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The morning line… …an executive summary of this issue's feature articles
The Morning Line.
l
.
. ..an executive summary of this issue’s feature articles
In the U.S., liability for losses of guests’ property has been limited to articles within the confines of the inn, thereby omitting vehicles and articles that are left outside. Courts resolving vehicle claims have applied the law of negligence or of bailments. The guest loses the benefit of strict or insurer’s liability and is compelled to prove fault, and the innkeeper loses the benefit of limitations on liability. In some states innkeepers face strict legal liability but no statutory monetary ceiling. Management should post conspicuous notices in all areas used for guest vehicles absolving the innkeeper of all responsibility for vehicles or contents and review current hotel insurance governing liability claims.
Guest Property lnfra Hospitium Revisited: The Expansion of Strict Liability for Recreational Vehicles and Similar Articles, by John E. H. Sherry Pages 18-19
The hotel industry remains in a depression, but there are pockets of opportunity amidst the overall bleak picture. Average daily rate showed little growth and actually fell in many markets, such that many hoteliers do not have the cash flow necessary to maintain their physical plants. A market-by-market assessment of the largest 25 markets in the U.S. projects that demand will not catch up to supply for three to five years. While Hawaii, Las Vegas, and Orlando should record sufficient demand growth to absorb additions to supply, overbuilt markets like L.A. may not need any additions until 1997. Sagging hotel values have created an opportunity for investors to purchase (not build) properties to which they can add value through effective management or marketing strategies.
The 1992 Hotel Market: Modest Improvement, by Sean F. Hennessey
Pages20-25
Japan’s hotel industry comprises Western-style hotels and traditional Japanese-style inns. The inns outnumber the large hotels and serve far more customers, but Western-style hotels are in the fastest-growing segment of Japan’s hospitality industry. In general, Japanese hotel-development investors are: existing hotel companies, allied firms, railway companies, corporate real-estate owners, the building trades, and manufacturers. The greatest influences on hotel development in Japan are: scarcity of land, residential dwellings too small to accommodate overnight guests, protectionist investment policies, and the government’s campaign to induce Japanese to take more time for vacation. There is little formal hotel-management education in Japan; hotel managers are educated through on-the-job training. Nevertheless, managers can delegate successfully to a loyal and competent work force. The top-level decision makers and planners have a broad set of responsibilities, although these managers are more likely to identify with and be loyal to the “home office” rather than to the hotel in which they are posted.
Japan’s Hotel Industry: An Overview, by William H. Kaven
Pages26-32 -
4
THE CORNELL
H.R.A. QUARTERLY
Four new upscale hotels comprising 730 rooms recently opened in Philadelphia’s center-city area. The total number of upscale rooms has more than doubled in the last three years. This article presents an analysis of Philadelphia’s luxury-hotel market. Strategic considerations involve: a new convention center and new hotels, occupancy rates, supplier relationships, Amtrak’s interaction, the trickle-down effect, multi-market contact, the national hotel picture, demand uncertainty, and the effect of name brands. Philadelphia’s convention center is to be built by 1994, and hotel-industry analysts suggest that the city’s hotel supply will have to double in the space of four years to meet the hoped-for demand for conferences. To help meeting planners, convention planners are offered one or more clusters of hotels from which to book, depending on the size of their meeting. Average year-to-year occupancy for Philadelphia’s hotels dropped in every monthly comparison between 1988 and 1989, and downtown Philadelphia hotels saw occupancy fall from an average of 69 percent in 1989 to 65 percent in 1990. The five upscale hotels do not use common suppliers. Moreover, the four hotels constructed nearly at the same time did not gain economies of scale by using common builders. The hotels are using business discounts, weekend specials, and other rate deals to discriminate by price among various customer types. In the long run, the hotels’ prospects hinge on the opening of the conference center.
When Four Seasons Hotels and Resorts opened its first property more than 30 years ago, the company’s founder, lsadore Sharp, already sensed that the traveling public’s attitude toward hotel dining was fast becoming a negative one. So he set out to update hotel dining to appeal to contemporary travelers. Now, Four Seasons promotes a single standard of quality for all of its food and beverage operations-restaurant dining, catering, and room service-and has been credited with leading the trend to better hotel restaurants. As the company developed its destination resorts, it revised its successful city-hotel dining philosophy to create appropriate dining experiences for vacationing guests. An example of this strategy is the Pacific Grill at the Four Seasons Resort Wailea, where property-level decision making, a focus on regional cuisine and locally produced ingredients, highly trained chefs, and modest yet special touches combine to reward guests with delightful dining experiences that contribute to a pleasant stay. The question of which items should appear on a restaurant menu is, in reality, a complex matter and involves considering several factors in the sales mix: (1) individual menu items, (2) categories of menu offerings (e.g., appetizers, entrees), and (3) meal periods or business categories (e.g., the breakfast meal period, the banquet business). This article reviews four major approaches to menu analysis and then proposes a fifth method based on an analysis of market segments and contribution margins. Using a hypothetical example, the authors provide the mathematical calculations and show in step-by-step fashion how to dissect the profitability of: meal periods, types of menu offerings, and individual menu items. When applied to any operation, the results will show which menu items provide the greatest profits and which the greatest losses.
APRIL 1992
5
Philadelphia’s Luxury Hotels: Boom or Bust?, by Brian Becker
Pages 33-42
Four Seasons’s Wailea Resort: Not Your Average Dining Experience, by Alfons Konrad
Pages 43-48
Restaurant Operations Profitability Analysis for Table-Service Restaurants, by Mohamed E. Bayou and Lee B. Bennett
Pages49-55
The Morning Line... . ..continued
Analyzing Sales-Mix Profitability, by William J. Quain
Pages56-62
Planning for Catastrophe: The Fast Track to Recovery, by Nelson R. Bean
Pages64-69
This article shows how a hotel can use “profit analysis by segment” (PABS) to determine sales-mix profitability. PABS uses a combination of marketing information and cost analysis to identify average revenues generated by different market segments. Then it delves into the contribution margin for each of those segments by considering the costs of making those sales. PABS even factors the marketing team’s knowledge of buying behavior into the analysis. That analysis includes consideration of each market segment’s purchase habits from each of the hotel’s revenue sources, the average sales per revenue source for each segment, and the cost of sales for each revenue source. Revenue sources include rooms sales, food sales, beverage sales, and “other” sources (e.g., telephone, valet, shops). Using a hypothetical example and a step-by-step approach to present the mathematical calculations, the author shows how to figure the relative contributions of a business traveler versus an associationmeeting guest. The analysis shows that meeting goers contribute more to the hotel’s profitability than do business travelers. This is because meetings guests can be counted on for more food and beverage revenues than typical business travelers. The PABS analysis shows that selling more less-expensive rooms to association-meeting travelers may generate more revenue than would attracting more business travelers.
The complexity of a hotel’s or restaurant’s physical plant leaves it open to the danger of fire or other damage, and all businesses are subject to destructive acts of nature. Recent advances in catastrophe planning, combined with high-speed reconstruction techniques, make it possible for businesses to reopen quickly and thereby minimize losses after a fire, storm, or other disaster. Since fast-track construction entails a premium cost, your catastrophe plan must compare the projected losses from business interruption with the additional cost of fast reconstruction. That analysis may even help you convince the insurance carrier to pay the premium for high-speed construction to reduce the overall size of the claim. While high-speed reconstruction seems to add considerable costs at the outset, the key is to compare those incremental costs with business-interruption expenses over time. The costs of progressively faster reconstruction do not increase in a linear fashion, because not all time-saving techniques increase costs. Expedited estimating and claims settlement are more a matter of commitment and attitude than money. Highly organized purchasing and scheduling can, in fact, produce savings rather than increase expenses. In any event, it’s important to choose the best construction contractor for the job. Avoid a “low-bid” mentality, since those contractors may botch or fail to complete a job-a cost most insurance companies won’t pay. This article also discusses reducing floor-surface hazards that may lead to slips and falls and presents the steps to take in the event of the ultimate catastrophe: the death of a guest.
6
THE CORNELL
H.R.A. QUARTERLY
The prices of lodging properties are of interest and concern to many professionals. To gain a clear picture of price patterns in the market, the selling prices of properties must be screened for anomalies, corrected for extraordinary financing, and properly indexed. The indexing procedures described in this article reveal price movements without the influences of quantity, quality, and sample-composition differences across properties and over time. The index reveals that prices remained flat through mid-l 986, rose during the last two quarters of 1986 due to the Tax Reform Act, and experienced a decline throughout the remainder of the 1980s. This decline was exacerbated by weakness on the demand side and was not influenced by Japanese investors. The index numbers show that prices were flat between late 1988 and the end of 1990, perhaps an indication that the property market bottomed in late 1988. By the end of 1990, prices of lodging properties were 70-75 percent of their 1985 levels.
Pure Price Changes of Lodging Properties, by John 6. Corgel and Jan A. deRoos
Pages70-77
The culturally diverse nature of hotels’ and restaurants’ work forces can be a source of strength, provided the organization manages that diversity effectively. This article presents a study of work-force diversity in six Toronto hotels. The study identified the following positive effects of diversity: immigrants constitute a large labor pool; multiple cultures enrich the work environment; hotels are better able to serve a diverse clientele; and new markets are attracted to culturally diverse hotels. On the down side, there are difficulties arising from: departmental concentration of ethnic groups, language differences, and cultural differences. Departmental concentration arises from: logistical benefits to the hotel, systemic discrimination, organizational characteristics, racism, and tradition. Permitting departmental enclaves limits employee effectiveness and causes problems related to: communication, coordination, comfort, motivation, and image. Hotels that are committed to providing quality service and attracting growing markets will encourage cultural diversity. Where diversity is ignored, conflicts will continue to emerge, and neither the hotels nor their employees will reach their true potential.
Cultural Diversity: The Lesson of Toronto’s Hotels, by Julia Christensen-Hughes
Pages 78-87
Most managers know that “quidpro quo” sexual harassment (by which an employee is expected to offer sexual favors in exchange for job preference) is illegal. The hearings to confirm Clarence Thomas for the Supreme Court, however, focused attention on a more common form of sexual harassment: that arising from the work environment itself. Through a series of court decisions, sexual harassment has been brought under the aegis of the Equal Employment Opportunity Commission. Those decisions have also broadened the definition of sexual harassment to include environmental factors. The net result of the decisions is that sexual harassment may now be defined as such by anyone who feels she or he is receiving unwanted attention. A key to the courts’ rulings is that a victim must show by his or her actions that the attention is, indeed, unwanted. At that point, there must be a mechanism that allows the victim to notify management that an incident has occurred. If management ignores a complaint or does not provide a reasonable reporting procedure, the hotel may face not only sexual-harassment charges but also a tort or other commonlaw action that could result in paying damages to the victim.
Sexual Harassment: The Hostile Work Environment, by Arthur J. Hamilton
Pages 88-92 and
Sexual Harassment in the Hospitality Industry, by Titus Aaron and Edward Dry
Pages92-95 _
APRIL 1992
7
l
.
. ..an executive summary of this issue’s feature articles
In the U.S., liability for losses of guests’ property has been limited to articles within the confines of the inn, thereby omitting vehicles and articles that are left outside. Courts resolving vehicle claims have applied the law of negligence or of bailments. The guest loses the benefit of strict or insurer’s liability and is compelled to prove fault, and the innkeeper loses the benefit of limitations on liability. In some states innkeepers face strict legal liability but no statutory monetary ceiling. Management should post conspicuous notices in all areas used for guest vehicles absolving the innkeeper of all responsibility for vehicles or contents and review current hotel insurance governing liability claims.
Guest Property lnfra Hospitium Revisited: The Expansion of Strict Liability for Recreational Vehicles and Similar Articles, by John E. H. Sherry Pages 18-19
The hotel industry remains in a depression, but there are pockets of opportunity amidst the overall bleak picture. Average daily rate showed little growth and actually fell in many markets, such that many hoteliers do not have the cash flow necessary to maintain their physical plants. A market-by-market assessment of the largest 25 markets in the U.S. projects that demand will not catch up to supply for three to five years. While Hawaii, Las Vegas, and Orlando should record sufficient demand growth to absorb additions to supply, overbuilt markets like L.A. may not need any additions until 1997. Sagging hotel values have created an opportunity for investors to purchase (not build) properties to which they can add value through effective management or marketing strategies.
The 1992 Hotel Market: Modest Improvement, by Sean F. Hennessey
Pages20-25
Japan’s hotel industry comprises Western-style hotels and traditional Japanese-style inns. The inns outnumber the large hotels and serve far more customers, but Western-style hotels are in the fastest-growing segment of Japan’s hospitality industry. In general, Japanese hotel-development investors are: existing hotel companies, allied firms, railway companies, corporate real-estate owners, the building trades, and manufacturers. The greatest influences on hotel development in Japan are: scarcity of land, residential dwellings too small to accommodate overnight guests, protectionist investment policies, and the government’s campaign to induce Japanese to take more time for vacation. There is little formal hotel-management education in Japan; hotel managers are educated through on-the-job training. Nevertheless, managers can delegate successfully to a loyal and competent work force. The top-level decision makers and planners have a broad set of responsibilities, although these managers are more likely to identify with and be loyal to the “home office” rather than to the hotel in which they are posted.
Japan’s Hotel Industry: An Overview, by William H. Kaven
Pages26-32 -
4
THE CORNELL
H.R.A. QUARTERLY
Four new upscale hotels comprising 730 rooms recently opened in Philadelphia’s center-city area. The total number of upscale rooms has more than doubled in the last three years. This article presents an analysis of Philadelphia’s luxury-hotel market. Strategic considerations involve: a new convention center and new hotels, occupancy rates, supplier relationships, Amtrak’s interaction, the trickle-down effect, multi-market contact, the national hotel picture, demand uncertainty, and the effect of name brands. Philadelphia’s convention center is to be built by 1994, and hotel-industry analysts suggest that the city’s hotel supply will have to double in the space of four years to meet the hoped-for demand for conferences. To help meeting planners, convention planners are offered one or more clusters of hotels from which to book, depending on the size of their meeting. Average year-to-year occupancy for Philadelphia’s hotels dropped in every monthly comparison between 1988 and 1989, and downtown Philadelphia hotels saw occupancy fall from an average of 69 percent in 1989 to 65 percent in 1990. The five upscale hotels do not use common suppliers. Moreover, the four hotels constructed nearly at the same time did not gain economies of scale by using common builders. The hotels are using business discounts, weekend specials, and other rate deals to discriminate by price among various customer types. In the long run, the hotels’ prospects hinge on the opening of the conference center.
When Four Seasons Hotels and Resorts opened its first property more than 30 years ago, the company’s founder, lsadore Sharp, already sensed that the traveling public’s attitude toward hotel dining was fast becoming a negative one. So he set out to update hotel dining to appeal to contemporary travelers. Now, Four Seasons promotes a single standard of quality for all of its food and beverage operations-restaurant dining, catering, and room service-and has been credited with leading the trend to better hotel restaurants. As the company developed its destination resorts, it revised its successful city-hotel dining philosophy to create appropriate dining experiences for vacationing guests. An example of this strategy is the Pacific Grill at the Four Seasons Resort Wailea, where property-level decision making, a focus on regional cuisine and locally produced ingredients, highly trained chefs, and modest yet special touches combine to reward guests with delightful dining experiences that contribute to a pleasant stay. The question of which items should appear on a restaurant menu is, in reality, a complex matter and involves considering several factors in the sales mix: (1) individual menu items, (2) categories of menu offerings (e.g., appetizers, entrees), and (3) meal periods or business categories (e.g., the breakfast meal period, the banquet business). This article reviews four major approaches to menu analysis and then proposes a fifth method based on an analysis of market segments and contribution margins. Using a hypothetical example, the authors provide the mathematical calculations and show in step-by-step fashion how to dissect the profitability of: meal periods, types of menu offerings, and individual menu items. When applied to any operation, the results will show which menu items provide the greatest profits and which the greatest losses.
APRIL 1992
5
Philadelphia’s Luxury Hotels: Boom or Bust?, by Brian Becker
Pages 33-42
Four Seasons’s Wailea Resort: Not Your Average Dining Experience, by Alfons Konrad
Pages 43-48
Restaurant Operations Profitability Analysis for Table-Service Restaurants, by Mohamed E. Bayou and Lee B. Bennett
Pages49-55
The Morning Line... . ..continued
Analyzing Sales-Mix Profitability, by William J. Quain
Pages56-62
Planning for Catastrophe: The Fast Track to Recovery, by Nelson R. Bean
Pages64-69
This article shows how a hotel can use “profit analysis by segment” (PABS) to determine sales-mix profitability. PABS uses a combination of marketing information and cost analysis to identify average revenues generated by different market segments. Then it delves into the contribution margin for each of those segments by considering the costs of making those sales. PABS even factors the marketing team’s knowledge of buying behavior into the analysis. That analysis includes consideration of each market segment’s purchase habits from each of the hotel’s revenue sources, the average sales per revenue source for each segment, and the cost of sales for each revenue source. Revenue sources include rooms sales, food sales, beverage sales, and “other” sources (e.g., telephone, valet, shops). Using a hypothetical example and a step-by-step approach to present the mathematical calculations, the author shows how to figure the relative contributions of a business traveler versus an associationmeeting guest. The analysis shows that meeting goers contribute more to the hotel’s profitability than do business travelers. This is because meetings guests can be counted on for more food and beverage revenues than typical business travelers. The PABS analysis shows that selling more less-expensive rooms to association-meeting travelers may generate more revenue than would attracting more business travelers.
The complexity of a hotel’s or restaurant’s physical plant leaves it open to the danger of fire or other damage, and all businesses are subject to destructive acts of nature. Recent advances in catastrophe planning, combined with high-speed reconstruction techniques, make it possible for businesses to reopen quickly and thereby minimize losses after a fire, storm, or other disaster. Since fast-track construction entails a premium cost, your catastrophe plan must compare the projected losses from business interruption with the additional cost of fast reconstruction. That analysis may even help you convince the insurance carrier to pay the premium for high-speed construction to reduce the overall size of the claim. While high-speed reconstruction seems to add considerable costs at the outset, the key is to compare those incremental costs with business-interruption expenses over time. The costs of progressively faster reconstruction do not increase in a linear fashion, because not all time-saving techniques increase costs. Expedited estimating and claims settlement are more a matter of commitment and attitude than money. Highly organized purchasing and scheduling can, in fact, produce savings rather than increase expenses. In any event, it’s important to choose the best construction contractor for the job. Avoid a “low-bid” mentality, since those contractors may botch or fail to complete a job-a cost most insurance companies won’t pay. This article also discusses reducing floor-surface hazards that may lead to slips and falls and presents the steps to take in the event of the ultimate catastrophe: the death of a guest.
6
THE CORNELL
H.R.A. QUARTERLY
The prices of lodging properties are of interest and concern to many professionals. To gain a clear picture of price patterns in the market, the selling prices of properties must be screened for anomalies, corrected for extraordinary financing, and properly indexed. The indexing procedures described in this article reveal price movements without the influences of quantity, quality, and sample-composition differences across properties and over time. The index reveals that prices remained flat through mid-l 986, rose during the last two quarters of 1986 due to the Tax Reform Act, and experienced a decline throughout the remainder of the 1980s. This decline was exacerbated by weakness on the demand side and was not influenced by Japanese investors. The index numbers show that prices were flat between late 1988 and the end of 1990, perhaps an indication that the property market bottomed in late 1988. By the end of 1990, prices of lodging properties were 70-75 percent of their 1985 levels.
Pure Price Changes of Lodging Properties, by John 6. Corgel and Jan A. deRoos
Pages70-77
The culturally diverse nature of hotels’ and restaurants’ work forces can be a source of strength, provided the organization manages that diversity effectively. This article presents a study of work-force diversity in six Toronto hotels. The study identified the following positive effects of diversity: immigrants constitute a large labor pool; multiple cultures enrich the work environment; hotels are better able to serve a diverse clientele; and new markets are attracted to culturally diverse hotels. On the down side, there are difficulties arising from: departmental concentration of ethnic groups, language differences, and cultural differences. Departmental concentration arises from: logistical benefits to the hotel, systemic discrimination, organizational characteristics, racism, and tradition. Permitting departmental enclaves limits employee effectiveness and causes problems related to: communication, coordination, comfort, motivation, and image. Hotels that are committed to providing quality service and attracting growing markets will encourage cultural diversity. Where diversity is ignored, conflicts will continue to emerge, and neither the hotels nor their employees will reach their true potential.
Cultural Diversity: The Lesson of Toronto’s Hotels, by Julia Christensen-Hughes
Pages 78-87
Most managers know that “quidpro quo” sexual harassment (by which an employee is expected to offer sexual favors in exchange for job preference) is illegal. The hearings to confirm Clarence Thomas for the Supreme Court, however, focused attention on a more common form of sexual harassment: that arising from the work environment itself. Through a series of court decisions, sexual harassment has been brought under the aegis of the Equal Employment Opportunity Commission. Those decisions have also broadened the definition of sexual harassment to include environmental factors. The net result of the decisions is that sexual harassment may now be defined as such by anyone who feels she or he is receiving unwanted attention. A key to the courts’ rulings is that a victim must show by his or her actions that the attention is, indeed, unwanted. At that point, there must be a mechanism that allows the victim to notify management that an incident has occurred. If management ignores a complaint or does not provide a reasonable reporting procedure, the hotel may face not only sexual-harassment charges but also a tort or other commonlaw action that could result in paying damages to the victim.
Sexual Harassment: The Hostile Work Environment, by Arthur J. Hamilton
Pages 88-92 and
Sexual Harassment in the Hospitality Industry, by Titus Aaron and Edward Dry
Pages92-95 _
APRIL 1992
7