Is Cost Containment Possible?
Stout demand, high rates continue to pose challenges to meetings sourcing. Where do we go from here?
The unshakable post-pandemic surge in group and meeting demand certainly has delighted not only the hoteliers who have relied upon the segment as a sturdy base of revenue while business transient volume grows more tentatively and the lower end of leisure demand starts to erode, but also the would-be meeting attendees gratified to ditch paneled screen displays in favor of in-person camaraderie with coworkers and clients.
But it also has put corporate buyers in a bit of a spot. They're fielding requests for meetings with precious little lead time, often with little flexibility in location and hotel service tier, and they're facing a market in which hotels, with stout meetings demand projections in hand, often are charging high room rates, holding the line on ancillary charges, and may not be particularly interested in negotiation. That's assuming they respond to the request for proposals in the first place.
Many buyers, when faced with such circumstances, are biting the bullet and paying the cost to hold the meeting. But others are trying a variety of sourcing strategies to mitigate the high costs, including pushing internal spaces, incorporating meeting spaces outside the hotel, and attempting—not always, or even often, with success—to leverage combined transient volume for the purposes of meetings negotiations.
Stalwart Segment
Hoteliers and analysts alike since about the midpoint of 2022 have noted the comeback. With continued strength and projected durability through 2024 of the corporate meetings and group segment, hoteliers are command healthy rates and drive revenue. "Demand is really strong," Hilton president and CEO Christopher Nassetta said in February of corporate meeting demand. "Every quarter is the next new high-water mark in terms of bookings for all future periods."
"Every quarter is the next new high-water mark in terms of bookings for all future periods."
Other hotel chains also have reported persistent meetings growth. Marriott International noted fourth-quarter group revenue increased 9 percent globally year over year and 7 percent in the U.S. and Canada. Hyatt Hotels Corp. in February noted fourth-quarter room revenue from group bookings was up 11 percent from 2022, and the group booking pace for full-service managed properties in the Americas region is up 8 percent from 2023 levels.
The entire segment's demand strength has continued into 2024, according to analysts. A Morgan Stanley report issued April 10 pegged first-quarter U.S. group revenue per available room up 5 percent year over year, while noting "positive trends for business transient and group" demand. That has continued to offer hoteliers leverage, noted lodging analytics firm STR, which late last month noted U.S. group average daily rates increased 4.5 percent year over year in January and 7.5 percent in February, outpacing transient increases.
"I'm surprised at how expensive meeting rooms in hotels still are. Sometimes it feels that hotels haven't realized there are opportunities outside of the hotel."
Cataloging Demand
What's driving this steadfast demand for smaller corporate meetings? According to observers, one key reason is a desire to reassemble teams separated by new manners of remote working, at sites reachable for employees in different locations.
"Companies still only now are realizing that hybrid and remote work are really a thing and will stay, and that will have a massive impact on how you bring your people together," said Dennis Vilovic, CEO of meetings management and site selection firm Troop. "Now they realize we have to bring our people together more often, especially for small internal meetings, because people are struggling to build trust among their coworkers."
"Now [companies] realize we have to bring our people together more often, especially for small internal meetings, because people are struggling to build trust among their coworkers."
Grant Caplan, president of corporate travel and meetings procurement consulting firm Procurigence, suggested remote conferencing has replaced some intra-day meetings but noted demand for other types of internal events remains stout.
"Instead of going onesies-twosies from the Boston office to the New York office for a four-hour meeting and coming back, they're doing those by video," Caplan said. "Instead, they're doing a company meeting to get everybody together, network and refresh relationships. Sometimes departments within a company are doing that and having departmental strategy meetings."
Despite the apparent interest in and steady stream of internal meetings, all agreed that these events were being planned and sourced with a minimum of lead time, leading to challenges but also the occasional opportunity in the sourcing process.
"Lead time is almost nonexistent, because it seems like every customer we talk to says that every single department has put in for an internal meeting this year," said Alisa de Gaspe Beaubien, CEO of meetings management platform Groupize. "And they know they want to have it in the second quarter, so they'll tell someone three or four weeks prior."
"There's much shorter lead time than ever before," said Ron Puglisi, SVP of global accounts at third-party meetings procurement and site selection firm ConferenceDirect.
Managing the Trends
Along with the lack of lead time, many companies aren't demonstrating particular flexibility in their desired meeting sites or dates, sources said.
"Clients pretty much want what they want," Caplan said. "They're allowing a little more creativity in how to get what they want, but the level of the meeting and the message of the meeting is not flexible. There can be some date flexibility when they have very little choice at the last minute."
That often extends to the service tier of the property, noted de Gaspe Beaubien. "Meetings business is still four-star," she said, noting that some hotels continue to have staffing challenges that can affect the meeting experience, but that's less likely to be an issue at a higher-end property that relies on group business. "If you're a conference hotel, you're guaranteeing a level of staffing and service."
Given the level of corporate meetings demand and the lack of lead time and flexibility, one might expect a lack of urgency on hotels' part to negotiate, and that for the most part is the case, she said.
"Sometimes even if you go to contract and don't make the date of signature, you can lose the date. You can lose the space. There's that much demand right now."
"What we are seeing is that there's no more options: You have to sign this contract by 5 pm or else you lose the space. If you don't use the space, there's 10 people behind you who will take it," de Gaspe Beaubien said. "[Hotel properties] don't have the availability that they used to have. Rates are way up. It's a seller's market for sure."
Alternative Realities
About 72 percent of respondents to BTN’s 2024 Meetings Strategy Survey whose organizations have a meetings policy in place indicated that policy requires stakeholders to consider onsite spaces before contracting with a hotel.
"A lot of meeting [organizers] are looking at internal meeting space," Troop's Vilovic said, and included his own firm in that trend. "We're going to New York, and an investor has an office there, let's call them and see if we can use their meeting space."
That tracks with BTN’s buyer interviews, as well. All buyers queried for BTN’s piece Fashioning a New Meetings Strategy have structured some piece of their programs around utilizing onsite spaces before panning out to surrounding hotels—especially for internal meetings. Indeed, office space design has become on the whole more novel, welcoming and regarded as a touchstone for corporate community building in a world of remote work. Also, meeting in these spaces is, well, cheap—and meeting organizers are then looking only at room blocks and catering.
Vilovic said he's also seen cases where clients preference third-party co-working spaces over hotel meeting venues.
"I'm surprised at how expensive meeting rooms in hotels still are," Vilovic said. "Sometimes it feels that hotels haven't realized there are opportunities outside of the hotel.”
"What we are seeing is that there's no more options: You have to sign this contract by 5 pm or else you lose this space. If you don't use the space, there are 10 people behind you who will take it."
Competing Bids, Competing Interests
About 53 percent of respondents whose organizations have a meetings policy indicated it includes a requirement to secure competing bids from hotels. To be sure, negotiating is rule No. 1 when it comes to procurement and is best practice for securing lower rates and better contract terms.
While formal RFPs are "how the industry works today," Vilovic said, there's a risk in such a seller's market that waiting for a competing bid could put space in another property in jeopardy.
"A lot of times it's procurement holding this up," ConferenceDirect's Puglisi concurred. "There's still a longer time with their contracting process, which we try to help with by using our standard agreement. But sometimes even if you go to contract and don't make the date of signature, you can lose the date. You can lose the space. There's that much demand right now."
The Combined Volume Play—Fact or Fiction?
While some companies have been able to leverage their business transient and meetings volume together at hotels for the sake of negotiations, one travel management company representative said hotels by and large today are not enthusiastic about that approach.
"We can confirm that," Vilovic said.
One reason behind that has to do with the type of rate traditionally extended to transient versus groups and meetings and some commercial structures often in play behind the scenes. Transient rates tend to be net, while meetings lean toward commissionable rates. That largely has to do with how meetings agencies take their fees from hotel room commissions, and that’s hard to untangle from the rate negotiation. Though some corporate clients are able to do it—in many cases, they are bigger players—and even those choose target markets for such a strategy.
"We want hotels to understand that a McDonald's dollar is the same in our eyes whether it is business travel or group. We've demonstrated that we are dependable and reliable. We deliver what we promise."
McDonald’s global meetings manager Josh Rice told the audience at a recent BTN Strategic Meetings Summit in Chicago that while the company’s meetings and business travel groups operate separately within the organization, the hotel sourcing practice functions in lockstep.
“We do all our hotel reviews together. And there are times when a hotel will say, ‘We don’t want your group, just the business travel,’” Rice said. “But we want hotels to understand that a McDonald’s dollar is the same in our eyes whether it is business travel or group. We’ve demonstrated that we are dependable and reliable. We deliver what we promise.”
That said, Rice acknowledged that getting hotel partners to consider total volume and deliver a combined rate for transient and meetings works the best in Chicago and surrounding hotels because that’s where McDonald’s business is known and most trusted.
Aon, which is just now gathering combined travel and meetings data, plans to take the same approach.
Global meetings director Jennifer Kowal said the company plans to “strengthen our partnerships in key markets” and is starting down this road with a property that is connected to the Aon headquarters. “I can let you know in a couple months how it goes,” she said, “but [travel and meetings] do have our conversations together with hotels, and we are looking at the total spend—like Josh said, the dollar is the dollar.”
De Gaspe Beaubien thinks many companies will be fighting an uphill battle on this front, noting some hotels actually are becoming a "little more bold," eschewing RFPs—particularly for smaller meetings—and requiring corporates to book through a Groups360-confgured portal that lives on their websites. This increases margins for hotel companies since Groups360 is backed by a consortium of major hotel companies, thus reducing the fees they would pay to global distribution systems or other marketplaces and RFP service providers like Cvent. “It’s something to keep an eye on," she said.
Going for the Gamble?
Still, as ever, effective meetings sourcing can contain a little bit of timing and a little bit of luck.
"I am seeing a lot of last-minute planning," Procurigence's Caplan said. "Sometimes that is really to the corporation's advantage, because the hotel already knows what they have in-house, and they can give you a better deal. I'm getting screaming deals when it comes to that gap-filling. But there's less choice, and sometimes the company is cutting off their nose to spite their face because they think they'll get a great deal at the last moment, but then have very little to choose from. It's a gamble."
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