Around our house, we live by a family slogan. “We shall never be average.”
And neither should hotels, because averages do not tell the story of Main Street America.
Hotel owners and bankers have always been fed confidence-building averages of US performance by large chains. When you’re told the market is strong and that the US occupancy average is near the mid-60%, you build a new hotel and place a major Holiday Inn type franchise on it. You and your lender trust the data put forth by the experts, but years after the doors have opened, your midscale performance is 55%. You wonder why you’ve missed the boat.
Or you have an existing midscale hotel performing in the mid 50% occupancy range, and you see the national averages in the low 60% range. To improve your performance, you decide to brand with a Wyndham-type franchise and sink hundreds of thousands into a PIP (property improvement program).
Averages can be dangerous for Main Street America hotel owners or lenders, because they distort expectations. Too often, the headlines focus on a narrow segment average in order to sell only one story. Here’s one way to break down the averages to find out where you actually stand.
The total YTD US occupancy average is 62.03%, with an ADR (average room rate) of $110.
• Take out 6 of the top markets (Chicago, WA DC, NYC, LA, Miami, San Francisco) with an occupancy of 79.68% and ADR of $203.32
• Then remove the luxury segment with occupancy of 74.6% and ADR of $309.
• What’s left is Main Street segments. Economy and midscale.
The total Main Street occupancy average is 56% with an ADR of $64.
Every hotel is a corner store business. Rather than think about the national averages, each hotel should think about their own particular micro-economy. What are the busy patterns of life circling around your hotel? What are the primary drivers unique to your location?
Leverage your location first by identifying all possibilities of corporate, government, medical, transportation (freeway, airport, train station). Focus your efforts on reputation/service, cleanliness and price. Use bootstrap financing and keep costs low.
So now that you know a little more about averages, what are you going to do to beat them?