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The State of the U.S. Groups & Meetings Market

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March 26, 2018
Trends | Group Booking
Cindy Estis Green - cindy@kalibrilabs.com

©2018 Hospitality Upgrade
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The U.S. meetings industry generates approximately $30 billion in hotel room revenue with another $110 billion estimated in ancillary spend including catered food and beverage, AV, ground transportation and other services.
 
Yet, surprisingly, a relatively small number of hotels can take large groups. In fact, based on analysis of the Kalibri Labs census database, in looking at the United States in total, just over 10 percent of hotels have more than 160 rooms and just over 7 percent have 8,000 sq. ft. of meeting space or more.
 
While all hotel segments participate in the groups and meetings business, smaller meetings differ in terms of complexity related to meeting space and ancillary services. The way they are booked and serviced may vary considerably from the larger meetings. Despite the differences, the process to book and execute meetings business has been characterized by many parties involved to be cumbersome and inefficient. The costs associated with this execution have risen dramatically over the last five years with a variety of third parties providing services at various points along the process. 
 
Although there are a large number of parties involved in the groups and meetings booking process, it hasn’t fundamentally changed in 40 years. It is cumbersome for the meeting planner as well as the hotel or supplier serving the guests. A vendor ecosystem has grown around this static process with various service providers assisting along the way, charging fees and shifting the value around from the traditional legacy model. In the legacy model, the host organization paid the venue for all aspects of the meeting, whereas now the value of the meeting is diffused across the many service providers in the chain. The overall cost to conduct a meeting has risen dramatically. There are three primary players in the process: (1) the host who decides they want to have a meeting, (2) the meeting planner who runs the process of executing on that meeting and (3) the supplier(s) who provides services in the execution of the meeting such as hotels, convention and visitors bureaus (CVBs), audio visual (AV) companies, florists and ground operators. Added to the primary players are the secondary ones who have entered to support one of the primary three. It is this secondary market that has been the main source of incremental costs. 
 
While automation has resulted in increased efficiency in many other spaces, it has not substantially improved the ease of groups and meetings booking despite the introduction of technology over the last 5 years to 10 years. Some areas are easier, but there are still many aspects that are tedious and cumbersome. Because of the many players involved, it may be more difficult to leverage technology across all parties. The meeting host, meeting planner and hotel or event supplier all find the process complicated and labor intensive with many pain points. Ultimately, as costs have risen within this fragmented ecosystem, so too have questions about ways to streamline the process. 
 
Since the 2008-09 recession, the groups and meetings business has rebounded. Many online platforms have emerged to support this business, along with offline consultants that assist corporations and associations in their sourcing. In the online platforms, much of the focus has been on identifying and fielding venue options. The offline support has been largely in sourcing and contracting the events. To enable bookings, the platforms would require access to inventory for both guestrooms and function space at a minimum. Ideally, they would also offer room rates and catering options to allow some meetings to be contracted entirely online. The complexity involved in this has been the primary reason for delays in the development and adoption of this technology. Traditionally, control of hotel meeting space has been decentralized at the property level and building connectivity to it for external users to gain direct access has only been initiated in the last few years. 
 
While much of the automation for groups and meetings has facilitated parts of the process for meeting planners, it has come at the expense of suppliers. Fragmentation still poses problems for all. For instance, companies provide tools for meeting planners to review venue options by automating the distribution of requests for proposal (RFPs). While this may ease the meeting planner’s job, it can incur high labor costs for hotels fielding large volumes of requests with a varied range of lead quality and declining conversion rates. To automate more of the process, some companies like Cvent have indicated an interest in supplementing current functionality to include completed bookings. Expedia has tested the use of its platform for individual bookings for small groups that don’t involve meeting space. New players like Groupize, BookingTek and HotelPlanner are offering white label solutions for a hotel’s branded website to enable online bookings. They also allow independents to make their hotels available in a larger multibrand platform. The traction in multibrand booking capability is still limited, likely due to the need for broader access to meeting space that can be offered through a user-friendly interface for consumers. 
 
Many hotels pay traditional offline third-party intermediaries working on behalf of meeting hosts for an estimated 40 percent to 50 percent of their meeting business. In the 1980s and '90s, corporations and associations had their own internal meeting planners who worked directly with hotels to execute events. Over the last 10 years, due to an accelerated transition to third-party meeting planners, many associations and corporations cut their internal meeting planning budgets to a minimal spending level and removed all or most of their head count in the area as third-party planners took on this task and asked hotels to pay them for it. In fact, third-party planners share some of the fees they earn with their association or corporate clients to reduce meeting costs. This shift to third-party meeting planners can create distance between meeting hosts and venue. This is in sharp contrast to the direct relationship that was prevalent for many years between the end user corporate or association account and the hotel teams. 
 
This disruption of a previously direct relationship may diminish a hotel’s ability to understand an account’s requirements in order to provide better and more personalized services. Costs associated with the third-party economic model are increasing. They used to be absorbed by the meeting host organizations, but now they are borne by the hotel. 
 
With so many parties involved at various stages in the process from sourcing to execution, each asks for a cut of the revenue or added transaction fees. It is estimated that, at a minimum, more than 40 percent of group business is intermediated at the point of sourcing and some at many points before execution. The level of cost rises with more intermediaries participating and with more meetings of different types and sizes subject to commissions and other fees. Across the U.S. hotel industry, Kalibri Labs estimates these costs in 2017 will be approximately $3.4 billion to $4 billion, and as more third parties emerge and more business is subject to intermediation, this cost could potentially double by 2022. 
 
Based on 2017 group rooms revenue of $30 billion industrywide, the cost of intermediary commissions alone was estimated at $1.3 billion. This is based on 43 percent of group rooms revenue being intermediated at a commission rate of 10 percent. This does not include all other aspects of the ecosystem that may involve e-channel advertising, group block reservation processing and other technology-related costs increasing the total to closer to $3.4 billion to $4 billion. As group booking intermediation evolves further into a combination of third-party planners and third-party technology, the rate of intermediation will grow. In 2022, with an estimated $40 billion in group room revenue, expectations of two-third intermediation and costs closer to 15 percent to 20 percent of revenue, the potential industry cost could reach closer to $8 billion to $10 billion. 
 
Although there is often ancillary revenue from food and beverage, audio visual, meeting room rental and other services, most costs are typically keyed to room revenue and it is a clearer assessment to evaluate them in this way. 
 
With a 10-year history of rising acquisition costs, the hotel industry is facing an inflection point over the next several years. After a period of heavy development of third-party technology in consumer bookings, the time is now ripe to evaluate ways to leverage technology and improve the processes involved in the booking of events, groups and meetings. With a highly fragmented ecosystem combining a mix of automated and manual processes with many third parties contributing to high and rising costs, improvements that are more frictionless and efficient would be welcome. For those evaluating how best to automate elements of the process, it is a good time to consider how to (1) make the booking of events, groups and meetings easier, faster and more convenient for both professional meeting planners and casual/consumer-oriented organizers of social and personal events, and (2) establish pathways and methodologies that reduce costs with a more streamlined process so suppliers, meeting planners and consumers can all benefit. 

1 PwC study on Groups and Meetings for the Consumer Innovation Forum, AHLA 2017
2 PwC, Oliver Wyman and Kalibri Labs projections 2015, 2016 and 2017

 
Cindy Estis Green is the CEO and co-founder of Kalibri Labs, a Big Data company that benchmarks hotel revenue performance net of customer acquisition costs. She can be reached at cindy@kalibrilabs.com.
Costs for hotels with group business can be up to 35 percent of revenue per group including housing, third-party intermediation and all routine execution costs. Typical costs include:
  • Third-party commissions 
  • Above-property fees for RSO (percentage of revenue)
  • Loyalty fees for meeting planners
  • Loyalty fees for attendees
  • E-channel costs
  • Technology-related costs – system recovery cost
  • Housing fees (citywides)
  • Reservation costs (e.g., Passkey/Lanyon) – for managing internal blocks
  • Credit card processing

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