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Convenience Shops: Cash-Flowing Amenity Creep

October 13, 2013
Laurel A. Keller Hotel News Now

Synopsis: As a hospitality consultant, I have the opportunity to visit hundreds of hotels and resorts each year as part of hotel appraisal and hotel feasibility study assignments, interviewing operators and observing trends. Recently, I’ve noted that limited-service hotels are adding miniature versions of the gift shops once spotted only in the lobbies of full-service and select-service hotels. My research indicates that these “convenience shops” typically generate a small profit, are preferred by guests (as opposed to vending machines), and have future growth potential. By all indications, these little shops have earned their roughly 100 square feet of lobby space, and are likely a new norm.

 Gift Shops vs. Convenience Shops

Gift shops have forever graced the lobbies of resort and full-service hotels, selling everything from cigars to stamps to snow globes. Often, these gift shops are leased to an outside operator. Gift shops have a wide range of sizes and profit margins depending upon the location of the hotel or resort, the selection of merchandise sold, and the hours of operation. Unfortunately, in an effort to maximize revenue, many of the leased stores are so crammed with merchandise that they create an eyesore for passing guests. In addition, most leased spaces are closed overnight, which can frustrate late arriving or early rising guests.

A scaled-down version of this classic gift shop is what I’ll refer to as a “convenience shop.” These shops have a small footprint (typically less than 100 square feet) and are operated 24-hours daily by the hotel’s guest service representatives, eliminating the need for added labor cost. The front office manager or property manager maintains control of how goods are displayed and manages inventory. These shops adhere to guidelines set by their representative franchises in order to maintain brand standards.

Convenience shops have become customary features in upscale extended-stay (Residence Inn, Staybridge Suites, etc.) and select-service (Cambria Suites, Hilton Garden Inn, etc.) hotels over the past several years. More recently, I have noticed these shops being added to existing and newly-constructed limited-service hotels as well. I now commonly spy them in lobbies of properties such as LaQuinta, Fairfield Inn, and Comfort Inn & Suites, to name a few. Their offerings vary widely, with extended-stay hotels selling the most “heat and eat” food options. Limited- and select-service hotels sell mainly snacks and beverages, and all property types sell sundries like dental floss and pain relievers. According to my interviews, brand representatives decide to allow the sale of beer and wine on a market-by-market basis. Not surprisingly, stores permitted to sell alcohol record higher revenue per occupied room than other stores.

According to my discussions with hotel managers, these little shops have been well received by guests, and are recording increases in revenue year over year. When new brand standards are announced, they typically cost hoteliers capital to implement regardless of whether or not the new standards generate revenue. (Think of all the hot items added to “free” breakfast buffets over the years.) In this case, the addition of a convenience shop as a new brand standard can actually earn a small return, which is a welcome change. Do guests miss the old vending machines that offered candy, chips and gum? “Not at all,” say hotel operators. According to my conversations, guests prefer the products offered in these new shops to the former choices, especially “heat and eat” prepared food items and fresh fruit. Hotel managers have told me that in the past, guests often had to come down to the front desk to turn paper currency into change for the vending machines. In their words, it just makes sense instead to allow guests to make snack and sundry purchases via a guest service representative equipped to handle cash, credit or room charges.

The following table lists convenience shops in limited-service, select-service, and extended-stay hotels that are currently part of their respective brand’s prototype. All of the shops have signature names, with the word “market” (or the abbreviation “mkt.”) appearing in eight of the 17.

As noted in the table, though several other hotel brands may also offer a small convenience shop, only the brands listed include one as part of their current prototype. The shops range in size from approximately 60 square feet to 135 square feet, and all are situated in the lobby near or attached to the front desk area.

 Profit Potential

Convenience shops are so new that it is difficult to obtain historical financial data. Further complicating the matter, a hotel’s financial statement typically records revenue and expenses from these shops in the Other Operated Departments line items. Hotel & Leisure Advisors has an extensive database of thousands of hotel financial statements. However, the Other Operated Departments line item on these statements includes revenue and expenses associated with telephone, parking, guest laundry, convenience shop, and any other items.

To derive an estimate of the revenue and expenses typically recorded by these shops, I interviewed franchise representatives from most major hotel companies based in the U.S. Because some companies asked that I maintain their confidentiality, I have presented actual revenue and expense figures in a range.  I have also included figures from Smith Travel Research Analytics’ HOST Almanac 2013 for limited-service hotels, which contains operating statistics from 2012. The table excludes select-service hotels, which are typically grouped together with full-service properties due to their inclusion of a restaurant.


Bringing an average of $14,708 to the bottom line, these shops obviously aren’t going to move the profit needle greatly at a typical hotel. However, most properties would be happy to have these extra few thousand dollars per year to spend on needed repairs, increased staffing, added marketing, or just to sock away as profit.

Future Projections

Most hotel company representatives indicated that they consider these shops to be guest amenities, though they admittedly are profit centers as well. All of my interviewees agreed that this trend of including convenience shops in hotel lobbies will continue, and most indicated that the potential exists to expand offerings, include more refrigerated space, and add more fresh food. According to the representatives, there are currently no plans to add these shops to existing or future economy-scale hotels.

Conclusion

Though soda machines still appear in guest room corridors of most select- and limited-service hotels, traditional vending machines are rapidly disappearing, being replaced with small convenience shops in the lobby. Lingering effects of the Great Recession coupled with the near-standard availability of microwaves and refrigerators in hotel rooms have led some guests to choose a microwaved dinner in their room over heading out to eat. Others view the convenience of buying dental floss in the lobby as opposed to venturing to a drug store as a perk. Whether seen as a guest amenity or a minor profit center, these shops seem to please guests, operators, and parent companies alike, meaning they’re likely a new norm.

Author

Laurel A. Keller is Director of Appraisal & Consulting Services with Hotel & Leisure Advisors. Ms. Keller has been a hospitality consultant and appraiser since 2001, and has completed over 250 assignments in 33 states. She has appraised individual assets ranging in value from less than $1,000,000 to well over $100,000,000. Ms. Keller’s expertise is in the appraisal and analysis of hotels, resorts, indoor and outdoor waterparks, amusement parks, ski resorts, casinos, and golf courses. She has held management positions with a variety of hotels and country clubs in the Midwest. She received a Bachelor of Science degree in Hospitality Management from Purdue University, and is a State Certified General Real Estate Appraiser in Ohio and Pennsylvania. She can be reached via telephone at 216-228-7000 ext. 22, or via e-mail at lkeller@hladvisors.com.

This article was originally published on Hotel News Now.


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