B&B Revenues Plunge 40%

A country vacation at a bed and breakfast is calm, quiet and pastoral - but only for the vacationers. For the owners of such country-style accommodations, business has been getting unpredictable and much less satisfying: November saw a 40% drop in revenues compared to 2008, reports the Israeli association of bed and breakfast operators.

The reason for the fall in revenues is the large increase in the number of bed and breakfast accommodations in recent years, said the association. There are now some 12,000 bed and breakfast rooms in Israel, and the industry has an annual turnover of NIS 1.5 billion. The sector employs about 2,000 people full-time and another 10,000 part-time. These numbers do not include kibbutz hotels and accommodations.

The director general of the association, David Kaufman, said thousands of new rooms have opened over the past five years, with average annual growth of about 30%. The supply of rooms has outstepped demand, and this has led to rates being sliced this year by 15% on weekends and 30% during the week.

So far, revenues have been 15% to 17% lower than they were last year, and as much as 20% lower for the past six months. Occupancy rates have fallen by up to 25% this year.

"A bed and breakfast that cost NIS 750 a night last year now costs NIS 550-600. If you couple the decline in prices with the fall in occupancy, which is 20% to 25%, the drop in income is tens of percent," said Kaufman.

He added that the current drop in prices comes after prices rose two years ago, when luxury accomodations were built - which raised the average price. Kaufman added that several projects under construction have been halted.

Owners managed to fill their beds during the holiday period, says the association, but since prices were lower this year, revenues were 15% lower between September and October than they were in 2008.

Of course there are other factors contributing to the industry's problems. The world economic crisis is a major one, for example. However, bed and breakfasts are a very seasonal business. Most operate only about 80 days a year, at specific times, such as holidays, summer vacation and weekends.

Dun and Bradstreet economists forecast another 7% drop in revenues for next year, and D&B says more than 12% of all the bed and breakfasts in Israel are in danger of going under, and another 50% are at moderate risk. Only 38% of bed and breakfasts are in the low risk category.

If the cloudy forecasts come to fruition, then more than 200 workers are expected to lose their jobs.

"Today, people are looking to get as much as possible - and cheap. Bed and breakfast owners are forced to pamper their customers with bottles of wine and other comforts, and the Israeli consumer is much more choosy," said Kaufman. If two years ago consumers jumped at any unoccupied room, now they wait till the last minute and compare prices, he said. "They know that if I don't have a room, they will find a room elsewhere," he added.

Owners are trying to be optimistic and are hoping for a good December, as bed and breakfasts are considered a popular winter vacation site. As to whether prices would continue to drop, Kaufman said the B&Bs were still cheaper than hotels, and he doubted that there was much more room for prices to fall due to the high overheads involved in operating a small number of rooms. But anything is possible, he added.