GSG Finds Hotel Data Beyond the Obvious Sources
I recently wrote a blog entitled, The Plan to Recovery, where I shared about my ongoing conversations with rural leaders, regarding their continued loss of revenues due to a lack of hotel overnight accommodations. These communities are losing revenue to other nearby communities. These communities have events that could extend from one day to multiple day events if they just had the rooms. These communities have wedding/event venues that could schedule larger events with people from further distances if they just had the rooms. Sound familiar?
Some communities just accept this loss of revenue as a reality that they cannot change. Others, wonder if there is a way to recapture these lost revenues. Whatever camp you find yourself in, let me share the following scenario to encourage you to consider completing a preliminary market overview.
Do You Have What It Takes to Grow a Hospitality Industry?
Recently, a small rural community contacted GSG Hospitality Group inquiring about the feasibility of a new hotel development in their community. During our initial review of the community demographics, several concerns came to the surface. First, the population in the community was below 1,500. While we are aware of hotels that are very successful in smaller communities, lower population numbers typically cause us to proceed with caution.
Second, the community was located within 10 miles of another community of nearly 6,000 people that currently offers four hotel options. The proximity to this community combined with the fact that the community was within 30 miles of several larger communities with numerous hotel options, also caused some initial concern.
Third, a cursory look at the demand generators showed one large employer as well as a few sports, entertainment and recreational related attractors in the community. While these are all very solid demand generators, we had some concern over the lack of critical mass.
On paper, and on the internet, the low population and the small number of demand generators, combined with the existing hotel options in the neighboring community seemed to indicate that a new hotel development would be difficult at best. If this overview was our only interaction with the community, we would have likely suggested that a new development was not warranted at this time. But, remember, things aren’t always as they seem.
Finding out What Lies Beneath the Surface with a Market Overview
Given our concerns, we were commissioned to complete a Preliminary Market Overview for the community. We offer this product when there are concerns regarding the overall feasibility of the project and we question the need for a full Market Feasibility Study (Hotel). The overview includes an in-depth review of the market, as well as a site visit to include local interviews and site evaluation. If the overview indicates that a full study is not warranted at this time, then a brief report is written and provided to the community. In turn, if the overview is positive, and the client agrees, GSG staff completes the full hotel feasibility study.
Two GSG staff members recently visited the community. While on site, we stayed at an upper-mid-level property in the neighboring community that was built approximately 5 years before. As we entered the community, a little after midnight, each of the four hotel options were nearly full. In fact, we literally took the last remaining parking space at our hotel. This was good to see.
There seemed to be a good mix of guests at each of the facilities; some families, some professionals and quite a few contractors. In fact, during a local interview, a local administrator told us that he had lived in the neighboring community for 5 years and that the upper mid-level hotel was always full. He indicated that he often wondered where all of these people stayed.
Local Market Intelligence that GSG Uncovers
We spent two days in the community evaluating the sites, completing the local interviews and visiting area employers and event venues. Our goal was to gain a better understanding of the local intelligence regarding the existing demand and where that was being met. In addition, we wanted to learn about the potential for additional demand and how a new hotel development may assist in growing the local economy.
Losing other Revenue Without a Hotel
We interviewed over a dozen people and heard much of the same information regarding issues with availability. Remember, things aren’t always as they seem. According to our cursory review, the communities were well served with the current options in the neighboring community. According to the data, the occupancy rates were high compared to similar communities but did not indicate 100% occupancy. However, according to the local demand generators, there are a significant number of guests leaving both communities, due to a lack of availability. This results in not only a lack of revenue from the overnight stays but also additional revenues like fuel sales, food and shopping.
Several of the area employers indicated that they were sending guests over 30 miles away due to availability issues in the neighboring community. In fact, these employers represented hundreds of room nights per year. Several employers indicated that the need to send guests over 30 miles away was very inefficient and that in some cases, guests needed to begin work in the early morning hours causing them to leave their hotels at 3:00 am.
In other instances, we heard from event venues that were playing the “block” game. Unfortunately, due to availability issues, the hotels in the neighboring community were limiting the number of rooms the event venue’s guests could block for events. To combat this, guests were making the wedding party and family reservations in their individual names so they could block additional rooms for guests. We also learned that the venues could schedule both more and larger events with guests from a further distance if they could overcome the concerns regarding rooms. In fact, one venue has even considered building their own hotel on site.
Finding Hotel Data in Unsuspecting Places
In addition, we heard stories of wedding parties and guests being forced to stay over 30 miles away and drive back and forth multiple times per day. There were also concerns about the receptions with guests being booked in hotels so far away. This caused the venues to start impromptu shuttle services to ensure their guests arrived back at the hotels safely. One venue owner shared that she loses at least one wedding each month due to the lack of available rooms in the area. “It is the number one questions from our customers, where can we book rooms?”
Both communities offered a number of events that attracted hundreds of visitors each year. In fact, both communities indicated that they had some events that could be expanded to multi-day events if they had the additional rooms to accommodate the overnight stays. One community is home to one of the most incredible baseball facilities I have ever seen. The local caretaker, after whose family the park is named, indicated that they have a great deal of interest in teams playing at the facility in addition to the two local teams that he coaches.
In a follow up call, I learned that the College in the neighboring community is having issues with availability as well. In fact, the College has opened rooms on campus to help alleviate the issues for guests, donors and trustees. On numerous occasions including sporting events, performing arts events, move in day, commencement, trustee meetings and more the College experiences issues with availability. The College President also indicated that their sports opponents can’t stay in the community and added, “They drive right on out of the community taking their spending with them”. In addition, she indicated that DII schools have a tremendous family following and that often times the families like to stay in the same facilities or at least in the same community as their athletes.
I could go on here, but you get the point. In fact, one of the board members of the neighboring community’s economic development council indicated that they have talked about the need for additional rooms in every board meeting for the last several years.
Rural Economic and Population Growth
One item that came to the surface during the local interviews was that the current ownership group of the upper-mid-level hotel in the neighboring community had been considering an addition to their facility for a number of years. There seemed to be some frustration with the demand generators that this addition has not yet been undertaken. One thing we saw early in the demographic overview, and then confirmed during the site visit, is that both rural communities had been growing over the last ten years. Very rare and very interesting.
At this point in the process, I was confident that there was significant unmet demand in the area. However, I was still hesitant to recommend a full study. My biggest concern at this point was the timing of that potential addition to the upper-mid-level facility in the neighboring community. In my opinion, if that addition were to occur soon, it would be very difficult for our client to assemble an investor group for a facility in their community. However, if that addition did not take place soon, it could provide an opportunity for our client to capitalize on the unmet demand for both communities.
I reported our findings to the client and asked them for permission to reach out to the brand that franchises the facility in the neighboring community to discuss the status of the potential of the expansion. The client agreed and I reached out to the brand representative.
Between those meetings, I was able to complete a call with the economic developer from the neighboring community. During our conversation, he confirmed the significant demand, the availability issues and that the ownership group of the upper-mid-level facility had discussed an expansion of their facility. He also confirmed that the economic development board had been discussing room demand every meeting for the last several years. He also made me aware of two things that significantly changed the outlook for our client.
Finding Room Demand Numbers by Investigation
First, the neighboring community had commissioned a hotel feasibility study in 2009. At that time, the study showed demand for 100 rooms in the neighboring community. He said that when the current brand became involved in the development opportunity, that they suggested 66 rooms. He said that when the current investment group was formed, they decided to initially build 44 rooms and position the facility on the site so a future addition could be constructed as demand dictated.
Remember, the study in 2009 called for 100 rooms and that was prior to the continued growth over the last 10 years. So, in this scenario, the community had been underserved by 66 rooms for over ten years, not including their growth. This is significant.
Second, the economic developer indicated that the current investment group was not currently focused on an expansion of their facility but rather the purchase of another facility in the community. While I agree that their strategy to own facilities at two price points in the community is sound, this does nothing to meet the need for additional rooms.
In my initial conversation with the brand representative, I was able to confirm that the brand had been encouraging the investment group to expand the facility for several years. In fact, I learned that the brand was themselves the largest investor in the investment group.
GSG Works With Hotel Brands
I told the brand representative that we had been hired by our client to complete a preliminary market overview. I shared our findings with him and he confirmed that our findings about demand and availability issues were correct. I told him that our client had given permission for me to reach out to him to discuss the issues. I also reiterated our belief that if the neighboring community investment group moved forward with an expansion project, that our client would have a difficult time assembling an investment group for their project. However, given the obvious demand, if our client assembled a group and moved forward with a new project, we believe that it would be successful.
The brand representative agreed to reach out to the neighboring community’s investment group to discuss their intentions for the facility. When he called me back, he confirmed that the investment group was focused on acquiring another facility within the neighboring community and added that if our client was able to assemble an investment group that the brand would support the development. He added that if the brand’s management company were to manage the proposed facility in conjunction with the upper mid-level facility they already manage in the neighboring community, that they could send overflow back and forth. This scenario would benefit both communities by keeping guests in the region as opposed to traveling 30 miles to the larger surrounding communities.
Effect on the Local Community's Economy
While we aren’t naive enough to think that the smaller community will retain all of these guests, given the greater number of restaurants, night life, etc. in the larger community, we also know that this type of development in the smaller community will lead to additional mixed-use development in the area to support the hotels. During our local interviews, we found that location and convenience were very important decision factors to these guests and the demand generators indicated that the largest percentage of those guests would choose to stay local. In addition, we were able to identify a number of potential investors for the local investment group.
The community has now commissioned a full hotel feasibility study. Stay tuned for another rural success story.
Corey J Mehaffy, CEO, Hospitality Consultant
Workforce Intelligence for Growing Business
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