Diversification for hospitality businesses

Diversification can be a lifeline for hospitality businesses, or just as easily a financial black hole. Deciding how and when to invest is the key to ensuring success. Deborah Heather, Director of Quality in Tourism talks about diversification and taking the plunge for your business.

There are two core approaches to diversifying your hospitality business; the first is to expand on what you have already got, providing space and opportunity to attract different guests, and the second is to add something totally new, which supports your existing occupancy rates, increases RevPAR and potentially enables a price increase. The best approach will depend on the stability of your existing customer base, the space and scope you have for conversion, the experience you currently give your customers and how any diversification will dovetail with that, and also what you have a passion for, interest in and knowledge of.

Building on current successes

There is a distinctive difference between expanding or upgrading your rooms to provide space for additional guests, and diversifying. Converting existing space into bedrooms, or upgrading the size and standard of existing rooms helps to increase occupancy and potentially raise your prices, but it won’t necessarily attract new markets. Diversification on the other hand has the specific aim of breaking into new markets, adding additional guests to your business, without undermining or alienating the existing clientele – unless you want to change them of course. By definition, diversification means expanding your range of products or services, or making your business more varied, but it doesn’t have to mean a fundamental change in your commercial direction. Without visiting a specific site, understanding any planning restrictions and reviewing any budget restrictions, it is difficult to make clear recommendations; however opportunities for consideration are catered, or self-catered lodges; glamping pods; or cottages, using space and innovation to attract a new, self-sufficient audience. This approach is great for targeting longer, high-value lets, with limited additional skills required by your staff and is a great introduction to diversification and expanding the business.

Alternatively, it is worth looking at what services you can offer as part of your diversification. Weddings and particularly exclusive-use venues are big business at the moment, and could prove a lucrative opportunity to increase occupancy and add additional turnover. Similarly, mid-week conferences can do the same thing, as can events such as school proms and parties. Of course, this depends on your specific premises, local target market and when you require business boosts, but all are worth consideration. They are closely enough aligned with your existing business model, but are a new focus for an hotelier’s passions.

Importantly, you need to look at your occupancy rates very closely, over the course of an average week, and over the course of a year. This will help you to identify weekly lulls and annual quiet periods, and help you to understand what type of diversification will boost your business the most, and at the most appropriate time.

Boosting existing occupancy

Diversification can also be used to give a new lease of life to your hotel, reputation and occupancy, without actually increasing the number of rooms you have available. Diversifying your facilities can be an excellent way to add value, push up your prices, set you apart from the local competition, attract more local custom and even turn your business into a destination hotel.

For example, the addition of world-class spa, gym facilities and therapy rooms can attract new day, evening, overnight and weekend guests, adding additional revenue to the business, and helping the hotel to break into new markets. Your approach can be small-scale, with the addition of enough facilities to improve existing guests’ stays, or large-scale enough to attract spa guests in their own right. Both are of course a change from your current business model and will require additional staff, but are not so far removed as to be an alien concept.

In my time working in the industry, visiting businesses and overseeing inspections, I have seen all sorts of successful business expansions. From the simple addition of outdoor gardens and buildings to host weddings, to grand-scale, high-spec spas, one mini golf course and one huge community library, I have seen it all. Some have been driven by the passion of the owner, manager or hotel group, while others are underpinned by a commercial business case. Success has been driven by thinking carefully about the planning, design and business case for the diversification, and by clear communication with existing customers to help them understand how and why they will benefit from the upgrades.

Whatever your approach to diversification, remember this. If you don’t love it or can’t see the value, chances are your guests won’t either. Don’t diversify to compete; diversify to be the best.

Case Studies:

Treetop Escape, Millbrook Estate, Devon

Kate and Bob Boothby acquired the rural, 32-acre Millbrook Estate (www.millbrookestate.co.uk) in North Devon on 8th March in 2005. At that point, the turnover of the business was just £11,000 a year and there were only three bookings for the whole of the year; before two of these cancelled! Now the business is thriving with 96% occupancy and an expected turnover for 2016-17 financial year of £500,000. When they first viewed the estate, Bob fell completely in love with it by the time he’d walked just 5 metres. Kate asked him what was wrong but he wouldn’t say anything as he wanted their decision about whether or not to buy to be a joint one. The whole place was in a poor state; walls falling down, overgrown gardens, and the self-catering cottages had only a two-star grading, but by the end of the viewing, Kate felt the same. Interestingly it was the warmth and welcome shown by the local pub landlord which clinched the decision. 

In 2005, Bob had just sold his telecoms business to Carphone Warehouse and Kate was working in IT. They originally bought the estate as a place for them to semi-retire and take life easy, but it offered so much potential that they couldn't resist developing it as a special place for others to enjoy.

Since then, Bob & Kate have focussed hard on succeeding, and the main thrust of the business has been to provide a romantic countryside location for weddings, based initially on Kate and Bob’s own love story! Whilst up in the London Eye surveying the expansive urban landscape, they decided to get married; a lovely Sunday lunch with unlimited champagne was already booked for the next day and Bob, as a surprise for Kate, had invited Kate’s brother and his children to join them and help to celebrate the good news (he was obviously confident of what the answer would be!).

The next step was to organise the wedding but the search for a location where they could fulfil their wish for a small, intimate event proved fruitless, even when expanded to a search overseas. Then, Gretna Green seemed to be the only available location for couples wanting a very personal experience that was something different to the big scale, full-on wedding. So Kate and Bob took what many people would consider an unusual step: they decided to get married at home on the Millbrook estate despite it costing £3,000 for a licence. The resulting small, special wedding set in their own beautiful garden was such an enjoyable, memorable day for them both that, for a year, Bob and Kate rented out one of their bedrooms and conservatory to other couples wanting the same experience! The weddings were organised around the theme of a ‘Runaway Wedding’ – weddings especially designed for couples who wanted to make their commitment to each other by themselves, away from the fuss and glare of conventional, large-scale weddings. Kate and Bob realised that they’d hit an unmet niche in the market when they hosted 12 couples in one weekend!

The Runaway Wedding theme provided couples with a romantic, luxury ‘elopement’ wedding in the countryside, where privacy and beautiful surroundings are guaranteed and this has underpinned the development of Millbrook Estate ever since. Building on this success, the couple designed, planned and launched their new ‘wedding in the sky' venue last year - the Tree Top Escape (www.treetopescape.co.uk). This diversification is already proving hugely popular and is almost fully-booked for the whole year. It just shows that there are plenty of couples who’d like their special day to be different from the norm.

Hatherley Manor Hotel, Down Hatherley, Gloucestershire

Hatherley Manor Hotel is a magnificent 17th Century manor house set amidst 37 acres of beautiful grounds and gardens, in the heart of the Gloucestershire countryside on the edge of the Cotswolds.  The stunning country house hotel trades well as a wedding venue and large event & banqueting space - one of the largest in the county - offering a number of function rooms within the property.  The wedding market has become increasingly saturated over recent years, with many couples looking for ways to reduce costs in an effort to save money on the UK average £24,000 cost of getting married.

A few years ago, Hatherley Manor identified an opportunity within the spa tourism market, which is reported to be worth around £1.4 billion, with seven million spa trips taken annually across the UK; the market is still seen to be at a relatively early stage of development. The management team saw the potential to capitalise on this by building a spa at the hotel, with the potential to benefit existing customers, attract new guests and increase local custom. 

The plans were drawn up and approved, and work has now begun on a £3million state of the art spa.  The spa itself will have six luxury treatment rooms, a swimming pool with garden views, a vitality pool, a thermal suite, including sensory showers, a sauna, steam heated loungers, a relaxation room and a gymnasium. It will also boast its own private spa lounge, exclusive champagne bar and five luxury SPA bedrooms, where you will be able to enjoy walled garden views from private balconies. In addition to this, there will be a shared rooftop terrace to soak up the late evening sun. 

Stephen Trowbridge, General Manager at Hatherley Manor Hotel says 'We are all really excited about the launch of the spa, seeing the last couple years of planning now physically taking shape is fantastic for us. We believe that the addition of the spa will be a great upgrade to the hotel for our visitors but also the local residents and businesses that we serve. We are aware that it will change our current market proposition and the clientele that we receive into the hotel, but believe that this is an exciting opportunity. The spa is due to open in December 2017, so we await the results of how this affects the hotel’s prosperity.”

This article is from www.hotelowner.co.uk

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