Limited service only in name, not in caliber

Message creation, or the art of capturing the right language to explain a product or brand, is hard at work in the hotel industry; and nowhere more than in what’s been known as the “limited-service segment,” or hotels that don’t offer the more robust types of F&B and amenities found in a full-service hotel.

But a shift has happened over the past five or so years: these so-called limited-service hotels became anything but that, offering design and amenities that rival the touch points of a full-service hotel. This phenomenon has affected the way hotel companies market their limited-service properties and brands, creating a message that is anything but limiting.

“The starting point is the term limited service,” said Nick Kellock, COO of Concord Hospitality, which develops and operates many brands within this category. “A lot of brands have moved away from the term because it implies a limitation. Much of what today’s [limited-service hotels] offer comes very close to a full-service hotel,” minus vast meeting space and expanded food-and-beverage outlets.

Value Proposition
So just what do these boxes hold? And why are they so attractive to today’s traveler? The bulk of new supply coming out is in the limited-service—or however one refers to it—segment. The hotels are new, clean and more stylish than ever before (just recently, InterContinental Hotels Group and Choice Hotels International unveiled brand-new design prototypes for Holiday Inn Express and Comfort Inn, respectively).

They also have amenities that today’s leisure and business travelers want: free Wi-Fi, some kind of F&B option (whether it’s grab-and-go or sit-down), great bedding, an oftentimes spa-like bathroom, an expanded workout area, free parking, a comfortable lobby/communal area and somewhere to get a nice cup of coffee in the morning before a meeting.

“They have stripped away the non-essentials, such as room service and three-meal-a-day restaurants, and have instead focused on the essentials,” said Jeff Gurtman, managing director of Coyle Hospitality Group, which provides guest service measurement and analysis for hotels. “Younger business and leisure travelers like these properties as they have eliminated the often underutilized amenities and provide guests with a comfortable no-frills approach to lodging.”

It’s exactly what today’s hotel customer is seeking out, said David Pepper, SVP of global development for Choice Hotels International. “Clean, consistent, stylish,” he said.

Choice is currently concentrating its development efforts on its Cambria Suites brand as well as its Comfort brands, where it is investing significant corporate funding for expansion.

Cost Equation
Not only are these hotels highly regarded by travelers, in many respects they are no-brainers for developers, specifically from a cost standpoint. “It used to be if you wanted an upscale experience you had to go to a full-service hotel,” Pepper said. “Those days are over and nobody wants to build a full-service hotel either.”

There’s validity to that. Full-service hotels require much more capital and time to build, require more space and cost more to operate. Conversely, hotels in the limited-service segment are cheaper to build, cheaper to operate (less staff required to run them) and, many times, charge rates that are close to if not equal to some full-service hotels.

“Cost of construction versus full-service is lower, operation efficiencies are high and rate potential and quality of product allows you to be close to full-service rates,” said Richard Jones, SVP and COO of hotel ownership and management firm HVMG.

Profit margins also make limited-service hotel development attractive. “As far as select-service profitability, in general they are more profitable at the EBITDA level from a percentage standpoint due to not having robust F&B operations,” said Doug Dreher, president and CEO of The Hotel Group, a hotel management/investment company. “As such, the unallocated administrative and general, marketing and to some extent maintenance and utilities departments are all considerably less than big-box full-service hotels.”

Rick Takach, president and CEO of management company Vesta Hospitality, is in a similar camp. “Regarding profitability, profit margins for F&B operations in hotels are generally less than their room division counterparts,” he said. “In many cases, the complexity of an F&B operation as it pertains to labor, inventory controls, product control, etc., can add a significant burden to an operator. In addition, for full-service operations, ongoing capital needs are significantly increased. Thus, from a balance sheet standpoint, no F&B usually means a healthier bottom line with less effort.”

But limited-service hotels are doing great F&B, even if it’s scaled back. Consider Hilton’s Hampton brand, which does a free, hot breakfast served daily with such offerings as waffles and oatmeal. “The Hampton breakfast is phenomenal,” said HVMG’s Jones. “There is nothing limited about a Hampton breakfast.”