Improving hotel occupancy and profitability through strategic branding and diversification

Hotel Rest

Hotel and Restaurant Management: Turning Low-Occupancy into Profitability through Branding and Management

The hospitality industry is far from the lucrative cash cow that many individuals not involved in the business assume it to be, and many businesses struggle to break even, let alone turn a profit. Diversifying revenue streams is one way that certain companies can become profitable, offering value-added products and services to the basic hospitality offerings that from the core of operations in order to make the venture as a whole more profitable (or simply profitable at all). In order for this to work, however, the right market must exist and it must usually be met in a fairly unique manner in order to differentiate from competition. The task for hospitality businesses, in other words, is neither simple nor secure.

This case deals with a hotel and restaurant establishment that is currently struggling with an unprofitable annualized occupancy rate of fifty-five percent, meaning that on an average night only eighty-three of the hotel's one-hundred and fifty rooms are occupied. The location of the hotel and restaurant right off an interstate highway with easy on and off access directly to the hotel, there is substantial competitive advantage and opportunity for both businesses to succeed, however this success has not been capitalized on. A brief analysis of the market segments that should be catered to and the best method for approaching the business is provided below. Branding and management strategies and options for both the hotel business and the restaurant are also discussed, and recommendations are made.

Environmental Analysis and General Recommendations

The biggest strength that the hotel and restaurant businesses can boast of is its location right off an interstate highway, and with easy on and off access that makes convenience a major factor. At the same time, the means the hotel will likely not be a draw for tourists or those on extended stays that are seeking more immediate sight-seeing and other activities; it is not even clear that the hotel is located in an urban or suburban area that would have any particular reason fro drawing visitors. The market segment that the hotel and the restaurant should focus on are travelers -- people who are on the Interstate either for business or vacation travel and need somewhere to stop over or to have a meal. This means providing quality services to maintain reputation is essential, but adding high-cost "destination"-type amenities and luxuries is unlikely to be cost-effective. Instead, emphasis on the convenience factor of core services and value-added services should be the overriding objective. Food service, both through the restaurant and through the provision of many (primarily non-perishable) snack items, along with other similar convenience amenities can help turn relatively low occupancy into something more profitable.

Separating the restaurant brand is essential. Travelers are much more likely to stop at a recognizable restaurant entity for a meal than they are to pull into a hotel simply to eat. Yhe restaurant should be perceived as a separate entity to travelers such that eating is not associated with staying, yet staying at the hotel will make eating at the restaurant very convenient.

Hotel Branding and Management

As the business as a whole and the hotel specifically will emphasize reliable quality and convenience in its offerings in order to most effectively capitalize on the available market segment, a well-known and trusted hotel brand with reliable and consistent management practices should be employed. There needs to be a level of budget-consciousness employed, but at the same time the ability to capitalize on the offering of certain specifically identified high-volume and low-cost amenities needs to be present. Two brands were selected for more specific examination as potential branding and management companies for the hotel at this property: Holiday Inn (one of the InterContinental Hotel Group brands) and Ramada (a part of the Wyndham family of hotel brands).

A review of the InterContinental Hotel Group's corporate website shows a strong commitment to described values of customer service and efficiency, and concrete plans and processes for achieving this at all levels of the organization (IHG, 2012). This emphasis on customer service would greatly assist the reputation of the property, and the consistency that the organization ahs been able to achieve across its brands is also indicative of strong control and managerial aptitude for its hotels (IHG, 2012). Both of these elements work strongly in Holiday Inn's favor as a considered branding and management partner for the hotel businesses at this location. The price of Holiday Inn compared to that of a typical Ramada franchise, however, is a matter of some concern (IHG, 2012; Wyndham, 2012).

Lower costs translate to cheaper consumer prices -- a key factor in customer acquisition for this location -- and potentially higher revenue, and Ramada definitely offers this when compared to Holiday Inn (IHG, 2012; Wyndham, 2012). At the same time, Ramada's reputation for quality is not necessarily as high as Holiday Inn's, and there is evidence that the management structure at Wyndham's is purposefully looser and less controlled than at InterContinental Hotel Group or Holiday Inn (IHG, 2012; Wyndham, 2012). This causes some concern, as one of the major owner needs is reliable branding and management that will not need continual oversight or adjustment. The slightly higher pricing of a Holiday Inn is not likely to cause a significant decrease in occupancy, and the increased revenue from the amenities and control Holiday Inn will be able to offer makes t the better choice.

Summary and Conclusion

According to the examinations, considerations, and conclusions drawn above, a basic plan for the restructuring and return to profitability for the hotel and restaurant property under discussion emerges. In order to capitalize fully on the market segment of travelers in search of convenience rather than a particular destination or certain luxuries, affordability and a consistent level of basic quality should be emphasized in both ventures. In addition, the separation of the hotel and restaurant branding is desirable in order to promote the greatest revenue from both ventures. In keeping with the convenience and quality aspects of both business ventures, and the need for consistency and careful management control without extensive owner oversight, Holiday Inn has been selected for the hotel brand and management company, and Chili's has been selected as the brand and operator of the restaurant. This combination should provide the revenue and profitability that the owners are seeking without engaging in necessarily expensive attempts to increase occupancy rates.

Profitability in the hospitality industry can be more difficult to come by than might be imagined, but it is not entirely elusive. With proper planning and control measures put in place and an effective diversification of revenue streams, the particular business under consideration in this scenario can definitely be made into a profitable enterprise for its owners. Continuing reviews of performance will of course be necessary to ensure continued profitability, but in general the business should run itself.