By: Julie Sickel
The cost to hotels for groups and meetings has been on the rise in the U.S. in recent years. According to a report from hotel benchmarking company Kalibri Labs, the cost, if left unchecked, likely will double by 2022.
The report, titled U.S. Groups & Meetings: The Economics and Complexity of Intermediation, estimates that groups and meetings cost the U.S. hotel industry $3.4 billion to $4 billion in 2017. Commissions paid to intermediaries accounted for $1.3 billion of that, based on a 10 percent commission rate. By 2022, the cost could reach $8 billion or $10 billion, according to projections from Kalibri Labs, PwC and Oliver Wyman.
Kalibri serendipitously released some early findings from its research in January, just before Marriott International announced its intention to cut groups and meetings commissions in the U.S and Canada from 10 percent to 7 percent by March 31. But even with the largest hotel company in the world pledging to lower the money it pays out to intermediaries, Kalibri co-founder and CEO Cindy Estis Green said that, at the rate intermediation is growing, Marriott's move isn't enough to alter future projections.
The Solutions & Tech Problem
The ways in which organizations book groups and meetings with hotels is largely unchanged from where it was 40 years ago, according to the report. What has changed is the number of vendors who provide services and solve for pain points in a stagnant process. Typically, they exist in the first four stages of the meetings process: discovery, sourcing and booking, planning, and execution.
Of the approximately 100,000 meeting planners in the U.S., according to PwC's estimates, 20 percent are external planners who aren't directly employed by the organizations they assist. One-third of those external planners are employed by one of six major firms: HelmsBriscoe, ConferenceDirect, American Express Meetings & Events, Experient, Maritz Travel and BCD Meetings & Events.
Tech companies also have emerged to assist with discovery, sourcing, planning, and execution, including Cvent, Etouches, Groupize, Groups360 and Cendyn. While certain steps of the process are now being supported, Estis Green said, the solutions provided by third parties are still contributing to a broken system. For example, while automation can solve for the RFP process on the meeting host side, it increases the labor costs for hotels, which get inundated with high volumes of queries. "The groups and meetings market is very diverse," Estis Green said. "There are a lot of tech companies that are interested in aggregating it, the way transient business has aggregated over the last 15 years, and it's more complicated than the transient business. There's more to it. The process is more complex."
Approximately 43% of group rooms revenue is being intermediated. By 2022, Kalibri estimates, that portion will grow to 60 percent.
The Threat of Commoditization
Beyond the dollars and cents impact of increased intermediation, Estis Green warned, "If hotels become a commodity for the groups and meeting experience, the quality of the experience will deteriorate." It becomes less about finding a unique and engaging space and more about finding "a box."
"For hotels to be sharp and tuned in to what their customers want, they need to know their customers really well," Estis Green said, which is harder the more intermediaries step in between the two sides.
She hopes the report will help the industry recognize the need to change the meetings ecosystem. "In order to make it more efficient," she said, "all of the players in the food chain may have to give a little to make it work better."