If you work in procurement, it is your duty to your organization to ensure you’re procuring for cost-efficiency and quality, regardless of which category you’re overseeing. This may seem like an obvious point to be making, but it appears some people need reminding.
In a recent release from the Global Business Travel Association, the organization endorsed the rollover of negotiated rates from 2020 to 2021 and skipping the 2020 negotiation for new rates altogether. Basically, GBTA is saying buyers should be satisfied to have no meaningful discounts for almost two years.
Any travel manager who reports into procurement and would like to keep their job should be wary of this approach.
If I were a chief procurement officer, I would question the sanity of my hotel procurement lead if they told me that the deals struck in 2019 are no longer valid but they don’t plan to renegotiate or secure new discounts for 2021. I’ve heard some in the industry say, “We don’t want to kick the hotels while they’re down.”
But when was the last time a hotel chain or property offered you a greater discount because your business was down? My guess is never. In fact, they likely removed the discount because your volume dropped. That’s because it’s not personal, it’s just business.
Alternatively, what if I’m a chain seeing this moment as an opportunity to finally capture market share? I’ll want to sit down with corporations and provide good deals to show that I can be a strong partner, and I can’t do that without a negotiation.
How should a company manage hotel procurement during and post-Covid-19? We recently held a virtual roundtable with more than a dozen travel managers from large and small programs to discuss this issue.
In the short term, most plan to wait a few more weeks to allow corporate travel to start to recover and to let furloughed hotel employees get back to work and closed hotels to reopen. But what comes next?
Based on our own data, as well as research from consulting firms, hotel chains and property ownership groups, we believe rates will be highly volatile for the remainder of 2020—and likely well into 2021 and 2022, too. As travel returns, demand will outpace supply due to closed hotels. Hotels will scramble to reopen quickly, which will then reverse the trend and cause supply to outpace demand. The current economic downturn, as well as videoconferencing, will keep a lid on travel spend through the rest of 2020, 2021 and even into 2022. Revenue managers trying to increase occupancy and revenue per available room will raise and lower rates more frequently than they have during the past decade.
To sum it up, rates will remain low overall and likely stay lower than negotiated static rates.
Here’s what I recommend. Later this year, look at your static rates by property and make a list of the ones that are no longer providing value and, therefore, require adjustment. Based on our data and the consistent drops in the best available rate (BAR), there will be many. Meet with hotels and negotiate better deals for 2020, otherwise you risk corporate travelers (and your boss) questioning the value of your hotel program when they constantly find better rates on their own. This could make leakage climb, which limits your ability to shift share. At the same time, negotiate discounted rates for 2021 or you’ll have the same problem next year.
If hotels refuse or are unable to negotiate, be confident you can find hotels that will want your business. Any travel manager with significant volume and the ability to shift share will be a rock star.
Beyond the immediate fixes needed, it’s worth looking at the larger opportunity to change the hotel procurement process altogether in a way that benefits both corporates and suppliers. The appetite is there from the buyers we heard from to get rid of the annual RFP—to avoid time and money spent on project-based consultants, expensive RFP tools, and rate-loading audits. How?
Convert from static to dynamic discounts as a percentage off BAR. You may say, “We tried that, and it didn’t work.” However, I suggest a few tweaks.
- Create automatically renewable discounts—either the buyer or the supplier can terminate, but 90 percent or more of discounts should roll over every year. Eliminate the annual RFP.
- Get rid of blackout dates, seasonality and room-category restrictions. Last-room availability must apply to 100 percent inventory.
- Manage high-occupancy periods using benchmarked rate caps and rate targets shared in advance with the suppliers. Full transparency on both sides.
- Use third-party tools to audit rates and hotel performance to ensure discounts are properly applied (including LRA) and calculated correctly.
- Shift share by pushing travelers to preferred hotels that perform well.
Based on our analysis across hundreds of clients that have moved in this direction, we’ve seen savings increase substantially due to greater coverage and a broader application of discounts as a result of improved LRA. Talk to your national account manager or individual property sales reps to see how they respond. Based on recent conversations with hoteliers, we’re confident they’ll be more receptive than you think.
If you pull this off, think what your life could be like next year. More savings, less work, reduced cost and a solution that automatically adjusts to market conditions. If the alternative is to do nothing and potentially lose your job, what else have you got to lose?