Case Study: "Comparing Apples and Oranges: Which Group Yields
the Best Profit?"
The Diamond Peak Hotel, one of 45 hotels in the Host Marriott
management company, was bustling with business this Thursday
afternoon as the hour of the daily revenue meeting drew closer. For
the second straight year November was proving to be a busy month
with a large number of transient business guests filling up every
room not already claimed by a group. Indeed, the staff was busy
checking out a fraternity group today and preparing for the arrival
of a gymnastics team this evening.
Several members of the sales staff were eagerly anticipating
the day's meeting, excited about the good news they were ready to
share with the revenue management team of the 575-room convention
hotel.
Both of the hotel's group sales managers, Tyrell Glouchester
and Demetrius Glava, scurried to pull together the data they needed
to answer any questions that might come up concerning the group
business they were on the verge of selling. Both knew that though
the business was still twelve months away, the sale would help put
them closer to their yearly sales goals-and the bonuses that came
with the accomplishment of those goals.
At 4:30 p.m., the revenue management team-Bill McAddlepot,
General Manager; Ellen Zurpava, director of sales; the two group
sales managers; Paramendra Bhura, sales manager for transient
sales; Robin Douglas, the reservations manager; and Grace Fritzman,
the catering manager-gathered in the meeting room with friendly
smiles and a few weary comments about the fraternity group that was
currently checking out of the hotel.
Bill quickly called the meeting to order, reviewing the
actual performance of the latest five-day forecast. After a brief
discussion about the current budget, Bill asked what new business
the team had generated today. Tyrell and Demetrius spoke up in
unison, sparking a laugh among their co-workers as they then both
offered to defer to the other.
Tyrell yielded the floor and Demetrius began, "I received a
call this morning from a Reverend Michael Brown. He's planning his
denomination's annual minister's revival meeting and would like to
book it at our hotel. They're looking for 400 rooms for a four-day
period from Monday through Thursday nights inclusive in the first
week of next October. They would also want. . . "
"When did you say the group wanted the hotel?" Tyrell
interrupted.
"The first week of next October, Monday night through to
Friday morning," Demetrius said. "I checked with Robin this
morning-so far the only group we have booked is the return of our
Delta Sigma Kappa fraternity buddies who are checking out today.
They have 135 rooms booked at $150, higher than our budgeted group
ADR of $140 for that month, which gives us a little bit of
leeway."
"The fraternity group is a pretty firm booking, too," said
Ellen. "I was surprised to see that they actually ended up
reserving more rooms than they had contracted for. Fortunately, we
had the extra rooms for them this year."
Tyrell shot Robin a questioning look, but was unable to catch
her eyes as she seemed suddenly engrossed in one of the reports
that Bill had handed out at the beginning of the meeting. He wasn't
certain, but she seemed to be suppressing a smirk.
Demetrius continued, "The ministers will mostly use the hotel
dining rooms and area restaurants for their food and beverage
needs. However, they'll want to reserve all of our remaining
available meeting rooms for the week. I am forecasting that 25% of
the revival guestrooms will eat in our dining room. I pulled their
group history from our sister property in Minneapolis where they
held their revival meetings for the past five years. Reverend Brown
said they were looking for somewhere warmer for next year's meeting
in the hopes of finding a permanent home for the annual
meeting.
"One of the more interesting aspects of their history is that
they are 40 percent multiple occupancy and they tend to pick up a
lot of shoulder dates in early arrivals and late departures. Last
year they picked up 50 unrequested rooms on the previous Sunday
night, a night that has typically been a slow one for us."
"Sounds like a great piece of business," Ellen said. "What
rate did you quote them?"
"They are slightly price-sensitive," Demetrius said. "We
ended up discussing a rate of $119 for double occupancy, $109 for
single occupancy. The shoulder dates would be sold at the rate of
$109 whether they were single or double occupancy."
"Four hundred rooms, you said?" asked Bill. "With the other
group of 135, that would leave us only 40 rooms for the peak
business days.
“Wait a minute," interrupted Grace who was looking slightly
deflated. "Before we discuss this revival meeting any further, I
think you need to hear what Tyrell is bringing to the table.
Tyrell, didn't you say your group was for the first of
October?"
Tyrell took a deep breath and began the pitch that he had
quickly been revising since Demetrius first revealed the dates for
his group, "Funny, that, isn't it? I also talked to Robin this
morning about a group sale I'm getting ready to make. She didn't
mention anything about the revival."
Robin shrugged, "You asked whether we had anything booked for
that day, I told you what we had booked."
"Well I also got a call this morning, but it was from Mr.
Jonathan Snow, the meeting planner for Floopy.com. Their engineers
work all around the country out of their homes. Twice a year, they
are all required to attend a strategy meeting for three days that
is held every spring in Canada, and every fall in the South. He
would like to hold their next fall meeting at our hotel. He'd book
290 single occupancy rooms, and would purchase lunch, dinner, and
coffee breaks on each of the three days of the conference. On the
final night, they'd purchase a huge gourmet banquet. They'd also
have three hospitality suites for two of the nights with an open
bar. They have extensive audiovisual needs and would be purchasing
staff services as well as renting the majority of our meeting room
space. As a rough estimate, Grace and I determined that we might be
looking at about $60,000 worth of food and beverage revenue in
catering sales alone. With 290 rooms being booked and the current
group of 135, that would leave us with 150 rooms for our transient
guests, and we wouldn't have to displace any of the higher rated
business. And yes, Grace, they want three nights - the Tuesday
through Thursday inclusive of the first week in October."
"We obviously can't have both groups," Grace said. "It seems
pretty obvious to me that the corporate group would be more
profitable to us. I mean, the ministers probably won't even drink
anything, which would destroy my beverage budget for the
month."
Bill's brow furrowed as he flipped to a new page on his
notebook. "Let's get some of these details straight before we make
any hasty decisions. We currently have 135 rooms sold for that
week. Robin, tell me again the details for our current reservations
that week."
Robin glanced down at her forecast, already flipped open to
the week under consideration. "Both Tyrell and Demetrius came to me
today, so I've had the afternoon to review some of our forecasts
and to update them with this month's historical data."
"Must be nice," Tyrell muttered. "You could have warned
us."
Robin ignored Tyrell and continued, "The Delta Sigma Kappa
fraternity has reserved 135 rooms at $150. Most of their activities
take them out of the hotel, so they will be using two meeting rooms
only on Wednesday afternoon and I project that 20% of their rooms
will eat in our dining room. They arrive on Monday and check out on
Thursday."
"Robin suggested I review my forecasts for that week,"
Paramendra spoke up. "Now I see why. My projections say that we can
count on 60 transient rooms on Sunday, 85 on Monday, 150 on Tuesday
and Wednesday, and 95 on Thursday. There are a few factors that
would affect Friday, but an intelligent estimate would place us at
80 expected. Most of those will pay our rack rate of $150 and we
are currently seeing about 50% of our transient guests dining in
our restaurant. I would be uncomfortable with accepting either of
these groups-we're going to lower our ADR for those nights. Perhaps
we should hold out for a smaller group that will pay a higher
rate."
"Tyrell, what rate will the corporate group accept?" asked
Bill. "We were discussing a rate of $130 a night," Tyrell
answered.
"Demetrius, did the group history give you any indication
about how many rooms the religious group would actually pick up?"
Bill asked.
"Yes," Demetrius responded. "On the peak days, they picked up
close to 350, with a slightly lower pick-up rate on the shoulder
dates. In addition to the 50 rooms that they picked up as a Sunday
check-in, they also had about 20 rooms that stayed over on Friday
night."
"Has anyone checked the Convention Bureau calendar to find
out what is happening in town that week?" Ellen asked. When no one
responded, she turned to Bill. "I'll check on that this afternoon,
I need to talk to Mrs. Tanster about a convention we're hosting
here next month anyway. I can let you know by tomorrow morning what
sort of demand we might be looking for in that week. As far as I
know, there is nothing major happening that week that would affect
our business."
"Thank you, Ellen. We'll need to know what else is going on
in the city before we can make a decision. I agree with Grace, we
can't accept both groups for those dates. Tyrell, Demetrius, could
you both determine whether either of these groups have any
flexibility with the scheduling of their events? Perhaps we could
get one of them to move their group a week forward or
backward."
"It would have to be backward," said Ellen. "We have the
Soccer Coaches Association coming in the next week and we've
already signed a contract for 350 rooms at $125 each."
"All right, see if either group can move to the end of
September. It does sound as though both groups are looking for a
place to do return business with on an annual basis. It would be
nice to capture both. Grace, meet with both Tyrell and Demetrius
this afternoon to get the exact details of the food and beverage
needs of both groups. Then get to me the total projected food and
beverage revenue for each group."
"Be sure to account for the fact that the religious group has
40% multiple occupancy, which will mean potentially more meals in
the hotel dining rooms," Demetrius said. "Also, Reverend Brown
mentioned that they were expanding their invitations to their
European and Asian ministers this year. That might reduce the
number of group wash and the international guests will probably
come in earlier and stay later-helping us fill up on our shoulder
dates."
"I'll also account for the fact that they're going to take
all of my meeting space and not buy as many banquet services," said
Grace.
"Once you've figured out an accurate projection, Grace, bring
me the totals-I'd like to have them by 10 a.m. tomorrow," Bill
said. "I also need the two of you to determine what the total
non-room revenue (spending) for each group will be. Paramendra, we
need to analyze how much transient business each group will
displace and how much that will cost us. Can you please calculate
that for me? Once we've gathered this data, we'll take a look~ at
it and we can decide at tomorrow's meeting which group we should
take, if either."