based budgeting is a method gaining traction since the pandemic. Unlike traditional budgeting, which relies heavily on the previous year's actuals, zero-based budgeting starts from a "zero base" so each expense is justified for each new period, and every function undergoes analysis for its needs and costs.
"Traditionally, budgets are based on a hotel being virtually the same property as the year before," said Michael Grove, chief operating officer of HotStats. "It’s not a full review of the business model. But things can change dramatically year over year. With zero-based budgeting, rather than tweak last year’s numbers, hotels start with a clean slate, building the budget as if it were a new hotel. It’s a holistic strategy of reviewing and revising the business in entirety each year."
To do that, however, hotels need relevant data.
"Zero-based budgeting is only possible today because hoteliers have access to data for a broad range of business models,” Grove said. “They can run 'What If' scenarios to predict the impact of business decisions on future performance. This is the thought leadership aspect of the budget process. It’s not just about benchmarking, it's about keeping an open slate and aspiring to your business potential.”
Approaches to optimal budgeting
Hotels presently have access to technology solutions for aggregating and analyzing financial data, facilitating connections across various data sources, the blog said. The success of a hospitality company relies on its effective leverage of available technologies.
"Using technology or a uniform template helps minimize the inefficiencies of the [budgeting] process," said Elena Ladisova, vice president of Brookfield Asset Management. “The Uniform System of Accounts for the Lodging Industry serves as a central guide for industry accounting and benchmarking standards.”
Meanwhile, Paul Nisbett, CFO of Valor Hospitality, noted the development of a model that integrates the financial forecasting and budgeting tool with the revenue team's software.
“We have our fixed cost register and a manning guide,” said Nisbett. “We don't need to guide it by the year; we can do it by day and by month. With our toolkit, as long as the information is being dealt with and updated consistently, the budgeting process doesn't take too long. It's about examining what parts move and what parts don't.”
Dimitris Manikis, president of EMEA, at Wyndham Hotels & Resorts, emphasized the importance of preserving the human aspect of budgeting.
"Everybody is talking about artificial intelligence and how you don't need to budget anymore because AI will have all the answers," Manikis said in the blog. "In reality, what data does is create one source of truth. Now, the truth can be interpreted in very different ways. So, data is extremely important, but so are the people who interpret the data and build the narrative for our team members and business partners. That is absolutely critical.”
Moreover, the budget should also be treated as a dynamic document that evolves, especially during periods of high uncertainty and market volatility, the experts said.
"Over my 30-year hospitality career, I've built thousands of budgets, and I've never encountered a single budget that was exactly right to the dollar," said Sams of Davidson Hospitality Group, in the blog. "Understand that it's going to be inaccurate to some extent, ideally for the better. Articulate how you're going to get there and then be prepared to adjust and adapt."
Sams said the budget instantly becomes a forecast. "You must go into the year understanding that it should be updated every month. And then the real measure is your ability to adapt to what’s happening in the market,” he added.
Hotels must also embrace a recurring theme, which is that it is imperative to challenge assumptions and adopt novel approaches to address budgetary issues, the blog added.
"[In the past], we tended to rely heavily on third parties to give us a guide to where they felt they were going to be," said Nisbett of Valor Hospitality. "More recently, we've had to be more forward-thinking ourselves."
A focus for his company this year is cost management.
"When we look at maintenance, administrative costs, labor, etc., we ask, what can we do differently? How can we challenge it differently? And what can we do better?" Nisbett said. "Once you lock in your numbers, the real time is spent around costs and cost basing and how to challenge some of those costs. That's really where our focus has been."
In a 2022 blog post, Grove of HotStats highlighted zero-based budgeting as essential due to the fluidity of the global economy. He recommended that hoteliers explore alternative methods for futureproofing or building resilience.
Sonesta launched Americas Best Value Studios, an extended-stay version of ABVI.
The model targets owners seeking limited front desk and housekeeping.
The brand meets demand for longer-term, value-focused stays.
SONESTA INTERNATIONAL HOTELS Corp. launched Americas Best Value Studios by Sonesta, an extended-stay version of its franchised brand, Americas Best Value Inn. The model targets owners seeking limited front desk and housekeeping, optional fitness center and lobby market along with standard brand requirements.
The brand aims to address the growing demand for longer-term, value-driven accommodations, Sonesta said in a statement.
"Americas Best Value Studios by Sonesta represents a strategic evolution of our trusted Americas Best Value Inn brand," Keith Pierce, Sonesta’s executive vice president and president of franchise development, said. "We are expanding our offerings to directly address the increasing demand within the extended-stay segment, providing a practical solution for travelers seeking longer-term lodging at value. This new brand type allows our local franchised owner-operators to tap into a growing market while maintaining the community-focused experience that Americas Best Value Inn is known for."
ABVI has a majority presence in secondary and tertiary markets, the statement said.
The extended-stay brand’s operational model features a front desk, bi-weekly housekeeping, on-site laundry and pet-friendly accommodations, Sonesta said. Guests can also earn or redeem points through the Sonesta Travel Pass loyalty program.
In August, Sonesta named Stayntouch its preferred property management system after a two-year review of its ability to support the company’s franchise model. The company operates more than 1,100 properties with more than 100,000 rooms across 13 brands on three continents.
By clicking the 'Subscribe’, you agree to receive our newsletter, marketing communications and industry
partners/sponsors sharing promotional product information via email and print communication from Asian Media
Group USA Inc. and subsidiaries. You have the right to withdraw your consent at any time by clicking the
unsubscribe link in our emails. We will use your email address to personalize our communications and send you
relevant offers. Your data will be stored up to 30 days after unsubscribing.
Contact us at data@amg.biz to see how we manage and store your data.