Guests Less Satisfied With Amenities, Guestroom Features

J.D. Power & Associates — Hotels, 7/29/2008 10:19:00 AM
As hotel brands contend with the challenge of trying to cut costs during economically difficult times while still attempting to meet high customer expectations, overall satisfaction with hotels is down notably in 2008, according to the J.D. Power and Associates 2008 North America Hotel Guest Satisfaction Index Study(SM) released today.

Now in its 12th year, the study measures overall hotel guest satisfaction across six hotel segments: luxury, upscale, mid-scale full service, mid-scale limited service, economy/budget and extended stay. Seven key measures are examined within each segment to determine overall satisfaction: reservations; check-in/check-out; guest room; food and beverage; hotel services; hotel facilities; and costs and fees.

Four of the six segments — upscale; mid-scale full service; mid-scale limited service; and economy/budget — decline in overall satisfaction, compared with 2007. In particular, overall satisfaction with the economy/budget segment declines significantly, posting the largest year-over-year decrease of any segment since the inception of the study. Among economy/budget properties, the largest declines in satisfaction occur in the guest room and food and beverage measures.

“While it may appear that difficult economic times are forcing consumers to move down market, or that an increase in average room rates has strained this price-sensitive segment, in actuality, only 23 percent of guests indicate that they are new to economy/budget hotel chains — slightly fewer than in 2007,” said Linda Hirneise, executive director at J.D. Power and Associates. “For economy and budget properties, the challenge lies in meeting high customer expectations regarding product factors, such as the comfort of beds; room decor; in-room business amenities; and the variety of complimentary food and beverage choices. While many economy and budget brands had begun implementing new product and food and beverage initiatives in the past few years, tight economic times may have forced these properties to slow their progress on these enhancements.”

The study finds that although satisfaction is down overall, the majority of hotel brands that rank highest in their respective segments in 2008 have maintained consistently high levels of customer satisfaction since 2007. Five of six brands receiving awards in 2008 have ranked highest in their segment for at least two consecutive years.

The following hotel brands rank highest in guest satisfaction within their respective segments:

— Luxury: The Ritz-Carlton (for a second consecutive year)
— Upscale: Embassy Suites Hotels (for a second consecutive year)
— Mid-Scale Full Service: Hyatt Place
— Mid-Scale Limited Service: Drury Inn & Suites (for a third consecutive
year)
— Economy/Budget: Microtel Inns & Suites (for a seventh consecutive year)
— Extended Stay: Homewood Suites (for a second consecutive year)

“Microtel Inns & Suites performs a particularly impressive feat by ranking highest in the economy/budget segment for a seventh consecutive year — something no other brand has achieved in this study’s 12-year history,” said Hirneise. “Drury Inn & Suites has achieved the highest ranking in the mid-scale limited service segment for a third consecutive year, and has also attained a 3-year high in overall satisfaction.”

The study finds that problems with hotel/room maintenance are more common in 2008, compared with 2007, with this issue being one of the top five most frequently reported by guests across all segments. In the extended stay segment, Internet usage (particularly connection and speed) makes the list of the top five problems for the first time in 2008. Among luxury hotel guests, parking issues emerge within the top five most frequently reported problems for the first time.

“Changes in the problems that are most frequently reported by customers demonstrate how product issues have affected guest satisfaction in all segments throughout the industry,” said Hirneise. “Although the market is softening, hotel chains should realize that now is not the time to ignore facility and room maintenance. Guests expect clean surroundings and rooms with everything in working order. Sacrificing maintenance standards in order to save on operating costs could mean also sacrificing the satisfaction of guests. Technology offerings also need to be in top working order to avoid disappointing guests. In addition, while guests who visit luxury hotels tend to be somewhat more immune to price pressures, parking fees are becoming more commonplace and an increasing source of dissatisfaction among these guests, who may be used to complimentary parking.”

The study also includes the following key findings:

— Guest awareness of property-initiated “green” programs declines
significantly in 2008, with 57 percent of guests stating that they were
aware that their hotel offered environmentally friendly conservation
programs, compared with 63 percent in 2007.
— Nearly nine of 10 guests (89%) say they prefer a smoke-free hotel
environment in 2008, compared with 79 percent in 2006.
— The proportion of hotel guests making reservations online continues to
increase steadily — 52 percent of guests made their reservations
online in 2008, compared with 44 percent in 2007.

The 2008 North America Hotel Guest Satisfaction Index Study is based on responses gathered between June 2007 and June 2008 from more than 53,000 guests who stayed in a hotel between May 2007 and June 2008.

Find more detailed findings on customer satisfaction with hotels by reading an article and reviewing hotel ratings at JDPower.com.

STR: U.S. Posts Record Revenue In 2007

Hendersonville, Tenn. (July 17, 2008) — Pre-tax income for the United States hotel industry in 2007 increased 5.3 percent to a record $28 billion, according to the recently released 2008 Hotel Operating Statistics (HOST) Study issued by Smith Travel Research (STR).

The industry posted an all-time best $139.4 billion in revenue in 2007—which is over $6 billion more than it generated in 2006 ($133.4 billion)—and for the second consecutive year, gross operating profit as a percentage of revenue came in at 41.3.

“2007 was another excellent year for the U.S. hotel industry with record revenues and record profits,” said Mark Lomanno, STR’s president. “However, as the American economy slows, we are expecting a tougher operating climate for U.S. hotels in 2008.”

The HOST Study is the most extensive and definitive database on U.S. hotel industry revenues and expenses. The 2008 version is derived from the operating statements of more than 5,200 hotels.

The HOST Study contains information on hotel revenues and expenses, and presents information by department including rooms, food & beverage, marketing, utility costs, property and maintenance, administrative and general costs, as well as selected fixed charges.

Year-over-year Gross Operating Profit (GOP) during 2007 increased for full-service hotels in the United States and decreased for limited-service hotels in the United States, according to the study.

Collected data indicates that GOP (before Management Fees and Franchise Royalty Fees) for full-service hotels increased 3.8 percent to 35.7 percent of total revenue in 2007 from 34.4 percent in 2006. Meanwhile, GOP for limited-service hotels in 2007 decreased to 52.0 percent of total revenue from 55.4 percent in 2006.

Other highlights of the 2008 HOST Study include:

• Full-service hotels used 3.5 percent (down from 3.6 percent in 2006) of total sales for franchise fees (royalty), while limited-service hotels paid 5.0 percent (up from 4.7 percent in 2006).

• Full-service hotels paid 3.7 percent (level with 2006) of total sales for management fees, while limited-service hotels used 4.2 percent (up from 3.9 percent in 2006).

• Limited-service chain-affiliated hotels reported a higher ratio to sales for Income Before Fixed Charges (47.3 percent) than Independent hotels (40.6 percent). But Independents posted a higher amount per occupied room night, with $72.37 compared to Chain-Affiliated hotels at $44.79.

• After franchise fees, management fees, taxes, insurance, and capital replacement, full-service hotels recorded an Amount Available for Debt Service & Other Fixed Charges of $17,003 per available room in 2007, up from $15,307 in 2006. This equates to 25.3% of total revenue.

Restaurant Industry Overview

The restaurant industry is approximately a $550 billion industry with a broad
reach throughout the U.S. economy and society. The $550 billion sales total includes
about $390 billion of eating and drinking place sales, what investors and consumers
consider the core of the restaurant industry. The National Restaurant Association
estimates there are 945,000 restaurants throughout the country. Although our focus is
on the larger, publicly owned restaurant businesses, more than 70% of the total
restaurants in operation are run by independent operators. In addition, the larger chain
systems, especially in the quick service restaurant (QSR) or fast food sector of the
industry, are mostly franchised. In many restaurant systems, franchisees operate 80% or
more (with the emphasis on more in recent years) of the total restaurants. The large
number of independents and the franchised nature of many of the large chains make
restaurants a “Mom & Pop” industry. This is true despite the significant presence of
large chains with nationally advertised brands. Chains have been gaining market share
in both the casual dining and QSR sectors for many years.
The restaurant industry enjoyed significant growth from the 1960’s through the
1980’s as Americans shifted their lifestyles to eat more meals away from home.
This growth coincided with the increasing presence of women in the workforce and the
growth of the two-wage earner household. Two wage-earner households have more
income but less time for household tasks and this combination of greater affluence and
time pressure pushed Americans to eat more meals away from home. The American
mindset toward eating out shifted from considering it a special occasion to embracing
eating out as part of daily life. For many years, restaurant sales steadily increased as a
percentage of consumers’ overall food budget spending at the expense of more
traditional food at home sources. This shift in eating patterns seems to have been
arrested in recent years (see Exhibit 1.), perhaps reflecting cyclical pressures on the
consumer but also coinciding with a leveling of women’s participation in the work
force. The latter development suggests that this recent shift in consumers’ food
purchasing behavior may reflect secular or life style change. Nevertheless, the

National Restaurant Association is forecasting sales growth in 2008 at a 4.4% rate to a
total of $558 billion, which represents about 4% of the country’s gross domestic
product. Within that forecast, eating and drinking place sales are also expected to grow
at a 4.4% rate. Through May, eating and drinking place sales as compiled by the
Department of Commerce have grown about 5%.