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Regional Report: Hospitality, Restaurants & Tourism

A GPEC Virtual Series

The Greater Phoenix Economic Council (GPEC) hosted the latest installment of its virtual series, ‘Regional Report,’ to discuss the impacts of COVID-19 on the hospitality, restaurant and tourism industries. The hour-long discussion was moderated by Eric Sperling, managing director of The Social Television Network, and speakers included:

  • Steve Churci, president & CEO, Arizona Restaurant Association
  • Melissa Gogel, VP of Marketing, Tourism & Communications, Visit Phoenix
  • Kim Sabow, president & CEO, Arizona Lodging & Tourism Association
  • Michael Stavros, partner & director of Business Development, M Culinary

“Up until 2020 we were on an amazing growth trajectory,” said Michael Stavros, partner & director of business development at M Culinary, a local hospitality experiences provider. “The first two months of 2020, we were on an amazing growth trajectory. Then, something happened in March and a few things changed.”

Steve Churci, president & CEO of the Arizona Restaurant Association (ARA), illuminated the industry’s national success in 2019 and Arizona specifically, which has more than 9,500 establishments.

“Restaurants and customers coming through our [restaurants] doors, sitting at our tables or taking out, across the country last year, represented $900 billion in sales. This year, we were slated to be a trillion-dollar industry in the United States.”

Arizona restaurants generated $13.4 billion in revenue in 2019 and employed more 230,000 people with a daily payroll of $14.7 million.

“I could tell you I have never seen the devastation that this has had,” says Churci. “COVID-19 is an equal opportunity employer, it treats it friends and enemies the same, and eviscerates both. It has certainly done that to the restaurant industry.”

The ARA has seen cumulative daily payroll decrease to $2.5 million now and 75 percent of the industry workforce has been displaced. Looking at cumulative hospitality and restaurant figures, Churci says the state has lost $29 million a day.

Stavros described the events of March 10 that led to this drastic contraction. While attending Cater Source, the restaurant industry’s largest convention, attendees’ phones started ringing and buzzing with news of massive cancelations and postponements of events as the COVID-19 pandemic began to take hold.

“In a matter of 10-days, our entire industry globally ground to a halt,” he says. “We’d never seen anything like it, and I hope we never see anything like it again.”

Revenue streams and business sectors shrank almost immediately by 30, 40 percent. Others contracted by 90 percent, while some pieces of the business portfolio came to a complete standstill, he says.

In true Greater Phoenix spirit, one rooted in strength, collaboration and resilience, Stavros had to innovate and he’s proud of how the industry has banded together to work through the challenges the pandemic has presented.

“You’re seeing amazing development of people, of skills, of expanded portfolio or services. We’re doing things that before we wouldn’t have had to, not that we never would have, we just didn’t have to try them,” he says. “I’m just amazed and impressed by all of my colleagues throughout the industry who are struggling through this and finding new ways to rise above.”

Stavros spoke candidly about some of the struggles the restaurant industry had related to CARES Act programs, particularly the Paycheck Protection Program (PPP) funding and applicability within the sector. Despite the initial challenges so many business owners and industry leaders encountered from the onset of the Small Business Administration’s rollout, that capital ultimately provided stability.

“We’re also very grateful and thankful for those programs because that allowed us to bring back 25, 30 percent of our staff after laying off a significant portion of them,” he says. “Gave us the opportunity to build bridges within our financial structure to get to the other side of this.”

Churci emphasized to the audience how large of a food source the restaurant industry is to seniors throughout the community.

In just 48-hours, the ARA stood up ‘Arizona Takeout Week’ and in a short period of time had more than 750 takeout menus on its website from 1,500 locations across the state. To help displaced workers, ‘Arizona Restaurant Strong’ provided $500 grants to individuals and eased the financial burden by streamlining the application and deposit process to get people money within a two-day period. To-date, the fund has given away more than $350,000.

Navigating the reopening process and guidelines set forth by the state has been an intricate process to ensure patrons feel safe frequenting dining rooms, which could lead into the first quarter of 2021 when hotels and event venues may begin to host at full capacity, according to Stavros. However, there is room for optimism from a holistic perspective.

“Arizona ranks number three in the nation right now with strong success in reopening our dining rooms, so we’re very proud of that,” says Steve Churci. “What we’ve also witnessed is a good fortune and entrepreneurial style of restaurateurs. Restaurateurs are some of the most innovative entrepreneurs or people I’ve ever come to know.”

Pre-COVID-19, the economic success of the lodging and tourism sectors was massive. 2018 figures below:

  • 5 million overnight visitors
  • $24.4 billion direct visitor spending
  • 320,000 Arizona hospitality jobs
  • $3.6 billion generated in Arizona tax revenue

“Arizona’s lodging and tourism industry is a key economic driver for the state, producing 10 percent of our state’s general fund budget,” said Kim Sabow, president & CEO of the Arizona Lodging & Tourism Association (AZLTA), the leading statewide public policy organization advocating for Arizona’s hospitality, sports, lodging, and tourism industry.

“Enter 2020 and COVID-19, we are hit by one of the most devastating and unprecedented health and economic challenges in modern times,” says Sabow. “The impacts and the fallouts of this crisis in our industry were felt first and worst with impacts being immediate. The impacts have been equal to nine times that of 9/11 to put things into perspective.”

Historically, because of the region’s beautiful weather and attractions such as Spring Training, March represents Greater Phoenix’s peak season for visitors and the hospitality industry.

“All of that fell off the grid literally overnight. We would typically see our hotel and resorts experiencing 80 percent plus occupancy. Our occupancies dropped, they plummeted, to single-digit numbers.”

The data is grim when assessing the economic impact of COVID-19 as Sabow illustrated in her slide deck.

  • 90,000 hotel supported jobs lost in Arizona
  • 40 percent of hospitality jobs lost
  • $2 billion lost in state visitor spending

While deemed essential by Arizona Governor Doug Ducey, hotels and resorts weren’t able to offer amenities that draw visitors to renowned properties. Some locations closed entirely, but for those who remained opened, the situation was extremely challenging.

“It’s very difficult to sell a hotel room without a pool to offer, or a spa, dine-in restaurants,” she says.

Upon reopening and while always a priority for the industry, hotels and resorts will have to verify they can meet AZLTA’s AZSAFE+CLEAN Certification. The program was implemented in an effort to build consumer confidence and awareness about the safety and cleanliness of hotels and resorts in response to COVID-19.

Sabow’s renewed focus on her organization’s advocacy efforts will center around liability protections, Commercial Mortgage-backed Securities, additional PPP flexibility, creation of tourism and marketing authorities and additional tourism funding.

“There has never been a more important time to be advocating for publicly policy that puts our businesses in a position to recover and then also succeed. We’re an incredibly resilient industry that has rebounded from so many huge challenges, so I’m very optimistic that we will indeed rebound again.”

Tasked with driving tourism and attracting visitors from around the world to Greater Phoenix, Melissa Gogel, VP of Marketing, Tourism & Communications at Visit Phoenix, discussed the pivot her organization had to make as a result of the COVID-19 pandemic.

With typical destination travel no longer an option with restrictions and stay-at-home orders in place across the country, paid advertising efforts were paused in mid-March and was replaced by organic social media strategies to communicate with both Arizona residents and visitors. Digital efforts and crisis centric content was amplified, and Visit Phoenix supported the restaurant industry by immediately promoting takeout and delivery options, but also standing up virtual tours, Greater Phoenix-inspired at-home activities for kids, sharing local recipes and producing new videos to bolster the organization’s online presence.

Gogel spoke to the efforts made by dedicated teams overseeing meetings at the Phoenix Convention Center when the situation began to quickly change, and cancellations became fervent.

“They instituted a rebooking plan for COVID related to cancellations at the [Phoenix] convention center,” she says. “They collaborate to quickly respond to RFPs for future business and the hotels are keeping everybody updated with what’s happening at their properties.”

Gogel noted that the ability to keep the Visit Phoenix team intact has provided great benefit.

“That afforded us the opportunity to assist properties around the Greater Phoenix area that did have to reduce their staff,” she says. “We were able to step in and help them process meeting leads to keep momentum going for future business.”

The travel industry has been decimated as seen in the figures Gogel shared during her presentation. Pre-COVID-19, the U.S. travel industry contributed $2.6 trillion to the economy, supported 15.8 million American jobs overall – 8.9 million directly – and delivered a $69 billion trade surplus in 2019.

“The travel industry was clearly in a very strong place,” she says. “Due to the pandemic, the travel industry is expected to incur an economic loss of nine times that of September 11 and its unemployment is two times that of the worst year of The Great Depression.”

On a high note, the tide is turning as seen in recent U.S. travel industry data from U.S. Travel Association and Tourism Economics.

  • Travel spending advanced to its highest level since March in the week ending May 23rd, experiencing a 13 percent gain from the prior weeks.
  • Nationally, weekly travel spending rose to $3.4 billion during that same time period, aided by the start of Memorial Day Weekend and the slow reopening of society.

“This is all very encouraging and we’re so happy to see it, but we do still have a lot of ground to make up,” she says. “Head of the U.S. Travel Association estimated that it may take until 2022 to return to 2019 demand levels.”

Visit Phoenix will help drive future economic development with an initial campaign centered around driving Arizona residents to in-state hotels and resorts, followed by a dedicated effort to attract visitors within a relative driving distance, and then shifting to phase three which will incorporate short-haul flight markets.

Gogel noted that future convention business remains strong despite the drastic loss of current convention business. It will be a slow reintegration back into the convention model with the first likely in the 100-person range followed by up to 250.

Hospitality and restaurants at the core are about making people happy and creating unforgettable experiences for guests. Churci, reflecting upon the words of Dick Marriott during a recent conversation – which whom he sits on the board of the National Restaurant Association with – provided a boost of hope.

“He [Dick Marriott] pointed his finger and said let’s not forget we are the industry of happy and that’s what we still continue to do.”

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