The following comments were prepared for the Spring Meeting of the Distinctive Inns of New England.  This is an incredible group of Inns for whom we are privileged to act as the facilitators.  They meet twice a year to decide on their group marketing efforts and to catch up on important topics of concern to the Inn Industry.  We offer you a glimpse into these topics with the hopes that they will be of help to both Innkeepers and those who would like to be in our business. 

A. The Economy.  The impact of the economy and the recession on the hospitality industry over the past two years has been profound, but also localized.  In some parts of the country the recession and particularly the unemployment rate have been moderate rather than severe.  This has meant a more limited impact on the Inn Industry in some places, while more difficult issues in places where the national economy has had more effect.  The Mid-West, particularly the Rust Belt has been more seriously impacted than say Texas for example.  All of the major cities of the East and West have been impacted, leading to less discretionary spending in these areas.   Finally, this is not just an issue with lower and moderate income levels, as the stock market crash has impacted all levels and particularly baby boomers and retirees.  The public reaction to tough times is to slow down spending, and all indicators have said that this happened until the past Christmas season, which turned out better than predicted. 

Are we out of it yet?   The economists will likely say that the economy bottomed out late last summer, but unemployment is a lagging indicator.  The bump up in jobs creation last month was more a factor of the temporary hiring for the Census Bureau rather than real new job growth.  The Stock Market seems to be ahead of the curve on this one, as most economists think that things are very fragile at best, and we will have little real growth this year.  That is why the Fed is keeping interest rates low even in the face of real pressure to sell more Treasury Bonds to China and Saudi Arabia at higher rates to cover the growing deficit.  This summer looks like a small upswing as consumer confidence continues to grow and job growth extends to most of the country.  However, if you look at history, the real depression did not start with the crash in 1929 but in the real losses in 1932 after the market regained a lot of the down swing of the crash.  Sound familiar? 

Still, this is a good opportunity to consolidate your marketing position and lure back repeat guests with good value packages.  Many Inns have done fairly well even in this recession by strong marketing, particularly electronic and social media.  This is the time to spend more on marketing (as much as possible) and to be at the top of your game.  There is a pent up demand for vacation time after several down years for travel.  There will be some competition with Europe due to the stronger dollar, but overall there should be modest growth this summer in tourism.  Are you ready to capture your fair share?

B. Financing/Inn Sales:  Actually, the real problem with Inn Sales is not the presence of buyers but the utter lack of interest of the banks in the Hospitality Industry.  In several local markets we have even seen bidding wars occur for Inn Sales.  The interest is there, but the ability to achieve financing has slowed and become much more difficult.  There remains some issues for buyers trying to sell their houses in order to buy Inns, but this seems to be getting a bit better as the real estate market revives.  There are no real money center banks willing to participate in the Hospitality Industry to any degree other than through SBA Guaranteed Programs (7A and 504).  However, as part of the Stabilization Bill, the Federal Government created a limited program to waive SBA fees to stimulate lending to small businesses.  This created a real backlog and when the money ran out, we have had a complete interruption in this lending.  This was temporarily alleviated by an extension stuffed into the Defense Appropriations Bill in late December, but funds ran out in recently and the program has not yet been extended.  

Even with low rates and when SBA funding becomes available again, the banks are looking at a minimum of 25%-30% down and strong historic financial earnings (1.3 times debt coverage is the norm now).   Interest rates are still low, but for commercial loans for new buyers are still hovering around 7% per year.  While money is available for refinancing, the regional banks are looking hard at their hospitality loans and are cutting back on the risk.  There have been several Inn foreclosures, and banks are concerned about sales at the traditional 9% to 11% cap rates that we have seen in the past.  They perceive that there is significant risk in the hospitality business for new buyers who do not have Inn experience.  This is a significant long term problem for both buyers and sellers alike. 

C  Capital Expenditures:  One of the first things that seem to get reduced during tough economic times are maintenance and repairs and capital additions.  This is especially true in the Inn business.  Fix what you absolutely have to and defer the rest until times are better.  Now after two years of this kind of activity, we are seeing some real indications of deferred maintenance which need to be addressed.  If things at the Inn do not look as crisp and in as good shape as is normal, then you need to spend some money to make sure you make a good first and last impression on the guests.  The problem is that most Innkeepers who have been at it a while seem not to be able to “see” the problem.  You need fresh eyes and take a really critical look at your Inn both inside and out.  If it needs some work, then do this no matter what it costs.  If your room decorations are older than 8 to 10 years, you definitely need to think about redecorating. 

Similar thoughts about capital additions.  Flat screen TVs, new model gas fireplaces, and air jets for the Jacuzzis are getting to be standard amenities.  The beds, bedding, and pillows need to be first class.  When was the last time you changed your pillows?  The bottom line is you need to look again from the point of view of the guest, and spend what you need.  Remember, the hotels are continually building newer competition at every highway intersection in America.  Some of it is not bad and offers amenities similar to Inns, particularly breakfast.  Not as good and not as fresh, but for under $100 a night you can get pretty decent lodging anywhere in America.  This is clearly an issue you need to face.  

D.  Hospitality:  How much time are you personally spending with the guests?  Most larger Inns have layers of staff, and the Innkeepers are acting more like managers than providers of hospitality.  You need to keep in touch with your guests.  This is the essence of the social media concept, and it goes without speaking that you need to be there at the Inn to not only make sure your staff is performing as you would, but to meet, greet, and shmooze the guests.  Of all the marketing that Innkeepers do all year long,  assisting the guests is the most important.  Always has been and always will be.  In smaller properties the guests want to know who you are and to see that you are visible and ready to help them if they need it.  They want their privacy, but the Innkeepers intrigue them.  You need to be there and help with the hospitality. 

E.  Is Your Inn Optimized for Success?  Above all are you running your Inn like a business not a hobby?  Here are a few question for your entertainment. 

          1.       Do you record your sales on a daily basis so that you can compare each month’s sales on a daily basis against the same period last year?  If you do this simple task, then you will know when sales are lagging that month in time to do something about it. 

          2.       Do you carefully track the Metrics of Innkeeping?  Included in this category are occupancy and average daily rate information, and also advanced deposits, advanced reservations (cash flow analysis), and average length of stay.  There is a wealth of information about your business that is available in your PMS System. 

          3.       Do you carefully track source data for your guests?  Not only those that you talk to on the phone, but from web tracking as well.  Don’t just print out the monthly web tracking results each month, but analyze them and compare to the same period last year.  Also make sure that your marketing expenses are working for you.  If the tracking results related to a marketing expense (like a directory) are not as good or decreasing, then talk to that source about a price reduction or change vendors.  You need to use the information that is available about results to determine your annual marketing expenses.  

          4.       Do you have a business plan for your Inn business this year?  In other words, what are your goals in terms of revenue and expenses?   Do you have a budget for the year, particularly an expense budget?  Do you have a separate marketing budget? 

          5.       Do you personally get involved in direct marketing to your guests?  Do you do your own blog?  How about Twitter and Facebook?  Are you the voice of your Inn on Social Media?  

          6.       Are you carefully tracking your reputation on the Internet and responding where appropriately with management comments?  Have you set up an account with providers like Giga Alerts to let you know when people are talking about your Inn?  Do you actively work TripAdvisor to your advantage? 

          7.       Do you have written standard operating procedures and checklists for your staff on all aspects of your business?  

8.       Do you have written job descriptions for your key staff members, and do you conduct annual performance reviews of these people? 

9.       Do you have an incentive plan for your key staff tied to performance?  

10.     How can you possibly do all of this stuff and still run your Inn?  Or better said, how can you not do all this and expect your Inn business to produce optimum earnings and value in the future?

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