Unlike the budget and luxury sectors, mid-scale properties cast a large net to capture a wider guest demographic. According to PKF Consulting Inc., a CBRE Company, the mid-scale segment is defined not by number of rooms or quantity of units, but by price point.
“Anything under $100 is defined as a budget property and anything over $175 falls into the luxury category, so mid-scale can fall in price anywhere between. That’s quite a range, thus explaining the wide variety of offerings,” says Brian Stanford, national managing director for PKF Consulting Inc., a CBRE Company.
According to the research, the mid-scale segment outperformed the national average in terms of occupancy in 2014, generating 66.8 per cent occupancy, compared to the national average of 64.3 per cent. However, occupancy can vary dramatically between brands. “It really depends on how the hotel brand is positioned,” explains Stanford. “For example, if you were to look at a popular Courtyard by Marriott or a Hilton Garden Inn, they will perform [with] occupancy rates around the 70 per cent mark. However, older properties bring the numbers down.”
In 2014, mid-scale ADR rose $4 to $135.33, just under the national average of $137.20. In terms of RevPAR, it outperformed the national average and grew by $4 to $90.40 compared to $88.22.
These numbers confirm Stanford’s conclusion that the mid-scale segment isn’t just surviving, it’s thriving in a healthy marketplace. “The vast majority of hotels in Canada that are in development — as well as those that currently exist — fall into the mid-scale range,” he says. Since these properties are usually suburban, they cater to both a strong corporate or business clientele, as well as the leisure market. “These guest groups look for a hotel to consistently offer good quality and good service,” explains Stanford. “Although some will be more attractive to sports or leisure groups, for example, if your property has a pool, that’s often a huge draw.”
Not all areas of the country have experienced such strong growth. Stefan Nasalski, VP of Operations at the Grande Prairie, Alta.-based Pomeroy Lodging, says the business experienced a dip in occupancy in 2015. “Our trailing 12-month occupancy at the end of June was 67 per cent, down from 75 per cent at the end of 2014,” explains Nasalski. “Factors that contributed to this include the slump in the world demand for commodities and, of course, the drop in oil prices.” However, he notes that compared to 2013, when occupancy sat at 64 per cent and 2012 at 58 per cent, business is doing well.
Pomeroy had significant gains in ADR in 2013 and 2014 that were fuelled by a strong demand. “But as you would expect, with the decline in 2015 occupancy, defending your rate is often a daily focus,” he explains. “We finished 2014 with an ADR of $141, which means that so far we have managed to hold onto our gains.”
Ultimately, operators must stay true to their vision, and ride out the difficult times. “We find as a brand that we really benefit from a deep understanding of where and how we want to operate,” he says. “The brand does not chase its tail in an effort to rejuvenate or reinvent.”
Yet competition within the industry continues to be an unavoidable factor faced by virtually every mid-scale brand. Just as Justin Meffe, VP of Operations at Toronto-based Monte Carlo Inns, knows all too well. “There are obvious challenges when the waters are so populated,” says Meffe. “Right now, there are a huge number of mid-scale hotels. Some are low-end, some are high-end. So I would say the biggest challenge is that it seems like almost every hotel is trying to achieve the same value, for the same demographic.”
The Monte Carlo team is addressing this challenge by working on the product itself. “We provide extra value by adding a free breakfast for guests. We also have dining specials and a loyalty program,” he explains. Meffe also notes that they provide special incentives for guests to book directly with the hotel rather than through other channels, which can eat away at profits.
“But it’s also the small details of the room that we have really focused on to capture that return guest,” says Meffe. “For example, we recently improved our pillows and mattresses through an extensive testing period. We also upgraded our shampoos and conditioners and dramatically improved the entertainment centres in our guestrooms with large flat-screen TVs and a fibre Internet service.” But despite these offerings, he won’t deny that keeping customers coming back is a tricky business. “Ultimately people are still looking for that deal. So we try to up the experience factor as much as possible.”
Meffe reports an ADR of $102, but says RevPAR is really the driver for everything they do as a business. “This year, we are on pace with last year’s numbers,” explains Meffe. “We saw a lot of growth between 2013 and 2014. However our RevPAR has increased.” Meffe says balancing it all can be tough, as hotel costs keep increasing annually.
Brian Leon, managing director of Choice Hotels Canada, based in Mississauga, Ont., says operating within the mid-scale segment has been extremely profitable. “At Choice, we’ve opened five new build, mid-scale hotels so far in 2015 and we expect a number more before the year’s end.” These include four new Comfort Inn & Suites and one new Quality Inn.
“Investors were looking at return on investment and building a full-service hotel is extremely expensive and complex to run,” he says. Guests are looking for a good experience, but also a simple experience where they can save money.
“Ironically, there are things you can’t get in a luxury hotel that you can get in a mid-scale,” laughs Leon. “For example, free breakfast is common now in a mid-scale hotel and so is free, high-quality, wireless Internet service. At a luxury hotel, you would have to pay substantially for both.” Leon recently attended a conference where the Internet service fee was $20 per day. “This was in a room that was approximately $300 per night. It’s just one of those things in the industry that is odd.”
Occupancy has been growing steadily at Choice’s mid-scale properties since 2009. “It’s been rising over the past five years. Slowly our occupancy rates recovered and then ADR followed shortly after,” says Leon. “We are positive in every province except Alberta where the occupancy rates are going down in tandem with the falling oil prices.”
What brings customers back is a contemporary room that is continually updated. “The things we find particularly impactful to our guest experience is our bedding — that’s critically important — and also the technology within the room,” he explains. “One thing a lot of hoteliers forget is the amount of bandwidth each room requires, especially if a family is going to be staying there.” It’s essential to provide enough bandwidth to accommodate various guests downloading or streaming content. But juggling these various factors makes operating a mid-scale property challenging, but profitable.
A competitive mid-scale industry keeps operators on their toes, ensuring that the best services and suites are available consistently. In the end, it’s the customer who benefits from the ever-increasing standard.
Written By: Jennifer Febbraro
Volume 27, Number 6