Case Study: "Comparing Apples and Oranges: Which Group Yields the Best Profit?" The Diamond Peak Hotel, one of 45 hotels in the Carter Fox management company, was bustling with business this Thursday afternoon as the hour of the daily revenue meeting drew closer. For the second straight year, November was proving to be a busy month with a large number of transient business guests filling up every room not already claimed by a group. Indeed, the staff was busy checking out a fraternity group today and preparing for the arrival of a gymnastics team this evening. Several members of the sales staff were eagerly anticipating the day's meeting, excited about the good news they were ready to share with the revenue management team of the 575-room convention hotel. Both of the hotel's group sales managers, Tyrell Glouchester and Demetrius Glava, scurried to pull together the data they needed to answer any questions that might come up concerning the group business they were on the verge of selling. Both knew that though the business was still 12 months away, the sale would help put them closer to their yearly sales goalsand the bonuses that came with the accomplishment of those goals. At 4:30 P.M., the revenue management teamBill McAddlepot, general manager; Ellen Zurpava, director of sales; the two group sales managers; Paramendra Bhura, sales manager for transient sales; Robin Douglas, the reservations manager; and Grace Fritzman, the catering managergathered in the meeting room with friendly smiles and a few weary comments about the fraternity group that was currently checking out of the hotel. Bill quickly called the meeting to order, reviewing the actual performance of the latest five-day forecast. After a brief discussion about the current budget, Bill asked what new business the team had generated today. Tyrell and Demetrius spoke up in unison, sparking a laugh among their co-workers as they then both offered to defer to the other. Tyrell yielded the floor and Demetrius began, "I received a call this morning from a Rev. Michael Brown. He's planning his denomination's annual minister's revival meeting and would like to book it at our hotel. They're looking for 400 rooms for a four-day period from Monday through Thursday in the first week of next October. They would also want..." "When did you say the group wanted the hotel?" Tyrell interrupted. "The first week of next October, Monday through Thursday," Demetrius said. "I checked with Robin this morningso far the only group we have booked is the return of our fraternity buddies who are checking out today. They have 125 rooms booked at $130, higher than our budgeted group ADR of $120 for that month, which gives us a little bit of leeway." "The fraternity group is a pretty firm bookings, too," said Ellen. "I was surprised to see that they actually ended up reserving more rooms than they had contracted for. Fortunately, we had the extra rooms for them this year." Tyrell shot Robin a questioning look, but was unable to catch her eye as she seemed suddenly engrossed in one of the reports that Bill had handed out at the beginning of the meeting. He wasn't certain, but she seemed to be suppressing a smirk. Demetrius continued, "Other than a big dinner on the final night, the ministers will mostly use the hotel dining rooms and area restaurants for their food and beverage needs. However, they'll want to reserve all of our remaining available meeting rooms for the week and will be purchasing refreshment breaks on each day. I pulled their group history from our sister property in Minneapolis where they held their revival meetings for the past five years. Rev. Brown said they were looking for somewhere warmer for next year's meeting in the hopes of finding a permanent home for the annual meeting. "One of the more interesting aspects of their history is that they are 80 percent multiple occupancy and they tend to pick up a lot of shoulder dates in early arrivals and late departures. Last year they picked up 50 unrequested rooms on the previous Sunday night, a night that has typically been a slow one for us." "Sounds like a great piece of business," Ellen said. "What rate did you quote them?" "They are slightly price-sensitive," Demetrius said. "We ended up discussing a rate of $109 for double occupancy, $99 for single occupancy. The shoulder dates would be sold at the rate of $109 whether they were single or double occupancy." "Four hundred rooms, you said?" asked Bill. "With the other group of 125, that would leave us 75 rooms for the peak business days. Robin, what is our transient ADR budget for next October?" "October is a pretty easy month to forecast," she answered. "We can easily fill 150 rooms at the $135 rate." "Wait a minute," interrupted Grace, who was looking slightly deflated. "Before we discuss this revival meeting any further, I think you need to hear what Tyrell is bringing to the table. Tyrell, didn't you say your group was for the first of October?" Tyrell took a deep breath and began the pitch that he had quickly been revising since Demetrius first revealed the dates for his group. "Funny, that, isn't it? I also talked to Robin this morning about a group sale I'm getting ready to make. She didn't mention anything about the revival." Robin shrugged, "You asked whether we had anything booked for that day, I told you what we had booked." "I also got a call this morning, but it was from Mr. Jonathan Snow, the meeting planner for Floopy.com. Their engineers work all around the country out of their homes. Twice a year, they are all required to attend a strategy meeting for three days that is held every spring in Canada, and every fall in the South. He would like to hold their next fall meeting at our hotel. He'd book 300 roomsand their history at our hotel in Canada shows that they pick up 290 of those roomsand would purchase lunch, dinner, and coffee breaks on each of the three days of the conference. On the final night, they'd purchase a huge gourmet banquet. They'd also have three hospitality suites for two of the nights with an open bar. They have extensive audiovisual needs and would be purchasing staff services as well as renting the majority of our meeting room space. As a rough estimate, Grace and I determined that we might be looking at $50,000 worth of food and beverage revenue in catering sales alone. With 290 rooms being picked up and the current group of 125, that would leave us with 160 rooms for our transient guests150 if none of the contracted rooms are canceledand we wouldn't have to displace any of the higher rated business. And yes, Grace, they want the Tuesday through Thursday of the first week in October." "We obviously can't have both groups," Grace said. "It seems pretty obvious to me that the corporate group would be more profitable to us. I mean, the ministers probably won't even drink anything, which would destroy my beverage budget for the month." Bill's brow furrowed as he flipped to a new page on his notebook. "Let's get some of these details straight before we make any hasty decisions. We currently have 125 rooms sold for that week. Robin, tell me again the details for our current reservations that week." Robin glanced down at her forecast, already flipped open to the week under consideration. "Both Tyrell and Demetrius came to me today, so I've had the afternoon to review some of our forecasts and to update them with this month's historical data." "Must be nice," Tyrell muttered. "You could have warned us." Robin ignored Tyrell and continued, "The Kappa Kappa Kappa fraternity has reserved 125 rooms at $130. Most of their activities take them out of the hotel, so they will be using two meeting rooms only on Wednesday afternoon. They arrive on Monday and check out on Wednesday." "Robin suggested I review my forecasts for that week," Paramendra spoke up. "Now I see why. My projections say that we can count on 50 transient rooms on Sunday, 80 on Monday, 150 on Tuesday and Wednesday, and 90 on Thursday. There are a few factors that would affect Friday, but an intelligent estimate would place us at 75 expected. Most of those will pay our rack rate of $135. I would be uncomfortable with accepting either of these groupswe're going to lower our ADR for those nights. Perhaps we should hold out for a smaller group that will pay a higher rate." "Tyrell, what rate will the corporate group accept?" asked Bill. "We were discussing a rate of $120 a night," Tyrell answered. "Demetrius, did the group history give you any indication about how many rooms the religious group would actually pick up?" Bill asked. "Yes," Demetrius responded. "On the peak days, they picked up close to 350, with a slightly lower pick-up rate on the shoulder dates. In addition to the 50 rooms that they picked up as a Sunday check-in, they had about 20 rooms that stayed over on Friday night." "Has anyone checked the Convention Bureau calendar to find out what is happening in town that week?" Ellen asked. When no one responded, she turned to Bill. "I'll check on that this afternoon, I need to talk to Mrs. Tanster about a convention we're hosting here next month anyway. I can let you know by tomorrow morning what sort of demand we might be looking for in that week. As far as I know, there is nothing major happening that week that would affect our business." "Thank you, Ellen. We'll need to know what else is going on in the city before we can make a decision. I agree with Grace, we can't accept both groups for those dates. Tyrell, Demetrius, could you both determine whether either of these groups has any flexibility with the scheduling of their events? Perhaps we could get one of them to move their group a week forward or backward." "It would have to be backward," said Ellen. "We have the Soccer Coaches Association coming in the next week and we've already signed a contract for 350 rooms at $125 each." "All right, see if either group can move to the end of September. It does sound as though both groups are looking for a place to do return business with on an annual basis. It would be nice to capture both. Grace, meet with both Tyrell and Demetrius this afternoon to get the exact details of the food and beverage needs of both groups. Then give me the total projected food and beverage revenue for each group." "Be sure to account for the fact that the religious group has 80 percent multiple occupancy, which will mean more meals in the hotel dining rooms," Demetrius said. "Also, Rev. Brown mentioned that they were expanding their invitations to their European and Asian ministers this year. That might reduce the number of group shed and the international guests will probably come in earlier and stay laterhelping us fill up on our shoulder dates." "I'll also account for the fact that they're going to take all of my meeting space and not buy as many banquet services," said Grace. "Once you've figured out an accurate projection, Grace, bring me the totalsI'd like to have them by 10 A.M. tomorrow," Bill said. "I also need the two of you to determine what the total non-food and beverage revenue for each group will be. Paramendra, we need to analyze how much transient business will be displaced by each group and how much that will cost us. Can you please calculate that for me? Once we've gathered this data, we'll take a look at it and we can decide at tomorrow's meeting which group we should take, if either." Discussion Questions 1. Which group, if any, should the Diamond Peak Hotel accept? Why? 2. What other questions might the general manager ask to make an effective decision? 3. How would you deny one of the groups? What would you say or do? 4. Who should make the decision about which group to accept? Why? The following industry experts helped generate and develop this case: Richard M. Brooks, CHA, Vice President, TWE Group; Daniel J. Connolly, Ph.D., Assistant Professor, The School of Hospitality Business, Michigan State University, East Lansing, Michigan; and John J. Hogan, CHA, MHS, DirectorEducation and Training, Best Western International Inc., Phoenix, Arizona.