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PCBB Banc Investment Daily June 21, 2013
Banc Investment Daily
June 21, 2013

Checking Out Self Service

It was recently announced that the New York Midtown Hilton, one of the city's largest hotels, will no longer provide room service to its 2,000 rooms after Aug. Room service makes us think of James Bond movies, an indulgence with silver trays
and cloth covered carts discreetly delivered to your executive suite. The reality for hotels is something different, as expense accounts have gone the way of the dodo bird, so has the willingness of travelers to pay $22.50 for scrambled eggs or a Cobb Salad, even if elegantly presented. Even at those prices, plus the 15% service charge and extra in-room dining charge usually attached, the service is shockingly not profitable for most hotels. In place of the room service menu, the Midtown Hilton will have a self service option called Herb n'Kitchen stocked with grab and go items. Suffice it to say, there has been grumbling from long-time customers, but many newer hotels don't offer room service and it seems likely that others will soon follow suit.
One of the reasons people use room service less these days is the ease of ordering food online from other venues outside the hotel. It does seem to be yet another case of migrating consumer habits due to the use of technology.
We feel for the hotels because it is similar to what many banks are grappling with currently. While bankers don't normally walk around the branch wearing white gloves and delivering food, customer changes are challenging nonetheless. Bank customers are using branches less, but when they do come in, they don't appreciate waiting in lines any more than they want to wait for dinner to be delivered - no matter the service.
The migration of customer transactions to electronic channels, rather than being an outright threat to branches, could be viewed as an opportunity to re-orient them towards higher value sales activities. Most bankers we know are already working on this and branches are moving to smaller staffs than they used to have, augmented by technology and remote experts. Customer use of technology also creates efficiency in the bank and many don't seem to mind doing more self service activities either. If a branch becomes less expensive to operate, then there may even be opportunities for careful expansion in viable locations - hopefully you didn't fall out of your chair on this one.
There are still some 118,000 bank and credit union branches in the US, or one for every 1,000 households nationwide. The number of branches in the US has declined since 2009 by about 1,600, but 80% of those closings were from 8 of the country's largest banks and nearly 50% were from BofA and Wells alone.
For community banks, the branch remains the dominant player for both new sales and cross-selling. Customers tend to come into the bank less frequently once an account is open though, so having a quality experience every time is imperative for both the new customer and for successful cross-selling. Work to have your branches as efficient and friendly as possible and they should still support a successful business model.
Now that room service seems to be going away, we wonder whether the hotel would have been better served with a change in hours or reducing the menu items to get more efficiency. We can say however, that we won't miss seeing the half-eaten leftovers piled on carts and parked in the hallway each morning.