In an ever-changing industry where financial challenges are numerous, some senior living operators are taking different and forward-thinking approaches to finding new and untapped ancillary revenue sources — and they are reaping the benefits.
In the midst of rising costs and outside pressures eating into operators’ bottom lines, some are adopting pay structures that offer residents the ability to purchase additional meals or services through a la carte or spend-down-type accounts.
This shift — call it a “retailization” of senior living — is occurring as operators including Watermark Retirement Communities, Harbor Retirement Associates (HRA) and Discovery Senior Living look to incorporate more hospitality-like components into their operating models, often by boosting the number of choices residents can make in dining and activities.
For residents, it gives them the autonomy to decide how and when they spend their money. And it gives operators more tools with which to build specialized services and experiences that enhance residents’ quality of life without significantly adding to their bottom line.
“We decided to really look and be creative on other revenue streams that we could bring in and why not tap into something that we consider ourselves experts in,” Harbor Retirement Associates (HRA) Chief Operating Officer Karin Bateman told Senior Housing News. “Why not drive outside revenue to offset some of those costs that residents are already having?”
The emphasis on hospitality and dining is nothing new for HRA, and the company prides itself as a hospitality company that offers health care services to residents, and not the other way around, according to Bateman.
“We like to turn that philosophy upside down and really focus on the hospitality aspect because we feel like it is something that is not really focused on in our industry as a whole,” he said.
According to CEO Sarabeth Hanson, HRA is currently viewing dining, salon and spa venues as independent revenue sources, not cost centers.
The company is executing on that goal by giving residents spend-downs through which they can purchase goods and services. Residents can spend their dollars on many of the community’s services, which are priced similarly to how they would be in a local business. Once they hit their limit, they can spend their own money to purchase more goods and services.
For example, a resident might splurge and spend all of their dollars on gourmet meals. Should they want to go to the spa later, they can still do so using their own money. For operators, this has helped solve an old industry conundrum of how to offer the high-quality things residents want without raising their rates or further compressing margins.
Another way the company is looking to boost revenue is by making the public more aware of what HRA communities can offer.
Last December, HRA launched a new dining campaign it dubbed “Taste of HarborChase.” The initiative was aimed at increasing guest dining revenue and raising public awareness about HRA community restaurants.
The Taste of HarborChase campaign involved digital and physical marketing pushes to get people into HRA restaurants across its portfolio. The public-pivot also gives future residents and their families a chance to test drive what they could expect from an HRA community.
As of Aug. 31, guest dining revenue at HRA communities had increased 155% and bar revenue increased 58% compared to 2021.
Dovetailing off the growing success of the hospitality-focused operator’s restaurant revenue, online engagement and website sales conversions also increased since the launch of its marketing campaign. Website sessions in 2022 increased 25% and new users increased 24% compared to the previous year. Social media to website conversions also increased 35%, and social media engagement community-wide increased 70% compared to 2021.
Vero Beach, Florida-based HRA, has 36 communities across 14 states and two others set to open in the coming six months.
Each HRA community includes five restaurant and bar venues, including a traditional dining venue called Signatures; a cafe-style venue known as Counter-Offer; full service bar the Fusion Lounge; private event and tasting space The Chefs Studio / Zest; and fine dining establishment The Grill Room.
By offering a range of restaurant-style dining offerings and subsidizing services through resident spend-downs, HRA is able to “disrupt the industry and provide an experience” not typically available within a senior living community,” Bateman said.
“The push over the past year to really kind of put out a public front to this is crucial to what we’re trying to accomplish,” Bateman said. “We really wanted to be able to share this secret with a larger audience while bringing in additional revenue streams.”
At the same time, some line items on the budget have increased 30% to 40% year-over-year at HRA communities, with “no end in sight,” Bateman said. That makes finding ancillary revenue opportunities that much more worthwhile.
The changing preferences of the incoming baby boomers will lead the customers of tomorrow to expect “something better and different,” Bateman said.
“This is going to be the wave of the future for our communities moving forward.” Bateman added. “You can’t provide a run-of-the-mill community going forward because [baby boomers] are going to expect something better and something different.”
Senior living a la carte
HRA is not the only senior living operator pricing out dining and services to boost revenue.
About a year ago, Discovery Senior Living launched a new program called FlexChoice that allows IL residents to choose and pay for certain services on an a la carte basis. The program is structured around three tiers: Classic, premium and supreme.
Bonita Springs, Florida-based Discovery Senior Living is the nation’s eighth largest provider, according to Argentum, with 120 communities, two projects under construction and four communities under development and pre-construction.
In the first FlexChoice tier, IL residents pay a flat monthly rate and receive services typically included in the care setting, from housekeeping to continental breakfast.
Premium and supreme-tier residents receive all of the classic tier’s services, with added salon services, food or drinks in restaurant-style dining venues, opera tickets or chauffeurs. Residents in both the premium and supreme tiers getFlexChoice dollars, with supreme tier residents getting more to spend each month –and at a discount.
In addition to revenue, the FlexChoice program is paying dividends in one unexpected area: occupancy growth.
Communities with FlexChoice programming have seen “an accelerated move-in velocity” since 2021. By comparison, a FlexChoice community was able to reach stabilized occupancy 30% faster than a non FlexChoice community in the same market, Discovery Senior Living Vice President of Operations Gottfried Ernst told Senior Housing News.
On average, FlexChoice communities produce an average of 47% more ancillary revenue per resident day than other IL communities within the program in place. This speaks to the strength of the program, Ernst added.
“It’s all about customization, allowing our residents to choose what they want, when they want it,” Ernst said. “FlexChoice is helping us be that value proposition in the senior living marketplace.”
Ernst added the ability to generate ancillary revenue within Discovery communities is also a major help with optimizing operating margins during a time when doing so is tough.
Ancillary revenue within Discovery communities is currently about 2% of the company’s gross revenue, with a goal of pushing ancillary revenue to 4%, something Ernst said would “make a huge difference” in offsetting cost inflation. Resident satisfaction has also risen in communities with the FlexChoice offering.
Ernst cited a recent customer satisfaction survey that showed resident satisfaction is above both internal and industry standards. One community recorded satisfaction levels as high as 93%, with a FlexChoice approval rating of 91%. The survey also showed 80% of customers indicated that FlexChoice was the reason why they chose to move in.
Watermark Retirement Communities takes a similar approach to a la carte options within its growing portfolio of upscale, luxury-focused Elan and Elite communities. Residents in these communities also wield spend-down accounts, with cards that can be used for a range of dining options and are refilled monthly.
The flexible spending approach was aimed at finding the right balance between allowing freedom of resident choice and cost of services. By using a spend-down approach, the company can ensure revenue streams and better facilitate multiple dining venues, according to Watermark Chief Investment Officer Bryan Schachter.
“It’s a learning curve, we’re still getting better at it each month,” Schachter said. “It’s certainly the direction we think the industry is heading.”
Schachter referenced Watermark’s Hacienda at the Canyon community that’s furthest along in this ancillary revenue effort, noting the community’s IL component is 84% occupied (204 units) and was “really seeing success” from the spend-down account program.
“Not only are we driving a really high margin in that community given the high rates,” Schachter said. “But we’re also delivering higher ancillary revenue than we underwrote based on what we would expect from a traditional dining experience for residents.”
The ancillary revenue generated from the program is like an added bonus for a community’s bottom line while improving upon how residents interact with amenities offered by Watermark, he added.
Since its launch, 87% of Watermark’s spend-down program has been used on food; 8.4% on alcohol and 4.4% on salon services, Schachter noted. Other services that are available include fitness offerings, housekeeping, and a tech concierge. On average, residents spend 82% of their monthly alloted dollars with 23% being forfeited, data provided by Schachter shows. Usage in excess of residents going over their monthly amount is approximately 5%.
“If we can meet or exceed expectations and deliver high quality resident experiences around fitness and wellness, while potentially capturing a bit more revenue, that’s a win-win for us,” Schachter said.
Tucson, Arizona-based Watermark Retirement Communities, the nation’s 10th largest provider according to Argentum, operates 72 communities across 22 states, with further Elan and Elite communities set to open in the coming months.
Future full of choice
For HRA, Bateman said the future of its Taste of HarborChase program rests in how residents interact with the program, mixed with the culminating changes in the restaurant industry.
“Our residents coming in will dictate how it evolves,” Bateman said. “We need to listen to the residents, their families and outside customers on what they’re seeing.”
That could lead to HRA adopting more trends that take hold in the hospitality industry, an industry that saw dramatic change in 2020 as the pandemic made life harder in every respect.
“As restaurants evolve with new concepts and new ways of doing things, that’s what we will be watching,” Bateman said. “Because we know that the residents coming in have been enjoying those things before coming to our communities, and we want them to have that seamless transition from life at home to life at a HRA community.”
At Watermark, Schachter said the company would look to refine its offerings through its spend-down program and potentially expand those offerings in feasible markets.
“Some of those things are going to continue to evolve,” he added. “It’s all about execution and offering better quality of delivery and better quality services because it’s really something very different for the industry.”
WIth its FlexChoice program, Ernst said he feels confident that in time, additional tiers and offerings will emerge as residents continue to customize their experiences to fit their lifestyles.
Discovery’s FitCamp fitness programming, for example, could also take a more central role in resident amenities, with the ability to drive future ancillary revenue through fitness classes and other health-related programs.
“Having that ability to add services as our customer demand changes, is certainly a huge plus,” Ernst added.