Hotels Give To Get - An Analysis of Complimentary Services and Rooms - By Robert Mandelbaum and Viet Vo
The offering of complimentary services and amenities by U.S. hotels is on the rise. From 2007 to 2015, hotel expenditures on complimentary food, beverages, in-room media, services, and gifts just within the rooms department increased at a compound annual growth rate (CAGR) of 3.6 percent. For comparison purposes, all hotel operating expenses rose at a 1.1 percent CAGR during the same time period.
Much of the proliferation can be attributed to brand standards which mandate the offering of complimentary food, beverages, newspapers, internet, and other services and amenities. Most frequent travelers, especially those staying at properties within the lower-priced chain scales, have come to expect at least a free breakfast. At the upper-priced properties, an increasing number of frequent guest programs now provide complimentary internet access.
In response to the increased incidence of complimentary services and amenities, the 11th edition of the Uniform System of Accounts for the Lodging Industry (USALI) expanded the number of expense categories to capture this rising cost. Within the rooms department three discrete expense categories now record the costs associated with the offering of complimentary food and beverage, in-room media and entertainment, and services and gifts. In addition, a complimentary services and gifts cost category was added to almost all operated and undistributed departments.
To analyze recent trends in complimentary services and amenities, we examined the combined expenditures for complimentary services and amenities within the rooms department. This includes all three complimentary expense categories:
- Complimentary Food and Beverage: Gratis breakfasts, cocktail receptions, concierge floor, coffee in the lobby.
- Complimentary In-Room Media and Entertainment: Gratis cable TV, music, games, satellite video.
- Complimentary Services and Gifts: Promotional gifts to guests and vendors such as newspapers, VIP gifts, guest room flowers and fruit baskets for a frequent guest.
The data comes from the operating statements of 1,077 properties that participated in CBRE Hotels’ Americas Research’s annual Trends® in the Hotel Industry survey each year during the period 2007 through 2015. Please note that the analysis does not include the amount of money hotels spend to offer complimentary WiFi, guest supplies (toiletries, writing paper, shoe mitts, etc…), or services and gifts within other departments.
Resorts Lead The Way
As expected limited-service, extended-stay and all-suite properties spend relatively high dollar amounts to provide complimentary services and amenities to their guests. Most properties in these segments are chain-affiliated, and brand standards require the offering of a complimentary breakfast. Some extended-stay and all-suite brands even require a gratis manager’s cocktail reception during the early evening.
In 2015, all-suite hotels led these three property types and spent $2.36 per occupied room on complimentary services and amenities. This compares to $2.24 at extended-stay hotels and $2.12 at limited-service properties.
Somewhat surprising is that resort hotels lead all hotel categories in complimentary rooms department expenditures. In 2015, resorts spent $2.70 per occupied room. It is not common for these property types to routinely offer complimentary breakfasts and receptions, so it can be assumed that these hotels invest in gratis concierge lounges, welcome beverages, newspapers, and gifts.
Since complimentary food and beverage is not frequently found at convention ($1.41 POR) and full-service ($1.68 POR) hotels, these properties recorded the least amount spent on complimentary services and amenities. It can be assumed the frequent guests at these hotels are the primary recipients of any gratis expenditures.
Another service that hotels provide to demonstrate goodwill and attract guests is the offering of complimentary stays. Per the 11th edition of the USALI, a complimentary room is defined as, “Free rooms provided to any guest, often for marketing purposes, but not related to an existing contractual relationship. Not classified as complimentary rooms are rooms provided due to a trade–out arrangement, rooms provided in connection with a promotion (e.g., stay two nights, get one free), or rooms provided as part of a group contract (e.g., book 50 rooms, get one free).”
Unlike the offering of complimentary services and amenities, the granting of complimentary stays is on a downward trajectory. Evidently, as occupancy levels reach all-time highs, managers are less likely to offer free rooms to potential customers and friends.
From 2007 to 2015, the number of complimentary rooms granted at the subject properties has declined by 14.2 percent. The number of complimentary rooms in the subject sample peaked in 2008, the first year of the great recession. As a percent of total occupied rooms, complimentary rooms averaged 1.0 percent in 2015. This ratio hit its high in 2009 at 1.33 percent, primarily due to that year’s low occupancy level.
Per the USALI, complimentary rooms are not included in the calculations of occupancy and average daily rate (ADR). However, if they were, in 2015 the occupancy level for the sample would have increased from 74.8 percent to 75.5 percent. Concurrently, the ADR would have dropped from $184.09 to $182.33.
Guests Expect Freebies
As room rates have climbed, guests expectations for complimentary services and amenities have increased. Topping most surveys of guest satisfaction are the offering of complimentary internet access and breakfast. As revenue growth tappers off at the peak of the lodging cycle, hotel managers are now looking at cost containment to improve profitability. This will put pressure on the continuation of offering complimentary services and amenities.
Robert Mandelbaum (Director of Research Information Services) and Viet Vo (Senior Research Analyst) work in the Atlanta office of CBRE Hotels’ Americas Research. To purchase a copy of Trends® in the Hotel Industry, please visit https://pip.cbrehotels.com, or call (855) 223-1200. This article was published in the January 2017 edition of Lodging.
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