There’s a lot of money to be made – or lost – in this industry, and the competition is growing. The industry profit in recent years has averaged over 15 percent.
“We do this as a hobby,” said no hotel owner, ever. According to the IBISWorld, the hotel industry is a $194 billion annual business, with more than 74,00 hotels in the United States.
GrowThink notes that nearly 63 percent of this revenue comes from guest room rentals, with another 12 percent coming from food and alcohol sales. There’s a lot of money to be made – or lost – in this industry, and the competition is growing. The industry profit in recent years has averaged over 15 percent. So, how do new hotels get started? Here are the key points to the journey.
This is always the key to a new hotel’s success. The lack of a hotel in a popular location is often the deciding factor. Conversely, opening a new hotel in an area with existing hotels can be a successful approach if those competitors aren’t fulfilling customer needs.
For example, there may be an existing hotel that caters to high-end guests. A hotelier that instead has a focus on the Millennial traveler looking for a less costly way to connect with the local environment would likely find considerable success. A current industry study shows that despite the affinity for Airbnb, only 23 percent of Millennials said it was their preferred type of accommodation. In fact, 53 percent said they prefer a full-service hotel or resort.
Hotels are not inexpensive to build. The national average to build a hotel is about $463 per square foot, or about $22.2 million. That’s according to the Fixr website, and it doesn’t include acquisition of the land or demolition.
That’s why adaptive reuse has become a growing alternative to new hotel construction. Rehabbing an existing structure offers hotel owners a way to find properties in urban areas where there’s no room for new construction. It also accommodates a growing preference by guests, who are looking for immersive experiences by staying in hotels that reflect the local area.
Delight your guests
Location may be a primary draw, but guests want a memorable experience where exceptional service is at the foundation. It doesn’t have to be at the level of the Ritz-Carlton. Today’s average hotel guest is savvy enough to know that they get what they pay for. They’re looking for courteous and capable staff who are empowered to make decisions and quickly resolve issues. Guests also value hotel employees who can give confident advice about nearby attractions.
It’s safe to say that one of a hotel’s most valuable resources is its personnel. Competent staffing can level the playing field, making even a small boutique hotel more popular than a bigger and more opulent property. Industry insiders will tell you that an employee with the authority to make an exception can turn a situation around and prevent a wave of negative social media.
Successful hotels are accomplishing this by increasing employee resources, with the objective to deepen employee satisfaction and involvement. Knowing this, it might not be so surprising that hotel staff wages account for more than 25 percent of overall hotel revenue. The cost of working capital for staffing, marketing, and operations is only second to the cost of buying or building a hotel.
Marketing strategies have become integral to a new hotel’s success. According to GrowThink, there’s a definitive link between major hotel chain growth rate and their online popularity. Hotels have also discovered that their largest profit margins come from guests who engage with their online branded content.
Hotels are reporting gains in food and beverage sales, as well as events. Many have seen an increase in room nights directly due to social media efforts. We can help you design to appeal to your target market. Learn more about us.