I recently attended an annual conference held by a hotel brand that specializes in, and is committed to rural communities. During the conference I attended a panel discussion with a group of investors who own a number of hotel facilities operating under this flag. While the group discussed a variety of best practices as well as their specific experiences with this brand, one question posed to the group caught my attention. The moderator asked the panel why they ultimately decided to invest in the hotels they owned. To a person, each investor replied that the number one reason for making the investment was to help their community.
To those of us who live in rural communities, that reasoning doesn’t seem as strange as it may to those who live in larger urban areas. Living in rural areas teaches us that collaboration is key to accomplishing anything. In fact, one of my greatest joys as an economic developer is taking my place at the board room table as I listen to the various organizations in our community discuss their partnerships and the importance of those relationships in accomplishing their goals. It’s something that makes small town America unique. It gives small town America its identity. Working together for a common goal.
According to conference keynote speaker Glenn Haussmann, President of Rouse Media and recognized hotel industry expert, more rooms will be sold in 2016 than ever before. That said, how can small towns capitalize on this boon as well? About right now you may be thinking, hold on a minute Corey; how can a hotel cash flow in a town of under 5,000 in population? That can’t happen.
To some industry experts who feel the same way, you may have a valid point. In fact, one participant in a panel discussion on feasibility during this very conference even said, “good luck trying to get a 30 room facility cash flow.” But to those who are willing to consider something different, daring and distinct; there is a business model for success in rural communities. The investor panel provided proof positive that an effective small town model exists. In fact, when questioned about facility performance, none of the investors on the panel had experienced a cash call and each of the panelists indicated that the operations of their hotels were outperforming their financial projections.
Who cares? What’s the big deal? Why is this so important? Our rural communities’ very lives may depend on it.
So how can a hotel facility impact a rural community? Let’s take a look at a few possible impacts.
Those of us who live in rural areas are familiar with the concept of leakage. Leakage may apply to various sectors like retail, food and beverage or lodging but whatever the specific industry sub-sector we are familiar with, the general concept remains that people are leaving our communities to transact business in the next community over and our revenues and quite possibly our profits are leaving with them.
Hotels can help small communities re-capture lost revenues. The lost revenue that immediately comes to mind in this discussion is a result of lost overnight stays. While that revenue loss alone is significant over time, there are a number of other lost revenues in the community that are a direct result of lost overnight stays. When a business traveler or leisure traveler leaves your community to drive to the town 10 miles away to stay overnight, your community also loses potential revenue for local merchants, retailers and restaurateurs. These losses compound over time and lead to significant lost revenues for local taxing jurisdictions and municipalities as well. A new hotel development can help re-capture these revenues for the community by offering a new option for overnight accommodations that retains visitors in the community.
Hotels provide support for local businesses, families and organizations. In most communities, whether your major demand generators are corporate or leisure, hotels provide important services to businesses and families. For instance, most local businesses have a number of professionals who travel to their facilities from time to time that generate need for overnight accommodations; customers, vendors, employees, sales representatives and bank examiners etc.
Local families also have need for overnight accommodations for friends and family members for holidays, weddings, funerals, reunions or other special events. Lack of accommodations can mean families are forced to host special events in other locations which often increases cost and can be inconvenient.
In addition, hotels provide important partnerships and support for local clubs, civic organizations, non-profits and colleges. Housing guests, providing meeting and banquet space or just contributing through charitable contributions are all important support functions of the local hotel. Hotels provide critical linkages for businesses, families and organizations in the community.
Hotels provide meaningful local experiences.
During his keynote address at the conference, Glenn Haussmann said, “goodbye materialism and hello experience.” What does he mean by that? People want more from their lives than just stuff. We have plenty of stuff. A paradigm shift is occurring in our country led largely by millennials. People would rather encounter a quality life experience than accumulate more stuff. We would rather spend our money traveling somewhere to experience something unique in our lives than purchase another item. Hotels can be an integral part of this phenomenon by providing a way for people to experience your community in a unique way.
I have come across a number of communities in my work that offer a variety of special events or unique local attractions. Unfortunately many are limited in their success of bringing tourists to the community, often by their lack of ability to provide an option for overnight stays. One day events are common and the addition of a hotel would allow events to be expanded over 2-3 days or even an entire week.
One common challenge is hosting events for state agencies or trade organizations. Often, state agencies or other organizations would prefer to host meetings/training sessions in specific geographic areas around the state. For instance, I recently attended a regional meeting for the Department of Elementary and Secondary Education regarding workforce which was one of nine meetings around the state. The group needed meeting space with technology as well as overnight accommodations. Since the meeting was offered in a central location in the region, many people traveled to the area planning dinner etc. while in the market. Often these groups require meeting/banquet space as well as overnight accommodations in order to schedule the events in a particular community.
Another common challenge is hosting sports tournaments. Many smaller communities, colleges and school districts are limited in their ability to host events at all due to a lack of hotel accommodations. Even those communities that may have a small hotel/motel option are limited in the number of teams they can host due to limited room availability. More people in your community for a longer period of time would result in additional revenues for the community.
As a quick aside, how many of us who live in rural areas regularly travel to large markets to attend events regarding rural issues? Isn’t it interesting that we don’t have the assembly space necessary in rural areas to host our own meetings regarding rural sustainability? There is demand for quality conference space and overnight accommodations in rural areas.
Hotels can bring more dollars and cents to your community. The idea behind economic development in general is to attract new investment to your community. This new investment in turn creates new jobs, provides new revenues for taxing jurisdictions and enhances the quality of life for citizens. Property taxes, personal property taxes, job creation and payroll dollars are added to the community.
One item of particular interest to many local communities is some form of bed tax. This special assessment levied on visitors through a special room tax can provide much needed funding to help market the assets of the local community. In other words, these funds can be used to increase tourism by marketing unique attractions and special events to potential visitors. Of course the goal is to bring more visitors to the community, provide financial benefit to local merchants and municipalities and put more heads in beds which generates additional revenues to replenish the funds.
Sound good? For those who may be apprehensive; what about the business model? Can it really work? As I mentioned earlier, there is a business model that dares to be different from the industry norm. Obviously it is important for both the investors and communities to make sure that a proposed hotel development would be feasible in a given market. Certainly, we need to register more than merely the Gee Whiz factor; Gee Whiz, everyone would like to see a hotel in this community. It’s a business decision and a disciplined approach to determine the feasibility of a hotel development is warranted; but that’s a topic for another day and another blog.
Corey J Mehaffy, CEO
Workforce Intelligence for Growing Business
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