Buyers Ready For Round 2: First Of A Two-Part Discussion Of Hotel Negotiations
Business Travel News, 11/18/2007
Business Travel News this month discussed hotel negotiating strategy with four travel buyers: Pfizer director of global travel Phil Dunphy; Cynthia Gillen, director of procurement and travel management for BDO Seidman; National Business Travel Association president Kevin Maguire; and Cynthia Shumate, director of travel services for Estee Lauder Cos. The following is the first half of that discussion, focusing on each participant's strategy for negotiations this year.
BTN: At what stage of the hotel negotiating process are you?
Phil Dunphy: We're waiting for our second round. The first one was interesting. When you look at inflationary rates, to be double or triple is just unacceptable. I look at some of the rates we had when I first started at Pfizer, and put that against a 3 to 4 percent increase a year. For the most part, we're in line. It's usually the next round where people get serious, because we've given some very strong feedback to all the chains.
Cynthia Shumate: I'm in the middle of it, and I haven't received all the total pricing yet. I'm a little ahead of my schedule from past years. Our effort is to release the preferred list by the end of December so that we can kick off and be on target. It's been a growing program for us in the past two years, and we've been late. So, I'm happy to say that I'm here, but I don't have them nailed down yet.
BTN: What do you expect percentage-wise?
Shumate: An increase. I don't really have a hard number. I've read to expect 4 to 7 percent, so I'll be keeping that in mind.
BTN: Kevin, what's going on with the negotiating consortium?
Kevin Maguire: We're actually expanding to a degree. We're finding that more and more companies have lost travel managers, and they're not as comfortable using the services of a travel management company as they thought they would be. Plus, the market is riper now than it was in the past for consolidated buying. We're also starting to see hotels more receptive to two-year contracts, which is something we worked on for a long time. I'm also finding a delay in the response on rates. It's almost like the hotels are looking at each other to see who does what. Nobody wants to be the bell cow. It's going to be very interesting when these rates do start coming in. I've been seeing pretty much the same average. The best-case scenario is 4 to 7 percent. The worst-case scenario is double digits, in some cases in the 20 percent range. We've begun negotiations, but we have backed off just a little bit because we're adding more volume, which the hotels understand. We're negotiating, but we will make adjustments as the other companies come online.
Cynthia Gillen: This is a really exciting year for us. We are changing the approach to our hotel program. Previously, we had concentrated on a very small number of key markets, where we had consistent annual business. As our business had grown considerably in the past few years, we now find ourselves in the good position of having much more to play with, so we are going to be doing our first formal bid structure this year. It's going out this week, and we're going to be targeting 35 key destinations—it's a large expansion.
BTN: How many destinations were there before?
Gillen: There were 10 to 12 consistent ones. It's going to be a brave new world with the other ones. We're utilizing BidStork to do our RFP pattern. I don't have anything to offer as far as hard data except for expectations of good things to come.
BTN: By leveraging your volume and having more in a wider area, you might actually do better?
Gillen: Yes. We also have very good strong data to show that in markets where we've consolidated, we have good compliance. One of the reasons why we had not entered some agreements was the unknown factor of whether would we live up to the commitments. We don't believe in crying wolf.
Maguire: One of the things I've always run into is that the travel manager side has cried wolf. We make great promises and offer great expectations, and the delivery is sometimes questionable. Are you finding that our side is starting to make commitments that are attainable?
Gillen: We're making more realistic commitments because we have the data sources to back it up. The rise of audited expense reporting, and being able to combine travel agency and hotel data with expense data to capture spend outside controlled distribution channels, really helps a lot.Shumate: We made a commitment to be fairly transparent with sharing our data, so we went to card data. I provide real numbers, and they've gotten better over the years. Out of 5,000 line items in my Amex card hotel reporting, I did a slice this year that showed 77 percent of our hotel spend falls within 80 lines. So, we were able to go back and really whittle our target for negotiations down to the where we know we make an impact and have volume.
Dunphy: We've also coupled in an initiative to tier down. That came from our executive leadership team. They wanted us to completely move away from five-star properties, and at least get down to four-star. Where we may be in four-star properties, we're looking for three-star. It's difficult because on a global scale, that means something different in every market. We are working with Advito to help us through that process.
Shumate: I find the tier-down discussion really interesting. For us, it has not necessarily been a direction from the senior level. Rather, travelers are starting to make the decision on their own. The limited-service layers are becoming fantastic choices for the business traveler. One of the key differentiations is that they will offer high-speed Internet within their rates. They offer more of a home atmosphere, and they've figured out what a business traveler needs. You don't always need the amenities of the full-service hotels.
Dunphy: Not for a one-night stay.
Shumate: There are choices, and we have both in our program too, but I will agree that tier is growing for us.
BTN: It's not mandated in your program?
Shumate: Right. I'm putting more in, so there's more of that choice available. In our directory, we have a little piece on each hotel that includes the amenities negotiated in that rate, so I'm trying to educate travelers to make a choice. If high-speed or breakfast or parking is important, then make the choice.
BTN: Besides Internet service, what other negotiating priorities do you have?
Maguire: Older properties that had free parking have suddenly sold their parking lot to a third party to split the profit, and we're now being charged $20 to $25 a day.
Gillen: Things like a coffee maker in a room are pretty standard expectations for travelers. Breakfast is also helpful, although many people don't actually utilize it. We're looking at opportunities to get grab-and-go breakfasts more often.