Wholesalers play an important part in hotel distribution, especially if you have large inventories to fill. But they’re also a major sore spot for the industry, with problems like rate leakage (when wholesalers pass on rates to OTAs who undercut the ‘brand.com’ site) often creating distribution nightmares.
To see what hoteliers should be doing to tackle rogue wholesale distribution, we caught up with Derek Brewster, Director of Revenue Management at Lotte New York Palace. Derek has played an instrumental role in the iconic Lotte New York Palace’s financial success and market share growth since 2015. He’s also a proud member of the Triptease Hotel Heroes panel.
The conversation with Derek below is taken from the Triptease Hotelier’s Guide to Wholesalers. Download the full report here for more tips and advice on tackling wholesale distribution.
Why do hoteliers choose to work with wholesalers and what are the benefits?
The short answer is to book rooms far in advance. I work at the largest luxury hotel in New York, with over 900 rooms, split between two experiences. We don’t do a lot of wholesale business in our five star hotel, which has a smaller inventory comprising suites. But the other hotel has over 700 rooms and it takes a lot to fill it - this is where wholesale comes into our strategy.
What I like about wholesale is what wholesale is supposed to be in theory: I sell my rooms to a wholesale partner at a discounted rate because they’re going to produce volume. That takes the pressure off us to fill those rooms in a short booking window. New York is pretty predictable. You know what’s going to happen - where you’re going to be high and low, where you’re going to be fine without base and when you’re going to need help. So that’s where we lean on our wholesale partners. We really value our wholesale partnerships and we have great partners. But the rate that we give them is not B2C (business to customer) - the customer should never know what that rate is.
What value do wholesale customers bring to a hotel?
Wholesale is important from an operations standpoint - it helps you reach guests that you want, especially the international ones that book longer stays. They’re staying six, seven, eight or nine nights which is invaluable - you’ve saved money servicing that room. It’s less expensive business, and they typically spend a lot at the outlets and everything else in the hotel. Your team needs to know that these customers have value.
Has your relationship with wholesalers changed since the pandemic?
We’ve dialed back a lot in our wholesale business since the pandemic. We’ve consciously uncoupled from a lot of partners - typically the ones that don’t produce any incremental volume. We also looked at whether we need to have a static rate with all of our partners. We have a handful of partners that we still give static rates to, but everyone else is on a dynamic model - so the rates flow off our BAR (best available rate). That means we can very easily adjust it in our system, and promotions are easier that way. We’re doing more with less people, which is necessary given we have less bandwidth.
Our overall mix that we attribute to wholesale now is a lot less. If the demand is there from a higher rated segment you’re not going to give it to the wholesale partner at the discounted rate. But to fill in the valleys - that’s where we continue to rely on wholesale.
What types of wholesale partners are you currently working with?
The wholesalers that are more attractive to us right now are the airline partners. Because they keep everything packaged - they do what they’re supposed to do and they don’t give those rates directly to the customer and they don’t end up on metasearch. We’ve trimmed back on bed banks because we don’t need the volume right now.
What’s your strategy for dealing with wholesalers and OTAs that are causing rate leakage issues?
It’s really hard to catch them because there’s not usually a direct correlation between the wholesaler that I have an agreement with and the OTA selling my rates at a massive discount. The challenge is that I don’t always have the energy to go down the rabbit hole of doing test bookings.
Once in a while I’ll do a sweep of metasearch and see what ‘random.com’ OTAs are out there. We have a lawyer on staff so we work together to create a really strong cease and desist email that I send out to the random.coms.
Once you find a contact at the OTA, then they typically take the rate down. But that doesn’t mean it will be gone forever because the next day they’ll change their name and come back again. It’s an exhausting process, so the way we approach it is that we have very strict language in our contracts with wholesalers. If we catch you once you’re in trouble, twice you’ll be blacked out for a few weeks, and if we catch you a third time we won’t work with you anymore.
What can hoteliers do to address the wholesaler problem?
We have a house reservations team and we will sometimes accidentally catch a wholesaler because a guest will call up, name the OTA they booked through and we’ll look that up and it’s one of our wholesalers. So that’s sometimes how we catch them.
Going after the OTAs alone won’t address the root cause. But at least if you can find a contact there you can stop it, rather than having to backtrack and find out which wholesaler was ultimately distributing the rates. The ultimate problem is 100% on the wholesaler - and that’s why we have a very low tolerance for onward distribution. If you do it and we catch you, you’re done.
How do you spot the signs of rate leakage?
In the Triptease Parity product you need to look for patterns in the data. That’s what’s great about the tool - you can see this is where guests on your site have actually searched specific dates. That’s the only way you can work it out. If on a selection of dates you’re getting all these hits and people are shopping you and there’s lots of disparities - find out who is responsible and shut them off!
How do you decide which wholesalers are right to partner with in the first place?
Talk to larger hotels in your market. You can start asking there - who are your favorite partners, who do you work with, who brings the most volume, who is on the naughty list? It’s pretty consistent who the bad players are.
Then get in contact with the good players and interview them to see if they would be a good fit. What markets do they service - is it an area of the world that you aren’t currently reaching? Because you don’t just want to replace current business - you want to expand your reach. As an independent hotel, we don’t have the reach that big brands do, and certainly not the reach of Expedia or Booking.com, so if the partner you’re talking to can expand your reach then they’re probably a good partner. Lastly, check what their technology stack is like and if they can work with dynamic rates.
What’s the most effective way to hold wholesalers to account?
It all comes down to forming good relationships with your wholesale partners. If you have a good relationship then you can make a quick call or send an email saying ‘this has to stop’. What’s interesting is that some hotels are ok with onward distribution from these bigger bed banks. They give them a rate and they’re ok with it being passed on. So that means that lots of these wholesalers who have relationships with random.com OTAs will naturally pass your rates on. You have to specifically ask to be put on the ‘do not distribute’ list. If you’ve done that and they’re still passing rates on, then hold them to account. Make sure it’s in your contract that they should not onward distribute your rates.
If there was one thing a hotel could do today to sort out their rate leakage problem what would that be?
Review who you work with, and really be ok with trimming down that list of partners. If they’re not holding up their end of the deal, get rid of them and tell the remaining partners ‘we don’t work with this partner anymore, can you replace their volume’.
It shouldn’t be any different to how your sales team approaches their account management - you should have good relationships with them. You don’t need twenty wholesale partners - if you have five good ones you don’t need the rest. Nobody has time for negativity so just get rid of them.
Enjoyed what you read? Don’t forget to catch Derek at the Triptease Direct Booking Summit in New Orleans on 25-26 October 2022. Visit the Direct Booking Summit website to book your tickets now.
Want to learn more about tackling wholesale distribution? Download the full Hotelier’s Guide to Wholesalers by filling in the form below.