Limited services, tough challenges
With the changing hospitality benchmarks, lodging schemes are evolving and a new breed of accommodation models that are more convenient and forward-looking is developing. Ralph Nader, CEO at hospitality consultancy firm Amber Consulting, highlights the c
The rise of select and limited service hotels in a global market that is evolving faster than ever is impressive. According to STR Global, select-service rooms accounted for nearly 70 percent of new supply in the US in 2014 and 2015. Most hotel chains are developing their own affordable select-service brands and are adopting an ambitious plan to further expand this category. Vib by Best Western, Tru by Hilton and EVEN by IHG, are all new, growing brands recently launched in the segment. The Middle East is also witnessing the take-off of this trend. While the region has a long history of focusing on upscale establishments, it seems this luxury segment is coming to saturation. Travelers’ habits are changing: quick business trips, short, transit stays and tighter budgets will make for most of the demand growth in the region. For these reasons, limited and select-service hotels will undoubtedly be the investors’ and travelers’ preferred choice.
There is no standard definition of this type of hotel or ‘in-between’ establishment. Limited-service hotels usually don't have restaurant facilities, although they might include some very basic amenities, such as laundry services. Between the limited-service and the full-service hotel lies a hybrid category; the select-service hotel. These establishments offer the fundamentals of limited-service hotels, with a selection of amenities similar to full-service properties, but less extensive. For example, limited F&B offerings, such as grab and go, breakfast only, a few small meeting rooms and a small gym. Therefore, today’s market is therefore facing a revolution; a categorization shift from ‘rating scales’ including upscale and midscale, to ‘assets-scale’, such as limited, select and full.
These new accommodation models present a different set of challenges led by fewer revenue streams and brand equity. With limited F&B offerings, select-service hotels are unable to rely on a topnotch restaurant to increase revenues. This could be particularly frustrating in a market like Dubai, where hotel restaurants benefit from being the only establishments permitted to serve alcohol. Today, the UAE’S hotels heavily rely on this monopolistic advantage. Most hotels develop unique F&B concepts that contribute significantly to the facility’s revenues. They also contribute to the hotel’s brand equity, since Dubai's visitors, more than any other city in the region, will select a hotel based on their dining experience expectations.
No room for error
‘Every penny counts’, would make an accurate summary of the business model that limited and select-service hotels need to adopt. Budgets should be closely monitored and daily reports constantly
Investors should be aware of the challenges ahead and make sure they have a sound, mitigating plan in place prior to opening
shared with management. Cost increases of just a few hundred dollars could significantly impact the bottom line, especially when it comes to small hotels (i.e., those with less than 200 rooms), which make up the majority of limited and select-service hotels. Solid and, admittedly, often tedious processes need to be put in place to ensure money is not wasted and that profitability is maximized.
Minimal space, maximum value
‘Saving space will save money’ is an essential rule for these types of hotels. Finding ways to reduce the size of the rooms without significantly impacting the customer’s perception of comfort is a key challenge. For example, Hilton’s Tru brand simply replaced the built-in closets in their rooms with ‘landing zones’ for the luggage and a few wall hangers, while developing special lighting to help the rooms appear larger. Mini-bars, working desks and TV desks are among the other elements that can all be considered for revision or even removal to save space.
Pressure on human resources
Select and limited hotels cannot afford the luxury of a large team to handle daily operations. The management team therefore has to be very well-rounded, efficient and carefully selected. Just like the general manager, each assistant manager should have a comprehensive understanding of the way the hotel works and where savings matter the most. This applies to other staff as well. As labor costs need to be closely monitored, cross-functional job descriptions are common; your front office manager might also inspect your room, while the waiter should be able to oversee food preparation. This multi-faceted approach enhances the guest’s experience, since the points of contact are often the same person, and cuts down on labor costs. However, the system inevitably also puts additional pressure on staff. One solution consists of cutting staffing costs by heavily investing in technology solutions, like self-check-ins, to reduce pressure and increase efficiency.
Keeping the clientele
One of the strongest challenges the investor will face, especially in the Middle East, is ensuring their clientele know what to expect. Middle Eastern travelers are used to traditional hotels, with a plethora of valueadded services. In select and limited-service hotels, rooms have less amenities, with the absence of a mini-bar or closet. Although clients are most probably aware that they’re stepping into a hotel with fewer facilities, they might acquire a degree of frustration and an unfounded negative perception of the quality of the accommodation. A commoditization risk might well occur, where the business traveler selects his hotel solely based on the price. The key to success is for the hotel’s management to keep a customercentric culture, while ensuring the provision of some level of support in satisfying their clients’ needs. One example is being able to recommend a selection of nearby restaurants.
What to conclude
Given the impact on the Middle Eastern region of lower oil and gas prices, regional instability and changing demographics, the number of select and limited-service hotels is undoubtedly going to increase, causing fierce competition. Investors should be aware of the challenges ahead and make sure they have a sound, mitigating plan in place prior to opening. Invest in good management, develop solid procedures for optimal efficiency, adapt to the country’s culture, educate the clientele and manage the costs very carefully.
Most hotel chains are developing their own affordable select-service brands
Limited-service hotels usually don't have restaurant facilities, although they might include some very basic amenities, such as laundry services