In many ways, “field position” is more important than many or most other things.
This is true of management, where bad management can survive at relatively higher levels in an organization than the better folks under them due to their ‘field position’. As long as they do not too obviously screw up, the superior underling has a very hard time getting past them.
It is true in sports, where field position can determine who wins and who loses on any given play.
It is very true in military engagements where it’s been known for generations that the general who “prepares the battle space” or “selects his field of battle” wins more than the one that “takes what his enemy gives him” and runs headlong into a field not of his choosing.
It is also a ‘truism’ in real estate where it’s known by the phrase / joke line: “There are only three things that matter in Real Estate: Location, Location and Location”.
And Where I Am Now?
I’ve been living in hotels along highway 192 in Florida. That is the major highway that passes under the southern edge of Disney World (which has several “gates” at slightly different locations along the sort of southern edge). Depending on how close to a ‘gate’ one is, the property makes more money as it can charge more. That the “east gate” and the “south gate” both dump onto roads near highway 192, as does the ‘west gate’, makes for an interesting topology of ‘relative worth’.
But first, to set the stage:
Disney learned from Disneyland where a load of hotels popped up all around the “park” and raked in a load of cash. As much or more than Disneyland in some cases. It also limited the ability to expand the space as they were ringed by folks uninterested in selling. So in Disney World, Disney bought a LOT of land. About 40 square miles. ( 30,080 acres, 47 square miles, or 121.7 square km per the wiki). Pretty much ALL the non-Disney hotels are a pretty good distance away from any of the ‘attractions’. It can take a half hour just to cross the “property”.
To quote the Microsoft Website when talking about a bug in “Windows” that I was once investigating “This behavior is by design”. In this case, it is No Bug. It’s a feature. A goldmine of a feature.
I just finished a week in the Polynesian hotel “on property” and on the monorail line. It was several hundred dollars a day (after a discount from a friend / ‘cast member’) and with a mediocre ‘garden view’ (that is, not looking at the park, lake, or interesting things). Full price ranged from about $400 up to over $1000 Per DAY. Prices were higher at the “Contemporary” (a somewhat less interesting and dated hotel, but with more altitude so the views are much better, especially in the higher floors) and significantly higher in The Floridian (both being completely sold out even in ‘off season’).
As you move away from the premium position of those three hotels on the monorail to The Magic Kingdom, prices drop. But only a little. Still in the ‘couple of hundred a day’ range. Toward the East Gate of the property there is “hotel row”. No, honest! The road is named “Hotel Plaza Blvd”. While the names are familiar non-Disney names (like Hilton and Holiday Inn) they are still “on property” so Disney is the landlord. (Or possibly “Reedy Creek Development District” that is the property development district Disney created to isolate the real estate from all the other legal entities… and guard it from Orlando or other cities deciding to tax it. Making your own government is a great way to practice “occupational birth control” on other governments with taxing desires…) Rooms here can drop below $200 a night, but it’s not going to be much lower. “Hundred and something” is likely most of the time (but varies a lot with day of week, season, etc.)
Even off property a couple of miles way, it was still over $89 / night. Still, that is a BIG price ramp from $1000 / night. There were a couple of ‘residence inns’ that were $1100 and $2100 (roughly) a month located a couple of miles out that east gate direction. Their “day rates” were in the “around $100” range. One on each side.
So, back to Highway 192.
This highway was the main approach for folks driving in from the rest of the country for several years. Eventually the Florida Turnpike sent more folks down the center of the state and fed them over toward I-4 and “Hotel Row”. There had been a big growth of “mom and pop” hotels along highway 192, along with a zoo of restaurants and ‘minor attractions’ as folks made cheaper alternatives for families to visit after paying the ticket price to Disney for a few days (presently $89 / day ).
This was so popular that the local city put up ‘mile markers’ along the highway that mark how far you are from the entrance to Disney. (Based off of the first one encountered toward the south west). These are large blue signs proclaiming Mile Marker (FOO) at each mile. My hotel is just after Mile Marker 10, so I’m in the ‘OK but not great’ location. I’m paying $189 + Tax per week for a fairly good Travelodge. At about Mile Marker 8, there is Motel 6 (cheap, but clean simple rooms, nothing to brag about) that can get over $200 for a much lesser room. As you get to lower markers, prices rise. Downstream from me, at about Mile Marker 11 to 12, the prices drop to the $179 – $159 – $149 range. I’ve got a couple of images below for evidence. As these prices will change over time, I figured I’d better document them.
I stopped at this restaurant and had lunch in the attached Mexican Restaurant. I was the only customer, but it was at 3 pm so not exactly prime time. The food was quite good and authentic Mexican. Talking with the owners, who were cooking and waiting tables, confirmed slow business AND their authenticity as Mexicans. They rent the space from the hotel, so next I checked out the hotel.
I asked to see a room. It was OK, but showed clear lack of maintenance. Also the key indicator of ‘desperate to stay alive’ in Florida. It smelled of mold. The first thing some folks do here is shut off the AC to save all the power costs. Inevitably this lets humidity rise way too high and things start to have “issues’. On the day I looked, it had been raining and a bit of flood from the parking area was threatening this first floor room sliding glass patio door too. Desperate to get enough money in to cover costs, they have shut a lot of rooms and turned off the AC in them. Cut prices. And hope. “But hope is not a strategy. -E.M.Smith”
Further down the road, about another mile (around Marker 11 or 12 IIRC) prices dropped some more:
A bit of economic history is appropriate here. About 40 years ago, Motel 6 got it’s name from the $6 a night it charged. Super 8 was upscale in comparison and had the $8 or 1/3 higher price to show for it. So right off we can ask: Why is it now less than the Motel 6 price? The answer is simple. It’s further down the road. There is another Super 8 on the other side of the Motel 6 that has higher prices…
There is also a neat Inflation Indicator built in here too. In most parts of the country, the Motel 6 room runs about $55 to $60 as we’ve had about a 95% reduction in the value of the $US from inflation. That these folks are running way below that price point is clear evidence that there is excess competition at play. You can also use the local Motel 6 price as a convenient local relative inflation / price indicator. Often while driving cross country I’ll watch the Motel 6 signs rise and fall in prices with the local economic strength.
At that $150 / week rate, we’re talking a bit over $20 a day. (about $21.42) That’s not much, and a very long ways from the $80 range one would expect from history. It will cover the basic costs, if you collect it from enough folks, but not make much profit. Perhaps not even enough to pay for maintenance or keep the power on to the AC in all the rooms. The Death Spiral can begin if you don’t make enough in “high season” to coast through “low season”.
Evidence For Recession
When an economic downturn or recession hits, the most marginal players in a space suffer first. During good times, they can make decent money even if located far from the economic heart, as some folks ‘spill over’ from full hotels and as some folks just can’t pay the rates charged by better positioned players.
Last time I was working here was a few years back, before the economic downturn. That Motel 6 was charging about $46 / day (IIRC). The Travel Lodge was about $60 something, more for the better rooms, and some were up to $80. The Super 8 was about $50 a night off nights, higher on prime nights. I ended up further down the road in the ‘cheap seats’. I found rooms at about $25 to $28 a night that were ‘not too bad’. Clean. Odor free. Nothing fancy, but reasonable and fun. Often with the ‘secondary entertainment’ nearby. That was from about Mile Marker 12 to 16 or so. I could put up with the 15 mile ‘commute’ (I was working in Celebration then) for the lower cost. $20 / night covers 10 miles pretty easily. So what does that area look like now?
This is a low rez picture, but still will be bigger when you click on it to open. If anyone wants the full rez, I can upload it.
I stayed in that hotel. It was a nice place with a slightly dated decoration, but still it was kind of fun. Now it’s dead. The mini-golf next to it is rapidly being overgrown.
Across the street and down the road just a ways was a Really Nice Sushi Place. I don’t remember the name, but I had sushi there about once a week. Dropped about $50 a time. Very well appointed and with great service. Since then it clearly fell on hard times and was converted to a Hispanic theme. My guess is it was trying to attract a lower price point customer base as the ‘upscale’ price point folks stopped driving this far down the road. But even that failed to be enough. The hotel next to it is also now closed. (This is a small picture and will not get bigger if you click on it).
I’d hoped to have sushi there again, but it was not to be.
Why can Disney get $1000 a night and the others are gone?
I spent a bit of time pondering ‘why’. I think I know.
During economic downturns, The Fed inevitably does things that cheapen the $US Dollar vs the rest of the world. Europe, in particular, takes a Florida Vacation in droves. At the same time, the US population stays home.
Folks who fly in from Europe (and Australia) have typically bought a ‘package’ and are not interested in a rental car to search for lower cost hotels. What “drive ins” there are, stop sooner as they reach their ‘price point’ sooner along the road. Why drive to mile marker 15 if you can get a nice room for $189/week at marker 10? Things fill up from the center out. The “fly ins” never get much off of “Hotel Row”.
It’s all about the Fly vs Drive populations and the shift from ‘drive in’ to ‘fly in’ as the foreign exchange rates shift the customer base.
But this time is even worse than the times before. This time fuel costs have risen dramatically for driving in. So much, in fact, that when I was out here about a year ago, I left the car at a friends home and flew back. “Depot” of a car was cheaper than a round trip by car. (About $700 to $800 of gas at best, up to $900 at times). Compared to a $250 air fare (off peak flying round trip), and the $98 I spent to fly back on the 4th of July holiday, driving in is now significantly limited with distance.
Basically, even the US visitors from much beyond Dallas or Virginia are likely to fly in.
Fly in folks want a hotel close to, or on, property and with minimal travel time to the parks. They are willing to go ‘upscale’ on the hotel instead of burning the money as gasoline.
Added to the general downturn, and the fact that $89 in Euro isn’t that much but in $US if you are on ‘hard times’ it is just crazy, well, the drive in population has just plunged.
Yet Disney is still ‘booked up’ and raking it in at $1000 / night.
The $1000 Dynamnic
I pondered that, too.
It can’t just be that the Euro was $1.40 for a while…
BUT, if you count up the number of rooms, it’s at most measured in the 1000s. Take the global population of several billion. How many of them are “Millionaires” or better? WAY more than 1000s. Even de-weighting it by various factors for frequency of park visits and for multiple destinations, the fact is that there are far more folks who are very rich and can spend $1000 a night “just to have the closest room with the best view”. Take 1,000,000,000 people / families in the developed world. Say you de-weight by 100 for the number of weeks in a year (yes, it’s double so as to be pessimistic). That’s still 10,000,000. Say you only get 1% market penetration. The 1% richest. That’s 100,000 in any one week. Chop it by 10 to allow for multiple parks and /or fewer rich folks than you might expect. That means only 1 in 10 of the very rich who might want that room can actually get it. Prices rise to the point where some of THEM decide it’s just too expensive and a trip to Brazil is more interesting… That’s WAY more than most of the rest of us can ever think of paying.
In essence, the better Disney rooms are reserved for the very very privileged classes, though you can buy your way in if you are crazy with your money. Some “middle class” folks will pop the $7000 for a ‘trip of a lifetime’. (Some of the rest of us will take the ‘lesser good room’ if we can get a special in / discount).
In the end, even in an economic downturn, when others are folding and going out of business; Disney will continue to make very outsized profits. While the folks at the end of the road cease to exist.
And it all comes down to the Power of Position.