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Delaware North builds on hospitality $2.2 billion company uses diverse interests to win new business

Lizard Island Resort is a luxurious getaway in Australia, maybe even fit for a future king. Prince William and Kate Middleton reportedly are considering honeymooning there.

The property on the Great Barrier Reef may be on the other side of the world, but it fits into a growing business segment for Buffalo-based Delaware North Cos., focusing on lodging in unique destinations.

Delaware North bought Lizard Island Resort and four other Australian resorts in 2009. Closer to home, it owns hotels just outside Yellowstone and Yosemite national parks, among other properties it owns or manages.

"I think part of our differentiation is, we're not just a hotel company, either," said Kevin Kelly, president of Delaware North Cos.' Parks and Resorts Division. "When you look at a destination location, it's not just about selling rooms, it's about selling the experience, selling the destination."

Delaware North's lodging business is one slice of a $2.2 billion privately owned company, run from global headquarters in Key Tower in downtown Buffalo. While it is well-known for providing concessions at venues like HSBC Arena, the company also reaches into everything from concessions at airports to providing services in national parks and attractions like the Kennedy Space Center Visitor Complex in Florida, to gaming operations and TD Garden in Boston.

The operations are diverse, but common threads run through them, such as the hospitality industry and serving customers in self-contained settings.

For Delaware North, Kelly said, the appeal is not having a so-called "captive audience" but in operating in areas that generate high traffic. "Really at the end of the day, our audience is captive only once," he said. "Then they have the ability to not come back."

When operating in venues under contracts, the company has restrictions from its client on the maximum price it can charge. Delaware North's goal is to make the experience favorable enough that customers will keep spending and return, he said. It wants the client to likes its performance, as well, he said.

Of course, in a setting like an arena, Delaware North has myriad customers to satisfy. Some of them might gripe about the high price of a beer, the length of lines, or quality of service.

But Rick Abramson, president of the Sportservice division, said the company closely tracks customers' opinions through surveys and receives positive reviews.

"Our relationship with our customers has never been better," he said.

As for prices charged at sporting events, Abramson said there is more than meets the eye, with expenses that must be covered. Some money from concessions sales gets taken off the top and goes to a stadium authority or a team, he said. "When [customers] fully understand it, they realize it's not too high."

While Delaware North's operations are vast and diverse, executives say the company's different components reinforce each other. Its background in food, beverage and retail helped prepare the company to enter the hotel industry nearly 20 years ago, said Charles E. Moran Jr., president and chief operating officer.

The company now has 4,000 hotel rooms worldwide at 20 properties, owning some and operating others under contracts. It was ranked No. 82 on Hotel Management's list of top hotel companies, based on the 2,900 guest rooms it owns and manages in the United States. The parks and resorts division accounts for 20 percent of the company's annual revenues.

Though some of the hotels Delaware North owns or operates are thousands of miles from here, the benefits flow back to the company's 350-employee headquarters in Buffalo, executives say. Employees based here support marketing and sales efforts at the properties, as well as other Delaware North operations.

Across Western New York, Delaware North has about 4,100 full- and part-time employees, part of its work force of 55,000 worldwide. The company was founded in 1915 by the father and uncles of Jeremy Jacobs Sr., the chairman and CEO.

>Targeted approach

Delaware North has not been shy about widening its horizons, though it still takes a targeted approach. In the early 1990s, the company bid on a National Park Service contract at Yosemite National Park in California, a mix of lodging, recreation, food and beverage, and retail operations.

"We went after the entire piece," Kelly said.

The company won a 15-year deal that included managing a range of lodging in the park, from tents and cabins up to the venerable Ahwahnee Hotel. (The contract was since extended.)

Building on its experience inside Yosemite, Delaware North in 2001 acquired the Tenaya Lodge, a luxury resort just outside the park. It bought a 53-room hotel next to Tenaya about 18 months ago.

Delaware North adopted a similar "clustering" strategy at Yellowstone National Park, where it was awarded a concessions contract several years ago.

The company operates 12 retail stores in Yellowstone that generate about $25 million in revenues. Delaware North had offices and a warehouse in that area, so capitalizing on its presence was logical, Kelly said. The company has bought three hotels outside the park within the past two years and draws on many of the same company personnel from its nearby operations.

"Based on our knowledge of (inside) the park, our clustering [approach] says, well, 'let's look outside the park for a hotel,' and that's where we discovered the Holiday Inn and acquired that one and subsequently the other two," Kelly said.

With those three hotels, Delaware North has 25 percent to 30 percent of the lodging market in West Yellowstone, Mont., Moran said. About 60 percent of the traffic into the park passes through West Yellowstone, creating a steady flow of potential guests.

Kelly said visitation to national parks holds up well even during economic downturns, making nearby hotels a reliable investment.

The company's contracts with the National Park Service have been an important source of business, at some high-profile locations.

The park service has more than 500 concessions contracts at national parks and evaluates them annually, putting their performance in one of three categories. Delaware North has performed at the "satisfactory" level, the most favorable of the three categories, said Jeffrey Olson, a park service spokesman.

Competition for national parks contracts varies depending on the service and the location, he said. "We usually find pretty good people to provide services to our visitors."

>Aggressive investing

Stephanie Ricca, editor in chief of Hotel Management magazine, noted that last year, when the hotel industry was still recovering from the downturn, Delaware North was making acquisitions.

"I think they have seen success through the recession in part because a big part of the company's hotel guests are leisure travelers, not business travelers, and business travel has been hit particularly hard by the recession," she said.

Ricca called Delaware North's acquisition of a contract for the Queen Mary, the ocean liner turned floating hotel in Long Beach, Calif., "especially notable."

Along with providing lodging at the Queen Mary, the company stages such events as a Halloween celebration and conducts historical tours.

"It's more than just selling the hotel rooms," Kelly said. "It's about the whole experience."

A few years ago, Delaware North won a contract for the Gideon Putnam Resort in Saratoga Springs and has been "investing aggressively," said Harold Hagemann, director of the concessions management bureau of the state Office of Parks, Recreation and Historic Preservation. The 20-year contract calls for the company to invest $19.6 million.

Delaware North brought ample experience and has performed well amid tough economic conditions, Hagemann said.

"We did not see the Gideon as a training ground for someone to learn the hotel business," he said.

Since 2001, Delaware North has bought 10 hotels and built one. The company continues to hunt for potential hotel acquisitions, but some of those deals move slowly, Moran said. One opportunity being explored is in Jackson Hole, Wyo. The company also is looking at properties in Ireland and is interested in making an acquisition on the California coast, given its large footprint in that state, Kelly said.

While the company plans to acquire two hotels and secure two other lodging management contracts this year, Moran said the properties still have to meet its criteria.

"We have made the conscious decision that we're not in the business of buying what I call turnarounds," Moran said. "We're looking for properties that are cash-flow positive that we can improve, not that are in a deep hole."

>Upgrading down under

The Australian properties proved a match. The properties' owner initially wanted to sell its 25-property portfolio as a package. Later, Delaware North was able to buy just the five it wanted.

Delaware North has spent more than $2 million upgrading Lizard Island Resort, to bring it up to a very high standard.

"You're doing an experience that's two thousand bucks a day," Moran said. "Some of the beautiful rooms with wooden floors, there were water spots on the floors, and things like that."

Does Moran see lodging becoming a larger segment of Delaware North's business over time?

"We're trying to grow all of our subsidiaries right now," Moran said. "I don't think we look to get one bigger than the other. We've gone through a nice run of business in Sport-service where we've picked up a number of great new accounts over the past two years."

The company is close to signing contracts with a car museum in the Northwest and ski areas in New York State, Kelly said.

Delaware North nearly has finished its purchase of a casino-hotel in Illinois. And while its airport-related business has been in "a bit of a lull," it has recently won some new contracts, and more are becoming available, Moran said. "So we're trying to grow them all at the same time."

e-mail: mglynn@buffnews.com

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