Almost unprecedented demand for meeting hotels is driving room rates upward. As a result, hotels are demanding strict F&B minimums, increasing F&B service fees, driving hard bargains on attrition and using traditional concessions as part of a larger horse-trading process to get what they want.
What can planners do during a contract negotiation to meet their needs and their budget?
The answer, planners say, is to pay careful attention to the issues that matter most.
With planners facing the significant and conflicting obstacles of spiking costs and tight budgets, the only clear path to a contract that is good for buyer and seller is flexibility on the part of the planner, says Andy Anastasi, vice president/team director at major third-party planning company ConferenceDirect in New York City.
“Booking patterns are very important,” he says. “Hotels love Sunday arrivals. It’s their favorite booking pattern, because historically Sundays are the slowest day of the week for them. We advise our clients that if they can arrive on a Sunday, we can typically get them better pricing. On the other hand, the most difficult booking pattern is a mid-week arrival. And the Tuesday to Thursday or Tuesday to Friday patterns are the toughest now, because that’s when transient demand is at its peak. The challenge is these midweek patterns are attractive to corporate groups because they don’t want to have to ask their attendees to travel over a weekend.”
“The fact is that planners have to make their budgets. And that’s what drives everything now. And that means you need new kinds of options.” — Faith Ferguson
Faith Ferguson, owner of Warwick, New York-based independent meeting and event planning company Faith Ferguson Productions, agrees with Anastasi that flexibility on the part of planners and meeting hosts is now more important than ever. “For example, if you’re booking Monday through Thursday, you’re going to get a better deal than booking Thursday through Sunday,” Ferguson says.
Yet another aspect of the broader question of flexibility is the strong post-recession trend toward the use of second- and even third-tier destinations as budget-sensitive alternatives to top-tier cities.
“Everybody is watching the bottom line now, so if you’re looking at a top-tier destination but it doesn’t fit your budget, then you have to say, ‘OK, let’s go to the second-tier level and see what is available in my price range,’ ” Ferguson says. “The fact is that planners have to make their budgets. And that’s what drives everything now. And that means you need new kinds of options.”
Anastasi concurs that second-tier destinations are becoming more and more popular as top-tier destination costs continue to rise. The bad news, Anastasi says, is that today’s demand means that even many second-tier destinations are becoming more expensive or have limited availability for a planner’s preferred dates, especially if the meeting is being booked in a short window.
“Even in some airport locations, where you used to be able to find availability as needed, we now find that availability is tight and rates are up because demand is so high,” Anastasi says. “Rosemont, Illinois, outside of Chicago’s O’Hare is a perfect example of this. I was recently shocked by the rates they were quoting for an event we were looking to book in June. I don’t recall a time during my tenure in the industry where even airport hotels are seeing such demand.”
Another major issue of current concern to planners is strict F&B minimums and rising F&B service fees. The consensus among planners is that hotels are being more strict about F&B guarantees than they are about room rates.
Anastasi says that resort properties, in particular, are becoming much more stringent with what they will allow as an F&B minimum. “Sometimes they’re pushing back harder on F&B minimums than they are on room rates,” he says. One reason: The resort business model is based on keeping more dining revenue onsite, versus a downtown major city hotel where catering-only opportunities are more abundant. “Some hotels are flexible on just how far out you have to give your F&B guarantee, but they’re not flexible on what that guarantee has to be,” Ferguson says. “And when the deadline comes to commit to a guarantee, the hotels want a hard number. And they will hold you to that no matter what. And I understand that. They base their decisions in terms of what the chef buys for your group on that number. And I totally respect that as a business decision the hotel has to make in order to be able to service the meeting. That’s why you have to be careful in your planning, because once that decision is made, you’re going to pay the amount you agreed to, whether the food is actually used or not. So you have to really stay on top of your event.”
Cori Dossett, CMP, CEM, president of Dallas-based independent meeting planning firm Conferences Designed, also finds that hotels are strictly enforcing their stated F&B minimums. “I always try to push back, just to get a little more wherever I can,” she says. “And I find lately that some hotels actually are willing to go down a little bit on their F&B minimums. But then if they go down on F&B minimums, they take away something else. For example, they’ll say, ‘OK, but we’re going to take away your suite concessions.’ ”
F&B service fees also have increased sharply over the last year or so.
“In my experience, F&B fees are ranging from 18 to 22–24 percent,” Ferguson says. “I think 20 to 22 percent is reasonable. The hotel does have to pay their staff fairly with gratuities. So I don’t dispute those fees up to 22 percent. But if you start going over 22 percent, then I think it’s too much.”
Ferguson says that based on her experience, planners can successfully push back against F&B fees above 22 percent. “That’s when you can say, ‘I understand your F&B guarantee and the price of your food. But when it comes to your service charge, 22 percent is the maximum I’m willing to go,” she says. “And then they will usually give you what you want, or something else as another concession.”
Anastasi also is concerned about rising service fees and hasn’t seen any wiggle room here. “We used to see 22 percent as the norm,” he says. “Now we’re seeing 24 percent as the norm. And when you try to push back on that one, there is no negotiating by the hotel. It just is what it is.”
For larger meetings, he notes, a two percent increase in F&B service fees represents a significant amount of money and strains limited budgets even further.
When it comes to contract terms, attrition remains the most daunting and potentially expensive issue.
“Attrition has always been the meeting planner’s cross to bear,” Ferguson says with a pained laugh. “That is always something we are very mindful of, and I am in particular, in terms of making sure that your room block commitment is accurate and that you do not get into an attrition situation. I find that most hotels are willing to do an 80 percent requirement, where they’ll let you walk away from 20 percent of your rooms. But you’re definitely going to be held to that 80 percent number.”
But, she quickly adds, attrition is always challenging. “It’s very, very hard to plan a meeting and pick up almost all of your room block,” she says. “For example, I just did a meeting that had attrition. The pickup of the room block came in a lot lower than the company thought it was going to, and we are now working with the property to try to alleviate some of that attrition. For example, we’re talking about whether we can book another program at the hotel within 12 months. And in that situation, if it’s a good program and the hotel likes your dates, they will usually work with you to handle a percentage of the attrition from the earlier meeting.”
Given the dual challenges of a seller’s market and mostly flat budgets, smart thinking and forethought are essential to the development of a contract. Planners have varying ideas of how best to overcome market obstacles.
“Always look at multiple options,” Anastasi says. “Don’t put all your eggs in one basket, because for the most part, somewhere, somehow, you might find a hotel that has a real need period during the dates you want. And if you’re willing to take the time to really look, you might find an opportunity when you didn’t think there was one. It’s important to look at several options. And I’m not saying you should look at 50 hotels. Just be strategic and try to think outside the box.
Ferguson advises that planners must be “very mindful of your deadlines, your room blocks and exactly what you are committing to — and what your penalties are if you don’t meet your commitments. You have to really focus on room block, attrition, F&B guarantees and your costs. Those are the four things that are really going to determine the success of your event from a budget and contract perspective.”
And despite rising costs and tougher negotiating stances from hotels, Ferguson says there is nothing that she really finds unduly frustrating or challenging about the contracting process these days.
“I think that everybody really does want to make things work for both sides,” she says. “I think everybody understands now that meetings are a two-way street, a matter of give and take. The hotels are going to give you some of the things you want, but they’re also going to say, ‘No, on those two things I can’t negotiate. They are what they are.’ And on our part, as planners, we have to understand and respect that hotels are a business and they have to make as much money as they can. So as long as both sides understand and respect each other — and understand what the other party really needs — then I think you can always meet in the middle, as partners, and get a good contract done.” I&FMM