How upscale hotels can optimize RevPAR performance was the focus of Hotel Management’s recent Executive Roundtable sponsored by Choice Hotels. The event, held during the NYU IHIIC in New York City earlier this year, brought together real estate, investment, development, architectural and brand executives who shared how they are navigating a dynamic environment characterized by shifting consumer preferences and increasing competition. The conversation explored key issues such as premium guest experiences, market dynamics, and how design and programming can support RevPAR maximization.
Unique. Distinctive. Elevated. Authentic. Local. These are just a few of the words executives used during the discussion to describe the kind of experience today's guests seek when staying at a hotel. Upscale hotels’ value proposition of luxury, comfort and personalized service has long been a winning formula, but in this highly competitive market, optimizing revenue per available room is critical, and a premium guest experience is expected.
“Now more than ever, we're seeing what's driving booking decisions is the desire to have a unique local experience,” said Mark Shalala, Choice Hotels’ senior vice president development – upscale brands. “From the very beginning with our upscale brands—not just our soft brand collection, but Cambria—we've allowed quite a bit of flexibility in the design of the hotel. We've always had key brand hallmarks that we'd ask developers to implement to identify the building as a Cambria so guests can recognize it from location to location, but really give them the license to interpret those hallmarks through design, through food and beverage within the hotel to pull what is cool and relevant and unique about that market through their hotel, to deliver that experience. What we're finding is, guests will pay a premium for these experiences.”
Marissa Ballan, Choice Hotels’ head of development – Radisson Blu, said that Radisson Blu hotels lean into their Scandinavian design heritage, which puts authenticity at the forefront for the brand through “modern, sophisticated offerings” and creating an “elevated” experience that still creates a sense of belonging.
“In general, I think we can say that guests are willing to pay more for brands that they believe are distinctive, and that align with their values and their preferences,” she said. She mentioned the brand’s signature “get ready moment”— a beautiful wardrobe and a dry vanity with amazing lighting and a “really luscious” bathroom. “What that does is create a sense of luxury and indulgence without a really high price tag for owners, but it creates this value and luxurious experience for the guests that we think they're going to be willing to pay more for.”
Room to Grow
Justifying a premium price point is one area where upscale hotels excel. Given the multitude of non-room revenue opportunities they offer, alongside operational efficiencies, even a challenging market provides opportunities for upscale hotels to highlight what sets them apart.
“RevPAR growth is decelerating, so we have a pullback and room for growth...,” stated Evan Weiss, co-founder and COO, LW Hospitality Advisors. "National RevPAR growth of 1.8 percent is a significant pullback from prior quarters. We're seeing also that margins are going to start to get continued continuously compressed. Costs are going up. If anything, labor's only going one direction—it's going up pretty quickly. Where can you make money on a hotel? If you can create an experience… whether it's through a spa, whether through F&B, whether it's through a better product that makes you feel differently, I believe that's where you can push that rate above that rate ceiling, because everything in the middle is kind of in trouble the next couple of years given the rate compression and the margin increase, given the expense increase.”
[HM note: In August, CBRE reduced its forecast for U.S. hotel performance, projecting a 1.2 percent increase in RevPAR growth for 2024, down from the 2.0 percent estimated in May 2024 as lodging demand softens due to weaker-than-expected leisure travel and slowing corporate profit growth.]
Jordan Warshaw, president of The Noannet Group, a Boston-based real estate development and investment firm, recently worked with Choice to bring the upscale select-service Cambria to Boston, agreeing that the flexibility and uniqueness of the brand was critical.
"We said if we come in with a brand that nobody's ever heard of in a market that has... dozens or hundreds of upscale [and] midscale hotels, nobody's ever going to stay there. We need the flexibility to do something different. And to do something that when people come in, it will stand out and it will not feel like all the other brands that are in that space in our market, which is Boston,” Warshaw said. “I think a smart thing that this brand has done is they've got their brand standard book. They're building a brand... that does not have an upscale following yet. How are they going to get people to stay there? How are they going to get… the number of loyalty members that are at this level that Marriott and Hilton has? How's it going to work? And the answer is to build a better hotel."
Building a “better hotel,” for Ballan, means alleviating points of friction for the guests. Seamless, indulgent experiences, no matter how small, create what she calls “brand stickiness.” Having served in the micro hotel space in a previous role, which she said was all about efficiency, she now walks into a hotel room and sees moments that could be higher value."Why is there a giant coffee bar with a Keurig? Who cares?" Ballan asked. "You can take that exact same space and spend the exact same amount of money and make it something special. Why are we not doing that? Why are we not looking at all of our spaces and saying, ‘how do we elevate [them] and eliminate some of this noise?’"
Neill Parker, principal with Stonehill Taylor, hospitality-focused architecture and interior design firm based in New York City, noted that where his firm looks for opportunities to “eliminate noise” are the places where other people see challenges. He cited examples of using unnecessary loading dock space at one property and turning it into a spectacular vestibule, and at one microtel brand, the entrance was turned into a flower shop—fitting, as it was located in NYC’s Flower District.
Punching Up in the Upscale Space
What it comes down to, Shalala noted, is chasing whitespace for growth. “We now have this fleet of brands going upscale and [yes], there are challenges swimming upstream; [but] we're going to enjoy [watching] some of our competitors deal with the challenges coming downstream into the economy segment. We like our strategy because even though there might be a little bit of an uphill battle as we grow into it, those are far more revenue-intense dots on the map than the midscale.”
Location, as always, is key for the upscale brands. For Choice’s part, Shalala said that to compensate for the early ramp of the brand, they want to be in the premier location— the high barrier-to-entry, higher up markets. He added that Choice has “leaned in heavy with the balance sheet” to help those projects to get going. Scale-wise, he said, Cambria is doing well. “We now have 76 open, another 20 under construction on a pipeline of 65 or so signed projects (as of May 2024). Most of those are at 100 percent plans, literally waiting for the debt market,” he said.
Scott Silver, CEO of Hospitality Funding, Inc., said that Choice’s incentives have gone a long way, especially on the Cambria side—favorably from a bank's perspective as well in terms of bringing in debt, which continues to be challenging. “We’ve refinanced nine Cambrias now, so we're very familiar with that space," Silver said. "We've done this nationwide; at first when I was first introduced to this [Cambria brand], it was very challenging; … those first few were really tough, but now we're to the point that everybody understands the product and there are a bunch of fantastic examples out there that we can point to. So it's made financing easier at this point, although still, we are in a challenging environment, but we're getting things done.”
Less Transaction, More Engagement
For Dan Thorman, senior vice president of development at Aimbridge Hospitality, collaboration is key. “We spend a lot of time talking to our owners, brand owners and asset managers [to determine] how we can create unique and interesting experiences in a way that doesn't drive huge staffing costs, that doesn't drive huge supply costs,” Thorman said. “So it's a lot about creating little moments... making it less of a transactional experience and much more of an engaging experience. We often spend a lot more time on being more collaborative on these things and not so prescriptive.” However, he noted, if you don't have ‘wow’ moments, including physical product and moments of service, “you will not get that guest in the door the first time no matter what the name on the side of the hotel is.”
According to Weiss, lowering room rates doesn't necessarily spur demand. Hoteliers making that realization has been a “real boon” to their bottom line. “They're saying ‘hey, let's not give back or at least that quickly; let's take the hidden occupancy and see how bad it is.’ Once you get that ADR, it takes so long to get back.”
Thorman agreed, saying that there are some markets where Aimbridge is starting to see that as a profitable strategy. He gave an example of a hotel Aimbridge took on management of in Nashville where they made the choice to lower rates a bit—not far enough to change the material guest—yet it has had a “meaningful” RevPar impact.
The digital key creates a digital divide among hotel guests, it would seem, as participants discussed the pros and cons of the technology. Silver shared an example of a 20-minute wait time to check in at a hotel in Las Vegas, saying that he understands personal service, but also appreciates a good check-in experience.
Weiss agreed, saying that anything “upskilled” or evolved” should be up to the guest. “I think in the next five years, you cannot have four, three, or even two people at the front desk—even at a Comfort Suites or a Holiday Inn Express or a Fairfield. You’re going to have to have one person, three electronic kiosks, and that kiosk needs to be tight. That technology needs to be tight.”
“It needs to be foolproof,” Shalala said emphatically. “Choice has always been the leader on the technology side. So whenever you're launching technology like that, and you want to be cutting-edge, you have to be mindful that there's this arc of adaptation to new technology… It's a broad spectrum. When you try to push digital key, it can backfire. You’ve just got to be careful how much you're spending or asking your franchisees to spend on those technologies, really understanding if you're going see that cost savings and efficiency.”
Warshaw brought up an additional factor to consider as hoteliers try to boost RevPar: guest acquisition cost. Warshaw said his management team says the best way to improve bottom line is repeat guests. If the guests come in and get the experience that makes them a two-time guest, odds are, the second time they come in, they're not coming in off that OTA and they're going to book direct,” he said. “Something that our team has taken on as a strategy is to work hard to make every guest a repeat guest—to make sure that they know about booking through the website as opposed to going through Expedia next time they come in. I don't know if that's technically programming or guest experience, but that we feel is probably the most valuable thing that we can do to try and reduce reservation cost down the road.”
This article was originally published in the September edition of Hotel Management magazine. Subscribe here.