Hotels & Restaurants In Transition
Beyond Beds, Baths, Bars or Breakfast

by Dennis Gemberling

Mar 1, 1995

(TMA Global)

The hospitality industry, namely lodging, food service and resort businesses are multi-faceted enterprises. Hoteliers and restaurateurs, corporate managers, consultants and advisors must have a variety of skills to oversee and manage large or small operations successfully.

No other industry serves or employs more people than transient housing, eating and drinking, recreation and travel related organizations. The many services and labor intensive operations lend itself to opportunities and problems in money, manpower, materials, marketing and management. Nearby commercial and residential real estate activities, consumer trends, legislation, valuation methods and financing shortages help decide present and future income. A hotel/restaurant corporation’s or parent company’s returns—even survival—are impacted by the individual performance of each property or unit within the chain or portfolio. Decisions during acquisitions, workouts and restructuring, reorganization and dispositions should consider these elements. The uniqueness of the industry, its pitfalls and strategies are paramount to a successful turnaround or corporate renewal.

Business or Real Estate

Balance sheet fix-up, new or alternative financing, reorganization plan, disposition sale price; all are affected by the true worth of a single asset or multiple locations. When valuing the overall organization, lodging is typically real estate, food service facilities are retail, bars and clubs classify as entertainment and resorts are considered recreation and some of the above. Although this applies generally, net operating incomes, not gross revenues or land appraisals, will determine the actual worth of the overall entity or property. Many a developer and lender in the 1980s placed too much reliance on increased real estate appreciation to substantiate hotel and resort loan-to-value ratios. Witness the demise of steak house chains in the late 1970s that didn’t react quickly to alter dining concepts as patron’s menu preferences changed. Individual stores were severely depreciated because property prices get affected by lower income.

Fads, Fortunes, Feasibility

Food service and night club facilities, more so than hotels or resorts, are susceptible to fleeting stardom, much like the film and music industry. Many a company founder or board of directors risked substantial capital, later subsidized by more profitable travel divisions, on what proved to be ill-conceived dining and entertainment fads.

One major hotel conglomerate ended up selling off properties one at a time to support a cash-starved kiddies pizza/amusement theme chain. Planners did not consider the child’s parent or time limits for each meal. Another prominent mid-market lodging franchiser and operator nearly went bankrupt due to limited financial staying power of one newly built casino. Management forgot to investigate certain conflict issues in meeting gaming requirements first.

Mind Your M’s

Unlike high technology or manufacturing, the final products and services in the hospitality industry are a direct result of manpower and materials staffed and stored at each hotel and restaurant. Some examples include meals and drinks made then served, rooms cleaned with amenities provided, recreational events created, packaged and sold to each visiting guest or patron. There the interaction with customers also takes place. Money is generated, exchanged and reinvested within each facility.

Sales success is no longer determined by location as it was in the 1950s and 1960s. Then, roadside motor inns and family-restaurant site selection was based on which exit off the interstate highway to position itself. In the 1990s and beyond, marketing and how it is targeted will be the impetus for a steady flow of business and leisure travelers, diners, bar patrons or convention and meeting planners.

Management, yes, spell that with a capital "M", must wear many hats and be constantly aware of the production and service rendered by personnel. Manpower (employees) are the real assets that determine success or demise.

Perform Don’t Perish

Increased competition, changing tax laws, aging populations and where we travel, entertain and do business will present many challenges. Hotels and restaurants in transition require operations, marketing and financial objectives geared toward short and long term performance. The following should be considered in any hospitality related corporate renewal and turnaround:

  • Evaluate the whole company’s performance with emphasis on present and future income of each lodging property or food service unit in the field. Customer expectations are met there not at headquarters and boardrooms.
  • Asset and real estate values are tied to net operating incomes. Valuation and appraisal considerations, especially for hotels and resorts, have changed significantly due to the uniqueness of the business and importance of good management.
  • Target marketing is the key to success now and into the next century. Focused sales efforts increase destination visits, meals and drinks served and guest rooms occupied.
  • Cultural and work-place changes, also resistance to higher room rates and menu prices, will force hotel and restaurant companies to re-engineer labor forces. New technology and quality service makes hospitality jobs ideal candidates for consolidation and re-training.
  • Wall Street is a likely funding source due to renewed interest in hotel and resort REITs. Conventional lenders and venture capitalists are reluctant to get back into the hospitality industry until supply and commercial markets stabilize.
  • Property conversions are prime restructur ing and reorganization alternatives as more communities need senior citizen and low-income housing. Existing hotels, motels and resorts have the basic facilities for this use. Lastly, make sure corporate renewal and turnaround expertise has the industry experience and knowledge for these specialty businesses. Or, you may perish not perform!

 

 

Dennis Gemberling
President
Perry Group International
dpg@perrygroup.com

Gemberling has been a turnaround consultant and interim manager since 1985 and has worked with more than 200 hotels and restaurants across North America. He is certified by the Foodservice Consultants Society International (FCSI). His other certifications include: Certified Hotel Administrator (CHA), Certified Food & Beverage Executive (CFBE), and Foodservice Management Professional (FMP).


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