The pros and cons of all-inclusive resorts

The all-inclusive model has made a strong comeback in leisure hospitality, but rising costs may threaten the model's profitability. How can operators deliver the experiences and manage the costs simultaneously?

A Shift To Upscale

Some of the biggest brands in hospitality, from Club Med to Hyatt, are shifting the way they approach all-inclusive resorts to cater for a more upscale and luxury customer, with bigger and smaller brands diving into and vastly expanding their all-inclusive portfolios.

“This upper-upscale, luxury type of client before didn’t look at the all-inclusive as an option,” explained Nicolas Jover, business development director – EMEA, Barceló Hotels & Resorts. “The type of demand has changed.”

Having secured that audience through its other properties, and following a focused expansion, all-inclusive now makes up one-third of Barceló’s rooms worldwide – 22,000 keys across 60 hotels in 16 countries.

Karim Cheltout, regional vice president development – Africa & All-Inclusive EMEA, Marriott International, said it’s a segment where this emerging guest profile “wants to see us growing” as they are looking for more curated experiences and to be immersed in a destination.

“We made our entry with careful research and with great care but also with a vision for Marriott to elevate the segment,” he said, and refers to Marriott’s acquisition of Elegant Hotels in 2019, which boosted its all-inclusive portfolio.

Marriott is now targeting all-inclusive growth across its luxury (Luxury Collection, JW Marriott, Ritz-Carlton and W) and premium brands (Marriott, Westin, Delta, Autograph Collection and Tribute Portfolio), building on its existing portfolio of 31 all-inclusives, mainly across central America, the Caribbean and Mexico. He said the group has a “robust” pipeline in the Mediterranean, with both new-build, greenfield sites, but also conversion opportunities.

“We are [also] seeing more demand and requests from our owners and developers for new value propositions from trusted brands such as Marriott for their future projects to diversify,” he explained.

Hyatt, meanwhile, is taking a similar approach: “[Luxury and upscale] is where we want to position ourselves and what we believe the all-inclusive should be going forward,” said Carlos Paredes Fernández, director of hotel development EMEA – Inclusive Collection, Hyatt Hotels.

The Pros and Cons of All-Inclusive

The pros and cons of all-inclusive need to be balanced to deliver returns and, despite this shift, the fundamentals haven’t necessarily changed much.

All-inclusive resorts are labor-intensive, but more predictable: “You have more visibility on the revenues because you have a much larger part of tour operation that is booked in advance,” said Jover. “But what we’ve seen after Covid is that our costs have risen by 40 percent, so you really need to tackle that into the revenue part... without losing the quality of the experience.”

The chef in the kitchen also knows exactly how many guests they are cooking for, added Cheltout, so there are cost efficiencies in the model.

When it comes to distribution, international chains can bring loyalty program and distribution capabilities, added Paredes Fernández, “and then if you put on the top the offline tour operators, you can have a really strong distribution capability for filling up these hotels.”

However, added Cheltout, with increasing awareness of environmental, social and governance comes an awareness of the fragile ecosystems that many resorts are situated within—and when you have 1,000 guests, tackling food waste and water usage can be challenging. However, the technology is there to help, and he said that Grosvenor House, A Luxury Collection Hotel, Dubai, for example, managed to cut its food waste last year by 72 percent through the support of technology.

Europe vs the Caribbean

Investors also need to be aware of the differences between the European and Caribbean markets. The European all-inclusive market is less established and has historically been seen as a ‘cheaper’ holiday option. The price and availability of land will impact what is possible, as will the shorter season. “We are a little bit stretched in terms of how long you can operate an all-inclusive resort in Europe,” admitted Paredes Fernández.

“In Spain, almost all the coast is built, although there are places in the Mediterranean where there is room to grow,” said Jover. “Greece is one of the best examples—there’s a lot of room to develop, so you can build bigger hotels where you can really offer the same service that we currently offer in the Caribbean.”

The European market also has strengths over the Caribbean, with less dependence on one feeder market, offering resilience in the event of a national crisis.

And although Caribbean resorts are cheaper, as Mediterranean resorts need to charge higher rates to make up for the shorter season, pointed out Jover, they can do so due to their proximity for European customers.

“The upper-upscale hotels we build here will provide the opportunity to get the same profitability we’re getting in the Caribbean."

All those quoted in the article appeared on stage at the Resort & Residential Hospitality Forum held in Lisbon between Oct. 9 and 11, in a session called "All Inclusive: Delivering on Experience and on Profits."

This article originally appeared on our sister site, Hospitality Investor.