The Hotel Industry’s New Buzzword: Diversification

To understand what has happened to the lodging industry, it helps to look at breakfast cereals.

Once there were only cornflakes and oatmeal, but now there are hundreds of cereals, all variations of the originals.

Likewise, instead of hotels and motels, there are inns, all-suite hotels, extended-stay properties, deluxe hotels, budget motels, boutique hotels, business hotels, vacation villas, condominiums, townhouses and so on.

“We offer a dizzying array of choices, and it’s going to get worse,” says Chekitan Dev, associate professor of strategic marketing at the Cornell University School of Hotel Administration.

Worse? Not better?

“Well, for [consumers] it’s a good-news, bad-news story,” Dev says.

The good news: You have more choices when it comes to where you will stay on your next business, vacation or family trip.

The bad news: Soon you will have even more choices when it comes to choosing where to stay on your next business, vacation or family trip.

“The consumer has to ask herself, ‘What am I going for, and who am I going with?’ says Lalia Rach, dean of New York University’s Center for Hospitality, Tourism and Travel Administration. “If it’s leisure, is it romantic leisure, is it for ‘edutainment’ or something else? If I am taking my children, I want a different type of product and stay and experience than if I weren’t taking my children.”

Rach attributes the diversity of “products” to more sophisticated, demanding consumers: “We say, ‘Today I am a leisure traveler; tomorrow I’m a leisure traveler with children; next week I am a leisure traveler with romance on my mind.’ And the hotels are saying, ‘Yes, we can provide that.’ ”

Up until 20 years ago, the industry had been growing only vertically, as they say in business circles. There was the standard hotel room, and there were lodgings above and below the norm, but that’s where the product differences ended. That made choice, based on price, a fairly simple matter.

But, Rach notes, “It’s been the most exciting 20 years [in lodging].”

These days, the trusty price formula--the less/more you paid, the less/more you get in amenities, furnishings and location--applies only at the extreme ends of the industry. The rest of the properties are in the murky middle.

Take Orlando, Fla. There are budget hotels, such as the Best Western ($59), and luxury, such as the Walt Disney Swan and Dolphin ($359). The middle has dozens and dozens of hotels: the Sheraton ($89), Hampton Inn ($84), Holiday Inn ($79), Days Inn ($85) and so on.

If you want to take full advantage of all the lodging the world has to offer, you must look beyond hotels.

There are inns, vacation-club condominiums, time shares, all-inclusive resorts, thousands of bed-and-breakfasts, theme properties and rentals of all sorts, from studio apartments to palatial villas.

“We are growing in leaps and bounds,” says Tony Haeusler, general manager in North America for Interhome, a property-rental company. “When we started [in the United States] 11 years ago . . . it was a very unusual idea for Americans [to rent someone’s vacation home, especially overseas].”

But the European vacation fashion caught on quickly. Interhome has led the market in European vacation rentals for three decades and now has 20,000 properties in 15 countries.

“If you go to Europe, you don’t just go to the beach,” says Haeusler, who was raised in Switzerland and heads Interhome’s office in North Miami Beach. “You want to live and integrate with the locals more than you would in a hotel.”

Lodging has been a strong industry in the last few years; 1998, the most recent year for which figures are available, was the most profitable, earning 23% more than 1997 and nearly double 1996, according to Smith Travel Research, a hotel-industry research firm in Hendersonville, Tenn.

Although growth is slowing, the average room rate continues to increase. In 1998, it was $78.62, about $21 more than it was in 1990, according to the American Hotel & Motel Assn.

Hotels form the only segment of the lodging industry mature enough to have reached the confusing stage that industry types call “fragmenting” or “diversification.”

Fragmenting most recently has brought consumers boutique hotels, those oh-so-chic properties that emphasize design, amenities and the elusive quality of cool; extended-stay properties, created with more than the usual comforts of home or office for the long-term guest; and all-suite hotels, which are what their names imply.

Holiday Inn launched an ambitious all-suite property last year. The Holiday Inn Family Suites Resort in Orlando, Fla., offers two- and three-room suites in seven distinctive designs. They include KidSuites, with colorful themes and separate areas for parents and kids; Cinemasuites, with 60-inch TVs, surround sound and dual recliners; Fitness Suites, with private workout rooms; SweetHeart suites, with heart-shaped whirlpools, king-size beds, mood lighting, remote-controlled stereo and so on.

Rach says hotel companies need to find ways to differentiate themselves in consumers’ minds. “Very few hotels even talk about their beds,” she says. “Think about it: They talk about amenities, service and the experience.”

Long ago, amenities meant air- conditioning, a telephone in every room and room service. Then it was mints on the pillow, turn-down service and TVs, then TVs with cable, mini bars and in-room safes. Now there are expensive toiletries, bathrobes and rooms with dual phone lines and data ports.

How far will diversification go?

Hilton has said it is preparing to create the first luxury hotel in space.

Tang, anyone?

Christopher Reynolds is on assignment.