ECONOMICS 205 – PASCAL COURTY
Analysis of Luxury Lodging
in British Columbia
Wickanninish Inn - Tofino
Alec Hermansson – V00717532
Dylan Haight – V00703263
Taylor Hughes
Analysis of Luxury Lodging in BC
The luxury lodging/spa resort industry in BC is a highly competitive industry. For the purposes of
this analysis we will focus on one region in particular: Tofino. The big players in this region include; The
Wickanninish Inn, Pacific Sands Beach Resort and the Long Beach Resort. Although a few smaller
competitors exist they control a very minimal amount of the market share. The product they are selling
is a luxury vacation package. The Wickanninish Inn for instance charges a premium for their rooms and
has an upscale restaurant and spa. The luxury industry is a niche market and as such is highly priced and
marketed to a small market segment of consumers.
Cost Structure – 508 Words
The breakdown of cost structure for the players in the luxury hotel/spa resort industry in Tofino is much
the same for every firm. This leaves a few big and well established players with the majority of the
market share. Due to the high cost of entry into the industry, and the nature of the industry, many firms
will not enter. The industry in Tofino is also highly competitive.
The Wickanninish Inn, Pacific Sands Beach Resort and the Long Beach Resort are the 3 main players in
the luxury lodging industry in Tofino. The majority of the industry has a very high fixed cost and low
variable cost. This is in part due to the fixed costs associated with the industry. These include; loan
interest, property taxes, insurance, property operation and maintenance. These costs make up a very
large amount of the hotels total costs. This leads into the benefits from economies of scale. Economies
of scale are highly important in the luxury hotel industry. Therefore, the majority of luxury hotels have a
large room capacity which can, with appropriate management control, create a situation of economies
of scale. Specifically, the Wickanninish Inn can distribute its fixed costs across its large number of rooms.
Consequently, the cost per room is lower than average, and thus the potential profit margin is high.
The variable costs in Tofino’s luxury hotel industry includes the cost of casual labour, guest supplies,
travel agency commission, laundry, beverage cost of sales and the cost of food. Room supplies are
another common variable cost. The supplies are directly related to the number of rooms that are filled.
If there are 50 guests, they will use approximately 50 bars of soap and 50 towels. If there are 60 guests
logically 60 bars of soap and 60 towels will be used. Additionally, there are a lot of step-variables. For
instance, if housekeeping staff can clean no more than 5 rooms each, a count of 26 guests would require
six staff. If four more guests arrived to bring the total count to 30, the number of housekeeping staff
needed is still only six. The Wickanninish Inn also has within it ‘The Pointe Restaurant’ and the ‘Ancient
Cedars Spa’. These both contribute to the high variable costs associated due to the variance of filled
rooms and the demand for these luxury amenities. The time of year also plays a great deal into the
variable cost and with learning economies enables the Wickanninish Inn to decrease cost in the off
season by the use of casual labour.
The luxury hotel/spa resort industry in Tofino is currently a niche market with only a few competitors.
The high fixed costs mean that entry into the market is expensive and there are many barriers to entry.
The Wickanninish Inn may have a total revenue of 9.2 million but its next best competitor only has
revenue of approximately 2 million. This leaves the Inn with the vast majority of the market share which
is marked by its high fixed costs and relatively low variable costs.
Demand Drivers – 487 Words
The Wickanninish Inn is one of many upscale resorts located along the beaches of Tofino. Of these
resorts, the Wickanninish is consistently ranked among the top in Tofino despite being the most
expensive with rooms starting at an average of 100 dollars more than its competitors. This does not slow
the flow of people staying at the hotel, with average revenue of 9.2 million compared to the 1.4 million
of the Pacific Sands Beach Resort and the 2.0 million of the Long Beach Resort. This staggering gap in
revenue comes from the unique experience being offered by the Wickanninish that sets it apart from its
competitors and justifies the price being paid.
The resort is located on a point of land that extends out into the water as opposed to the protected
beaches of the other hotels. This makes the Wickanninish an ideal storm watching location as well as
provides more rooms with water view. Because there is only so much room on the point there are no
other resorts with the same location. This gives the Wickanninish a leg up on its competitors who are
located along the beaches of Tofino, often with neighboring hotels. The Wickanninish also provides
some of the best amenities in Tofino. The resort spa is ranked the best year round spa in Canada and has
been voted the best hotel spa in the world (2008). The restaurant is consistently ranked as one of, if not
the best, resort restaurant in Canada.
The Wickanninish does not aim to be a family hotel. Although children are welcome the hotel is
designed at adults looking for a quiet and luxurious getaway. This management technique does not
come without its risks. Resorts that charge lower prices and allow children will draw business from the
Wickanninish. The high price tag is the reason that the Wickanninish, although always ranked among the
top three, is never rated the top hotel in Tofino. The resort is a short walk from one of Tofino’s sand
beaches but is not located directly on the beach like the others. This may deter some people looking for
beach access at the door of their hotel.
The choice of the Wickanninish to not compete on price but rather aim for an upper income clientele is
a smart choice in Tofino. When looking through hotels there are a lot of mid-priced resorts all offering
similar amenities and services. The Wickanninish knows that it has a unique location and can use this to
charge more money per night. That being said, they also know that people are not going to pay for a
sub-par hotel with many other options. The Wickanninish adds top-level amenities on top of its location
to secure its spot as Tofino’s best high-end luxury resort. This will drive many customers away but also
secure the business of those looking for an experience that is a cut above the other Tofino resorts.
Attractiveness of the Industry – 402 Words
The luxury lodging industry in Tofino is a highly attractive industry for those players already involved,
however due to its extremely high fixed costs it is a very difficult market to enter. Due to the economy
of scale it is much more profitable to run a larger resort, and therefore the fixed costs will be high. This
also causes a learning economy as running a large lodge as it can take a significant amount of experience
before understanding how to optimally run that hires the correct number of employees seasonally,
markets itself optimally, etc.
Although price competition seems like a strong possibility in an industry with such a variable price, the
market for luxury lodging in Tofino seems to largely avoid it due to the very limited number of players as
well as the focus put ton individual niches within the market. The threat to existing firms of new firms
entering is fairly small. This is due in large part to the exceedingly high fixed cost to enter the market as
well as the knowledge required to be successful in the industry. It also has to do, in part, with the limited
amount of land in the area, and the requirement for a new player to be located in a very specific
location.
The key elements of cost that by and large determine the performance of the industry mainly have to do
with ownership of the land. Because of the heavy emphasis placed on location in the market, the value
of the properties needed to compete in the industry far outweigh any of the other costs, as well as the
cost to maintain this property. Property taxes, cost to maintain the property, etc. are absolutely crucial
to the performance of the industry. The key elements of demand that determine performance are much
less specific. The volume of customers interested in staying at a lodge varies widely by season. The
demand is also influenced by other uncontrollable factors such as weather.
In summary, the luxury lodging industry in Tofino is an industry with fairly consistent demand and high
profitability, but with a high fixed entry cost making it very difficult to enter. Without new entries to the
market it will continue to be highly profitable, however the attractiveness of the market for new entries
is significantly reduced due to the economy of scale, learning economy, and high fixed cost to enter the
market.
Word Count - 1397
Sources
Manta Wickanninish Inn Ltd. (n.d.) Retrieved from http://www.manta.com/ic/mt63lx8/ca/wickaninnishinn-limited
Manta Pacific Sands Resorts Ltd. (n.d.) Retrieved from:
http://www.manta.com/ic/mt6rbbq/ca/pacific-sands-resorts-ltd
Manta Long Beach Resort Ltd. (n.d.) Retrieved from http://www.manta.com/ic/mtqs28y/ca/long-beachlodge-resort-inc
Wickanninish Inn Recognition (n.d.) Retrieved From http://www.wickinn.com/recognition.html
Wickanninish Inn
http://www.wickinn.com/inn.html
Analysis composed by Alec Hermansson, Dylan Haight and Taylor Hughes