The real reason limited-service brands continue to thrive
It’s generally taken as gospel that, in difficult economic times, the limited-service segment finds its niche and performs admirably. As travellers look to save money wherever possible, and invariably trade down, conventional wisdom dictates this market segment steps into the limelight, thanks to the boon from price-sensitive travel managers and vacationers.
While operators in the segment found a measure of success in the recession’s doldrums, it was by no means guaranteed by virtue of an automatic trade-down. Far from seeing guests served to them on a silver platter, Superior Lodging Corporation’s chairman and CEO, Marc Staniloff threw doubt on the dogma in the July/August issue of Hotelier when he said: “Theoretically they were trading down, but hotels were chopping rate, so customers didn’t have to trade down that far. If Marriott, for example, is at $50 a night, are those guests really going to leave to go to a Super 8?”
Despite pre-conceived ideas, over the last 12 months the limited-service market has fought its way — via splashy new rooms, upgraded amenities and good old fashioned promotion — to the successes it realized.
While most of the industry was caught on a veritable roller-coaster in terms of ADR and occupancy in the later half of 2009 and into 2010, the numbers, according to PKF Consulting, show the limited-service segment holding its own, a model of consistency. Posting ADR numbers from 2008 to May 2010 year-to-date of $101, $100 and $100 certainly shows a consistency and resiliency that full-service properties would covet. But, the results don’t surprise PKF director Brian Stanford, who says, based on the past, the numbers are par for the course.
“Historically, a strength of the limited-service segment has been that when price sensitivity comes into play for the consumer, the impact is not as significant for the limited-service segment. Yes, travel can be down overall, but within that there is always a price point that will drive business into those hotels,” he says. “Limited-service properties tend to fare better in a down economy, because they have the advantage of having better fixed operations costs,” adds Stanford. “The price point for the limited-service segment clearly held last year when it was down six dollars for the overall industry, and by seven or eight dollars in the full-service segment,” he adds.
Perhaps buoyed by the steady numbers, several players in the limited-service market seem upbeat about the future. “No one in the hotel industry has been immune to economic challenges, particularly in early 2009,” says Troy Rutman, director External Communication for Best Western. “But, Canadians and Americans continue to view travel as a right, not a privilege, and they’re certainly back on the road in 2010,” he says. “Net revenue for our limited-service hotels in Canada is up 43 per cent, and net room nights within the sector are up 19 per cent compared to last year. In fact, our limited-service properties are outperforming the total of all Best Western properties in Canada.”
There’s also a positive vibe at Realstar Hospitality’s Toronto office, where president and COO Irwin Prince is optimistic about future growth of the Motel 6 brand in Canada. “We’re seeing a pick-up in activity with both our Motel 6 and Days Inn brands across the country. There is obviously some pent-up demand out there for travel, particularly for Canadian families. There are still some slow pockets, but overall, leisure has had a strong summer, and corporate business is coming back,” he says.
For Realstar, the return of business travel couldn’t have come at a better time, as it is aggressively rolling out its Phoenix room design, with a recent opening in Moncton, N.B., and a property under construction in Brandon, Man. “The new room design is a refreshing departure for many travellers in this segment,” says Prince, of the Travel and Leisure magazine 2010 Design Award winner. “With wood-effect flooring, an overall upscale euro-chic design, 32-inch flat panel televisions the room really stands-up. Guests are getting more than they might be expecting,” he adds.
Giving the guest more, is something managers of the limited-service segment have been trying to balance for some time. But, considering the economic struggles of the past 12 months, a number of brands have been digging deep to find guest perks that will give them an edge on the competition.
Kurt Smith, vice-president, Product, Quality and Innovation with Hampton Suites by Hilton says thanks to Hilton’s size and clout in terms of buying power, they’ve been able to react to what he sees as a highly value-conscious guest. “One topic that keeps popping up on our radar is that people today are looking for value, and we’ve certainly had to adapt to that demand,” he says. “In the select-service segment, you have to be careful though. When the economy is doing well, you can add cost without much worry, because you can adjust your rate accordingly, but when things are tough, you have to be very cautious when it comes to layering any new programs. Our advantage is, when we’re looking at offering any new product, we can leverage our size, and with 2,500 properties, we’re able to keep the costs down.” As a result, Hampton guests are offered a suite of amenities, including free Wi-Fi, complimentary newspapers and a hot breakfast.
When discussing value in the limited-service segment, a significant schism has emerged. At Realstar, Prince talks passionately about offering Motel 6 guests fantastic value, too, yet his brand eschews the growing breakfast trend. “Everyone seems to be getting into the breakfast field as a way of adding value,” he says matter-of-factly. “In terms of amenity creep, when you get into that game, you can quickly go from giving away a little, to giving away a lot, and hoping that by doing so, you’ll attract more business. Rather than adding that cost, we’re able to roll that into a rate reduction. We’ve always offered a great value at an extremely attractive price, and remained true to our brand DNA, which is offering everything our guests’ need, without giving them anything they don’t want,” he says.
At Best Western, where guests are offered breakfast and free Internet, Rutman agrees with Smith about the importance of offering total value packages. He’s also quick to note that during this year’s travel season, Best Western got proactive. “We knew we had to be aggressive with our promotions and deployed our richest seasonal promotions ever in 2010,” he says. “Our Jump-Start-to-Summer promotion, which offered travellers a $50 travel card after two stays, led to a major increase in revenue at our North American properties over the same window last year, and our summer promotion, which offers a free room night at any of our hotels in Canada or the U.S. after two stays, is already delivering almost double last year’s strong results, in terms of new Best Western Rewards members and bookings,” he adds.
Any way you slice it, whether it’s adding value via breakfast, launching aggressive travel and loyalty programs or building new hotels featuring award-winning room design, the limited-service sector is the recession’s resilient champion. But that success didn’t come as a natural function of miserly travel managers. Far from having business handed to them, the limited-service sector took it.
