The Budget SqueezeOctober 1, 2017

Meeting the Challenge of Rising Costs By
October 1, 2017

The Budget Squeeze

Meeting the Challenge of Rising Costs

IFMM-2017-0910SepOct-Budgeting-860x418In an era of cost consciousness and ever-increasing scrutiny from executive management, the budgeting process for meetings and events is more demanding and daunting than ever before. And rising costs that cannot easily be counteracted by negotiating tactics make the task all the more challenging.

The reality that many planners must deal with today is a simple one, says Joan Orentlicher, CMP, assistant vice president at Atlanta-based LOMA and LIMRA, which hosts educational meetings and training events for insurance companies. “Budgets are getting tighter.”

Sherri K. Lindenberg, senior vice president, marketing communications, at Crump Life Insurance Services in Parsippany, New Jersey, agrees. “Budgets are tighter than ever,” says Lindenberg, who oversees a team of three planners who plan about 40 meetings each year. “And because budgets are tighter and costs are rising, we have to be more creative and more aware of alternatives in order to put on high-quality meetings that also meet the company’s financial bottom line.”

Faced with such challenges, Greg Jenkins, partner at Long Beach, California-based independent meeting planning organization Bravo Productions, recommends a simple tactic when creating budgets. “Start by reviewing the group’s historical patterns,” Jenkins says. “If you have a firm grasp of historical patterns, you have an excellent means for avoiding wasteful spending. You need to look at things like what was the actual attendance versus projected? How many room nights and meeting rooms were used? Was the use of meeting space maximized for efficiency? How much food and beverage was actually consumed? Once you know those things, you’re in a much better position to make informed, precise judgments.”

Jenkins also uses a clear metric for assessing where and how money will be spent. “Review the big picture,” he says, “and put your dollars into the things that are really important in building value into your meeting for your particular attendees.”

The Hotel Factor

For most meetings, the costs directly related to a hotel — sleeping rooms, F&B , Wi-Fi, onsite AV services — constitute the lion’s share of the budget. But, Jenkins says, the fact that hotel infrastructure is constantly expanding across new brands and different business models, such as limited service hotels, offers planners more leverage when budgeting. It’s no longer assumed that your meeting has to go to a full-service, major flag hotel, he says. “There are a lot of smaller, independent properties out there now that are perfect for certain types of meetings, especially smaller ones that don’t need a lot of meeting space. And if you look at a hotel like that, you also find you can often do food and beverage much more economically, too. That means there’s more competition now for your meeting. And that means you have more negotiating power.”

At the same time, more planners are voicing concerns about how major meeting hotels in top-tier destinations price meetings, with costs across the board steadily rising.

“Our biggest concern at the moment is that when we book a meeting and it’s a year or two or three in advance, we see increased fees and hidden costs from the hotel when the meeting is coming (compared to) when we booked it,” Orentlicher says. “The hotels are adding fees for things that they had not been charging for in the past.”

Adds Kimberly Hull, CMP, senior meeting planner at LOMA and LIMRA, “We’ve booked programs where we thought we had a good idea of what the per-person cost for the meeting was going to look like. So that’s the rough number we had in our budget. But then, when the meeting is actualized a year or two later, all of sudden there are added or increased fees. For example, the service charges have been increased, or there are now additional costs we were not aware of when we first booked the meeting.” One recent example: new requirements for security staff during move-in and move-out. “And that wasn’t the case when we booked, but now it is,” Hull says. “And we’re seeing more and more things like that pop up that add to our budget tremendously.”

The good news, Hull says, is that pushback often works. The bad news: When it fails, it results in budget-busting costs that were never anticipated.

F&B Costs

Few planners object to the fact that the actual costs of food-and-beverage services are increasing from year to year. Every consumer knows that from visiting the supermarket. However, a growing chorus of planners objects to the fact that the F&B fees charged by hotels have been increasing substantially for the last several years, seemingly without justification.

“Our biggest challenge and frustration today is the service fees on F&B,” Orentlicher says.

Adds Hull, “It seems like F&B fees are going up every year now. It wasn’t that long ago they were between 17 and 20 percent. Then it was 22, then 23, then 24. Now we’re in the 25 to 27 percent range. That means a quarter of your F&B budget, or even more, is now in service fees. That’s a lot of money that the hotel is taking in and for which you, as the planner, are not really getting anything in return.”

“The very sad fact,” Orentlicher says, “is that it forces us to reduce the amount and/or quality of food and beverage that we offer in return for the registration fee. That is the biggest shame of all, because the food is one of the things they remember about a meeting.”

As a result, Orentlicher says, negative comments from attendees about perceptions of declining F&B quality — or quantity — are starting to show up on post-event surveys.

In response, Orentlicher and Hull have begun using offsite restaurants for dinners. For a recent meeting for 700 attendees, they used a standalone local restaurant instead of the hotel for a dinner — and saved $50,000. In addition, Orentlicher says, attendees enjoyed a better meal and a better experience.

Because Lindenberg agrees that spiking F&B fees are a growing concern, she, too, is now much more open to using an offsite restaurant. “We’re finding you can get a lot of savings by doing that, while you also often get better food in a more attractive venue. That’s actually something we’ve been doing for seven or eight years now, but it has been increasing now that hotel F&B costs are going up like they are. And we’re also finding that attendees prefer standalone restaurants to hotel restaurants, partly because they feel like they’re experiencing the destination more than if everything is done in the hotel.”

Practical F&B Tips

Because rising F&B costs are causing concerns for more and more planners, Jenkins offers a menu of practical suggestions he says have resulted in significant savings for his clients.

“I like to offer working lunches, in the meeting room, in order to avoid having to rent a separate room for the meal,” he says. “I often eliminate the carving station for prime rib and the jumbo shrimp as appetizers, and opt for more inexpensive food such as chicken or fish or mini-appetizers. Another effective tactic is asking the hotel to provide local, seasonable vegetables instead of more expensive items like asparagus, artichokes, or expensive fruits like mangoes or papayas. You can also ask for pitchers of water instead of bottled water. You can control consumption and waste by using seven-inch plates rather than 10-inch plates for receptions and networking functions. And you can substitute a less expensive dessert like cake for the chocolate mousse. The truth is, the average attendee is really not going to notice any of those things, as long as the food you are serving is good. But you can save a lot of money as the planner.”

The Wi-Fi Conundrum

Despite tough negotiating from hotels in general, and rising F&B costs in particular, perhaps no topic is more sensitive today that the cost of Wi-Fi.

“When it comes to Wi-Fi, it’s the wild, wild west,” Orentlicher says. “Whatever the hotels think they can get is what they are going to charge. And it’s shameful, because we know, pretty much, what their real costs are. And we do realize that if it’s an older hotel and they need to put in a lot of new equipment, they want to pass that cost on. But even saying that, Wi-Fi is still a very contentious issue, and it does cause a lot of friction during the budgeting and negotiation process.”

Orentlicher’s specific objection is that there is so little, if any consistency, in how Wi-Fi is packaged, delivered and priced. “Every hotel is different,” she says. “And again, they are just going to try to get the most they can for it.”

Lindenberg also characterizes the budgeting of Wi-Fi as frustrating. “It’s frustrating because there is now an expectation from the general public, including meeting attendees, that when you walk into a hotel you’ll have Wi-Fi, just like you have electricity and running water,” she says. “So for me as a planner, it’s also something I have to think about when I select a destination or a hotel. We also have to understand what our needs are for a particular meeting, such as a training program where people will be using their laptops or tablets extensively. So in that case, we might select a conference center as the venue because we know the Wi-Fi will be included, rather than the hotel hitting us up with several thousand dollars in Wi-Fi fees. And on the other hand, if it’s a meeting where people will mostly be listening to speakers and presentations, and not having to be interactive on their devices, we might be OK with a hotel if we know we don’t have to pay for Wi-Fi services we don’t need.”

If hotels stay on their current path, Orentlicher predicts, the situation eventually will lead to a fresh and innovative solution. “I would call this a ‘word of warning,’ ” she says, “but if some (meeting host) company can come up with a way of providing its own Wi-Fi in a way that completely cuts out the hotel and the third-party AV provider, then the hotel and the AV company will find they lose that business. That’s the thing I hope people are thinking about and considering. And I would use the example of taxicabs to make the point. If taxi companies had done a good job and not kept increasing their costs, and people had been happy with the service, Uber never would have happened. That’s the message. That’s the topic the hotels need to be concerned about.”

Her frustration about the costs of Wi-Fi has led Orentlicher to a broader perspective about the current dynamics of the marketplace as they relate to the needs of meeting planners.

Tail Wagging the Dog

“The thing that really frustrates us the most is that we feel that now, the hotel is like the tail wagging the dog,” Orentlicher says. “In other words, their restrictions or rising costs, or them not understanding the value of allowing us to do something different, without a big price tag on it, are really making us as planners start to think, ‘Maybe we need to start looking at a different way to do this. Maybe we don’t need the hotel. Maybe we can find a better alternative.”

For example, Orentlicher and Hull now consider Airbnb, or a limited service hotel, or a suburb of a destination rather than the downtown area, as potential providers of accommodations for some meetings. “And as a result of all that, I think we are headed for a big disruption that could happen sooner rather than later,” she says. “And it’s all being driven by rising costs at hotels.”

Meanwhile, Lindenberg also has identified two new ways to counter the ever-increasing costs related to hotels.

She recently learned of a company in a different industry that would be hosting a meeting at a hotel during the same dates she would. “I found out about them because we were both in the midst of planning the final details for our meetings, like F&B and meeting space,” Lindenberg says. “So, I called the planner for the other meeting and said maybe we can look at sharing some F&B and AV planning. And by sharing resources, maybe we can also find efficiencies that help both our companies in terms of costs. The details of doing that, in terms of things like scheduling meals or breaks, can be complicated, but it’s worth the effort if you can save money. The important thing is for the two companies to be comparable in the levels of quality and overall experience they want to offer their attendees.”

For another recent meeting for 150 attendees at the Wynn Las Vegas hotel, Lindenberg was informed of a significant innovation by the Wynn — “menus of the day,” which could be used by any group in the hotel, at a reduced per-person cost.

“For example, during our meeting they offered options like a ‘Thai Tuesday,’ ” Lindenberg says. “And by picking that option, you still get all of the options you need in terms of things like dietary restrictions that you’d have to plan for otherwise. But you get better pricing, and it’s also easier for me as a planner. And the larger the group, the more you save on a per-person basis. So I think that is the kind of innovation we’ll see more of going forward, now that the Wynn has introduced it.”

Regardless of such cost-cutting innovations, Lindenberg says, another important principle of effective budgeting is to include a “placeholder” contingency in every budget. She generally adds five percent. “Doing that,” she says, “means that when something happens you didn’t expect to have to pay for, like extra transfers from the airport, you have some money in the budget.”

Orentlicher offers a more philosophical tenet to the challenges of budgeting. “In the end, it’s about the relationship you have with the hotel or other vendor,” she says. “If they understand your needs and they’re not pushing things you don’t need, then you can do business in a way that works for both sides. But if they don’t understand your needs, or they’re just trying to get you to the total dollar amount they need to show their leadership, then you have to look for a better alternative. And the important question you have to ask yourself is, ‘Is this hotel going to work with us or not?’ ”  I&FMM

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