Lowest
Selling Price: survival standard for the Hotel Industry
These days, pricing seems to be something that most hoteliers are struggling
to get right. This struggle is quite obviously taking its toll on most of us in
our face-off with the global pandemic, as it continues to spread a cloud of
uncertainty over all of us, even as we try to hold ourselves up with all the
familiar rules that used to work so well, just a few years ago.
They say that hard times are also the best times to do a self-evaluation.
An honest evaluation of the decisions we have made in the past as hoteliers
could be contributing to worsening the current situation in several ways. Now
is the time to ask aloud, is the situation that we are in as an industry, at
least in part, a consequence of practices that we have followed in the past?
For example, in the pre-covid times, hotels and restaurants have been
opening all over the place in the most unrestrained fashion. In fact, it can be
safely assumed that the hotel and restaurant business is where the most
spontaneous of business decisions and on-the spot investments are made. It was almost
a trend that, anyone who appreciated food thought of himself as a connoisseur
and therefore qualified enough to open, and operate, a restaurant. Any builder
or developer seemed at liberty to consider themselves as a hotelier and presume
they could build hotels the way they want, where they want, and still make a
success of it.
The fact of the matter is, you will hardly see someone entering another
industry with such abandon and lack of preparation. Of course, this may have a
lot to do with the façade of luxury and the effortless seamlessness with which
hotels appear to operate to most of the outside world. At least some people
seem to believe that there is viability in building fancy hotels to primarily
serve as their own private meeting space and entertainment hubs. Not
surprisingly, these are the very hotels that lead the race when it comes to
reducing rates as the first step to tide over a crisis, which unfortunately can
drag the hotel industry to even deeper trouble in times like these.
Irrespective of how we reached where we are at
the moment, to overcome this critical juncture, plenty of introspection and
concerted action are required; so is generous support from the government and
financial institutions.
The need is felt now more than ever, that the government recognizes
the hotel industry as one that provides employment to millions of people in
addition to contributing billions to the exchequer. Many industry bodies and
experts have put forward recommendations concerning GST, interest rates,
restructuring of loans, subsidies etc. Feasibility of these recommendations and
suggestions will have to be thoroughly analyzed by the government and on this
occasion with a lot of compassion and consideration as well. Time is running
out and any decision made will have to happen quickly, in order to apply brakes
on this downslide.
So, assuming that the government and financial institutions give a
favorable response, will that be enough to put us on the right course?
Further
challenges ahead
The biggest challenge for our industry will still remain: managing
OTAs and the food aggregators. In the desperation to create cash flow,
hoteliers are forced to provide a high percentage of discount and commission
without pausing to think about the long term consequences and the actual flow
through to the bottom line. The pandemic has shown how super luxury hotels are
ready to sell at 4 star rates! Well, this is the time when hoteliers need to
come together and set a lowest rate, below which a consumer cannot access any
hotel in the city.
Unfortunately, the owner or the management company is not in a
position to think over and reach a strategy because of how cash-strapped they
are, especially with the commitments to their respective financial
institutions. Therefore, the government needs to intervene quickly before the
hotel and restaurant industry itself gets derailed and the light at the end of
the tunnel actually turns out to be the headlight of the train!
One way to do this would be to introduce the concept of lowest selling
price, which can be agreed upon by hoteliers depending on the Star category
and in accordance with the dynamics of their respective cities (agreed, this
isn’t going to be fun or easy; but we need to start somewhere). Once the lowest
selling price is agreed upon, the dynamics of location, services offered,
design, value, human capital – the actual defining indices of hospitality – will
be the deciding factors that take it forward. Rather than shunting the above as
a no-go zone, we need to see if it can help us overcome the abnormal rate
anomalies and loosen the current stranglehold of the OTAs.
Time for cooperative business ethics
Every single gas station in town sells at a similar price, the
customer base is developed based on location and additional services offered. Ours probably is one of the very few business
entities which does not practice this concept. (In saying this, I am focusing
outside of the all-important loyalty factor that determines hotel choices.) So,
for achieving the above plan, there should be more camaraderie and liaison among
hoteliers in a city so that they support each other and work together for their
overall betterment and growth.
I hope that the government and regulatory authorities will soon recognize our industry for its true worth and
value, and acknowledge our pressing need for immediate support. Meanwhile, let
us join hands together and prove that our industry will survive, irrespective,
and that the light at the end of the tunnel is really the new dawn that we are
all hoping for!
Alex Koshy
Vice President
Ummed Hotels India
