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Revenue management – More than rooms

17 October 2014
Revenue management – More than rooms

Total revenue management, which takes into account everything from spa to food and beverage, could be a boon for hoteliers, but it's still far from the norm, as Elly Earls finds out

A lthough some hoteliers have taken great strides in revenue management in recent years, expanding their strategies beyond rooms into conferencing, spa, golf and food and beverage (F&B) operations, this practice is still far from widespread in the sector.

Not only are there very limited tools to help revenue managers on this score, the added complexities of revenue management for non-room profit centres are significant, while operating a ‘total revenue management' strategy, where every revenue stream is taken into account and there is communication between
all departments, is even trickier.

Yet the opportunities for hoteliers who do take the leap into total revenue management, or even just adopt a revenue management strategy for one particular extra profit centre, are enormous, with those that have already bitten the bullet quickly reaping the rewards.

"At K West hotel and spa we have been implementing these practices and processes for some time now within the spa area, generating over 70% increases in revenue in the past three years," says Catherine Bernard, director of revenue for Lancaster London and K West hotel and spa. "Revenue management is no
longer just about bedrooms. The processes can be applied to any revenue-generating area, and thus increase profits."

Opportunities in conferencing

According to Ally Dombey, director of revenue management consultancy Revenue by Design, while the majority of hotel revenue management strategies do still tend to focus on rooms, the area she's seen the most progress in has been conferencing. "That's certainly one area where there is a huge opportunity to really leverage and maximise revenues," she notes.

But it's no easy win for hoteliers. "It's not just about managing the value of the room hire; it's also about the additional spend a hotel can get out of that particular group," Dombey says.

It's also essential for revenue managers to understand how much business a conference group, which is buying rooms as well as conferencing space, might displace. "For example, should you accept one group, which could be hugely profitable, if they displace a corporate client that stays regularly?" Dombey asks.
"Clearly, there's a bit of a risk there."

So where to start? "You need to have a really clear idea of the business you have from your market segments and what kind of demand you can forecast," Dombey advises. "You can then understand when a group is really going to help you; a group can be a fantastic opportunity to fill gaps where you know you have a need for someone to stay, but you don't have sufficient demand from your existing customers."

Easy wins in F&B

F&B is another department where revenue management techniques can make a big difference, as Starwood realised six years ago. "We have been implementing our F&B revenue management strategy since 2008," says Lawrence Edwards, senior manager of sales and catering development at Starwood
Hotels & Resorts, Europe, Africa and the Middle East.

"We took the data from our rooms forecasting process as a starting point, and engaged with F&B, revenue management and IT to understand the needs of the business and how we could shape strategy for managing revenues in this area.

"Within our Europe, Africa and Middle East division, we have a lot of hotels that generate greater revenue from F&B than from rooms, so it is an extremely valuable revenue stream for us."

While F&B is by no means a straightforward area in which to implement a revenue management strategy (not only are F&B operations less profitable than rooms, but metrics based on how long a guest stays at their table need to be taken into account), there are some easy wins for hoteliers wanting to get started
in this area.

For example, if half of the menu is selling and the other isn't, Dombey recommends, start by understanding how you can make the entire menu more popular and profitable.

"There are loads of little projects you can do that can have a huge impact on revenue," she notes.

Do be careful with dynamic pricing, though, recommends Rupert Gutteridge, sales and marketing director at PMS provider Guestline.

"In certain areas, dynamic pricing strategies can be easily applied, such as happy hour or pre-theatre dinners," he notes. "But changing the price of a particular food item depending on demand can be challenging."

Total revenue management: the future

The only way to truly optimise a hotel's revenue is through total revenue management, where revenue managers accept that revenue streams are interconnected and communication between departments is the number one priority.

For Dombey, this is set to become increasingly important for hoteliers. "Revenue managers need to be able to discuss with their F&B team and their meetings and events team 'Who are our most profitable guests and who should we be accepting?' Otherwise, they may well not be optimising this revenue to the greatest extent that the hotel could achieve."

Edwards adds that the industry is already on its way to implementing these sorts of strategies - if slowly. "Total revenue management is the future, but this is a journey rather than a destination. Steps are definitely being made today in the right direction," he concludes.

Bringing together rooms, events and restaurants at Lancaster London

At the Lancaster London, rooms, events, restaurants and bars had predominantly been managed in silos until last year, when the team realised that it was necessary to bring everything together in order to maximise the hotel's revenues and profits.

Step one was getting the whole team on board. "We realised that we needed to first develop the understanding and engagement of colleagues from the different areas," recalls Catherine Bernard, director of revenue for Lancaster London and K West hotel and spa.

"So we put together a two-day workshop for colleagues across the business to drive a culture of total revenue management, using the expertise and experience of an outside consultant."

It worked a treat. "From this we have developed a strong team in three areas - rooms, meetings and events, and restaurants and bars - headed by three leaders, reporting to myself, the revenue director, all of which work very closely together," says Bernard.

"Each understands the importance and impact of decisions made in their specific area and the need to communicate with each other.

"Since creating a culture of total revenue management, it has broadened the individual team members' way of thinking and they've become more engaged in the total revenue decision-making process. The team also now understand that compromises often have to be made in order to convert and win business
and maximise the overall total revenue and profit for the hotel."

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