Club Med plans to expand beyond its only U.S. property, the Club Med Sandpiper Bay in Port St. Lucie, Florida, with more all-inclusive properties.
REPORT FROM THE U.S.—As hoteliers wrestle operating margins and scrutinize promising market niches in a quest for incremental growth in a recovering tourism economy, the all-inclusive business model that has long proven successful in destinations such as the Caribbean and Mexico is suddenly a hot topic in the U.S.
"I can't name names, but I can report that multiple—emphasize plural—major hotel companies have hired us to explore all-inclusive strategies, including currently," said Scott Berman, principal and industry leader for hospitality and leisure at PricewaterhouseCoopers in Miami. "The topic has been on people's radar for a decade, but the momentum has been more recent. And that interest is a response to the market and the companies that are already there."
Club Med, for one, has announced plans to develop or acquire several U.S. properties over the next five to 10 years; Omni Mount Washington Resort in Bretton Woods, New Hampshire, has considered conversion to the all-inclusive model; and Hilton Hotels & Resorts is currently exploring the all-inclusive opportunity in the U.S. market.
The reason for the interest is obvious, said Tom Carr, founder and president of online travel agency All-Inclusive Outlet, which exclusively sells all-inclusive properties.
"Based on our analysis of the rapid growth in organic searches for all-inclusive properties, there is no doubt demand for the model is surging, including in the U.S.," Carr said. "And it is value-based, as a result of the recession."
In addition to its lure for consumers, the all-inclusive model also offers distinct advantages to hotel operators, Carr said. "It's easier to accurately predict revenues and food-and-beverage costs," he said.
Berman agreed that is an important and proven advantage of the model. "Hoteliers can access a lot of data to make good forecasting decisions," he said.
But there is also a key disadvantage. "The downside is an inability to upsell and generate additional revenues," Carr said.
To address that challenge, the trend is now toward the well-established cruise ship model. "You get on the ship at one price, then they upsell you," Carr said. "And that is what we're seeing now among the most sophisticated of the all-inclusive hotel operators."
Although the business model has been limited to a narrow range of destinations so far, there is little doubt it has delivered strong bottom-line results, Berman said. "There is indisputable data that shows that the all-inclusive model, on an operating margin basis, is more profitable than a traditional hotel," he said. "That's because at an 80% occupancy rate, they know exactly what they need to buy and exactly how much labor will be required. So they have far less guesswork in their forecasting than a traditional hotel."
Pixley Tyler Hill, a third-generation owner of Tyler Place Family Resort in Highgate Springs, Vermont, agreed with Berman that accurate prediction of costs and revenues is a fundamental advantage of the all-inclusive model, which her 70-unit, seasonal family resort has practiced since the 1940s.
In fact, Hill said, there are a number of long-established all-inclusive hotels in the U.S., but they tend to be independent New England resorts such as Tyler Place or dude ranches located from upstate New York to Colorado and Wyoming.
Owners of the 70-unit, seasonal Tyler Place Family Resort in Highgate Springs, Vermont, said accurate prediction of costs and revenues is a fundamental advantage of the all-inclusive model.
Xavier Mufraggi, the Miami-based president and CEO of Club Med North America, said 80% of all guests at all-inclusive resorts in the Caribbean and Mexico originate from the U.S. That is the key indicator of the domestic market potential of the business model, he said.
Based on that potential, Club Med renovated its only U.S. property, the 25-year-old, 307-room Club Med Sandpiper Bay in Port St. Lucie, Florida, and repositioned it as an upscale family resort that uses an updated, upsell-oriented all-inclusive model that has been highly successful over the past year.
As a result, Mufraggi said, Club Med will develop or acquire several additional U.S. properties over the next five to 10 years and deploy the model engineered at Sandpiper Bay.
"The most important business factor is that the all-inclusive model meets a need of the customer," Mufraggi said. "What we have seen over the years in the evolution of it is that it has always been seen as a value proposition. And now that perception has moved into the upscale segment. But more recently, convenience has become the No. 1 consideration. And we have found that to be true among upscale and wealthy clients from all over the U.S."
At the same time, he said, the all-inclusive model delivers a very different customer mix from a traditional hotel. "Eighty percent of the business is leisure business, and they typically come for a week instead of the two or three days they spend at a traditional hotel," he said.
And a healthy majority of Club Med's business comes from its own website, as opposed to OTAs or other third parties, which enhances profitability because no commissions are paid.
Location, location, location
Although site selection is always a critical consideration, its importance is multiplied exponentially when it comes to the question of the viability of all-inclusive hotels in the U.S., Carr said. "Could you do Florida or Hawaii or California?" he said. "Yes. But all-inclusive properties tend to be located in tropical environments with a beach. You don't see them in cities."
Based on the growing number of inquiries she gets from clients and prospective customers, Ellen Sisser, manager of leisure sales and development at brick-and-mortar travel agency Omega World Travel in Fairfax, Virginia, believes the all-inclusive model is viable in the U.S. market.
"There is a certain segment of the family market that would prefer to have an all-inclusive model and be able to know exactly what their vacation is going to cost," she said. "I get questions quite often about whether an all-inclusive resort is available in Hawaii. And I also think it would be feasible in places like ski resorts in Colorado or Utah."
However, Sisser said, the appeal would not be the same in New York. "That's because the draw of New York is the fact there are so many things to do," she said. "I don't think there are many people who would go to New York but stay within a hotel property for a week without going out."
Meanwhile, Omni Mount Washington Resort in Bretton Woods, a family resort opened in 1902, has considered conversion to the all-inclusive model after having success with several all-inclusive packages, said director of sales and marketing Craig Clemmer.
Hilton Hotels & Resorts debuted its first all-inclusive property, the Hilton Puerto Vallarta Resort in Mexico, in October. Executives are now exploring the all-inclusive opportunity in the U.S. market. "Our latest (research) focused on family resort travel and found that more than 90% of families are interested in all-inclusive vacations," said Bonnie Campagnuolo, Hilton's senior director of resorts and product marketing.