How Pacifica Hotels Is Boosting Profitability by Cutting Costs, Not Corners - Scott Roby, Pacifica Hotels

Josiah: How do you lead a hotel company today when costs keep soaring but demand and revenue is challenging? Scott Roby, president of Pacifica Hotels, is no stranger to tackling tough questions like these. You might remember Scott from our earlier conversation I've linked to in the show notes back when he was an independent consultant. And now he's back leading a hotel company as president of Pacifica, and he's putting everything he's learned from his career into action, driving efficiency, rethinking profitability, and leveraging technology to boost performance of a diverse portfolio of hotels. In today's episode, you're going to hear exactly how Scott leads in a tough operating environment, uncovering overlooked savings and creatively generating more domestic travel demand. If you're looking for fresh insights into what it takes to lead effectively and win in today's market, keep listening.

[intro]

Josiah: Scott, thanks for taking time to chat. I really enjoyed the first conversation that we had. At that point, you were independent. You were advising people on storytelling and the importance of that. We talked about your career. I'll link to that in the show notes so people can listen to that conversation. But a lot has unfolded since that conversation. I wonder if you could catch our listeners up, if they haven't had a chance to speak with you recently, what led you to your role now running Pacifica Hotels?

Scott: It's great to talk to you again and super excited to be on. So one of my consulting engagements was with Pacifica Hotels and I had the great opportunity to get to know the three Marquis brothers and the management team here at Pacifica. It's right in my backyard in Southern California. There are a lot of similarities between Evolution Hospitality, where I was before, and Pacifica. We came across these guys a lot in friendly competition as we were looking at hotel opportunities. And Pacifica, with their foundation of an owner-operator, and then getting into the third-party space, it was just a really nice hand-in-glove fit. And sometimes in life, you have these moments of synchronicity and just, the glove fits. So as we got to know each other better and got to know the opportunities and how one plus one could equal three in this situation, we decided to consummate the marriage and started as the president of Pacifica Hotels back in December.

Josiah: Amazing. Well, it was great to see you just weeks after you took this role at ALIS at the beginning of this year, and you've been hard at work with your teams building some amazing stuff. I wonder if we could talk about the structure of Pacifica Hotels. I think so much of the conversation I have on this show is getting into the hospitality ecosystem, the hotel business specifically around this dynamic of owners and operators and brands. And of course, there's other participants, but it feels like so often there's tension between these. Sometimes it's healthy, sometimes not so much. Talk to us a little bit about how Pacifica is structured and how you think about that operating environment.

Scott: So just as a little bit of context, Pacifica Hotels is almost a 30 hotel portfolio. About two thirds of those hotels are owned and one third are third party managed. Two thirds of them are independent, primarily in the boutique lifestyle space. The other third are branded. And we operate almost entirely in the state of California with also an incredible asset out in Hawaii. So that's the setup of the portfolio. And so the company has always been an owner operator mentality company. So as we've created partnerships, either through sales of family assets to a third party owner that retains Pacifica or have gone and created that relationship on a new asset, it's really been a great platform for us to jump off of.

Josiah: It's exciting. And I think on this show, I'm always interested in diving into how do we get better in hospitality? And you've seen a lot of different arrangements between how hotels are owned and managed and all of that world. I guess being an owner operator for many of your assets, what are you and your teams doing differently? Or what does that allow you to do that maybe in some of these other arrangements is tough?

Scott: I mean, first off, I think when I was looking at what do I want to do next, if I'm not going to stay in this consulting space, when I was really popping out of bed like toast, it was back in the Tarsadia Hotels, Evolution Hospitality founding, where really we were leaning into this fact that we were an owner operator and we were coming to market and we were saying, Hey, we're going to take this platform that we've created and we're going to do third party management. But it was coming from this mindset of we get it. We understand what it is to be an owner. In fact, a lot of our initial hotels on the third party side, we were doing sliver equity investments. And for us, they were, in the scheme of things, maybe small checks. But to us, it was a significant investment we were making, and that just created alignment between us and the owner. And so really that's the goal, right? Is we take this ownership mentality, we move that forward and we create as much alignment as possible with our ownership group. Just the other day I was meeting with the Marquis brothers and we were talking about expenses and how they are either allocated to the properties or held at corporate. And there were a couple that I was like, guys, what we're doing here is not the right setup. We are charging a fee for this service and we are also putting on additional payroll at the properties. That's not right. We should pull the payroll back to the management company. And if we are not being efficient at the management company, then we need to solve for that. But that's not something that the owner should bear on their P&L.

Josiah: Well, speaking of P&L, I feel like over the last six to 12 months, I feel like every conversation I've had has led back to profitability and profitability being the engine that makes so much of what we love about hospitality possible. How do you think about driving profits in this climate? It's tough. Everywhere I look, all these conversations I'm having, it looks like it's really hard to drive profits in this environment.

Scott: Brutal would be the word that I would probably use right now, right? So if you're looking at revenues, they're anywhere from negative one to positive two, two and a half percent, very muted revenue growth. Meanwhile, on the expense side, you're seeing seven, 8% increase in cost of goods, labor, all of this. We operate a good chunk of our hotels in the greater Los Angeles area. And, fighting right now with city council over going to a $30 an hour hotel minimum wage by the 2028 Olympics. I mean, you just step back and you think about that and what that does to our business. There are things that are just not in our control. And so we have to really double down on those things that are in our control. And so we're going around and we are unearthing every little piece of the puzzle. So whether that be bigger focus on workers' compensation, bigger focus on insurance and how we can drive our rates down, how we can be better partners with our insurance companies, things of that nature. These are big ticket items that, for years, I think people sort of accepted, hey, this is a cost of doing business and insurance is up 20% year over year because the fires or the floods, and it's just accepted. We just renegotiated our property insurance and we're down 25% year over year. So we are driving results through these big ticket items, and we're going to continue to do that. We are literally leaving no stone unturned because we know the labor is going to continue to push higher and we've got to find ways to offset that.

Josiah: Just to that point on labor, I was talking with Robert Mandelbaum at CBRE around labor being the biggest area of controllable expense, potentially for many hotel businesses. And I think even within that, there's so many areas that could be optimized. Are you finding opportunities for improvement, I guess, in that area of the operation of hotels?

Scott: I mean, look, I would tell you Pacifica is a pretty smooth running machine when I got here as far as labor management and hours or minutes per occupied room and things of that nature. So we need to stay on top of that. We need to make sure that our housekeeping minutes are not creeping up and things of that nature, just being great operators. But I think we are looking at efficiencies in food and beverage, for example. So if we were doing seated service with full server, are we shifting more towards using QR codes and potentially decreasing servers? Can you eliminate hosts and things of that nature? Do you go to counter service and delivery at the table versus a traditional sit down menu? And so again, when you're talking about food and beverage, where there's very little profit to begin with, and now you're talking about pushing up into the mid 20s to $30 an hour, that is a hard way to squeeze out a dollar in food and beverage. And so we're just looking at all of our F&B operations and asking ourselves, is this the most efficient, guest friendly way that we can operate these outlets?

Josiah: What's interesting, I think that notion of always looking for efficiency in each area of the business is how you win, right? So that's exciting to see. I think driving those profits also happens on the top line. I was looking at a dataset just this morning where the demand is muted, to put it mildly, across hotels in the US. And for whatever reason, I don't think we need to get into necessarily the drivers of that, but just in the world where maybe there's less demand or demand is growing less aggressively. I'm curious if you see an opportunity for driving more domestic business or domestic travel. We're both based in California. It's such a diverse state. And I look across your portfolio, there's so many places that look amazing as a weekend getaway or some of that. Do you see some opportunity across your portfolio of driving more domestic demand, getting people out there and travel more and doing business with your properties?

Scott: For sure. I mean, look, we've got a big presence. I told you Los Angeles, right? We've got hotels in San Diego, all along the central coast, Pismo Beach, San Luis Obispo, Cambria, Half Moon Bay as examples. And these are great, incredible drive-to destinations. We have an abundance of riches in the state of California. There's so much diversity of what you could do, whether it be desert, mountain, beach. There's so much to do here. So I think when the macro environment becomes more challenging, which it has, people start to look at, yeah, we probably shouldn't do that trip to Europe, or we probably shouldn't put four or five family members on an airplane and spend that money. Let's jump in the car and let's have a great California staycation, a road trip. And so I do think there's an opportunity, and we lean into, again, that independent boutique nature and creating real experiences for the customer that are not, the big brands, Marriott or Hilton, we're going to give you a different experience. So we use our Pacifica Perks program, our membership program, to have direct relationships with our guests and really make sure that we're delivering something unique and special so that when they come to Cambria, they get the Cambria experience. And when they come to Pismo Beach, they get the Pismo Beach experience.

Josiah: I love that. You mentioned technology a few times in our conversation so far. It seems like it's top of mind for you. I feel like we just had this high-tech trade show. So everybody, I don't know, technology seems to be just evolving so quickly. And I'm curious from your perspective, what systems or technology are you finding most useful these days?

Scott: I mean, look, I think obviously we talked about P&L, right? So having an incredible financial platform that you can really leverage the data and look across the portfolio and do comparisons and hey, who's doing it best and how can we leverage that and dig in and say, hey, why is this number the way it is at this one hotel? And empower the general manager to share with their peers and recognize them for doing something great. So a technology that can allow us to more quickly identify best practices or where there might be a best practice that we've got to leverage across the portfolio to me is probably the most powerful version of technology. I think what I found here at Pacifica and what might be an ailment at other companies is we had a lot of technology. And frankly, there was some crossover. So you would be paying one vendor to do X, Y, and Z, and you would be paying the other technology vendor to do Z, A, B. And it just, there were certain things that, frankly, the team was saying, there's duplicative work or these are overlapping and I'm having to do things in two systems. And so I think just starting with the foundation of really tearing the tech stack apart and saying, what is the benefit? How are we using it? And frankly, there are some cases where we might've been paying for the Cadillac version of that technology and it's great technology, but we were really only using the Toyota Camry level. And so why are we paying for the Cadillac when we're really only at the Camry level? And so just being honest with ourselves of yeah, it sounded great when we signed the contract, but we're not using those higher end versions or pieces of the technology. Let's not pay for them.

Josiah: It's all about usage, right? Making sure that you are using it. And I think that requires technology partners, right? That can build technology that's easy to use, has the right training and enablement and all that stuff is exciting. But the visibility into the business is interesting to me because I think coming off the HITEC trade show, you would think that the only type of technology that matters now is AI. And AI obviously is an enabling tech. But I guess as somebody leading a company to say, Hey, it's the basics is what I'm hearing from you. What is going on in each area of the business is visibility, start there and then you can identify opportunities, I guess.

Scott: Absolutely. And it really, it started so simply. It was literally just doing round tables with the teams, going around the company, general managers, every department at the home office. Just, Hey, what's going great. What's not going great. What technology do you love? What technology do you hate? I mean, the people spoke, it was really not that complicated. It was like, Hey, this partner is causing us actual work. They're doing things wrong. It's like, okay, well, let's go ahead and move on. So it really was, that was the first level. To be fair, the second level was really asking some tough questions of, is this really what we need? And are we really using it? And you start to peel the layers back. It's like, well, we're using this piece really well. We haven't touched this piece at all. And so just having some real honest dialogue, but again, you've got to get the team in this mindset of why are we doing this? Why are you asking all these questions? And understanding that, Hey, we can be a slimmer, more efficient operation and not spend money on things that are really frankly wasteful at the end of the day. And a big piece of what I've talked about, we've found about a million dollars in savings so far. None of that is me going in and saying, we're not buying snacks for the kitchen at the office anymore. Most of these things don't impact our team members or our guests one bit. In fact, it actually probably makes their lives better because we're making their lives a little bit easier.

Josiah: You're working on a lot right now. Is there a part of the business or an initiative or something that you're really focused on these days that is exciting for you? And if so, what is that?

Scott: I mean, it's all exciting. We really are doing a lot of things right now that are setting this company up to really launch in 2026 as a great partner. And we're going to remove the nomenclature third-party manager. We do not want to be viewed anything like third-party. That just, in my mind, creates separation and what we're trying to do is bring this relationship together between ownership and management. And so we're spending a lot of time at the leadership level of how do we set ourselves up now for 2026? We've done great work in the platform and the processes and the people this year. We still have a little bit of work to do, but now let's start to shift our focus into how are we going to be differentiated and why would an owner select Pacifica to manage their piece of real estate? And so we're spending a lot of time now talking about what does that look like? How can we communicate it? How can we live and breathe it and make sure that we're following up with actions, not just words? Because a lot of companies are out there saying, oh, we're owner aligned and we're the best management company for an owner. And we really want to create this partnership and find like-minded owners that are going to enable us to do our best work. And again, have the synergy between a great owner and a great management company to really take the asset value to another level.

Josiah: Well, I can't wait to see what you and your teams do, Scott. You are building an incredible foundation and we certainly covered a lot in this conversation. I'll include some links in the show notes where people can learn more about you and more about Pacifica. Before we go, is there anything else on your mind that you want to talk about?

Scott: I think we covered it all. It's a tough environment, right? Not a lot of transactions going on. Owners, I think, continue to sort of be stuck. You can't really refinance a hotel. You can't sell a hotel right now. And so what's the one last lever that you have? And that's maybe a fresh look at management. So I think it's just, it's a unique time. I do hope that the markets open up for a variety of reasons. I know a lot of owners want to go and do deals. And I think you start to take hotels to the next level when you get a new ownership involved and a new management. So I think everybody's sort of waiting, watching, excited for the future. But in the meantime, we're looking inward at how can we be the best option and how can we be the best partner. So we're going to take this time to do that. And when the market opens up, we're going to be ready to jump in and partner with other great owners.

Josiah: You got to control what you can control in a quickly moving uncertain environment. And I think your leadership and your vision for what hospitality can look like, what a great hotel business can look like. It shines through in our conversation and into the business you're leading. So thanks for taking time to chat. I'll include a link in the show notes where people can learn more about you and the business, but always good to chat with you, Scott.

Scott: Thanks Josiah, likewise.