Since 2010, the hotel landscape has changed drastically due to the emergence of Millennials in the marketplace.
The days of long-term consistency, home-away-from-home value, and a friendly face at check-in are things of the past, and we are now seeing the need for hotels that are personalized, efficient, connected, and trendy. The transformation makes hotels get creative in filling revenue discrepancies created by the quickly changing landscape, focusing more than ever on operational costs.
The Change in Buying Power
Prior to 2010, the “Baby-Boomers” generation dominated occupancy demands. When Boomers were the bulk of the lodging customer base, the focus was on consistency; more value for the customer’s dollar;, a big-screen TV; consistent food and beverage offerings; and a friendly, personalized check-in experience.
Today, Millennials are all about Individualism; efficiency; mobile connectivity; creative and trendy food and beverage offerings; and online check-in. Due to this demand shift, along with the cost to build and the ever-changing consumer marketplace, developers are becoming more focused on the development of limited brand hotels. As of June 2017, “Upscale” and “Upper Mid-Scale” represent roughly 65% of all new build hotels.
In response to the change in customer wants and needs, hotels have majorly changed their strategy. Hilton developed the Tru® brand in response to these changes to make it easier and less expensive for developers to build. Marriott is doing an overhaul of its Courtyard® brand to create a hybrid solution to please guests from both generations.
Previously, if you’d go to a major brand hotel on the east coast or the west coast, you could get the same exact cheeseburger. Those days are over! Hotels must now bring in local food and beverage options to not only keep customers eating at the hotels but to provide a truly exceptional experience every time. A satisfied customer is no longer enough in any market today. With social media and other technologies, there’s now a need to “wow” customers. A good dining experience isn’t enough; it needs to be one of the best dining experiences they’ve ever had!
What Does This Mean for Revenue?
In a recent article published by Lodging Magazine, food and beverage (F&B) profit margins are up roughly 5% since 2010, yet food purchases only rose by a CAGR of 2.3%. The two sources that continue to decline for F&B are “In-Room Dining” and “Mini-Bar” sales, which is consistent with the new emphasis of providing a unique social experience in hotel lobbies. Considering the decline in food purchases and the ever-changing marketplace, it is hard to imagine lodging has seen a 5% increase in F&B profit margins.
So how do all these items tie together and make for increased profit margins? How have the hotel management companies been able to make all these changes in a short amount of time and still increase profits? How can profit margins be up when we all know an ever-changing menu would make it harder to negotiate prices at a high-volume? It’s not one simple answer, but Melink has personally seen the major management companies stepping up their game and working smarter. Revenue increases can’t be the main driver for the success. The operational efficiencies are where the differences are made!
Changing Energy Consumption Is Key
Electrical consumption for the typical U.S. hotel is 50% in HVAC and 23% in lighting. Within food service facilities, HVAC systems account for 29% of energy consumption. Up to 75% of this load can be attributed to the commercial kitchen ventilation system. At Melink, we’ve seen many owners in the last two to three years begin installing a Demand Control Kitchen Ventilation (DCKV) system in their kitchens to help lower operational costs and solve the ever-plaguing negative air pressure issues.
With the help of these owners and major brands, we’ve also developed technologies to help solve this in the ever-growing Select Service markets. Many of these projects have been packaged with LED lighting to solve 73% of the problem (per the chart below). This allows the hotel owner to take advantage of the available utility incentives, increase profit margins in the changing F&B market, show an attractive ROI to the owner, help solve air pressure issues in common spaces, and increase overall guest comfort.
If there’s one thing that’s true in the lodging industry, it’s that change is inevitable! Management companies, owners, brands, developers, and vendors have two options: change with the market or get left behind. Melink is happy to report that most of the major players are making smart and energy conscious decisions that are ultimately improving their bottom line, while increasing guest loyalty and satisfaction.