After struggling through a recession that yielded unprecedented sweetheart deals at the same time it presented often daunting budget challenges, association meeting planners today continue to wrestle with a new reality. And that is the return to a strong seller’s market that is driving up costs across the board, from hotel rooms and F&B to airfares and offsite venues.
That relatively rapid change over the last few years represents the single most significant issue for planners, says Amy Ledoux, CMP, CAE, senior vice president of meetings and expositions at ASAE, Washington, DC.
“During the recession, hotels were very eager to get business into their property, so they were really negotiating and those negotiations were very much in favor of the planner,” Ledoux says. “Now that there has been an upswing in meetings, and the properties are busier and have less space available, it’s just a matter of supply and demand. And that means the hotels can charge more.”
The real current challenge for planners, Ledoux says, is how planners can explain that shift to their executives. “What do you say when an executive says, ‘I know we got a rate three years ago of $150 and now it’s $275?’ Or ‘Our F&B costs were this much several years ago and now they’re that much. Why are they higher?’ You have to be able to explain that that’s just the way it is, that the market has changed. And doing that is often a challenge for planners. It’s an education process.”
“And the pendulum swings both ways every so often. Sometimes it’s in the planner’s favor, and sometimes it’s in the hotel’s favor. But ultimately, what I want is for it to be fair for both sides.” — Marguerite Leishman
The practical bottom line, Ledoux says, is that the deals planners could get in contracts just a few years ago are no longer generally available. The sweetheart deals are a thing of the past and must be understood — and explained — as such.
However, says Jim Fowler, CAE, executive vice president of the Research Chefs Association in Atlanta, there is some good news, too, in the changed climate.
“Going back a few years, when we were in a seller’s market before the recession, it wasn’t a whole lot of fun going in and trying to craft and negotiate a contract, because the hotels basically said, ‘Hey, this is our deal. Take it or leave it,’” Fowler says. “But since the recession, folks on the facility side seem to have a better attitude and a little more willingness to work with you and more flexibility in their policies and procedures. And that has created a much more pleasant working relationship. On the other hand, as planners we have to understand that the (deal) has to work for the venue or facility. You have to respect that and work toward getting the best deal you can while understanding that the facility has to make money.”
One important result of more empathy from hotels has been a growing acceptance of client-side contracts, even for relatively small associations.
“We are finally getting some traction with hotels accepting our contract language,” Fowler says. “We now actually have a hotel contract that we feel from our perspective works for our group. Instead of going into a city and getting a hotel’s contract that is typically based on their terms and is to their benefit, we come in with our own contract. And we say, ‘If you want us, here’s our contract and you need to meet most, if not all, of our requirements.’”
The most significant and beneficial change, Fowler says, is that he finds that hotels are loosening their demands for strict attrition provisions — and in many cases backing away from a requirement of attrition clauses at all. And that’s very good news for planners, he notes.
“It’s really hard for us, as an association, to live with traditional attrition clauses, because if all the stars don’t align for one of our conferences, we’re on the hook for the rooms,” he says. “And as long as an association has a demonstrated and trackable history when it comes to their meetings, it just doesn’t make sense to have to put yourself out on a limb when it comes to attrition.”
Martin E. Bay, CMP, director, meetings and expositions at major association management company Kellen Meetings in Atlanta, agrees that a relaxation of attrition clauses represents an important change in the marketplace. He also points out that Kellen has played an active role in promoting that change.
“Kellen has had a ‘no attrition’ policy for several years now,” Bay says. “We have what we call a ‘room block performance clause’ that says we will provide a history and that based on that history of (room) pickup, we will partner with the property to book the appropriate block.”
Because of its size and buying power, Kellen has been able to enforce that self-imposed change of policy.
However, Ledoux says, she is not convinced that a genuine change in attrition requirements from hotels has taken hold — or will. “Hotels have to protect themselves, because they’re taking one piece of business over anything,” Ledoux says. “So if you don’t live up to your expectations, then they’re sitting there with empty rooms. So I actually see attrition clauses coming back.”
In the meantime, however, Kellen also has aggressively addressed cancellation penalties.
“Cancellation, with the Kellen contract, is always based on lost profit,” Bay says. “We do not agree to lost revenue. We say, ‘Why should we pay you for the soaps in the room if nobody is using it? Why should we pay you to clean the room if nobody had to clean it?’ Let’s see what your lost profit is, and we’ll pay you for the lost profit on the room block and also pay you for lost profit on the F&B that we don’t spend.”
The tool Kellen uses in those negotiations is the accepted practices exchange (APEX) template developed by the Convention Industry Council (CIC).
“Our contract is based on APEX,” Bay says. “When we send out an RFP, we have a box on that RFP that asks whether they participate in the APEX standards.”
That, he acknowledges, is not yet widespread among medium-sized or small associations. “But if you talk to your major players,” he says, “I think you’ll find a lot of them are on the same page now. “
And, Bay adds, the use of such a negotiating tactic and tool is available to any planner who is aware of those options. In that spirit, he says, Kellen, ASAE and Association Management Companies International (AMCI) are currently trying to spread the word and encourage more associations to help make the APEX contract standards more universal.
Ledoux concurs that the APEX-based “lost profit” standard is an important improvement over the old cancellation provisions in hotel contracts. As a result, ASAE now does what Kellen does.
“But it’s also a matter of being fair to the hotels,” Ledoux says, “with whatever way you do it.”
She also agrees that hotels are now much more open to allowing buyers to use their own contract templates. “I think hotels are not very open to that kind of thing if they feel the provisions are fair to both parties,” she says. “If it’s just a different way to go about getting the dollars if you don’t deliver on what you promised, I don’t think hotels really care very much about how that gets done.”
But, Bay says, the overarching issue for planners is to understand that a change in negotiating stance delivers critical benefits. “Why should you agree to a guarantee when you can’t really guarantee anything?” he says. “Why should you agree to pay damages when the income is not coming in to pay for those damages? So the point now is to work out something that is realistic and agreeable. And that is not unfair to the hotels.”
Although planners are indeed enjoying a stronger negotiating capability based on changes that grew out of the recession, there also is a major concern these days. And that is that meeting costs are rising dramatically.
“Room rates are going up,” Bay says. “Airfare is going up. F&B is going up. Service charges are going up.” And the spike in airfares has been especially sharp, he says.
Ledoux agrees that sharply rising airfares and the related additional fees are the biggest concern among planners at the moment. “And as planners, we have no control over that,” she says, adding that increasing labor costs in major meeting destinations are, in turn, driving up the cost of virtually everything else.
Marguerite Leishman, meetings manager at the Association for Career and Technical Education (ACTE) in Alexandria, Virginia, agrees that spikes in pricing are a big concern for planners. Like it or not, Leishman says, “the cost of everything is going up.”
Leishman’s primary concern now is F&B costs. And she works hard to come up with an effective way to cope with the budget challenges that often creates.
“One of the things I look at is what the hotel charges for a gallon of coffee,” she says. “There’s a hotel where we’re doing a meeting and the cost of coffee is $88 a gallon, plus fees. But in another city we’re going to, the cost is $35 a gallon. And that kind of difference usually depends on where you are and what kind of facility you’re in. But I find that the cost of a gallon of coffee is always a good indicator of what the costs of food are going to be.”
And she finds that it is often negotiable. “I also look at the F&B menus when I’m planning a meeting,” she says. “And I’ll often go back to the hotel and say, ‘If you really want our business, we need to do some serious negotiating about the cost of food and beverage. And let’s start with the cost of a gallon of coffee and see how we can negotiate and how much I can get you to come down on that.’ And if they are completely inflexible, then I can take my business someplace else.”
Ultimately, Leishman says, that is the only real option planners have when it comes to effective negotiation that satisfies their budget limitations.
As a practical matter, she says, ACTE also has cut back on the number of events it does during a meeting. “We talk about the things we absolutely need to do, like our awards banquet,” Leishman says. “But we also ask whether we need that extra coffee service for committee meetings. Now it’s a matter of finding those tradeoffs where we can save budget and where we can put a little more money into the budget for food if we eliminate a coffee break.”
However, Ledoux says — and Leishman agrees — another aspect of the new, more expensive post-recession market environment is rising fees such as gratuities, resort fees, and state and local taxes.
F&B fees and taxes can now total more than 25 percent, Ledoux and Leishman say. “So when you’re budgeting now, you have to ask what the tax and gratuities and service charges are,” Ledoux says. “And for some recent meetings we’ve done, when you add up everything including taxes, you have to add as much as 30 percent to the bill. And you need to know that ahead of time so that you can budget appropriately.”
Unfortunately, Ledoux says, rising fees and other ancillary costs represent a permanent change that simply add more pressures to the budgeting process.
When it comes to dealing with budgeting challenges, planners have a limited number of options. The most basic are raising attendee registration fees, increasing exhibitor fees or generating more sponsorship dollars.
No matter how a planner looks at the problem, Bay says, the only real solution is always on the revenue side.
“Most associations are now thinking about ways to get additional revenue,” he says. “And sponsorships are always an important topic when you’re talking about revenue. So today you have to be asking yourself whether you’re following best practices or brainstorming with your staff about ways to generate more sponsorship dollars. And you have to be asking yourself whether you’re doing the best job you possibly can of selling the value of sponsorships.”
To attract more sponsorship dollars, Bay says, “You have to be creative. You have to come up with something new and different. You have to get the attention of your attendees. And part of that today is with your website and on mobile devices. You can also use Twitter and Facebook. We now try to brand all of those things with sponsor logos. But it’s not for everybody. You have to know how to be innovative. But it also gains momentum quickly for the groups that are willing to do it and know how to do it.”
Fowler is seeing a slight trend of more sponsorship money being invested in his industry. “Companies are also starting to let more of their employees go to meetings again after putting a clamp on that during the recession,” he says. “Exhibit business is also starting to pick up. Companies that sat on the sidelines for a few years are starting to increase their use of exhibit space. So when all of those things start to happen, as they are now, that puts the association in a position to be able to ‘do more with more’ at their meetings.”
Yet another current best practice when it comes to getting the most bang for the buck is negotiating based on an association’s total meeting expenditures, Ledoux says.
“Obviously, the value of your organization’s business to a hotel brand — and the fact you can say you book 20 meetings a year and that 15 of them are with a brand such as Marriott or Hilton — means you can negotiate based on the reality that you are a good customer and that you have a relationship,” she says. “But in order to do that, you have to really know the value of your business to that brand or hotel.” And an important part of that equation, she says, is ancillary business such as parties or individual F&B expenditures generated by attendees and exhibitors at an association’s meetings, along with an ability to negotiate good pricing for multiple meetings over multiple years.
At the same time, however, Leishman says, smart planners also will take advantage of another change created by the recession. And that is a shared desire to reduce the adversarial negotiating climate that was driven historically by whether the industry was in a buyer’s or a seller’s market, with each side extracting maximum advantage at either extreme.
“I’ve been around for a long time, and I’ve seen this kind of stuff go on for years,” Leishman says. “And the pendulum swings both ways every so often. Sometimes it’s in the planner’s favor, and sometimes it’s in the hotel’s favor. But ultimately, what I want is for it to be fair for both sides. I want to get the best deals I can for my association and my members, but not at the expense of having a fair deal for the hotel as well.”
That, she says, is the new formula for a genuine win-win situation. AC&F