THE TRANSITION INTO A NEW LIFECYCLE STAGE ROCKS SENIORS HOUSING OCCUPANCY, REVENUE AND PROFITABILITY

What Assisted Living, Independent Living, Memory Care and Newly Developing Active Adult Communities Can Do Now to Gain Market Share and Increase Profitability

By: Traci Bild, CEO, Bild & Co, Seniors Housing Expert

In a recent survey conducted by CBRE Research 62% of respondents, to include developers, investors, lenders and brokers, said they planned to increase the size of their portfolios over the next 12 months while 34% expect no change.

What does that mean to you? INCREASED COMPETITION.

Of those planning to invest, there was a tie between independent living and assisted living at 28%. And, as I began to predict over two years ago, the active-adult segment is picking up steam too with 22% seeing big opportunity in this sector; further disrupting traditional seniors housing as we know it. Hence, INCREASED COMPETITION from this sector too!

MORE COMPETITION, INCREASED OPERATING COST, SLIMMER MARGINS; WHAT GIVES?

To answer this question, I began to research industry lifecycles, to better understand which one we are in right now. My goal? To learn from other sectors like the hotel, tech and even craft brew industries, to be as proactive as possible.

Every industry has LIFECYCLE STAGES (Source: Resource Gate). What I immediately understood is that our pain points stem from the fact that seniors housing and care has officially transitioned from one lifecycle to the next. Determining exactly which one proves a little harder.

WHICH LIFE CYCLE IS SENIORS HOUSING IN RIGHT NOW? And what this means to assisted living, independent living and active adult operators & investors...

While seniors housing was around 20 years ago, which is when I began speaking, writing and consulting operators, it was in the infancy stage. There was little competition and most people had no clue what independent or assisted living was- until they needed it.

While I’m speculating, I believe seniors housing was in the start-up stage up until 2010. This stage is identified as one in which growth is extremely fast. During this time, we saw the rise of Summerville, Emeritus and Holiday Retirement.

In December 2007, we entered the Great Recession and while it seemed like our industry came to a halt, compared to others, it performed incredibly well. In fact, it out-performed all other real estate sectors combined. The recession officially ended in June 2009 and seniors’ housings strong financial performance led to an influx of capital and resulting competition that we are still seeing today. 

SENIORS HOUSING ENTERS THE CONSOLIDATION STAGE

This investment fueled the consolidation stage. In this stage, growth is not as fast as the start-up stage but is faster than the general economy. More importantly, the industry has proven its viability. This is where it got tricky for me to determine our industry’s life cycle! Growth has been faster, not slower than it was during the startup stage, but seniors housing became mainstream, proving its viability.

SENIORS HOUSING ENTERS THE MATURITY STAGE

Then I read about the maturity stage. At this stage, as the product gets more and more standardized, it compels the producers to compete heavily on price basis. As a result, the profit margins are lowered and add to the pressure on profits. BOOM! THIS IS EXACTLY WHERE ASSISTED LIVING, INDEPENDENT LIVING AND MEMORY CARE IS RIGHT NOW. Most often, firms at this stage are referred to as cash cows as their cash flows are quite consistent but offer very little opportunity for growth of profit.

DO YOU AGREE? SHARE YOUR THOUGHTS ON WHAT STAGE OUR INDUSTRY IS IN RIGHT NOW BY TAKING THE POLL BELOW.

SO, WHAT DOES THIS MEAN TO YOU AS AN ASSISTED LIVING, INDEPENDENT LIVING OR ACTIVE ADULT OPERATOR OR INVESTOR?

In the first two stages, companies try to establish a market and then grow sales to achieve as large a share of the market as possible. However, during the Maturity stage, the primary focus for most companies will be maintaining their market share in the face of different challenges.

Challenges of the Maturity Stage

• Sales Volumes Peak: The market starts to become saturated as there are fewer new customers. We will continue to see this until Boomers begin to move 10-15 years from now.
• Decreasing Market Share: Many operators who are competing for market share are seeing the highest levels of competition ever. As a result, it’s become increasingly challenging for operators and investors to maintain their market share. Most assisted living, independent living and memory care investors and operators are in this position right now.
• Profits Start to Decrease: While the industry is making the most profit during this stage, it is the part of the life cycle where operators and investors have seen their profits decrease. Profits must be shared by all seniors housing operators and with sales peaking during this stage, any operator that loses market share, and experiences a fall in sales, is likely to see a fall in profits. This decrease in profits is compounded by discounting as operators seek to attract more customers by competing on price. At Bild & Co we see this every day and operators simply can’t get traction.

With that in mind there are also many BENEFITS OF THE MATURITY STAGE

•  Reduction in Costs: Just as economies of scale in the Growth stage helped to reduce costs, operators have nailed down the new development and operating process leading to more efficiencies that in turn lower costs. The barrier here for seniors housing is the increase in labor!
• Increased Market Share Through Differentiation: While many markets are saturated during the Maturity stage, operators can still grow market share and increase profits through other means. Innovative marketing, a strong sales and customer experience as well as diverse product features can improve market share through differentiation. Zappos, an online shoe retailer is a perfect example of a company that completely disrupted the saturated shoe industry and is worth a deep dive read!

Being that we are in the maturity stage, operators and investors must look for innovative ways to make their product more appealing to seniors and their families. Even more important is to properly communicate those differentiators as shared in my book club series, Confessions of the Pricing Man.

The good news is we still have plenty of time before entering the #SeniorsHousing decline stage. Now is the time to implement the processes, tools and systems needed to gain valuable market share here in the US. Not sure where to start? Schedule a mastermind call with myself or Jennifer Saxman by sending an email to [email protected] or access our calendars here.

About Bild & Co

About Traci Bild