Thomas Magnuson CEO – Magnuson Hotels
11 June 2021
This year we will all welcome the return of travel after a long 2020. Will the new business sustain, or will it be a sugar high followed by another crash?
Going forward with your hotel, do you want to be in the passenger seat and wait seven years to recover after each downturn? Or will you enact game changing business transformation that is long term sustainable?
In the UK, hoteliers could always count on a high occupancy and average room rate, because new construction was very limited due to permitting regulations and extreme population density. As per the local wisdom, ‘All the good locations were taken centuries ago.’
Today, families from generations of hotel ownership are seeing a once stable national industry upended by the march of megabrands like Premier Inn and Travelodge, popping up on every corner like Starbucks.
In 2010, 80% of UK hotels were family run independent hotels. While total UK hotel stock grew 12.5% in the past 10 years, the branded economy hotel segment grew by 86%. Of this growth, Travelodge and Premier Inn saw an 80% increase.
Over the last three years, Airbnb has entered the UK supply landscape of 45,000 hotels with more than 225,000 listings.
In the USA, we think of 2019 as the good old days, but 2019 was the slowest RevPAR (hotel revenue per available room) growth in the hotel industry since 2010. Because of slowing demand and increasing supply, the only factor driving growth in 2019 was room rates rising above the inflation rate.
One could reason that 2019 may be the peak in the USA for a few years, because underneath the averages are all the signs of a maturing and commoditising market, especially room supply growing faster than demand. Even if new hotel construction slows after 2020/21, once-powerful business segments such as corporate and group travel, international inbound will change. USA leisure looks to become more domestic and road trip, less city centres, major destinations.
When markets commoditise, the usual way forward is to become a low- cost high-volume producer who takes market price, as in soybeans, wheat or pork bellies. Maybe you’ll have one gangbuster year every 7-10 years, but don’t do this, because I lived this life in the silver mining business back when I was a kid. There can be a long spell of hope and despair between 10-15 year boom markets.
This time, try a different recovery path with these basic steps.
The harder part comes from becoming comfortable with uncertainty. If we can control the basics of our business as stated above, then we can ride the world’s changes easily by staying above the trends with small adaptations-but always under our own clear direction.
Take a step back and take a deep breath.
Identify what has changed, and why?
To look long term, ask ourselves ‘what is really going on, what has fundamentally changed and why?’ What has changed in the past 10 years about customers and where they come from? How do they buy what is important to them?
In the 1990s, Melissa and I ran hotels in a small town almost 100% dependent upon highway traffic. When the US Government built a highway bypass around the town, the lifeline went away and it was time for fundamental change in direction. We had to identify whole new core business segments, but the outcome was long term sustainability.
For most hotels post 2020, entire business segmentations will need to be rebuilt. If you are located next to a convention centre, sports arena or concert hall you will need to identify new sources of business. If you are located near a theme park or ski resort, you will need to identify non-leisure segments.
The answer can often come from looking more closely at your local and regional market drivers. Every market is near a hospital, government centre, or is located on the highway midpoint between 2 destinations. Our hotels on the highway in Wallace, Idaho were “in the middle of nowhere”, but we positioned them and the town as the centre of the world’s largest snowmobile trail system. For the highway traveller market, we positioned the hotels as a convenient overnight rest stop midway between Spokane Washington and Missoula Montana, on the way to Glacier National Park. In one year we went from 6 overnight tour buses to over 100, and each tour bus spent about $10,000 in town.
When I was 16, I was a bell boy for Bob Templin. Bob built a new convention centre on an abandoned log mill site on the banks of the Spokane River in Post Falls, Idaho, a small suburb with virtually no commercial sector. To fill up his hotel with corporate groups, Bob created brochures with a map showing his new hotel as the hub of a region with 350,000 people and 1000 companies within a 50 mile radius. By redefining the perception of his location, his hotel with 170 rooms and 6000 SF conference space was filled for years.
Look for local sources of non leisure business. In every town there are countless companies such as insurance agencies, hospitals, funeral homes, who are looking for a friendly hotel to refer clients toward. Go online and research construction projects within a 50 mile radius, call the contractor and offer special rates.
Always think long term.
What kind of new market base can you build that can last for 100 years? Can you be the first to claim some new segments?
Look for orphan markets.
Orphan markets are segments that are not highly visible, but run very deep. They are not sexy and chased by advertising dollars like the luxury market segments. When Melissa and I first marketed to snowmobilers, ATV riders and dirt bikes in Wallace Idaho, we welcomed them with open arms. As they were overlooked by the market, this first time mover advantage developed significant loyalty.
For hotels, the definition of service will change from being nice and attentive to offering pristine cleanliness, with limited contact. As contactless check in emerges in importance, you don’t have to go to the expense of changing all your key lock systems. You can install a lock box for check in envelopes and keys such as condos do.
Offer pre-packaged ‘grab and go’ breakfasts. All you need to do is offer a small bag filled with apple, yogurt, a packaged quality muffin or croissant and bottled water. You control your costs, issues of hygiene and the guests receive breakfast on their new terms. You can spend $2.50 per guest and achieve 15-20% higher room rates this way, as well as set yourself apart from your competitors.
A constant fuel of positive influences.
To emerge from 2020, you’ve got have a constant fuel of positive influences. When I was a kid, I was a ski racer for many years, and 2 of my sports heroes were Steve and Phil Mahre, twin brothers who placed 1 and 2 in the Sarajevo Winter Olympics in 1984. Phil Mahre went on to become widely regarded as the greatest American skier of all time, with a total of 27 World Cup race wins.
Phil told me that at a certain point, winning and losing is all about mindset and attitude. He said if you took the top 30 ski racers on any Olympic competition, chances are they are all equally strong, fit, trained, and with the best equipment. Winning first place comes down to how person feels the moment they step up to the starting gate. Are they nervous, are they distracted by a recent conversation. Are they thinking about lunch? You have to be prepared to be in the zone, be comfortable, and say to yourself “I’ve been here before and I can do this.”
Lastly, we’ve got to have a competitive mindset, with the willingness to be relentlessly disciplined to do as the Hunt brothers say. Willing to pay the price to make your dreams happen and to actually pay that price.
I have a friend, Sam Schmidt from Las Vegas. Sam is a former Indy Racing League driver who became a quadriplegic after a racing accident. Sam said nothing would stop him from driving again, and from walking his daughter down the aisle when she married. After several years of struggle, Sam’s driving again, and just started walking with the help of an exoskeleton, today Sam owns an IndyCar team and is founder of a foundation to help others.
Sam says no situation is permanent, and that we’ve got to have the competitive mindset. We need to always position ourselves as the challenger for wins at every track just like Sam, and just the Mahre brothers at the starting gate.
If you want your hotel or business to emerge from 2020 with transformational success, you can. The business part is easy, but the hard part is committing to long term transformation by competing to win every single day forever.
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