The rise of select service hotels
Forget the explosion of brands – now comes a new type of hotel to add to the confusion of Full service and Limited service hotels: the select service hotel. The demarcation that separates one hotel asset class from another is indeed getting blurred. The lodging industry catagorises hotels into six segments known as “chain scales” – Luxury, Upper-scale, Upscale, Midscale and Economy – where the first five come with food & beverage.
Up until recently, there was another industry-wide category that consisted of limited service and full service. Now comes along a third category, referred to as ‘select service’ – a kind of hybrid that sits in-between the two.
Typically, a full service hotel (think Hilton/Marriot), offers services such as bed turn-down, newspaper delivery, wake-up calls, 24-hour in-room dining, several food & beverage options, banquet & meeting rooms, spa, gym, laundry, 24-hour valet service, concierge, staff to help with luggage, security guards and a shuttle to and from an airport. This all-in-one experience is at a high price point.
Limited-service hotels (think Hampton Inn/ Holiday Inn Express), are geared towards a more modest price point albeit less services than at a full service hotel. Running with less staff on hand and on a ‘lean and efficient’ business model you can expect to carry your own luggage. There may be a small pool and/or fitness centre and while they usually include a breakfast as part of your stay, you will probably have to go off site for dinner.
Select service hotels are comparable to limited-service properties, but offer some amenities traditionally associated with full service hotels, such as meeting space or casual dining outlets. Since select service hotels offer a compelling value proposition that includes near full service amenities at a lower price point, business travellers who favour the ‘on-the-go’ lifestyle, are beginning to show a preference to this type of hotel.
Select service hotels are also increasingly favoured by hotel investors and developers due to lower up-front cost of capital and increased operating margins. Construction is faster and more cost effective than full service hotels. Additionally, select service hotels are also more efficient to run than full service properties owing to the limitation on food, beverage and meetings space – all of which contribute towards minimum overhead costs, especially payroll. Consequently, if properly run achieving operational efficiencies leads to generating significantly higher margins as a percentage of gross operating profit than that accomplished by full service hotels.
The emergence of select service has made hotel operators rethink on delivering a hotel guest experience. Several select service operators have initiated an a la carte payment approach by rolling out a new pricing structure on a low-priced room rate with additional services such as gym and pool available on a ‘pay-as-you-use’ basis. Adapting fast to technology that ranges from check-in automation to guestroom design, select services are poised to simplify the hotel experience for the ‘connected’ traveler.
Unsurprisingly, some hotel owners are putting full service hotels under the microscope as candidates for conversion to select services. One New York full service hotel replaced formal dining outlets with a quick service food court. Others have eliminated in-room dining offering, choosing instead to outsource room service to restaurants in the locality.
Another novel approach has been the division into two parts of a single hotel into two different brands, where an extended -stay format is paired with either a limited or select-service offering to operate as a duel brand. In this type of bifurcation, the separately branded hotels share meeting rooms, fitness centre, swimming pool, security, back-of-the house operations and even do check-ins/check-outs from one front desk, thereby sharing operational costs whilst reducing fixed costs. The downsides that can arise from such an arrangement are standards of operation and workforce challenges due to shared staff having to switch from varied service levels for each respective brand…from moment to moment.
Shorter time to build, decreased construction costs and higher operating margins remains favoured by hotel investors and developers seeking a hotel proposition that addresses the shifting preferences of travellers, the segment’s reliance on corporate travel may contribute to significant decreases in profits when compared to full service hotels during periods of slow economic growth or other upheavals.
Ilzaf Keefahs – writes on hospitality related matters that he is passionate about, and likes to share his views with hoteliers and customers alike.
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