When investors buy or build hotels to capitalise on a tourism boom, they often don’t understand the relationships and balance-sheet dynamics of the hospitality industry.
Success in manufacturing and retail is all about the short-term sales pitch, monthly and quarterly ROI (return on investment) reports, and cutting overheads to the bare minimum. And because some of them have thrived in that hard-sell, hard-nosed environment—doing deals, landing suppliers, prioritising profits—investors often fail to grasp that selling a dream is not like selling a washing machine.
Which is why some are now learning the hard way that investing in an industry they know little or nothing about can be a recipe for disaster when things go wrong.
Like now. In the aftermath of the Easter Sunday terror attacks, many hotels are seeing a huge drop in advanced bookings—as much as 70–80 percent cancellations, at the time of writing.
But sole experience in a different industry means these non-industry owners are not best able to handle the crisis—and neither are some of the managers they hired. Managers have a tough job – they need to manage resources, manage operations—and, when necessary, manage non-hospitality industry owners’ expectations.
At times like this, with occupancy rates plunging and bottom lines under water, a hotel’s future depends on the strength of its management team. In particular, it needs the experience and savvy of a general manager who is not afraid to argue the toss with the boss.
Unfortunately, rigid managerial hierarchies and ‘boss deference’ mean that some GMs avoid telling owners what they don’t want to hear.
Such as: Forget ROI, forget cost-cutting, forget your comfort zone—this is an existential crisis. Find a good marketing agency that knows every trick in the book to connect and engage with potential customers. Then throw money at it!
This goes against the grain of manufacturing and retail industries, where an owner’s first instinct in a downturn is to cut costs—including the marketing budget. But general managers know that hotels live by constantly connecting and engaging with potential customers—and right now, that means more marketing, not less.
Which touches on the relationship dynamic between owners and GMs, which is the heartbeat of any hotel. It can be tricky anywhere, but in Sri Lanka, it can be trickier than most.
Those same GMs may be reluctant to make decisions, or even voice their opinions, if it means second-guessing or questioning procedures instigated by the owner. This is not good practice at the best of times, and doubly not when decisive and effective damage-limitation action urgently needs to be taken.
It is then that an investor’s one-industry mindset, which achieved success in hard-sell manufacturing or retail industries, can be their own worst enemy. For example, ROI is a key indicator when determining how well—or badly—a business is being run. But for newly built tourist properties, which at the best of times can take years to show a profit, that is not the case.
With disaster looming, business owners, who saw hotels purely in terms of jumping on the tourism bandwagon, need to recalibrate their expectations. Which means ditching preconceived ideas and listening to their GMs.
There are times when new thinking is required. This is one of them.