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B&B Bull Market

October 9, 2003

by Kit Cassingham

This is just one of many articles on the economic recession. Will you recover with the economy? Do you have a business plan that will help you thrive? Have you looked ahead to see what the next business opportunity is, like the meeting business? Do you have a business plan to incorporate that aspect of the hospitality industry into your B&B? Will you use customer service to keep guests coming back, and bringing new ones in? Have you thought about the benefits of buying your B&B during an economic recession? Will the standard of living fall in a recession enough to hurt your business long term? Maybe you'll find some of your answers here.


The Receding Recession




The two topics I'm covering in this newsletter are about occupancy and room rates starting to rise, and how the recession has affected the meetings industry. Let's start with the aspect that impacts all of us regardless of additional sources of income -- the increase of room and occupancy rates.

I heard presentations by several people about our improving business climate and a projection that the rebound won't be complete until 2005. Randy Smith of Smith Travel Research shared some occupancy and room rate statistics that showed us that nationwide business is improving. Bob Benton of Robert S. Benton and Associates in Colorado says that Colorado is behind the curve on the improvement. As of August 2003 the national occupancy rate averaged 58.9% and the room rate averaged $83.13. Those averages are above last year's averages. That's an interesting contrast to the occupancy rate peak of 65.2% in 1996 and the average room rate peak in June of 1991 of $86.64.

According to STR reports the weekend occupancy rates have dropped more since 2000 than the weekday occupancy rates have. In contrast, since 2000 the average weekend room rates have risen while the average weekday rates have dropped. In spite of the terrorist attacks of 9/11, 2001 was the best year for room rates, but occupancy rates were already on their way down from the highs of 2000. Randy Smith has been saying since October 2001 that innkeepers dropping room rates were shooting themselves in their financial foot. He, and other travel experts, have remained strong in their suggestion to add value and get back to hospitality basics to keep your business strong and not to play the discount rate game. Consider how the innkeeper's bottom line would be different with the lower occupancy rates if room rates had held strong.

As an aside there was discussion of the impact of "third party intermediaries" on the average room rate. Third party intermediaries are businesses like Expedia and Travelocity that sell your unsold rooms, generally at a discount, to people looking for a last minute deal. No conclusions were reached but the topic is one to consider and pay attention to as you develop and maintain your business. Because they are selling rooms at discounted rates, the national average room rate is lower than it would have been if their rate wasn't discounted. How are you going to account for that business dynamic in your planning? Will you adopt online reservations? By online I mean a system whereby travelers can book their rooms directly online themselves, not by sending an email or calling the innkeeper. Will you add value to the guest experience and not drop the rate? Getting the business third party intermediaries book is desirable -- we just need to figure out how to keep it from crumbling our bottom lines.

Across the board, demand for lodging properties hasn't been rising as fast as supply, though forecasts show that's changing and by 2005 demand should again be ahead of supply.

Let's look at business, from Upper Upscale to Economy B&B inns. Upper Upscale properties have a drop in occupancy and room rate, but not as bad a drop as the drop for Economy properties. Upscale and Midscale (without food and beverage) properties are seeing both occupancy and room rates improving over last year.

To summarize STR's analysis:

  • the demand for rooms is recovering while the supply of new rooms is slowing * occupancy rates are rising, which is putting pressure on room rates to increase as well * the economy is rebounding, though business travel is still an unknown
  • Upscale and Midscale non-food and beverage properties are recovering faster than Economy and Upper Upscale properties, with the Economy properties suffering the most

Regarding the meetings industry, the issues are parallel to the lodging industry. Here are some general points I learned. It's a buyer's market; get back to basics with your customer service, listen to feedback, reinvest in the facility, and use hospitality consultants; focus on technology -- embrace it and learn to leverage it to your bottom line; and consider holding private exhibitions for a group of 20-30 people in a highly specialized group like dermatological nurses or ER cardiologists. To be successful with your meeting business you need to respond to the shifts in this aspect of the industry by identifying and targeting new markets. Consider businesses that you haven't previously considered and then focus on that market, budget more money for the purpose of attracting rooms -- though possibly fewer than you used to attract, and renovate your meeting space, services and amenities to attract business. Below are the highlight points.

The key issues impacting meeting planners include:

  • a shorter lead time for bookings
  • an increased utilization of meeting planning services
  • working with stricter spending guidelines
  • an increased utilization of the Internet and need for the technology

The key issues impacting the lodging industry include:

  • the change in cancellation and attrition clauses has caused lodging properties to assume an increased risk
  • a smaller booking window
  • an increased utilization of the Internet and need for that technology
  • increased price sensitivity by guests

To deal with price sensitivity:

  • be flexible in your pricing
  • increase user incentives
  • add value
  • increase service
  • focus on differentiation through product and service
  • offer a discount to groups willing to book more than once conference, like in following years

My reaction to everything I heard was that customer service needs to be brought back to the lodging industry, pricing needs to be in line with what is being offered -- not in line with what other properties are asking, and that technology is coming and to be competitive it needs to be incorporated into your property. People are starting to travel again but will be selective about where they stay, so give them a reason to stay with you. Have an active marketing campaign and enjoy the ride to success.




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