How to Compete with New Hotels

By – Michael Arnold, CEO

New Hotels are going up in your area and you need to stay competitive.

The good news is there must be a market demand for companies to build new hotels.  This isn’t the end of the good news because you have an opportunity to capitalize on the activity.  I have worked with hundreds of hotel owners, business owners, and highly successful companies.  Those who change with the times will often do well.

1. Increase the quality of your property – This sounds obvious but as the market changes, so do the expectations of your guests, especially with new competitors like Airbnb.  If you haven’t been paying attention to Hospitality news sources you may have missed out on the number of new hotel brands the majors have been launching.  But don’t worry. Since competition is good, demand is good, services will become easier to find, and you have an opportunity to increase the value of your property even while the competition is spending the next year to build a new location.  You can stay about 18 months ahead of the game.

While you may think increasing the quality of a property implies new carpet, furniture, paint, and the normal rehab approach, you may be missing out on adding amenities to enrich the features of your hotel.  Things like better quality entertainment, social meeting areas, better quality WiFi, and increased security can have an impact.  Just like the old hotel/motel signs that highlighted Color TV or Unlimited Local Phone Calls, today you can highlight many new features, if you have them.  You can bet newer hotels in the area will.

Going back to the basics, changing the look of the building can also have a great impact, especially with your online advertising.  Have you updated your photos on the web lately?  If you update the paint, furniture, carpet, colors, decorations, and employee dress code, you will need to update the pictures to show off your new look.  At the same time, if you haven’t made any changes, this can be a sign that you may not be keeping up.  How nice is your parking lot?  How are your outdoor features like patio space, benches, smoking area, pool tile, and more?  Does anything look shabby instead of new?  Quality is often a matter of perception.  Does the ice machine need to be cleaned or repaired?  Are the public laundry machines out of date and beat up?  Do you have crooked tables and bent chairs in the breakfast area?  Are the luggage carts in good shape? Make a list of everything in your inventory and ask the question: Does this look new and nice?  If not, replace it.  Why lose one guest because of one small item you can easily replace?

2. Increase the value of your property – On the accounting worksheets it is as simple as increasing revenue versus your expenses to reach a higher net income.  If you can increase the average room charge that’s a start, but you can’t increase the fees without matching the expectations for the price.

What are you doing to increase guest reviews, or, are you even getting them?  Many hotels are allowing the internet apps to default their star rating to the average for the brand or type.  I can tell you for sure, when people pull up their favorite brand of hotel on Google Maps or TripAdvisor, they are likely to stay at the location that has a half-star higher rating than your location.  You can actively ask your guests at checkout if they will give you a quick review before they leave. There are many simple ideas to increase the value to your guests, but what about potential buyers and investors?

While the market for new properties is doing well you should consider that there is always someone actively looking to take over a property.  If you build more value into your business by upgrading how you operate the property, you also increase the value to the next buyer.  For example, are your employees transferable to the next owner or will they have to bring in all new people?  If you have been operating your hotel like a business rather than a personal friends and family social income platform, then your hotel is worth more because it will be undisturbed by the change of ownership.  You should never be in a situation where the employees would want to quit if you are not there.  Keep in mind, since the last downturn in the economy and the real estate bubble, many buyers are much more detailed in making a decision and are not likely to just make a cash offer off the cuff.

A hotel is a business.  If you treat it as such, realize it is a valuable entity that can be exchanged for other value, then you will be compelled to focus on this.  You can use advanced strategies like retained earnings, employee ownership, key man insurance and other things your advisors can recommend.  Just remember, you are in business, your business must have worthy value.

3. Increase the cash flow of your property – We already covered some of this.  What can you add to the hotel that people are willing to pay extra for, either as separate services or combined in room price?  One good area is increased WiFi security.  Most hotels just have a standard open connection that, even though they have a password, it really has no security.  The only way to provide real security is with a secure server that manages every connection.  Sounds expensive, but compared to the demand and service upgrade, it’s cheap.  Add a security guard or two, security cameras, and more locked doors or gates.

Cash flow is the business.  There is no getting around the facts, cash flow enables new investment, allows upgrades of current investment, pays for employees, and rewards you for your hard work.  Cash flow is the basis for taking action on new opportunities.  The first item any investor looks at when purchasing a hotel or business is the cash flow.  Do all you can to increase this.

4. Expand your business opportunities – Are you good at running one hotel?  How about 10?  If you can run just one location, can you train someone else to run it for you?  If so, you can increase the number of properties you have.  It doesn’t matter if you increase expenses to pay for a General Manager, since multiple locations can easily be worth much more.  In addition, if you have more than one location, you can more easily focus on increasing the value of a single location while the others help maintain your cash flow.

Another opportunity would be to invest in other projects and ventures with other private hotel owners.  Why worry about the competition when you can own a percentage of them?  It really doesn’t take much money to purchase shares of public companies, a fund, or even some privately pooled investments.  You just need to look around.  It isn’t always smart to plow the money back into the same hotel you own, especially if you are not keeping up with the times.

Reinvesting money back into your hotel is a great investment, so long as you’re keeping up with the times along the way. We understand all the aspects that make a great hotel, and can work with you to take your hotel – whether it’s one or one hundred – to the next level.

Ultimately the growth in the industry should be seen as confirmation of opportunity.  Action is all that is required.

Ecspex offers business solutions including services, planning, and strategies for success.

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