Canada’s hotel industry offers something for everyone — whether it’s a mid-management business traveller looking for an inexpensive, clean room with a reliable internet connection, or a vacationer seeking a grand luxury property complete with a high-end spa and gourmet restaurants.
At the moment in Canada, “The greatest growth in terms of RevPAR is in the luxury segment and resorts,” says Monique Rosszell, managing director of the Toronto office of HVS. She notes that, according to STR data, year-to-date RevPAR nationwide is up overall by just over four per cent, whereas the luxury segment specifically is up approximately 12 per cent. “And the reason for that is the Canadian dollar, which has induced a lot of domestic leisure demand — people didn’t travel [to other countries] this summer because our dollar was so low — and it also induced international demand because it was good value for money. That is where we’re seeing the greatest growth in 2016.”
That said, for operators in hotel segments such as limited-service, mid-scale and extended-stay, the positives of operating in those segments — as opposed to the currently thriving luxury segment — remain undeniable. “The luxury segment has started to perform really well over the last year, but that’s also quite volatile,” says Eric Watson, COO of Calgary-based MasterBuilt Hotels. “There’s generally less risk and better cash flow from your hotel operations in limited or focused service.”
Hotelier spoke with industry operators and experts to find out what these three segments have to offer guests and operators alike.
“Limited-service is easy to define — it’s typically hotels that don’t have food-and-beverage operations,” says Brian Leon, managing director at Choice Hotels Canada. “Mid-scale and limited-service has evolved so much over the last number of years, so it does tend to be a bit of a moving target.”
Indeed, while limited-service hotels used to be strictly “no frills,” many have evolved to offer a few extras here and there, such as small meeting facilities, free Wi-Fi and complimentary breakfast. “We generally include a complimentary hot breakfast, Internet…all the basic services, so it’s one price for the room and the stay,” says Watson, whose company has the master territorial development rights to the Microtel Inn & Suites by Wyndham brand in Canada. He describes Microtel as fitting into the “mid-scale range of limited-service. Our value proposition is providing that nice, consistent, contemporary experience across the country with the best value. We’re able to run an upper-economy development price but really deliver a mid-scale experience for the guest.” Watson says the primary demographic reflects a really broad range of travellers: “a lot of sports teams, families looking for good value, mid-management business travellers — we provide a decent room at a decent price.” That said, its main markets in terms of geography tend to be the secondary or tertiary markets and suburbs of larger cities. In fact, for most limited-service chains, it tends to be too expensive to develop in the big cities considering its rates aren’t high enough to justify the development.
“We have targets in Aurora, Oshawa, Orillia, Port Elgin and a variety of other places like that in Ontario. We just opened in Sudbury, Ont. in July,” he says, noting there are currently more than 40 Microtel hotels in the development pipeline. “Our focus right now is on Ontario and Quebec, with some select opportunities in Atlantic provinces and some spotted opportunities in Western Canada.”
Watson adds, “We think the opportunity is in those secondary/tertiary markets where people want a nice new hotel product but you just can’t afford to build those upscale brands. So we’re fitting within this gap in the market, bringing in this brand-new, consistent product that competes well against the mid-scale segment.” Mid-scale
As Choice Hotels’ Leon explained, the definition of mid-scale is indeed a bit of a spectrum these days, with properties ranging from what some would call “focused service” all the way to upper-mid-scale. Choice’s Comfort and Clarion brands would fall into the mid-scale to upper-mid-scale range, he explains. Meanwhile, Steve Gupta, president and CEO of Markham, Ont.-based Easton’s Group of Hotels, describes mid-scale as “providing almost full service without being full-service hotels,” and points to Hilton Garden Inns and Courtyard by Marriott as examples.
Rajiv Trivedi, Chief Development Officer at La Quinta Hotels, says La Quinta would certainly fall into that mid-scale or even “focused-service” definition, “but it’s pretty fluid. The definitions vary so much from individual to individual. In our case, all of our hotels offer large spacious rooms with a king bed or two queen beds…We also offer meeting room facilities, extended workout facilities, free breakfast for all our guests, free high-speed Internet access to all our guests and business centre facilities.” Trivedi says his demographic is split 50/50 in terms of business versus leisure travellers. And in terms of development, the mid-scale segment isn’t completely shying away from urban centres. “Our predominant growth comes in four key markets: downtown, business district, airport areas and surrounding suburbs of any key area where growth is robust,” he explains. “We have a new construction on the books for Calgary; however, with the oil situation, that construction has slowed down. But we’re targeting markets in Ontario, B.C. and Saskatchewan.”
Similarly, Leon says Choice’s brands are targeting a wide variety of markets — essentially anywhere they don’t already have a presence — but one thing they’re especially keen on doing is “trying to identify smaller markets where there may be no branded hotels at all, let alone a Choice property, and asking, ‘how are the unbranded hotels doing here?’” For example, “we announced [a Comfort Inn and Suites] a little while ago in Goderich, Ont. So we’ll be the first branded hotel there. Markets like that can offer great opportunities,” says Leon. “They’re small markets and they’ve never had a branded hotel, so it’s a really big deal getting a big brand. We can go into some of these smaller tertiary markets and pay a fraction of what it would cost us in land costs, as opposed to going into the larger markets, and do just as well.”
While mid-scale RevPAR growth hasn’t been strong this year, Trivedi still sees it as, over time, a smart segment to be in. “Historically, mid-scale performs very consistently in downturn or upturn,” he says. “The cost of operations is relatively low; you’re offering a good value proposition for the guests and your rates are very good in comparison to economy or other segments. For both hoteliers and for guests, it is a darling segment.”
Extended-stay properties “provide everything guests need to be comfortable and productive on longer stays, such as spacious rooms with kitchens and separate spaces to work, sleep, eat and relax,” says Jeanette Costa, vice-president of Sales and Revenue Strategy at Toronto-based Crescent Hotels & Resorts Canada, which has a diverse portfolio of properties including the Staybridge Suites West Edmonton extended-stay property. “Hotel amenities would also include services such as laundry, storage lockers and social spaces to meet in small groups.”
Leon notes the operating model for extended-stay is obviously somewhat different from the rest of the hotel industry. “Operationally, they can be hotels where the housekeeping services may not be done daily and that sort of thing — so they’re run a little bit differently,” he says, adding Choice Hotels extended-stay brands (Suburban Extended Stay and Mainstay Suites) tend to be located in more secondary and tertiary markets. “It tends to be more corporate, people that are going to be working in one place for extended periods of time,” he says.
Costa adds that the demographics of extended-stay customers does vary according to the market. “They could be business professionals on project-based business, construction crews or even families that have been temporarily displaced from their homes,” she explains.
Athough Easton’s Group of Hotels does have extended-stay properties in secondary/tertiary and suburban markets, including a TownePlace Suites in Sudbury, Ont. and another in Thunder Bay, Ont. — as well as two recently acquired Staybridge Suites properties in London and Guelph, Ont. — extended-stay isn’t all about the tertiary markets for Gupta, who has a Residence Inn property that is thriving in the heart of downtown Toronto. As far as challenges in this segment go, “extended-stay is threatened by Airbnb quite a bit,” admits Gupta. But he is trying to spread the word to potential guests about the security issues that could be involved in staying at an Airbnb, compared to the safety you get from a trusted branded property.
Still, according to Rosszell, extended-stay properties have some built-in upsides. “The performance of an extended-stay hotel, in general, has higher occupancy than its counterparts in any market because the soft night is traditionally the Sunday night; for most hotels that is their biggest challenge,” she explains. “But the extended-stay has demand seven days a week because people are basically living there. The average rates tend to be a little bit lower if there are a lot of 30-day plus [guests], because they discount the rate — but in terms of performance, operating costs are much less because they don’t go in and change the rooms every day and you’re not checking-in all these people all the time, so it is a very healthy operating model.”
Volume 29, Number 1
Written by Carol Neshevich