1 702 University City Boulevard • Blacksburg, Virginia 24061-0162 • 540.231.8324 • Fax: 540.231.8850 Hotel Feasibility Study for Scott County, Virginia Prepared by: Chad R. Miller, Ph.D., Office of Economic Development Yeasun K. Chung, Ph.D. student, Department of Hospitality and Tourism Management Eric J. Howard, Masters Student, HUD Community Development Fellow, Department of Urban Affairs and Planning March 2007 Outreach & International Affairs Virginia Polytechnic Institute & State University OFFICE OF ECONOMIC DEVELOPMENT
85
Embed
Hotel Feasibility Study for Scott County, Virginia
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
1
702 University City Boulevard • Blacksburg, Virginia 24061-0162 • 540.231.8324 • Fax: 540.231.8850
Hotel Feasibility Study for Scott County, Virginia
Prepared by: Chad R. Miller, Ph.D., Office of Economic Development Yeasun K. Chung, Ph.D. student, Department of Hospitality and Tourism
Management Eric J. Howard, Masters Student, HUD Community Development Fellow,
Department of Urban Affairs and Planning March 2007
Outreach & International Affairs Virginia Polytechnic Institute & State University
This publication reports on the feasibility of establishing a hotel within Scott County. It is published by the Virginia Polytechnic Institute and State University Office of Economic Development. Statements, findings, conclusions, recommendations, and/or other data contained in this publication represent solely the findings and views of the author(s), and do not necessarily represent the views of Virginia Polytechnic Institute and State University, or any reference sources used or quoted by the study. Reference to research projects, programs, books, magazines, or newspaper articles does not imply an endorsement or recommendation by the authors, unless otherwise stated. All reproduction rights to this publication are reserved. Permission to reproduce this publication of parts herein should be obtained in writing from the publishing entity. All correspondence regarding this publication should be sent to:
Dr. Theodore Settle Virginia Tech
Office of Economic Development 702 University City Blvd. (Mail Code 0373)
The Smith Travel Research data contained in this report is based upon independent surveys and research from sources considered reliable but no representation is made as to its completeness or accuracy. This information is in no way to be constructed as a recommendation by Smith Travel Research of any industry standard and is intended solely for the internal purposes of this study and should not be published in any manner unless authorized by Smith Travel Research. Copyright 2006 Smith Travel Research.
A Land Grant University – The Commonwealth Is Our Campus An Equal Opportunity/Affirmative Action Institution
3
Forward This document was prepared in response to a request by the Scott County Economic Development Authority. The objective of this study is to determine the existing and potential market demand for the possible development of a new limited or full-service hotel in Scott County, Virginia. On the basis of our findings, we have estimated the annual net operating income for the lodging property’s first five years of operation in order to evaluate the value of the hotel investment that should be undertaken in Scott County. The scope of the study may be summarized as follows:
• Work with Scott County to identify a project study area within the County limits;
• Analysis of economic and demographic trends; • Analysis of historical, current, and future supply for hotel rooms in the
competitive market; • Analyze market area lodging demand by conducting a review of historical
operations, capture rates, and average rate achievement of competitive properties;
• Analysis of potential hotel sites; • Development of estimates of occupancy levels that might be obtained at the
proposed lodging facility; • Development of estimates of average daily room rates, and; • Development of statements of estimated annual operating results.
4
Executive Summary This summary highlights the key findings of the feasibility study to evaluate the potential development of a new hotel in Scott County, Virginia. Based on our analysis of demand and supply under twelve different scenarios, a branded midscale hotel without food and beverage (F & B) would best serve the needs of Scott County (See Table 1). The investment costs are based on the lowest values presented in the literature because of the low property values in Scott County. A hotel having a restaurant could be feasible only with a particular size of hotel, 100 guestrooms. However, these recommendations are based on continued tourism development including the completion of the Daniel Boone Wilderness Road Interpretive and Exposition Center. Demand and operational performance are estimated under two scenarios: 1) on an as-is basis with no new demand generators and 2) the development of an exposition park with continued regional tourism development. Under each scenario, different size and facilities of midscale hotels are investigated. Under the second scenario, the proposed hotel appears to be feasible.
We looked at the historical performance of the lodging industry to understand the general conditions that affect a hotel’s profitability. Important observations from this historical information include the following:
1. The lodging industry has recovered to pre-September 11th levels in terms of occupancy and is expected to continue to grow mainly due to higher priced properties.
2. Small metro or town hotels are the slowest markets in the lodging industry. 3. Hotel guestroom supply is shrinking in the midscale with F & B market, while
midscale hotels without F & B have added more rooms in recent years.
5
4. Both leisure and business travel is slowly increasing and Gen-Xers (26 to 40 year-old) are becoming a dominant market in leisure room nights.
5. 67% of travelers to, thru, or within Virginia have pleasure related trips, while business travel accounts for 14% of total trips. The median age of the travelers is over 35 years, and 41% of them spend nights in hotels or motels.
Geographic market area analysis considerations include:
1. Potential customers for the subject hotel come mainly from Virginia, Tennessee, and North Carolina.
2. Population growth of the target market has been higher than the average growth of United States, and is projected to grow annually by 1.2%.
3. Personal income as a measure of income level is expected to continue to grow and consumer confidence indexes indicate customer’s expectation of future income shows an increasing trend over the next five years by 1.77%-1.90%.
4. Gas price increases adversely affect the local lodging market, the feasibility calculations are based on a gradual increase in fuel prices for the projected time period.
5. Most attractions in and around Scott County are historical, cultural or natural places and these types of attractions have been experienced decreasing visitation rates.
6. Creation of new tourism attractions, such as the Daniel Boone Wilderness Road Interpretive and Exposition Center, will make Scott County a tourism destination that leads to the change in demand for lodging.
7. The route connecting Weber City with Tennessee is the busiest and 20,500 automobiles travel on US23, SR224, and US58 daily for business, tourism, and commercial purposes.
A competitor analysis was conducted to understand the past demand and occupancy trends in the competitive market (i.e., the hotels/motels within the study area), to investigate the subject hotel’s competencies, and to determine the right positioning in the market. The findings are as follows:
1. Approximately 70% of rooms in the Scott County area are provided by Kingsport and Bristol. Major segments are economy and midscale without food and beverage, and 60% are brand chains.
2. The average age of properties is over 20 years and reservation systems, loyalty programs, internet access, and brand identity are necessary products and services to effectively compete within the competitive market.
3. The average daily room rate for the period of 2001-2005 was $62.96 and its annual compound growth rate was 2.86%.
Analyzing all demand and supply drivers, the competitive market’s demand and occupancy were estimated under different scenarios. In 2007, assuming the subject hotel is developed, the occupancy of the competitive market ranges from 48 to 49% versus a national average of 63.1% in 2005 up from 61.3% in 2004. In general, it is expected that the occupancy of the subject hotel will be lower under the first scenario, mainly due to its location. However, the hotel is expected to have a competitive
6
position under the scenario which includes the development of the exposition center, since its location is at the access points from the Tri-cities area and interstates. Nevertheless, the existing demand may not work to support a hotel unless other hospitality infrastructure, such restaurants and entertainment-related businesses, are developed in the study area. Therefore, continued regional tourism development is a crucial caveat of this study. (See Appendix F for recommendations) The national occupancy average was 63.1% in 2005 which was up from 61.3% in 2004, and is likely to remain at similar level over the next several years. Compared to the national level of occupancy, in this study it was found that the competitive market/study area's occupancy rate ranges from 48% to 52% under the existing tourism condition, and the occupancy under the tourism development scenario is expected not to meet 60% over the next five years (See Table 2). The subject hotel’s occupancy in the as is scenario would be lower than the occupancy of the competitive set, and an approximate 2-8% increase is expected as the exposition park is developed within the study area.
Table 2: Projections of Occupancy of U.S., Competitive Market, and Subject Hotel Competitive market vs. U.S. 2007 2008 2009 2010 2011
U.S. 63.30% 63.20% - - -
60 49.21% 49.97% 50.65% 51.19% 51.63%
80 48.87% 49.63% 50.31% 50.85% 51.28%
100 48.55% 49.30% 49.98% 50.51% 50.94% Scenario 1
120 48.22% 48.97% 49.64% 50.17% 50.60%
60 49.21% 56.36% 57.14% 57.75% 58.24%
80 48.87% 55.98% 56.75% 57.36% 57.85%
100 48.55% 55.61% 56.37% 56.97% 57.46%
Competitive Market
Scenario 2
120 48.22% 55.24% 56.00% 56.59% 57.08%
60 38.57% 41.01% 43.45% 42.96% 43.33%
80 38.31% 40.74% 43.16% 42.67% 43.04%
100 38.05% 40.46% 42.87% 42.39% 42.75%
w/ F&B
120 37.80% 40.19% 42.58% 42.11% 42.47%
100 41.87% 44.34% 46.80% 46.37% 46.76%
Scenario 1
w/o F & B 120 41.59% 44.05% 46.49% 46.06% 46.45%
60 38.57% 57.98% 60.90% 60.47% 60.99%
80 38.31% 57.59% 60.49% 60.07% 60.58%
100 38.05% 57.21% 60.08% 59.66% 60.18% w/
F&B
120 37.80% 56.83% 59.68% 59.27% 59.78%
100 41.87% 61.59% 64.52% 64.15% 64.70%
Subject Hotel
Scenario 2
w/o F & B 120 41.59% 61.18% 64.09% 63.72% 64.27%
In general, lower occupancy rates are expected of the subject hotel under the first scenario, mainly due to its location. However, the hotel is expected to have a competitive position under the scenario which includes the development of the
7
exposition center, since its location is at the access points from the Tri-cities area and interstates. Nevertheless, the existing demand may not work to support a hotel unless other hospitality infrastructure, such restaurants and entertainment-related businesses, are developed in the subject area. Therefore, continued regional tourism development is a crucial caveat of this study. (See Appendix F for recommendations) Using the net present value (NPV) analysis valuation technique, it was determined that investing in the development of a 60 room, 80 room, 100 room, or 120 room midscale hotel without an in-house restaurant is feasible only under the second scenario - the development of an exposition center and continued tourism development. The investment in a hotel having a restaurant would be acceptable only if the size of the property is 100 rooms. The brand is a very critical factor to have a competitive position in lodging industry, and this study assumed the development of a branded hotel that operates under a franchising or franchising/management mixed contract. It should be noted that many franchisee have minimum room numbers (See the Appendix C).
8
Table of Contents
Forward..................................................................................................................3 Executive Summary...............................................................................................4 Introduction to the Analysis .................................................................................9 Area Overview.......................................................................................................12 Industry Trends....................................................................................................13 Growth in the Lodging Industry..............................................................13
Business Travel and Leisure Travel.........................................................15 Tourism in Virginia..................................................................................17
Traffic Counts..........................................................................................27 Competitive Analysis..............................................................................30 Critical Success Factors..........................................................................33 Proposed Sites and Hotel Industry Segment......................................................35
Proposed Sites ........................................................................................35 Proposed Segment...................................................................................35 Proposed Facilities and Services.............................................................36
Financial Analysis................................................................................................37 Estimating Demand and Supply.............................................................37 Estimating Occupancy Levels and Average Daily Room Rates..............41 Allocating Area Demand to the Subject Hotel........................................43 Estimating Initial Investment Costs.......................................................50 Estimating Cost of Capital……………………………………………….……………51
Statement of Estimated Annual Operating Results............................................52 Basis of Assumptions...............................................................................52 Pro-Forma Financial Projections............................................................53
Definition of Terms…………………………………………………………………………………65 Making Investment Decisions with Net Present Value……………………………..…66 Appendix A: Properties of the Competitive Set ………..………………………………..73 Appendix B: Critical Success Factors…………………………………………………………75 Appendix C: Franchising Requirements…………………………………..…………….....77 Appendix D: Smith Travel Research...................................................................78 Appendix E: Interviews/Responses....................................................................81 Appendix F: Tourism Development Recommendations………………………………85 .
9
Introduction to this Analysis The objective of this study is to determine the existing and potential market demand for the proposed development of a new limited or full-service hotel in Scott County, Virginia. On the basis of the study’s findings, it is possible to estimate the annual net operating income for the lodging property’s first five years of operations in order to evaluate the value of hotel investment in Scott County. The scope of the study is summarized as follows:
analysis of economic and demographic trends as they pertain to transient lodging demand;
analysis of historical, current, and future supply for hotel rooms in the competitive market;
analysis of the market area’s current lodging demand through conducting a review of historical operations, occupancy rates, and average room rate achievement of competitive properties;
estimate of the future lodging demand based on historical data, economic characteristics and market potential (the analysis of geographic market area and target market);
analysis of potential hotel sites; analysis of the potential hotel sector (i.e., luxury, upscale, midscale with F&B, midscale without F&B, economy);
analysis of types of guestrooms; analysis of critical success factors (CSFs) that are bundles of products and services that are necessary for a hotel to invest in if it expects to compete in the sector;
estimate of occupancy levels that might be obtained at the proposed lodging facility;
estimate of average daily room rates (ADR); development of the pro forma statement of estimated annual operating cash flows;
estimate of initial investment costs to build proposed lodging facilities; and estimate of the net present value.
Methodology This feasibility study employs both qualitative and quantitative methods. Interviews were conducted with local public officials, representatives of competitive hotels, and persons related to the local development process. Secondary data from Securities and Exchange Commissions (SEC) filings, federal/state/country/local government agencies, investment banks, Smith Travel Research, Bureau of Transportation Statistics, Virginia Transit Association (VTA), and other tourism/travel associations was utilized for the analysis.
10
For the financial forecasting aspects of the feasibility study, estimating techniques include:
expected value calculations; scenario building; and regression analysis & other multivariate techniques
These techniques aid in the use of inductive and deductive reasoning to formulate cause-and-affect theories about the performance of future cash flows. Procedure We estimate operational performance for two scenarios: 1) on an as-is basis with no additional demand generators and 2) a development of an exposition center with continued regional tourism development. This hotel feasibility study follows the process presented in the Figure 1.
Figure 1: The Market Feasibility Process
Figure 1 shows how to conduct an environmental scan to project lodging demand and supply that will lead to a change in the cash flow of a hotel. This scanning process begins with the identification of key external value drivers from the remote and task environment. The remote environment consists of macro-level forces that originate external to a hotel and may have potential impacts on the hotel's ultimate financial performance. The task environment includes industry specific forces which have a more direct impact, and usually with a more immediate consequence, to a hotel than the remote environment. Once external value drivers are identified causal relationships between these external value drivers and demand/supply are examined in order to develop a quantitative model. The model produces cash flow projections
Remote
Environment Scanning
Task Environment Scanning
Lodging Consumer Trend
Market Area Business and
Tourism Analysis
Competitive Analysis
Lodging Demand
Lodging Supply
Projection Sales
Operating Expenses
Taxes Investment
Costs Discount rate
11
that are analyzed with regards to their value creation, the investment cost and the risk associated with the investment. Finally, the practical recommendations for an investment are made based on a decision making criterion that the investment in a hotel creates wealth by earning more than their cost of using equity and debt capital.
12
Area Overview Scott County is located within Appalachia in the southwestern part of Virginia. With 539 square miles and a population of 22,962 in 2005. Scott County is in the Kingsport-Bristol-Bristol, TN-VA Metropolitan Statistical Area (MSA) and borders the state of Tennessee. It is near the Tri-Cities area of Tennessee and 20 to 22 miles away from two Interstates (I-181 and I-81). Towns in this county include Gate City (population of 2,159), Weber City (1,333), Nickelsville (448), Dungannon (317), Clinchport (77), and Duffield (62). A map of the area is presented in Figure 2. The dominant sectors of the Scott County economy include manufacturing, education, health and social services, retail and trade, agriculture, and income transfers. Scott County area attractions are mostly cultural, historical, and natural places such as Natural Tunnel State Park, Carter Family Fold, and Daniel Boone Wilderness Road Interpretive and Exposition Center that is planned to develop in near future. The county currently has one middle tier independent hotel that is located in Duffield that has 98 rooms.
Figure 2: Map of Scott County, VA
13
Industry Trends Growth in the Lodging Industry The lodging industry grossed $22.6 billion in pretax profits in 2005 (Smith Travel Research). Total industry revenue increased in 2005 to $122.7 billion from $113.7 billion in 2004. The industry has recovered to pre-September 11th levels in terms of occupancy. The average occupancy rate was 63.1% in 2005 up from 61.3% in 2004. The average room rate has increased 5.4% and revenue per available rooms (RevPAR) recorded the largest increase (8.45%) in the past ten years. This data is summarized in Table 3.
Table 3: U.S. Lodging Industry Performance. Occupancy % Change ADR % Change RevPar % Change
Source: Smith Travel Research Hotel Performance by Segment Luxury hotels and upper-upscale hotels experienced a higher growth of occupancy rate, average daily room rate (ADR), and revenue per available room (RevPAR) than any other sectors. The occupancy levels of the U.S. full service hotels were over 70 percent in 2005, while mid-price and economy hotels within the limited service category had the average of occupancy rate (63-65%) in 2005. The Economy hotel sector showed the lowest annual growth (4.3%) of occupancy rate in 2006. This data is presented in Figure 3.
14
Figure 3: Hotel Performance Change (%) by Segment (2005-2006)
9.50%
15%
25.93%
8%
12.00%
21.18%
6.60%
8.70%
15.87%
4.30%
6%
10.56%
0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00%
Occ. Grow th
ADR Grow th
REVPAR Grow th
Economy M id-Price Upscale Luxury
Source: Smith Barney Research/ Smith Travel Research
Hotel Performance by Location Urban hotels had an occupancy increase of 9.8%, followed by airport and resort hotels. Urban and interstate hotels experienced the highest occupancy rate (70%-75%) in the lodging industry in 2005, while small metro or town hotels with food and beverage did not reach 60% occupancy. Although small town/metro hotels saw an increase of 3.7% in occupancy and 5.3% in ADR, they are in the slowest market in terms of the sales growth. This data is shown in Figure 4.
Figure 4: Hotel Performance Change (%) by Location (2005-2006)
9.80%
12.90%
23.96%
6.80%
10.70%
18.23%
9.10%
12.20%
22.41%
4.70%
5.60%
10.56%
7.50%
14.00%
22.55%
3.70%
5.30%
9.20%
0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00%
O cc. G row th
ADR G row th
REV PAR G row th
Small M etro/Town Resort Interstate Airport Suburban Urban
Source: Smith Barney Research/ Smith Travel Research
15
U.S. Lodging Room Supply Industry room supply (rooms available) increased by 0.3% in 2005, slightly lower growth than the 0.6% increase in 2004, as shown in Table 4. The average compound growth rate is 1.26%. Lodging room supply was up 2.0% for 2005 compared to 2004 in the state of Virginia due to both the building and expansion of new rooms around the state. In 2005, midscale hotels with food and beverage benefited from the decrease in rooms available, while midscale without food and beverage is the fastest growing market segment in terms of room supply.
Table 4: Changes in US Room Supply 2001 2002 2003 2004 2005 Supply Change in US 2.4% 1.6% 1.4% 0.6% 0.3%
Construction activity has increased on a year-to-year basis since 2005. In the U.S. rooms under construction increased 12.0% to 111,456 rooms in 2006, and the active development pipeline increased 17.4% to 337,574 rooms. Industry wide, the number of rooms currently under construction is equal to 2.5% of the existing supply. The upscale and midscale without food and beverage hotel segments seem to lead the change, experiencing above average capacity increases, as rooms under construction as a percentage of existing supply are 6.2% and 4.5%, respectively. This information is presented in Table 5.
Table 5: Total Development Pipeline (2004-2006)
Rooms 2006 2005 2004 In construction 111456 89,866 91449 Final planning 17741 14578 13828 Planning 208377 167250 173512 Active development pipeline 337574 571694 278789 Pre-planning 63219 54752 108428 Total development pipeline 400793 326446 387217
Source: Smith Travel Research / Dodge Construction Pipeline
Business Travel and Leisure Travel The typical business room night is generated by employees in a professional or managerial position (50%), earning an average yearly household income of $81,100. Most guests spend $96 per room night and the average length of stay in a hotel is 2.17 nights. A further breakdown of business traveler length of shows that 39% of all business travelers spend one night, 24% spend two nights, and 37% spend three or more nights.
16
The leisure room night is mostly generated by ages 35–54 (45%), earning an average yearly household income of $72,600. The typical leisure traveler travels by automobile (74%) and pays slightly lower price ($89) per night than business travelers. The average length of leisure travelers staying is 1.96 nights (45% spend one night, 28% spend two nights, and 27% spend three or more nights).
In 2005, leisure room nights surpassed business room nights as a percentage of total room nights and in absolute terms for the first time according to DK Shifflet & Associates/Travel Industry Association survey (TIA), as shown in Figure 5. Leisure travel accounted for 52% and business 48% of hotel guests for 2005, when domestic leisure person-trips increased by 2.9%, while business person-trips dropped by 0.6%. This trends continued in the first half 2006, showing 3.5% increase in leisure trips and 0.9% decrease in business trips. According to TIA’s outlook, leisure travel intentions are slowly improving (1-2% growth in 2007) and business travel’s growth should remain steady despite the advance of technological alternatives, such as teleconferencing. Thus, demand for both leisure and business travel is likely to grow slightly with slower growth from the business segment.
Figure 5: U.S. Domestic Room-Nights Volume: Business vs. Leisure
The increase in leisure travel room-nights is attributed to the members of the population who are categorized in the Generation X and Baby Boomers categories. Gen-Xers (26 to 40 year-old) have started to appear as the dominant demand segment in US. Although Baby Boomers still comprise the largest market, a hotel which targets leisure travelers should notice that the Gen-Xers are most likely to produce future occupied room nights than the other demographic groups. This changing trend is shown in Figure 6.
Tourism in Virginia The typical purpose of traveling more than 50 miles to, thru, or within Virginia is pleasure related (67%), while business travel makes up 14% of the total trips. Primary pleasure related trips include visits to see friends or relatives, vacation, entertainment, outdoor recreation, special events/festivals, reunions, or others as shown in Table 6.
Table 6: Primary purpose of trip
Visit friends or relatives 29.0%
Vacation 18.0%
Other pleasure related 9.8%
Other business related 8.4%
Family/friend event/reunion 7.6%
Entertainment/Outdoor recreation 5.1%
Conference/convention 4.4%
Special event/festival 4.2%
Seminar/training 1.6%
Other 11.9% Source: Virginia Tourism Corporation
In general, Virginia attracts older travelers. The majority of the visitors range from 35 years and older, as shown in Table 7. A marketing strategy would need to actively respond to these dominating age groups while realizing that longer term the Gen-X market is most likely to produce future occupied room nights.
18
Table 7: Age Distribution of Visitors to VA
Age Percent of visitors by age
under 6 4.40%
6-12 6.30%
13-17 7.50%
18-24 4.10%
25-34 9.10%
35-44 14.50%
45-54 16.90%
55-64 16.80%
65 and over 20.40% Source: Virginia Tourism Corporation
About 80% of visitors to Virginia spend the night either in a hotel/motel (41.4%) or with friends and relatives (39%). Over 50% of travelers stay between two and six nights in Virginia. The average number of nights spent in Virginia is 2.62. A further breakdown of the number of night and where visitors stay in Virginia is presented in Figure 7.
Figure 7: Visitor Stays in Virginia
19
Supply and Demand Analysis – Geographic Market Area Analysis Market Source According to visitor profiles at Natural Tunnel State Park, the major market sources are Virginia (about 39.91%) and Tennessee (19.51%) followed by Kentucky, North Carolina, Ohio, Florida, Pennsylvania, Indiana, Georgia, and West Virginia. This data is show in Table 8. The statewide (Virginia) distribution of market sources are: VA (21.20%), NC (13.40%), MD (8.70), PA (7.10%), NY (5.60%), NJ (4.80%), OH (3.80%), and FL (4.20%) as shown in Table 9. In both samples, Virginia and North Carolina are the major market sources, explaining 45% and 35% of total demand for Natural Tunnel State Park and for the total of attractions in Virginia.
Table 8: Travel Party Origin for
Natural Tunnel State Park
Table 9: Travel Party Origin for Virginia
Natural Tunnel State Park Virginia
State % of sales States % of tourists Virginia 39.91% Virginia 21.20% Tennessee 19.51% North Carolina 13.40% North Carolina 5.24% Maryland 8.70% Kentucky 4.91% Pennsylvania 7.10% Florida 3.58% New York 5.60% Indiana 3.06% New Jersey 4.80% Pennsylvania 3.00% Florida 4.20% Ohio 2.84% Ohio 3.80% Economic Factors The prevailing economic climate in a community has a significant impact on the market feasibility of a hotel operation. In this study, the economic and demographic factors that are used to forecast the future demand in the competitive set of the subject hotel in Scott County and travel trends in Scott County are the consumer price index, gas prices, personal income, per capita disposable income, eating and drinking place sales, population, population by age and income, consumer confidence index (CCI). These identified factors are used in the time series multivariate technique so rooms sold for the period of 2007-2011 are estimated in the competitive market set and in Scott County where the subject hotel would be located. Unemployment levels of Scott County and Kingsport-Bristol-Bristol MSA have been higher than the state averages in Virginia, Tennessee, and North Carolina. Unemployment in all areas that were investigated has been steadily decreasing, which will lead to an increasing trend in leisure travels and thus room demand. Unemployment information of the study area is presented in Table 10.
Income related factors demonstrate an expectation for future room demand. Other related indices mentioned above are incorporated into the financial analysis. In this study personal income and the consumer confidence index have been included to explain the relationship of income/projected earnings on lodging demand. Consumer confidence index (CCI) presents optimistic or pessimistic consumers' expectation with respect to the future economy that directly affects tourism. Virginia, which is the primary source market of room nights to the subject area, has seen relatively high personal income change. The Virginia per capita disposable income has grown at the annual average of 5.2% and the feeder market (VA, TN, and NC) has had 4.32 % change in per capita disposable income (see Table 11).
Demographic Factors Population Regional population, as will be discussed later, influences hotel room night demand. The population within 50, 100, and 200 mile radius from Scott County are 859,377, 2,088,575, and 10,864,484 in 2000 according the US Census. The population growth rate of Scott County has been steadily declining from 2000 to 2005 at an approximate annual rate of .32 percent. The population of the county is less prosperous than that of Virginia and the United States. The Kingsport-Bristol-Bristol MSA is also expected to have a lower population growth rate than the statewide and nationwide rates. The low population growth of the local area might lead to a shortage of labor and a low number of day trippers. On the other hand, the overnight travelers who mainly come from VA, TN, and NC are expected to grow continuously at 1.2% from 2007 to 2020 according to U.S. Census. This information is presented in Figure Table 12.
* Projections by U.S. Census Source: US. Census, Virginia Employment Commission, & Virginia Economic Development Partnership
Population growth is not a strong variable that drives lodging demand. However, in hotel feasibility studies it is often used as the lower limit of potential growth. Therefore, demand for rooms around Scott County is likely to grow by at least the population growth rate of its target market.
22
Demand Generators Leisure Demand Demand generators are destinations that draw extensive traffic and/or visitors. Most of the demand generators in and around Scott County are historical, cultural, or natural places. These types of attractions typically experience a lower number of repeat travelers when compared to entertainment attractions, such as theme-parks. The nearby Bristol Motor Speedway is an exception to this trend, as its 10 to 15 events per year will attract repeat business and ensure room nights. Seasonality is an important factor when attempting to attract the leisure traveler. The months of November to March are slow periods for leisure demand and any future hotel should promote events and activities to maintain a more constant level of business during these months. This is also a timeframe that could be focused on marketing for meetings, conventions, and other business related demand. The followings are attractions of Scott County and mapped in Figure 8:
Bristol Motor Speedway Warriors Path State Park Wilderness Road Barter Theatre Jefferson National Forest The Netherland Inn Bush Mill Exchange Place Natural Tunnel State Park Bays Mountain Park Keith Memorial Park Appalachian Caverns Carter Fold Bristol Caverns Homeplace Mountain Farm Museum Museum of Ancient Brick War Memorial Museum of Mountain home Copper Creek Viaduct Johnson City Symphony The Wetlands Water Park Scott County Golf Course Highland Theatrical Company B. Carroll Reece Museum Cherokee Adventures Birthplace of Country Music Cultural
Heritage Center “The Crooked Road” Virginia’s Heritage Music Trail
Daniel Boone Wilderness Trail
The following hotel demand generators are being developed:
Daniel Boone Wilderness Road Interpretive and Exposition Center (planned) Performing Arts Center (planned)
23
Figure 8: Tourism Attractions in/around Scott County, VA
24
Daniel Boone Wilderness Road Interpretive and Exposition Center (planned) The Daniel Boone Wilderness Road Interpretive and Exposition Center is planned to be developed in the near future, and it will include a large historical research/library facility. This agricultural exposition center would provide another opportunity to explore the cultural heritage of the region, making Scott County a destination. Its facilities, buildings, and events will be similar to the Lewis and Clark Interpretive Center in Nebraska City, Henry/Stafford East Tennessee Agricultural Exposition Center, Camp Jordan Arena, Cowlitz County Expo Center, Georgia National Fairgrounds and Agricenter, Eastern Kentucky Exposition Center, Walters State Community College – Great Smokey Mountains Expo Center, Chicopee Agricultural Center. Based on a interview with the Lewis & Clark Interpretative Center, there is an average of 300 visitors per day in spring, summer, and fall, and as low as one or two visitors in winter. The major visitors to these centers are families in summer, and tour groups in spring and fall. These vistors come from all 50 states. The population in Nebraska is less then one quarter of Virginia’s population, so the Daniel Boone Center is expected to have more than 300 visitors a day during peak times. However, the estimation for future visitors will remain at a conservative position since Duffield, where the expo center will be located, is not as a big as Nebraska City where the Lewis and Clark Interpretative Center is located. Park Visitation Scott County’s primary attractions are Natural Tunnel State Park and the future Daniel Boone Visitors’ and Exposition Center. These are the attractions that will bring tourists into the subject area for overnight visits. Although US leisure travel has increased over time, the share of leisure travel parties reporting visits to historic sites and National/State parks reached a 10-year low in 2003. National/State parks are losing share among U.S. travelers, because of declining park budgets, maintenance problems, and park offerings remaining static while alternative destination activities expand according to D.K. Shifflet & Associates, Ltd, a leading travel research firm. National and State parks’ share of leisure visitation is down by 29% since 1994. Park activity participation, which peaked in 1995 at 9.0% of all leisure trips, has dropped to 6.4 % in 2003. The share of leisure travel parties visiting historic sites has declined even more than parks (-47%) since 1994. The decline in historic site visitation share reached a new low in 2003 when only 5.6% of all leisure travel parties included a visit to an historic site; this information is shown in Figure 9.
25
Figure 9: Visits to Historic Sites and National/State Parks
9.00%
6.40%
10.60%
5.60%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
1994 2003
National/State Park Visitation
Historical Site Visitation
Annual attendance to Natural Tunnel has not significantly changed over the last 15 years (with an average of 231,706 visitors), except in 1997 (See Figure 10). The likely trend of demand seems cyclical, showing a decrease in growth every two or three years. It also should be noted that the decreasing proportion of U.S. leisure travel parties visiting parks might result in stagnated growth of visitors to Natural Tunnel State park while the U.S. and target market’ population and income have been grown at approximately 1.3 % and 4.5%.
Figure 10: Total Attendance (1991-2005) : Natural Tunnel State Park
There are a variety of year-round festivals and events that could cause local demand (within 50 miles) for the subjective hotel and special events offered in Scott County are • March, May, and August Bristol Motor Speedway • May - September - Lighting of the Tunnel, Natural Tunnel State Park • May – September - Wild Cave Tours, Natural Tunnel State Park • June - 4th Weekend – Nickelsville Days • June - Seige at the Blockhouse – Natural Tunnel State Park • July - Mountain Treasures Festival – Dungannon • July - Mendota Heritage Festival • July - Tour de Possum Creek Bike Ride/Race – Yuma • July - Homeplace Highland Games – Weber City • July- Tour de Possum Creek Bike Ride/Race • July- Homeplace Golf Tournament – Gate City • August - 1st Weekend – Carter Family Music Festival – Hiltons • September - Labor Day Weekend – Duffield Daze – Duffield • September - Labor Day Weekend – Papa Joe Smiddy Festival • Natural Tunnel State Park • September - Native American Day at the Blockhouse • Natural Tunnel State Park • September - Scott County Fiddler’s Convention – Gate City • September - Mountain MusicFest, Natural Tunnel State Park • October - 1st Saturday – Bush Mill Days – Nickelsville • October - Frontier Harvest Celebration at the Blockhouse • Natural Tunnel State Park • October - Scott County Tobacco Festival – Weber City • November - 1st Saturday – Arts & Crafts Carousel – Gate City • December - Christmastide at the Blockhouse –Natural Tunnel State Park • December – Christmas Parade, Regional Horse Association Events - Nickelsville • Carter Fold and the Crooked Road: Virginia’s Heritage Music Trail • Driving, hiking and horseback riding trails • Other attractions visitation
Business and Other Demand There are five major employers in Scott County these include: Gilbert Lumber (Estimated Employment of 50-99)1, Joy Technologies Inc (100-299), Mining machinery (100-299), Tempur-Pedic Mattresses (100-299), and VFP Inc. Tempur Production (50-99). Holston Medical Group (HMG), a multi-specialty physician practice, will open its first medical records data center in Scott County as well. Tempur Pedic is located in
1 Parentheses show the number of employees.
27
Scott County's Duffield Regional Industrial Park and has expanded its manufacturing facility in the Industrial Park. Increased activity within the Industrial Park generates business related room demand and the need for meeting facilities. Although we have considered the potential of business travels in this study, significant future business related travel increases are not figured into the calculations. Traffic Counts Determining market feasibility requires an estimate of the number of cars that pass through each potential location. In this study, traffic counts were used to determine which site is the most effective within the Scott County and examine the marketability of the site. As shown in Table 13 and Figure 11, the busiest route is US23 that connects SCL Weber City with Tennessee state line. Annual average daily traffic (AADT) on US 23 in Scott County in 2005 was 23,000 up from 21,000 in 2001.
NCL Duffield - Lee County Line (US23) 10000 11000 10000 11000 10000
Lee County Line- WCL Duffield (US58) 4700 4700 4000 4000 4000
84-755-Wise County Line(SR72) 870 860 860 860 850
84-774-Russell County Line (SR65) 690 690 640 640 630
ECL Nickelsville-Russell County Line (SR77) 2500 2400 3700 3700 3600
84-696-Washington County Line (US58) 540 540 470 470 470
Tennesee State Line-84-907 (SR224) 8700 9000 8200 8200 8100
Tennessee State Line-SCL Weber City(US23) 21000 22000 23000 23000 23000
The entry and exit traffic of the county, as shown in Figure 12 includes the traffic volume of 7,008 in and out commuters and 3,578 live and work in Scott County. Based on the analysis of commuting traffic patterns, 5,535 people enter or exit the county through US23 (Tennessee State Line-SCL Weber City), SR224 (Tennessee State Line-84-907), and US58 (84-696-Washington County Line). Thus, approximately 20,500 automobiles enter and exit the Scott County through the three routes for other purposes, which could be commercial, tourism, business, etc.
28
Figure 11: Average Annual Daily Traffic within Scott County (Traffic data provided by VDOT)
29
Figure 12: Traffic Counts at Major Entrance and Exit Points in Scott County (Traffic data provided by VDOT)
30
Competitive Analysis A competitive analysis is crucial to the market feasibility study because the local market potential for a given domain/segment must be shared among all of the competitors. Based on interviews and other research, visitors to the Scott County tend to stay in Kingsport (TN), Middleburg (KY), Big Stone Gap (VA), Norton (VA), and Bristol (TN). There are 38 hotels (offering 2,888 rooms) within approximately 20 miles from Natural Tunnel State Park, Duffield, or Gate City. Approximately 71% of rooms are offered by properties in areas southeast of Scott County and 60% are served by brand chains. The prevalent segments in the area are economy (47.13%) and midscale (46.12%). An upper upscale hotel that has 195 rooms (6.75%) exists in the competitive area and no luxury hotel exists. There are two midscale hotels having food and beverage outlets with a fair share of rooms (8.34% of total rooms available within the competitive market set). This information is summarized in Figure 13 and a map of the competitive area is presented in Figure 14. Average daily room rates vary with the segment where a property is located. Economy hotels have a range of room rates from $40 to $72, midscale hotels from $70 to $105, and a luxury hotel from $149 to $184.
Figure 13: Trends of the Various Market Segment within the Competitive Set
A detailed breakdown of the information regarding the distance from Duffield or Gate City, locations, property names, chain scale, and ADR and the number of rooms properties that will be competitors for the subject hotel in the future are in Appendix A.
31
Figure 14: Hotels Considered to be apart of the Competitive Set
32
Location: Proximity to sources of demand Most of the hotel competitors are located in Kingsport, and one hotel is in Scott County. Most hotels are more than 15 miles away from Duffield or the Natural Tunnel State Park in Scott County. This means that most travelers who visit Scott County have to drive more than 15 miles to stay in other hotels. This potential market should be captured by the subject hotel.
Financials The average daily room rate for the period of 2001-2005 was $62.96 and its annual compound growth rate was 2.86%. Occupancy dropped to 48.86 in 2003 and 48.68 in 2005. The annual compound average of occupancy change is - .67 %. Revenue per available room has increased since 2001 except 2003 (see Table 14). This is mainly because of the increase in average room rate, not the change in occupancy. The average room rate of most hotels in the subject area is between $45 and $57. The total room supply is 2,888 rooms in the area, and if 120 rooms are provided by a new hotel in Scott County its fair market share becomes approximately 4%. However, it should be noted that we include the part of Kingsport area that might not allow Scott County hotels to reach the fair market share.
Table 14: Historical Occupancy, Average Daily Room Rate, and Revenue per Available
YTD 2006* 50.31 0.98 73.82 7.83 37.14 8.89 Average (2001-
2005) 50.01 -0.67 62.96 2.86 31.45 2.14
*2006 data is only for nine months and it should be lower than the current numbers due to the exclusion of sales in winter.
Facility: interior/exterior appearance and conditions
Food and beverage outlets: Food and beverage outlets are dependent on the established room rate. Few hotels have restaurants or bars on premise. Typically, a hotel is located in an area that has sufficient hospitality infrastructure outside the hotel and does need to generate its own restaurant.
33
Figure 15: Changes in Reservation Types
Meeting facility: Most Midscale and upscale hotels provide meeting facilities whose capacity ranges from 35 to 2,000 persons. Business centers and meeting facilities seem to be necessary factors that hotels typically provide.
In-room amenities: Free wireless or high-speed internet has become a critical factor that most hotels must have to compete within the industry.
Recreation: A fitness facility, tennis court, or swimming pools are common recreation facilities that hotels typically have.
Age of facilities and amenities: The average age of hotels in the competitive set is 21 years.
Critical success factors The following critical success factors (CSF) that are common to all firms and are necessary to effectively compete in that industry domain or sector. The analysis of competitors and prior research in the lodging industry indicate that online reservation system, brand, and loyalty programs are necessary products and services that should be offered by the subject hotel to meet customers’ needs. Reservation system All hotel chains use both phone and internet based reservation system. Chains with a big parent company have their own reservation systems as well as partnerships with online-travel agencies. Figure 15 indicates a significant increase in the usage of online reservations through hotel brand websites and the decrease in the more traditional forms of reservation such as CRS (Computer Reservation System, usually done through travel agency) and GDS (Global Distribution System).
Loyalty program All branded chains have a loyalty program and reward levels that depend on a hotel scale. In 2002, 32 percent of guests consider the loyalty program an important factor in deciding on a hotel, and this trend is steadily growing in the tourism industry, with a market share of 34% in 2005). Brand recognition (Chains vs. Independent) Within the study area 59% of hotels are well-known brand chains whose parent companies are Marriott, Wyndham, Choice, Intercontinental, and Hilton. These hotel
Source: PricewaterhouseCoopers LLP
34
chains provide 1702 out of the total 2888 rooms in the study area. Typically, branded chains have approximately 15% higher occupancy rates but have increased operating expenses due to royalty fees which is generally paid as a fixed percentage of gross sales. Detailed information about the age of facilities, meeting facilities, brand, and other critical success factors are presented in Appendix B.
35
Proposed Sites and Hotel Industry Segment Proposed Sites
Based on traffic volume and proximity to attractions, interstates, and the Tri-cities area the best possible site for a hotel development is in the area between Gate City, Weber City, and the Tennessee State Line. The site is desirable to attract visitors to the Tri-cities area to stay in Scott County provided that the hospitality infrastructure, i.e. entertainment, restaurants, and retailing stores, is available to support the service for guest at the hotel. Approximately 20,000 cars, excluding county-in/out daily commuters, pass the area close to interstates I-181 and I-81. Proposed Segment
The lodging industry generally can be divided into four main segments: (1) luxury; (2) upscale, which also includes upper-upscale properties, (3) midscale, which is often further split into midscale with food and beverage and midscale without food and beverage; and (4) economy. Middle segment properties typically offer limited breakfast service, vending, selected business services, and recreational facilities (a pool or fitness equipment). We recommend the development of a midscale hotel without food and beverage with 60-120 guestrooms in this area or a midscale hotel with food and beverage with 100 guestrooms. The recommendations are based on the following reasons: The surplus of economy rooms The independent hotel, Travel Inn, in Scott County is an economy property that offers limited services and facilities. Nevertheless, its rates of $70 to $80 are near to the midscale range. Currently, its annual occupancy rate is about 15% that includes 30% for the peak months and 10% for the rest of a year. Its low existing demand implies a surplus of economy rooms (29,565 rooms a year). The recent industry trends also imply that economy hotels are unlikely to have strong performance in near future.
The needs for higher quality of services and products The higher quality of services and facilities than an economy property can generate induced demand for rooms, but with lower per room development costs and higher operating averages than luxury and upscale hotels. The lack of Eating establishments The midscale hotel without food and beverage historically outperformed the midscale with food and beverage. Nevertheless, it is generally desirable for hotels with food and beverage to be located in rural and small town areas, such as Scott County, as these places have a limited number of quality restaurants. Most midscale hotels without food and beverage tend to be located in areas with
36
plentiful restaurants. If the proposed area can support dining opportunities, midscale without food and beverage should be preferable for two reasons: the low operating margin of restaurants and the unavailability of liquor. However, a survey shows that 12% of leisure travelers and 7% of business travelers value eating options as a key factor in selecting a hotel, and thus the subject hotel could have difficulties in deriving these customers from neighboring towns such as Kingsport, Bristol, Norton, and Big Stone Gap, where many dining establishments are available outside hotels. Currently, 8.34% of rooms within the competitive market are midscale properties offering food and beverage. Proposed Facilities and Services
The proposed hotel is based on the establishment of a branded midscale hotel. We developed different scenarios in order to compare performance of different types of hotel within the midscale hotel. The scenarios are set out in two criteria: the number of rooms and an in-house food and beverage outlet. In detail, the cases of 60, 80, 100, and 120 room hotel and full service and limited service hotel are investigated. The common facilities assumed are meeting rooms, a pool, fitness center, and guest laundry, and necessary in-room amenities are air conditioning, free high-speed Internet, and cable TV.
37
Financial Analysis Demand and supply are estimated based on reviewing the past, present, and future trend of demographics, economic factors, industry factors, traffic patterns, local demand generators, and competitors and their causal relationship with a hotel that will be located in Scott County. Demographic data indicates the relative size of the local and target market population and is useful in setting the lower limit of the number of guests. Economic factors are important in projecting both changes in travel behavior and price. Traffic pattern data are crucial in evaluating forecasted customer counts, as is the presence of demand generators. Competitive analysis helps determine the market share and predict price points against the competition. Estimating Demand and Supply
Leisure demand is the major source of room revenue for a hotel in Scott County, and this will have an additional increase once the Daniel Boone Wilderness Road Interpretive and Exposition Center is developed. Estimated existing demand within the market is 513,093 rooms a year, while supply is 1,054,120 rooms. In order to forecast future demand, we first reviewed the attractions in Scott County, such as Natural Tunnel State Park, Carter Family Fold, and the Daniel Boone Wilderness Road Interpretive and Exposition Center. Then we examined lodging industry trends and economy and demographics of the local and feeder markets and their inter-relationships with lodging performance. To measure statistically the influence of the different economic factors on rooms sold in the competitive market, regression analysis is used based on data from 1991 to 2005. The selection of factors is based on the existing empirical studies2 on lodging demand and our preliminary test using nationwide data. We identified four key economic value drivers - personal income (PI), unemployment (UNEMP), gas price (GAS), and consumer confidence index (CCI) that affect demand for rooms. We used personal income and unemployment as a proxy of income level and customer’s expenditure behavior. Consumer price index (CCI) presents optimistic or pessimistic consumers' expectation with respect to the future economy that directly affects tourism. We also consider the gas price as an important economic factor since interstate, suburban, and small town hotels are significantly influenced by gas price fluctuation in history. 2- Wicks, B, Uysal, M, and Kim, S. (1994). The Effect of Lodging Prices on Visitors' Demand: Everglades
National Park. Journal of Hospitality & Tourism Research, 17(2). 51 - 61 - Lazaro, N., Molto, M. L., & Sanchez, R. (2000). Unemployment and consumption patterns. Applied Economics, 32(3), 367. - Canina, L., Walsh, K., & Enz, C. A. (2003). The effects of gasoline-price changes on room demand: A study of branded hotels from 1988 through 2000. Cornell Hotel and Restaurant Administration Quarterly, 44(4), 29. - Canina, L., & Carvell, S. (2003). Lodging demand for urban hotels in major metropolitan markets. CHR Reports, 3(3), 5-24.
38
The statistical results of income, gas price, and consumer confidence elasticity of demand for rooms are set out in Table 15. Elasticity measures the percentage change that will occur in rooms sold in response to a one percentage change in economics variable.
Table 15: Elasticity and Time lag
Economic value drivers Elasticity Time Lag3
Personal income .541 0
Unemployment -4.308 -1
Gas price -.252 0
Consumer Confidence index .180 0 Findings from the regression analysis are that:
• For every one percent increase in the personal income, the number of rooms sold increases by about .54%
• A one percent increase in unemployment rate leads to 4.3% fall in demand.
• A one percent increase in the gas price leads to .25% drop in rooms sold. • For a 1% increase in the consumer confidence, the number of rooms sold
grows by .18%. • Income, gas price, and consumer confidence have a coincident
relationship with demand for rooms while the movement of unemployment rate precedes the demand change by a year.
The following table is the estimation of changes in economic value drivers for the competitive market where the subject hotel will be located. The estimations of personal income and unemployment are derived from the subject hotel’s target market (VA, TN, & NC: 60% and Other States: 40%), while gas price and consumer confidence index are nationwide projections.
Table 16: Projections of % Changes in Economic Value Drivers
% Changes in Economic value
drivers 2007p 2008p 2009p 2010p 2011p
Personal income (PI) 3.77% 3.64% 3.51% 3.39% 3.28%
Unemployment (UNEMP)
.11% .13% .16% .20% .21%
Gas price (GAS) 2.0% 6.3% 5.8% 4.4% 3.7%
Consumer Confidence index
(CCI) 1.90% 1.87% 1.83% 1.80% 1.77%
3 Time lag is the length of time between cause and effect. A lag of -1 indicates that the change in the number of rooms sold is preceded by the change in an economic variable, by one year.
39
Sources: Our estimation from data of Department of Commerce; Energy Information Administration; Bureau of Economic Analysis; Department of Labor, Bureau of Labor; the Conference Board. It should be noted that the percent change in the number of rooms sold by economic factors should be adjusted by the population growth of the geographic market and locations of hotels. The following equation shows the general form used to estimate the relationship between all environmental factors and hotel rooms sold. Rooms sold = f (Gas Price, Personal Income, Population, Consumer Price Confidence Index, Location, Population) The economic outlook is favorable and the target population growth indicates positive effects from the local economy on demand for rooms within the competitive market. However, we expect the demand growth of the market is lower than that is estimated from the regression analysis. This is because of the fact that the growth of occupancy or demand in the competitive market is lower than that of a resort or urban area. As shown in Figure 5, small metro/town and interstate hotels have experienced 3.7% and 4.5% occupancy growth, while resort and urban hotel have an annual growth rate of 7.5% and 9.8%. Scenario Two Demand and operational performance was estimated under two scenarios: as-is development and the creation of the exposition park. The future exposition park is expected to generate higher market share of the competitive set. This increase in market share is not only a result of Duffield, VA becoming a tourism destination, but is also a result of the proposed sites location between Gate City, Weber City, and the border of Tennessee has direct access to Kingsport and interstate I-81. Based on interviews of a similar park visitation and historical seasonal data in the area, we estimated expected additional nights travelers will spend in hotels because of the creation of a tourism destination. (Table 17). The months of June through August are expected to be busy, while December through February would be slow months. The seasonal demand should vary with the marketing efforts from the future exposition park.
40
Table 17: Demand for Rooms with Increased Tourism Development
Month\Year 2008 2009 2010 2011 Avg January 4,149 4,238 4,316 4,387 4,272 February 4,116 4,204 4,282 4,352 4,238
March 5,646 5,767 5,874 5,970 5,814 April 5,838 5,964 6,074 6,173 6,012 May 5,947 6,076 6,187 6,289 6,125 June 6,691 6,836 6,961 7,075 6,891 July 7,680 7,845 7,990 8,121 7,909
August 7,056 7,208 7,341 7,461 7,266 September 5,661 5,783 5,890 5,986 5,830
October 6,540 6,681 6,804 6,915 6,735 November 4,846 4,950 5,042 5,124 4,991 December 4,231 4,322 4,402 4,474 4,357 Total Year 68,401 69,875 71,162 72,325 70,441
Based on the analysis of economics, demographics, and geographic tourism, it is possible to project the number of rooms sold in the competitive market under the two scenarios (Table 18). Without additional attractions, it is projected that 522,216 rooms will be sold during 2007 and the demand for rooms will grow at the annual average of 1.95%. The development of the exposition park will fuel an increase in demand for rooms from 2008 and the projected number of rooms sold in the study area will grow to 602,787, 615,775, 627,112, and 637,368 during 2008, 2009, 2010, and 2011 respectively.
Table 18: Projected Number of Rooms Sold (Demand)
in the Competitive Market Year 2007 2008 2009 2010 2011
Number of Rooms Sold 522,216 534,386 545,899 555,950 565,043
The available rooms within the competitive market are 1,054,120 in 2006. The nationwide supply (or rooms available) has steadily increased at a moderate rate over last five years. Within the study market, two properties (117 rooms) opened in 2004 and 2006 and the annual compound average change in supply is 0.77%. The first year number of rooms sold is affected by the creation of the subject property, and then the annual growth rate of .77% is used for supply changes for the period of 2008 -2011.
41
Table 19: Projected Number of Rooms Available (Supply) in the Competitive Market
Subject Hotel's
Number of Rooms
2007 2008 2009 2010 2011
Competitive Set 1,061,280 1,069,452 1,077,687 1,085,985 1,094,347
Subject Property
21,900 21,900 21,900 21,900 21,900 60
Fair Share 2.06% 2.05% 2.03% 2.02% 2.00%
Competitive Set 1,068,480 1,076,707 1,084,998 1,093,352 1,101,771
Subject Property
29,200 29,200 29,200 29,200 29,200 80
Fair Share 2.73% 2.71% 2.69% 2.67% 2.65%
Competitive Set 1,075,680 1,083,963 1,092,309 1,100,720 1,109,196
Subject Property
36,500 36,500 36,500 36,500 36,500 100
Fair Share 3.39% 3.37% 3.34% 3.32% 3.29%
Competitive Set 1,082,880 1,091,218 1,099,621 1,108,088 1,116,620
Subject Property
43,800 43,800 43,800 43,800 43,800 120
Fair Share 4.04% 4.01% 3.98% 3.95% 3.92%
Estimating Occupancy Levels and Average Daily Room Rates (ADR)
Occupancy levels that could be obtained at the proposed lodging facility for next five years are based on its fair share of projected demand and supply within the market. Historically, the occupancy rate has been between 48% and 51% (see Table 20). However a new hotel entering the existing market will lower the overall occupancy level if everything else is same.
Table 20: Historical Changes in Occupancy in the Competitive Market
Occupancy Rate (%) is rooms sold divided by rooms available. The market occupancy will be lower than current levels since the subject property will increase supply within the competitive market set. Based on the projected demand and supply, occupancy levels of the competitive set for next five years are presented in Table 21.
42
Table 21: Expected Occupancy in the Competitive Market
Allocate area demand to the subject hotel Subject hotel’s competitiveness In projecting the occupancy performance of the proposed subject property over the projection period, the penetration rate is utilized. The occupancy levels previously mentioned can be achieved by the subject property when all things are equal. However, different hotels have different levels of market penetration due to location, pricing, marketing, facilities, management, amenities, and other competitive characteristics. Market penetrations in excess of 100% indicate that a hotel possesses competitive advantages relative to the market, while competitive weaknesses are reflected in penetrations of less than 100%. The subject property is projected to penetrate the market below its fair market share (or the proportion as its share of rooms supply) given that it will be located further away from the primary market (Norton, Kingsport, and Bristol) and interstates when compared to its competitors. The existing property, Travel Inn, in Scott County had a very low market penetration rate of 34.06% (see Table 22) of fair share in 2005 possibly due to brand, location, lack of marketing dollars to reach the primary market, lack of sales tools, wrong room mix and amenities, or old facilities.
Table 22: Comparison of Occupancy of the Travel Inn and Competitive Set
Competitive Market Set Travel Inn
Total Rooms Available
Market Occupancy Total Rooms Sold Fair Share
Actual Occupancy Penetration Rate
1054120 48.68% 513,093 3.74% 16.50% 33.90%
Thus, the penetration rate for the subject hotel should fall between 34.06% and 100%, but closer to 100%, given the fact that it is a new property with better amenities. The potential site has high traffic volumes and the room price is competitive within midscale segment. Under the development of the exposition center, the property will experience a high penetration rate. Based on our analysis, the property is projected to achieve a market penetration rate of between 80-85% under scenario one without a new tourism or business related demand driver and over 100% under the second scenario having a new demand generator, the Daniel Boone Wilderness Road Interpretive and Exposition Center. The demand allocation (penetration4 and market share5) are constructed by analyzing the relative competitiveness of the subject hotel. Factors used to measure the subject hotel’s competitiveness and their weights in traveler’s hotel choice are based on a guest preference study6 conducted in 2003. The most decisive drivers in hotel selection are price, amenities, location, eating options, loyalty programs, customization, and
4 Penetration presents a specific hotel’s competitiveness in the study market. 5 Market share shows the portion of demand accommodated by a specific hotel 6 Watkins, E. (2003). How guests choose hotels, Lodging Hospitality. 59(2), 36.
44
office/technology options. (See Table 23). Price, hotel amenities and facilities, and location account for about 65% of a traveler’s choice of property. The subject hotel’s distinctive competency/strength would be its new amenities and facilities compared to the existing hotels that are more than 20 year on the average. Location (proximity to interstates, attractions, business, etc) is a value driver that reduces the property’s competitiveness, although we expect the relative competency of the hotel should be strengthened once the Daniel Boone Wilderness Road Interpretive and Exposition Center is developed. Loyalty programs are a critical success factor for the hotel to compete in today’s market and this is typically offered by a branded chain. Travelers also value eating options including free breakfast and an in-house restaurant (about 12% of leisure travelers and 7% of business travelers are influenced by these options). This means the hotel’s market share and penetration will be influenced by having food and beverage outlets. It is believed that the level of customization is various with the hotel’s stabilization, management, and promotion/marketing campaigns. Accordingly, the hotel’s market penetration in the worst case is expected to be 77% and 111% in the best case. Market penetrations in excess of 100% indicate that a hotel possesses competitive advantages relative to the market, while competitive weaknesses are reflected in penetrations of less than 100%. Table 23: Value Drivers of Hotel Selection and Subject Hotel’s Competitiveness Value Drivers of Hotel Selection Subject Hotel's Competitiveness
In the penetration analysis, we do not include the effect of the area’s hospitality infrastructure of Scott County. Restaurants available around the hotel might not directly drive choice, but they are still important factors to attract more travelers and make them to return to the hotel. Scott County has very few restaurants compared to neighboring areas (Table 24), and this might negatively work for the subject hotel to meet the estimated market penetration (77%-111%) within the competitive market.
45
Table 24: Dining Establishments in the Competitive Market
Caterers - - - 2 - - Source: U.S. Census Bureau After judging subject hotel’s competitiveness, we estimated projected penetration, rooms sold, and occupancy rate for the property over next five years. Table 25-1 through Table 25-6 presents the hotel’s performance within the competitive market in the case of having 60, 80, 100, and 120 rooms as well as offering full services and limited services.
46
Table 25-1: Projected Occupancy in the Competitive Market Type: Midscale without food and beverage
The ADR of the competitive market has grown at the compound annual growth rate of 3.69 percent since 2001. The weighted average of room rates of all competitors was $ 70, and that of midscale properties was $86. Average daily room rates (ADR) for the subject hotel should depend on its segment, the competitive market’s pricing structure, and the income level of the target market. Typically, a full service property has a higher ADR than a limited service one. U.S. midscale properties with food and beverage (full service) had $14 higher room rates than midscale without food and beverage in 2006. In the study market, we believe that an appropriate room rates in 2006 are $ 75 and $80 for limited and full service hotels, respectively. The rates are expected to increase 5 % for 2007. Future changes are expected to return to inflationary levels of about 3.0% in the following years listed in Table 26. Table 26: Future Changes in Average Daily Room Rates
2007 2008 2009 2010 2011
Midscale w/o F & B $79 $81 $84 $86 $89
Midscale w/ F & B $84 $87 $89 $92 $95
50
Estimating Initial Investment Costs Hotel construction cost of midscale hotels ranges between $40,000 to $335,000 per room. The high variance in costs are generally due to differences site acquisition costs, regulatory approvals, site characteristics, quality construction, density, building & zoning codes, and local labor. Hotel development costs of the subject hotel under different scenarios are presented in Table 27. This estimation is based on the current property values in Scott County from the Virginia Mass Appraisal Network (VamaNet), HVS International Hotel development cost survey, and franchising guidelines,. (See Appendix C & Hotel development cost survey per-room range of costs for 2003 – 2005: http://www.hotelnewsresource.com/pdf/hvs2095.pdf)
Estimating Cost of Capital To finance the assets of the subject hotel, the cost of capital is determined. It is based on the Capital Asset Pricing Model that including the following assumptions: 1) The subject hotel’s overall cost of capital must reflect the required return on the hotel’s assets as a whole, 2) If a firm uses both debt and equity financing, the cost of capital must include the cost of each, weighted to proportion of each (debt and equity) in the hotel’s capital structure 3) The hotel must earn the cost of capital just to compensate investors for the use of their capital in a project The parameters for the cost of debt and capital are shown in Table 28.
Table 28: Cost of Debt and Capital
Cost of Capital for the Hotel Industry = 9.47 %
Equity Use : 73.72% Debt Use: 26.28%
Cost of Equity = 11.37% Cost of Debt = 6.39%
Equity Parameters Debt Parameters
Risk Free Rate (%) = 4.56% (as of 2006.12.08) Annual Average Return on Market (%) = 8.06
Annual Average Risk Free Rate (%) =5.01% Beta=0.82
Tax Rate =35%
Source: Reuters, Security Moody’s Investor Service, Federal Reserve Bank of St. Louis, Securities and Exchange Commissions
Cost of capital to finance the subject hotel partially depends on the proportion of debt capital and equity capital. In this study, it is assumed that the subject hotel follows the industry standard. This means that using more debt (that is generally cheaper than equity) for the hotel development, the total value of this hotel becomes higher than 9.47% of weighted average cost of capital. The results of a sensitivity analysis of the cost of capital are presented in Table 29. This information shows that the cost of capital changes against the amount of debt use in the investment. The change in the cost of capital will directly affect the value of the hotel, and thus an investment decision making might be changed. However, it should be noted that more debt capital is not always cheaper and leads to risks of a hotel defaulting on its debt obligations.
Cost of Capital 11.37% 10.65% 9.92% 9.20% 8.48% 7.76% 7.04% 6.32% 5.60% 4.87% 4.15%
52
Statement of Estimated Annual Operating Results Basis of Assumptions
On the basis of our evaluation of different size and service providing hotels in Scott County, VA and our findings relative to the market demand, we have prepared statements of estimated annual operating results for next five years under two major scenarios: 1) no additional demand driver and 2) a development of an exposition park. The results of these evaluations are presented in Tables 31-1 to 31-12. This estimation can only be achieved with effective marketing and management in the subject hotel and having critical success factors explained before. Each revenue and expenses item is estimated by using per cent change as of index of variability. The index of variability refers to a factor that controls the movement of the variable component. For instance, franchise fees are 5% of gross rooms’ revenue, and telecommunication expenses varies with telecommunications revenue.
Table 30: Index of Variability
Revenue and Expenses Category Index of variability
Revenue
Rooms Occupancy, ADR
Food Occupancy
Beverage Food Revenue
Other Food & Beverage Occupancy
Telecommunications Occupancy
Other Operated Departments Occupancy
Rentals & Other Income Occupancy
Expenses
Rooms Occupancy
Food & Beverage F & B Revenue
Telecommunications Telephone Revenue
Other Operated Depts & Rentals To other Operated Departments Revenue
Reserve For Replacement 39,740 64,090 69,155 70,823 73,574
Net Operating Income $454,785 $624,169 $673,501 $689,747 $716,541
65
Definitions of Terms
Revenues • Rooms Revenue - Revenues derived from the rental of sleeping rooms at the hotel, net of any rebates and
discounts. • Food Revenue - Revenues derived from the sale of food, including coffee, milk, tea, and soft drinks. • Beverage Revenue - Revenues derived from the sale of beverages, including beer, wine and liquors. • Other Food and Beverage Revenue - Revenues derived from other sources such as meeting room rentals,
cover or service charges, or revenues derived from the sale of goods or services made in connection with banquets, such as equipment rental, music, decorations and souvenirs. Also includes banquet service charges.
• Telecommunications Revenue - Revenues derived from guest-use of telephones in the hotel, including local and long distance calls, service charges, facsimile service, modem and commissions received from pay stations.
• Other Operated Departments Revenue - Revenues generated from garage and parking, golf and tennis, health club, swimming pool, barber/beauty shop, gift shop, newsstand, etc., when operated by the hotel. Excludes casinos.
Departmental Expenses
• Rooms Departmental Expenses - include labor costs such as salaries and wages for front desk, housekeeping, reservations, bell staff, and laundry, plus employee benefits. Other operating expenses in the rooms department include linen, cleaning supplies, guest supplies, uniforms, central or franchise reservation fees, equipment leases, travel agent commissions and continental breakfast cost.
• Food Expense - include the cost of goods, labor and related benefits, and other operating expenses. Labor costs include departmental management, cooks and kitchen personnel, service staff, banquet staff. Other operating expenses include china, silverware, linens, restaurant and kitchen supplies, menus and printing, and special promotions. (Does not include continental breakfast costs. This is a Rooms Expense.)
• Beverage Expense - include the cost of goods sold, labor and related benefits, and other operating expenses. Labor costs include departmental management, lounge service staff, banquet bartender, bartenders and mini-bar staff. Other operating expenses include china, silverware, linens, and special promotions.
• Telecommunications Expense –includes costs of calls, labor cost of operators, and other related expenses, but excludes capital lease payments.
Undistributed Operating Expenses
• Administrative and General (A&G) Expense - Included in this category are the payroll and related expenses for the general manager, human resources and training, security, clerical staff, controller, and accounting staff. Other A&G expenses include office supplies, computer services, accounting and legal fees, cash overages and shortages, bad debt expenses, travel insurance, credit card commissions, transportation (non-guest) and travel and entertainment.
• Marketing Expense - includes payroll and related expenses for the sales and marketing staff, direct sales expenses, advertising and promotion, travel expenses for the sales staff, and civic and community projects. Includes national advertising fee or assessment paid to Franchise Company plus cost of frequent guest stay programs.
• Utility Costs - include electricity, fuel (oil, gas, and coal), purchased steam, and water. Includes central plant and energy management systems.
• Property Operations and Maintenance - includes payroll and related expenses for maintenance personnel, cost of maintenance supplies, cost of repairs and maintenance of the building, furniture and equipment, the grounds, and the removal of waste.
• Franchise Fee - Includes only the royalty fees charged by franchise companies. Other fees or assessments should be in Marketing or Rooms Other Expenses.
• Management Fees - Fees charged by management organizations for management services or supervision. Includes both base and incentive fees.
Fixed Charges
• Property Taxes - Typically include taxes on real estate, business and occupation, personal property, utilities, and other municipal taxes.
• Insurance - Cost of insuring the hotel building and contents against fire, weather, sprinkler leakage, boiler explosion, plate glass breakage, or other perils. Includes all insurance except workers’ compensation.
• Depreciation and Amortization - Deductions on the building, leaseholds and leasehold improvements, furnishings and equipment, and assets held under capital leases.
• Reserve for Capital Replacement - Amount set aside for replacement of furniture, fixtures, and equipment Source: Smith Travel Research
66
Making Investment Decisions with Net Present Value
Using the industry average of cost of capital, we prepared the projections of annual operating cash flows and its net present value in order to evaluate the proposed investment in developing a midscale hotel in Scott County, VA, (see Table 32). The following table presents the summary of valuations. Tables 33-1 through 33-12 give a further break down for each of these scenarios.
1 Rooms, F&B, and Telecommunications expense ratios to sales for departmental expenses and profits are based on their respective departmental revenues. All other expenses are based on total revenue. 2 Other Fixed Charges include Depreciation and Amortization, Interest, Rent, and Equipment Leases3 Payroll and Costs of Sales are included in expenses. Amounts shown here are for additional detail only. Not all HOST participants provide detailed data on payroll and F&B costs; therefore, the following supplemental analyses provide the ratios for only these hotels in the samples that reported detailed information. Consequently, the amounts may not tie to the departmental figures provided.
NOTE: Totals may not add due to rounding.
Rooms
Franchise Fees (Royalty)Management Fees
Property TaxesInsuranceReserve For Capital Replacement
Tab 3 - Percent Change from Previous Year - Detail by MeasureKingsport, TN Area Selected PropertiesJob Number: 119267 Staff: SS Created: November 17, 2006
January February March April May June July August September October November December Total Year Sep YTD2001 2.6 -5.7 4.6 7.0 8.2 -2.5 -3.8 2.9 -6.3 -8.8 3.6 9.6 0.5 0.62002 2.7 0.8 -2.7 15.9 5.2 5.3 -2.2 1.3 1.8 9.2 -0.9 9.1 3.7 3.02003 1.5 1.4 0.0 -17.5 -17.3 -6.7 -0.9 -3.5 -6.8 -7.1 -12.3 -14.0 -7.1 -6.12004 -6.4 -4.3 -0.9 2.4 12.7 1.4 -2.0 -7.8 3.4 -5.9 13.9 8.1 0.6 -0.32005 2.6 1.1 -11.0 5.1 -5.3 -5.6 0.3 2.5 -3.9 6.7 4.4 -8.8 -1.0 -1.72006 -10.9 -0.1 10.1 -8.5 3.3 2.5 -0.9 4.9 4.2 1.0Avg -1.3 -1.1 0.0 0.7 1.1 -0.9 -1.6 0.1 -1.3 -1.2 1.7 0.8 -0.7 -0.6
January February March April May June July August September October November December Total Year Sep YTD2001 0.2 1.3 8.5 3.4 2.6 0.8 0.8 3.4 -1.1 0.9 2.8 4.0 2.4 2.52002 1.5 2.1 0.0 2.6 0.0 0.2 2.5 3.5 0.0 4.1 3.0 0.9 1.6 1.32003 -0.4 -0.5 8.1 2.3 2.8 1.2 3.5 4.8 3.7 2.9 2.4 5.1 3.5 3.52004 7.0 3.1 5.7 -0.3 1.2 3.9 -0.7 3.5 2.1 0.2 1.2 3.7 2.1 2.42005 0.3 3.9 -13.6 31.4 5.0 4.1 4.9 5.8 3.6 4.7 5.5 1.4 4.7 4.82006 13.0 6.7 26.6 -11.8 7.8 6.8 8.6 7.7 7.6 7.8Avg 3.6 2.8 5.9 4.6 3.2 2.8 3.3 4.8 2.7 2.6 3.0 3.0 2.9 3.7
January February March April May June July August September October November December Total Year Sep YTD2001 2.8 -4.5 13.5 10.6 11.1 -1.7 -3.0 6.5 -7.4 -7.9 6.5 13.9 2.9 3.12002 4.3 3.0 -2.7 19.0 5.2 5.5 0.2 4.8 1.8 13.7 2.0 10.1 5.3 4.32003 1.1 0.9 8.0 -15.6 -15.0 -5.6 2.6 1.2 -3.4 -4.4 -10.2 -9.6 -3.9 -2.92004 0.1 -1.3 4.7 2.2 14.1 5.4 -2.7 -4.6 5.5 -5.6 15.2 12.1 2.7 2.12005 2.9 5.0 -23.0 38.1 -0.5 -1.7 5.2 8.4 -0.5 11.7 10.1 -7.5 3.7 3.02006 0.7 6.6 39.4 -19.3 11.4 9.5 7.7 13.0 12.1 8.9Avg 2.0 1.6 6.7 5.8 4.4 1.9 1.7 4.9 1.4 1.5 4.7 3.8 2.1 3.1
January February March April May June July August September October November December Total Year Sep YTD2001 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 0.0 0.0 2.4 3.02002 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02003 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.02004 0.0 0.0 0.0 0.0 0.0 -0.3 -0.3 -0.3 -0.3 1.4 1.4 1.4 0.3 -0.12005 1.4 1.4 1.4 1.4 1.4 1.7 1.7 1.7 1.7 0.0 0.0 0.0 1.1 1.52006 0.0 0.0 4.1 4.1 4.1 4.1 4.1 4.1 4.1 3.2Avg 0.7 0.7 1.4 1.4 1.4 1.4 1.4 1.4 1.4 0.9 0.3 0.3 0.8 1.3
January February March April May June July August September October November December Total Year Sep YTD2001 5.6 -2.9 7.7 10.1 11.4 0.4 -1.0 6.0 -3.6 -6.1 3.6 9.6 2.9 3.52002 2.7 0.8 -2.7 15.9 5.2 5.3 -2.2 1.3 1.8 9.2 -0.9 9.1 3.7 3.02003 1.5 1.4 0.0 -17.5 -17.3 -6.7 -0.9 -3.5 -6.8 -7.1 -12.3 -14.0 -7.1 -6.12004 -6.4 -4.3 -0.9 2.4 12.7 1.1 -2.3 -8.1 3.1 -4.5 15.5 9.6 0.8 -0.42005 4.0 2.5 -9.7 6.6 -4.0 -4.0 2.0 4.2 -2.3 6.7 4.4 -8.8 0.2 -0.22006 -10.9 -0.1 14.6 -4.8 7.5 6.6 3.1 9.1 8.4 4.2Avg -0.6 -0.4 1.5 2.1 2.6 0.5 -0.2 1.5 0.1 -0.4 2.1 1.1 0.1 0.7
January February March April May June July August September October November December Total Year Sep YTD2001 5.8 -1.6 16.8 13.9 14.3 1.2 -0.2 9.6 -4.7 -5.2 6.5 13.9 5.4 6.12002 4.3 3.0 -2.7 19.0 5.2 5.5 0.2 4.8 1.8 13.7 2.0 10.1 5.3 4.32003 1.1 0.9 8.0 -15.6 -15.0 -5.6 2.6 1.2 -3.4 -4.4 -10.2 -9.6 -3.9 -2.92004 0.1 -1.3 4.7 2.2 14.1 5.1 -2.9 -4.9 5.2 -4.3 16.8 13.6 3.0 2.02005 4.3 6.5 -21.9 40.0 0.9 -0.1 6.9 10.2 1.2 11.7 10.1 -7.5 4.8 4.62006 0.7 6.6 45.1 -16.1 15.9 13.9 12.1 17.6 16.7 12.4Avg 2.7 2.4 8.3 7.2 5.9 3.3 3.1 6.4 2.8 2.3 5.0 4.1 2.9 4.4
Appendix E: Interview Questions and Responses Bob McConnell, Daniel Boone Wilderness Trail Association
Do you have any regular count of visitors that use the trail (log books, trail counts, etc…)?
o There is a registry at Natural Tunnel State Park and a registry at the Block House (which is open 2 days a week)
What do you think are the major tourism draws to the county? o The Bristol Raceway o Annual Block House Events
2nd weekend in June September, Native American Day October, Harvest Celebration December, Christmas Event
o Passing through to Cumberland Gap o Regional Horse Association Events o Carter Fold
What are the changes in visits to the Daniel Boone Wilderness Trail for the
different seasons, months, weekend, and holiday periods? Does the number of visitors vary with different kinds of holidays?
o No winter Sports/Activities o Busy in April to August, Oct. o July is the Kingsport Fun Fest which includes the Tour de Possum Creek
Race, Civil War Reenactments, and the Highland Games
Where do most visitors tend to stay? o Kingsport o Middlesburg, KY o Big Stone Gap (on there way to the Southwest Virginia Museum)
How long do visitors tend to stay?
o For a few days if touring the area o Typically 1.5 days if just for the trail
What portion of visitors are repeat visitors to the trail?
o About half, but that trend is increasing
Is there anything planned for in the future that might increase the demand for hotel rooms?
o The VTC is developing a driving tour that would run from Winchester to Cumberland Gap (alternative to I-81)
Room Rates?
o 60-80 Dollars a Night
82
What is the main method of transport used to get here by visitors? o Automobile o There used to be bus tours run through the Ramada in Duffield o Private Tour Companies have requested information on such group
packages (the tour company was from Canada, the group of people where from Ireland)
Other Comments:
Hotel Amenities: Should be a in a nice setting with a lodge type feel, scenic vistas. Would like to see an event/conference area for 300-400 people (to hold Rotary Club Functions) and possibly a nice restaurant.
Type of Visitors: Retirees and Families. Information on the Daniel Boone Interpretive Center/Expo Center: Over 6 million
dollars has been allocated will include a large historical research/library facility; will function as an agricultural expo center. The interpretative center is being based off the design for the Lewis and Clark Interpretive Center in Nebraska City.
Rita Forrester, Carter Fold
How many people come to the Carter Family Traditional Music Festival, and how many of those visitors were from outside the area?
o The festival is two days long with about 1200 to 1500 people in attendance, and ½ to 1/3 of those are from out of town.
Do you have any regular count of visitors to Carter Fold and which areas they are
coming from? o There is a guest book in the museum
Is there anything that is planned in the future that may increase the demand for
tourism or new hotel rooms? o No plans to expand the facilities o They do have a working arrangement with the Barter Theater to host some
of there musical performances on Saturday nights
What do you think are the major tourism draws to the county? o Relating to music: The Barter Theater, the Clinch Mountain MusicFest, The
Crooked Road Music Trail, and the Galax Old Fiddler’s Convention
What changes in visitation rates do you see from the seasons and holidays? o The Summer is Busy, April – December o Holidays: large turnouts for the 4th of July and Thanksgiving o Used by large groups for family reunions and church groups in the summer
Where do most visitors tend to stay?
o Kingsport o Bristol o “We need to get a hotel”
83
How long do most visitors stay? o There has been in increase in the length of stay o Weekend Stays
What is the main method of transportation used by visitors?
o Automobile Rental Car o There has been an increase in visitors from California and International
locations
What do you think the rate should be per night for this area? o The Hampton Inn in Kingsport charges about 100 dollars a night
Dan Odom, Scott County Chamber of Commerce
Are there any local group meetings/activities that could use a hotel/lodging facility?
o Consultants that come into town for the business in the industrial park in Duffield
Tempur-Pedic Are there any local group meetings/activities that could use a meeting facility?
o Maybe some of the local business, there is no place to hold gatherings (Christmas Parties, etc…) 100-120 people
o The chamber of commerce could use a place to hold there meetings 20-40 people.
o Maybe a nice restaurant for company dinners…. What are the Major corporations in Scott County that might have business
meetings and training programs? o The manufacturing firms in Duffield
David Redwine, Scott County Board of Supervisors
What are the attractions to the area, other then Natural Tunnel State Park o Athletic Events (high school playoffs) o Outdoor activities, hunting and fishing o Appalachian Culture o The leaves changing color/scenic views
What type of visitors do you see in Scott County? o Besides Tourists: Weekly Sales people for the area businesses
(suppliers/sales associates) Festivals/Events:
o Fun Fest (includes Tour De Posseum Creek): about 1000 people attend, with about 200 from out of town
o Homeplace Events usually just local people, the Highland games may have people from out of town
o Bristol Races: the 2 big races and smaller truck races Other information:
Outdoor recreation should be promoted more (Holston River has been voted one of the best spots for fishing in the South East)
84
Liquor Drinks: Beer and Wine only sold in restaurants, liquor can be bought at the ABC stores, prevents chain restaurants (Applebee’s, Texas Road House) from being established in the area
Other events/activities: Horse Shows, Cattle and Sheep Sales (in Abingdon)
Jim Whiten, Ramada What Happened to the Ramada in Kingsport?
Ramada took the franchise, because the building was not meeting the contractual standards
o Ramada Interested in coming back to VA o Duffield was hit hard when coal industry went under in the area
What do you think are possible Demand Generators: o Schools: College at Mountain Empire Medical Center, Penn-Virginia o Holston Medical Group o Tourism, just beginning Cumberland Gap area
Other Information o Any hotel should work with the Motor Coach Industry, set tours fix tours o Will the Daniel Boone Expo Center offer food service? o A good Ramada, has to have so many rooms:
Ramada Mart- 24hour convince market (upscale) 80-100 rooms, land under option to expand
Best site would be the old rail road depot HWY23, will be I-26 or HWY21 Lewis & Clark Interpretative Center
Average 300 visitors per day in spring, summer, fall months As low as 1 -2 in winter time Summer is most families Spring/Fall has a lot of tour groups Visitors from all 50 states and 35 different countries “You will probable get more on the Eastern Sea Board”
Brian Cregger, Bank of Marion, VA
What type of information would you need to aid in financing a new hotel development in Scott County?
o Just our standard underwriting guidelines: A solid business plan that includes
• The amount of future income that the owner feels will be generated
• Room Rates • Vacancy Rates • Expenditures
o We would probably finance about 80% of the total costs o Need to have at least 3 years of structured finical statements
85
Appendix F: Tourism Development Recommendations
Scott County Recommendations (Next Steps) The following is list of recommendations for Scott County to follow to further the development of its tourism industry. Draw in restaurants and other supporting industries to support the development of hotels: The development of restaurants and other supporting industries will help to retain visitors to the area. According to Stephen Rushmore in his report How to Perform and Economic Feasibility Study of a Proposed Hotel/Motel, restaurants must be situated around the hotel site because an “insufficient number of restaurants forces people to move into neighboring metropolitan areas.” This movement detracts from the possibility of sustaining a hotel. Develop a comprehensive tourism development strategy with strong community involvement: The county should be engaged in a community tourism planning process. This process, as outlined by Peter and Ann Murphy in Strategic Management for Tourism Communities: Bridging the Gaps, includes developing a vision, mission statement, and a series of goals and objectives. The visioning process should be undertaken publicly and should address issues regarding what the community can really expect from tourism development (i.e. what kinds of jobs will be created, how much traffic will be produced, how tourism could impact community character, etc…). A mission statement should then be created to define the roles of each agency and/or organization involved. Then a series of goals relating to issues uncovered in the visioning process should be created, and objectives that may be used to quantify the progress towards each of these goals should be developed and carried out. Develop plans in collaboration with other organizations: Tourism development should be looked at in a regional context. These development plans should be done in concert with surrounding municipalities so that similar demand drivers are not created adjacent to each other. Also, working at a regional scale allows the pooling of resources. A comprehensive tourism plan (including hotel attraction) should be implemented for Scott County and the Tri-Cities Area, and should include regional organizations, such as TVA, in the planning process.