Creating feasible boutique product in secondary markets
Creating feasible boutique product in secondary markets
20 FEBRUARY 2019 1:00 PM

Food and beverage activation through curated dining, nightlife and entertainment concepts allow developers and brands to create feasible lifestyle boutique hotel projects in secondary markets.

According to the Highland Group’s 2018 Boutique Hotel Report and STR (parent company of Hotel News Now), lifestyle boutique hotel supply increased by 12% in 2017, with rooms revenue for existing properties increasing by 9%. But lifestyle boutique hotels constitute a mere 2% of hotels in the larger metropolitan statistical areas, dropping even further to 0.8% in smaller MSAs, and 23 out of 30 smaller MSAs have none of this hotel type.

Even as lifestyle boutique hotel supply outpaces most hotel types, this creates a highly skewed distribution of this product type toward the primary markets. Scarcity of lifestyle boutique hotels outside of the primary markets—while consumers seek out this lodging option more often across all tiers—indicates a significant opportunity for lifestyle boutique hotel development in secondary markets.

A typical lifestyle product features thoughtful amenities and inspired design elements that differentiate it from the other hotel types in any market. But the biggest challenge in the development of this lifestyle boutique product in secondary markets has been the relatively weaker revenue per available room prevalent in these markets, thus not allowing the project to be feasible on a stand-alone basis.

In such a scenario, it’s key to have a brand-driven, robust and fully activated food-and-beverage program that drives local and regional consumer awareness through a strong community connection. This allows the overall project to make up for the weaker RevPAR and continue to appeal to the experience-driven consumer.

An activated F&B program through brand-driven, in-house concepts—catering not only to the hotel guests but also locals—will allow the hotel to not only generate a far bigger share of revenue through F&B but also mitigate part of the broader occupancy and average-daily-rate trends. All the while, this helps a hotel to establish itself as a true destination for locals and visitors looking to have it all in one place.

According to the Boutique Lodging Forecast by CBRE and the Boutique Lodging Association, F&B revenue currently constitutes 24.5% of total revenue at all lifestyle boutique hotels in the U.S., generating a department profit of 21.5%. With an expanded F&B program and concepts that enrich the local community, F&B revenues could constitute in excess of 50% of total revenue and generate a markedly higher profit margin through increased beverage sales and the same fixed costs.

Weather the project is a revival or a reinvention, a one-size-fits-all approach won’t work. Each new location must have its own distinct personality and be rooted in the local culture. Before entering a market, extensive research on the values and culture of the home city is paramount. In addition to historical and demographic research, it is also important to connect with local businesses, tastemakers, artists and community leaders to begin the cultural immersion.

Given all of this, it is of great importance for lifestyle boutique hotel brands and operators to develop in-house skills as part of a dedicated F&B management and culinary team. This will allow for detailed due diligence on the target market to really understand what excites, delights and comforts the locals. This period of meticulous research will allow for the hotel to authentically cater to the passions of each local market and, by extension, hotel guests.

With an increasing emphasis on emotional resonance, recognition is growing that a hotel is not just for the guests to rest their head. In this environment, expect to see an uptick in supply distribution for this segment over the coming years, as the product is increasingly introduced at a lower price point to reach a new target audience joining the lifestyle boutique trend in secondary markets. Therefore, having an activated F&B scene led by a brand with laser focus on positioning will allow lifestyle boutique projects to gain footprint in secondary markets.

Karan Narang is the Vice President for Acquisitions and Development Analysis at Dream Hotel Group, playing an integral role in the continued growth strategy and expansion of group. Dream Hotel Group is a hotel brand and management company with a rich, 30-year history of managing properties in some of the world’s most highly competitive hotel environments. Home to its Dream Hotels, Time Hotels, The Chatwal and Unscripted Hotels brands, Dream Hotel Group encompasses three business lines: Proprietary Brands, Hotel Management and Dining & Nightlife.

The opinions expressed in this column do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Bloggers published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.

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