Hotel segment battles travel slump by reaching out to leisure travelers and partnering with top chefs

Nation's Restaurant News, June 25, 2007 by Ron Ruggless

Foodservice sales growth in the hotel segment has continued to feel the effects of the travel downturn brought on by the terrorist attacks of 2001 and the resulting reduction in hotel construction in the ensuing economic slump.

Significant trends of the past several years have persisted, including the continued wooing of independent restaurateurs by hotel food and beverage departments to create concepts for luxury hotel properties. And hotel marketers continue appealing to families and other groups to augment patronage from business travelers.

Luxury hotels, which traditionally have had the highest volumes of foodservice sales, showed only modest growth in 2006. At the same time, the decade-long shift continued toward growth in midscale hotels with limited foodservice. Patronage of those less-foodcentric hotels brought the overall revenue per available room, known in the industry as RevPAR, up in 2006. Room revenues were also increasing as growing lodger demand and the limited supply of rooms allowed hoteliers to ratchet up their room rates.

Michael Fishbin, national director of the hospitality and leisure practice for Ernst & Young LLP, says, "The strength of the market and increasing RevPAR performance in 2006 was dominated by significant increase in average daily room rate."

In an Ernst & Young report on hotels in 2006, Fishbin said: "Manhattan continues to lead the major markets in terms of performance.... In terms of RevPAR percentage increases from 2005 to 2006, Chicago, Manhattan, San Francisco and Dallas lead the markets with the most significant gains of 17.9 percent, 13.1 percent, 12.6 percent and 12.5 percent, respectively."

Other business destination cities, such as Boston, Los Angeles and Phoenix, also could expect hotel-occupancy increases, he said.

Fishbin cited the report's findings that fewer hotels are offering restaurant amenities.

"Whether hotels offer food and beverage service has always been the distinguishing factor between the midscale segments, with the share of properties having food and beverage outlets declining over the past couple of years due to high costs associated with this service," he said. "Based on year-end 2006 data provided by Smith Travel Research, the lodging demand for midscale-with-food-and-beverage segment continued to decrease in terms of room supply."

However, that segment saw occupancy rates grow to 59.5 percent, a 0.6-percentage-point increase over 2005, he noted.

Fishbin observed that the U.S. hospitality market has faced several human and natural disasters, such as hurricanes Katrina and Rita in 2005, but travel has continued to grow.

"In fact, business travel has strengthened significantly in the last 12 months thanks to lower domestic air fares as well as corporate travel departments lowering costs through advance ticket purchases," Fishbin said. "With only moderate growth in the supply of new hotels being built in the U.S., occupancy rates for existing hotels are expected to remain fairly stable this year and into 2008, giving hoteliers the opportunity to keep rates high or even raise them further during periods of high demand."

Ernst & Young also said hotels in all segments, from economy through the upscale, in East Coast cities like New York, Boston, Washington and Miami, might also see benefits from a projected increase in leisure travel from across the Atlantic through 2008 with the open-skies agreement, which allows for more trans-Atlantic flights.

The strong euro, versus the weaker U.S. dollar, also would attract European visitors to make stays in American hotels, including those in the so-called boutique market that are working to expand their reach.

Starwood Hotels & Resorts has worked to complement its big-name Sheraton and Westin brands with the W Hotels concept. And in early June of this year, Marriott International Inc. announced it was partnering with Ian Schrager, who helped pioneer the concept of the boutique hotel 23 years ago, to create a new brand of as many as 100 hotels.

J.W. Marriott Jr., chairman and chief executive of Marriott International, said the marriage of his lodging company with Schrager was intended to "push the boundaries, break new ground and take the hotel industry to a new level." Schrager and his late business partner, Steve Rubell, created Studio 54 and Palladium in New York as well as the Morgans, Royalton and Paramount hotels.

"Nobody has done what Ian has been able to do with his hotels time and again," Marriott said, "and he is the perfect partner to help us create and launch a new, modern genre of hotel.

"These hotels will be an excellent complement to the Marriott portfolio of brands and allow us to use our global platform and ability to execute to create something completely new, different and original--the first truly global branded boutique lifestyle hotel on a large scale."

Marriott said the new hotels would have 150 to 200 rooms, and the first five properties were expected by the end of this year.

Schrager added: "People today are sophisticated and they understand good design, quality, originality and commitment to excellence. They will not accept something derivative, and they want the ethos and soul of a hotel to be authentic and have character."