315 | COVID Comp Sets: The pandemic has dramatically altered hotels’ playing fields

Lodging Leaders

{caption}The coronavirus crisis has forced hotels to reexamine their traditional competitive set as nearby properties close or transition to other uses.{/caption}

Experts advise owners and operators look differently at business drivers, including who is booking these days

The coronavirus crisis has altered the business models of many hotels. For that reason, the pandemic also is forcing hotel managers to reconsider their competitive sets and how to benchmark their hotel’s business performance.

Just about every hotel owner and operator is familiar with STR’s STAR Report.

STAR is an acronym for Smith Travel Accommodations Report. Smith Travel Research is the original name of STR Inc., which switched its official company name to the initialization several years ago.

The STAR Report is a weekly roundup of how one hotel operation is faring against similar lodging businesses in a given market.

The STAR Report has been around for more than 20 years. It identifies a competitive set of hotels in a specific market and enables hoteliers to see the performance metrics of nearby hotels of like size and service levels. It’s a valuable tool for hotel managers crafting a strategy to grab their hotel’s fair share of business in a market.

{caption}COVID COMP SETS: The pandemic has dramatically altered the playing field for hotels that use competitive sets to benchmark their business against similar hotels in their market. Episode 315 of Lodging Leaders podcast explores the origin of the competitive set and how the coronavirus crisis as reconfigured the traditional business-performance tool.{/caption}

Birth of the Comp Set

As common as a competitive set or comp set has been to hotel operators, it is among many things the coronavirus crisis has changed in the lodging industry. In fact, the lead creator of the benchmarking tool says comp sets, if used today as originally conceived, can misguide business decisions during and post-pandemic.

Mark Lomanno was president of STR from 1999 through 2011. During his tenure, Lomanno led the creation of the traditional competitive set.

Each week, STR provides a hotel that pays to participate in its benchmarking program a look at its own business metrics as well as those of nearby similar hotels. Many hotel managers value the information they can glean from the regular updates.

However, Lomanno, who is now a partner and adviser at Kalibri Labs, which also tracks lodging industry business metrics, said so much more information is available to hotels these days that traditional comp sets merely reveal the tip of the iceberg of a lodging market’s performance.

STR first came up with the concept of a comp set at the turn of the 21^st century when the company was “looking for a way to get a little bit more granular data” to help hotel businesses compare their performance against likewise competitors, Lomanno said.

“The idea behind the comp set was to try and mirror where a guest would choose to stay if they didn’t stay with you.”

The STAR Report focuses on segments of guests as “no hotel competes with another hotel for a hundred percent of its guests,” Lomanno said.

Today, the STAR Report is used by some hotel owners and managers in a way it was not originally intended, Lomanno said. Many companies evaluate hotel employees’ job performance and compensation on the results revealed by STAR Reports. This is not a smart way to use the report, he said.

“It basically reduces everybody’s pricing and view of how they want to attract customers down to the lowest common denominator of who they have in their competitive set,” he said. “And so the competitive sets were almost solely based on who was in proximity to your hotel and who priced about the same way you did. In some cases, in order to do that, you went pretty far field from what would be a normal competitor. In all honesty, there was really no other way to do it. If you wanted to have a competitive set the way STR did it was the correct and probably the only way there was because of the limited nature of the data that you could pick from.”

In today’s age of business analytics, hotels can do deep dives into who their customers are as well as who is going to other nearby hotels.

For example, Kalibri Labs can glean information from a hotel’s guest portfolio.

The identity of the guest remains private, but Kalibri Labs can see such things as what the guest paid, length of stay, when the reservation was booked and on what channels, such as an OTA, Brand.com, an 800 number or hotel direct. The data also include the room category and type of rate booked.

Building a comp set that has a similar customer base to your hotel “is a more effective way” to benchmark your hotel’s business performance, Lomanno said. That was true before the coronavirus crisis struck the lodging industry and it’s even more so today.

Kalibri Labs creates algorithms for each property that shows guest segments Sunday through Thursday and then Friday and Saturday. It breaks the customer flow into such segments as government business, corporate business, weekend bookings and group.

The tool has proven especially helpful during the pandemic, Lomanno said. “With data that is more granular, you can know what kind of consumer is actually coming to the market place so that if you had a traditional comp set of other hotels that only had group business and corporate business that doesn’t help you because they don’t have any business either.

“So you need to understand what other business you can get and focus on a competitive grouping. So what type of customers are coming; how they book when they tend to come; and you can create your marketing and sales efforts accordingly.

“The driving force right now, how you’re doing and how much you’ve been affected, has nothing to do with geography as much as it has to do with who your customers were before and who are the people that are likely to travel now.”

{caption}NEW FACTOR: STR Inc. has enabled its hotel clients to expand their traditional competitive sets with a ‘composite comp set,’ which is a group of hotels packaged together to appear as one hotel. The additional element gives hotel managers more flexibility in planning their business strategy, said Patrick Mayock, vice president of research and development at STR, now part of CoStar Group.{/caption}

New Element in STAR

Patrick Mayock is vice president of research and development at STR, now part of of CoStar Group.

Mayock has been with STR for 13 years, starting at its online media outlet, Hotel News Now, as editor in chief. He is now involved with research and development at CoStar Group, a commercial real estate data analyst that acquired STR in October 2019.

Though the traditional competitive set as packaged by STR might be viewed differently during the COVID-19 outbreak, Mayock said, long before the pandemic the company was remaking the comparison tool by adding an optional element called the “composite comp set.”

Mayock said STR created the composite comp set when “we realized that a lot of our clients just want some additional flexibility and control when they’re creating or managing comp sets over time.”

In creating the composite comp set, STR deploys an algorithm that identifies a group of hotels in a market and packages them together as one competitor.

“A composite comp set functions and looks like a standard comp set except for one key difference. And the key difference is that one of the hotels that make up your competitive set is actually a composite that combines performance of multiple properties,” Mayock said.

“So you have your first hotel you named, the second hotel you named, the third hotel you named, and then there’s added in there a composite property, which brings in and averages other hotels that are a comparable benchmark against your subject.

“It’s chosen through a very rigorous algorithm that we’ve created that effectively goes out in your market and, using hundreds of thousands of data points, it tries to find which properties in the given market are the best comparison to your subject hotel. It brings them together to form this composite property and then it weights them so that it only functions like one hotel within your comp set.”

STR rolled out the composite comp set option earlier this year after proofing it in a pilot program.

While there are various reasons a hotel operator might want to add the option, the composite tool has proven helpful for hotels trying to gauge business performance during the coronavirus crisis. “If your comp set becomes insufficient; if one of the properties in your normal comp set were to close, this composite property could be plugged in there and fill that hole,” Mayock said.

The pandemic has indeed changed the traditional comp set, but that doesn’t mean hotel owners and operators don’t care about the business tool any longer.

“They all very much care,” Mayock said.

STR works with hotel companies around the end of each year to adjust their comp sets. “There’s always a lot of engagement around that,” he said.

“We also know that for any reason, if we’re unable to report a comp set, let’s say too many hotels within a comp set closed within a market, we have owners and operators who reach out and want to resolve that because they need some way to validate their performance during the pandemic.

“Everybody’s been down. Performance has been down in really unprecedented ways. Having a good comparison against other competitors in your market or within a named comp set becomes even more important at a time like this because every move matters. Every percentage point of occupancy matters, every dollar and ADR matters, and understanding the decisions you’re making and how they position you against your competitors just becomes really, really important.”

{caption}HOTELS INTO SHELTERS: Lincoln Plaza Hotel in Monterey Park, California, transitioned last year to accommodate people who were homeless or at risk of homelessness, reports the Associated Press as shared by Pew. Many hotels throughout the nation have transitioned to either long-term housing or to exclusively accommodating essential travelers such as health care workers and first responders during the coronavirus pandemic. The trend has forced nearby hotels to alter their competitive sets, say experts.{/caption}

Roy Madhok directs revenue management at Real Hospitality Group, a third-party manager with more than 100 properties in its portfolio.

Madhok agrees the coronavirus pandemic has forced hotels to rethink the traditional competitive set.

“If a [competitor] hotel is closed, you have been forced to change,” he said.

“In major markets where the hotel is closed for an extended period of time and you’re just tired of not seeing any data, you’ve been forced to change your comp set just to understand how you’re performing.

“Another situation where we’ve just been forced to change a comp set is say, for example, you have your standard competitive sets but a lot of your competitor hotels were bought out by the National Guard or they become homeless shelters. In that case you’re not trying to compete with the homeless shelter, you’re trying to compete with the hotel. Benchmarking yourself against a homeless shelter is worthless, so a lot of hotels have had to change comp sets because the data is worthless if you’re comparing to the wrong goalposts.”

Another forced change to comp sets is a major acquisition. A good example of that is Sonesta International Hotel Corp.’s acquisition in March of Red Lion Hotels Corp. which took Sonesta from a relatively small enterprise to a major contender with more than 1,000 hotels. Also, last year, Sonesta rebranded 200 hotels previously under flags owned by InterContinental Hotels Group and Marriott International.

Although the hotels remain in the same price tiers, Madhok said, Sonesta’s emerging game plan can change the dynamic of hotel comp sets, especially if a hotel in the set converts to another brand.

For hotel owners and operators comparing their business performance against competitors’ in the same market, Madhok says there are different ways to use the data to strengthen your bottom line.

Madhok advises hotels to create two benchmarks, keeping the original comp set intact to preserve the data set over the long term and using a second benchmark to gauge how business behaves amid and immediately after the pandemic.

The coronavirus crisis has forced many full-service hotels to reduce their offerings so much so they operate like select-service hotels. Madhok said owners and operators of select- or limited-service hotels should pay attention to what’s going on at larger full-service properties.

“This is a strategic standpoint that should really be underlined,” Madhok said.

He gave an example of a Courtyard by Marriott operating next to a full-service Marriott Hotel. During the pandemic, the hotels are offering the same services. Marriott Hotel rate is $149 and the Courtyard rate is $139. Pre-pandemic, the pricing behavior of the Marriott Hotel would have been vexing for the Courtyard manager. But amid the crisis, it’s almost normal and now the two hotels are impacting each other’s business differently than before.

“Your competitors have changed. Have you?” Madhok said. “Your standard comp set has not changed, but for your second comp set, you need to understand how your hotel is performing in areas that you did not care about before.

“For example, extended stay. I’m not an extended-stay hotel but now I care about how extended-stay hotels are doing. If I was a business-transient hotel before, how are my leisure competitors doing – people that I didn’t necessarily care a whole lot about earlier? I now care about those. So it has changed in that sense.

“If you don’t change your reporting and your benchmarking on your secondary or your tertiary comp set to understand how they’re getting that business, you are very likely leaving money on the table.”

When it comes to building a recovery plan during and post-pandemic, Madhok advises hotel owners and operators to follow the data. Avoid going with gut feelings or even past traveler behavior.

Hope is not a successful strategy as you position your hotel to climb out of the pandemic recession.

{caption}WHAT IS BENCHMARKING? A blog posted in 2019 on STR Inc.’s website explains hotel benchmarking. Though a hotel’s competitive set might have changed during the coronavirus pandemic, the science of benchmarking has not. Roy Madhok, revenue manager with Real Hospitality Group, advises hotel managers continue to benchmark as they did pre-pandemic and create a second pool of competitive hotels to compare business performance during and immediately after the crisis.{/caption}

Lily Mockerman, founder and CEO of Total Customized Revenue Management, said many hoteliers are talking about pricing strategy when it comes to recovery but few are reviewing their traditional competitive sets.

“There were hotels pre-pandemic that probably should have also reevaluated their comp sets, but especially now as the market is shifting. Anytime there’s any sort of major market shift, even if it’s about demand generators in the market, I think people should take another look at their comp sets,” Mockerman said.

Like Madhok, Mockerman noted how full-service hotels have changed service levels. That’s historically what happens during economic downturns as higher-priced hotels try to dip their toes into lower-tiered swim lanes, she said. Rather than focus on rate to steal market share during the pandemic, managers of full-service hotels should re-strategize in different ways.

“One of the things that full-service hotels really need to focus on is determining what they do well versus a limited-service hotel and bringing that more to the forefront,” she said. “Everybody tries to buy travel with rate, but really it’s about how do you help the guests understand what the experience is going to be like?”

Some travelers appreciate limited-service hotels’ streamlined processes while others prefer the full-service treatment. A pandemic probably won’t change guest preference all that much.

{caption}ZERO DISCOUNTS: The U.S. hotel industry has seen rates decline over the past 12 months, but the numbers may not be telling the whole story. Episode 314 of Lodging Leaders podcast explores what is truly impacting hotel pricing during the coronavirus crisis.{/caption}

In addition, a full-service property can promote its offerings amid the COVID-19 outbreak as they can offer a self-contained experience with an on-site restaurant and room service.

Mockerman also has noticed how in destination markets leisure-driven hotels are competing differently with boutique properties as some properties promote their self-contained resort environment.

“So they’ve had to shift their comp set because all of a sudden they’re not necessarily competing for the same guest,” she said. “And they’ve had to look more specifically at the other boutiques that maybe have a restaurant but they don’t have a spa and golf and all of these other activities on site.”

The geographic area of leisure-driven hotel market has widened during the pandemic, Mockerman said, with hotels competing with other properties throughout a region, expanding out into neighboring states.

A manager of a hotel in a mountain resort town, for example, would be wise to see what lodging accommodations in other mountain resorts are doing to attract business because prospective travelers probably are not shopping just one destination.

Leisure travel has been a saving factor for hotels during the coronavirus pandemic. As travelers grow more comfortable venturing off property in the coming months, it’s smart for hotel operators to consider what’s going on throughout and outside the local market and what’s attracting overnight visitors.

“It really comes back to the reason for travel,” Mockerman said. “A lot of hoteliers struggle with this, but it’s important to understand why people are choosing your area, not just your hotel.”

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