Benchmarking bugbears

15 June 2006
Benchmarking bugbears

There is a problem with benchmarking in the hotel industry. It is a problem that is particularly acute for full-service hotels. The issue is the partial nature of the accepted measure, revenue per available room (revpar).

This gives the indication of the nature of the problem. Rooms revenue measures only what it says - the turnover of the rooms business - and does not record other, often significant, areas of revenue, such as food and beverage and conferencing and banqueting.

Such non-rooms activity can comprise more than half the turnover of hotels, particularly those with a strong restaurant business and/or significant functions trade. Thus, a more thorough measure is trevpar - total revenue per available room.

But even making an attempt to include non-rooms business through trevpar can lead to a distorted picture. As with any business, simply focusing on sales is not a sensible approach. If costs are rising faster than the increased sales, heady top-line boom can rapidly lead to bottom-line bust.

Far better is to measure what matters in business - profit. And here the accessible measure is goppar - gross operating profit per available room.

Goppar benchmarking is based upon gap analysis - that is, looking at each of the key revenue and cost performance indicators and measuring the difference between your performance and that of your competitors.

An example might be a £5.1m business with a current wage bill of £1.6m, some 31.4% of revenues. Your competitor set is achieving a wage percentage of 30.2%, and the performance gap is thus 1.2 percentage points.

In this example, the difference in wage costs is £61,000. This clearly identifies a potential area for profit improvement.

As important as highlighting historical problems, a properly structured goppar benchmarking programme can act as an early-warning system of the need to change. The power of goppar is its thoroughness and focus on what matters, profit. For fundamental business decisions, only goppar benchmarking delivers the full picture.

Is 2006 going to be a good year for UK hoteliers?

Robert Cook, managing director, Malmaison
"The first six months have been stupendous, and we hope the next six will be, too. But it's a case of making hay while the sun shines. The economy at the moment is bulging with excess, there are a lot of deals going on, and this is really great for the business."

Andrew Cosslett, chief executive, InterContinental Hotels Group "IHG has had a strong start to the year and the outlook for the rest of 2006 remains positive. The industry has strong trends pushing it along, including the growth in internet usage, making travel more accessible, and the growing number of new travellers entering the global market from emerging markets such as Eastern Europe and China."

James Chappell, managing director, the Bench "Absolutely. It's been a cracking year so far, and hopefully it will continue. Some hotels in London have seen a 25-30% increase in revpar, and June, July and even August are looking strong. Most general managers I have spoken to say London just seems to be buzzing."

Stuart Johnson, general manager, Brown's hotel, London "From what has been so far, we couldn't have opened Brown's at a better time. England, and London, have become high-profile again, particularly after the announcement of the Olympics. We have also shown that we are able to manage the aftermath of terrorism effectively. Hopefully, success in London will spread to the rest of the country."

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