US brands weigh all-inclusive potential
 
US brands weigh all-inclusive potential
07 MARCH 2012 10:13 AM

Last fall’s announcement by Hard Rock Hotels to convert three properties in Mexico has renewed interest by major U.S. brands. But don’t expect the all-inclusive model in the U.S. anytime soon.

REPORT FROM THE U.S.—For decades, all-inclusive resorts have been a mainstay in tropical destinations such as the Caribbean and Latin America, yet the large, international chains have traditionally remained on the sidelines. But if recent moves in Mexico by Hard Rock International are any indication, it might finally be time for the big boys to get in the game.

Hard Rock announced an agreement in October with Palace Resorts LLC to convert three of Palace’s properties in Cancun, Puerto Vallarta and Riviera Maya into Hard Rock Hotels. The rebranded resorts, set to debut throughout 2012, will offer upscale, “ultimate all-inclusive” packages to guests and could be a sign of broader things to come.

“U.S. hotels are keeping an eye on this development, and I don’t doubt that the Hard Rock movement will renew that interest,” said Rafael Blanco Canto, executive VP of Viva Wyndham Resorts. “It’s a very successful sector.”

Although mega-chains such as Marriott International, Hyatt Hotels and Resorts, and Starwood Hotels and Resorts Worldwide remain noncommittal, both Wyndham Worldwide and Hilton Hotels & Resorts are steadily building and maintaining an all-inclusive portfolio in recent years. And both companies are seeing a benefit from offering this type of product within their branded selections.

“They certainly work for us,” said Bonnie Campagnuolo, senior director of resorts and product marketing for Hilton Hotels & Resorts. “We always look to have something that makes sense for that source market. The all-inclusive option is very attractive to certain groups, so we like to have a broad portfolio that lets people choose what type of vacation and what type of resort property they go to.”

Hilton currently has nine all-inclusive properties worldwide: five in Egypt, two in Turkey, one in Costa Rica and one in Jamaica. The company also is developing a new-build, all-inclusive resort in Puerto Vallarta scheduled for a summer 2012 opening.

Viva Wyndham has six branded all-inclusive properties: three in the Dominican Republic, two in Mexico and another in the Bahamas. Although there aren’t any new all-inclusive Viva Wyndham properties planned at the moment, the existing resorts are fine-tuning their offerings to satisfy a steady stream of savvy demand.

“The customers are definitely getting more and more discriminating, and all-inclusive has become more sophisticated. Comfort, new activities and a variety of restaurants are the name of the game,” Blanco said. Over time, Wyndham has added amenities including spas and multiple a la carte restaurants to its all-inclusive resorts. “When the product started in the mid-’80s in the Dominican Republic, it was a very simple product. Nowadays, that is no longer the case. You will find a very high-end product,” he said.

Market leaders

Rendering of the Hard Rock Cancun, currently under renovation

Richard Katzman, managing director for HVS Mexico City, said these days most of the 4- and 5-star resorts in many Mexican and Caribbean markets offer either a hybrid or fully all-inclusive plan. In mature markets such as Cancun, he said, out of approximately 23,000 upscale rooms only about 30% are in traditional, European plan properties; among approximately 38,000 rooms on the white-hot Riviera Maya, less than 10% operate on a European plan. With the markets so heavily skewed in one direction, chains not offering all-inclusive are faced with a choice between serving a specific, dedicated niche or swimming against the oncoming tide.

 

“The international operators of full-service European plan-type resorts have, as far as I can tell, had the need to ask themselves the question as to how they perform in a market that has this high concentration of all-inclusive-type projects. It’s pulling demand in that direction,” Katzman said.

The resorts markets in Latin America and the Caribbean have been dominated in recent history by multiple Spanish chains, including Meliá Hotels International, Riu Hotels & Resorts, Grupo Posadas, Iberostar Hotels & Resorts and Barcelo Hotels & Resorts, but some insiders question if Spain’s banking crisis will slow these groups’ ongoing growth. In addition to Hard Rock’s venture, one of the more active operators in the segment is U.S.-based AMResorts, having some wonder if more American interest is on the horizon. Recovering debt markets paired with increasing international arrivals, will only fuel the possibilities.

“What I see now is that supply and demand is becoming more in equilibrium. That will really bring a wave of new construction, I would say, beginning next year,” Wyndham’s Blanco said.

A tailored solution
In the meantime, existing resorts are working to provide an experience commensurate with what one might expect from a Hilton or Wyndham, which have mostly European plan properties.. One challenge is striking a balance between food-and-beverage profitability and quality for the guest, but both chains are stressing innovation as the solution. For example, Hilton has been evolving its F&B model at its all-inclusive resorts to move away from reliance on buffets to a modern fine-dining approach with a la carte menus and reserved seating, and is finding the changes actually aid cost control and diner turnover.

“The old perception of all-inclusive is having all of the dining as buffet. Buffet in and of itself, you overproduce,” Campagnuolo said. “Now you’re seeing more and more properties introduce fine dining or seated dining options, which actually decreases waste. And you have to have a reservation, which helps the property project how many covers you’re going to have, and helps manage inventory and supplies.”

Outside the tropical resort markets, some still question whether the segment can work in places like the continental U.S., since one of the allures of all-inclusive is the convenience while in a remote location. The option may start to lose luster once located inside markets with easy access to transportation and outside restaurants.

“I don’t think you could build an all-inclusive operation in New York, for example, because people want to be outside your hotel,” Blanco said. “In some resort destinations, distances are very large, and the secondary activities in the destination are not as rich as in the cities, normally. You like to have everything included, because you don’t have anywhere else to go.”

“Some of it depends on what the labor cost is in the area; what the competitive set looks like. It might not be affordable to operate that way,” Campagnuolo added. “It also depends on weather. If it’s a seasonal resort, or if the guest mix changes over the year as the weather changes, then it’s not always going to work that way. The Caribbean tends to have pretty stable weather patterns, so you always get vacationers. If you go much north of Miami, you get pretty wide weather swings through the course of the year.”

Ultimately, experts said the decision to offer an all-inclusive package or European plan needs to be made on a case-by-case, market-specific basis. And even in resort markets where all-inclusive hotels dominate, there’s still room for all product types to coexist.

“There’s a place for the full range of products,” Katzman said. “For example, within the Riviera Maya, there’s a handful of really, really nice boutique European-style hotels, and there’s a great variety of all-inclusive product. Those things don’t have to be at odds with each other.”

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