The economics of 'love motels'
MANILA, Philippines - Love is in the air during February -- and so is money.
One industry that’s reaping the benefits are short-term accommodations, or "love motels," which are part of the burgeoning P208 billion hotels sector in the Philippines.
It's a business that caters to a basic need, notes Edmundo Las, CEO of Hotel Sogo. "People have basic needs in their lives: physical need, belongingness and accomplishent....They have to eat, wear clothes and make love."
The Philippine version takes off from the business concept of "drive-in motels" abroad that cater to motorists who need a bath and a bed, and is different from the full-fledged hotels, which provide comfort, explains Jorge Saguinsin, entrepreneurship professor at the Ateneo Graduate School of Business.
"In the Philippines, motels have a different connotation. They are for short-time [needs and use]," Saguinsin added.
It's a truism that official statistics have proven: February, the "love month," marks one of the seasons the industry has the highest occupancy rates.
Many Filipino small and medium entrepreneurs have cashed in by putting up the basic asset of the business: the room. Competition, however, makes them attuned to and prompt them to be creative in servicing their target markets' requirements.
A famous business group -- and one of the most enduring -- in this industry is the King family. Different family members cater to various markets, with price and location as key differentiating factors.
Ian King, a 3rd generation businessman, is the General Manager of the Victoria Court chain, which is famous for its black and white logo of a woman silencing its onlookers.
King says Victoria Court's rooms are currently priced in the premium range to differentiate it from other players, including the Anito Inn chain that his uncles used to own. Anito, a mid-range player, has since been shut to heed the owners' religious convictions.
Other businessmen have taken the cue and filled the vacuum, especially in the mid- and low-range segments.
The National Statistics Office (NSO) categorizes these businesses as "hotels, camping sites and other short-stay accommodation," which generated P43.95 billion in 2009, about 21.1% of the sector's total revenues.
NSO data shows that 3% or 45 of the total 1,475 accommodation establishments it surveyed nationwide in 2009 are into short-term services, providing jobs to 20 or more.
Most of the players cater to the short-term market, or the "sachet market."
Those who book the rooms of mid-range player Hotel Sogo for short-term use in their Metro Manila branches make up around 70% of the business, says Hotel Sogo's Las. Those who stay for 12 hours account for 12% to 15%, while the 24-hour market is around 10%.
For this Valentine season, Hotel Sogo is gearing up to welcome the influx of lovers booking rooms for intimate time with their significant others.
Las says their staff are working overtime to accommodate the extra numbers in the 4 days surrounding Valentines Day.
“We prepare our organization because there’s normally about a 30% increase in volume of guests. There are no days off and 12-hour shifts,” says Las.
Surprisingly, February isn’t even their busiest time. “December is still the best month because people have money. It’s not only one week (as in Valentines in February), it’s the whole month,” says Las.
Overall, Hotel Sogo caters mostly to the 20-to-40 age group. Las says their unmarried market comprises 60% to 65%. The married ones account for 30% to 35%.
Their busiest times are between 3 pm and 11 pm, with their highest number of guests utilizing their Pasay, Cubao, Caloocan, Guadalupe branches.
While the market is predominantly Filipino – at 70% to 80% of total guests – there has also been an increasing number of Koreans and Japanese guests.
Location, location, location
In almost all segments, competitions is heating up as players continue to open new branches and slash rates to increase market share or cater to a growing pie.
The industry is riding on the good performance of the Philippine economy, with recent statistics showing a boost in consumer spending. Filipinos are spending more on recreational activities like travel and health.
The industry reflects challenges that businesses across the Philippines face: vacant real estate lots for new motel buildings, high electricity costs, and relatively high wages.
“They (industry players) find it hard to get a land and construct (for expansion). Right now, to recover the cost it will take you 8 to 10 years, while before it was 5 to 7,” says Las.
To manage these, Las says they focus on two key things: visibility and location.
With their un-missable bright red signs that tower over train stations across Metro Manila, Hotel Sogo is targeting the commuter market.
“It depends on where you’re located. If you build a walk-in or drive-in service at a proper location, then you make money,” says Las.
"Sogo is designed to handle the bus and train travelers. They are located in major terminals and are very successful," notes Ateneo's Saguinsin.
Looking further afield to capture the growing market in the Philippines’ other cities, Hotel Sogo is joining the other real estate and retail firms' provincial expansion.
“We’re moving out of Metro Manila. We're building in the key cities; Pampanga, Tarlac and Cagayan de Oro,” says Las.
Victoria Court's expansion has gone beyond the location-based strategy. They are going online and extending their brand via merchandise products.
“This year we’ve been growing in terms of our online presence with travel agencies like Travelocity and Expedia,” says King.
While still maintaining the loyal short stay market, King is also looking toward the party market, which ranges from those who need a venue for a bridal shower, a stag and even children's birthday parties.
The products they’re pushing this year are their "super thematic rooms," which cater to the party crowd looking to unwind in a Thor, Casino Royale or Batman themed room.
“We feel that it gives a sense of fantasy or experience to the normal individual that we don’t see on the normal basis. It sort of lightens their day,” says King.
He shares some of his frustrations. “The normal connotation for a hotel is that it’s dark, dirty, sleazy everything that a description of a motel used to be in the Philippines. We’re the only one [in the Philippines] that’s trying to change the image and everyone is playing in the same field."
"It’s tricky to break away, yet we can’t deny that the old market, which did make us successful is still there," King says.
As the industry evolves and changes, the basic needs it fulfills remains the same. There will always be a "no vacancy" sign on the window during Valentines day. - Rappler.com