Advertising, Marketing & PR, Focus, and Travel & Tourism

Experience GR appreciates new county contract

Three-year agreement comes at a time when hospitality revenue is expected to rise even more.

December 15, 2012
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Experience GR appreciates new county contract
Downtown Grand Rapids hotels contribute greatly to the area's economy. iStockphoto.com
Experience Grand Rapids President Doug Small said he was grateful that Kent County recently approved a new three-year contract with his organization, and he saw that decision as a vote of confidence in what the destination marketer has accomplished over the previous three years.

“The marketing on behalf of Kent County is working. There has been tremendous growth. Just four years ago, the hotel community was running at 49 percent occupancy and, year-to-date, they’re at nearly 63 percent occupancy,” said Small.

“So I think commissioners see that and they understand that their investment is paying dividends and they’re willing to continue that.”

The new contract begins Jan. 1 and runs through 2015. It‘s an incentive-based agreement that allows Experience GR to collect 16.75 percent of the total revenue to the county’s 5 percent lodging excise tax. Revenue to the tax that hotel operators add to guests’ bills is expected to reach $5.9 million this year. If that number is met in 2013, the organization would earn a projected $988,250 in 2013.

County Fiscal Services Director Stephen Duarte estimated that Experience GR would receive at least $854,600 and up to $1 million as its share of the tax this year. Last year, the contract was worth $783,500 to the organization. But during those years, the agreement gave Experience GR 14.5 percent of total revenue this year and 13.5 percent the previous year. Duarte also said tax revenue to the account was up by nearly 10 percent so far this year, compared to 2011.

The new contract, with a larger percentage payout, is effectively a vote of confidence from the county and a reward for the organization’s work, which has pumped up the tax revenue going into the account through more room occupancy and higher average room rates.

Small pointed out that growth across both key factors is somewhat unique to local establishments now. He said other markets have had their occupancy rates go up at the same pace as here, but those cities have met that mark by lowering their room costs to attract more guests.

“But what you find in Kent County, though, is, while more rooms are being filled and occupancy is rising fairly quickly, so is the (room) rate, which is a good sign. That means people are understanding there is quality here. But in order to get those rooms filled, you’ve got to market,” said Small.

“While the hotels do some of their own, the majority of that responsibility falls on us.”

The county’s hotels and motels also charge guests a 3 percent fee on every tab; that revenue goes to Experience GR for the organization’s marketing efforts, which mostly are dedicated to luring conventions and tourists here.

Small said tourism here is up, especially during ArtPrize, and the groups that have booked rooms here have set a new record this year.

“So it’s a combination of a lot of things that are growing, but, again, the most impressive thing to us is people are willing to pay a higher rate because they’re understanding the quality of the combinations that we have,” he said.

The third leg of the marketing stool is bringing corporate business here, and Small said that is a much harder group to capture because that segment has a stronger link to the economy. Those coming here on a business trip do so because they have a direct tie to an existing operation.

“Our marketing doesn’t have a huge effect on that,” he said. “But the appeal of the destination as a whole might encourage more businesses to come here, and I think The Right Place would agree with that. The more businesses we have in the community, the more business travel we might have coming in.”

Fourteen of the 16 county commissioners who voted on the new contract approved it. The two who didn’t weren’t opposed to Experience GR, in general, but felt the organization would be getting too much money from the county through the agreement, at a time when the county has subsidized the lodging-excise tax account with $5.5 million over the past four years to meet that fund’s expenses, most notably the bond payments for the convention center construction.

Commissioner Stan Ponstein said county funds transferred from general operations made up about 15 percent of the tax fund’s revenue in 2011.

“In the end, this is where it’s going to come from,” he said of the general fund.

Ponstein, who voted for the agreement, also felt the county doesn’t benefit much from the hospitality business that takes place largely in downtown. But he said the city does benefit through its income tax; he mentioned that Grand Rapids only contributes $50,000 annually to Experience GR’s marketing efforts.

Commissioner Roger Morgan, though, said he wished the agreement was a five-year contract. “It’s a good contract. I wish it could go longer,” he said. “I can remember when we gave the CVB more than $1 million a year.”

A provision in the new agreement requires Experience GR to share some of its tax revenue with the West Michigan Sports Commission. WMSC, which was created, in part, by the county to bring sporting events to the region, received $1.1 million in funding from the tax account for its first five years. It will not, however, get funds from that account through the contract’s duration.

“During negotiations, the county asked us to make certain we still support a sports commission in any way we see fit. So our agreement with the sports commission is, it will get a percentage of not just the room tax, the county’s excise lodging tax. It will also get a percentage of that voluntary hotel assessment charge. So the better we do, the better their budget will be,” said Small.

If next year’s projections come true, Small said WMSC will get more funds in 2013 than it did this year, by about $175,000. He added that his organization has been working with the sports commission and he felt Experience GR was in a better position to decide how WMSC should be funded than the county was.

With the year rapidly coming to a close, Small said 2012 is on track to see the hospitality industry record about a 10 percent gain over last year’s numbers. Next year should even be better.

“We’re looking at a 5 percent gain in room revenue next year. Kent County could see in excess of $131 million in room revenue next year as compared to $124 million this year. So we’re bullish,” Small said.

“A little of that (increase) is convention business, and we do think we’re going to draw more and more leisure travelers. Grand Rapids is finally becoming a destination.”

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