Changes in marketing department spending reveal changes in tactics during recession
According to the 2021 edition of CBRE’s TendenciesÂ® in the hospitality industry report, the sample’s average hotel total operating revenue declined 62.2% from 2019 to 2020. This is by far the largest drop in revenue in 84 years of service. history of TendenciesÂ® investigation. As a benchmark, operating revenues declined 18.4% during the Great Recession in 2009.
To assess how hotel sales and marketing managers in the United States changed their plans in response to the dramatic decline in performance, we looked at the sales and marketing department spend of a sample of 4,028 properties from comparable stores in 2019 and 2020. The study sample consisted only of hotels with on-site sales and marketing staff. In total, properties averaged 214 rooms, with an occupancy rate of 34.9% in 2020 and an average daily rate (ADR) of $ 144.48. This is a decrease from 74.9% occupancy in 2019, with an ADR of $ 184.03.
All fees reduced
CBRE TendenciesÂ® in the hospitality industry The survey tracks 15 different expense categories within the sales and marketing department. These include seven labor costs, three franchisee costs, and five specific marketing expense categories.
From 2019 to 2020, the average ownership of our study sample reduced their marketing department spend by 53.1%. For reference purposes, the total of all undistributed spending on hotel services decreased by 39.8% during the year. With a 64.1% drop in revenue at these same hotels, sales and marketing department spending as a percentage of total revenue fell from 9.2% in 2019 to 11.9 in 2020.
Within the sales and marketing department, franchise fees represent the largest percentage of the department’s total costs. In 2019, franchise fees represented on average 48.8% of the department’s total costs. Since most franchise fees are typically billed as a percentage of chamber revenue, the 63.3% drop in chamber revenue for the study sample triggered a 58.2% drop in guest payments. franchise fees. The dramatic drop in franchise fees is the main reason the marketing department’s expenses have fallen more than those of other undistributed departments.
Labor costs are the second most important expense in the sales and marketing department. In 2019, the combined cost of salaries, wages and benefits amounted to 28.5% of the department’s total costs. From 2019 to 2020, these costs were reduced by 44.9%. Among the various labor costs tracked by CBRE within the sales and marketing department, the largest percentage declines were observed among salaries and wages paid to non-management personnel, service fee payments and bonuses.
Being the largest operating expense for a hotel, workforce reductions were made across all departments of a hotel in 2020. As we’ve seen in other departments, the impact within the sales and marketing department was felt more by non-management employees (87% drop in wages and salaries) versus management staff (37.9%). Sales employees are frequently encouraged to pay bonuses based on the achievement of designated revenue goals. Therefore, with total revenues down 64.1 percent, it’s no surprise that sales staff incentive payments fell 90.8 percent.
Significant cuts were also made to public relations budgets in 2020. Public relations spending includes the provision of goods and services used to promote property in the community and industry. This includes promotional expenses such as entrance fees to events organized by civic groups, sponsorship of gift certificates for non-profit organizations, participation in charity golf tournaments and appreciation nights. clients. Given the free nature of these costs, they were one of the first items to be cut in hotel budgets.
The two categories of sales and marketing spend that saw the smallest percentage reduction in 2020 were advertising and website. It should be noted that the category of advertising costs includes advertisements placed on websites and social media. Apparently, the relative effectiveness of reaching consumers via the Internet was seen as a relatively profitable expense during the year.
Differences between property types
Among the various types of establishments, the percentage declines in sales and marketing dollars were greatest in full-service hotels and convention hotels. These types of properties typically have the most number of sellers onsite and have experienced the greatest declines in income and associated franchise fees. While the reductions in sales and marketing department spending were the largest in these two property types per available room, sales and marketing department costs measured per room occupied increased. This is emblematic of the relatively large drops in occupancy rates experienced by these categories of property types.
The only property type in our study sample that saw an increase in sales and marketing department spending from 2019 to 2020 were resort hotels. As the summer of 2020 began to unfold, it quickly became apparent that remote resort locations were preferred by travelers looking to get away from home and move to a less dense area where they can maintain distance. social. In 2020, the resort hotels in our sample experienced a 58.1% decrease in occupancy, but were able to benefit from a 5.0% increase in ADR. Considering the increase in marketing dollars, but the decline in rooms occupied, the sales and marketing department’s spending measured per room occupied declined 46.5 percent during the year. While the increased marketing efforts did not appear to maintain occupancy levels on an annual basis, they did capture customers willing to pay the premium for lower density levels. As a result, resort hotels have been able to achieve higher profit margin levels than in the past.
Will the marketing investments be profitable?
A big question on the minds of hotel owners and operators is which of the many cost control measures implemented in 2020 will be maintained in the future. Despite rising revenue levels, through June 2021, CBRE’s sample of monthly hotel operating statements suggests that sales and marketing department expenses are still declining for most types of properties that are currently on the decline. usually have sales staff on site. This is not surprising given the magnitude of profit declines seen in 2020 as the 2021 budgets were in the works. As hotel demand in the United States is expected to return to pre-COVID levels by the end of 2023, hotel owners and operators will want to ensure their assets compete aggressively for their share of travelers. This can only be accomplished with effective use of increased sales and marketing expenses.