Regional Export Director – Europe, Middle East, Africa & AsiaEmail me
We love a good data acronym here at SKOPE, which is not too surprising considering the fact we build display fridges that harness app-enabled data analysis to help businesses slash their energy costs.
And as data acronyms go, RevPAR is a favourite.
Just like every piece of jargon out there it’s great for gate-keeping, if you’re that way inclined, plus it simply sounds cool. Like something you’d see on a dial in a muscle car, or a social media hashtag for a festival. #RevPar.
However, it’s also pretty much the main metric for hotel operators and investors to judge the profitability of their businesses, so as gate-keeping jargon goes it’s actually a bit of a heavyweight.
RevPAR is a hotel’s average daily room rate (or ADR) multiplied by its occupancy rate, and it's a really relevant metric right now - not least because Dubai just saw a record drop in both RevPar and ADR.
But what isn’t so impressive about RevPAR is its susceptibility to timing.
As you may know, hotels have lifecycles.
Broadly speaking, they’re established first and have their offering and processes refined. That’s stages one and two. They then really get into the swing of things, simply doing what they do best in the niche they’ve carved, before they pass over the peak of their performance bell curve and have to look at renewal to remain competitive.
Each stage has its own asset challenges to overcome, and depending on who you talk to there are different stages to consider. But in every case, timing is everything – and if the timing is off, RevPAR can head south.
And this is especially the case in the last stage, renewal. A hotel that doesn’t plan ahead for the arrival of this part of the lifecycle will simply miss the bus to create another bell curve in their future profitability. It’s not necessarily inevitable, unless you don’t do anything to plan for it.
It sounds counter-intuitive because it requires a little pessimism when everything seems to be going right, and has been consistently doing so for years even. But the assumption that everything will remain hunky-dory is the invite for RevPAR to slowly start declining.
Why? Simply put - tastes change, new competitors alter the market landscape, and the assets you require to deliver excellent customer experiences aren’t immortal.
And you know what? That’s universal to all hospitality businesses, not just hotels. It’s just that your small family restaurant or catering start-up probably isn’t exposed to this thinking because they haven’t got an army of asset managers chasing them for business.
"In every case, timing is everything – and if the timing is off, RevPAR can head south."
But if you start looking at your business as a living organism with its own life stages you can start to plan ahead like an asset manager.
For example, if you’re still in the first stage you have an opportunity to think about how you can make decisions now that will help you refine and improve in stage two. Like choosing a flexible leasing plan for key assets that comes with a time-saving service package, instead of going all-in on asset ownership. Or opting for equipment that will help you monitor and improve energy consumption against the long-term trend for power price increases.
Equally, if you’re in stage three and everything is going swimmingly, what trends and new, competitive offerings can you look at for influencing your renewal in a few years? It may not just be the décor that you’re replacing, but fridges coming to the end of their prime efficiency, or even an investment in new customer-facing technology.
At the end of the day, it just plans to think ahead – even when everything is telling you to keep on doing what you’re doing now.