HM Roundtable: Creativity at core of ‘Unlimiting Limited Service’

Reaching beyond the limited-service segment’s perceived boundaries was the focus of Hotel Management’s recent Executive Roundtable, “Unlimiting Limited Service,” sponsored by Best Western Hotels & Resorts. The event, held in March at the Hilton Atlanta, brought together leaders from several hospitality disciplines who tackled how innovation can be applied to limited-service properties without losing sight of the segment’s traditionally tight operating model.

With guest expectations around hotel deliverables consistently escalating, innovation on the part of industry players has become the new norm across all segments. Among those most notably being put to the test to accommodate guests who want both value and “an experience” are the owners and operators of limited-service properties. Traditionally functioning on a leaner, “less-is-more” model with tighter margins, these properties are finding themselves having to create more of a full-service stay without the benefit of that segment’s inherent bells and whistles, e.g., full food-and-beverage. How to accomplish this without eroding the bottom line has caused limited-service hoteliers to get creative and innovate offerings that not only appeal to consumers but are cost effective.

One of the conundrums the industry has had as segments get sliced thinner and additional tiers are euphemistically created (i.e., the new lower-upscale-budget-select-economy brand) is understanding what encompasses limited service as opposed to select service, focused service, curated service, et. al. In looking to help define limited service, Mark Williams, CEO, Coakley & Williams Hotel Management Company, described it as “a condensed property, or version of a property, that offers the basic amenities that guests expect and that's just bed, breakfast.”

Not surprisingly, Greg Friedman, CEO of Peachtree Hotel Group, noted, “Limited service has limited offerings, and pretty much everything is included in the price … it's a very scaled-down version of running a hotel property from an operational perspective.”

 “For us, it's also about the economic operating model,” said Ricky Raman, COO, PeachState Hospitality.

The panelists agreed the consumer outlook in terms of lodging has changed, and guests seem to expect a lot more, whether it’s free Wi-Fi or free breakfast. Unlike in previous years when travelers would pack amenities such as shampoo, soap and toothpaste as a matter of rote when heading for a value-based property, now it seems to be the reverse; they expect limited-service properties to be providing what might be found more readily in full-service hotels.

Chris Kilcullen SVP/acquisitions, Legendary Capital, Lodging Fund REIT III, noted there’s been amenity creep across the board. “That free breakfast in many hotels now [has] so many hot items it should be a breakfast that's sold,” he suggested.

In terms of unlimiting limited service, panelists were asked if there was such opportunity to actually charge for the breakfast and how that might be perceived by guests.

“I think that's a genie that would be really hard to get back in the bottle,” said Kilcullen. “I don't know that some of these limited-service brands could start charging for breakfast anymore. It would be terrific, I think, to everybody in this room, but I don't think it's possible.”

Raman recalled how some 10-15 years ago one brand eliminated its free coffee program and started charging for coffee. “And we're still hearing about it” from guests at all the properties PeachState has of that particular brand, he said.

Williams, whose company manages 31 properties, stressed it was important to remember limited service is fractured among the economy, midscale and upper-midscale segments and felt “when we start getting into this free breakfast, we're getting into a different type of hotel.”

From a different perspective, HP Hotels’ Chairman Mike Hines wondered if “limited service, as a whole, is like an endangered species? I mean, you've got upper-economy and you got lower midscale, and limited service is stuck right there between it. And the more and more we keep adding to the limited-service services, the more the whole segment just dies.”

Industry veteran Steve Kirby, managing principal for real estate brokerage firm Mumford Company, noted limited service used to mean just rooms. “And now it's whatever the brand dictates that the property needs to provide. It used to be … the amenities [were] guest driven, but a lot of times, the brands drive the guest expectations. And so you really can't put that back in the bottle.”

Fran Taloricco, managing director/North American development, Best Western Hotels & Resorts, felt a lot of the changes have been design driven. “If you look at a limited-service guestroom today, it's nicer than a full-service guestroom was a decade ago … For so long, a hotel room was a replication of someone’s bedroom on the road. Today, through design, the guestroom really has become a treat for travelers. And I think the fit and the finish and the high style and design that we see, even in limited-service hotels, allows them to drive the rate, but they still have to give away the breakfast and give away the Wi-Fi.”

Keeping Up

For those who operate and own within limited service “keeping up” can be a challenge, particularly due to consumers’ perceptions that if they step into a property, they're going to get something beyond a place to sleep. The industry itself has sliced and diced the segments into smaller niches, sometimes causing consumer confusion in terms of what they may get from property to property in the same tier.

“We struggle a lot of times, especially in urban areas where someone wants to develop say, a Best Western Plus, but they want to lease space out to a restaurant operator and then have that restaurant operator supply the breakfast. But they want to charge for it. And that can affect guest service scores. Because if someone with a family is expecting free breakfast, but then they end up getting a bill for $40 to take their family for pancakes, it's a problem,” said Taloricco. “These are the kinds of conversations we frequently have to have with developers. That, yes, that would be a great amenity to have in our hotel and make you competitive in your marketplace [but] you may end up disappointing travelers, and you'll pay for that on the guest review sites if they don't see the value.”

Legacy Ventures’ founder/owner David Marvin felt the problem could be solved easily. “We love to pair limited service in an urban setting and have the guest experience extend beyond the four walls of the hotel. We own an Embassy Suites that has a third-party restaurant and that provides the complimentary cocktails and breakfast, and it's just economics … so while Embassy Suites is not limited service, there's no reason why that model wouldn't apply in a limited service.”

It was noted limited service is defined traditionally as not having robust food-and-beverage offerings; however, Marvin observed, “If you can smartly pair those uses and engineer the economics between them and have a good operating model, everybody gets what they want.”

Overall, he said, the brand “is going to dictate what you need to provide to the guest for free and the brand should really insist that all of their properties stay within the guidelines, so there's not uneven expectations going from one city to the next.”

Toward this, Hines said he observed a SpringHill Suites with a lobby bar and Friedman said his company just opened a SpringHill with one. “I feel bad for the SpringHill down the road because [their guests are] not going to get the same experience. But for us, we can be a little bit selfish on that side.”

Maximizing a site footprint with, dual, triple and even quadruple brands is another way of supporting a limited-service property when it’s campused with more-upscale and/or full-service properties, the panel noted, as is bringing in a retail component.

With some 865 hotels in its portfolio, Richard Sprecher, VP/business development, said Aimbridge Hospitality has a SpringHill Suites in Anaheim, Calif., where the first floor houses a CVS pharmacy. “We [also] just opened a Home2 Suites in downtown Chicago. First floor: retail, restaurant; second floor: hotel. It makes economic sense, he said, comparing Home2’s Marketplace to a convenience store. “You’ve got all that stuff and it's become a revenue generator … the economics can be really good if you do it right.”

Hines reminded the group the one constant in every single hotel is the employees and the people behind the property. “They're the ones that create the experience,” he said, and often justify a high average daily rate. In addition, cross-training at limited-service properties has become critical in helping maintain the cost-efficient model.

“I think it's important to teach the team to take ownership of what is brought to them. You don't want to hear: ‘That's not my job,’ or ‘That's not my position,’” said Kirby.

“Everybody is the owner,” said Raman.