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Hoteliers: Fix the broken brand and focus on high-end market

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This is the third in a series of reports on the state of the Bermuda tourism industry.

We will examine how far we have fallen since our heyday in the 1980s, why dozens of resorts and hotels, including highly rated ones, have failed and closed, why no one wants to invest in a hotel in Bermuda right now, why no new developer has broken ground despite promise after promise, and what it will take for a new resort to be built, and for the less than 50 hotel properties we have left to be profitable enough to keep their doors open.

Hoteliers say Bermuda needs to fix its “broken brand” and re-engage with its core high-end market.

They said the Island needed to stop being all things to all people, because it was diluting the funds available for marketing and giving tourists the wrong message.

The number of hotel beds on the Island is now less than 5,000 when it was once almost 10,000 back in 1980. While cruise arrivals have risen, air arrivals were down to 236,000 in 2011, of which 57,000 stayed in private homes.

“Because demand is so low overall for the Island, you now have Government and the hotels trying to reach out to myriad potential sources of business and to steal market share by way of discounting,” said Michael Winfield, president and CEO of Cambridge Beaches Resort and Spa.

“That discounting means that hotels’ revenues are reduced and they can’t afford to put money back in to improve the physical product to ensure they stay competitive, and the cycle just goes on and on.”

Paul Telford, director of rooms at Rosewood Tucker’s Point said to improve tourism: “We need a true definition of what Bermuda is as a tourist destination and then aggressively communicate this to our target markets as well as stakeholders on the island. Re-engage with and focus more on our core markets which are the high-end travellers in Northeast United States who are only 90 minutes away from Bermuda and don’t realise it. Finally, get Bermuda back to being excited about tourism. It’s proven that we need tourism, so let’s get serious about it again.”

Sally-Ann Kyle, president and CEO of The St George’s Club, a vacation ownership resort and cottage hotel, said getting demand for Bermuda back up was key.

“The St George’s Club has fared better than most during the current economic meltdown but we are still suffering,” she said. “Revenue generation facilities that are relied on to boost revenue such as the restaurants Griffin’s Bistro and Bar and our seasonal beach property Blackbeard’s Hideout have not generated the business that they used to, simply because the numbers of people willing to and wanting to eat out are down substantially.”

Mrs Kyle said if we do not increase the number of air visitors coming to the island then, along with hotels suffering, we may not have the same number of airline flights in the future.

“We need to promote Bermuda so that people know about us, understand what we are as a resort the Island is a wonderful resort and there are several different levels of accommodation to choose from and understand our costs.

“There is no point attracting people that find the place too expensive and leave thinking I won’t go back there again. The marketing in the past has been too focused on what we would refer to as tactical and not strategic.

“We need to tell people about the fantastic positive things on the Island: the beauty, the beaches the people, our history and ‘Britishness’! We need to make sure that if someone is thinking about a holiday then Bermuda comes to mind. Perhaps the most recent announcements by the Bermuda Department of Tourism with respect to pink buses, trains and billboards are a significant step in the right direction, but it needs to be sustained and augmented by a rebranding of the Island as a destination of choice.

“With hopefully a large part of the marketing money spent on strategy, the government, the unions and the industry must continue to work together so that in the short term while the new branding takes effect, hotels can receive concessions as required to survive, renovate and everyone works to improve service so that the perception moves to Bermuda is expensive but it was really worth the money and I will go back!”

Another long-time hotelier declared: “The Bermuda brand is broken.”

The hotelier told us a reasonable goal for Tourism right now should be bringing air arrivals up to 350,000 and reducing cruise arrivals and the strain they place on tourism.

“Cruise visitors are our biggest rivals,” the hotelier said.

The hotelier also said the industry faced “incredibly high costs” and too much bureaucracy in everything from the planning approval process to immigration approvals for labour

“Almost every hotel on this island is in the deepest struggle it’s ever been in to be profitable,” the hotelier said, adding, without sufficient revenue for owners to reinvest in hotel properties it becomes a “death spiral”.

Mr Winfield says everyone in Bermuda needs to understand how critical tourism is to the Island.

“If the tourism industry is dying, then much of the rest of our economy will follow,” he warned.

Here Mr Winfield agreed to answer our questions about the state of tourism and what it will take to turn it around.

Why has it been so difficult to make a hospitality project work in Bermuda?

Because almost all of the costs involved are at a multiple higher than our competitive jurisdictions. Virtually every aspect of getting a room and the facilities in place for a guest costs us more than our competition and yet we have to charge to be competitive. Thus we are effectively capped on the rates we charge but have higher costs than almost anywhere else, that leaves very little room for any return and in the last few years has been a negative proposition. But even in the best of years, the gap was pretty narrow.

Are you struggling right now to make your resort profitable?

I think profit is a word we have almost forgotten, it has been many years since most hoteliers realised even a reasonable return on their investment. Right now we are working to stay in the business, to stay viable.

What are the top three things that could be done right now that would help your property to thrive?

As I have often said, the model is severely challenged in Bermuda. Unless and until we can see our costs reduced and the demand for our product increased, we have huge challenges. The new Minister is making strides forward. We have a new agency about to be announced and the national tourism plan should be out by end of May. Having been involved in such plans several times in the past, the key is not just in the details of the plan it is in the commitment of all involved to make the action steps happen. Too often in the past we have gone to huge efforts to produce plans only to have the reports grow dusty on a shelf.

We, the people of Bermuda, have to understand the true value of tourism to our livelihoods. Unlike much of international business expenditure, tourism dollars flow through the community and impact right across the economic welfare of the country. So many people benefit from every dollar spent by a hotel guest.

We also have to understand that the other pillar of our community is dependent on the tourism infrastructure. That business requires the flights, the taxis, the restaurants and the tourism infrastructure, one cannot survive successfully without the other. For leading business people to be proclaiming the death of tourism is both naive and self defeating. If the tourism industry is dying, then much of the rest of our economy will follow. In simple terms:

1. We need to boost the brand awareness of Bermuda in our key markets we are the closest resort destination to the richest markets in the world but those prospective guests need to understand the key attributes of Bermuda and be reminded of them continually.

2. We have to develop plans that address the growing seasonality of Bermuda, we need to give people a reason to come to Bermuda in the winter months. A five-month season is simply unsustainable.

3. We need to bring all those involved together to address the costs of operating, right from construction to delivery of services.

Fractionals are being discounted now in Bermuda and not selling as well. Why has the fractional product and financial model failed?

I am not in the fractional business and thus not an expert but I do not believe fractionals are a dead idea. Tourism is a cyclical business, anybody that understands the industry knows it goes through up and downs. Unfortunately this latest down cycle has been deeper and longer than almost any before it but the demand for travel will come back and the demand for the fractional type product will also come back. It may need to be modified and changed as the aspirations of the target markets change but a variation of fractional development may well be the only way we are going to see new build of tourism infrastructure in Bermuda.

How does the cost of construction and electricity in Bermuda affect the costs of operating and the bottom line?

Electricity is one of those costs that are far higher in Bermuda than almost anywhere else. We are paying north of 30 cents a kWh. I know of no other competitive jurisdictions, even on small islands, where their costs are so high. It is a huge element of our cost structure.

We are probably looking at something close to $500 per square foot for new build. That is a multiple of at least two over competitive areas. And that is before the cost of land is incorporated. So in construction costs alone, we are starting at twice the cost of product than most other places.

Potential new developers come and talk to existing hoteliers when they survey Bermuda. They ask us questions about the various costs and they go away and try and make the model work. No investor is going to consider an investment unless he can see a reasonable return. The answer for new development thus must be that we need to get the existing hotels profitable. Show any investor, companies already operating profitably and consistently and they will be interested.

I don’t think Government fees are generally that high, although they are in certain areas. It is not just fees it is the need to get those within Government that interact with us, to genuinely understand our challenges and to work with us to make operating a hotel easier. Many of us spend inordinate amounts of time dealing with various Government departments and that is expensive.

What is your view of Bermuda as a tourism destination?

It has so much going for it. We have better beaches, we are a first world tourism destination, guests coming to Bermuda can expect to have the infrastructure they are used to in their homes, here in Bermuda. Transport, generally works, communications work, there is little pestering of guests by people trying to sell them things, we don’t have nasty insects, our crime levels are still pretty good although the increase in violent crime is very concerning. We are still generally a friendly people and getting here is easy. We certainly need to look at what we can do to attract people in the winter months and we need to ensure that our interaction with visitors is always welcoming this begins at the airport and is relevant to our shops, our taxis and bus operators, indeed any point of interaction with our guests.

What additional Government or other incentives and/or policy or law changes are needed to help tourism?

We need to appreciate that Government is facing many of the same financial challenges we are and that the hotel industry, nor any other entity, cannot be continually going back to Government asking for more financial support. Having said that, there are things that can be done.

A long-term review is needed on the cost of electricity on the Island. Clearly Belco is facing similar challenges to the rest of us but we need to break the cycle and look at what it is going to take to get the cost of electricity to a position where it is competitive with the rest of the world.

Clearly there are going to be capital expenditure issues here that will have to be amortised, but should we not, for financial and environmental reasons, now be looking at reducing our dependency on the spiralling costs of oil?

Belco has a wonderful system for them, they just add a fuel surcharge and thus the increased costs of oil does not impact them, they can pass that straight on to their customers. The rest of us in business do not have that option. And as electricity is a significant part of all of our monthly costs, a reduction in that would help lower the cost of living across the board.

I understand that the Minister is already talking to the construction industry about reducing costs for new build and renovation of hotels. This is a great first step. But I think we need to analyse this in detail, understand what costs are built into the construction industry’s expenses that add up to the high overall costs and see if there are elements within their cost structure that we can impact on.

For many years, Tourism has tried to be all things to all people and the end result has been a dilution of funding available for branding Bermuda.

I have always said, get the demand for the Island up and I as one hotelier am more than prepared to compete for that business.

Because demand is so low overall for the Island, you now have Government and the hotels trying to reach out to myriad potential sources of business and to steal market share by way of discounting.

That discounting means that hotels’ revenues are reduced and they can’t afford to put money back in to improve the physical product to ensure they stay competitive, and the cycle just goes on and on.

Position Bermuda as a unique destination, make it THE place that the affluent want to come to, reduce strains on the infrastructure (like too many cruise ship visitors) move your average customer base more up market and you will see Front Street start to revert to the quality shopping it once was, which in turn will appeal to the affluent client that we need.

Of course we need to do much more than that, we need to understand what that target guest is aspiring towards in relation to their vacation and then build a plan to satisfy those needs and wants. We need to be more innovative in terms of the activities we offer, we have offered glass bottom boat trips, scuba diving, etc for many years but how much innovation has there been?

And as we develop and approve new innovative ideas, Government can come in and look to providing duty relief for those approved projects.

We need to seriously look at how we can finance as a small country, the proposed Front Street development, make it totally unique and attractive to the target, affluent market, we need to look at a central convention facility and yes we need to seriously consider casinos, not as a total answer but as another facility, particularly in the winter months. What about a large water park, a larger and more interactive zoo? And yes, as per my recent suggestions, what about an interactive marine sanctuary and a protected snorkel park that allows our guests to experience the enormous variety of marine life that surrounds us.

Perhaps most importantly, we have to really get, as a community, just how important tourism is to us, we have to embrace it, defend it and fight for it and this cannot be just a small group of hoteliers who feel they are lone voice in a vast wilderness sometimes.

Where Government can really help is with the processing of our interactions with them.

Let us understand and be brave enough to state that if we are to charge five-star prices, we have to offer five-star services and that means we need the best of the best staffing our hotels. Hoteliers are desperately trying to get more Bermudians into the industry but we have to have the necessary work ethic and attitudes, given that we can train. But as we train we also need first-rate professionals, the best in the world if we are to offer service standards that are the best and the reality is we are going to need to import labour and we need to be competitive in doing so.

We simply can’t take months to clear permits. Same applies to planning, health and safety inspections, all of the interactions we have continuously with Government.

We have much of what we need already, we have one of the most beautiful islands in the world. But we cannot rest on our laurels, we have to honestly debate, question and challenge the road blocks and the impediments and see how we can, collectively, eliminate them.

Downsized: How the hotel bed count in Bermuda has plunged from its 1980 peak
Cambridge Beaches president Michael Winfield

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Published March 19, 2012 at 2:00 am (Updated March 19, 2012 at 9:39 am)

Hoteliers: Fix the broken brand and focus on high-end market

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