Kimpton Hotel

Cost

The Kimpton Hotel will have higher costs in contrast with other locations. This is because Hong Kong is one of the most expensive real estate markets in the world. As it is sitting, at a cross roads between mainland China and the West based upon the cultural traditions and history it embraces. At the same time, the location of One Exchange Square; is considered to be prime real estate. This is due to the fact that it sits on the water front of the Victoria Harbor. (McMillan, 2012)

Estimate cost of leasing for One Exchange Square Hong Kong (total of 8th floor) yearly

Its total square footage is 2 million ft. The structure consists of 88 floors. The hotel will be located on the 8th floor. Currently, UBS is the primary renter for the facility with them paying a total of $42 million per year to lease it. This means that the average cost of leasing the 8th floor will be $1.74 million per year. These figures were calculated by taking the total square footage (2 million) and dividing it into 88 floors (22,727). (McMillan, 2012)

At the same time, the total rent that was paid for each section was calculated by dividing the amount which being paid for rent on a yearly basis ($42 million) into 2 million square feet ($21 per square foot). This number was multiplied into 7 thousand (i.e. The total amount of space required for the location). The results are that the Kimpton Hotel will be paying a total of $147 thousand per year for leasing its location. (McMillan, 2012)

However, the costs of renting it will more than likely increase by 10 fold in the near future. This is because the building is located where there are a lot of business and foreign travelers. As a result, this means that the costs of renting the 7 thousand square feet on the 8th floor will increase by $210 per square foot a year. (McMillan, 2012)

This will raise the rent to $1.47 million per year. Thus, the costs of renting the location will start out at $147 thousand and will grow to $1.47 million in the future. This will have an impact on fixed expenditures and what the hotel is paying for this. (McMillan, 2012)

Estimate cost of renovating per square feet (7,000 Sq ft in total)

Given the fact that the Kimpton is focusing on high end cliental means that these costs will be much larger for renovations. In general, the average expenses paid for these expenses will be around $18 thousand per square foot. However, this will be much higher due to the fact that the firm will concentrate on making these facilities more state of the art than the average luxury property. This means that costs for completing these projects will be about 2.5 times higher than normal (which is around $45 thousand per square foot).

As a result, the costs of renovating the new location will range between $18 thousand and $45 thousand per square foot. For more realistic calculations, the higher number was selected because of the total amounts of work that will be completed. This means that the total expenses will come in around $415 million.

Revenue

To recoup the costs of building the location, the hotel will charge guests with rates that are higher than some facilities. Yet, they are competitively priced to ensure that the location can maintain an occupancy rate of at least 90%. This requires conducting a detailed analysis as to how these various objectives will be achieved.

Estimate one year revenue for 100 rooms (7000 Sq ft)

The estimated revenue for maintaining 100 rooms at minimum occupancy rate of 90% is $3.25 million per year. This was calculated based upon charging an average rate of $119.00 per night. The average nightly income will be $10,710. When this is multiplied by 365 days, these figures will increase to $3.90 million.

At the same time, the hotel will have other services which will increase the overall profit margins even further. This will take place with the restaurant and bar which is estimated produce revenues of $2.5 million. At the same time, additional services will be offered to guests such as: dry cleaning, limousines, movies, refreshments / food, fitness center and massages.

These products will generate an additional $1.4 million per year. While the spa, is expected to produce revenues of $2.3 million. When these different figures are added together, the Kimpton Hotel is expected to produce revenues of $10.1 million per year.

Compare the competitors’ price and setting the price of room (aiming at 10% -15% less than the competitors

The rooms for the Kimpton Hotel will be set at least 15% beneath the lowest priced five star competitors in these areas. However, in other cases this will be dramatically lower than other facilities. Evidence of this can be seen by looking at the below table which is highlighting the rates of various hotels with their prices.

Rates of Other Five Start Hotels in the Vicinity of One Exchange Square

Hotel

Rates

Royal Plaza

$141.00

Harbor Grand Knowlon

$173.00

Regal Hong Kong

$149.00

Harbor Grand

$183.00

Luxe Manor

$154.00

Nikko Hotel

$169.00

Crown Plaza

$154.00

(“Five Star Hotels,” 2013)

The rate of $119.00 per night is 15% lower than the least priced five star hotels. This will help to attract a number of guests and ensure that there are high levels of occupancy.

Target for occupancy rate is 90%

The current price will ensure that the Kimpton Hotel maintains an occupancy rate of at least 90% every night. To attract more guests; specials can be offered from: groups, conventions and tours which will be utilizing the facility. This will ensure that the facility has lower rates in contrast with competitors and can offer them with more for less money. Moreover, the location will help to make certain that most visitors have another facility they can go to. That is closer to various attractions and has outstanding views of the Victoria Harbor.

Prepare Market share among the competitors in the industry

Inside the industry itself, there is wide range of competitors. In some cases, they can charge up to $549.00 per night for rooms. While in other situations, similar facilities can have prices that start at $149.00. The below table is illustrating the overall market share of the various hotels inside the sector.

Market Share for Five Star Hotels inside the Hospitality Sector

Hotel

Percentage of Market Share

Tsim Sha

27%

Causeway Bay

18%

Yau Ma

11%

Central Admiralty

8%

Hung Hom

7%

Kwi Tsing

5%

Lantau

5%

Inland East

5%

Sha Tin

4%

Other Hong Kong Facilities

3%

These different figures are showing how the Tsim Sha controls the largest segment of the marketplace with this accounting for 27%. All of the others maintain smaller levels inside the hospitality industry. (“Hotel Industry in Hong Kong,” 2007)

Prepare revenue per available room for Kimpton

The total revenues per room will be approximately $169.00. This is based upon factors such as the rate ($119.00), the cost of renting movies ($20.00) and utilizing some of the food / beverages provided ($30.00). These different variables are taking into account the needs of cliental and the services / products they will be using in the process. This means that there will be added levels of income beyond the room rate. (“Hotel Industry in Hong Kong,” 2007)

After 1 year of operating, estimate amount of money that Hotel will receive (consider extra revenue such as spa, bar, restaurant, and fitness centre)

The total amounts of revenues that are expected to be generated from the additional services provided by the hotel are $6.2 million. The below table is highlighting the returns that will be generated from these amenities. (“Hotel Industry in Hong Kong,” 2007)

1-Year Revenues for Additional Services

Services / Products

Revenues

Restaurant / Bar

$2.5 million

Spa

$2.3 million

Fitness Center

$1.4 million

Total

$6.2 million

(“Hotel Industry in Hong Kong,” 2007)

These numbers are illustrating how the other services will generate additional sources of income for the hotel every single year. This will enhance the facility’s profit margins and revenues during this time. (“Hotel Industry in Hong Kong,” 2007)

Sales Volume

The sales volume will be focused on specific segments and reaching out to them. This will enhance the Kimpton Hotel’s ability to attract a larger demographic of customers. When this happens, management can more effectively predict revenues and maintain continuous streams of income. (“Hotel Industry in Hong Kong,” 2007)

Our target market is unmarried single women (why is this target attractive?)

Unmarried single women have the ability to travel more and will spend larger amounts on various services provided by the hotel. This will increase the revenues beyond what someone is paying for a single room. At the same time, they have the ability to stay longer inside the facility and will frequently utilize the Kimpton. (“Hotel Industry in Hong Kong,” 2007)

We are targeting 80% of Chinese business person (from which cities they come from and what are their job positions)

Chinese business people have more money to spend than other segments of the population. This is because as the country is rapidly growing, they are spending larger amounts of time in Hong Kong and will seek out additional services. In the future, this segment is only increasing in affluence and wealth. Those who are focusing on reaching out them, have the ability to create a unique brand image (which will have a positive impact in their minds). This is the point they will choose the Kimpton as their location to stay at when they are on the road. (“Hotel Industry in Hong Kong,” 2007)

Point out International American business tourists who will be our 20% of target market. Since they already familiar with the concept of boutique hotel and support from American

stakeholders

The international American business tourists are repeat customers. They will come in and out of Hong Kong regularly. This means that they will utilize variety of services and spend tremendous amounts of money in the process. At the same time, they understand what it feels like to stay at a boutique hotel and want to spend more time inside these locations. (“Hotel Industry in Hong Kong,” 2007)

The Kimpton is one such facility which has the ability to offer them with everything they are looking for at a reduced price. This means that they will spend more nights at the location and will look favorably based upon its close proximity to: various attractions, businesses and resources. This will create value in their minds and enhance their ability to save time by not having to go to facilities at the other end of the city. (“Hotel Industry in Hong Kong,” 2007)

Purpose of these people coming to visit Hong Kong

The primary purpose of these people coming to Hong Kong is for them to have a sense of freedom, conduct business and to relax. The Kimpton has the ability to address all of these needs by offering everyone with quality, affordability and a unique location. These different elements are important, as they will provide more than competitors and can help to create a unique brand image in the minds of customers. (“Hotel Industry in Hong Kong,” 2007)

References

Five Star Hotels. (2013). Hotel Club. Retrieved from: http://www.hotelclub.com/shop/hotelsearch?type=hotel&hotel.keyword.key=Hong%20Kong&hotel.rooms[0].adlts=2&hotel.rooms[0].chldAge[0]=&hotel.rooms[0].chldAge[1]=&hotel.rooms[0].chldAge[2]=&hotel.rooms[0].chldAge[3]=&hotel.rooms[0].chldAge[4]=&hotel.rooms[0].chlds=0&hotel.type=keyword&hotel.rating=5&hotel.chkin=14/05/13&hotel.chkout=15/05/13&search=Search&DCSext.tld=hotelclub.com&curr=USD&locale=en_AU&lpid=plhot

Hotel Industry in Hong Kong. (2007). HK EX-News. Retrieved from: http://www.hkexnews.hk/listedco/listconews/sehk/2007/0319/01881/ewp115.pdf

McMillan, A. (2012). Hong Kong Headache. Reuters. Retrieved from: http://uk.reuters.com/article/2012/02/20/ubs-hongkong-rent-idUKL4E8DF2SC20120220

McMillan, A. (2010). In Hong Kong. New York Times. Retrieved from: http://www.nytimes.com/2010/12/10/greathomesanddestinations/10iht-rehk.html?_r=0