Are you ready for a seller's market? Meeting demand has come roaring back, pushing rates to pre-recession levels, erasing the concessions that buyers enjoyed over the past four years, and requiring meeting planners to adapt to a new negotiating climate.
It's the newer clients that express the most shock over the massive "market correction" that has begun to emerge in the meetings industry, said Tamela Blalock, CMP, MTA, manager of consulting services for Washington, D.C.-based meeting-planning firm Courtesy Associates. Four years after the stock markets crashed and the national economy plunged into recession, meetings demand is on an upswing and the concessions that hoteliers and vendors offered in a desperate bid for business during the downturn have evaporated.
Some hoteliers are now pushing back on contracts signed in 2010 and 2011, looking to renegotiate the rockbottom rates they offered to customers, Blalock said. At the same time, clients are demanding to reopen the long-term contracts they signed at the peak of the economic boom in 2008, hoping to gain some of the discounts still left in the market.
"It's a difficult conversation on both sides," Blalock said. "The suppliers want to focus on rate and be more strategic about getting the best value for their space. The buyers got a taste of how things can be discounted or packaged, and when they see the rates for 2013 and beyond, they think they are getting a huge mark-up."
With demand and rates headed back up to pre-recession levels, Blalock said, the negotiating climate is operating in a "new normal."
"As tough as things were for a few years there, there was actually some good that came out of it," said Amy Allen, director of marketing for Caesars Entertainment. "From our side, we really got better at selling and marketing our products, at building strong and lasting relationships with our customers, and at learning to do more with less. From the client perspective, they've had the opportunity to get more strategic with their meetings programs, ensure they're more successful and drive the greatest possible return, and they've gotten better at measuring those things."
The Current Climate
North American markets next year will see "slow and steady" growth in hotel rates and travel costs, according to Carlson Wagonlit Travel's 2013 Travel Price Forecast
. Average daily rate (ADR) likely will increase by 3.2 percent throughout 2013, and the average cost for a meeting attendee per day will increase by 4.8 percent, accompanied by an average 6-percent increase in group size. Advance bookings for 2013 are "already strong," according to the report, and booking windows have increased a slight 5 percent as organizations feel more confident about the future.
Hoteliers said they are feeling the impact of the improving economy. Group business is "looking great" for 2013, Allen said, across all of Caesars Entertainment's properties in Las Vegas, Atlantic City, and Lake Tahoe. "We've seen lead volumes increasing along with new bookings, and, as everyone probably knows, ADRs are increasing as well," she said. "That being said, there are always some great opportunities for planners who can be flexible with their dates or even with the properties they're willing to look at."
But planners will have to work a little harder for the concessions and deals they found during the downturn, said Mary Ryan, convention sales manager for the Kansas City Convention & Visitors Association. Indeed, according to Washington, D.C.-based attorney Stephen Guth, bargains for planners will "dry up." Hotels are beginning to experience demand that rivals or exceeds pre-recession levels, he said, although there is some softness in regional markets such as the Northeast and Southeast.
As the "negotiation pendulum" begins its inevitable swing back in suppliers' favor, buyers will have to sharpen their bargaining skills, said Greg Duff, hospitality industry lawyer and founder of the hospitality, travel, and tourism group of Garvey Schubert Barer. "Generally speaking, I think hoteliers will be less inclined to discount rates or to offer concessions in areas like attrition, cancellation, and comp rooms," Duff said. "Instead, hoteliers will look to provide value-adds or other similar benefits to compete against other properties."
A Shortage of Space
Jane E. Pelletier, CMP, vice president of Annapolis, Md.-based Conference & Logistics Consultants, pointed out an additional challenge planners of association events and large conventions may now be experiencing: securing space for their 2014 and 2015 events. Although an organization ideally should book its large events at least four years in advance, Pelletier said, a surge of customers are looking for meeting space within the next three years.
"When the bottom fell out of the economy, many construction projects were put on hold. Many properties and many cities had expansion projects or new builds that they decided to table," Pelletier said. "The demand is now really strong, and now there isn't the availability [of space] to meet those needs."
Conversely, Guth, who has written several books on contracting and procurement, including Hotel Contract Negotiation Tips, Tricks, and Traps
, thinks it is small-sized meetings that may feel the brunt of the change in the negotiating climate. Hoteliers are following the lead of airlines and "unbundling" what they can for a la carte pricing. Instead of a package deal, Guth said, buyers may have to do "a little more asking and a little more work" to get the same deals they found during the recession.
As for larger groups, Ryan advised that they try to minimize their footprint as a way of maximizing their savings. With so much competition for space, groups that are able to reuse rooms, such as using the same ballroom for a general session and a meal, rather than two separate ballrooms, will see a greater response to their RFPs.
Here are other ways planners can try to make the current economy work in their favor at the negotiating table.
"Over the last year, we see customers looking everywhere and the booking window is shorter," Ryan said. "With the uncertainty of what happened with the economy, planners have learned that they can do business in that shorter timeframe, and I think it's going to stay that way for a while."
At The Brown Palace Hotel in Denver, senior sales manager Kimberly Forte said she also sees a surge in last-minute bookings, which has allowed the property to push pricing and be selective about potential business. "We're seeing a lot of last-minute business on the corporate side," Forte said. "Even in the association business, we're seeing last-minute planning for a lot of the regional conferences, and associations that booked city-wide conferences for 2013 are now figuring out that while they were a little bit conservative a couple years ago about booking their [room] blocks, now their attendance is growing and they need overflow hotels."
When faced with a challenge like short lead times, meeting organizers should try to leverage last-minute planning to their advantage. Limited booking windows can both "create and limit opportunities," Duff said. "If the short lead time coincides with a hotel's need period, the hotel may be willing to negotiate much more favorable terms. On the other hand, short lead times during peak periods will likely mean multiple RFPs before one is accepted. Obviously, the smaller the group, the easier it will be to use a short lead time to a group's advantage."
When booking with a short lead time, buyers should be able to agree to a proposed contract quickly, Forte said. If they don't, they may lose the space to someone else. "We're pushing for that decision within a week," Forte said. "We're able to push pricing that way as well as availability, because there is someone right behind them that is ready to make a decision and is ready to go."
Guth added: "I'm