State of the Inn Business

Sometimes, the macro news obscures counter trends among niches or segments of the larger picture. It appears we are experiencing that phenomenon in relation to the Bed and Breakfast and Inn business.

The larger hospitality industry is faced with well publicized declines in both Occupancy rate and Average Daily Room rates (ADR). Hotels and resort properties rely heavily on business meetings and business travel. These are soft business expenses which tend to get cut early on in an economic downturn. The natural fall off in activity is complicated by a record number of new rooms coming on line; the expansion planned and commenced a couple of years ago when the economy was perceived to be in excellent condition.

It is a very different story for B&B’s and Inns. Our core business is leisure travelers and for the most part, that business has remained strong. 70% of Inns and B&B’s had business results in 2008 equal to or better than 2007, according to a survey by the Professional Association of Innkeepers International (PAII). Our own, more impressionistic survey supports this conclusion. 2008, with the exception of November, when reality was no longer able to be denied, was a positive year for most Inns.

Importantly, we have at this point reviewed results for January, 2009 for 15 Inns across the country. 13 report increased sales and occupancy over January 2008. This is astounding. Innkeepers have mentioned two reasons for this. First is the strong increase in repeat business. Second, and perhaps more speculative, several Innkeepers mentioned that guests want the convenience and economy of “drive to” mini vacations over “fly to” luxury trips.

It is clear that Inns and B&B’s, unlike their larger counterparts, are weathering this economic storm quite well. Some of it is the ability to provide quality vacation options at a modest price. However, the Inn business is benefiting from several positive trends in our niche of the hospitality industry. These trends are helping in the short run but will have even greater long term benefits for Inns. In brief, effective, measurable Internet marketing tools are readily available at reasonable cost. The strong and growing influence of review sites, especially Trip Advisor, favors the smaller, more personal B&B’s and Inns over larger Resorts and Hotels.

After years of romantic getaway, amenity laden rooms at Inns, guests are increasingly looking for personal contact with the Innkeepers and with other guests. This increased interest in social contact is reflected in the reviews. The majority of the good reviews focus on the Innkeepers (and so do the bad ones).
The personal relationship leads to loyalty and may explain the increase in both repeat business and guest referrals.

There are other factors that bode well for Inns. Our romantic getaway emphasis over the past 15 or so years was aimed at the baby boomer market of 30 and 40 somethings. They are now 50 and 60 somethings and they still travel to Inns. The interest now is on activity, adventure and education. Smart Innkeepers are developing packages that go beyond roses and champagne and focus on activity. Inns are well suited to satisfy these new desires. From an age demography our market is growing, with a broader age range than previously. But, because of the economic climate the number of Inns, for the first time in a long time, is not growing.

All this demonstrates that the Inn business is not reflective of the dire prognostications so often heard about the larger hospitality industry. Inns and B&B’s are in good shape with many positive trends pointing to long term success.

For future Innkeepers there is more good news. The smaller local banks we have relied on are still very much in the market, and they are lending at rates lower than we have seen in a long time. On top of that the federal government is encouraging the SBA (Small Business Administration) to beef up 504 loans. Those loans will finance 30% of a purchase as a second mortgage behind a bank’s 50%. Interest rate on the 504 loans was 5.72% in January, fixed for 20 years. The recently passed stimulus package provides for the government to pay the 2 and1/4% origination fee on those loans.

Finally, this is a buyers’ market. Good Inns and B&B’s will not be fire sales, but most owners understand the need for flexibility in this market.

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