Domestic Major City Accommodation Market Trends: Sapporo

This report reflects on the trends in the Sapporo accommodation and tourism industry while considering future prospects and necessary measures. Sapporo is currently experiencing increased real estate development and hotel construction in anticipation of the Winter Olympics and Paralympics in 2030, as well as the extension of the Hokkaido Shinkansen to Sapporo Station by the end of the 2030s. In this report, we look back at past accommodation demand trends and explore the measures that the accommodation industry in Sapporo should pursue in the future.

Sapporo Hotel Market Overview

Before the spread of the novel coronavirus in 2019, the annual average occupancy rate of hotels in Sapporo was approximately 84%, slightly higher than the national average of 82%. However, the Average Daily Rate (ADR) for the same year was 12,954 yen, which was more than 2,000 yen lower than the national average of 15,372 yen.

In the midst of the COVID-19 pandemic in 2022, the annual average occupancy rate dropped to 59%, slightly below the national average of 61%. Nonetheless, there were months where Sapporo's occupancy rate exceeded the national average, indicating a steady recovery. Given that Sapporo is a city with a relatively high percentage of inbound tourists, it is anticipated that occupancy rates will increase as inbound tourism continues to recover.

On the other hand, the ADR remained low, at 9,394 yen, which is more than 3,000 yen below the national average of 13,147 yen. This trend has persisted into 2023. While occupancy rates are showing improvement, the situation with low ADR remains unchanged before and after the COVID-19 pandemic.

Considerations Regarding Sapporo Hotel ADR

As mentioned earlier, the Average Daily Rate (ADR) for hotels in Sapporo has been consistently lower compared to the national average. This can be attributed to several factors, as discussed in various public reports, with the following three factors being the primary contributors:

1. Seasonal Variations: Sapporo experiences a significant drop in tourism during the winter months when the city's climate can deter visitors. To attract guests during this period (except for the Sapporo Snow Festival in February), hotels may find it necessary to lower their room rates.

1. Aging Hotel Inventory: Many of the hotels in Sapporo have been in operation for a significant number of years and may have older room types. These older properties may find it challenging to increase their rates, especially when competing with newer, more modern hotels.
2. Lack of Differentiation: Sapporo has a mix of accommodation types, including lodging-focused hotels and vacation rentals, but they often struggle to differentiate themselves effectively. This lack of differentiation leads to price competition within each category. As a result, guests perceive little difference between different types of accommodations. This situation can drive prices down across the entire hotel market. It's essential for each type of accommodation, whether full-service hotels, lodging-focused properties, or vacation rentals, to clearly communicate their unique features and strengths to attract guests.

The failure to differentiate accommodations effectively can lead to an overemphasis on budget-friendly options, causing ADRs to remain low. Hotels should reevaluate their unique value propositions and strengths, promote them clearly, and strive to stand out in a crowded market. With a strong and clear value proposition, hotels may be able to command higher prices, even during off-peak periods.

Furthermore, not only in the Sapporo area but in general, it's important for hotels to ensure that they are pricing their rooms appropriately based on room types. Overbooking and offering free upgrades too readily can contribute to lower ADRs. To maintain profitability, hotels should refine their control over both room quantity and pricing based on room types, avoiding practices that erode ADR, such as selling twin rooms at single room rates.

By addressing these factors and implementing effective pricing and differentiation strategies, Sapporo hotels can work towards improving their ADR and overall profitability.

Future Trends in the Sapporo Hotel Market

Looking ahead, the Sapporo hotel market is poised for significant developments, driven by several key factors. First, the city is preparing for the Winter Olympics and Paralympics in 2030, which is expected to bring increased tourism and attention to the region. Additionally, there are plans to extend the Hokkaido Shinkansen to Sapporo Station by the end of the 2030s, which will further enhance the city's accessibility.

Currently, there is active real estate development in anticipation of these events, with hotel development spanning across a range of categories, from luxury to budget accommodations. The entry of luxury hotels into the market is expanding the range of options available to both domestic and international affluent travelers.

In this evolving landscape, it is crucial for each hotel to reevaluate its target audience and implement unique positioning and differentiation strategies. As the market becomes more diverse, with offerings catering to a wide range of travelers, hotels that can clearly define their target market and stand out with distinct offerings are likely to thrive. In other words, this is an opportune moment for hotel operators to reassess their hotel's identity and engage in strategic planning.

Note: In the text, "luxury" and "budget" are classifications based on price ranges, where "luxury" represents ultra-high-end or luxury hotels, and "budget" represents low-cost or budget-friendly hotels.

Setting a Unique Positioning: Conducting a SWOT Analysis for Your Hotel

We often recommend conducting a SWOT analysis as a key step in defining a unique positioning for your hotel. This analysis aims to thoroughly understand the current state of your hotel, which is essential for envisioning its future.

Strengths and Weaknesses (Internal Factors):

• Identify what your hotel excels at and where it may have shortcomings in various departments, such as guest rooms, restaurants, banquets, and others. This assessment can be based on guest feedback, customer surveys, or online reviews from OTA platforms.
• Compare your hotel with competitors in terms of location, facility specifications, service quality, cuisine offerings, and other aspects.
• Analyze your customer base, including the size of your membership program, core customer demographics, and age groups.
• Examine your hotel's Profit and Loss (P&L) statement to identify areas where you outperform or underperform industry standards, and pinpoint the reasons behind these trends.

Opportunities and Threats (External Factors):

• Broaden your perspective by considering consumer trends not only within the hotel industry but also in related sectors like food and fashion. Understanding evolving consumer needs is crucial for adapting and evolving your hotel offerings.
• Anticipate changes in the values and preferences of the customer segments that enjoy your hotel services.
• Benchmark against hotels that have received recognition and awards from both domestic and international publications. Analyze their evaluation criteria, concepts, facilities, and unique design features.
• Keep an eye on trends related to nearby and regional tourist attractions, urban redevelopment initiatives, and the development of new transportation networks.
• Stay informed about developments in the hotel industry, particularly new hotel openings and emerging competition in your area.

Using the above points as a template, it's important to assess your hotel's current situation and think about where you want to be in 10 or 20 years. Consider how to refine your hotel's strengths, what aspects to highlight as your selling points, and how to effectively communicate them to your target audience.

In terms of market opportunities, explore potential collaborations with other hotels, local and regional tourist attractions, and media partnerships. By working with others, you can create compelling content that sets you apart and enhances your hotel's appeal. Embracing creativity and uniqueness is key in this regard.