The boutique hotel sector has certainly proven resilient for managers and owners; more consistent performances, flexible operational elements and the ability to confront a changing market.
Ten years ago, boutique hotels became a booming trend; a chic alternative for the discerning traveller, seeking something different to a traditional hotel personalised service, stylish design and décor, character. Added to this, the growth of low cost carriers and a dramatic change in how many took their holiday, increasing short trips/city break vacations and in turn the need for a complement in accommodation convenient location, unique atmosphere, smaller and more private. They became extremely popular with consumers and of course with investors. “I think the boutique hotel industry has developed extremely well in both the UK and Europe by filling a niche market and providing new levels of service and quality, whilst retaining a more informal atmosphere,” Director, Cheval Group, George Westwell told HTR Magazine. “The main change is that hotel groups have realised the potential of this segment and have started to roll out their own version. We should see a continuation of this, as the market size will increase.” This was certainly confirmed by Brand Director, Hotel Indigo & Staybridge Suites, InterContinental Hotel Group (IHG), Louise O’Shea: “The main change we are seeing is that the popularity of boutique hotels is increasing. They are more widely accessible to consumers as they are now emerging at all price points and design is less harsh. They are also improving their business facilities so it is much more acceptable to stay at a boutique hotel for business.” Interest in IHG’s boutique brand continues to grow all over the world. According to O’Shea, the group’s growth strategy here in Europe is to focus on capital cities and selected secondary cities throughout, including city centre locations in Paris, Rome, Barcelona, Prague, Berlin and Cairo. Next to open should be Glasgow in 2010; Liverpool and a second London hotel will follow in 2011. “The boutique segment of the market is performing well overall and the Hotel Indigo brand positioning of being a “branded boutique” has captured a unique customer group,” added O’Shea. Boutique business cycle turns What has been even more exceptional is the fact these hotel products have seemed to outperform, or to be more precise, remain more resilient compared to their traditional hotel counterparts. According to MKG’s market monitoring database, HotelCompSet, the boutique sector across Europe has by and large managed to sustain healthier results over the recent turbulent year and a half, i.e. less significant decreases in Occupancy Rate (OR), Average Daily Rate (ADR) and Revenue per Available Room (RevPAR) compared to larger traditional chain hotels in the same hotel category. Boutique hotels also seem to be recovering much faster, with much better performances towards the end of this year. “In comparison to local market results, we have generally performed very well in this highly challenging year of 2009, thanks partly to our uniqueness and partly to the large number of loyal return guests,” said General Manager, Londa Hotel, Jochen Niemann. “We had to publish some additional offers to be in line with the competition, this in turn has resulted in a lower average rate. For the first half of 2010 we are expecting the same results as in 2009, with a slight increase in occupancy levels starting the second half of next year.” “Boutique hotels have almost certainly performed better. Total revenue at larger hotels have suffered more,” verified General Manager, Montagu Place Hotel in London, Dimitrios Neofitidis, pointing to the fact that alternative revenue streams in larger hotels have been hit harder than in boutique properties. “Larger traditional hotels also usually focus more on business customers, therefore have been hit hardest by companies readjusting their travel budgets and renegotiations of corporate rate deals. Boutique hotel customers are less price sensitive, with other considerations playing a large part, such as design, service levels etc. Finally, the simple fact is that is easier to fill 30 rooms then 300 no matter what the market conditions are,” added Neofitidis. Market performance European boutique sector As per HotelCompSet’s results, average OR in boutique hotels throughout Europe over the 12 month rolling period October 2009 to November 2008 reached 65.7%, a decrease of only 3.5 points compared to the corresponding period the previous year. What’s even more positive is that the last few months have seen a clear turnaround, with each month since June almost stabilising. August actually recorded an increase of 1.4 point, certainly a rarity for any sector this year. ADR has not been as optimistic, at just over 153 euro including taxes for the same period, compared to 170 euro the year prior, i.e. a decrease of 10% and a clear sign that hoteliers are still maintaining lower rates to continue stimulating as much demand as possible. However, the recovery in OR in Q3 and Q4 2009 has allowed RevPAR’s decline to be reduced significantly during this period. If trends continue along a similar path, then boutique hoteliers might be able to improve ADR slightly, consequently driving RevPAR’s momentum further upwards. “We have suffered in 2009 but less than the market average. For the coming year we will focus on ADR in order to recover most of the profitability lost during this year. Our types of hotels have very high fixed costs and to make them be profitable you must be able to perform very high ADR, which is a difficult task in a market where everybody is dropping rates,” explains Vice President Baglioni Hotels Collection, Guido Polito. The good news is that the boutique sector should not see a negative on top of a negative. In 2010, most months should show some sort of improvement to their corresponding period in 2009. The sector should continue its stable performance over the next six months to a year, gradually improving. Although recovery is not expected until the summer of 2011, owners should continue to see better results [compared to traditional hotel products], especially those still efficiently utilising their resources and executing profit protection plans, as well as targeting the right clientele and offering something different. Competitive advantage Better performances in the boutique sector could be attributed to a number of key factors. Firstly, boutique hotels have more flexible operational elements, especially important when cutting back on expenses, multitasking staff and the ability to quickly change strategies when needed. During the economic crisis, this proved to be a fundamental competitive advantage. “Ability to act and adapt quickly to customer needs and demands apply as boutique hotels are generally independently owned or are part of a small collection of properties. There are far fewer rules and standards that must be first ‘piloted’ or signed off by committees by which time they no longer cutting edge or perceived as ‘new’,” stated General Manager, The Hempel, Gareth Banner. “Many Boutique hotels have USP’s that mean they are able to differentiate themselves from other hotels in their market and provide clients with a genuinely unique experience which cannot be replicated,” added Banner. Attracting new guests, as well as consistency with external (walkin) customers to outlets, namely F&B and spa, as these properties are usually centrally or conveniently located, has also provided a handy extra revenue stream during these tough months. “We have seen a large shift in our customer base. With the prevalent trend of cost cutting among business travel clients we have gambled on making Montagu Place even more attractive for the top end of the leisure sector,” continued Neofitidis. “This involved expanding the toiletry range, changing the linen for a more luxurious offering, arranging a dining package with local restaurants which covered both the room service and evening meals both at restaurants and at the hotel. We have also worked on introducing more attentive personalised levels of service. I feel that the gable has paid off with leisure sector reservations more then making up what we lost from our corporate customers.” Then, for many properties, guests also tend to be more affluent, somewhat similar to luxury hotels, and thus have the ability to yield higher returns. At the same time, short break visitors (including domestic clientele) has remained rather consistent in Europe, and even growing in some destinations, as travellers took shorter holidays and opted to stay closer to come throughout 2008/09. This allowed boutique properties to maintain somewhat decent OR’s. Repeat business is also of course a major driver, strong in boutique products, where personalised service, privacy and unique atmosphere are core principles. “A boutique hotel can certainly not discount a large number of their room inventory in order to fill beds, but then again, I do not believe this to be an efficient strategy in the long term. Boutique hotel guests are not motivated by cheap offers such as free half board. This would send out the wrong message and might damage a carefully built reputation,” explains Niemann. “A smaller property cannot and should not compete with bigger colleagues as there are limitations on space to consider. When selling a unique product, one should concentrate on identified target markets and refine the product to maintain interest and add valueformoney. Lower fixed costs and our good number of loyal guests have contributed to a satisfying result in the difficult circumstances experienced during 2009.”
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