“Good Hotel – Analysis including PESTLE, SWOT and financial”;
BUS6020 – STRATEGIC MANAGEMENT
GOOD HOTEL: DOING GOOD, DOING WELL?
INTRODUCTION
Good hotel was created from the renovation of Best Western Hotel Britton and Best Western Flamingo in 2008 as a theme based hotel. Pam Janusz was the General Manager under Joie de Vivre, a San Francisco based Hotel Management Company. Pam had been managing Good hotel together with Best Western Americana and Best Western Carriage Inn since the year 2009.The hotels were under the management of Jdv together with 16 other properties. Good hotel was the first in the industry to be branded as a “hotel with a conscience- encompassing a positive attitude, environmental sensitivity and philanthropy. The hotel had 117 rooms and was serviced by 130 part and full time staff. (Pearce & Robinson, 2013)
Joie De Vivre
The company was established in 1987 and has a portfolio of 36 boutique hotels in California. It was the second largest boutique hotel operator in the US after the Kimpton Hotel & Restaurant Group.
Boutique hotels are known for providing personalized accommodation, services and facilities which differentiates them from larger chain branded hotels and motels. They came up in the 1980’s and were also known as “design hotels” or “lifestyle hotels”. They were usually owned and operated by individuals or companies with small collections but due to their success they attracted multinational hotel companies who were eager to capture a market share.
Good hotel is one of the properties that Joie De Vivre managed but in May 2010 they foreclosed on their holdings and sold all properties to a new ownership group. Pam the general manager together with her management team are left with the task of evaluating the performance of Good Hotel and make recommendations as to whether the new management should continue, expand or discontinue the Good Hotel Concept as well as prepare for its transition to new ownership. (Pearce & Robinson, 2013)
The U.S Lodging Industry
The industry was dominated by large, branded hotel chains with a cyclical season for business. The leaders of the industry are:
Accor SA
Best Western
Choice Hotels International
Four Seasons Hotels
Hilton worldwide
Hyatt Hotel Group
Intercontinental Hotel Group
Kimpton Hotel Group
Marriott International
Red lions Hotel
Starwood Hotels & Resort World Wide
Wyndham Worldwide
The industry according to standard and Poor tended to build capacity during the upturns as a result it suffered from overcapacity. The industry as of October 2009 had an estimated 4.8mollion rooms at more than 50,000 properties, on average about one hotel room for every 64 U.S citizens. (Pearce & Robinson, 2013)
The down turn in the industry was caused by unemployment, declining business and conference travel, relatively unchanged GDP and widespread foreclosures. Due to these forces occupancy levels were expected to drop further to about 55 percent and 56 percent according to Standard & Poor Projections. This would be the worst recorded drop since the great depression in the 1960s. Financial performance as measured by Revenue per Available Room also fell by 17 percent in 2009 and was expected to fall by a further 3.6 percent. (Pearce & Robinson, 2013)
“Going green” was the norm in the industry by late 2009, an article in Hotels magazine suggested that hotels seeking new customers and growth in the difficult economic times could benefit in the long term by investing in sustainability initiatives including retrofit certification and building new properties to LEED standards. Studied results indicated a willingness by 60 percent of leisure travelers to pay higher rates to environmentally friendly travel providers and they would pay up to 9 percent premium. A survey reported that 28 percent of premium to stay a green lodging facility which was another target market for the hotels.
Other prospective customers were an emerging group of consumers identified as “culture creative” and were also called LOHAS (Lifestyles of Health and Sustainability), they sought a better world for themselves and their children. They consist of about 38 million people or 17 percent of the U.S adult population with a spending power of $209 billion annually.
A sub-segment of this group was identified to be tourist making up 5 percent of the overall U>S travel and tourism market and representing $77 billion market. (Pearce & Robinson, 2013)
STRATEGY
Good Hotel tried in their strategy implementation efforts. They worked with a strategy meant to inspire the “good in us all”. Another strategy is “Going Green” which gives them a competitive advantage and a chance of growth in the long term. A good segment of the Market that value the green movement feel connected to Good Hotel plans for the environment. (Pearce & Robinson, 2013)
Pam was the key strategy implementer, she made effort to know all the staff, guests and the neighborhood, management have also been undergoing training in order to increase the standards of service at the hotel and in the long run Customer loyalty. The hotel also started recycling and waste reduction program, energy conservation through installing solar panels, water conservation and pollution prevention. Pam has exhibited strong leadership and as a result employees’ motivation is high and online reviews were increasingly frequent and positive. (Pearce & Robinson, 2013)
According to Conley their guest love the idea that each hotel has a personality derived from a a magazine, so that each hotel has a different look and feel and attracts different types of customers depending on their interests. (Pearce & Robinson, 2013)
FIVE FORCES MODEL
Competitive Rivalry
There is a relatively high competition in the industry, due to falling consumer demand resulting to chronic overcapacity. Rivalry in the industry has also been increased by the high numbers of large firms within the lodging industry. The intensity of rivalry is increased by high exit barriers, this is because underperforming firms cannot easily sell their assets or transfer them for other purposes.
Threat of New Entrants
There is a low threat of new entrants since the industry requires significant investments for one to enter. Only those already in the industry are attracted. Differentiation plays a key role in lowering the threat by new entrants since for a firm to have a competitive advantage and gaining some market share they have to invest in differentiation. Good hotel differentiation strategy is in the green initiatives, high quality service and customization.
Threat of substitutes
The availability of substitutes, low switching costs and high price values makes the threat relatively high. The readily available substitutes are informal accommodation, corporate travel housing, camping or travelling via RV. Switching costs are very low thus increasing the threat of substitutes and in the low economic times people are likely to stay with family or friends when they visit.
Bargaining Power of Suppliers
Due to the high numbers of players in this industry the bargaining power is relatively low as there are many suppliers for the hotel industry for instance, employees and real estate brokers. The fall of the housing market with high unemployment makes the bargaining power of the suppliers very low.
Bargaining Power of Buyers
The low switching cost in the industry enables the buyers to have a relatively high bargaining power, buyer demand is low and they have the option to delay their purchase. The buying power has also been increased by the availability of information on social media platforms and online reviews of the quality and prices of different service providers.
Companies in the industry can try and reduce buyer power through differentiation and brand loyalty tactics which Good Hotel have applied. (Pearce & Robinson, 2013)
SWOT ANALYSIS
Strengths
Good Hotel room rates were low as described by one of its customers who stated that the hotel does not miss tricks in its endeavor to be the greenest, do-good ingest and most politically correct hotel in America. That even Hummer drivers and owl stranglers would appreciate the low room rates whose minimum was $67.
The ability of JDV to generate an estimated revenue of 250M despite the down turn in the economy.
Use of social media was a strength for the industry and Good Hotel as it enabled them to market their differentiated services.
Good Hotel management team and staff were well trained and their services were rated positively and this enabled them to grow their customer loyalty. (Pearce & Robinson, 2013)
Weaknesses
Jdv weakness was its geographical focused strategy which limited them to San Francisco, they should aim to capture other market segments while taking advantage of economies of scale. Good hotel will benefit in this regard and will be able to compete with the large hotels.
Good Hotel’s Brand is not well recognized outside San Francisco so efforts should be made for national wide brand awareness. (Pearce & Robinson, 2013)
Opportunities
By working on expanding their online presence together with more brand recognition Good Hotel rates will reach more clients and results in better sales.
More research should be done on the LOHAS market segment to be able to clearly meet their need s as they represent a big percentage of the tourist market and high spending power.
Good Hotel could venture outside San Francisco and try to open up other branches in other cities. (Pearce & Robinson, 2013)
Threats
Large hotel chains could also realize the potential in Good Hotels’ target market in LOHAS market segment ant also compete for a share of the market and since they have more resources they could take over the segment. (Pearce & Robinson, 2013)
FINANCIAL ANALYSIS
Room revenues in 2008-2009 fell 18-20 percent but JDV was able to make a $250 million profit, this was despite the downturn the industry was experiencing. Jdv also wished to expand and were actively looking out for a strategic partner who could inject around $150 million into more properties. (Pearce & Robinson, 2013)
Good hotel was under renovations until November 2008 thus any financial information before then would not compare fairly with other competitors. So the information from running 3 months is what will compare fairly. Otherwise they performed above the competitive hotels in the occupancy rates, average daily rates and revenue per available room categories. (Pearce & Robinson, 2013)
As of 31 March 2010 running 12 months average indicated that Good Hotel had a 15 percent higher occupancy rate compared to the peer group, average daily rate for Good Hotel was just under 2 percent below the peer groups ADR and there was an improvement in the year to date row where ADR was 4.2 percent higher than the peer group.
RevPAR was reported at 60.21 percent in the running 12 month for March 31 2010 which is 10percent higher than the peer group which was 49.63 percent. An increase of 47.7 percent for RevPAR was also experienced in the March 2010 Vs. 2009 percentage changes, which his almost 69 percent higher than that of the peer group recorded at -21.1 percent.
Thus the data indicates a consistent growth rate for Good Hotel which shows its good performance compared to the peer groups. (Pearce & Robinson, 2013)
RECOMMENDATIONS
The management of Good Hotel should endeavor to explain to its staff the transition to the new ownership. Meetings should be held with interactive presentations in order to promote clarity and support among the staff.
A resistant to change program would be ideal for staff that might have problems in the transition stage. A call center would also provide more information to employees that might have further questions or problems.
A recommendation should be made to the new ownership to continue with the Good Hotel concept and also have it expanded so that the company may continue its good performance and maintain its quality services.
In order to succeed in the hotel industry the concept of “hotel with a conscience” that is about a positive attitude, environmental sensitivity and philanthropy should be transmitted to everyone.
The new ownership of Good Hotel should also continue with the focused differentiation strategy that the hotel has been using, which has been an important success factor in its performance.
Good Hotel new owners should consider new geographical markets but this should be a long term goal until the industry recovers from the down turn in the economy. (Pearce & Robinson, 2013)
References
Pearce, J. A., & Robinson, R. B. (2013). Strategic Management Planning for Somestic & Global Competition. In J. A. Pearce, & R. B. Robinson, Strategic Management Planning for Domestic & Global Competition (pp. 10-1 10-13). New York: McGraw Hill.