Hospitality Health: Mid-year Industry Trends

Christina Volpe, Associate Editor
8/10/2010

While the recession may have been declared over some months ago, its affects can still be felt through the hospitality community as operators attempt to move forward with their recovery efforts. To find out more about the pace of recovery for hotels and restaurants, Hospitality Technology polled its readers throughout the month of June with several key goals: first, to determine the pace of recovery and health of the industry overall; second, to pinpoint the business strategies they're most focused on; and third, to identify the technologies that are top-of-mind for the year ahead.

To really get a picture of the speed of recovery, we've compared these results to a similar survey that we conducted at the tail end of 2009 ("Industry Outlook 2010: Hotel & Restaurant Trends for the Year Ahead," which ran as our Nov/Dec 2009 cover), and we present that comparison here.

Finally, we also asked a select group of restaurant and hotel operators to provide detailed answers to some of our burning questions regarding the overall direction of the industry. Things like, what are their go-to strategies for engaging customers? How did technology help them survive the recession? What are their companies' PCI compliance efforts, and what are the point of sale (POS) technology must-haves? These reflections and insights are shared in the "Industry Opinions" section.

1. Top initiatives
Just over six months ago, the recession had the hospitality industry running in several different directions. At the tail end of 2009, we asked readers what initiatives were most important to their companies in the coming 6-12 months. About one-third were trying to attract customers, another third were looking for new ways to generate revenue, and just about a quarter were cutting operating costs. Today, the majority of hotels and restaurants are approaching the path to recovery in a more uniform way: looking for ways to bring in customers.

In fact, more than half (54.9%) of respondents indicate that they are most interested in attracting more customer (chart 1), up 18.5% from the Nov/Dec 2009 survey. This focus is further reflected in how the industry is planning to invest resources in the coming 6-12 and in its interest in emerging technologies; 34.1% of respondents indicate that their companies plan on investing most in customer relationship management/loyalty technologies (chart 4), and 45.1% of respondents' companies are most interested in social networking applications (chart 3).

Coming in at a tie for second, 20.9% of our surveyed operators are concentrating on streamlining operations and seeking out business opportunities (down from 26.8% in Nov/Dec); the same amount are looking for new revenue-generating opportunities (down from 34.9%). Although those looking to invest internally to build company resources increased from 1.9% in Nov/Dec to 3.3% today, it still remains the least important initiative among operators. As companies continue to gain financial stability, this number will likely increase.

2. On the track to recovery
In the 2009 survey, we asked operators to tell us where they sat in the emerging recovery period. To track their financial progression, we asked the same question in our June 2010 survey, and here is what we found (chart 2). Six months ago, 31.9% of respondents told us that they were knee-deep in dealing with the impact of the recession. Nearly half were starting to see signs of a turn-around, and another 18.3% indicated that their companies were in a financially healthy position (either in "real recovery" or "largely unaffected"). While these numbers were relatively positive, the latest set of data points to an even brighter outlook for lodging and foodservice companies. The most prominent indication of this upward shift is seen in the percentage of respondents who indicate that they are still knee-deep in dealing with the impact of the recession, moving from 31.9% in Nov/Dec 2009 down to 18.7% today. On the flip side, 56% of respondents are starting to see signs of a turnaround, but are proceeding with caution (compared to 49.8%); 13.2% are experiencing real recovery (compared to 6.5%); and 12.1% indicate that they were unaffected by the recession (compared to 11.8%).

What's more, these positive indications are in alignment with data from other industry sources; PricewaterhouseCoopers' U.S. Lodging Forecast indicates that sustainable recovery of lodging demand has begun as consumers and businesses alike continue to gain confidence in the strength of the economic recovery. Likewise, the National Restaurant Association's Restaurant Performance Index for May points to a positive outlook as capital expenditure activity rose to its highest level in nearly two years.

3. Emerging technologies
Respondents were also asked to list which emerging technology was of most interest to their company in the coming 6-12 months (chart 3). Social networking dominated, capturing 45.1% of respondents' votes. New geo-networking sites (i.e. FourSquare) and applications that link loyalty and reservations to Facebook, Twitter, etc, are creating fresh ways to engage customers. They're also helping to create a return on investment for social networking, which has been all but impossible to measure. Social networking is valued for its low overhead, which may play a factor in its high ranking, as other emerging technology initiatives require greater capital investments.

Although it has gained a lot of ground in the past year, only 17.6% of lodging and foodservice operations are interested in mobile phone applications/mobile website browsing. Cloud computing and green/sustainability technologies captured 15.4% and 13.2% of participants' votes, respectively. Lastly, there is comparatively less interest in consumer self-service (5.5%) and open source technology (3.3%).

4. Tech investments in 2010
When asked to share which technology system their companies will be investing in the most in the coming 6-12 months, the industry was fairly split with the exception of one area (chart 4). Building upon the momentum of those looking to attract more customers, a whopping 34.1% of operators told us that they will sink future investments in customer relationship management/loyalty technologies. This high percentage can be attributed to the role that these technologies play in driving customer engagement, through either the differentiation of personalization or the promise of rewarding frequency of patronage.
 
At a distant second, 17.6% of respondents told us that their companies will be investing in networking technologies in the coming months. Those investing in point of sale and digital media were split equally at 15.4%, while 8.8% plan on investing in either property management systems or back-office/inventory management technologies.
 
5. Impact of national policies
Lastly, the online survey asked respondents to indicate which national policy initiative is likely to have the biggest impact on their company in the next 6-12 months (chart 5). Given the amount of attention that the National Health Care Reform Bill has generated over the past few months, it is not surprising that this is the top concern among lodging and foodservice operators, clinching 60.4% of respondents' votes. Although covered in the National Health Care Reform Bill, nutrition/menu labeling compliance did not capture as large a percentage of interest from operators, earning just 9.9% of respondents' votes. This is perhaps because the costs associated with universal health care far outweigh the costs of updating menu/menu boards to include nutritional information.

Coming in at a distant second, 17.6% of respondents told us that the business and personal tax cuts outlined in the Stimulus Bill are most likely to impact their companies. Investment in energy/environmental programs and immigration reform are the least likely to impact hospitality companies, earning just 6.6% and 5.5% of participants' votes respectively.

 
 
 
INDUSTRY OPINIONS

1. What strategies is your company following to foster customer spending/engagement?
Joe Tenczar, Sr. Director of IT, Hard Rock International
While we are certainly reviewing our current marketing technology as a whole and utilizing more viral and social marketing, we are also ramping up our guest-facing technology at the properties. The Hard Rock Interactive suite of products, such as Microsoft Surface, our larger-than-life Rock Walls and Booth Interactive technology, is augmenting the positive Hard Rock experience. The ability to interactively connect with our music and memorabilia is helping drive guests to the stores; and studies show that they are more likely to return and recommend this experience to others.
 
Scott Gibson, CIO, SVP of Distribution, Best Western International
A strong promotional offer on television puts heads in beds. That's why in 2009, we tightened our belts elsewhere in order to increase our marketing and advertising spend by 40 percent over the prior year. This strategy paid off, as Best Western weathered the recession better than our midscale competitors. We are following a similar course in 2010 with an even greater marketing and advertising investment to drive business to our hotels.
 
Pat Enright, VP of IT, Così
Our current strategy is based on the following: 1.) our great food offerings; 2.) our unique and delicious limited time offerings; and 3.) making it fast and easier to be a satisfied customer at Così. We are close to offering online ordering which will make it easier and more convenient to be a Così customer.

2. How has technology played a role in helping your company through the recession?
Vivek Shaiva, CIO, LQ Management, L.L.C.
There are two innovative solutions La Quinta has invested in to simplify operations and provide cost effective solutions to the brand. First, La Quinta consolidated its data and voice applications onto one network, significantly reducing technical issues across locations, resulting in enhanced customer service and reduced labor costs for support. We have also been able to add significant bandwidth for guest high speed Internet access at more than 250 company-owned hotels using a new broadband bandwidth aggregation solution that delivers additional capacity at a comparable cost to traditional HSIA circuits. A cloud computing-based PBX offering has enabled the company to replace aging PBXs at 75 company-owned hotels at one-third the cost of an on-property solution, conserving capital dollars for property improvements.

Matthew Silverman, Executive Chef, Michael Corrigan Restaurant Group, Las Vegas (Vintner Grill, Agave, RoadRunners)
We have used technology specifically through our marketing efforts. While social marketing has been examined and not a fit for all of our properties, we have focused on our e-mail lists in particular. Not only working to increase the overall size of the database, but segmenting our lists so that we can determine what restaurants and what specials or events we feel particular segments would find value in. We have also really focused on performance measures of staff through third-party software systems that evaluate the data that comes from the POS. Taking the massive amount of data that comes out of the POS and turning it into reports that our sales staff and management can use to judge performance of the staff as well as the items they are selling has been key to tightening the control that we have, and at the same time helping us to judge the performance of our overall business. These third-party software systems are really key to extrapolating data and making educated decisions that have helped us to succeed.

Gibson, Best Western International
Strategic partnerships and technology help us drive guest engagement. Our relationships with partners like AAA and Harley Davidson allow us to connect with current and potential guests, based on lifestyle; and our tightly integrated 'direct connect' technology with partners like these makes it easy for those guests to do business with us. Our website, bestwestern.com, our direct connects with key partners, our presence on Facebook, Twitter, YouTube, and our applications for iPhone and other mobile devices make sure Best Western, and the ability to book our rooms, is available anytime and anyplace.

3. Looking back on your company's PCI compliance efforts, what is one thing that you have learned that you wished you had known from the onset?
Shaiva, LQ Management, L.L.C.
Distilling complex PCI security policies to employees at all levels across the organization has proven challenging. It is crucial to PCI compliance that all employees fully understand the day-to-day requirements ensuring our organization is PCI compliant. Therefore, translating highly technical policies and procedures into verbiage that non-technology employees can understand is essential to ensure adherence.

Silverman, Michael Corrigan Restaurant Group
When all of the PCI issues came up it seemed it was more of a sales pitch by smart people at the credit card and POS companies to "sell, sell, sell", rather than a well-thought-out solution. I wish people promoting a solution would have been more up front as to what they had and didn't have; in addition, advising that a "fix" would be coming out every couple of years and cost a few thousand dollars. It seems like every year there is a change to PCI compliance and it doesn't look like it will ever stop. I am for starting a movement (similar to Europe), in which the card is swiped by the guest at the table so that it never leaves their hands. Maybe a retinal scan on top of it so that the issue will finally be resolved -- but then again, I am sure someone will find a way to steal from that as well.
 
Tenczar, Hard Rock International
Account for unforeseen budgetary needs. I remember thinking this was going to be a very process-driven initiative; ensuring credit card data is encrypted and putting policies in place to keep the bad guys out. Then came substantial hardware and software expenditures: logging software, software that logs the logging software, software that audits that your software is logging the logging software, etc. Ouch. If you are level one or two, get a QSA engaged as soon as possible after the PCI DSS rules change. In my opinion, this has become too arduous to handle on your own unless you have a regularly-trained member of your staff focusing mainly on PCI compliance.

4. In the world of POS hits and misses, what technology or trend do you identify as being a POS fad; and what do you identify as a POS must-have?

Enright, Così
There is an issue in the restaurant industry with software solutions truly being open systems. My hope is that this is a fad, but it will stay a norm unless the restaurant companies come together with the solution providers and work together. Take a look at the history and working relationship of the National Association of Convenience Stores, (NACS), as an example of what this industry can do to greatly improve cooperation, integratability, and reduce the cost of doing business together.

Silverman, Michael Corrigan Restaurant Group
I don't know if I can comment on the fad at the moment. I think that will all come out sooner than later. It appears that many of the POS technologies were developed on the premise of "throwing things against a wall to see what would stick," and only time will tell. As far as the must-have, I think integration is a must-have. On the positive side, there are so many great systems, software solutions, and hardware solutions out on the market today. They are all great on their own, but the systems that truly benefit establishments and maximize their value, as well as the time it takes to use them properly, are the systems that talk to each other. Having all of these great systems talk to each other, for me, is a must-have.

Tenczar, Hard Rock International
Integrated handheld payment devices are a must have, although I have yet to see them as integrated as I would expect. Rightfully, our privacy-sensitive customers are demanding a way to hold on to their credit cards. Most major retailers allow self-payment, but there are relatively few in hospitality. All hospitality POS vendors should have a bullet-proof way to handle this or spend a large percentage of their R&D dollars here. Hardware and wireless technologies are now at the point that self-payment in the hospitality industry should be pervasive.
 
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