The Performance of Seaside Hotel for Three Years - Essay Example

Hotel Operation Management Executive summary This report presents the performance of Seaside hotel for three consecutive years. The hotel has experienced has reported growth in its major areas such as bar, restaurant and conference facilitates. The conference facility has become very lucrative as the demand for corporate services increased in the area. As such, seaside hotel has undertaken major projects to increase its competitiveness in providing such services; the hotel in planning to engage in a big project which will increase the occupancy of the hotel and open the seaside hotel to huge marketability in the coastal areas. The analysis of this report focuses on analyzing the strengths, weaknesses, opportunities and threats which the seaside hotel faces in the industry. The financial analysis of the three years reveals that the hotel has increased its performance from the first year to the second year. However, from the second years to the third year, there was a reasonable decline in the overall revenue of the hotel. During the third year, the hotel offered discounts to the customer which was not reflected on the sales of the hotel. Further, the third year witnessed stiff competition as the facilities and services of the rival hotels and resorts were ranked higher than that of seaside hotel. This led to a decline in the revenue. The strengths of the company lie in the ability to compete favorably in the industry while encroaching into new markets. As such, Sea side endeavors to undertake several strategies in year 4 which will see the development of the conference facilities which are more updated due to increased demand. The hotel also wished to expand their operations by application of successful and sufficient advertising mechanisms for their different sectors such as conference facilities, bar and restaurant. Content 1. Introduction 2. Performance and financial analysis 2.1. Total hotel revenue and total hotel income 2.2. Rooms department revenue and rooms net income 2.3. Food and beverages department revenue and food & beverage net income 2.4. Return on capital employed (ROCE) 2.5. Occupancy, average daily rates (ADR), and REVPAR 2.6. Refurbishment spending and extra facilities built 2.7. Short term and long term stability ratios 2.8. Staff turnover 3. Business Plan for Year 4: (based on outcomes of Year 3) 3.1. SWOT: 3.1.1. Strengths: 3.1.2. Weaknesses: 3.1.3. Opportunities: 3.1.4. Threats: 3.2. Objectives: 3.3. Strategies: 3.3.1. Corporate/weekday Market 3.3.2. Leisure/weekend Market 3.3.3. Food and beverage 3.3.4. Staffing and Service quality 3.3.5. Physical property conditions Hotel operation management 1. Introduction The purpose of this report is to provide an analysis of Seaside hotel using the financial data of three consecutive years to analyze it performance and trends. The hotel is a 3 star hotel, for this reason it is characterized by a restaurant, bar, small health club, conference facilities and business services. There is also ample car parking and grounds that many a times have brought revenues from the weddings. Over the last three years the hotel has really performed quiet well. The hotel has been able to survive in a competition intensive market and managed to develop more and more into a major hotel in the region. 2. Performance and financial analysis This section will analyze the performance of the hotel for the last three years. It will be guided by the financial analysis of the hotel for the last three years. There will be performance of each year will be evaluated. 2.1 Total hotel revenue and total hotel income The total revenue of the hotel for the first year was $ 476, 639; the figure rose to $550,552 in the second year and then dropped to $ 514,576 in the third year. The drop in the third year can be attributed to the fact that the revenues that were resaid in year 2 from rooms dropped from $243,101 to $220,030. This decline can be due to the fact that competition was so stiff in the third year. The booking were lost to our competitors, the best way to curb this is to incorporate more and aggressive advertisement of the hotel (HOTS. 2012a). Y1 Y2 Y3 2.2 Rooms department revenue and rooms net income The rooms department revenue and rooms net income seems to decline, the net income that was recorded in year 3 was lower that the income that was recorded in year 2. This is because of the change in the discounts that were charged on rooms reduced the level of earning of the hotel. This can be the case where they offered discounts to their customers without experiencing increased sales in returns. Rooms revenue in year one was 175,963 which increased ion year two to 243,101. The room’s revenue declined from 243,101 in year 2 to 220,030 in year 3 (HOTS, 2012c). 2.3 Food and beverages department revenue and food & beverage net income The menu type in year 1 was 3 for the first three months and then it maintained to 2, the third year the menu type was 2 for the whole year. The food supplier did not change for the two years, the food supplier maintained at two. The menu price was at 31.5 in year two from January to March and it maintained at 28 till the closure of year three. The liquor price level didn’t change for the two years it maintained at two. The food & beverage revenue in year 2 was $269,912, while in year 3 it was 262,607. This is a decline of $7305, this can be attributed from the decline of the menu price in that were initially at 31.5 in the months of January, February and March of year2 (HOTS, 2012c). 2.4 Return on capital employed (ROCE) The Return on Capital Employed figure measure how effectively the capital invested in the business is being used to create profits. Return on Capital Employed (ROCE) is thus a measuring tool that measures the efficiency and profitability of capital invested in the hotel. ROCE ratio also indicates whether the company is earning sufficient revenues and profits in order to make the best use of its capital assets. A high ROCE is a validation of a company’s competitive advantage. The ROCE for the three years in the operations of the company are as follows; Return on Capital Employed (ROCE) = (EBIT)/ (capital employed) Where, EBIT refers to the Earning or Operating Profit before Interest and Taxes Capital employed is arrived at by subtracting Current Liabilities from Total Assets For Year 1; ROCE=$ 3331/ (985031-10036549)*100 = -0.0368% For year 2; ROCE=47401/ (977122-9854401)*100 = -0.533% For year 3; ROCE=41062/ (885493-9920737)*100 = -0.4545% For the past three years there has been a decline in the ROCE 2.5 Occupancy, average daily rates (ADR), and REVPAR Occupancy is the percentage of rooms out of the available room capacity of a hotel which has been sold out or occupied by the clients within a specified period of time. Occupancy Percentage = (Total Number of Rooms Occupied / Total Number of Rooms Available for Sale) * 100 Y1 896/1750=51.2% Y2 1180/1750=67.4% Y3 1004/1750=57.4% ADR ADR is abbreviated for Average Daily Rate and measures the average rate paid for rooms sold. The room revenue in divided by the number of rooms sold. ADR = Room Revenue / Rooms Sold Y1 =175,963/896 =$196.39 Y2 =243,101/1180 =$206 Y3 =220,030/1004 =$219.15 REVPAR REVPAR is an abbreviated form of Revenue per Available Room and it is the total revenue generated from the room divided by the total number of rooms the hotel holds. While ADR only accounts for the rooms which have been sold to the clients, REVPAR accounts for the unoccupied rooms REVPAR= Occupancy x ADR Y1 = 51.2% x $196.39 =$100.55 Y2 = 67.4% x $206 = $ 138.84 Y3 = 57.4% x $219.15 = $ 125.8 2.6 Refurbishment spending and extra facilities built Spending on refurbishment on the third year was not so much experienced as it was in the year 2. The bedrooms numbers in the year 2 were 240 while the bedroom numbers in the year 3 were 90. This was a very major decline that leads to a decline as depicted by the ROCE. Y1 Y2 Y3 2.7 Short term and long term stability ratios The two ratios to be used in this report to measure the short term and long term stability ratios are debt-to-equity ratio = (Net debt) / (Shareholders’ equity) and gearing = (Net debt) / (Net debt + Shareholders’ equity). Short term stability ratios Current Asset Ratio: Year 1 = 1,575,013/ 985,031= 1.60 Year 2 = 1,733,906 / 977,122= 1.77 Year 3 = 2,576,080/ 885,493= 2.90 Long term stability ratios Debt to Assets (D/A) Ratio: Year 1 = 2,576,080/ 885,493 = 2.90 Year 2 = 1,733,906/ 977,122 =1.77 Year 3 = 1,575,013/ 985,031 =1.60 The analysis of these ratios indicate that during the second year, the hotel was financial rational that in in the first and third year. However, the third year was financially rational than the first year. 2.8 Staff turnover These ratios will measure the rate at which the employees of Seaside hotel leave their employment with the hotel. Number of employees who left during the year/(number of employees at the beginning of the year+ number of employees at the end of the year) Year 1 = 34.2 Year 2 = 30.2 Year 3 = 31.0 2.9 Marketing Spend and Activities Marketing spend and activities for; Year 1 = 16,653 Year 2= 18,883 Year 3= 21,314 SWOT 3.1.1. Strengths: Seaside hotel prides in offering high quality products and services as lower prices than their competitors. Most of the customers acknowledge the services offered are the best than those offered by the rival companies. Market research also indicates that the prices of Seaside products are relatively low than those offered in the market. Many view that there is no other place which offers such low prices (Evans, 2011). The hotel is strategically located to attract demand for its existing and future facilities, products and services. Interviews from the local people and the leading hoteliers in the area concur that the hotel is strategically located which allows for its increased demand for their current services and future ones. The hotel is located at the coastal areas where many tourists are likely to visit during their coastal vacations. An increase in the use of motorcars can be attributed to the increased visits by tourists in the hotel. The hotel is located near major cities and has access to the roads and the new rail lines (HOTS, 2012b). The socio-economic status of the local people makes the demand and progress of the hotel very feasible. There is a high rate of employment in the area with a high number of management, professional and clerical or secretarial jobs. This increases the purchasing power of the residents as most of them can afford the products and services offered by the hotel. The hotel has also been able to establish loyal customers as most of the residential properties in the area are owner occupied. This means that they have permanent loyal customers (HOTS, 2012c). 3.1.2. Weaknesses: The hotel lacks the capacity to recruit and retain the staff in the hotel. The customer seems to be wary of the fact that most of the staff of the company come and leave the company within a short period of time. As such, there are new faces in the hotel each day. This high turnover of employees is a weakness in this since the customer’s place the quality of the customer’s relations by the relationship a business has established with their employees. Also, this can be attributed to job satisfaction, low pay or demotivation of employees. This is in turn leads to poor service to the customers. Some customers have already complained that the services of the hotel are sometimes wanting. (HOTS, 2012c). The rising in the discount rates is another weakness in this hotel since it will reduce the amount of revenues generated by the hotel. Despite the offering of discount, the hotel has not witnessed any significant changes in the amount of clients visiting the hotel. The location of the hotel close to other hotels increases the rate of competition. The hotel is located on the seafront, close to other hotels as they all want to tap the clientele from the main shopping centre. Since most of the resorts and hotels around the area offer the same services, this location may be the source of the high competition in the hotel industry in this location (HOTS, 2012c). Extensive use of loan capital in the operation of the hotel has an impact of the total revenue generated by the hotel as the interest on increases from 4,637 in year 2 to 5,403 in year 3. This rate is expected to rise in the coming years (Evans, 2011). 3.1.3. Opportunities: The hotel is increasing in its competitive position in the industry. The services offered by the competitor hotels are diversified in Seaside hotel. The hotel has invested in providing complementary services in the generation of conference business. They have developed designated business rooms which are fitted with state of the rat business facilities which have equipment that enable the business people hold meetings and conferences in the hotel. The equipment include, Direct Dial Telephone, Facsimile - in and out, Word Processor, Audio Typing Equipment, Photocopier with collator, Client work space - desk or tabling and shelving and Email and Internet access. The services in the conference business include Copy typing, binding, collating, postal service, courier service flower service, message handling, travel arrangements, theatre tickets, translation service, CAT 5 cabling, creation of acetates for overhead projection, local agents for creating slide presentations, business directories. This has attracted a significant competitive advantage for those places which offer them everything under one roof than those hotels where services are decentralized. As the demand for the conference facilities has been on the rising trends of late and the market has grown significantly, the hotel has witnessed frequent visitors especially on the three stars facilities (HOTS, 2012a). The hotel is committed to research and development in order to sustain its operations in the market. This can be seen through their attempts to work with hoteliers and relevant planning authorities in the area, in order to discuss several proposed hotel developments, some of which may include additional conference facilities. The hotel recognizes the need to continue growing by taking the preferences of the customers into perspective (HOTS, 2012c). 3.1.4. Threats: The competition level in the industry was has been very tough for the hotel. This led to the decline in the revenues for the hotel in the third year from the second year. The second year has revenues of $550,552 which declined to $ 514,576 in the third year. The drop in the third year can be attributed to the fact that the revenues that were raised in year 2 from rooms dropped from $243,101 to $220,030. This decline can be due to the fact that competition was so stiff in the third year. The bookings were lost to our competitors. The competitors are strategically located to as their services are very attractive to the customers. There are three main rival which seaside faces in the market. They are Prince Castle Hotel, The Landmark Hotel and Amsawa hotel. Out of the three hotels, the seaside hotel in ranked last as most of its services such as conference rooms, front desk, bar and restaurant are rated good while the rooms are ranked average. This can be compared to Prince Castle hotel where their bar is ranked excellent while the rest of the services are equal to those of Seaside. The Landmark Hotel an Amsawa is two hotels which must be taking the occupancy and bar and restaurant services from Seaside since most of their services are rated as excellent. Most of the hotel’s clients may be getting their services in The Landmark Hotel and Amsawa hotels. Evidence shows that The Landmark Hotel is highly competitive as it has the highest weekday room occupancy of 100 with the second highest being 70. The hotel has 523 weekend transient with the following Prince Castle hotel having 449 and seaside 263. Its weekend transient is 489 compared to that of Seaside which is only 363. As such, we can conclude that the hotel faces threats of competition from three competitors, this lead to decline in the occupancy of the hotel from 240 in year 2 to 90 in year 3 (HOTS, 2012a). 3.2. Objectives: The objective of the report is to; Identify the financial trends of the hotel To identify the challenges and weaknesses of the hotel To identity the opportunities and strengths of the hotel Review the balance sheet and the statement of account in order to identify strategies which can improve the hotel. 3.3. Strategies: 3.3.1. Corporate/weekday Market Products The products of the seaside hotel are their corporate market segment is offered depending on the needs of the customers. The hotels s divided into different levels as there are two, three and four star accommodation and facilities. The sea side hotel recognizes that this market has been growing and competition is high. That is why the hotel has invested in refurbishing the hotel and development of new accommodation. The facilities and services offered in this for the corporate market enable the business men to carry out their work with utmost comfort. The products offered are differentiated according to the level star one has booked. Some of the facilities provided include Direct Dial Telephone, Facsimile - in and out, Word Processor, Audio Typing Equipment, Photocopier with collator, Client work space - desk or tabling and shelving and Email and Internet access. The services offered here include Copy typing, binding, collating, postal service, courier service flower service, message handling, travel arrangements, theatre tickets, translation service, CAT 5 cabling, creation of acetates for overhead projection, local agents for creating slide presentations, business directories (HOTS, 2012c). Promotion and sales Promotion of the products involves marketing communications which enable the hotel to get the products and services to the existing and potential customers. The promotional strategies adopted by seaside hotel in the corporate market include; radio and television advertisement, newspaper and sales promotion activities. However, the most effective medium for Weekday Rooms and Conference products was the Business Press, but this is expensive. As such, the hotel should weight the costs of advertisement versus the revenue that will be generated from the advertisement. This will form the basis for decision making on whether or not the strategy will be feasible. If implementing Business Press as a medium of advertisement will lead to increased sales, then this strategy will be adopted (HOTS. 2012a). Pricing and distribution The services and products offered for the corporate market in the seaside hotel are diversified according the level the customer has booked. The prices of the rooms and services are thus, differentiated such that the four star is more expensive than the rest. The four star has the price of $175.00, the three star has $95.00 while the $80.00. The rooms are also differentiated in size which influences the cost. Some have a capacity of 200 delegates; the second largest has the capacity of 100 while the smallest has the capacity of 40 delegates. This differentiation is made to ensure that as many delegates as possible utilize the facilities of the hotel (Evans, 2011). 3.3.2. Leisure/weekend Market Product When offering menus to the customers, the seaside hotel keeps in min the fact that the area in surrounded by many other hotels and resorts and therefore, the quality of the products offered and the services should be provided such that the customer would prefers the seaside hotel than the others. Market research is used to identify the type of products, room, bar and restaurant services the customers want for their leisure time in the hotel. In the hotel industry, the tastes and requirements of the customers change within a short period of time and thus, there is need for continued engagement with the customers to identify which products they need for which season. Seaside hotel monitors the changing trends in customers’ needs by maintaining a seasonal planner which indicates which type of festivity and events will be held in the region and thus preparing to offer the customers the best suitable products and services for that event or occasion. During year 4, emphasis should be placed on the need for leisure/health and fitness facilities (HOTS, 2012c). Promotion and sales Promotion of products and services for leisure is done through the advertisement in the local newspaper, local radio, business press, direct mail, posters, and direct sales, Local Visitors Guide, PR Agency and Search Engine Optimization. The advertisement is done while being guided by and Local Diary of Events which gives details of all the events that will be held in town. As such, the hotel is able to find the most suitable and effective method of advertisement which will be used to increase its sales. The hotel should capitalize on using The Local Visitors Guide, Local Paper and Local Radio as they were found to be the most effective means of publicizing food and liquor sales, though Poster campaigns and Point of Sale materials do have a reasonable effect considering the much lower cost. This will result in increased revenue and decline in costs of promotion. The market research indicated that some to the customer visiting the hotel had heard about the hotel from the radio or television (HOTS. 2012a). Pricing and distribution The perception of the customer about the services and quality of products offered in determined by the price which is charged on the same. Customers make their own assumptions and formulate mental representation of the products’ worth based on their price. This shows that the products offered especially in a hotel are not only physical, but they also have a psychological connotation. As such, the prices of seaside are competitively set as par with most of their rival companies. Some of the prices are discounted so that the customers can perceive the low cost and the hotel can increase the sales but only on disorient. This is because lower prices lead to a perception that the quality is less than those offering higher prices while high prices reduce the sales by pushing the customers to the rival hotels. Seaside hotel refrains from using price as a marketing tool since the hotels in the area are very competitive and thus can lead to reduced revenue without increased sales of the other hotels follow suit in reducing prices (HOTS, 2012c). 3.3.3. Food and beverage Food and beverage are offered alongside other conference and corporate facilities. Some weekday rooms are offered breakfast while other is not offered. Promotion of meals is done by product launching. We are of the opinion that the Hotel would serve as a good location for product launches, particularly in view of its close proximity to the conference centre. A number of the comparable hotels interviewed cited product launches as demand generators for space as well as for food and beverage and accommodation. The hotel has maintained the food supplier for the two years. The menu price was at 31.5 in year two from January to March and it maintained at 28 till the closure of year three. The liquor price level didn’t change for the two years it maintained at two. The food & beverage revenue in year 2 was $269,912, while in year 3 it was 262,607. This is a decline of $7305, this can be attributed from the decline of the menu price in that were initially at 31.5 in the months of January, February and March of year 2 (HOTS, 2012a).To increase the sale of the hotel should introduce virtual marketing in the internet which will enable them address the issues of their customers smoothly and fast (Adner & Helfat, 2003). 3.3.4. Staffing and Service quality The hotel has different staffing levels which are designed to increase customer satisfaction, Staff satisfaction, and costs. The hotel maintains fixed staffing level which has 20 employees; the variable staffing levels has 23 employees while the food and beverage level has 31 employees. However, the hotel has experienced difficulties in maintaining the employees. The market research showed that the level of employee turnover in very high and this can be an impediment in the progress of the hotel. The hotel should invest in employee training and pay the staff the required wage for their services in order to maintain a specified amount of staff based on forecasts (HOTS, 2012a). 3.3.4. Physical property condition The hotel has good conditions of rooms, bar, restaurant, front desk and conference rooms. The conditions of most of their facilities are rated above average as their average of those facilities is above 60%. The best condition of these facilities enables them to compete favorably in the market as their facilities are better placed to offer a competitive advantage. The proper maintainable of the hotel is done through refurbishing in order to attract more customers. The hotel purposes to continue building more facilities especially in the conference sector in order to increase its marketability in the corporate market (Acedo, Barroso, & Galan, 2006). References Acedo, F. J., Barroso, C., & Galan, J. L. 2006. The Resource-Based Theory: Dissemination and Main Trends. Strategic Management Journal, 27: 621-636. Adner, R. and C. Helfat, 2003. Corporate effects and dynamic managerial capabilities, Strategic Management Journal, 24, pp. 1011-1025. Anderson, C. and F. Paine, 1975. Managerial perceptions and strategic behavior, Academy of Management Journal, 18, pp. 811-823. Barney, J. B. 1991. Firm resources and sustained competitive advantage, Journal of Management, 17, pp. 99-120. Evans, M., 2011. Excellence in Financial Management: Course 12: Competitive Intelligence (Part 2 of 2)’. G Johnson & K Scholes, 1999. Exploring Corporate Strategy, Prentice Hall. HOTS. (2012a). Conference feasibility. HOTS (v7SH): Griffith University. HOTS. (2012b). Effect of advertising. HOTS (v7SH): Griffith University. HOTS. (2012c). The national economy. HOTS (v7SH): Griffith University. Kapferer, J. 1992. Strategic brand management. London. Free Press. Pearson, G. 1999. Pearson Education Limited. Porter, M., 2006. The Five Competitive Forces That Shape Strategy. Harvard Business Review. January. pp 23-41 Simon, D. and M. Hitt 2003. Managing resources: linking unique resources, management, and wealth creation in family firms, Entrepreneurship, Theory and Practice, 27, pp. 339-351. Teece, D., G. Pisano, and A. Shuen 1997. Dynamic capabilities and strategic management, Strategic Management Journal, 18, pp. 509-533. Appendix 1 Balance sheet Y3 December Current Year   Last Year $ $ Current Assets       Cash at Bank 2,310,137 1,454,047   Accounts Receivable 222,690 235,968   Inventories 43,253 43,891       Total Current Assets 2,576,080 1,733,906       Property & Equipment       Net Property & Equipment 7,344,657 8,120,495          TOTAL ASSETS 9,920,737 9,854,401           Current Liabilities       Accounts Payable 686,141 777,776   Carbon offset receipts 0 0   Income Tax Payable 0 0   Dividend Owed 0 0   Current Maturity of Long-term Debt 199,352 199,346       Total Current Liabilities 885,493 977,122       Long-term Liabilities       Long Term Debt 996,760 1,196,082       Owners Equity       Share Capital 8,950,000 8,950,000   Retained Earnings -911,516 -1,268,803       Owners Equity 8,038,484 7,681,197       TOTAL LIABILITIES & OWNERS EQUITY 9,920,737 9,854,401 Appendix 2: Statement of income Y3 December  Year 3 Current Year Last Year $ $ Revenue       Room 220,030 243,101   Food & Beverage 262,607 269,912    Other Operated Departments 31,939 37,539   Other Revenue 0 0  Total Revenue 514,576 550,552   Expenditure       Rooms 99,762 107,680   Food & Beverage 146,317 150,278   Other Operated Departments 21,284 23,391   Administrative & General 29,659 29,982   Sales & Marketing 16,653 18,883   Property Operation & Maintenance 46,480 50,299   Utilities 29,059 31,175   Property Taxes & Insurance 16,024 15,788   Bank Charges 1,920 2,033   Interest Expense 4,637 5,403   Depreciation 61,719 68,239 Total Expenses 473,514 503,151   Income before Income Taxes 41,062 47,401 Appendix 3: Indicator Averages Team - Seaside December  Year 3 Sales (Totals for period shown)   Weekday Transient 1346 Weekend Transient 1366 Meal (Weekday) 1800 Meal (Weekend) 1576 Liquor 10165 Conference (Weekday) 346 Conference (Weekend) 106 Groups (Weekday) 400 Groups (Weekend) 456 Events (Weekday) 165 Events (Weekend) 182 Read More