Tuesday, August 21, 2018

My Life as a Hotelier in Cambodia II

If you don’t own land in Cambodia you need to lease it in order to build the hotel you wish to operate. I posted an article a few years back how difficult it is to find an appropriate location in Sihanoukville. Finally, after searching for about 18 months we decided on a lot that had a building for lease on it and a larger lot in the back that we could utilize to build another 10 rooms, a restaurant, a small bar, a kitchen, and most importantly, a swimming pool. Although the beach was only a 100m from the place guests nowadays want a pool to relax at.

The entire size of both lots was 1900 m2, large enough to build 2 small restaurants, one in front one in back. I designed the general layout of both buildings and the rooms’ interiors. We chose a builder that had already built our villa as we were satisfied with his work. We had a few misunderstandings about a couple of details but we could work them out amicably. One was for the size of the restaurant he wanted to build 4 by 10 meters, I only wanted 4 by 8 meters. The second one was roof overhang and the width of the small terrace in front of the rooms. He didn’t build the overhang which we had him add, and increased the veranda width by 10 cm, which we couldn’t reverse as the verandas were finished already. Naturally this affected the price and he wanted to add a hefty $50,000. We argued back and forth and in the end he agreed and let it go. The going rate per m2 was $200 at that time.

We made a couple mistakes by forgetting to have rain gutters added and using a tin roof for the bar. In the rainy season this created an almost unbearable noise there. We deflected this somewhat by putting up a layer of reed on top of it. Of course, we had them installed later on.

Sihanoukville has no drainage and sewer system, so all buildings needed a septic tank. With 17 rooms we had 4 septic tanks built. To our dismay we found out later that the builder had one built right under a guest room under one of the nightstands. When we needed to pump out that one we had to lay long pipes from outside the lot at the rear to the room through a window. Needless to say, we had to wait until all the guests were outside the hotel so they wouldn’t see what was going on and right a scathing review about that. The rainy season created additional problems as the rain water flowed in the tanks in the rear together with the use water from the guests’ bathrooms. Sometimes we had to have the tanks in the back pumped out every other week at $65 a pop.

Further adding to our frustration was the unreliability of the power supply. For the first 2 years we did not have a back-up generator as the power company had promised that there were enough power plants on the grid to supply all the power. When all the hotels were full during holidays in high season this caused immediate black-outs, which could be accepted during the day but when it happened in the dark we had a great problem on our hands. The majority of the guests took it with a shrug as they knew they had traveled to a developing country where such things happen frequently. But lo and behold, especially Cambodian guests complained the most as if they weren’t used to it in Phnom Penh. That situation got better after 2 years and we had also bought a back-up genset to alleviate the situation. It happened to be a little to weak at 45 kWa so we switched to a 65 kWa just in our final year. And badly needed it was. With all the new construction going on because of the Chinese investments and the need for a lot more electricity the power grid broke down incessantly.

The basic problem areas in a hotel in Sihanoukville are the power supply, the water supply, the quality of the equipment, the scarcity of repairmen and contractors, and the ignorance and unreliability of staff; in other words besides guests who can make hotel life in this town really hard, there is nothing that would contribute to a smooth operation where you could just focus on guest relations and improvement of services.

As with the power supply the water supply was also affected by that construction craze. Needless to say, they needed a lot of water for mixing their concrete, etc. It also happened quite frequently that some earth moving equipment punched a hole in the water main – result: no water. Our water tank was depleted pretty quickly with people in 10 rooms taking a shower simultaneously.

The quality of the equipment is so poor that we needed repairs continuously, whether it’s a float switch in the tank, a broken a/c unit, internet service disruptions due to somebody else cutting the cables (twice willfully, several times by nearby construction), cable TV problems, etc., etc. On account of all these problems that affected basically all hotels in the area repairmen were hard to come by. Sometimes it took hours, even days for them to come and take a look at the problem. For a while we a couple of good ones, other times we needed to beg them to come and take care of things. On top of it the rates they charged were higher than in the U. S. Another reason for the poor quality in my opinion was that things were pretty cheap which led me to believe that Cambodia got second rate quality from wherever they imported they equipment from, mainly China. A/Cs were particularly prone to failure which in part was due to power fluctuations which will wreak havoc on electrical equipment, not the least the power surge when the power comes back.

Not once was there a week that went by without any problem at all – and we are talking close to 5 years. If it wasn’t the equipment or the repairmen it was the staff. People always write about how one needs to help these poor people so they can support themselves. This is all good and true but doesn’t take into account the basic mentality of Khmer people with little or no education whatsoever. I got the feeling that their Buddhist belief gets in the way. Everything in life is preordained by whatever higher being there is. Khmer people are rather stoic. The want to work, of course, but only because they really do need the money to feed themselves, not to get ahead in life (those are few and far in between). They have no ambition whatsoever. A hotel traditionally employs more women than men so consequently we had 7 or 8 female and 3 male staff. Housekeeping staff was the most unreliable. The slightest problem healthwise (and they always had a fever or bad stomach) or at home made them call in sick. If it wasn’t themselves it was their kids. One would never know whether you had your staff coming in today or not. One time we had all housekeeping staff except one quit without notice on the same day. Another time we had just paid their salary when we got a call from one saying she needs to quit for family reasons – like she didn’t know this 2 weeks before. So we changed our schedule and paid salaries on the 7th the following month. If somebody quit without giving appropriate notice we would just withhold the pay for the entire past month. A smart one though even knew how to work around that. She wanted to quit right away but knowing our system she just asked for and advance in the amount we owed her for the seven days. She needed it for her kid who was sick she said. We also had just paid her salary. Promptly, she didn’t show up for work the next day. Another irksome thing is their huffiness. You just criticize them very carefully but they are prone to up and leave right on the spot, not matter the loss of pay. Of course, you can never do this in front of others. She may be a lowly maid but losing face is a real tragedy. Sometimes they just take a day off without asking us. We also had to deal with theft a few times. We could never prove anything but we eventually found a way to get rid of that staff. Sometimes they have two jobs, one in the morning, one in the afternoon/evening. There was this one receptionist who used to disappear for his break for an hour leaving the reception unmanned at 7 pm when guests were going out for dinner or returning, or checking in. When we found out about that we gave him a warning but he even stayed away for more than 2 hours once afterwards upon which we let him go. He had 2 kids to look after in the evening until his wife came home who also had a job at a different hotel. And so on, and on, and on.

What made this entire situation with all that frustration really unbearable was the financial aspect, and I haven’t even begun to write about some crazy guests. We had invested a sizable amount of money and with all the repairs we couldn’t even break even when we paid ourselves a normal salary. The hotel did support us but nowhere near the level we were used to before. We didn’t expect to make $10,000 a month but at least expected compensation in line with Cambodian pay scales, which would have been $3,000 a month for 2. Whenever there was a profit that would have enabled us to that kind of pay we needed to spend the money on repairs, purchase of new equipment etc. It did get better the last 18 months when we finally managed to pay ourselves a bit more.

Operating a business requires working capital in addition to the actual investment, of course. A hotel our size had overheads in the amount of $11,000/month on average excluding our own pay. This is exactly the amount we thought we needed. In order to be on the safe side we put in $15,000, one year even $30,000 to tide us over those financial bottlenecks. Again, this situation eased up the last 18 months when we didn’t need any additional working capital as the liquidity was sufficient to fund the operation.

If the business had continued as in those 18 months we would have a moderately successful business worth our while. But then that construction craze encroached on our vicinity which made the location of the hotel so unattractive with two towering buildings next to our lot and accompanying noise that we feared that no Western guest would want to stay there come high season – hence our decision to get out of it; even if it meant without profit. Looking at the location right now we are just so glad we made that decision. With all the frustration we had suffered the last 4 ½ years, the financial worries, and now the prospect of no guests who would want to go on there. We made a clean cut, got our money back, including backpay, and that was it. Good riddance.

People reading this will certainly be discouraged to go into this kind of business here but what with all that is going on in this town we don’t think anybody is even remotely contemplating going into business, any business, here at all. It may be somewhat different in Phnom Penh which doesn’t have these pronounced seasons as a resort town but the sheer number of new hotels that have opened there pose a very serious problem for anybody who wants to invest there. So beware!

As mentioned in a previous article we returned the property to the owner who turned around and leased it to Chinese people at more than twice the rent we had paid. What these people want to do with this property baffles us to this day.

Monday, August 6, 2018

My Life as a Hotelier in Cambodia I

As I wrote in a past post I wanted to counter the declining prices of natural rubber on my rubber plantation by diversifying and investing in another business – a business that I was familiar with from my past professional experience as a tourism expert in Europe, the U. S., and Asia. Being a beach person and an avid boater I chose Sihanoukville – at that time the only resort town with acceptable beaches.

Before I describe the pitfalls that one encounters when opening and running a hotel in Cambodia I am going to start by writing about the booking portals that make life for small, independent hotels easy in terms of marketing but can become really frustrating to work with over time.

We opened the hotel in early January and were fully booked within a week or two for January and February, the best months in high season in Cambodia. Although we did have a relatively high share of walk-ins the majority of bookings came from booking.com, followed by agoda.com.

Booking.com is the largest hotel booking portal in the world, claiming to represent over 770,000 hotels world-wide. The major slogan is unbiased reviews citing numbers in the millions. That number can hardly be disputed but the word unbiased is a misnomer in my view. A hotel guest writing a review cannot be unbiased, he/she is subjective and judgmental. Their personal experience is not based on neutral criteria. Some guests think the rooms are rotten, others feel they are superb. Unbiased connotes fairness which we have found not to be true with a majority of guests. Some guests like the staff, e. g. single men if one of your female staff is pretty, others don’t. Some eat breakfast like gluttons, others are happy with a muesli.

Nevertheless, booking.com which was founded in the Netherlands and later sold to priceline.com had made enormous strides over time making it the one booking site that a small and independent hotel cannot ignore. In our case they contacted us immediately on learning that a new hotel was about to be opened. We never signed an agreement with them; they just went ahead and created a page on their website. We just furnished them with all the information and they did the work for us. Agoda.com worked the same way. We gave them our pricing (mid-market level for Sihanoukville from $30 to $50 initially, later up to $75 in high season) on which booking.com charged 15%, agoda.com charged 20%. Later this was raised to 18% for booking.com and lowered to 17% for agoda.com. The more commission you pay the better the exposure you get on their website, i.e. ‘recommended for you’ or placing your hotel on their first page. If you choose certain program features this will also elevate your position on their pages. We paid 18% and showed up as their recommendation on top of all choices about 50% of the time.

These rates may appear very high as commission rates for agents are normally 10%, and in exceptional cases 12%. But one has to consider that they have this enormous presence on all search engines for which they pay probably equally enormous amounts to appear on the first page when looking for a hotel, e. g. in Sihanoukville without giving a specific hotel name.

So you could argue that this is our marketing expense. We take care of the hotel and the guests and these two booking portals do the rest. It definitely is a beneficial relationship in this respect. As in any business relationship there are drawbacks. Booking.com does not collect the money upfront but only collects the payment details, i.e. credit card number without checking their veracity, etc. and lets the hotel charge the guests when they check in. This leaves the hotel with the risk of false credit card information, insufficient funds, etc. This is very irksome in case of no-shows, collection of cancellation fees, etc. We made spot-checks for certain guest groups which we knew from experience to be somewhat unreliable, Russians, Vietnamese, Cambodians, sometimes down-and-out Westerners. Upon notification by booking.com they were supposed to furnish us with correct details otherwise we had the option to cancel the booking. We tried out the ‘booking without credit card needed’ but that resulted in an increase of no-shows of more than 100% so we quickly abandoned that policy. Payment of commissions due booking.com are made by credit card online.

Agoda.com on the other hand collects the payment from the guests and we charged agoda on a virtual credit card that was authorized for the value of the booking. About 2 years in we added Expedia.com with its many subsidiaries but this did not result in a significant increase in bookings. We found that Expedia covers North America, Japan, Finland well for us as far as we could ascertain from the bookings. Since the majority of our guests originated in Europe, mostly Germany, Great Britain, France, the Netherlands, Scandinavia as well as Australia and New Zealand, the bookings coming from Expedia were negligible in terms of earnings despite the low 15% commission they charged. They also collected payments upfront, which was a plus.

So all in all everything would add up to a beneficial cooperation were it not for those so-called ‘unbiased’ reviews which can make or break a hotel. Since those booking portals are our marketing instrument per se and these days the majority of hotel (and flight bookings) bookings are made via the Internet people use and abuse their power on the Internet to a very large extent.

All booking portals have criteria in place by which a negative review can be removed. But these criteria are so broadly conceived and furthermore up to interpretation by the portal’s review team that hardly any review ever gets removed. The Internet is full of complaints about this from hotel owners all over the world. Guests can insult a hotel owner, misrepresent the facts, outright lie, the review will not be removed as this is the traveler’s experience. Insults are understood in different ways by different people. A Western rep might see this differently from, say, an Asian rep. This has happened to us many times. All portals state in their terms and conditions that a review is the guest’s personal opinion and experience and the portal cannot and does not accept any responsibility for the truthfulness. In addition guests can post anonymously. How does that help a hotel? If a guest uses profanity, sexual innuendo, etc. those reviews will be removed; after all those 3 portals are U. S. companies. Booking.com, agoda.com which is also owned by Priceline, and Expedia comprise about 90% of all online bookings worldwide. Booking.com alone has a share of over 70% of world-wide online hotel bookings. So what can a small hotel do against such behemoths? Their review policies are clearly unlawful as they commit unfair and deceptive trade practices as guests can post dishonest and untrue reviews harming the hotel’s business. There are EU and U. S. laws in place but an individual lawsuit is practically impossible as there must be clear and substantive evidence that the business suffered harm from those reviews. So a hotel would need to show the loss it suffered from harmful untrue reviews. Only a class action would bring relief as the totality of complaints would make presenting a case in court much more feasible. Those booking portals regularly state that only 2 rooms are still available, or this place is in high demand, so hurry and book quickly. Most of this is untrue and regulators in Europe stepped in and made this illegal. Now they say only two rooms on our site. This might now be legal and is advantageous for the hotel but it just goes to show that portals aren’t fair in serving their customers. The just want you to book there quickly; they don’t care which hotel, the main thing is the guests book.

All portals have a rating system from 1 to 10. You never see a 1 as I have never seen a 10 or even a 9.9 either. They start publishing ratings at 5.0. Booking.com used to let the guest choose from 4 choices, ‘ fair, good, very good, excellent’. Additionally a guest got to choose to rate five more criteria – cleanliness, staff, location, pricing, and service. They converted this into an average for all ratings a hotel got using a scale from 1 to 10, in other words, if you got a straight very good which would be a 7.5 it would show up as a 7.5 on their website but with a verbal rating of ‘good’ only. Requests to have this changed (not only by our hotel) resulted in a slightly modified system but it took years. Instead of ‘fair, good, very good, excellent’ they now introduced ‘poor, fair, good, excellent’. So if you got a straight ‘good’ you would now get a 7.5 and a ‘good’ rating on their site. If you averaged more than 8.0 you got a very good, and over 8.5 it was excellent, and 9.0 or more got an outstanding. So it was a slight improvement for those that before only got a good instead of the deserved very good.

When we started out we received excellent ratings on all portals. As time wore on this slipped down a 7.9 on all three sites in the end due to complaints about certain older rooms we had in a front building. The rooms around the pool would almost always get at least a very good rating. We couldn’t help this other than remodeling these rooms at very high expense which we had shunned as our aim was to recover our investment first.

In my view as a result from my experience these companies are by far too powerful and need to be split up. If you have a world-wide market share of over 70% it is a monopoly. Regulators are only now recognizing the immense influence of those huge internet companies like Google, Facebook, etc. Booking portals seems to have slipped by their attention so far, it seems.

Not for nothing are the big chains trying to move away from those third party booking portals. Large airlines now offer access to hotels through their websites, another indication of a widespread dissatisfaction. We also strived to lessen their impact on our business and for reasons unknown as we did not do any other marketing outside those portals we achieved a share of direct bookings, extensions, walk-ins, etc. of 35% which really significantly contributed to our financial success in the end. When I worked in this business way back there was no internet. Travel agents booked hotels directly by fax, or room allotments; granted, a much harder way of doing business. Complaints were handled by mail so never see the light of publicity. So the internet is both a boon and bane for hotels. A hotel owner really has to be on their toes to reap the benefits of the internet.