Click here to view the 2009 Purchasing Companies survey
If 2009 was a year for trying to keep your head above water, then 2010 is shaping up to be a year to swim to the shore. With many economists declaring the recession over, procurement companies are ready to move quickly as brands get ready to build and renovate their properties.
Bargain hunters
2009 was a good year for those who had cash. Owners and developers who took advantage of the deals were typically people who were renovating anyway.
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| Alan Benjamin, Benjamin West |
“We were able to really help out projects that had started,” said Alan Benjamin, president of Benjamin West. “Maybe we had done a model room but the project purchase orders weren’t out yet. We were able to give a huge advantage to those clients. I’d say the overall savings averaged on the order of 20 percent.”
Benjamin points out the savings didn’t just include product costs. “I think there was an even greater savings on the labor side than on the product side,” he said. “You also didn’t have as much displacement of revenue. You could take more rooms out of service because the business wasn’t there. Or you could take an extra buffer floor out of service. So you might take two floors out of service above and below where you’re doing work. And you can do that without any further impact to the cost of the renovation.”
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| Chris Robinson, Hatchett Hospitality |
“A lot of people were reluctant to doing anything the first of the year,” said Chris Robinson, VP of sales and marketing for Hatchett Hospitality. “And I think that people like myself, procurement companies as well as construction companies and material suppliers have lowered costs through this recession because of supply and demand. Where a project last year may have cost them $8.5 million, they may have been able to put it together for $8 million in 2009.”
Robinson noted that companies who have investors or enough cash reserves are looking for better deals and more opportunities to buy product at better prices. These franchisees are becoming more demanding on specifications and criteria for product going into the hotel.
“The people who inspect or that are qualified to determine whether the specs meet standards or not, their workload is lightened, so they’ve been a lot more strenuous on us to make sure that the specs meet certain brand standards,” he said.
Buyers in this economy also had their products delivered quicker than in better times. “At one point, what used to take 20 weeks came down to probably 12-14 week lead times on most products,” Robinson said.
Benjamin said he hasn’t seen such a dramatic reduction in lead times but what was once a 12-week lead time might become an 8-10 week lead time. “As the market declined, vendors adjusted their inventories down as well. Projects that were ordered in 2008 and fulfilled in early 2009 are complete. And the pipeline of new activity has not been filled. So lead times are going to get faster.”
Moving forward
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| Hatchett Hospitality provided design and procurement services for the restaurant at Holiday Inn Airport-Town Center in Fort Myers, Fla. |
In 2009, some brands relaxed standards and postponed requirements for renovating existing hotels. “A lot of the franchises had been giving reprieves because of the recession,” Robinson said. Now they’re going to start mandating that hotels get back up to standards. “At some point, the franchise realizes that if they don’t make owners adhere to brand standards then they’re going to lose occupancy and ADR. Customers will stay at a property next door that’s kept its standards up.”
When owners and developers are finally ready to finance new jobs, they’ll want to move quickly. “In a lot of cases these projects have been sitting; the owners have been making note payments on properties that may not be open,” Robinson said.
Another trend for next year is the concept of real value.
“There’s much less project work so people are able to take the time to ask that third or fourth question,” Benjamin said. Clients are looking for options and recommendations and don’t just want what they bought three years ago at a discount.
“Owners who have been through different economic cycles before know there’s more to it than the lowest price on the spread sheet. They’re beyond that,” Benjamin said. They’re looking for the lowest competitive cost for a certain set of attributes. That might include long-term durability, cost over the product’s life, green products, ease of maintenance, etc.
“They’re not necessarily buying the lowest price because there’s usually a lot of risk involved with that. And most people are still trying to be risk averse.”
Due diligence
Benjamin also suggests now is the time to talk to the right consultants, whether it’s for project management, architecture, design, procurement or any consultants in the capital expenditure process. Get a plan together ready to go.
“Before you buy that hotel at 50 cents on the dollar that you’re so sure is a bargain, the best money you can spend is a couple days of an expert’s time. They’re going to ask the right questions or bring in a specialist in a certain area of the building. They might create a budget to see how much it costs to renovate or reposition the hotel from Brand A to Brand B. And most consultants that have good relationships with their owners are happy to do that at an attractive rate.”
Click here to view the 2009 Purchasing Companies survey
