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PROPERTY OVERVIEW The Etoile is a full-service, 30-story boutique hotel with 305 rooms

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PROPERTY OVERVIEW

The Etoile is a full-service, 30-story boutique hotel with 305 rooms. Boutique hotels were relatively small, well-staffed properties that offered upscale, high-end and ample amenities. Corporate buildings, restaurants, shopping, and the theater district surrounded the Etoile Hotel. Amenities offered included a full-service restaurant overlooking Trafalgar Square, a wine bar, a cocktail lounge, and 24-hour room service. The lobby was small and quaint, perfect for the business traveler who preferred a private, relaxing atmosphere. In addition, amenities such as complimentary shoeshines, coffee delivery with wake-up calls, and entertainment services were available to all guests.

In terms of meeting business travelers’ needs, the property lagged behind the competition. Meeting facilities were limited to less than 200 square metres, and there were no video conferencing facilities. Free WIFI was available throughout the hotel.

Formerly a Restokay Inn, the Etoile purchased and reflagged the property in the early part of 2003. More than 25 million pounds was allocated to renovate the hotel. Because no structural upgrades were needed, all of the capital was used to enhance the property's appearance. The general manager contracted a famous London City artist to design an art-deco lobby area, restaurant, and guest rooms. Marble and fine cherry woods replaced the original decor. Massive statues and fine, imported furnishings created a lavish environment, and a restaurant and a lounge area were created on the main lobby level.

MEETING...

Tom Roche, the general manager, had called a meeting with his management committee to discuss the situation facing the hotel. The following customer complaint letter was submitted by a first-time customer at the Etoile Hotel. The director of operations, Sarah Jennings, the human resource director, Peter Gordan, and the director of marketing, Norah Wallace, were glancing through the letter as Mr. Richards explained that, unfortunately, this customer encounter typified what many clients experienced during their stay at the hotel. Two members of the management committee, the food and beverage director and the head of the engineering department, were absent due to a mandatory fire drill taking place in the main kitchen on snowy January 2, 2018.

To Whom It May Concern,

I stayed at your hotel last week and was disappointed in my overall experience. I travel to the city often and will probably not return to your hotel. I would, however, like to express my discontentment with the service I received.

As I sat in the bar waiting for my cocktail to be delivered, I became more and more frustrated with the service I had received since my arrival the day before. Upon booking my reservation, I was kind of wary about what I was in for. After all, I had not heard too much about this brand. It was not like going to a Hilton or Marriott where I know what type of service and atmosphere to expect. Needless to say, I was pleasantly surprised with the grand atmosphere at this hotel. It can be described as an oasis in the heart of Trafalgar Square. The lobby area is small, yet elegant and quaint. It is the type of hotel where I can feel comfortable entertaining my clients and holding negotiations. It is big enough to provide privacy, yet cozy enough to deliver a personalized type of service. Automatically, my expectations of service soared as I admired the care and beauty of the rooms and public areas. No detail has been left unfinished. Unfortunately, my expectations were quickly shot down as reality set in.

After an extremely long journey from halfway across the world, I was more than looking forward to a hot shower and warm bed. I checked in at about 6:00 PM on a Wednesday evening. Upon arrival, the doorman welcomed me graciously and collected my bags. I took the elevator to the lobby area to check in. I approached the desk and stood there for what seemed like an eternity before either of the two girls standing there acknowledged my existence. Finally, one of the girls looked up from her paperwork and, as if I were interrupting her, asked me if she could be of assistance. I gave her my last name and told her I had a reservation. She confirmed my room number, handed me my key, and in no time I was on my way—I could not wait. Upon entering the room, I noticed that there were two beds and a horrible smoky smell. I had asked for a king bed, non-smoking. I immediately called down to the front desk. The girl who answered seemed a bit annoyed and said that I could return to the lobby, as she would try to accommodate my needs. With that, I went back to the elevator, down 20 floors and finally back to the front desk. She half-heartedly apologized for the inconvenience, gave me another key, and once again, I was on my way.

I waited nearly a half an hour before the boy at the entrance came up with my luggage. He placed my very expensive carryon piece in front of the door (to hold it open) and proceeded to take in the rest of my bags. He informed me about the amenities available at the hotel. You know, the usual—minibar, complimentary shoeshine, 24-hour room service, exercise room, and so on. With that, he smiled and wished me a pleasant stay. I wondered if he even knew my name or realized that I was upset with the time it took my luggage to arrive (not to mention the fact that my carryon piece had doubled as a doorstop).

After unpacking and settling in, I picked up the room service menu. It was pretty limited, but I was very tired and was not about to go out for a bite to eat. The girl who answered the phone knew who I was. Quite impressive, as I had only been there for about two hours: "Good evening, room service, this is Gary, how may I help you, Ms. Branagan?" The meal was delicious, although it arrived nearly an hour after I ordered it—the girl who took my order said it would be up in 25 minutes. After finishing my meal, I called back down to room service to tell the girl that I would leave my tray outside the door. Finally, with all that I had been through that day, it was almost midnight before I was finally able to get some rest.

The following morning, I stepped out of my room and almost onto the very same room service tray; it was right where I had left it the night before. That evening, upon checking out, the girl asked me if she could assist me in making reservations for a future trip to the hotel. I politely declined and told her that my stay was not a pleasant one. She apologized and wished me a good evening. As I walked away from the desk, thinking of what my stay had been like, I knew that I would never return.

I liked the hotel; in fact, it is definitely nicer than most of the Marriotts or Hiltons I had been to and the price was very reasonable for London. However, I do not think I will return. It is something about the service—it is definitely not what I had expected. Your staff should work on their attitudes and attention to detail. Very few were really friendly, and even fewer seemed interested in my happiness. I hope this situation is rectified, as you have already lost at least one guest.

Sincerely,

Laura Branagan

As the management committee reviewed the hotel's performance, Tom Roche addressed the critical questions. "What can we do to avoid problems on this type in the future? How can we improve the level of service quality in our establishment? We need to do something to ensure that occupancy levels will remain high despite the rate increases imposed by our financial situation. Why don't we brainstorm to get some ideas? Nancy, what do you suggest from the marketing perspective?

Norah Wallace responded, "Well, given the resistance to rate increases from our current guests, I feel that we should focus on attracting new customers. Weekends are clearly a problem for us; the occupancies drop to a mere 50 percent on most weekends. By offering attractive packages, we could get more leisure travelers to stay with us. Because we have such a high proportion of Americans in our client mix, I suggest that we increase our online marketing. We could place ads on American air carriers’ sites or on Google or Booking.com so that, when people are seeking travel information regarding London City, they get an immediate exposure to our hotel. I have done some data searching, and the current monthly cost on travel sites is about £12,000." "I hate to disagree with you, Norah, but our main goal should be to satisfy our existing customers," Peter Gordan asserted. "Look, the data from our customer satisfaction surveys and the ever-increasing pile of complaint letters that I have in my office clearly indicate that our current guests are not happy. Or, have a look at the shopper report summary (see Appendix 1). I think that we should put our efforts into developing a service recovery policy. My informal talks with our front-line employees indicate that they feel lost with our operating manuals. They have to deal with upset customers without having the power to do anything about their complaints. At the moment, a supervisor's signature 1s required for any service recovery effort. I can Just imagine how our guests feel about paying over £200 a night and having to wait for someone's approval to get a complimentary welcome drink because the room is not ready. In many cases, further referral to the department head 1s needed, causing unseemly delay and further guest irritation. These things should be handled on the spot by our customer- contact employees."

Sarah Jennings, the director of operations, joined the discussion. "Empowering the front line to deal with service failures 1s a good idea in theory, but how do you control the money involved? Free meals and free stays represent lost revenues, and I do not believe that our cash position is such that we could afford a dip in revenues. Moreover, as you know, we are in the process of hiring new food and beverage employees, and this additional expenditure will have an impact on our bottom line."

MANAGEMENT BACKGROUND

Tom Roche’s first exposure to the hospitality business had come 25 years ago working as a busboy in his father's family restaurant. During college, he had worked summers at various resorts in Cornwall. After graduating with an undergraduate business degree, he spent three years working for an insurance company in Liverpool. His heart kept longing for the hustle and bustle of hospitality, and he then decided to return to school to earn a master's in hospitality management.

After college, he worked for Bristol Hotels, mainly opening new properties for the fast-growing hotel chain. Since he had joined the Etoile hotel two years ago, Tom had been working vigorously to bring the revenue stream to its optimal level while controlling costs and increasing demand. As a result of these efforts, the Etoile Hotel realized its first positive cash flows in 2017.

The general manager hired a new food and beverage manager, Mr. Jean-Pierre Paradis, at the end of 2016. His dynamic character, combined with a prestigious culinary degree from Cordon Bleu in Paris, had made him successful in revamping the hotel's restaurant business. Jean-Pierre's reputation for superb banquets and creative menu concepts had resulted in a 22 percent increase in food sales during the past 12 months. Room service sales, 1n particular, had gone up by 50 percent since 2016.

Peter Gordan, the current director of human resources, had worked for Holiday Inns in the corporate training position for 15 years prior to joining the Etoile Hotel six months ago. His wife had been relocated to London City, and Peter was looking forward to a more stable family life. The hotel's former HR manager had implemented sizable budget cuts for employee training and hiring practices, and these efforts had indeed showed a positive impact on last year's bottom line. In the past, newly hired employees had completed a two-week formal training program, but this procedure had been replaced by a more cost-efficient, on-the-job "buddy" training system. In addition to on- the-job training, each new employee received the hotel's 500-page operations manual, which explained company policies for each department. The hotel had lost many of its middle managers to competitors over the past three years, but these positions had been left vacant to improve the bottom line.

The director of marketing, Norah Wallace, had joined the Etoile Hotel nearly a year and a half ago. Her previous job as a middle manager of a mega-convention center had familiarized her with group business travel. Summarizing the situation facing Etoile, she reported: "There is perceived guest resistance to higher rates, requiring our hotel to have a competitive edge when compared to similar hotel properties and hotel brands."

Sarah Jennings, the director of operations, was an old-timer at the Etoile Hotel. In fact, she had been with the hotel over ten years and had personally seen the transformation from a typical mid- priced Restokay Inn to a quaint boutique hotel. Sarah started her career as a housekeeper and worked her way up to a rooms division manager within the Restokay Corporation. When she was offered her current position five years ago, she gladly accepted. Sarah strongly believed in "management by walking around" and was constantly fixing problems throughout the hotel.

COMPETITION

The Sheraton, Crown Plaza, Guest Suites, and Millennium were all relatively large properties that catered to a different clientele, as the properties offered a less personalized atmosphere and larger public areas; however, their geographic location and price similarity had enabled them to control a large portion of the market. The Sheraton had completed its renovation at the end of 2017; every guest room was now equipped with ergonomic chairs, high speed WIFI, and a Hewlett-Packard Office Jet printer/copier machine. The Sheraton was expected to increase its room rates to £240 per night within the next three months.

Perhaps the Etoile's primary competitor was the Leonardo. Located only minutes away, this 178-room property offered its guests a more personalized and superior stay. Amenities such as fresh flowers in the rooms, standardized bath amenities (1.e., bubble bath), slippers, and fruit baskets were among the items all guests could expect. In evaluating the quality of the property and service at the Leonardo, even Etoile's management admitted to the property's inherent superiority. One guest who had previously stayed at the Leonardo described it as, "The perfect place to stay—anywhere in the world. The staff there knows what you need even before you do. It 1s amazing. Every luxury you could expect, right in the heart of London's finest. They even know your name before you introduce yourself. I do not know how they do, they just do."

CUSTOMER PROFILE

Because of its boutique orientation, the hotel attracted guests looking for a quiet, convenient place to stay. The property's mix was 70/30 between business and leisure guests. Accordingly, weekday occupancy levels were much greater than weekend, with little seasonal variation. Many of the hotel's business clients were mature, that 1s, between the ages of 45 and 65. They preferred to stay in the same hotel and quite often the same room. This had contributed to the property's repeat customer base of nearly 60 percent. Unfortunately, the customer retention rates had been consistently dropping over the past few years, as the repeat base had declined by about 10 percent in reaction to the hotel's increase in room rates. To induce high response rates, Mrs. Wheeler had revamped the hotel's customer satisfaction instrument (see Appendix 3). Many of the clients, up to 40%, were international travelers. With the hotel's luxury reputation in America, about 80% of the international guests came from this market. Customer satisfaction data indicated that American business travelers were particularly unhappy with the level of service provided by the Etoile staff.

EMPLOYEE OVERVIEW

The Etoile had approximately 250 employees. Because of the hotel's relatively small size and the complex labor market in the London area, staffing issues posed a major problem. This hotel was a nonunion property in a market where most hotels were unionized. Thus, in order to keep the union out of the hotel, pay and benefit packages were slightly higher than union standards. The property realized an annual turnover rate of approximately 10 percent, although the industry standard for first-class hotels was 45 percent. Average seniority was 7.7 years, with 25-35 percent of the employees remaining from when the hotel was a Restokay.

Despite this seemingly low level of turnover, employee satisfaction was quite low. Morale and culture had been compromised through the shifts in management and the ambiguous nature of policies, procedures, and management support (see Appendix 4). In terms of management, turnover was extremely high. In fact, the current general manager was one of five who had been at the property since 1t opened. With the exception of Ms. Jenkins, the rest of the members in the management office were also relatively new to the property (hired within the past two years). Ms. Jenkins was often heard to repeat the following phrases to her employees: "You should have seen this place before renovation took place... all the furniture and fixtures were getting worn out. . . really shabby. But look at it now; what a beauty this hotel has turned out to be. We should all be proud of it."

FINANCIALS

Although occupancy levels remained high and the London market was booming, the Etoile was struggling. In the first three years of operation, the property realized a net loss of nearly £12 million annually. This loss had since been reduced to approximately £1 million per year. The property showed its first positive cash flow in 2017. With this in mind, the management team had calculated that the rates must be increased by an additional 30 percent over the following two years.

A comparison of Etoile's profitability against industry standards (ratios and publications published by consulting firms) showed that the level of gross operating income (income before fixed charges) was about 2 to 4 percentage points below the average for comparable properties. While Tom Roche acknowledged that opportunities for marginal cost-cutting might exist, these efforts might well conflict with the need to provide higher levels of service quality. For example, in a previous board of directors' meeting two months ago, one of the owners of the hotel had suggested that management should get rid of the hotel's full-service restaurant or its labor-intensive 24-hour room service. The management committee strongly objected to this cost-cutting plan because reputable food service operations form an integral part of any upscale property's image and prestige value.

WHAT TO DO!

The slowly drifting snow had turned into a heavy mix of snow and rain by 5:30 PM. The traffic would be chaotic in a couple of hours, so Mr. Richards decided to call it a day. He would draft a letter of apology to Ms. Branagan the first thing in the morning. Driving home that night, he started to think about the board of directors' meeting scheduled for next Friday. "Should we enhance guest satisfaction or aim at new target markets to increase occupancy levels? I need to have my recommendations ready by Friday."

Appendix 1 - Etoile Hotel Sample Executive Summary—Shopper Survey, September 2018

The High Stars Consulting Company is a leading international firm specializing in quality management programs in the hospitality industry.

The executive summary 1s based on the experience of four shoppers who stayed at your property for three nights during the week of September 15.

Shoppers are trained by the corporate office to pay attention to the following areas: speed of service, cleanliness of the property, handling of special requests, and overall employee attitudes.

Reservations

• All reservationists with whom we spoke were polite and professional; however, one reservationist addressed us by first name, although a full, simple name had been provided.
•  Inconsistent offers of smoking versus nonsmoking rooms and mention of the 6 PM check-in time.
• During remakes in Room 480, there was incomplete attention given to the restocking of guest supplies
• Housekeeping staff consistently honoured posted DND signs and were polite smiled frequently when interacting with or passing guests.
• Responses to special requests were 23 minutes for an iron

Room Service

• Breakfasts were served in 45 and 37 minutes, far exceeding the estimated time of 20 minutes
• During dinner, the order taken failed to mention any dinner specials
• The ordering process was affected by numerous call-holds and background noise.

Restaurant A

• During all meals, the host staff seemed absolutely intent in getting guest’s names recorded in the logbook, although they made no use of the name once learned.
• The breakfast buffet had a particularly imaginative impression, and all products were fresh and appetising.
• One dinner was a poor experience from start to finish, and the dining-room manager did not seem to control the situation.
• Impolite hostessing, greeting, and inaccurate seating, possibly resulting in our getting someone’s table. The hostess was overheard to interrupt some guests trying to speak to her, saying abruptly, “I will be with you in a minute,” and commanding other guests to wait over there.”

Lounge Bar

• Four out of five visits resulted in poor performance from the staff.
• On Tuesday night, service at the bar counter was hectic and only available to those who were assertive.
• The server pick-up area was incredibly untidy, yet guests often walked through this are.
• When we were escorted to a table, it was dirty. The server appeared not to notice that some guests at the table had coasters while others had none.

Appendix 2 — Customer Survey Results

An Analysis of Customer Satisfaction % Survey Results 2018

Process Area	Delighted	Satisfied	Dissatisfied
Overall stay	20	50	30
Room	54	40	6
Front-office service	20	40	40
Room Service	20	40	40
Physical Property	70	20	10

 

An Analysis of Customer Retention Rates 2018

Chance of Return	Percentage of Guests
100%	10
80%	10
60%	20
40%	30
20%	20
0%	10

 

n= 600

Appendix 3 — Customer Survey Instrument

1. Please rate your experience with us by circling the number that best describes your feelings about the various aspects of your stay.

How did you feel about?	1 = delighted	2 = satisfied	3 = dissatisfied
Overall stay	1	2	3
Condition of your guest room	1	2	3
Service at the front desk	1	2	3
Room Service	1	2	3
Condition of lobby and other public areas	1	2	3

 

2. Ona scale of 0 to 100% how certain is it that you will return to this hotel?

0%

20%

40%

60%

80%

100%

 

3. Your primary purpose of visit: 1 =business 2 = pleasure

4. How many times have you been a guest at this hotel?

1

2

3

4+

 

COMMENTS

Please give us any other comments you feel would help us:

_______________________________________________________________________

__________________________________________________________________________

Appendix 4 — Employee Survey Results

Results of Non-managerial Employee Survey

1 = strongly disagree, 7 = strongly agree	Mean	S.D.
1. I have to do things that I think should be done differently	5	1
2. There is a lack of policies and guidelines to help me	4.5	1.2
3. I work under guidelines that are inconsistent with other guidelines for doing my job	3	0.9
4. I often get work to do without being given the right materials, training or direction	5	1
5. I do not know if my work will be acceptable to my supervisor	4	1.1
6. I have to work under vague directives from management	4.5	1.2
7. I know what is expected of me	4	1.5
8. I receive clear guidelines on how to resolve customer complaints	2.5	0.6
9. I am allowed to perform work in a way that suits my own style and approach	2.4	1.3
10. I receive clear guidance on how best to serve the guests	2.5	1
11. The receive and management often expect different things from me	5.1	1.1
12. I receive clear, planned guidelines for doing my job	2.3	1.5

 

n=240

Results of Employee Satisfaction (all employees)

1=very dissatisfied, 7 = very satisfied	Mean
Your overall job	4.3
Your fellow workers	5.1
Your supervisors	4.2
Hostel policies	2.5
Remuneration	4.5
Your opportunities for advancement	3.5
Your hotel’s customers	5.4
The resources you have to do the job	4
The training you receive	3

n=240

Appendix 5 — Income Statement and Cash Flow after

Debt Service

	2018	2017
Occupancy	80	83.5
Average Daily Rate	£170	£177
Revenues
Rooms	£14,847,386	£16,176,487
Food & Beverage	£253,920	£3,235,237
Other	£724,263	£808,824
Total Revenues	£18,106,569	£20,220,608
Rooms	£5,493,533	£5,500,005
Food & Beverage	£2,332,126	£2,911, 768
Other	£579,410	£582,354
Total Departmental Expenses	£8,405,069	£8,994,127
Total Departmental Profit	£9,701,500	£11,226,481
Undistributed Operating Expenses
Admin & General	£2,715,985	£2,729, 782
Marketing	£1,357,993	£1,415, 443
Energy	£905,328	£950,369
Property Operation & Maintenance	£1,176,927	£1,213,236
Total Operating Expenses	£6,156, 233	£6,308,830
Income Before Fixed Charge	£3,545,267	£4,917,651
Fixed Charge (Insurance, Prop Taxes..)	£1,267,460	£1,314,340
Income Before Debt Service Depreciation & Taxes	£2,277,807	£3,606,311
Debt Service	£3,183,777	£3,183,777
Cash Flow After Debt Service	-£905,970	£419,534