TABLE OF CONTENTS

ACKNOWLEDGMENT 6
EXECUTIVE SUMMARY 8
I. INTRODUCTION 12

II. INDUSTRY ANALYSIS 19

A. Definition of the MACRO Industry 19
B. Industry / Sector Characteristics 21
1. Profile and Size 21
2. Industry Profitability, Average Growth Rate, and CAGR 26
3. Industry Life Cycle 29
4. Product Characteristics 32
5. Technology / Innovation 35
C. Key Success Factors in the Industry 37
III.EXTERNAL ENVIRONMENT ANALYSIS 45
A. MACRO 45
1. General Economic Conditions and Forecast 45
2. Legislation and Political Aspects 50
3. Population and Demographics 54
4. Societal values and Lifestyles 57
5. Technology 61
6. Global segment 65
B. Immediate industry and competitive environment (Porter’s Analysis) 69
1. Suppliers 69
2. Rival firms 70
3. Buyers 71
4. Substitute products 72
Strategic Management Paper on Grand Plaza Hotel Corporation
5. New entrants 73
C. Threats and Opportunities 74
D. EFE Matrix 77
E. Strategic Issues based on External Factors 78
IV.INTERNAL ENVIRONMENT ANALYSIS 82

A. Company Resources and Capabilities 82

B. Competitive Position 83

C. Value Chain Analysis 85

D. Financial Analysis 87
1. Horizontal Analysis 88
2. Vertical Analysis 95
a. Analysis of Liquidity 95
b. Asset Management / Operating Efficiency 97
c. Profitability 101
d. Analysis of Debt Ratios / Financial Leverage 102
e. Dupont Analysis 106
E. IFE Matrix 108
F. Strategic Issues based on Internal Factors 109
V. STRATEGY FORMULATION 111

A. SWOT Matrix 111

B. SPACE Matrix 114

C. Boston Consulting Group (BCG) Matrix 117

D. Internal - External Matrix 120
Strategic Management Paper on Grand Plaza Hotel Corporation
E. GRAND Strategy Matrix 122

F. Summary of Strategies 124

G. Quantitative Strategic Planning Matrix 126

H. Justification of Chosen Strategy / Strategies 128

VI. STRATEGY PLAN 129

A. Vision and Mission 129

B. Objectives (short term and long term) 131
1. Strategic 131
2. Financial 131
C. Recommended Business Strategy 132
D. Corporate Social Responsibility 132
E. Financial Projections 136
1. Horizontal Analysis 137
2. Vertical Analysis 145
a. Analysis of Liquidity 145
b. Asset Management / Operating Efficiency 145
c. Profitability 151
d. Analysis of Debt Ratios / Financial Leverage 152
e. Dupont Analysis 153
F. Supporting Functional Strategies 154
1. Production/Operations 154
2. Marketing/Sales 156
3. Finance 157
4. Personnel 158
5. MIS/IT 158
Strategic Management Paper on Grand Plaza Hotel Corporation
VII. IMPLEMENTATION AND CONTROL 160

A. The Balanced Scorecard 160

B. Contingency Planning 163

References 166
Appendices 174
 ACKNOWLEDGMENT

The authors of this strategic management paper express their profound

gratitude to two Cecile’s who contributed in completing this capstone requirement
for their Masters in Business Administration (MBA) studies at the Pamantasan ng
Lungsod ng Manila (PLM).

The first Cecile is Dr. Cecile P. Santiago, their adviser for their final course,
MBA 649 – Strategic Management Paper, who meticulously and laboriously
provided them crucial inputs during the development of this paper on a per chapter
and section basis, making sure that the authors get to understand and appreciate
the concepts as well as be able to practically apply it in their chosen company to
do strategic management for, which is Grand Plaza Hotel Corporation (GPHC).
Despite the constraints of virtual learning and the prescribed minimum requirement
of conducting online classes for only 50% of the allotted class time, Dr. Santiago
went out of her way to spend hours on end with the four groups in the class,
including the group made up of the authors of this paper. The learning and
experience that the authors picked up from Dr. Santiago and the process she
made them go through will forever be the highlight and pinnacle of their MBA
studies.

The second Cecile is Ms. Cecille G. Bernardo, Administrative and Corporate

Relations Manager of GPHC for being the group’s main source of information and
critical inputs relative to the past and present operations of the company as well as
some of the company plans in the pipeline. Despite her hectic schedule with GPHC
and the constraints of the pandemic, she took the time out to provide a generous
amount of time to meet the members of the group virtually to patiently answer
questions in the most straight-forward and practical manner possible, giving the
authors key internal inputs prior to strategy formulation and the development of a
strategy plan. She was likewise very supportive of the group’s efforts to do
strategic management for their company, providing the authors with copies of the
audited financial statements of GPHC from 2015 to 2019 as well as other
6|Page
 documents that were useful for the crafting of strategies and the ensuing action
plans thereof. More importantly, Ms. Bernardo gave the authors the formal
approval, on behalf of the GPHC management, to use their esteemed company for
developing a strategic management paper for on the simplest of condition that the
authors shall provide her and GPHC a copy of the final paper. The authors are
sincerely grateful to her for her amazing support at a time when the country and
the whole world are in the midst of a pandemic. And of course to GPHC
management as well.

Finally, the authors would also like to express their gratitude to the four
veteran staff of The Heritage Hotel Manila – Ms. Gemma Cruda, Mr. Jayjay Bagui,
and Ms. Eva of the F&B department as well as Mr. Noy of the hotel front desk
- for graciously being accommodating in answering some face-to-face questions
related to ground efforts for internal environment evaluation and analysis while
taking into account health and social distancing protocols. With all of them having
been employed with the hotel for 24 years or more, they most certainly provided
additional information with regards to hotel operations and its rich history. Their
respective inputs helped put better context to some of the internal processes and
core competencies of GPHC for The Heritage Hotel Manila. Those key information
were integrated during the strategy formulation process as well as in the
development of the strategy plan itself for GPHC.

7|Page
 EXECUTIVE SUMMARY

Grand Plaza Hotel Corporation (GPHC) was established in 1989 to own and
operate hotels, resorts, inns, and other similar tourism establishments in the
Philippines. Its first and only acquisition however was the former The Regent of
Manila, which it demolished and reconstructed to become what is now known as
The Heritage Hotel Manila, a four-star hotel by the Department of Tourism’s
accreditation classification. The hotel officially opened its doors in 1994. GPHC is
also part of the Millennium & Copthorne (M&C) chain of international hotels and
resorts operating from the United Kingdom. However, M&C’s parent company is
now City Developments Limited (CDL), also known as CityDev. It is a Singaporean-
based multinational real estate operating organization that is also part of a bigger
Singaporean financial group known as Hong Leong Financial Group (City
Developments Limited, 2020).

As a company, GPHC has three main operating segments – rooms, food and
beverage, which are basically what The Heritage Hotel Manila offers to guests, and
leasing. From its inaugural in the mid-90s all the way to late 2000s, The Heritage
Hotel Manila was among the preferred hotels of choice of both foreign and local
tourists, evidenced by its 80% to 100% occupancy rates. It further put itself in Metro
Manila’s entertainment map when the Philippine Amusement and Gaming
Corporation (PAGCOR) decided to lease some 5,000 square meters of floor space
to house a Casino Filipino. The hotel also became famous for the kind of buffet it
was serving at its Riviera Restaurant, its main F&B outlet, after the Department of
Tourism recognized their palate offering as the ‘Mother of All Buffets,’ making The
Heritage Hotel Manila an excellent destination and hang-out for food enthusiasts
who also put premium on value for money.

However, the emergence of the 44-hectare Entertainment City Manila

beginning in 2007, five years after it was envisioned by PAGCOR as an integrated
casino-resorts complex in 2002, at the Pasay City reclamation area (Entertainment
8|Page
 City Manila, 2020), has changed the landscape of the accommodation and food and
beverage industry in Metro Manila. International property developer Jones Lang
LaSalle (JLL) envisioned Entertainment City Manila as Asia’s Las Vegas-like
entertainment complex which upon full completion will add 7,700 hotel rooms for
tourists that are expected to flock to Manila as a result. Thus, The Heritage Hotel
Manila of GPHC and other hotels near Entertainment City Manila have since saw
their occupancy rates decline as new and bigger hotels in the area also started
getting sizeable chunks of the market in an already competitive environment.

It also did not help the cause of GPHC to remain competitive when PAGCOR
decided in 2013 to terminate its lease contract for Casino Filipino at The Heritage
Hotel Manila. Until the termination of the agreement, income from PAGCOR’s lease
contract with GPHC actually accounted for almost 20% of its revenues. GPHC has
since saw declining revenues as a result. With an unfavorable external environment
getting in the way of earning revenues in the last five to six years prior to 2019, the
GPHC management decided to focus on internal control by streamlining its
operations, gradually reducing its administrative expenses in running and managing
The Heritage Hotel Manila. The efforts finally bore fruits as GPCH managed to show
a PhP2.4 million net income at the end of 2019 following six years of negative
results.

Under this context that the strategic management process was applied and
undertaken for GPHC with the ultimate goal of enabling The Heritage Hotel Manila
to get back on the competitive track in the local accommodation and food and
beverage services industry.

A research on the GPHC external environment and the ensuing analysis

revealed the threats and opportunities that the company faces, which continue to be
accentuated by the Covid-19 pandemic that practically swept international
businesses off of its feet in almost the entire 2020. While threats in the external
environment continue to loom large, the opportunities nonetheless show that there
is obviously hope for a profit turnaround and sustained growth for GPHC in the
years moving forward. The research on the company’s internal environment
anchored on the five-year audited financial statements of GPHC from 2015 to 2019
9|Page
 and several interviews with company officials and staff showed its key strengths and
critical weaknesses. The company still has the core competencies that it was able to
translate to distinct advantage and eventually to competitive advantages when it
made waves in the business from the late 90s to the 2000s.

Using the strengths, weaknesses, opportunities and threats of GPHC

obtained from both the external and internal environment analyses, a methodical
strategy formulation process was undertaken by plotting the results on the
prescribed strategic management tools and matrixes including SWOT-TOWS,
SPACE (strategic position and action evaluation), Boston Consulting Group (BCG),
I/E (internal/external), and Grand Strategy. The collective results were in unison to
indicate the strategies needed to be applied has to fall under three of the 16
applicable general strategies – market penetration, product development, and
unrelated diversification. By market penetration and product development, it was
clear that the strategies needed should focus on improving the offerings of GPHC
through The Heritage Hotel Manila by way of aggressive marketing programs and
initiatives and also working on providing an upgraded product or service to guests
and clients. As for unrelated diversification, given that leasing has once been a
potential revenue-generator for the company, GPHC needs a reboot on its leasing
activities to enable the segment to contribute to its revenue coffers. The chosen
strategy and alternative strategies were then placed and given their corresponding
weight using the Quantitative Strategic Planning Matrix (QSPM).

The results of the strategy formulation process necessitates an update on the

GPHC vision and mission from where long-term strategic and financial objectives
were derived. Three years have been considered as long-term for the strategic
planning process starting from 2021 to 2023. The year 2020 was taken out of the
picture for two main reasons: 1. The strategic management process was undertaken
towards the end of 2020 and audited financial statements for the year were still not
available; and 2. The year 2020 was an anomaly in business because of the Covid-
19 pandemic. Basically, the overall objective, which has been proven to be SMART
(specific, measurable, attainable, realistic, and time-bound), of the strategic
management plan is to raise the revenues of GPHC by at least 20% on the third
10 | P a g e
 year or at the end of 2023 anchored on improved results on the company’s three
operating segments. From this overall objective, the recommended business
competitive approach is broad low-cost strategy which would enable GPHC to
achieve broad lower costs than its competitors on comparable services that attract a
broad spectrum of buyers or guests (Thompson, Peteraf, Gamble, & Strickland,
2020).

A three-year financial projection was also developed taking into account the
key factors and financial ratios to achieve both the strategic and financial objectives.
Given that emphasis of strategy is on aggressive marketing campaign and
upgrading of service offerings, a capital infusion of PhP75 million spread over the
next three years was also important in order to bankroll the planned activities. It is
expected that GPHC shall be able to defray the cost of this capital expense for
aggressive marketing campaign and service upgrading once its leasing segment
gets back on track. Subsequently, functional strategies were developed for the five
key departments of GPHC including operations, marketing, finance, human
resource, and management information systems (MIS) / information technology (IT)
that are all aligned to the overall business strategy.

For strategy implementation and control, the balanced scorecard was used to
ensure that the chosen strategy as well as the alternative strategies are all
actionable based on the four perspectives of customer, finance, internal process, as
well as learning and growth. While there is a high degree of trust and confidence on
the applicability of the chosen strategy as well as the alternative strategies to enable
GPHC to meet its long-term strategic and financial objectives, contingency planning
was also made to ensure that the company will have a fallback and has a recourse
to take in the event that initial results of the chosen strategies or alternative
strategies did not came out as planned or expected. Typical with a strategic plan, it
is expected that a redirection or recourse can be made before the end of the first
year (2021) and every year thereafter as needed.

11 | P a g e
I. INTRODUCTION

Grand Plaza Hotel Corporation (GPHC) was established and registered with
the Securities and Exchange Commission (SEC) on August 9, 1989 to own
and operate hotels, resorts, inns, and other tourist establishments in the
Philippines. The establishment of the Philippine company was also in line
with the decision of the Hong Leong Investment Holdings Pte. Ltd. of
Singapore to venture into the services business, particularly the hotel and
leisure subsector, in the same year through the Millennium and Copthorne
Hotels (M&C) Limited international hotel and resorts chain. M&C immediately
went on an acquisition binge, acquiring six hotels in Asia including what was
then known as The Regent of Manila (Millennium Hotels and Resorts, 2020).
M&C’s acquisition was made using GPHC which was granted by the SEC a
50-year corporate life and an approved paid-up capital of PhP 115 million. As
of the last stockholders meeting of GPHC on July 8, 2020, the company’s
paid up capital is now valued at PhP1.15 billion, as per its latest General
Information Sheet (GIS) submitted to SEC and attached as Appendix A.
Upon its acquisition and formal takeover of the property in 1989 where the
former The Regent of Manila was located, GPHC started the demolition of
the old structure and began the multi-year construction of what is now known
as The Heritage Hotel Manila. The hotel formally opened its doors to the
public on August 2, 1994.

Operating Segments

GPHC has three operating segments where it derives its revenues from and
these are as follows:

1. Room Division

2. Food & Beverage

3. Other operational departments and leasing

As owner and operator of The Heritage Hotel Manila, its main sources of
revenue are from its 468 rooms and food and beverage service activities
offered to hotel guests and visitors on its several dining areas, lounge, and
cafes, among others. The third revenue segment are from all the other
operational departments of GPHC with the bulk of which previously coming
from the multi-year rental of the Philippine Amusement and Gaming
Corporation (PAGCOR) for operating Casino Filipino at the Roxas Boulevard
side of The Heritage Hotel Manila in Pasay City.

Figure 1.1
The Heritage Hotel Manila façade along EDSA in Pasay City

Source: Millennium & Copthorne website

The Heritage Hotel Manila is classified as a four-star hotel by the

Department of Tourism (DOT). It is one of the nine (9) four-star hotels in
Pasay City and is also one of a total of 189 hotel and accommodation
establishments in the same city. (Traveloka, 2020). From the previous
classification system of rating accommodation establishments as Economy,
Standard, First-Class and Deluxe for hotels and A, AA, and AAA for resorts,
the DOT adopted a star-rating system for hotels and resorts across the

12
country late in 2014 (Calleja, 2014). The shift was meant to harness the bid
of the Philippine tourism industry to be globally competitive because star-
rating system is internationally-acceptable and globally used.

Hotel Offerings

The Heritage Hotel Manila is a deluxe hotel which has 468 rooms and offers
deluxe amenities to guests including restaurants, ballrooms, and until 2013,
a casino. It has a café and a lobby lounge with piano to provide a soothing
ambience to guests the moment they step in to the hotel. There are also
other amenities at The Heritage Hotel Manila and these include an outdoor
pool, a hot tub, a fitness center, and a sauna. The hotel features traditional
furnishings and marble bathrooms. It also has bright rooms and suites that
comes with cable TV, free Wi-Fi, minibars, as well as tea and coffeemakers.
Suites have spacious areas with living rooms and between two to three
bedrooms. Guests at the hotel’s club rooms and suites have access to a
lounge that provide complimentary breakfast, snacks, and a butler service. It
also has a business center for the workaholic guests.

Directors and Management

Since GPHC is a subsidiary company of M&C, the composition of its Board

of Directors is a mix of Filipino and foreign executives. The Philippine Fund
Limited (TPFL), a corporation organized in the Island of Bermuda, owns 54%
of the company. TPFL has Hong Leong Investment Holdings Pte. Ltd. for its
parent company, thus making GPHC the only hotel in the Philippines whose
majority owners are foreign-based and officially at that. While many tourism
establishments in the country claim to be 60% owned by Filipinos and only
40% by foreigners, the set-up is just on paper but the actual ownership and
management is left to the foreign entities. Obviously, the arrangement has
something to do with compliance with Republic Act No. 7042 also known as
the Foreign Investments Act. While the law, which was eventually amended
13
by RA No. 8179, has been crafted to attract, promote and welcome foreign
investments from individuals, partnerships, corporations, and governments
as a supplement to Filipino capital and technology, the most that foreigners
can invest is 40% for non-domestic market enterprises. Foreign entities can
invest as much as 100% equity on export enterprises or in domestic market
enterprises except those in sectors that have been considered by the law as
a negative list (BOI, 2018). Hotel and leisure establishments cannot be
considered domestic market enterprises thus the foreign investment cap
applies. But Hong Leong managed to find a legal way to do it on GPHC
through TPFL. Incidentally, the Philippine foreign investment policy got
thrusted into the controversial limelight immediately after the onset of the
pandemic in March 2020 when the House of Representatives approved a bill
allowing 100% percent foreign ownership in power, transport, and
communications sectors (Luna, 2020), which were previously part of the
negative list under RA No. 7042, as amended by RA No. 8179. There is still
no law to this date to update the Foreign Investments Act as the Senate has
yet to pass a counterpart bill to support the House bill.

The composition of the Board of Directors of Grand Plaza Hotel Corporation

is as follows:

Position Name

Chairman Tan Kian Seng

Vice Chairman Bryan K. Cockrell

Director Antonio Rufino

Director Eddie Yeo Ban Heng

Director Wong Kok Ho

Independent Director Rene Y. Soriano

Independent Director Mia G. Gentugaya

14
Of the seven members of the GPHC Board of Directors, three are Filipinos,
three are Singaporeans, and one is an American national. In terms of
management officers, the top three positions in the GPHC are being held by
Singaporeans, indicating clear control of M&C on the overall operations and
directions of GPHC and The Heritage Hotel Manila. This is also very evident
in the website of the hotel which is under the group website of Millennium
Hotels and Resorts (www.millenniumhotels.com) with a corporate mantra of
“More Than Meets the Eye.” Even the latest consolidated annual report of
the M&C only indicates that GPHC is part of a bigger Singapore-based
organization which now has investments or presence in Asia, the US, and
Europe.

The key management officers of GPHC are the following:

Position Name

President Tan Kian Seng

Vice President, General Manager Eddie Yao Ban Heng

of The Heritage Hotel Manila, and
Assistant Compliance Officer

General Manager of Grand Plaza Yam Kit Sung

Hotel, Chief Financial Officer,
Chief Audit Executive, and
Compliance Officer

Treasurer Arlene B. De Guzman

Corporate Secretary Alain Charles J. Veloso

Assistant Corporate Ariane Mae Vallada

Secretary

Data Protection Officer Ederlinda Decano

15
As can be gleaned from the roster of GPHC management officers, three
Singaporeans from M&C are pretty much holding three or more positions
each in the company indicating that the significant interest of the Hong
Leong Financial Group in the company and the hotel it operates – The
Heritage Hotel Manila. Meanwhile, the corporate senior management
structure of GPHC is shown in the figure below:

Figure 1.2
GPHC Senior Management Structure

16
 Source: GPHC management

Covid-19

GPHC parent company M&C reported that the novel coronavirus, Covid-19,
has had and continues to have a negative impact in its hotel operations all
over the world. The lockdowns and social distancing guidelines and
requirements in Europe, the US, Asia, and Australasia, as well as the travel
restrictions in various jurisdictions, have resulted in hotel closures and,
where hotels remain open, significantly low occupancy levels. This has
resulted in significantly lower revenue and profit towards the end of 2019
when the virus from China was first reported until this time. Although the full
financial impact of the pandemic on the current financial year ending 31
December 2020 has yet to be confirmed pending the audit of financial
results, M&C has considered a range of scenarios to understand the
potential impact on its business and have implemented appropriate
mitigation measures, including the consideration of alternative customer
segments and revenue opportunities, such as housing patients and
supporting healthcare and other essential workers, as well as the
implementation of robust cost control measures.

In the quarterly report disclosure of GPHC with the Securities and Exchange
17
Commission for the second quarter of 2020 covering the period from April 1
to June 30, 2020 (enclosed as Appendix B), the same period when the hard
lockdowns or the Enhanced Community Quarantine and Modified Enhanced
Community Quarantine were imposed in Metro Manila, the company’s total
revenue dropped by PhP 22 million compared to the second quarter of 2019,
which is a significant 11% decline. Of the three main operating segments or
the profit centers of GPHC, however, one of them actually reported a
revenue increase of 0.9%, which is basically the company’s rental
operations. But the two bread-and-butter segments of GPHC, as expected,
reported decline in profits, as summarized in Table 1.1:

Table 1.1
2nd Quarter 2020 vs 2nd Quarter 2019 results of GPHC operating segments

GPHC 2nd Quarter 2020 2nd Quarter 2019 Percentage

Operational in million PhP in million PhP Change
Segments

Room Division 127 130.6 3%

Food and 39.8 56.7 30%

Beverage

Other operated 5.5 4.6 0.9%

departments
and rental

18
Interestingly, the drop in the room revenues of GPHC in The Heritage Hotel
Source:
F&B GPHC SEC 2Q Apparently,
2020 Filing
Manila is not as pronounced as the decline in its operations.
GPHC has benefitted from the directive of Pasay City Mayor Emi Calixto-
Rubiano in March requiring all hotels, motels, and hostels in the city to
accommodate Filipino migrant workers who will either leave or enter the
Philippines (Marquez, 2020). It was a decision made by the Pasay City local
government unit following its meeting with the officials of the Overseas
Workers Welfare Administration (OWWA). The Pasay City mayor also said
that the hotels, motels, and hostels are needed to provide shelter while
OFWs are being subjected to the required quarantine period upon their
arrival from abroad or prior to their departure.

Part of the requirement on hotels is to follow the health protocols such as

social distancing to contribute to efforts to prevent the spread of Covid-19.
GPHC did not have any issues complying with the requirements of the Pasay
City LGU in as far as accommodating OFWs are concerned because that is
basically the same strategy that was used by the other hotels under the M&C
Group across the world. The decline in the revenue of the GPHC room
division is primarily due to the fact that the hotel simply cannot operate in full
capacity given the social distancing protocols.

Although The Heritage Hotel Manila accommodated OFWs while they were
all in their respective quarantine period, the hotel’s restaurants and other
F&B facilities were not open at all. Food were served on the OFW-guests in
their respective rooms and they are also not allowed to loiter or move around
the hotel. Any official or essential travel should have the prior approval of the
respective manning agencies of the OFWs and the Philippine Coast Guard
(PCG) personnel who were tasked to ensure that everyone complies with the
health and safety protocols as outlined by OWWA and the Pasay City LGU
19
 and overall supervision of the Inter-Agency Task Force on Emerging
Infectious Disease (IATF - EID).

II. INDUSTRY ANALYSIS

A. Definition of MACRO

As a business, Grand Plaza Hotel Corporation (GPHC) falls under Section I

industry description listed in the 2009 Philippine Standard Industry
Classification (PSIC) as Accommodation and Food Service Activities (PSA,
2020) and also under Real Estate Activities since it has a leasing component
as one of its offerings.
Figure 2.1
The 2009 PSIC of PSA

Businesses under the

Accommodation and Food
Service Activities
classification includes
those providing short-stay
accommodation for visitors
and other travelers as well
as the provision of
complete meals and drinks
that are fit for immediate
consumption. Enterprises
engaged in real estate
activities also include
acting as lessors and
renting real estate or
commercial properties or
spaces carried out either Source: PSA website
in owned or leased
property and may be done for a fee or on contract basis.

20
The 2009 PSIC was patterned after the UN International Standard for
Industrial Classification (ISIC) incorporating several modification to make it
attune to the Philippine business context and requirements. The revised
PSIC already includes the changes in economic industries, emergence of
new industry, and the structure of the Philippine economy. It also takes into
account the new technologies being employed in the Philippine business
community which impact the organization of production and shifting of
economic activities. It also realigns with the ISIC for the purposes of
international compatibility (PSA, 2020).

Section I classification is further divided into two divisions, namely: Division

55 – Accommodation, and Division 56 - Food and Beverage Service
Activities. Division 55 includes businesses engaged in the provision of short-
stay accommodation for visitors and other travelers but already includes the
provision of longer-term accommodation for students, workers, and similar
individuals. Under the division, businesses may provide accommodation only
while others may opt to provide a combination of accommodation, meals,
and use of recreational facilities.

Division 56 includes business engaged in food and beverage serving

activities specifically restaurants, providing complete meals or drinks fit for
immediate consumption. As GPHC owns and operates The Heritage Hotel
Manila which has several food and beverage outlets, these facilities are
basically classified as restaurants too, although their main clientele are those
staying in the hotel or those who are visiting the hotel for an official purpose
or meeting guests that are staying in the hotel.

GPHC’s leasing activities fall under Division 68 Section L of the PSIC 2009
which covers activities such including renting and operating of self-owned or
leased real estate such as apartment buildings and dwellings. GPHC owns

21
 the real estate occupied by The Heritage Hotel Manila and is thus able to
lease to interested lessees some parts of the property based on its stipulated
terms or contract of lease.

B. Industry / Sector Characteristics

1. Profile and Size

Based on the final results of the 2017 Annual Survey of Philippine Business
and Industry (ASPBI) that was released on September 18, 2019, there are a
total of 28,932 business establishments engaged in the accommodation and
food service activities in the country. The total number of establishments in
2017 was actually down by 6.3% from the 30,889 establishments recorded in
2016. (PSA, 2019).

Table 2.1
Comparative Summary Statistics for All Accommodation and Food Service
Establishments in the Philippines, 2016 and 2017

Source: PSA website

Based on the percentage distribution of the total number of

accommodation and food services activities sector by industry group in
2017, accommodation, where GPHC primarily falls into, accounts for a
combined 14.9% (13.8% for short-term accommodation activities and
22
1,1% for other accommodation). The distribution is illustrated via a pie
graph in Figure 2.2.

Figure 2.2
Percentage Distribution of All Accommodation and Food Service
Establishments by Industry Group in the Philippines, 2017

Source: PSA website

The value of the accommodation and food service activities as an

industry in the Philippines was pegged at PhP545.9 billion as of 2017
based in the 2017 ASPBI final report (PSA, 2019). It decreased by 0.9%
from its value of PhP551.1 billion in 2016. Of the PhP545.9 billion value in
2017, 66% of it or PhP360.3 billion was from food and beverage service
activities including restaurants and mobile food service activities. Income
from short-term accommodation activities was a distant second with
27.1% or PhP147.9 billion. The remaining 6.9% of the income are shared
by businesses engaged in beverage serving activities such as bars,
cafes; event catering and other food service activities; and other
accommodation services.

23
There is no official published data to indicate the actual value or size of
the accommodation and food service activities industry as of the end of
2019. Interestingly, the accommodation sector grew by 18.92% and
13.02% as of 2018 (Sanchez, 2020). From this data, the value or size of
the accommodation business in the Philippines was PhP175.88 billion
while the food service activities already had a worth of PhP407.21 billion
as of the end of 2018.

Hotels are considered as part of the Philippine tourism industry which

encompasses travel, tourism, and hospitality. Apparently, hotels fall under
the hospitality segment of the tourism industry and that a good part of the
segment’s revenues year-in and year-out are derived from tourist arrivals.
The Department of Tourism (DOT) has oversight function on Philippine
hotels as well. The department may not be involved in the operations of
local hotels but in terms of accreditation for benchmarks and standards
as well as star ratings, it has the say in it. Thus, a DOT accreditation or
thumb of approval on local hotels is tantamount to an endorsement from
the millions of tourists arriving to the Philippines every year, with each
one striving hard to get a piece of the big pie using various marketing and
promotions strategies.

Based on the 2019 Philippine Tourism Statistics Report prepared by the

Statistics, Economic Analysis, and Information Management Division of
the DOT, the Philippines has had 8,260,913 visitor arrivals in 2019. It’s an
increase of 15.24% from 2018. However, it is almost sure that the double-
digit increase in tourist arrivals in 2019 has already been negated by the
onset of the pandemic and the ensuing quarantine and travel restrictions
imposed by the Philippine government from March until September,
wherein the government even required foreigners to have visa prior to
entering the Philippines if they would stay in the country beyond 30 days
(DFA, 2020).
24
 From the total number of tourist arrivals in the Philippines in 2019, the top
three nationalities are Koreans, Chinese, and Americans based on the
graph below, with comparative 2018 figures too.

Figure 2.2
Top Foreign Visitors in the Philippines by Country in 2019 and 2018

Source: Department of Tourism (DOT) 2019 Report

In terms of number of existing accommodation establishments and total

number of rooms to cater to these foreign tourist arrivals, the Philippines
has a total of 13,336 hotels offering 289,168 rooms in all of the country’s
16 regions nationwide, based on the Accommodation Capacity Survey of
2019 also conducted by DOT. NCR, where the country’s capital is
located, leads with the most number of hotels followed closely by Region
VII where the provinces of Cebu and Bohol are part of, given the
abundance of hotels and resorts there. The tally is indicated in Table 2.2.

25
 Table 2.2
2019 Philippine Accommodation Capacity Survey

Source: Department of Tourism

There is no official published data indicating the respective market shares

of players in the hospitality or hotel segment of the tourism industry. But
estimated market size based on PSA baseline data as of end 2018 was
PhP175.88 billion. GPHC posted gross sales of PhP413.78 million as of
the end of the same year indicated in Table 2.3 and also validated by the
company’s 2018 audited financial statements enclosed as Appendix C.
Table 2.3
Top 10 Four-Star Hotels in Metro Manila, Based on 2018 Revenues

26
RANK TRADE NAME ADDRESS REVENUE
1 Novotel Manila Araneta Gen Aguinaldo Ave., Cubao ,Quezon City 654,121,732
2 Century Park Hotel 599 Pablo Ocampo St., Manila 632,038,151
3 Eastwood Richmonde Hotel 17 Orchard Road, Eastwood City, Bagumbayan, Q.C. 575,583,096
4 Seda BGC Seda BGC, 30th St., cor., 11th Avenue, BGC 480,793,432
5 The Heritage Hotel Roxas Boulevard cor. Edsa Ext., Pasay City 413,796,959
6 Hotel Jen Manila 3001 Roxas Boulevard, Pasay City 361,148,925
7 Belmont Newport Luxury Hotel Newport Blvd., Newport City, Brgy.183 Pasay City 338,962,969
8 Citadines Salcedo Makati 148 Valero St., Salcedo Village,Makati City 332,450,990
9 Vivere Hotel and Resorts 5102 Brideway Avenue, Filinvest Corporate City,Muntinlupa 233,718,820
10 Mercure Manila Ortigas #45 San Miguel Avenue, Ortigas Pasig 229,588,794

Source: Department of Tourism

Thus, market share of GPHC for The Heritage Hotel Manila in the
Philippine hospitality segment is PhP413.78 million over PhP175.88
billion which would equate to a miniscule 0.002353 or 0.24%. Based on
the same table of 2018 revenues for four-star hotels in Metro Manila as
per the DOT, Novotel Manila Araneta has a market share of 0.37% and
Century Park Sheraton taking 0.36% share. Clearly, the small market
shares of relatively known players in the Philippine hospitality segment is
an indication of how competitive the sector is.

2. Industry Profitability, Average Growth Rate, and CAGR

Prior to Covid-19 pandemic, the hotel segment in the Philippines is
among the markets in Asia-Pacific region seen to be very attractive to

27
investors in 2019, driven by the robust growth of the tourism sector (JLL,
2019). In a statement, Jones Lang LaSalle (JLL) Philippines, a leading
professional services firm that specializes in real estate and investment
management said the overwhelming support of the Philippine government
to the hotel segment is expected to bring positive growth in the hospitality
sector.

JLL cited data from its report showing that the Asia-Pacific region is the
only region expecting growth in hotel transaction volumes, anticipating a
total of $9.5 billion in 2019, a 15% rise from a year ago.  People from the
hotel sector are now in a wait-and-see mode on what this Covid-19
pandemic will bring to their business in the coming years. The Inter-
Agency Task Force on Emerging Infectious Diseases (IATF – EID) has
eased the quarantine restrictions allowing hotels to operate at full
capacity as of the third week of October 2020 and the DOT immediately
informed hotel owners and operators about the decision (Tabios, 2020).

The staycation phenomenon is helping boost the profits of hotels in Metro

Manila, according to 2019 survey of global research firm STR presented
before the members of the Hotel Sales and Marketing Association
Incorporated (HSMA) not until Covid-19 pandemic hit the country.
Staycation is defined as a short vacation at home or nearby hotels and
other accommodation establishments (Arnaldo, 2019). Metro Manila
hotels showed stronger weekend performance. This according to STR
Business Development Manager for Southeast Asia Fenady Uriarte. She
added, ‘With staycations on the rise, the average daily rate (ADR) of
hotels in Metro Manila saw the biggest increase on weekends.’

The Philippines has been recognized as one of the fastest growths in the
Asia-Pacific region, in the supply of hotel rooms, rising by 5% in the 12
months to May 2019, exceeded only by Vietnam’s 5.4%. STR data
showed this supply growth is keeping at pace with the 6.9% increase in
28
 demand for hotel rooms. In contrast, demand for hotel rooms fell by 7.2%
in Vietnam, despite its strong supply growth.

As of July 2019, STR data revealed more than 10,000 rooms are
expected in Metro Manila, of which 46% are in the contract pipeline in the
cities of Pasay and Muntinlupa, 25% are in Manila, and 15% in Quezon
City. In the same STR data, revenue per available room (RevPAR),
calculated by multiplying a hotel’s ADR by its occupancy, has been
healthy across all guest segments, rising by 5.6% for transients (short-
stay guests), and 9.6% for groups in the 12 months to May 2019. In fiscal
year 2018, RevPAR was flat. In the same STR survey, occupancy levels
in Muntinlupa and Pasay City hotels have risen by 0.4%, while its room
rates have grown by 5.4%, showing the cities, which include Bay Area
hotels, among the strongest profit performers. On the one hand, hotels in
Quezon City posted the largest increase in occupancy at 8.8%, its ADR
grew the smallest at 0.6%. Also, despite the 5.1% increase in occupancy
among Makati hotels, its ADR has actually fallen by 1.7% in the 12-month
to May 2019. Hotels in Manila, likewise, posted a 3% decrease in ADR,
even as occupancy levels have slightly increased by 0.6%.

Prior to Covid-19, a mobility market outlook has projected the revenue of

Philippine hotel segment to reach US$770 million or PhP38.5 billion in
2020 based on a user penetration of 5%. (Statista, 2020). But following
the quarantine and travel restrictions imposed by the government for the
most part of the year, the projection is expected to fall short. The same
outlook report also projected the Compound Annual Growth Rate (CAGR)
of the revenues of the Philippine hotel segment from 2020 to 2025 at
22.3% with a projected market volume of US$2.111 billion or PhP105.55
billion in 2025. It also projected a user penetration of 12.5% by 2025. The
details are illustrated in Figure 2.3.

Figure 2.3
Projected CAGR of Revenue of PH Hotel Segment, 2020-2025
29
 Source: Statista

In terms of local employment, the accommodation and food and beverage

service activities industry accounts for 33.6% of the Philippine tourism
sector, second only to passenger transport which accounts for 38.3%.
The data, shown in Figure 2.4, is based on the 2019 Distribution of
Employment by Industries report of the Philippine Statistics Authority
culled from the Online Dissemination Forum on Tourism Statistics held on
July 23, 2020.

Figure 2.4
Distribution of Employment by Industries in the Tourism Sector, 2019

Source: Department of Tourism30

 As of 2019, the Philippine tourism sector has had 5.7 million workforce,
which means that there are a total of 1.91 million Filipinos who are
employed in the accommodation and food and beverage service activities
industry. The figure may have dropped as a result of the pandemic.

3. Industry Life Cycle

Given the complexity of the industry classification of accommodation and
food and beverage service activities, there is still no known industry life
cycle and analysis technique in place based on economic indicators. But
there is an industry life cycle and analysis used by most hotels globally
that are primarily based on occupancy percentage, as it is the primary
indicator of the business (Choi, 1996). Some more thorough analysis use
the aggregate economic activities inclusive of all final goods and services
produced in hotels normally represented by the total industry receipts and
record of expenditures. However, in the absence of receipts and full
report of expenditures of all hotels in the Philippines, the typical hotel life
cycle will be presented for the purpose of strategy development.

The hotel life cycle features four phases – initial phase, growth phase,
maturity phase, and recession and regeneration phase (Yin, et al, 2015).
It is shown in Figure 2.5 indicating the points of cyclical fluctuation.

Figure 2.5
Hotel Life Cycle

31
 Source: International Journal of Contemporary Hospitality Management

In Figure 2.5, AECR is the average efficiency change rate over a given
period; q is a split value of AECR; AE is the average efficiency; r is the
split value of AE; while A, B, C, D, and F represents the slip points of
points of fluctuation of the four phases of the cycle.

The initial phase is the point in time when the hotel and its brand is
officially introduced to the public all the way to the point when it has
carved its own niche in the market. The growth phase is where the hotel
has sustained its revenues over a significant period of time that it comes
to a point that is almost always fully-booked and that rooms are reserved
way in advance. At this point, the management may already be
considering an expansion to add more rooms or considering tie-ups with
other hotels to continue benefitting from the guests beyond its capacity.
The maturity phase begins at the point when guests start to feel like
looking for newer hotels because those may have something new and
different to offer than the old and familiar hotel that they felt at home to
initially.

The recession and regeneration phase is the point in the life cycle where
the hotel is down as a result of economic slowdown or in the current
situation in the Philippines for example, a pandemic-induced economic
recession. It is at this phase where the hotel is considered to be at a
turning point. If the owner can take effective management, develop new
strategies, and implement operational measures to fight for survival, then
the hotel will likely move into a new life cycle and back to the initial phase.
32
 But if it continuously underperforms vis-à-vis its competitors, then the
hotel may go out of business and the owner may just sell it to others who
may want to venture into the hotel business or to an international group
that are into the management and operations of hotels and resorts all
over the world. The case normally applies to both local four-star and five-
star hotels as they usually meet the criteria of international hotel and
resort chains but for three-star ratings and below, a closure or shift to a
different business is likely. Despite the emergence of new players, the
local hospitality segment is now at the maturity phase which is exactly the
state of GPHC as the sector is close to saturation already, its nosedive to
recession accentuated further by the onset of the pandemic in 2020. The
light at the end of the tunnel is the expected rebound of the segment
when it goes into the regeneration part of the recession and regeneration
phase.

4. Product Characteristics
If the 2009 PSIC is to be the basis, tourism is not an industry but an
economic sector. Accommodation and food and beverage service
activities is an industry but it is also part of the hospitality segment of
tourism. It is also referred to as hotel and restaurant industry. The two
other segments of the tourism sector are tourism itself, and travel. As to
Tourism: Principles, Practices, Philosophies how the accommodation
sector (hotel) fits into the overall tourism paradigm, the components of
tourism are shown in Figure 2.6 as presented by Goeldner and Richie in
their book “Tourism: Principles, Practices, Philosophies.”

Figure 2.6
Components of Tourism

33
 Source: Tourism: Principles, Practices, Philosophies

In general, hotels offer two major types of products and services -

accommodation and dining services. Based on the quality and extent of
services provided, location, bedroom, front office/reception, food and
beverage, general facilities (service and staff), and special facilities (such
as business center, limousine services and airport transfers), hotels are
further classified based on the DOT’s star-rating system, re-adopted in
2014. Prior to the star-rating system, hotels in the Philippines were
classified as Deluxe, First Class, Standard, and Economy.

Hotel guests can expect a room with private bath, telephone, radio, and
television, in addition to such customer services such as laundry, valet,
cleaning and pressing. Aside from the services mentioned, hotels have
other facilities: function rooms, ballrooms, health spas, coffee shops,
dining rooms, cocktail lounges or night clubs, gift shops or newsstand,
tobacco counters, and business centers for social occasions, health buffs,
and business conferences.

Customers of the industry include the domestic household, foreign

visitors and institutional buyers. Past researches show that the domestic
34
 household’s selection of hotels and other lodging facilities are affected
mainly by three factors:
1. competitive pricing
2. availability of services and facilities for children
3. type and extent of free services (i.e., free local calls, continental
breakfast, etc.).

Hotels are the most popular source of accommodation for more than 70%
of foreign visitors to the country and more than 50% of domestic tourists.
Based on the 2018 surveys of Philippine hotels conducted by Horwath
HTL, about 56% of a visitor’s average daily expenditure in hotels within
Metro Manila is spent in accommodation. While food and beverage
consumption expenditure is at 40%. For hotels outside of the capital and
these include resorts, accommodation expenditures is pegged at a higher
66% while expenses for food and beverage by guests is at 29%. The
revenue and expense distribution of hotels in the Philippines based on
the same 2018 survey of local hotels by Horwath HTL are shown in
Figure 2.7.

Figure 2.7
Revenue and Expense Distribution of Hotels in and outside of Metro Manila

35
 Source: Horwath HTL 2018

5. Technology and Innovation

Prior to Covid-19, there were at least five new innovations and
technologies slowly being phased in to the operations of big hotels in the
Philippines. These technologies are primarily anchored on the concept of
internet-of-things (IoT), artificial intelligence, machine learning, and
automation (Goel, 2019). Apart from practically revolutionizing the
consumers’ daily lives, these technologies also led to a disruption in
customer experience in all industries including the hospitality segment or
based on PSIC 2009, the accommodation and food service activities
industry.

36
The technology-driven solutions that are fast catching up as a trend
among Philippine hotels include:
a. Customer Relationship Management (CRM), Point of Sales (POS)
tools, and hotel inventory management software – This has
significantly grown over time and most hotels in the country
including the smaller ones are already using an application or
software to do hotel management beginning from the booking of
guests all the way to their billing upon check out. Even sales and
marketing are benefitting from such tools as they are now fully
making use of guest profiles and other relevant information to
tailor-fit their promotional strategies. These software or apps
enable hotels to handle the now all-too-familiar big data.

b. Artificial Intelligence (AI) – This technology was already at its onset

before Covid-19 but with the pandemic and everyone being
conscious of health and safety protocols including social
distancing, the need for a contactless dealing with guests becomes
an impetus for the faster evolution of AI in the hotel segment.
These is where hotel robots come into play. In fact, there was a
prediction made by Gartner in 2019 that by 2022, one of five
workers engaged in non-routine functions will rely on AI to do most
of his daily manual tasks. With AI getting its fair share of use
among hotels comes the rise of robotics and the use of robots to
carry out the work that are being performed by hotel staff (Revfine,
2020). In some hotels, outside of the Philippines that is, there are
robots handling the concierge role, welcoming guests and
providing them with needed information about the hotel. That is
about to take shape in the Philippines as several big hotels are
now considering its adoption. There are also hotels now using
robots for cleaning rooms and also disinfecting them with UV light
without causing any harm at all, which would be the case if the one
holding the UV light is a person. This has become practicable in
37
 the time of Covid-19 and possible future pandemic

c. Voice and natural language processing (NLP) technologies. –

These technologies have significantly grown in recent years due to
the rapid development in digital communications technologies as
well. There are now devices or gadgets that interpret the questions
asked on them and they can deliver smart and also contextual
answers (Goel, 2019). This is part of the so-called machine
learning technologies that are very much in use these days and
are similar to Siri being offered by Apple, Google Assistant by
Android, Cortana by Microsoft, and Alexa by Amazon. These
technologies are now enabling hotel guests to control room
temperature using the sound of their own voice, get in touch with
the front desk or any housekeeping staff, or see the room service
menu from either their smartphone or a provided gadget in their
room, usually a tablet, which is to serve as their virtual assistant
while staying in the hotel, giving them a unique and techie
experience that were simply not available from five years back.

d. Augmented reality or AR – Computer games have what is called

as virtual reality and this technology is almost similar but is not
computer-animated. Use of AR is expected to gain traction among
the big hotels in the Philippines in the coming years because the
technology adds on to customer or guest experience. These may
include, but not limited to AR-powered signage or hologram which
would be of good value to guests in as far as getting to places in
the hotels or even in cases of emergency where it can pinpoint to
guest the safest evacuation route.

Most of the hotels in the Philippines have already started to digitalize their
bookings, aided in part by the prevalence of Online Travel Agents (OTA)
38
 and availability of software and applications to make things easier for
them. Online payment has also started to become a catchphrase among
many hotels in the country and soon, new payment system will be in
place to many of them, particularly the big hotels as they have the
resources to immediately adopt it, more than the smaller hotels.

Despite these new technologies, expert still believe that hotels will not
become completely automated because technology simply cannot
replicate the same level of experience of staying in one’s favorite hotel
with a personalized touch of service, as well as the lifetime of connections
and memories that go with it (Goel, 2019). People will still be needed to
provide meaningful and more felt customer service interactions and doing
other functions for guests that no amount of machine, robots, or AI can
simply replace. Some hotels also faced with the unavailability or the lack
of resources, security concerns, incompatible infrastructure, and other
complex operational concerns that they cannot just adopt these new
technologies and integrate it to their operations.

C. Key Success Factors in the Industry

The Key Success Factors (KSF) are the critical elements that can determine
sustainability and profitability in the industry, in this case the accommodation
and food and beverage service activities industry, where hotels are classified
into. It is important to identify and understand these KSFs within the
organization so that its management and people can latch their strategies
unto it to have a better shot at business success.

1. Strategic Location
Strategic location is obviously a key success factor for any hotel in the
Philippines. Hotels are almost always present in capital cities, or
commercial and business districts or near the international ports of entry,
be it air or sea. Outside of the capital, hotels should be near or a short

39
 distance away from popular tourist destinations to get a piece of the
tourism pie. Outside of Metro Manila, there is an abundance of premier
resort hotels particularly in Cebu, Bohol, Boracay, Palawan, and other
premier tourist destinations in the country.

Hotels normally target niche markets that matches their particular location
(McQuerrey, 2017). Hotels near the airport in Manila for example are
making their pitches to business travelers and also to those who come for
gaming entertainment or gambling as there are just too many hotels in
many areas where there is an abundance of casinos too. On the other
hand, hotels close to tourist destinations like beaches and theme parks
are looking to target vacationing tourist families with children.

In Metro Manila, Pasay City has the most number of overnight travelers
who checked in at accommodation establishments in 2019 totaling to
672,928 based on the report of the Department of Tourism on the
regional distribution of overnight travelers from January to December
2019 as shown in Table 2.4. The report was released by the department
on June 25, 2020. And it is precisely because Pasay City is closest to the
Ninoy Aquino International Airport (NAIA) although the airport itself is
located in Parañaque City. The City of Manila came it at second with
533,015 overnight travelers in 2019 while Makati City is at a distant third
with 375,434. At fourth spot is Taguig City with 265,105 overnight
travelers primarily because of Bonifacio Global City or BGC. These four
cities in Metro Manila happen to also have the must number of hotels
compared to the 13 other cities of the National Capital Region.

Table 2.4
Regional Distribution of Overnight Travelers in Accommodation Establishments in NCR,
January – December 2019
Man

40
 Source: Department of Tourism

2. Service Excellence

Service excellence in the hotel segment is about going over and above
guest expectations. Hotels may have the best of amenities that they can
offer but without capable and excellent staff to deliver topnotch service to
give guests a satisfying and memorable experience while at their
confines, those would hardly make a good overall impact. Service
excellence and guest expectations differ by brand and hotel type. One
would not be expecting full service in a three-star hotel as much as those
being offered in a five-star hotel. The responsibility comes down to the
hotel management to understand and live on the promise of its hotel
brand. There is also a right balance between exceeding guest
expectations while keeping the integrity of the hotel brand intact (Kelley,
2018).

A strong orientation towards guest satisfaction relies upon various efforts

and strategies for hotels, such as reliably delivering on promises,
providing a personal service and pro-actively managing customer
41
 feedback (Kelley, 2018). Delivery of excellent service also means
experienced and capable staff which the hotel should possess as well.
Service excellence is also a kind of product differentiation for hotels
because it shall enable guests to keep coming back to experience the
same and be satisfied over and over again. In fact, it is widely considered
as the best marketing tool among hotels because good reviews from
satisfied guests also mean sustained business for hotels. These guest
reviews, the actual service delivery and hotel amenities are also the basis
for the Department of Tourism’s classification system for hotels using the
star ratings. The higher the star ratings for hotels, the classier and the
more excellent service that guests are bound to receive. All these come
with a premium price which guests hardly mind at all.

3. Sales and Marketing

Sales and marketing are very crucial to the success of hotels not only in
the Philippines but all across the world. After all, they are the lifeblood of
service organizations. Promotions and advertising are also part of this
particular key success factor. Successful hotels aim for specific clientele
and develop specific prices or rates and advertising and promotion
strategies to this particular market segment (McQuerrey, 2017). Hotels
normally offer corporate discounts for frequent business guests or those
attending business meetings or international conferences held at their
facilities. They also offer seasonal discounts especially during lean
months where occupancy is on the low side and they wanted to take in as
much revenue as they can. The use of hotel function rooms for
celebratory occasion like weddings, birthdays, or any special event
usually comes with free room or two for the organizer. Price as a
component of marketing is a strategic focus of most hotels in Metro
Manila given the competitive landscape of the segment. Because guests
and travelers have plenty of hotel choices to select from, some guests
may opt to cut on costs and any deviation on the standard hotel rates of

42
 say, four-star hotels in a particular area, will become immediately
noticeable and may have a negative impact on its efforts to lure a good
number of guests at a given time. Location or place as a component of
marketing is also important because that is also one of the main
preferences of guests, especially those on business purposes.

4. Cost Control and Asset Management

Managing operational cost is also important to the success of hotels. If

expenditures in operating the hotel far outweigh its revenues, the
business will lose money and will not be sustainable. It is important to
balance the employee salaries, food and beverages, and utility costs with
profits derived from room occupancy, the use of facilities and function
rooms and from other departments of the hotel (O’Fallon, 2010).

In terms of asset management, a hotel’s location, real-estate value and

even furniture, fixtures and equipment (FF&E) are part of the process,
which aims to maximize the value of hotel assets (de Peuter, 2020).
Although its contribution to revenue is not as substantial as room
occupancy or food and beverage service activities of the hotel, good
asset management provides useful information on the revenue generated
by different asset categories of the hotel and how it can plan for profit
sustainability in the short, medium, and long-term.

5. Health and Safety

The concern for health and safety among hotels has become more
pronounced with the Covid-19 pandemic. Hotels all over the world have
become more stringent when it comes to acceptance of guests, social
distancing, and other health protocols. During the Enhanced Community
Quarantine (ECQ) imposed by the national government from March 17 to
May 15, 2020 to contain the spread of Covid-19, some hotels in the

43
 country were allowed to operate but only to accommodate healthcare
workers and medical frontliners.

When the Inter-Agency Task Force on Emerging Infectious Diseases

(IATF - EID) recommended the reopening of hotels that were placed
under General Community Quarantine (GCQ) and Modified General
Community Quarantine (MGCQ) but only from 20% to 50% capacity, a
number of hotels in Metro Manila have become quarantine hotels for
arriving OFWs from various parts of the world. But part of the
requirements for accepting OFW guests to hotels is that they are
subjected to triage health examination or at most, has undertaken swab
test or rapid test to ensure that they are negative from Covid-19.
Immediately after checked out from the hotels, staff shall immediately
work on disinfecting the room using disinfecting solutions and also UV
lights to ensure that the room is virus-free and safe for the next set of
OFW guests.

6. Innovation and New Technologies

The pandemic has also heightened the need for hotels all across the
world to focus on innovation and new technologies especially with
regards to safe and as much as possible contactless transaction with
guests. This has resulted to the use of artificial intelligence on some of
the functions of hotels beginning from check-in of guests, service delivery
including room service, up to payment and check out (Goel, 2019). These
innovation and new technologies are now expected to become the
minimum standards for future guests of hotels all over the world when it
comes to health and safety even when the current pandemic is already
addressed soon.

7. Economic Climate

44
When the economy is down, it is usually the luxury stuff that are the first
to go and travel and checking in at hotels are normally affected as well.
So when the economy went down hard as a result of Covid-19, the
hospitality segment is among those that have been hardest hit by the
resulting quarantine restrictions. With no foreign travelers to look forward
to and only 20% to 50% operational capacity allowed, a number of hotels
in the Philippines have either momentarily halted operations or closed
shop for good. Only the big ones that have the resources to do so
managed to operate by catering to medical frontliners and healthcare
workers in their respective localities. The bigger ones were able to work
an agreement with the Overseas Workers Welfare Administration
(OWWA) to become quarantine sites for arriving OFWs, most of whom
were displaced from their work abroad also as a result of the pandemic
(Jaymalin & Mendez, 2020). Late in October 2020, with an approval from
the IATF, the Department of Tourism eventually allowed hotels to operate
on 100% capacity and were allowed to accommodate for quarantine
purposes not only OFWs but also non-essential travelers (Tabios, 2020).

In October 2020, economic analysts have already predicted a negative

7% to negative 8% growth, or the more appropriate term would be a
plunge, in the Gross Domestic Product (GDP) of the Philippines as
consumer spending has greatly been affected by the government’s
restriction strategies to address the pandemic (De Vera, 2020). Although
a good number of hotels in the Philippines have restarted their
operations, it is expected that they would not be able to meet their
revenue projections for 2020. In fact, many would feel very fortunate if
they can approximate if not equal their sales performance in 2019. All
things considered, it is almost safe to say that many would not be able to
do so.

This also shows that the hospitality segment is very much dependent on
45
 the directives of the government particularly with regards to addressing
certain problems, like the pandemic in the current case. If the government
decides not to allow hotels to operate, then the hotels have no other
choice but to comply. If they were instructed to operate only up to half of
their capacity, they can only obliged. Since the last week of October
2020, hotels in the Philippines, particularly the big ones in Metro Manila,
have been allowed to operate on 100% full capacity, which is a good
sign. By the time the new directive was given, hotels only have a little
over two months to recover lost ground and given the more than seven
months restrictions imposed by the national government on their
operations, it is going to be an uphill battle as far as their revenue
recovery is concerned.

III. EXTERNAL ENVIRONMENT ANALYSIS

Most of the strategies developed by M&C at the close of 2019 for GPHC
towards achieving the revenue goals of The Heritage Hotel Manila for 2020 was
put in disarray by Covid-19. It was an unforeseen external threat that almost all
in the business community, be it local and international, did not see coming. Or
had it been seen by some, the actions were a bit late, with the exception of
46
those in the business of patient care such as hospitals or pharmaceuticals. The
two-and-a-half months of lockdown has seriously put the local economy in dire
straits and any further attempt to curtail trade and commerce with another
round of future quarantine restrictions might extinguish whatever fight is left
particularly on micro, small and medium enterprises (MSMEs).

Being part of an international hotel chain worked in favor of GPHC as it has not
been seriously impacted by the lockdown as much as the other local hotels in
the Philippines. Although it has had to deal with forcing its staff to go on
furlough, The Heritage Hotel Manila did not lay them off from work and
addressed the matter by rotating work schedules of every hotel staff since the
F&B facilities and other amenities of the hotel are not in operations.

A. MACRO

1. General Economic Conditions and Forecast

a. Local economy is in shambles due to Covid-19

The so-called New Normal has not only altered the economic landscape of
the hotel and leisure services subsector, it has also dampened its revenue
forecast for the entire 2020. While 2021 is an entirely different year to work
their way back to revenue generation, most hotels in the Philippines will still
be dependent on the directives of the national and local governments
towards addressing Covid-19.

With the government’s seeming over-dependence on the vaccine for

Covid-19 which can materialize at the start of 2021, it will be up to the
players in the hotel business to do their own strategies to survive and get
by the current health crisis that practically crippled the economy and
reduce the country’s gross domestic product (GDP) to its lowest mark in
the last 36 years. The Asean+3 Macroeconomic and Research Office
47
(AMRO) projected in September 2020 that the GDP outlook for the
Philippines will be negative 7.6% at the close of 2020, which was further
reduction from its forecast of negative 6.6% in August (De Vera, 2020).

GPHC, in its second quarter 2020 financial disclosure to SEC, reported an

11% drop in its year-to-date revenues ending in June 2020. But given that
The Heritage Hotel Manila has already started operations, albeit not in full,
it is likely that the overall decline in revenues by the end of the year would
be less than 11%. Once things get back to normal or a semblance of the
normal that people used to know, GPHC can recalibrate its forecast and
refocus its initiatives on strategies that would do well in 2021 and onward.

b. Mounting pressure to raise interest rates

Prior to Covid-19, hospitality is

one of the biggest investment
sectors for global investors in
various countries including the
Philippines. There have been
plenty of investments from
various entities, mostly from
Chinese investors, a good
number of whom are for the hotel and leisure subsector. The landscape of
the reclamation area in Pasay City has practically changed with the
emergence Entertainment City Manila and several big hotels and casinos
meant to capitalize on making Manila as the next haven for gambling high-
rollers after Macau in China. Solaire Resort Hotel and Casino started the
bandwagon followed by the three-hotel set-up of the City of Dreams, and
then the Japanese investment incursion in Okada. Aseana was about to
roll out its red carpet too but the pandemic caught its schedule off guard
and had to defer it’s official launching. Over at the Ninoy Aquino
48
International Airport (NAIA), there is also Resorts World Manila, also
considered as one of the more prolific mecca for gamblers both here and
abroad.

A number of deluxe hotels along Roxas Boulevard also joined the

bandwagon in having a casino in its fold as part of its offerings to guests.
It’s also a good strategy to attract visitors and guests during lean seasons.
It worked for The Heritage Hotel Manila when it had the Casino Filipino
until 2013 but the massive casinos of the bigger hotels in NAIA and
Entertainment City Manila proved to be a major stumbling block, especially
when the projected turnout of gamblers from China or other countries did
not materialize. As a result, these hotel casinos have to fight it out to get
the best share of the market they can get, with the big hotel casinos getting
the lion share of the market.

With a depressed economy comes higher interest rates which might

dampen investor confidence in the country particularly those who wish to
invest in the hospitality segment or the accommodation and food and
beverage service activities industry. However, the national government has
been instructing banks to hold interest rates in order to help restart the
economy (Sanglap, 2020) and also prevent existing lenders from defaulting
on their loans. As to how long can the banks hold the mounting pressure to
raise interest rates, only time can tell.

One thing going in favor of GPHC is the fact that it belongs to a very stable
international hotel and resorts chain that was even made stable when it
was made part of a global real estate development company recently. For
international hotel chains to expand and continuously grow, they usually
resort to acquisitions and the fact that the international hotel and resort
chains are present and continuous to look for new acquisitions in the
49
Philippines means that the potential for the business is there and will likely
remain post-pandemic.

c. Hotel unemployment is up

Because the hospitality segment is one of the hardest hit by the resulting
restrictions as the Philippine government worked on containing the spread
of Covid-19, many hotels had to lay off its workforce. In fact, no less than
the Asian Development Bank (ADB) specifically mentioned that the
hospitality segment will be one of the top five sectors that would experience
massive job loss as a result of Covid-19 (De Vera, 2020). Despite being
allowed to operate in June when the key cities of the country were already
under General Community Quarantine (GCQ), hotels were only able to go
up to 50% capacity, which means full employment is still not possible. Late
in October, hotels were already allowed by the Department or Tourism to
go on full operation but it is likely that the unemployment caused by the
sector would never be reacquired as there were just too many hotels that
also decided to close shop for good.

d. POGO operations decline resulting to exodus of Chinese workers

Department of Finance (DOF) Secretary Carlos G. Dominguez III

confirmed in a Senate hearing in September 2020 that a number of
offshore gaming operators were now cancelling their office lease contracts
as the economic recession begins to trickle and be felt by the Philippine
offshore gaming operators (POGOs) (Sugue, 2020). As a result, there has
been an exodus of Chinese workers, working on these POGOs from the
Philippines and back to their homes in mainland China. A number of hotels
in the Philippines, particularly in key cities, have benefitted from these
POGOs as they provide the accommodation to the Chinese workers while
working on these offshore gaming offices. There were even hotels that
actually accommodated the operations of POGO during the time when
50
 Metro Manila was placed under ECQ and the ensuing MECQ as their
operations were still not affected by the recession then. Some three
months later, POGOs started to feel the pinch of the economic crunch and
many had no other choice but to abandon their business in the Philippines
for good, leaving only the big operators who still have the resources to
sustain their operations while keeping at its employ Chinese workers.

e. Hotels allowed to operate at full capacity

Department of Tourism Secretary Bernadette Romulo-Puyat announced on

October 21, 2020 that the accommodation sector, where hotels belong, is
already allowed to operate at full capacity despite still having no end in
sight to the pandemic (Adel, 2020). The DOT secretary said that it is a
welcome development to the whole tourism value chain and its millions of
workforce who have been greatly affected by the community lockdown.
Hotels however need to secure a DOT Certificate of Authority to Operate
for Staycation before accommodating any guests. Unlike in the past when
most hotels were only allowed at 50% capacity to accommodate arriving
and outgoing OFWs as well as medical frontliners and health workers, they
can already accommodate non-essential travelers at this time. The
decision has something to do with restarting the economy rather than
keeping the spread of Covid-19 at bay. The DOT expected the 28 star-
rated hotels in Metro Manila to secure CAO for staycation including 16 five-
star hotels and 12 four-star hotels. The Heritage Hotel Manila of GPHC is
one of the 12 rated four-star hotels in Metro Manila.

2. Legislation and Political Aspects

The national government’s decision to impose a lockdown starting on

March 17 until May 15, 2020 has had a negative impact not only in the

51
hospitality segment but also in the tourism sector. It has been proven time
and again that any move to ban travel can actually take the life out of the
accommodation and food and beverage service activities industry. If not for
the moves of certain LGUs to allow local hotels to operate as quarantine
shelters for OFWs since the pandemic started, more hotels may have
already closed shop by now or reduced its staff, thus contributing to local
unemployment. It is very obvious that the hotel business is dependent on
the mandate and the directives of the government and it can only go with
the flow while waiting for the health crisis to subside.

a. TRAIN Law

One legislation that could really help the hotel industry is possibly about tax
breaks or incentives for the market players in the business especially now
that many of the hotels are groping for financial form as a result of the
impact of Covid-19. However, instead of tax incentives, the accommodation
and food and beverage service activities industry were among the many
other industries that started the year 2020 on a not-so-rosy note with the
implementation of the third tranche of the Tax Reform for Acceleration and
Inclusion (TRAIN) Law, mandating the increase in excise taxes on
petroleum and sin products, which began to be implemented by the
Philippine government in 2018 (De Vera, 2020).

Any increase in the price of fuel products will have trickle effect on the
prices of basic commodities until prices of products and services also go
up. When prices go up, it reduces consumer spending and people become
more conscious of their expenses that are not considered necessities
including staycation in hotels. This would then force the hotels to lower
their prices as it is the only way to remain competitive in the market. The
sector would greatly benefit if it could muster enough numbers and support
to lobby for a tax shield measure in Congress and the Senate that shall
52
redound to the benefit of the hundreds of thousands of Filipinos currently
working in the hospitality segment, which has already been reduced by the
mass lay-offs as a result of the lockdown and many hotels closing shops.

b. China preference of the present administration

The preferential treatment of the Duterte administration on China and

Chinese-initiated undertakings has resulted to 1.74 million Chinese tourists
last year, not counting the Chinese workers who have been coming to the
Philippines to work on POGOs. Many of the infrastructure projects that the
Philippines started under the ‘Build, Build, Build’ program were contracted
to Chinese contractors and suppliers. The 1.74 million is a significant
38.58% increase from the number of Chinese tourists that arrived in the
country in 2018 (Xinhua, 2020).

Many hotels in the Philippines, particularly those in Metro Manila benefitted

from the influx of Chinese tourists although DOT tourist arrival statistics for
the same year (2019) showed that the South Koreans remain as the top
visitors for the country, numbering 1.98 million in total. These tourist
arrivals from China have significantly reduced in light of Covid-19 as the
country, at one time, even banned all travels to and from China during the
initial phase of the quarantine restrictions since the pandemic emanated
from the province of Wuhan in Mainland China. In addition, with the exodus
of Chinese from the Philippines back to their country beginning in
September because of the declining profitability of POGOs, the numbers
would drop some more.

c. West Philippine Sea conflict

President Duterte’s preference to China has placed him in a tight spot in as

53
far as possible oil exploration activities in the oil-rich West Philippine Sea is
concerned. Upon his assumption to office and in deference to his friendship
with President Xi Jin Ping of China, President Duterte issued a moratorium
on all oil exploration activities in the West Philippine Sea to prevent a
repeat of several incidents where Chinese military vessels harassed
Filipino vessels in the area whether for possible exploratory activities or
fishing (Ranada, 2020).

The President has already lifted the moratorium as of the third week of
October 2020 and everyone is now waiting for the possible backlash of the
action from China. The decision could possibly result in two ways. China
will take the action on a positive note and work together with the
Philippines for oil and gas exploratory activities in West Philippine Sea. Or
it could result to Figure 3.1
a souring of The contested West Philippine Sea
relationship
between China
and the
Philippines and
the country may
suffer more due
to the fact that a
large number of
its industries are
now dependent on Chinese contractors, suppliers, and other entities from
China. This could also trickle to the accommodation and food and
beverage service activities industry as this could mean reduced Chinese
tourist arrivals and less Chinese businessmen and gamblers in casino
hotels, which is also a revenue market for The Heritage Hotel Manila.

d. Alternative international airport in Bulacan

54
The Heritage Hotel Manila is one of the eight four-star hotels in Pasay City
and is also regarded as an airport hotel because of its proximity to the
Ninoy Aquino International Airport (NAIA). With the construction of the
PhP735 billion airport complex in Bulakan, Bulacan, it is possible that many
international travelers passing through the new alternative international
airport would no longer consider The Heritage Hotel Manila as their airport
hotel of choice because it would be too far from Bulacan already. While
there have been no official confirmation from the government, word has it
that the New Manila International Airport currently being built in Bulacan
shall not only be an alternative to NAIA but would actually be the future site
of the international airport in an attempt to decongest Metro Manila. The
phrase ‘New Manila’ in its name is said to be a give-away to the future
transfer of NAIA. (Camus, 2019).

Figure 3.2
Artist’s Perspective of the New Manila International Airport now under
Construction in Bulakan, Bulacan

55
e. Another international airport in Sangley Point, Cavite

There is also the development of the PhP500 billion Sangley Point

International Airport in Cavite which could also divert some of the tourist
arrivals from The Heritage Hotel Manila. However, the construction of the
international project could face possible delays as the consortium
composed of billionaire Taipan Lucio Tan and state-run China
Communications Construction Co. Ltd. (CCCC) sought another extension
in September 2020 from the provincial government of Cavite until such
time when regular flights to China have been restored (Camus, 2020).
Unlike the New Manila International Airport in Bulakan, Bulacan, which is
a project of the national government, the Sangley Point International
Airport is a project of the provincial government of Cavite, whose
leadership under Governor Crispin Remulla, has emulated the President’s
preference to China in his province. The construction of the first phase of
the airport project was supposed to start on February 14, 2020 but it was
delayed because the consortium have not submitted the final post-
qualification requirements to the provincial government of Cavite.

Figure 3.3
The Proposed Sangley Point International Airport

56
3. Population and Demographics

In June, some 55,000 OFWs were assisted by the Philippine government

to return to the country and shouldered their quarantine expenses
(Jaymalin & Mendez, 2020). This was a new segment for most of the big
hotels in Metro Manila including The Heritage Hotel Manila.

a. Reduced foreign guests in hotels

Since the start of the community quarantine, foreign inbound travelers were
not allowed to visit the country without working visas which reduced room
usage for foreign guests among local hotels in 2020. That took out the top
two countries who had the most number of tourist arrivals in 2019 – South
Korea and China. Businessmen, who used to be also on the top tier of
hotel guest demographics, were also taken out of its lofty spots following
the onslaught of the pandemic.

Beginning in October 2020, the national government has already allowed

non-essential outbound travels for Filipino citizens, which would only
increase the need for mandatory quarantine before they leave the country
and upon their return. This means additional business for hotels as well
since that is basically what is keeping the hotels, particularly in Metro
Manila afloat during the time of the pandemic.

A number of hotels in Metro Manila including The Heritage Hotel Manila

were able to capitalize on the designation of hotels as quarantine shelter
for inbound and outbound OFWs and with non-essential travelers joining
57
the fray afterward, hotels see better business days ahead with focus on
catching up on revenue targets for 2020. The hotel has likewise been given
the green light by the Department of Tourism to operate in full capacity in
October 2020 (Adel, 2020), but it remains to be seen whether foreign
tourists or travelers would start checking in at the hotel anytime soon
considering that the pandemic and the number of Covid-19 cases are still
increasing.

b. Senior Citizens still not allowed to go out

Since foreign travelers or tourists are hard to come by at Metro Manila

hotels this day, another significant market segment that they are looking at
is the market for senior citizens or those 60 years and above. Self-made
businessmen, retirees, and professionals who have reached their ripe ages
of 60 and above are among the more moneyed social demographics in the
Philippines, including in Metro Manila. They have the resources more than
the young professionals and they can certainly afford to stay in hotels.
Unfortunately for the hotels, senior citizens are still not allowed to go out in
public unless for the purposes of obtaining essential goods and services or
for work in permitted industries (Chavez, 2020). Going out to have a
staycation in a hotel is certainly not an essential travel. Although senior
citizens are already allowed in cities that are under GCQ and MGCQ, the
Department of Interior and Local Government (DILG) is still strongly
encouraging senior citizens to stay home if they have no essential purpose
of going out of their homes given that they are vulnerable to Covid-19.

c. Millennials preferring to book cheaper hotels

Millennials is a potential market segment for local hotels to tap into. But
today’s millennials prefer to spend more on experience when they travel
rather than on pricey and luxurious accommodations that the big hotels

58
normally offer, including The Heritage Hotel Manila. Accordingly, the
millennial market knows exactly what they want from the hotels that they
interact with (Enderun Hotels, 2019), and high among them is the presence
of the establishment on social media and of course, price competitiveness.
As they go more for experience and adventures, the place where they stay
is irrelevant as millennials focus more on the things that they want to do or
pursue in their destinations. A lot of millennials will prefer cheaper hotel
alternatives like the ones found on AirBnB than settle for a topnotch hotel
to ensure that their travel budget goes a long way. The millennial segment
is a promising market but unless local hotels offer them competitive pricing
comparable to the ones offered by cheaper hotels or AirBnB, it is going to
be an elusive niche market. It has been noted by experts that the
emergence of AirBnB has made hotel rates more competitive because
hotels are no longer competing with each other but those rooms from
private and small entrepreneurs who have converted their condominium
units into a hotel-like ambience complete with all the amenities that one
would wish for a stay in a place like Metro Manila.

In fact, according to a recent study, AirBnB has revolutionized the lodging

market by keeping hotel rates in check and making additional rooms
available in the country’s key travel destinations during peak seasons when
hotel rooms often sell out and rates skyrocket upwards (Gerdeman, 2018).
The emergence of AirBnB was obviously bad news for hotels as they have
traditionally made money when rooms are scarce and they can easily jack
up the prices of their rooms at their whims. But then, it favors the travelers
more, especially the millennials who have a clear nose for value for money
every time they go on travel.

But local AirBnB units in the Philippines also took a big hit with Covid-19 as
unit or room owners were scared to take the risk of accommodating foreign
guests or visitors with travel history in Covid-19 infected areas so their
59
 business nosedived since March. The good thing is that they have very
little to no overhead with their enterprise so the hit comes more in the form
of lost income or opportunity to earn income rather than losing money for
operating in the red.

4. Societal Values and Lifestyles

With the advancement in modern technology, hotel guests can now have
access to information on a lot of choices before they leave their homes to
go to a place where they intend to check in. Because of the unavailability of
information back then on all the choices travelers have, they just rely on
their past experience or word-of-mouth endorsements from colleagues or
associates. But with the convenience of the internet and all the needed
information at the fingertips of everyone, it became a battle among hotels,
big or small, to those who can give the best value for money. Gone are the
days when people would like to travel elsewhere and stay in a deluxe hotel
because they can also do the same in other hotels offering way less than
the usual rates. Still, there are other societal developments that are
influencing the lifestyles and spending habits of Filipino consumers these
days.

a. Traffic situation in Metro Manila is a perennial problem

Following a 2018 study made by the Japan International Cooperation

Agency (JICA) as commissioned by the Metro Manila Development
Authority (MMDA), it was estimated that the Philippines is posting a PhP3.5
billion economic loss due to traffic every day (Zulueta, 2019). The same
study projected that if the situation is not addressed sooner, the country’s
capital may post a daily economic loss of PhP5.4 billion by 2035. Traffic is
obviously costing both business and opportunity to a good number of
hotels in Metro Manila and other key cities in the country. It also works in
favor of some hotels especially if business travelers gets accommodation

60
near commercial and financial districts where they have business matters
to attend to.

The proximity of The Heritage Hotel Manila to the international airport as

well as to the commercial and financial districts in the cities of Pasay,
Manila, Makati, and Taguig makes traffic work in its favor especially for
guests or business travelers who want to maximize their time for particular
trips. But then, it also lessens the probability for the hotel to get guests
coming from the northern part of Metro Manila like Quezon City or those
coming from the provinces of Pampanga or Bulacan. However, the
completion of the Skyway 3 linking the North Luzon Expressway (NLEX) to
the South Luzon Expressway (SLEX) which would cut travel time along
Metro Manila’s main thoroughfare from two hours to less than 30 minutes
(Depasupil, 2020), augurs well for the big hotels south of the capital
especially if the New Manila International Airport in Bulakan, Bulacan is
completed to serve as either alternative to NAIA or a replacement. By then,
it would still not be difficult for foreign travelers to choose to stay at The
Heritage Hotel Manila even if they land in the international airport in
Bulacan as they can get to the hotel in Pasay City in an hour or thereabout.

Figure 3.4
The Skyway Stage 3 will cut travel time across Metro Manila by 75%

61
b. Change in Filipino consumer spending habits post-pandemic

The Gross Domestic Product (GDP) yield of the Philippines in the past
years revealed that 72% of the country’s economy was driven by consumer
spending and that Filipinos spend 84.8% of whatever they earn.
(Marasigan, 2020). But in one fell swoop in 2020, the pandemic changed
everything. The proverbial consumer spending bubble has imploded and
Filipinos and businesses are now adapting to an environment
characterized by frugality and shifting buying habits. Consumer spending of
Filipinos have dropped drastically as they focus more on buying food and
essentials and less on the luxurious or the not-so-important items.

An American consulting firm McKinsey & Co says that it will take years
before everything returns to pre-Covid-19 spending heydays and this trend
will have an impact on the revenue generation activities of hotels in the
country, particularly those in Metro Manila. In fact, McKinsey & Co sees
consumer demand and spending back bouncing back to 2019 levels by the
second quarter of 2022 or about two years down the road (Marasigan,
2020).

c. Development of Manila Bay

The current development of a portion of Manila Bay along Roxas Boulevard

in the City of Manila which would result to an emergence of white sand
beach in the area that used to be swamped with filth and garbage is also
expected to lure tourists to the country’s capital. The Department of
Environment and Natural Resources (DENR), which took the lead in the
successful rehabilitation of Boracay in 2019, is also at the forefront of what
it calls as beach nourishment project (Moaje, 2020). While local
government officials are looking forward to its positive impact on tourism
especially on hotels situated along the stretch of Roxas Boulevard
including The Heritage Hotel Manila, the project is encountering thorough

62
 scrutiny from citizens as there is notion that the white dolomite sand
artificially placed to make a beach out of nothing will eventually washed
back to sea given the multitude of typhoons sweeping past the Philippines
year in and year out.

d. Metro Manila is a flood-prone area

Speaking of typhoons, a good portion of Metro Manila goes under water

during typhoons and even during torrential rains, making travel a hassle.
The situation is counterproductive for hotels as flood usually equates to
heavy traffic which prevents business travelers from conducting their
intended purpose for their trip to Metro Manila. Pasay City where The
Heritage Hotel Manila is situated is the No. 4 city in Metro Manila with the
most number of flood-prone areas next to Manila, Quezon City, and Makati
(Cayabyab, 2019). Unlike in the past when hotels categorize a good portion
of the wet season in the Philippines not as a lean season, these days, the
entire period of the rainy season is considered as lean months for most
hotels, leaving a window of only six months of dry season to capitalize on
revenue generation.

5. Technology
The global hospitality segment has been leading the charge in the adoption
of smart business technology. From operations to guest experience to
marketing, smart hotel technology offers a variety of cost savings and
revenue opportunities, and it is enabling hotels to reach new levels of
profitability. GPHC has been using the latest technologies in its operations
as part of the M&C international hotel chain. These technologies and
processes which are being used by most deluxe hotels are what
differentiate the modern and innovative ones from their old school
competitors. Before, hotel management system is merely a process of how
the management of a particular hotel handles each facet of its operations.

63
These days, it already means an app or a web-based application or
solutions that practically computerize everything for faster monitoring and
tracking of every transaction.

For the hotel management, good decisions are often made through
accurate information. That is what the hotel management system apps
provide which human personnel cannot match because it reports
everything as it is without any attempt to conceal or hide especially if it is of
adverse or negative results. Innovation has become the management tool
that people with entrepreneurial mindset can use to exploit change as an
opportunity for different business or service, and can be learned and
practiced too. Exploring new ideas and focusing on innovation is crucial to
a business to be able to improve its processes and eventually increase its
efficiency leading to improved profitability (Info Entrepreneurs, 2020).

With the advent of digital age, modern technology has also came with it.
Whether it is in the form of computers or modern telecommunications
facilities, office automation, or bio-engineering, each has become their own
viable source of innovation. It has significantly transformed systematic
innovation in developed countries and to some extent, in middle- and low-
income economies in the world, the Philippines included.

Philippine hotels, including GPHC, are now fully committed to developing,

innovating, integrating, and converging new technologies in
communications, operations, finance, human resource management, and
marketing as part of their overall competitive strategies to lure in guests,
increase their service efficiency and constantly ensure customer
satisfaction. The Heritage Hotel Manila is one of those deluxe hotels in
Metro Manila that can actually go toe-to-toe with the major players in the
business when it comes to technological advances and innovation in the
areas of marketing, customer service and operations. It is a must for an
establishment that is part of the international chain of hotels and resorts
64
under the M&C group.

a. Shift to social media as a foremost marketing tool

One the fastest growing tools for internet marketers today is social media.
Hotels that want to remain relevant with the times now use social media to
harness deeper relationships online with its potential guests. Instead of
using outdated outbound marketing campaigns that go largely ignored,
hotel marketing professionals provide valuable information about updated
amenities and special promotions to site visitors who are actually interested
in what the marketers have to say. The Heritage Hotel Manila ensures that
guests are always getting the best deal to stay and become repeat
customers. The hotel’s IT department exerts its best effort in continuously
monitoring, improving and upgrading the company’s hotel management
systems and contribute information to the group website of M&C for
offerings of The Heritage Hotel Manila (Millennium Hotels, 2020).
Technology has helped increased the revenues of the hotel through online
booking and advance booking over the last couple of years before the
pandemic. The same tool also helps The Heritage Hotel Manila to
effectively monitor and immediately address the concerns or feedback of its
customers, especially those with negative comments or reviews which the
hotel will work on addressing at the soonest possible time.

b. Move to contactless transaction in hotels

The pandemic has brought the necessity for contactless dealings between
hotel staff and guests. Doing such require technologies featuring artificial
intelligence (AI) and hotel robots. It is no longer a thing of the future but a
necessity in today’s times where people are very conscious of their health
and safety and want to socially distance themselves from anybody outside
of the members of their respective families (Goel, 2019). Over the last few
years, hotels all over the world have been moving to integrate clever
devices, robots, and voice assistants into their operations to make guest
experience truly high-tech (JLL, 2019).
65
Among those countries leading the pack in Asia are Japan, Singapore, and
China with the Philippines near the tail end. With the pandemic however,
every player in the hospitality segment in the country will have no other
choice but to go high-tech, lest they be left behind by the competition when
it comes to contactless dealings with guests. It would take most local hotels
time to adapt to the techie trend but Okada Manila has already started it
with the September 2020 launching of its disinfection robots to keep Metro
Manila’s iconic integrated resort clean and virus-free without the need for
any human intervention at all (BMPlus, 2020). Other big hotels in Metro
Manila are expected to follow suit not to be part of the technology fad, but
more on protecting the health and safety of guests that would check in to
their hotels. The Heritage Hotel Manila already has plans of its own and will
unravel its own technological innovations in the months to come.
c. Necessity for new disinfection and sanitation technologies
Okada Manila’s disinfection robots, which it calls as Ben Ben Robot, is now
proving to be a game-changer in new disinfection and sanitation
technologies for Philippine hotels. It is going to set the benchmark for the
future of how disinfection and sanitation shall be conducted today and in
the future in many hotels and possibly in other business establishments
too. The Ben Ben Robot uses a high-intensity ultraviolet (UV-C) light that
practically obliterates the DNA of viruses and bacteria as proven in many
studies (BMPlus, 2020). If it is not in the process of disinfection and its UV-
C light is turned off, the robot is also programmed to greet hotel guests
within its range.
Figure 3.5
Okada Manila’s disinfection robot

66
 Source: Business Mirror

While manual disinfection and sanitation is still the general approach of

most hotels in the Philippines, anchored mostly on chemical solutions to
ensure extermination of viruses and bacteria, new technologies are
expected to catch fire within the next few months and soon, many other big
hotels will be jumping on the disinfection technology bandwagon that was
already spearheaded by Okada Manila. The Heritage Hotel Manila, as part
of the M&C hotels and resorts international group would most likely be part
of the technology bandwagon sooner than later.

d. Aggressive campaigns of hotel aggregators or budget hotel chains

Hotel aggregators or budget hotel chains, whose offerings to local hotel
owners and operators are anchored on complete booking apps, are also
making significant strides to make the local hospitality segment even more
competitive through digitalization. The two biggest players in this special
niche in the hospitality business in Southeast Asia including the Philippines
are OYO and RedDoorz, with the smaller third and fourth players, Zen
Rooms and Zuzu Hospitality, also actively campaigning. But just like the
67
 big hotels in the region and the Philippines which suffered from the impact
of Covid-19, revenues of OYO and RedDoorz plunged by 80% across the
whole of Southeast Asia in 2020 (Balea, 2020). Zen and Zuzu Hospitality
did not suffer as much.

The presence of these hotel aggregators have since been eating up on the
market of online travel agents or OTAs, wherein more than 50% of
bookings of major hotels in Metro Manila come from, including The
Heritage Hotel Manila. Online bookings and online payment of hotel
bookings also form part of the needed technologies to implement
contactless transactions with hotel guests and the active players in the
market are forcing all the rest to follow suit or be completely left behind.

6. Global Segment
The global hospitality industry has taken a beating with the pandemic
alright but it is among the first industries to also make a restart some
months or weeks after. But then again, the business of hotels are overly
dependent on government directives and with the opening of non-essential
global travel, things started looking up for the business once again. In the
case of GPHC, it was because of the government directive that curtailed its
revenue potentials and apparently it is also a government directive
(requiring it to house both incoming and outgoing OFWs and non-essential
travelers on quarantine) that also helped The Heritage Hotel Manila, and
other hotels in key cities of the country to pick up the pieces and get on the
road to revenue recovery. The same also holds true for most of the hotels
under the M&C chain across the world and it is doing the group a favor,
operations and revenue-wise. GPHC benefits greatly from its being part of
the M&C international hotels and resorts chain because the parent
company has vast resources to be able to withstand a crisis like the
pandemic.

68
a. Global recession

In June 2020, the World Bank already published a baseline forecast of a

5.2% contraction in global GDP for 2020, indicating that the world economy
has slipped into recession as a result of the pandemic. It is regarded as the
deepest global recession in decades amid the efforts of many governments
across the world to counter the downturn with fiscal and monetary policy
support (The World Bank, 2020). The recession is expected to result to
lower investment, erosion of human capital or joblessness, and
fragmentation of global trade and supply linkages. In the hospitality
segment, this means less consumer spending on international leisure travel
and that is expected to impact negatively on the operations of many hotels,
even those part of international hotel and resort chains.

b. Brexit

In the 2019 Annual Report of M&C ending December 31, 2019, published
in the hotel chain’s website, the company reported a group revenue of
0.6% or approximately £6 million (approximately PhP377 million). M&C
uses sterling as its main trading currency having been listed in the London
Stock Exchange until October 2019. M&C decided to delist with the London
Stock Exchange when City Developments (CDL), a global real-estate
company that also owns M&C, in preparation for United Kingdom’s exit
from the European Union or what is known as Brexit. CDL intends to
strategically consolidate its resource base in the Asia Pacific region which
would favor GPHC over the medium to long-term.

Prior to the decision to delist from the London Stock Exchange, the views
of M&C shareholders were considered and legal and financial advisors
were likewise consulted. Part of the preparation process for the delisting
was the taking into account the impact of the M&C integration to CDL on
the business of M&C and all its employees which sought protection from
69
the incoming controlling group. The integration of M&C into CDL hardly
made an impact on the operation of GPHC as the deal was mostly a
Board Room issue and the changes were hardly felt in the Philippines
except for some official announcements and subsequent but minimal
appointments that ensued.

c. Regional trade agreements

The World Bank noted that there has been a substantial increase in the
formation of regional trade agreements (RTAs) across the world in the last
30 years. In fact from only 50 RTAs forged in 1990, there are now more
than 300 as of 2020 (Bendebka, 2020). Most of the recent regional trade
agreements have been formed as a result of the constant meetings of the
Asia Pacific Economic Cooperation (APEC) all meant to realize the
objective of trade liberalization in the region, considered as the world’s
fastest growing region, economically. Apart from the ASEAN Free Trade
Agreement (AFTA), the Philippines also has trade agreements with China,
Australia, and the United States.

These trade agreements foster business in the region which would also
mean more foreign business travelers to the country and business for the
hospitality segment too. However, that has been cut drastically by the
pandemic and unless a long-term solution is found to address the global
health crisis, the positive impact of these free trade agreements on local
businesses will be momentarily put on hold.

d. Global warming

Climate change as a result of global warming is proving to be both a

boon and a bane to the global hospitality sector. It is a boon because
when extreme weather events results to natural disasters like
70
 hurricanes, typhoons, floods, among others, displaced people need
accommodations and that means business for hotels, well, at least to
those who can afford staying in one (HNN, 2019). It is also a bane
because efforts of the market players in the hospitality segment to
reduced its carbon footprints in their respective drive towards
sustainability meant that they have to invest more on eco-friendly
equipment, which are relatively expensive than the traditional ones. In
the Philippine context for instance, an extreme dry season could also
force hotels to raise the cooling capacity of their air-conditioning system,
which mean significant investments on high-capacity and powerful
HVAC (heating, ventilation and air conditioning) systems which almost
equate to high power consumption resulting to higher utility cost.
Flooding during the wet season also require some hotels to raise their
respective ground levels so that going in and out would not be a hassle
to guests and that also entails significant expense.

B. Immediate Industry and Competitive Environment (Porter’s Analysis)

There is no better and easier way to analyze the market position and
competitive landscape of a business than through the Porter’s Analysis
featuring its five forces. Understanding these competitive five forces of a
company is a strategic move towards profitability (Mind Tools, 2020).
Porter’s Analysis is a simple but powerful tool for understanding the
competitiveness of the business environment of The Heritage Hotel Manila
or GPHC. The tool shall enable the company to know and subsequently
adjust its strategies accordingly by maximizing its strong points and

71
improving its weak points to avoid any possible pitfalls that may be critical
to business profitability.

Figure 3.6
Porter’s Five Forces Model

Source: Mind Tools

1. Suppliers – Threat is Low

The Hotel and Restaurant Association of the Philippines (HRAP), which is

the foremost organization in the accommodation and food and beverage
service activities industry, also counts as allied members the suppliers of
hotel and restaurant private business sector, in addition to hotel and
restaurant owners and managers in the country. HRAP has 48 allied
members who are accredited suppliers in the hospitality segment (HRAP,
2020). The number is twice as much if the other suppliers who are still
not members of HRAP are to be accounted. There are just too many
suppliers to choose from for every hotel requirement in Metro Manila or
the country which is why hotels can afford to demand competitive price
offerings from them. Thus, the threat from suppliers as far as The
Heritage Hotel Manila of GPHC is concerned is LOW.
72
2. Rival firms – Threat is High

The competitive environment of the Metro Manila hospitality segment is

very evident with the numerous hotels located all over the metropolis. In
the case of four-star hotels where The Heritage Hotel Manila is
categorized into, the Department of Tourism has a list of over 50 market
players in the metropolis and 10 of them are in Pasay City (Expedia,
2020). Current overnight rates go from as low as PhP3,600 to a little over
P6,000 and the competitors are really fighting tooth and nail for every
guest or traveler that is available to check in.

Figure 3.7
The Heritage Hotel Manila is Among the Top Four-Star Hotels in Pasay City

Source: Expedia
73
 The hotels are vying for guests other than those OFWs who have been
required to go on quarantine upon their arrival or before their departure
and immediately following undergoing swab test to ensure that they are
Covid-19-free. Thus, the threat from competition or rival firms is HIGH.

3. Buyers – Threat is High

Considering that there are plenty of market players in the local hospitality
segment, buyers or guests have plenty to choose from based on their
preference on price, proximity to their destinations, amenities, or any
other consideration. Prior to Covid-19, five-star hotels charge anywhere
from PhP7,000 to PhP10,000 per night per room for two persons. The
four-star hotels offer it for PhP4,000 to PhP 6,000 per room per night. But
due to the pandemic, hotel rates have plummeted down to PhP3,500 to
PhP4,000 per day both on five-star and four-star hotels in Metro Manila.

Figure 3.8
Buyers or guests have plenty of choices for hotel rates or any other consideration

74
 Source: Trivago
With very little to no demand during the lockdown period, there was no
other choice but to drop the prices especially when the government
started asking for it as part of the condition to allow hotels to operate as
quarantine shelters of incoming and outgoing OFWs at the height of the
ECQ and MECQ (Lopez, 2020).

The government is the buyer in such case and it was able to demand
from hotels to slash their room rates. The Heritage Hotel Manila joined
the fray in order to utilize its rooms during the pandemic instead of
keeping it idle for several months until things go back to normal, if and
when it does happen sooner or later. When hotels were allowed to
operate in full capacity towards the end of October 2020, overnight rates
appear to have slowly move back up to where it was prior to the
lockdown (Trivago, 2020) although analysts say that it will unlikely return
to pre-Covid-19 levels because consumer spending has been greatly
affected by the pandemic. Thus, the threat from buyers is HIGH.

4. Substitute Products – Threat is High

The worldwide web or the internet has really made the world a smaller
place. It was even more highlighted during the pandemic with the
prevalent use of digital communication apps making business travel to do
face-to-face meetings almost unnecessary. Advancements in
communication technology have enabled billions of people across the
world to connect more easily with other people even at great distances
away, making international travel and staying at hotels unnecessary.
Recent studies show that technology has had a negative effect on both
the quality and quantity of face-to-face communications (Drago, 2015).
These days, most people communicate more with their smartphones than
with actual persons. Digital communication apps for business travelers is
75
 one substitute product in the hospitality segment that poses a real threat
although it is still on an early phase at this point in time.

On the ground however, AirBnBs are the main substitute products in the
local hospitality business particularly those condo units or board and
lodging houses in the cities of Pasay, Makati, and Manila, which offer
cheaper or competitive rates compared to four-star hotels like The
Heritage Hotel Manila. So it boils down to value for money and quality of
service. And they are also increasing in numbers too. The pandemic
however, also affected the operations of AirBnBs as both guests and
hosts are now are very wary or conscious of health and hygiene. In a
recent survey for example, it was found out that 47% of hosts no longer
feel safe renting their condo units or lodging houses to guests while 70%
of guests have become fearful of staying at AirBnBs (Lane, 2020). Still,
AirBnBs provide a formidable substitute product for hotels post-pandemic
and the years moving forward. Thus, the threat for substitute products is
HIGH.

5. New Entrants - Low

With intense competition very evident in the huge number of hotels

operating in Metro Manila alone, any new entrant to the hotel business
would really think twice before joining the fray. Location and price are the
foremost factors for consideration for many travelers and guests these
days and unless the new entrants can offer unique service differentiation
strategies and sacrifice their projected return on investments, they will not
be able to make a dent or impact on the business. If the goal is to merely
operate and earn whatever comes their way, these new entrants will not
survive the competition in the local hotel business. The Heritage Hotel
Manila has been in operations since 1994 and if not for GPHC being part
of the stable of M&C, it might have had difficulty surviving the Asian
regional crisis that came three years later or the US financial meltdown in

76
 2008. And now hotels had to deal with the pandemic too. Small players
will definitely closed shop for good.

While the Department of Tourism continues to lure investors to invest in

the tourism sector including the hospitality segment (Reyes, 2019), the
national government has instituted several barriers to entry including the
enactment of the TRAIN Law, which levies higher taxes to businesses
including those in the hospitality business. The recent decision of the
national government to impose a two-and-a-half-month lockdown amid
the pandemic has also fanned skepticisms on investors as any similar
move in the future might seriously affect their business plans and profit
potentials in the Philippines. Thus, the threat from new entrants in the
local hospitality segment is LOW.

C. Threats and Opportunities

Given the external environment and both global and local economies
teetering on the edges as a result of the Covid-19 pandemic, seven threats
have been identified as critical for GPHC in operating The Heritage Hotel
Manila. These are:

1. The pandemic and its impact is expected to go beyond 2020.

2. The projected GDP contraction is expected to reduce consumer spending

and that will greatly impact leisure and travel.

3. A slumping local economy will further be slowed down by rising interest

rates because money shall become scarce.

4. A slumping global economy will also be acerbated by declining foreign

exchange rates.

5. Despite strong potentials for office and commercial space leasing,

demand has been shrinking as many companies folded up during the

77
 height of the pandemic in 2020.

6. Market is now dictating hotel rates because of strong competition and low
demand.

7. Global economic slowdown may affect the plans of the parent company
to expand or negatively impact its resources given its global assets.

As far as opportunities go for GPHC and The Heritage Hotel Manila, a total
of eight were identified including:

1. DOT accreditation as a four-star hotel. Government accreditation is a

validation of legitimacy and reputation and the DOT accreditation goes a
long way in putting The Heritage Hotel Manila in the official Philippine
tourism map.

2. Beginning in October 2020, staycation in hotels in Metro Manila have

already been allowed by the DOT and the IATF-EID on the condition that
both the hotel and guests abide by health and safety protocols.

3. The rising interest rates are also seen as opportunity, apart from being a
known threat, because it will work well for the leasing activity of GPHC.

4. Real estate value continues to appreciate. This opportunity is crucial

since the parent company of M&C is now CDL, an international real
estate conglomerate. GPHC owns the property where The Heritage Hotel
Manila is situated and it is most certainly a growing asset in the portfolio
of CDL.

5. With the presence of the pandemic, work-from-home office set-up has

become the rule rather than the exception in most businesses that can
afford such an arrangement. But some employees cannot afford to
sustain the set-up because of unstable internet connection at home
among other constraints which is why some business process
outsourcing (BPO) companies have been looking at work-from-hotel set-
ups which opens a viable opportunity for hotels including The Heritage
78
 Hotel Manila.

6. The integration of new technologies for contactless transactions has also

become the rule rather than the exception in hotel operations as guests
become more conscious of personal health and well-being as a result of
the pandemic.

7. While the market for property and commercial space leasing as a result
of the pandemic and the ensuing economic slowdown, it has been
projected nonetheless that the particular segment shall recover ahead of
others, which is good for GPHC as it has also leasing as an operating
segment and revenue generator.

8. CDL, which is the parent company of M&C, is also under the umbrella
company Hong Leong Financial Group of Singapore and it is very liquid.
Despite the revenue setback in the past couple of years and another in
2020 as a result of the pandemic, the international parent company of
GPHC is willing to expand its operations in the Philippines if opportunities
present itself. This was confirmed by Ms. Cecille G. Bernardo, Admin and
Corporate Relations Manager and Assistant Compliance Officer of
GPHC. The last time that GPHC considered owning and operating
another tourism establishment was in the early 2000s when a resort
somewhere in Cebu was officially offered to the company.

79
 D. EFE Matrix

Weighte
Key External Factors Weight Rating
d Score
Opportunities
1. DOT accreditation as a four-star hotel 0.10 4 0.40
Staycation already allowed in Metro Manila despite
2. 0.09 3 0.27
quarantine restrictions and protocols
Interest rates are up, giving leasing and financing
3. 0.08 1 0.08
activities better returns
4. Real estate value continues to appreciate 0.07 2 0.14
Work from hotel set-up is getting a fad; tie-up with BPO
5. 0.06 2 0..12
companies now a viable option
Integration of new technologies for contactless
6. 0.05 4 0.20
transactions
Property and office leasing activities have shrunk but
7. are expected to recover ahead of other business 0.04 1 0.04
segments
Parent company is capable of supporting an expansion
8. 0.03 3 0.09
if opportunities present itself
Threats
1. Pandemic and its impact to go beyond 2020 0.10 4 0.40
GDP contraction to reduce consumer spending,
2. 0.09 4 0.36
particularly on leisure and travel
3. Rising interest rates 0.08 3 0.24

4. Declining foreign exchange rates 0.07 3 0.21

Property and office space leasing now very competitive

5. 0.05 2 0.10
in business districts given the shrinking demand
Low demand, strong competition allows market to
6. 0.05 1 0.05
dictate hotel rates
Global economic slowdown may affect plans of parent
7. 0.04 1 0.04
company to expand
80
Total EFE Score 1.00 2.74

Both opportunites and threats were numbered according to their weighted

scores with the No. 1 in each list getting the highest weight based on its
importance or impact to GPHC in operating The Heritage Hotel Manila.

After plotting the opportunities and threats in the External Factor Evaluation
(EFE) matrix, GPHC’s total EFE score is found to be 2.74. This indicates that
the company is doing its best to respond to opportunities and threats to its
external environment but the strategies in place, espcially now that the
country is facing a global pandemic, appears to be facing a tough challenge,
making it difficult for the business to sustain its competitiveness in the
hospitality segment of the accommodation and food and beverage service
activities industry.

E. Strategic Issues Based on External Factors

With the onset of the pandemic, there was big turnaround from government
policies which mandated a new normal for the hospital segment.

1. Department of Tourism Memorandum Circular No. 2020–002-C

(enclosed as Appendix D)

Many hotels in Metro Manila suspended their operations when the

national government imposed the Enhanced Community Quarantine
(ECQ) beginning in March 17 up to May 15, 2020. Subsequently, the
metropolis was placed under Modified Enhanced Community Quarantine
(MECQ) from May 16 to May 31, 2020. Some of the big hotels were
already allowed to operate not to accept guests but only to serve as
quarantine hotels for arriving OFWs who got displaced from their work
abroad and needed to come home. As part of the quarantine procedures
to prevent the spread of Covid-19, arriving OFWs were required to stay
for at least 14 days in hotels at government’s expense. Eventually, hotels
81
 were also asked to accommodate departing OFWs when the travel
restrictions were eased when Metro Manila was placed under General
Community Quarantine (GCQ) beginning on June 1, 2020.

The DOT memorandum circular provided new guidelines with regards to

health and safety for accommodation establishments in the new normal
not only in Metro Manila but also in the Philippines to ensure the health
and well-being of guests. This is a strategic issue as it has set a minimum
benchmark for hotels to be able to secure the permission of the
Department of Tourism and the IATF-EID to operate moving forward.
This entailed additional operational expenses to the hotels that were not
allocated for in its annual operational budget for 2020 yet they simply
cannot raise their rates to cover such expense because consumer
spending is down and it would still take time to return to pre-Covid-19
levels.

2. Department of Tourism Memorandum Circular No. 2020–006-C

(enclosed as Appendix E).

When the national government eased travel restrictions beginning in

October 2020 and allowed non-essential travel, hotels were also
permitted to operate at full capacity. This means that other than arriving
and outbound OFWs who are in quarantine prior to going back to their
homes in Metro Manila or in the provinces or leaving the country for
another foreign destination, hotels were already allowed to accept non-
essential travelers including foreign guests who may be in for official
business like meetings and conferences. But the DOT has set another
guidelines for MICE (meetings, incentives, conferences, and exhibitions)
organizers mandating compliance to health and safety guidelines in the
new normal. MICE events have always been a key source of clients for
hotels and resorts in the country. Hosting an international conference or

82
 convention would instantly mean room bookings for hotels. Under the
new normal however, MICE organizers have to abide by health and
safety protocols the way that hotels shall do to ensure the health and
well-being of guests and travelers. MICE events in the Philippines are
already allowed beginning in October 2020 but with social distancing
protocols and the other health and safety regulations being imposed by
the government on organizers and venue hosts, it would still take more
time before the situation goes back to pre-Covid-19 levels.

3. 2016-2022 National Tourism Development Plan (NTDP) Strategic

Direction Action Programs (enclosed as Appendix F)

The six-year NTDP was developed by the DOT primarily to chart the
growth of the tourism sector under the regime of President Duterte. As
can be gleaned in Figure 3.9, the strategic direction action programs did
not take into account the occurrence of a pandemic in the fourth year of
its implementation which doused cold water on its momentum going to
the last two years. The last two years of the NTDP could be totally written
off or a revised development plan could be developed to cover the
remaining two years from 2021 to 2022. It is possible that a new-five year
NTDP could be developed post-pandemic, but until the Covid-19 health
crisis is still a prevalent issue, the action plans are in disarray and that the
accommodation and food and beverage service activities industry will
continue to bear the brunt with little to no government support except for
guidelines and regulations on how to ensure the health, well-being, and
protection of guests while staying in their establishments.

83
Figure 3.9
Strategic Direction Action Programs of DOT

84
Source: National Tourism Development Plan, 2016-2022
IV. INTERNAL ENVIRONMENT ANALYSIS

The internal environment analysis for GPHC was undertaken based primarily on
the audited financial statements of the company which it submitted to the
Securities and Exchange Commission (SEC) as a publicly-listed company in the
Philippine Stock Exchange (PSE). In addition to the 2018 audited financial
statements, enclosed as Appendix A, the 2019, 2016, and 2015 audited
financial statements are also enclosed as Appendices G, H, and I, respectively.
Interestingly, the 2017 audited financial statements of GPHC was not made
available but the results therein were in both the 2019 and 2018 audited
financial statements of the company. A virtual meeting and interview with Ms.
Cecille G. Bernardo, Admin and Corporate Relations Manager and Assistant
Compliance Officer of GPHC also helped in contextualizing company internal
operations and processes as well as immediate plans of the company relative to
its revenue-generation activities amid the pandemic.

Physical and face-to-face interviews were likewise made on four veteran staff of
The Heritage Hotel Manila to validate information related to internal factor
evaluation and analysis and it certainly helped that all the four-staff have been
around as employees of the hotel for 24 years and up. The Heritage Hotel
Manila has been in operations for 26 years since it formally opened its doors in
1994, and two of the F&B staff who were interviewed were pioneers. The two
others have been around for 25 and 24 years working for the hotel. The male
front desk manager of The Heritage Hotel Manila, who is one of those who was
interviewed personally, has been employed with the company for 24 years and
he started only as a housekeeping staff, indicating loyalty and closely-knit and
almost family-like people management at the hotel and GPHC.

A. Company Resources and Capabilities

When GPHC registered with SEC in 1989, it had an approved capital stock of
PhP115 million. As of the latest GIS of the company in the quarterly financial
85
report submitted to the SEC ending June 30, 2020 (Appendix A), GPHC already
has an approved capital stock of PhP1.15 billion, an indication of the magnitude
of company resources and assets. GPHC has tangible resources in The
Heritage Hotel Manila and all amenities and facilities or FFEs (furniture, fixtures,
and equipment) therein, investment in a local property management company,
and human capital, numbering close to 200 prior to the pandemic. In terms of
intangible resources, GPHC has the Millennium & Copthorne brand written all
over it, excellent personalized service with its capable and experienced staff,
and its intellectual property on the name of The Heritage Hotel Manila. The
patent actually expired on July 12, 2020 but GPHC already renewed it with the
Intellectual Property Office of the Philippines (IPOPHL) for another 25 years.

As far as capabilities go, GPHC is a publicly-listed company with the PSE.

Although it has a parent company with hardly an issue on liquidity, the company
can also offer its shares to the public to generate additional resources or capital
to fund its programs and activities meant to strengthen its capabilities and
competitive position in the local hospitality segment. With experienced staff at
the helm of its excellent personalized service offering, GPHC has positioned
itself well enough in the market to withstand a highly competitive market for the
last 26 years.

B. Competitive Position

In the GPHC 2015 audited financial statements, enclosed as Appendix I, the

company specifically claimed that its competitors for The Heritage Hotel Manila
are Sofitel Philippine Plaza, Hotel Jen Manila, Pan Pacific, Diamond Hotel, New
World Manila Bay (now New Coast Hotel), and Microtel Inn and Suites near Mall
of Asia. Accordingly, occupancy for The Heritage Hotel Manila at that time was
pegged at 59.6% which was already lagging behind compared to its competitors
that were enjoying a 68% occupancy rate. GPHC also claimed that its average
room rate back in 2015 was PhP3,215 compared to its competitor rate of
86
 PhP4,928. The resultant RevPAR for The Heritage Hotel Manila was also
PhP1,917 versus the PhP3,349 of its competitors.

In plotting the Competitive Profile Matrix (CPM) for The Heritage Hotel Manila of
GPHC shown in Table 4.1, three other four-star hotels within its vicinity have
been used to ensure comparative reliability as these competitors are vying in the
same market for the same type of guests.

Table 4.1
Competitive Profile Matrix for The Heritage Hotel Manila and Three Competitors

Competitor information were obtained from the strategic management paper of

an MBA colleague at PLM who also made one for Hotel Jen during the
Academic Year 2019-2020. One of the authors of this strategic management
paper is also employed with Century Park Hotel which enabled the authors to
obtain information on the hotel as well.

Based on the CPM scores of the four competing four-star hotels using the seven
key or critical success factors to profitable hotel operations as pointed out in
Chapter 2, The Heritage Hotel Manila netted the highest score of 2.95, followed
closely by Century Park Sheraton. A distant third is Midas Hotel. This implies
that in terms of competitiveness, GPHC’s The Heritage Hotel Manila is doing a
few notches better than its four-star competitors. But then again, the competition
87
is no longer the four-star hotels in the area but also the bigger and newer hotel
and resort casinos that have sprouted and peppered Entertainment City Manila
like mushrooms and now getting a sizeable chunk of the market.

C. Value Chain Analysis

According to Porter, the business of a firm can best be described as a value
chain, in which total revenues minus total costs of all activities undertaken to
develop and market a product or service yields value. All firms in a given
industry have a similar value chain, which includes activities such as obtaining
raw materials, designing products, building manufacturing facilities, developing
cooperative agreements, and providing customer service. A firm will be
profitable as long as total revenues exceed the total costs incurred in creating
and delivering the product or service. Firms should strive to understand not only
their own value chain operations but also their competitors’, suppliers’, and
distributors’ value chains.

Value chain analysis (VCA) refers to the process whereby a firm determines the
costs associated with organizational activities from purchasing raw materials to
manufacturing product(s) to marketing those products. VCA aims to identify
where low-cost advantages or disadvantages exist anywhere along the value
chain from raw material to customer service activities. VCA can enable a firm to
better identify its own strengths and weaknesses, especially as compared to
competitors’ value chain analyses and their own data examined over time (Van
Vliet, 2010).

Substantial judgment may be required in performing a VCA because different

items along the value chain may impact other items positively or negatively, so
there exist complex interrelationships. For example, exceptional customer
service may be especially expensive yet may reduce the costs of returns and
increase revenues. More and more companies are using VCA to gain and
sustain competitive advantage by being especially efficient and effective along
88
various parts of their respective value chain.

Figure 4.1
Porter’s Value Chain Analysis

Source: SMstudy

For GPHC and its operations of The Heritage Hotel Manila, there are only four
primary activities instead of five. There is no outbound logistics as service
delivery is confined to the hotel itself and does not need to be delivered
elsewhere. The four primary activities of GPHC for The Heritage Hotel Manila
and its respective components include:

1. Inbound Logistics – This pertains to the procurement and delivery of

materials and consumables (for F&B) needed to provide accommodation
and food and beverage service activities to the guests of The Heritage
Hotel Manila. The hotel can already create value with suppliers by
purchasing the materials and consumables at below prevailing market
prices especially if there is a long-term procurement agreement or
purchases are always made in bulk rather than per piece.
2. Operations – This is where GPHC offers value to its guests by

89
 complimenting the materials and consumables needed to deliver positive
sales results through excellent and personalized service from its
experienced, well-trained, and competent staff.
3. Marketing and Sales – The activities contained herein involve all the
promotional, advertising, and marketing initiatives of GPHC for The
Heritage Hotel Manila using both traditional and non-traditional platforms
to attract guests and give the offerings of the hotel a try, especially for
those who have yet to experience its excellent service offerings as well
as topnotch amenities and facilities. With The Heritage Hotel Manila
being part of the M&C international hotels and resorts chain, it is also
able to expand its reach across the world for potential foreign guests.
4. Service – This is where the The Heritage Hotel Manila continuous to
differentiate itself from its competitors because of its experienced and
competent staff who are capable of delivering personalized and excellent
services, many of whom have been so used to doing for the past 26
years while still maintaining the same level of zest to this day.

For the Support Activities of the value chain of The Heritage Hotel Manila,
firm infrastructure refers to its management and administration which is
actually where the expertise of GPHC comes in. Human resource
management is the how the company takes care of its people by ensuring
their professional development and competitive remuneration and benefits.
Technology development has something to do with the solutions that the
hotel is adapting to improve the efficiency and productivity of its operations.
Procurement is how the hotel’s purchasing department optimizes every
purchase of goods and other raw materials to be able to convert them into
premium service delivery offerings that already comes with a price.

D. Financial Analysis
The financial analysis of GPHC was made using its five-year audited financial
statements from 2015 to 2019 enclosed As Appendices I, H, G, and C, with the

90
 exception of 2017 which was not available. Just the same, financial information
for 2017 was available in both the 2018 and 2019 audited financial statements.
Though the five-year analysis is not reflective of the overall financial strength of
the company given that it has been in existence for 31 years and has been
operating The Heritage Hotel Manila for 26 years, it was able to provide
historical trends and recent strategies adopted by the company to be able to
sustain its revenue-generation activities.

1. Horizontal Analysis
a. Balance Sheets. Table 4.2 shows the comparative GPHC financial position
(balance sheet) from 2019 back to 2015.

Table 4.2
Horizontal Analysis of GPHC Balance Sheets, 2019 back to 2015

91
Bar graphs were used to show the historical trends for GPHC total assets, total
liabilities and total stockholders’ equity over the five-year period from 2015 to
2019.

Figure 4.2
GPHC Total Assets Five-Year Trend

Figure 4.3
GPHC Total Liabilities Five-Year Trend

Figure 4.4
GPHC Total Stockholders’ Equity Five-Year Trend

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Based on the bar graph in Figure 4.2, it can be seen that GPHC total assets
were practically hovering between PhP1 billion to PhP1.2 billion over the last
five years, with the spike in growth happening in 2019. For the total liabilities
shown in Figure 4.3, the amount were hardly unchanged from 2015 to 2018 but
more than doubled in 2019. Total stockholders’ equity on GPHC on Figure 4.4
has been noted to be on a declining trend with the huge drop happening
between 2016 and 2017.

b. Income Statements. Table 4.3 is for the comparative analysis of the

company income statements for the five-year period from 2015 up to 2019.

Table 4.3
Horizontal Analysis of GPHC Income Statements, 2019 back to 2015

Bar graphs were likewise used to show the historical trends for GPHC total

93
assets, total liabilities and total stockholders’ equity over the five-year period
from 2015 to 2019.

Figure 4.5
GPHC Total Revenues Five-Year Trend

Figure 4.6
GPHC Gross Operating Income Five-Year Trend

Figure 4.7
GPHC Net Operating Income Five-Year Trend

94
 Figure 4.8
GPHC Net Income (Loss) Five-Year Trend

Based on the historical trend of the GPHC income statements, it can be noted
that the company gross sales or total revenues have been increasing at a
relatively constant rate in the five years ending 2019. The same is true with the
company’s gross operating income and net operating income. However, the net
income (or loss) five-year trend shows a completely different story as GPHC
cycled over huge and small net losses from 2015 to 2018 before posting a small
net income in 2019.

c. Cash Flows. Table 4.4 is for the GPHC cash flow for the five-year period
indicating its net cash from operations as well as for its financing activities.

Table 4.4
Horizontal Analysis of GPHC Cash Flow Statements, 2019 back to 2015

95

Table 4.4. Horizontal Analysis of GPHC Cash Flow, 2019 back to 2015
 Figure 4.9
GPHC Cash Flows from Operating Activities Five-Year Trend
Instead of using bar graphs that were used in showing the historical trends for
the GPHC five-year balance sheets and income statements, line graphs were
used for the cash flow statements to show the trend on cash flows from GPHC
operating activities, investing activities, financing activities, as well as cash and
cash equivalent at yearend.

Figure 4.10
GPHC Cash Flows from Investing Activities Five-Year Trend

96
 Figure 4.11
GPHC Cash Flows from Financing Activities Five-Year Trend

Figure 4.12
GPHC Cash and Cash Equivalent at Yearend Five-Year Trend

Cash flow from operating activities was cyclical from 2015 to 2018 but
97
experienced a big jump in 2019. Cash flow from investing activities were all in
the negative from 2015 to 2019 with the end of the five-year period seeing a
further nosedive, which means that the company has been making investments
since 2015. As for the cash from financing activities, it was clear that it was only
in 2019 when the company started engaging in such initiative, putting in some
PhP160 million in the process. The trend for the GPHC cash and cash
equivalent at yearend appears to be increasing gradually from 2015 to 2019.
2. Vertical Analysis
a. Analysis of Liquidity
Current ratio shows a firm’s ability to pay current liabilities using assets that can
be converted to cash in the near term. This ratio should be higher than 1.0.
Looking at the three main liquidity ratios; current ratio, quick ratio (or acid test
ratio) and cash ratio, GPHC with liquidity ratios of 2.47 to 2.70, can easily pay off
its current or short-term debt without raising external capital. A good healthy
liquidation ratio is between 1.0 to 3.0. Investors and lenders look to liquidity as a
sign of financial security. The higher the liquidity ratios are, the better the
company’s financial strength is.

GPHC had a current ratio of 2.47 for 2015 and 2016 and 2.70 for 2017 and 2018
and 2.49 for 2019. Based on the trend as shown in Figure 4.13, the ratio
changes every two years and there is a decrease for 2019. Thus, for five years
the current ratio is higher than two.
Figure 4.13
GPHC Current Ratio Five-Year Trend Equival
ent at

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As shown in Figure 4.14, GPHC has the same historical trend for quick ratio for
the five-year period from 2015 to 2019 and all values are higher than 2. Quick
ratio for 2015 and 2016 is 2.42, 2.63 for 2017 and 2018, and 2.45 for 2019.

Figure 4.14
GPHC Quick Ratio Five-Year Trend Equival
ent

Decrease on current and quick ratios for 2019 was due to the significant
increase on GPHC current liability by 26.86% from 2018. In 2019, accounts
payable and accrued expenses increased by 35.18% from 2018. Based on the
vertical analysis of its balance sheet from 2017 to 2019, there was an addition of
0.3% in current liabilities from its current portion of its lease liabilities as shown
in Table 4.5.

Table 4.5
Vertical Analysis of GPHC Liabilities, 2019 back to 2017 Equival
Figure 4.12. GPHC Cash and Cash Equivalent at Yearend Five-Year Trend
ent at

99
Based on the current and quick ratios of GPHC from 2015 to 2019, having
liquidity ratios higher than 2 means that the company has the ability to pay its
short-term liabilities. But a decrease in its current and quick ratio from 2018 to
2019 might have a negative effect to investors or creditors. Based on the
company’s every-two-years trend for its liquidity ratios, 2020 may have a current
ratio of 2.49 and a quick ratio of 2.45.

Considering GPHC’s net working capital which has been increasing from 2015
to 2019 as shown in Figure 4.15 and the trend and values of current and quick
ratios, the company has a strong liquidity position based on internal analysis.

Figure 4.15
GPHC Net Working Capital Five-Year Trend FivEquival
ent at

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b. Asset Management / Operating Efficiency
Efficiency ratios which are often called activity ratios measure how well a
company utilizes its assets to generate income. There are five components
under of efficiency ratios and these are:
1. Inventory Turnover
2. Total Asset Turnover
3. Fixed Asset Turnover
4. Average Collection Period or Accounts Receivable Turnover
5. Debtor Turnover

Based on the GPHC 2019 audited financial statements, enclosed as Appendix

G, Cost of Sales and Services for the company is PhP152.06 million while its
average inventory for the same year was at PhP8.37 million. Thus, GPHC has
an inventory turnover ratio of 18.17.

The company’s total asset turnover ratio as of 2019 is 0.39 which was obtained
by dividing the total gross sales of PhP441.32 million from the company total
assets which on the same year already amounted to PhP1.13 billion.

Fixed asset turnover ratio of GPHC is sales divided by average fixed assets. In
2019, the company posted sales of PhP441.32 million. Sales divided by its
average fixed assets valued at PhP549.67 million, the fixed asset turnover ratio
of GPHC is 0.80 in 2019.

The average collection period ratio or more commonly referred to as accounts

payable turnover ratio of GPHC in 2019 is 94.29 which was derived from its total
sales of PhP441.32 million divided by its accounts receivable balance in the
same year which was valued at PhP114 million.

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Company debtor turnover ratio or debt to equity ratio for 2019 was recorded at
0.45 more than a two-fold increase from its 0.19 debt to equity ratio in 2018. The
2019 ratio was derived by dividing GPHC total liabilities amounting to
PhP382.72 million from company total equities valued at PhP857.73 million.

Other pertinent financial information for GPHC include:

1. Days Turnover
2. Operating Cycle
3. Cash Conversion Cycle
4. Payables Outstanding

Based on the inventory turnover ratio of 18.17 in 2019, GPHC days inventory
could be computed as 20.08 by dividing it to the total number of days in a year,
which is 365 days.

An operating cycle refers to the time it takes a company to buy goods or

services, sell them and receive cash from its sale. In other words, it's how long it
takes a company to turn its inventories into cash. It is measured by adding the
days inventory of 20.08 to the accounts receivable period, which as per GPHC
2019 audited financial statements is 94.29 resulting to 114.37 days. This was
relatively constant to the company operating cycle in 2018 which was recorded
at 114.98 days.

Cash conversion cycle is a metric that compares the amount of days it takes a
company to sell inventory ad collect receivables relative to the amount of days
afforded to settle payables without incurring penalties. It is equal to the sum of
days of sales outstanding and days of inventory outstanding minus days of
payables outstanding. In 2019, GPHC had a cash conversion cycle of less than
200 days which means that the company needs capital infusion or external
financing to pay off some of its suppliers.

Payables outstanding measures how many days on average that the company
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takes to pay off its payables and based on the GPHC operating cycle, it is not
exceeding 90 days. Figure 4.16 shows the payables outstanding cycle.

Figure 4.16
Payables Outstanding Cycle FivEquival
Figure 4.12. GPHC Cash and Cash Equivalent at Yearend Five-Year Trend
ent

Other financial measures that help in gauging the financial strength of the
company include
1. Net Working Capital (NWC):
2. Net Operating After Tax (NOPAT)
3. Return on Invested Capital (ROIC)
4. Free Cash Flow (FCF)
5. Market Value Added (MVA)
6. Economic Valud Added (EVA)

GPHC net working capital in 2019 was valued at PhP270.92 million derived from
subtracting the current liabilities amounting to PhP181.63 million from the
current total assets worth PhP452.55 million.

NOPAT is a financial measure that shows how well a company performed

through its core operations, net of taxes. It is computed by multiplying the net
operating income with the difference of 1 minus the tax rate as prescribed in the
National Internal Revenue Code of 1997. In 2019, GPHC had a net operating
income of PhP12.46 million and a tax rate of 30%. Thus, its NOPAT is PhP8.72
million.

103
ROIC is a profitability or performance ratio that measures the percentage return
that investors of the company are earning from their invested capital. The
measure shows how a company efficiently is using investors’ money to generate
income. ROIC is computed by dividing NOPAT over invested capital. GPHC
ROIC is thus equal to the NOPAT of PhP8.72 million over the total equity or
invested capital of PhP1.24 billion which is a measly 0.007 or 0.7%.

Free Cash Flow (FCF) represents the cash available for the company to repay
creditors or pay dividends and interest to investors. It is the sum of cash from
operations minus capital expenditures for the year plus the amount of dividends
received. For 2019, GPHC cash from operations was valued at PhP63.13
million. Its capital expenditure or capex was valued at PhP2.87 million. Its
dividend received was PhP1.6 million, Thus, GPHC FCF was PhP61.86 million
in 2019.

MVA is a measure that shows the difference between the market value of a
company and the capital contributed by all investors. It is the sum of all capital
claims held by the company plus the value of debt and equity. In the case of
GPHC in 2019, its MVA is equal to the market value of shares (10.7 x 53,717
outstanding shares) minus book value of shareholders’ equity (16 x 53,717
outstanding shares) which is thus equal to negative PhP283.02 million.

EVA, on the other hand, compares the rate of return on invested capital with the
opportunity cost of investing elsewhere. This is important for businesses to
monitor, especially those businesses that are capital intensive. A positive EVA
means that the company is creating value with its capital investments.
Conversely, a negative outcome means that the company is not creating value
with its capital investments and the capital would be better spent elsewhere.
Businesses can use economic value added to assess managerial performance
as it serves as a measure of value creation for shareholders. EVA is computed
as NOPAT minus the product of capital and the cost of capital. Based on the
GPHC 2019 audited financial statements, its EVA is equal to PhP8.72 million
104
minus the product of PhP857.73 million and computed capital cost of 15% or
0.15, thus resulting to negative PhP119.94 million.

c. Profitability
Profitability ratios are one of the five key financial ratios used by companies to
check on its stability and cash flow. They measure management’s overall
effectiveness as shown by the returns generated on sales and investments.

Based on Figure 4.17 indicating the key five-year trend of the key components
of profitability ratios, the Gross Profit Margin of GPHC, which is the total margin
available to cover operating expenses and yield a profit, is increasing
considerably from 2015 to 2019. The company’s Net Profit Margin, Return on
Stockholder’s Equity, Operating Profit Margin and Return on Total Assets
increased in 2016 but declined the following year but the numbers recovered in
2018 and 2019.

Figure 4.17
GPHC Profitability Ratios Five-Year Trend FivEquival
ent at

GPHC Gross Profit Margin has been on an upward trend as the company
focused on streamlining its operations by continuously reducing its

105
administrative expenses since 2015, a few years after PAGCOR decided to
terminate its lease contract with The Heritage Hotel Manila for Casino Filipino.
Faced with a declining occupancy rate vis-à-vis the increasing number of
competitors and also losing approximately 20% of its annual gross income from
PAGCOR since 2013, the GPHC management focused on internal control and
measures to sustain its revenue-generation activities. The four other ratios are
basically directily proportional to the Gross Operating Margin. Except for a slight
drop, albeit momentarily, on the four ratios in 2017, those also picked up and
practically run parallel to the company Gross Operating Margin.

d. Analysis of Debt Ratios / Financial Leverage

GPHC debt ratios were significantly affected by the company’s total liabilities in
2019 as can be gleaned in Table 4.5. Non-current liabilities increased by 13.8%
as non-current lease liability was also included and current liabilities also grew
by 0.3% with the inclusion of current lease liability. As a result, there is 132.35%
increase in GPHC liabilities from 2018 to 2019 and 26.86% and 833.19%
increase on its current and non-current liabilities respectively.
Figure 4.18 compares company total assets to debt. GPHC has a debt to total
asset ratio of lower than 0.5 from 2015 to 2019. This means that GPHC’s
liabilities is below 50% percent of its assets and these values are favorable to
the company. However, there was an increase in 2019 on its ratio and based on
this trend, it changes every two years. 2020 is also expected a debt to asset
ratio of 0.35, indicating that GPHC has twice or thrice more assets than its
current debt. This ratio could attract creditors and investors to GPHC.

Figure 4.18
GPHC Debt to Total Asset Ratio Five-Year Trend

106
The trend of the percentages of GPHC’s financing that comes from creditors and
investors is shown in Figure 4.19. Having a debt to equity ratio of 0.5 means that
the company has half as many liabilities as it has equities. Asset of GPHC is
funded mostly by investors than creditors. And a lower debt to equity ratio
means a more stable business which could attract investors. However, the
increase in 2019 is still being analyzed but the goal is to reduce it further in the
years moving forward.

Figure 4.19
GPHC Debt to Equity Ratio Five-Year Trend

GPHC investment leverage or the solvency ratio as shown on Figure 4.20

measures the amount of assets that are financed by owners’ investments.
Higher or increasing equity ratio is favorable for the company. However, there is

107
a decrease in GPHC equity ratio in 2019 which went down to 0.69 from 0.84 in
2018. Thus, an equity ratio of 0.69 is still a good value because it indicates that
69% of GPHC assets are owned by its shareholders and not by its creditors.

Figure 4.20
GPHC Solvency or Equity Ratio Five-Year Trend

A leverage ratio which compares the total amount of company long term debt to
the shareholder’s equity is the long term debt to equity ratio. A higher ratio
means that the company is taking on more debt than equity. The values on the
Figure 4.21 shows that GPHC long term debt from 2015 to 2019 is below 50% of
the shareholder’s equity. This is a good indicator because it means that the
company has low long term debt. However, it could also be a bad indicator
because having low long term debt means that the company may experience
difficulty in growing the business.

Figure 4.21
GPHC Long Term Debt to Equity Ratio Five-Year Trend

108
Interest expenses were not reflected on GPHC’s income statement from 2015 to
2018. It was reflected in the audited financial statements of 2019 and indicated
as a time interest earned ratio of 0.05 as shown on Figure 4.22. Low time
interest earned ratio is not favorable for the company as this measures the
ability of the company to pay the interest expenses with its income before tax.

Figure 4.22
Time Interest Earned Ratio Five-Year Trend

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e. Dupont Analysis
Dupont Analysis is a framework for analyzing fundamental performance
popularized by the Dupont Corporation. It is a useful technique used to
decompose the different drivers of Return on Equity or ROE (Pinsent, 2020).
The decomposition of ROE allows investors to focus on the key metrics of
financial performance individually to identify strengths and weaknesses of the
company. These include Operating Efficiency, Asset Use Efficiency and
Financial Leverage.

Operating Efficiency is represented by Net Profit Margin or Net Income divided

by Total Sales or Revenue. Asset Use Efficiency is measured by the Asset
Turnover Ratio. Leverage is measured by the Equity Multiplier, which is equal to
Average Assets divided by Average Equity.

Applying Dupont Analysis on GPHC for the years from 2015 to 2019, the
company financial performance has been noted to be fluctuating negatively from
2015 to 2018 before it finally went above zero in 2019. This means that after
four successive years of net losses, GPHC was finally able to post a net income.

Figure 4.23
Dupont Analysis Five-Year Trend

The five-year table of ratios obtained from Dupont Analysis from 2015 to 2019
featuring average assets, average equity, and equity multiplier is enclosed in a
110
 separate MS Excel file marked as Appendix J.

The completer horizontal analysis and vertical analysis of GPHC balance

sheets, income statements, and cash flow statements from 2015 to 2019 and
the graphs of important financial information are also enclosed as Appendix K
and Appendix L, respectively.

E. IFE Matrix
Following a thorough internal environment analysis of GPHC based on key
financial information obtained from its audited financial statements from 2015 to
2019, the main strengths and weaknesses of the company were identified and
plotted in the IFE matrix and given their corresponding weight, all totaling to 1.0.
Major strength is given a rating of 4 while minor strength is afforded a three.
Major weakness is given a rating of 1 while a minor weakness gets a 2 rating.

Weighte
Key Internal Factors Weight Rating
d Score
Strengths
1. Competitive rates 0.10 4 0.40
2. Strong and established brand 0.09 3 0.27
Excellent service through experienced and capable
3. 0.08 3 0.24
employees
Good asset management – it owns the property and
4. 0.07 3 0.21
investments are doing good
Premium location gives it excellent leasing capability
5. (offer from Resorts World for a satellite office is on the 0.06 3 0.18
table, among others)
Offerings cater to diverse culture of mostly foreign
6. 0.05 3 0.15
guests
7. Above average rooms, amenities, and facilities 0.04 3 0.12
8. Positioning as a four-star airport hotel 0.03 3 0.09

Weaknesses
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1. Limited market share because of tough competition 0.09 1 0.09

2. Net losses in four of the last five years 0.09 1 0.09

Relatively old compared to similar establishments in the
area, need for renovation or upgrading is obvious;
3. leasing option becomes less attractive given the 0.08 1 0.08
presence of new and modern office buildings in the
MOA area
4. Traditional marketing strategies and approaches 0.07 1 0.07

Low employee morale because of low number of guests

5. 0.06 2 0.12
because of quarantine restrictions and protocols
Location is a busy thoroughfare and some guests shun
6. 0.05 2 0.10
noise

Establishment has been typecast as catering more to

7. 0.04 2 0.08
foreign guests than domestic tourists

Total IFE Score 1.00 2.44

Table 4.6.
GPHC IFE Matrix

GPHC had an IFE score of 2.44 which means that the company has a relatively
weak internal position vis-à-vis some of its competitors in the hospitality
segment. The score also indicates that the company is not capitalizing on
available resources to be aggressive in the market and give its competitors a
serious run for the money.

F. Strategic Issues Based on Internal Factors

There are two strategic issues that have been deemed important in the internal
factor evaluation and analysis of GPHC. These include its most recent key
management appointments and its lease rate for the 5,000-square meter area
that was once occupied by a Casino Filipino through a long-term lease
agreement with PAGCOR.

1. Key Management Appointments

Figure 4.24
Yam Kit Sung 112
On January 1, 2020, Yam Kit Sung from
Millennium & Copthorne Hotels International
Limited has been appointed as General
Manager, Chief Finance Officer, Compliance
Office, and Chief Audit Executive of GPHC.
This indicates both the sustained thrust and
confidence of the parent company on the
operations of GPHC through The Heritage
Hotel Manila. Prior to Mr. Yam Kit Sung’s
appointment as a top executive of GPHC, Mr. Farid Schoucair was also named
Figure 4.25
the new General Manager of The Farid Schoucair
Heritage Hotel Manila on December
2019. Mr. Schoucair served as General
Manager of Grand Copthorne
Waterfront Hotel in Singapore and has
held the same position in many other
hotels before joining the M&C fold.
These key management appointments
happened before the start of the pandemic last year and the health crisis may
have derailed some of their plans to make GPHC and The Heritage Hotel Manila
more competitive vis-à-vis the increasing number of competitors in the local
hospitality segment.

2. Lease Rate for the Space Previously Occupied by Casino Filipino

Up until the end of 2012, PAGCOR was leasing a three-story with a combined
5,000 square meters of floor space from GPHC that housed a Casino Filipino on
the Roxas Boulevard side of The Heritage Hotel Manila. The lease rate of
PAGCOR with GPHC back then was PhP2,500 per square meter per month,
thereby netting for the company annual revenues of PhP150 million, which
accounted for 20% of the GPHC gross income. Since 2013 until 2020, a lessor
has yet to take the slot vacated by PAGCOR although there have been entities
who have expressed interests to rent the space but most did not materialize.
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 The previous rate given to PAGCOR is considered prohibitive given that
prevailing commercial and office space rental in the area only amounts to
PhP1,100 per square meter per month. According to a GPHC official, lease rate
is currently being offered still at PhP2,500 per square meter per month but if
there will be no takers after two more years, the management will reduce it to
PhP1,800 per square meter per month. Still, the amount appears to be out-of-
touch with the prevailing market rate for commercial and office space leasing in
or around the Mall of Asia area in Pasay City.

V. STRATEGY FORMULATION

With the external and internal environment analyses already completed, the next
step in the strategic management process is strategy formulation. It is the phase
where the company will choose which are the most appropriate strategies and
courses of action to be able to achieve its goals and objectives. Strategy
formulation provides a framework for the actions that will lead to the anticipated
results. Widely-accepted strategy formulation tools were used to ensure that the
strategies to be developed for GPHC moving forward carefully take into account
the changing landscape of the local hospitality segment while also preparing for
possible changes that may take place given the business dynamics.

A. SWOT Matrix
This tool makes use of the identified strengths, weaknesses, opportunities and

114
 threats for GPHC which were already identified and plotted in the EFE and IFE
matrices in Chapter 3 and Chapter 4, respectively. As a matter of recap, the
simplified summary of GPHC strengths, weaknesses, opportunities and threats
are shown in Figure 5.1.

Figure 5.1
Summary of GPHC Strengths, Weaknesses, Opportunities and Threats

The SWOT Matrix is a 3 x 3 table where the company strengths and

weaknesses gets to intersect with opportunities and threats, and through
appropriate matching and brainstorming, can easily lead to the development of
four types of strategies, namely: SO, WO, ST, and WT.

Table 5.1.
SWOT Matrix

115
Through matching and analysis, the following strategies were developed as a
result:

SO Strategies
• S1-O2: Develop sustainable promotions initiative to entice foreign and
domestic tourists to patronize hotel (buffet 2+1, P3,000 F&B consumption
entitles guests to an overnight stay at Heritage next year)
• S3-O8: Consider plans to expand to own and operate other tourist
establishments in Metro Manila or outside
• S4-O2: Sustain ‘Mother of all Buffet’ tag to lure domestic guests
• S5-O2: Offer excellent guest service with a personalized touch despite health
and social distancing protocols through experienced and very capable staff
• S6-O5 and S6-O7: Offer competitive leasing rates to private entities to
maximize under-utilized rooms particularly on the higher floors by promoting
work-from-hotel concept
• S7-O8: Consider phased renovation or upgrading of rooms, amenities, and
facilities similar to what Manila Hotel and other hotels have done in recent
years

WO Strategies
• W1-O2: Offer weekend staycation packages to Filipino families
• W2-O3 and W2-O4: Strengthen GPHC’s leasing activities; Raise activities
from the current 2.5% of the business
• W3-O8: Undergo renovation through creative retrofitting instead of rebuilding
to save on cost and time
• W4-O6: Use new technologies in promotions and marketing initiatives.
• W5-O6: Focus on capacity building of experienced and capable staff to
further raise level of service while capitalizing on new technologies
• W6-O7: Market leasing by positioning establishment as a premium business
location, being near to commercial and business district, but less expensive
than in Makati City or BGC
116
ST Strategies
• S1-T1: Maintain competitive or fighting rates until pandemic is officially
addressed
• S1-T2: Focus on domestic tourism market until pandemic is addressed while
remaining as quarantine hotel for arriving and departing OFWs and other
essential travelers
• S3-T5: Increase exposure in leasing activities to capitalize on office space
demand
• S6-T5: Strengthen leasing activities through collaboration and partnerships;
re-connect with PAGCOR and build relationships with other GOCCs
• S7-T4 and S7-T7: Offer highly competitive staycation packages to foreign
tourists through the Millennium & Copthorne international brand
• S8-T6: Give competitors, particularly those under four-star hotel category, a
run for the money by offering excellent service and amenities at rates that
are comparable to three-star hotels or below, giving guests excellent value
for money

WT Strategies
• W1-T2: Focus on expanding leasing activities
• W2-T7: Sustain low-risk investment activities to be able to cash in when
economy is back in shape
• W3-T5: Consider phase renovation or retrofitting to make leasing business
competitive
• W4-T2: Offer hard-to-refuse promo packages to perk up leisure and promote
travel
• W7-T6: Strengthen position to cater to weekenders and domestic tourism
market through promotions that create value to guests

When generalized and categorized into the general strategies, the crafted SO,
ST, WO, and WT strategies fall into three – market penetration, product (or
service) development and unrelated diversification.
117
 B. Strategic Position and Action Evaluation (SPACE) Matrix
This tool uses the external and internal environment analyses to determine the
four strategic positions of the company relative to its industry. Internal analysis is
important in determining the company’s competitive and financial position while
external analysis is key to gauging the organization’s stability and industry
positions.

Table 5.2 indicates the weight that were given to the key elements of the four
strategic positions in the SPACE Matrix.

Table 5.2
Internal and External Analyses of GPHC Positions

Stability Position

118
Technological changes were given the highest rating of -2 due its alignment of
the hotel property management system, website, and guest reviews against
GPHC competitors which are Midas Hotel, Hotel Jen and Century Park Hotel.
Price elasticity to demand were given -3 since the cost of sales and services are
increasing and inflation rate might be a factor but the hotel still opted to retain
the price of its room rates. For the same reason, competitive pressure was given
a rating of -5.

Industry Position
Profit potential for its leasing area of 5,000 square meters is a major factor and it
was given a rating of 5 while growth potential was given a rating of 4. Financial
stability was rated 4 also because while GPHC posted net loss from 2015 to
2018 compared to Hotel Jen, the company still managed to generate an
increase in its total revenues despite the decision of PAGCOR to terminate its
lease agreement late in 2012. However, because of the unused commercial
space for the last seven years, ease of entry into market and resource utilization
were both given ratings of 3.

Financial Position
Return of investment or ROI and leverage were rated 3 out of 7 or below
average since the company has had net losses for three consecutive years from
2016. The company also has negative basic and diluted earnings per share from
the year 2016. Liquidity and cash flow were rated 5 due to the increase of
company free cash flow from 2018. But it was also considered an inconsistency
from its cash flow recorded in 2015. Working capital was rated 4 due to its
decrease in 2019.

Competitive Position
Product quality was given the lowest grade of -6 due to the hotel facilities which
are relatively outdated and rustic compared to its competitors within the Mall of
Asia (MOA) area or near the Entertainment City Manila. Market share and
control over suppliers and distributors were also given a rating of -5 due the
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hotel’s low occupancy rate despite of having one of the lowest rates within the
area and its increasing cost of sales and services. Customer loyalty was given -
3 as it has been noted that there are repeat guests or clients in the hotel, which
was given consideration. Technological know-how was given the highest rating
of -2. Applications for the hotel property management system and guest reviews
were likewise considered, as well as its website.

In plotting the SPACE matrix, the x-axis is the competitive position and the
industry position while the y-axis is the financial position and stability position.
Based on the computations for the four strategic positions, x has been
determined to be -0.4 while y has been measured as 0.4. Plotting it in the
SPACE matrix as shown in Figure 5.2, it falls on Quadrant 2 which is a
Conservative Profile, basically what GPHC has been in the past couple of years
in managing The Heritage Hotel Manila.

Accordingly, a firm that has an arrow direction as indicated and falling in the
particular quadrant has achieved financial strength in a stable industry that is not
growing. The company has few competitive advantages. General strategies that
could be considered for such firms are market penetration, market development,
product development, or related diversification. While GPHC has the financial
strength to do market development and related diversification, it is less likely to
do so given its conservative profile.

Figure 5.2
SPACE Matrix for GPHC

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C. Boston Consulting Group (BCG) Matrix
This tool is a product portfolio matrix designed to help in long-term strategic
planning by enabling the company to identify and consider growth opportunities
for its products and/or services where it can either further put is money on by
investing or discontinuing altogether. It is for this reason that the BCM Matrix is
also called as the growth/share matrix (Hanlon, 2020).

Just like most strategic planning matrices, the BCM Matrix is divided into four
quadrants based on the analysis of market growth and relative market share of
the products or services of the company. GPHC has two tangible offerings, hotel
(rooms and F&B) and leasing and these are basically services more than
products. Figure 5.3 shows how the four quadrants of BCG Matrix are called as
its products and services are plotted with market growth or industry growth as
the y-axis and relative market share as the x-axis.

Figure 5.3
The Names of the Four Quadrants of a BCG Matrix

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Table 5.3 shows a summary of the relative market share and industry growth
rate of the two products or services of GPHC as well as its respective revenues
for 2019. Note that Rooms and F&B are two separate operating segments of
GPHC for The Heritage Hotel Manila but the two have been lumped together as
one hotel offering. The other is leasing.

Table 5.3
Revenues, Market Share, and Industry Growth Rate of GPHC Products/Services

Based on the estimated size of the local hospitality segment from the 2017
ASPBI Report of the Philippine Statistics Authority (PSA) and the published
2018 revenues of four-star hotels in Metro Manila by the Department of Tourism
(DOT), the market share of GPHC’s The Heritage Hotel Manila is 0.24 while the
average industry growth rate is 5%. For leasing, Cushman and Wakefield

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released the Marketbeat report in the first quarter of 2020 (enclosed as
Appendix L) indicating that market share of commercial space leasing based on
revenue values as well as the industry growth rate of 5.9%. GPHC earned
PhP8.87 million from leasing operations in 2019 and the value represents a
meager 0.11 market share. The two GPHC products as plotted on the BCG
Matrix is shown in Figure 5.4.

Both the hotel and leasing of GPHC fell in the Question Marks quadrant of the
BCG Matrix. Figure 5.5 shows the various applicable general strategies for each
quadrant of the BCG Matrix.

Figure 5.4
Applicable General Strategies for Each BGC Matrix Quadrant
Figure 5.4. BCG Matrix for GPHC

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 A

Of the four applicable general strategies for the Question Marks quadrant,
market penetration and product development are applicable to GPHC. Given its
conservative business approach, market development is very unlikely.
Divestiture is likewise out of the question as an applicable GPHC strategy.

D. Internal-External (IE) Matrix

The IE Matrix is an important strategic management tool used to determine the
position or status of a company in a particular industry. It completes the external
and internal environment analyses that were previously conducted for the
company because it makes use of the EFE and IFE scores. The EFE is the y-
axis while the IFE is the x-axis, both numbered 1 to 4 because the lowest score
that a company could have on both EFE and IFE matrices is 1 while the highest
is 4. The y-axis is further divided into three portions – a score from 1 to 2 is low,
from 2 to 3 is medium, and from 3 to 4 is high. The x-axis is also segregated into
three portions, a score from 1 to 2 is weak, from 2 to 3 is average, and from 3 to
4 is strong. The plane of the IE Matrix is also divided into nine cells as shown in
Figure 5.5 but are clustered into groups of three. The cluster composed of cells
1, 5, and 9 is hold and maintain. The cluster made up of cells 2, 3, and 6 is grow
and build. The last cluster, composed of cells 4, 7, and 8 is harvest and divest.

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.

Figure 5.5. The workings of the IE Matrix

GPHC netted an EFE score of 2.74 while its IFE score is 2.77. Plotting it on the
IE Matrix as shown in Figure 5.6, the vertical line corresponding to the EFE
score and the horizontal line corresponding to the IFE score will meet at some
point and in a particular cell. In the case of GPHC, it landed on cell 5, which
means that the gist of company strategies moving forward is hold and maintain.

Figure 5.6
IE Matrix for GPHC

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E. Grand Strategy Matrix
The Grand Strategy Matrix is part of the matching stage of the three-stage
strategy formulation process. The first stage is the input stage which
comprises the following: the External Factor Evaluation (EFE) Matrix, the
Competitive Profile Matrix (CPM), and the Internal Factor Evaluation (IFE)
Matrix. The second is the matching stage featuring five tools including the
SWOT Matrix, the SPACE matrix, the Boston Consulting Group (BCG)
Matrix, the IE Matrix, and the Grand Strategy Matrix.

Grand Strategy Matrix can be applied to any business of any industry at any
stage in the industry’s life cycle. The SWOT Matrix and the Grand Strategy
Matrix are strategic tools used in business to gain insights for strategic
planning efforts. Both tools display different information in different ways, but
the insights gained from each can be combined to provide even more
meaningful analysis.

The application of Grand Strategy Matrix think also involves a Cartesian

coordinate system featuring the usual x and y axes. For the y-axis, moving
upward from zero is a positive direction and it is called as Rapid Market
Growth while a negative downward direction is referred to as Slow Market
Growth. For the x-axis, a positive direction moving to the right is called as
Strong Competitive Position while going opposite to the left is referred to as
Weak Competitive Position.

Grand Strategy Matrix also features four quadrants where appropriate

general strategies are identified as shown in Figure 5.7. Each quadrant offers
a company possible strategies which it has the option to adopt if applicable.
Quadrant 1 features strategies including market development, market
penetration, product development, forward integration, backward integration,
horizontal integration, and related diversification. Quadrant 2 consists of
strategies including market development, market penetration, product
development, horizontal integration, divestiture, and liquidation. Quadrant 3
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contains strategies including retrenchment, related diversification, unrelated
diversification, divestiture, and liquidation. Quadrant 4, on the other hand,
features strategies including related diversification, unrelated diversification,
and joint ventures.

Figure 5.7
The workings of the Grand Strategy Matrix

As a rule of thumb, if a company sales revenues in a given year exceed that

of the 5% growth, it is considered to be enjoying Rapid Market Growth.
Based on the 2019 audited financial statements of GPHC, the company
posted an annual growth of 6.65%, exceeding the 5% benchmark growth to
be classified as enjoying Rapid Market Growth. The company may not have
the strongest competitive position but it is definitely to the right of zero on the
x-axis. Applying the principles of Grand Strategy Matrix to GPHC, the
company shall fall on Quadrant 1 as shown in Figure 5.8

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 From the seven applicable strategies in Quadrant 1, GPHC must focus on
market penetration and product development to be able to remain in the
Rapid Market Growth position while working on strengthening its competitive
position. The company has the needed resources and competitive
advantages to be able to effectively implement the chosen strategies. GPHC
can also adopt unrelated diversification by giving due attention to leasing as
one of its operating segments.

Figure 5.8
Grand Strategy Matrix for GPHC

F. Summary of Chosen Strategy / Strategies

There are five matrices under the matching stage of the strategy formulation
analytical framework. These include the SWOT Matrix, the SPACE Matrix, the
BCG Matrix, the Internal-External (IE) Matrix, and the Grand Strategy Matrix
(GSM).

Market Penetration and Product (or Service) Development under the Intensive
Strategy Options are both present in all of the five matrices. The summary of
chosen strategies are shown in Table 5.4.

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 Therefore, the strategy implementation will focus on two major strategies:
Market Penetration, and Product (or Service) Development.

Market Penetration is defined as seeking increased market share for existing

products and services through greater marketing efforts (David, 2010). Product
(or Service) Development is seeking increased sales by improving new products
and services or developing new ones.

Table 5.4
Table of Chosen Strategies from the Matching Stage

Specific Strategies

In terms of specific strategies from the chosen general strategies, the following
have been formulated:

 Market Penetration – Aggressive and enhance marketing and promotions

programs and initiatives to attract more guests and improve hotel
occupancy rate. Efforts shall also be made to enable leasing to contribute
to company revenues.

 Product Development – Modernize and upgrade hotel facilities and

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 amenities not through renovation but creative makeover or design facelift

G. Quantitative Strategic Planning Matrix

The Quantitative Strategic Planning Matrix (QPSM) is the third stage of the
strategy formulation analytical framework. It is a regarded as a high-level
strategic management approach for evaluating possible strategies because it
provides an analytical and quantifiable method for comparing feasible alternative
actions. QPSM features the company strengths, weaknesses, opportunities and
threats with their respective weighted score retained from both the EFE and IFE
matrices. A scoring scale shown in Table 5.5 with a rating from 0 to 5 to
determine the applicability of the chosen strategies relative to the identified
strengths, weaknesses, opportunities and threats that were previously identified
for GPHC.

Table 5.5
Scoring Scale of Strategy Applicability for QSPM

Score Applicability
0 Not applicable with the Strategy
1 Not attractive
2 Somewhat attractive
3 Reasonably attractive
4 Highly attractive

Thus, the QSPM Matrix for GPHC is shown in Table 5.6.

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Table 5.6
QSPM Matrix for GPHC

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From the scores of the chosen strategies for GPHC on the QSPM matrix, the
best strategy to consider among the three that were considered is to enable
leasing to contribute more to the company revenues. It is followed by aggressive
and enhance marketing and promotions initiatives to improve hotel occupancy
rates. The strategy that got the lowest score is the modernization and upgrading
of hotel facilities and amenities because obviously this one is going to be costly..

H. Justification of Chosen Strategy / Strategies

The chosen strategies are also grounded on the internal assessment of the
resources and capabilities of GPHC. Rather than be overly ambitious and
formulate strategies whose applicability will be uncertain, the selected strategies
are worth considering for implementation because they fit the company’s
management approach and are really needed to remain stable in a highly
competitive business environment.

The other justifications include:

• Despite the results in the company’s financial performance in the last five
years, veteran employees, some of whom have been there since 1994, are
still upbeat about the company
• “The owner is very liquid,’ GPHC sources say
• Parent company is a real estate empire and its concern may be the
appreciating real estate value of the premium location of GPHC
• GPHC has yet to live to its purpose of operating and owning other hotels,
inns, resorts, and tourist establishments other than The Heritage Hotel
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 Manila
• Leasing is always a profitable option for the company, as evidenced by the
previous lease of PAGCOR for a Casino Filipino in a portion of the hotel
facing Roxas Boulevard

VI. STRATEGY PLAN

With the corporate strategies for GPHC already formulated, the next phase is
the development of the strategy plan, including the strategic and financial
objectives, the departmental or functional strategies, as well as the financial
projections to support and justify overall strategy implementation.

A. Vision and Mission

It is important for managers and top executives in a business organization to
decide and agree on a basic vision that the company aspires to achieve in the
long term. More so, it is equally significant to tell publicly what the company is all
about through the mission statements.

Developing Company Vision

GPHC has no existing vision. Instead, the company adapted the current vision
of Millennium and Copthorne, its parent company based abroad. The current
vision states: ‘To be the hotel group preferred by guests, employees, industry
partners and investors.’

Since the hotel is located in Pasay City, along with several other four-star
accommodation establishments and near the country’s international and local
airports and seaports, the proposed vision for GPHC will be “The country’s
premier hotel of choice for both local and foreign tourists, employees,
industry partners and investors.”

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 Crafting Mission Statements
The parent company of GPHC, Millennium and Copthorne has no existing
mission statement. According to strategic management experts, excellent
mission statements should have nine basic components, which include
Customers, Products or Services, Markets, Technology, Concern for survival,
growth and profitability, Philosophy, Self-concept, Concern for public image and
Concern for employees. Since mission statements are most visible to the public,
they should have these nine characteristics. Therefore, the proposed Mission
Statement for GPHC:

“Situated near the country’s premier gateway, we are committed to offer

professional, personalized, and flexible hospitality services to both local
and foreign tourists as we maintain exemplary customer service and be a
hotel of choice. The safety and security needs of our guests, employees,
industry partners, and investors are in the forefront of everything we do
especially in this fast-changing environment. GPHC will also maintain
competitive pricing in the market while ensuring its financial stability.”

The proposed GPHC mission statement covers all the nine required
components or characteristics of a good mission statement as shown in Table
6.1.

Table 6.1
Matching the Required Characteristics of the Proposed GPHC Mission Statement

REQUIRED CHARACTERISTICS PROPOSED GPHC

MISSION STATEMENT

▰ CUSTOMERS ▰ both local and foreign tourists

▰ PRODUCTS OR SERVICES ▰ to offer professional, personalized and

flexible hospitality

▰ MARKETS ▰ near the country’s premier gateway

▰ fast changing environment

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▰ TECHNOLOGY
▰ ensuring its financial stability
▰ CONCERN FOR SURVIVAL,
GROWTH AND PROFITABILITY
▰ maintain competitive pricing
▰ PHILOSOPHY
▰ maintain exemplary customer service
▰ SELF-CONCEPT
▰ be the hotel of choice

▰ CONCERN FOR PUBLIC IMAGE ▰ safety and security needs of our

guests, employees, industry partners
▰ CONCERN FOR EMPLOYEES and investors

B. Objectives

1. Strategic Objective
Consistent with the chosen strategies for GPHC for the years 2021 to 2023,
the long-term strategic objective for the company is:

“To raise GPHC revenues by 20% in three years by striving to improve

The Heritage Hotel Manila occupancy to above 70% through enhanced
and sustained marketing and promotions activities, as it also enables
the leasing operating segment to contribute better results to company
profits.”

The short-term objectives related to the long-term strategic objective are:

a. Hire energetic marketing staff for The Heritage Hotel Manila in 2021 to
enhance marketing and promotions activities and be aggressive in both
digital and traditional marketing approaches
b. Work on reviving the ‘Mother of All Buffets’ tag of The Heritage Hotel
Manila by 2022 as part of the overall marketing program
c. Market the vacant 5,000-square meter floor space of the hotel previously
occupied by Casino Filipino and ensure taker or takes before the end of
2021

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 2. Financial Objective
The long-term (three years) financial objective of GPHC is as follows:

“To increase gross sales of GPHC by 20% in three years beginning in

2021 by raising revenues from hotel operations and enabling leasing to
contribute at least PhP30 million annually.”

The short-term objectives relative to the long-term financial objective are:

a. To raise GPHC annual sales by not less than 5% starting in 2021
b. To sustain streamlined operations by reducing annual administrative
expenses by at least 5% beginning in 2021.

C. Recommended Business Strategy

With the objectives clearly laid out, the recommended competitive business
strategy for GPHC is BROAD, LOW-COST STRATEGY.

It is one of five competitive strategies which outline specific efforts of the

company to position itself in the marketplace, satisfy its customers, respond
to competitive threats, and achieve a unique competitive advantage
(Thompson, Peteraf, Gamble, & Strickland, 2020).

The specific strategy would enable GPHC to strive for broad lower overall costs
compared to its competitors while attracting a broad range of customers. The key
point of the strategy is underpricing competitors while still maintaining value to the
customers and financial returns to the business. This is important relative to the
objectives of the company to raise its gross sales in the next three years.

D. Corporate Social Responsibility

GPHC bases its Corporate Social Responsibility programs from Millennium
and Copthorne’s social policy. These include:
 Governance
Committed to meeting the highest standards of compliance, M&C
adheres to all applicable laws and regulations, not just the letter of the
136
 law but the spirit of the law.
 Board Responsibility
The Board is responsible for the Group’s corporate responsibility with the
Group Chief Executive Officer taking the lead. To support the
commitment to sustainability, the Board supports several policies,
collectively referred to as Responsible Hospitality, which are designed to
recognize and manage the Group’s wider impact on the environment and
the communities in which it operates. These policies are reviewed
regularly and are updated as necessary
 Corporate Ethics and Business Conducts
The Group is committed to maintaining the highest standards of ethics
and integrity in the way it does business. Code of Ethics and Business
Conduct (“Code”) sets out the Group’s minimum expectations for
stakeholders and describes the Group’s most important legal obligations.
 Caring for Colleagues and Talent Development
Recognize the need to be able to attract, develop and retain employees
with the potential, skills, and experience necessary for the continued
development of the business. This is achieved by providing a healthy,
safe, fair, and happy working environment.
 Diversity
Employment policies not only comply with all relevant legislation but
ensure that all areas of the business embrace diversity and creates an
environment that fosters fairness and equal opportunity in every aspect.
 Learning Development
All staff are encouraged to gain industry relevant qualifications where
appropriate, both to strengthen the business through a well-trained and
engaged workforce and to support personal career development.
 A Safe Working Environment
Strive to provide and maintain a safe environment for all employees,
customers, and other visitors to the Group’s premises. To ensure their
protection and well-being, the Group’s health and safety functions have

137
 comprehensive processes and procedures in place at all properties to
comply with relevant legislation. Such measures also support the hotels
to identify hazards, assess risks, and implement appropriate controls to
reduce occupational injuries, accidents, and fatalities.
 Environmental Impact and Energy Use
Energy consumption is the most significant environmental impact of the
business and the Group continues to drive operational efficiency and
investment in energy efficient plant and equipment in the hotels.
 Waste and Resource use
Increasing waste diverted from landfill remains a key focus on the
sustainability journey. By sharing best practices and innovative ideas
among hotels, waste reduction and recycling initiatives have been spread
across the Group’s portfolio.

Recent Corporate Social Responsibility Initiatives

GPHC participates in periodic Manila Bay Coastal Clean Up Program of the
Philippine Coastguard Auxiliary (PCGA) squadron and also recently took part
in the Philippine Red Cross’ fifth edition of the Million Volunteer Run held in
December 2019.
Figure 6.1.
Two of the Most Recent CSR Activities of GPHC

The two most recent Corporate Social Responsibility activities have relation
to environmental sustainability, but both were not organized by the company
and it was merely a participant so the activities have not made a lasting
impact on the company’s employees and its customers or guests.
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Proposed Corporate Social Responsibility Program
As most companies attempt to initiate meaningful and sustainable CSR
activities with environmental and economic benefit, a partnership with Gawad
Kalinga Foundation is recommended particularly with the non-government
organization’s livelihood assistance to farmers and fishermen. The livelihood
program provides PhP50,000 worth of farm or fishing implements and other
equipment needed farming or fishing.

Figure 6.2
A Sustainable Partnership with Gawad Kalinga Foundation is
recommended for GPHC

To ensure that the proposed CSR program would have a positive impact on
both GPHC management and staff relative to the operations of The Heritage
Hotel Manila, as well as its guests, it would be implemented as a company-
wide and hotel-wide undertaking. GPHC shall target an initial donation drive
of PhP100,000 to the Gawad Kalinga Foundation in 2021 to help one
fisherman-family and one farmer-family. Operating segments of GPHC shall
strive to reach the target amount either by appropriating a certain portion of
their proceeds to the cause or soliciting the support of guests through what
can be later on dubbed as ‘extra tips for a cause.’ To add excitement to the
CSR initiative, the operating segment which contributed the most in reaching
139
 the P100,000 donation target to Gawad Kalinga Foundation shall be given by
GPHC management a PhP10,000 cash prize and the opportunity to lead or
join the donation turnover to the chosen farmer-family and fisherman-family
through the NGO.

In order to make the CSR program sustainable and to ensure that the
assistance to the farmer-family and fisherman-family goes a long way to
making a difference in their lives, GPHC and The Heritage Hotel Manila may
also consider buying possible produce from them in the future especially if
the assistance has been turned into something really productive. GPHC can
also make the assistance an annual program, thereby adding more
beneficiaries and possible suppliers as the years go by.

E. Financial Projections
A three-year projection from 2021 to 2023 was also made to ensure the
financial feasibility and implementation viability of the chosen strategies for
GPHC. While the authors are optimistic of meeting the strategic and financial
objectives of GPHC, conservative forecast were made so as not to raise
unwarranted expectations from the company.

The breakdown of operating costs for the three-year plan starting in 2021
and the expected attainment of the 20% increase in revenues is shown in
Table 6.2.

Table 6.2
Breakdown of Operating Costs to Attain Projected 20% Increase in Revenues in 3 Years

140
 Aggressive marketing strategies would entail GPHC PhP24.39 million each
for the first two years of the strategic plan and PhP25.72 million on the third
year as highlighted in yellow in Table 6.2. The company has two key options
in bankrolling the intensive market penetration strategy both for its hotel
operations.

First option is to bank on leasing. GPHC can easily generate an annual

revenue of PhP30 million should it be able to lease its available 5,000-square
meter space in 2021 which used to be rented by PAGCOR for over P144
million per year. Second option is offering stocks worth PhP75 million either
to its current stockholders or to the public considering that GPHC is a
publicly-listed company at the Philippine Stock Exchange. A third option
which can also be considered is to ask the parent company in Singapore to
infuse the needed amount to implement the strategies by using the projected
returns as excellent basis for the new round of capital infusion to the
business.

1. Horizontal Analysis
The horizontal analysis is based on the three-year projections of the GPHC
income statements as shown in Table 6.3.

Table 6.3
Comparative Analysis of GPHC Projected Income Statements from 2021 to 2023

141
The trajectory of the projected revenues of GPHC from 2021 to 2023 is
constantly upward because the effect of the strategies are expected to reflect
on the company’s financial performance as well as shown in Figure 6.3.

Figure 6.3
Projected GPHC Projected Revenues Three-Year Trend

142
Projected GPHC gross operating income for 2021 to 2023 is also on an
increasing trajectory as shown in Figure 6.4.

Figure 6.4
Projected GPHC Projected Gross Operating Income Three-Year Trend

As far as projected net income for GPHC is concerned from 2021 to 2023,
the trend is also upward but the major increase, as shown in Figure 6.5, is
expected to take shape in 2022 when the strategies implemented have
already gained momentum.

Figure 6.5
Projected GPHC Net Income Three-Year Trend

143
 The complete GPHC projected income statement from 2021 to 2023
including the three-year projection of Cost of Sales and Services and
Administrative Expenses are enclosed as Appendix N.

The cash flow projection for GPHC from 2021 to 2023 is shown in Table 6.4.

Table 6.4
Comparative Analysis of GPHC Projected Cash Flows from 2021 to 2023

Figure 6.6
GPHC Projected Net Cash from Continuing Operations Three-Year Trend

144
Projected GPHC net cash from continuing operations from 2021 to 2023 is
seen to go on a cyclical trend as shown in Figure 6.6. Given that the
implementation of strategies shall mean additional cash infusion to the
operations budget of the company, a significant amount will be used in the
first year (2021) mostly for Cost of Sales and Services (COSAS), followed by
a marked decline the following year. Cash flow from operating activities is
expected to pick up on the third year.

Figure 6.7
GPHC Projected Net Cash from Financing Activities T
Figure 6.7. GPHC Projected Net Cash from Financing Activities Three-Year Trend

Projected GPHC net cash from financing activities is shown In Figure 6.7.
There is an expected increase in net cash or cash from financing activities in
the second and third year as the company sustains the momentum of the
implementation of its revenue-generation strategies.

The GPHC projected cash flow from 2021 to 2023 including the graphs of
trends are enclosed as Appendix O.

For GPHC projected balance sheets for 2021, it is shown in are shown in
Tables 6.5.
145
Table 6.5
GPHC Projected Balance Sheet for 2021

The projected balance sheet for 2022 is shown in Table 6.6. Just like in the
Table 6.5, debit and credit columns were also added to identify the increase
and decrease from the 2021 figures. For assets, entries to both columns
were made on cash and cash equivalent, receivables, and a credit entry is
indicated in the property and equipment – net. For liabilities, entries to both
debit and credit columns were made across accounts payable and accrued
expenses, lease liability – current portion, and lease liability – non-current
portion.

Table 6.6
GPHC Projected Balance Sheet for 2022 146
147
 The projecteThe GPHC projected balance sheet for 2023 is shown in Table
6.7, also including additional columns for debit and credit.

Table 6.7
GPHC Projected Balance Sheet for 2023

The trend of GPHC projected assets from 2021 to 2023 is shown in Figure
6.8. Projected asset for 2021 shows a marked decrease from 2019 figures
as the company is expected to reduce its assets in the process of
implementing its strategies.

148
Total assets is projected to drop further in 2022 but will gradually pick up in
2023.
Figure 6.8
GPHC Projected Total Assets Three-Year Trend T

GPHC projected liabilities for 2021 to 2023 shows a declining trend in Figure
6.9 as the company begins to earn higher net income from the projected
better sales results from its operations.

Figure 6.9
GPHC Projected Total Liabilities Three-Year Trend T

The complete GPHC projected balance sheets or statements of financial

position from 2021 to 2023 with graphs is also enclosed as Appendix P.

149
2. Vertical Analysis
a. Analysis of Liquidity
Current ratio show’s a firm’s ability to pay current liabilities using current
assets that can be converted to cash in the near term. Ratio should be higher
than 1.0

Based on the projected balance sheets of GPHC shown in Tables 6.4, 6.5,
and 6.6, and computing the three important liquidity ratios - current ratio, acid
test ratio and cash ratio, the company has a liquidity ratio of from 2.4 to 3.4,
which means that it can easily pay off its current or short-term debt without
raising external capital. A good healthy liquidation ratio is from 1 to 3.
Investors and lenders look to liquidity as a sign of financial security. The
higher the liquidity ratios, the better off the company to an extent.

On the other hand, having a liquidity ratio higher than 3 in 2022 and 2023
means GPHC might be leaving workable assets on the sideline; cash on
hand could employ to expand operations, improve facilities and equipment
etc. In this manner, putting the excessive cash to either expansion or
diversification would push GPHC on the winning edge of the business.

In terms of projected GPHC cash flow from continuing operations whose

trend is already shown in Figure 6.6, it will increase in 2021 and then
dramatically decrease in 2022 before gradually moving up again in 2023,
indicative of strengthening cash flow because of the implemented strategies.

b. Asset Management / Operating Efficiency

Based on the three-year financial projections for GPHC, company asset
management capability and operating efficiency were measured using key
financial ratios.

Efficiency Ratios
Efficiency ratios which are also called as activity ratios measure how well a
150
company utilizes its assets to generate income. There are five major
components of efficiency ratios and these are:
1. Inventory Turnover
2. Total Asset Turnover
3. Fixed Asset Turnover
4. Average Collection Period
5. Fixed Asset Turnover

Inventory Turnover (ITO) measures the number of inventory turns per year.
Higher is better. Financial projections of GPHC resulted in a 25.70 times
Inventory Turnover in 2021, 27.86 times in 2022, and 30.12 times in 2023.
This is the number of times GPHC has sold and replaced its inventory in a
year. A good inventory turnover is 5 to 10 times. GPHC shows a much higher
ITO or higher frequency in replenishing its inventory, which is better or higher
than the benchmark or standard.

Inventory Turnover in Days

ITO in days is 14.20, 13.10, and 12.12 in 2021, 2022, and 2023, respectively.
This figure reflects the number of days GPHC takes to sell the inventory on
hand. Industry standards is 30 days. Thus, ITO in days, is within halfway the
limits which shows sound financial ratio for the company.

Asset Turnover Ratio / Fixed Asset Turnover Ratio

In the hospitality segment wherein a much higher investment is necessary, a
ratio between 0.25 and 0.5 is considered healthy. GPHC has an Asset
Turnover Ratio of 0.4 to 0.5 and Fixed Asset Turnover Ratio of 0.81 to 1.32.
GPHC has a relatively high value of business sales / revenues relative to the
value of the company’s assets.

Accounts Receivable Turnover Ratio (ARTO)

ARTO of GPHC is 2021 (6.5 times), 2022 (14.41 times), and 2023 (14.19
times). Standard is 12 times or higher. The high Accounts Receivable
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Turnover, higher than 12, indicates that GPHC has high proportion of quality
customers that pay their debts quickly, or is operating in a cash basis, and
also maintain the company credit terms of 15 to 30 days which means that it
is employing good collection strategy.

In 2021, GPHC is expected to have a lower than standard ARTO, caused by

the still unreconciled accounts of PAGCOR. It is projected that this will be
settled in mid or late 2021, thus displaying a higher ARTO in 2022 and 2023.

Accounts Receivable Turnover in Days

GPHC’s ARTO in days shows the company’s credit policy of 15 to 30 days
credit limit which is actually better than the industry standard of 30 to 60
days.

NWC or Working Capital

Working capital, also known as net working capital (NWC), is the difference
between a company’s current assets, such as cash, accounts receivable
(customers’ unpaid bills), and inventories of raw materials and finished
goods, and its current liabilities, such as accounts payable for GPHC. NWC
for the year 2023 is PHP522M, for the year 2022 it’s PHP427M, and the year
2021 it’s PHP325M.

From PHP325M there’s an upward trend to notice and still increasing to

maximum PHP522 for the year 2023, making GPHC left with plenty of funds.
This is cash available for the company’s day to day operations. Larger
amount means the company has more internal funds to (1) pay its current
liabilities on a timely basis, and (2) finance inventory expansion, additional
accounts receivable, and a larger base of operations without resorting to
borrowing or raising more equity capital.

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Operating Cycle
Operating cycle in the hospitality segment, which is centered on service, can
be explained by the number of days that GPHC shells out cash to buy
inventories, materials, and other things needed in the operations to
accommodate guests. After which, the customer would have to pay cash and
GPHC will pay its suppliers and staff until it goes back to the origin. The
smaller the time involved, the better it is for GPHC.

In the case of the three-year projection, it is very notable that from 56 days, it
decreased by 54.89% percent for the year 2022 (25.33 days) and maintained
at that mark (25.73 days) for 2023, with a relatively small 1.6% increase.

Cash Conversion Cycle

Cash conversion cycle is a metric that compares the amount of days it takes
a company to sell inventory and collect receivables relative to the amount of
days afforded to pay bills without incurring penalties. In the case of projected
GPHC’s Cash Conversion Cycle, measured in days, it can be observed from
the three-year projections that the days conversion from 2021 to 2022 has
decreased by 2% (280.94 to 275.06). This indicates that GPHC might be
needing external financing to pay its suppliers. The other strategy is to get
several suppliers that can go with at least 300-days by ordering supplies in
bulk. The other situation solution is when customers become motivated in
paying cash than through credit because there is premium of a significant
discount.

Payables Outstanding
It measures how many days on average, it takes GPHC to pay off its
payables towards its suppliers of goods and materials. On average, GPHC
has trade payables under the normal terms of 15 to 30 days. If GPHC can
pay those party over 60 days, the better because the company will have
more cash in its possession. It is in practice that companies do not pay
creditors, suppliers too quickly as it will result to waste of cash. On the other
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hand, paying too long, longer than what has been committed, affects
GPHC’s financial credibility and may result to suppliers abandoning loyalty to
the firm.

Sales
A sale is a transaction between two or more parties in which the buyer
receives tangible or intangible goods, services, or assets in exchange for
money. For GPHC for 2021, it is projected at PhP518,742,425.80,
PhP603,855,340.89 in 2022, and PhP656,525,080.61 in 2023. It can be
noticed that from 2021 to 2022, there’s an increase of 16.41%, while from
2022 to 2023, there’s a noticeable increase of 8.72%. From a distance, since
the trend is upward, it can be observed that the three-year forecast is going
to meet the financial position that GPHC envisioned.

Fixed Assets
A fiixed asset is any long-term tangible piece of property or equipment that
GPHC owns and uses in its operations to generate income.  Fixed assets are
not expected to be consumed or converted into cash within a year. Fixed
assets most commonly appear on the balance sheet as property, plant, and
equipment. For the years 2021, 2022, and 2023 the fixed assets are
PHP574,857,177.68, PHP525,955,197.00 and PHP472,312,939.75,
respectively. There’s a decline in the values. From 2021 to 2022, there’s a
reduction of 8.51% and from 2022 to 2023, there’s a decline of 10.20%. In
summary, the drop could be attributed to the disposal of other properties like
vehicles and equipment whose maturity life has reached its life span.

Theory of Constraints (TOC)

The Theory of Constraints (TOC) is a business process improvement method
developed from the perspective of logistics management. TOC concentrates
on reducing throughput time. According to Dr. Eli Goldratt, the Theory of
Constraints is based on the assertion that: every real system, such as a
business, must have within it at least one constraint (limiting factor). If this
154
were not the case then the system could produce unlimited amounts of
whatever it was striving for, profit in the case of a business.

In other words, every business operation has something inhibiting it from

reaching its full potential. Some conditions exist that limit sales or production
output. This limit or constraint determines the maximum capacity of the
system. By removing or improving the single constraint, the system is
elevated to a higher level of performance.

In the case of GPHC, some of the factors which are limiting its operations
has something to do with innovation and marketing and sales. Innovation has
been overlooked a bit which is why the company appears to have stagnated
after experiencing growth for several years. In terms of sales, there is a need
for fresh minds and legs to perk up the performance of the department. The
company can come up with various initiatives to address these limiting
factors.

NOPAT
Net Operating Profit After Tax is a financial measure that shows how well a
company performed through its core operations, net of taxes. For 2021,
2022, and 2023, the NOPAT has a notable increase in values: 130% from
2021 to 2022, and 7.80% from 2022 to 2023. Mergers and acquisitions
analysts use NOPAT to calculate the free cash flow to the firm (FCFF) as
well as the economic free cash flow to the firm.

ROIC (Return on Invested Capital)

ROIC shows how efficiently a company is using investor’s funds to generate
income. A common benchmark for evidence of value creation is a return in
excess of 2% of the firm's cost of capital. If a company's ROIC is less than
2%, it is considered a value destroyer. Some firms run at a zero-return level,
and while they may not be destroying value, these companies have no
excess capital to invest in future growth.
155
The value of ROIC of GPHC for 2021 is at 2%, or what is called as the
invested amount. At 2%, this means that GPHC hardly experienced growth.
However in 2022, there’s a 200% growth which shows good investment on
the part of the investors. On the third year, there’s also a 16.70%
improvement, which is a positive indicator for GPHC investors.

Free Cash Flows (FCF)

FCF represents the cash available for the company to repay creditors or pay
dividends and interest to investors. For 2021, the cash flow is at
PHP89,741,292.95 which makes GPHC very capable of paying its creditors
as well as having the means to pay its investors. However a major decline in
Free Cash Flow in 2022 has been noticeable which is at PHP36,291,306.11
or 60% decrease. It rebounded in 2023 with 31% increase or
PHP47,459,506.86.

c. Profitability
As shown in Figure 6.5, GPHC net income for the three-year forecast is a
significant increase from its 2019 net income of roughly PhP2.4 million. This
means that the company will sustain its growth momentum from 2019 and
also the pandemic year which is 2020. There will be an almost ten-fold
increase in net income from 2019 to 2021 and from 2021 to 2022, there will
be another huge 131.75% increase in net income. It will be further sustained
in 2023 as the increase from 2022 is not that high but still significant just the
same at 12.37%.

In terms of profitability ratios for the projected three-year period, GPHC is

expected to enjoy a profitability windfall. Profitability ratios are meant to
gauge the company’s ability to generate income relative to its revenue,
operating costs, balance sheet assets, or shareholders’ equity and the ratios
for GPHC are shown in Table 6.8.

156
 Table 6.8
GPHC Profitability Ratios from 2021 to 2023
Profitability Ratios 2021 2022 2023
Contribution Margin Ratio 0.05521 0.10912 0.10819
Gross Profit Ratio 0.62813 0.65361 0.65554
Net Profit Ratio 0.04214 0.08381 0.08662
Return on Assets 0.01792 0.04178 0.04681
Return on Equity 0.02546 0.05899 0.06576

Plotting the three-year profitability ratios using a line graph as shown in

Figure 6.10, each ratio appear to be running parallel with one another with
the four ratios lumped together while the gross profit ratio, as expected, is
several notches higher than the rest.

Figure 6.10
GPHC Projected Profitability Ratios Three-Year Trend T
Figure 6.7. GPHC Projected Net Cash from Financing Activities Three-Year Trend

d. Analysis of Debt Ratios / Financial Leverage

The most important indicator of financial leverage is the debt to equity ratio
because it shows the balance between debt (funds borrowed both short term
and long term) and the amount that stockholders have invested in the
company. The further the ratio is below 1.0 the greater the firm’s ability to
borrow additional funds. Ratios above 1.0 put creditors at greater risk, and it
is a sign of weaker balance sheet. This usually results to lower credit ratings
for the company.
157
Debt to equity ratio compares a company’s total liabilities with its total
shareholders’ equity. Higher ratios tend to indicate higher risk to
shareholders. Thus, the optimal must not be above 2.0.

GPHC is in good financial health, with a debt to equity ratio of 0.37 and 0.41
for the company financial projections from 2021 to 2023. This means that
company assets are funded more by shareholders rather than by creditors.
In this note, it can be generalized that GPHC is in a sound position in
handling its liabilities well within the optimal level. If the liabilities tend to
increase greater than the shareholders equity, it would mean risk. In the
trend for 2023 as forecasted, GPHC is in the right path to landing in a
profitable business activity as can be noted. Therefore, the strategic
objectives for 2021 up to 2023 is likely to be achieved with the
implementation of strategies.

e. Dupont Analysis
Applying once again Dupont Analysis on the three-year financial projections
for GPHC from 2021 to 2023 to decompose the different drivers of Return on
Equity (ROE), the formula is:

Dupont Analysis = Net Profit Margin x Asset Turnover x Equity Multiplier

where
Net Profit Margin = Net Income / Revenue
Asset Turnover = Sales / Average Total Assets
Equity Multiplier = Average Total Assets / Average Shareholders’ Equity.

The Dupont Analysis for the three-year GPHC financial projection is shown in
Table 6.9.

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 Table 6.9
Dupont Analysis of GPHC Financial Projections, 2021-2023

  2021 2022 2023

NET PROFIT MARGIN 0.04210 0.08381 0.086619
ASSET TURNOVER 0.42570 0.49848 0.540438
EQUITY MULTIPLIER 1.44621 1.42058 1.400710
  2021 2022 2023
DUPONT ANALYSIS 0.02592 0.05935 0.0655703

The trend for the Dupont Analysis for the GPHC three-year projection is
shown in Figure 6.11 and it reflects an upward trajectory.

Figure 6.11
Dupont Analysis for GPHC from 2021 to 2023 T
hree-

F. Functional Strategies
Functional strategies have also been set in place to ensure that each of the
departments of GPHC shall be able to contribute to the attainment of the
strategic and financial objectives that were set forth.

1. Operations
The operating departments of The Heritage Hotel Manila are the Front
Office, Engineering, Housekeeping and Food and Beverage. There are
strategies that are recommended to support the attainment of the strategic

159
and financial objectives of GPHC.
A. Reduce Administrative Expense
1. Reduce manpower complement
a. Require each department to have allotted number of supervisors
and staff not depending on the organizational structure but on the
streamlined operations of the hotel
b. Replace resigned or retired regular non key personnel employees
with agency-hired employees who have experience or trainings on
hotel operations
2. Reduce room and food cost
a. Review each contract from service providers and contractors.
Negotiate for 20% gift certificates or non-monetary payment and
80% cash. When service providers do not concur, look for other
suppliers that would reduce service cost by 10% to 20%.
b. Review hotel amenities and costs of each. Look for competitive
suppliers who can provide eco-friendly materials to promote
sustainability
c. Review energy cost and look for materials that would help save
electricity usage such as LED lights, solar-powered lights for the
pool area and other function areas
B. Increase Hotel Sales or Revenues
1. Improve service through extensive trainings to staff. The company
should have a good training manual and monitoring scheme for each
employee. Career development of both regular and agency-hired
employees should be monitored by the Human Resources Department.
2. Provide commission to Front Office and Food and Beverage staff.
Every team should have a target revenue for the month or on a given
period. Once those target revenues are achieved, the team shall be
rewarded with either monetary or non-monetary incentives for reaching
it.
3. Increase room revenues to replace the loss on food and beverage
revenue during the community quarantine
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 a. Accept more shipping companies than OWWA or government
accounts. Shipping companies such as Sharp Port, Magsaysay
Agencies, and many others pay higher rates than government
offices. Room rates for shipping companies range from PhP4,000
to PhP9,000 per day compared to OWWA which only pays PhP
3,000 per day. It is also ideal also to be accredited by international
shipping companies such as SG Star because it gives a
competitive advantage versus other quarantined hotels on
shipping companies.
b. Convert conference room or hotel function rooms to swabbing
facility. Look for an area in the hotel which could be utilized as
swabbing facility. It has to have good ventilation and should be
isolated from guest dining areas as well as in check in/out
counters. This should attract more shipping companies and
increase room rates, thus, increasing hotel revenues.
c. Put up an outdoor buffet or dine in area. As the pandemic requires
good ventilation, one advantage of GPHC is having a pool area
near its restaurant which could be utilized as extension of its
Riviera Restaurant. This could be use starting the upcoming
Valentines or any special occasion or holidays that The Heritage
Hotel Manila can choose to celebrate. Other than being a buffet or
dine area, GPHC could also use the same strategy for outdoor
conference and meetings because air is free flowing and the risk of
Covid-19 is lower compared to an air-conditioned and enclosed
function area.

2. Marketing
GPHC shall be employing aggressive marketing and promotions strategies in
order to attract more new guests while working to ensure that its previous
customers are retained. It shall also engage in social media initiative and
activities in order to keep abreast with the level of aggressiveness being

161
employed by other hotels and establishments providing accommodation
services. While GPHC has seasonal promotions just like most hotels, part of
its enhanced marketing strategies is to regularly come up with monthly
promotions in order to compete with the offerings of competitors in Metro
Manila.

GPHC shall likewise be constantly forging collaborations with resorts outside

of Metro Manila so as to mutually-benefit both entities. Consistent and timely
agreements and arrangements shall also be made with travel agents and
tour operators to ensure that The Heritage Hotel Manila become part of their
package offerings to both foreign and local tourists looking for a place to stay
while in Metro Manila.

Other marketing strategies to be put in place include:

a. Reacquire the ‘Mother of All Buffets’ tag and possibly use it as a
marketing and promotions tool to attract more guests and food
enthusiasts
b. Sustain the delivery of personalized service by incentivizing marketing ad
F&B staff
c. Take advantage of the internet and social media platforms to employ
effective digital marketing and promotions strategies and activities

3. Finance
In line with the financial objectives of the company, the finance department of
GPHC shall be employing the following functional strategies:
a. Create a more effective and reliable yearly budgeting process detailing
1. business revenue goals
2. business spending and expenses
b. As GPHC has been streamlining its hotel operations in the past years,
sustaining the efforts to lower or minimize administrative expenses will
continue to be pursued
c. Optimize Cost of Sales and Service at all times to ensure that revenue
162
 targets will be met
d. Resort to outsourcing some of the functions or activities of GPHC if
financially feasible

4. Human Resources / Personnel

For human resources or personnel department, the following strategies,
which are all aligned to the overall corporate strategy, are to be
implemented:
a. Hire energetic and sales-oriented marketing staff (commission scheme
can be a come-on)
b. Empower existing staff with sustained capacity-building/training initiatives
c. Offer on-the-job (OJT) program to access ‘free’ hotel manhours
d. Focus on mentoring and internship to develop next generation of leaders
and hotel staff
e. Sustain family-approach to employees to maintain high retention rate
because job satisfaction level in the company will remain high

5. MIS / IT Department
The MIS or IT department of The Heritage Hotel Manila shall also play a
crucial role in the attainment of the overarching revenue goals of GPHC and
it shall be employing the following strategies:
a. Develop hotel’s own website to enable guests to directly check in
Since GPHC will be allotting about PhP75 million to support the
implementation of strategies over a three-year period to raise the
revenues of The Heritage Hotel Manila, the MIS or IT department can
contribute immensely given that intensive focus will also be on digital
marketing via the internet and social media platforms. At the moment, the
hotel’s web presence is through the Millennium & Copthorne group
website. While it is good to attract international or foreign guests, it would
be ideal if The Heritage Hotel Manila shall also have its own website that
is linked to the M&C group website. The website may provide unique
features like a virtual reality tour of the hotel to allow any browser to view
163
 what it has to offer to guests without being physically there at the place.
b. Consider the development of The Heritage Hotel Manila app for guests
and would-be guests where every service in the hotel could be availed at
the touch of a button.
Building competitive advantage involves taking advantage of distinctive
competencies that will set the tone among competitors in the same
market segment. Guest app with chatbot feature is one of this. Hotel
robots unique to The Heritage Hotel Manila can also be considered later
on because it would be a game-changer. Contactless dealings with
guests shall also make process easy from check in to check out.
c. Capitalize on existing guest database to develop and initiate online
promotions for the hotel
Guest database has a lot of information, from demographics to analyzing
where the volume of customers are coming from and to what applicable
strategy that GPHC must employ to attract them to The Heritage Hotel
Manila A good start is by having a weekly or bimonthly information
dissemination to inform existing customers about the hotel’s latest
offerings and promotional gimmicks. This could be employed using email
or text blast. Efficient usage of the database for hotel promotions will also
provide the marketing department about customer preferences and even
the important dates on their lives like birthdays and wedding
anniversaries where a tailor-fit promotions could be offered to them or
their loved ones.
d. Effective monitoring of department contributions to the overall objective of
GPHC toward raising revenues
The MIS or IT department of The Heritage Hotel Manila should also
backstop efforts toward the overall revenue goals of GPHC during the
three-year implementation of the strategic plan. The department can
come up with a system or a simple program to be able to check and
monitor how each department is doing on a weekly or monthly basis
relative to the attainment of their respective goals and whether they
remain consistent or align with the overall revenue goals of the company.
164
 Corrective measures or actions could be made if they are not.

VII. IMPLEMENTATION AND CONTROL

Without implementation, the developed strategies for GPHC meant to raise
revenues while improving its competitive position in the local hospitality
segment, will hardly mean anything. So it is also important that aside from
the desire and right mindset to contribute to the accomplishment of the
strategic objectives of the company, managers and staff should have the
right skills to successfully implement the strategies. It is also important to
have control over the implementation of strategies as a way to monitor and
evaluate its progress and to ensure that the plans are being followed to the
letter.

A. The Balanced Scorecard

The Balanced Scorecard is a business scorecard that focuses on the key
performance indicators (KPIs) and look at them from four perspectives –
financial, customer, internal processes and learning and growth. It translates
an organization’s mission and strategy into a comprehensive set of
performance measures that provides the framework for a strategic
measurement and management system as shown in Figure 7.1.
Figure 7.1
The Balanced Scorecard

165
The word balanced implies that it takes a balanced and a well-rounded
Source:
approach in measuring business The Professional
performance. The Academy
Balanced Scorecard also
aligns business activities to the vision and mission of the company and
monitor its performance against strategic goals. 

Looking at the four perspectives of The Balanced Scorecard:

a. Financial Perspective - is a key factor of any performance measurement
system because an organization’s financial performance is fundamental
to its success. The strategic goal is the long-term shareholder value,
which is driven by two factors, namely: revenue growth and cost
efficiency. GPHC is high on cost efficiency and the strategic objective
developed for the company focuses on revenue growth.
b. Customer Perspective – identifies the customer and market segments in
which the business will compete and the performance in these targeted
segments. The strategic objectives include customer acquisition,
customer retention, customer profitability, market share, and customer
satisfaction. Market penetration is one of the strategies developed for
GPHC to focus on improving its market performance both in the
hospitality segment and leasing as one of its other operating segments.
c. Internal Processes Perspective – identifies critical internal processes in
which the business must excel to enable the business to offer value
propositions and satisfy shareholder expectations. The strategic
objectives include innovation process, operations process, post-sales
services, and regulatory and social processes. As part of the functional
strategies relative to the corporate strategies developed for GPHC,
process improvement through streamlined operations of The Heritage
Hotel Manila or application of technology are also considered to improve
service delivery resulting to customer satisfaction.
d. Learning and Growth Perspective – details how good human resource
development system, organizational system, and information system form
a solid foundation for improving company performance. Organizational
166
 capability for this perspective include human capital, organizational
capital, and information capital. GPHC has a remarkably high retention
rate for its employees indicating that it is doing well in this particular
perspective. The strategies to be implemented will merely sustain and
reinforce what the company has already been doing effectively.

Table 7.1 shows how the objectives of the company were identified based
on the four perspectives of The Balanced Scorecard.

Table 7.1
GPHC Strategic Objectives Categorized into the Four Perspectives of The Balanced Scorecard T
hree-Year Trend

Table 7.2 shows The Balanced Scorecard for the implementation of

strategies for GPHC as well as how measurement, evaluation and control
can be achieved.

167
Table 7.2
The Balanced Scorecard for GPHC

B. Contingency Planning
A good strategic plan must also come with contingency planning to ensure
that the company has alternative courses of action in the event that the
planned strategies did not turn in the results that were expected or projected.

168
 The contingency plan shall enable GPHC to effectively respond or make
adjustments to strategy implementation in the event of less than satisfactory
results. Thus, aside from being preventive, contingency plans also cover
recovery strategies. Like a strategic plan, a contingency plan needs to be
regularly reviewed and updated as well. Although contingency plans may not
be used at all assuming that the results of the strategic plan implementation
came out as projected, it becomes extremely useful when the company
needs a fallback measure if a glitch on the strategic plan happens or occurs
for some reason.

The contingency plans for GPHC are shown in Tables 7.3 and 7.4.

Table 7.3
Contingency Plans for GPHC, First Part

169
Table 7.4
Contingency Plans for GPHC, Second Part

GPHC shall also develop contingency plans related to following occurrences

such as the second wave of the more infections variant of Covid-19 which
could be address by a planned vaccination program for all its employees.
Apart from establishing a Business Continuity Plan in the aftermath of the
pandemic, the company shall also have plans for natural disaster as well as
enhanced training on safety and security to protect not only the staff and
employees but also the guests of The Heritage Hotel Manila as well as
partners and other stakeholders of GPHC.

170
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 Appendices

A - GPHC General Information Sheet – 8 July 2020

B - GPHC 2nd Quarter 2020 Financial Results
C - 2018 GPHC Audited Financial Statements
D - DOT Administrative Order No. 2020-002-C
E - DOT Administrative Order No. 2020-006-C
F - National Tourism Development Plan 2016-2022 Executive Summary
G - 2019 GPHC Audited Financial Statements
H - 2016 GPHC Audited Financial Statements
I - 2015 GPHC Audited Financial Statements
J - Dupont Analysis of GPHC Financial Statements, 2015-2019
K - Horizontal Analysis – Balance Sheet, Income Statement, Cash Flow
L - Vertical Analysis – Balance Sheet, Income Statement, Cash Flow
M - Cushman and Wakefield Lease Market Rates for First Quarter of 2020
N - GPHC Projected Income Statement with Cosas and Admin Expenses 2021-23
O - GPHC Cash Flow Projections (2021-23)
P - GPHC Projected Balance Sheets (2021-23)

180