Depending on when you read this blog, the situation around the pandemic has probably shifted since the time of writing—and could easily change again. No matter what stage of the pandemic you are experiencing, however, this brief guide on six practical ways benchmarking can support your distribution strategy and revenue recovery will remain the same.
1. Daily/weekly performance monitoring is now more important than ever
Benchmarking is the process of measuring the performance results of your own business against various segments of the marketplace—namely, the competition. In top-line benchmarking, hotels usually compare three key performance indicators (KPIs): occupancy, average daily rate (ADR) and revenue per available room (RevPAR) against both the overall local market (referred to as “industry”) and a self-selected competitive set (commonly known as a “comp set”).
Another useful metric to benchmark is total room demand for the market and its submarkets. This will help you understand the health of your marketplace and its return to pre-COVID levels. To do so, review the demand level of the current week versus the comparable week of 2019. The same type of analysis can also be performed with other KPIs.
Weekly performance is ever-changing, with some weeks reaching pre-pandemic levels and others falling behind the pace, which is a result of both historic and current traveler behavior. Examining daily and weekly data helps hoteliers stay abreast of the latest recovery trends and monitoring the often-minor changes in weekly performance provides a deeper understanding of which metrics are recovering fastest, and where opportunity for improvement exists.
Maximizing RevPAR will remain the winning strategy though, as balancing occupancy and prices often yields maximum revenue generated for the hotel. As we have seen, RevPAR is an accurate indicator of bottom-line metrics, which are not as widely shared for the purpose of benchmarking.
In this example, the hotel achieved a higher occupancy than its comp set while having lower ADR. This had proven to be the best strategy on that day, showing the highest RevPAR and therefore the highest relative revenue for the hotel.
It is important to note that higher occupancy tends to have higher variable costs, which could impact the bottom line even if RevPAR is higher. However, if there is a small difference in your occupancy vs. your competitors, this would be moot.
(All screenshots are courtesy of STR’s dSTAR platform)
2. Learn your new guest segments
The mix of hotel guests has shifted significantly over the course of the pandemic, with hotels relying almost entirely on transient travelers. While internally monitoring a hotel’s self-defined guest segment has long been a fundamental task for every hotel revenue-management professional, a view outside one’s own numbers is even more crucial than before as hoteliers look to slowly rebuild group demand.
Segmentation data is a key piece of the benchmarking puzzle, and STR’s benchmarking tools can help support you in viewing and understanding where you’re at in the recovery cycle. For instance, STR benchmarking tools compare subject property segmentation against the competition and local market. It is also important to measure how much of each demand type is flowing back into the market and at what price level.
At the time of writing, leisure travelers remained the primary source of demand, although business and group demand have shown some rebound in recent months. Weekend demand has been nearly normal, and while weekday demand has improved, it remains substantially below pre-pandemic levels, which can lead to staffing issues. Our segmentation data is the solution in this regard, as groups tend to book further out than transient travelers. That long-term view is reflected in group ADR, as groups negotiate rates well in advance of events, meaning that hotelier confidence, or lack thereof, sets group rates for the next 18-24 months. Segmentation analysis is imperative for upscale, upper upscale, and luxury hotels that depend on a healthy demand mix. While vaccination rates continued to climb worldwide, new COVID-19 variants always bring the potential for event cancellations. In certain parts of the worlds, we are likely to see a continued lack of group demand with event planners booking later in 2022 and beyond.
Share this information with your sales team and fight together for your fair market share.
3. Fight for your market share
Moving forward, guests and their expectations will be different. During this time, it should be a team effort to find new ways to generate vital new revenue streams for the hotel. Different practices will have to emerge in revenue management, sales, marketing, and other departments.
For most hotels, RevPAR will temporarily remain at a lower level, but performance is always relative. The true success of teamwork may not surface much in absolute RevPAR levels, but on relative metrics. The two most important numbers of any benchmarking report are the RevPAR index (showing your fair share of the market) and the RevPAR index change (a positive number means your hotel gains market share from the comp set, a negative one indicates market share loss). The importance of benchmarking your hotel against the market is higher than ever, whether it be due to hotel closures and the impact on reportable comp sets, or because the dynamics of the market have changed and the market represents another meaningful comparative.
4. Capitalize on industry data
Looking beyond the confines of the primary comp set, market performance data may indicate new trends. Hotel chains with a portfolio across many cities may likely see significant performance differences across markets. The share of domestic vs. international guests, the reliance on major events and fairs, and the shifting demand mix are just a few of many variables impacting market-level performance. Benchmarking can help to understand newly emerging differences between submarkets, hotel classes and days of week.
The reality of the past may be different in each of these factors, which may yield valuable insights. For instance, if a midscale hotel discovers a trend of rising occupancies and rates in upper midscale hotels earlier than its same-class competitors, it can react faster to this rising demand than its same-class competitors. Equally, a hotel that notices falling mid-week demand (e.g. caused by travel restrictions of a major corporate client in the area) can adjust its marketing activities for the relevant days in due course.
Benchmarking to industry segments alongside comp sets can reveal new sources of demand. For example, RevPAR performance of the hotel’s overall market and class may have recently been outperforming the more limited submarket and comp set benchmarks, and an overflow of guests into your hotel’s area is likely to happen. Recognizing such shifts early on will give you an advantage in capturing this demand.
5. Rethink your comp sets
Not only might the guests be different now, but your competitors may be different as well. Some former competitors may have closed, changed affiliation, or decided to change their strategy fundamentally. So, who are the new and true competitors? The traditional focus on only one comp set will have to be rethought at least for some time.
As the industry’s leading benchmarking provider, STR allows you to create additional comp sets at a low cost or add flexibility in maintaining your competitive sets through Composite Comp Sets. Composite Comp Sets have an additional advantage in allowing STR to select the most statistically competitive hotels to be part of your comp set. Monitoring the post-COVID-19 performance of hotels formerly not considered as a competitor may prove beneficial to understand your new market. Think outside the box, compare your KPIs with newer or different hotels and find the best position in the market to thrive in the years ahead. For more information, check out our blog on best practices for building your comp set.
6. Look ahead to stay ahead
Your effectiveness in gauging industry recovery will advance to the next level when you have a clear view into the future. With the expansion of Forward STAR around the globe, you can combine full historical data benchmarking with actual occupancy-on-the-books data to inform strategies across your hotel operation. For example, knowing that your property is lagging your market or comp set for a weekend next month will equip you to develop a targeted marketing approach to bring more guests to your property.
If you feel that benchmarking services could support you in your daily and strategic work, please contact us. We are here to help you find customized benchmarking solutions for your hotel.