Location Analysis for Budget Hotels

Market studies · 7-minute read · By Sareneth Valencia Zepeda, Head of Projects & Market Intelligence

Budget hotels are a concept that has seen interesting acceptance in the market, appealing not only to the business-travel niche but also to families. In Mexico, the traditional "star" classification and the lack of regulation for lower categories (1, 2 and 3 stars) limited the offering: travelers found the best value for money in the 4-star category. The low-cost formats came to fill that gap.

The rise of budget hotels in Mexico

The Accor chain entered Mexico in 2006 with the IBIS brand, with rapid acceptance thanks to a 3-star product and a strong focus on location. IBIS Guadalajara, for example, sits in the best-performing hotel district, with Expo Guadalajara as its main demand generator.

Two years later, in 2008, the Mexican chain City Express launched its first low-cost hotel, City Junior, in the Toluca airport corridor, next to other properties of the chain to optimize costs. At a higher level (4 stars) but also focused on cutting costs, internet sales and minimal structures of staff, space and equipment, "express" brands compete —such as Holiday Inn Express, Hampton Inn or City Express— seeking to be close to points of concentrated commercial and industrial demand.

Typical basic amenities:

• Cable TV
• Coffee service / breakfast area
• Parking with security

Complementary amenities:

• Air conditioning
• Digital phone
• Meeting room

Inside or outside the city: two different strategies

Another success case is the Mexican chain Hoteles Zar, whose strategy is to locate on the outskirts of the city (on average about 10 km from the urban area), focusing on through-travelers and commercial or industrial segments. They usually rely on a convenience store or pharmacy and are near a gas station. With no other services around, the road they sit on becomes relevant: indicators such as the Annual Average Daily Traffic (AADT) or origin-destination studies provide information about the demand moving through the area.

Two niches emerge:

• Hotel inside the city: the customer finds nearby food and leisure services suited to their budget.
• Hotel outside the city: beyond location, you must analyze which complementary business units increase the hotel's appeal and, at the same time, serve the local population's needs.

What should I consider before investing?

• 1. Site characteristics: adequate area for the hotel's footprint (varies by number of keys and services), accessibility (turnarounds, shoulders, signage, landmarks) and potential for complementary businesses.
• 2. Hotel characteristics: although there are clear standards for what a budget hotel should have, the customer type of each area may require particular services —laundry, meeting area, convenience store, workshop or tire shop— depending on the location and land size.
• 3. The brand: brand contributions are a significant cost. They add marketing advantages, but in some cases they can sacrifice the —already limited— margin of these products. Tied to the brand is the operation: sometimes the chain offers it, and other times you'll need to find an operator or a training program.
• 4. Business size: the project's optimal size is key and, on it, even whether adopting a brand makes sense depends.

Brands vs. independents: why the market study decides

Although budget is a growing segment, there are destinations where independent hotels enjoy strong local acceptance and compete fiercely with the brands. That's why a market study offers a clear picture of who we're up against and how to enrich the product to make it the first travel choice.