With growth expected year after year, it started to get more difficult to find higher quality

ingredients. But it was still written into the sales and marketing plan to target them – with a focus on higher ADRs in specific segments like corporate and group, and by targeting bookings through lower-cost channels to impact and improve profitability.

“The industry had a long upcycle with 17 percent growth in guest paid revenue over the last 5 years. Business was good, and everybody figured, ‘Why should I change anything if we’re making a lot of money and it seems to be going well?’” Cindy Estis Green, CEO and co-founder of Kalibri Labs, recently told HSMAI.

But, she added, like many other industries, the hospitality vertical has been intermediated by large digital tech platforms aggregating consumer demand. This has caused major upheaval for many such as retail, publishing and financial services. On top of digital disruption, the pandemic forced everyone to pay attention to everything again as though it was a clean slate. We said, “Wait a minute, we can’t necessarily operate the way we have been. There’s no autofill on my hotel anymore, so I have to understand the composition of demand.’”

Leisure business returned to pre-pandemic levels by June 2021, but commercial segments at that time were under half the 2019 volume (49%). There was a lot of uncertainty around when businesses would allow individuals to hit the road and when groups and meetings would resume.

Understanding the Ingredients of Demand

In response to the critical need to monitor the return of commercial business by market and submarket, Kalibri Labs has identified the segments that comprise commercial demand include Corporate, Government, Consortia, and Rack/BAR and Loyalty Member Rates on weekdays, while commercial group includes association, convention, corporate and government. Segments that make up leisure demand are all discount programs (AAA/AARP, advance purchase, etc.), promotion/packages, weekend loyalty member rate and OTA.

In 2019, commercial demand accounted for 53% of total revenue and leisure made up 47%. In terms of 2019 group revenue, commercial contributed over two-thirds of demand (67.4%). The pandemic caused a 64% decline in total commercial business and a 47% decline for leisure.

The loss in the commercial portion of total group demand was even more significant, falling 80% compared to 2019. It’s clear that although leisure business returned sooner, it will likely plateau at close to 2019 levels by the end of 2021. Commercial business will slowly return but may still only reach 70-80% of its pre-pandemic volume by the end of 2022.

The initial 2021 recovery began for both commercial and leisure on a similar trajectory. The second quarter saw a significant boost in leisure occupancy while commercial never really took off. By mid-September 2021, across all U.S. hotels, commercial segments only made up 25 points of occupancy, with 40 points coming from leisure segments. U.S. markets varied dramatically in their pre-pandemic mix, and now, as a result of those differences, the recovery is uneven in terms of pace and composition of demand.

While these trends represent the total U.S., performance by chain scale is most influenced by the market and submarket where a hotel is located. Even within a market, the spectrum of business volume in each submarket can vary widely.

Many lower and mid-tier hotels are in markets with an historically lower reliance on commercial demand. Many of these markets have already met or exceeded their 2019 performance, while dependence on commercial increases for many upscale, upper upscale and luxury hotels in markets with a higher mix of commercial transient and group business. Forecasts for lower and mid-tier hotels are getting close to 2019 levels, while upper tier hotels in large metro areas will be the last to return to pre-pandemic volume.

Changing the Recipe for Today

Hotels that are ready to mix up the ingredients are staffed by a strong commercial strategy team. Leaders in sales, digital marketing and commercial analysis are ready to analyze current demand trends, identify and quantify opportunities and then deploy resources against them.

Successful commercial strategy will result from aligning funds with appropriate opportunities – by segment, by day and by season. There won’t be a one-size-fits-all solution. Instead, answers will be driven by the type of demand available to any given hotel in each market and submarket. It’s imperative to assess the range of opportunities and the associated cost of acquisition. That allows the commercial strategy team to pull the right levers at any given time to deploy direct sales, digital media, direct promotions or leverage third-party agencies or OTAs against optimal opportunities.

In cooking or baking, this is the equivalent of knowing what ingredients are available, how much you’re willing to pay for them and how and where you will acquire them so you end up with the desired dish.

It also means there may be different chefs in the kitchen or taking over new stations. There are many success stories from the hardest months of the pandemic where sales leaders shifted the focus of their expertise to react to new demand patterns. Business travel experts created leisure packages or incentive group sales managers crafted individual packages for corporate and frequent group travelers – all while supporting the hotel’s overall operation.

Writing the Cookbook

As you evaluate the success of your strategy and corresponding tactical action plans, it’s critical to monitor each activity’s overall impact and performance. Is it one that you’ll save and repurpose, or will it require tweaking for its next application?

Keeping up with a shifting business mix requires a regular review of your hotel’s or group’s performance by rate category or segments (i.e. commercial and leisure) and vs. competition by rate category. Full recovery will play out differently in every submarket as the pandemic and COVID-19 variants continue to impact the industry. Continual change is likely for several years until the market stabilizes with a new normal. However, key stakeholders, owners and operators will want to know what they can expect at each point along the planning horizon.

Deploying a commercial strategy framework, supported by a playbook you can reference, will ensure that you are prepared for what comes next.