Ace Hotel

A friendly place, continually new.

Logo-Ace-Hotel11content2012-pdx-exterior

The Ace Hotel Group which spun from a single hotel founded back in 1999 at the hand of Alex Calderwood reinvigorated the traditional hotel model. By offering something completely original, Calderwood created the definitive hip hotel chain and broke hotel convention. While a complete pioneer in regard to its design, the first Ace Hotel in Seattle, Washington also offered affordable rooms with communal bathrooms under the same roof as large luxury suites and was created out of Calderwood’s desire to create a place where his friends – DJs, artists, creators, musicians – would want to stay. The Ace Hotel Group is now a branded operating company with seven properties and over 1,000 rooms currently under management. It is scheduled to open its new Pittsburgh property this week with the New Orleans opening following next year.

Screen Shot 2015-12-08 at 8.40.32 PM

Business Model

Hotels are generally high-margin businesses but getting them up and going takes a lot of wheeling, dealing, and capital. The Ace Hotel Group’s business model is centered on enhancing the value of properties through an innovative and locally-inspired approach to design and development. This is done through its relationships and partnerships with financiers, developers, and a number of the creative community. Essentially each new hotel is handpicked and designed to fit specifically within its location. I found this especially interesting because it makes their business model, in a sense, a bit inconsistent as the design and development can’t simply be replicated. The firm creates and captures value by finding a challenged, sometimes historical, property in a less than desirable neighborhood and repurposing it in the Ace image by instilling local culture and collaborating with local businesses to create an authentic feel. It has leveraged this business model to bolster its brand which has allowed it to split its revenue among hotel rooms, bar/restaurant offerings, and merchandise.

Z-SCOOP-B-popup

“We don’t think of ourselves as a hotel company. We’re more about creating community and a cultural venue.”

-Brad Wilson, president of the Ace Hotel Group

Operating Model

Ace’s operating model hinges on resourcefulness and the behavioral change garnered by the rise of the millennial and the creative class. It is no longer all about the in-room amenities, spending lots of time in the comfort of your room, or standardizing properties quickly across regions. Resourcefulness begins in the development process in which Ace opts against gut renovations and tries to use as much of the existing architecture as possible. This unconventional style has led to quirky room layouts, and its New York property having about 54 different room types. This would prove disconcerting to the average hotel company, but the typical Ace Hotel customer unbothered by such a quirk and may actually find delight in a slightly different room on each stay. Due to the shift in behavior and rise of the creative class, Ace is able to employ a streamlined operating model that pairs varying room sizes with large social spaces and unique restaurants/bars. Rooms are typically fitted with the likes of inexpensive yet highly functional industrial supply lamps and unpainted metal doors, and the large communal spaces offer free Wi-Fi, coffee and tea from boutique brands, intriguing art, and lots of interaction. Restaurants are helmed by popular local chefs and draw a constant flow of people. While hotels of the past kept everyone at a social distance, Ace has always been about encouraging interaction.

64b8370156ea2c1647c51bc9b286abf4 AHL_ACELA_17-RESTAURANT1 upstairs_ace_hotel_bar

1ba58ff6fb94be4f3a9a73715bac5dce (1) f76a9ff7aa53cb1a2ce8f43c2ff06443 NYC Room

Atelier Ace, an in-house creative services firm, provides interior, graphic and product design, marketing, PR, development, digital presence and event & cultural engineering for the properties. The upcoming generation desires uniqueness in product offering and has an affinity for film, fashion, theater, and other forms of art. Atelier Ace feeds this desire by initiating various partnerships and events which have ranged from geek-chic “codeathons” with the Clinton foundation to fashion shows. This is another critical component of its operating model and a source of competitive advantage.

 302px-Nyc-codeathon-original_flyer

Alignment

The business model drives the operating model, and the operating model builds the brand which creates new opportunities to employ the business model. By purchasing and developing these distinctive properties in unique locations, Ace is able to make its hotels “nodal points” in the cities in which they go up. An Ace hotel is developed and literally becomes a destination for travelers and locals alike. By stripping the in-room experience to its basics and utilizing its community spaces and event programming, Ace has created a brand that resonates with a specific group while also maintaining a sense of inclusiveness. By redoing this over and over again in different cities but with a completely bespoke approach, it has created a competitive advantage in that no one hotel is alike, but each is still distinctly Ace.  This has led to profitable hotels with thriving food and beverage offerings as well as a line of Ace branded merchandise.

Screen Shot 2015-12-08 at 9.30.58 PM

The Ace Hotel Group has spearheaded a new way of hotel design and hospitality and has prompted a number of imitations. This extends from smaller independent brands to larger hotel companies introducing new brands with a focus on style, design, uniqueness, and affordability. While its 2014 revenue was stated as being around $110 million, a small dent in the overall hotel & lodging market, I find it remarkable what was built from one man’s vision in a 28-room hotel in Seattle, Washington and the overall impact its had. It will be interesting to see what locations come next and how much growth the company will be able to achieve with such a unique business model.

 

Sources:

https://www.acehotel.com/

http://www.entrepreneur.com/article/217325

http://skift.com/2014/10/02/behind-ace-hotels-development-of-its-first-luxury-property/

http://www.out.com/travel-nightlife/2015/3/16/ace-hotel-group-brad-wilson

http://www.bloomberg.com/news/videos/2014-10-28/ace-hotels-shows-taking-big-risks-pays-off

http://www.fastcompany.com/3031200/alexander-calderwood-never-stop

http://skift.com/2013/12/11/how-alex-calderwoods-ace-hotel-changed-the-way-we-travel/#1

http://www.theguardian.com/travel/2013/nov/21/hotels

http://www.nytimes.com/2011/01/30/fashion/30ACE.html?_r=0

http://wiki.acehotel.com/view/Codeathon

http://thedataofcool.com/2014/07/01/how-big-a-business-is-the-ace-hotel/

http://www.dwell.com/post/article/celebrating-city%E2%80%99s-best-restaurant-design-dodla

http://www.fastcodesign.com/3021935/roman-williams-on-the-design-legacy-of-ace-hotel-cofounder-alex-calderwood#8

http://www.leadersmag.com/issues/2015.1_Jan/Hospitality/LEADERS-Brad-Wilson-Ace-Hotel-Group.html

http://www.hvs.com/

Previous:

Need a Hotel, Tonight?

Next:

PANDORA WINNING MODEL

3 thoughts on “Ace Hotel

  1. Luthan, I thought this was a really interesting look at an industry and a company in particular that I would not normally associate with strong operations. As you mentioned, they make being unique and local “cool”, which also allows them to cut down on costs since they can focus on upcoming areas of town. The non-standard room designs seem like another way to save money but I would be curious to know how much more of a hassle this is for reservations and pricing. If a lot of the 54 room types in New York are priced on the same tier I could imagine there are people getting different levels of quality for their money. Luckily you can probably assume they do not have the chance to compare to other people’s rooms, but still I would think this becomes a more complicated pricing structure. Another concern I have is that this hotel brand seems like it would appeal much more to the weekend traveler than the business traveler. Thus I wonder if they see far less stable demand on weekdays versus weekends or if the partnerships and conferences they put on help to drive business traffic as well.

  2. Really interesting. But not sure how they will continue to remain quirky over time. Their bespoke approach makes me wonder how this will stand the test of time.

  3. This is such a great overview! I think you totally nailed the alignment that Ace has enabled by using the space effectively to cater to a new segment of creative hotel goers’ needs (i.e., wanting a unique and social experience vs. the more traditional, bell hop-led, anonymous stay). Excited to see how they continue to scale!

Leave a comment