Ancillary revenue, which includes all non-room revenue opportunities, was often overlooked by hoteliers until the pandemic hit. When room revenue became negligible at the height of the pandemic, many hoteliers began to look beyond traditional room revenue and explored the opportunity that exists in ancillary revenue by finding creative ways to use their assets. Food delivery, home-cooked meals, laundry, and housekeeping are some of the most popular forays that hospitality companies have ventured into to survive tough times and grow their business. For example, QMIN, IHCLe-commerce food delivery platform, recorded a massive GMV of INR 66 crore in FY22. Similarly, ITC Hotels introduced food delivery (Gourmet Couch) and laundry (Lavanderia) services, Ibis entered the coworking space, and The Leela recently launched its signature fragrance and toiletries.
There are several examples of hoteliers embracing new revenue streams to weather the storm, and the story doesn’t end there. Hospitality businesses have become more innovative in their search for new revenue streams. Marriott, for example, recently launched a new advertising platform in collaboration with Yahoo, allowing advertisers to reach its guests through the group’s website, apps and other media in the United States and Canada in a first time, with plans to expand the platform globally in the future. Meanwhile, closer to home, IHCL recently announced its entry into event management, and ITC Grand Central The hotel has opened a sleep boutique showroom where guests can purchase hotel products for personal use.
Given the success hotel chains have had in diversifying, we believe that a focus on ancillary revenue is not a passing fad, especially since the sector has only scratched the surface, and we expect the following areas to generate greater interest in the future:
- Transform spaces into co-working offices: Hotels already have all the facilities and infrastructure necessary for professionals to carry out their activities. They can therefore repurpose certain areas into corporate offices or coworking spaces and offer special daily/weekly/monthly packages for professionals, digital nomads, freelancers and entrepreneurs looking for an “office” space near from their house.
- Partnership with brand restaurants: Outsourcing restaurants to third-party tenants or operators will become a preferred option, especially for midrange and upscale hotels. Restaurant owners can benefit from captive clientele, location advantages and hotel branding, while hotels have the opportunity to enhance the customer experience by becoming a “destination” for customers of the hotel and the inhabitants, which translates into increased revenue and profitability of the restaurant business.
- EV charging stations can be a new service offer in hotels: India’s domestic travelers have discovered the pleasures of car travel in the past year and a growing number of these tourists are expected to own electric vehicles (EVs) in the future. However, EV owners are still wary of long journeys due to the lack of adequate charging stations in the country. The introduction of electric vehicle charging stations in hotels, with proper planning and demand analysis, could be a game-changer for the sector in the future. This will not only improve a hotel’s sustainability quotient, but will also drive demand, retain customers and increase ancillary revenue.
- Facility management of head offices: Hospitality businesses can also consider venturing into end-to-end facilities management of boutiques and corporate offices, providing the full range of services such as front desk management, housekeeping, maintenance , F&B management and related services.
There are many ways to leverage existing infrastructure to generate new revenue streams, ranging from monetizing parking spaces and renting kitchens for off-peak cloud cooking needs to even developing signature hotel merchandise and memorabilia. However, the desirability will vary from property to property depending on location and market conditions, which requires a strategic approach. Diversified revenue streams will improve customer engagement and brand loyalty, increase real estate revenue per square foot without incurring significant additional costs in the current inflationary environment, and protect the property’s revenue-generating capabilities against unexpected events in the future.