For the purpose of putting up new projects, a thorough analysis is usually done prior to the actual establishment. This analysis is meant to evaluate the most probable threats and opportunities that would affect the functionality of the business project to be set up. For the case of a hotel industry, there is great need to concentrate on areas that would better the performance and functionality of the services provided as well protection of the brand name. This is because of the attention required by the hotel services regarding hygiene, competition, and effectiveness. This paper focuses on an analysis of Guildford town to evaluate the feasibility of establishing a hotel in the region as a way of preparing for the unknown outcome and predicting the most probable trends in functionality, external and internal business environmental effects and is useful in designing the most appropriate strategies for maximizing the effectiveness of its performance. A site analysis, general hotel analysis, market analysis, financial analysis, and future operations analysis is carried out in this paper besides recommendations and justifications. The information is sourced from scholarly articles, books, primary information gathering via surveys and informal interviews.
Guildford Hotel Market Study
1.0 Site Analysis
1.1 Location Analysis
The site for the hotel establishment is surrounded by a well networked transport system. The site is situated along Epsom road which is advantageous as it will easy the accessibility to the facility. This is an important factor to consider given that hotel customers ought to prefer an easily accessible facility. Adjacent to the site, are two fourth grade pipeline hotels which are Novotel Guildford Hotel and Mandolay Hotel and Conferencing Center and eleven supply hotels within the proximity of the new hotel site. This shows a high demand for hotel services and a significant competition that requires appropriate strategies to beat the competition. The hotel site is also situated at the midpoint of two recreational parks, the Shalford Park and the Stoke Park. This is a concept that ought to be considered advantageous for attracting more customers as they are sites associated with fun and recreation, just like the hotel (Lawson 1995, pp.3-20). In any case, expected hotel clients will find it more appealing to spend time in the town, specifically in the Hotel due to its closer proximity to these facilities.
Figure 1: An aerial photograph showing the area within Guildford town for the new hotel establishment.
1.2 Economic Analysis of Guildford Town
Guildford has a great potential to undergo economic growth with a residing population of over one hundred and thirty seven thousand people according to the 2011 census. The town is comparatively associated with low levels of crimes in the United Kingdom as reported by the Guildford Economic Study (2009). The town is well connected by several transport networks ranging from road, air, and rail among many others. The A3 road is a major trunk road which is linked to Portsmouth and London and the town is merely twenty-five minutes from M25 hence all other parts of the United kingdom are accessible. According to the ONS annual survey of hours and earnings in 2012, the average gross salary for the town’s full time worker per week is approximately £660.00 which is above the national and regional average. According to financial statistics by (Hales, 2006, p. 7) it depicts a high economic standard of the town as it is expected to positively impact the new hotel through a high purchasing power of the local people and increased accessibility of customers and supplies to the hotel.
1.3 Tourism Industry Analysis in Guildford Town
Within the town, there are numerous tourist attractions with a good reputation worldwide such as the Guildford art Gallery, the G live, and the Yvonne Arnaud Theatre which are known to attract tourists globally. Others include the Chilworth Powder Mills, the Scheduled Ancient Monument of the Castle, and the Royal Horticultural Gardens located at the Wisley as well as the rural part of Borough which has attractive landscape like the Loseley House and the Clandon Park. These sites provide market for tourists who are likely to have interest in utilizing the hotels facilities and services. Tourism industry is closely related in functionality to the hotel industry (Peter, 1997, p.12). This means a high tourism attraction vastness is directly proportional to the extent of the hotel industry relevance which can be realised through high and sustainable financial margins and market share.
2.0 Market and General Appraisal
Shapiro and Varian (2013, p.7) illustrate that business companies are dependent on market shares for its survival and relevance. By this theory, it is important to consider the possible market for the hotel services and goods prior to its establishment. This analysis is vital since information for designing strategies for maximising the opportunities and strengths a hotel enterprise has in the given site in Guildford town and reduce the costs of quality by tackling the weaknesses and preparing for the threats appropriately is provided. Most probable customers are evaluated and the current customer needs postulated in efforts to ensure the sales increase exponentially and the profits are high and maintained (Larkin, 2009, p. 9). For the hotel functionality to be of relevance, the market environment should be favourable before the actual establishment takes place since hotel business enterprises are profit-oriented.
2.1 Competition Analysis
Most of the pre-existing hotels in Guildford town are three star rated and four star. Inferring from this concept, the newly designed hotel need to find a way to perform better than the already existing hotel by offering a unique class of services with a vast attribution to quality (Kim & Mauborgne, 2014, p.25). The hotel has to capture the interests of both the high purchasing power customers and medium purchasing power customers to serve the local people and the tourists who are expected to offer ready market for the hotel services. This will increase its market share.
Figure 2: A GPS map of hotel Pipeline in Guildford town (Google Maps, 2016).
Figure 3: A GPS map showing Supply hotels in Guildford town (Google Maps, 2016).
There are more than ten hotels in Guildford town which are currently in operation. This depicts a ready market for the hotel industry in the region with a relatively low competition level evidenced by differently rated hotels. This is inferred to be attributed to production of services with varied features. Fleisher and Bensoussan (2015) studies show that entry threats into the industry are relatively low as one has to strategise appropriately to survive competition in the market and create a capability of grabbing a number of loyal customers from the local and international market share. The hotel industry in region is thus said to be favourable.
2.2 Market analysis
According to Rutherford and O’Fallon (2007), the number of potential customers can possibly be high depending on the standards of quality for services offered, production strategies formulated in the hotel management and operations, the effectiveness of the implementation measures, and the performance of the hotel in terms of customer satisfaction, marketing techniques’ effectiveness, levels of customer loyalty, and protection of its brand equity. Besides, with proper techniques in place, the hotel stands a chance to make high and desirable profit margins through reduced costs of production, increased sales and most importantly, cutting down the cost of quality (Drucker 2014, p.30).
Numerous tourist attraction sites that are located in Guildford town are expected to attract more customers to the hotel. A similar impact is anticipated from available and functional academic institutions such as Surrey University, Guildford College, and College of Law among others. These institutions have the capability to better the supply chain, provide a source of customers for the hotel services, and utilise their learning skills and infrastructure to facilitate research on the entrepreneurial methods to be used in Guildford among other areas that require vast scrutiny. The University of Surrey is well known for its research projects, updated innovation, and technological advancement. It is reported that the university is well vast with satellite technology such that its graduates can be recruited on merit grounds to boost the innovation and automation of services in the hotel (Council 2011). This will put it ahead of its competitors in performance and relevance in quenching the customers’ dynamic needs and expectations. This is a guarantee for increase in the hotel’s market share.
2.3 General Analysis
Several tools are used to evaluate the general business environment for the newly designed hotel. Most importantly, the macro-environmental and micro-environmental factors have to be looked at keenly with the intention of identifying the weaknesses, opportunities, strengths, and threats that are facing the hotel company and possible future predictions. These tools are SWOT analysis and PEST analysis (Fercher, 2006).
This tool is interested in macro-environmental factors that have an influence of the functionality of the hotel. They are beyond the company management control capabilities. They include political, economic, social-cultural, and technological factors. These factors can evaluate the current and the future performance of the company and the effects of external factors to its workability (Bensoussan and Fleisher, 2012, p.187).
Political factors involve the United Kingdom’s politicians and political parties’ approach to matters that affect the performance of the hotel industry. The agendas portrayed during political campaigns on taxes and trade regularities can impact the hotel either positively or in a negative way. For instance, in 2010, the ONS annual survey reported one of the key policies valued by the Surrey County Council was the Enterprise development concept. This led to more than 6,000 new business entities springing up in the region. The current policy to increase the economic growth rate of the county with the slogan “one county one team” the hotel has a huge opportunity to exploit the business oriented region’s resources.
Economic factors extensively impact the frequency of spending among the local people of Guildford town and the living standards of the people at large. Having a relatively higher weekly earning value above the national average value puts the town in a good position to afford several services that might be considered highly priced and unaffordable for other societies with a lower economic level.
Social-cultural factors affect the businesses through the beliefs that are instilled in people’s ways of life. Surrey County is affected by the socio-economic disparities, fast growing congestion on infrastructure, and high population growth rate. The hotel could take advantage of these opportunities to serve the local people of the county (Gregory, 2000, p.49).
Technology is an ever-growing factor that influences the production of business companies. For the hotel to competently perform technology has to be adopted in the way services are offered and in production of products. Research comes in handy to curb technologic drift effect (Snelling, 2012, p.2). The management has to be prepared to deal with the threat in future while the hotel top-management ought to invest in technology to better its performance and to effectively compete with its competitors.
The PEST analysis results are evaluated to predict the future of the Hotel Company and industry at large. It predicts the growth rate of the business (Gregory, 2000, p.49).
(Snelling, 2012, p.2) states that this analysis focuses on the internal weaknesses of the company and its strengths as well as external threats to the company and opportunities that can be taken advantage of to maximise performance of the company. Below is a summarized SWOT analysis of the newly designed hotel in Guildford town.
|High costs of production Low performing business segments High pension load/ slow deliveries from suppliers High costs of quality|
|Business segments Strong business model canvas Focus on development and research High purchasing power of customers Favourable hotel industry|
|Reduction in customers’ spending Competition Customers’ financial instability|
|High population growth rate in Guildford Economic development policies in Guildford town and Surrey County Great potential market due to tourism and other industries|
Figure 4: SWOT analysis for the proposed Hotel in Guildford town (constructed from the analysed data in this paper).
These factors can be utilised to minimise risks such as high production costs and maximise profits and the market share. SWOT analysis is important in detecting the areas to be taken advantage of, strengths and opportunities, and the areas to take caution in with the general aim of reducing risks that are associated with business imperatives (Fleisher and Bensoussan, 2003, p.457).
Results from this research show a great potential for hotel development all over Guildford, given the continued further growth of the towns economy, there is continued interest by hotels to venture into the untapped resources of the town. However, due to the challenges of accessibility and site allocation, different measures have to be put in place to allow a successful hotel industry in the area. The town is a friendly place for private sectors, the adjoining land to river way provide a good site for recreational activities, the council’s initiative to develop the various sites allows the progress of different programs, future opportunities including the railway lines and education institutions provide a good environment for the hotel industry (Hales, 2006, p.178). To achieve a full potential of this industry, further initiatives are thus recommended to make the development happen.
Eradicating the obstacles to development involves tapping into the available gaps in the hotel industry; some of these gaps include hotel facilities, parking spaces, leisure, brand type, and grade of the hotel. There is a limited supply of high quality services in Guildford town such that all available hotels are lowly ranked below the international levels. For this reason, the newly designed hotel should target meeting five-star hotel qualifications which will make its services and entire brand to be unique and worth much more sales and demand than the competitors’. Offering unique products in the hotel industry will guarantee market relevance to the newly designed hotel in the town and regionally as well as globally. The hotel company should take advantage of the strengths and opportunities present in its region and capability to optimise performance (Go & Pine, 1995, p.203). This is an appropriate way of reducing competition threats.
The key area of concentration will be an active approach to having safe investments; the new strategy should recognize the need to respond to the new trends in tourism and travel activities. According to (Fleisher, 2015, p.5), there is a changing policy in government regulations on the aspect of tourism; the government is making it a key priority in boosting the economy. New developers and investors should invest in hosting tourists and meeting their leisure demands within the town, the report is thus aimed at informing the best strategic action and enabling the hotel industry to flourish.
According to (Lawson, 1995, p.12), the best way of operating hotels is through partnership and having a solid management team, this helps in intelligent decision making and enhancing positive progress. There should be a local action within the developers and investors in the creation of development initiatives to provide an ideal opportunity to consider the entire needs of the hotel industry; this is done by having a clear understanding of the market trends.
Osterwalder and Pigneur (2013) illustrate that regular research should be carried out to find out the strategic plans used by competitors and to evaluate the dynamic nature of the customer needs and expectations. Research should be employed in all areas of the hotel functionality with the aim of creating a better means of carrying out the activities in the company that are relevant in improving performance and technology adoption methods that will curb a scenario of technology drift for the hotel company (Ransley & Ingram, 2012, p. 23). The top management should therefore invest significantly but wisely in research projects that are aimed at improving performance and maintaining high level performance for the hotel in the Guildford town, United Kingdom region, and the entire globe.
The management should consider incorporating diversification as part of their recommendations. This will increase the sources of innovative ideas and vastness of the market share (Larkin, 2009, p.13). This can be done through employing workforce from all corners of the world without restrictions and through formulating global marketing strategies and techniques that enhance worldwide business transactions and incorporation of new relevant ideas in production and ways of distributing deliverables to the final users.
The numerous academic institutions in Guildford should be utilised through sourcing recruits, research personnel and platform, and by giving them a training platform through industrial attachments and internships to improve the relationship between the company and the public besides establishing a firm basis for equipping the society and workforce with the appropriate skills and knowledge on hotel industry functionality and management.
The hotel company should invest in advertisements and other activities that will enhance customer awareness of what they offer. Some of these activities can be charity functions and conservations programs. For instance, the hotel should conduct clean-up and awareness programs to take care of River Wey and curb environmental pollution in general. These programs will increase the popularity of the hotel through association with good of the society and environment. Besides, the hotel should restrict its operations to meet the Three-P business model. The model will allow the hotel to work while keeping the interest of the environment, society, and their profits at heart. The 3-P model stands for the technique that takes care of the People-Profit-Planet (Hawdon & Pearson, 1995, p.78).
5.0 Analysis of the future operating environment for hotels in Guildford
The future of the market trends as observed through the analyzed trends in Guildford shows a positive projection, there are evident signs of growth owing to the locations and business activities in the town. The forecast, according to (Hawdon and Pearson, 1995, p78), is shown to continue to the year 2018, the projections for a corporate growth are good, this is supported by the vast development in major infrastructure, and technology, a good example is the widening of the M25 and the renovations of the Woking Station. The technological advancements provide a very good environment for additional growth of the hotel markets.
However, the lack of site is the main constraint to market growth, the demand for sites can be delivered through proper urban planning and having a monetary budget towards site expansion and property development. There is a continued growth of the Guildford hotel market, and the overall economy, the new market opportunities are in terms of upgrading of the existing hotels and the establishment of new hotels.
Table 1: Research Findings (Howdon & Pearson, 1995, p.76).
|Occupancy %||Average room rate (£)|
The research findings as illustrated by Table 1 show the trends in market potential for hotels in Guildford, the results show the development of hotels for the next 3-4 years, the interests of the hotel developers, and some of the strongest hotel sites regarding the requirements of the developers. The identified market potential in Guildford is dependent on the economy without assuming any international crisis. The market potential is identified for various standards of hotels; a location may be suitable for one type of hotel but unfavourable for another (Shapiro & Vivian, 2013, p.7). Market potentials further depend on different locations, when market potential is identified in one place, it does not directly mean that the location is suitable for all new hotels. There is unlikely to be a good potential for a five star hotel in Guildford, the new five star hotels would serve all the nearby areas and at the end limit the opportunity for a new hotel in another location.
5.1 Analysis of the Pipeline Data
There is an observed trend in hotel development which is projected to continue in the next two to three years, some of these trends are marked by the continued expansion of Independent brands and holiday inns, through partnerships and change of ownership, there will be a continued expansion of the different grades of hotels, most of the hotels in Surrey county are 3-star hotels which leaves room for future upgrading, few budget hotels is a good indicator of the continued development. The brand below 3-star is marked by potential growth with a change in the customers preferences for comfort and leisure.
6.0 Financial Projections
6.1 Recent and projected performance statistics: Revenue per room
|Average Room Count||356,038.00||355,830.00||355,736.00||355,768.00|
|Average room rate (ARR)||834.75||848.53||899.55||935.11|
|Revenue per Available Room Monthly (RevPAR)||18,070.72||18,675.44||20,312.29||21,601.87|
Table 2: performance comparisons from 2012 to 2015
Source: (Hostats, Hospitality Intelligence)
Figure 4: movement in the average room count, occupancy, average room rate and revenues from 2012 to 2015
Source: (Hostats, Hospitality Intelligence)
Despite the fact that the available room count remained constant throughout the period, there was a steady increase in the average occupancy together with the average room rate between 2012 and 2015. As a result, the revenue for each room available increases steadily throughout the period. In the next three years, the rate of growth of room occupancy is expected to be lower than the previous years but the average daily rate will grow faster than it was experienced in the 2012-2015 period. Hence, the revenue per room will grow faster in the next three years (STR Global, 2015). Below is a projection of the revenue growth, occupancy and average room rate.
The table indicates the growth between of the different variants between 2012 and 2015. The average growth has also been calculated and used as the growth rate of the different variants.
|Average Room Count (ARC)||-0.03%||355,857.94||355,947.90||356,037.89||356,127.90||356,217.93|
|Average room rate (ARR)||3.87%||971.31||1,008.93||1,047.99||1,088.57||1,130.72|
|Revenue per Available Room Monthly (RevPAR)||6.15%||22,931.10||24,342.12||25,839.97||27,429.98||29,117.83|
Table 3: Growth in ARC, Occupancy, ARR, and RevPAR
Figure 5: Projected ARC, Occupancy, ARR, and RevPAR
The Average Room Count (ARC) is expected to grow at an average rate of 0.03%, room occupancy at an average of 2.23%, average room rate (ARR) at 3.87% and the revenue per Available Room Monthly (RevPAR) at 6.15%.
6.2 Income statement recent performance and projection
|Food Revenue per room let||351.9817323||351.8767224||350.9028626||347.82|
|Food Revenue per room available – Period||7569.164874||7686.393026||7864.359294||7,966.70|
|Beverage revenue per room let||159.7941415||160.0093265||158.3217134||157.97|
|Beverage Revenue per Room available – Period||3417.16933||3484.284644||3538.901781||3,601.57|
|Meeting Room Hire per sqr meter||344.8750623||343.6943417||370.5289759||388.05|
|Hotel Cost of Sales as % of total revenue||10.59%||10.38%||10.41%||10.75%|
|Cost of sales £||1,253.75||1,248.19||1,279.27||1,340.00|
|Hotel Direct Expenses % of total revenue||30.68%||39.06%||35.48%||31.75%|
|Direct costs £||– 3,634.00||– 4,697.95||– 4,358.33||– 3,956.84|
|Hotel Payroll % of total revenue||33.96%||42.50%||38.36%||34.59%|
|Payroll £||– 4,021.79||– 5,111.61||– 4,712.24||– 4,310.40|
|Total Expenses||– 7,655.79||– 9,809.56||– 9,070.57||– 8,267.24|
|% of profit||24.77%||8.05%||15.74%||22.91%|
|UOE % of total revenue||27.72%||37.18%||33.38%||28.99%|
|Undistributed Operating Expenses||3,283.31||4,470.93||4,100.16||3,613.08|
|GOP % of total revenue||24.77%||8.05%||15.74%||22.91%|
|Gross Operating Profit||2,933.45||968.51||1,933.18||2,854.88|
Table 4: Recent performance of the income statement
The revenues of the hotels have increased by steadily at an average rate of 1.71%, while the total expenses have grown at an average rate of 3% in the period between 2012 and 2015. Below is the projected income statement for the year 2016-2020.
|Food Revenue per room let||0.40%||349.19||350.57||351.96||353.35||354.75|
|Food Revenue per room available – Period||1.72%||8,103.87||8,243.40||8,385.34||8,529.71||8,676.58|
|Beverage revenue per room let||0.38%||158.57||159.18||159.78||160.39||161.00|
|Beverage Revenue per Room available – Period||1.77%||3,665.23||3,730.01||3,795.94||3,863.04||3,931.32|
|Meeting Room Hire per sqr meter||4.06%||403.83||420.24||437.32||455.10||473.60|
|Hotel Cost of Sales as % of total revenue||11%||11%||11%||11%||11%|
|Cost of sales £||2.26%||1,370.34||1,401.38||1,433.11||1,465.57||1,498.76|
|Hotel Direct Expenses % of total revenue||3%||33%||33%||34%||35%||36%|
|Direct costs £||4.28%||– 4,126.15||– 4,302.71||-4,486.81||-4,678.80||-4,879.00|
|Hotel Payroll % of total revenue||2%||35%||36%||37%||37%||38%|
|Payroll £||3.59%||– 4,464.96||-4,625.06||-4,790.90||-4,962.69||-5,140.64|
|% of profit||24%||29%||36%||44%||55%||69%|
|UOE % of total revenue||4%||30%||31%||32%||33%||35%|
|Undistributed Operating Expenses||5.33%||3,805.76||4,008.72||4,222.50||4,447.69||4,684.88|
|GOP % of total revenue||24%||29%||36%||44%||55%||69%|
|Gross Operating Profit||26.77%||3,619.00||4,587.66||5,815.58||7,372.16||9,345.37|
Table 5: Projected income statement for the year 2016 to 2020
|Proposed Hotel Development at Guildford Railway Station|
|Number of Bedrooms||28|
|Development Cost (estimate)||£29,386||1,049.51|
|Income After Debt Payment|
|Year 1||Year 2||Year 3||Year 4||Year 5|
|Net Operating Income||£3,619||£4,588||£5,816||£7,372||£9,345|
|Cash Flow After Debt Service||£774||£1,743||£2,971||£4,528||£6,501|
|Debt Service Coverage Ratio||1.27||1.61||2.04||2.59||3.29|
|Year 1||Year 2||Year 3||Year 4||Year 5|
|Capital Gain on Investment|
|Year 6 Net Operating Income||£9,345|
|Capitalization Rate (Yield)||10.0%|
|Less: Mortgage Balance||£470|
|Less: Brokerage and Legal (Selling Costs)||£4,673|
|Less Return on Equity||£14,693|
|Capital Gain on Investment||£73,618|
|Base||Year 1||Year 2||Year 3||Year 4||Year 5|
|Annual Cash Flow After Debt Service||£774||£1,743||£2,971||£4,528||£6,501|
|Less Selling Costs||£4,673|
|Less Remaining Mortgage Balance||£470|
|Leveraged IRR =||51.9%|
The investment has a positive internal rate of return (IRR) of 51.9%, which means that it is going to be profitable in the next five years.
7.0 Conclusion and Recommendation
From the analysis, it can be denoted that the industry has a potential of growth within the next five years. The IRR is positive, meaning that the project is viable. The slow growth in the average rate per room can be compensated by the high growth of occupancy per room and the average room count. The positive IRR also indicates the profitability of the business in the next five years, investors are therefore encouraged to pump in their money and earn more.
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