by Helmut Knipp
This is a subject that has always been close to my heart, especially since I began my first General Managers role on January 28, 1974, and my hotel’s major demand generator, Love Field Airport in Dallas, had closed two weeks prior. No one, I emphasize no one, had alerted me to this happening. Within 2 months my occupancy dropped over 20 points along with my average rate and all other business. The hotel, when I took over, was on COD with the milkman and the breadman. My Controller and I would take turns meeting them on our loading dock at 6am to pay in cash so we would have these basic supplies. Looking for cash to pay bills that first week, I, along with my Controller, decided to make a complete house bank audit. All was basically fine, a few cents here or there, but the last bank, in the safe of the Controller, was $40,000 short in cash. The Controller had “borrowed” these funds to pay personal bills. This all occurred within my first few weeks.
I wondered what I had done wrong to deserve this and, more importantly, how would I get out of this mess as a brand-new General Manager. Well, in such a situation you cannot curb expenses enough, especially if you are in the hole already. You need to focus on revenue generation and profit renewal while at the same time controling costs and expenses.
First I rallied the team and turned them all into sales people. Remember, “Nothing happens until somebody sells something” and the “Sales department is not the whole hotel, but the whole hotel is the sales department”. I also believe that “the more calls you make, the more business you book”. So I gave two mornings worth of sales training to every management team member. Then I assigned company and areas for them to each make 20 calls a week. each. I tried to assign calls where they might find something in common, i.e. the Chief Engineer on engineering firms, and construction companies; the new Controller on accounting firms and similar; the Executive Chef on our and other hotel suppliers and similar, and so on. They all did relatively well and after a couple of weeks new business from these calls started coming in.
The Director of Sales, whom I inherited, was the type who waited for the phone to ring, rather than actively work to make it ring. Him, I replaced with a real go getter while I personally focused on Texas State Association business had been neglected prior. I spent 3-5 days each month in Austin calling on these groups and asking for their business.
We also had to find a way to get our guests from the new DFW International Airport. Love Field had only been 15 minutes away. We now had over an hour’s drive to deal with. Historically, we had 3 buses running to shuttle our guests to and from Love Field. Handling our own transportation to DFW would not have been cost-effective. The closest that the official airport bus transport would come to us was still 15 minutes away. While our guests were waiting for our van to arrive, they stood there, looking at a brand new Marriott across the street. Many times, by the time our van arrived, they had checked into that hotel. Eventually, I was able to make a deal with SURTRAN, the airport transport company, to drop off and pick up at our hotel by guaranteeing a certain number of passengers. They also allowed me to start selling tickets on the bus towards my guarantee. A few months later I was able to encourage two other hotels along the way to join me in this process and we then always met our guarantee.
I was also getting tired of meeting the bread man and the milk man at 6am on the loading dock. I was able to negotiate a payment plan with both and they gave us our credit back. Incidentally, as a result of the house bank audit, we found over $25,000 in cash in these house banks that was not needed. We used this to pay bills. We also used these early months to establish good relations with our owners and win their trust, which was not easy.
In addition to selling and marketing the hotel, I started to really focus on profit renewal. Here are a few ideas as to what I did:
1. Sales & Marketing – As already mentioned, selling the hotel is “job one”. We tried to leave no stone unturned and addressed all markets we could reasonably address. Fortunately we had a fair amount of meeting and banquet space.
2. Pricing – It is important to shop your competition frequently for room rates as well as food and beverage prices. You must always take advantage of all pricing fluctuations and cannot price yourself in a vacuum. During my first competitive shopping I noticed that we had the smallest difference between single and double rates when compared to our competitors. I matched one of the more aggressive competitors by increasing our add-on rate and saw no negative effect. I did, however, notice a quick increase in average rate. As we only had about 25% double occupancy, the increase was small, but everything helped.
3. Meeting & Banquet Space – The most precious commodity we have, other than rooms, is our space. We must remember at all times in our sales and catering departments that what we are selling is the most precious commodity which is also the most perishable. Furthermore that space is replenished every 24 hours and whatever we do not profitably sell today, is lost forever. We must sell whatever we have as often as possible and as profitably as possible, every day. When was the last time you personally performed a Function Book Audit? Do you allow “all space blocks”? These are an absolute no no. In any hotel I have managed, any “all space block” had to be personally approved by me. There is no reason why a convention cannot be programmed into the hotels space so banqueting and other sales persons can sell around it and maximize the space.
Let me provide a quick example: A few years earlier, when I was Resident Manager of the Washington Hilton, I established a procedure for any “Lost Business”. Reports from banquets or sales had to be completed the moment the business was lost, with a brief, honest description as to why, and placed on my desk at any time of the day or evening. Coming back from a meeting I found a report indicating we had lost the Washington Redskins Homecoming Luncheon due to a lack of space as a result of a major convention booking. We valued the luncheon with cocktails at $65,000, plus the prestige. They could not change their date and our major competitor had their preferred date available. I immediately went to the Function Book and checked the space myself. Indeed we had a major convention in house and they filled up not only our guest rooms but also used virtually all space. I did notice however that this was the last day of their conference. I went to speak with the sales person on the account and asked to see the program. In looking at the program I noted that on this, the last day, they had no scheduled breakfast and a closing session scheduled for the ballroom from 9am to 1pm. No luncheon. Along with the salesman I went to see the Executive Director of the group which was headquartered in Washington, DC that same afternoon. I asked him to check with his board and see if they could start their closing session at 7 or 7:30 am and be finished by 10 am. In return I would host a 1 hour continental breakfast before the meeting. He made a quick call to three different board members and they approved the change, wanting one additional concession, a table for the board at the luncheon. Done and a $65,000 luncheon saved. As I said, space is very valuable.
We also had a fully equipped and separate Kosher Kitchen which had not been used in years. When I asked why, it was either too much trouble or there was no demand. I should mention at this time that the owner of the dairy who had put the hotel on COD, had become a friend especially after I paid off the arrears. I mentioned this to him and he seemed surprised we did not use this kitchen. He was active in the local Jewish community and offered to introduce me to the Rabbi who headed the Rabbinical Council. The three of us toured the kitchen and the Rabbi explained the process that would be required for the kitchen to again be considered kosher, indicating that he would use it when we were ready. After getting this completed we had new business and an income stream that was quite significant as there was only one other competitor with a kosher kitchen in Dallas.
4. Maximizing Occupancy & Average Rate – This was 1974, long before the advent of fully computerized reservation systems and revenue management programs, etc. However, we did have the Hilton Reservation Service and this system allowed me to print out my reservation room build up first thing each morning for 60 days into the future. I then used a 13 column spread sheet to which I added the day by day occupancy forecast, I then added any group room night or tour commitment along with any permanent rooms, and then each day’s reservation build up. As this build up grew, I was able to selectively close out rate categories in order to maximize the rate by betting on the come. I did this first thing every morning at 7am and it helped me drive my rate much quicker than I might have otherwise.
Today you all have highly sophisticated reservation and revenue management systems to do this. That does not however mean that you can delegate this. You need to be on top of this and make sure your revenues and occupancy, through your own proprietary system, as well as all the other reservation systems now in the market, have the correct, continuously updated information. Make sure the best rates are available on your own system or directly with your hotel.
5. Credit & Accounts Receivable – When we provide a service, we obviously have a right and a need to receive timely payment in return. Before you even extend credit, you need to investigate the credit worthiness of any company or party who is asking for your services on credit. Stress that your invoices are due when rendered and need to be paid within 30 days. You need to keep a close eye on your receivables and start working them at 30 days. Do not wait 60 or 90 days as that puts you behind and makes it more difficult to catch up.
Although interest rates are low right now, you still cannot afford to be used as an interest free bank. You personally as General Manager must chair a monthly Accounts Receivable Meeting to make sure active steps are being taken to collect monies owed to your hotel.
6. Inventories & Receiving – Take a look at your balance sheet. How much money do you have sitting in your store rooms? Keep inventories of wine, liquor, food stores, silver, linen, glassware, housekeeping and engineering supplies etc. low, without hampering your operation by shortfalls. Know what is in your storerooms. Know what is being ordered by personally approving all purchases except day to day F&B orders. Spot-check those as well.
Also vet and spot-check your receiving policies and procedures.
7. Courtesy & Friendliness – With ever increasing competition and the ease of internet ratings, it is ever more important that your staff reflect the highest degree of courtesy and friendliness towards your guests and each other. There are more and more shoppers and more opportunities for them to shop you and your competition. Be sure you know how your shoppers are treated before they even become guests. Shop yourself and shop your own website.
8. Productivity – Any major profit renewal cannot come just through increased sales and pricing, but must also come through increased productivity in all areas of your operation. Take another look at your staff, both management and hourly, and question the way you do things to make certain you are doing them in the most cost efficient and most labor saving way. Productivity, courtesy and friendliness are improved through daily and ongoing effective training at all levels. You must make sure this happens.
9. Wages – This is the biggest variable you have in your operation and your management of this item can either make you or break you. Consequently it’s something you need to be on top of every single day. Following are some suggestions and ideas that will enable you to keep tight reins on this big item in all departments.
9a. As General Manager you should review all staff members, hourly and management, with an eye towards identifying those that are marginal and take appropriate corrective action. You can never afford to carry marginal staff.
9b. You need to, on an ongoing basis, identify management positions that are presently budgeted but may not be needed in view of current or anticipated business trends. These are positions you feel can be left vacant for the remainder of the year.
9c. You probably have some sort of daily payroll report. Be sure you actually look at it, study it, and use it as the management tool it is. You must always have a handle on your payroll and know what is going on so you can take corrective action as needed.
9d. You should personally sign all requests for hourly or management wage increases and/or new hires before they are implemented.
9e. Personally review your three and ten day forecasts to make certain your department heads have accurate information by which to schedule.
9f. Eliminate all scheduled or unscheduled overtime or buyout labor.
9g. Combine and cross train positions wherever possible to give maximum guest service at minimum payroll expense.
9h. This one is a bit dangerous, but if you are in a hole and business is really poor, consider under scheduling based on business conditions to avoid anything but full productivity.
9i. If and when you have to hire new or additional staff, you as General Manager need to be personally involved in the hiring process to make sure people with the right attitude are hired. It is always best to hire attitude.
10. Other Expense Control – No profit renewal can be effective without taking steps to conserve in all other controllable areas. Following are a few ideas and suggestions along those lines.
10a. Energy Conservation – Energy costs are continuing to increase and the latest EPA directives are just more of the same. It will be more expensive to drive your vehicles, heat and air-condition your building, etc. Make sure you have an aggressive conservation program which is monitored for results.
10b. I previously mentioned inventories. Now I am addressing theft, breakage or other loss. I am certain you will agree that there are plenty of opportunities to improve controls on losses with better training and tighter supervision.
10c. Paper/Guest Supplies and Amenities – There is always room for improvement here. We are all aware of “Amenity Creep” and all the other ways to waste or save money here. Just imagine what a 10 or 15% cut would do for you. Not just in rooms, but F&B as well.
10d. Cleaning Supplies – Once again, a disposable area completely under your control in terms of usage. Waste is often evident and can be cut back and controlled.
10.e Telephone/Internet and Copy Cost – I don’t think I have to comment here, except to say that these expenses are controllable by monitoring what is happening.
10f. Federal Express – I am giving this a separate line because I have seen tremendous abuse because it’s so easy to use. The Post Office still works and is more cost effective.
10g. Decorations – Another major expense item, especially in 4 and 5 star hotels. We all love fresh flowers and plants but I am sure we can save money by getting competitive bids, re-examining the need for specific areas and considering the use of silk flowers, especially in more remote or inaccessible areas, where they last longer and are more cost effective.
10h. Entertainment – I am all in favor of entertainment. “Entertainment is to the hospitality industry what fertilizer is to agriculture. It increases the yield”. Just be sure your entertainment account is not being abused. As General Manager you also need to entertain and you should personally approve all entertainment checks every day.
10i. Advertising and Public Relations – Again, these are necessary and often needed, but remember the old adage, “50 cents worth of every advertising and PR dollar is wasted. I just don’t know which 50 cents”. Keep a close watch on these expenses.
In closing you probably wonder what happened in Dallas in my first GM’s role. Well, we never did make the budget as prepared by my predecessor for 1974, but we did pay all of our creditors, including the management fee to Hilton. In 1975 we had the best year the hotel had ever had in its history and in early 1976 Hilton promoted me to become the GM of the Capital Hilton in Washington, DC.
