John Cohlan figured out some 25 years ago that emotions are easier to sell against than hard assets, and that a hospitality brand can thrive because it stands for a way of living that tugs on those emotions.
That is the essence of Margaritaville Holdings, born out of a popular 1977 Jimmy Buffett song. Today, it garners US$1.5 billion in annual sales, about one-third of that hotel-related, and 21 million guests from an ecosystem of consumer touchpoints ranging from restaurants and blenders to resorts, vacation homes and over-55 adult communities.
“The reason we’ve been able to be in so many of these different businesses is that an emotion travels much more naturally than a product,” said Cohlan, a former brand company executive who 22 years ago became co-founder and CEO of the Palm Beach, Florida-based business.
It is easy to compare Margaritaville, where flip-flops are stylish, to other hackneyed hospitality brands and believe that it will fade. But that belief is belied by companies like publicly listed Pebblebrook Hotel Trust of Bethesda, Maryland, which recently acquired a 462-room independent resort in San Diego and is rebranding it as a Margaritaville property.
What started as a Key West, Florida, restaurant in 1987 has twisted and turned its way to 22?hotel-related projects including hotels, vacation clubs and homes and condos adding up to more than 11,000 rooms open. There are another 18 under construction (almost 10,000 rooms); nine in pre-construction (2,400-plus rooms); and 20 under LOIs (4,258 rooms).
Cohlan projects about 54 properties will be open within three or four years, including an urban resort in New York City, as well as projects in Nashville, Tennessee; Nassau, Bahamas; and Belize. While Buffett and Cohlan own a controlling interest in the firm, it sold 30% almost six years ago to private equity firm The Raine Group.
Branding with blenders
Of the more than US$5 billion in assets open or under construction, asset-light Margaritaville Holdings’ investment is about US$3 million in key money and equity. Most deals are done via license agreements with services similar to a franchise such as central reservation (65% of its business is direct) and customer relations. Cohlan said the company can invest when and where it needs to but prefers to continue its current tack. It is starting to franchise, with its Compass by Margaritaville limited-service brand, and plans to franchise most of its resort concepts going forward.
Margaritaville also has a 60-unit restaurant arm and lifestyle products including apparel, footwear, blenders, home décor, a satellite radio station and more. The brand’s food, beverage and spirits lines include tequilas, rums, LandShark Lager and a cookbook. It sold the free-standing restaurant business to its South American licensee International Meal Company, while retaining the right to develop and operate the restaurant brands independently at its lodging destinations.
Jon Bortz, chairman, president and CEO of Pebblebrook Hotel Trust, said when his team spent a few days with the Margaritaville team, in addition to impressive property-level performance and RevPAR share, the creativity of the group and how the brand has developed impressed them.
“Their push is, and I believe it, is that they are the only natural lifestyle brand,” Bortz said, adding that Pebblebrook is open to partnering on additional Margaritaville developments. “They are a lifestyle brand in the eyes of their customers, which is all that matters at the end of the day. So the customer seems to have bought into the concept, and we find that pretty impressive for a tiny organization.”
What also impresses Bortz is the expected return on Pebblebrook’s US$35 million renovation investment in San Diego. “We believe investment yields will be in the mid-teens or better at stabilization,” he said.
Delivering the bottom line
A big part of what makes Margaritavilles so attractive to owners — one of whom is developing its fifth property — is the average room rate combined with F&B volume, which Cohlan?estimated at 30% to 40% of gross?operating profits.
The 349-room Hollywood?property gets close to 50% of its business through F&B. Cohlan said more typical hotels are 25% to 30% F&B driven, not surprisingly, by alcohol sales. “There is a lot of added value,” he said.
Current average rate is around US$250; in Hollywood, Florida, it runs over US$300. “People are really prepared to pay for an experience. Experience is a term that is way over-used in the industry. I think we actually really deliver it,” Cohlan said, adding that same-store sales are up 9% in 2019.
Everything on the lodging side of the business has been driven by the game-changing Hollywood property, Cohlan added. “People came, developers walked through it, and they said, ‘I want one.’”
To keep the brand current — it’s based on a song from 1977, after all — the company developed a college ambassador program on close to 300 campuses. “We passed that point where, ‘Oh, is this something that ages out?’” Cohlan said, adding that when consumers hear the song “Margaritaville,” they’re tapping into their own set of experiences. “What we’re doing is harvesting that.”
The road ahead
Margaritaville’s pipeline is filled with big projects, ranging from the US$250 million deal in New York’s Times Square, a US$700 million just-opened property in Orlando, Florida, and another US$250 project in Nassau, Bahamas, with China Construction America.
Cohlan pointed to the newly opened Nashville project across from the convention center as an exciting in-town project that could signal what’s ahead. “John Belden has said to me, ‘There are 50 Nashvilles around the country.’ It’s a huge opportunity.”
At the end of the day, Cohlan says he understands more than anything the goodwill handed to him 22 years ago by Jimmy Buffett and how important it is to protect the brand. As a result, he believes in spending time and money on quality control, training and the sales and development team.
“The company culture, it’s almost like patriotism,” he said. “We believe in something called Margaritaville. It’s like, ‘Don’t tarnish the flag.’ And when you have a group of people who feel that way about a brand, it’s invaluable. It’s the key to everything.”
Read HOTELS INVESTMENT OUTLOOK’s package on Margaritaville Holdings in its December issue.