Good Hotel: Doing Good, Doing Well?

Lawrence Campbell

12/2/12

Case 25

Good Hotel: Doing Good, Doing Well?

Background Information

Joie de Vivre (JdV) is a San Francisco based hotel management company with 16 properties in the city. It was founded in 1987 by Chip Conley. He knows that his company comes up with unique hotels, with own personality. It has managed to grow to 36 boutique hotel properties. It became the second largest in 2010. JdV had combined two of their properties, Best Western Hotel Britton and Best Western Flamingo. Pam Janusz is the general manager for Good hotels. She received a message inquiring that rumors were true that the owner of Good Hotel and the two other properties that Janusz managed since November 2009.

Best Western Americania and Best Western Carriage Inn, had foreclosed on their holdings and sold the three properties, all of which were in JdV’s South of Market Street (SoMa) group to a new ownership group. She will be helping with the transition from one ownership to another, by evaluate Good Hotel performance along with helping staff to adjust. When it opened in November 2008 with 117 rooms, it opened as Good Hotel. Good Hotel is known as “hotel with a conscience”.

It has a positive approach, eco-friendly hotel, and it known its recycled materials. This hotel believes in doing good things for the environment. The new group planned to run the three hotels themselves and they would end the management with JdV if no problems arose with the sale at the end of May 2010.

The lodging industry was dominated by twelve leading hotel chains in the United States in 2009. Out of these twelve leading hotel chains, each one of them has features that accommodate to one consumer but not to another. One of the bigger hotels may have more properties with so many rooms with very little to offer but low revenue, but another hotel with less properties with almost the same amount of rooms, more to offer and have higher revenue.

In 2009, the lodging industry was suffering from chronic overcapacity. The prolonged industry downturn was expected to drop occupancy levels by 55 to 56 percent, representing the worst rate since the Great Depression, according to Standard & poor’s. Hotel occupancy had declined by 8.8 percent in 2009, and was forecast to drop by a further 0.2 percent in 2010.

Strategy

They were geographically focused and product line diverse. Chip Conley had a vision on how to run his hotels. He says he went into hospitality because he enjoyed commercial real estate but hated the transactional part. “If you get it right and your customer sees the product as an extension of themselves, you’ve refreshed the identity of the customers because they feel that by using the product they’re becoming more of that aspirational self.”

In 2007 he stated how they feel they are viewed with their branding strategy. “We went through a whole branding process, and what we heard from our customers was that they loved the fact that we create original hotels. We come up with a personality for the hotel by thinking of magazines. It is sort of like a good touchstone for personality.” He continues on to say, “You can be geographically diverse, but that means you have to be product-line focused. Or you can be geographically focused and the product line diverse. Holiday Inn is geographically diverse and product-line focused. We are the opposite of Holiday Inn.”

JdV spent very little on marketing, preferring to rely mostly on word of mouth and social media promotion on Internet to attract guests to its hotels. Unique monthly visitors to social travel websites such as TripAdvisor.com and Yelp.com rose by 30 percent between the first half of 2008. In the last half of 2009, it rose to 15.9 million showing year-over-year growth of more than 30 percent in the first half of 2009 and 45 percent in the second half of 2009.

5 Forces model

Bargaining power of Suppliers: The two key suppliers to Joie de Vivre would be labor and real estate. These suppliers are defined as property owners, developers and real estate companies, interior design and furnishing companies, architects, marketing companies and industry consultants. There are a significant number of real estate companies for a given locality so they have a moderate amount of power. They can make a lot of substitutes for real estate agents, and designers. Hotels have higher bargaining power and can easily switch between suppliers.

Bargaining Power of Buyers: The buyers are the end-users. They fall along the lines of the lines of leisure travelers, business travelers or customers who require space for conferences or other events. Buyers are numerous and small in size and losing one customer is not going to make a difference. Their bargaining power is low. There are multiple substitutes for given hotel or brand availability. Buyers are price sensitive except for when it comes to the premium segments so the switching cost is low.

Barriers to Entry: There are high economies of scale, it is very important for JdV to operate a chain of hotels in multiple locations, especially for premium segments. Hotels should be highly differentiated for customers to notice a specific hotel. The brand name and value are very important in attracting and retaining customers. There is a high exit barrier have specialized assets for the industry.

Threat of Substitutes: There are close substitutes such as informal accommodations with friends and family. Alternative forms of leisure accommodation such as camping and RVs. There are also corporate guesthouses for business travelers that take away from the hotel industry. The switching cost for substitutes is negligible for informal accommodations. Substitute price value are very high for informal accommodations but can be moderate for other leisure accommodations. Large hotel chains have greater bargaining power for profitability over substitutes.

Rivals among Existing Competitors: Among competitors in the hotel industry, there are a small number of large operators, the industry overall growth rate annually is 13% and it is a mature industry. It has a low switching cost to similar brands, and overall the tourism industry is seeing strong growth.

Driving Forces

·  The growing interest in and investments made to support sustainability in the hospitality industry had, by late 2009 moved beyond hotel recycling programs and energy-efficient lighting.

·  The long economic recession in 2008 and 2009

·  The normally soft travel bookings during the winter months

Key Success Factors

The greening of the hotel industry is a large key success factor for Joie de Vivre. In Hotels magazine there was an article in 2009 that stated, hotels seeking new customers and growth in difficult economic times could benefit over the long term with investments in sustainability initiatives including retrofitting existing properties to achieve Leadership in Energy and Environmental Design (LEED) certification and building new properties to LEED standards. A travel Industry study reported that nearly half of U.S leisure travelers expressed a willingness to pay higher rates for services provided by environmentally friendly travel providers.

There was now a growing demand for green lodging the emerging demographic segment was identified as “Cultural Creative’s”. They were savvy, sophisticated, ecologically and economically aware customers who believed that society had reached a watershed moment in history. They were also known as “Lifestyles of Health and Sustainability” (LOHAS).

This segment was estimated by the Natural Marketing Institute to consist of about 38 million people or 17 percent of the U.S. adult population, with spending power of $209 billion annually. On estimate, 15.4 million visitors visited the city and county of San Francisco in 2009, more than 4.5 million stayed overnight at commercial accommodations, making 32,976 hotel room and 215 hotels. Visitors paid 14 percent occupancy tax, which generated about $210 million for San Francisco city and county services.

Comparative Demographics; All Consumers versus “Green” Consumers

Exhibit 3

All Consumer / “Green” Consumers
Average age / 44 / 40
Gender / 51% / 54%
Female
Male / 49% / 46%
Ethnicity / 75% / 62%
Caucasian/other
Hispanic / 13% / 21%
African American / 11% / 16%
College educated / 25% / 31%
Median household income / $58,700 / $65,700

SWOT Analysis

Strengths: When Joie de Vivre was founded in 1987 it had grown to manage 36 boutique hotel properties in California. By 2010, JdV was the second-largest U.S. boutique hotel operator. The boutique hotels differentiated themselves from branded chain hotels and motels by providing personalized accommodation and services and facilities. They are also known as “design hotels” or “lifestyle hotels”. They differentiated by creating their own theme, style, and aspiration through their newly applied furnished looks, also their environmental friendly appeal.

Weakness: An industry that relies on the needs of unpredictable travelers. They are forced to maneuver the way the economy sees fit. If the economy is doing bad people are less likely to spend money, go on trips, therefore the JdV doesn’t make a lot of money. The economy is doing well, people spend more money, go on more trips and JdV has access to a larger audience.

Opportunities: The greening of the hotel industry with 38 million people in the LOHAS segment. That is 17 percent of the U.S. adult population, with spending power of $209 billion annually. JdV need to advertise and make the need for cleaner hotels more known so that they can accommodate a lot more of those customers in this segment.

Threats: Business travel being a big factor in the industry. Joie de Vivre and the rest of the industry will get affected by the slowdown in travel during dry spots in the year. Recessions also hurt JdV because people are less likely to travel and want to spend money. The hotel industry gets most of their revenue through travelers and vacationers. The weather dictates what your customers are going to do, also airlines handling potential customers, flight cancellations or redirections.

Analysis of Financials

In March 2009, Good Hotel numbers started increasing looking better than Peer Group. In occupancy percentages, Good Hotel current month was 70.3% to Peer Group’s 59.3%. Year-to-date 55.3% to Peer group’s 53.4% and in running 3 month Good hotel had 55.3% to Peer Group’s 53.4%. March 31, 2010 Good Hotel’s numbers were overall better than Peer Groups’. Running 12 months, the occupancy percent was Peer Group 61.8% to Good Hotel’s 76.7%, ADR Peer Group had a better $80.27 to Good Hotel’s $78.55, and in RevPAR Good Hotel’s $60.21 vs. Peer Groups $49.63.

Monthly Operating Statistics: Good Hotel, Jan- Mar. 2010

2010
Jan / Feb / Mar
Number of rooms / 117 / 117 / 117
Occupancy (%) / 56.96 / 49.54 / 66.17
RevPAR ($) / 40.31 / 35.39 / 48.50
Total revenue / $4,716 / $4,141 / $5,675

Managerial Worry list

Managers would have to worry about trying to fill 117 rooms year round. Many of the rooms will be empty unless there are last-minute or walk-in bookings showed up. Other factors being long economic recessions where people aren’t traveling or spending money, normally soft travel bookings during the winter months, and canceled bookings from customers which will be a lost in revenue if not communicated quickly so the rooms can be opened back up to walk in customers. Also need to focus on targeting their emerging demographic segments such as LOHAS. If that market remains completely satisfied in their services they are likely to remain successful.

Recommendations

In the marketing efforts for Joie de Vivre I would recommend that instead of just relying on word of mouth and social media promotions, they should venture off into TV and commercial advertisements. A business can have the most elegant infrastructure, the most extravagant facilities, and the finest food in the world but if no one knows about it then it is but so much success that business can acquire. They should advocate the need or benefit that customers can obtain staying at a boutique hotel and gaining that experience. TV and newspaper ads saying “The vacation starts here” letting consumers think staying at the hotel within itself is a vacation.

They should aggressively voice more about the green hotel movement. Position their self to be a cleaner hotel then any other, the louder you voice your benefits the more consumers may think you’re the only hotel making efforts to continually improve your cleanliness. They should also start to think about a worldwide expansion. The next five years they should start to expand more around the nation, and put a lot of their hotels more overseas where they feel boutique hotels will be appreciated.