These days it feels like mentioning the “R” word is tantamount to saying Voldemort’s name out loud.
NB: This is an article from gcommerce
We all know it’s here, but maybe if we refuse to acknowledge its arrival, it’ll somehow spare us the battle ahead. Sorry to burst that bubble, but the battle is about to begin.
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Reading the Tea Leaves
GCommerce provides real time reporting to our hundreds of clients; meaning we sit on a metric-ton of data. In the last 90 days:
- Website conversion rates dropped 36.5% in November 2022 versus October and 26% over November 2021.
- Portfolio wide ADR in November increased by $50, while overall revenue dropped an astonishing 46%,
- Look-to-Book ratio has been cut nearly in half.
- Return on Ad Spend (ROAS) has actually improved in Q4, but impressions and volume are down. Simply put, less people are shopping.
Call this the canary in the mine, but we aren’t the only ones seeing the hotel digital marketing trends. Hotel clients are reporting declines in overall market demand, especially in city center destinations.
So regardless of your own prognostication on the health of the travel economy in 2023, let’s assume that we are about to see a downturn. Hopefully a mild one.
What Happens Next For Hotels
As is so often the case, history instructs the future. When the hospitality industry experiences a downtown, a number of patterns repeat. Not to sound self-serving, but most hotels cut marketing spend, retrenching to their most basic programs in an effort to cut costs. Seems reasonable, but there is a more intelligent, less reactionary way to rebalance spending. Unfortunately, many hotels will eschew a methodical approach in favor of arbitrary cuts to all spending. There’s a reason that OTA’s have used recessionary periods to grow their share and influence in the industry. They become a more important revenue lifeline when hotel’s cut their own digital marketing.
Beyond hotel digital marketing activities, if history is a guide, hotels will fall into a few categories (with clear winners and losers).
RETREAT IS DEFEAT
2021 was the year of historical gains in ADR. Seriously, some of our client’s have increased their rates 300%+ over previous highs, and we all know rate flows. It can be addicting. As headwinds start to blow, some hotels will refuse to sacrifice their rate gains. They’ll argue that with inflation and rising labor costs, the rate is necessary to maintain profitability. They’ll point to studies that say that dropping rate in a recession does more harm than good. True, and we’ll reference those same studies in just a minute. But hotel rates in many markets have grown to unsustainable levels (300% over previous highs in less than 2 years is not “normal.”) Finding a more historically grounded hotel rate strategy is not the same as fire selling your property. Hotels in this category will see occupancies fall as more aggressive competitors win share. They’ll watch loyal hotel customers give less expensive competitors a try, opening the possibility that they lose them forever. Not good. Ultimately, these hotels will succumb to market pressure and reduce their rates, but harm will have been done.