By Bruce Hakutizwi
This is an interesting and exciting question to explore. On the one hand, the U.S. hospitality market is in a great place, having enjoyed several years of solid growth as the economy has grown more stable, unemployment has plummeted, and discretionary household income has been on the rise.
On the other hand, the marketplace is already highly saturated and very competitive. Plus, the addition over the last few years of AirBnB and its many copycats has created huge disruption in the traditional hotel/motel sector. In many areas, this has been a game changer that formerly successful destinations haven’t quite figured out how to deal with.
So, if you’re considering starting up a hospitality business in 2019, there are some important questions you need to address first and factors you definitely need to consider before moving forward.
How do you define “hospitality startup?”
The first logical question is what sort of startup are you considering, and how will it fit in with the existing environment?
For example, are you considering opening a traditional motel on the side of a highway somewhere in the Midwest? Or, do you have a concept for an app to rival AirBnB for adventure tourists above the Arctic Circle?
Both can be considered hospitality startups, but that’s pretty much where the similarities end.
Generally speaking, if you’re hoping to compete directly with AirBnB as a mobile app/web service your best bet heading into 2019 is to focus on a micro-niche (like that Arctic Circle idea noted above) rather than hoping to steal market share from the behemoth that created the market. And, the reality is that AirBnB is likely to spend 2019 embroiled in a number of lawsuits and other headaches as huge hotel chains and municipalities around the world have begun challenging its business model.
Flying under the radar is still possible for a new app in the hospitality space, though, if your concept doesn’t subtract a noticeable number of dollars from the pockets of established hotels and resorts in the areas you operate.
For the remainder of this article, however, we’re going to assume your business concept is along the more traditional lines of opening a destination where travelers can stay.
Market saturation and occupancy rates
Reasonably, if you’re seriously considering opening some kind of hospitality destination, you’ve already planned to do so near one or more attractions that will bring an adequate supply of visitors to the area. No matter how beautiful, unique, or inexpensive your hotel is, if it’s nowhere near anything anyone’s going to want to go, it’s going to fail.
So, if you’ve picked the right spot for your destination, there are probably already plenty of other hotels, motels, and similar establishments in the area. That’s a good sign. If no other locations had succeeded in the area, there’s no reason to believe yours will either. However, you also need to consider the market saturation and necessary occupancy rates.
Market saturation refers to how many other hotels, motels, B&Bs and the like already serve the area. How many guests can already be accommodated and how does that number compare to the total number of guests that frequent the area over a year’s time. Occupancy rate refers to what percentage of each location’s available rooms are occupied on average at any given time.
The average occupancy rate across the country last year was 68 percent, but some studies indicate maximum profitability requires an occupancy rate closer to 80 percent. If the hospitality providers in the area you’re considering are currently battling to reach 60 percent occupancy, it’s unreasonable to expect your new location will improve the situation at all. On the other hand, if the local providers are turning visitors away or filling their rooms months in advance and maintaining 80 percent or higher occupancy, there’s probably room for another location to serve the influx of visitors.
What makes your location different?
If you’re going to enter a market where one or more locations are already succeeding, your ability to succeed as well is going to depend on your being able to differentiate yourself from the competition.
This could be as simple as opening a franchise location with a trusted brand name that isn’t currently represented in the area. Many travelers have certain lodging brands they’re comfortable with and that they seek out every time they travel. If there’s no Comfort Suites in the area, all the Comfort Suites fans may be settling for a Motel 6 or something else. But, if you open the local Comfort Suites, those travelers are almost guaranteed to go with you next time for that reason alone.
On the other hand, you can differentiate on a number of levels beyond just your brand name:
- Complimentary services
- Proximity to an attraction
- Level of service
It’s not always smart to compete on price alone, but in some markets it’s the key to high occupancy rates and can spell success for a new hospitality destination. It may not be easy to find unique amenities or complimentary services that your competition isn’t already offering, but if you can, these can be a powerful differentiator. And, these options can be combined with price to catch potential visitors’ attention.
For example, if most of the motels in the area charge around $75 per night for a standard room and hotels that offer continental breakfast charge closer to $100 per night, you could create significant differentiation by offering a continental breakfast with your $75-per-night room.
Proximity to an attraction is a difficult factor to control, simply because most tourist attractions have been established for years and the necessary locations have long ago been purchased and developed. However, if you’re lucky enough to be opening your location in conjunction with the creation or exploding popularity of a new attraction, being the closest motel can be huge.
Focusing on customer service and reviews
In every circumstance, however, focusing on excellent customer service is one of the best ways to create differentiation, encourage customer loyalty, and grow your business over time.
According to a study administered by the Hotel School at the SC Johnson College of Business at Cornell University, motel guests place the highest priority on the comfort and cleanliness of their room and the customer service they receive during their stay. So, make sure your staff is well trained, courteous, and quick to help guests in any way they can.
It’s also vital to make sure your delighted guests leave you positive reviews on the sites that matter most (like TripAdvisor, Trivago, Booking.com, Google, and Facebook) and that any negative reviews that come up are handled quickly and professionally. After location, your establishment’s online reputation is probably the biggest factor potential guests consider when deciding where to stay.
So, in conclusion, is there room for another hospitality startup in 2019? Absolutely.
But, it’s vital to plan and position your startup in the best possible circumstances to give it the best chance of success in a highly competitive marketplace.
Bruce Hakutizwi is the Director of Dynamis, owner company of BusinessesForSale.com, a global online marketplace for buying and selling businesses. With more than 60,000 business listings, it attracts 1.4 million buyers every month. Bruce manages business development, account management, content building, client acquisition and retention in United States of America, Canada, South Africa, and Europe. He frequently writes about entrepreneurship and small business ownership. Connect @BizForSaleUS.