The groups and meetings segment is an important one for the hotel industry as it accounts for roughly a third of the U.S. room revenue. This fact made recovery from the 2009 recession particularly difficult for the hotel industry as groups and meetings business took twice as long to recover as transient business. The long recovery was predominantly due to decreases in group occupancy. Additionally, post-recession meetings were shorter in length and they included fewer attendees versus years prior.
Groups and meetings room revenue in the upper upscale, luxury, and independent segments reached pre-recession levels around 2014 and then started on a healthy growth path.
In fact, the groups and meetings segment is expected to continue to grow through 2016. According to Joseph Bates, VP of research for GBTA Foundation: “The U.S. economy is entering the mature phase of the current business cycle. That means we are nearing full employment along with steady gains in GDP and solid business confidence. This suggests we will see continued, steady, and growing demand on the group business travel side as well as the transient business side.”
This post-recession rise in group demand has run parallel to a large shift in the distribution landscape. The traditional direct relationship between hotels and meeting planners has been intercepted by intermediaries and is estimated to be half of all group business. This intermediation is driving higher costs for the groups and meeting market and, similar to this trend in the transient segment, hotels are bearing the entire incremental costs. While many in North America may pay 10% of room revenue, in some markets the commissions apply as well to food and beverage spend. Many companies pay bonuses and internal company commissions in addition to the fees paid to the third party causing the average cost to end up upwards of double the base commission rate.
The rise in groups and meetings intermediation is a result of convergence of several factors. One primary factor is that many companies have decided to significantly outsource their meeting planning departments to intermediaries to reduce internal costs.63 Third party meeting planners offer to source business for corporate or association accounts at no charge to the corporate or association account; they collect fees from the hotels. Companies like HelmsBriscoe or ConferenceDirect provide this type of service. This is especially true in regards to larger meetings consisting of 300+ attendees.64 Additionally, in recent years group-focused electronic channels (eChannel solutions) have emerged for groups and meetings, and companies like Cvent, Starcite/Lanyon, Groupize, and Cendyn have found ways to automate pieces of the group planning process with eRFP systems and marketing solutions. Other solutions like Passkey automate the reservation process for groups. Automation for the groups and meetings channel is not simply a trend; it has become a standard practice.
Meeting planners are now relying on eChannels and intermediaries more than ever due to the ease and convenience they provide. Many meeting planners say they heavily depend on eChannel solutions to help them plan their meetings.65 In 2012, a number of the large brands publicly reported that nearly 30% of group business at their properties was booked via third parties.66 By 2014 the Group and Meetings segment hit an all-time high with over 40% intermediation.67 Current trends suggest intermediation could grow to 60% of group revenue by 2019, with intermediary payments growing much faster than revenues.68 Other innovative digital platforms in the groups and meeting space, such as Socialtables and others, are providing solutions that leverage new technology to visualize meeting space as well as facilitate actual event management.
The rise in intermediation and the reliance on eChannels has resulted in higher costs and higher commissions paid by hotels. If group intermediation continues on this steady climb and more eChannels move to automated booking, it could mean staggering costs for the hotel industry, costs that will ultimately be passed on to the customer, and which will have a net negative effect on the organizations holding meetings and on the hotels trying to service them effectively. Each percentage point increase in commissions will decrease property value by nearly $600 million in 2019. Should eChannels start charging a 10% commission the increased intermediation and commissions could decrease current hotel property value by $15B by 2019, putting immense pressure on hotels to cut costs.
For this reason, it is important for hotels to carefully manage their groups and meetings business. Finding ways to better connect the meeting planner and the hotel will make a significant difference to the meeting planner experience and the ability of a hotel to meet the needs of its groups and meetings clients. Hotels must find ways to improve what is a tedious and cumbersome process for meeting planners while delivering a great experience for the meeting attendees.
Excerpted from "Demystifying the Digital Marketplace: Spotlight on the Hospitality Industry," produced by Kalibri Labs through the AH&LA Consumer Innovation Forum and published by the HSMAI Foundation. To learn more and access, vist: http://www.ahla.com/DDM/