The horizontal fracking of shale oil and natural gas has created a new era of prosperity for business owners in small towns across America, largely due to the influx of oil-related business in the area. Williston, North Dakota is one such town, and the recent oil boom has created a surge in demand for housing as oil workers flock to the area. The Missouri Flats Inn is a hotel located in Williston that has been there since it all began, and as a result has been profiting handsomely. But, does the hotel have a business strategy that will help it to survive and prosper as the market evolves and new competition increases? The following is an analysis of the Missouri Flats Inn using Porter’s Five Forces Model.
The Five Forces Model can shed light on the state of competition in an industry in terms of the following five forces: buyer power, supplier power, threat of substitute products of services, threat of new entrants, and rivalry among existing competitors. The relative strength of these forces determines the ultimate profit potential of a business within an industry. Whatever their relative strength, Missouri Flats ownership’s goal should be to find a position in the industry where the hotel can best defend itself against these forces or can influence them in its favor. Buyer & Supplier Power
Currently the Missouri Flats Inn has a favorable position where buyer power is low and supplier power is high. Supply has not kept up with demand for housing in the area, and, as a result, the Missouri Flats Inn enjoys work week occupancy rates near 100 percent on a regular basis. The Missouri Flats Inn has also been able to keep average room rates stable and even increased them 8 percent over last year despite the fact that they offer an inferior product when compared with newer hotels in the area. Threat of substitute products or services
There are currently not many alternatives to the Missouri Flats Inn for customers to choose from. Many of the hotels in the area are also booked near capacity on a regular basis and as a result it is difficult to book a room at another hotel that may offer a better product even if the customer is willing to pay a higher price. Threat of new entrants
The threat of new entrants to the Williston area is high. Currently there are 9 to 12 flag properties in the process of securing land and building new hotels in and around Williston. With the increase in competition, the average room rates for newer hotels will most likely come down, putting pressure on the Missouri Flats Inn to either improve their product or reduce rates in order to compete. Rivalry among existing competitors
Rivalry between the existing competitors in the hotel industry is usually very high. However, with the supply and demand situation that exists in Williston, rivalry is not having a strong effect on the Missouri Flats Inn. With demand for rooms high and supply on the low side, occupancy rates and average room rates are high and very stable. As new hotels are built and the supply of rooms meets demand, rivalry will begin to have a more pronounced effect and the Missouri Flats Inn will have to improve its product in order to compete. Value Processes Analysis
The Missouri Flats Inn has benefitted from a position of weak buyer power in which they were able to take in healthy profits while offering an inferior product compared to their competition. Ownership has been short sighted and chosen not to re-invested profits into the hotel, causing it to fall into disrepair. The hotel lost its AAA rating last year due to weak security along with issues with rooms such as worn out furniture and linens. Interviews with management also revealed criminal activities such as drug use and prostitution in the hotel. The property is not well run and customers are being abused.
Change is needed immediately in order for the Missouri Flats Inn to survive. Improving security within the hotel along with smart renovations to the rooms would be a good place to start. Ownership can work to further identify and improve value added processes by constructing a survey for its customers and asking which processes within the value chain add the most value and which reduce value. Although demand for housing is expected to stay strong in the future, the current market environment is going to get much more competitive with the entrance of new hotels to the area. Ownership needs to re-invest in the business and focus on improving the primary value processes that are most important to customers or risk losing them as new alternatives become available.