Strategic Management Assignment help on : The Riverside hotel
1.0 Introduction
This report used a realistic computer exercise of Hotel Operations Tactics and Strategy (HOTS) to simulate the management of a hotel. Firstly, a business plan is designed year by year, and then it is implemented through a series of decisions over a simulated period of three year in a competitive environment occuring in real time. Secondly, according to the hotels performance and operations of the hotel, this report will analyse the first three years’ cause and effect of decisions in this business, like finance, revenue management, sales and marketing, operations, and human resources.
2.0 Overview of Business Plan for the last three years
2.1. Mission Statement
The Riverside hotel is a 3 star hotel which located in the Gold Coast, the mission of this hotel is to completely delight and satisfy the guests, and committed to making a difference every day, continually getting better to keep it best. To provide exceptional hospitality services and unique lodging products to our valued guests, we will carry out our vision through our commitment to our core values such us integrity, teamwork, individual worth, consistent standard of excellence, personalized guest service and dedication to these pursuits will ensure financial success and growth.
2.2 Year 1: First year after takeover
2.2.1 Objective
- Compared to year 0 the occupancy was 27.70%, increased 15% to achieve 35% by the end of year 1 (HOTS, 2012h)
- 50% of all the rooms must be refurbished to level 2 by the end of year 1
- Increase the price of meal to $26
- Build up facilities such as business service, room mini-bar, quick check in/out and hotel shop
- Identify which advertisement media was the most effective way for the appropriate used to different target market
2.2.2 Strategies
Rates:
The rates of the rooms are changed based on the occupancy percentage of previous month, and compared with the competitor Park hotel, which is also a 3 star hotel. Also discounts are provided to guests if a certain occupancy percentage has reached.
Staff and Training:
Adjusted the number of staffs for each department every month depend on the occupancy rate and spend an average of $5.70 – $6.05 in weekly staff training for the first half year. Than from July of $7.64 increased to December with $13.85 to reduce the staff turnover and provide high service quality to match the customer’s standard (HOTS, 2012i).
Refurbishment:
We had refurbished only 160 rooms to level 2 by the end of year 1 and also the bar and restaurant had refurbished to level 2.
Advertisement:
Riverside hotel had used the local weekly paper, business press and independent local radio to advertising weekday room, weekend room and conference promotion to attract more customers, and also to increased the image and awareness of the hotel.
Facilities:
At the end of first year, Riverside hotel had installed extra facilities such as business service, room mini-bar, quick check in/out and hotel shop.
2.2.3 Outcomes
- The average room occupancy for year 1 was 26.10%, as the objective for this year of 35% had not been achieved. These will be considered when setting goals for year 2. The main reason may be the ineffective used of the advertisement (HOTS, 2012h).
- The status of facilities was rated at good for rooms and excellent for the bar, restaurant, front desk and conference.
- Meal was sold best when local newspaper used as the advertisement media, and is also the best choice to advertise the beverage.
- Food and beverage revenue were increased after the change of price level that have achieved to $157,180(HOTS, 2012i).
2.3. Year 2: Second year of operation
2.3.1. Objectives
- Compare to the average room occupancy of year 1 (26.1%), 40% of average room occupancy to be reached by the end of the year 2 (HOTS, 2012h)
- Increase the public awareness to 35, which were 33.09 at the end of first year (HOTS, 2012i)
- To install extra car parking area, second bar, conference/function rooms
- 100% of all the rooms refurbished to level 2 by the end of year 2
- Increase the price of meal to $30
- Identify the change of demands for conference from business customers in the different seasons
- Identify which advertisement media was the most effective for the conference
2.3.2. Strategies
Rates:
According to local diary of event and tourist peak seasons determine the price of the room. For example, there are many leisure festivals and racings on June and July. Than hotel had reduced the rate of rooms in weekend, special events and holiday which to provide discounts for guests to increase the percentage of occupancy and the total room revenue. Furthermore, increased the price of meals to $30 and the level of liquor to level 2 is to provide good quality to guests.
Staff and Training:
After installing of extra car parking area, second bar and conference room in the second year, staffs in other department had an increased to ensure the service quality. Due to the room occupancy has increased; the number of hotel services’ staff has increased from 10 to 15 in the second year. In order to reduce the staff turnover and increase the service quality, the training spends increased to $30.00 for department heads and other staffs had increased to $15.00.
Refurbishment:
The rest of the 90 rooms and front desk have refurbished to level 2.
Advertisement:
According to the findings of this year, the business press was used for the conference, weekday and weekend rooms. 5% of the hotel revenue would be spent to advertise the hotel facilities and product. In the January the cost was $5,000, and in the last month was $8,375, it has increased by $3,375 because of the increase of revenue. The Local Visitors Guide was employed in this year to advertise the products. The increase of the advertisement cost was because it can get high public awareness and attract more guests to visit the hotel (HOTS, 2012i).
Facilities:
Riverside hotel apply a loan of $ 1,000,000 from the bank. Extra car parking area and second bar was installed to attract more customers and be appealing to the market. Moreover, conference room was also installed in this year which lead to an increased of business customers are attracted (HOTS, 2012b).
Others:
Analyzing the feedbacks of customers and collecting useful information to make future decision.
2.3.3. Outcomes
- The average room occupancy had increased to 41.30% by the end of this year, which was higher than the objective of 40% (HOTS, 2012h).
- Public Awareness Index was 33.90 at the end of this year which cannot achieve the objective (HOTS, 2012i).
- It was identified that the most effective media for the conference was business press and direct sales force.
- Food and beverage revenue had an increased after the change of price level that achieved $244,635 (HOTS, 2012g).
- Identified that April, May and July has strong demand of business. The October has peak demand and December has low demand for business. Moreover, the demands of conference in weekday were higher than in weekend.
2.4. Year 3: Final year of operation
2.4.1. Objectives
- Compare to the average room occupancy of year 2 (41.30%), Achieve 50% average room occupancy by the end of this year (HOTS, 2012h)
- Achieve Public Awareness Index 35.00 in December, which were 32.84 at the end of last year (HOTS, 2012i)
- Achieve Market Image Index 50.00 in December, which were 44.64 at the end of last year (HOTS, 2012i)
- Reduce staff turnover
- Maintain some poor facilities
- Increase the meal and liquor sales
2.4.2. Strategies
Continue using some strategies pursued in the last two year, such as using menu type 2 and suppliers 3, analyzing the comments from the customers and continues refurbishment of the hotel. There are some changes of strategies made in the third year.
Rates:
Rate of conference range was from $115 to $135, which was set mainly according to the demands of the seasons and the price of other competitors. Keeping the rate of the meal at $30 as the restaurant is up to standard to match the customer’s satisfaction.
Staff:
Increase the staffs in conference and other departments pay to level 2 to motivate staffs which also can reduce the staff turnover and increase the service quality.
Refurbishment:
As refurbishment continues of the rooms and bar, restaurant, front desk and conference room to ensure that achieve excellent status during the year.
Advertisement:
According to local diary of event to choice advertising product and media, for example, advertising the conference in September and October of using the media of business press, because of many businesses event happens in the two mouths. In addition, increased the total costs of advertisement to raise the public awareness, market image, and rooms market share, at the end of this year the advertisement spend was increased to $10,875 (HOTS, 2012i).
Others:
To compare the same star hotel of the nearby in the third year, analyze those hotels’ price, facilities and numbers of staff to set the price and reduce strategic mistakes. Analyses the comments from customers and use bench marking to make decision and also establish a sustainable competitive advantage.
2.4.3. Outcome
- Staff turnover still appear, but is at a lower rate comparing to previous year.
- Generally the total revenue is very high, but it was at a low point in the beginning and the end of the year.
- Refurbishment of the rooms and bar, restaurant, front desk and conference room have achieved level 2 and at a status of excellent during the year.
- The average room occupancy of year 3 is 45.50% which have increased from year 1, but it still did not meet our objective (50%). And REVPAR is increased in this year (HOTS, 2012h).
- The meal sales has decreased, this may be due to the change of price to $30
3. Financial analysis
3.1 Total Hotel revenue & Total Hotel Net Income
In year 1 May, the hotel net income was dropped due to the extra expenses spends that month, such as the 20 rooms and bar refurbishment. December year 1 has the biggest gap in between the hotel revenue and the hotel net income. The extra staffing, advertising and the refurbish of 90 rooms caused the negative hotel net income as we overestimated the flow of customers. The amount of gap between the hotel revenue and the net income starting from year 2 January is due to the rooms and other facilities refurbishments to level 2 every two months in order to reach the rating of the facilities to excellent. Especially in year 3 where we refurbish up to 100 rooms every two months to keep it clean and tidy.
3.2 Rooms Department revenue & Total Hotel Net Income
The first year was when we were still not quite familiar with the HOTS program, and may have had problems with balancing our expenses and the room rates. Especially in year 1 August, the increase expense in guest comfort, the increase in advertisement was not compatible with the room occupancy and the room rate; therefore, it created the loss of net income, even though the room department revenue was increasing. The increase of net income in January year 2 was due to no refurbishment was done in the month which leads to an overall rating below 60% (HOTS, 2012c). The problem occurred again in year 3 January, which means out decisions were lack of consideration.
3.3 Food & Beverage Department Revenue & Total Hotel Net Income
The above graph shows the food and beverage department revenue & total hotel net income in the three years period. It is well known that food & beverage revenue generate the most income for the hotel.
In Year 1, the highest income of food & beverage department revenue appears in August; comparing to a negative total hotel net income. This is due to room refurbishment to level 2 and have installed a business services. In January, it appears had the lowest point on both side because of new management taken over and needs time in order to find the trend of the hotel; therefore no action has been done. The hotel management change the price, menu type and food supplier which leads a higher net income for the month of February. A sudden decrease of net income in December is because of the refurbished 90 rooms to level 2 which leads to the biggest gap between food and beverage department and net income.
In Year 2, there was a stable increase in first eight months of food & beverage revenue. From September, the revenue was on a downward trend because base on a two monthly cycle. There is no refurbishment done in August which leads to a positive income for the hotel in general. In contrast, January was at a lowest point because the second bar has been installed to increase external income for food and beverage department. The balance between the food and beverage department revenue and the hotel net income has been quite balanced throughout the third year. This is because of the hotel had already changed food supplier and no any refurbishments done.
3.4 Other Department revenue & Total Hotel Net Income
This graph shows in Year 1, there was a balance trend in whole year of other department revenue. The low income from other departments was because there was not enough entertainment installed in the hotel in year 1. The only revenue made in the other departments is the telephone service. Telephone revenue are highly influenced by the room occupancy, and due to the high costs of the telephone sales, this department has only minimum attribute to the hotel net income. Hotel shop and business centre were only been installed at the end of year 1 which contributes a little income for the hotel. Other facilities such as conference room were installed from year 2 which brings an increase of the department revenue
3.5 ROCE
Return on Capital Employed (ROCE) is a measure of the returns that an organisation is realizing from its capital. The graph above indicates the Riverside hotel’s efficiency with which capital is being utilised to generate revenue. The ROCE increased rapidly from -11.4% to 8.5% (HOTS, 2012j). It represented that the management team done well during year 2, so the rate increased a lot. It was slowly growing during year 2 to year 3, increased from 8.5% to 16.7% (HOTS, 2012j). Our hotel did lots of advertising and facilities, so the ROCE increased slightly
3.6 Occupancy & ADR
The average occupancy rates increased from 10.8% to the highest 57.58% during the peak season in year 2 and year 3 (HOTS, 2012h). While average daily rate (ADR) change every month due to seasonality from the lowest $64.36 to the highest $90.55 not including January in year 1 because nothing have been change since hotel was taken over (HOTS, 2012i). The occupancy rate grows depend on the activity of the month of the local. The highest occupancy rates fell on July and August in year 2 and year 3 due to the peak season and the correct room rate adjustment. However, every January the rates fell down to approximately 20 to 30 % due to the low season of the year. The ADR started getting steady from the midterm of year 2, the average daily rates range around $70 to $80.
3.7 ADR & REVPAR
This graph will compare the ADR and Revpar. There was a big decline of ADR from January to July in Year 1 because of limited facilities compare to competitor with the same star rating; therefore providing a lower rate to attract customers. From year 2 onwards ADR stay between $70 and $80 to provide a more valuable rate for guests. In general, the Revpar is increasing rapidly throughout the three years, as hotel has reached to a standard that matches the needs and wants of guests which will attract more customers to stay at the hotel.
3.8 Refurbishment Spending & Occupancy
In September year 1, it appears the highest rate because the hotel have decreased the room rate and installed facilities to attract extra customers. The lowest point happens in January because of the poor management from previous owner. The occupancy rate was continuously growing in year 2 and 3 with a higher rate at July and August of the peak season for the year. As well as we are picking up the trend of the hotel and doing a good control of the management. As for our monthly refurbishment, it started from year 1 February; we refurbished front desk and restaurant and started to refurbish our rooms to gain more satisfaction. From the beginning of the year 2, as cycling happened every two months resulted in remarkable jumps during whole year and year 3 as well. The highest refurbishment spending happened in year 1 December of $461250 as we refurbish 90 rooms to level 2 (HOTS, 2012g). We wanted to improve better quality of our hotel to gain more revenue in the coming year therefore we spent a lot on refurbish rooms, restaurant, bar and front desk to keep on standard.
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