STREETWISE: My recession rollercoaster

by Real Business - Thursday, 30th August 2007

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When the Gulf War started in 1991, Americans stopped coming to London and it caused a massive recession in the hotel market. At the time I was marketing manager for a company called Berkeley Scott, who are the biggest hotel recruitment consultancy. Hotels had stopped hiring, so my company quickly went from 85 people to 35, and I was wondering, “How long before I join the other 50?” I was talking to a guy named Tom Parsley who worked in hotels, and he was saying, “It’s ridiculous. Hotels are holding their rates, so people are still paying £90 for a room when they’re only at 40 per cent occupancy.” At the same time, travel agents weren’t doing terribly well – they only made an eight per cent commission on each room. So we went to a couple of hotels and said, “Look, we’ll pay you £40 for a room.” They were quite happy to give us credit, because otherwise the rooms would go empty. Then we marked the rooms up to £65 and sold them on to customers. We made £25 a room instead of £7, all the while undercutting the other agents. So we did well for ourselves. But once the recession ended, hotel occupancy went back to normal and we couldn’t make the same mark-ups. We had to do the same commissions as everybody else – and unless you’re a big company doing volume bookings, you can’t make money off that. I began to study the market. (By this time Tom had left to do other things.) It dawned on me that there was a lot more money in conferencing. Large companies were outsourcing their meetings and training days more and more, but the need wasn’t served particularly well. So we started selling ourselves as a conference booker, specialising in four and fivestar hotels. We’d block book overnight rooms for attendees if they were needed, but we wouldn’t do one-room, one-night accommodation. It was the right move for the right time. Now, we turn over £1.6m worth of commission a year – whereas a competitor who does accommodation at a similar size company only pulls in £775,000. Initially all our conference clients were big accountancy and banking firms like Citibank, Deloitte and PricewaterhouseCoopers. The first big contract was doing all of Ernst & Young’s conference business. We could get these contracts because we offer a professional service – everyone we employ has a hotel background. And we’re London-based, so it’s easy for our staff to pick up clients from their offices and take them on a tour of the venues. A company like Ernst & Young, even in 1993, had a conference spend of about £5m. That means a good volume of business for us and significant savings for them. For instance, last year we saved Deloitte 33 per cent on a spend of ?5m. We also keep track of the clients’ conferencing expenditure, so they know who’s spending how much in what department. It’s amazing – even with procurement departments, a lot of big companies have absolutely no idea how much they spend. A recession is probably the perfect opportunity to start up a small company. But once you employ 20 people or so and costs are £100,000, a recession can be crippling. In the months before 9/11, we saw that banks and accountancy firms were suffering from increased regulation. Then came the attacks, and our sales went down 30 per cent. We brought in a consultant, who told us we wouldn’t get any more money out of our existing clients. We had to become more sales-focused and expand our base. For instance, we wouldn’t necessarily have considered British American Tobacco or Cable and Wireless our market two years ago, but they’re clients now. And this year, we had our best year ever. Our gross spend on hotels was £25m and next year we’re looking at £30m. Our business is all over the world – Berlin, New York, Singapore, Hong Kong. Right now we’re rebranding, becoming “HBI”, because our name is a little limiting. We’ve also set up an “unusual venues” desk. Short-let apartments and group accommodation already make up 20 per cent of our business, but we might do more with brokering flats – there’s a lot of money in relocation. And we’re always responding to current events. Since the London bombings we’ve been putting all our staff through risk assessment and health and safety courses. We’ve seen bookings shift from the city to country house hotels, but we haven’t lost any business. We’re prepared for whatever the economy throws at us.