The Emerald is a 4-star hotel located in the city center and offers an assortment of services. The major goal of the management is the provision of comfort and unpretentious luxury and charm along with the integration of the best available technology. The hotel currently accommodates leisure tourists, business travelers, contracts, and small and large groups of people. It consists of 250 rooms (200 standard and 50 premium rooms). It also has a restaurant with 125 available seats and adjoining 50 seats in the bar lounge section. In addition, The Emerald has a bay exercise room, a conference and event space (for up to 200 people), a small pool, and an outdoor recreation area. The current services include free parking ramp, digital telephone services (national and international), room service, guest room digital entertainment, and guest laundry and dry cleaning. The hotel offers similar facilities and services as its competitors. It needs to be noted here that no refurbishments have been done since the opening of the hotel 8 years ago. Because of the presence of strong competitors and the current market situation, there has been a constant decrease if the rates of hotel’s occupancy, ADR and GOP over the years. As the new management company of The Emerald, our goal was to first stabilize and improve the hotel's operations, increase its financial performance, and attract a greater client percentage.
2. 1 First Quarter
For Quarter 1, the first step was to begin the decision-making process and analyze the property’s historical data. Three major points were observed after the data analysis. First, the historical data indicated that the hotel did not perform well in the previous quarters as the occupancy rates were lower than 50% for both weekdays and weekends. Second, the market demand for the year 2016 was lower than the year 2015. Lastly, the weekdays’ demand remained higher than the weekends considering the current year market data. Therefore, we assumed that business guests are the main target market of our hotel.
Even though the Tourism Commission forecasted that the market demand would decrease by 9% for the first quarter of 2016, we concluded that the forecast occ. rate should always be higher than the one indicated for the previous year. The target was to obtain an average of 17-25% of the market demand for every market segment. Thus, we first made a comprehensive evaluation of the principal market segments considering the last year’s occupancy rate. Later, we forecasted the occupancy rate for the present year accordingly. The Bar Standard Segment indicated that the highest occ. rate was 28% in the last quarter. We made smart use of several forecasting methods for the prediction and assessment of the market with the purpose of obtaining higher shares of market demand (by 25% among all the 9 segments specifically) (Appendix 1). Based on our forecasting predictions, we hope to obtain 21% of the total market.
When we evaluated the poor performance of the hotel during the previous years, we found out that price rates were not taken into consideration. For that reason, we decided to increase the price rates to an average level. Our current goal is to reposition the hotel so that more customers could be attracted at higher price rates while maintaining the highest quality of service. Initially, we decided to put lower rates on weekends in comparison to weekdays. This strategy was implemented to increase the hotel’s occupancy rates, attract a bigger pool of customers, and to augment the business’s overall profitability.
The primary strategy of The Emerald was cost minimization and profit maximization. Therefore, we tried to reduce distribution costs for increasing the NOP. With the utilization of direct channels, we intended to receive more bookings for minimizing commission costs to OTA and wholesalers. Since there was no historical data available, we decided to assign 40% for direct booking, 20% for GDS, 20% for OTA, and 20% for the wholesale.
As far as staffing decisions were concerned, they were made according to the guidelines. Based on the previous low performance, we decided to maintain the recommended minimum wages. The salaries of middle and entry-level staff were slightly higher than the minimum, i.e. €50 higher than minimum. This was done to minimize the staff’s turnover rate. For the staff training, training was only provided to the entry level employees since they are constantly in touch with customers. Therefore, we decided to spend 3% of the employee wages on training.
According to the annual report of the Travel and Tourism Commission, the Commission will triple the promotional budget this year. Since the hotel did not perform well in the past year, we decided to minimize costs in the first quarter for getting adequate assets for the next quarters’ promotion. Advertisement and marketing costs were set to be 3% of our forecasted revenue. Also, Guest Respond Service, Hotel Service, and E-commerce Service were appointed as the three basic marketing channels.
2.2 Second Quarter (Rank 4 in the Scorecard)
In the first quarter, we were ranked fourth in the scorecard due to our high financial performance. Our room forecast was lower than expected and the occupancy rate. Also, the market share was not accurate based on our forecast. Therefore, we attempted to have a better forecast for the rooms and market share in the second quarter. However, we decided to maintain the same prices as introduced in the previous quarter.
Our OCC rate decreased in the first quarter as we had saved on distribution costs. For the same reason, we changed the distribution channel management in the second quarter and decided to assign more to wholesalers. Additionally, we invested in marketing towards with the intention of gaining more costumers through this channel. In our distribution channel forecast, we again over–forecasted the wholesalers by assigning them 30% for premium as well as for standard.
In this quarter, we added The Food and Beverage (F&B) as the new department. Considering the previous years’ data, the main goal was to increase 4% on resident guests’ covers and 5% increase in non-resident guests and “Event and Meeting” covers. 1EUR was increased in the average check price of meals for all periods. The main goal of our forecast was to decrease costs for non-resident guests since we believed that the non-residents market is large and the number of residents is unknown. Furthermore, we set the food cost percentage from 15-30% taking different periods into account. In addition, the beverage cost was set to 20% to provide hotel’s quality services.
The staffing in this quarter was merely based on the performance levels during Quarter 1. Thus, we minimized our costs and decreased the number of our staff. No changes were made in the Room Section. However, the number of employees decreased to 37 from 56 in the Food and Beverage Department. The wages used in Quarter 1 were maintained.
The marketing strategy for Quarter 2 was similar to Quarter 1. Therefore, we reinvested in Guest Response Service since feedback of our guests proved to be a useful guide for the improvement of customer satisfaction, hotel website, and e-commerce service. An online presence could make hotel accessibility easier and simpler with greater opportunities of online sales generation through direct bookings. These services are essential for the future decisions and investments.
In this quarter, we received an offer and after calculating costs per room, we decided to bid 78 Euros for 2800 rooms W/D.
2.3 Quarter 3
For quarter 2, our hotel occupied the third position in the scorecard. Based on the results from the previous quarter, the variance between the actual performance and room forecasting was only 1.63%. Therefore, the performance reflected the accuracy of our forecast. We were declared as the rate leaders once again and successfully demonstrated the best financial performance. However, we still suffered a low occupancy rate. For the same reason, we decided to increase our marketing expenditure by 7-8% in all departments. It was indeed a mistake to take the forecasted total revenue for our assumption. There was a significant variance between the forecasted total revenue and the actual total revenue. Nevertheless, we came up with a smart solution and allocated 60% of our spending for the weekends and 40% for weekdays.
Comparing the data from the last quarters, we concluded that our room prices were the lowest in some segments. Therefore, we removed the rate parity and decided to increase our prices by 5-10% of the average level. We changed them accordingly for each channel to increase profitability.
In Quarter 3, we won the bid with the price of 78 EUR for 2800 rooms during the weekends. As a result, we had to adjust our staff accordingly so that they could operate at full capacity. For the achievement of the best possible results, we increased training expenditures thereby costing a total of 3% of our salaries. However, when we entered the figures of 15,000 for service attendants, a mistake resulted in higher expenses for staff training. Fortunately, this error did not cause much harm due to high total revenues.
For the operation of our new services, it was recommended to hire 15 new employees.
Since we wanted to improve the reputation of our hotel after receiving few guest complaints, we also decided to invest 528,000 in additional facilities in our hotel. We decided to open a Fitness Center, retail shops, travel and tour desk and Valet Parking for 6,000. Additionally, we decided to refurbish our Bar Lounge for 120,000.
2.4 Quarter 4
In Quarter 4, we won the bid and decided to operate with sufficient staff once again according to the numbers of rooms sold. It must be mentioned here that a mistake in the training during the previous quarter was later adjusted. However, it was not the only error. The market expenditure was once again inappropriate. Consequently, we decided to calculate our marketing expenditure percentage on taking the average between the forecasted total revenue and the actual total revenue of the previous quarter. We decided to spend 9%. In Quarter 4, we decided to spend 50% -50% equally between weekdays and weekends.
In the past quarter, we received different Guest Feedback. Our costumes were satisfied with our advertising and marketing and showed appreciation for our facilities. The main problem pointed out was the old look and feel of the hotel as guests complained about the poor level of refurbishment. Therefore, we decided to focus on improving the overall quality of our hotel by refurbishing its several parts.
Since we had limited investment, the only step we could take in this quarter was the introduction of contract cleaning and services for Guest Room (Standard and Premium). Our Reputation Management section concluded that the performance was poor in every part of our hotel. Therefore, we decided to ask for a loan of 1.5 million Euros from the bank to be able to invest in the hotel for soft goods redo refurbishment in all sections (except the bar lounge that was previously refurbished). Additionally, we required 1 Million Euros from the owners to improve our facilities further by opening a Spa. It could create a competitive advantage for our hotel, increase the guest experience, and raise the value of the property.
Unfortunately, we were not able to convince the bank to give us the full amount. However, we received 500,000 Euros from the bank and 1 million from the owners. Instead of investing in a spa, we decided to refurbish our rooms with the available sum of money.
2.5 Quarter 5
In Quarter 4, we were ranked third once again in the scorecard. Also, we were declared as the best in financial performance as in previous quarters.
Because of low occupancy rate and the willingness to invest in soft goods redo for the standard rooms. we found out that 66 of 200 rooms will not be available during the renovation. We decided to lower our forecast by having a 62% room forecast. As a consequence, we also had to lower our staffing to 89.
In this quarter, we decided to reduce the prices for the direct booking by 5%. For booking through other channels, we decreased prices by 2% from the average price. Due to the refurbishment and the low quality, we decided to lower the prices since the hotel was under the refurbishment process to attract more customers. In this quarter, we followed the same strategy adopted during the Quarter 3 and Quarter 4. After a result analysis at the end of the quarter, we evaluated the major sources of our bookings and divided the percentages accordingly throughout the channels.
In Quarter 5, we noticed that marketing is crucial. Therefore, we aimed to allocate expenses on each channel appropriately. After calculating the average of the forecasted total revenue with the actual total revenue of the previous quarter, we based our total expenditure on it. Afterwards, the contribution of each channel in the report of revenue performance in the previous quarter was analyzed. We allocated proportionally in each channel; 63% for direct booking, 22% for GDS, 7% for OTA, and 7% for the wholesaler. Later, 50%-50% were divided for weekends and weekdays.
After receiving the loan, we concluded that the refurbishment in soft goods redo is our primary goal. Since it required only one month for the public areas of the hotel, we decided to redo the lobby for a capital expenditure of 40,000, front desk (10,000 Euros) and parking, ground, and pools (23,000 Euros). Additionally, we decided to refurbish standard room for 700.000 for a soft good redo requiring three months and leaving 1/3 of our rooms unavailable for some time.
Quarter 6
For our room forecast in the 6th Quarter, we increased the standard room forecast by 5% from the actual performance of the previous quarter. We also reduced the premium rooms by 5% as we were conducting renovations at that moment. A total of 41 rooms were out of order this quarter including both standard and premium rooms. We sustained our room rates from the previous quarter and expected a 68% room forecast.
For the 6th quarter, the previous room report were analyzed and checked for the contribution percentage for each channel. We then based our forecast on the expectation by taking the appropriate proportion.
A decision was made to refurbish our 50 premium rooms with an investment capital of 750,000 Euros (while doing only contract cleaning and services for the standard rooms for 10,000 Euros investment capital). In this quarter, however, we wanted to place more emphasis on sustainability. Therefore, we implemented the environmental program with 8,500 Euros as investment capital. In addition, an associated facilities renovation with 100,000 Euros as investment capital was also made.
After the investments in Quarter 6, we are able to witness that the hotel reputation has improved. We are ranked on the price value map as a hotel with an average to high price. In addition, we are categorized among the highest quality competitors.
