Finding the ROI for wellness in hotels
 
Finding the ROI for wellness in hotels
03 AUGUST 2018 7:37 AM

Guests are clearly interested in more robust wellness offerings at hotels, but the decision to make those sorts of investments comes down to what the ultimate payoff might be.

NEW YORK—Traveler interest in wellness seems to be at an all-time high, but hoteliers need to put in the work to find out exactly what that will translate to in terms of dollars and cents at their properties.

Experts speaking at Hotel News Now’s Wellness Roundtable shared their outlook on how they gauge financial success in relation to wellness investments and initiatives.

Kevin Lorenz, president of Allied/CMS Construction Management Services, said there is enough history with wellness-oriented hotels that owners can now look at determining if that’s the type of investment they want to make.

“You’ve got five or six years of demonstrated returns for the (return on investment),” he said, referring to InterContinental Hotels Group’s Even brand. “And you can go to a prospective developer or investor who may have previously thought that wellness equaled fitness and say, ‘No, it’s broader than that. Here’s the numbers.’”

Ben Brunt, principal and EVP of acquisitions and development for Noble Investment Group, said having a strong wellness component can help set properties in crowded markets apart, which can translate to better demand and pricing power. He said interest in wellness was high enough to spur Noble three years ago to commit to the development of its dual-branded Even and Staybridge Suites property in Seattle, which opened in April near Amazon’s headquarters.

“We felt like, to take that financial risk with a new brand, we wanted to do it in a market that was millennial-driven,” he said.

Jason Moskal, VP of lifestyle brands for IHG, said in the development of the Even brand it was key to express to the investment community that a “wellness hotel” couldn’t just be a huge investment in a large fitness center because that doesn’t translate to returns. Instead, wellness had to have a more holistic approach.

“(Consumers) talk about wellness and health now as a status symbol, and people are willing to pay more for those experiences,” he said.

How hotels are investing in wellness
Matthew Arrants, EVP of Pinnacle Advisory Group, said he appreciates a lot about the shift to greater wellness in the hotel industry, but there’s really one thing it comes down to for him.

“As an asset manager, I’m all about ROI,” he said.

He noted that differentiation in that space can come down to the facilities you provide.

“I do think the fitness center is pretty critical to me,” he said.

Expanding and investing in fitness centers has long been held as at best a necessary evil for asset managers and owners alike, but Arrants said it’s hard to argue that it doesn’t make financial sense in many cases.

“We could see the demand, and we could measure the impact on demand immediately (following fitness center improvements),” he said.

James Gould, principal at Horizon Hotel Group, said the financial component of it is making wellness-focused hotels more appealing in places outside the largest markets like New York and Seattle. He said his company is currently working on a property in Long Island City.

Brunt said it can often be more difficult to adapt existing properties to today’s wellness needs than to address them with new builds. He said that often comes back to the fact that it’s hard to invest in revamping every part of a property all at once and there are several components of wellness that touch various parts of a hotel.

“So that’s kind of the challenge,” Brunt said. “It’s about bringing that level of consistency in an existing product when you’re trying to transform it.”

Numerous experts during the roundtable discussed whether wellness could follow the lead of sustainability efforts, which gained steam before the start of The Great Recession in the form of both corporate mandates and certification programs. Those programs largely evolved into local or state governmental regulations and standards.

“It’s translated from a badge of honor to part of the regulatory environment in the city you’re working in,” Lorenz said.

But wellness-related renovations don’t just come down to updated brand standards or regulatory expectations, and some can be more entrepreneurial and more directly tied to revenue, said Warren Feldman, CEO of Jonathan Nehmer + Associates. He referred specifically to how one property in Hawaii had a gift shop that was a decent performer, but the on-property team saw an opportunity to use wellness as a differentiator and revenue driver.

“They changed it to a kayaking and mountain biking shop where you go in there and rent (equipment) and go experience Kona the way you really want to. It’s not like you go on an excursion bus. … You go do it yourself. And it’s a boomer.”

ROI in guest perception
Dieter Schmitz, area GM for three IHG hotels in New York City including two Even Hotels, said he’s particularly proud of how the Even in Times Square has maintained solid guest feedback and a high ranking on TripAdvisor compared not just to his market but to the nation as a whole. He said this high level of guest satisfaction—coupled with 90%-plus occupancies for the hotel’s entire history—shows a focus on wellness translates to financial success.

“If you’re looking for results and saying ‘Hey, does this resonate for guests?’ I mean, we run 94% occupancy year-round,” he said. “We have a rate premium. It’s clearly resonating for guests.”

He said wellness-focused amenities and the guest perceptions tied to them give his hotels a greater degree of pricing power than many would expect from a select-service brand. He said it’s to the point where he doesn’t really benchmark his hotels against select-service properties in New York anymore.

“We don’t even look at them on the STAR report,” he said. “We’re completely going against full-service brands.”

(STR, the company that generates STAR reports, is Hotel News Now’s parent company.)

Schmitz said the combination of those factors makes wellness-oriented hotels a pretty attractive investment.

“So for an owner, you have a limited-service staffing model, and you’re getting a full-service rate,” he said, noting his properties get high rates of return business even though the Times Square property is leisure-driven.

Rebecca Warren, editor-in-chief of Women’s Running magazine and Competitor.com, said consumers, especially women, are willing to pay a premium for services and amenities that prioritize self-care.

“I think people will pay for whatever’s going to bring them their maximum benefit,” she said, noting that safety and security are also important considerations for travelers.

Arrants said having a high degree of service and well-positioned amenities can also afford a hotel the opportunity to charge guests facility fees, on top of a rate premium, as long as they’re able to justify those fees to guests.

“As an owner—or an owner’s advisor—I love that. That’s free money,” he said.

Arrants said having a well-outfitted fitness center gives hoteliers “one more thing to tick off” in terms of why guests are paying those fees.

Gould said the ability to charge guests a premium for wellness-related items doesn’t stop at room revenues either. He said he’s tracked an increase in spend related to higher-end food-and-beverage offerings tied to health.

“We’ve seen people pay more, and we charge more for organic and more natural product,” he said.

1 Comment

  • Claire Sierra August 17, 2018 12:42 PM Reply

    Its hard to believe or trust this round table is all male (and likely all white) "experts" At least 50% of travelers are women. Are women's voices really not considered here? C'mon, guys, you can do better. Unless this changes, this is not a resource I'll continue using, as it is not fully representative.

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