Red Deer: epicentre of a red-hot market

By K.T. Scott

There was a time when staying at a hotel in Red Deer might have been synonymous with “nothing special”. That is no longer the case. Hotel guests can thank the recent oil and gas boom years for the increase in rooms in Red Deer, and the competition between all these rooms for the increase in quality.

This rapidly growing city of almost 73,000, is ideally located smack-dab in the middle of the Edmonton-Calgary economic corridor. Red Deer’s central location makes it the only city in the Canadian prairies with a potential market of over two million people within a 160 kilometer radius.

A 2001 study by TD Economics found Red Deer at the centre of one of the hottest economic regions in the world. A growing manufacturing industry, a strong retail and wholesale service industry, agriculture, tourism, and oil and gas industry make up Red Deer’s diversified economy.

While this economic boom led to many new hotels being built between 2004 and 2006, there are some indicators that the hotel industry in Red Deer may be experiencing a slowdown.

Competition is intense

Karima Suleman, director of operations for Holiday Inn 67 Street, talked about competition between hotels in Red Deer. “Our biggest challenge in Red Deer is that there is lots of competition because there are so many hotels in Red Deer now. The same room is $50-60 cheaper than the same product in Edmonton or Calgary, even though labour costs are the same here.”

“The growth in Red Deer in the last ten years has led to the addition of rooms to existing hotels, and improvement in many properties, to make hotels as competitive as possible. Customers are now smarter, and looking for more in a hotel. They travel a lot and come from big cities where hotels offer a lot.”

To satisfy this lust for more, the Holiday Inn 67 Street did a renovation in 2006, which involved upgrading 45 rooms, adding a new ballroom and enlarging the fitness centre to 5,000 square feet. Currently they are upgrading their games room.

“For the corporate traveller to Red Deer, we’ve got wi-fi, Internet and our rooms with duvets, and a beautiful large fitness centre. For families we have our pool, games room and Smitty’s family restaurant,” Suleman said.

Gil Vallee, general manager at the Red Deer Lodge Hotel and Conference Centre, also commented on the increase in hotel rooms in Red Deer. “The majority of new hotel properties being built in Red Deer are limited service facilities, meaning the number of hotel rooms in Red Deer has increased but hotels are no longer being built here as full-service facilities. New hotels may have a complimentary continental breakfast or limited banquet facilities, but no new full-service hotels are being built. Now when we host a conference, we are still handling all the food and beverage trade and the conference space for conferences, but our rooms may now run at 80 per cent instead of 100 per cent while the conference is on.”

To stay up to date, the Red Deer Lodge is starting an almost $5 million renovation in 2008, that will see the remodel of 120 guest rooms, almost 50 per cent of their product. The Lodge, built in 1976, is one of Red Deer’s most well-established full-service hotels. They will install new HVAC systems, replace all furniture, fixtures and equipment and redo all the bathrooms.

Staying competitive means going greener too. Vallee at the Red Deer Lodge says, “We currently have a three green keys environmental ranking [a program run by the Hotel Association of Canada], but we are taking steps to get to the four green keys ranking. We have already spent $20,000 at the Lodge to go to compact fluorescent bulbs throughout our facility. We have been making all kinds of improvements to reduce our electricity use. Our electrical usage has dropped about 25 per cent, so our changes are really working.”

Ken Mandrusiak, owner of the Black Knight Inn in Red Deer hasn’t noticed a major effect on his business from the newer hotels.

“The new hotels being built in Red Deer have indirectly affected us. The price points for the new hotels are lower, so it has affected our weekend business. A guest booking a sports team who wants to stick four kids in a room and not pay very much, is looking for the lowest price, which we won’t have. While we host sports teams, it is not our main business. So we find that the newer hotels fill up on the weekends, and when all the hotels are full, we get the overflow.”

Raymond Kramer, general manager of Best Western Red Deer Inn and Suites, works for one of the newer hotels in Red Deer, opened in December of 2004. “When we opened there were only two hotels on the north end of Red Deer, and now there are four. Our competitors are constantly expanding their inventory. It’s not only hotels in Red Deer we compete with anymore either. Basically at every turn-off on the highway potential guests are presented with a choice of hotel. The chain hotels are now expanding into the smaller towns. We are now competing with Airdrie and Blackfalds, which is something new.”

Kramer guesses that between 2005 and 2006 the hotel inventory in Red Deer probably increased by about 40 per cent. “I’ve noticed in the last two years, competition between hotels has become increasingly fierce. The bar is continuously being raised by what the franchise wants to place in the rooms. If the sheets were 200 threadcount, now they want us to use 300 thread-count. The quality of a hotel room in Red Deer, is for the price, much higher than in the larger cities.”

Newer hotels are not immune from needing renovations to keep up with the competition either. The Best Western is currently re-wallpapering all guest rooms, and in the last six months has installed new showerheads, and curving shower rods. They also plan to place duvets in all their guest rooms. With soap and shampoo dispensers now installed in the shower units, Kramer has cut costs and is helping the environment.

Staff retention easier

Suleman believes the economy isn’t affecting staff retention at the Holiday Inn 67th Street in Red Deer, as much as in other Alberta cities. “Retaining staff is a lot easier in Red Deer than it is in Edmonton. I think some oil field employees are being laid off, and that is increasing the labour pool for hotels in Red Deer. We are getting more applicants for each available job than we had in the past.”

Vallee says staff retention has improved over the last year at the Red Deer Lodge too. “In April of 2007, we had about 80 positions open, and we employ about 225 associates at the Lodge – our staff turnover was at about 80 per cent. Over the year we started to get more international workers, and we looked at how we treated our associates. We started upselling programs with associates, gave staff bonuses, staff meals, and incentives for staff to bring their families back for supper. Now we currently have three positions on the job board, and our staff turnover is only about 30 per cent, which is very manageable.”

Slowdown ahead?

Vallee sees the oil and gas customers being a little more cautious with their money these days.

“The market in Red Deer is a little softer this year. Once oil hit $100 a barrel, a lot of oil companies parked their rigs because wages and operating costs became too expensive. I know the hotel market in Grande Prairie has slowed right down because it is so dependent on the gas market, but the hotels in Fort McMurray are still booming.”

Kramer, of the Best Western, saw big changes in his bottom-line. The Best Western’s location next to the Edgar Industrial Park, means that his clientele is primarily from the oil and gas sector.

“Because of the slowdown in Alberta’s economy, last year was a challenge. Our first years in business, 2005 and 2006, were fabulous, they were a huge jump. In 2007 we saw our business settle down. I’m pleased to say that 2008 is nowhere near 2006, but it is an improvement over 2007.”

Some hotels haven’t seen such a boom and bust cycle.

Suleman, at Holiday Inn 67th Street has a mix of guests, and has only noticed a mild slow down.

“On the weekdays we have mostly business travellers, and on weekends we mostly see families and other travellers. With the restructuring in the oilfield, the number of oilfield worker guests is slowing down a bit.”

Mandrusiak of the Black Knight Inn hasn’t been affected much by changes in Red Deer’s economy. “The benefit about owning a hotel in Red Deer is that it has a very stable economy. It is not as dependent on oil and gas, as the more northern areas of the province. Red Deer has a really diversified economy for a smaller centre, including agriculture, manufacturing and a signifi- Red Deer’s hotel stock grew 40 per cent in 2005-2006 The Black Knight Inn Best Western Red Deer Inn and Suites cant government presence. We don’t have as much of the boom, but we also don’t have as much of the downside when that industry slows down.”

“Even in the early ‘80s, with all the economic problems Alberta was experiencing, Red Deer was more stable than Edmonton or Calgary because the economy here was more diversified. Red Deer is a very stable place to do business.”

Location, location

Being in the middle of the Edmonton-Calgary economic corridor, on highway QE II seems to serve Red Deer very well. Best Western’s Kramer says, “Because of our proximity to the QE II, and Highway 11A in the summertime we get some of the Sylvan Lake tourism traffic.” The Black Knight Inn also hosts a lot of Alberta travellers.

Having the QE II Highway as the main source of guests can also be a mixed blessing. Red Deer Lodge’s Vallee laments Red Deer’s ability to attract bigger events because of the lack of air access.

“All our business comes from rubber tire traffic, and because of that we have a very regional market. Cities like Saskatoon or Regina have international level airports that make them more accessible for large conventions.”

Kramer lauds Red Deer’s sports facilities, including the Collicutt Centre which houses an 18,000 square foot fieldhouse, along with wavepool, two indoor soccer pitches and indoor ice sheets.

“Red Deer’s location is great for sports teams, as it is halfway between Edmonton and Calgary. For its size, Red Deer has more than its fair share of sports facilities.”

Vallee echoes Kramer’s accolades for Red Deer’s facilities.
 
“We have world-class facilities here, like the Collicutt Centre and the Westerner, but they are being underutilized, even on a provincial basis.”

With the increase in hotel rooms, the hotel guest in Red Deer can continue to look forward to high quality for a low price. For hotel owners and operators however, only time will tell if the increased competition in this smaller market can sustain hotel growth.