A few years ago, it wouldn’t be unusual to walk into a limited-service hotel room hoping for no more than a clean, quiet place to catch some Zs, but times have changed and so have customer expectations. Today, brands like Motel 6, Econo Lodge and Knights Inn are focusing on providing more value for the same economical price — recession or no recession.
“You’re continuing to see the gap narrow in terms of product and offering between the limited service versus the limited service plus one,” explains Kevin Maven, director of Franchise Operations at Choice Hotels Canada, which includes Econo Lodge and Rodeway Inn and has seen a 5.5 per cent drop in occupancy from Jan.1 to June 30 of this year versus last year, a $1.33 decrease in ADR and a $5.75 decline in RevPAR. “Although there might be fewer amenities at our properties, the calibre of the product is increasing. The bedding program has a lot to do with that, as does having standardized breakfasts in more properties, as well as the fact that we continue to add things such as free Internet, parking and newspapers. It makes it much easier for guests to rationalize staying with us.”
Motel 6 updated its brand with the goal of appealing to evolving, savvier customers who may be younger and looking for a contemporary design without the hefty price tag. The brand’s European-inspired, updated prototype — dubbed the Phoenix design — is now rolling out across Canada with wood-effect flooring, new fixtures, flat-panel TVs and an expanded breakfast offering. “Motel 6 has recognized an opportunity to go back and introduce a clean and contemporary look,” says Irwin Prince, president & COO of Realstar Hospitality, Canada’s master franchisor for both Motel 6 and Days Inn. “It’s efficient. It’s greener than it’s been before, and it’s saying stay with us,”
Attracting the new breed of budget-conscious consumer to your hotel means understanding and reinforcing a green theme that resonates with a younger clientele. It’s something that Glen Blake, president & CEO, Full House Franchise Systems Limited and master franchisor of Knights Inn Canada, sees value in, too. “We implemented what we would call green standards within our policies and procedures, and we’re pleased to say that a lot of our franchisees have already been successful in obtaining the Hotel Association of Canada three-key eco-rating or higher,” he boasts.
But even as limited-service hotel operators fight to play amenity catch up, focusing on some of the trends prevalent at higher-end establishments, there’s still the matter of the economy. So far, the news is slightly better in the limited-service sector. “What has been positive for limited-service hotels is that, despite the fact that rates are decreasing in every other sector, we’ve actually seen some positive rate growth — albeit modest — in the segment,” points out Brian Stanford, a director at PKF Consulting in Toronto.
Although it’s difficult to gauge how well the industry is faring halfway into 2009, according to PKF Consulting, occupancy rates for the limited-service segment were on par with all other properties, seeing a five-point drop between January and May of this year, compared with the same period last year. The good news is that ADR at limited-service properties was up two per cent, in comparison to other hotel categories, which saw a drop of three per cent during the same time period. To put that in perspective, the ADR for limited service rose from $94 in 2007 to $99 in 2008.
The economic impact is telling. “Typically, what we have seen in the past is there’s been a downgrading from full-service hotels into lower-priced properties, and that hasn’t happened this year,” Stanford explains. “One of the reasons it hasn’t happened is because of the high level of discounting within the full-service segment. So, guests are staying with their primary, A-list hotel brands,” he adds. Fortunately, Sandford says discounting has not been as prominent at the other end of the hotel spectrum. “The limited-service segment hasn’t had to resort to that, and they still have a relatively good price gap. Those assets are still very favourable in the price-value relationship with full-service hotels.”
But that doesn’t mean it’s not tempting for operators to entertain the idea of dropping rates. Realstar’s Prince reports that performance hasn’t been “too bad” at Motel 6 and Days Inn this year, and Blake has even reported modest signs of recovery at Knights Inn, but both say the key has been encouraging operators to avoid demand pressure and maintain steady rates. “Now, you can’t have blinders on and say, ‘everyone around me is doing one thing, I’m going to sort of hold firm, regardless of what happens,’” Prince explains. “But there’s a little bit of a discipline involved that you need to follow, and we’re encouraging all of our operators to have that discipline and not drop rates as a knee-jerk reaction. It’s got to be part of a larger strategy.”
Dropping price could translate into sacrificing value, after all — the very thing that attracts guests to limited-service operations. “I don’t think it will last, and I don’t think it’s real. It’s kind of smoke and mirrors,” says Choice’s Maven, referring to big rate drops. “It’s enabling customers to really empower themselves. They are going to look at your rate and they are going to look at another rate. They’re becoming price-driven rather than amenity-driven.”
That’s why it’s important to actively seek out new guests. For Maven, that means attracting both white and blue collar guests, and tours and school groups, too. Another plan is to encourage good word-of-mouth about your city or region. “The government of Canada has begun to recognize the importance of tourism to the country and has increased money to the Canadian Tourism Commission, which is terrific,” explains Realstar’s Prince, before adding one caveat. “We simply need to maintain it, and not only maintain it but enhance it, because the downward spiral of short-drive business in the United States hurts us.”
Despite all this there is some promising news for the limited-service category. Although new construction has slowed, there’s a lot of value in conversions, especially in today’s environment. “The majority, if not 95 or 98 per cent of all our business, is focused on conversion opportunities,” says Blake. “That’s really important because what we’re finding at Knight’s Inn is that in the tough economic times, independent owners and operators are looking for ways and means of repositioning their properties in the marketplace.”
Nonetheless, it’s hard to predict the future. Based on the first five months, RevPAR is down by almost 15 per cent nationally for all hotels and about 10 per cent for the limited-service segment” Stanford says. “The hope is that over the next few months the erosion will wane and we’ll actually be looking at some positive growth. But right now it’s almost impossible to determine where we’re going to end up in 2009.”
Perhaps the best plan is to evolve. “You really need to step back and open your mind,” says Maven, “because any business is good business right now.”