August 07, 2005
Keeping Your Ship Afloat As The Tide Recedes
Chip successfully navigated his company through the worst hotel market in San Francisco since World War II -- and did so without closures and layoffs. SF's hotel industry continues to struggle through... interesting times. Union walkouts at 14 hotels have given San Francisco a shaky rep in the conventions-and-conferences biz, internet consolidators cut deep into margins, and the difficulty for international travelers to visit the US after 9/11 continues to hurt the tourist economy.
A choice bit:
Q: How did you survive that downturn?
A: We were probably more vulnerable than any other hotel company in the Bay Area because all of our hotels, until four months ago, were just in the Bay Area, and I don't have deep pockets. We were pretty vulnerable also because our average hotel is a three-star hotel. As the four and five stars start to drop prices, the price umbrella drops, and what happens to those guys at the bottom whose competitive advantage is price?
Fortunately, our competitive advantage was not just price. Because each of our hotels is a boutique hotel that has a very distinct market. There's a statistic out there called the Star Report. The Star Report says if the average is 100, what are you generating on a per-room basis compared to your competitors? In 2001, our average hotel was doing 103. By 2004, we were doing 122. We had no hotel defaults, no bankruptcies. In fact, we have taken over hotels from other hotels in town that had defaults.
I think the main reason we succeeded is because we got exceptionally focused. Instead of doing some mass layoffs, I didn't take a salary for four years. Our top executives took a 10 percent pay cut for almost three years. We had a pay freeze for all salaried employees. It was what we needed to do because we didn't want to kill our culture in the process of suffering through what was our Great Depression.
He also mentions that the Joie de Vivre hotel which receives the highest customer satisfaction scores is a union hotel.
In terms of how not to get caught up in price wars:
But what we decided to do beyond that is we said, "Let's not just match price. Let's create value. And we should create a bunch of content on our Web site also about the Bay Area.'' So someone could just use our Web site as a portal. Plus we also created a fun idea called the Golden Gate Greeter Program.
Anybody who's staying in one of our hotels can choose to get a two- to four-hour free tour with one of our Golden Gate Greeters. We have 50 people who volunteered to actually take people on a tour of the city based upon their interests. And people love it because it creates a connection, an emotional connection.
And in terms of maintaining corporate culture when growing:
A: It is hard. Most companies lose their culture as they grow. But what Southwest Airlines taught us is that it's all about empowering employees at the lowest level of the company as much as possible.
Seven years ago, we bought the Kabuki Hot Springs and Spa in Japantown. Our employees get free communal bathing and 50 percent off on spa treatment. All of our employees get to stay in our hotels for free. Anyone who is a salaried employee gets one month paid sabbatical every three years. And we didn't walk away from it during the downturn.
I'm sure the "design thinking" crowd would love to claim Chip as one of theirs... He's daring, innovative, clever, and, clearly, has a design sensibility. But really, what he's doing, through and through, simply seems to be good business. Heaps of sweat equity. Good treatment of his most important resource -- his employees. Stick-to-it-iveness. And some bright ideas.
If you've made it this far in this post, you'll likely be interested in this PDF booklet that JDV makes available: "The Secrets to Boutique Success: How Boutique Hotels Are Revolutionizing the Hospitality Industry" It's actually a good read no matter what you're industry, discussing everything from finance to management to brand-building and beyond.
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