A motel closed in my town yesterday

40 Replies

A little bit about my market/competition.  There are 3 premium hotels in town.  They offer breakfast, a pool, gym etc.  They are $600-$700 per week.  People that stay here while they work don't mind spending the extra money for the services. They are not my competition, and I am not theirs.

There are 2 economy motels in my town.  They are my competition. They BOTH charge $350-$400/week for a room with 2 beds and a television.  There might be coffee in the lobby.  Their pricing is what determines my pricing.  I charge $400/week for a 2 bedroom house.  $600 for a 3 bedroom.

Yesterday one of the economy motels shut.  It had 94 rooms.  Now the other economy motel is free to adjust his prices.  Before yesterday, all 3 of us (me, motel, motel) had the same pricing.  Now with one of the motels out of the equation, it's just me and the economy motel in competition.  The owner of the economy motel knows me and knows he is losing 50-75% of his business to me.  

If you were the owner of that motel, what would you do now that the other motel is closed?  I'm guessing he might lower his prices to compete against me on price.  I still have kitchens, washer/dryers, living rooms with cable/wifi/Netflix and a much larger area to stay when not working.

If the motel lowers its prices, I'm going to keep mine the same since I offer the kitchen, washer/dryer and a better quality of life.  Does that sound reasonable or correct?

Every room living of mine has an HDTV with Netflix.  All 60 bedrooms have an old fashioned tv that I spent $2-$5 for at a garage sale.  I'm thinking about offering to buy 60 of the HDTVs from the closed motel and putting them in all my bedrooms.  Is $40 a reasonable offer for a smaller HDTV?  

Hi Paul- I think you have a great plan. A few months ago we did the same thing when a small hotel closed; new TV’s and some other goodies on the cheep. Short term rentals will be the downfall of the small motel unless they learn to adapt and change. Good luck. 

I would set up a meeting with the remaining motel owner and see if he will agree to the both of you matching prices so that you are then competing only based on the units you are offering.

You could then refer customers to each other when you are full up.

Endless business opportunities if you are both willing to co-operate.

@Paul Sandhu Congrats!  (or is that tacky to say?  LOL)  I think you've got some solid ideas here - while I think @Thomas S. is right that you and the remaining motel operator can benefit from cooperating with each other (you can cooperate to RAISE your prices too!), I also agree with your assessment that if the remaining motel lowers their prices, you should stay the same.  You offer a lot more in terms of amenities and comfort, and there's real value to that.  Clearly the price range is acceptable for your demographic; no sense in the two of you driving the price down out of competition.  

Something to consider: the other motel MIGHT actually raise prices a little - there's now reduced supply for the same demand.  I don't know how much wiggle room there is before you'd price out your clientele, but it's a possibility.

I think you should definitely see about taking on some of the closing motel's assets!  Go to the owner and tell him you're interested in purchasing his TVs - find out what he'd ask for them in bulk, then counter.  For such a large quantity I think you may be able to get them for less than $40/ea.  Heck, offer him $1k cash and see what he says.  LOL

Keep us updated!

Updated 9 months ago

Came back to delete my "cooperating" comment but I am not permitted to do that, apparently. Please disregard, and consider me properly chastised :p

So, there are three premium hotels in your market, all doing well.  There are 3 economy motels there, (yours, his and the dead one).   This tells me that the market is screaming for a mid level accommodation, and that's going to come from one of two places - either you are going to upgrade and fill it OR somebody is going to buy the dead motel and modify it to fill that void. 

You are right there at that sweet spot.  I recommend grabbing the opportunity at once!  By all means get rid of the old TVs and put in flat screens.  If the ones at the dead motel are really nice and new, get them if you can.  Otherwise, just get nice new ones - they'll pay for themselves in energy savings and guest satisfaction.  Even if your competitor gets the TVs, it just raises the tide for everybody. 

Look at the rooms.  It's not difficult to spruce them up.  Make them look as clean and fresh as the premium hotels!  Visit the premium hotels and steal a few ideas you can use to make YOUR place stand out from the other economy motel.  If you run out of ideas, binge watch "Hotel Impossible".

Don't worry about your "competitor".  You're about to hand him the entire economy segment, while you eat the premium hotel's lunch.

Sounds like you can run an interesting experiment.  Raise rates and see if even with lower numbers of guests you still make more money.  Or stay the same and you both should get more customers, based on the guests that can't stay a the closed hotel.  Experiment number 3.  Lower rates a little, see if all your units fill up and you make more money.

No matter what you decide, less competition should result in more money in your pocket.  I'd actually pay the former hotel owner for his phone number and get it forwarded to your phone.  When people call, you can explain the hotel is closed, but you have accommodations that can satisfy their needs.

Before engaging in price-fixing or violations of antitrust laws, it's always prudent to get BP's blessing. Good luck!

I have found that my guests are usually Airbnb and VRBO shoppers. That's just how they book their visits. They don't price shop the hotels and then price shop me. We charge more than the hotels in the area and even other similar properties. I don't compete on price because it's a lose lose situation. We aren't the cheapest in town but we also provide a better experience with higher end furnishings and excellent customer service. You're already differentiating yourself from your competition with kitchens, large living spaces, washer/dryers, etc. You aren't really competing because it's comparing apples to oranges. 

And definitely don't contact the competing motel owner until you verify that you aren't violating anti-trust laws. 

Carefully monitor your vacancy rate. If you have higher vacancy rate have someone drive around at night or early AM to see if parking lot is full or not.  In the mean time stick to what you have been doing.

Good luck,

Originally posted by @Sam Shueh :

Carefully monitor your vacancy rate. If you have higher vacancy rate have someone drive around at night or early AM to see if parking lot is full or not.  In the mean time stick to what you have been doing.

Good luck,

I am that someone.  I check the day shift guys that are sleeping there at night and I check the night shift guys that sleep during the day.  The economy motels have between 10-15% occupancy rates.  (A 40 room motel usually has 4-6 vehicles.  A 90 room motel has about twice that amount.)  I'm either 50% or 95% occupied. 

Every now and then I see 10 new company trucks in a motel lot, and then I feel like a failure.  I have already sent that company some flyers and a cover letter about my houses, but they still choose to stick their people in a motel.  Veolia and Plant Maintenance Services are those companies.

Anti-trust laws...seriously. We aren't talking about country wide billion dollar hotel chaines here people.

@Paul Sandhu whatever you do don't 'cooperate' or 'meet' with the other owner to adjust your prices. That's not just terrible advice; that's price fixing and the DOJ/states do prosecute companies other than Apple for this type of actions. 

Plus in your case its really easy to prove. Your corporate client's accounting notice the price increase and know its a small town. You and motel owner 1 know each other.   Motel 1 and your prices go up in lock step right after motel 2 closed. DOJ/state sees both of your cell phones pinged off the same towers by the local diner. Letters get sent out to future members of your grand jury. 

@Julie McCoy has a great idea of seeing what you can get from motel 2's auction.

Supply has gone down, I would increase price and see what result that provides you. Nothing is set in stone so you can always adjust prices and bring it down if it results in less occupancy.


I agree the other posts about meeting with the motel owner, been through many ethics courses at the company I worked at to know that's illegal.

The price fixing would not be worth it.

It is likely that the economy hotel market is not going to work there.  The fact that a member of the Patel clan has not taken over one or both of them is not a good sign.  By the way, do not assume that is some kind of ethic slur. 

@Paul Sandhu I agree with most of the advice here. Although it’s starting to get a bit ridiculous. I wouldn’t be worried about @Tom Gimer comment that seems a bit much but I’m also small potatoes.

I agree most with @Julie McCoy
My first instinct when I was reading the OP was that you should raise your prices and see what happens. Although I’m more of a prices medium-low and butts in the seat kind of guy, it seems this is an opportunity to test the waters. Do you have return stays? Will they be annoyed that your price was more than last time? Will you honor the old price for return guests if that’s the case? For us when we have people come back they generally just instant book and don’t even ask us about price. But this is a different ballgame.

You’re already 90% full. You’re doing everything right. Up to and including worrying so much about your business that you post your thoughts on this forum. Bravo!

As for the TVs Walmart has a 32” for $99. Check with the old hotel and see if they’ll take $30 and if they’re decent. I realize you need a TON of TVs but I’d rather pay $99 for a new one than half that for 8 year old junk. I’m sure you can find a better price on line with some shopping.

Will the hotel go up for sale or sit vacant?

All questions were rhetorical. Good luck bud! Sounds like you’ve got a lot of good problems to have!

Good grief, people, leave off with the price-fixing lectures.  It was a stupid thing for me to say, I didn't think that hard about the initial post and I do not have a business ethics background.  I did my best to fix it, nobody else has suggested it, I get the point.  

Originally posted by @Lucas Carl :

My first instinct when I was reading the OP was that you should raise your prices and see what happens. Although I’m more of a prices medium-low and butts in the seat kind of guy, it seems this is an opportunity to test the waters. 

 Agree with this - generally speaking I'm also in favor of prices on the low side and high occupancy, but I'm working on shifting to more moderate pricing and seeing how that treats me.  I think Bill Cereske (sorry, wouldn't let me tag for some reason) has a good point about there being an opening for mid-level that you're well positioned for.

However, definitely do what's most comfortable for you and your market, which may not tolerate the fluctuation as well as mine.  

Originally posted by @Thomas S. :

Anti-trust laws...seriously. We aren't talking about country wide billion dollar hotel chaines here people.

That's exactly the point. In an age when DA's and prosecutors are judged not by the cases they get right, but by their conviction rate, who do you think they'll be more likely to prosecute? The corporation with an in house legal team larger than most law firms or a slam dunk case against a small business?

The above argument is moot however because the act is illegal. Plain and simple. 

Would you suggest he deny someone housing based on their family status or religion? Of course not because that is also illegal. So what's different here? 

@Paul Sandhu as others have said, don't participate in price fixing, but you should be raising prices when a competitor goes out of business. Most likely if you raise prices, your competition will too, without the need to even discuss it. There is room for both of you.

If your competitor is cut throat and wants you out of business, he would buy the motel and drop his prices super low, until you go out of business. 

Originally posted by @Paul Sandhu :

A little bit about my market/competition.  There are 3 premium hotels in town.  They offer breakfast, a pool, gym etc.  They are $600-$700 per week.  People that stay here while they work don't mind spending the extra money for the services. They are not my competition, and I am not theirs.

There are 2 economy motels in my town.  They are my competition. They BOTH charge $350-$400/week for a room with 2 beds and a television.  There might be coffee in the lobby.  Their pricing is what determines my pricing.  I charge $400/week for a 2 bedroom house.  $600 for a 3 bedroom.

Yesterday one of the economy motels shut.  It had 94 rooms.  Now the other economy motel is free to adjust his prices.  Before yesterday, all 3 of us (me, motel, motel) had the same pricing.  Now with one of the motels out of the equation, it's just me and the economy motel in competition.  The owner of the economy motel knows me and knows he is losing 50-75% of his business to me.  

If you were the owner of that motel, what would you do now that the other motel is closed?  I'm guessing he might lower his prices to compete against me on price.  I still have kitchens, washer/dryers, living rooms with cable/wifi/Netflix and a much larger area to stay when not working.

If the motel lowers its prices, I'm going to keep mine the same since I offer the kitchen, washer/dryer and a better quality of life.  Does that sound reasonable or correct?

Every room living of mine has an HDTV with Netflix.  All 60 bedrooms have an old fashioned tv that I spent $2-$5 for at a garage sale.  I'm thinking about offering to buy 60 of the HDTVs from the closed motel and putting them in all my bedrooms.  Is $40 a reasonable offer for a smaller HDTV?  

I'd recommend reading Blue Ocean Strategy: https://www.amazon.com/Blue-Ocean-Strategy-Expande...

Its a fairly easy read, and can be a game changer as far as changing your mindset from competing on price to finding ways to create new market space all together. 

Also consider if your competition can weather the storm of low prices. Can they survive at those rates, and for how long? I don't see it being beneficial to either of you to drop your prices with the lesser supply now available, unless the other motel owner has a ton more cash than you and can afford to lose money until you go broke and shut down (assuming you'd match his rates). The difference from the premium rate and economy rates are pretty big, is there a market somewhere in the middle, so that way you aren't competing with the other economy hotel at all?

@Lucas Carl I'm looking at my poster board for my rentals.  2 vacancies, 20 houses rented out.  Of the 20 rented out, 18 are occupied with repeat customers and 2 are with new people.  The repeat customers are all familiar with my pricing, and whenever I go around to collect rent they have their credit card ready or 2 $100 bills ready.  I think I'm stuck with charging them the same amount unless the economy motel increases its rates.  My prices have been the same for the last 6 years, so have the economy motels.

11 years ago there were 4 economy motels in this town. No premium hotels.

10 years ago a premium hotel was built.  Their parking lot was always full. Eventually 2 of the economy motels were demolished.

4 years ago a group of 12 local businessmen bought one of the economy motels AND built another premium hotel next to it.  The premium hotel is doing good business. The economy motel closed 2 days ago, even though they upgraded all the rooms 4 years ago.

Last July a Holiday Inn Express was built from the ground up, and there are always cars there.

So in 10 years this town went from 4 economy 0 premium to 1 economy 3 premium @Account Closed you're right about the middle of the road hotel.  When the Holiday Inn opened last summer (next door to the first premium hotel), I figured that the first premium hotel will cut back a little on their service and lower their price.  

I don't want to step on the toes of the 12 businessmen that own the premium hotel and the closed motel.  They have enough local political influence that could disrupt my STRs with new ordinances regarding housing.

The current owners of the closed motel want to sell it as is or demolish the entire thing and put in a Walgreens.  The closed motel was built in 1978.

most of what I wanted to say was already said. Definitely get the TVs if you can even if guests don't use them much.

whenever I see a tube TV in a hotel ad, I automatically think super cheap room.

Originally posted by @Paul Sandhu :

@Lucas Carl I'm looking at my poster board for my rentals.  2 vacancies, 20 houses rented out.  Of the 20 rented out, 18 are occupied with repeat customers and 2 are with new people.  The repeat customers are all familiar with my pricing, and whenever I go around to collect rent they have their credit card ready or 2 $100 bills ready.  I think I'm stuck with charging them the same amount unless the economy motel increases its rates.  My prices have been the same for the last 6 years, so have the economy motels.

11 years ago there were 4 economy motels in this town. No premium hotels.

10 years ago a premium hotel was built.  Their parking lot was always full. Eventually 2 of the economy motels were demolished.

4 years ago a group of 12 local businessmen bought one of the economy motels AND built another premium hotel next to it.  The premium hotel is doing good business. The economy motel closed 2 days ago, even though they upgraded all the rooms 4 years ago.

Last July a Holiday Inn Express was built from the ground up, and there are always cars there.

So in 10 years this town went from 4 economy 0 premium to 1 economy 3 premium @Account Closed you're right about the middle of the road hotel.  When the Holiday Inn opened last summer (next door to the first premium hotel), I figured that the first premium hotel will cut back a little on their service and lower their price.  

I don't want to step on the toes of the 12 businessmen that own the premium hotel and the closed motel.  They have enough local political influence that could disrupt my STRs with new ordinances regarding housing.

The current owners of the closed motel want to sell it as is or demolish the entire thing and put in a Walgreens.  The closed motel was built in 1978.

I don't follow your logic. You are saying that low-end motels are going out of business and higher end hotels are replacing them. That indicates the customers are willing to spend MORE money. If your target customer is the lower cost customer and the other low cost options are disappearing, a price increase is prudent. 

Over 6 years, I assume your expenses have increased, so it is logical your rate would go up too. Given the move to higher end hotels in your area, I would put a little money into your properties and raise rates. Make a couple upgrades and raise the rate a little. That way your customers can see you are making improvements. My guess is the low end motel went out of business because it was a dump and was not getting upgraded.

As far as the 12 business men that own the hotels, I don't see how you are the main competition to them. It sounds like the premium hotels are always full and you only have 22 units,. People who prefer to stay in houses have different needs than people who prefer hotel rooms. Unless it is something like a Residence Inn designed for extended stay, with full kitchen - I could see that completing with a house. 

Paul I have a crazy but innovative idea. BUY the other motel and reconvert it to a multi family complex. You can move all the existing HDTVs and nice furniture to your actual motel. You will not only have the best Motel in town but also a passive income monster with the reconverted multi family property! 

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