For centuries, hotels have received the lion’s share of their revenue from selling guest rooms. Food and beverage added a bit more income to the tab, but creative development of alternative revenue streams was largely a non-starter. But today, the industry has come to the realization that coming up with ways to diversify revenue streams through ancillary offerings is vital to the bottom line. Perhaps driven by the Covid era’s need for adapting spaces in creative ways for social distancing purposes, hotels are transforming idle or underutilized space into revenue-generating assets. And oft-times, that revenue is generated not from the overnight guest, but from locals.
According to a recent Skift Report, more than 85 percent of hoteliers expect ancillary revenue to play a more significant role in their annual revenue by 2025.
“To remain competitive and optimize revenue, hoteliers need to think like retailers and shift their focus from selling guest rooms to providing unique experiences,” said Mykola Sheludko, vice president of product management for Sabre Hospitality. Those experiences can be served up to both guests and the general public by using spaces that are oft-overlooked.
Trading Spaces
At times, creating products or experiences is taking what is already there and offering it up to a broader audience. Take a look at ResortPass, which is, in part, a consumer marketplace for non-overnight hotel experiences and you will discover a wide range of options, many involving day-use passes for pools, gyms and spas. Several hotels offer day rooms, perfect for shoppers looking for a place to drop off their purchases during a power shopping excursion or for jet-lagged travelers in need of a daytime catnap.
Event spaces can also be utilized in alternative ways. Think poetry slams, book talks and writing workshops. Partnering with a local fragrance store, Kimpton's The George hotel in Washington, D.C. offers a DIY workshop where attendees can craft custom scents. As part of IHG’s seasonal Winter Chalet experience, the Kimpton Hotel Palomar Philadelphia and InterContinental Chicago Magnificent Mile rent meeting spaces tricked-out with features like vinyl listening stations and interactive art installations.
Lobby areas or other common spaces can host pop-up shops or markets featuring local artisans, designers and products. Given their “Instagrammability,” pop-ups bring in both revenue and hype. By the way, a pop-up does not have to be confined to retail. The Drake Hotel in Toronto offers a pop-up wedding chapel where, for $2,499, a couple can tie the knot with 20 guests in attendance.
As remote work has grown, many hotels are transforming meeting rooms, lounges or unused suites into co-working spaces. The citizenM brand has a new co-working membership model for locals. For a modest annual fee ($120), citizenM+ members have access to citizenM living rooms, which are designed for comfort and functionality. Membership not only provides access to co-working spaces, but also discounts on rooms and food and beverage, and invitations to members-only events.
Likely the most underutilized space of all in most hotels is the roof. But revenue can be realized by looking up. Swiss-based Glice makes synthetic ice rinks for professional arenas and public spaces. The company has partnered with the likes of the Four Seasons in Mexico City, The View at the Palm in Dubai and the William Vale Hotel in Brooklyn to create seasonal rooftop rinks. The Shay in Culver City, Calif., part of Destination by Hyatt, uses its rooftop for yoga classes, a DJ series and gallery exhibits. In England, The Shankly Hotel has repurposed its roof to create a glamping experience in the heart of Liverpool.
The beauty of most of these concepts is that they offer high gross-margin revenue while variable costs are minimal.
Tools of the Trade
The rise of experiential offerings parallels the growth in new technology tools that can help centralize reservations and manage inventory, along with tracking revenue.
“Historically, [Sabre] product capabilities included bundling room bookings with limited ancillary options,” said Sheludko. But now, the company’s SynXis Retailing provides users with tools to curate an unlimited variety of highly customized add-ons. This summer, according to Sheludko, the system was updated to “decouple retail offers from room bookings, enabling hotels to sell services, experiences and goods not just to guests,” but to the general public as well.
ResortPass, the aforementioned consumer marketplace, also has a B2B component. ResortPass provides an entire technology stack that integrates into a hotel’s ecosystem. Features include check-in, inventory, pricing, and competitive data. Beyond that, ResortPass works with hotels to develop inventory. The secret sauce of ResortPass is its focus on the day tripper.
”We are just at the beginning of the rise of attention to the potential of day guests,” according to Michael Wolf, CEO of ResortPass. “It makes you wonder why [in the past], we only paid attention to the overnight guest." He notes that looking local is smart from a gross revenue perspective. “The likelihood of return visits increases exponentially for locals versus the out-of-town guest,” he added.
Plus, according to ResortPass data, the local who purchases a day pass may spend two to three times more on F&B than the average overnight guest.
Whether the revenue comes from locals or overnighters, both Wolf and Sheludko report that the best performers are making more than one million dollars a year in ancillary sales.
This article was originally published in the January edition of Hotel Management magazine. Subscribe here.