Red Lion Hotels bets its future on digital transformation

SUMMARY:

Red Lion Hotels is in the midst of a digital transformation. How’s it shaping up?

red lion hotel
Red Lion Hotel – Ontario Airport

It’s not often that we see hard metrics applied to technology success but Red Lion Hotels Corp points squarely at its RevPak initiative as the driver for growth and success since it went on stream with Duetto and other hospitality technologies. First the facts. At the last earnings call, Greg Mount, president and CEO said [transcript]:

Our first strategic initiative, the development and implementation of our industry leading eCommerce, technology, and digital marketing capabilities, has been, approximately, 50% deployed; we call it RevPak. It has already been more successful than anticipated. The RevPak platform and our associated marketing initiatives delivered significant improvement in our operations and profitability throughout 2014, as evidenced by our four consecutive quarters of RevPAR and adjusted EBITDA growth, as well as meaningful improvement to our bottom line performance.

I am especially fascinated about this for several reasons:

  1. It is clear that hospitality is undergoing something of a transformation. Aggregation sites like Booking.com have become my first port of call when looking for a hotel.
  2. This is a period of growth for the hospitality industry after a long period of stagnation following the 2008 start of the global recession. This is reflected in higher rates in most locales.
  3. The expansion of the conference season for people like me has been accompanied by a rapid rise in rates. Try getting a reasonable central hotel in San Francisco for under $350 a night plus tax during Dreamforce.
  4. The perceived wisdom in some quarters that services like AirBnB will disrupt the hospitality industry and transform business travel.
Jason Thielbahr, Red Lion Hotels Corp
Jason Thielbahr, Red Lion Hotels Corp

It didn’t take much for me to take up the opportunity to speak with Jason Thielbahr, SVP of Revenue Operations and Distribution Services at Red Lion. It was a fascinating conversation.

Thielbahr spends his days trying to discover the optimal price/occupancy rate for every hotel room under the company’s management while ensuring that the company is competing in every available distribution channel. I asked about the problems the industry faces, framing it in this context:

Qu: Hotels have been under siege from companies like Expedia and Priceline who, despite being helpful for lead generation, cut deeply into hotel profits. Because of this and a few other factors, customer acquisition costs for hotels average 15% to 25% of total revenue rather than the 3% to 6% seen in airlines. How do you see this?

A: If you’re a small independent operator then you might well see these services as digging into margins but it’s not that simple. If you’re going to optimize then you need to recognize that the costs of being seen by those services can be offset by improved occupancy.

Qu: How are you solving that problem?

A: We make no secret of this. We’re betting our future on digital transformation through our commitment to leading tech and electronic commerce. It’s already working, Check out how we performed in the period immediately after we implemented Duetto. We’re outpacing some of the best brands in the business. There’s enough demand in our market to sell out our hotels every night within two miles of our front door but how? This is where the technology fits. We’re setting records for occupancy and most of the growth is a function of rate.

Qu: So what does Duetto bring to the table?

A: Duetto is truly disruptive. It finds the optimal market clearing price point. As we’re building reservations, it’s taking my internal reservations plus competitors price conditions. There’s a lot more going on but that’s the essence.

Qu: What other systems are you using?

A: There’s four elements to this. For central reservations we use Windsurfer because that reduces the direct cost of sale. Next we use Oracle Opera for property management. Revenue management is where Duetto fits in and for CRM we use Serenata because that has a tight integration to Oracle.

Qu: We hear a lot about automation, how does Duetto fit in for that kind of thing?

A: Everyone has their own approach to this and you’ll see many people wanting a ‘set it and forget it’ approach. Duetto is not like that. It pulls in many third party data streams so it’s got the data. We need a human approval workflow so in our case it is still is an accept/reject workflow.

Qu: So you’ve got a demonstrable advantage – what happens if everyone took on Duetto?

A: I’d love it if they did because with more transparency, everyone wins. But in the meantime, please be as slow and less nimble as you can because I am going to win.

Qu: Some people claim that AirBnB and other similar services will disrupt the hospitality market anyway. What are your thoughts on that?

A: We keep an eye on all channels and so yes, we watch these services but they are very niche.

My take

  • Red Lion has clearly taken a strategic view of its business and looks to technology as the enabler of its transformation. This is always the best way to think about technology use and when done well, produces demonstrable hard benefits that feed back to the company’s financial statements.
  •  In listening to the company I was reminded of Gary Loveman, CEO Harrah’s who was always very open about the way he transformed that moribund gaming company into a hospitality powerhouse that eventually took out Caesers. I see something very similar in Red Lion’s open approach to discussing its technology usage. I wish there was a lot more of this.
  • In approaching this story, I didn’t recognize any of the technology providers other than Oracle. I was vaguely aware of a couple but not the suite of apps Red Lion has deployed. It goes to show that we eschew the specialist players at our peril because they are often solving problems the mega vendors cannot even start to think about.

Disclosure: Oracle is a premier partner at time of writing