In a marketplace where demand for travel and dining out have remained remarkably strong in the face of rising prices driven by inflation, what’s the best response from hospitality businesses that are weighing the increasing cost of investing in their businesses to secure a competitive advantage?
Before we tackle that question directly, let’s take a closer look at just how resilient that demand has been – and which businesses are benefitting most from it.
A prime example of demand undaunted by inflation and other challenges is lodging. The overall price of a place to stay when traveling has climbed 23.6% over the last two years, but a new study from global accommodations search platform Trivago reveals there is a continued desire to hit the road. Consumers across the U.S. won’t let rising prices stop them, with a majority (77%) planning to dip into their savings this year to travel. Despite the current cost-of-living crisis, 36% view a vacation as an essential expense.
You know things are going your way at least a little when consumers view your offering as something they have to have. Take dining, for another example: the overall restaurant price per meal is up 19.7% since 2019, but only one in eight consumers are changing their dining habits amid inflation and economic pressures.
So, good news all around for the industry, right? Well, the distribution of that good news has been a little lopsided. While the pandemic has shifted travel, experiences, dining, and vacations more firmly into the “must-do” mindset of Americans, not all hospitality companies are winning from the trend.
In a recent survey of over 3,200 hospitality managers, we discovered that firms investing in facility improvement and expansion outperformed those that didn’t by a wide margin:
- Those with a significant remodeling/renovation investment in the last 18 months grew 37%
- Those with a significant FF&E investment in the last 18 months grew 22%
- Those with a significant audio/visual investment in the last 18 months grew 17%
- Facilities opened within the last 18 months grew 44% faster than any other category of survey participant
- Those without any of these significant investments saw a decline in revenue by an average of 11%
Clearly, continuing to invest in facilities is something businesses can’t afford to pause. But in an environment where access to capital remains turbulent, cash reserves are light, and economic concerns persist, how can you invest in growth with confidence? Here are three steps you can take right now:
- Survey your customers. Simply ask them to fill out an online survey or email them post-stay to discover the areas of facility improvement that might be needed to remain a location of choice.
- Develop a facility improvement plan. Only 24% of hospitality managers had a facility improvement plan in place when surveyed. If those improvements are a key to long-term growth, a plan is essential. Leverage the insights from your survey and begin planning to address the most urgent items quickly.
- Fund your plan. The biggest reason most GMs were without a facility improvement plan was a capital concern. But with a 15% to 40% growth opportunity on the table as a potential result from capital investment, finding specialty lenders with experience funding hospitality growth in all economic cycles is a must.
LEAF can help. Our hospitality finance team has a demonstrated track record with the sector for more than 30 years and through all kinds of business cycles. We offer highly competitive equipment and growth capital for businesses like yours.