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http://www.joe-duarte.com
Tales From The Road: Cost Cutting Evident In Hilton Hotels
by Dr Joe Duarte
November 16, 2009
Substituting Hustle For Largesse
Bare bones staffing, scrimping on in room ammenities, while shifting
emphasis toward service and well kept facilities is the new normal at
one Hilton Hotel.
What do you do if you have a string of prime properties but
suddenly can't pay the financing charges to keep the mortgages solvent?
Aside from trying to renegotiate the contracts and restructure the debt,
you restructure your cost structure.
And that was evident in our weekend visit to Wichita Falls,
Texas over the weekend, where the junior tennis juggernaut took this
scribe this month. This is a familiar spot for us, as last year's visit
allowed us to spot an important trend in the economy, the fact that
small towns that depend on a college were, at least at the time,
weathering the recession better than large cities.
Last year, we chronicled the state of two businesses, a local
Mexican restaurant, and a franchised Atlanta Bread restaurant. Both
shops were busy, based on location for Atlanta Bread, and on a pretty
good Mexican meal for the local south of the border shop. This year,
just to be consistent, and because we had good meals at both places, we
revisited.
We arrived at the Mexican shop, a place called "Los Tres
Amigos" around 6 PM. And to our surprise it was sparsely populated. Yet,
there were lots of waiters and hostesses hanging around. By the time we
left about an hour or so later, there was a line waiting to get in, the
bar was full, and the outside chairs where the tobacco aficionados hang
out were packed. So much for the recession here.
The story at Atlanta Bread was pretty much the same, both at
lunch and at dinner. Tables were crowded, both with locals, and tennis
players, coaches, and families. Again, no real change was evident here.
We visited a local Walgreen's and noticed some interesting
things. First, they had a liquor aisle. More interesting was the
discounting. Anyone who spent more than $30 got $5 off. And there were
lots of 2 for 1 offers for products that people actually use, not the
things that the store was trying to get rid of for lack of customer
interest.
When we asked a clerk about the booze aisle, he nonchalantly
told us that this was a growing trend in the company. Well, at least
you can buy the drinks and the morning after headache remedies together.
Even more significant change was evident was at the Homewood
Suites where we stayed. First, the parking lot was about three fourths
full, compared to last year, where it was hard to find a spot, even on
an early arrival.
Second, the front desk staff was very sparse. One clerk was
there at all times, but spent a lot of time in the back office,
suggesting that he or she was probably doing other things, such as
squaring the books and answering phone calls, instead of sitting at the
desk smiling.
The custodian staff was also different. Instead of the usual
female housekeepers, the lobby and halls were being swept by retirees
who were likely supplementing their lack of a COLA increase from social
security by cleaning the Hilton outpost.
Third, in the rooms, which were spotless, the coffee and tea
concessions were very spartan, with one coffee bag for regular and decaf
and two tea bags. There were only two cream and sugar setups available.
The same with the complementary shampoo and rinse. None of
these complementary articles were replaced on the second day of the
stay, since they were only partially used. In past stays at this hotel
the items were replaced automatically, whether they had been used or
not.
What we saw, though, was lots of hustle from the reduced staff.
Breakfast was set up earlier than usual. And the quality of the food was
actually better than the last time we stayed, when the eggs seemed to
have been extracted from the space station.
In fact, what we saw at the Hilton Homewood Suites is part of
the "New Normal," where cost cutting and rejiggering operations is
keeping companies afloat during periods of falling sales.
According to The Wall Street Journal: "A record number of U.S.
companies beat earnings expectations in the third quarter, but a big
portion of their profits came from cost-cutting, disappointing investors
who were hoping for boosts in revenue." In fact, the proof is that
productivity was a record high last month, surging to an over 9%
improvement, as more workders are doing double and even triple duty in
order to keep their jobs.
Sales translate to revenues. And when there are no sales, as
when the parking lot of a popular hotel in a small town is 3/4 empty,
revenues also fall. In fact, of the 32% of S & P 500 companies that
actually beat revenues expectations, these surprises "were heavily
concentrated among health-care and technology companies, and more
broadly among "intermediary" companies that make products, such as
semiconductors, rather than companies that sell finished goods or
services to consumers."
Conclusion
Several things stand out in this report. First, the trend of small
towns that depend on a college for part of their revenues still seem to
be holding up. The military base is also an important contributor to the
stability of this small city, as is the presence of sporting events,
which bring in outside money.
Second, the leisure industry is still under pressure and is
adjusting its business model in order to survive this downturn.
Third, local businesses that provide good value and quality
products and services seem to be holding up, despite the overall
difficulties in the economy.
What most people aren't saying, though, is that times are still
harder than they were, and that the "New Normal" is really another way
of saying survival. When drug stores are selling booze, you know times
are way different than even the biggest cynic would expect.
Walgreens (NYSE: WAG) Expands Into Liquor Sales
In an unusual move that may be a sign of the times Walgreens Company
(NYSE: WAG) is selling beer and wine at its drug stores.
Chart
Courtesy of StockCharts.com
Walgreens is the largest U.S. pharmacy retailer with over 7000
stores and fiscal 2009 sales of $63 billion. And its latest venture, is
to say the least, unusual, as the company is starting to sell beer and
wine at its stores.
Sales are up, a rarity in this climate, but the company, in a
November 3rd news release tells investors that pharmacy sales are
leading the charge. There is no mention of liquor sales, their
implementation or the company's expectations for the new product line.
The emphasis on the company's web site is still on pharmacy
products and wellness.
The stock has done well, having nearly doubled since the stock
market bottomed in March. A move above 40 would likely lead to higher
prices.
We are intrigued by this development, and will be watching it
closely. The real question is why a company that focuses on health is
adding liquor to its sales offerings.
We are neither recommeding the sale or the purchase of WAG. The
purpose of this article is to educate subscribers as to the presence of
an interesting trend in the market. Dr. Duarte does not own or short
shares of WAG.
To subscribed to Dr Duarte's market Intelligence
reports, which are emailed daily "before the open" to subscribers,
please visit our website at http://www.joe-duarte.com
Contact information:
email: support@joe-duarte.com
Phone: 434
823-8181
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