What is a great experience worth to you? All-inclusive dissected (Part 2/3)

This series of articles discusses the history, supply & pipeline of all-inclusive resorts globally and specifically in APAC (Part 1), deep-dive into the business model (Part II), and a comparison across traditional resorts and two all-inclusive brand specifics (Part III).

Part II

Business Model Review

As shown above, the success of the all-inclusive business model in terms of roll-out varies greatly by region. Across APAC, the relative recent emergence of an affluent middle-class (with exceptions for Japan and Korea) can be attributed to the delayed pace. After all, the upfront ‘sticker price’ of an all-inclusive holiday tends to be higher than a comparable resort (often includes breakfast only). The consumer learning curve and (in-)ability to independently make travel choices further complicates access to market. After all, communicating what’s included is key. The audience is usually families with children from infants to teenagers in tow. As cross-border holiday travel in the region was usually reserved for a higher-spending clientele, cost considerations rarely came to the fore. One early example was on the islands of Guam and later Saipan have had a good run starting with the Japanese market in the 1980s and the Korean market starting around 2005. We reviewed the traditional all-inclusive business model across a number of aspects and highlight how they resonate with guests and investors.

Appeal

The bottom-line appeal of an all-inclusive resort for guests is in the predictability in terms of the offering and spending of the holiday experience. Knowing what is included in your holiday i.e. the benefit of complimentary access to a wider range of facilities and often flights and transportation as well reduces uncertainties. Investors on the other hand are compelled by the stability of operations. A well-run all-inclusive resort in the right market can attain occupancy levels well above 90%. Notably, resorts may close on a seasonal basis, in particular for ski resorts but also certain beach destination during winter or rainy seasons. While prices may vary across seasons, the constant resort population makes staffing far easier, freeing uptime for management to focus on other areas. At the same time, there are rarely or no walk-ins and guests arrive on predetermined transportation. This allows for reduced front desk staffing, freeing up labor for other ways to engage with guests.

Value‍

Guests who do not want to conduct at-length research prior to their making their travel decisions may find comfort in what the resort offers, which is usually a greater choice of complimentary activities and amenities, hence the term ‘all-inclusive’. Properties can be anchored by water parks or include ski lifts to reinforce and differentiate their positioning and create an easier buy-in for tourists. Yet the greater choice also comes in other areas, such as Food & Beverage, activities, wellness, entertainment, and amenities. To the investor, this translates to price bundling whereby managing one revenue stream (upselling aside) can be more focused than driving income across multiple selling points. Yes, the offering and expenses still need to be managed, though the maze of Minor Operated Departments and questions how to yield better – in case anyone still asks – falls away.

Challenges‍

To the consumer, the main challenge is the above-mentioned learning curve. Calibrating expectations when making their purchase decisions is difficult. The fear of being stuck in a boring yet expensive resort is real. That’s where anchor attractions or a well-defined Unique Selling Points (USPs) can help to tip the scale. For the investor, highfixed costs need getting used to. The high resort population requires operating and maintaining facilities for the months they are open or even year-round,making for an overall more intensive operating environment. While sales &marketing is unlikely to have a heavy presence on site and often has offices or representatives (and agents) in key feeder markets. In short, while regular resorts spend more time on managing various revenue streams, all-inclusive resorts are focused on operational readiness.

Requirements

‍Beyond the basic aspects of quality and service, name recognition is key. Guests will seek out popular destinations and brands they can trust given the larger investment they make upfront compared to a regular resort holiday. This ‘curb appeal’ is also important when communicating with their peers for essential bragging rights; after all, a holiday is often also about status. Investors will be looking for distribution power. Unlike regular resorts,which can run around 70% occupancy, all-inclusive resorts need to operate at higher occupancy levels to be fully efficient. This makes the scale of distribution more important. As a premium-mass market experience, creating awareness to drive bookings is a foremost priority. Historically, the vertically integrated tour operator model ensured end-to-end customer care. In a time of direct bookings and OTAs, it has become more difficult to educate consumers and provide those easy buy-in options. Being plugged in to feeder markets is critical. Starting with one feeder market may do for efficiency, however, over time , diversification has shown to be key, lest all eggs are in one basket. A comment on hardware: it may not be substantially different from a regular resort. Individual brands have their specific requirements, such as lodging for international staff onsite, larger kid’s clubs, wine cellars, or a larger spa. This is not unlike regular resort brands differentiating themselves.

Benefit

Guests, particularly families, can enjoy a hassle-free vacation and can spend more time in the resort, maximizing their time’s worth across facilities. To make use of the greater offerings, all-inclusive guests tend to stay longer than guests in regular resorts. As a result, to the investor, the guest experience and overall operation become less transactional and commercialized, allowing a focus on delivering quality hospitality. In addition, tapping undeveloped destinations can be de-risked with the right all-inclusive brand.

Spending ‍

The predetermined budget of the holiday, while elevated, is among the strongest selling points to guests. Savings and disposable income can be matched with the right experience, reducing potential causes of anxiety and stress. The investor in turn gets a higher total spend per guest across the board. This gives more flexibility in managing operations and cash flow.

Upselling

Still a common feature across all-inclusive resorts are packages for premium beverages (mostly about alcohol) as well as certain signature restaurants, wellness offerings, motorized activities, sport lessons, and certainly excursions. Not all guests perceive the same value from these opportunities to spend more, and some may feel alienated or discriminated for not forking out money on the spot – being very much against the all-inclusive ethos. However, investors seem to cannot help themselves and do manage to drive incremental revenues. It is noteworthy to mention here that even among all-inclusive resorts there is a wide range of price points and offerings. Getting the mix right, as so often in hospitality, is key.

Touch points

As the property is less commercialized, labor is freed up to provide more guest interaction and enhance their experience. Particularly for longer stays, building relations with certain team members is key to most resorts. All-inclusive properties across their amenities and activities provide more such opportunities and can be more genuine in doing so. Given the more intense operation, investors would be most concerned how this translates to higher staffing ratios and the resultant costs. Quantifying what team size is required in any specific outlet, how they can or cannot rotate, and how this may impact quality and guest reviews is difficult. In particular for investors not familiar with the business model.

Distribution

Mentioned above as a requirement, guests tend to fall back to traditional channels including tour operators. While this space is not seeing much growth, the business model does attract a certain type of traveler seeking out the right type of distribution. Investors meanwhile are more focused on brand awareness and visibility in key feeder markets where the shift towards independent travel is underway. In particular smaller or independent properties will be challenged here unless they have a targeted value proposition and adequate distribution channels. This corresponds with increased brand diversification and differentiation, for example, some resorts target families and others are adult-only.

Loyalty

All-inclusive resorts did not invent loyalty programs. Loyalty is the natural response of a guest for an experience well received. In some instances, this can be extreme going onto the fanatic when expectations are exceeded. Having more touch points and genuine guest interactions can help to move the needle again and again. To the investor,there is no direct cost associated with a loyalty program, but calls for capable management ensuring consistent quality, constant updating, and a highly trained team. This is by no means an easy feat and more than a few travel stories are testament to instances gone wrong.

Ringfencing

More challenging than in days past. Today’s travelers are increasingly keen to explore and see new things and places, which more often than not are outside the resort. The type of destination plays a great role in terms of what can be done outside the resort premises. For investors, this provides a challenge as they try to maximize on-site spending which amortizes the higher fixed assets and higher fixed costs. As a result,investors need to carefully consider their location choice, which can be remote, but need to assess what drives value to a visitor. Over time, the area surrounding a property can become more developed, leading to alternative and competing offerings right outside the resort entrance. Hopefully by then,distribution and loyalty are established via strong awareness from quality offerings and genuine service that minimize such leakage.

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The third part of the article discuss the remaining aspects and the conclusion for the all-inclusive hotel market.