HOTELS Interview: Stewart’s strategy for Sandals

Although the North American economy is recovering, the Caribbean market remains stalled with a dearth of development on the horizon. A recent report from Lodging Econometrics shows new hotel openings in the Caribbean will record a cyclical low in 2012 at a paltry six hotels, consisting of 618 guestrooms.

An exception to this, though, is Sandals Resorts International, Montego Bay, Jamaica, which continues to expand its portfolio. Recently announced expansions include buying the 200-room LaSource Grenada, located in St. George’s. The resort will close for renovation and Sandals plans to add 100 guestrooms.

To find out more about Sandals’ plans and get insight into the Caribbean market, HOTELS spoke with Adam Stewart, Sandal Resorts International CEO and son of company founder Gordon “Butch” Stewart.

HOTELS: What is the Sandals portfolio’s performance year-to-date and what is the outlook for 2012-2013 season?

Adam Stewart: We have seen a year-round systemwide occupancy of 83% to 85%. We have had 12% to 13% ADR increases every year for the past few years. We have been able to achieve this by investing capital back into the product by renovating properties to include more suites. You will see huge investment in facilities. It helps that we are a family-run business. We live a modest life and we pay dividends to no one. It also helps that we own all of our hotels and we are the operator.

The overall health of the company is very strong — we have very little debt even though we are investing more than US$400 million into the resorts in the last few years.

HOTELS: How has the all-inclusive resort concept evolved since 2008? How product is changing to match traveler wants and needs?

Stewart: We decided that if you could marry true 5-star facilities with the all-inclusive experience, that would be the best experience money could buy.

We are not the cheapest. We are at the top of the all-inclusive experience, which is good because in the all-inclusive segment if you don’t over-deliver with amenities and services you will be eaten alive on social media.

In 2006 we decided that due to an invasion of low quality resorts in the Caribbean, starting in late 1990s, we needed to upgrade our product, and we have upgraded 95% of our inventory.

We have been expanding the number of suites in our properties. We have over 40% of our inventory as suites now, and at some properties it’s as much as 60%. If you take the smaller rooms and expand them into 1,000 sq ft (92 sq m) rooms you can double the rate.

Our ADR swings a lot. We have hotels that have an ADR of US$350 a night that can go up to US$2,000 the next day. About our guests, we’re seeing household incomes from US$70,000 a year up to US$300,000. About 30% of our business is weddings and honeymooners, and often that customer’s vacation may be paid for by registry or by the couple’s parents or grandparents.

HOTELS: How big an issue is lift still, and what is being done differently to address it?

Stewart: Lift is always the biggest challenge in the Caribbean, and the airlines are all having their struggles with the increasing cost of fuel. We just try to market our way out of that never-ending challenge, but it will forevermore be an issue. So we spend an exorbitant amount of money on marketing, and the airlines follow where we’re marketing.

The other big challenge in the Caribbean is utilities. A kilowatt hour of electricity is US$0.40 in Caribbean, while it’s US$0.08 cents in the U.S. or even as low as US$0.06.

HOTELS: What is the status of Sandals’ pipeline?

Stewart: We are just over 5,000 rooms now. As a chain, within the next 18 months we will hit 6,000 rooms through acquisitions and builds. We have a piece of real estate in Jamaica that we will develop as a 400-room Beaches resort.

HOTELS: How is Butch Stewart?

Stewart: He’s good. The old man just loves to work. It’s not about the money, it’s about the accomplishment of being number one.