How can those within the hospitality industry become successful industry leaders, even amid the unprecedented disruptions of the current coronavirus outbreak? Barry Lall, founder and CEO of Pinnacle Hotels USA shares his insights on what business owners can achieve with a company culture focused on making every dollar count.
Could you talk to us a little bit about how you’ve operated such a successful and financially disciplined business at Pinnacle Hotels USA?
To answer that we have to begin with: how do we define success? What is success? Success can mean different things for different people, but as a hotel investor, I believe a successful investment is one which delivers results above and beyond the initial projections, and for me in particular, the returns on investment — the percentage cash on cash returns over a period of 5 years are a most important measurement. To have a chance of achieving financial success the buyer must make sure that the hotel is in a very good location with strong barriers to entry, that the market itself within that location is strong, that you are buying below replacement cost, and that there are some significant variable upside opportunities. So, assuming you have done all of that well, you also need to be disciplined enough to make sure that you do not highly leverage the acquisition.. Assuming that you have structured a good deal then what remains is the very difficult part of managing the hotel well Assuming that you have done well on all of these points you are generally going to have a successful outcome.
How do you implement these ideas once a new hotel has been acquired?
In terms of financial discipline, I think it is something that has to become part of the culture — of not just one person but the whole team. If the whole team understands that it is not somebody else’s money, it is not some big corporation’s money, it is our money, we’re all in this together to achieve significant results, then generally people will respond. So it is actually after you have bought a hotel that the real hard work begins. In my opinion, the easier part is buying the hotel. We begin this process by creating a strong business plan. To do so, we start by looking at the upside opportunities that we outlined during the due diligence of the acquisition. Can we improve the branding of the hotel?. Next, we look at what changes need to be made to the current staff and staffing levels of the hotel that could significantly improve its performance. We want people who embrace our values, embrace our goals and culture. It is extremely important to have a cohesive team led by a strong General Manager who understands Pinnacle’s culture. At a very early stage after the acquisition is made we also begin with the physical improvement of the hotel. .
How do you think success translates to the people you have working within your company, both at the hotels and in your corporate office?
I think we enhance our chances of success when we focus on the team that we depend on to execute our business plan. If we have the right General Manager and the right team under the general manager, then I think that greatly influences the opportunities we have for positive results. However, this does not mean that as owners we can distance ourselves. I believe we cannot become distant, we can never pull back too far from our hotels..” These hotels breathe life also and, for them to thrive we have to nurture them. We have to nurture them with “adequate fluids and nourishment” every day, whether it’s the building itself, the grounds, or the people. If we don’t provide that regular nourishment then complacency will set in and the likelihood of failure will also be increased. So in my opinion, the success of the hotel is dependent on making sure that we do these things well consistently. We also measure our success by the growth of our team leaders. When we are helping them achieve their dreams and goals in the hospitality industry we are succeeding also. We are proud to give them opportunities to grow and thrive.
Over the course of growing your portfolio, how have you balanced maximizing for revenue vs. maximizing for profitability, and how has this changed during the life cycle of a single property or your whole portfolio?
One is not independent of the other, and for us, as we take on the responsibility of owning and managing these hotels, there are certain things that we measure and we have to exceed in all those categories. The first one is achieving market share — we want to make sure that our hotel is getting its fair share of the revenue. So that’s number one. . Number two is achieving the desired percentage house profit or gross operating profit, which is an extremely important parameter that we follow on a monthly basis.. You could achieve market share and revenue goals, but if you are not good at managing payroll and other variable expenses then you will have failed on your financial scorecard. Number three is associate satisfaction because we understand that this is an extremely important component in delivering great service to our guests and establishing a pleasant atmosphere in the hotel… Number four is guest satisfaction, and we look at what our guests are saying on a daily, weekly and monthly basis. We recognize that high levels of guest satisfaction are a huge driver of guest loyalty and indirectly profitability. The fifth and final benchmark we measure is quality assurance. We want to make sure that our hotels when inspected by third party independent people will achieve very high l scores. So in my opinion, if we can do very well in these five areas we will achieve not only very good revenue but very good profits.
And by the way, one of the reasons we named our company Pinnacle is because we’re never satisfied with where we are and will always seek to improve further. We’re content, but we’re never satisfied. So we want to get to the top. Of course, the bar will always be raised, but that is our focus and we take great pride, in consistent improvement in the performance of our hotels.
What steps would you recommend other aspiring hospitality founders take to make sure that they instill a culture of fiscal responsibility in their companies?
Fiscal responsibility is an incredibly important aspect of not only in our businesses but also in our personal lives. This is about being smart; not wasting our limited resources and being a good negotiator. It’s not about education either-a person does not need to go to college to have a high “fiscal IQ”.. I believe the people that are very good in this area have it as an innate ability. Most wealthy individuals are always very careful about how they are spending their money. It’s not about affordability — yes I can afford to buy thousands of these pens but if I am can buy a pen for 10 cents less then why not-I will always seek a better deal whilst keeping in mind the value of time. It is so important to teach this to our staff and making it part of our culture. It is the pennies that add up to the dollars. And with the 1800 guest rooms that I have in my portfolio, and with the expenditures we have, every penny that is saved can add up to thousands of dollars. Again, if the leader sets the tone and consistently spends time helping the staff to understand then it becomes part of the culture. By the way, this is not about being a miser, it is not about short-changing the resources for the hotel. No! We never compromise with that. We are proud owners, we want to deliver great service, we want to make sure our hotels look really sharp and crisp so that my partners in this hotel whether it’s the brand, my banker, our investors, associates, and guests can all be very proud. So we’re not afraid of spending the dollars, we just need to be smart about how we spend those dollars.
For me, even to this day, we have weekly calls to go through all the payable for my hotels with the vice president of operations and the vice president of finance. We will go through the payables and as a group accept the appropriateness of the expense or help the operations team understand why they should have thought differently Over time I have learned how to “sniff” out the problem areas.– For example, I recently asked if a $2,000 membership of the local Chamber of Commerce was really necessary during these COVID times? Why do we need to spend that? Does it make sense? I ask questions and let them make the best and most appropriate decision. So I’m not just an owner, I’m also a teacher. That’s what I take a lot of pride in. I teach, I help others understand what we’re trying to accomplish and why. If they understand then you can get better results. It’s not just giving out orders, saying “don’t do this” or “don’t do that” or “why did you do this?” It’s about making a decision together. — I didn’t tell them not to be a member of the chamber, I posed the question and let them make the proper decision.
Fiscal responsibility is not only necessary at the corporate level, but also at the hotel level. The hotel is what feeds everything; so if we don’t manage that well then our profit margins are not going to be where they should be. I set a goal for house profit margins, which I determine by the strength of the market using revenue per available room or the RevPAR. When I began my career I used to focus on markets that could get me $20,000 to $30,000 per available room and I felt that if I achieved that I would do well and it would allow me to cash flow nicely. However, in today’s world (pre-COVID) those numbers have increased to anywhere from $35,0000 to $50,000 per available room, and if you can get into one of those hotels and markets and achieve those numbers then you can do very well and your GOP margins at select-service hotels can be in the high 50% range..
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Barry Lall is the president and chief executive officer of Pinnacle Hotels USA. He moved to the United States in 1980 and began his hotel portfolio by acquiring a 12-room motor lodge on Coronado Island in 1989. Since then, he has spent the past three decades dedicated to growing Pinnacle Hotels USA, eventually expanding his portfolio to 26 hotels throughout the United States. More recently, he has committed to streamlining his business to ensure only the best and the brightest hotels are under the Pinnacle name, narrowing his company to nine hotels with a focus on the premium brand and full service market.