'Now' Negotiating

Unless you’ve jettisoned all electronic and paper media, you know a chorus of voices are predicting a U.S. economic recession, possibly the worst since World War II. Naysayers point to the housing industry downturn, flat consumer spending, losses in the billions by financial institutions such as Citigroup and Merrill Lynch & Co., and gas and oil prices that have hit historic highs.

Yet everyone is not singing the same song. Opinions about the direction of the U.S. economy—and the hospitality industry—this year and beyond are as varied as those about who will win November’s presidential prize. Confusion and some caution reign even as industry forecasters predict the seller’s market to continue through 2008.

“Smith Travel Research [STR] predicts that the trend for hotels we saw in ’07 will continue,” says Jan Freitag, vice president of global development for the Nashville, Tenn.-based hospitality industry consultancy. “That is, occupancy will either be flat or slightly negative, and rates will increase above the level of inflation for 2008. Because the industry is cyclical, one would expect a downturn to be imminent, especially if you look at history.We had double-digit gains from 2004 through 2007, so a falloff is inevitable. Based on economic indicators we buy from economic forecasters, we don’t expect a recession in 2008, but we do expect a slowdown. In 2007, we saw room rates increase 5.9 percent nationwide, and we expect the number to be at 5 percent for ’08.”

Robert Mandelbaum, director of research for information services at Atlanta’s PKF Consulting, agrees with Freitag about the outlook, and believes certain factors could contribute to the expected slowdown in nationwide hotel performance.

“A new supply of hotel inventory can impact demand,” Mandelbaum contends. “But while many are proposed for development, the actual number of properties under construction is not growing at the levels we’ve seen in previous peak periods. This is due to the current cost of construction, the lending environment and investor expectations. We believe the supply that is coming on-line can be absorbed by the industry.

“Our numbers don’t call for an overall economic recession, but slower growth,” he adds. “Even in previous recessions, when business and group travel tend to fall off, leisure travel maintains. Of course, there is always the wild card of a catastrophic event—a terrorist attack or a SARS outbreak—that can skew everything.”

Hotel management’s practiced dexterity in maintaining yield and keeping room rates healthy, he says, will serve them well in case of a recession.


Wherefore Planners?

But what if the cycle is turning? Which negotiation strategies should a savvy meeting planner employ to ride out the obscured twists and turns ahead?

“I would suggest planners remain flexible, and armed with plenty of data about the value of the business they bring to the hotel, and that they study what hoteliers want,” Mandelbaum advises. “For instance, hotel managers’ performances often get evaluated on the higher daily room rates they bring in. So if you want to be nice to a hotel manager, concede the room rate to them, then ask them to flex elsewhere with revenue-generating items.”

Meetings Media consulted several industry experts and veterans to glean useful strategies planners can use in the current negotiating climate.


Relationships turn everything

• Markets come and go, so people on both sides of the contract table should maintain professionalism and integrity no matter the status of the market. Those who don’t may find they are at a disadvantage when their side of the table turns down in the inevitable cycle. Planners need to understand the hotelier’s objectives and perspectives. And don’t be a bully. Some planners with large corporations in particular think they can shove people around. They might get away with it once, but that’s about it. Planners who want to cultivate supplier relationships need to know how to work with them in any market. Ethics and integrity are still in style!
  
  Mostly, I follow people, not properties, though I am loyal to some hotels. I don’t have time to fuss around with new people so it comes down to whom you’ve worked with and what the client’s needs are.—Nancy A. Norman, founder and president, The Norman Group, Hopkinton, Mass.

• This helps the hotel sales person sell your event to his or her revenue manager. If you are an independent planner with multiple clients, talk to suppliers about your own volume as well as the client’s business value.—Annette Gregg, CMP, CMM, vice president sales and marketing, Concepts Worldwide, Carlsbad, Calif.
  
  
• Use the RFP to beef up the value. Besides the basic specifications and information about the group—whether you are profit or nonprofit, for instance—tell them more about your products and services. This is especially important for associations and nonprofits. Tell them who the members are and who will be attending, whether the meeting is one that is mandatory, optional, for education, has a trade show, etc. If it’s a new meeting, give the hotel an idea of how the meeting originated, like, “We have run similar meetings on a regional level.”—Barbara F. Dunn, Howe & Hutton Law Firm, Ballwin, Mo.

• Because you must sell the value of your business to suppliers, use the RFP to demonstrate it. Be up front with pertinent information such as the number of rooms needed for what dates and the event’s history on room block utilization, ancillary spending, use of F&B, etc.
  
  Be honest about bad history, too, and tell the supplier why a city didn’t work for you, whether the weather impacted it, or some other situation that affected the history.
  
  Also include all your legal and concessions requirements in the RFP. Tell them you typically receive certain things. And if you have a deal-breaker contract clause for something like attrition, cancellation, or something else, put that right in the RFP and include the sample contract.
  
  Some planners say doing such an RFP takes too much time to put together. I tell them, yes it does, but once they do it, they can just tweak it to every situation. Suppliers applaud this concept, believe me, and you should get the best deal they can offer you right out of the gate.—Barbara F. Dunn

• Many hotel companies now have standard contracts they regard as “battle tested.” These contracts emerged after landmark events such as the Persian Gulf War of the early ’90s and the events of 9/11. That was when hotels saw billions of dollars in business pulled out of their hotels. Because they had little legal recourse back then, they responded with contracts they are unlikely to change.
  
  Planners need to understand the legal terms in contracts. If they don’t understand the clauses, they need to ask their lawyers for explanations. For example, things like confidentiality clauses—the ones that dictate to a hotel that they can’t have a client’s competitors on property at the same time. How is the hotel supposed to know all of a company’s competitors?
  
  Everybody wants a standard contract—they just want it to be their own. To sit at the negotiating table and start throwing out, blending and fixing standard contract clauses wastes so much time. Instead, spend time on the business terms like room rates and amenities.—David C. Scypinski, senior vice president, Starwood Hotels & Resorts Worldwide, White Plains, N.Y.
  
  
• Markets come and go, but I don’t think planners should expect hotels to go back on their contracts, even in a down market. They are more sophisticated now about contracting than they were back in 2002 when they got burned for giving away too much. So now, even if the market turns more in favor of the buyer, I don’t think hotels will move off their standard contracts.—Lisa Sommer Devlin, attorney, Devlin Law Firm, Phoenix

Use collaborative style

• Approach your hotel person with a request for your preferred dates, but if the rates aren’t palatable, ask them if there is a time frame that works for them and also changes the cost structure for you. The idea of collaborating as the economy slows down is very important for the long term.—Jan Freitag, vice president of global development, Smith Travel Research, Hendersonville, Tenn.

• If the hotel isn’t willing to share the liability, the best thing may be to walk. Don’t negotiate the non-negotiables. You don’t want to give away the store. An organization must have indemnification. You can negotiate rates, but not the important legal terms about risk management and force majeure.—Barbara F. Dunn

• The only time we’ll suggest this to the customer is if we have five or six pieces of business lined up for the same dates. We will take the business that gives us the least amount of grief and the greatest amount of revenue.—David C. Scypinski
  
  
• Try and get discounts on your F&B volume to keep the bottom line where you want it. If you really want a property for the client but they can’t afford it, consider asking the hotel to cater an off-site event and use that as leverage. The Manchester Grand Hyatt and San Diego Marriott Hotels are two properties in San Diego that will cater outside the property.—Annette Gregg

• Hotels quote highest rates when occupancies are highest. Bigger room rates make sales people look good. So planners might try for more flex on F&B. One approach: “I’ll give you the room rates you want, but what will you give me with discounts on F&B and other revenue points?”—Robert Mandelbaum, director of research information services, PKF Hospitality Research, Atlanta

• Hotels on the upper end charge for access to fitness clubs and the Internet, for example. See if you can make those charges go away. For example, Hampton Inn gives a free breakfast to guests. If you can negotiate a full package that includes the amenities, all the better.—Jan Freitag
  
  
• Try for different room price points. We have negotiated tiered room pricing for good bottom line effect. At a major Vegas hotel, we bought some rooms at one price point and put all the client’s staff in those rooms. But for franchisees who were paying out of their own pockets, we negotiated another tier of rates at least $50 lower. The hotel was happy because it was a good piece of business—4,000 room nights—for summer dates.—Annette Gregg

• Many sales people have never experienced a down economy like we had after 9/ll. A planner’s key to getting what they want now has to be linkage. If, for example, you are negotiating for a meeting in a high season, try to link that to another function within the hotel’s opportunity period. In other words, go to the table with at least two meetings in your pocket.
  
  Do expect your hotelier to give timely responses to your RFPs and phone inquiries. This is what I am telling them they must do.—Carol Verret, Carol Verret and Associates Consulting and Training, Greenwood Village, Colo.

• The old flex with rates and dates mantra is most helpful in an uncertain economic environment. If a meeting sponsor’s decision-makers are reluctant to change a meeting pattern, or think they must be in a tier-one city, the wise planner will put together a cost savings analysis showing them savings they can have by adjusting their pattern or location. In these days of corporate oversight, this is critical. With this approach, the big guys—not the planner—decide whether they will take the advice or not.—Barbara F. Dunn
  
  
• Plan your meeting around another group, and arrive two days before or after it. Also, many more new properties are coming on-line in some markets. If you are the new kid on the block, you want to build your business, so consider the newest property for the best deals.—Jan Freitag

• Some markets have already felt the impact of a slowing economy. North Carolina, Cincinnati, Michigan, Iowa, Pittsburgh, San Diego, and Chicago are getting a bit soft.—Carol Verret
  
  
• Consider why you or senior staff think you must go to a tier-one market. Is this for business or a vacation? Often, the event doesn’t really need to be there. So instead of Chicago, you look at cities like Milwaukee or St. Louis, which offer big group advantages.—Barbara F. Dunn

• Value and shoulder seasons are still periods at many destinations for getting best rates, especially in tier-one cities. Places like Vegas and Scottsdale, Ariz., can be more affordable for summer dates, while Boston, San Francisco, New York, and Chicago are more likely to offer you a nice rate in winter months.—Annette Gregg